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SECURITIES EXCHANGE AND COMMISSION
Washington, D. C. 20549
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): April 18, 2000
Terayon Communication Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
000-24647 77-0328533
(Commission File No.) (I.R.S. Employer Identification No.)
2952 Bunker Hill Lane
Santa Clara, CA 95054
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (408) 727-4400
<PAGE>
Item 2. Acquisition or Disposition of Assets.
A. ComBox Ltd.
On April 18, 2000 (the "ComBox Closing Date"), the registrant,
Terayon Communication Systems, Inc. ("Terayon"), acquired ComBox Ltd.
("ComBox"), pursuant to that certain Share Purchase Agreement (the "ComBox
Agreement") between and among Terayon, the shareholders of ComBox and ComBox
dated February 3, 2000 (the "ComBox Acquisition"). ComBox develops, markets and
sells broadband data systems and satellite communications technology.
Pursuant to the ComBox Agreement, Terayon acquired all outstanding
shares of capital stock of ComBox, and ComBox became a wholly-owned subsidiary
of Terayon on April 18, 2000 (the "Effective Time"). As consideration for the
ComBox Acquisition, the former shareholders of ComBox received an aggregate of
Seven Hundred Seventy Three Thousand Eight Hundred Eighty Five (773,885) shares
of Terayon common stock and approximately Two Hundred Fifty Thousand dollars in
a cash payments as described in the ComBox Agreement attached hereto as Exhibit
2.1. The ComBox Acquisition is intended to qualify for "purchase" accounting
treatment under the requirements of Opinion 16 of the Accounting Principles
Board of the American Institute of Certified Public Accountants ("AICPA") and
the related published interpretations of the AICPA, the Financial Accounting
Standards Board and the rules and regulations of the Securities and Exchange
Commission.
B. Internet Telecom Ltd.
On April 18, 2000, Terayon through its wholly owned subsidiary
Telegate Ltd. ("Telegate") acquired all outstanding assets of Internet Telecom
Ltd. ("Internet Telecom"), pursuant to that certain Asset Purchase Agreement
(the "Internet Telecom Agreement") between and among Telegate, Terayon and
Internet Telecom dated March 12, 2000 (the "Internet Telecom Acquisition").
Internet Telecom develops, markets and supplies PacketCable and other standards-
bases, voice-over-Internet Protocol systems and technologies.
Under the Internet Telecom Agreement, Telegate will acquire all
outstanding assets of Internet Telecom. As consideration for the Internet
Telecom Acquisition, Internet Telecom and certain former employees of Internet
Telecom currently employed by Telegate will receive an aggregate of One Hundred
Eighty Eight Thousand Six Hundred Ninety (188,690) shares of Terayon common
stock and approximately Two Million dollars in a cash payment as described in
the Internet Telecom Agreement, attached hereto as Exhibit 2.2. The Internet
Telecom Acquisition is intended to qualify for "purchase" accounting treatment
under the requirements of Opinion 16 of the Accounting Principles Board of the
American Institute of Certified Public Accountants ("AICPA") and the related
published interpretations of the AICPA, the Financial Accounting Standards Board
and the rules and regulations of the Securities and Exchange Commission.
C. Internet Telecom Ltd.
On April 22, 2000, Terayon acquired certain assets and assumed
certain liabilities of Tyco Electronics Corporation ("Tyco") through its
acquisition of the Access Network
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Electronics Division, an unincorporated division of Tyco ("ANE"), pursuant to
that certain Amended and Restated Asset Purchase Agreement (the "Tyco
Agreement") between Terayon and Tyco dated February 10, 2000 (the "ANE
Acquisition"). ANE develops, markets and produces Digital Subscriber Line (DSL)
systems that provide multiple phone lines through a single pair of copper wires.
Under the Tyco Agreement, Terayon will acquire certain assets and
assume certain liabilities of Tyco through its acquisition of ANE. As
consideration for the ANE Acquisition, Tyco will receive an aggregate of Seven
Hundred Two Thousand Two Hundred Seventy Six (702,276) shares of Terayon common
stock as described in the Internet Telecom Agreement, attached hereto as Exhibit
2.3. The ANE Acquisition is intended to qualify for "purchase" accounting
treatment under the requirements of Opinion 16 of the Accounting Principles
Board of the American Institute of Certified Public Accountants ("AICPA") and
the related published interpretations of the AICPA, the Financial Accounting
Standards Board and the rules and regulations of the Securities and Exchange
Commission.
D. Ultracom Communications Holdings (1995) Ltd.
On April 27, 2000 (the "Ultracom Closing Date"), Terayon acquired
Ultracom Communications Holdings (1995) Ltd. ("Ultracom"), pursuant to that
certain Share Purchase Agreement (the "Ultracom Agreement") by and among
Terayon, the shareholders of Ultracom and Ultracom dated March 26, 2000 (the
"Ultracom Acquisition"). Ultracom develops, markets and sells broadband systems-
on-silicon.
Pursuant to the Ultracom Agreement, Terayon acquired outstanding
shares of capital stock of Ultracom, and Ultracom became a wholly-owned
subsidiary of Terayon on April 18, 2000 (the "Effective Time"). As consideration
for the Ultracom Acquisition, the former shareholders of Ultracom received an
aggregate of Two Hundred Sixty Eight Thousand Three Hundred Eighty Three
(268,383) shares of Terayon common stock and approximately Two Million Seven
Hundred Fifty Five Thousand Two Hundred Ninety Nine dollars in a cash payment as
described in the Ultracom Agreement, attached hereto as Exhibit 2.4. The
Ultracom Acquisition is intended to qualify for "purchase" accounting treatment
under the requirements of Opinion 16 of the Accounting Principles Board of the
American Institute of Certified Public Accountants ("AICPA") and the related
published interpretations of the AICPA, the Financial Accounting Standards Board
and the rules and regulations of the Securities and Exchange Commission.
Item 7. Financial Statements and Exhibits.
a. The financial statements required by this Item will be filed by
amendment no later than 60 days after the date of this report.
b. The pro forma financial statements required by this Item will be filed
by amendment no later than 60 days after this report.
c. The following exhibits are furnished in accordance with the provisions
of Item 601 of Regulation S-K:
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Exhibit Number Exhibit
2.1 Share Purchase Agreement, dated February 3, 2000, by and
among Terayon Communication Systems, Inc., the shareholders
of ComBox Ltd. and ComBox Ltd.
2.2 Asset Purchase Agreement, dated March 12, 2000, by and among
Terayon Communication Systems, Inc., Telegate Ltd. and
Internet Telecom Ltd.
2.3 Amended and Restated Asset Purchase Agreement, dated February
10, 2000, between Terayon Communication Systems, Inc. and
Tyco Electronics Corporation.
2.4 Share Purchase Agreement, dated March 26, 2000, by and among
Terayon Communication Systems, Inc., the shareholders of
Ultracom Communications Holdings (1995) Ltd. and Ultracom
Communications Holdings (1995) Ltd.
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SIGNATURE
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, thereunto duly authorized.
Terayon Communication Systems, Inc.
Dated: May 3, 2000 By: /s/ Ray M. Fritz
-------------------------------------
Ray M. Fritz
Chief Financial Officer
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EXHIBIT INDEX
Exhibit
Number Description
2.1 Share Purchase Agreement, dated February 3, 2000, by and among
Terayon Communication Systems, Inc., the shareholders of ComBox
Ltd. and ComBox Ltd.
2.2 Asset Purchase Agreement, dated March 12, 2000, by and among
Terayon Communication Systems, Inc., Telegate Ltd. and Internet
Telecom Ltd.
2.3 Amended and Restated Asset Purchase Agreement, dated February 10,
2000, between Terayon Communication Systems, Inc. and Tyco
Electronics Corporation.
2.4 Share Purchase Agreement, dated March 26, 2000, by and among
Terayon Communication Systems, Inc., the shareholders of Ultracom
Communications Holdings (1995) Ltd. and Ultracom Communications
Holdings (1995) Ltd.
<PAGE>
EXHIBIT 2.1
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of February 3, 2000, by and among: TERAYON COMMUNICATION SYSTEMS, INC.,
a Delaware corporation ("Terayon"), COMBOX LTD., a private company organized
under the laws of the State of Israel (the "Company") and the persons whose
names are set forth on the signature page attached hereto (each, individually, a
"Seller" and, collectively, the "Sellers"). Certain other capitalized terms
used in this Agreement are defined in Exhibit A.
RECITALS
A. The Company is engaged principally in the development,
manufacturing and marketing of high-speed data transmission systems for standard
digital and analog Cable-TV, as well as digital video broadcast over wireless
and satellite media. The Company is located at 16 Bazel Street, Petach Tikva,
Israel.
B. The Sellers, collectively, own all the issued and outstanding
shares of the Company (the "Shares").
C. Terayon desires to acquire all of the Shares and the Sellers
desire to sell such Shares to Terayon.
D. The Sellers and Terayon desire to make certain representations and
warranties and other agreements in connection with the transactions contemplated
hereby.
E. For accounting purposes, it is intended that the transaction
contemplated by this Agreement be treated as a "purchase".
F. This Agreement has been approved by the respective boards of
directors of Terayon, the Sellers (where applicable) and the Company.
AGREEMENT
The parties to this Agreement agree as follows:
SECTION 1. DESCRIPTION OF TRANSACTION.
1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, on the Closing Date (as defined below), the Sellers shall sell,
transfer, assign, convey and deliver to Terayon, and Terayon shall purchase from
the Sellers such Shares, in each case, free and clear of all Liens. The closing
of the purchase and sale (the "Closing") shall take place at the offices of
Naschitz Brandes & Co., 5 Tuval Street, Tel Aviv, Israel at 10:00 a.m., on
February ___, 2000 or such later business day on which all the conditions set
forth in Section 6 and 7 have been satisfied or waived, or on such other date,
time and place as the parties may mutually agree (the "Closing Date"). At the
Closing, the Sellers shall cause the Company to deliver to Terayon one or more
instruments representing the Shares, and Terayon
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(i) shall issue the Share Consideration (as defined in Section 1.3 below) to the
Sellers' Representative (as defined in Section 10.1 below) for distribution to
the Sellers in accordance with the column in Schedule A captioned "Share
Consideration", (ii) shall pay the Cash Payment to the Sellers' Representative
for distribution to the Sellers in accordance with the column in Schedule A
captioned "Cash Payment" and, (iii) shall deposit the Escrow Shares (as defined
below) with the Escrow Agent, which amounts together represent the aggregate
Purchase Consideration payable to the Sellers hereunder.
1.2 Further Assurances. If, at any time after the Closing Date, Terayon
shall consider or be advised that any deeds, bills of sale, assignments or
assurances or any other acts or things are reasonably necessary, desirable or
proper (a) to vest, perfect or confirm, of record or otherwise, in Terayon, its
right to, and title or interest in, the Shares or (b) otherwise to carry out the
purposes of this Agreement, Terayon shall so advise the Company in writing, and
the Company thereupon shall execute and deliver all such deeds, bills of sale,
assignments and assurances and do all such other acts and things reasonably
necessary, desirable or proper to vest, perfect or confirm its right, title or
interest in, to or under the Shares, and otherwise to carry out the purposes of
this Agreement.
1.3 Purchase Consideration. The consideration for the Shares shall be
775,000 shares of Common Stock of Terayon (the "Terayon Shares"). In accordance
with Section 1.1, on the Closing Date, Terayon shall issue to the Sellers the
Terayon Shares (the "Share Consideration"), of which 77,500 shares of Common
Stock of Terayon (the "Escrow Shares") shall be deposited with the Escrow Agent
to be held in the Escrow Fund and shall be available to satisfy the
indemnification obligations as provided in Section 9. In lieu of a portion of
the Share Consideration, as set forth in Section 1.4 below, Terayon shall be
entitled to pay the Sellers cash in an amount of up to two hundred and fifty
thousand US Dollars ($250,000) (the "Cash Payment"). The Share Consideration
(which includes the shares to be delivered to the Sellers, the Escrow Shares and
the shares to be delivered to any and all holders of vested options, warrants or
other exercisable or convertible securities of the Company) and the Cash Payment
shall, collectively, be referred to herein as the Purchase Consideration.
1.4 Method of Share Transfer. The Transfer of the Terayon Shares as set
forth in Section 1.3 above shall be made by Terayon to the Sellers'
Representative on the Closing Date. All cash payments made by Terayon to the
Sellers' Representative on the Closing Date shall be made by wire transfer of
immediately available funds to the account specified by the Seller in writing to
Terayon at least two (2) business days prior to the Closing Date (the
"Account"). The Cash Payment shall reduce the Share Consideration by such number
of Terayon Shares, the value of which (calculated using the average closing
prices of the shares of Terayon Common Stock, as reported on the Nasdaq National
Market for the fifteen consecutive trading days immediately preceding the date
which is three days prior to the Closing Date) shall be equal to the Cash
Payment.
1.5 Seller Waivers. Each Seller hereby waives and releases, effective as
of the Closing, any and all rights, claims and causes of action assertable
against the Company in respect of its ownership of any securities of the Company
and any and all agreements
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between such Seller and the Company, which agreements shall automatically
terminate as of the Closing Date.
1.6 Accounting Treatment. For accounting purposes, the transaction
contemplated by this Agreement is intended to be treated as a "purchase."
1.7 Employee Options.
(a) There are currently outstanding and unexercised vested options
(the "Vested Options") and unvested options (the "Unvested Options" and
collectively with the Vested Options, the "Options") to acquire Series A
Ordinary Shares issued by the Company to employees, directors and consultants
listed in Schedule A (the "Option Holders"). The names of the Option Holders
and the number of Class A Ordinary Shares covered by each Option are set forth
on Schedule A.
(b) At the Closing, all Options shall be canceled, and in
consideration of such cancellation, Terayon shall deposit such number of options
to purchase Common Stock ("Terayon Options") indicated opposite such Option
Holder's name on Schedule A in a Retention Account, which shall be created
specifically for such purpose. The Terayon Options shall be released to the
Option Holders upon and subject to the terms and conditions set forth in
Schedule 1.7(b). Prior to the Closing, no Option Holder shall exercise or
transfer any Options prior to the Closing.
(c) As soon as practicable following the date hereof and in any
event prior to the Closing, the Company shall secure the written agreement, in
form and substance reasonably acceptable to Terayon, of each Option Holder to
the terms and conditions of this Agreement (the "Option Holder Consent Letter
and Counterpart Signature Page"). For the avoidance of doubt, the Share
Consideration shall include the total number of shares of Common Stock to be
issued to the Sellers and to all the holders of Vested Options hereunder.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants, to and for the benefit of the
Indemnitees, as follows:
2.1 Due Organization; Subsidiaries; Etc.
(a) The Company is duly organized and validly existing under the
laws of the State of Israel. The Company has all requisite corporate power and
authority to conduct its business in the manner in which its business is
currently being conducted and to own and use its assets in the manner in which
its assets are currently owned and used.
(b) Except as set forth in Part 2.1 of the Disclosure Schedule, the
Company has not conducted any business under or otherwise used, for any purpose
or in any jurisdiction, any fictitious name, assumed name, trade name or other
name, other than the name "ComBox Ltd."
<PAGE>
(c) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a Material Adverse Effect
on the Company.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth (i)
the names of the members of the Company's board of directors, (ii) the names of
the members of each committee of the Company's board of directors, and (iii) the
names and titles of the Company's officers.
(e) Except for the Company's two wholly owned subsidiaries
(ComBox Inc., a Delaware corporation and MultiBox Ltd., a company formed under
the laws of the State of Israel, collectively, the "Subsidiaries"), the Company
does not own any controlling interest in any Entity and the Company has never
owned, beneficially or otherwise, any shares or other securities of, or any
direct or indirect equity interest in, any Entity. The Company has not agreed
and is not obligated to make any future investment in or capital contribution to
the Subsidiaries or any Entity. The Company has not guaranteed and is not
responsible or liable for any obligation of the Subsidiaries or any of the
Entities in which it owns or has owned any equity interest.
2.2 Articles of Association and Memorandum of Association; Records.
Except as set forth in Part 2.2 of the Disclosure Schedule, the Company has
delivered to Terayon accurate and complete copies of: (1) the Memorandum of
Association and Articles of Association of the Company, including all amendments
thereto; (2) the stock records of the Company; and (3) the minutes and other
records of the meetings and other proceedings (including any actions taken by
written consent or otherwise without a meeting) of the stockholders of the
Company, the board of directors of the Company and all committees of the board
of directors of the Company. There have been no formal meetings or other
proceedings of the stockholders of the Company, the board of directors of the
Company or any committee of the board of directors of the Company that are not
fully reflected in such minutes or other records. Except as set forth in Part
2.2 of the Disclosure Schedule, there has not been any violation of any of the
provisions of the Company's Articles of Association or Memorandum of
Association, nor has the Company taken any action that is inconsistent with any
resolution adopted by the Company's stockholders, the Company's board of
directors or any committee of the Company's board of directors, which would have
a Material Adverse Effect on the Company. Except as set forth in Part 2.2 of
the Disclosure Schedule, the books of account, stock records, minute books and
other records of the Company are accurate, up-to-date and complete in all
material respects, and have been maintained in accordance with prudent business
practices.
2.3 Capitalization.
The authorized share capital of the Company immediately prior to the
Closing shall be two hundred and seventy one (271,000) New Israeli Shekels
consisting of (i) 12,053,000 Ordinary Shares NIS 0.01 nominal value per share,
of which 12,037,000 shares are issued and
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outstanding (the "Ordinary Shares"), (ii) 3,500,000 Series A Ordinary Shares,
NIS 0.01 nominal value per shares, none of which are issued and outstanding,
(iii) 5,700,000 Series A Preferred Shares, NIS 0.01 nominal value per share, of
which 5,253,000 are issued and outstanding (the "Series A Preferred Shares"),
and (iv) 5,847,000 Series B Preferred Shares, NIS 0.01 nominal value per share,
all of which are issued and outstanding (the "Series B Preferred Shares" and,
collectively with the Ordinary Shares and the Series A Preferred, the "Shares").
The issued and outstanding share capital of the Company, on a fully diluted and
as-converted basis taking into consideration all convertible or exchangeable
securities and other interests in the Company is set forth in Part 2.3 of the
Disclosure Schedule. Except as set forth in Part 2.3 of the Disclosure Schedule,
at the Closing Date, there will not be any outstanding or authorized
subscriptions, options, warrants, calls, rights, commitments, convertible
securities, or any other agreements of any character directly or indirectly
obligating the Company to issue any additional shares or any securities
convertible into, or exchangeable for, or evidencing the right to subscribe for,
any shares.
2.4 Financial Statements.
(a) The Company has delivered to Terayon the consolidated audited
balance sheets of the Company as of December 31, 1999, 1998, 1997 and 1996, and
the related audited statements of operations and statements of stockholders'
equity of the Company for the years then ended, together with the notes thereto
and the unqualified report and opinion of a recognized firm of independent
certified accountants relating thereto (collectively, the "Company Financial
Statements").
(b) The Company Financial Statements are accurate and complete in all
material respects and present fairly the financial position of the Company as of
the respective dates thereof and the results of operations of the Company for
the periods covered thereby. The Company Financial Statements have been prepared
in accordance with generally accepted accounting principles consistently applied
in Israel throughout the periods covered (except that the financial statements
referred to in Section 2.4(a)(ii) do not contain footnotes and are subject to
normal and recurring year-end audit adjustments, which will not, individually or
in the aggregate, be material in magnitude) and comply with the requirements of
all applicable Israeli regulations.
(c) Except as set forth in Part 2.2 of the Disclosure Schedule, all
proper and necessary books of account, minute books, registers and records have
been maintained by the Company, are in its possession and contain accurate
information relating to all material transactions to which the Company has been
a party, except where the failure to maintain such books of account, minute
books, registers and records would not have a Material Adverse Effect on the
Company.
(d) A complete list of the Company's debts and loan facilities as of
December 31, 1999, is set forth in Part 2.4(d) of the Disclosure Schedule.
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2.5 Absence of Changes. Except as set forth in Part 2.5 of the Disclosure
Schedule, since December 31, 1999:
(a) there has not been any material adverse change in the Company's
business, prospects, operations, assets, liabilities, debts, work force or its
condition (financial or otherwise) and no event has occurred that will, or could
reasonably be expected to, have a Material Adverse Effect on the Company;
(b) there has not been any material loss, damage or destruction to, or
any material interruption in the use of, any of the Company's assets (whether or
not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) except as set forth in Part 2.3 of the Disclosure Schedule, the
Company has not sold, issued or authorized the issuance of (i) any capital stock
or other security, (ii) any option or right to acquire any capital stock or any
other security or (iii) any instrument convertible into or exchangeable for any
capital stock or other security;
(e) the Company has not amended or waived any of its rights under, or
permitted the acceleration of vesting under, (i) any provision of employee
options plans (written or oral), (ii) any provision of any agreement evidencing
any outstanding Option or Warrant, or (iii) any restricted stock purchase
agreement;
(f) there has been no amendment to the Company's Articles of Association
or Memorandum of Association, and the Company has not effected or been a party
to any Acquisition Transaction, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction;
(g) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(h) the Company has not made any capital expenditure which, when added
to all other capital expenditures made on behalf of the Company since December
31, 1999, exceeds $25,000;
(i) the Company has not (i) entered into or permitted any of the assets
owned or used by it to become bound by any Contract that is or would constitute
a Material Agreement (as defined in Section 2.10(a)), or (ii) amended or
prematurely terminated, or waived any material right or remedy under, any such
Contract;
(j) the Company has not (i) acquired, leased or licensed any right or
other asset from any other Person, (ii) sold or otherwise disposed of, or leased
or licensed, any right or other asset to any other Person, or (iii) waived or
relinquished any right, except for
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immaterial rights or other immaterial assets acquired, leased, licensed or
disposed of in the ordinary course of business and consistent with the Company's
past practices;
(k) the Company has not written off as uncollectible, or established any
extraordinary reserve with respect to, any account receivable or other
indebtedness;
(l) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with the Company's past practices;
(m) the Company has not (i) lent money to any Person, or (ii) incurred
or guaranteed any indebtedness for borrowed money.
(n) the Company has not (i) established or adopted any Employee Benefit
Plan, (ii) paid any bonus or made any profit-sharing or similar payment to, or
increased the amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees, or (iii) hired any new employees;
(o) there has been no resignation or termination of employment of any
officer or key employee of the Company;
(p) the Company has not changed any of its methods of accounting or
accounting practices in any respect;
(q) the Company has not made any Tax election;
(r) the Company has not commenced or settled any Legal Proceeding;
(s) the Company has not entered into any transaction or taken any other
action outside the ordinary course of business or inconsistent with its past
practices; and
(t) the Company has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(s)" above.
2.6 Properties and Assets. Full and accurate details of the Company's
properties and assets are contained in Part 2.6 of the Disclosure Schedule.
Except as disclosed in Part 2.6 of the Disclosure Schedule or in the notes to
the Company Financial Statements, the Company has good and marketable title to
its assets, including without limitation those reflected in the Company
Financial Statements, free and clear of any right, interest or equity of any
individual or entity (including any right to acquire, option, or right of
preemption) or any mortgage, charge, pledge, lien, or assignment, or any other
encumbrance or security interest or arrangement of whatsoever nature over or in
the relevant property ("Security Interests"). With respect to the assets that
are leased, the Company is in compliance with all material provisions of such
leases, such leases are valid and binding, and, to the best of its knowledge,
the Company holds leasehold interests in such assets free and clear of all
Security
<PAGE>
Interests, except for Security Interests that, both individually and in the
aggregate with all other exceptions to any of the representations in this
Section 2 which are not specified in the Disclosure Schedule, would not have a
material adverse effect on the Company.
2.7 Bank Accounts; Receivables.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate information
with respect to each account maintained by or for the benefit of the Company at
any bank or other financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides an accurate and
complete breakdown of all accounts receivable, notes receivable and other
receivables of the Company as of December 31, 1999. Except as set forth in Part
2.7(b) of the Disclosure Schedule, all existing accounts receivable of the
Company (including those accounts receivable reflected on the Unaudited Balance
Sheet that have not yet been collected and those accounts receivable that have
arisen since December 31, 1999 and have not yet been collected) (i) represent
valid obligations of customers of the Company arising from bona fide
transactions entered into in the ordinary course of business, (ii) are current
and, to the Company's best knowledge, will be collected in full when due,
without any counterclaim or set off (net of an allowance for doubtful accounts
not to exceed $25,000 in the aggregate).
2.8 Equipment; Leasehold.
(a) All material items of equipment and other tangible assets owned by
or leased to the Company are adequate for the uses to which they are being put,
are in good condition and repair (ordinary wear and tear excepted) and are
adequate for the conduct of the Company's business in the manner in which such
business is currently being conducted.
(b) The Company does not own any real property or any interest in real
property, except for the leasehold created under the real property lease
identified in Part 2.10 of the Disclosure Schedule.
2.9 Intellectual Property and Other Intangible Assets.
(a) As used herein, the term "Intellectual Property" shall mean all
registered patents, designs and trademarks, all applications for registration
thereof, and all computer programs including, but not limited to, computer
programs embodied in semiconductor chips, and related flow-charts, programmer
notes, updates and data, whether in object or source code form, developed, or
used in connection with the business of the Company, and all hardware,
algorithms, utilities flowcharts, logic, documentation, processes, formulations,
data, experimental methods, or results, descriptions, business or scientific
plans, depictions, customer lists and any other written, printed or
electronically stored materials or information, including specifications,
pricing plans, market research or data, potential marketing strategies,
prospective users and distribution channels, engineering drawings, information
concerning specialized suppliers, specifications for products and/ or processes
and/or software, test protocols, and all other materials relating thereto, and
copies thereof in any storage media, and all other works of authorship,
inventions, concepts, ideas,
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and discoveries developed, discovered, conceived, created, made, reduced to
practice, or used by the Company and all intellectual property rights therein,
including, without limitation, all copyrights in the United States, Israel and
elsewhere, including all rights of registration and publication, rights to
create derivative works, and all other rights incident to copyright ownership,
for the residue now unexpired of the present term of any and all such copyrights
and any term thereafter granted during which such information is entitled to
copyright, and all inventions (patentable or unpatentable), trade secrets, know-
how, ideas and confidential information embodied or reflected in such
information, including any shop rights, for the longest period of protection
accorded to such interests under applicable law.
