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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): September 7, 1997
Cylink Corporation
(Exact name of Registrant as Specified in its Charter)
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California 0-27742 95-3891600
(State or Other Jurisdiction (Commission File No.) (IRS Employer Identification No.)
of Incorporation)
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910 Hermosa Court, Sunnyvale, California 94086
(Address of Principal Executive Offices) (Zip Code)
(408)735-5800
(Registrant's Telephone Number, Including Area Code)
Page 1 of 4 Pages
Exhibit Index Located on Page 4
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INFORMATION TO BE INCLUDED IN REPORT
Item 2. Acquisition or Disposition of Assets.
On September 8, 1997, Registrant acquired all of the
outstanding shares of Algorithmic Research, Ltd., a limited liability company
organized under the laws of the State of Israel ("ALR") and Algart Holdings
Ltd., a limited liability company organized under the laws of the State of
Israel ("Holdings") pursuant to that certain Stock Purchase Agreement, dated
September 7, 1997 (the "Purchase Agreement") among Registrant, ALR and A.R. Data
Security Ltd., a limited liability company organized under the laws of the State
of Israel ("Parent"). Parent owned all of the outstanding shares of Holdings,
which had no material assets other than certain shares of ALR, and Holdings, in
combination with Parent, owned all of the outstanding shares of ALR. The
consideration for this stock purchase was $40,686,972 in cash and 2,593,169
shares of Registrant's capital stock. As additional consideration, holders of
options to purchase shares of Parent received $2,500,226 in cash and 409,641
options to purchase shares of Registrant's capital stock. In addition,
Registrant agreed to pay up to $1,901,230 in investment banking fees, legal and
other professional advisory fees incurred by Parent and ALR in connection with
the transaction. The amount and type of consideration was determined on the
basis of negotiations between Registrant and Parent and their management and
professional advisors. The source of the funds used for the cash portion of the
purchase price was Registrant's cash reserves.
As part of the stock purchase, Registrant entered into a
Seller's Agreement, dated September 8, 1997 (the "Seller's Agreement") with
Parent and the shareholders of Parent ("Parent Shareholders"), which provides
for certain restrictions on the sale of Registrant's Common Stock by Parent and
Parent Shareholders, which in part were imposed in order to effect compliance
with Regulation S of the Commission with respect to the shares of Registrant's
Common Stock issued in this stock purchase, and certain conditional registration
rights in favor of Parent and the Parent Stockholders. Registrant and the Parent
Shareholders further entered into that certain Parent Shareholders Indemnity
Agreement, dated as of September 8, 1997, pursuant to which the Parent
Shareholders agreed to indemnify Registrant as to certain matters pertaining to
ALR.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired. The audited
financial statements of ALR and Holdings are not yet completed. The required
audited financial statements will be filed with the Securities and Exchange
Commission within 60 days after the filing of this report on Form 8-K.
(b) Pro Forma Financial Information. The unaudited pro forma
financial information of Cylink Corporation and ALR and Holdings are not yet
completed. The required unaudited pro forma information will be filed with the
Securities and Exchange Commission within 60 days after the filing of this
report on Form 8-K.
(c) Exhibits. The Exhibit Index appearing on page 5 hereof is
hereby incorporated herein by reference.
Item 9. Sales of Equity Securities Pursuant to Regulation S.
The 2,593,169 shares of Registrant's Common Stock issued and
sold in connection with the transaction described in Item 2 above were issued in
a nonunderwritten sale pursuant to Regulation S under the Securities Act of
1933, as amended. With respect to the information required pursuant to Item 701
of Regulation S-K, the description of the transaction set forth in Item 2 above
is hereby incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CYLINK CORPORATION
By /s/ John H. Daws
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John H. Daws
Vice President and Chief Financial Officer
Date: September 17, 1997
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EXHIBIT INDEX
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Sequentially
Exhibit Description Numbered Page
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2.2 Stock Purchase Agreement, dated as of September 7, 1997, 5
between Registrant, A.R. Data Security Ltd. and Algorithmic
Research Ltd.
2.3 Seller's Agreement, dated as of September 8, 1997, among
Registrant, A.R. Data Security Ltd., Algorithmic Research Ltd.,
Amos Fiat, Yossi Cohen, Yossi Tulpan, Koor Capital Markets and
Telrad Holdings Ltd.
2.4 Parent Shareholders Indemnity Agreement, dated as of
September 8, 1997 among Registrant, A.R. Data Security Ltd.,
Amos Fiat, Yossi Cohen, Yossi Tulpan, Koor Capital Markets and
Telrad Holdings Ltd.
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of September 7,
1997 by and among Cylink Corporation, a California corporation (the
"Purchaser"), Algorithmic Research Ltd., a limited liability company organized
and existing under the laws of the State of Israel (the "Company"), and A.R.
Data Security Ltd., a limited liability company organized and existing under the
laws of the State of Israel (the "Seller").
RECITALS
A. The Seller and Algart Holdings Ltd., a limited liability company organized
and existing under the laws of the State of Israel and a wholly owned subsidiary
of the Seller ("Holdings"), are the sole shareholders of the Company.
B. The Seller desires to sell and the Purchaser desires to purchase (i) all of
the issued and outstanding shares of the Company that are owned by the Seller,
and (ii) all of the issued and outstanding shares of Holdings, in accordance
with the terms and conditions set forth in this Agreement, so that, upon
consummation of the transactions herein contemplated, the Purchaser shall
directly, or indirectly through Holdings, own all of the issued and outstanding
shares of the Company.
AGREEMENT
In consideration of the agreements, provisions and covenants set forth
below, the Purchaser, the Company and the Seller hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1. Purchase and Sale of Stock. Subject to the terms and conditions set
forth below, on the Closing Date (as defined below), the Seller shall sell to
the Purchaser, and the Purchaser shall purchase from the Seller: (a) 81,749
ordinary shares of the Company, NIS 0.10 nominal value per share, representing
all of the ordinary shares of the Company that are owned by the Seller (said
81,749 ordinary shares of the Company being referred to herein as the
"Transferred Company Shares"), and (b) 81,749 ordinary shares of Holdings, NIS
0.10 nominal value per share, representing all of the outstanding ordinary
shares of Holdings (the "Holdings Shares").
1.2. Purchase Price.
(a) The aggregate consideration payable by the Purchaser for the
Transferred Company Shares and the Holdings Shares shall consist of (i) U.S.
$40,686,972 in cash, and (ii) 2,593,169 newly issued shares of the common stock,
$.01 par value per share, of the Purchaser
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(the "Purchaser Common Stock"), as adjusted as appropriate for stock splits,
stock dividends and other changes to Purchaser Common Stock effected during the
period from the date hereof through the Closing Date.
(b) Any transfer taxes, stamp duties or other similar taxes or duties
incurred by the Seller, Holdings or the Purchaser in connection with the
transfer of the Transferred Company Shares or the Holdings Shares to the
Purchaser shall be borne and paid one half by the Seller and one half by the
Purchaser.
1.3. Exemption from Registration and Qualification.
(a) The shares of Purchaser Common Stock to be issued in connection
with this Agreement will be exempt from registration under Regulation S of the
Securities Act of 1933, as amended (the "Securities Act"), and exempt from
qualification under the California Corporations Code.
(b) Certificates representing those shares of Purchaser Common Stock
to be issued to the Seller pursuant to this Agreement will bear legends
describing certain of the applicable restrictions on transferability set forth
in Regulation S of the Securities Act and related stop-transfer instructions
will be placed on such shares of Purchaser Common Stock by Purchaser or its duly
appointed transfer agent and registrar. The Purchaser agrees that the
restrictive Regulation S legend and stop-transfer instructions referred to
herein will be removed upon the request of the Seller or the respective Parent
Shareholders (as defined below) at the end of the applicable restricted period
as set forth in Regulation S (which is forty (40) days from the Closing Date).
1.4. Closing.
(a) Unless this Agreement shall theretofore have been terminated
pursuant to the provisions of Article X hereof, subject to the terms and
conditions set forth herein, the closing of the transactions contemplated by
this Agreement (the "Closing") shall take place in Tel Aviv, Israel, at 12:00
p.m. local time on September 8, 1997 or at such other time, date and place as
the parties may mutually agree in writing (the date on which the Closing takes
place being referred to herein as the "Closing Date").
(b) At the Closing: (i) the Seller shall deliver to the Purchaser the
certificates (if any) representing the Transferred Company Shares and the
Holdings Shares, properly endorsed in favor of the Purchaser for transfer or
accompanied by a duly executed share transfer deed; and (ii) the Purchaser shall
(A) pay to the Seller the cash amount referred to in Section 1.2(a)(i) hereof,
by wire transfer in immediately available (U.S. dollar) funds, to a bank account
designated by the Seller, (B) issue and deliver to the Seller a certificate
representing 1,320,869 shares of Purchaser Common Stock, and (C) issue in the
name of and deliver to Hambrecht & Quist LLC (the "Escrow Agent") a certificate
representing 1,272,300 shares of Purchaser Common Stock (the "Escrow Shares"),
to be held in accordance with that certain Escrow Agreement to be entered into
at the Closing as contemplated by Sections 7.5 and 8.4 hereof (the "Escrow
Agreement"). In addition, all other actions shall be taken and all other
documents shall be delivered that are necessary to consummate
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the transactions contemplated by this Agreement (other than such actions and
documents as are to be taken or delivered at another date, as specifically
provided in this Agreement).
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Purchaser, except as
otherwise set forth in the Disclosure Schedule being furnished by the Seller to
the Purchaser simultaneously with the execution and delivery of this Agreement
(the "Company Schedule"), or as disclosed or otherwise described in any of the
documents listed or set forth in the Company Schedule or this Article II, as
follows:
2.1. Title to Ordinary Shares. The Seller is the record and beneficial
owner of the Transferred Company Shares and the Holdings Shares, and the Seller
holds title to the Transferred Company Shares and the Holdings Shares free and
clear of all liens, pledges, charges, encumbrances, security interests,
restrictive agreements or assessments (other than restrictions on
transferability generally imposed on securities under applicable securities
laws).
2.2. Organization of the Company and Holdings. Each of the Company and
Holdings is a limited liability private company duly organized and validly
existing under the laws of the State of Israel and has full power and authority
to carry on its business as now conducted, and to own its assets. Each of the
Company and Holdings is duly qualified to do business and is in good standing
(with respect to jurisdictions which recognize such concept) in the
jurisdictions set forth in Schedule 2.2 of the Company Schedule, which are the
only jurisdictions in which the Company or Holdings, as the case may be, is
required to be qualified in order to carry on its business, and is duly
authorized, and licensed under all laws, regulations, ordinances or orders of
public authorities, or otherwise, to carry on its business in the places and in
the manner presently conducted, except for qualifications, authorizations or
licenses for which the failure to obtain, if required, would not have a Material
Adverse Effect on the Company. Each of the Company and Holdings has heretofore
made available to the Purchaser true and complete copies of its Memorandum of
Association and its Articles of Association registered with the Registrar of
Companies, as in effect on the date hereof. The minute books of each of the
Company and Holdings contain substantially accurate records of all resolutions
adopted and other actions taken by the Company's Board of Directors, all
committees of its Board of Directors, and its shareholders from the date of its
incorporation to the date of this Agreement.
2.3. Nonviolation. The consummation by the Seller and the Company of the
stock sale contemplated by this Agreement will not (a) violate or conflict
with the Memorandum of Association or Articles of Association, or similar
instrument, of the Company or any Subsidiary (as defined below), (b) except as
set forth in this Agreement, require the Seller, the Company or any Subsidiary
to obtain the consent, approval or authorization of any governmental or
quasi-governmental person or entity prior to the Closing, except where the
failure to obtain such consent, approval or authorization would not have a
Material Adverse Effect on the Company, or (c) give rise to a right to terminate
by the other party thereto or result in a breach of the terms or conditions of,
or constitute a default under, or violate, as the case may be, any Listed
Agreement (as defined below), except for any such termination, breach, default
or violation which would not have a Material Adverse Effect on the Company.
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2.4. Authority for Agreement. All corporate and other proceedings required
to be taken by or on behalf of the Company and the Seller to authorize the
Company and the Seller to enter into and carry out this Agreement have been duly
and properly taken. This Agreement has been duly executed and delivered by the
Company and the Seller and is valid and binding upon the Company and the Seller,
subject as to enforceability, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors' rights
and to general principles of equity.
2.5. Capitalization. The authorized capital of the Company consists of
200,000 ordinary shares, NIS .010 nominal value per share, of which 120,519
shares are issued and outstanding. All of such issued and outstanding ordinary
shares of the Company have been legally and validly issued and are fully paid
and nonassessable. Of such 120,519 ordinary shares, the Seller and Holdings own
81,749 and 38,770 shares, respectively, and there is no other shareholder of the
Company.
2.6. Options, Warrants, Etc. There are no outstanding options, warrants,
rights, calls, commitments or agreements calling for the issuance or transfer,
sale or disposition by the Company or any Subsidiary of any shares, issued or
unissued, of the capital stock of the Company or any Subsidiary, or of any
securities convertible or exchangeable, actually or contingently, into any such
capital stock, to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary is bound.
2.7. Officers and Directors. Schedule 2.7 of the Company Schedule contains
a complete and correct list of the names and home addresses of all officers and
directors of the Company, Holdings and each of the Subsidiaries.
2.8. Subsidiaries. Schedule 2.8 of the Company Schedule provides a complete
list of all of the subsidiaries of the Company (the "Subsidiaries"), the
respective jurisdictions of their incorporation and the percentage and numbers
of their outstanding shares owned by the Company, or any other person, firm or
corporation. For purposes of this Agreement, any corporation of which the
Company, directly or indirectly, through other corporations or otherwise, owns
50% or more of the outstanding capital stock shall be deemed to be a Subsidiary.
Each of the Subsidiaries is qualified to do business in the jurisdictions set
forth in Schedule 2.8 of the Company Schedule which are the only jurisdictions
in which each such Subsidiary is required to be qualified in order to carry on
its business, and is duly authorized, and licensed under all laws, regulations,
ordinances or orders of public authorities, or otherwise, to carry on its
business in the places and in the manner presently conducted, except for
authorizations, qualifications or licenses for which the failure to obtain, if
required, would not have a Material Adverse Effect on the Company. The
outstanding shares of capital stock of each of the Subsidiaries are validly
issued, fully paid and non-assessable, and all of such outstanding shares of
each of the Subsidiaries are owned by the Company or another Subsidiary (or
their nominees) free of any claims, liens, charges or encumbrances of any nature
whatsoever (other than any claims, liens, charges or encumbrances imposed under
applicable securities laws). Each of the Subsidiaries is duly organized and
validly existing in good standing (with respect to jurisdictions which recognize
such concept) under the
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laws of the jurisdiction of its organization and has the power to carry on its
business as now conducted and to own its assets. The Company has made available
to the Purchaser true and complete copies of the Certificate of Incorporation
(or similar instrument) and By-Laws (or similar instrument) of each Subsidiary,
as in effect on the date hereof. The minute books of each Subsidiary contain
substantially accurate records of all resolutions adopted and other actions
taken by its Board of Directors and its shareholders between the time of its
incorporation and the date of this Agreement. Neither the Company nor any
Subsidiary has any investments in any corporation or other entity, except for
short-term investments in certificates of deposit, and other deposits and debt
obligations with a maturity of not more than 180 days.
2.9. Grants, Incentives and Subsidies. Schedule 2.9 of the Company Schedule
provides a complete list of all material grants, incentives and subsidies from
the Government of the State of Israel or any agency thereof or any quasi-public
agency made specifically to the Company, any Subsidiary or Holdings, with
respect to which the Company, any Subsidiary or Holdings has material continuing
obligations ("Grants") , including, without limitation, (i) Grants from the
Investment Center of the Ministry of Industry and Trade (the "Investment
Center"), (ii) Grants from the office of the Chief Scientist of the Ministry of
Industry and Trade (the "Chief Scientist") and (iii) Grants from the Fund for
Encouragement of Export. The Company is in compliance, in all material respects,
with the terms and conditions of the Grants and has duly fulfilled, in all
material respects, all the undertakings relating thereto and all conditions
imposed by law or regulation with respect thereto, including, without
limitation, Section A of the Law for The Encouragement of Industry, Research and
Development, except where the failure to be in compliance or to fulfill such
undertakings or conditions would not have a Material Adverse Effect on the
Company. To the knowledge of the Company, no event has occurred which would
reasonably be expected to lead to the annulment or material limitation of any of
the Grants.
2.10. Financial Statements. The audited consolidated financial statements
of the Seller and its consolidated subsidiaries for each of the years in the two
year period ended December 31, 1996, together with the notes thereto and the
reports and opinions thereon of Kost, Levary and Forer (the "Audited
Consolidated Financial Statements"), and the unaudited consolidated financial
statements of the Seller and its consolidated subsidiaries for the six months
ended June 30, 1997 and the notes thereto (the "Unaudited Consolidated Financial
Statements"), all of which have previously been delivered to the Purchaser,
fairly present the consolidated financial position of the Seller and its
consolidated subsidiaries, as of the respective dates thereof and the
consolidated results of their operations for the periods indicated, and were
prepared in conformity with Israel generally accepted accounting principles
consistently applied throughout the periods covered thereby except as
specifically indicated therein (subject, in the case of unaudited statements, to
normal recurring audit adjustments not material in scope or amount and except
that the footnotes contained in the unaudited statements may not satisfy the
requirements applicable to the preparation of footnotes under Israel generally
accepted accounting principles).(The Audited Consolidated Financial Statements
and the Unaudited
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Consolidated Financial Statements are referred to collectively as the "Financial
Statements.") As of June 30, 1997, except for the Transferred Company Shares and
the Holdings Shares, the Seller had no assets of the type required to be
reflected in the assets column of an unconsolidated balance sheet prepared in
accordance with Israel generally accepted accounting principles.
2.11. Actions Since June 30, 1997. Except (a) as reflected in, or
contemplated by, the Financial Statements or (b) as otherwise expressly set
forth in or contemplated by this Agreement or in the Exhibits hereto or in the
Company Schedule since June 30, 1997, neither the Company nor any Subsidiary
has: (i) issued or sold, or agreed to issue or sell, or purchased, or agreed to
purchase, any of its equity shares or securities convertible or exchangeable
into such equity shares, or any options, warrants, rights or calls to purchase
such equity shares, or other corporate securities; (ii) incurred any material
obligation or material liability, absolute or contingent, of the type and
magnitude required to be reflected in the liabilities column of a consolidated
balance sheet of the Company prepared in accordance with Israel generally
accepted accounting principles except in the ordinary and usual course of
business; (iii) discharged or satisfied any lien or encumbrance, except in the
ordinary and usual course of business, or paid or satisfied any liability other
than liabilities as at June 30, 1997, except in the ordinary and usual course of
business; (iv) entered into, or modified in any material respect, any employment
or consulting agreement (other than its agreement with Hambrecht & Quist LLC),
or made any wage or salary increases or granted any bonuses to its employees,
except those made or granted in the ordinary and usual course of business; (v)
mortgaged, pledged or subjected to lien or other encumbrance ("Encumbrance") any
of its material properties or assets (other than (w) Encumbrances arising under
or relating to any license agreement to which the Company or any of the
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound, (x) liens for current taxes or other governmental charges or levies not
yet due, or for taxes or other governmental charges or levies being protested in
good faith, (y) Encumbrances arising from municipal and zoning ordinances and
easements for public utilities, and (z) such imperfections in the title to the
assets and properties of the Company and its Subsidiaries and Encumbrances, if
any, as do not materially detract from the value, or materially interfere with
the present or continued use, of such assets or properties, or otherwise
materially impair the business or operations of the Company and its Subsidiaries
(Encumbrances of the type referred to in clauses "(w)," "(x)," "(y)," and "(z)"
of this clause "(v)" being referred to herein as "Permitted Encumbrances"));
(vi) sold, assigned or transferred any of its material properties or assets,
except in the ordinary and usual course of business; (vii) entered into any
material transaction not in the ordinary and usual course of business; (viii)
irrevocably waived any rights of substantial value, or cancelled, modified or
irrevocably waived any debts held by the Company or such Subsidiary in excess of
U.S. $25,000 in the aggregate; (ix) made or incurred capital expenditures in
excess of an aggregate of U.S. $200,000 (the Company and all Subsidiaries to be
taken as a whole for this purpose); (x) declared, paid or set aside any
dividends or other distributions or payments on its equity shares; (xi) made any
loans or advances to any person or assumed, guaranteed, endorsed or otherwise
became responsible for the obligations of any person, except for loans and
advances to employees and to unaffiliated third parties in the ordinary and
usual course of business; (xii) effected any merger, consolidation,
recapitalization, stock split, stock dividend, reorganization or other similar
transaction affecting the equity shares of the Company; (xiii) made any illegal
payments to governmental or quasi-governmental officials; or (xiv) made any
payments that have not been properly reflected in the Company's books and
records to customers for the sharing of fees or to customers or suppliers for
rebating of charges, or engaged
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in other reciprocal practices that have not been properly reflected in the
Company's books and records.
2.12. Liabilities Since June 30, 1997. There are no material liabilities or
obligations of the Company or any Subsidiary of the type and magnitude required
to be disclosed in the liabilities column of a consolidated balance sheet of the
Company and its consolidated Subsidiaries prepared in accordance with Israel
generally accepted accounting principles, whether accrued, absolute, contingent
or otherwise, and whether due or to become due, which arose or, in accordance
with Israel generally accepted accounting principles, were accrued or should be
accrued with respect to any period beginning after June 30, 1997 and ending on
the date of this Agreement other than (i) those incurred in the ordinary and
usual course of the business of the Company and its Subsidiaries, which have not
had in the aggregate a Material Adverse Effect on the Company, (ii) those
intercompany liabilities which are properly eliminated in consolidation, (iii)
those expressly disclosed in any Exhibit hereto or in the Company Schedule, (iv)
those reasonably incurred in connection with this Agreement including, without
limitation, any indebtedness incurred to pay any costs and expenses arising out
of the transactions contemplated by this Agreement, (v) those discharged prior
to the date of this Agreement, and (vi) those covered by insurance and not
otherwise having a Material Adverse Effect on the Company.
2.13. Absence of Undisclosed Liabilities. As of June 30, 1997, there were
no liabilities or obligations of the Company or its consolidated subsidiaries of
the type and magnitude required to be disclosed in the liabilities column of a
consolidated balance sheet of the Company and its consolidated Subsidiaries
prepared in accordance with Israel generally accepted accounting principles
(whether accrued, absolute, contingent or otherwise, and whether due or to
become due), which, in accordance with Israel generally accepted accounting
principles, should have been accrued as of June 30, 1997, other than (i) those
disclosed, or reflected as a liability or obligation, or reserved against on the
Unaudited Consolidated Financial Statements, (ii) those intercompany liabilities
or obligations between the Company and its Subsidiaries which are properly
eliminated in consolidation, (iii) those expressly disclosed in any Exhibit
hereto or in the Company Schedule, and (iv) those fully covered by insurance and
not otherwise having a Material Adverse Effect on the Company.
2.14. Litigation. There are no actions, suits, legal proceedings or
governmental or quasi-governmental investigations pending against the Company or
any Subsidiary before any court or governmental agency or before any arbitrator
of any kind, or any order, injunction or decree outstanding against the Company
or any Subsidiary and, to the knowledge of the Company, no person has since
January 1, 1996 threatened orally (to any officer or director of the Company) or
in writing to commence any action, suit or legal proceeding against the Company
or any Subsidiary or against or relating to their property, assets or business,
that in any such case would reasonably be expected to have a Material Adverse
Effect on the Company. Neither the Company nor any Subsidiary is in violation of
any applicable law, regulation, ordinance, order, injunction, decree, award or
other requirement of any governmental or quasi-governmental body, court, or
arbitrator relating to its property, assets, or business, except for any
violation that would not have a Material Adverse Effect on the Company.
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2.15. Permits. The Company and its Subsidiaries have all material
governmental permits, licenses, orders, approvals, franchises and other rights
and privileges necessary (including, without limitation, approvals from the
Ministry of Defense and any other relevant governmental agency relating to the
development, sale and export of cryptography technology) in order for them to
carry on their business as conducted as of the date hereof (including, without
limitation, to manufacture, sell and distribute any Material Company Products
that are currently being manufactured by the Company and its Subsidiaries) and
to the knowledge of the Company, there are no material impediments to the
obtaining of any required governmental permits, licenses, orders, approvals,
franchises and other rights and privileges as to the development, sale and
export of any Material Company Products under development, except in each case,
such permits, licenses, orders, approvals, franchises, and other rights and
privileges of which the failure to obtain, if required, would not have a
Material Adverse Effect on the Company. Schedule 2.15 of the Company Schedule
sets forth a list of all such material permits, licenses, orders and approvals
from all Israeli and other governmental and regulatory bodies held by the
Company and its Subsidiaries.
2.16. Ownership of Assets. The Company and its Subsidiaries have good title
to all of their respective owned assets and properties, tangible and intangible
(including all assets reflected in the Unaudited Consolidated Financial
Statements, except those disposed of in the ordinary course of business since
June 30, 1997), and good title to their leasehold estates, in each case free and
clear of all Encumbrances except for Permitted Encumbrances. Except as set forth
in the Financial Statements, none of the material properties or assets of the
Company and its Subsidiaries the value of which is reflected in the assets
column of the balance sheet included in the Unaudited Consolidated Financial
Statements, is held by the Company or any Subsidiary as lessee or subject to any
lease or as conditional vendee under conditional sale or other title retention
agreement or as optionee under any option to purchase.
2.17. Intellectual Property.
(a) Schedule 2.17(a)-1 of the Company Schedule lists each patent,
patent application, registered trademark, trade name, registered service mark,
copyright and copyright application that (i) is owned by the Company or any of
its Subsidiaries as of the date of this Agreement, and (ii) provides
intellectual property protection for any material component of any Material
Company Product (or for any material component, module, feature or subassembly
thereof) or is otherwise material to the conduct of the business of the Company
and its Subsidiaries (taken as a whole) as of the date of this Agreement.
Schedule 2.17(a)-2 of the Company Schedule identifies each patent, trademark,
service mark and copyright that (A) is being licensed by a third party to the
Company or any of its Subsidiaries as of the date of this Agreement, (B)
provides intellectual property protection for any technology or invention for
which the Company cannot obtain the functional equivalent from more than one
source, and (C) provides intellectual property protection for any material
component of any Material Company Product (or for any material component,
module, feature or subassembly thereof). Schedule 2.17(a)-2 of the Company
Schedule further sets forth any such license that requires the Company or its
Subsidiaries to pay any material royalties or any material fixed or variable
fees or consideration for such licensing. Schedule 2.17(a)-3 of the Company
Schedule identifies each software system, software application, software module
or
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software program, hardware component, system or product or other component,
card, subassembly or part that: (1) is a material component of a Material
Company Product, and (2) has been designed or developed for the Company by
employees of or consultants to the Company prior to the date of this Agreement.
For the purposes of this Agreement, "Company Intellectual Property" shall mean
both: (i) the items listed in Schedule 2.17(a)-1 and Schedule 2.17(a)-2 of the
Company Schedule (which, for purposes of this definition, shall be deemed to
include any item that should have been listed on Schedule 2.17(a)-1 or Schedule
2.17(a)-2 of the Company Schedule by the terms of this Section 2.17(a) and was
not so listed) and (ii) any technology, know-how, inventions or proprietary
information that (x) is (or is reasonably likely to be) incorporated in, and is
a material component of, a Material Company Product (or any material component,
module, feature or subassembly thereof), (y) is subject to protection under
applicable law as a trade secret right or equivalent intellectual property
right, and (z) is owned by the Company or its Subsidiaries; and "Material
Company Product" shall mean those existing and proposed products of the Company
and its Subsidiaries listed on Schedule 2.17(a)-4 of the Company Schedule.
(b) The Company Intellectual Property set forth in Schedule 2.17(a)-1
of the Company Schedule is owned by the Company or its Subsidiaries free and
clear of all Encumbrances other than Permitted Encumbrances.
(c) The sale of the Transferred Company Shares and Holding Shares by
the Seller to the Purchaser under this Agreement will not cause the forfeiture
or termination of any of the rights of the Company or its Subsidiaries to the
Company Intellectual Property or in any way impair the right of the Company or
its Subsidiaries to sell, license or dispose of, or to bring any action for the
infringement of, any Company Intellectual Property or to manufacture, sell and
use any Material Company Product, except for any forfeiture, termination or
impairment which would not reasonably be expected to have a Material Adverse
Effect on the Company.
(d) There are no royalties, honoraria or other similar payments
payable by the Company or any of its Subsidiaries to any third party for the use
by the Company or any of its Subsidiaries of any Company Intellectual Property
or for the manufacture, sale or use by the Company or any of its Subsidiaries of
any Material Company Product, other than (i) payments to the Office of the Chief
Scientist, and (ii) payments under Listed Agreements.
(e) To the knowledge of the Company, the Company Intellectual Property
that is owned by the Company, the use thereof by the Company or its Subsidiaries
and the manufacture, sale or use of any Material Company Product by the Company
or its Subsidiaries does not, in any case, infringe upon any U.S., Israeli or
other foreign patent, trade secret, copyright, trade name or other intellectual
property right of any third party. To the knowledge of the Company, no third
party is infringing upon any Company Intellectual Property that is owned by the
Company, except where the infringement would not reasonably be expected to have
a Material Adverse Effect on the Company. The Company owns or has a valid right
to use (by license, title or other right) all Company Intellectual Property that
is incorporated in, and is a material component of, the Material Company
Products. There is no action, suit or proceeding pending against the Company or
its Subsidiaries before any court or governmental agency or before any
arbitrator (and no person has since January 1, 1996 threatened orally (to an
officer or
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director of the Company) or in a writing delivered to the Company to commence
any such action, suit or proceeding against the Company or any of its
Subsidiaries) contesting the validity of, or the right of the Company or any of
its Subsidiaries to own, use, license or dispose of, any Company Intellectual
Property or contesting the right of the Company or any of its Subsidiaries to
manufacture, sell or use any Material Company Product.
(f) The Individual Parent Shareholders (as defined below) have assigned to
the Company (or have otherwise permitted the Company to acquire) all of their
ownership rights (if any) in their Specified Intellectual Property (as defined
below) and have not voluntarily assigned any of such ownership rights (if any)
in their Specified Intellectual Property to any university or to any other third
party. Without limitation of the foregoing, there are no contractual obligations
binding on any of the Individual Parent Shareholders with any other employer or
institute of higher education which gives rise to any meritorious claim in such
employer or institute to any of the Specified Intellectual Property, except any
such claim which would not reasonably be expected to have a Material Adverse
Effect on the Company. For purposes of this Agreement (A) "Individual Parent
Shareholders" shall mean Yossi Tulpan, Amos Fiat and Yossi Cohen, and (B)
"Specified Intellectual Property" of an Individual Parent Shareholder shall
mean: (i) those material patents developed by such Individual Parent Shareholder
that provide intellectual property protection for any software, hardware or
invention that (A) has been personally developed by such Individual Parent
Shareholder, and (B) is material to the business of the Company and its
Subsidiaries; and (ii) those material copyrights and trade secrets developed by
such Individual Parent Shareholder that provide intellectual property protection
for any software, hardware or invention that (A) relates to encryption
technology, (B) has been personally developed by such Individual Parent
Shareholder, and (C) is material to the business of the Company and its
Subsidiaries. For purposes of the preceding sentence, any software, hardware or
invention will be deemed to be "material to the business of the Company and its
Subsidiaries" only if such software, hardware or invention is incorporated in,
and is a material component of, any Material Company Product (or any material
component, module, feature or subassembly of any such Material Company Product).
(g) The Company has taken reasonable steps to implement a policy requiring
each employee and consultant of or to the Company and its Subsidiaries that has
contributed in a material respect to the development of any software, hardware,
inventions, improvements, know-how or other proprietary information incorporated
into a Material Company Product to enter into an agreement substantially in the
form of that certain form of agreement delivered to the Purchaser, or to enter
into an ageement affording comparable protection to the protection provided by
such agreement delivered to the Purchaser.
2.18. Real Estate. Schedule 2.18 of the Company Schedule sets forth a brief
description of all real property which is owned by or leased to the Company or
its Subsidiaries. None of the properties occupied by the Company or its
Subsidiaries, or the occupancy or operation thereof by the Company or any of its
Subsidiaries, is in violation of any law or any building, zoning or other
ordinance, code or regulation in such a manner as to materially interfere with
the use and occupancy thereof in the ordinary course of the business of the
Company and its Subsidiaries. No written notice from any governmental body has
been served upon the Company or any of its Subsidiaries since January 1, 1995
claiming any material violation by the Company or any of its Subsidiaries of any
such law, ordinance, code or regulation, or requiring any
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substantial work, repairs, construction, alterations or installation be
undertaken by the Company or any of its Subsidiaries on or in connection with
said properties, except for notices that have been complied with or withdrawn
and notices of violations that have been cured in all material respects.
2.19. Insurance. Schedule 2.19 of the Company Schedule provides a complete
list and brief description of all policies of fire, liability (including
officers' and directors' liability), title, key-man life and other forms of
insurance held by the Company and its Subsidiaries as of the date hereof.
2.20. Company Taxes.
(a) All taxes, including, without limitation, income, property, sales,
use, franchise, excise, value added, capital, social security, withholding, and
employees' withholding taxes imposed by the State of Israel, by any foreign
country, or by any political subdivision of the State of Israel or any foreign
country, which have become due and payable by the Company or any of its
Subsidiaries prior to the date of this Agreement and which are material to the
Company and its Subsidiaries, including any material taxes for which the Company
or any of its Subsidiaries is liable under contract or other arrangement,
together with any interest or penalties thereon (the "Company Taxes"), have been
paid in full or adequately provided for by reserves shown on the books of
account of the Company; all deposits required by law to be made by the Company
and its Subsidiaries with respect to the Company Taxes have been duly made, and
all material returns with respect to the Company Taxes which are levied on the
basis of income have been filed with, and where indicated on Schedule 2.20.1 of
the Company Schedule, have been examined by the relevant tax authorities through
the fiscal years ended on or before December 31, 1996, and no extension of time
for the assessment of deficiencies with respect to Company Taxes has been
granted by the Company and is in effect for any fiscal year. As of June 30,
1997, neither the Company nor any Subsidiary was liable for the payment of the
Company Taxes which are levied on the basis of income in any jurisdiction other
than those listed on Schedules 2.2 and 2.8 of the Company Schedule. No
deficiency or adjustment in respect of any of the Company Taxes has been
assessed against the Company or any Subsidiary prior to the date of this
Agreement and remains unpaid, other than such Company Taxes which are being
contested in good faith and disclosure of which has been previously made in
writing to the Purchaser, and to the knowledge of the Company there is not any
proposed or threatened assessment of additional liability for Company Taxes
(that remains unpaid) against the Company or any Subsidiary for any period
ending prior to June 30, 1997.
(b) Schedule 2.20.1 of the Company Schedule lists each material tax
incentive (other than generally available incentives that are not specifically
granted or awarded to the Company) to which the Company is entitled under the
laws of the State of Israel as of the date of this Agreement, the period for
which such tax incentive applies, and the nature of such tax incentive. To the
knowledge of the Company, the Company has complied with all material
requirements of Israeli law to be entitled to claim the tax incentives
identified in Schedule 2.20.1 of the Company Schedule. To the knowledge of the
Company, subject to the receipt of the approvals set forth in Section 8.3
hereof, the consummation of the stock purchase contemplated
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by this Agreement will not materially and adversely affect the ability of the
Company to claim the benefit of any tax incentive referred to on Schedule 2.20.1
of the Company Schedule for the remaining duration of the incentive or require
any recapture of any such previous incentive claimed by the Company, and no
consent or approval of any governmental authority is required, other than as
contemplated by Section 8.3 hereof prior to consummation of the stock purchase
contemplated by this Agreement in order to preserve the entitlement of the
Company to any such incentive.
2.21. Environmental Matters. The Company and its Subsidiaries are in
substantial compliance with all applicable environmental regulations and
environmental standards applicable to the conduct of the business of the Company
and its Subsidiaries, as the case may be (except where the failure to be in such
compliance would not have a Material Adverse Effect on the Company), and there
exists no unlawfully stored or maintained toxic waste or other unlawful
environmental hazard that has not previously been disclosed in writing to the
Purchaser and which is not reflected in the Financial Statements, which would
have a Material Adverse Effect on the Company.
2.22. Agreements and Obligations.
(a) A "Listed Agreement" shall mean a material executory contract to which
the Company or any of its Subsidiaries or Holdings is a party as of the date of
this Agreement that is in one of the categories specified in the following
clauses "(i)" through "(xv)" and that is not an Excluded Agreement: (i) any
contract pursuant to which any Company Intellectual Property is being licensed
by the Company or any of its Subsidiaries to any third party (other than (A)
end-user licenses entered into in the ordinary course of business and (B) any
contract entered into on terms that do not materially deviate from the Company's
standard terms previously disclosed to the Purchaser), (ii) any contract
pursuant to which (A) a third party is licensing to the Company or any of its
Subsidiaries any material software, patents, or other proprietary information or
technical know-how and (B) the Company is required to pay a material royalty or
any other material fixed or variable fee or consideration for such licensing,
(iii) any employment contract that is with any employee whose annual
compensation exceeds $50,000 that has a remaining term exceeding six (6) months,
(iv) any consulting contract that is with any consultant whose annual
compensation exceeds $50,000, (v) any contract with any current officer,
director, employee or stockholder of the Company, the Seller or the Subsidiaries
(or with an affiliate or relative of any such officers, directors, employees or
stockholders) that is on terms that are less favorable to the Company than
comparable contracts negotiated at arm's length, or that requires the Company to
indemnify such officers, directors, employees or stockholders in their
capacities as such, (vi) any pension, retirement, profit sharing, deferred
compensation, health or life insurance, bonus or incentive plan, (vii) any
contract pursuant to which the Company or any of its Subsidiaries is leasing
real property from any third party, (viii) any contract pursuant to which the
Company or any of its Subsidiaries is leasing personal property from any third
party and which requires payments by the Company or any of its Subsidiaries of
more than $10,000 per annum, (ix) any union or other collective bargaining
agreement, (x) any contract for the purchase by the Company or any of its
Subsidiaries of materials, products, supplies or equipment which (A) requires
that the Company or any of its Subsidiaries pay in the future in excess of
$50,000, (B) contains any escalator or renegotiation or redetermination clause,
or (C) commits the
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Company or any of its Subsidiaries for a fixed term of three months or more,
(xi) any agreement or instrument evidencing indebtedness for borrowed money in
excess of $50,000 or creating any security interest (other than a Permitted
Encumbrance) in any material property owned or used by the Company or any of its
Subsidiaries, (xii) any contract containing covenants limiting in any material
respect the legal right of the Company or any of its Subsidiaries to compete in
any material line of business in which the Company or any of its Subsidiaries is
or has historically been engaged, (xiii) any material reseller, original
equipment manufacturer or distribution agreement, (xiv) any contract with a
customer of the Company for the sharing of fees, the rebating of charges to such
customer, or other similar arrangement not reflected in the Company's books and
records, or (xv) any contract with holders of the Company's securities in their
capacities as such. Notwithstanding anything to the contrary contained in this
Agreement, a contract that is an "Excluded Agreement" shall not be deemed to be
a "Listed Agreement." An "Excluded Agreement" shall mean a contract that: (w) is
between or among two or more of the Company and its Subsidiaries or Holdings, or
(x) imposes no material future obligations on the Company or any of its
Subsidiaries, or (y) is expected to be fully performed, or is scheduled to
expire, on or prior to the date 90 days after the Closing Date without any
continuing material financial liability on the part of the Company or its
Subsidiaries, or (z) can be canceled or otherwise terminated by the Company or
any of its Subsidiaries on notice of 90 days or less without any continuing
material financial liability on the part of the Company or its Subsidiaries;
provided, however, that any agreement pursuant to which the Company or its
Subsidiaries license any Company Intellectual Property from any third party
shall not be deemed an Excluded Agreement by virtue of the preceding clauses (y)
or (z).
(b) Schedule 2.22 of the Company Schedule lists all of the Listed
Agreements. A true and correct copy of each Listed Agreement has been made
available to the Purchaser.
(c) The Company and its Subsidiaries are not in breach or default in
any material respect under any of the Listed Agreements such that the other
party would be permitted to terminate a Listed Agreement or would have a claim
for material damages against the Company or its Subsidiaries and to the
knowledge of the Company (i) no other party thereto is in default in any
material respect thereunder, and (ii) no event has occurred which, with the
giving of notice or the passage of time, would become such a default by the
Company or any of its Subsidiaries such that such other party would be permitted
to terminate any such Listed Agreement or would have a claim for material
damages against the defaulting party. The Company has taken all corporate action
necessary for the Company to properly enter into the Listed Agreements and has
not terminated or taken any action to terminate any of the Listed Agreements. To
the knowledge of the Company, there are no writings extrinsic to any of such
Listed Agreements which would materially modify their terms.
(d) None of the Listed Agreements that have been furnished or made
available only in a language other than English or Hebrew: (i) limits in any
material respect the legal right of the Company or its Subsidiaries to compete
in any material line of business, (ii) contains any unduly burdensome term or
covenant that is reasonably likely to have a Material Adverse Effect on the
Company, or (iii) grants a material exclusive license to a third party as to any
Company Intellectual Property.
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2.23. Inventory. The inventory of the Company and its Subsidiaries as
reflected on the balance sheet included in the Unaudited Consolidated Financial
Statements (which has not been sold by the Company or its Subsidiaries since
June 30, 1997) is, in all material respects: (i) in good and merchantable
condition, and (ii) currently of a useable and saleable quality. Such inventory
is carried on the relevant books of account at values that approximate the lower
of cost or market, in conformity with Israel generally accepted accounting
principles applied on a consistent basis.
2.24. Accounts Receivable. All accounts receivable reflected on the balance
sheet included in the Unaudited Consolidated Financial Statements have arisen in
the ordinary course of business and, to the extent not collected prior to the
date hereof, represent valid obligations due to the Company or its Subsidiaries,
in the aggregate recorded amounts thereof, except to the extent set forth in the
Unaudited Consolidated Financial Statements as reserves for bad debts.
2.25. Condition of Plant and Equipment. All machinery and equipment owned
by the Company or any Subsidiary or otherwise used in the conduct of their
business is, to the knowledge of the Company, in good operating condition and
repair, except for normal breakdowns, reasonable wear and use and damage by fire
or unavoidable casualty, not materially affecting the business of the Company.
2.26. Customers and Suppliers. Schedule 2.26 of the Company Schedule lists
the ten largest customers and the ten largest suppliers of the Company and its
Subsidiaries on a consolidated basis for the year ended December 31, 1996. Since
January 1, 1997, there has been no material adverse change in the business
relationship of the Company with any customer or supplier named on Schedule 2.26
of the Company Schedule (except for fluctuations in the level of orders and
changes in the Company's customer base which have not had and are not reasonably
likely to have a Material Adverse Effect on the Company).
2.27. Banking Arrangements. Schedule 2.27 of the Company Schedule sets
forth: (i) the name of each bank, trust company, brokerage firm or other
financial institution in or with which the Company or a Subsidiary has an
account having a balance of at least $10,000 as of the date of this Agreement, a
credit line with an outstanding balance of at least $10,000 as of the date of
this Agreement or a safety deposit box containing assets with a value of at
least $10,000 as of the date of this Agreement and the names of all persons
authorized as of the date of this Agreement to draw thereon or having access
thereto, and a brief statement describing the purpose of each such account.
2.28. Company Products. To the knowledge of the Company, none of the
existing products of the Company have any defects in design or otherwise fail to
comply with their published specifications where, in either case, such defects
or non-compliance would have a Material Adverse Effect on the Company.
2.29. Potential Conflicts of Interest; Powers of Attorney. To the knowledge
of the Company, no officer, director or greater than 5% shareholder of the
Company or its Subsidiaries, or any member of their immediate families, owns any
material property or rights tangible or intangible, the use of which is
necessary for such business as now conducted. Schedule 2.29
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of the Company Schedule sets forth the names of all persons now holding powers
of attorney from the Company or any Subsidiary as of the date of this Agreement,
and a summary of the terms thereof.