(b) Except as specifically set forth in Part 2.9(b) of the Disclosure
Schedule, the Company (i) owns or has the right to use, free and clear of all
liens, claims and restrictions the Intellectual Property used in the conduct of
its business, and (ii) to the best knowledge of the Company, such Intellectual
Property does not infringe upon or violate any right, lien, or claim of others,
including without limitation of its present or former employees or the former
employers of all such persons. Except as set forth in Part 2.9(b) of the
Disclosure Schedule, the Company is not currently obligated or under any
liability whatsoever to make any payments by way of royalties, fees or otherwise
to any owner or licensee of, or other claimant to, any patent, trademark,
service mark, trade name, copyright or other intangible asset, with respect to
the use thereof or in connection with the conduct of its business or otherwise.
(c) Any and all Intellectual Property of any kind which has been developed
or, is currently being developed, by any of the Company or any employees of the
Company shall be the property solely of the Company. The Company has taken
security measures to protect the secrecy, confidentiality and value of all the
Intellectual Property, which measures are reasonable and customary in the
industry in which the Company operates. Each person who, either alone or in
concert with others, developed, invented, discovered, derived, programmed or
designed the Intellectual Property, or who has knowledge of or access to
information about the Intellectual Property, has entered into a written non-
disclosure agreement with the Company regarding ownership and treatment of the
Intellectual Property, in a form reasonably satisfactory to the Company.
(d) Except as specifically set forth in Part 2.9(d) of the Disclosure
Schedule, neither the Company nor, to the best knowledge of the Company, any of
its directors, officers or employees has received any communications alleging
that the Company has violated or by conducting its business as currently
conducted, would violate, any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. Except as set forth in Part 2.9(d) of the Disclosure Schedule,
neither the Company nor, to the best knowledge of the Company, any of its
directors, officers or employees has received notice nor is it otherwise aware
of any infringement of or conflict with asserted rights of others, with respect
to any of the Intellectual Property, or of any facts, or assertion of any facts,
which would render any of the Intellectual Property invalid or unenforceable.
<PAGE>
(e) To the best knowledge of the Company, none of the Company's
employees, officers or directors are obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such persons' best efforts to promote the
interests of the Company or that would conflict with the Company's business as
conducted and as proposed to be conducted. To the best knowledge of the Company,
neither the execution nor delivery of the Agreement, nor the carrying on of the
Company's business by employees of the Company, nor the conduct of the Company's
business as proposed to be conducted, will materially conflict with or result in
a material breach of the terms, conditions or provisions of, or constitute a
material default under, any contract, covenant or instrument under which any of
the Company's employees, officers or directors is now obligated. It is not, and
will not become, necessary to utilize any inventions, and specifically, patent
applications, of any of the Company's employees (or people the Company currently
intends to hire) made prior to their employment by the Company other than those
that have been assigned to the Company pursuant to valid and legally binding
instruments of assignment.
(f) The Intellectual Property owned by the Company constitutes all of
the Intellectual Property necessary to enable the Company to conduct its
business in the manner in which such business has been and is being conducted.
Except as set forth in Part 2.9(f) of the Disclosure Schedule, the Company has
not licensed any of the Company Intellectual Property to any Person on an
exclusive basis, nor has the Company entered into any covenant not to compete or
Contract limiting its ability to exploit fully any of its Intellectual Property
or to transact business in any market or geographical area or with any Person.
(g) The Company's products (the "Products") have not and will not
experience fatal errors and/or invalid and/or incorrect results as a result of
the change of year from 1999 to 2000; provided, that the Products receive
correct and properly formatted date inputs from all software and hardware that
exchange data with or provide data to the Products.
2.10 Agreements and Trading.
(a) All the material agreements to which the Company is a party
(including instruments, leases, licenses, arrangements, or undertakings of any
nature, written or oral) (the "Material Agreements") are listed in Part 2.10(a)
of the Disclosure Schedule.
(b) To the best of the Company's knowledge, and except as set forth in
Part 2.10(c) of the Disclosure Schedule, all the Material Agreements are in full
force and effect and the Company has no knowledge of the invalidity of or
grounds for rescission, avoidance or repudiation of any of the Material
Agreements and, except as set forth in Part 2.10(b) of the Disclosure Schedule,
the Company has not received any notice of any intention to terminate any such
agreement.
(c) To the best of the Company's knowledge and other than as set forth
in Part 2.10(c) of the Disclosure Schedule, the Company and all third parties
with whom it has
<PAGE>
transacted business have performed in all respects all of their material
obligations under the Material Agreements, except for such non performance that,
both individually and in the aggregate with all other exceptions to any of the
representations in this Section 2 which are not specified on schedules hereto,
would not have a Material Adverse Effect on the Company. To the best of the
Company's knowledge, and except as set forth in Part 2.10(c) of the Disclosure
Schedule, no party to any of the Material Agreements is in breach or in default
in any respect of its material obligations thereunder. Except as set forth in
Part 2.10(c) of the Disclosure Schedule, no party to any of the material
Agreements has made a claim of which the Company is aware to the effect that the
Company has failed to perform a material obligation thereunder.
(d) Except as set forth in Part 2.10(d) of the Disclosure Schedule, there
are no agreements, promises or understandings in force restricting the
competitive freedom of the Company to provide and take goods and services by
such means and from and to such individuals or entities as it may from time to
time think fit.
(e) The Company has delivered to Terayon accurate and complete copies of
all written Material Agreements identified in Part 2.10(a) of the Disclosure
Schedule, including all amendments thereto. Part 2.10(a) of the Disclosure
Schedule provides an accurate description of the terms of each Material
Agreement that is not in written form. Except as set forth in Parts 2.10(b) and
2.10(c) of the Disclosure Schedule, each Material Agreement identified in Part
2.10(a) of the Disclosure Schedule is valid and in full force and effect, and,
to the Company's best knowledge, is enforceable by the Company in accordance
with its terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(f) Except as set forth in Part 2.10(c) of the Disclosure Schedule:
(i) the Company has not violated or breached, or committed any
material default under, any Material Agreement, and, to the Company's best
knowledge, no other Person has violated or breached, or committed any material
default under, any Material Agreement;
(ii) no event has occurred, and no circumstance or condition exists,
that (with or without notice or lapse of time) will, or could reasonably be
expected to, (A) result in a material violation or breach of any of the
provisions of any Material Agreement, (B) give any Person the right to declare a
material default or exercise any remedy under any Material Agreement, (C) give
any Person the right to accelerate the maturity or performance of any Material
Agreement, or (D) give any Person the right to cancel, terminate or modify any
Material Agreement;
(iii) the Company has not received any notice or other communication
regarding any actual or possible material violation or breach of, or material
default under, any Material Agreement; and
<PAGE>
(iv) the Company has not waived any of its material rights under any
Material Agreement.
(g) Except as set forth in Part 2.10(c) of the Disclosure Schedule, no
Person is renegotiating, or has a right pursuant to the terms of any Material
Agreement to re-negotiate, any amount paid or payable to the Company under any
Material Agreement or any other material term or provision of any Material
Agreement.
(h) The Material Agreements identified in Part 2.10(a) of the Disclosure
Schedule collectively constitute all of the Contracts necessary to enable the
Company to conduct its business in the manner in which its business is currently
being conducted.
(i) Part 2.10(i) of the Disclosure Schedule identifies and provides a
brief description of each proposed Contract as to which any bid, offer, award,
written proposal, term sheet or similar document has been submitted or received
by the Company regarding the business of the Company since January 1, 1999, or
which is otherwise still pending.
(j) Part 2.10(j) of the Disclosure Schedule provides an accurate
description and breakdown of the Company's backlog under Material Agreements.
2.11 Capital Expenditure and Commitments. Except as disclosed in Part 2.11
of the Disclosure Schedule or in the Company Financial Statements:
(a) The Company has not undertaken to make any material capital
commitment, expenditure or purchase in excess of $50,000.
(b) The Company is not a party to any material hire, hire purchase,
credit sale or conditional sale agreement or any contract providing for payment
on deferred terms in respect of assets purchased by the Company.
(c) The Company is not in breach of any material obligation under any
material deed, agreement or transaction to which it is a party, and to the best
of its knowledge, no third party that has transacted business with the Company
is in breach of any of its material obligations under any material deed,
agreement, or transaction with the Company to which it is a party.
(d) The Company is not aware of any Security Interest on, over or
affecting the issued or unissued share capital of the Company and there is no
agreement or commitment to give or create any such Security Interest and no
claim has been made by any Person to be entitled to any such Security Interest.
(e) The Company has not given any guarantee, indemnity or security for,
or otherwise agreed to become directly or contingently liable for, any
obligation of any other individual or entity, except in its ordinary course of
business, and to the best of its knowledge, no individual or entity has given
any guaranty of or security for any of the Company's obligations.
<PAGE>
(f) There are in force no powers of attorney given by the Company with
respect to any asset or business of the Company, and no individual or entity, as
agent, representative, distributor or otherwise, is entitled or authorized to
bind or commit the Company to any obligation not in the ordinary course of the
Company's business.
(g) The Company has not applied for or received any grant or allowance
from any governmental authority.
2.12 Compliance with Legal Requirements.
(a) To the best of its knowledge, information and belief, and except as
set forth in Part 2.12(a) of the Disclosure Schedule, the Company has carried on
its business and affairs in all material respects in accordance with all
applicable laws and regulations, to the extent material to the Company's
business or assets, including, inter alia, in accordance with the provisions of
the Israel Companies Ordinance [New Version], 1983, and in accordance with the
Company's Memorandum of Association and Articles of Association, and, the
Company is not aware of any material violation or default with respect to any
statute, regulation, order, decree, or judgment of any court or any governmental
agency which could have a material adverse effect upon the Company's assets or
business, and the Company has been granted and there are now in force all
material approvals, consents, and licenses necessary for the carrying on of its
business in the places and in the manner in which it is now carried on, and,
except as set forth in Part 2.12(a) of the Disclosure Schedule, the Company is
not aware of any circumstances which evidence or indicate that any such
approvals, consents or licenses, to the extent material to the Company's
business or assets, are likely to be suspended, canceled, revoked or not
renewed.
(b) The copy of each of the Memorandum of Association and Articles of
Association of the Company provided to Terayon, is complete, true and accurate
and has not been amended or repealed.
(c) To the best of the Company's knowledge, and except as specifically
set forth in Part 2.12(c) of the Disclosure Schedule, all documents required to
be filed with or delivered to the Registrar of Companies in respect of the
Company have been properly filed or delivered in a timely manner, except for
such non compliance that, both individually and in the aggregate with all other
exceptions to any of the representations in this Section 2 which are not
specified on schedules hereto, would not have a Material Adverse Effect on the
Company.
2.13 Governmental Authorizations. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to Terayon accurate and complete copies of all
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule.
The Governmental Authorizations identified in Part 2.13 of the Disclosure
Schedule are valid and in full force and effect, and collectively constitute all
Governmental Authorizations necessary to enable the Company to conduct its
business in the manner in which its business is currently being conducted.
Except as set forth in Part 2.13 of the Disclosure Schedule, the Company is, and
at all times since
<PAGE>
December 31, 1997 has been, in substantial compliance with the terms and
requirements of the respective Governmental Authorizations identified in Part
2.13 of the Disclosure Schedule. The Company has not received any notice or
other communication from any Governmental Body regarding (a) any actual or
possible violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization.
2.14 Tax Matters.
(a) To the best of the Company's knowledge, except as specifically set
forth in Part 2.14(a) of the Disclosure Schedule, the Company Financial
Statements make full provisions for all Taxes for which the Company was then or
thereafter became or may hereafter become liable or accountable in respect of or
by reference to any income, profit, receipt, gain, transaction, agreement,
distribution or event which was earned, accrued, received, or realized, entered
into except as specifically specified in Part 2.14(a) of the Disclosure
Schedule, paid, made or accrued on or before December 31, 1999, and the Company
promptly paid or fully provided in its books of account for all Taxes for which
it has or may hereafter become liable or accountable in the period from the date
of its incorporation to the Closing Date.
(b) To the best of the Company's knowledge, and except as set forth in
Part 2.14(b) of the Disclosure Schedule, the Company has at all times and within
the requisite time limits promptly, fully and accurately observed, performed and
complied with all material obligations or conditions imposed on it, or to which
any claim, deduction, allowance or relief made, claimed by or afforded to it was
made subject, under any legislation relating to Taxes, except for such non
compliance that, both individually and in the aggregate with all other
exceptions to any of the representations in this Section 2 which are not
specified in the Disclosure Schedule, would not have a Material Adverse Effect
on the Company.
(c) Except as specifically set forth in Part 2.14(c) of the Disclosure
Schedule, the Company is not aware of any circumstances which will or may,
whether by lapse of time or the issue of any notice of assessment or otherwise,
give rise to any dispute with any relevant Government Body in relation to its
liability or accountability for Taxes, any claim made by it, any relief,
deduction, or allowance afforded to it, or in relation to the status or
character of the Company or any of its enterprises under or for the purpose of
any provision of any legislation relating to Taxes, except for such dispute or
claim that, both individually and in the aggregate with all other exceptions to
any of the representations in this Section 2 which are not specified on
schedules hereto, would not have a Material Adverse Effect on the Company.
2.15 Employees.
(a) Full particulars of all the officers, employees and consultants of
the Company (each, an "Employee"), including their present compensation
packages, are disclosed in Part 2.15(a) of the Disclosure Schedule, which
particulars show all material
<PAGE>
benefits including, without limitation, salaries, directors' fees, social
benefits, bonuses, commissions, profit shares, automobile, reimbursement of
expenses and benefits in kind ("Benefits") payable or which the Company is bound
to provide (whether now or in the future) to each officer, employee and
consultant of the Company and are true, accurate and complete.
(b) Except as set forth in Part 2.15(b) of the Disclosure Schedule, no key
employee of the Company has been dismissed in the last six months or has given
notice of termination of his employment.
(c) The employment agreements of each of Messrs. Meir Cohen, Ron Reiss, Uri
Bendelac and Israel Lazarovich were previously provided to Terayon and its
counsel. Part 2.15(c) of the Disclosure Schedule includes the form of contracts
under which substantially all the Employees of the Company at the date hereof
are engaged.
(d) Subject to the provisions of any applicable Israeli law and binding
custom and except as set forth in Part 2.15(a) of the Disclosure Schedule, there
are no agreements or arrangements (whether legally enforceable or not) for the
payment of any pensions, allowances, lump sums, or other like benefits on
retirement or on death or termination or during periods of sickness or
disablement for the benefit of any officer or former officer or employee or
former employee of the Company or for the benefit of the dependents of any such
individual in operation at the date hereof.
(e) Except as set forth in Part 2.15(e) of the Disclosure Schedule, all the
Benefits to which any officer or former officer or employee or former employee
of the Company is or may be entitled including, inter alia, severance pay, leave
and health, have been paid or adequately provided for in the Company Financial
Statements.
(f) A complete list of all of the options granted to employees, directors,
officers or consultants of the Company, and their respective vesting schedules,
is set forth in Part 2.15(f) of the Disclosure Schedule. Except as set forth
therein, the Company does not operate any share incentive scheme, share option
scheme or profit sharing scheme for the benefit of any of its directors,
officers, employees or consultants.
(g) Neither the execution, delivery or performance of this Agreement, nor
the consummation of any of the other transactions contemplated by this
Agreement, will result in any payment (including any bonus, golden parachute or
severance payment) to any current or former Employee or director of the Company
(whether or not under any option plan (written or oral), or materially increase
the benefits payable under any option plan (written or oral) or result in any
acceleration of the time of payment or vesting of any such benefits, except as
provided therein.
(h) Part 2.15(a) of the Disclosure Schedule contains a list of all salaried
employees of the Company as of the date of this Agreement, and correctly
reflects, in all material respects, their salaries, any other compensation
payable to them (including compensation payable pursuant to bonus, deferred
compensation or commission arrangements), their dates of employment and their
positions.
<PAGE>
(i) Part 2.15(i) of the Disclosure Schedule identifies each Employee who
is not fully available to perform work because of disability or other leave and
sets forth the basis of such leave and the anticipated date of return to full
service.
(j) Except as set forth in Part 2.15(j) of the Disclosure Schedule, the
Company is in compliance in all material respects with all applicable Legal
Requirements and Contracts relating to employment, employment practices, wages,
bonuses and terms and conditions of employment, including employee compensation
matters.
(k) The Company is not aware of any organizational campaigns, petitions
or other unionization activities seeking recognition of a collective bargaining
unit which could affect the Company; nor is the Company aware of any
controversies, strikes, slowdowns or work stoppages pending or threatened
between the Company and any of its employees. To the Company's best knowledge,
the consummation of any of the transactions contemplated by this Agreement will
not have a material adverse effect on the Company's labor relations, and none of
the Company's key employees has notified the Company of any intention to
terminate his or her employment with the Company.
2.16 Environmental Matters. The Company is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that the Company is not in
compliance with any Environmental Law, and, to the Company's best knowledge,
there are no circumstances that may prevent or interfere with the Company's
compliance with any Environmental Law in the future. To the Company's best
knowledge, no current or prior owner of any property leased or controlled by the
Company has received any notice or other communication (in writing or
otherwise), whether from a Government Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or the Company is not
in compliance with any Environmental Law with respect to such property. All
Governmental Authorizations currently held by the Company pursuant to
Environmental Laws are identified in Part 2.16 of the Disclosure Schedule. (For
purposes of this Section 2.16: (i) "Environmental Law" means any state, local
or foreign Legal Requirement relating to pollution or protection of human health
or the environment (including ambient air, surface water, ground water, land
surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern; and (ii) "Materials of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products and any other substance that is now regulated
by any Environmental Law or that is otherwise a danger to health, reproduction
or the environment.)
<PAGE>
2.17 Insurance.
(a) Full and accurate details of the Company's insurance policies are
contained in Part 2.17(a) of the Disclosure Schedule, including such policies as
are required under the Company's agreements with its customers.
(b) Except as specifically set forth in Part 2.17(b) of the Disclosure
Schedule, the Company has the benefit of adequate insurance against all risks
and losses usually insured against by companies carrying on the same or a
similar business and (without prejudice to the generality of the foregoing) for
the full replacement or reinstatement value of all its assets of an insurable
nature and against accident, damage, injury, third party loss (including product
liability) and loss of profits with a well established and reputable insurer.
(c) Except as specifically set forth in Part 2.17(c) of the Disclosure
Schedule, the Company has not done anything or suffered any damage which has
rendered or might render any policies of insurance taken out by it void or
voidable or which might result in an increase in premiums and the Company has
complied with all conditions attached to such policies.
(d) There is no claim outstanding under any of such policies nor, to the
best of the Company's knowledge, are there any circumstances likely to give rise
to such a claim.
(e) The Company's insurance policies will remain in full force and
effect for a period of thirty (30) days following the Closing.
2.18 Related Party Transactions. Except as set forth in Part 2.18 of the
Disclosure Schedule: (a) no Related Party has, and no Related Party has at any
time since December 31, 1997 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of the Company; (b)
no Related Party is, or has at any time since December 31, 1997 been, indebted
to the Company; (c) since December 31, 1997, no Related Party has entered into,
or has had any direct or indirect financial interest in, any Material Agreement,
transaction or business dealing involving the Company; (d) no Related Party is
competing, or has at any time since December 31, 1997 competed, directly or
indirectly, with the Company; and (e) no Related Party has any claim or right
against the Company (other than rights under Options and rights to receive
compensation for services performed as an employee of the Company). For
purposes of this Section 2.18 each of the following shall be deemed to be a
"Related Party": (i) each of the Sellers if such person owns, or has at any time
in the past owned, an aggregate of five percent (5%) or more of the capital
stock of the Company; (ii) each individual who is, or who has at any time since
December 31, 1997 been, an officer of the Company; (iii) each member of the
immediate family of each of the individuals referred to in clauses '(i)' and
'(ii)' above; and (iv) any trust or other Entity (other than the Company) in
which any one of the individuals referred to in clauses '(i)' '(ii)' and '(iii)'
above holds (or in which more than one of such individuals collectively hold),
beneficially or otherwise, a material voting, proprietary or equity interest.
<PAGE>
2.19 Legal Proceedings; Orders.
(a) As of three days prior to the date hereof and three days prior to
the Closing Date, except as set forth in Part 2.19 of the Disclosure Schedule
there is no, nor will there have been any pending Legal Proceeding, and, to the
Company's best knowledge, no Person has threatened to commence any Legal
Proceeding: (i) that involves the Company or any of the assets owned or used by
the Company or any Person whose liability the Company has or may have retained
or assumed, either contractually or by operation of law; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, any of the transactions contemplated by this
Agreement. To the Company's best knowledge, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that will, or that could
reasonably be expected to, give rise to or serve as a basis for the commencement
of any such Legal Proceeding.
(b) Except as set forth in Part 2.19 of the Disclosure Schedule, no
Legal Proceeding has ever been commenced by or has ever been pending against the
Company.
(c) As of three days prior to the date hereof and three days prior to
the Closing Date, there is no order, writ, injunction, judgment or decree to
which the Company, or any of the assets owned or used by the Company, is
subject. To the Company's best knowledge, no officer or other employee of the
Company is subject to any order, writ, injunction, judgment or decree that
prohibits such officer or other employee from engaging in or continuing any
conduct, activity or practice relating to the Company's business.
2.20 Authority; Binding Nature of Agreement. Except as set forth in Part
2.21 of the Disclosure Schedule, the Company has the absolute and unrestricted
right, power and authority to enter into and to perform its obligations under
this Agreement; and the execution, delivery and performance by the Company of
this Agreement have been duly authorized by all necessary action on the part of
the Company and its board of directors. This Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
2.21 Non-Contravention; Consents. Except as set forth in Part 2.21 of the
Disclosure Schedule, neither (1) the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement, nor (2)
the consummation of any of the transactions contemplated by this Agreement, will
directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of the
provisions of the Company's Articles of Association or Memorandum of
Association, or (ii) any resolution adopted by the Company's stockholders, the
Company's board of directors or any committee of the Company's board of
directors;
(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the transactions
<PAGE>
contemplated by this Agreement or to exercise any remedy or obtain any relief
under, any Legal Requirement or any order, writ, injunction, judgment or decree
to which the Company, or any of the assets owned or used by the Company, is
subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the Company's business
or to any of the assets owned or used by the Company;
(d) contravene, conflict with or result in a material violation or
breach of, or result in a material default under, any provision of any Material
Agreement that is or would constitute a Material Agreement, or give any Person
the right to (i) declare a default or exercise any remedy under any such
Material Agreement, (ii) accelerate the maturity or performance of any such
Material Agreement, or (iii) cancel, terminate or modify any such Material
Agreement; or
(e) result in the imposition or creation of any lien or Encumbrance upon
or with respect to any asset owned or used by the Company (except for minor
liens that will not, in any case or in the aggregate, materially detract from
the value of the assets subject thereto or materially impair the operations of
the Company).
Except as set forth in Part 2.21 of the Disclosure Schedule, the Company is not
and will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (y) the consummation of any of the
transactions contemplated by this Agreement.
2.22 No Conflicting Interest. Except as set forth in Part 2.22 of the
Disclosure Schedule, the Company is not aware that any director, officer, key
employee or Related Party of the Company has any interest in any corporation,
partnership, or other entity that is engaged in a business which is in
competition with that of the Company, is a supplier or customer of the Company,
or is a party to any contract which may have any effect on the business of the
Company.
2.23 Brokers. Except as set forth in Part 2.23 of the Disclosure Schedule,
no broker, finder or investment banker, for which the Company or Terayon may be
liable, is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company or any of its directors,
officers, employees or agents or any of the Sellers.
2.24 Full Disclosure. This Agreement (including the Disclosure Schedule)
does not, and the Company Closing Certificate will not, (i) contain any
representation, warranty or information that is false or misleading with respect
to any material fact, or (ii) omit to state any material fact necessary in order
to make the representations, warranties and information contained and to be
contained herein and therein (in the light of the circumstances under
<PAGE>
which such representations, warranties and information were or will be made or
provided) not false or misleading.
Section 3. Representations and Warranties of Terayon
Terayon represents and warrants to the Company and each of the Sellers as
follows:
3.1 Due Organization. Terayon is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Terayon
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its businesses as now conducted.
3.2 SEC Filings; Financial Statements.
(a) Terayon has timely filed all required forms, reports and
documents with the SEC since August 17, 1998, each of which has complied in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder, each as in
effect on the dates such forms, reports, and documents were filed. Terayon has
made available to the Company and each the Sellers accurate and complete copies
(excluding copies of exhibits) of each report, registration statement (on a form
other than Form S-8) and definitive proxy statement filed by Terayon with the
SEC between August 17, 1998 and the date of this Agreement (the "Terayon SEC
Documents"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the Terayon SEC Documents, including, any financial
statements or schedules included or incorporated by reference therein, complied
in all material respects with the applicable requirements of the Securities Act
or the Exchange Act (as the case may be); and (ii) none of the Terayon SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The consolidated financial statements contained in the Terayon
SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered, except as may be indicated in
the notes to such financial statements and (in the case of unaudited statements)
as permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to year-end audit
adjustments; and (iii) fairly present the consolidated financial position of
Terayon and its subsidiaries as of the respective dates thereof and the
consolidated results of operations of Terayon and its subsidiaries for the
periods covered thereby. Except as and to the extent disclosed in the Terayon
SEC Reports, since August 17, 1998, there has not been any event, occurrence or
development which does or could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Terayon.
3.3 Authority; Binding Nature of Agreement. Terayon has the absolute
and unrestricted right, power and authority to perform their obligations under
this Agreement; and
<PAGE>
the execution, delivery and performance by Terayon of this Agreement (including
the contemplated issuance of Common Stock in accordance with this Agreement)
have been duly authorized by all necessary action on the part of Terayon and its
board of directors. No vote of Terayon's stockholders is needed to approve any
of the transactions contemplated by this Agreement. This Agreement constitutes
the legal, valid and binding obligation of Terayon, enforceable against it in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
3.4 Valid Issuance. The Common Stock to be issued in the transactions
contemplated by this Agreement will, when issued in accordance with the
provisions of this Agreement, be validly issued, fully paid and nonassessable.
3.5 Consents and Approvals. Except as set forth on Schedule 3.5 hereto,
no filing or registration with, no notice to and no permit, authorization,
consent or approval of any third party or any Governmental Body is necessary for
the consummation by Terayon of the transactions contemplated by this Agreement.