2.30. Interested Party Transactions. Since January 1, 1996, there have been
no transactions involving the Company or the Subsidiaries and any interested
parties which come within the purview of Chapter 4A of the Companies Ordinance
(new Version) 1983.
2.31. Brokers. Except with respect to the engagement of Hambrecht & Quist
LLC by the Company, the terms of which have been presented to the Purchaser,
neither the Company nor any of its officers or directors has engaged, consented
to, or authorized any broker or investment banker to act on its or his behalf,
directly or indirectly, as a broker or finder in connection with the
transactions contemplated by this Agreement.
2.32. Compliance with Law. The Company is in compliance with all laws,
regulations and orders applicable to its business, including, without
limitation, applicable environmental, anti-pollution, building, zoning or health
laws, ordinances and regulations in respect of its plants, structures and
equipment, except where the failure by the Company to be in compliance with such
laws, regulations and orders would not have a Material Adverse Effect on the
Company. The Company has not received any written notification that it is in
violation of any such laws, regulations or orders, except for (i) notices that
have been complied with in all material respects, (ii) notices that have been
withdrawn, or (iii) notices of violations that have been cured in all material
respects, or that relate to violations which can no longer form the basis of any
material liability to the Company or would not otherwise reasonably be expected
to have a Material Adverse Effect on the Company. Neither the Company nor, to
the knowledge of the Company, any employee or agent of the Company acting on
behalf of the Company has made any illegal payments to any governmental or
quasi-governmental officials.
2.33. Foreign Investor. The Seller is not a U.S. person and is not
acquiring the shares of Purchaser Common Stock for the account or benefit of any
U.S. person, as those terms are defined in Regulation S under the Securities
Act.
2.34. Resales Subject to U.S. Securities Laws. The Seller acknowledges that
the shares of Purchaser Common Stock being issued to the Seller pursuant to this
Agreement have not been registered under the Securities Act, and agrees to
resell the shares of Purchaser Common Stock being issued to the Seller pursuant
to this Agreement only in accordance with the Seller's Agreement.
2.35. Offshore Execution. This Agreement is being executed by the Seller
outside the United States.
2.36. Holdings.
(a) Holdings (i) has not conducted any material business following its
initial organization, (ii) has not incurred any material liabilities since
January 1, 1997 of the type and magnitude required to be reflected in the
liabilities column of a consolidated balance sheet of Holdings prepared in
accordance with Israel generally accepted accounting principles,
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or (iii) has not directly incurred liabilities or obligations, actual or
contingent, that exceed or may exceed in the aggregate $10,000. Holdings (1) has
no subsidiaries, (2) does not own any securities of any entity other than the
Company, and (3) has title to 38,770 ordinary shares of the Company, free and
clear of all liens, pledges, charges, encumbrances, security interests,
restrictive agreements and assessments (other than restrictions on
transferability generally imposed on securities under applicable securities
laws).
(b) The authorized capital of Holdings consists of 238,000 ordinary
shares, NIS .010 nominal value per share, of which 81,749 shares are issued and
outstanding as of the date of this Agreement. All of the issued and outstanding
ordinary shares of Holdings have been legally and validly issued and are fully
paid and nonassessable. There are no outstanding options, warrants, rights,
calls, commitments or agreements calling for the issuance or transfer, sale or
disposition by Holdings of any shares of the capital stock of Holdings, or of
any securities convertible or exchangeable, actually or contingently, into any
such capital stock, to which Holdings is a party or by which Holdings is bound.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Seller, except as
otherwise set forth in the Disclosure Schedule being furnished by the Purchaser
to the Seller simultaneously with the execution and delivery of this Agreement
(the "Purchaser Schedule"), or as disclosed or otherwise described in any of the
documents listed or set forth in the Purchaser Schedule or this Article III, as
follows:
3.1. Organization of Purchaser. The Purchaser is a corporation duly
organized and validly existing under the laws of the State of California and has
full power and authority to carry on its business as now conducted, and to own
its assets. The Purchaser is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified and in
good standing would have a Material Adverse Effect on the Purchaser, is duly
authorized and licensed under all laws, regulations, ordinances or orders of
public authorities, or otherwise, to carry on its business in the places and in
the manner presently conducted, except for qualifications, authorizations or
licenses for which the failure to obtain, if required, would not have a Material
Adverse Effect on the Purchaser. The Purchaser has heretofore made available to
the Company true and complete copies of its Articles of Incorporation and Bylaws
as certified by the Secretary of the Purchaser, as in effect on the date hereof.
For purposes of this Agreement, those corporations in which the Purchaser,
directly or indirectly, through other corporations or otherwise, owns 50% or
more of the outstanding capital stock shall be deemed to be a Purchaser
Subsidiary.
3.2. Nonviolation. The consummation by the Purchaser of the stock purchase
contemplated by this Agreement will not (a) violate or conflict with the
Articles of Incorporation or Bylaws of the Purchaser or any Purchaser Subsidiary
(b) except as set forth in this Agreement, require the consent, approval or
authorization of any governmental or quasi-governmental person or entity, except
where the failure to obtain such consent, approval or
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authorization would not have a Material Adverse Effect on the Purchaser, or (c)
give rise to a right to terminate by the other party thereto or result in a
breach of the terms or conditions of or constitute a default under, or violate,
as the case may be, any Material Agreement (as defined below).
3.3. Authority for Agreement. All corporate and other proceedings required
to be taken by or on behalf of the Purchaser to authorize and approve the
entering into and carrying out of this Agreement by the Purchaser have been duly
executed and properly taken. This Agreement has been duly executed and delivered
by the Purchaser and is valid and binding upon the Purchaser, subject, as to
enforceability, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to general
principles of equity.
3.4. Capitalization. As of August 28, 1997, the authorized capital stock of
the Purchaser consisted of (i) 5,000,000 shares of Preferred Stock, $.01 par
value per share, of which no shares were issued and outstanding, and (ii)
45,000,000 shares of Purchaser Common Stock, of which 26,003,636 shares were
issued and outstanding. All of the issued and outstanding shares of Purchaser
Common Stock have been legally and validly issued and are fully paid and
nonassessable. The shares of Purchaser Common Stock to be issued pursuant to
this Agreement will be duly authorized, validly issued, fully paid, and
nonassessable.
3.5. Options, Warrants, Etc. Other than as set forth in Section 3.4 hereof,
there are no other outstanding shares of capital stock or voting securities of
the Purchaser other than shares of Purchaser Common Stock issued under the
Purchaser's various stock option plans as in effect at the date hereof (the
"Purchaser Stock Option Plans"). As of the close of business on August 28, 1997,
the Purchaser has reserved 5,950,000 shares of Purchaser Common Stock for
issuance to employees and directors pursuant to the Purchaser Stock Option
Plans, of which 3,897,051 shares were subject to outstanding, unexercised
options. Other than this Agreement and pursuant to the Purchaser Stock Option
Plans, and except as disclosed in the Purchaser SEC Documents (as defined
below), there are no other options, warrants, calls, rights, commitments or
agreements of any character to which the Purchaser or any Purchaser Subsidiary
is a party or is bound obligating the Purchaser or any Purchaser Subsidiary to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of the Purchaser
or any Purchaser Subsidiary or obligating the Purchaser or any Purchaser
Subsidiary to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement.
3.6. SEC Documents; Financial Statements. The Purchaser has filed all
statements, reports, registration statements, proxy statements and other
documents required to be filed by the Purchaser with the Securities and Exchange
Commission (the "SEC") since January 1, 1996 and has made available to the
Company a true and complete copy of each such statement, report, registration
statement (with the prospectus in the form filed pursuant to Rule 424(b) of the
Securities Act), definitive proxy statement, and other documents in the form
filed with the SEC by the Purchaser from January 1, 1996, and, until the Closing
Date, the Purchaser will have furnished the Company with true and complete
copies of any additional documents filed with the SEC by the Purchaser prior to
the Closing Date (all such statements, reports, registration statements, proxy
statements and other documents filed by the Purchaser with the SEC are
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referred to as the "Purchaser SEC Documents"). In addition, the Purchaser has
made available to the Company all exhibits to the Purchaser SEC Documents filed
prior to the date hereof, and will promptly make available to the Company all
exhibits to any additional Purchaser SEC Documents filed prior to the Closing
Date. All documents required to be filed as exhibits to the Purchaser SEC
Documents have been so filed, and all Material Agreements (as defined below) so
filed as exhibits are in full force and effect, except those which have expired
in accordance with their terms, and Purchaser is not in default under any such
Material Agreements. As of their respective filing dates, the Purchaser SEC
Documents complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act, and none of the Purchaser SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Purchaser SEC Document. The financial
statements of Purchaser, including the notes thereto, included in the Purchaser
SEC Documents (the "Purchaser Financial Statements") were complete and correct
in all material respects as of their respective dates, complied as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared in accordance with U.S. generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods indicated and consistent with each other (except as may be indicated
in the notes thereto or, in the case of unaudited statements included in
Quarterly Reports on Form 10-Q, as permitted by Form 10-Q of the SEC). The
Purchaser Financial Statements fairly present the consolidated financial
condition and operating results of the Purchaser at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end audit adjustments not material in scope or amount).
There has been no change in the Purchaser accounting policies, except as
described in the notes to the Purchaser Financial Statements, since January 1,
1996.
3.7. Absence of Certain Changes. Since June 30, 1997 (the "Purchaser
Balance Sheet Date"), the Purchaser has conducted its business in the ordinary
course consistent with past practice and there has not occurred: (i) any change,
event or condition that has resulted in, or might reasonably be expected to
result in, a Material Adverse Effect on the Purchaser; (ii) any change in
accounting methods or practices by the Purchaser or any revaluation by the
Purchaser of any of its assets; (iii) any declaration, setting aside, or payment
of a dividend or other distribution with respect to the shares of the Purchaser,
or any direct or indirect redemption, purchase or other acquisition by the
Purchaser of any of its shares of capital stock, except for regular dividends
and stock repurchases at market prices at the time of repurchase, and except as
set forth in the Purchaser SEC Documents; (iv) any material contract entered
into by the Purchaser or any Purchaser Subsidiary other than in the ordinary
course of business, or any material amendment or termination of, or default
under, any material contract to which the Purchaser or any Purchaser Subsidiary
is a party or by which it is bound; or (v) any negotiation or agreement by the
Purchaser or any Purchaser Subsidiary to do any of the things described in the
preceding clauses (i) through (iv).
3.8. Absence of Undisclosed Liabilities. As of the Purchaser Balance Sheet
Date, the Purchaser has no material obligations or liabilities of the type and
magnitude required to be disclosed in the liabilities column of a consolidated
balance sheet prepared in accordance with
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GAAP (whether accrued, absolute, contingent or otherwise, and whether due or to
become due) other than (i) those set forth or adequately provided for in the
balance sheet included in Purchaser's Quarterly Report on Form 10-Q for the
period ended June 30, 1997 (the "Purchaser Balance Sheet"), (ii) those expressly
disclosed in any Exhibit hereto or in the Purchaser Schedule, (iii) those
incurred in connection with the execution of this Agreement, and (iv) those
fully covered by insurance and not otherwise having a Material Adverse Effect on
the Purchaser.
3.9. Permits. The Purchaser and each Purchaser Subsidiary has all
governmental permits, licenses, orders, approvals, franchises and other rights
and privileges necessary in order for them to carry on their respective business
as presently conducted, except such permits, licenses, orders, approvals,
franchises, and other rights and privileges of which the failure to obtain, if
required, would not have a Material Adverse Effect on the Purchaser.
3.10. Litigation. There are no actions, suits, legal proceedings or
governmental or quasi-governmental investigations, pending before any court or
governmental agency or before any arbitrator of any kind, or any order,
injunction or decree outstanding, and, to the knowledge of the Purchaser, no
person has since January 1, 1996 threatened orally (to any executive officer or
director of the Purchaser) or in writing to commence any action, suit or legal
proceeding against the Purchaser or any Purchaser Subsidiary or against or
relating to either of their property, assets or business, that would reasonably
be expected to have a Material Adverse Effect on the Purchaser. Neither the
Purchaser nor any Purchaser Subsidiary is in violation of any applicable law,
regulation, ordinance, order, injunction, decree, award or other requirement of
any governmental or quasi-governmental body, court, or arbitrator relating to
its property, assets, or business, except for violations which would not have a
Material Adverse Effect on the Purchaser.
3.11. Broker's and Finders' Fees. Except for the fees of its advisor, Volpe
Brown Whelan & Company LLC, the Purchaser has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or investment bankers' fees or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
3.12. Material Agreements
(a) A "Material Agreement" shall mean any agreement or contract to
which the Purchaser or any Purchaser Subsidiary is a party or by which the
Purchaser or a Purchaser Subsidiary is bound and that is or is required to be
filed as an exhibit to any of the Purchaser SEC Documents pursuant to the
applicable rules and regulations of the SEC and (ii) that has not expired or
been validly terminated prior to the date hereof.
(b) The Purchaser and the Purchaser Subsidiaries are not in breach or
default in any material respect under any of the Material Agreements such that
the other party would be permitted to terminate a Material Agreement or would
have a claim for material damages against the Purchaser or the Purchaser
Subsidiaries. To the knowledge of the Purchaser (i) no other party thereto is in
any default in any material respect under any Material Agreement and (ii) no
event has occurred which, with the giving of notice or the passage of time,
would become such a default by the Purchaser or any of the Purchaser
Subsidiaries such that
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such other party would be permitted to terminate such Material Agreement or
would have a claim for material damages against the defaulting party. All of the
Material Agreements are valid and in full force and effect and, to the knowledge
of the Purchaser, none is subject to rescission or reformation and there are no
circumstances or writings extrinsic to any of such Material Agreements which
would materially modify their terms or prevent their assignment.
3.13. Compliance with Law. The Purchaser is in compliance with all laws,
regulations and orders applicable to its business, including, without
limitation, applicable environmental, anti-pollution, building, zoning or health
laws, ordinances and regulations in respect of its plants, structures and
equipment, except where the failure by the Purchaser to be in compliance with
such laws, regulations and orders would not have a Material Adverse Effect on
the Purchaser. The Purchaser has not received any notification that it is in
violation of any such laws, regulations or orders, except for (i) notices that
have been complied with in all material respects, (ii) notices that have been
withdrawn, or (iii) notices of violations that have been cured in all material
respects or that relate to violations which can no longer form the basis of any
material liability of the Purchaser or would otherwise reasonably be expected to
have a Material Adverse Effect on the Purchaser. Neither the Purchaser nor, to
the knowledge of the Purchaser, any employee or agent of the Purchaser acting on
behalf of the Purchaser has made any illegal payments to any governmental or
quasi-governmental officials.
3.14. Purchaser Taxes. All taxes, including, without limitation, income,
property, sales, use, franchise, excise, value added, capital, social security,
withholding, and employees' withholding taxes imposed by the United States, by
any foreign country, or by any political subdivision of the United States or any
foreign country, which have become due and payable by the Purchaser or any of
the Purchaser Subsidiaries prior to the date of this Agreement and which are
material to the Purchaser and the Purchaser Subsidiaries, including any material
taxes for which the Purchaser or any of the Purchaser Subsidiaries is liable
under contract or other arrangement, together with any interest or penalties
thereon (the "Purchaser Taxes"), have been paid in full or adequately provided
for by reserves shown on the books of account of the Purchaser; all deposits
required by law to be made by the Purchaser and the Purchaser Subsidiaries with
respect to the Purchaser Taxes have been duly made. No deficiency or adjustment
in respect of any of the Purchaser Taxes has been assessed against the Purchaser
or any Purchaser Subsidiary prior to the date of this Agreement and remains
unpaid, other than such Purchaser Taxes which are being contested in good faith
and to the knowledge of the Purchaser there is not any proposed or threatened
assessment of additional liability for the Purchaser Taxes (that remains unpaid)
against the Purchaser or any Purchaser Subsidiary for any period ending prior to
December 31 1996.
3.15. Investment Intent of the Purchaser. Purchaser is acquiring the
Transferred Company Shares and the Holdings Shares for its own account and for
investment, and not with a view to, or for sale in connection with, any
distribution of any of such shares.
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ARTICLE IV
CERTAIN TRANSACTIONS AND AGREEMENTS
4.1. The Confidentiality Agreement. That certain Mutual Non-Disclosure
Agreement, dated as of June 12, 1997 between the Company and the Purchaser (the
"Confidentiality Agreement") shall remain in full force and effect between them
and shall not be terminated or otherwise modified by this Agreement and shall
survive any termination of this Agreement in accordance with its terms.
4.2. Conduct of Business of the Company and Its Subsidiaries. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Closing Date (the "Pre-Closing Period"),
the Company agrees (except as otherwise provided in the last sentence of this
Section 4.2), and shall (except as otherwise provided in the last sentence of
Section 4.2) cause its Subsidiaries: (i) to carry on their business in all
material respects in the usual, regular and ordinary course in substantially the
same manner as heretofore conducted, (ii) to use their reasonable efforts to
preserve substantially intact their present business organizations, (iii) to use
their reasonable efforts consistent with past practice to keep available the
services of their present officers and key employees, (iv) to use reasonable
efforts consistent with past practice to preserve their relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with them, and (v) to promptly notify the Purchaser in
writing, after obtaining knowledge, of any event or occurrence which would be
likely to cause any representation or warranty contained in this Agreement and
made by it to be untrue or inaccurate at any time from the date of this
Agreement to the Closing Date, such that the condition set forth in the first
sentence of Section 7.1 hereof would not be satisfied as a result thereof.
Without limitation of the foregoing, the Company agrees that during the
Pre-Closing Period (except as otherwise provided in the last sentence of this
Section 4.2), it will not take any of the following actions:
(a) Charter Documents. Amend its Memorandum of Association or Articles
of Association;
(b) Issuance of Securities. Issue, deliver or sell any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or enter into any agreements or commitments of any
character obligating it to issue, any such shares or other convertible
securities;
(c) Dividends; Changes in Capital Stock. Declare or pay any dividends
on, or make any other distributions (whether in cash, stock or property) in
respect of, any shares of its capital stock, or split, combine or reclassify any
shares of its capital stock, or issue any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or repurchase or
otherwise acquire any shares of its capital stock;
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(d) Extraordinary Transactions. Enter into any material transaction
outside the ordinary course of business;
(e) Stock Option Plans, Etc. Adopt any stock option plan;
(f) Intellectual Property. Transfer to any person or entity any rights
to the Company Intellectual Property other than in connection with the sale of
its products in the ordinary course of business consistent with past practice;
(g) Exclusive Rights. Enter into or amend any agreements pursuant to
which any other party is granted exclusive marketing or other exclusive rights
of any type or scope with respect to any Material Company Products or the
Company Intellectual Property; or
(h) Other. Agree in writing to take any of the actions described in
clauses "(a)" through "(g)" of this sentence.
Notwithstanding anything to the contrary contained in this Section 4.2 or
elsewhere in this Agreement, the Company and its Subsidiaries shall not be
prohibited from taking, and shall be permitted to take, any of the following
actions (without being deemed to have breached or violated this Agreement): (i)
any action that is contemplated or permitted by, or otherwise consistent with
the terms of, this Agreement, (ii) any action that is referred to in the Company
Schedule or is contemplated or required by the terms of any agreement or other
document identified in the Company Schedule, (iii) any action that is reasonably
determined by the Company to be necessary or desirable for the purpose of
facilitating the consummation of any of the transactions contemplated by this
Agreement or for the purpose of facilitating the compliance by the Company or
any of its Subsidiaries with any applicable law, rule or regulation, or (iv) any
action that is approved in writing by the Purchaser (it being understood that
the Purchaser shall not unreasonably withhold its approval of any such action
that is proposed to be taken by the Company).
4.3. Conduct of Business of Purchaser. The Purchaser agrees that during the
Pre-Closing Period (except as otherwise provided in the last sentence of this
Section 4.3), it will not take or permit any Purchaser Subsidiary to take any of
the following actions:
(a) Charter Documents. Amend its Articles of Incorporation or Bylaws;
(b) Issuance of Securities. Issue, deliver or sell any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or enter into any agreements or commitments of any
character obligating it to issue, any such shares or other convertible
securities, other than (1) the issuance, delivery and/or sale of options to
purchase a reasonable number of shares of Purchaser Common Stock in connection
with the hiring, retention and/or promotion of employees of the Purchaser or the
Purchaser Subsidiaries, or (2) the issuance of shares of Purchaser Common Stock
pursuant to the exercise of stock options or other rights outstanding as of the
date of this Agreement or issued after the date of this Agreement in accordance
with clause "(1)" of this Section 4.3(b);
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(c) Dividends; Changes in Capital Stock. Declare or pay any dividends
on, or make any other distributions (whether in cash, stock or property) in
respect of, any shares of its capital stock, or split, combine or reclassify any
of its capital stock, or issue any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or repurchase or otherwise
acquire any shares of its capital stock except from former employees, directors
and consultants in accordance with agreements existing as of the date of this
Agreement providing for the repurchase of shares in connection with any
termination of service to it or its subsidiaries;
(d) Extraordinary Transactions. Enter into any material transaction
outside the ordinary course of business; or
(e) Other. Agree in writing to take any of the actions described in
clauses "(a)" through "(d)" of this Section 4.3.
Notwithstanding anything to the contrary contained in this Section 4.3 or
elsewhere in this Agreement, the Purchaser and the Purchaser Subsidiaries shall
not be prohibited from taking, and shall be permitted to take, (i) any action
that is contemplated or permitted by, or otherwise consistent with the terms of,
this Agreement, (ii) any action that is referred to in the Purchaser Schedule or
is contemplated or required by the terms of any agreement or other document
identified in the Purchaser Schedule, (iii) any action that is reasonably
determined by the Purchaser to be necessary or desirable for the purpose of
facilitating the consummation of any of the transactions contemplated by this
Agreement or for the purpose of facilitating the compliance by the Purchaser or
any Purchaser Subsidiary with any applicable law, rule or regulation, or (iv)
any action that is approved in writing by the Company (it being understood that
the Company shall not unreasonably withhold its approval of any such action that
is proposed to be taken by the Purchaser).
4.4. Access to Information.
(a) During the Pre-Closing Period, the Seller will cause the Company
to grant the Purchaser and its accountants, legal counsel and other
representatives access, during normal business hours and upon reasonable advance
notice throughout the period prior to the Closing, to all of the properties,
books, contracts, commitments and records relating to the business, assets and
liabilities of the Company; provided, however, that (i) the Purchaser shall not
contact, and the Purchaser shall ensure that none of its accountants, legal
counsel or other representatives contacts, any employee of the Company or any of
the Subsidiaries without the prior authorization of one of the Individual Parent
Shareholders, and (ii) the Purchaser shall ensure that none of its employees,
legal counsel or other representatives interferes with or otherwise disrupts the
business or operations of the Company or any of its Subsidiaries while
exercising the rights provided under this Section 4.4(a).
(b) The Purchaser will grant the Seller and the Company and their
respective accountants, legal counsel and other representatives access, during
normal business hours and upon reasonable advance notice throughout the period
prior to the Closing, to all of the properties, books, contracts, commitments
and records relating to the business, assets and liabilities of the Purchaser;
provided, however, that (i) neither the Company nor the Seller shall contact,
and the Company and
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the Seller shall ensure that none of their respective accountants, legal counsel
or other representatives contacts, any employee of the Purchaser (other than
those who will be engaged in the negotiation of this Agreement), without the
prior authorization of Robert F. Fougner, and (ii) the Company and the Seller
shall ensure that none of their respective employees, legal counsel or other
representatives interferes with or otherwise disrupts the business or operations
of the Purchaser while exercising the rights provided in this Section 4.4(b).
4.5. No Solicitation. During the Pre-Closing Period, neither the Company
nor the Seller will, and the Company and the Seller will not authorize any of
its officers, directors, employees or other agents to: (i) take any action to
solicit, initiate or knowingly encourage any offer or proposal by any third
party for, or any indication of interest by any third party in, a merger or
business combination by such third party with, the acquisition by such third
party of any voting power in, or the sale or transfer (outside the ordinary
course of business) to such third party of a significant portion of the assets
of, the Company or any material Subsidiary, or (ii) engage in negotiations with,
or disclose any nonpublic information relating to the Company to, or afford
access to the properties, books or records of the Company or any Subsidiary to,
any third party that has advised the Company that it may be considering making,
or that it has made, an offer or proposal for, or any indication of interest in,
a merger or business combination with, the acquisition of any of the voting
power in, or the sale or transfer (outside the ordinary course of business) of a
significant portion of the assets of, the Company or any material Subsidiary,
other than the transactions contemplated by this Agreement.
4.6. Seller's Agreement. On or before the Closing Date, the Seller and each
of its shareholders (the "Parent Shareholders") shall execute and deliver to the
Purchaser, and the Purchaser shall execute and deliver to the Seller and to each
of the Parent Shareholders, that certain Seller's Agreement in substantially the
form attached hereto as Exhibit 4.6 ("Seller's Agreement") providing (among
other things) for certain resale restrictions and registration rights following
the Closing as to the shares of Purchaser Common Stock issued to the Seller
hereunder.
4.7. Further Assurances. Each of the parties hereto agrees that it will,
from time to time after the date of this Agreement, execute and deliver such
other certificates, documents and instruments and take such other action as may
be reasonably requested by any of the other parties to carry out the actions and
transactions contemplated by this Agreement. Each of the parties hereto shall
use all reasonable efforts to take, or cause to be taken, all actions necessary
to consummate the transactions contemplated by this Agreement. Without limiting
the generality of the foregoing, each party to this Agreement (i) shall make all
filings (if any) and give all notices (if any) required to be made and given by
such party in connection with the transactions contemplated by this Agreement,
(ii) shall use all reasonable efforts to obtain each consent and approval (if
any) required to be obtained (pursuant to any applicable legal requirement or
contract, or otherwise) by such party in connection with the transactions
contemplated by this Agreement, (iii) shall cooperate with each other party
hereto in connection with any filings required to be made or any consents or
approvals required to be obtained by such other party, and (iv) shall use all
reasonable efforts to lift any restraint, injunction or other legal bar to the
consummation of the transactions contemplated by this Agreement.
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4.8. Listing of Additional Shares. Prior to the Closing Date, the Purchaser
shall file with the Nasdaq National Market a Notification Form for Listing of
Additional Shares with respect to those shares of Purchaser Common Stock to be
issued in connection with the transactions contemplated by this Agreement.
4.9. Visitation. The Purchaser will afford to one representative of the
Seller or the Parent Shareholders ("Seller's Board Representative") the right as
a non-voting representative of the Seller or of the Parent Shareholders: (a) to
attend all meetings of the Purchaser's Board of Directors (the "Board") (subject
to the Purchaser's right to request in good faith that such representative
excuse himself from executive sessions of the Board where a conflict of interest
might be present and from any Board meeting or any part thereof if such
exclusion is reasonably necessary to preserve the attorney-client privilege),
and (b) upon request, to receive copies of all notices for and materials
distributed at or in connection with such meetings, as well as any proposed
written actions by the Board concurrently with the distribution of such items to
the Board. Any change in the Seller's Board Representative shall require ten
(10) days prior written notice to the Purchaser and the Purchaser's prior
written approval, which shall not be unreasonably withheld if any of the Parent
Shareholders or an officer of any of the Parent Shareholders is the newly
designated Seller's Board Representative. Commencing as of the Purchaser's 1998
annual meeting of shareholders, the Purchaser agrees, if requested by at least
three of the Parent Shareholders, to use its reasonable efforts to: (1) cause
the Seller's Board Representative to be elected to the Board; and (2) if
required to permit Purchaser to comply with the preceding clause (1), amend the
Purchaser's bylaws to increase the number of authorized positions on the Board
to ten (10). The Purchaser's obligations pursuant to this Section 4.9 shall
cease at such time as the aggregate number of shares of Purchaser Common Stock
beneficially owned by the Seller, the Parent Shareholders and the respective
relatives and affiliates of the Seller and the Parent Shareholders is less than
1,500,000 shares of Purchaser Common Stock (as adjusted for stock splits, stock
dividends and the like).
4.10. Employee Benefits. For a period of not less than two years after the
Closing Date and subject to such adjustments as are reasonably required to
reflect local laws and commercial customs relating to employee benefits, the
Purchaser shall, and shall cause the Company and its Subsidiaries to, provide
each employee of the Company and its Subsidiaries with benefits, including
health and welfare and paid-time off benefits, which either are equivalent to
those currently provided by the Company or, if changed, are no less favorable in
the aggregate than those provided by the Purchaser to its existing employees of
equal rank and seniority. To the extent that any employee of the Company or any
of its Subsidiaries becomes eligible to participate in any employee benefit plan
of the Purchaser after the Closing Date, the Purchaser shall, and shall cause
the Company and its Subsidiaries to: (i) credit such employee's service with the
Company or its Subsidiaries (to the same extent as such service was credited
under the similar employee benefit plans of the Company and its Subsidiaries
immediately prior to the Closing Date) for purposes of determining eligibility
to participate in and vesting under, and for purposes of calculating the
benefits under, such employee benefit plan of the Purchaser, (ii) waive any
pre-existing condition limitations, waiting periods or similar limitations under
such employee benefit plan of the Purchaser and (iii) provide such employee with
credit for any co-payments previously made and any deductibles previously
satisfied.
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4.11. Indemnification.
(a) For a period of at least seven years from the Closing Date, the
Purchaser shall, and shall cause the Company to, fulfill and honor in all
respects all rights to indemnification existing in favor of the current
directors and officers of the Company (the "Indemnified Parties"), as provided
in the Company's Articles of Association (as in effect as of the date of this
Agreement) and as provided in any indemnification agreements between the Company
and such Indemnified Parties (as in effect as of the date of this Agreement) and
as otherwise existing in favor of the Indemnified Parties; provided that nothing
contained herein shall obligate the Purchaser to maintain any directors' and
officers' liability insurance in favor of the Indemnified Parties.
(b) Without limiting the generality of the foregoing, the Purchaser
shall ensure that adequate funds are available (either directly from the
Purchaser or through the Company) to the Indemnified Parties in order to ensure
that the indemnification obligations referred to in this Section 4.11 are fully
satisfied. In the event any claim, action or proceeding is asserted or commenced
against any Indemnified Party, (1) after the Closing Date, the Purchaser shall
advance and pay the reasonable fees and expenses of any counsel retained by such
Indemnified Party in connection with such claim, action or proceeding promptly
after receipt of a request therefor from such Indemnified Party, and (2) the
Purchaser shall cooperate with such Indemnified Party and such Indemnified
Party's counsel, and shall cause the Company to cooperate with such Indemnified
Party and such Indemnified Party's counsel, in the defense of such claim, action
or proceeding.
(c) This Section 4.11 shall survive the consummation of the
transactions contemplated hereby, is intended to benefit and may be enforced by
the Indemnified Parties, and shall be binding on all successors and assigns of
the Purchaser and the Company.
(d) The Purchaser shall pay all expenses, including attorneys' fees,
that may be incurred by any Indemnified Party in enforcing the indemnity and
other obligations provided for in this Section 4.11.
(e) Notwithstanding any term or condition of this Section 4.11, no
indemnification shall be made by the Company or the Purchaser pursuant to
Section 4.11(a) (or pursuant to any indemnification agreement or instrument
referenced in Section 4.11(a)) to any Indemnified Party if the facts or
circumstances that would otherwise give rise to such right of indemnification
further give the Purchaser a valid and meritorious basis for obtaining
indemnification (exclusive of the limits set forth in Sections 5.5, 5.6 and 5.7
hereof) under Article V hereof.
4.12. Compliance with Chief Scientist Regulation. The Purchaser shall
provide any undertakings as are reasonably required by the Chief Scientist of
the Ministry of Industry and Commerce with regard to maintaining ownership of
the Company Intellectual Property in the State of Israel and with regard to
such other matters as are reasonably required by the Chief Scientist of the
Ministry of Industry and Commerce, in order to obtain the consent referred to in
Sections 7.4(a) and 8.3(b) hereof.
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4.13. Section 338 Election. At or following the Closing, the Seller agrees,
if requested in writing by the Purchaser, to make an election under Internal
Revenue Code Section 338 ("Section 338 Election") with respect to the
transactions contemplated hereby and to execute and deliver to the Company such
elections, approvals and other documents and to otherwise take such action as
the Purchaser shall reasonably request to effect the Section 338 Election for
U.S. income tax purposes.
ARTICLE V
INDEMNIFICATION; REMEDIES
5.1. Survival. All pre-Closing covenants of the parties shall terminate and
expire as of the Closing Date, and all liability of the parties with respect to
such covenants shall thereupon be extinguished. All representations and
warranties contained in this Agreement (each as modified by the Company Schedule
and the Purchaser Schedule, as the case may be, and any update or supplement to
the Company Schedule or the Purchaser Schedule delivered to Purchaser or the
Company, as the case may be, as provided in this Agreement) shall survive the
Closing until the second anniversary of the Closing Date (the "Expiration
Date"), at which time such representations and warranties shall terminate and
expire and shall cease to be of any force or effect, and all liability of the
parties with respect to such representations and warranties shall thereupon be
extinguished; provided, however, that (i) if, prior to the Expiration Date, the
Purchaser shall have duly delivered a Claim Notice to both the Seller's
Representative and the Escrow Agent in conformity with all of the applicable
procedures set forth in the Escrow Agreement and in Section 5.7 hereof then the
specific indemnification claim set forth in such Claim Notice shall survive the
Expiration Date (and shall not be extinguished thereby), and (ii) if, prior to
the Expiration Date, the Seller's Representative shall have duly delivered a
Claim Notice to the Purchaser in conformity with all of the applicable
procedures set forth in Section 5.7 herof, then the specific indemnification
claim set forth in such Claim Notice shall survive the Expiration Date (and
shall not be extinguished thereby).
5.2. Indemnification by the Seller. Subject to the limitations on
indemnification set forth in Sections 5.5, 5.6 and 5.7 hereof and elsewhere in
this Agreement, from and after the Closing Date, the Seller shall, from and to
the extent of the Escrow Fund (as defined in the Escrow Agreement), indemnify
and hold harmless the Purchaser and each of the Purchaser Subsidiaries (which
shall be deemed to include the Company after the Closing Date) and its agents,
representatives, employees, officers, directors, successors, controlling persons
and affiliates (in their capacities as such) (collectively, the "Purchaser
Indemnitees"), and shall reimburse the Purchaser Indemnitees, for any loss,
liability, damage, expense (including, but not limited to, reasonable costs of
investigation and defense and reasonable attorneys' fees), whether or not
involving a third-party claim (collectively, "Damages"), incurred by the
Purchaser Indemnitees as a result of (a) any inaccuracy in any of the
representations and warranties of the Seller in Article II of this Agreement (as
modified by the Company Schedule and any update or supplement to the Company
Schedule delivered to the Purchaser prior to the Closing Date but only to the
extent such update or supplement relates to events occurring or discovered after
the date of this Agreement), (b) any failure of the Company or the Seller to
perform or comply with any post-
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Closing agreement or covenant to be performed or complied with by it under this
Agreement, or (c) any claim by any person for brokerage or finder's fees or
similar payments in connection with any of the transactions contemplated
hereunder as the result of brokers, finders or investment bankers retained by
the Company or the Seller or any Parent Shareholder.
5.3. Indemnification by the Purchaser. Subject to the limitations on
indemnification set forth in Sections 5.5, 5.6 and 5.7 hereof and elsewhere in
this Agreement, from and after the Closing Date, the Purchaser shall indemnify
and hold harmless the Seller, the Parent Shareholders and the respective agents,
representatives, employees, officers, directors, successors, controlling persons
and affiliates of the Seller and the Parent Shareholders (in their capacities as
such) (the "Seller Indemnitees"), and shall reimburse the Seller Indemnitees,
for any Damages arising as a result of (a) any inaccuracy in any of the
representations and warranties of the Purchaser in Article III of this Agreement
(as modified by the Purchaser Schedule and any update or supplement to the
Purchaser Schedule delivered to the Company and the Seller prior to the Closing
Date but only to the extent such update or supplement relates to events
occurring or discovered after the date of this Agreement), (b) any failure by
the Purchaser to perform or comply with any post-Closing agreement or covenant
to be performed or complied with by the Purchaser in this Agreement, or (c) any
claim by any person for brokerage or finder's fees or similar payments in
connection with any of the transactions contemplated hereunder as the result of
brokers, finders or investment bankers retained by the Purchaser.
5.4. Notification; Control of Proceedings. The party entitled to
indemnification pursuant to this Article V ("Indemnified Party") shall, with
reasonable promptness, give to the party obligated to provide such
indemnification hereunder (an "Indemnifying Party") written notice if the
Indemnified Party becomes aware of any loss, liability, damage, or expense with
respect to which a claim for indemnification may be asserted; provided, however,
that for the sole purpose of determining whether written notice must be provided
to an Indemnifying Party under this Section 5.4 (and for the purpose of
determining whether the Indenmifying Party will have the right to defend a
particular claim action or proceeding), the limitation set forth in Section 5.5
hereof shall not be taken into account; provided, further, however, that the
failure of an Indemnified Party to deliver such written notice with reasonable
promptness shall not be deemed to bar or otherwise limit the rights of the
Indemnified Party hereunder unless such failure materially prejudices the rights
or defenses of the Indemnifying Party. If any claim is made by a third person or
an action or proceeding commenced for which the Indemnified Party shall seek
indemnity from the Indemnifying Party, the Indemnified Party shall give to such
Indemnifying Party reasonable written notice of such claim, action or proceeding
and request the Indemnifying Party to defend the same. The Indemnifying Party
shall have the right to defend such claim, action or proceeding at its own
expense, and (if the Indemnifying Party elects to accept the defense of such
claim, action or proceeding) shall give written notice to the Indemnified Party
of the commencement of such defense with reasonable promptness after the giving
of the written notice of the claim, action or proceeding by the Indemnified
Party. The Indemnified Party shall be entitled to participate at its own expense
with the Indemnifying Party in such defense (subject to the right of the
Indemnifying Party to control such defense), but shall not be entitled in any
way to release, waive, settle, modify or pay such claim, action or proceeding
without the written consent of the Indemnifying Party (which consent shall not
be unreasonably withheld), if the Indemnifying Party has assumed such defense.
In the event the Indemnifying Party does not accept the defense of such claim,
action or proceeding, as provided above, or
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does not notify the Indemnified Party of its election to defend such claim,
action, or proceeding, within 30 days after the Indemnifying Party's receipt of
written notice of such claim, action, or proceeding, from the Indemnified Party,
the Indemnified Party shall have the full right to defend against such claim,
action or proceeding in such manner as it may deem appropriate, but the
Indemnifying Party shall not have any liability with respect to any compromise
or settlement effected without its prior written consent (which consent shall
not be unreasonably withheld). In the event the Indemnifying Party shall assume
the defense of such claim, action, or proceeding, the Indemnified Party shall
cooperate in the defense of such claim, action or proceeding and the records of
each shall be available to the other with respect to such defense; provided,
however, that the Indemnifying Party shall not, in the defense of any such
claim, action or proceeding, consent to the entry of any judgment or enter into
any settlement where such entry of judgment or settlement does not include a
provision releasing the Indemnified Party from all liability with respect to
such claim, action, or proceeding, except with the written consent of the
Indemnified Party (which consent shall not be unreasonably withheld).
5.5. Limitation on Indemnification. Notwithstanding the provisions of
Sections 5.2 and 5.3 hereof, no Indemnifying Party shall be liable to any
Indemnified Party with respect to: (a) any claim by an Indemnified Party
pursuant to clause (a) of Section 5.2 hereof or clause (a) of Section 5.3 hereof
except to the extent that the cumulative amount of the indemnifiable Damages
actually incurred by the Indemnified Party as a result of all inaccuracies in
the Indemnifying Party's representations and warranties actually exceeds
$250,000; and the Indemnifying Party shall only be required to pay, and shall
only be liable for, the amount by which the cumulative amount of the
indemnifiable Damages actually incurred by the Indemnified Party as a result of
all such inaccuracies in such representations and warranties actually exceeds
$250,000; or (b) any claim based on the inaccuracy of any warranty and
representation of the Indemnifying Party if the Indemnified Party (or any of its
officers and directors in the case of an Indemnified Party that is a corporation
or a limited liability company) had actual knowledge of the inaccuracy of such
representation and warranty (or of any facts or circumstances constituting or
resulting in such inaccuracy) prior to the Closing, provided, that, the
limitation provided by this clause (b) shall not be available to an Indemnifying
Party if that Indemnifying Party also had such actual knowledge of the
inaccuracy of such representation and warranty (or of any facts or circumstances
constituting or resulting in such inaccuracy) prior to the signing of this
Agreement by the Indemnifying Party.
5.6. Exclusive Remedy.
(a) Except as provided in the Parent Shareholders Agreement, the
indemnification provided for in this Article V shall be the exclusive right and
remedy with respect to any claim by an Indemnified Party pursuant to clause (a)
of Section 5.2 hereof or clause (a) of Section 5.3 hereof, and, except as
provided in this Section 5.6, no claim or cause of action with respect to any
misrepresentation or any inaccuracy, breach or default as to any representation
or warranty contained in Article II or Article III of this Agreement shall be
enforceable unless made in accordance with the procedures, and within the time
periods, set forth in this Article V. Without limiting the generality of the
foregoing, and except as provided in this Section 5.6(a), (i) any payments
required to be made by the Seller under this Article V shall be made exclusively
from the Escrow Shares under the Escrow Agreement, and the Purchaser shall have
no recourse against the Seller or
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the Parent Shareholders, or against any of the assets of the Seller or the
Parent Shareholders, in connection with any indemnification claim, and (ii) any
payments required to be made by the Purchaser under this Article V (other than
for breaches occurring after the Closing of any covenant contained in Article I,
IV, IX or XI hereof) shall be limited to an aggregate amount equal to
U.S.$16,540,000;
(b) Nothing contained in the Parent Shareholders Agreement shall
require the Purchaser to first assert its rights and remedies under this Article
V or the Escrow Agreement or the Parent Shareholders Agreement as to any claim
by the Purchaser that is based on the inaccuracy of any representation or
warranty in both this Agreement and the Parent Shareholders Agreement. To the
extent that the Purchaser shall first recover Damages from one or more of the
Parent Shareholders pursuant to the Parent Shareholders Agreement prior to any
recovery pursuant to Article V of this Agreement or the Escrow Agreement, the
amounts recovered from such Parent Shareholder(s) shall be deducted from amounts
payable to the Purchaser Indemnitees pursuant to Article V of this Agreement or
the Escrow Agreement.
5.7. Indemnification Claims.
(a) If an Indemnified Party wishes to assert an indemnification claim
against any Indemnifying Party, the Indemnified Party shall deliver or cause to
be delivered to the entity or entities specified below a written notice (a
"Claim Notice") setting forth (a) the specific representation, warranty or
post-Closing covenant alleged to have been breached by such Indemnifying Party,
(b) a summary of the facts and circumstances giving rise to the alleged breach
of such representation, warranty or post-Closing covenant, and (c) a description
of, and a reasonable estimate of the total amount of, the Damages actually
incurred or expected to be incurred by the Indemnified Party as a direct result
of such alleged breach. If the Indemnified Party is a Purchaser Indemnitee, such
Purchaser Indemnitee shall deliver a copy of the Claim Notice simultaneously to
the Seller's Representative and the Escrow Agent. If the Indemnified Party is a
Seller Indemnitee, such Seller Indemnitee shall deliver a copy of the Claim
Notice to the Purchaser.
(b) Notwithstanding anything to the contrary contained in this
Agreement or in the Escrow Agreement, no Purchaser Indemnitee shall be permitted
to deliver any Claim Notice (and no Purchaser Indemnitee shall be entitled to
assert any indemnification claim set forth in any Claim Notice) unless such
Purchaser Indemnitee reasonably believes that a representation or warranty has
been breached by the Seller in a manner that would entitle such Purchaser
Indemnitee to be indemnified under this Article V.
(c) Notwithstanding anything to the contrary contained in this
Agreement, no Seller Indemnitee shall be permitted to deliver any Claim Notice
(and none of the no Seller Indemnitee shall be entitled to assert any
indemnification claim set forth in any Claim Notice) unless such Seller
Indemnitee reasonably believes that a representation, warranty or covenant has
been breached by the Purchaser in a manner that would entitle such Seller
Indemnitee to be indemnified under this Article V.