3.6 No Violation. Neither the execution and delivery of this Agreement by
Terayon, the performance by Terayon of its obligations hereunder nor the
consummation by Terayon of the transactions contemplated hereby will (a)
violate, conflict with or result in any breach of any provision of the
Certificate of Incorporation or Bylaws of Terayon, (b) violate, conflict with or
result in a violation or breach of, or constitute a default (with or without due
notice or lapse of time or both) under the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, lease or agreement
to which Terayon is a party or (c) violate any order, writ, judgment,
injunction, decree, statute, rule or regulation of any court or domestic or
foreign Governmental Body applicable to Terayon.
3.7 Legal Proceedings. Except as set forth in Schedule 3.7 hereto, Terayon
is not aware of any pending Legal Proceeding, and, to Terayon's best knowledge,
no Person has threatened to commence any Legal Proceeding: (i) that involves
Terayon or any of the assets owned or used by Terayon or any Person whose
liability Terayon has or may have retained or assumed, either contractually or
by operation of law; or (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
transactions contemplated by this Agreement. To Terayon's best knowledge, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, give rise to or
serve as a basis for the commencement of any such Legal Proceeding.
3.8 Experience; Receipt of Information. Terayon has such knowledge and
experience in business matters as to be capable of evaluating the merits and
risks relating to the acquisition of the Company, and has reviewed and inspected
all of the data and information provided to it by the Company in connection with
this Agreement. Terayon has been furnished by the Company with all the documents
and information regarding the Company which Terayon has requested, and has been
afforded the opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of the
<PAGE>
Company concerning the Company's business, assets and financial position.
3.9 Brokers. No broker, finder or investment banker, for which the
Company or the Seller may be liable, is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Terayon or any of its
directors, officers, employees or agents.
3.10 Full Disclosure. This Agreement does not, and the Terayon Closing
Certificate will not, (i) contain any representation, warranty or information
that is false or misleading with respect to any material fact, or (ii) to the
Terayon's best knowledge, omit to state any material fact necessary in order to
make the representations, warranties and information contained and to be
contained herein and therein (in the light of the circumstances under which such
representations, warranties and information were or will be made or provided)
not false or misleading.
Section 4. Certain Covenants of the company.
4.1 Access and Investigation. During the period from the date of this
Agreement through the Closing, or the earlier termination hereof in accordance
with Section 8 (the "Pre-Closing Period"), the Company shall, and shall cause
its Representatives to: (a) provide Terayon and Terayon's Representatives with
reasonable access to the Company's Representatives, personnel and assets and to
all existing books, records, Tax Returns, work papers and other documents and
information relating to the Company; and (b) provide Terayon and Terayon's
Representatives with copies of such existing books, records, Tax Returns, work
papers and other documents and information relating to the Company, and with
such additional financial, operating and other data and information regarding
the Company, as Terayon may reasonably request.
4.2 Operation of the Company's Business. Other than as contemplated
hereunder, during the Pre-Closing Period:
(a) the Company shall conduct its business and operations in the
ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(b) the Company shall use reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and maintain its relations and good will with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with the Company;
(c) the Company shall keep in full force all insurance policies
referred to in Part 2.17 of the Disclosure Schedule;
(d) the Company shall cause its officers to report regularly (but in
no event less frequently than weekly) to Terayon concerning the status of the
Company's business;
<PAGE>
(e) the Company shall not declare, accrue, set aside or pay any dividend or
make any other distribution in respect of any shares of capital stock, and shall
not repurchase, redeem or otherwise reacquire any shares of capital stock or
other securities
(f) the Company shall not sell, issue or authorize the issuance of (i) any
capital stock or other security, (ii) any option or right to acquire any capital
stock or other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security;
(g) the Company shall not amend or waive any of its rights under, or permit
the acceleration of vesting under, (i) any provision of the plan options
(written or oral), (ii) any provision of any agreement evidencing any
outstanding Option, or (iii) any provision of any restricted stock purchase
agreement;
(h) the Company shall not amend or permit the adoption of any amendment to
the Company's Articles of Association, except to the extent necessary to effect
or permit the Company to become a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(i) the Company shall not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(j) the Company shall not make any capital expenditure, except for capital
expenditures that, when added to all other capital expenditures made on behalf
of the Company during the Pre-Closing Period, do not exceed $25,000 per month;
(k) the Company shall not, other than in the ordinary course of business,
(i) enter into, or permit any of the assets owned or used by it to become bound
by, any Contract that is or would constitute a Material Agreement, or (ii) amend
or prematurely terminate, or waive any material right or remedy under, any such
Contract;
(l) the Company shall not (i) acquire, lease or license any right or other
asset from any other Person, except for rights or other assets acquired, leased
or licensed in the ordinary course of business, (ii) sell or otherwise dispose
of, or lease or license, any right or other asset to any other Person, except
for rights or other assets disposed of, leased or licensed in the ordinary
course of business, or (iii) waive or relinquish any right, except for assets
acquired, leased, licensed or disposed of by the Company pursuant to Contracts
that are not Material Agreements;
(m) the Company shall not (i) lend money to any Person other than to its
employees, in the ordinary course of business and consistent with past
practices, or (ii) incur or guarantee any indebtedness for borrowed money other
than in the ordinary course of business and consistent with past practices;
(n) the Company shall not (i) establish, adopt or amend any employee
benefit plan, (ii) pay any bonus or make any profit-sharing payment, cash
incentive payment or similar payment to, or increase the amount of the wages,
salary, commissions, fringe
<PAGE>
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees, or (iii) hire any new key employee;
(o) the Company shall not change any of its methods of accounting or
accounting practices in any material respect;
(p) the Company shall not make any Tax election;
(q) the Company shall not commence or settle any material Legal
Proceeding;
(r) the Company shall not agree or commit to take any of the actions
described in clauses "(e)" through "(q)" above.
Notwithstanding the foregoing, the Company may take any action described in
clauses "(e)" through "(r)" above if Terayon gives its prior written consent to
the taking of such action by the Company, which consent will not be unreasonably
withheld (it being understood that Terayon's withholding of consent to any
action will not be deemed unreasonable if Terayon determines in good faith that
the taking of such action would not be in the best interests of the Company,
currently and/or under the ownership of Terayon).
4.3 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, each of the Sellers and/or the
Company shall promptly notify Terayon in writing of:
(i) the discovery by any of the Sellers and/or the Company of
any event, condition, fact or circumstance that existed on or prior to the date
of this Agreement and that caused or constitutes an inaccuracy in or breach of
any representation or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made by
the Company in this Agreement if (x) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (y) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any material breach of any material covenant or obligation
of the Sellers and/or the Company; and
(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 6 or
Section 7 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required
to be disclosed pursuant to Section 4.3(a) requires any change in the Disclosure
Schedule, or if any
<PAGE>
such event, condition, fact or circumstance would require such a change assuming
the Disclosure Schedule were dated as of the date of the occurrence, existence
or discovery of such event, condition, fact or circumstance, then the Company
shall promptly deliver to Terayon an update to the Disclosure Schedule
specifying such change. No such update shall be deemed to supplement or amend
the Disclosure Schedule for the purpose of (i) determining the accuracy of any
of the representations and warranties made by the Company in this Agreement, or
(ii) determining whether any of the conditions set forth in Section 6 has been
satisfied.
4.4 No Negotiation. During the Pre-Closing Period, neither the Sellers
nor the Company shall directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal or
offer from any Person (other than Terayon) relating to a possible Acquisition
Transaction;
(b) participate in any discussions or negotiations or enter into any
agreement with, or provide any non-public information to, any Person (other than
Terayon) relating to or in connection with a possible Acquisition Transaction;
or
(c) consider, entertain or accept any proposal or offer from any
Person (other than Terayon) relating to a possible Acquisition Transaction.
Each of the Sellers and/or the Company shall promptly notify Terayon in writing
of any inquiry, proposal or offer relating to a possible Acquisition Transaction
that is received by the Company or any of its Representatives during the Pre-
Closing Period.
4.5 Buyer's Name and Logo: Terayon may use, and the Company may continue to
use, the name "ComBox" and the logo and trade marks perpetually and free of any
charges whatsoever. None of the Sellers may not use the "ComBox" name after the
Closing Date.
Section 5. Additional Covenants of the Parties.
5.1 Filings and Consents. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) 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,
and (b) shall use all commercially reasonable efforts to obtain all Consents (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. Each party to this Agreement shall (upon
request) promptly deliver to the other parties a copy of each such filing made,
each such notice given and each such Consent obtained by such party during the
Pre-Closing Period. Each party shall promptly provide the other parties with
copies of all filings made by the other party with the SEC or any other state,
federal or foreign Governmental Body in connection with this Agreement and the
transactions contemplated hereby.
5.2 Public Announcements. During the Pre-Closing Period, (a) the
Company and the Sellers shall not (and the Company shall not permit any of its
Representatives to)
<PAGE>
issue any press release or make any public statement regarding this Agreement,
or regarding any of the transactions contemplated by this Agreement, without
Terayon's prior written consent, and (b) Terayon shall not (and Terayon shall
not permit any of its Representatives to) issue any press release or make any
public statement regarding this Agreement, or regarding any of the transactions
contemplated by this Agreement, without Company's prior written consent
Notwithstanding the provisions of the preceding sentence, each party shall be
permitted to issue any press release or make any public statement as such party
is advised by counsel is legally required to be issued or made under any
applicable laws; provided, however, that in such event the party issuing such
press release or making such public statement will provide the other parties
with prompt written notice of such requirement and a copy of the press release
to be issued or public statement to be made, and the parties shall use
reasonable commercial efforts to coordinate the content of such press release or
public statement.
5.3. Tax Ruling. The Sellers shall apply to the Israel Tax Commission to
obtain a pre-ruling (the "Ruling") which is expected to provide a tax deferral
to the Sellers. Terayon and the Sellers agree to defer the Closing, if such
deferral is required by the Sellers in order to obtain the Ruling for a period
of up to ninety (90) days from February ___, 2000.
5.4 Best Efforts. During the Pre-Closing Period, (a) the Company shall
use its best efforts to cause the conditions set forth in Section 6 to be
satisfied on a timely basis, and (b) Terayon shall use its best efforts to cause
the conditions set forth in Section 7 to be satisfied on a timely basis.
5.5 Employment and Non-Competition Agreements. The Company shall use all
commercially reasonable efforts to cause the individuals identified in Exhibit D
to execute and deliver to the Company and Terayon, at the Closing, an Employment
and Non-Competition Agreement in the form set forth as Exhibit E hereto.
5.6 Termination of Employee Plans. At the Closing, the Company shall
terminate its existing stock option plans, and shall ensure that no employee or
former employee of the Company has any rights under any of such plans and that
any liabilities of the Company under such plans (including any such liabilities
relating to services performed prior to the Closing) are fully extinguished at
no material cost to the Company.
5.7 Registration of Shares. Terayon will, as promptly as practicable,
prepare and file with the SEC a registration statement under the Securities Act
with respect to the registration of the shares of Common Stock issuable to the
Sellers in connection with the transactions contemplated by this Agreement (the
"Registration Statement"). Terayon will, and will cause its accountants and
lawyers to, cause the Registration Statement to be declared effective as
promptly as practicable after filing with the SEC, but in no event later than
sixty (60) days following the Closing and the Registration Statement shall be
kept effective continuously for a period of one year following the date on which
the Registration Statement is declared effective by the SEC. None of the
information supplied or to be supplied by Terayon for inclusion or incorporation
by reference in the Registration Statement will, at the time the Registration
Statement is filed with the SEC and at the time it becomes effective
<PAGE>
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. If at any time prior to the date on
which the Registration Statement is declared effective by the SEC any event in
respect of Terayon, its officers and directors, or any of its subsidiaries
should occur which is required to be described in an amendment of, or a
supplement to, the Registration Statement, Terayon shall promptly so advise the
Sellers' Representative and such event shall be so described, and any such
amendment or supplement to the Registration Statement (which the Sellers'
Representative shall have a reasonable opportunity to review) shall be promptly
filed with the SEC. The Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act and the rules and
regulations thereunder.
5.8 Employees. As soon as practicable after the Closing Date, Terayon
shall provide to all employees of the Company such employee benefits plans,
programs and arrangements as are generally made available to Israeli employees
of Terayon, provided, with respect to each employee, that such employee does not
voluntarily terminate his or her employment with the Company prior to the first
anniversary of the Closing Date.
5.9 Tax Liability. Each party shall be responsible for all its
respective tax obligations deriving from the transactions contemplated in this
Agreement.
Section 6. Conditions Precedent to Obligations of Terayon.
The obligations of Terayon to consummate the transactions contemplated by
this Agreement are subject to the satisfaction, at or prior to the Closing, of
each of the following conditions any or all of which may be waived in writing by
Terayon:
6.1 Accuracy of Representations. Each of the representations and
warranties made by the Company in this Agreement and in each of the other
agreements and instruments delivered to Terayon in connection with the
transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the Closing Date as if made on the Closing Date.
6.2 Performance of Covenants. All of the covenants and obligations that
the Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all material respects.
6.3 Consents. All Consents required to be obtained in connection with
the transactions contemplated by this Agreement (including the Consents
identified in Part 2.21 of the Disclosure Schedule) shall have been obtained and
shall be in full force and effect.
6.4 Agreements and Documents. Terayon and the Company shall have
received the following agreements and documents, each of which shall be in full
force and effect:
(a) fully executed Escrow Agreement (the "Escrow Agreement") in the
form and substance reasonably satisfactory to counsel for Terayon, the Sellers'
<PAGE>
Representative and counsel for the Company, which shall contain, without
limitation, provisions regarding the following: (i) the release of the Escrow
Shares on the first anniversary of the Closing Date, (ii) the sale of the Escrow
Shares upon instruction of the Sellers' Representative (with the proceeds of
such sale(s) to be deposited in the Escrow in lieu of the Escrow Shares), and
(iii) such other terms and conditions as are standard and customary in
transactions of this nature;
(b) Employment and Non-Competition Agreements in the form of Exhibit E,
executed by the individuals identified on Exhibit D;
---------
(c) confidential invention and assignment agreements, reasonably
satisfactory in form and content to Terayon, executed by all employees of the
Company and by all consultants and independent contractors to the Company who
have not already signed such agreements;
(d) a legal opinion of Moshe H. Ne'eman, Ben-Artzi & Co. Adv. in form
and substance reasonably satisfactory to counsel for Terayon, addressed to
Terayon and dated as of the Closing Date;
(e) a certificate executed by two Officers of the Company (but without
personal liability thereto) certifying that each of the representations and
warranties set forth in Section 2 is accurate in all material respects as of the
Closing Date as if made on the Closing Date and that the conditions set forth in
Sections 6.1, 6.2 and 6.3 have been duly satisfied (the "Company Closing
Certificate");
(f) written resignations of all directors of the Company, effective as
of the Closing Date;
(g) certificates representing the Shares accompanied by share transfer
deeds duly executed for transfer in blank; and
(h) Option Holder Consent Letter and Counterpart Signature Pages,
executed by all of the Option Holders.
6.5 Securities Law Requirements. All permits, licenses, consents and
approvals necessary under any laws relating to the sale of securities have been
issued or given, and all restrictions or registration statements filed under any
laws relating to the sale of securities for the issuance of Common Stock
issuable pursuant to this Agreement shall have become effective, and no such
permit, license, consent, approval, registration or registration statement shall
have been revoked, canceled, terminated, suspended or made the subject of any
stop order or proceeding thereof.
6.6 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
transactions contemplated by this Agreement shall have been issued by any court
of competent jurisdiction and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable to the
<PAGE>
transactions contemplated by this Agreement that makes consummation of the
transactions contemplated by this Agreement illegal, which Legal Requirement
shall not have been removed within thirty (30) days of enactment.
6.7 No Legal Proceedings. No Person shall have commenced or taken
substantial steps towards any Legal Proceeding challenging or seeking the
recovery of a material amount of damages in connection with the transactions
contemplated by this Agreement or seeking to prohibit or limit the exercise by
Terayon of any material right pertaining to its ownership of stock of the
Company.
6.8 Termination of Employee Plans. The Company shall have provided
Terayon with evidence, reasonably satisfactory to Terayon, as to the termination
of the benefit plans referred to in Section 5.5.
6.9 ISA Exemption. Terayon shall have received from the Israel
Securities Authority an exemption from the obligation to publish a prospectus in
the manner required pursuant to the laws of the State of Israel in connection
with the issuance of the Common Stock to each the Sellers.
Section 7. Conditions Precedent to Obligations of the Company.
The obligations of each of the Sellers and the Company to consummate the
transactions contemplated by this Agreement are subject to the satisfaction, at
or prior to the Closing, of the following conditions any or all of which may be
waived in writing by the Sellers' Representative and the Company:
7.1 Accuracy of Representations. Each of the representations and
warranties made by Terayon in this Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the Closing Date as if made on the Closing Date.
7.2 Performance of Covenants. All of the covenants and obligations that
Terayon is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all respects.
7.3 Documents. Each of the Sellers and the Company shall have received
the following agreements and documents, each of which shall be in full force and
effect:
(a) a letter executed by Boston Equiserve, L.P., as Transfer Agent,
Registrar and Exchange Agent (the "Transfer Agent") of the Terayon Common Stock,
stating that it has received irrevocable instructions from Terayon to issue the
Share Consideration in the names of the respective Sellers, and that it will
forward validly executed share certificates covering the Common Stock in the
names of each of the Sellers;
(b) fully executed Escrow Agreement;
<PAGE>
(c) a legal opinion of Cooley Godward llp, in form and substance
reasonably satisfactory to counsel for the Sellers, addressed to the Sellers and
dated as of the Closing Date; and
(d) a certificate executed by an Officer of Terayon (but without
personal liability thereto) certifying that each of the representations and
warranties set forth in Section 3 is accurate in all material respects as of the
Closing Date as if made on the Closing Date and that the conditions set forth in
Sections 7.1, 7.2 and 7.5 have been duly satisfied (the "Terayon Closing
Certificate").
7.4 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
transactions contemplated by this Agreement shall have been issued by any court
of competent jurisdiction and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable to the transactions contemplated by
this Agreement that makes consummation of the transactions contemplated by this
Agreement illegal, which Legal Requirement shall not have been removed within
(30) days of enactment.
7.5 Consents. All Consents required to be obtained in connection with
the transactions contemplated by this Agreement (including the Consents
identified in Part 2.21 of the Disclosure Schedule) shall have been obtained and
shall be in full force and effect.
7.6 No Legal Proceedings. No Person shall have commenced any Legal
Proceeding challenging or seeking the recovery of a material amount of damages
in connection with the transactions contemplated by this Agreement or seeking to
prohibit or limit the exercise by Terayon of any material right pertaining to
its ownership of stock of the Company.
Section 8. Termination.
8.1 Termination Events. This Agreement may be terminated prior to the
Closing:
(a) By either the Company and the Sellers' Representative or by
Terayon if a court of competent jurisdiction or Governmental Body shall have
issued an order, decree or ruling or taken any other action (which order, decree
or ruling the parties hereto shall use their best efforts to lift) and such was
not at the request of the party seeking termination of the Agreement, in each
case permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement, and such order, decree, ruling or
other action shall have become final and non-appealable; or
(b) by Terayon if the Closing has not taken place on or before
February 28, 2000 (other than as a result of any failure on the part of Terayon
to comply with or perform any covenant or obligation of Terayon set forth in
this Agreement);
(c) by the Sellers' Representative and the Company if the Closing
has not taken place on or before February 28, 2000 (other than as a result of
the failure on the part of
<PAGE>
the Sellers or the Company to comply with or perform any covenant or obligation
set forth in this Agreement or in any other agreement or instrument delivered to
Terayon); or
(d) by the mutual consent of Terayon, the Sellers' Representative
and the Company.
8.2 Termination Procedures. If Terayon wishes to terminate this
Agreement pursuant to Section 8.1(a) or Section 8.1(b), Terayon shall deliver to
the Sellers' Representative and the Company (with a copy to the Company's
counsel) a written notice stating that Terayon is terminating this Agreement and
setting forth a brief description of the basis on which Terayon is terminating
this Agreement. If the Sellers' Representative and the Company wish to terminate
this Agreement pursuant to Section 8.1(a) or Section 8.1(c), the Sellers'
Representative and the Company shall deliver to Terayon (with a copy to
Terayon's counsel) a written notice stating that the Sellers' Representative and
the Company are terminating this Agreement and setting forth a brief description
of the basis on which the Sellers' Representative and the Company are
terminating this Agreement.
8.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) none of the Company, the Sellers or
Terayon shall be relieved of any obligation or liability arising from any prior
breach by such party of any provision of this Agreement; (b) the parties shall,
in all events, remain bound by and continue to be subject to the provisions set
forth in Section 10; and (c) the parties shall, in all events, remain bound by
and continue to be subject to Section 5.2 and Section 8.3A.
8.3A Confidentiality. Terayon agrees that, unless and until the
transaction contemplated by this Agreement shall have been consummated, Terayon
and its representatives will hold in strict confidence all information and
documents received from the Company or the Sellers in connection with the
transaction contemplated herein and shall refrain from using such information
and documents in any manner. If the transaction herein contemplated shall not be
consummated, Terayon will continue to hold such information and documents in
strict confidence; provided, however, that Terayon's obligations under this
Section to maintain such confidentiality shall not apply to any developments
made by Terayon which Terayon can prove were developed by it independently,
without any reference to the information and documents, provided by the Company
and to any information or documents that are in the public domain at the time
furnished by the Company or the Sellers or that become public thereafter through
any means other than as a result of any act of Terayon or its agents, officers
or directors which constitutes a breach of this Agreement. Notwithstanding any
provision to the contrary contained herein, Terayon shall be permitted to
disclose such of the information and documents as it is advised by counsel is
legally required to be disclosed under applicable law.
<PAGE>
Section 9. Indemnification, Etc.
9.1 Survival of Representations, Etc.
(a) The representations and warranties made by the Company
(including the representations and warranties set forth in Section 2 and the
representations and warranties set forth in the Company Closing Certificate)
shall survive the Closing and shall expire on the 12-month anniversary of the
Closing Date; provided, however, that if, at any time prior to the 12-month
anniversary of the Closing Date, any Indemnitee (acting in good faith) delivers
to the Sellers' Representative a written notice alleging the existence of an
inaccuracy in or a breach of any of the representations and warranties made by
the Company (and setting forth in reasonable detail the basis for such
Indemnitee's belief that such an inaccuracy or breach may exist) and asserting a
claim for recovery under Section 9.2 based on such alleged inaccuracy or breach,
then the claim asserted in such notice shall survive the 12-month anniversary of
the Closing until such time as such claim is fully and finally resolved.
(b) The representations, warranties, covenants and obligations of
the Company, and the rights and remedies that may be exercised by the
Indemnitees, shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, any of
the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule shall be deemed to be a representation and warranty made by
the Company in this Agreement.
(d) The representations and warranties made by Terayon (including
the representations and warranties set forth in Section 3 and the
representations and warranties set forth in Terayon Closing Certificate) shall
survive the Closing and shall expire on the 12-month anniversary of the Closing
Date; provided, however, that if, at any time prior to the 12-month anniversary
of the Closing Date, the Sellers' Representative (acting in good faith) shall
deliver to Terayon a written notice alleging the existence of an inaccuracy in
or a breach of any of the representations and warranties made by Terayon (and
setting forth in reasonable detail the basis for the Sellers belief that such an
inaccuracy or breach may exist) and asserting a claim for recovery under Section
9.2 based on such alleged inaccuracy or breach, then the claim asserted in such
notice shall survive the 12-month anniversary of the Closing until such time as
such claim is fully and finally resolved.
(e) The representations, warranties, covenants and obligations of
Terayon, and the rights and remedies that may be exercised by the Sellers, shall
not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by or knowledge of, the Sellers.
<PAGE>
9.2 Indemnification.
(a) From and after the Closing Date (but subject to Section 9.1(a)), the
Indemnitees may seek indemnification first from the Escrow Fund and only
thereafter from each of the Sellers, severally but not jointly and to the extent
of such Seller's pro rata shareholdings in the Company, for any Damages (other
than consequential damages) that are suffered or incurred by any of the
Indemnitees or to which any of the Indemnitees may otherwise become subject
(regardless of whether or not such Damages relate to any third-party claim) and
which are from or as a result of, or are connected with: (i) any inaccuracy in
or breach of any representation or warranty set forth in Section 2 or in the
Company Closing Certificate; (ii) any inaccuracy in or breach of any
representation or warranty set forth in Section 2; (iii) any breach of any
covenant or obligation of the Company (including the covenants set forth in
Sections 4 and 5);or (iv) any Legal Proceeding relating to any inaccuracy or
breach of the type referred to in clause "(i)" or "(ii)" above (including any
Legal Proceeding commenced by any Indemnitee for the purpose of enforcing any of
its rights under this Section 9).
(b) Each of the Sellers and the Company acknowledges and agrees that, if
the Company suffers, incurs or otherwise becomes subject to any Damages as a
result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation, then (without limiting any of
its rights as an Indemnitee) Terayon shall also be deemed, by virtue of its
ownership of the stock of the Company, to have incurred Damages as a result of
and in connection with such inaccuracy or breach.
9.3 Defense of Third Party Claims. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Sellers, against Terayon or against any other Person) with respect to which any
of the Indemnitees shall have the right to seek indemnification pursuant to this
Section 9, Terayon shall have the right, at its election, to proceed with the
defense of such claim or Legal Proceeding on its own. If Terayon so proceeds
with the defense of any such claim or Legal Proceeding:
(a) all reasonable expenses relating to the defense of such claim or
Legal Proceeding shall be borne and paid out of the Escrow Fund;
(b) Terayon shall have the right to settle, adjust or compromise such
claim or Legal Proceeding with the consent of the Sellers' Representative;
provided, however, that such consent shall not be unreasonably withheld.
Terayon shall give the Sellers' Representative prompt notice of the
commencement of any such Legal Proceeding against Terayon or the Company;
provided, however, that any failure on the part of Terayon to so notify the
Sellers' Representative shall not limit any of the rights of the Indemnitees
under this Section 9 (except to the extent such failure materially prejudices
the defense of such Legal Proceeding).
(c) From and after the Closing Date (but subject to Section 9.1(d)), any
Seller may seek indemnification from Terayon for any Damages (other than
consequential
<PAGE>
damages) that are suffered or incurred by such Seller or to which such Seller
may otherwise become subject (regardless of whether or not such Damages relate
to any third-party claim) and which arise from or as a result of, or are
directly connected with: (i) any inaccuracy in or breach of any representation
or warranty set forth in Section 3; (ii) any inaccuracy in or breach of any
representation or warranty set forth in Section 3 as if such representation and
warranty had been made on and as of the Closing Date; or (iii) any Legal
Proceeding relating to any inaccuracy or breach of the type referred to in
clause "(i)" or "(ii)" above (including any Legal Proceeding commenced by any
Seller for the purpose of enforcing any of its rights under this Section 9);
provided, however, that the amount of indemnification sought by the Sellers may
not exceed US$60 million.