(d) Notwithstanding anything to the contrary contained in this
Agreement, if a Claim Notice shall not have been delivered to the Indemnifying
Party (and, if the Indemnifying
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Party is the Seller, also to the Escrow Agent) prior to the Expiration Date,
then such Claim Notice shall not be deemed to have been delivered and shall be
of no force or effect.
(e) Only the Purchaser itself shall be entitled to assert
indemnification claims against the Seller under this Article V; any claim for
indemnification by any other Purchaser Indemnitee must be asserted by the
Purchaser on behalf of such Purchaser Indemnitee. Only the Seller's
Representative (as defined below) shall be entitled to assert indemnification
claims against the Purchaser under this Article V; any claim for indemnification
by any Seller Indemnitee must be asserted by the Seller's Representative on
behalf of such Seller Indemnitee.
5.8. Subrogation. To the extent that any Indemnifying Party makes or
is required to make any indemnification payment to an Indemnified Party, (i) the
Indemnifying Party shall be entitled to exercise, and shall be subrogated to,
any rights and remedies (including rights of indemnity, rights of contribution
and other rights of recovery) that the Indemnified Party or its affiliates may
have against any other person or entity (other than the Indemnified Party or its
affiliates) with respect to any Damages, circumstances or matter to which such
indemnification payment is directly or indirectly related; (ii) the Indemnified
Party shall permit the Indemnifying Party to use the name of the Indemnified
Party or the Indemnified Party's affiliates, in any transaction or in any
proceeding or other matter involving any of such rights or remedies; and (iii)
the Indemnified Party shall take and shall cause each of its affiliates to take
such actions as the Indemnifying Party may reasonably request for the purpose of
enabling the Indemnifying Party to perfect or exercise the Indemnifying Party's
right of subrogation hereunder. Any rights of an Indemnifying Party to
subrogation pursuant to this Section 5.8 shall not be exercisable until such
Indemnifying Party shall have fully performed its obligations pursuant to this
Article V as to the indemnification of the Indemnified Party (with respect to
the particular indemnification claim involved); provided, however, that, prior
to the full performance of such indemnification obligations and to the extent
reasonably required to preserve the rights of the Indemnifying Party to
subrogation, the Indemnifying Party shall be permitted to take any action so
required to preserve such subrogation rights.
5.9. Seller's Representative.
(a) Zeev May shall be constituted and appointed as agent ("Seller's
Representative") for and on behalf of the Seller and the Parent Shareholders to
give and receive notices and communications, to authorize the Escrow Agent to
deliver funds out of escrow to the Purchaser, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to indemnification claims, and to
take all actions necessary or appropriate in the judgment of the Seller's
Representative for the accomplishment of the foregoing. Such agency may be
changed from time to time upon not less than five days' prior written notice
from the Seller or, if the Seller has been liquidated, from any three Parent
Shareholders, to the Purchaser. Notices or communications to or from the
Seller's Representative shall constitute notice to or from the Seller.
(b) The Seller's Representative shall have reasonable access to information
about the Company and the assistance of the Seller and the Purchaser for
purposes of performing his duties and exercising his rights hereunder, provided
that the Seller's Representative shall treat
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confidentially and not disclose to anyone (other than the Seller and the Parent
Shareholders) any priorietory nonpublic information obtained from the Purchaser
after the Closing to the extent such proprietory information belongs to, and
relates to the conduct of the business of, the Company; provided, however, that
the Seller's Representative may disclose such proprietary information: (i) on a
need to know basis to individuals who agree, in writing, to treat such
information as confidential, and (ii) as required by law or regulation.
(c) A decision, act, consent or instruction of the Seller's Representative
shall constitute a decision of the Seller or the Parent Shareholders and shall
be final, binding and conclusive upon the Seller and the Purchaser, and the
Escrow Agent may rely upon any written instruction of the Seller's
Representative as being the decision, act, consent or instruction of the Seller.
The Purchaser is hereby relieved from any liability to any person for any acts
done by it in accordance with such written instructions of the Seller's
Representative.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND THE SELLER
The obligations of the Purchaser and the Seller to consummate the
stock purchase contemplated by this Agreement on the Closing Date shall be
subject to the satisfaction of the following condition, except to the extent
such condition is waived in writing by the Purchaser and the Seller:
6.1. Government Approvals. All requisite governmental approvals and
authorizations necessary for the consummation of the stock purchase contemplated
hereby shall have been duly issued or granted, except where the failure to
obtain such approvals and authorizations would not have a Material Adverse
Effect on the Purchaser. No unfavorable governmental decree or court order shall
exist that would prevent the consummation of the stock purchase contemplated by
this Agreement.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE PURCHASER
The obligation of Purchaser to consummate the stock purchase
contemplated by this Agreement on the Closing Date shall be subject to the
following conditions, except to the extent such conditions are waived by the
Purchaser in writing:
7.1. Representations and Warranties; Performance. The representations and
warranties of the Seller set forth in this Agreement (excluding any
representation or warranty that refers specifically to "the date of this
Agreement," "the date hereof" or any other date other than the Closing Date)
shall be accurate in all material respects as of the Closing Date as if made on
and as of the Closing Date (it being understood that, for purposes of
determining the accuracy of such representations and warranties as of the
Closing Date (i) any inaccuracies that, in the aggregate, do not have a Material
Adverse Effect on the Company shall be disregarded, (ii) any inaccuracy that
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results from or relates to general business, economic or industry conditions
shall be disregarded, and (iii) any inaccuracy that results from or relates to
the taking of any action contemplated or permitted by this Agreement or the
announcement or pendency of the transactions contemplated by this Agreement
shall be disregarded). The Seller and the Company shall have each performed and
complied in all material respects with all agreements or covenants required by
this Agreement to be performed or complied with by such parties prior to or at
the Closing (except where the failure to have performed or complied with such
agreements would not have a Material Adverse Effect on the Purchaser or the
Company).
7.2. Amendments to Employment Agreements. Each of the Individual Parent
Shareholders shall have entered into an amendment to his Employment Agreement
with the Company substantially in the form set forth on Exhibit 7.2 hereto.
7.3. Opinion of Counsel. The Purchaser shall have received an opinion of
Advocate, Zeev May, counsel to the Company and the Seller, in substantially the
form of Exhibit 7.3 hereto.
7.4. Approvals. The following approvals, orders or permits shall have been
received in form and substance reasonably satisfactory to the Purchaser:
(a) Israel Chief Scientist. Approval of the Chief Scientist for change
in control of the Company; and
(b) Israel Investment Center. Approval of the Investment Center for
change in control of the Company.
7.5. Escrow Agreement. The Escrow Agent, the Seller's Representative and
the Seller shall have executed and delivered the Escrow Agreement.
7.6. Seller's Agreement. The Seller and each of the Parent Shareholders
shall have executed and delivered to the Purchaser the Seller's Agreement.
7.7. Parent Shareholders Indemnity Agreement. Each of the Parent
Shareholders shall have executed and delivered to the Purchaser a Parent
Shareholders Indemnity Agreement substantially in the form set forth on Exhibit
7.7 hereto (the "Parent Shareholders Agreement").
7.8. No Litigation. No material action or proceeding by any governmental
authority in the United States or the State of Israel that challenges the stock
purchase contemplated by this Agreement shall be pending against the Purchaser
or the Company.
7.9. Change in Condition. Since the date of this Agreement, there shall not
be any change in the Company's financial condition or results of operations
which has had or would reasonably be expected to have a Material Adverse Effect
on the Company; provided, however, that any change that results from or relates
to general business, economic or industry conditions, the taking of any action
contemplated or permitted by this Agreement or the announcement or
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pendency of the transactions contemplated by this Agreement shall not be taken
into account in determining whether there has been or would reasonably be
expected to be a "Material Adverse Effect" on the Company.
7.10. Resignations. All directors of the Company and its Subsidiaries and
Holdings shall have executed and delivered to the Purchaser resignations as
directors.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE SELLER
The obligations of the Seller to consummate the stock purchase
contemplated by this Agreement on the Closing Date shall be subject to the
following conditions, except to the extent such conditions are waived by the
Seller in writing:
8.1. Representations and Warranties; Performance. The representations and
warranties of the Purchaser set forth in this Agreement (excluding any
representation or warranty that refers specifically to "the date of this
Agreement," "the date hereof" or any other date other than the Closing Date)
shall be accurate in all material respects as of the Closing Date as if made on
and as of the Closing Date (it being understood that, for purposes of
determining the accuracy of such representations and warranties as of the
Closing Date (i) any inaccuracy that does not have a Material Adverse Effect on
the Purchaser shall be disregarded, (ii) any inaccuracy that results from or
relates to general business, economic or industry conditions shall be
disregarded, and (iii) any inaccuracy that results from or relates to the taking
of any action contemplated or permitted by this Agreement or the announcement or
pendency of the transactions contemplated by this Agreement shall be
disregarded). The Purchaser shall have performed and complied in all material
respects with all agreements or covenants required by this Agreement to be
performed or complied with by it prior to or at the Closing. Without limitation
of the foregoing, the Seller shall have received the cash amount referred to in
Section 1.4(b)(ii)(A) hereof and the shares of Purchaser Common Stock referred
to in Section 1.4(b)(ii)(B) hereof, and the Escrow Agent shall have received the
shares of Purchaser Common Stock referred to in Section 1.4(b)(ii)(C) hereof.
8.2. Opinion of Counsel. The Seller shall have received an opinion of
Morrison & Foerster LLP, counsel to the Purchaser, in substantially the form of
Exhibit 8.2 hereto.
8.3. Approvals. The following approvals, orders and permits shall have been
received in form and substance reasonably satisfactory to the Company:
(a) Bank of Israel. Bank of Israel permit (i) for the Seller to
exchange the Transferred Company Shares and Holdings Shares for shares of
Purchaser Common Stock and to hold shares of Purchaser Common Stock, and (ii)
for the Seller and the Parent Shareholders to deposit in a foreign currency
deposit account ("PAMACH") the consideration received from the sale of shares of
Purchaser Common Stock;
(b) Israel Chief Scientist. Approval of the Chief Scientist for the
change in control of the Company; and
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(c) Israel Investment Center. Approval of the Investment Center for
the change in control of the Company.
8.4. Escrow Agreement. The Escrow Agent and the Purchaser shall have
executed and delivered to the Seller and the Seller's Representative the Escrow
Agreement.
8.5. Seller's Agreement. The Purchaser shall have executed and delivered to
the Seller and the Parent Shareholders the Seller's Agreement.
8.6. No Litigation. No material action or proceeding by any governmental
authority in the United States or the State of Israel that challenges the stock
purchase contemplated by this Agreement shall be pending against the Seller, the
Company or any of the Parent Shareholders.
8.7. Change in Condition. Since the date of this Agreement, there shall not
be any change in the Purchaser's financial condition or results of operations
which has had or would reasonably be expected to have a Material Adverse Effect
on the Purchaser; provided, however, that any change that results from or
relates to general business, economic or industry conditions, the taking of any
action contemplated or permitted by this Agreement or the announcement or
pendency of the transactions contemplated by this Agreement shall not be taken
into account in determining whether there has been or would reasonably be
expected to be a "Material Adverse Effect" on the Purchaser.
ARTICLE IX
FEES AND EXPENSES
9.1. Expenses. Each of the Company, the Purchaser and the Seller shall bear
its own expenses incurred in connection with the negotiation and consummation of
the transactions contemplated by this Agreement; provided, however, that if the
Closing takes place, (i) the Purchaser shall pay $1,701,230 of any such expenses
payable by the Company to Hambrecht & Quist LLC and payable to the Seller's U.S.
attorneys, (ii) the Company shall pay $200,000 of other transaction expenses of
the Seller and/or the Company, and (iii) the Seller shall pay all remaining
transaction expenses of the Company.
ARTICLE X
TERMINATION
10.1. Termination of Agreement. This Agreement and the transactions
contemplated hereby may be terminated at any time before the Closing Date, as
follows, and in no other manner:
(a) by written consent of the Purchaser, the Company and the Seller;
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(b) by the Purchaser, the Company or the Seller if the Closing shall
not have occurred on or before 5:00 p.m., Tel Aviv Time, on September 9, 1997;
provided that the right to terminate this Agreement under this Section 10.1(b)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or results in, the failure of the
Closing to have occurred by such time;
(c) by the Purchaser, if (i) there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Seller such that the conditions set forth in Section 7.1 hereof
could not be satisfied, and (ii) such breach has not been cured within thirty
(30) days after the delivery to the Seller by the Purchaser of written notice of
such breach; provided, however, that the right to terminate this Agreement under
this Section 10.1(c) shall not be available to the Purchaser if the Purchaser
shall have materially breached this Agreement;
(d) by the Company or the Seller if (i) there has been a material
breach of any representation, warranty, covenant or agreement contained in this
Agreement on the part of the Purchaser such that the conditions set forth in
Section 8.1 hereof could not be satisfied, and (ii) such breach has not been
cured within thirty (30) days after the delivery to the Purchaser by the Seller
of written notice of such breach; provided, however, that the right to terminate
this Agreement under this Section 10.1(d) shall not be available to the Company
or the Seller if the Company or the Seller shall have materially breached this
Agreement; or
(e) by the Purchaser, the Company or the Seller if (i) there shall be
a final, non-appealable order or temporary order (which temporary order shall
only provide a basis for termination if not reversed, vacated or otherwise
expired prior to September 9, 1997) of any court in effect preventing
consummation of the transaction, or (ii) there shall be any action taken after
the date of this Agreement, or any statute, rule, regulation or order enacted,
promulgated or issued by any governmental entity and reasonably determined,
after the date of this Agreement, to be applicable to the stock purchase herein
contemplated which would make such stock purchase illegal.
10.2. Effect of Termination. In the event of a termination of this
Agreement by any party pursuant to Section 10.1, this Agreement shall become
void and have no effect, and there shall be no obligations or liability on the
part of any party or their respective officers and directors, except (a) Article
XI hereof shall survive the termination of this Agreement and (b) nothing herein
shall relieve any party from liability for any willful breach of this Agreement
or any representation or warranty contained herein. No termination of this
Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, which shall survive any termination of this Agreement
in accordance with its terms.
ARTICLE XI
MISCELLANEOUS
11.1. Time of the Essence. Time is of the essence of this Agreement.
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11.2. Entire Agreement. This Agreement and the other written agreements
contemplated or described herein contain the entire agreement of the parties
hereto, and supersede any prior written or oral agreements between them
concerning the subject matter contained herein and therein. There are no
representations, agreements, arrangements or understandings, oral or written,
between the parties to this Agreement and such other written agreements,
relating to the subject matter contained in this Agreement and in such other
written agreements, which are not fully expressed herein and therein.
11.3. Press Releases and Public Announcements. None of the Company, the
Seller and the Purchaser shall issue any press release or make any public
announcement concerning the matters set forth in this Agreement (other than as
required by applicable disclosure rules or regulations of any governmental body)
without the consent of the other party. If any party hereto is required by
disclosure rules or regulations to issue a press release or make a public
announcement concerning the matters set forth in this Agreement, such party
shall provide notice to the other parties of such rule or regulation and shall
consult with such other parties prior to issuing such press release or making
such public announcement. The Company, the Seller and the Purchaser will
cooperate to jointly prepare and issue any press release which may be issued to
announce the signing of this Agreement and/or the Closing of the transaction
contemplated by this Agreement.
11.4. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
11.5. Descriptive Headings. The Article and Section headings in this
Agreement are for convenience only and shall not affect the meanings or
construction of any provision of this Agreement.
11.6. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed sufficiently given (a) when
delivered in person, (b) three business days after delivery to an "overnight"
courier, (c) 24 hours after delivery by facsimile transmission (to the extent
receipt of such facsimile is evidenced by a transmission report or other
reasonable evidence of the successful and accurate transmission of such notice),
in each case addressed as follows:
If to the Purchaser: Cylink Corporation
` 910 Hermosa Court
Sunnyvale, California 94086
Attention: Robert F. Fougner
Fax: (408) 774-4952
With a copy to: Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304-1018
Attention: Michael C. Phillips
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Fax: (650) 494-0792
With a further copy to: I. Fischer & Co.
3 Daniel Frisch Street
Tel Aviv, Israel
Attention: Ezra Katzen
Fax: 972-3-525-0141
And if to the Seller: A.R. Data Security Ltd.
c/o Algorithmic Research Ltd.
15 Gush Etzion Street
Givat Shmuel, Israel
Attention: Yossi Tulpan
Fax: 972-3-532-2650
With a copy to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Attention: Richard E. Climan
Keith A. Flaum
Fax: (650) 857-0663
With a further copy to: Shinar, Shachor, Weissberger
5 Beit Hillel St., 3rd Floor
Tel Aviv 67017, Israel
Attention: Doron Shinar
Fax: 972-3-562-1905
or to such other address or addresses as a party shall have previously
designated by notice to the sender given in accordance with this Section.
11.7. Choice of Law; Arbitration. This Agreement shall be construed in
accordance with and governed by the laws of the State of California, except
insofar as Israeli corporate laws, securities laws or tax laws apply to the
Company, its Israeli Subsidiaries, the Seller, their governance, and issuance of
securities. Any dispute arising out of or relating to this Agreement shall be
resolved through binding arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce. The venue for such
arbitration proceedings shall be London, England. The arbitrator's fees and
other related expenses of any arbitation (such as transcript fees) shall be
borne by the Seller and the Purchaser in such proportions as shall be determined
by the arbitrator, or if there is no such determination, such fees and other
related expenses shall be borne equally by the Seller and the Purchaser. The
resolution of a dispute by the arbitrator shall be conclusive and binding upon
the parties hereto and judgment may be entered thereon in any court having
jurisdiction thereof. The arbitrator shall have the authority to make an award
of actual compensatory damages incurred by a party in connection with a dispute,
but shall have no right to grant special, punitive or exemplary damages or
indirect or consequential damages or to grant any form of equitable relief.
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11.8. Binding Effect; Benefits. This Agreement shall inure to the benefit
of and be binding upon the parties and their respective successors and permitted
assigns. Nothing in this Agreement, express or implied, is intended to confer on
any person other than the parties or their respective successors and permitted
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except that the provisions of Sections 4.9 and 4.11 hereof and
Article V hereof are intended to confer rights and remedies on the persons
referred to therein.
11.9. Assignability. Neither this Agreement nor any of the parties' rights
hereunder shall be assignable by any party without the prior written consent of
the other parties and any attempted assignment without such consent shall be
void; provided, however, that this Agreement may be assigned by the Purchaser to
an affiliate of the Purchaser which shall have been formed for the purpose of
consummating the transactions contemplated hereby, but no such assignment shall
relieve the Purchaser of any of its obligations under this Agreement.
11.10. Waiver and Amendment. Any term or provision of this Agreement may be
waived at any time by the party which is entitled to the benefits thereof. The
waiver by any party of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach. The parties may,
by mutual agreement in writing, amend this Agreement in any respect without the
consent or approval of any other person (including any other beneficiary of any
rights or remedies under this Agreement).
11.11 Attorneys' Fees. In the event of any action or proceeding to enforce
the terms and conditions of this Agreement, the prevailing party shall be
entitled to an award of reasonable attorneys' and experts' fees and costs, in
addition to such other relief as may be granted.
11.12. Knowledge. For purposes of this Agreement, any reference to the
"knowledge" of the Purchaser shall mean the actual knowledge of Fernand Sarrat,
John V. Kalb or Robert B. Fougner of (i) an actual inaccuracy in any warranty or
representation of the Purchaser that is subject to a "knowledge" qualification,
or (ii) facts or circumstances that would reasonably be expected to constitute
or to have given rise to an inaccuracy in any such warranty or representation.
For purposes of this Agreement, any reference to the "knowledge" of the Company
shall mean the actual knowledge of Amos Fiat, Yossi Tulpan or Yossi Cohen of (i)
an actual inaccuracy in any warranty or representation of the Company that is
subject to a "knowledge" qualification, or (ii) facts or circumstances that
would reasonably be expected to constitute or to have given rise to an
inaccuracy in any such warranty or representation.
11.13. Other Definitions. "Material Adverse Effect," when used in
connection with the Company, means any effect that is materially adverse to the
business or financial condition of the Company and its Subsidiaries, taken as a
whole; provided, however, that (i) any adverse effect that results from or
relates to general business, economic or industry conditions shall not be deemed
to constitute, and shall not be taken into account in determining whether there
has been, a "Material Adverse Effect" on or with respect to the Company, and
(ii) any adverse effect that results from or relates to the taking of any action
contemplated or permitted by this Agreement or the announcement or pendency of
the transactions contemplated by this Agreement shall not be deemed to
constitute, and shall not be taken into account in determining whether there has
been, a
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"Material Adverse Effect" on or with respect to the Company. "Material Adverse
Effect," when used in connection with the Purchaser, means any effect that is
materially adverse to the business or financial condition of the Purchaser and
the Purchaser Subsidiaries, taken as a whole; provided, however, that (i) any
adverse effect that results from or relates to general business, economic or
industry conditions shall not be deemed to constitute, and shall not be taken
into account in determining whether there has been, a "Material Adverse Effect"
on or with respect to the Purchaser, and (ii) any adverse effect that results
from or relates to the taking of any action contemplated or permitted by this
Agreement or the announcement or pendency of the transactions contemplated by
this Agreement shall not be deemed to constitute, and shall not be taken into
account in determining whether there has been, a "Material Adverse Effect" on or
with respect to the Purchaser . An "agreement," "arrangement," "contract,"
"commitment," "plan," "understanding," or "undertaking" when used in this
Agreement shall mean a legally binding, written or oral agreement, arrangement,
contract, commitment, plan, purchase order, understanding or undertaking, as the
case may be.
11.14. No Implied Representations. The Purchaser and the Seller acknowledge
that, except as expressly provided in Articles II and III hereof, and except as
expressly provided in any agreement executed and delivered by a party hereto to
any other party hereto pursuant to this Agreement, none of the parties has made
or is making any representations or warranties whatsoever, implied or otherwise.
Without limiting the generality of the foregoing, none of the parties has made
or is making any representations or warranties with respect to any information
or documents made available by a party or its representatives to another party
or its representatives, except as expressly covered by a representation or
warranty in Articles II or III hereof or in any other agreement executed and
delivered by a party to another party pursuant to this Agreement.