9.4 Exercise of Remedies by Indemnitees Other Than Terayon. No Indemnitee
(other than Terayon or any successor thereto or assign thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy under
this Agreement unless Terayon (or any successor thereto or assign thereof) shall
have consented to the assertion of such indemnification claim or the exercise of
such other remedy.
9.5 Limitations on Indemnification.
(a) Except as specifically set forth herein, the maximum amount of
indemnifiable Damages that may be recovered from the Sellers arising out of or
resulting from Section 9.2(a) shall be an amount equal to US$60 million, and in
no event shall any Seller have any indemnification liability under this
Agreement greater than his, her or its portion of the Purchase Consideration,
and the total indemnification liability of the Sellers under this Agreement
shall be allocated to each Seller based on such Seller's proportionate share of
the Purchase Consideration.
(b) Notwithstanding anything to the contrary contained in this
Agreement, no Indemnitee shall be entitled to seek indemnification from the
Sellers under this Agreement with respect to any Damages arising out of or
resulting from Section 9.2(a), until the aggregate amount of such Damages
exceeds one hundred thousand US dollars ($100,000), and where such damages
exceed one hundred thousand US dollars ($100,000), the Indemnitees shall be
entitled to indemnification in full (with no deduction of the one hundred
thousand US dollars ($100,000)), subject to the provisions of Section 9.5(a).
(c) Notwithstanding anything to the contrary contained in this
Agreement, the maximum amount of indemnifiable Damages that may be recovered
from Terayon arising out of or resulting from Section 9.2(c) shall be an amount
equal to US$60 million.
(d) Notwithstanding anything to the contrary contained in this
Agreement, the Sellers shall not be entitled to seek indemnification from
Terayon under this Agreement with respect to any Damages arising out of or
resulting from Section 9.2(c), until the aggregate amount of such Damages
exceeds one hundred thousand US dollars ($100,000), and where such damages
exceed one hundred thousand US dollars ($100,000), the Indemnitees shall be
entitled to indemnification in full (with no deduction of the one hundred
<PAGE>
thousand US dollars ($100,000)), subject to the provisions of Section 9.5(c).
9.6 Exclusive Remedies. Terayon acknowledges and agrees that its sole and
exclusive remedy (except in the case of fraud, in which case Terayon reserves
all rights available to it under the law with respect to the party committing
such fraud) with respect to any and all claims relating to the subject matter of
this Agreement and the other agreements, documents and certificates specifically
contemplated by this Agreement shall be pursuant to the indemnification
provisions set forth in this Section 9 and specific performance as contemplated
by Section 10.11 below.
9.7 Prospectus Indemnification. Notwithstanding anything to the contrary
in this Agreement, in the event any shares of Common Stock are included in a
registration statement of Terayon:
(a) To the extent permitted by law, Terayon will indemnify and hold
harmless each of the Sellers, the, officers, directors and legal counsel of each
of the Sellers, any underwriter (as defined in the Securities Act) for each of
the Sellers and each person, if any, who controls each of the Sellers or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation") by Terayon: (i)
any untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission to state
therein a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged violation
by Terayon of the Securities Act, the Exchange Act, any state securities law or
any rule or regulation promulgated under the Securities Act, the Exchange Act or
any state securities law in connection with the offering covered by such
registration statement; and Terayon will reimburse each of the Sellers, officer
or director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided however, that the
indemnity agreement contained in this Section 9.7(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of Terayon, which consent shall not
be unreasonably withheld, nor shall Terayon be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon or in conformity
with written information furnished expressly for use in connection with such
registration by each of the Sellers, partner, officer, director, underwriter or
controlling person of each of the Sellers.
(b) To the extent permitted by law, each of the Sellers will, if
Common Stock held by such Seller are included in the securities as to which such
registration qualifications or compliance is being effected, indemnify and hold
harmless Terayon, each of its directors, its officers, and legal counsel and
each person, if any, who controls Terayon within the meaning of the Securities
Act and any underwriter selling securities under such
<PAGE>
registration statement, against any losses, claims, damages or liabilities
(joint or several) to which Terayon or any such director, officer, controlling
person, or underwriter may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon or in conformity with written information
furnished by such Seller specifically for use in connection with such
registration; and such Seller will reimburse any legal or other expenses
reasonably incurred by Terayon or any such director, officer, controlling person
or underwriter in connection with investigating or defending any such loss,
claim, damage, liability or action if it is judicial determined that there was
such a Violation; provided, however, that the indemnity agreement contained in
this Section 9.7(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of such Seller, which consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
9.7 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 9.7, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 9.7, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 9.7.
(d) If the indemnification provided for in this Section 9.7 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the Violation(s) that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by a court of law by reference to, among other things, whether the 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
<PAGE>
prevent such statement or omission.
(e) The obligations of Terayon and each of the Sellers under this
Section 9.7 shall survive completion of any offering of Common Stock in a
registration statement and the termination of this Agreement. No indemnifying
party, in the defense of any such claim or litigation, shall, except with the
consent of each indemnified party, 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.
Section 10. Miscellaneous Provisions.
10.1 Sellers' Representative. Mr. Robert Levy is hereby designated as the
representative of the Sellers for purposes of this Agreement and the Escrow
Agreement and as agent and attorney-in-fact of the Sellers with respect hereto
and thereto (the "Sellers' Representative"). The Sellers' Representative shall
have the authority to take such actions and exercise such discretion on behalf
of its respective principals as are required of the Sellers' Representative
pursuant to the terms of this Agreement and the Escrow Agreement (and any such
actions shall be binding on each of the Sellers represented by such Sellers'
Representative), including without limitation the following:
(i) to execute, acknowledge, deliver, record and file all
ancillary agreements, waivers, consents, certificates and documents which the
Sellers' Representative deems necessary or appropriate in connection with the
consummation of the transactions contemplated by the terms and provisions of
this Agreement;
(iii) to receive and make any payments provided for under this
Agreement and acknowledge receipt and payment thereof;
(iv) to waive any breach or default under the Agreement, or to
waive any condition precedent to the Closing under Section 7 hereof;
(v) to amend or terminate this Agreement pursuant to its terms;
(vi) to receive service of process in connection with any claims
under this Agreement or the Escrow Agreement; and
(vii) to perform the obligations and exercise the rights under the
Escrow Agreement, including the settlement of any claims and disputes arising
thereunder.
The designation and appointment of the Sellers' Representative is
irrevocable and shall not be affected by the subsequent death, incapacity,
insolvency or dissolution of any Seller. Terayon shall have the right to rely
upon all actions taken or omitted by the Sellers' Representative pursuant to
this Agreement, all of which actions and omissions shall be binding on each of
the Sellers. If the Sellers' Representative shall die, become disabled or
otherwise be unable to fulfill his responsibilities as agent of the Sellers,
then the Sellers holding a majority in interest of the capital stock of the
Company (assuming the exercise of
<PAGE>
all options and warrants and the exercise and conversion of all exercisable
convertible securities) shall, within ten days after such death or disability,
appoint a successor agent and, promptly thereafter, shall notify Terayon of the
identity of such successor. Any such successor shall become the "Sellers'
Representative" for purposes of this Agreement. The Sellers hereby authorize the
Sellers' Representative to pay all reasonable and documented legal fees and
expenses incurred by the Company and the Sellers (as further described in
Section 10.3 below) from the Purchase Consideration prior to the distribution of
the Purchase Consideration to the Sellers. The Sellers hereby agree to transfer
to the Sellers' Representative such additional cash amounts as shall be
determined by the Sellers' Representative are necessary to pay all legal fees
and expenses incurred by the Company and the Sellers (as further described in
Section 10.3 below).
10.2. Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
10.3 Fees and Expenses. Each of Terayon and the Company shall bear and
pay all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party (and, in the case of the
Sellers, also by the Company) in connection with the transactions contemplated
by this Agreement, including all fees, costs and expenses incurred by such party
in connection with or by virtue of (a) the investigation and review conducted by
Terayon and its Representatives with respect to the Company's business (and the
furnishing of information to Terayon and its Representatives in connection with
such investigation and review), (b) the negotiation, preparation and review of
this Agreement (including the Disclosure Schedule) and all agreements,
certificates, opinions and other instruments and documents delivered or to be
delivered in connection with the transactions contemplated by this Agreement,
and (c) the preparation and submission of any filing or notice required to be
made or given in connection with any of the transactions contemplated by this
Agreement, and the obtaining of any Consent required to be obtained in
connection with any of such transactions.
10.4 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
10.5 Notices. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
<PAGE>
if to Terayon:
Terayon Communication Systems, Inc.
2952 Bunker Hill Lane
Santa Clara, CA 95054
Fax: (408) 727-6205
Attention: Chief Executive Officer
with a copy to:
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Fax: (415) 951-3699
Attention: Karyn S. Tucker, Esq.
and
Naschitz, Brandes & Co.
5 Tuval Street
Tel-Aviv, Israel
Fax: 972-3-6235021
Attention: Sharon A. Amir, Adv.
if to the Company:
ComBox Ltd.
16 Bazel Street
Petach Tikva, Israel
Fax: 03-9241497
Attention: Chief Executive Officer
with a copy to:
Moshe H. Ne'eman, Benartzi & Co. Adv.
Top Tower 50, Dizengof Street
Tel Aviv 64332
Tel. 5254141
Fax. 5253818
Attention: Revital Ben Artzi, Adv.
If to the Sellers' Representative:
Mr. Robert Levy
IES Electronics Industries Ltd.
IES Buliding, Gurion Street
<PAGE>
Ramat Gan 52573
Tel: 03-7530777
Fax: 03-7530754
10.6 Time of the Essence. Time is of the essence of this Agreement.
10.7 Headings. The boldface headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.8 Counterparts. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
10.9 Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the State of Israel
(without giving effect to principles of conflicts of laws). Each party to this
Agreement consents to the exclusive jurisdiction and venue of the courts of
District of Tel Aviv-Jaffa in the State of Israel.
10.10 Successors and Assigns. This Agreement shall be binding upon: the
Company, each of the Sellers and their respective successors and assigns (if
any); Terayon and its successors and assigns (if any). This Agreement shall
inure to the benefit of: the Company; each of the Sellers the other Indemnitees
(subject to Section 9.5); and the respective successors and assigns (if any) of
the foregoing. Neither party may assign any of its rights under this Agreement
to any other Person without obtaining the consent or approval of the other
parties hereto.
10.11 Specific Performance. The parties to this Agreement agree that, in
the event of any breach or threatened breach by any party to this Agreement of
any covenant, obligation or other provision set forth in this Agreement for the
benefit of any other party to this Agreement, such other party shall be entitled
to (a) a decree or order of specific performance or mandamus to enforce the
observance and performance of such covenant, obligation or other provision, and
(b) an injunction restraining such breach or threatened breach.
10.12 Waiver.
(a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver
<PAGE>
of such claim, power, right, privilege or remedy is expressly set forth in a
written instrument duly executed and delivered on behalf of such Person; and any
such waiver shall not be applicable or have any effect except in the specific
instance in which it is given.
10.13 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.14 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.15 Parties in Interest. Except for the provisions of Section 9, none of
the provisions of this Agreement are intended to provide any rights or remedies
to any Person other than the parties hereto and their respective successors and
assigns (if any).
10.16 Entire Agreement. This Agreement and the other agreements referred to
herein set forth the entire understanding of the parties hereto relating to the
subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof.
10.17 Construction.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections," "Schedules" and "Exhibits" are intended to refer to Sections of this
Agreement and Schedules and Exhibits to this Agreement.
[The Remainder of this Page Intentionally Left Blank]
<PAGE>
The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.
Terayon Communication Systems, Inc.,
a Delaware corporation
By: /s/ Zaki Rakib
---------------------------------------
Name: Zaki Rakib
-------------------------------------
Title: Chief Executive Officer
------------------------------------
ComBox Ltd.,
a company organized under the laws of Israel
By: /s/ Robert Levy
---------------------------------------
Name: Robert Levy
-------------------------------------
Title: Chairman of the Board
------------------------------------
Sellers' Representative
-----------------------
/s/ Robert Levy
---------------------
Mr. Robert Levy
Sellers:
-------
/s/ Robert Levy
-------------------------
I.E.S. Electronics Industries Ltd.
/s/ Robert Levy
-------------------------
I.E.S Electronics Advanced
Investments (1997) Ltd.
/s/ C.T.P. Systems Ltd.
-------------------------
<PAGE>
C.T.P. Systems Ltd.
/s/ Shmuel Arditi
-------------------------------------------
Shmuel Arditi Assets Ltd.
/s/ M.T. Gibor Assets Ltd.
-------------------------------------------
M.T. Gibor Assets Ltd.
/s/ Sara Shalev
-------------------------------------------
Mrs. Sara Shalev
/s/ Ophir Holdings Ltd.
-------------------------------------------
Ophir Holdings Ltd.
/s/ Moshe H. Ne'eman
-------------------------------------------
Mr. Moshe H. Ne'eman
/s/ Mrs. Revital Ben-Artzi
-------------------------------------------
Mrs. Revital Ben-Artzi
/s/ Chen Agam
-------------------------------------------
Mr. Chen Agam
/s/ Ascend Technology Venture L.P.
-------------------------------------------
Ascend Technology Venture L.P.
/s/ Feuchtwanger Energy Ventures Ltd.
-------------------------------------------
Feuchtwanger Energy Ventures Ltd.
/s/ The Technology and Growth Fund Limited
Partnership
-------------------------------------------
The Technology and Growth Fund Limited
Partnership
<PAGE>
/s/ The Technology and Growth Fund
for the Middle East L.P.
--------------------------------------
The Technology and Growth Fund for the
Middle East L.P.
<PAGE>
Exhibit A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
Acquisition Transaction. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or a material
portion of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any capital stock
or other equity security of the Company (other than Series A Ordinary Shares
issued to employees of the Company, upon exercise of Options or Warrants, (ii)
any option, call, warrant or right (whether or not immediately exercisable) to
acquire any capital stock or other equity security of the Company (other than
stock options granted to employees of the Company in routine transactions in
accordance with the Company's past practices), or (iii) any security, instrument
or obligation that is or may become convertible into or exchangeable for any
capital stock or other equity security of the Company; or
(c) any merger, consolidation, business combination, reorganization or
similar transaction involving the Company.
Agreement. "Agreement" shall mean the Agreement to which this Exhibit A is
attached (including the Disclosure Schedule), as it may be amended from time to
time.
Consent. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
Damages. "Damages" shall include any loss, damage, injury, liability,
claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including
reasonable attorneys' fees), charge, cost (including costs of investigation) or
expense of any nature.
Disclosure Schedule. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to Terayon on behalf of the Company.
Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset,
<PAGE>
any restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
Exchange. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
Escrow Fund. "Escrow Fund" shall have the meaning ascribed to it in the
Escrow Agreement.
Governmental Authorization. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
Governmental Body. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
Indemnitees. "Indemnitees" shall mean the following Persons: (a) Terayon;
(b) Terayon's current and future affiliates (including the Company); (c) the
respective Representatives of the Persons referred to in clauses "(a)" and "(b)"
above; and (d) the respective successors and assigns of the Persons referred to
in clauses "(a)", "(b)" and "(c)" above; provided, however, that the Seller
shall not be deemed to be an "Indemnitee."
Liens. "Liens" shall mean all mortgages, pledges, liens, security
interests, conditional and installment sale agreements, encumbrances, charges or
other claims of third parties of any kind.
Legal Proceeding. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
Legal Requirement. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted,
<PAGE>
adopted, promulgated, implemented or otherwise put into effect by or under the
authority of any Governmental Body.
Material Adverse Effect. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company if such violation or other
matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in the Agreement or
in the Company Closing Certificate but for the presence of "Material Adverse
Effect" or other materiality qualifications, or any similar qualifications, in
such representations and warranties) would have a material adverse effect on the
Company's business, condition, assets, liabilities, operations or financial
performance or prospects.
Options. "Options" shall mean options to purchase Series A Ordinary Shares
under an option plan (written or oral).
Person. "Person" shall mean any individual, Entity or Governmental Body.
Representatives. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
Securities Act. "Securities Act" shall mean the Securities Act of 1933, as
amended.
Tax. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax,
transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff, duty (including any
customs duty), deficiency or fee, and any related charge or amount (including
any fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body.
Tax Returns. "Tax Returns" shall mean returns, reports and information
statements with respect to Tax required to be filed by or on behalf of the
Company with the Israel Income Tax Commission, the Israel Value Added Tax
Authority and any other taxing authority domestic or foreign.
Vested Options. "Vested Options" shall mean options to purchase Series A
Ordinary Shares that vest prior to or at the Closing.
<PAGE>
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
AMONG
TELEGATE LTD.
TERAYON COMMUNICATION SYSTEMS, INC.
AND
INTERNET TELECOM LTD.
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of the 12th
day of March 2000, by and among TELEGATE LTD., a company organized under the
laws of the State of Israel (the "Purchaser"), TERAYON COMMUNICATION SYSTEMS,
INC., a Delaware corporation and the corporate parent of the Purchaser
("Terayon") and INTERNET TELECOM LTD., a company organized under the laws of the
State of Israel (the "Company" or the "Seller").
RECITALS
A. Seller, directly and through a wholly owned subsidiary (the
"Subsidiary"), is engaged in the business of developing, manufacturing and
marketing hardware and software technologies for the transmission of voice over
data networks and providing customer support relating to such products (the
"Business");
B. Purchaser wishes to purchase and acquire from Seller, and Seller
wishes to sell, assign and transfer to Purchaser, all the intellectual property
owned, licensed or developed by the Company and the Subsidiary and all tangible
assets embodying such property, all for the purchase price, and upon the terms
and subject to the conditions herein set forth;
C. Purchaser agrees to assist the Company, including with assistance to
be provided by several employees of the Company as are employed by the Company
upon the signing of this Agreement, in performing the Company's obligations
under certain agreements between the Company and certain third parties for which
the use of the Intellectual Property is required;
D. The Company agrees, for the consideration that shall be paid by the
Purchaser pursuant to this Agreement and certain other undertakings of the
Purchaser hereunder, to refrain from competitive activities as provided for in
this Agreement and in Schedule A hereof.
E. Capitalized terms used herein without separate definitions have the
meanings ascribed to them in Exhibit A.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto hereby agree as follows:
ARTICLE 1
SALE AND PURCHASE OF ASSETS
1.1 Purchased Assets. Subject to and upon the terms and conditions set
forth in this Agreement, at the Closing, Seller shall sell, assign, transfer,
convey and deliver to Purchaser, and Purchaser shall purchase and acquire from
Seller, all right, title and interest in the Purchased Assets which are set
forth in Schedule B free and clear of all Liens (the "Intellectual Property" or
"Purchased Assets").
1.
<PAGE>
1.2 Unassumed Liabilities. Purchaser shall not assume, pay, incur or in
any way be liable or responsible for any of the Company's debts, liabilities or
obligations, including, without limitation:
(One) any liability or obligation of the Company arising out of the
Agreement dated October 9, 1997, by and between the Company
and the Israel-United States Binational Industrial Research
and Development Foundation;
(Two) any wages, salary, severance, bonuses, retention bonuses,
commissions, vacation or holiday pay, post retirement medical
benefits, fringe benefits, long-term disability benefits, life
insurance benefits, any duties, obligations or liabilities
arising under any Company or Subsidiary sponsored employee
benefit plan, policy or practice, relating to the employees of
the Company or the Subsidiary or other amounts due to any
employees or former employees of the Company or the Subsidiary
which accrue on or prior to the Closing Date;
(Three) except as specifically set forth herein, any liabilities and
obligations of Seller or the Subsidiary for any Israeli,
Russian, U.S. federal, state, local or foreign income, excise,
sales, value added, stamp, personal, payroll or other taxes of
any kind whatsoever;
(Four) except as specifically set forth herein, any tax (including,
without limitation, income, franchise, sales, transfer,
recording, documentary or other tax) imposed upon or incurred
by Seller arising out of or in connection with the negotiation
and preparation of this Agreement and the consummation and
performance of the transactions contemplated hereby; and
(Five) except as otherwise determined in this Agreement, any
liability or obligation relating to, resulting from, caused
by, or arising out of the ownership, operations or control of
the Company's Business, prior to the Closing, including any
losses derived from third party product liability claims or
any indebtedness for borrowed money.
Notwithstanding the foregoing and without derogating from the Purchaser's
obligations in accordance with the applicable provisions of the last paragraph
of Section 5.1 below, the Purchaser shall, as of the Closing, assume the
Seller's liabilities in connection with the rental agreement dated August 8,
1999 with D. Rotstein, construction and Assets Company, Ltd. for the lease of
--
approximately 390 sqm in 10 Lunz St., Jerusalem.
1.3 Nonassignable Contracts and Authorizations. To the extent that the
assignment of the Purchased Assets causes any infringement upon the Company's
obligations pursuant to Contracts signed by and between the Company and third
parties, or any license, permit, approval or instrumentality granted to the
Company by any third party, in connection with the Purchased Assets, this
Agreement shall not constitute a contract to assign the same.
2.
<PAGE>
Seller shall cooperate with Purchaser in any reasonable arrangement requested by
Purchaser designed to provide to Purchaser the benefits under any such Contract,
license, permit, approval or instrumentality, including enforcement of any and
all rights of Seller against the other party thereto arising out of breach or
cancellation thereof by such other party or otherwise. Anything to the contrary
notwithstanding, the Purchaser shall assist the Seller in such reasonable manner
as shall permit Seller to fulfill its obligations under certain Agreements
described in Section 3 below.
ARTICLE 2
CLOSING; PURCHASE PRICE; FURTHER ASSISTANCE
2.1 Place and Date. The closing of the sale and purchase of the Purchased
Assets (the "Closing") shall take place at the offices of Naschitz, Brandes &
Co., 5 Tuval Street Tel-Aviv 67897, Israel at 10:00 a.m., on April 7, 2000 or
such later business day on which all the conditions set forth in Sections 7.1
and 7.2 have been fulfilled or waived, or such other time, date and place as may
be mutually agreeable to the parties hereto (the "Closing Date"). The parties
hereto agree that the Closing may be effected by facsimile. At the Closing, the
Seller shall deliver to the Purchaser one or more instruments representing the
Seller's ownership of the Purchased Assets and their delivery to the Purchaser,
and the Purchaser shall (i) cause Terayon to issue the Acquisition Shares (as
defined below) to the Seller, (ii) pay the cash payment to the Seller, and (iii)
cause Terayon to deposit the Escrow Shares (as defined below) with the Escrow
Agent, which amounts together represent the aggregate Purchase Consideration (as
defined below) payable to the Seller hereunder. At the Closing, the Purchase
Consideration shall be delivered to Ravillan, Volovelsky, Dinstein, Sneh & Co.
and shall be released by Ravillan, Volovelsky, Dinstein, Sneh & Co. to the
Seller only after the Permitted Lien has finally been removed.
2.2 Purchase Consideration. As consideration for the sale of the
Purchased Assets to Purchaser, at the Closing, Purchaser shall cause Terayon to
issue to Seller and/or its designee(s) pursuant to a letter of designation, as
set forth in Section 2.2A hereof, and shall deliver to the Seller, the number of
shares of Common Stock of Terayon (the "Acquisition Shares") equal to
$35,568,470 in value (i.e., 185,031 shares), calculated using the average of the
closing price of Terayon Common Stock, as reported on the Nasdaq National
Market, for the 30 consecutive trading days immediately preceding the date
hereof, and pay the Seller cash in the amount of $1,480,263 to cover certain
accrued expenses and liabilities of the Company as set forth in Schedule 2.2. In
addition, Purchaser shall pay Seller an amount of up to $519,737 to cover
additional accrued expenses and liabilities of the Company (i.e. other than
detailed in Scheduled 2.2) against invoices or other documents (in a form
reasonably acceptable to Purchaser) evidencing said expenses and liabilities
(the "Cash Payment" and collectively with the Acquisition Shares, the "Purchase
Consideration"). In accordance with Section 2.1, on the Closing Date, the
Purchaser shall cause Terayon to issue to the Seller and/or its designee(s) the
Acquisition Shares, of which shares of Common Stock of Terayon with a value
equal to one million and seven hundred and fifty thousand US Dollars
($1,750,000) (the "Escrow Shares")
3.
<PAGE>
shall be deposited with the Escrow Agent to be held in the Escrow Fund and shall
be available to satisfy the indemnification obligations as provided in Section 9
below.
2.2A For purposes of this Agreement, Terayon shall, at the Seller's
request, issue shares, in respect of the Purchase Consideration, the Additional
Consideration or the Additional Shares, in the name of designee(s) of the
Seller, provided that (i)Terayon shall receive, at least 10 days prior to the
issuance date of such shares, a designation letter, duly signed by the Seller
and the designee, specifying the Seller's request and the designee's consent
that the shares be issued in the name of such designee; (ii) such designation
shall not affect the Seller's obligations to Terayon and the Purchaser under
this Agreement, including without limitation the Seller's indemnification
obligations and the Seller's representations and warranties under this
Agreement; and (iii) the Seller and the designee shall have complied with all
legal requirements applicable to the transfer of cash and/or property to the
designee. For the purposes hereof, the opinion of any of Ravillan, Volovelsky,
Dinstein, Sneh & Co., Arthur Andersen (Luboschitz, Kasirer), or any other expert
acceptable to the Purchaser or Terayon, stating that all the legal requirements
have been complied with, shall constitute sufficient evidence of such
compliance.
2.3 The Measurement Date and Additional Consideration. (a)
Notwithstanding the aforementioned in Sub-Section 2.2, subject to the terms
below, in the event that the Measurement Date Share Price (as defined below) is
less than the value of a share of the Common Stock of Terayon on the date hereof
(calculated in accordance with Section 2.2 above, using the average of the
closing price of Terayon Common Stock, as reported on the Nasdaq National
Market, for the 30 consecutive trading days immediately preceding the date
hereof (the "Contract Price")), the Purchaser shall, within ten days following
the date on which the registration statement pursuant to which the Registrable
Shares (as defined in Section 6.2 below) are registered for trading becomes
effective (the "Measurement Date"), pay to the Seller additional consideration
(the "Additional Consideration") which shall be equal to: (i) the aggregate
number of Registrable Shares held by Seller and/or its designee(s), any of its
shareholders, any of their respective affiliates and in the Escrow Fund on the
Measurement Date multiplied by (ii) the difference between the Contract Price
and the Measurement Date Share Price.
(b) The Measurement Date Share Price. The Measurement Date Share Price
shall be equal to the average of the closing sale prices of the shares of Common
Stock of Terayon as reported on the Nasdaq National Market for the five (5)
consecutive trading days immediately following the Measurement Date.
(c) The Purchaser shall be entitled to pay the above Additional
Consideration in cash, or by causing Terayon to issue to the Seller an
additional number of shares of Common Stock registered under the Securities Act
without being subject to lock up provisions (such registration being
substantially identical with the registration provisions provided for with
regard to the shares included in the Purchase Consideration and in the
Additional Shares) with the form of such payment, being solely at the
Purchaser's discretion. If any part of the payment is made in shares, the number
of additional shares issued shall be calculated by dividing the Additional
4.
<PAGE>
Consideration by the Measurement Date Share Price. In the event that such
payment is made in shares and the Measurement Date Share Price is greater than
the closing price of the shares of Common Stock of Terayon on the date on which
the Additional Consideration is delivered to the Seller in the manner described
above, then the Purchaser shall pay to the Seller in cash, within 15 days
following the Measurement Date , an additional amount which shall be equal to:
(i) the aggregate number of Registrable Shares held by the Seller or any of its
designees (including those held in the Escrow Fund) on the Measurement Date
multiplied by (ii) the difference between the Measurement Date Share Price and
the closing price of the shares of Common Stock of Terayon on the date on which
the Additional Consideration is delivered in shares.
2.4 Allocation. Prior to the Closing, the parties shall mutually negotiate
and agree on, in good faith, a statement setting forth the determination of the
manner in which the Purchase Consideration is to be allocated among the
Purchased Assets. The allocation prescribed by such statement shall be
conclusive and binding upon the parties for all purposes, and the Seller, the
Purchaser or Terayon shall not file any Return or other document with, or make
any statement or declaration to, any governmental body that is inconsistent with
such allocation.
2.5 Transaction Costs. In addition to the Purchase Consideration, the
Purchaser shall bear and pay all fees, costs and expenses incurred by the
Company in connection with the transactions contemplated by this Agreement, in
the aggregate amount of $1,397,750, which shall be allocated as follows: Mr.
Stewart Rauner's fee in the amount of $1,110,000, legal expenses to McDermott,
Will & Emery in the amount of $200,000 and legal expenses of Ravillan,
Volovelsky, Dinstein, Sneh & Co., in the amount of $75,000 plus VAT . The
payment of the above fees, costs and expenses (except for the $200,000
representing legal expenses to McDermott, Will & Emery, which shall be paid in
cash) shall be in cash or, at the Purchaser's option, by way of delivery by the
Purchaser and Terayon to the Seller, or its designee(s), of a number of
additional shares of Common Stock of Terayon having an aggregate value equal to
such fees, costs and expenses (the "Additional Shares"). The number of the
Additional Shares shall be determined in the same manner as set forth in Section
2.2 above with respect to the Acquisition Shares.
2.6 Deliveries. At the Closing, Seller shall deliver to Purchaser such
assignments and other good and sufficient instruments of transfer as shall be
satisfactory in form and substance to Purchaser, and shall be effective to vest
in Purchaser good and marketable title, free and clear of any liens and
encumbrances or rights and claims of others, other than the Permitted Lien, to
all of the Purchased Assets, except as otherwise provided in Section 1.3. Except
as provided in this Agreement, the Company shall pay all sales, capital,
franchise income, use, transfer or other taxes, payable by the Seller by reason
of the sale hereunder. In addition to the Purchase Consideration, an amount
equal to 17% of the value of the Purchase Consideration shall be deposited by
the Purchaser with Naschitz, Brandes & Co. in escrow at the Closing, and shall
be available to satisfy the Seller's obligation to pay Value Added Tax in
respect of the transaction contemplated herein. Naschitz, Brandes & Co shall
pay the amount due to the Value Added Tax authorities within no later than two
business days following the date on which Naschitz, Brandes & Co., receives a
copy of the reporting forms that are to be filed by the Company with the Value
Added Tax authorities in connection with the transaction.
5.
<PAGE>
2.7 Books and Records. From and after the Closing and until the second
anniversary thereof, Seller agrees to grant to the Purchaser and its
representatives, upon reasonable notice and during normal business hours,
reasonable access to any books and records that pertain to the Purchased Assets.
2.8 Further Assurances. Each party agrees, at any time and from time to
time after the Closing Date, upon reasonable request from the other party, to
do, execute, acknowledge and deliver, as appropriate, such further acts, deeds,
assignments, transfers, conveyances and powers of attorney as may reasonably be
required for the better assigning, transferring, granting, conveying, assuring
and confirming to such other party, or its successors and assigns, of any of the
assets or liabilities to be assigned to it or retained by such party as provided
herein.
2.9 Further Assistance. Purchaser, in addition to the consideration to be
paid pursuant to Article 2 hereof, shall assist the Company to perform its
obligations under the certain agreements between the Company and third parties
listed below. Such assistance shall be provided to the Company (or to any other
entity designated by the Company which is not a competitor of the Purchaser or
Terayon) in accordance with Schedule 2.9 (a) attached hereto, which sets forth
in detail the scope of the services which the Company shall require, the number
of employees which are required for the performance of such services and the
time schedule of the above, and any licenses that may be required with respect
to the Purchased Assets. The agreements to which this Section 2.9 apply, are as
follows:
(a) Agreement dated February 17, 1999 by and between the Company and
Tadiran Telecommunications Ltd.;
(b) Agreement dated November 2, 1998 by and between the Company and
Tadiran Telecommunications Ltd.; and
(c) Agreement dated March 31, 1999 by and between the Company and
Gadline Ltd.
The parties agree that the Company shall pay the Purchaser, for the services
that shall be rendered by the Purchaser to the Company pursuant to this Section
2.9, such amounts as detailed in Schedule 2.9 (b). The parties further agree
that the Company shall be exclusively entitled to all commissions and/or
royalties and/or any other payments received from the parties to the agreements
listed above; provided, however, that except as set forth in Schedule 2.9 (c)
attached hereto, any intellectual property right to which the Company may be
entitled under these agreements or resulting therefrom shall be the sole and
exclusive property of the Purchaser, and the Company shall not have any right
and/or claim and/or demand with respect thereto.
6.
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Representations and Warranties of Seller. Seller represents and
warrants to Purchaser as follows:
3.1.1 Corporate Organization and Standing. Seller is a corporation
duly organized and validly existing under the laws of the State of Israel and
has all corporate power and authority to conduct the Business in the manner in
which the Business is presently conducted and to own and/or use the Purchased
Assets in the manner in which the Purchased Assets are currently owned and/or
used.
3.1.3 Memorandum of Association and Articles of Association. Copies
of the Memorandum of Association and Articles of Association or other
organizational documents of Seller have been made available to Purchaser, and
each such copy is true, correct and complete.
3.1.4 Corporate Authorization; Binding Agreement. The execution and
delivery of this Agreement and all other documents and instruments executed or
to be executed by Seller pursuant to this Agreement, and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate and other action on the part of Seller including the
approval of the Board of Directors of the Company (other than the approval of
the general meeting of the Shareholders of the Company, which shall be obtained
prior to the Closing). This Agreement and all other documents and instruments
executed or to be executed by Seller pursuant to this Agreement have been, or
will have been, at the time of their respective execution and deliveries, duly
executed and delivered by a duly authorized officer of Seller. This Agreement
constitutes the valid and legally binding obligation of Seller, enforceable in
accordance with its terms, except as such enforceability may be limited by
equitable principles and by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or similar laws relating to or affecting the rights of
creditors generally.
3.1.5 No Conflict. Except as set forth in Schedule 3.1.5 attached
hereto, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (a) result in the
acceleration of, or the creation in any party of any right to accelerate,
terminate, modify or cancel any material indenture, Contract, lease, sublease,
loan agreement, note or other obligation or liability to which Seller is a party
or by which it is bound or to which any of its assets is subject, (b) conflict
with or result in a breach of or constitute a default under any provision of the
Articles of Association of Seller, or a default under or violation of any
material restriction, lien, encumbrance, indenture, Contract, lease, sublease,
loan agreement, note or other obligation or liability to which it is a party or
by which it is bound or to which any of its assets is subject or result in the
creation of any lien or encumbrance upon any of said assets, or (c) violate or
result in a breach of or constitute a default under any judgment,
7.
<PAGE>
order, decree, rule or regulation of any court or governmental agency to which
Seller is subject, and which, in each of clauses (a), (b) and (c) above, would
have a Material Adverse Effect.
3.1.6 Financial Information.
(a) The Company has delivered to Purchaser the following financial
statements and notes (collectively, the "Financial Statements"):
(i) The audited balance sheet of the Company as of December
31, 1998, and the related audited statements of operations, statements of
stockholders' equity and statements of cash flows of the Company for the year
then ended, together with the notes thereto and the unqualified report and
opinion of a recognized firm of independent certified accountants relating
thereto; and
(ii) The unaudited balance sheet of the Company as of December
31, 1999 (the "Unaudited Balance Sheet") and the related unaudited statements of
operations, statements of stockholders' equity and statements of cash flows of
the Company for the year then ended.
(b) The Financial Statements are accurate and complete in all
material respects and present fairly the financial position of the Company as of
the respective dates thereof and the results of operations and cash flows of the
Company for the periods covered thereby. The Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently applied in Israel throughout the periods covered (except that the
financial statements referred to in Section 3.1.6(a)(ii) do not contain
footnotes and are subject to normal and recurring year-end audit adjustments,
which will not, individually or in the aggregate, be material in magnitude) and
comply with the requirements of all applicable Israeli regulations.
(c) Except as set forth in Schedule 3.1. 6(c) attached hereto, all
proper and necessary books of account, minute books, registers and records have
been maintained by the Company, are in its possession and contain accurate
information relating to all material transactions to which the Company has been
a party, except where the failure to maintain such books of account, minute
books, registers and records would not have a Material Adverse Effect on the
Company.
3.1.7 Insurance. Seller has in full force and effect the insurance
policies set forth on Schedule 3.1.7 hereto, and will cause such policies or
replacement policies that are reasonably comparable to remain in full force and
effect until the Closing Date.
3.1.8 Litigation. Except as set forth in Schedule 3.1.8 attached
hereto, there are no actions, suits, proceedings or governmental investigations
pending or, to Seller's knowledge, threatened against Seller, at law or in
equity or before any court, governmental department, commission, board, agency,
authority or instrumentality, domestic or foreign, or that have been, within the
last twelve months, settled, dismissed or resolved. Seller is not subject to any
judgment, stipulation, order or decree arising from any action, suit, proceeding
or investigation.
8.
<PAGE>
3.1.9 Licenses and Permits; Compliance with Laws. Except as set
forth in Schedule 3.1.9 attached hereto, Seller owns, holds or possesses in its
own name, all licenses and permits necessary to entitle it to carry on and
conduct the Business and its operations as presently conducted, except for such
licenses and permits the absence of which would not, in the aggregate, have a
Material Adverse Effect. Seller is not in violation of or default under any
licenses and permits or any judgment, order, writ, injunction or decree of any
court or administrative agency issued against it or any statute, law, ordinance,
rule or regulation applicable to it, which violations or defaults would,
individually or in the aggregate, have a Material Adverse Effect or which would,
individually or in the aggregate, interfere materially with the consummation of
the transactions contemplated by this Agreement.
3.1.10 Brokers, Finders. Seller has not retained any broker or
finder in connection with the transactions contemplated herein and is not
obligated and has not agreed to pay any brokerage or finder's commission, fee or
similar compensation, except for the fees payable to Mr. Stewart Rauner or his
nominee in the amount of $1,110,000, in the manner described in Section 2.4
above.
3.1.11 Seller Contracts.
(a) Schedule 3.1.11(a) attached hereto identifies each Seller
Contract. Seller has delivered to or made available to Purchaser accurate and
complete copies of all Seller Contracts identified in Schedule 3.1.11(a)
attached hereto. Since January 1, 2000, no material change has been made to any
of the terms and conditions of any of the Seller Contracts. Each Seller
Contract is valid and in full force and effect.
(b) Neither the Seller, nor to the Seller's knowledge, any
other Person has violated or breached, or declared or committed any default
under, any Seller Contract. No event has occurred, and no circumstance or
condition exists, that might (with or without notice or lapse of time) (i)
result in a violation or breach by Seller of any of the provisions of any Seller
Contract, (ii) only with respect to events and/or circumstances regarding
Seller, give any Person the right to declare a default or exercise any remedy
under any Seller Contract, (iii) only with respect to events and/or
circumstances regarding Seller, give any Person the right to accelerate the
maturity or performance of any Seller Contract, or (iv) only with respect to
events and/or circumstances regarding Seller, give any Person the right to
cancel, terminate or modify any Seller Contract. Seller has not received any
written or oral communication regarding any actual, alleged, possible or
potential material violation or breach of, or material default under, any Seller
Contract. Seller has not waived any right under any Seller Contract.
(c) Seller is not currently bound by any guarantee nor has it
otherwise agreed to cause, insure or become liable for, and the Purchased Assets
are not currently pledged to secure, the performance or payment of any
obligation or other Liability of any other Person, except for the Permitted
Lien.
(d) The performance by Seller of the Seller Contracts will not
result in any violation of or failure to comply with any Legal Requirement by
Seller.
9.
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(e) No Person is renegotiating or has the right to renegotiate
any amount paid or payable to Seller under any Seller Contract or any other term
or provision of any Seller Contract.
(f) Except as set forth in Schedule 3.1.11(f) attached hereto,
Seller has no knowledge of any basis upon which any party to any Seller Contract
may object to the assignment to Purchaser of any rights under such Seller
Contract or the delegation to or performance by Purchaser of any obligations
under such Seller Contract.
(g) The Seller Contracts identified in Schedule 3.1.11(a)
attached hereto constitute all of the Seller Contracts.
3.1.12 Title to Purchased Assets.
(a) Except as set forth in Schedule 3.1.12(a) attached hereto, the
Company (i) owns or has the perpetual right to use, free and clear of all liens,
claims and restrictions, other than the Permitted Lien, the Intellectual
Property, and (ii) to the best knowledge of the Company, such Intellectual
Property does not infringe upon or violate any right, lien, or claim of others,
including without limitation of its or the Subsidiary's present or former
employees or the former employers of all such persons. Except as set forth in
Schedule 3.1.12, the Company is not currently obligated or under any liability
whatsoever to make any payments by way of royalties, fees or otherwise to any
owner or licensee of, or other claimant to, any patent, trademark, service mark,
trade name, copyright or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(b) Except as set forth in Schedule 3.1.12(b) attached hereto, any
and all Intellectual Property of any kind which has been developed or, is
currently being developed, by any of the Company or the Subsidiary or any
employees of the Company or the Subsidiary is the property solely of the
Company. The Company has taken security measures to protect the secrecy,
confidentiality and value of all the Intellectual Property, which measures are
reasonable and customary in the industry in which the Company operates. Each
person employed by, or acting on behalf of, the Company who, either alone or in
concert with others, developed, invented, discovered, derived, programmed or
designed the Intellectual Property has entered into a written non-disclosure
agreement with the Company regarding ownership and treatment of the Intellectual
Property, in a form reasonably satisfactory to the Company.
(c) Except as set forth in Schedule 3.1.12(c) attached hereto,
neither the Company nor, to the best knowledge of the Company, any of its
directors, officers or employees has received any communications alleging that
the Company has violated or by conducting its business as currently conducted,
would violate, any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person or
entity. Except as set forth Schedule 3.1.12(c), neither the Company nor, to the
best knowledge of the Company, any of its directors, officers or employees has
received notice nor is it otherwise aware of any infringement of or conflict
with asserted rights of others, with respect to any of the Intellectual
Property.
10.
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(d) To the best knowledge of the Company, none of the Company's
employees, officers or directors are obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such persons' best efforts to promote the
interests of the Company or that would conflict with the Company's business as
conducted and with the Business under the ownership of the Purchaser as proposed
to be conducted. To the best knowledge of the Company, neither the execution nor
delivery of the Agreement, nor the carrying on of the Company's business by
employees of the Company, nor the conduct of the Business under the ownership of
the Purchaser as proposed to be conducted, will materially conflict with or
result in a material breach of the terms, conditions or provisions of, or
constitute a material default under, any contract, covenant or instrument under
which any of the Company's employees, officers or directors is now obligated.
It is not, and will not become, necessary to utilize any inventions, and
specifically, patent applications, of any of the Company's employees (or people
the Company currently intends to hire) made prior to their employment by the
Company other than those that have been assigned to the Company pursuant to
valid and legally binding instruments of assignment.
(e) The Intellectual Property constitutes all of the Intellectual
Property necessary to enable the Company to conduct its business in the manner
in which such business has been and is being conducted. Except as set forth in
schedule 3.1.12(e) attached hereto, the Company has not licensed any of the
Company's Intellectual Property to any Person on an exclusive basis, nor has the
Company entered into any covenant not to compete or Contract limiting its
ability to exploit fully any of its Intellectual Property or to transact
business in any market or geographical area or with any Person.
3.1.13 No Consent. Except as set forth in Schedule 3.1.13 attached
hereto, no consent, approval, authorization order, filing, registration or
qualification of or with any court, governmental authority or third party is
required to be made or obtained by Seller in connection with the execution and
delivery of this Agreement by Seller or the consummation by Seller of the
transactions contemplated hereby.
3.1.14 Authorization. Seller has full right, power and authority to
enter into this Agreement and to perform fully its obligations hereunder. This
Agreement has been duly executed and delivered by Seller and is the valid and
binding obligation of Seller enforceable against it in accordance with its
terms, except as enforcement may be limited by equitable principles limiting the
right to obtain specific performance or other equitable remedies, or by
applicable bankruptcy or insolvency laws and related decisions affecting
creditors' rights generally.
3.1.15 Absence of Changes. Except as set forth in Schedule 3.1.15
attached hereto, since December 31, 1999:
(a) there has not been any material adverse change in, and no
event has occurred that might reasonably be expected to have a Material Adverse
Effect on, the business of the Seller or the Purchased Assets.
11.
<PAGE>
(b) there has not been any material loss, damage or
destruction to, or any interruption in the use of the Purchased Assets (whether
or not covered by insurance);
(c) Seller has not sold or otherwise transferred, leased or
licensed, any of the Purchased Assets to any other Person;
(d) Seller has not (i) established or adopted any Employee
Benefit Plan, or (ii) paid any bonus or made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions, fees,
fringe benefits or other compensation or remuneration payable to, any of its
directors, officers, employees or independent contractors;
(e) no Seller Contract has been amended; and
(f) Seller has not agreed, committed or offered (in writing or
otherwise) to take any of the actions referred to in clauses "(c)" through "(e)"
above.
3.1.16 Benefit Plans; All employees' benefit plans, including without
limitation pension, profit sharing if applicable, severance, stock option,
bonus, group or individual medical, welfare, insurance or other employee benefit
plan, were maintained by the Seller, as required by law. The Seller shall pay
the employees or for their benefit, within 10 days of the Closing, all amounts
due to the employees in connection with such benefit plans, including without
limitation severance payments and any other payments due to the employees in
connection with the termination of the employment of the employees by the
Seller, and not including payments in connection with the employees' option
plan, which shall be paid in the manner set forth in Section 5.3 below.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND TERAYON
4.1 Representations and Warranties. Purchaser and Terayon represent and
warrants to Seller as follows:
4.1.1 Organization and Standing. Purchaser is a corporation duly
organized and validly existing under the laws of the State of Israel and
Terayon is a corporation duly organized and validly existing and in good
standing under the laws of the State of Delaware. Terayon and Purchaser have all
corporate power and authority to carry on the business in which they are engaged
and to own or lease and operate their properties. Terayon and Purchaser are
qualified to do business and Terayon is in good standing in each state of the
United States in which the nature of its business in such jurisdiction would
require it to be so qualified except where the failure to so qualify would not
have a Material Adverse Effect on the financial condition or results of
operations of the Purchaser or Terayon.
4.1.2 SEC Filings; Financial Statements.
12.
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(a) Terayon has timely filed all required forms, reports and
documents with the SEC since August 17, 1998, each of which has complied in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder, each as in
effect on the dates such forms, reports, and documents were filed. Terayon and
the Purchaser have made available to the Seller accurate and complete copies
(excluding copies of exhibits) of each report, registration statement and
definitive proxy statement filed by Terayon with the SEC between August 17, 1998
and the date of this Agreement (the "Terayon SEC Documents"). As of the time it
was filed with the SEC (or, if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing): (i) each of the
Terayon SEC Documents complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act (as the case may be); and
(ii) none of the Terayon SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Terayon is not and has
not been required to make any filing with the SEC that has not been made, nor
has there been any occurrence involving Terayon, that, but for the passage of
time, would necessitate making any such filing.
(b) The consolidated financial statements contained in the Terayon
SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered, except as may be indicated in
the notes to such financial statements and (in the case of unaudited statements)
as permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to year-end audit
adjustments; and (iii) fairly present the consolidated financial position of
Terayon and its subsidiaries as of the respective dates thereof and the
consolidated results of operations of Terayon and its subsidiaries for the
periods covered thereby.
4.1.3 Authorization. Terayon and Purchaser have the absolute and
unrestricted right, power and authority to perform their obligations under this
Agreement; and the execution, delivery and performance by Terayon and Purchaser
of this Agreement and the consummation of the transactions contemplated hereby
(including the contemplated issuance of Common Stock in accordance with this
Agreement) have duly authorized by all necessary action on the part of Terayon
and Purchaser and their boards of directors. No vote of Terayon's and/or
Purchaser stockholders or other corporate proceeding is needed to approve any of
the transactions contemplated by this Agreement. All corporate and other
proceedings required to be taken on the part of Purchaser and/or Terayon,
including, without limitation, all action required to be taken by the directors
or shareholders of Purchaser and/or Terayon to authorize Purchaser and Terayon
to enter into and carry out this Agreement and to purchase the Purchased Assets,
have been duly and properly taken. This Agreement has been duly executed and
delivered by Purchaser and is the valid and binding obligation of Purchaser
enforceable against it in accordance with its terms, except as enforcement may
be limited by equitable principles limiting the right to obtain specific
performance or other equitable remedies, or by applicable bankruptcy or
insolvency laws and related decisions affecting creditors' rights generally.
13.
<PAGE>
4.1.4 Compliance. Neither the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, will (a)
result in the acceleration of, or the creation in any party of any right to
accelerate, terminate, modify or cancel any material indenture, Contract, lease,
sublease, loan agreement, note or other obligation or liability to which
Purchaser and/or Terayon or any of their subsidiaries or affiliates is a party
or by which it is bound or to which any of its assets is subject, (b) conflict
with or result in a breach of or constitute a default under any provision of the
Certificate of Incorporation, By-laws or other organizational or governing
instruments of Purchaser and/or Terayon or any of their subsidiaries, or a
default under or violation of any material restriction, lien, encumbrance,
indenture, Contract, lease, sublease, loan agreement, note or other obligation
or liability to which it is a party or by which it is bound or to which any of
its assets is subject or result in the creation of any lien or encumbrance upon
any of said assets, or (c) violate or result in a breach of or constitute a
default under any judgment, order, decree, rule or regulation of any court or
governmental agency to which Purchaser and/or Terayon or any of their
subsidiaries is subject, and which, in each of clauses (a), (b) and (c) above,
would have a Material Adverse Effect on Purchaser and/or Terayon.
4.1.5 Litigation. There are no actions, suits, proceedings,
arbitrations, or investigations pending, or to the best of Purchaser's and
Terayon's knowledge, threatened against Purchaser or Terayon, which question the
validity of this Agreement or any actions taken or to be taken in connection
herewith or the consummation of the transactions contemplated herein, at law or
in equity or before any court, governmental department, commission, board,
agency, authority or instrumentality, domestic or foreign. Purchaser and Terayon
are not subject to any judgment, stipulation, order or decree arising from any
action, suit, proceeding or investigation.
4.1.6 Approvals, etc. All consents, approvals, authorizations and
orders (corporate, governmental or otherwise) necessary for the due
authorization, execution and delivery by Purchaser and Terayon of this Agreement
and the consummation of the transactions contemplated hereby have been obtained
or will be obtained prior to the Closing Date.
The execution, delivery and performance of this Agreement by Purchaser and
Terayon do not, and the consummation of the transactions contemplated hereunder
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, domestic or
foreign, except for (i) the approval of the Israeli Securities Authority, (ii)
the approval of the Office of the Comptroller of Restrictive Business Practices
, and (iii) any such consent, approval, authorization, permission, notice or
filing which if not obtained or made could not reasonably be expected to have a
Material Adverse Effect on Purchaser or its subsidiaries.
4.1.7 Brokers, Finders. The Purchaser and Terayon have not retained
any broker or finder in connection with the transactions contemplated herein and
is not obligated and has not agreed to pay any brokerage or finder's commission,
fee or similar compensation.
4.1.8 Valid Issuance. The Registrable Shares and the Additional
Consideration
14.
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if paid with shares of Common Stock of Terayon will, when issued in accordance
with the provisions of this Agreement, be validly issued, fully paid and non-
assessable, and free of any third party rights with no personal liability
attaching to the ownership thereof and free and clear of any liens, claims,
encumbrances or third party rights of any kind, and duly registered in the name
of Seller, in accordance with the terms of this Agreement and no shareholder of
Terayon will have any preemptive right of subscription or purchase in respect
thereof. Terayon has sufficient Common Stock authorized and reserved for
issuance to the Seller and its designees to enable it to consummate the
transactions contemplated hereunder.
4.1.9 Full Disclosure. This Agreement does not, and the Purchaser
and Terayon Closing Certificate will not, (i) contain any representation,
warranty or information that is false or misleading with respect to any material
fact, or (ii) to Purchaser's and Terayon's best knowledge, omit to state any
material fact necessary in order to make the representations, warranties and
information contained and to be contained herein and therein (in the light of
the circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading.
4.1.10 Compliance with Laws. Purchaser and Terayon are not and have
not operated their respective business in violation of or default under any
judgment, order, writ, injunction or decree of any court or administrative
agency issued against either of them or any statute, law, ordinance, rule or
regulation applicable to either of them, which would, individually or in the
aggregate, interfere materially with the consummation of the transactions
contemplated by this Agreement or have a Material Adverse Effect on the
Purchaser or Terayon.