11.15. Liquidation of the Seller. The Purchaser acknowledges and agrees
that nothing contained in this Agreement or in any document delivered in
connection with the transactions contemplated hereby shall be construed or shall
operate to prevent the Seller from dissolving, winding up, liquidating or
terminating its existence at any time after the Closing. Notwithstanding
anything to the contrary contained in this Agreement, in the event of the
dissolution or liquidation of the Seller, the Parent Shareholders and their
successors and assigns shall succeed to, and shall be entitled to exercise and
enforce, all of the rights of the Seller under this Agreement and the other
documents delivered in connection with the transactions contemplated hereby. The
Parent Shareholders will, as a condition to such dissolution and liquidation, be
bound by Sections 1.2(b), 4.7, 4.13, 9.1, 11.3, 11.6, and 11.7 of this Agreement
as, and only to the extent, provided in Section 10 of the Parent Shareholders
Agreement.
11.16. Post-Closing Access. At all times after the Closing Date, the
Purchaser shall give the Seller and the Seller's Representative reasonable
access to the books and records of the Company and its Subsidiaries (to the
extent such books and records relate to the period prior to the Closing Date),
and the Purchaser shall cause such books and records to be retained for a period
of at least seven years following the Closing.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the day and year first above written.
PURCHASER:
Cylink Corporation
By: /s/ John V. Kalb, Jr.
---------------------------------
John V. Kalb, Jr.
Vice President, Strategy and Development
THE COMPANY:
Algorithmic Research Ltd.
By: /s/ Yossi Tulpan
---------------------------------
Yossi Tulpan
Chief Executive Officer
By: /s/ Yossi Cohen
---------------------------------
Yossi Cohen
Chief Operating Officer
THE SELLER:
A.R. Data Security Ltd.
By: /s/ Yossi Tulpan
---------------------------------
Yossi Tulpan
Director
By: /s/ Yossi Cohen
---------------------------------
Yossi Cohen
Director
By: /s/ Amos Fiat
---------------------------------
Amos Fiat
Director
By: /s/ Oded Koritshoner
---------------------------------
Oded Koritshoner
Director
By: /s/ Zohar Tal
---------------------------------
Zohar Tal
Director
42
SELLER'S AGREEMENT
THIS SELLER'S AGREEMENT ("Agreement") is made as of September 8, 1997,
by and among: CYLINK CORPORATION, a California corporation (the "Purchaser");
A.R. DATA SECURITY LTD., a limited liability company organized and existing
under the laws of the State of Israel (the "Seller"); and each of the
shareholders of the Seller, all of which are identified on Schedule A hereto
(the "Parent Shareholders").
RECITALS
A. Contemporaneously with the execution and delivery of this Agreement,
the Purchaser is acquiring from the Seller (i) all of the issued and outstanding
shares of Algorithmic Research Ltd., a limited liability company organized under
the laws of the State of Israel (the "Company"), that are owned by the Seller,
and (ii) all of the issued and outstanding shares of Algart Holdings Ltd., a
limited liability company organized under the laws of the State of Israel
("Holdings"), pursuant to that certain Stock Purchase Agreement, dated as of
September 7, 1997, among the Purchaser, the Company and the Seller (the
"Purchase Agreement").
B. As part of the purchase price for the shares of the Company and
Holdings being acquired by the Purchaser pursuant to the Purchase Agreement, the
Purchaser is issuing a total of 2,593,169 shares of common stock of the
Purchaser (the "Transaction Shares"), of which 1,272,300 shares are being
deposited in escrow in accordance with the terms of the Purchase Agreement.
C. The Seller is in the process of a voluntary liquidation. It is
contemplated that, in connection with the liquidation of the Seller, the
Transaction Shares held by the Seller will be distributed "in kind" by the
Seller to the Parent Shareholders.
D. This Agreement is being executed and delivered pursuant to Sections
4.6, 7.6 and 8.5 of the Purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. All capitalized terms used and not otherwise
defined herein shall have the meanings given to them in the Purchase Agreement.
In addition, as used in this Agreement, the following terms shall have the
following respective meanings:
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"Affiliate" shall mean, with respect to any Person, any other
Person controlling, controlled by or under common control with such Person.
A "Change in Control of the Purchaser" shall be deemed to have
occurred if: (a) any Person (other than Pittway Corporation) or "group" (within
the meaning of Rule 13d-5 under the Exchange Act) becomes the "beneficial owner"
(within the meaning of Rule 13d-3 under the Exchange Act) of at least 50% of the
voting securities of the Purchaser; (b) a merger, consolidation or similar
transaction involving the Purchaser or any affiliate of the Purchaser is
effected, and the shareholders of the Purchaser immediately prior to such
transaction own less than 60% of the voting securities of the surviving
corporation in such transaction; (c) assets representing more than 50% of the
aggregate net book value of the Purchaser's assets (exclusive of its wireless
communications division) are sold or otherwise transferred to any Person or
Persons (in a single transaction or a series of transactions); or (d) the
individuals who, as of the date of this Agreement, are members of the Board of
Directors of the Purchaser (the "Incumbent Board") cease for any reason to
constitute at least two-thirds of the Board of Directors of the Purchaser
(provided, however, that if the election, or nomination for election by the
Purchaser's shareholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of this
Agreement, be considered as a member of the Incumbent Board).
A "Change in Control of the Company" shall be deemed to have
occurred if: (a) a Person (other than the Purchaser) becomes the "beneficial
owner" (within the meaning of Rule 13d-5 under the Exchange Act) of at least 50%
of the voting securities of the Company (other than in connection with a Change
in Control of the Purchaser); (b) the Purchaser ceases to own more than 50% of
the outstanding shares of the Company; or (c) assets representing more than 50%
of the aggregate net book value of the Company's assets are sold or otherwise
transferred to any Person or Persons (in a single transaction or a series of
transactions).
"Commission" shall mean the United States Securities and
Exchange Commission, or any other federal agency at the time administering the
Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder.
"First Restricted Period" shall mean the period commencing on
the Closing Date and ending on the day that is 182 days after the Closing Date.
"Form S-1," "Form S-3," "Form S-4" and "Form S-8" shall mean
(as the case may be) such form under the Securities Act as is in effect on the
date hereof, or any successor registration form to such form under the
Securities Act subsequently adopted by the Commission.
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<PAGE>
"Fourth Restricted Period" shall mean the period commencing on
the second anniversary of the Closing Date and ending on the day immediately
preceding the third anniversary of the Closing Date.
"Holders" shall mean: (a) each Potential Seller who holds
Registrable Shares; (b) each Permitted Transferee who holds Registrable Shares;
and (c) each other Person holding Registrable Shares to whom any rights under
this Agreement shall have been assigned in accordance with Section 7 hereof.
"Individual Parent Shareholders" shall mean Yossi Tulpan, Amos
Fiat and Yossi Cohen.
A Parent Shareholder's "Percentage Share" shall mean the
"Percentage Share" set forth opposite such Parent Shareholder's name on Schedule
A hereto.
"Permitted Transferee" shall mean: (a) any Parent Shareholder;
(b) any Affiliate, shareholder, spouse or lineal descendant of the Seller, of
any Parent Shareholder or of any shareholder of any Parent Shareholder
(including, without limitation, any corporation or other entity controlled by
any Parent Shareholder); (c) any administrator, liquidator, executor, guardian,
curator or person acting in a similar capacity for any of the Persons described
in clauses "(a)" and "(b)" of this sentence; and (d) any trustee of a trust, the
primary beneficiary or beneficiaries of which are any of the Persons described
in clauses "(a)," "(b)" and "(c)" of this sentence; provided, however, that Koor
Capital Markets and Telrad Holdings Ltd. shall not be deemed to be Permitted
Transferees of any Restricted Shares transferred to them by (i) an Individual
Parent Shareholder or (ii) a Permitted Transferee who received such Restricted
Shares from an Individual Parent Shareholder.
"Person" shall mean any individual, corporation, partnership,
limited liability company, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, governmental or regulatory body or
other entity.
"Potential Sellers" shall mean the Seller and the Parent
Shareholders.
"Purchaser Common Stock" shall mean the common stock, $0.01
par value per share, of the Purchaser; provided, however, that if the Purchaser
Common Stock is converted into or exchanged for other securities of the
Purchaser or of any other Person (pursuant to a merger or recapitalization
involving the Purchaser or otherwise), then, for purposes of Section 4 hereof,
"Purchaser Common Stock" shall refer to such other securities.
"Registrable Shares" shall mean: (a) the Transaction Shares;
and (b) any securities issued with respect to, in exchange for or in replacement
of any of the Transaction Shares (whether by way of a stock dividend or stock
split, in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or similar event or
3
<PAGE>
otherwise); provided, however, that shares of Purchaser Common Stock shall be
treated as Registrable Shares only if and so long as such shares are held by a
Holder.
"Registration Expenses" shall mean: (a) all expenses, except
Selling Expenses, incurred in connection with a registration pursuant to
Sections 4.1, 4.2 and 4.4 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, fees and
disbursements of counsel for the Purchaser and Blue Sky fees and expenses; and
(b) reasonable fees and disbursements (not to exceed $100,000 for all
registrations effected pursuant to this Agreement) of a single U.S. counsel and
a single Israeli counsel for the Holders who are participating in a
registration.
The terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement with
the Commission and the declaration or ordering of the effectiveness of such
registration statement.
"Regulation S" shall mean Regulation S promulgated under the
Securities Act.
"Restriction Expiration Date" shall mean the earliest to occur
of: (a) the fourth anniversary of the Closing Date; (b) the date of commencement
of a tender or exchange offer relating to at least 50% of the outstanding shares
of Purchaser Common Stock; (c) the date on which a Change in Control of the
Purchaser occurs; (d) the date on which a Change in Control of the Company
occurs; (e) the date of execution of any binding letter of intent, contract,
agreement or understanding contemplating or otherwise relating to an event of
the type referred to in clause "(c)" of this sentence; or (f) the date of
occurrence of any material breach or default by the Purchaser with respect to
any of its obligations under Section 2 or 4 of this Agreement or Article V of
the Purchase Agreement, which breach or default is not cured within twenty (20)
days after notice thereof is given to the Purchaser.
"Restricted Periods" shall mean the First, Second, Third and
Fourth Restricted Periods.
"Restricted Shares" shall mean only those Transaction Shares
that are held by the Seller, the Escrow Agent (in its capacity as such), any
Parent Shareholder or any Permitted Transferee; provided, however, that
notwithstanding anything to the contrary contained in this Agreement: (a) a
Transaction Share shall cease to be a Restricted Share (and shall cease to be
subject to the restrictions contained in this Agreement) upon the earlier of (i)
the Restriction Expiration Date, or (ii) the sale of such Transaction Share
pursuant to Section 3.1(a), 3.1(b), 3.1(c), 3.1(d) or 3.1(f) hereof; and (b)
upon the occurrence of a Special Termination Event with respect to an Individual
Parent Shareholder, all Transaction Shares held by such Individual Parent
Shareholder, and all Transaction Shares held by any Permitted Transferee to whom
such Individual Parent Shareholder has transferred any Transaction Shares, shall
cease to be Restricted Shares (and shall cease to be subject to the restrictions
contained in this Agreement).
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<PAGE>
"Rule 144" shall mean Rule 144 promulgated under the
Securities Act, or any similar or analogous rule promulgated under the
Securities Act.
"Second Restricted Period" shall mean the period commencing on
the day immediately following the last day of the First Restricted Period and
ending on the day immediately preceding the first anniversary of the Closing
Date.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and (except as otherwise specified above in the
definition of "Registration Expenses") all fees and disbursements of counsel for
any Holder.
A "Special Termination Event" with respect to an Individual
Parent Shareholder shall be deemed to have occurred if: (a) the employment of
such Individual Parent Shareholder with the Company or any of the Company's
Affiliates shall have been terminated by the Company or any of the Company's
Affiliates (other than for reasons described in sub-paragraph 6.3 of the
Employment Agreement between the Company and such Individual Parent
Shareholder); or (b) such Individual Parent Shareholder shall have died or
become disabled.
"Special Qualifying Block Trade" shall mean a sale of
Restricted Shares that: (a) is made in a block trade at a price of at least $15
per share; and (b) is designated by the Seller of such Restricted Shares (in a
written notice given to the Purchaser within 120 days following such sale) to be
a "Special Qualifying Block Trade"; provided, however, that at any time prior to
the second anniversary of the Closing Date, any Potential Seller may (without
the consent or approval of the Purchaser or any other Person) rescind its
designation of any such sale as a "Special Qualifying Block Trade."
"Third Restricted Period" shall mean the period commencing on
the first anniversary of the Closing Date and ending on the day immediately
preceding the second anniversary of the Closing Date.
2. TRANSFERABILITY OF TRANSACTION SHARES.
Except as expressly provided in this Agreement, the
Transaction Shares (and any other securities issued with respect to, in exchange
for or in replacement of any of the Transaction Shares) shall be freely
tradeable and transferable, and the Purchaser shall take or cause to be taken
all actions necessary to ensure that the Transaction Shares (and any such other
securities) can legally be sold, publicly and otherwise, within and outside the
United States, without any restriction or limitation of any nature; provided,
however, that, in the event that applicable U.S. federal securities laws shall
limit the ability of any Holder to sell any of the
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Transaction Shares, the obligations of the Purchaser to cause such Transaction
Shares to be freely tradeable and transferrable shall be limited to those
obligations of the Purchaser set forth in Section 4 hereof. Without limiting the
generality of the foregoing, to the extent that any Holder determines (in such
Holder's reasonable judgment) that in order for such Holder to be able to
legally sell publicly in the United States (without any restriction or
limitation of any nature) any Transaction Shares that such Holder is otherwise
not restricted from selling pursuant to Section 3 hereof, such Holder shall
notify the Purchaser of such determination and the Purchaser shall take or cause
to be taken the actions referred to in Sections 4.1 and 4.4 hereof (or the
actions referred to in Section 4.8 hereof). The Purchaser agrees that it will
use reasonable efforts to furnish to the Potential Sellers, on or before
September 18, 1997, a written opinion of Morrison & Foerster LLP or other
reputable U.S. securities counsel (reasonably satisfactory to the Potential
Sellers in form and substance) that, from and after the forty-first day
following the Closing Date, the sale of the Transaction Shares by the Potential
Sellers will be exempt from registration under the Securities Act and will be
exempt from (or otherwise not subject to) registration and qualification under
state securities laws; provided, however, that the Purchaser shall have no
obligation under this sentence if any of the representations and warranties of
the Seller contained in Section 2.33, 2.34 or 2.35 of the Purchase Agreement is
inaccurate in any material respect.
3. RESALES OF RESTRICTED SHARES.
3.1 Resale Restrictions.
The Potential Sellers shall not be permitted to sell,
transfer or assign any Restricted Shares during the Restricted Periods, except
as follows:
(a) During the Second Restricted Period, the
Potential Sellers may (without being deemed to have breached this Agreement)
sell, transfer and/or assign a total of up to 218,000 Restricted Shares.
(b) During the Third Restricted Period, the Potential
Sellers may (without being deemed to have breached this Agreement) sell,
transfer and/or assign a total of up to 1,307,000 Restricted Shares, minus the
number of Restricted Shares that were sold by the Potential Sellers during the
Second Restricted Period pursuant to Section 3.1(a) hereof.
(c) In addition to the Restricted Shares that may be
sold, transferred and assigned by the Potential Sellers pursuant to Sections
3.1(a) and 3.1(b) hereof, during the First, Second and Third Restricted Periods
(exclusive of the first 40 days of the First Restricted Period), the Potential
Sellers may (without being deemed to have breached this Agreement) sell a total
of up to 250,000 Restricted Shares in Special Qualifying Block Trades; provided,
however, that, during the period commencing on the Closing Date and ending on
the day immediately preceding the second anniversary of the Closing Date, the
Purchaser may, on one occasion, prohibit the sale of Restricted Shares in
Special Qualifying Block Trades (but may not prohibit
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<PAGE>
any other sale of Restricted Shares except as expressly provided in this
Agreement) (i) while the Purchaser is actively engaged in a firm commitment
underwritten public offering of at least 1,000,000 shares of Purchaser Common
Stock, or (ii) for a period of 30 days following the consummation by the
Purchaser of a public sale of at least 1,000,000 shares of Purchaser Common
Stock pursuant to a firm commitment underwriting, provided that the Purchaser
first furnishes to the Potential Sellers written notice and reasonably
satisfactory evidence that the Purchaser is actively engaged in such an
offering, or has so consummated such a sale.
(d) During the Fourth Restricted Period, the
Potential Sellers may (without being deemed to have breached this Agreement)
sell, transfer and/or assign up to 2,376,000 Restricted Shares, minus the number
of Restricted Shares that were sold by the Potential Sellers during the Second
and Third Restricted Periods pursuant to Sections 3.1(a) and 3.1(b) hereof.
(e) The Potential Sellers may (without being deemed
to have breached this Agreement) sell, transfer and/or assign any number of
Restricted Shares to any Permitted Transferee at any time and from time to time
during any Restricted Period, provided that any such Permitted Transferee agrees
in writing, prior to the sale, transfer or assignment to him of such Restricted
Shares, to be bound by all of the applicable provisions of this Agreement as to
all such Restricted Shares so sold, transferred or assigned to him.
(f) The Potential Sellers may (without being deemed
to have breached this Agreement) sell, transfer and/or assign Restricted Shares
during any Restricted Period in accordance with the provisions of Section 4.2
hereof.
3.2 Overall Monthly Limitation.
The number of Restricted Shares that may be sold by
the Potential Sellers pursuant to Sections 3.1(a), 3.1(b), 3.1(c) and 3.1(d)
hereof in any particular calendar month during the period commencing on the
Closing Date and ending on the last day of the full calendar month immediately
preceding the fourth anniversary of the Closing Date shall not exceed 8.711% of
the aggregate number of shares of Purchaser Common Stock traded on all
securities exchanges and reported through Nasdaq and any other automated
quotation system during the calendar month immediately preceding such particular
calendar month.
3.3 Percentage Share Limitation.
Each Individual Parent Shareholder agrees that the
total number of Restricted Shares sold by such Individual Parent Shareholder
pursuant to Sections 3.1(a), 3.1(b), 3.1(c) and 3.1(d) hereof during the period
from the Closing Date through the end of the Fourth Restricted Period will not
exceed such Individual Parent Shareholder's Percentage Share of 2,376,000.
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<PAGE>
3.4 Termination of Restrictions.
(a) Notwithstanding anything to the contrary
contained in this Agreement, all restrictions set forth in Section 3 hereof
(that have not previously terminated) shall terminate and cease to be of any
further force or effect upon the Restriction Expiration Date; provided, however,
that the rights granted to the Potential Sellers and the other Holders under
this Agreement (including the registration rights granted under Section 4
hereof) shall survive any such termination and continue in full force and
effect. Without limiting the generality of the foregoing, the rights granted by
the Purchaser pursuant to Section 4 hereof shall survive any merger involving,
and any other Change in Control of, the Purchaser.
(b) Notwithstanding anything to the contrary
contained in this Agreement: (i) upon the occurrence of a Special Termination
Event with respect to an Individual Parent Shareholder, all restrictions set
forth in Section 3 hereof (that have not previously terminated) shall cease to
apply to such Individual Parent Shareholder and shall cease to apply to any
Permitted Transferee to whom such Individual Parent Shareholder has transferred
any Transaction Shares; (ii) any shares of Purchaser Common Stock sold by such
Individual Parent Shareholder or any such Permitted Transferee after the
occurrence of a Special Termination Event shall not be taken into account in
determining the number of Restricted Shares sold pursuant to Section 3.1(a),
3.1(b), 3.1(c), 3.1(d) or 3.2 hereof; and (iii) for each Restricted Period after
the Restricted Period in which a Special Termination Event occurs with respect
to an Individual Parent Shareholder, the aggregate maximum number of Restricted
Shares that can be sold by the remaining Parent Shareholders pursuant to the
applicable provision of Section 3.1 shall be reduced by the number of shares
equal to such Individual Parent Shareholder's Percentage Share of the previously
applicable aggregate maximum number of Restricted Shares that could be sold
under said provision of Section 3.1. (Thus, for example, if a Special
Termination Event occurs with respect to Yossi Tulpan (whose Percentage Share is
31.407%) in the Third Restricted Period, then the maximum number of Restricted
Shares that could be sold pursuant to Section 3.1(d) hereof by the other Parent
Shareholders would be equal to 68.593% of the amount by which 2,376,000 exceeds
the number of Restricted Shares that were sold by the Potential Sellers pursuant
to Sections 3.1(a) and 3.1(b) hereof.) Notwithstanding anything to the contrary
contained in this Agreement, the rights granted to the Individual Parent
Shareholders and their Permitted Transferees under this Agreement (including the
registration rights granted under Section 4 hereof) shall survive any such
termination and continue in full force and effect.
3.5 Hedging Transactions.
Nothing contained in this Agreement will operate to
limit the ability of any Potential Seller to lend any Restricted Shares in
connection with, or otherwise engage in, conventional "collar"-type or other
"hedging" transactions at any time after the Closing; provided, however, that
(i) the Potential Sellers shall not be permitted to engage in any "hedging"
transactions with respect to their Restricted Shares during the 40-day period
commencing as of the Closing Date if such transactions would jeopardize the
availability of the
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Regulation S exemption for the issuance of the Purchaser Common Stock being
issued to the Seller at the Closing; and (ii) nothing contained in this Section
3.5 shall be deemed to allow a Potential Seller to sell or otherwise transfer
all of such Potential Seller's beneficial interest in his Restricted Shares if
such transfer would violate Section 3.1 hereof.
4. REGISTRATION.
4.1 Shelf/Demand Registration.
(a) If the Purchaser shall not have delivered to the
Potential Sellers, on or prior to September 18, 1997, the written opinion
referred to in the last sentence of Section 2 hereof, the Purchaser shall
promptly (and in any event prior to September 22, 1997) file with the Commission
a registration statement on Form S-3 (a "Shelf Registration Statement")
providing for the sale of 468,000 Registrable Shares, and the Purchaser shall
use its reasonable efforts to cause such Shelf Registration Statement to become
effective no later than the date 40 days after the Closing Date and to remain
continuously effective until the earlier of (i) the date on which the Potential
Sellers may sell all such Registrable Shares publicly in the United States (and
otherwise) without any restriction or limitation of any nature, or (ii) the date
on which the distribution described in the Shelf Registration Statement is
complete.