4.1.11 No Consent. Except as set forth in Schedule 4.1.11 attached
hereto, no consent, approval, authorization order, filing, registration or
qualification of or with any court, governmental authority or third party is
required to be made or obtained by Purchaser and/or by Terayon in connection
with the execution by Purchaser and Terayon or the consummation by Purchaser and
Terayon of the transactions contemplated hereby.
4.1.12 Experience; Receipt of Information. Terayon and Purchaser
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks relating to the acquisition of the
Purchased Assets, and have reviewed and inspected all of the data and
information provided to it by the Company in connection with this Agreement.
Terayon and Purchaser have been furnished by the Company with all the documents
and information regarding the Company which Terayon has requested, and has been
afforded the opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of the Company concerning the
Company's business, assets and financial position.
15.
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ARTICLE 5
COVENANTS AND AGREEMENTS OF SELLER
5.1 Conduct of Business. During the Pre-Closing Period, except as
contemplated by this Agreement or referred to in the disclosure schedule
attached hereto, and except as may be necessary to carry out the transactions
contemplated by this Agreement or any transaction contemplated by or relating to
any of the contracts or other matters referred to in this Agreement or the
disclosure schedule attached hereto, without the prior written consent of the
Purchaser, Seller or Subsidiary shall not:
(One) voluntarily permit to be incurred any lien or encumbrance on any
of the Purchased Assets;
(b) increase the rate of compensation for any of the Company's or
Subsidiary's Employees, except for increases in the ordinary
course and consistent with past practices, or otherwise enter
into or alter any employment, consulting, or service agreement
respecting the Business;
(c) commence, enter into, or alter any profit sharing, deferred
compensation, bonus stock purchase, pension, retirement, or
incentive plan or any fringe benefit plan for the Company or
Subsidiary Employees;
(d) sever or terminate any of the Company or Subsidiary Employees
except for cause in the ordinary course of the Business, and
pursuant to Section 5.3;
(e) dispose of any of the Purchased Assets;
(f) enter into any transaction in connection with the Purchased
Assets;
(g) enter into or commit to any joint venture, teaming arrangement
or similar arrangement relating to the Business;
(h) commence any material legal proceeding with respect to the
Business; or
(i) agree or commit to take any of the actions described in the
foregoing clauses.
Notwithstanding the foregoing, the Seller may take any action described in
clauses "(a)" through "(i)" above if Purchaser gives its prior written consent
to the taking of such action by the Seller, which consent will not be
unreasonably withheld or if such action is taken at the written request of
Terayon or the Purchaser. The parties agree that, unless otherwise agreed to in
writing by the Purchaser, during the Pre-Closing Period the Company shall
operate solely as a subcontractor of the Purchaser and Terayon and shall devote
and dedicate all its employees, time and efforts to the assignments, services
and projects requested of it by the Purchaser and/or
16.
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Terayon, except for the performance of the Company's obligations in connection
with the agreements described in Section 2.9 above to the extent set forth in
Schedule 2.9(a). The Purchaser shall pay the Company in cash for these services,
assignments and projects by covering all the costs (including without
limitation, employees' salaries and payments to Company's suppliers) when
incurred by the Company in the performance of such services, assignments and
projects; provided, however, that any source codes or other intellectual
property in connection with these services shall be delivered to the Purchaser
only at the Closing. All said payments shall be paid to the Company by the
Purchaser by no later than two business days following the date on which the
Purchaser receives from the Company: (i) with respect to employees' salaries - a
copy of the Company's accounting report evidencing the payments of such
salaries, or (ii) with respect to other payments - the applicable invoices.
5.2 Notification; Updates to Disclosure Schedule
(a) During the Pre-Closing Period, the Seller, the Purchaser and
Terayon shall promptly notify the other parties hereto, in writing, of:
(i) the discovery by such party of any event, condition, fact
or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a material inaccuracy in or breach of
any representation or warranty made by such party in this Agreement;
(ii) any breach of any covenant or obligation of such party
contained herein; and
(iii) the discovery by such party of any event, condition, fact
or circumstance that would make the timely satisfaction of any of the conditions
set forth in Article 7 impossible or unlikely.
(Two) If any event, condition, fact or circumstance that is required
to be disclosed pursuant to Section 5.2(a) requires any change
in the disclosure schedules attached hereto or in any of the
Schedules detailed above, or if any such event, condition, fact
or circumstance would require such a change assuming the
disclosure schedule or in any of the Schedules detailed above
were dated as of the date of the occurrence, existence or
discovery of such event, condition, fact or circumstance, then
the Company, the Purchaser or Terayon, as applicable, shall
promptly deliver to the other parties hereto an update to the
disclosure schedule specifying such change. No such update shall
be deemed to supplement or amend the disclosure schedule or in
any of the Schedules detailed above for the purpose of (i)
determining the accuracy of any of the representations and
warranties made by the Seller or by the Purchaser in this
Agreement, or (ii) determining whether any of the conditions set
forth in Section 7.1 or 7.2 has been satisfied.
17.
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5.3 Termination of Employment of Employees. Seller will terminate the
employment of each of the Company's and the Subsidiary's Employees identified on
Exhibit C immediately prior to the Closing in conjunction with the signing of
new employment agreements between the Purchaser and such Employees. Mr. Dmitry
Gorshevsky shall be employed by the Purchaser for a period of one year.
Terayon shall provide to the employees of the Company detailed in Exhibit C
such employee benefit plans, programs and arrangements, as are generally made
available to Israeli employees of Terayon, as detailed in Exhibit L attached
hereto, and shall provide to the employees of the Subsidiary detailed in Exhibit
C such employee benefits plans, programs and arrangements as detailed in Exhibit
K hereto.
In addition to the above, the vested and unvested options granted to the
Company's employees to purchase Ordinary Shares of the Company shall be canceled
and the Purchaser shall cause Terayon to issue to the employees listed on
Exhibit C, on a net issuance basis, shares and options to purchase such number
of shares of Common Stock of Terayon (the "Employee Consideration"), as set
forth opposite such employee's name in Schedule C (such number to be determined
in the same manner as set forth in Section 2.2 above). One third (1/3) of the
Employee Consideration shall be paid to the Company's employees at the Closing,
by either cash or the delivery by the Purchaser of shares of Common Stock of
Terayon having the value (determined in accordance with Section 2.2) of such
amount (at the Purchaser's sole discretion). The remaining two thirds (2/3) of
the Employee Consideration shall be in the form of options to purchase shares of
Common Stock of Terayon, of which one half (1/2) shall vest at the end of the
first year following the Closing and one half (1/2) shall vest at the end of two
years following the Closing. Notwithstanding the foregoing, the part of the
Employee Consideration issued by Terayon to Mr. Dmitry Gorshevsky shall be
delivered as follows: One half (1/2) shall be delivered at the Closing, by
either cash or the delivery by the Purchaser of shares of Common Stock of
Terayon having the value (determined in accordance with Section 2.2) of such
amount (at the Purchaser's sole discretion) and one half (1/2) shall be in the
form of options to purchase shares of Common Stock of Terayon that shall vest at
the end of the first year following the Closing. It is explicitly acknowledged
by the Purchaser and Terayon that Mr. Dmitry Gorshevsky shall not be obligated
to be employed by the Purchaser or Terayon for a period exceeding 12 months
following the Closing, unless otherwise agreed by Mr. Dmitry Gorshevsky.
Notwithstanding the foregoing, in the event that the Purchaser shall
terminate the employment of any of the employees whose names are set forth in
Schedule C attached hereto, within one year following the Closing, for any
reason other than for "Cause", then such employee shall be entitled to receive,
within 30 days following the termination of his employment, the Terayon Options
which were granted to such employee as a substitute for a number of the
employee's options in the Company equal to the difference between such
employee's vested options as of the Closing and the shares it received on the
Closing. For these purposes, "Cause" shall mean circumstances, under which the
employee would not be entitled to severance pay under Israel's Severance Pay Law
[5723 - 1963] or the refusal to carry out the instructions of the Purchaser's
Board of Directors.
18.
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5.4 Employment and Non competition Agreements. Seller shall use
commercially reasonable efforts to cause each of the individuals identified on
Exhibit C to execute and deliver to the Purchaser and Terayon, at the Closing,
an Employment Agreement in the form of Exhibit D and a Non-competition Agreement
in the form of Exhibit E.
5.5 Customer Records and Information
5.5.1 Purchaser and Terayon agree that all documents delivered to
Purchaser by Seller pursuant to this Agreement and all documents connected with
the Business (including, but not limited to, files, books and records) shall
after the Closing be open for inspection by representatives of Seller at any
time during regular business hours and upon providing reasonable advance notice
for reasonable and necessary purposes until such time as documents are destroyed
or possession thereof is given to the other party as provided for in Section
5.5.2 herein and that Seller may during such period at its expense make such
copies thereof as it may reasonably request. Seller agrees that all documents
that are retained by Seller after the Closing Date and that are related to the
Business (other than tax records of Seller) shall be open for inspection by
representatives of Purchaser at any time during regular business hours and upon
providing reasonable advance notice until such time as documents are destroyed
or possession thereof is given up to the other party as provided for in Section
5.5.2 herein and that Purchaser may during such period at its expense make such
copies thereof as it may reasonably request.
5.5.2 Without limiting the generality of Section 5.5.1, for a period
ending on the sixth anniversary of the Closing Date, neither Purchaser and/or
Terayon nor Seller shall destroy or give up possession of any item referred to
in Section 5.5.1 hereof without first offering to the other, the opportunity, at
such other's expense (but without any other payment), to obtain the same.
Thereafter each party shall be free to dispose of such items as it deems fit.
5.5.3 Purchaser and Terayon shall use reasonable efforts to afford
Seller access to Employees who were previously employees of Seller, and remain
in the employ of Purchaser or its affiliates, as Seller shall reasonably request
for its proper corporate purposes, including, without limitation, the defense of
legal proceedings. Such access may include interviews or attendance at
depositions or legal proceedings. All out-of-pocket expenses reasonably
incurred by Purchaser in connection with this Section 5.5.3 shall be paid or
promptly reimbursed by Seller.
5.6 Covenant Not to Compete.
(a) Seller agrees that, as part of the consideration for the
payment by Purchaser of the Purchase Consideration, for a period of three years
immediately following the Closing Date, with respect to Seller, and , for a
period of two years immediately following the Closing Date, with respect to Mr.
Dmitry Goroshevsky, neither Seller nor any of its subsidiaries, nor Mr. Dmitry
Goroshevsky, will, directly or indirectly, operate, perform, have any interest
in or otherwise be engaged in or concerned with a business which develops,
manufactures, prepares, sells, installs or distributes products or performs
services in competition with the Business of the Company as conducted on the
Closing Date. For these purposes, ownership of securities of a company whose
securities are publicly traded on a recognized securities exchange not in excess
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of 10% of any class of such securities shall not be considered to be competition
with the Business of the Company. For avoidance of doubt, the fulfillment of
Seller's obligations arising out of the agreements described in Section 2.8
hereof, shall not be considered as competition with the Business of the Company.
(b) Seller acknowledges that the restrictions on its activities under
Section 5.6(a) are necessary for the reasonable protection of Purchaser and
constitute a material inducement to Purchaser's entering into and performing
this Agreement. Seller shall procure the execution of a non-compete and non-
solicitation agreement by Mr. Dmitry Goroshevsky, in the form attached hereto as
Schedule L. Seller further acknowledges, stipulates and agrees that a breach of
any such obligations and agreements will result in irreparable harm and
continuing damage to Purchaser for which there will be no adequate remedy at law
and further agrees that in the event of any breach of said obligations and
agreements, Purchaser shall be entitled to injunctive relief and to such other
relief as is proper under the circumstances.
ARTICLE 6
ADDITIONAL COVENANTS OF THE PARTIES
6.1 Reasonable Efforts to Close. During the period commencing on the date
of the execution of this Agreement and continuing until the Closing Date,
Purchaser, Terayon and Seller shall use their reasonable efforts to make any
fillings or obtain any consents and comply promptly with all requests or
requirements which applicable law or governmental officials may impose on them
with respect to the transactions which are the subject of this Agreement, and to
consummate such transactions as promptly as practicable. The reasonable efforts
of Purchaser, Terayon and Seller shall include, without limitation, good faith
response, in cooperation with each other, to all requests for information,
documentary or otherwise, by any governmental agency. Accordingly, immediately
after the signing, the parties shall file with the Office of the Controller of
Restrictive Business Practices of Israel, an amalgamation notice pursuant to
Section 19 of the Restrictive Business Practices Law (1988).
6.1(a) Terayon Obligation. Terayon agrees that in each case where, in this
Agreement, the Purchaser undertook to cause Terayon to act in a certain manner,
Terayon undertakes to so act.
6.2 Registration Statements. Terayon shall, as promptly as practicable,
prepare a report on Form 8-K under the Exchange Act with respect to this
Agreement and the transactions contemplated hereunder which will be subject to
review and reasonable comments of the Sellre following the Closing. In addition,
Terayon shall, promptly following the Closing Date, and in any case not later
than 5 (five) business days following the Closing, prepare and file with the
SEC a registration statement on Form S-3 under the Securities Act (the
"Registration Statement") permitting resales of the Acquisition Shares and the
Additional Shares (together, the "Registrable Shares") by the Seller and/or its
designee(s) (pursuant to Section 2.2A above). Terayon will, and will cause its
accountants and lawyers to, cause the Registration Statement to be declared
effective as soon as possible after filing with the SEC, but in no event later
than sixty
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(60) days following the Closing, so that the Registrable Shares shall be
tradable by Seller and/or its designee(s) and shall not be subject to any lock
up provision, continuously following the date on which the Registration
Statement is declared effective by the SEC, and Terayon will duly file any and
all periodic reports required. The Registration Statement shall be kept
effective continuously for a period of eighteen months following the date on
which the Registration Statement is declared effective by the SEC. Terayon shall
respond promptly to SEC questions, comments and requests, if any, to amend the
Registration Statement and instruct its consultants, including, as required,
lawyers and accountants, to do the same. The Form 8-K and Forms S-3 shall be
prepared to comply in all material respects with the applicable published rules
and regulations of the SEC, including the preparation of the financial
statements and exhibits required thereunder. None of the information supplied or
to be supplied by Terayon for inclusion or incorporation by reference in the
Registration Statement will, at the time the Registration Statement is filed
with the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading. If at any time prior to the date on which the Registration
Statement is declared effective by the SEC any event in respect of Terayon, its
officers and directors, or any of its subsidiaries should occur which is
required to be described in an amendment of, or a supplement to, the
Registration Statement, Terayon shall promptly so advise the Seller and such
event shall be so described, and any such amendment or supplement to the
Registration Statement (which the Seller's Representative shall have a
reasonable opportunity to review) shall be promptly filed with the SEC by
Terayon. The Registration Statement will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
thereunder. Terayon shall notify the Seller immediately upon the Registration
Statement becoming effective. The Seller and/or its designee(s) shall be
entitled to sell the Registrable Shares immediately upon the effectiveness of
the Registration Statement.
6.3 Disclosures, Press Releases. The parties shall remain subject to the
terms of that certain Non-Disclosure Agreement between the Terayon and the
Seller dated as of January 2, 2000. During the Pre-Closing Period, Purchaser,
Terayon and Seller will keep the terms of this Agreement and the transactions
contemplated hereunder strictly confidential. Accordingly, during the Pre-
Closing Period, except as required by law, neither Seller nor Purchaser, without
the prior written consent of the other, will make any press release or any
similar public announcement concerning the transactions contemplated hereby. In
addition, during the Pre-Closing Period, other than as necessary to obtain any
consent required to consummate the transactions contemplated hereunder or as
required by law, no written or oral announcement or private disclosure with
respect to the transactions contemplated hereby will be made to any person
unrelated to Seller or Purchaser unless jointly approved by Seller and
Purchaser. If disclosure is required by law, the disclosing party shall consult
in advance with the other party and attempt in good faith to reflect such other
party's concerns in the required disclosure.
6.4 Non-Solicitation. Seller agrees that neither it nor its Subsidiary,
nor Mr. Dmitry Goroshevsky, shall, for a period of three years from the Closing
Date, directly or indirectly hire or solicit for employment any Business
Employee that will have hired by Terayon on or after the Closing Date.
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ARTICLE 7
CLOSING CONDITIONS AND TRANSACTIONS
7.1 Conditions Precedent to the Obligations of Purchaser. The obligations
of Purchaser under this Agreement are subject to the fulfillment by Seller prior
to or at the Closing of each of the following conditions, any one or more of
which may be waived by Purchaser:
7.1.1 No Injunctive Proceedings. No preliminary or permanent
injunction or other order (including a temporary restraining order) of any court
or other governmental agency which prevents the consummation of the transactions
which are the subject of this Agreement or prohibits Purchaser's ownership of
the Purchased Assets shall have been issued and remain in effect.
7.1.2 Accuracy of Representations. Each of the representations and
warranties made by the Seller in this Agreement and in each of the other
agreements and instruments delivered to the Purchaser or Terayon in connection
with the transactions contemplated by this Agreement shall be accurate in all
material respects as of the Closing Date as if made on the Closing Date except
for items that speak as of a specific date, that are specifically permitted by
this Agreement or consented to in writing by the Purchaser or Terayon, or that
are disclosed by Seller to the Purchaser and Terayon prior to the Closing Date.
7.1.3 Performance of Covenants. All of the covenants and obligations
that the Seller is required to comply with or to perform at or prior to the
Closing shall have been complied with and performed in all material respects;
provided however that any noncompliance or nonperformance that results from
Terayon's and/or the Purchaser's activities shall not constitute noncompliance
or nonperformance by the Seller for the purposes of this Section 7.1.3.
7.1.4 Consents and Approvals. All consents and approvals required to
be obtained in connection with this Agreement and the transactions contemplated
by this Agreement (including, without limitation, the unconditional approval of
an amalgamation notice under Section 19 of the Restrictive Business Practices
Law (1988)) shall have been obtained and shall be in full force and effect,
other than those consents that, if not obtained and in full force and effect,
would not result in a Material Adverse Effect or would not prevent the
consummation of the transactions contemplated hereunder.
7.1.5 Agreements and Documents. The Purchaser shall have received
the following agreements and documents, each of which shall be in full force and
effect:
(a) Copies of resolutions of the General Meeting of the
Shareholders of the Seller and the Board of Directors of Seller, certified by
the Chairman of the Board of Directors of the Seller authorizing the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby.
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(b) The Employment Agreements in the form of Exhibit D,
executed by all but four (or less) of the individuals identified on Exhibit C,
provided however that the Employees who shall not sign such Employment Agreement
are not identified on Exhibit C as Employees whose employment by the Purchaser
is a condition to Closing;
(c) Non-competition and non-solicitation Agreements in the form
of Exhibit E, executed by each of the individuals identified on Exhibit C and by
Mr. Dmitry Goroshevsky;
(d) confidential invention and assignment agreements,
reasonably satisfactory in form and content to the Purchaser, executed by all of
the Seller's and Subsidiary's (1) employees who have not already signed such
agreement, and (2) consultants and independent contractors who have not already
signed such agreement; provided that no such agreements will be required of the
Persons identified in clauses (1) and (2) whose jobs or services provided did
not materially relate to the Purchased Assets;
(e) fully executed Escrow Agreement (the "Escrow Agreement") in
the form and substance reasonably satisfactory to counsel for the Purchaser and
counsel for the Seller, which shall contain, without limitation, provisions
regarding the following: (i) the release of the Escrow Shares upon the
termination of a nine (9) month period commencing on the Closing Date, (ii)
provisions enabling the Seller to instruct the Escrow Agent as to the sale of
the Escrow Shares (with the proceeds of such sale(s) to be deposited in the
Escrow in lieu of the Escrow Shares), and (iii) such other terms and conditions
as are standard and customary in transactions of this nature;
(f) a legal opinion of Ravillan, Volovelsky, Dinstein, Sneh &
Co., dated as of the Closing Date, in a form reasonably satisfactory to counsel
for the Purchaser; and
(g) a compliance certificate, dated as of the Closing Date,
executed by Seller's duly authorized representative certifying that: (1) each of
the representations and warranties set forth in Section 3 is accurate in all
respects as of the Closing Date as if made on the Closing Date and (2) the
conditions set forth in Sections 7.1.2 , 7.1.3 and 7.1.4 hereof have been duly
satisfied.
7.2 Conditions Precedent to the Obligations of Seller. The obligations of
Seller under this Agreement are subject to the fulfillment by Purchaser prior to
the Closing of each of the following conditions, any one or more of which may be
waived by Seller:
7.2.1 No Injunctive Proceedings. No preliminary or permanent
injunction or other order (including a temporary restraining order) of any state
or federal court or other governmental agency which prevents the consummation of
the transactions which are the subject of this Agreement or prohibits either
Purchaser's ownership of the Purchased Assets or the delivery of the Purchase
Consideration shall have been issued and remain in effect.
7.2.2 Representations and Warranties. Each of the representations
and warranties made by the Purchaser and/or Terayon in this Agreement and in
each of the other
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agreements and instruments delivered to Seller in connection with the
transactions contemplated by this Agreement shall be accurate in all material
respects as of the Closing Date as if made on the Closing Date except for items
that refer to a specific date or are specifically permitted by this Agreement or
consented to in writing by the Seller.
7.2.3 Shareholder Approval. The transactions contemplated hereby
shall have been approved by the general meeting of the shareholders of the
Company.
7.2.4 Consents, etc. All consents and approvals required to be
obtained in connection with this Agreement and the transactions contemplated by
this Agreement shall have been obtained and shall be in full force and effect,
other than those consents that, if not obtained and in full force and effect,
would not result in a Material Adverse Effect or would not prevent the
consummation of the transactions contemplated hereunder.
7.2.5 Performance of Agreements, Instruments of Transfer. Purchaser
and Terayon shall have fully performed in all material respects all obligations,
agreements, conditions and commitments required to be fulfilled by Purchaser
and/or Terayon on or prior to the Closing Date and shall have delivered to
Seller the documents, instruments and certificates listed below or required by
Article 8 herein.
(a) a letter executed by Boston Equiserve, L.P., as Transfer
Agent, Registrar and Exchange Agent (the "Transfer Agent") of the Terayon Common
Stock, stating that it has received irrevocable instructions from Terayon to
issue the Registrable Shares in the name of the Seller, and that it will forward
validly executed share certificates covering the Common Stock, in the name of
the Seller;
(b) fully executed Escrow Agreement;
(c) The Employment Agreements in the form of Exhibit D executed
by all but four (or less) of the individuals identified on Exhibit C, provided
however that the Employees who shall not sign such Employment Agreement are not
identified on Exhibit C as Employees whose employment by the Purchaser is a
condition to Closing;
(d) Non-competition Agreements in the form of Exhibit E for
each of the individuals identified on Exhibit C;
(e) a legal opinion of each of Cooley Godward llp, and
Naschitz, Brandes & Co., in forms reasonably satisfactory to counsel for the
Seller;
(f) a compliance certificate, dated the Closing Date, executed
by Purchaser's Chief Executive Officer certifying that: (1) each of the
representations and warranties set forth in Section 4 is accurate in all
respects as of the Closing Date as if made on the Closing Date and (2) the
conditions set forth in Sections 7.2.2 , 7.2.3, and 7.2.4 hereof have been duly
satisfied; and
(g) a draft of the Registration Statement referred to in
Section 6.2 above.
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7.3 Non-Compliance with and Termination of this Agreement.
(a) Each of the parties hereto agrees to use its reasonable
efforts to bring about the satisfaction of the conditions required to be
performed by it hereunder prior to and at the Closing, including, without
limitation, compliance with the requirements of Section 6.2 hereof.
(b) This Agreement may be terminated at any time prior to the
Closing without any liability of any party to the other:
(i) by the mutual agreement of the Purchaser, Terayon and
the Seller, provided such termination is set forth in writing and executed by
all parties;
(ii) by the Purchaser or Terayon if the Closing has not
taken place on or before April 15, 2000 (other than as a result of any failure
on the part of the Purchaser or Terayon to comply with or perform any covenant
or obligation of the Purchaser or Terayon set forth in this Agreement or in any
other agreement or instrument delivered to Seller);
(iii) by the Seller if the Closing has not taken place on
or before April 15, 2000 (other than as a result of any failure on the part of
the Seller to comply with or perform any covenant or obligation set forth in
this Agreement or in any other agreement or instrument delivered to the
Purchaser or Terayon);
7.4 Termination Procedures. If either the Purchaser or Terayon wishes to
terminate this Agreement pursuant to Section 7.3(b)(ii), the Purchaser and
Terayon, shall deliver to the Seller (with a copy to Company's counsel) a
written notice stating that Terayon and Purchaser are terminating this Agreement
and setting forth a brief description of the basis on which they are terminating
this Agreement. If the Seller wishes to terminate this Agreement pursuant to
Section 7.3(b)(iii), the Seller shall deliver to the Purchaser and Terayon (with
a copy to their counsel) a written notice stating that the Seller is terminating
this Agreement and setting forth a brief description of the basis on which the
Seller is terminating this Agreement.
7.5 Effect of Termination. If this Agreement is terminated pursuant to
Section 7.3, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) none of the Seller, the Purchaser or
Terayon shall be relieved of any obligation or liability arising from any prior
breach by such party of any provision of this Agreement; (b) the parties shall,
in all events, remain bound by and continue to be subject to Section 6.3, and
(c) Terayon and/or Purchaser shall bear and pay all payments due in connection
with the operation of the Company's business, as set forth in Section 5.1 above,
during the period commencing on the date of signing of this Agreement and ending
upon the Date of Termination.
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ARTICLE 8
Closing Documents
8.1 Seller's Obligations. On the Closing Date, in addition to the
agreements, documents and certificates required pursuant to Section 7.1.5
hereof, Seller shall deliver to Purchaser physical possession of all tangible
material connected with the Purchased Assets and shall execute and/or deliver to
Purchaser all of the following:
8.1.1 Resolutions. Copies of resolutions of the Board of Directors
of Seller and the General Meeting of the Shareholders of Seller, certified by
the Chairman of the Board of Directors of the Company authorizing the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby.
8.1.2 Bill of Sale. A bill of sale, duly executed by Seller, in the
form attached as Exhibit I hereto, sufficient to convey, transfer and assign to
Purchaser all right, title and interest of Seller in and to the Purchased Assets
free and clear of liens, claims, encumbrances and security interests, in
accordance with this Agreement.
8.1.3 Assignments. Assignments of the Purchased Assets, including
all required licenses and permits, duly executed by Seller, in form and
substance reasonably satisfactory to the Purchaser, and all consents which
Seller is able to obtain therefor, or permitted alternate arrangements with
respect thereto (other than in connection with the Agreements described in
Section 2.8 above), such consents to be in form and substance reasonably
satisfactory to counsel for Purchaser.
8.1.4 Guarantee Letter. A Letter of Guarantee in the form attached
hereto as Exhibit J, executed by each of the shareholders of the Seller (as of
the date of Closing) to secure, severally and not jointly, in each case in
accordance with the proportion of each such shareholder's proportionate
shareholding in the Company, the fulfillment of the indemnification obligations
provided herein by the Seller with respect to any inaccuracy or breach in the
representations or warranties of the Company set forth in the second sentence of
Section 2.6 and in Sections 3.1.6, 3.1.8, 3.1.9, 3.1.11, 3.1.12, 3.1.14 and
3.1.15. Notwithstanding the foregoing, in the event that certain shareholders of
the Company (the aggregate percentage holding of which do not exceed 40% of the
Company's share capital) do not sign the Letter of Guarantee described above,
the number of Escrow Shares shall be increased by a number of shares equal to 5%
multiplied by the portion of the Acquisition Shares multiplied by the percentage
of the Company's share capital held by the shareholders who have not signed the
Letter of Guarantee.
8.1.5 Exemption from Withholding Tax At Source. Approval from the
Israeli Income Tax Commission exempting any payment(s) to the Seller from
withholding tax at source and an approval of the maintenance of books of
accounting.
8.2 Joint Obligations. The parties will deliver each to the other the
certificates, records, schedules, and the other documents required by the terms
of this Agreement.
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ARTICLE 9
INDEMNIFICATION
9.1 Survival of Representations, Etc
(a) The representations and warranties made by the Seller (including
the representations and warranties set forth in Section 4 and the
representations and warranties set forth in the Company Closing Certificate)
shall survive the Closing until the end of nine (9) months following the Closing
Date (the "Survival Period"); provided, however, that if, at any time prior to
the end of the Survival Period, any Indemnitee (acting in good faith) delivers
to the Seller a written notice alleging the existence of an inaccuracy in or a
breach of any of the representations and warranties made by the Company (and
setting forth in reasonable detail the basis for such Indemnitee's belief that
such an inaccuracy or breach may exist) and asserting a claim for recovery under
Section 9.2 based on such alleged inaccuracy or breach, then the claim asserted
in such notice shall survive the Survival Period until such time as such claim
is fully and finally resolved.
(b) The representations, warranties, covenants and obligations of the
Company, and the rights and remedies that may be exercised by the Indemnitees,
shall not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by or knowledge of, any of the
Indemnitees. (c) For purposes of this Agreement, each statement or other item
of information set forth in the Disclosure Schedule or in any update to the
disclosure schedule shall be deemed to be a representation and warranty made by
the Seller in this Agreement. (d) The representations and warranties made by
the Purchaser and Terayon (including the representations and warranties set
forth in Section 4 and the representations and warranties set forth in the
Purchaser's and Terayon's Closing Certificate) shall survive the Survival
Period; provided, however, that if, at any time prior to the end of the Survival
Period, the Seller (acting in good faith) shall deliver to the Purchaser or
Terayon a written notice alleging the existence of an inaccuracy in or a breach
of any of the representations and warranties made by the Purchaser or Terayon
(and setting forth in reasonable detail the basis for the Seller's belief that
such an inaccuracy or breach may exist) and asserting a claim for recovery under
Section 9.2 based on such alleged inaccuracy or breach, then the claim asserted
in such notice shall survive the Survival Period until such time as such claim
is fully and finally resolved.
(e) The representations, warranties, covenants and obligations of the
Purchaser and Terayon, and the rights and remedies that may be exercised by the
Seller, shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, the
Seller.
9.2 Indemnification.
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(a) From and after the Closing Date (but subject to Section 9.1(a)),
the Indemnitees may seek indemnification first from the Escrow Fund and only
thereafter, subject to Sub-Sections 9.5 (a) and (b), from the Seller, for any
Damages that are directly suffered or incurred by any of the Indemnitees or to
which any of the Indemnitees may otherwise become subject (regardless of whether
or not such Damages relate to any third-party claim) and which are from or as a
result of, or are directly connected with: (i) any inaccuracy in or breach of
any representation or warranty of Seller in this Agreement; (ii) any material
inaccuracy in or breach of any representation or warranty set forth in this
Agreement as if such representation and warranty had been made on and as of the
Closing Date, provided that in the event of such breach, the indemnification
shall be limited to the Escrow Fund (iii) the non fulfillment of any covenant,
undertaking, agreement or other obligation of Seller under this Agreement; or
(iv) any non compliance by Seller with bulk sales laws or similar laws which may
be applicable to the sale or transfer of the Purchased Assets.
(b) From and after the Closing Date (but subject to Section 9.1(d)),
the Seller may seek indemnification from the Purchaser or Terayon (subject to
Sub-Sections 9.5(c) and (d)) for any Damages that are directly or indirectly
suffered or incurred by the Seller or to which the Seller may otherwise become
subject (regardless of whether or not such Damages relate to any third-party
claim) and which arise from or as a result of, or are directly connected with:
(i) any inaccuracy in or breach of any representation or warranty set forth in
Section 5; (ii) any material inaccuracy in or breach of any representation or
warranty set forth in Section 5 as if such representation and warranty had been
made on and as of the Closing Date; or (iii) the non fulfillment of any
covenant, undertaking, agreement or other obligation of the Purchaser or Terayon
under this Agreement.
9.3 Defense of Third Party Claims. In the event of the commencement
by any Person of any claim or Legal Proceeding (whether against the Seller,
against Terayon, against the Purchaser or against any other Person) with respect
to which any of the Indemnitees shall have the right to seek indemnification
pursuant to this Section 9, the Purchaser or Terayon shall promptly notify the
Seller of such claim or Legal Proceeding, and the Seller shall be entitled to
control the defense of such form of action, provided however, that (i) the
Purchaser or Terayon may elect to participate in the defense of such claim or
Legal Proceeding and (ii) the Seller shall have to acknowledge, as a
precondition to its control of such claim or Legal Proceeding, its full
indemnification obligation with respect thereto. Notwithstanding the foregoing,
if the Purchaser or Terayon control the defense of any such claim or Legal
Proceeding, then: (a) all reasonable expenses relating to the defense of such
claim or Legal Proceeding shall be borne and paid out of the Escrow Fund; and
(b) in the event that the Purchaser or Terayon control the Legal
Proceeding, the Purchaser or Terayon shall have the right to settle, adjust or
compromise such claim or Legal Proceeding with the consent of the Seller;
provided, however, that such consent shall not be unreasonably withheld.
The Purchaser or Terayon shall give the Seller prompt notice of the commencement
of any such action or Legal Proceeding against the Purchaser or Terayon;
provided, however, that any failure
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on the part of the Purchaser or Terayon to so notify the Seller shall limit the
rights of the Indemnitees under this Section 9 only to the extent that such
failure has prejudiced the defense of such Legal Proceeding.
9.4 Exercise of Remedies by Indemnitees Other Than Terayon. No Indemnitee
(other than the Purchaser or Terayon or any successor thereto or assign thereof)
shall be permitted to assert any indemnification claim or exercise any other
remedy under this Agreement unless the Purchaser or Terayon (or any successor
thereto or assign thereof) shall have consented to the assertion of such
indemnification claim or the exercise of such other remedy.
9.5 Limitations on Indemnification.
(a) Except as specifically set forth herein, the maximum amount of
indemnifiable Damages that may be recovered from the Seller arising out of or
resulting from Section 9.2(a) shall be an amount equal to the Purchase
Consideration, net of any and all Tax payments, whether already paid or which
are at such time payable.
(b) Notwithstanding anything to the contrary contained in this
Agreement, no Indemnitee shall be entitled to seek indemnification from the
Seller under this Agreement with respect to any Damages arising out of or
resulting from Section 9.2(a), until the aggregate amount of such Damages
exceeds two hundred thousand US dollars ($200,000), and where such damages
exceed two hundred thousand US dollars ($200,000), the Indemnitees shall be
entitled to indemnification in full (with no deduction of the two hundred
thousand US dollars ($200,000)), subject to the provisions of Section 9.5(a).
(c) Notwithstanding anything to the contrary contained in this
Agreement, the maximum amount of indemnifiable Damages that may be recovered
from the Purchaser and Terayon arising out of or resulting from Section 9.2(b)
shall be an amount equal to the Purchase Consideration.
(d) Notwithstanding anything to the contrary contained in this
Agreement, the Seller shall not be entitled to seek indemnification from the
Purchaser or Terayon under this Agreement with respect to any Damages arising
out of or resulting from Section 9.2(b), until the aggregate amount of such
Damages exceeds two hundred thousand US dollars ($200,000), and where such
damages exceed two hundred thousand US dollars ($200,000), the Seller shall be
entitled to indemnification in full (with no deduction of the two hundred
thousand US dollars ($200,000)), subject to the provisions of Section 9.5(c).
9.6 Escrow Fund Claims. Pursuant to the aforementioned provisions of
this Section 9, Indemnitees may be entitled to seek indemnification from the
Escrow Fund subject to the delivery, within the Survival Period, of a notice to
the Escrow Agent, which shall specify the individual Damages for which such
indemnification is sought, the date upon which such Damages arose, and the
relevant misrepresentation, breach of warranty or claim in relation thereto (the
"Notice"), a copy of which shall simultaneously be sent to the Seller. Within a
period of thirty (30) days following the Seller's receipt of the Notice, the
Seller shall send a responding notice to the applicable Indemnitee(s) and the
Escrow Agent, which shall specify whether the
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Seller agrees or disagrees with the Notice. In the event that the Seller agrees
with the Notice, the Escrow Agent shall deliver to the applicable Indemnitee(s),
assets held in the Escrow Fund with a value equivalent to that of the Damages
detailed in the Notice. In the event that the Seller disagrees with the Notice,
such dispute shall be resolved in the manner set forth in Section 10.6 below.
9.7 Access. In any event of an indemnification claim as aforementioned
in this Section 9, Indemnitees shall provide the Seller with full access to the
books, records, and any other documentation and assets of the Company, which are
connected to such claim, and Indemnitees shall fully cooperate with the Seller
in any event of third party claims as detailed in Section 9.3 above.
9.8 Exclusive Remedies. The parties acknowledge and agree that their sole
and exclusive remedies (except in the case of fraud, in which case the injured
party reserves all rights available to it under the law with respect to the
party committing such fraud) with respect to any and all claims relating to the
subject matter of this Agreement and the other agreements, documents and
certificates specifically contemplated by this Agreement shall be pursuant to
the indemnification provisions set forth in this Section 9 and specific
performance as contemplated by Section 10.5 below.
9.9 Prospectus Indemnification. Notwithstanding anything to the contrary
in this Agreement, in the event any shares of Common Stock are included in a
registration statement of Terayon:
(a) To the extent permitted by law, Terayon and/or Purchaser will
indemnify and hold harmless the Seller, the, officers, directors and legal
counsel of Seller, any underwriter (as defined in the Securities Act) for the
Seller and each person, if any, who controls the Seller or underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by Terayon: (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by Terayon of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and Terayon will reimburse such Seller,
officer or director, underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided however,
that the indemnity agreement contained in this Section 9.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of Terayon, which consent
shall not be unreasonably withheld, nor shall Terayon be liable in any
30.
<PAGE>
such case for any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation which occurs in reliance upon
or in conformity with written information furnished expressly for use in
connection with such registration by such Seller, partner, officer, director,
underwriter or controlling person of the Seller.
(b) To the extent permitted by law, the Seller will, if Common Stock
held by the Seller are included in the securities as to which such registration
qualifications or compliance is being effected, indemnify and hold harmless
Terayon, each of its directors, its officers, and legal counsel and each person,
if any, who controls Terayon within the meaning of the Securities Act and any
underwriter selling securities under such registration statement, against any
losses, claims, damages or liabilities (joint or several) to which Terayon or
any such director, officer, controlling person, or underwriter may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
or in conformity with written information furnished by the Seller specifically
for use in connection with such registration; and such Seller will reimburse any
legal or other expenses reasonably incurred by Terayon or any such director,
officer, controlling person or underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action if it is finally
judicially determined that there was such a Violation; provided, however, that
the indemnity agreement contained in this Section 9.9(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Seller, which consent
shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
9.9 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 9.9, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with reasonable fees and expenses to
be paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 9.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 9.7.
(d) If the indemnification provided for in this Section 9.9 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying
31.
<PAGE>
such indemnified party thereunder, shall to the extent permitted by applicable
law contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the
Violation(s) that resulted in such loss, claim, damage or liability, as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by a court
of law by reference to, among other things, whether the 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.
(e) The obligations of Terayon and the Seller under this Section 9.9
shall survive completion of any offering of Common Stock in a registration
statement and the termination of this Agreement. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of each
indemnified party, 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.
ARTICLE 10
MISCELLANEOUS
10.1 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
10.2 Notices. All notices, requests, demands and other communications
given hereunder (collectively, "Notices") shall be in writing and personally
delivered, sent by facsimile or mailed by registered or certified mail, postage
prepaid, as follows:
(a) If to Purchaser or Terayon at:
Terayon Communication Systems, Inc.
2952 Bunker Hill Lane
Santa Clara, CA 95054
Attn: Edward Lopez, General Counsel
Facsimile:
with a copy to:
Cooley Godward llp
One Maritime Plaza, 20th Floor
32.
<PAGE>
San Francisco, CA 94111
Attn: Karyn S. Tucker
Facsimile: (415) 951-3699
and
Naschitz, Brandes & Co.
5 Tuval Street
Tel Aviv, Israel
Attn: Sharon Amir, Adv.
Facsimile: 972-3-6235021
(b) If to Seller at:
Internet Telecom Ltd.
10 Lunz Street
Jerusalem, Israel
Attention: Mr. Dmitry Goroshevski
Facsimile:
with a copy to:
Ravillan, Volovelsky, Dinstein, Sneh & Co.,
Mozes House, 76 Rothschild Blvd.
Tel Aviv, Israel
Attention: Shai Cohen, Adv.
Facsimile:
and:
McDermott, Will & Emery
50 Rockefeller Plaza
New York, NY 10020
Attention: Cheryl V. Reicin, Esq.
Facsimile: 212-547-5444
33.
<PAGE>
(c) All notices shall be deemed delivered when actually received if
personally delivered or sent by facsimile or three days after having been placed
in the mail, addressed in accordance with Sections 10.2(a) or 10.2.(b) hereof,
as the case may be, provided that any notice sent by facsimile must immediately
be placed in the mail. Each of the parties shall hereafter notify the other in
accordance with this Section 10.2 of any change of address to which notice is
required to be mailed.
10.3 Assignment and Amendment of Agreement. This Agreement shall be
binding upon the respective successors and assigns of the parties hereto. This
Agreement may be amended only by written agreement of the parties hereto, duly
executed by an authorized representative of each of the parties hereto. Neither
party may assign any of its rights or obligations hereunder without the prior
written consent of the other party.
10.4 Remedies Cumulative; Specific Performance. The rights and remedies
of the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
10.5 Waiver.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
10.6 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Israel (without
giving effect to the conflict of laws principles). Each party to this Agreement
consents to the exclusive jurisdiction and venue of the courts of District of
Tel Aviv Jaffa in the state of Israel.
10.7 Failure to Close. If for any reason this Agreement is terminated
prior to the Closing, Purchaser shall return to Seller all documents and other
information, including all originals and all copies thereof, delivered to
Purchaser by Seller. Purchaser shall not retain copies of any such documents or
other information, and shall not thereafter for a period of five
34.
<PAGE>
years disclose to any person for any purpose or use any information conveyed to
Purchaser in connection with the transactions contemplated by this Agreement,
except for such information which was: (a) possessed by Purchaser prior to the
disclosure thereof by Seller, as evidenced by documents in Purchaser's
possession; (b) disclosed to Purchaser by an independent third party without a
violation of any obligation of confidentiality on the part of such third party
to Seller; or (c) in the public domain other than through disclosure by
Purchaser, Terayon or any of their respective affiliates.
10.8 Further Assurances. Each party agrees that it will execute and
deliver, or cause to be executed and delivered, on or after the date of this
Agreement, all such other instruments and will take all reasonable actions as
may be necessary to transfer and convey the Purchased Assets to Purchaser, on
the terms herein contained, and to consummate the transactions herein contained
to effectuate the provisions and purposes hereof.
10.9 No Third Party Rights. This Agreement is not intended and shall not
be construed to create any rights in any parties other than Seller and Purchaser
and no person shall have any rights as a third party beneficiary hereunder,
including, without limitation, any rights with respect to the provisions of
Section 5 hereof.
10.10 Severability. The invalidity of any provision of this Agreement or
portion of a provision shall not affect the validity of any other provision of
this Agreement or the remaining portion of the applicable provision.
10.11 Counterparts. This Agreement may be executed simultaneously in
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.12 Entire Agreement. This Agreement, including the schedules attached
hereto, constitutes the entire agreement between the parties and supersedes any
prior understandings, agreements, or representations by or among the parties,
written or oral, to the extent they related in any way to the subject matter
hereof; provided, however, that the Non-Disclosure Agreement between of Terayon
and the Company dated as of January 2, 2000 shall not be superseded by this
Agreement and shall remain in effect in accordance with its terms until the
earlier of (a) the Closing Date, or (b) the date on which such Non-Disclosure
Agreement is terminated in accordance with its terms.
10.13 Headings. The headings contained in this Agreement and in the
schedules attached hereto are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
10.14 Construction.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
35.
<PAGE>
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
36.
<PAGE>
IN WITNESS WHEREOF, Seller and Purchaser have duly executed and delivered
this Agreement as of the day and year first above written.
TERAYON COMMUNICATION SYSTEMS, INC.
By: /s/ Shlomo Rakib
---------------------------------------
Shlomo Rakib
President
INTERNET TELECOM LTD.
By: /s/ Dmitry Goroshevsky
---------------------------------------
Dmitry Goroshevsky
Chief Executive Officer
TELEGATE LTD.
By: /s/ Daniel Oleisky
---------------------------------------
Daniel Oleisky
Chief Executive Officer
37.
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
Agreement. "Agreement" shall mean the Asset Purchase Agreement to which this
Exhibit A is attached (including the Disclosure Schedule), as it may be amended
from time to time.
Company Employees. "Company Employees" shall mean all employees of the Company,
both salaried and hourly, who are employees of the Company on the Closing Date.
Consent. "Consent" shall mean any approval, consent, ratification, permission,
waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral or other agreement, contract,
subcontract, lease, instrument, note, warranty, insurance policy, benefit plan
or legally binding commitment or undertaking of any nature.
Damages. "Damages" shall include any loss, damage, injury, decline in value,
liability, settlement, judgment, award, fine, penalty, Tax, fee (including
reasonable attorneys' fees), charge, cost (including costs of investigation) or
expense of any nature.
Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation, charge,
mortgage, security interest, encumbrance, claim, infringement, interference,
option, right of first refusal, preemptive right, community property interest or
restriction of any nature (including any restriction on the voting of any
security, any restriction on the transfer of any security or other asset, any
restriction on the receipt of any income derived from any asset, any restriction
on the use of any asset and any restriction on the possession, exercise or
transfer of any other attribute of ownership of any asset).
Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company).
Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Goodwill. "Goodwill" shall mean the goodwill of the Company reflected, without
limitation, in the reputation of the Business, the relationship with clients,
high scientific standards and experience, , and including any such reputation,
experience and standards accrued prior to the Company becoming a legal entity.
Governmental Authorization. "Governmental Authorization" shall mean any: (a)
permit, license, certificate, franchise, permission, clearance, registration,
qualification or authorization
1.
<PAGE>
issued, granted, given or otherwise made available by or under the authority of
any Governmental Body; or (b) right under any Contract with any Governmental
Body.
Governmental Body. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
Indemnitees. "Indemnitees" shall mean the following Persons: (a) Terayon; (b)
Terayon's current and future affiliates; (c) the respective Representatives of
the Persons referred to in clauses "(a)" and "(b)" above; and (d) the respective
successors and assigns of the Persons referred to in clauses "(a)", "(b)" and
"(c)" above; provided, however, that the Seller shall not be deemed to be an
"Indemnitee".
Legal Proceeding. "Legal Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, material inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
Legal Requirement. "Legal Requirement" shall mean any federal, state, local,
municipal, foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
Liens. "Liens" means liens, charges, claims, pledges, security interests, third
party rights and encumbrances of any nature whatsoever.
Material Adverse Effect. "Material Adverse Effect" means any change, effect or
circumstance that, individually or when taken together with all other changes,
effects or circumstances that have occurred prior to the date of determination
of the occurrence of the material adverse effect (considered together with all
other matters that would constitute exceptions to the representations and
warranties set forth in the Agreement or in the Seller's or the Purchaser's
compliance certificate but for the presence of the "Material Adverse Effect" or
other materiality qualifications, or any similar qualifications, in such
representations and warranties), is materially adverse to either (i) the
Purchased Assets or to the financial condition or results of operation of the
Business, or (ii) the Purchaser or Terayon, except for any such changes, effects
or circumstances resulting from or arising in connection with (a) this Agreement
or the transactions contemplated by this Agreement or the announcement hereof
(including without limitation the resignation of any employees of Seller
employed in the Business as of the date of this Agreement), (b) any occurrence
or circumstance affecting the telecommunications industry generally, (c) any
change in economic, regulatory or political conditions, or (d) any issue or
2.
<PAGE>
condition otherwise known to Purchaser or Seller, as the case may be, prior to
the date of this Agreement.
Person. "Person" shall mean any individual, Entity or Governmental Body.
Permitted Lien. "Permitted Lien" shall mean a Floating Charge in favor of Israel
Bank Discount Ltd., dated June 30, 1998, unlimited in sum, that was created on
the Company's assets, rights, property, share capital, goodwill, bills, bonds,
and any other guarantees to secure a loan in the sum of . The Permitted
--------
Lien shall be paid by Ravillan, Volovelsky, Dinstein, Sneh & Co., within two
business days from the Closing, with the use of the respective portion of the
cash payment, detailed in Sections 2.1 and Section 2.2, provided that such cash
payment has been deposited by Purchaser with Ravillan, Volovelsky, Dinstein,
Sneh & Co.
Representatives. "Representatives" shall mean officers, directors, employees,
agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
Securities Act. "Securities Act" shall mean the Securities Act of 1933, as
amended.
Seller Contract. "Seller Contract" shall mean any contract: (a) to which the
Seller is a party with respect to the Purchased Assets either directly or
indirectly; (b) by which any of the Purchased Assets is or may become bound or
under which the Seller has, or may become subject to, any obligation with
respect to the Purchased Assets either directly or indirectly; or (c) under
which the Seller has or may acquire any right or interest with respect to the
Purchased Assets either directly or indirectly. Seller Contracts do not include
non-disclosure agreements which do not have a Material Adverse Effect on the
Company's business.
Tax. "Tax" shall mean any tax (including any income tax, franchise tax, capital
gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem
tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff, duty (including any
customs duty), deficiency or fee, and any related charge or amount (including
any fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body.
Tax Return. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
3.
<PAGE>
EXHIBIT B
PURCHASED ASSETS
All registered patents, designs and trademarks, all applications for
registration thereof, and all computer programs including, but not limited to,
computer programs embodied in semiconductor chips, and related flow-charts,
programmer notes, updates and data, whether in object or source code form,
developed, or used in connection with the business of the Company, and all
hardware, algorithms, utilities flowcharts, logic, documentation, processes,
formulations, data, experimental methods, or results, descriptions, business or
scientific plans, depictions, customer lists and any other written, printed or
electronically stored materials or information, including specifications,
pricing plans, market research or data, potential marketing strategies,
prospective users and distribution channels, engineering drawings, information
concerning specialized suppliers, specifications for products and/ or processes
and/or software, test protocols, and all other materials relating thereto, and
copies thereof in any storage media, and all other works of authorship,
inventions, concepts, ideas, and discoveries developed, discovered, conceived,
created, made, reduced to practice, or used by the Company and all intellectual
property rights therein, including, without limitation, all copyrights in the
United States, Israel, Russia and elsewhere, including all rights of
registration and publication, rights to create derivative works, and all other
rights incident to copyright ownership, for the residue now unexpired of the
present term of any and all such copyrights and any term thereafter granted
during which such information is entitled to copyright, and all inventions
(patentable or unpatentable), trade secrets, know-how, ideas and confidential
information embodied or reflected in such information, including any shop
rights, for the longest period of protection accorded to such interests under
applicable law.
4.
<PAGE>
ASSET PURCHASE AGREEMENT
BETWEEN
TERAYON COMMUNICATION SYSTEMS, INC.