(b) Any Holder may request at any time during the
sixty day period immediately preceding the first day of the Third Restricted
Period that the Purchaser register under the Securities Act all or any part of
the Registrable Shares that may be sold during the Third Restricted Period. If
the Purchaser receives such a request, then, subject to Sections 4.1(d) and 4.8
hereof, the Purchaser shall (i) within 10 days after its receipt of such
request, give written notice thereof to all other Holders, and (ii) as soon as
practicable after its receipt of such request (but in any event within 30 days
after its receipt of such request), effect a registration under the Securities
Act of all Registrable Shares that (A) the Holders request to be registered, and
(B) may be sold during such Third Restricted Period in accordance with Sections
3.1(b) and 3.1(c) hereof. The Purchaser shall use its reasonable efforts to
cause such registration to remain continuously effective until the earliest of
(A) the day immediately preceding the second anniversary of the Closing Date,
(B) the date 30 days after delivery to all Holders of a legal opinion or
"no-action" letter and other documentation satisfying the requirements of
Section 4.8 hereof, or (C) the date on which the distribution covered by such
registration is complete.
(c) Any Holder may request at any time during the
sixty day period immediately preceding the first day of the Fourth Restricted
Period that the Purchaser register under the Securities Act all or any part of
the Registrable Shares that may be sold during the Fourth Restricted Period. If
the Purchaser receives such a request, then, subject to Sections 4.1(d) and 4.8
hereof, the Purchaser shall (i) within 10 days after its receipt of such
request, give written notice thereof to all other Holders, and (ii) as soon as
practicable after its receipt of such request (but in any event within 30 days
after its receipt of such request), effect a registration under the Securities
Act of all Registrable Shares that (A) the Holders request to be registered,
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<PAGE>
and (B) may be sold during such Fourth Restricted Period in accordance with
Section 3.1(d) hereof. The Purchaser shall use its reasonable efforts to cause
such registration to remain continuously effective until the earlier of (A) the
date 30 days after delivery to all Holders of a legal opinion or "no action"
letter and other documentation satisfying the requirements of Section 4.8
hereof, or (B) the date on which the distribution covered by such registration
is complete.
(d) Notwithstanding anything to the contrary
contained in Section 4.1 hereof, the Purchaser shall have no obligation to
effect any registration pursuant to Section 4.1(b) or 4.1(c) unless the
aggregate number of Registrable Shares requested to be registered shall be equal
to or greater than 100,000.
4.2 Purchaser Registration.
(a) Notice of Registration. If at any time or from
time to time the Purchaser shall determine to effect a registration with the
Commission of any securities for its own account (other than on Form S-4 or Form
S-8) or for the account of any other Person, the Purchaser will:
(i) promptly (and in any event at least 45
days prior to the filing of a registration statement under the Securities Act
with respect to such securities) give to all Holders written notice thereof; and
(ii) include in such registration (and any
related registration or qualification under Blue Sky laws), and in the related
underwriting (if any) all Registrable Shares that the Holders request to have
included in such registration (such request to be in writing and to be made
within 30 days after receipt by all Holders of such written notice from the
Purchaser).
(b) Underwriting. If the registration of which the
Purchaser gives notice is for a registered public offering involving an
underwriting, the Purchaser shall so advise the Holders as a part of the written
notice given pursuant to Section 4.2(a)(i) hereof. In such event the right of
any Holder to have Registrable Shares included in the registration pursuant to
this Section 4.2 shall be conditioned upon such Holder's participation in such
underwriting. All Holders proposing to distribute any Registrable Shares through
such underwriting shall (together with the Purchaser and the other shareholders
of the Purchaser distributing their shares of Purchaser Common Stock through
such underwriting) enter into an underwriting agreement in customary form with
the managing underwriter selected for such underwriting by the Purchaser.
Notwithstanding any other provision of this Section 4.2, if such managing
underwriter reasonably determines that marketing factors require a limitation of
the number of shares of Purchaser Common Stock to be included in such
registration and underwriting, the managing underwriter may exclude or otherwise
limit the number of shares of Purchaser Common Stock to be included in such
registration and underwriting by shareholders of the Purchaser, including,
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<PAGE>
without limitation, the Holders, prior to the exclusion of any shares to be sold
pursuant to such registration and underwriting by the Purchaser. The number of
Registrable Shares that may be included in the registration and underwriting
shall be allocated among all the participating Holders and other shareholders of
the Purchaser participating in such registration and underwriting in proportion,
as nearly as practicable, to the respective numbers of Registrable Shares held
by such Holders (and requested to be included in such registration) and the
number of shares of Purchaser Common Stock held by such other shareholders (and
requested to be included in such registration) at the time of filing the
registration statement. To facilitate the allocation of shares in accordance
with the above provisions, the Purchaser may round the number of shares
allocated to any Holder or shareholder to the nearest 100 shares. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Purchaser and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
(c) Restrictions Not Applicable. None of the
restrictions contained in Section 3 hereof shall apply to any sale of
Registrable Shares pursuant to a registration under this Section 4.2.
(d) Right to Terminate Registration. The Purchaser
shall have the right to terminate or withdraw any registration initiated by it
under this Section 4.2 prior to the effectiveness of such registration, whether
or not any Holder has elected to include Registrable Shares in such
registration.
(e) No Other Grants of Registration Rights. Without
the prior written consent of the Potential Sellers, the Purchaser shall not
grant to any Person any rights to have any shares of Purchaser Common Stock, or
any securities convertible into or exchangeable for shares of Purchaser Common
Stock, registered under the Securities Act on terms more favorable than those
set forth in this Agreement.
4.3 Expenses of Registration. All Registration Expenses shall
be borne exclusively by the Purchaser. Unless otherwise stated, all Selling
Expenses relating to Registrable Shares shall be borne by the Holders of such
Registrable Shares pro rata on the basis of the number of Registrable Shares so
sold.
4.4 Registration Procedures. In the case of each registration
effected by the Purchaser pursuant to this Agreement, the Purchaser will: (a) a
reasonable number of days prior to filing any registration statement, prospectus
or amendment or supplement thereto with the Commission, furnish a copy of such
registration statement, prospectus or amendment or supplement to each Holder
participating in such registration for such Holder's review; (b) keep each
Holder advised in writing as to the initiation of each registration and
qualification and as to the completion thereof; and (c) at the Purchaser's own
expense and as expeditiously as possible:
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(i) prepare and file with the Commission a
registration statement on Form S-3 (in the case of a registration under
Section 4.1(a) hereof) and, in all other cases, on Form S-1 or Form
S-3, as the Purchaser shall determine, and use its reasonable efforts
to cause such registration statement to become and remain effective for
such period as may be specified in this Agreement or, if not so
specified, such period that shall end on the earlier of: (A) the date
270 days after its effectiveness, or (B) the date upon which all of the
securities covered thereby have been sold by the Holders;
(ii) furnish to each Holder participating in such
registration upon request such reasonable number of copies of the
registration statement (and each amendment thereto), preliminary
prospectus and final prospectus (and each supplement thereto) as such
Holder may reasonably request in order to facilitate the public
offering of the securities covered thereby, including all documents
incorporated therein by reference (whether filed with the Commission
before or after the registration statement becomes effective) and all
exhibits thereto;
(iii) use its reasonable efforts to (A) register and
qualify (or obtain appropriate exemptions for) the shares covered by
such registration statement under such other securities or Blue Sky
laws of such states and other jurisdictions as shall be reasonably
requested by the Holders, and (B) keep such registrations and
qualifications in effect for so long as each registration statement
remains in effect; provided, however, that the Purchaser shall not be
required in connection therewith or as a condition thereto to (1)
qualify to do business in any such jurisdiction, (2) subject itself to
taxation in any such jurisdiction, or (3) file a general consent to
service of process in any such jurisdiction;
(iv) in the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement (in usual and customary form) with the managing underwriters
of such offering;
(v) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective for the applicable period set
forth in this Agreement, and comply with the provisions of the
Securities Act with respect to the disposition of all shares covered by
such registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in
such registration statement;
(vi) cause all securities covered by such
registration statement to be listed on each securities exchange or
interdealer quotation system of the National Association of Securities
Dealers, Inc. on which similar securities issued by the Purchaser are
then listed;
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(vii) provide a transfer agent and registrar for all
securities covered by such registration statement not later than the
effective date of such registration statement;
(viii) notify each Holder participating in such
registration, promptly after the Purchaser receives notice thereof, (A)
of the time when such registration statement has become effective, and
(B) at any time when a prospectus is required to be delivered under the
Securities Act in connection with any registration statement (1) of the
happening of any event as a result of which such registration
statement, such prospectus, any prospectus supplement or any document
incorporated by reference in any of the foregoing contains an 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, in the light of the circumstances under which they are made,
not misleading or (2) that the Purchaser is in possession of material
information that it deems advisable not to disclose in a registration
statement;
(ix) advise each Holder participating in such
registration, promptly after the Purchaser shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement
or the initiation or threatening of any proceeding for such purpose and
promptly use its reasonable efforts to prevent the issuance of any stop
order or to obtain its withdrawal (at the earliest practicable date) if
such stop order should be issued; and
(x) prior to the effectiveness of such registration
statement and any post-effective amendment thereto and at each closing
of an underwritten offering, (A) make such reasonable representations
and warranties to the Holders participating in such registration, and
the underwriters, if any, with respect to the Registrable Shares and
the registration statement as are customarily made by issuers to
underwriters and selling shareholders in underwritten offerings, (B)
obtain opinions of counsel to the Purchaser and updates thereof (which
counsel and which opinions shall be reasonably satisfactory to the
underwriters, if any, and to Holders who hold a majority of the
Registrable Shares being sold pursuant to such registration) addressed
to each selling Holder and the underwriters, if any, covering the
matters customarily covered in opinions requested in public offerings
and such other matters as may be reasonably requested by such Holders
and underwriters or their counsel, (C) obtain "comfort" letters and
updates thereof from the Purchaser's independent certified public
accountants addressed to the selling Holders and the underwriters, if
any, such letters to be in customary form and to cover matters of the
type customarily covered in "comfort" letters given to underwriters and
selling shareholders in connection with secondary underwritten
offerings, and (D) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority of the Registrable
Shares being sold pursuant to such registration and by the
underwriters, if any, to evidence compliance with clause (A) of this
clause "(x)" and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the
Purchaser.
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<PAGE>
4.5 Indemnification.
(a) The Purchaser will indemnify each Holder who
holds any Registrable Shares that are included in a registration or
qualification pursuant to this Agreement and each person controlling or
controlled by such Holder within the meaning of Section 15 of the Securities Act
against any expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on (i) any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, used in connection with such registration or
qualification, or (ii) any omission (or alleged omission) to state therein 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, or (iii) any violation by the Purchaser of the Securities Act, the
Exchange Act, any state or other securities laws or any rule or regulation
promulgated under such acts or laws applicable to the Purchaser in connection
with any such registration or qualification. In addition, the Purchaser will
reimburse each such Holder, and each person so controlling or controlled by such
Holder, for any legal or other expenses reasonably incurred, as such expenses
are incurred, in connection with investigating, preparing to defend or defending
any such claim, liability or action; provided, however, that the Purchaser will
not be liable to any such Holder in any such case to the extent that any such
expense, loss, damage or liability arises out of or is based on any untrue
statement of a material fact made by the Purchaser in the applicable
registration statement in reliance upon and in conformity with inaccurate
information furnished in writing to the Purchaser by any Holder or person
controlling such Holder expressly for use in the applicable registration
statement.
(b) Each Holder will, if Registrable Shares held by
such Holder are included in the shares as to which a registration or
qualification is being effected pursuant to this Agreement, indemnify the
Purchaser and each person controlling or controlled by the Purchaser within the
meaning of Section 15 of the Securities Act against any expenses, claims,
losses, damages or liabilities (or actions in respect thereof) arising out of or
based on any untrue statement of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereto, used in connection with such registration or qualification,
and will reimburse the Purchaser, and each person so controlling or controlled
by the Purchaser, for any legal or other expenses reasonably incurred, as such
expenses are incurred, in connection with investigating, preparing to defend or
defending any such claim, liability or action based on such untrue statement of
a material fact, in each case to the extent, but only to the extent, that such
untrue statement of a material fact is made in reliance upon and in conformity
with inaccurate information furnished in writing to the Purchaser by such Holder
or person controlling such Holder expressly for use in the applicable
registration statement. Notwithstanding anything to the contrary contained in
this Section 4.5(b) or elsewhere in this Agreement, any obligation of any Holder
to indemnify or reimburse any person pursuant to this Section shall be several
and not joint and shall be limited to the net amount of
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<PAGE>
proceeds received by such Holder from the sale of Registrable Shares pursuant to
the registration or qualification in connection with which indemnification or
reimbursement has been sought.
(c) Each party entitled to indemnification under this
Section 4.5 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought; provided, however, that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 4.5 unless the failure to give such notice
materially prejudices the rights or defenses of the Indemnifying Party, in which
case the Indemnifying Party shall be relieved of its obligations under this
Section 4.5 to the extent of such prejudice. In the event of the assertion or
commencement of any claim or litigation for which indemnification may be sought,
the Indemnifying Party shall have the right to assume the defense of any such
claim or litigation with counsel approved by the Indemnified Party (whose
approval shall not be unreasonably withheld), and the Indemnified Party shall
have the right to participate in such defense at its own expense; provided,
however, that the Indemnifying Party shall not have the right to assume the
defense of any matters as to which representation of both the Indemnifying Party
and the Indemnified Party by the same counsel would be inappropriate (as
reasonably determined by the Indemnified Party based on the written advice of
counsel) due to actual or potential differing interests between them, but shall
instead in such event pay the reasonable fees and costs of separate counsel for
the Indemnified Party. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party (which
consent shall not be unreasonably withheld) consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.
(d) If the indemnification provided for in this
Section 4.5 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any expenses, claims, losses, damages and
liabilities referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such expenses, claims,
losses, damages or liabilities in such proportion as is appropriate to reflect
not only the relevant benefits received by the Indemnifying Party but also the
relative fault of the Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the statements, omissions or violations
that resulted in such expenses, claims, losses, damages or liabilities as well
as any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference
to, among other things, whether any untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, however, that, in any such case,
no Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
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4.6 Information Regarding Holder.
Each Holder whose Registrable Shares are included in
any registration under this Agreement shall furnish to the Purchaser such
information regarding such Holder, the Registrable Shares held by such Holder
and the distribution proposed by such Holder as the Purchaser may reasonably
request in writing, to the extent such information is required by law to be
disclosed in the applicable registration statement.
4.7 Termination of Registration Rights.
The rights granted pursuant to this Section 4 shall
terminate as to any Holder at such time as such Holder can immediately sell all
of the Registrable Shares held by such Holder without restriction (under the
Securities Act or otherwise) in accordance with Rule 144.
4.8 Opinion of Counsel/"No Action" Correspondence.
In lieu of taking the actions referred to in Sections
4.1 and 4.4 hereof, the Purchaser may, at its sole expense, obtain and deliver
to a Holder who desires to effect a sale of Registrable Shares: (a) a written
opinion of Morrison & Foerster LLP or other reputable U.S. securities counsel
(reasonably satisfactory to such Holder in form and substance) that, or such
other evidence (reasonably satisfactory in form and substance to such Holder)
indicating that, such sale is exempt from (or otherwise not subject to)
registration and qualification under state securities laws; and (b) either (i) a
written opinion of Morrison & Foerster LLP or other reputable U.S. securities
counsel (reasonably satisfactory in form and substance to such Holder) that such
sale is exempt from registration under the Securities Act, or (ii) a writing
executed by an authorized representative of the Commission to the effect that
the Commission would take no action with respect to such sale. Nothing in this
Section 4.8 or elsewhere in this Agreement shall be deemed to require that any
Holder obtain an opinion of counsel or a writing executed by a representative of
the Commission in order to sell Registrable Shares.
5. RULE 144 REPORTING.
With a view to making available to the Holders the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Registrable Shares to the public in the United States without registration, the
Purchaser agrees that, so long as any Holder owns any Registrable Shares:
(a) the Purchaser will make and keep public information
available (in accordance with Rule 144) at all times;
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<PAGE>
(b) the Purchaser will file with the Commission, in a timely
manner, all reports and other documents required to be filed by the Purchaser
under the Exchange Act; and
(c) the Purchaser will furnish to each Holder promptly upon
request (i) a written statement by the Purchaser as to its compliance with
applicable requirements of Rule 144 and of the Exchange Act, (ii) a copy of the
most recent annual or quarterly report of the Purchaser, and (iii) such other
reports and documents as such Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing it to sell any Registrable
Shares without registration.
6. GOVERNING LAW.
This Agreement and the legal relations between the parties
arising hereunder shall be governed by and interpreted in accordance with the
laws of the State of California without regard to its conflicts of law
provisions. Any dispute arising out of or relating to this Agreement shall be
resolved through binding arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce. The venue for such
arbitration proceedings shall be in London, England. The arbitrator's fees and
other related expenses of any arbitration under this Agreement (such as expenses
for transcripts of the arbitration proceedings) shall be borne by the Purchaser
and the other parties to such arbitration in such proportions as shall be
determined by the arbitrator, or if there is no such determination, then such
fees and other expenses shall be borne one-half by the Purchaser and one-half
divided equally among the other parties to such arbitration. The resolution of a
dispute by the arbitrator shall be conclusive and binding upon the parties
hereto and judgment may be entered thereon in any court having jurisdiction
thereof. The arbitrator shall have the authority to make an award of actual
compensatory damages incurred by a party in connection with a dispute, but shall
have no right to grant special, punitive or exemplary damages or indirect or
consequential damages or to grant any form of equitable relief (except that the
arbitrator may, as part of his award, require the Purchaser to perform its
registration and other obligations under this Agreement).
7. ASSIGNABILITY.
Except as otherwise provided herein, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, successors and assigns. A Holder may assign, to any Permitted
Transferee or other Person to which such Holder transfers at least 10,000
Registrable Shares, such Holder's registration rights and other rights hereunder
with respect to such Registrable Shares.
8. ENTIRE AGREEMENT.
This Agreement constitutes the full and entire understanding
and agreement among the parties regarding the matters set forth herein and
supersedes all prior agreements and
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understandings, both written and oral, among or between any of the parties with
respect to the subject matter hereof.
9. NOTICES, ETC.
Any notice required or permitted hereunder shall be in writing
and shall be deemed given (a) when delivered in person, (b) three business days
after delivery to an "overnight" courier, or (c) 24 hours after delivery by
facsimile transmission (if receipt of such
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<PAGE>
facsimile is evidenced by a transmission report or other reasonable evidence of
the successful and accurate transmission of such notice), in each case addressed
as follows:
<TABLE>
<CAPTION>
<S> <C>
If to any Parent Shareholder: At such Parent Shareholder's address as set
forth on Schedule A hereto
</TABLE>
19
<PAGE>
With a copy to: Shinar, Shachor, Weissberger
5 Beit Hillel Street, 3rd Floor
Tel Aviv 67017, Israel
Attn: Doron Shinar
Fax: 972-3-562-1905
If to the Purchaser: Cylink Corporation
910 Hermosa Court
Sunnyvale, CA 94086
Attn: Robert B. Fougner
Fax: 408-774-4952
With a copy to: Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, CA 94304
Attn: Michael C. Phillips
Fax: 650-494-0792
Addresses may be changed (or in the case of a Holder, added) by written notice
given pursuant to this Section. Any notice given hereunder may be given on
behalf of a party by his counsel or other authorized representative.
10. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
11. AMENDMENTS.
This Agreement may not be amended, modified or supplemented,
except by means of a written amendment signed by all of the parties hereto;
provided, however, that the provisions of Section 4 hereof may be amended by
means of a written amendment signed by the Purchaser, on one hand, and Holders
representing a majority in interest of the Registrable Shares, on the other
hand, so long as such amendment does not take away any registration right of any
Holder or reduce the amount of reimbursable costs to any Holder in connection
with any registration hereunder without the consent of such Holder.
Notwithstanding the foregoing, any Holder may from time to time enter into one
or more agreements amending, modifying or
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supplementing the provisions of this Agreement if such action does not adversely
affect the rights or interest of any other Holder. This Agreement is intended to
benefit, and may be enforced by, the parties hereto and the Permitted
Transferees who receive Transaction Shares; provided, however, that except as
set forth in this Section 11, this Agreement may be amended, modified or
supplemented without the consent of any Permitted Transferee.
12. STOCK SPLITS, STOCK DIVIDENDS, ETC.
All numerical references (including dollar amounts) referred
to in this Agreement shall be adjusted, if appropriate, to reflect any stock
split, stock dividend, combination of shares, recapitalization, merger,
consolidation or other reorganization or similar event with respect to the
Purchaser Common Stock.
13. LIQUIDATION OF THE SELLER; LIABILITY FOR BREACH.
Nothing contained in this Agreement shall be construed or
shall operate to prevent the Seller from dissolving, winding up, liquidating or
terminating its existence at any time after the date of this Agreement.
Notwithstanding anything to the contrary contained in this Agreement, in the
event of the dissolution or liquidation of the Seller, the then current
shareholder(s) of the Seller and their successors and assigns shall succeed to
and shall be entitled to exercise and enforce all of the rights of the Seller
under this Agreement. In the event of a breach of this Agreement, the liability,
if any, of each Parent Shareholder shall be limited to such Parent Shareholder's
Percentage Share of the compensable damages (if any) incurred by, and payable
to, the Purchaser as a result of such breach. Notwithstanding anything to the
contrary contained in this Agreement (and without limiting the effect of the
preceding sentence), the total cumulative maximum liability of each Parent
Shareholder for all breaches of this Agreement and the Parent Shareholders
Indemnity Agreement of even date herewith shall be limited in the aggregate to
the dollar value of the assets of the Seller distributed to such Parent
Shareholder by the Seller in the dissolution and liquidation of the Seller, and
no Parent Shareholder's liability hereunder and thereunder shall exceed such
amount.
14. INTERPRETATION OF CERTAIN TERMS.
All references in this Agreement to "$" or "dollars" shall
mean U.S. dollars, and all references in this Agreement to "calendar month"
shall be based on the Gregorian calendar. For purposes of this Agreement, the
masculine gender shall be deemed to including the feminine and neuter gender,
and the neuter gender shall be deemed to include the masculine and feminine
genders.
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This Agreement is hereby executed as of the date first above written.
CYLINK CORPORATION
By: /s/ John V. Kalb, Jr.
--------------------------------------
John V. Kalb, Jr.
Vice President, Strategy and
Business Development
ALGORITHMIC RESEARCH LTD.
By: /s/ Yossi Tulpan
--------------------------------------
Yossi Tulpan
Chief Executive Officer
By /s/ Yossi Cohen
--------------------------------------
Yossi Cohen
Chief Operating Officer
A.R. DATA SECURITY LTD.
By: /s/ Yossi Tulpan
--------------------------------------
Yossi Tulpan
By: /s/ Yossi Cohen
--------------------------------------
Yossi Cohen
By: /s/ Amos Fiat
--------------------------------------
Amos Fiat
By: /s/ Oded Koritshoner
--------------------------------------
Oded Koritshoner
By: /s/ Zohar Tal
--------------------------------------
Zohar Tal
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PARENT SHAREHOLDERS:
/s/ Yossi Tulpan
-----------------------------------------
Yossi Tulpan
/s/ Amos Fiat
-----------------------------------------
Amos Fiat
/s/ Yossi Cohen
-----------------------------------------
Yossi Cohen
KOOR CAPITAL MARKETS
By: /s/ Itzak Chalamish
--------------------------------------
Itzak Chalamish
President
By: /s/ Yair Na'aman
--------------------------------------
Yair Na'aman
Head of Finance Division
TELRAD HOLDINGS LTD.
By: /s/ Oded Koritshoner
--------------------------------------
Oded Koritshoner
Managing Director
By: /s/
--------------------------------------
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Schedule A
Parent Shareholders
Name and Address of Parent Shareholder Percentage Share
- -------------------------------------- ----------------
Yossi Tulpan 31.407%
21 Bilu Street, Ness Tziona, Israel
Amos Fiat 31.407%
20 Shalom Ash Street, Tel Aviv, Israel
Yossi Cohen 10.337%
19 Mordechai Kaplan Street, Holon, Israel
Koor Capital Markets 7.501%
19 Rothschild Boulevard, Tel Aviv, Israel
Telrad Holdings Ltd. 19.348%
19 Rothschild Boulevard, Tel Aviv, Israel
PARENT SHAREHOLDERS INDEMNITY AGREEMENT
THIS PARENT SHAREHOLDERS INDEMNITY AGREEMENT ("Agreement") is made as
of September 8, 1997, by and among CYLINK CORPORATION, a California corporation
(the "Purchaser") and the parties identified on Schedule A hereto (the "Parent
Shareholders"), who collectively constitute all of the shareholders of A.R. DATA
SECURITY LTD., a limited liability company organized under the laws of the State
of Israel (the "Seller").
RECITALS
A. Contemporaneously with the execution and delivery of this Agreement, the
Purchaser is acquiring from the Seller (i) all of the issued and outstanding
shares of Algorithmic Research Ltd., a limited liability company organized under
the laws of the State of Israel (the "Company"), that are owned by the Seller,
and (ii) all of the issued and outstanding shares of Algart Holdings Ltd., a
limited liability company organized under the laws of the State of Israel,
pursuant to that certain Stock Purchase Agreement dated as of September 7, 1997
among the Purchaser, the Company and the Seller (the "Purchase Agreement").
B. This Agreement is being entered into pursuant to Section 7.7 of the Purchase
Agreement.
AGREEMENT
The parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
Unless the context otherwise requires, the capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
assigned to them in the Purchase Agreement. In addition, as used in this
Agreement, the following terms shall have the following respective meanings:
A Parent Shareholder's "Percentage Share" shall mean the "Percentage
Share" set forth opposite such Parent Shareholder's name on Schedule A hereto.
An Individual Parent Shareholder's "Specified Intellectual Property"
shall mean: (i) those material patents developed by such Individual Parent
Shareholder that provide intellectual property protection for any software,
hardware or invention that (A) has been personally developed by such Individual
Parent Shareholder, and (B) is material to the business of the Company and its
Subsidiaries; and (ii) those material copyrights and trade secrets developed by
such Individual Parent Shareholder that provide intellectual property protection
for any software, hardware or invention that (A) relates to encryption
technology, (B) has been personally developed by such Individual Shareholder,
and (C) is material to the business of the
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Company and its Subsidiaries. For purposes of the preceding sentence, any
software, hardware or invention will be deemed to be "material to the business
of the Company and its Subsidiaries" only if such software, hardware or
invention is incorporated in, and is a material component of, any Material
Company Product (or any material component, module, feature or subassembly of
any such Material Company Product).
2. REPRESENTATIONS AND WARRANTIES.
2.1 Capitalization. Each Parent Shareholder represents and warrants to
the Purchaser that, as of the time immediately prior to the Closing, except as
disclosed in the Company Schedule or as disclosed or otherwise described in any
of the documents listed or otherwise referred to in the Company Schedule, the
representations and warranties of the Seller set forth in Sections 2.1, 2.5 and
2.6 of the Purchase Agreement were true and accurate in all material respects.
2.2 Ownership of Specified Intellectual Property. Each Individual
Parent Shareholder represents and warrants to the Purchaser that, as of the time
immediately prior to the Closing, except as disclosed in the Company Schedule or
as disclosed or otherwise described in any of the documents listed or otherwise
referred to in the Company Schedule, such Individual Parent Shareholder has
assigned to the Company (or has otherwise permitted the Company to acquire) all
of his ownership rights (if any) in his Specified Intellectual Property, and has
not voluntarily assigned (or otherwise voluntarily granted or transferred) any
of his ownership rights (if any) in his Specified Intellectual Property to any
university or to any other third party.
2.3 No Implied Representations. Except as expressly set forth in
Sections 2.1 and 2.2 hereof, no Parent Shareholder is making any representation
or warranty, implied or otherwise, or is providing any assurances of any nature
whatsoever. Without limiting the generality of the foregoing, no Parent
Shareholder is making or shall be deemed to have made any representation or
warranty regarding the validity, ownership or status of any patent, copyright or
other intellectual property right, or regarding the existence or absence of any
rights or any potential liabilities or risks associated with the exploitation of
any such intellectual property right.
3. SURVIVAL. The representations and warranties contained in this Agreement
shall survive until the expiration of the applicable statute of limitations, at
which time such representations and warranties shall terminate and expire and
shall cease to be of any force or effect, and all liability of the parties with
respect to such representations and warranties shall thereupon be extinguished.
4. INDEMNIFICATION.
4.1 Indemnification by the Parent Shareholders. Subject to the
limitations on indemnification set forth in Section 4.4 hereof and elsewhere in
this Agreement, each Parent Shareholder shall indemnify and reimburse the
Purchaser for such Parent Shareholder's
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Percentage Share of the net amount of any Damages incurred by the Purchaser as a
proximate result of any inaccuracy in the representation and warranty made by
such Parent Shareholder in Section 2.1 hereof. For purposes of calculating the
net amount of such Damages, there shall be deducted an amount equal to the
aggregate dollar value (determined in the manner set forth in the Escrow
Agreement) of all cash and Escrow Shares distributed by the Escrow Agent to the
Purchaser in connection with any indemnification claim based on or related to
any inaccuracy or alleged inaccuracy in any of the representations and
warranties of the Seller contained in Sections 2.1, 2.5 and 2.6 of the Purchase
Agreement.
4.2 Indemnification by the Individual Parent Shareholders. Subject to
the limitations on indemnification set forth in Section 4.4 hereof and elsewhere
in this Agreement, each Individual Parent Shareholder shall indemnify and
reimburse the Purchaser for the net amount of any Damages incurred by the
Purchaser as a result of any inaccuracy in the representation and warranty made
by such Individual Parent Shareholder in Section 2.2 hereof. For purposes of
calculating the net amount of such Damages, there shall be deducted an amount
equal to the aggregate dollar value (determined in the manner set forth in the
Escrow Agreement) of all cash and Escrow Shares distributed by the Escrow Agent
to the Purchaser in connection with any indemnification claim based on or
related to any inaccuracy or alleged inaccuracy in any of the representations
and warranties of the Seller contained in Section 2.17(f) of the Purchase
Agreement.
4.3 Notification; Control of Proceedings. The Purchaser shall, with
reasonable promptness, give written notice (as provided in this Section 4.3) if
the Purchaser or any of its affiliates becomes aware of any loss, liability,
damage or expense with respect to which an indemnification claim may be asserted
by the Purchaser under this Agreement; provided, however, that for the sole
purpose of determining whether written notice must be provided by the Purchaser
under this Section 4.3 (and for the purpose of determining whether any Parent
Shareholder will have the right to defend a particular action, claim or
proceeding), the limitation set forth in Section 4.4 shall not be taken into
account. Such written notice shall be given to: (i) all of the Parent
Shareholders, if such indemnification claim may be asserted pursuant to Section
4.1 hereof; or (ii) the particular Individual Parent Shareholder(s) against whom
such indemnification claim may be asserted, if such indemnification claim may be
asserted pursuant to Section 4.2 hereof. (The failure of the Purchaser to
deliver such written notice with reasonable promptness shall not be deemed to
bar or otherwise limit the rights of the Purchaser hereunder unless such failure
materially prejudices any of the rights or defenses of any of the Parent
Shareholders.) If any claim is made by a third party or an action or proceeding
is commenced for which the Purchaser shall seek indemnification from any Parent
Shareholder, the Purchaser shall, with reasonable promptness, give to such
Parent Shareholder written notice of such claim, action or proceeding and
request such Parent Shareholder to defend the same. Such Parent Shareholder
shall have the right to defend such claim, action or proceeding at his or its
own expense, and (if such Parent Shareholder elects to defend such claim, action
or proceeding) shall give written notice to the Purchaser of the commencement of
the defense of such claim, action or proceeding by such Parent Shareholder. The
Purchaser shall be entitled to participate at its own
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<PAGE>
expense with such Parent Shareholder in such defense (subject to the right of
such Parent Shareholder to control such defense), but shall not be entitled in
any way to release, waive, settle, modify or pay such claim, action or
proceeding without the written consent of such Parent Shareholder. In the event
that such Parent Shareholder does not accept the defense of such claim, action
or proceeding as provided above, or does not notify the Purchaser of its
election to defend such claim, action or proceeding within 30 days after such
Parent Shareholder's receipt of written notice of such claim, action or
proceeding from the Purchaser, the Purchaser shall have the full right to defend
such claim, action or proceeding in such manner as it may deem appropriate, but
such Parent Shareholder shall not have any liability with respect to any
compromise or settlement effected without its prior written consent (which
consent shall not be unreasonably withheld). In the event a Parent Shareholder
shall assume the defense of any such claim, action or proceeding, the Purchaser
shall cooperate in the defense of such claim, action or proceeding, and the
records of each shall be available to the other with respect to such defense;
provided, however, that such Parent Shareholder shall not, in the defense of any
such claim, action or proceeding, consent to the entry of any judgment or enter
into any settlement where such entry of judgment or settlement does not include
a provision releasing the Purchaser from all liability with respect to such
claim, action or proceeding, except with the written consent of the Purchaser
(which consent shall not be unreasonably withheld).
4.4 Limitations on Indemnification. Notwithstanding anything contained
in Section 4.1 or 4.2 hereof or elsewhere in this Agreement: (a) no Parent
Shareholder shall be liable to the Purchaser under this Agreement except to the
extent that the cumulative amount of indemnifiable Damages actually incurred by
the Purchaser as a proximate result of all inaccuracies in the representations
and warranties made by such Parent Shareholder in this Agreement actually
exceeds the Unused Deductible Amount; and a Parent Shareholder shall only be
required to pay, and shall only be liable for, the amount by which the
cumulative amount of indemnifiable Damages actually incurred by the Purchaser as
a proximate result of all such inaccuracies in the representations and
warranties made by such Parent Shareholder in this Agreement actually exceeds
the Unused Deductible Amount; and (b) no Parent Shareholder shall be liable
under this Agreement with respect to any indemnification claim based on an
inaccuracy in any representation or warranty of such Parent Shareholder if any
of the Purchaser's officers or directors had actual knowledge of the inaccuracy
in such representation or warranty (or of any facts or circumstances
constituting or resulting in such inaccuracy) prior to the execution of this
Agreement; provided, however, that the limitation provided by this clause "(b)"
shall not be available to a Parent Shareholder if such Parent Shareholder also
had such actual knowledge of the inaccuracy in such representation and warranty
(or of such facts or circumstances constituting or resulting in such inaccuracy)
prior to the execution of the Purchase Agreement. For purposes of this Section
4.4, "Unused Deductible Amount" shall mean the $250,000 deductible amount
referred to in Section 5.5 of the Purchase Agreement, to the extent such
deductible amount has not been utilized under the Purchase Agreement to reduce
the amount of indemnification payments made to the Purchaser by the Escrow
Agent.
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4.5 Exclusive Remedy. Without limitation of any term of Article V of
the Purchase Agreement or the Escrow Agreement relating to the Purchaser's right
to make indemnification claims against the cash and Escrow Shares held by the
Escrow Agent, the indemnification provided for in Section 4 hereof shall be the
exclusive right and remedy of the Purchaser with respect to any claim against
any Parent Shareholder in connection with any of the transactions contemplated
by or referred to in the Purchase Agreement. No claim or cause of action with
respect to any inaccuracy in any representation or warranty contained in this
Agreement shall be enforceable unless made in accordance with the procedures set
forth in Section 4 hereof. Without limiting the generality of the foregoing (and
without limiting the Purchaser's right under Article V of the Purchase Agreement
to make indemnification claims against the cash and Escrow Shares held by the
Escrow Agent), except as expressly provided in this Agreement, none of the
Parent Shareholders shall have any liability to the Purchaser or to any of the
Purchaser's affiliates for any breach by the Seller of any of the Seller's
covenants, representations or warranties contained in the Purchase Agreement or
for any breach by any Parent Shareholder of any of the representations or
warranties contained in this Agreement.
4.6 Subrogation. To the extent that any Parent Shareholder makes or is
required to make any indemnification payment to the Purchaser: (a) such Parent
Shareholder shall be entitled to exercise, and shall be subrogated to, any
rights and remedies (including rights of indemnity, rights of contribution and
other rights of recovery) that the Purchaser or any of the Purchaser's
affiliates may have against any other person or entity with respect to any
Damages, circumstances or matter to which such indemnification payment is
directly or indirectly related; (b) the Purchaser shall permit such Parent
Shareholder to use the name of the Purchaser and each of its affiliates in any
transaction or in any proceeding or other matter involving any of such rights or
remedies; and (c) the Purchaser shall take, and shall cause each of its
affiliates to take, such actions as such Parent Shareholder may reasonably
request for the purpose of enabling such Parent Shareholder to perfect or
exercise such Parent Shareholder's right of subrogation hereunder. Any rights of
a Parent Shareholder to subrogation pursuant to this Section 4.6 shall not be
exercisable until such Parent Shareholder shall have fully performed his or its
obligations pursuant to this Agreement as to the indemnification of the
Purchaser (with respect to the particular indemnification claim involved);
provided, however, that prior to the full performance of such indemnification
obligations (and to the extent reasonably required to preserve the rights of
such Parent Shareholder to subrogation), such Parent Shareholder shall be
permitted to take any action so required to preserve such subrogation rights.
4.7 Acts of Fraud. Each Parent Shareholder acknowledges and agrees that
no limitation or other term contained in this Agreement, the Purchase Agreement
or the Escrow Agreement shall serve to limit any liability such Parent
Shareholder may otherwise have under applicable law for any fraud intentionally
committed upon the Purchaser by such Parent Shareholder with respect to any
representation made to the Purchaser in any written agreement with the
Purchaser.
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4.8 No Limitation of Actions. Nothing contained herein or in the
Purchase Agreement or the Escrow Agreement shall require the Purchaser to first
pursue its rights or remedies under Article V of the Purchase Agreement and the
Escrow Agreement as to any claim by the Purchaser that is based on the breach of
any representation or warranty in both this Agreement and the Purchase
Agreement. To the extent that the Purchaser shall first recover Damages from one
or more Parent Shareholders pursuant to this Agreement prior to any recovery
pursuant to Article V of the Purchase Agreement, the amounts recovered from such
Parent Shareholder shall be deducted from amounts payable pursuant to Section
5.2 of the Purchase Agreement.
5. GOVERNING LAW. This Agreement and the legal relations between the parties
arising hereunder shall be governed by and interpreted in accordance with the
laws of the State of California without regard to its conflict of law
provisions, and shall inure to the benefit of and be binding upon the successors
and assigns of the parties hereto. Any dispute arising out of or relating to
this Agreement shall be resolved through binding arbitration under the Rules of
Conciliation and Arbitration of the International Chamber of Commerce. The venue
for such arbitration proceedings shall be London, England. The arbitrator's fees
and other related expenses of any arbitration under this Agreement (such as
expenses for transcripts of the arbitration proceedings) shall be borne by the
Purchaser and the Parent Shareholders who are parties to such arbitration in
such proportions as shall be determined by the arbitrator, or if there is no
such determination, then such fees and other expenses shall be borne one-half by
the Purchaser and one-half divided equally among the Parent Shareholders who are
parties to such arbitration. The resolution of a dispute by the arbitrator shall
be conclusive and binding upon the parties hereto and judgment may be entered
thereon in any court having jurisdiction thereof. The arbitrator shall have the
authority to make an award of actual compensatory damages incurred by a party in
connection with a dispute, but shall have no right to grant special, punitive or
exemplary damages or indirect or consequential damages or to grant any form of
equitable relief.
6. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same document.
7. NOTICES. Any notice required or permitted hereunder shall be in writing and
shall be deemed given (a) when delivered in person, (b) three business days
after delivery to an "overnight" courier, or (c) 24 hours after delivery by
facsimile transmission (if receipt of such facsimile is evidenced by a
transmission report or other reasonable evidence of the successful and accurate
transmission of such notice), in each case addressed as follows:
If to the Purchaser: Cylink Corporation
910 Hermosa Court
Sunnyvale, CA 94086
Attn: Robert B. Fougner
Fax: 408-774-4952
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With a copy to: Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, CA 94304
Attn: Michael C. Phillips
Fax: 650-494-0792
If to a Parent
Shareholder: At the address for such Parent
Shareholder as set forth in
Schedule A hereto
With a copy to: Shinar, Shachor, Weissberger
5 Belt Hillel Street, 3rd Floor
Tel Aviv 67017, Israel
Attn: Doron Shinar
Fax: 972-3-562-1905
Addresses may be changed by written notice given pursuant to this
Section. Any notice given hereunder may be given on behalf of any party by his
or its counsel or other authorized representative.
8. ENTIRE AGREEMENT. This Agreement constitutes the full and entire understand
among the parties regarding the matters set forth herein and supersedes all
prior agreements and understandings, both written and oral, among or between any
of the parties with respect to the subject matter hereof.
9. AMENDMENTS. This Agreement may not be amended, modified or supplemented,
except by means of a written amendment signed by all parties hereto.
10. LIQUIDATION OF SELLER. Following the liquidation of the Seller, in
exercising the Seller's contractual rights under the Purchase Agreement, the
Parent Shareholders will be subject to the limitations and restrictions
applicable to the exercise of such contractual rights under Article V and the
other provisions of the Purchase Agreement. In addition, following the
liquidation of the Seller, the respective Parent Shareholders will cause to be
performed all continuing contractual obligations of the Seller under Sections
1.2(b), 4.7, 4.13, 9.1, 11.3, 11.6 and 11.7 of the Purchase Agreement and
Section 4(e) of the Escrow Agreement; provided, however, that, in the event of
any failure to cause any of such obligations to be performed, the liability (if
any) of each Parent Shareholder shall be limited to such Parent Shareholder's
Percentage Share of the compensable damages incurred by the Purchaser as a
proximate result of such failure. Notwithstanding anything to the contrary
contained in this Agreement or in any other document (and without limiting the
effect of the proviso to the preceding sentence), the total cumulative maximum
liability of each Parent Shareholder for all breaches of this Agreement and all
breaches of the Seller's Agreement of even date herewith shall be limited in the
aggregate
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to the net dollar value of the assets of the Seller distributed to such Parent
Shareholder by the Seller in the dissolution and liquidation of the Seller, and
such Parent Shareholder's aggregate liability hereunder and thereunder shall in
no event exceed such amount.
11. MISCELLANEOUS. For purposes of this Agreement, the masculine gender shall be
deemed to include the feminine and neuter genders, and the neuter gender shall
be deemed to include the masculine and feminine genders.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first stated above.
CYLINK CORPORATION
By: /s/ John V. Kalb, Jr.
-------------------------------------------
John V. Kalb, Jr.
Vice President,
Strategy and Business Development
By: /s/ Yossi Tulpan
-------------------------------------------
Yossi Tulpan
By: /s/ Amos Fiat
-------------------------------------------
Amos Fiat
By: /s/ Yossi Cohen
-------------------------------------------
Yossi Cohen
KOOR CAPITAL MARKETS
By: /s/ Itzak Chalamish
-------------------------------------------
Itzak Chalamish
President
By: /s/ Yair Na'aman
-------------------------------------------
Yair Na'aman
Head of Finance Division
TELRAD HOLDINGS LTD.
By: /s/ Oded Koritshoner
-------------------------------------------
Oded Koritshoner
Managing Director
9
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By: /s/
-------------------------------------------
10
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SCHEDULE A
TO PARENT SHAREHOLDERS INDEMNITY AGREEMENT
Name and Address of Parent Shareholder Percentage Share
Yossi Tulpan 31.407%
21 Bilu Street, Ness Tziona, Israel
Amos Fiat 31.407%
20 Shalom Ash Street, Tel Aviv, Israel
Yossi Cohen 10.337%
19 Mordechai Kaplan Street, Holon, Israel
Koor Capital Markets 7.501%
19 Rothschild Boulevard, Tel Aviv, Israel
Telrad Holdings Ltd. 19.348%
19 Rothschild Boulevard, Tel Aviv, Israel
11