AND
TYCO ELECTRONICS CORPORATION
February 10, 2000
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 SALE AND PURCHASE OF ASSETS...................................... 1
1.1 Purchased Assets.................................................. 1
1.2 Excluded Assets................................................... 3
1.3 Nonassignable Contracts and Authorizations........................ 3
ARTICLE 2 CLOSING; PURCHASE PRICE; AND INVENTORY........................... 4
2.1 Place and Date.................................................... 4
2.2 Purchase Price.................................................... 4
2.3 Additional Consideration.......................................... 4
2.4 Allocation........................................................ 4
2.5 Transaction Costs................................................. 5
2.6 Determination of Inventory, Equipment, Accounts Receivable and
Accounts Payable.................................................. 5
2.7 Post-Closing Adjustment........................................... 5
2.8 Deliveries........................................................ 6
2.9 Further Assurances................................................ 7
ARTICLE 3 ASSUMPTION OF LIABILITIES AND OBLIGATIONS BY PURCHASER........... 7
3.1 Assumed Liabilities............................................... 7
3.2 Excluded Liabilities.............................................. 7
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER......................... 9
4.1 Representations and Warranties of Seller.......................... 9
4.1.1 Corporate Organization and Standing....................... 9
4.1.2 Certificate of Incorporation and Bylaws................... 9
4.1.3 Corporate Authorization; Binding Agreement................ 9
4.1.4 No Conflict............................................... 9
4.1.5 Financial Information..................................... 10
4.1.6 Insurance................................................. 10
4.1.7 Litigation................................................ 10
4.1.8 Licenses and Permits; Compliance with Laws................ 10
4.1.9 Taxes..................................................... 10
4.1.10 Brokers, Finders.......................................... 11
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
4.1.11 Seller Contracts.......................................... 11
4.1.12 Purchased Assets Required to Conduct Business............. 12
4.1.13 Title To Purchased Assets................................. 12
4.1.14 Intellectual Property Rights.............................. 12
4.1.15 No Consent................................................ 12
4.1.16 Absence of Changes........................................ 12
4.1.17 Benefit Plans; ERISA...................................... 13
4.1.18 No Transfer of Employees.................................. 14
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER...................... 14
5.1 Representations and Warranties.................................... 14
5.1.1 Corporate Organization and Standing........................ 14
5.1.2 SEC Filings; Financial Statements.......................... 14
5.1.3 Corporate Authorization; Binding Agreement................. 15
5.1.4 No Conflict................................................ 15
5.1.5 Litigation................................................. 15
5.1.6 No Consent................................................. 15
5.1.7 Brokers, Finders........................................... 16
5.1.8 Capitalization............................................. 16
5.1.9 No Undisclosed Material Liabilities........................ 16
5.1.10 Absence of Changes........................................ 16
5.1.11 Registration Statement.................................... 16
ARTICLE 6 COVENANTS AND AGREEMENTS OF SELLER............................... 17
6.1 Conduct of Business............................................... 17
6.2 No Shop........................................................... 18
6.3 No Transfer of Employees.......................................... 18
6.4 Termination of Employees.......................................... 18
6.5 Estoppel Certificate.............................................. 19
6.6 Records and Information........................................... 19
6.7 Tax Matters....................................................... 20
6.7.1 Taxes Through Closing Date................................. 20
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
6.7.2 Cooperation and Exchange of Information.................... 20
6.8 Covenant Not to Compete........................................... 21
6.9 License Grant..................................................... 21
ARTICLE 7 ADDITIONAL COVENANTS OF THE PARTIES.............................. 21
7.1 Reasonable Efforts to Close....................................... 21
7.2 Notification; Updates to Disclosure Schedule...................... 22
7.3 Employee Retention Program........................................ 22
7.4 Registration Statement............................................ 23
7.5 Disclosures, Press Releases....................................... 23
7.6 Non-Solicitation.................................................. 23
ARTICLE 8 CLOSING CONDITIONS AND TRANSACTIONS.......................... 23
8.1 Conditions Precedent to the Obligations of Purchaser.............. 23
8.1.1 No Injunctive Proceedings.................................. 23
8.1.2 Accuracy of Representations and Warranties................. 24
8.1.3 Performance of Covenants................................... 24
8.1.4 Consents and Approvals..................................... 24
8.1.5 Audit Complete............................................. 24
8.1.6 Agreements and Documents................................... 24
8.2 Conditions Precedent to the Obligations of Seller................. 25
8.2.1 No Injunctive Proceedings.................................. 25
8.2.2 Payment.................................................... 25
8.2.3 Accuracy of Representations and Warranties................. 25
8.2.4 Consents and Approvals..................................... 25
8.2.5 Performance of Covenants................................... 26
8.2.6 Agreements and Documents................................... 26
8.3 Non-Compliance with and Termination of this Agreement............. 26
ARTICLE 9 CLOSING DOCUMENTS................................................ 27
9.1 Seller's Obligations.............................................. 27
9.1.1 Resolutions................................................ 27
9.1.2 Bill of Sale............................................... 27
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9.1.3 Assignments and Consents................................. 27
9.2 Purchaser's Obligations......................................... 27
9.2.1 Resolutions.............................................. 27
9.2.2 Assumption Agreement..................................... 27
9.2.3 Payment.................................................. 27
9.2.4 Resale Certificate....................................... 27
9.3 Joint Obligations............................................... 28
ARTICLE 10 INDEMNIFICATION.............................................. 28
10.1 Indemnification by Seller....................................... 28
10.2 Indemnification by Purchaser.................................... 28
10.3 Survival of Representations and Warranties; Threshold and Payment
for Losses...................................................... 28
10.4 Notice and Opportunity to Defend................................ 29
10.5 Reduction for Insurance......................................... 30
10.6 Defense of Third-Party Claims................................... 30
ARTICLE 11 MISCELLANEOUS................................................... 31
11.1 Attorneys' Fees................................................. 31
11.2 Notices......................................................... 31
11.3 Assignment and Amendment of Agreement........................... 32
11.4 Remedies Cumulative; Specific Performance....................... 32
11.5 Waiver.......................................................... 32
11.6 Governing Law................................................... 32
11.7 Failure to Close................................................ 32
11.8 Further Assurances.............................................. 33
11.9 No Third Party Rights........................................... 33
11.10 Waiver of Bulk Sales Laws....................................... 33
11.11 Severability.................................................... 33
11.12 Counterparts.................................................... 33
11.13 Entire Agreement................................................ 33
11.14 Headings........................................................ 33
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11.15 Construction.................................................... 33
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v.
<PAGE>
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT
This Amended and Restated Asset Purchase Agreement (this "Agreement"),
dated as of the 10th day of February 2000, by and between Terayon Communication
Systems, Inc., a Delaware corporation ("Purchaser"), and Tyco Electronics
Corporation, a Pennsylvania corporation ("Seller").
Recitals
A. Seller, through an unincorporated division (the "Access Network
Electronics Division"), is engaged in the business of developing, manufacturing
and marketing a suite of products consisting of digital subscriber line
multiplexers for telecommunications service providers and providing customer
support relating to such products (collectively, the "Business");
B. Purchaser wishes to purchase or acquire from Seller, and Seller wishes
to sell, assign and transfer to Purchaser, substantially all the assets of the
Business, and Purchaser has agreed to assume specified liabilities of the
Business, all for the purchase price, and upon the terms and subject to the
conditions herein set forth.
C. Capitalized terms used herein without separate definitions have the
meanings given to such terms in Exhibit A.
D. Purchaser and Seller desire to amend and restate the Asset Purchase
Agreement dated February 3, 2000 between the parties (the "Original Agreement")
as provided herein .
Now, Therefore, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto hereby agree as follows:
ARTICLE 1
Sale and Purchase of Assets
1.1 Purchased Assets . Subject to and upon the terms and conditions set
forth in this Agreement, at the Closing, Seller shall sell, assign, transfer,
convey and deliver to Purchaser, and Purchaser shall purchase and acquire from
Seller, the following assets, properties, rights and interests of the Business
(collectively, the "Purchased Assets"), as the same shall exist on the Closing
Date (as defined in Section 2.1 herein):
(a) all United States and foreign patents, patent applications,
trademarks (whether registered or unregistered), service marks, trade names,
brand names, logos, copyrights and any applications therefor listed in Schedule
1.1(a) attached hereto, and any other proprietary rights, including, without
limitation, know-how, inventions, discoveries and improvements, test data, shop
rights, processes, methods and formulae, trade secrets, product drawings,
specifications, designs and other technical information owned by or licensed to
Seller relating exclusively to the Business (collectively, the "Intellectual
Property Assets");
1.
<PAGE>
(b) all inventories of Seller relating exclusively to the
Business, including, without limitation, finished goods, work-in process, raw
materials, supplies and other materials (collectively, the "Inventory"), as such
Inventory (determined in accordance with Section 2.6 herein) exists on the
Closing Date;
(c) except as otherwise provided in Section 6.8 herein, all
customer files, correspondence with customers and account histories, sales
literature and promotional or other material pertaining to products designed,
manufactured or sold by or for the Business (collectively, the "Customer
Records");
(d) all of Seller's rights and interests under all Contracts and
commitments entered into, accepted, made or submitted by the Business for the
sale of goods specified in Schedule 1.1(d) attached hereto, and the rights and
interests of Seller under any other Contracts and commitments for the sale of
goods entered into by Seller for the benefit of the Business in the ordinary
course of business between the date of this Agreement and the Closing Date
(collectively, the "Sales Orders");
(e) all equipment, furniture, and other items of tangible
personal property owned by Seller and exclusively used or held for use in, or
for the benefit of, the Business, as specified in Schedule 1.1(e) attached
(collectively, the "Equipment");
(f) all of Seller's rights and interests under all unfilled
purchase orders entered into by Seller for the purchase of goods or services for
the benefit of the Business specified in Schedule 1.1(f) attached hereto, and
the rights and interests of Seller under any other unfilled purchase orders
entered into by Seller for the benefit of the Business in the ordinary course of
business between the date of this Agreement and the Closing Date (collectively,
the "Unfilled Purchase Orders");
(g) all of Seller's accounts receivable and notes receivable
exclusively relating to the Business (the "Accounts Receivable");
(h) to the extent transferable to Purchaser, all Contracts
specified in Schedule 1.1(h) attached hereto (collectively, the "Other
Contracts") and all of Seller's rights and interests under all personal property
leases exclusively relating to the Business as specified in Schedule 1.1(h)
("Personal Property Leases");
(i) all of Seller's rights and interests under the real property
lease for the real property used in the Business located at 1455 Adams Court,
Menlo Park, California 94025 (the "Real Property Lease"); and
(j) to the extent transferable to Purchaser, all franchises,
approvals, permits, orders, certificates, variances and product licenses and
license applications, permits and other governmental authorizations and
approvals (federal, state and local) exclusively relating to the Business, as
such items are specified in Schedule 1.1(j) attached hereto (collectively, the
"Licenses and Permits").
2.
<PAGE>
1.2 Excluded Assets. Notwithstanding anything contained in Section 1.1
hereof to the contrary, the Purchased Assets transferred, conveyed, set over,
assigned and delivered to Purchaser shall exclude the following assets (the
"Excluded Assets"):
(a) all cash and cash equivalents and similar type investments,
such as certificates of deposit, treasury bills and other marketable securities;
(b) all books and records relating to or used in the business of
Seller and not primarily relating to or used in the Business, including the
corporate minute books and stock registers of Seller;
(c) income tax records of Seller;
(d) all insurance p policies maintained by Seller and all rights
of action, lawsuits, claims and demands, rights of recovery and set-off, and
proceeds, under or with respect to such insurance policies, except to the extent
the coverage thereof remains available after the Closing for claims relating to
the Assets or Assumed Liabilities;
(e) all rights to causes of action, lawsuits, claims and demands
of any nature available to or being pursued by Seller with respect to the
Excluded Assets or Excluded Liabilities; and
(f) all rights, title and interest of Seller in and to prepaid
(determining "prepayment" based on whether or not as of the Closing liability
for such taxes has accrued) income taxes and franchise taxes of the Business,
and any claims for any refund, credit, rebate or abatement with respect to
income taxes and franchise taxes of the Business for any period or portion
thereof through the Closing Date, and any interest with respect thereto; and
(g) the assets listed on Schedule 1.2 attached hereto.
1.3 Nonassignable Contracts and Authorizations. To the extent that the
assignment of any Contract or any license, permit, approval or qualification
issued or to be issued by any government or agency or instrumentality thereof
relating to the Business or the Purchased Assets, including, without limitation,
the Sales Orders, Unfilled Purchase Orders, Seller Contracts, and Licenses and
Permits, to be assigned to Purchaser pursuant to this Agreement shall require
the consent of any other party, this Agreement shall not constitute a contract
to assign the same if an attempted assignment would constitute a breach thereof.
Seller shall use its best commercial efforts, and Purchaser shall cooperate
where appropriate, to obtain any consent necessary to any such assignment. If
any such consent is not obtained, then Seller shall cooperate with Purchaser in
any reasonable arrangement requested by Purchaser designed to provide to
Purchaser the benefits under any such Contract, license, permit, approval or
qualification, including enforcement of any and all rights of Seller against the
other party thereto arising out of breach or cancellation thereof by such other
party or otherwise.
3.
<PAGE>
ARTICLE 2
Closing; Purchase Price; and Inventory
2.1 Place and Date. The closing of the sale and purchase of the Purchased
Assets (the "Closing") and the assumption of the Assumed Liabilities shall take
place at the offices of Cooley Godward llp, One Maritime Plaza, 20th Floor, San
Francisco, California 94111 at 10:00 a.m. within five (5) business days after
which the last condition set forth in Sections 8.1 and 8.2 has been fulfilled or
waived, or such other time, date and place as may be mutually agreeable to the
parties hereto (the "Closing Date"). The parties hereto agree that the Closing
may be effected by facsimile.
2.2 Purchase Price. At the Closing, as consideration for the sale of the
Purchased Assets to Purchaser:
(a) Purchaser shall issue to Seller the Acquisition Shares (the
"Purchase Price"). The "Acquisition Shares" shall mean the number of shares of
Common Stock of Purchaser equal to $85,000,000 in value, calculated based on the
Weighted Average Terayon Stock Price on the business day prior to the Closing
Date .
(b) Purchaser shall assume the Assumed Liabilities by delivering
to Seller an Assignment and Assumption Agreement in substantially the form of
Exhibit B (the "Assumption Agreement").
2.3 Additional Consideration. In the event the Acquisition Shares have a
value of less than $85,000,000 on the date that the Registration Statement (as
defined in Section 7.4 below) is declared effective by the SEC (the "Effective
Date"), then within five (5) business days of such date, Purchaser shall deliver
cash or shares of the Common Stock of Purchaser to Seller in an amount equal to
the Additional Consideration, the form of such Additional Consideration to be
determined solely by Purchaser. The "Additional Consideration" shall be the
difference between $85,000,000 and the value of the Acquisition Consideration on
the Effective Date. The value of the Acquisition Consideration on the Effective
Date shall be calculated based on the Weighted Average Terayon Stock Price on
the Effective Date. If Purchaser shall elect to issue shares of the Common Stock
of Purchaser as payment of the Additional Consideration, then Purchaser shall
issue the number of shares equal to the value of the Additional Consideration
calculated based on the Weighted Average Terayon Stock Price on the Effective
Date.
2.4 Allocation.
(a) Within 60 days after the Closing Date, Purchaser will
provide to Seller a copy of IRS Form 8594 and any required exhibits thereto (the
"Asset Allocation Statement") with Purchaser's proposed allocation of the
Purchase Price (together with any assumed liabilities). Within 15 business days
after receipt of such Asset Allocation Statement, Seller will propose to
Purchaser any changes to such Asset Allocation Statement. In the event Seller
does not propose any changes in writing to Purchaser within such 15-day period,
Seller will be deemed to have agreed to, and accepted, the Asset Allocation
Statement. Purchaser and Seller
4.
<PAGE>
will endeavor in good faith to resolve any differences with respect to the Asset
Allocation Statement within 15 business days after Purchaser receives written
notice of Seller's objections.
(b) The Purchase Price (together with any assumed liabilities)
will be allocated in accordance with the Asset Allocation Statement as agreed to
pursuant to Section 2.4(a) hereof, and, unless otherwise required by a final
determination within the meaning of Section 1313 of the Code (or counterpart
provision of foreign, state, or local law), all Tax Returns and reports filed by
Purchaser and Seller shall be prepared consistently with such allocation .
2.5 Transaction Costs. Purchaser and Seller shall each bear and pay all of
its own fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Purchaser and its Representatives with
respect to the Business (and the furnishing of information to Purchaser and its
Representatives in connection with such investigation and review), (b) the
negotiation, preparation and review of this Agreement (including the Disclosure
Schedule attached hereto) and all agreements, certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
transactions contemplated by this Agreement, (c) the preparation and submission
of any filing or notice required to be made or given in connection with any of
the transactions contemplated by this Agreement, and (d) the consummation of the
transactions contemplated by this Agreement.
2.6 Determination of Inventory, Equipment, Accounts Receivable and
Accounts Payable.
2.6.1 The quantity and valuation of the Inventory and the Equipment
as of the Closing Date shall be determined from the books and records of the
Business. A physical inventory shall be taken on the Closing Date, and the books
and records of Seller shall be adjusted for Inventory and Equipment quantities
as of the Closing Date and such Inventory and/or Equipment shall be valued in
accordance with Section 2.6.2. Such physical inventory shall be conducted by
Seller's representatives at Seller's expense jointly with Purchaser's
representatives at Purchaser's expense. Any disagreement regarding the quantity
and/or value of the Inventory or the Equipment shall be resolved in the manner
and at the time described in Section 2.7.1 hereof.
2.6.2 The Inventory, Equipment, Accounts Receivable and Accounts
Payable (as defined in Section 2.7.1 herein) reflected on the Contract Working
Capital Statement (as defined in Section 2.7.1 herein) and the Final Working
Capital Statement (as defined in Section 2.7.1 herein) shall be determined in
accordance with United States generally accepted accounting principles
consistently applied ("GAAP").
2.7 Post-Closing Adjustment.
2.7.1 The Acquisition Consideration will be adjusted dollar for
dollar following the Closing to the extent that the Working Capital (as
hereinafter defined) of the Business as of
5.
<PAGE>
the Closing Date (the "Final Working Capital") shown upon the Final Working
Capital Statement (as hereinafter defined) differs from the Working Capital of
the Business at December 25, 1999 (the "Contract Working Capital"), as shown
upon the statement set forth in Schedule 2.7.1 attached hereto (the "Contract
Working Capital Statement"). For purposes of this Agreement, the term "Working
Capital" shall mean the difference between (a) the sum of Inventory, Equipment
and Accounts Receivable of the Business minus (b) the accounts payable of the
Business determined by reference to Section 3.1(b) below (the "Accounts
Payable"). The Final Working Capital Statement will be prepared by Purchaser
from the books of account of the Business as of the Closing Date. The Final
Working Capital Statement shall be prepared in accordance with GAAP. Purchaser
will deliver a statement showing the Final Working Capital (the "Final Working
Capital Statement") to Seller not later than 60 days after the Closing Date.
Purchaser will give representatives of Seller access to the premises of the
Business, to its books and records and to the appropriate personnel of Purchaser
for purposes of confirming the Final Working Capital Statement. Unless Seller
notifies Purchaser in writing that it disagrees with the Final Working Capital
Statement within 30 days after receipt thereof, the Final Working Capital
Statement shall be conclusive and binding on Purchaser and Seller. Any such
notice of disagreement shall specify those items or amounts included in the
Final Working Capital Statement as to which Seller disagrees. If Seller notifies
Purchaser in writing of its disagreement with the Final Working Capital
Statement within such 30-day period, then Purchaser and Seller shall attempt to
resolve their differences with respect thereto within 30 days after Purchaser's
receipt of Seller's written notice of disagreement. Any dispute regarding the
Final Working Capital Statement not resolved by Purchaser and Seller within such
30-day period will be resolved by an accounting firm mutually acceptable to both
parties or, in the absence of agreement, by an accounting firm of national
reputation selected by lot after eliminating Seller's and Purchaser's principal
outside accountants and one additional firm designated as objectionable by each
of Seller and Purchaser. The determination by the accounting firm so selected of
the Final Working Capital Statement and the Final Working Capital (with such
modifications therein, if any, as reflect such determination) shall be
conclusive and binding upon the parties. The fees and expenses of such
accounting firm in acting under this Section 2.7.1 shall be shared equally by
Purchaser and Seller.
2.7.2 If the Contract Working Capital is greater than the Final
Working Capital, then Purchaser shall be entitled to receive from Seller, at
Seller's option, cash or the number of shares of Common Stock of Purchaser equal
in value to the difference between the Contract Working Capital and the Final
Working Capital, calculated based on the Weighted Average Terayon Stock Price on
the Closing Date. If the Final Working Capital is greater than the Contract
Working Capital, then Seller shall be entitled to receive from Purchaser, at
Purchaser's option, cash or the number of shares of Common Stock of Purchaser
equal in value to the difference between the Final Working Capital and the
Contract Working Capital, calculated based on the Weighted Average Terayon Stock
Price on the Closing Date. Notwithstanding the foregoing, in the event that the
difference between the Final Working Capital and the Contract Working Capital is
less than One Hundred Thousand Dollars ($100,000), then the party obligated to
pay such amount shall make payment in cash rather than in shares of Common Stock
of Purchaser.
2.8 Deliveries. At the Closing, Seller shall deliver to Purchaser such
assignments and other good and sufficient instruments of transfer as shall be
satisfactory in form and substance
6.
<PAGE>
to Purchaser, and shall be effective to vest in Purchaser good and marketable
title, free and clear of any liens and encumbrances or rights and claims of
others, to all of the Purchased Assets, and Purchaser shall deliver to Seller
such instruments of assumption as shall be satisfactory in form and substance to
Seller to ensure that Purchaser has assumed all of the Assumed Liabilities.
2.9 Further Assurances . Each party agrees, at any time and from time to
time after the Closing Date, upon reasonable request from the other party, to
do, execute, acknowledge and deliver, as appropriate, such further acts, deeds,
assignments, transfers, conveyances and powers of attorney as may reasonably be
required for the better assigning, transferring, granting, conveying, assuring
and confirming to such other party, or its successors and assigns, of any of the
assets, properties or liabilities to be assigned to it or retained by such party
as provided herein.
ARTICLE 3
Assumption of Liabilities and Obligations by Purchaser
3.1 Assumed Liabilities . In addition to the consideration to be paid
pursuant to Article 2 hereof, Purchaser shall assume at the Closing and shall
subsequently pay, honor and discharge when due and payable in accordance with
and subject to the terms and conditions of the relevant governing agreements,
commitments and instruments, the following liabilities (collectively, "Assumed
Liabilities"):
(a) all liabilities and obligations arising out of or resulting
from the conduct of the Business, except Excluded Liabilities (as defined in
Section 3.2 herein), occurring subsequent to the Closing Date; and
(b) all liabilities and obligations of Seller at the Closing
Date pertaining to the Sales Orders, Unfilled Purchase Orders, Other Contracts,
Personal Property Leases, Real Property Lease, and Licenses and Permits
(excluding any such liabilities and obligations that have not been paid by
Seller in accordance with the terms of the applicable Sales Order, Unfilled
Purchase Order, Other Contract, Personal Property Lease, Real Property Lease, or
License and Permit); and
(c) all warranty obligations in respect of products manufactured
or sold by the Business prior to, on, or after the Closing Date.
3.2 Excluded Liabilities. Notwithstanding any implication to the contrary
contained in Section 3.1 hereof, Purchaser shall not assume, pay, or in any way
be liable or responsible for any debts, liabilities or obligations not expressly
assumed pursuant to Section 3.1, including without limitation, the following
(collectively, the "Excluded Liabilities"):
(a) all liabilities and obligations of Seller at the Closing
Date pertaining to the Sales Orders, Unfilled Purchase Orders, Other Contracts,
Personal Property Leases, Real Property Lease, and Licenses and Permits that
have not been paid by Seller in accordance with the terms of the applicable
Sales Order, Unfilled Purchase Order, Other Contract, Personal Property Lease,
Real Property Lease, or License and Permit;
7.
<PAGE>
(b) any liability or obligation of Seller arising under this
Agreement or on account of any of the transactions contemplated hereby,
including, without limitation, any liability or obligation of Seller to
attorneys, accountants, brokers, or others for services rendered or expenses
incurred by or on behalf of Seller, and all other expenses associated with the
transfer of the Purchased Assets;
(c) any wages, salary, severance payments, bonuses, retention
bonuses, commissions, vacation or holiday pay, post retirement medical benefits,
fringe benefits, long-term disability benefits, life insurance benefits, any
duties, obligations or liabilities arising under any Seller-sponsored employee
benefit plan, policy or practice, whether defined by Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended and in effect
("ERISA") or otherwise, relating to the employees of the Business or other
amounts due to any employees or former employees of the Business which accrue on
or prior to the Closing Date;
(d) any liabilities and obligations of Seller for any federal,
state, local or foreign income, excise, sales, personal, payroll or other taxes
of any kind whatsoever payable with respect to the operations of the Business on
or prior to the Closing Date;
(e) except as otherwise provided in Section 2.4 hereof, any tax
(including, without limitation, any federal, state or local income, franchise,
sales, transfer, recording, documentary or other tax) imposed upon or incurred
by Seller arising out of or in connection with the negotiation and preparation
of this Agreement and the consummation and performance of the transactions
contemplated hereby;
(f) any liability or obligation of Seller relating to, resulting
from, caused by, or arising out of the ownership, operations or control of the
Business by Seller on or prior to the Closing Date, arising out of the
following:
(i) any accident or occurrence occurring on or prior to
the Closing Date resulting in personal injury, sickness, death, property damage,
property destruction or loss of use of property arising out of or resulting from
the operation of the Business by Seller,
(ii) any breach of contract, workers' compensation claim
or violation of any law or final order of any federal, state, judicial, quasi-
judicial or governmental body, or
(iii) any personal injury, sickness, death or property
damage resulting from occurrences occurring on or prior to the Closing Date
arising out of a defect or alleged defect of products manufactured or sold by
Seller prior to the Closing Date including, without limitation, any such
liabilities or obligations for defects or alleged defects in design or failure
to warn;
(g) any violation, liability, penalty, cost, damage, fine,
order, judgment or obligation under environmental laws to the extent they arise
out of acts or omissions of Seller occurring on or prior to the Closing Date;
and
(h) any indebtedness for borrowed money.
8.
<PAGE>
ARTICLE 4
Representations and Warranties of Seller
4.1 Representations and Warranties of Seller . Seller represents and
warrants to Purchaser as follows:
4.1.1 Corporate Organization and Standing. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all corporate power and authority to own or
lease its properties and to carry on the Business as presently conducted and to
operate the properties of the Business. Seller is qualified to do business and
is in good standing in each state of the United States in which the Business is
conducted that requires such qualification and where the failure to so qualify
would have a Material Adverse Effect on the financial condition or results of
operations of the Business.
4.1.2 Certificate of Incorporation and Bylaws . Copies of the
certificate of incorporation and bylaws or other organizational documents of
Seller have been made available to Purchaser, and each such copy is true,
correct and complete.
4.1.3 Corporate Authorization; Binding Agreement . The execution and
delivery of this Agreement and all other documents and instruments executed or
to be executed by Seller pursuant to this Agreement, and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate and other action on the part of Seller. This Agreement and
all other documents and instruments executed or to be executed by Seller
pursuant to this Agreement have been, or will have been, at the time of their
respective executions and deliveries, duly executed and delivered by a duly
authorized officer of Seller. This Agreement constitutes the valid and legally
binding obligation of Seller, enforceable in accordance with its terms, except
as such enforceability may be limited by equitable principles and by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or similar laws
relating to or affecting the rights of creditors generally.
4.1.4 No Conflict. Except as set forth in Schedule 4.1.4 attached
hereto, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (a) result in the
acceleration of, or the creation in any party of any right to accelerate,
terminate, modify or cancel any material indenture, Contract, lease, sublease,
loan agreement, note or other obligation or liability to which Seller is a party
or by which it is bound or to which any of its assets is subject, (b) conflict
with or result in a breach of or constitute a default under any provision of the
articles of incorporation or bylaws (or other charter documents) of Seller, or a
default under or violation of any material restriction, lien, encumbrance,
indenture, Contract, lease, sublease, loan agreement, note or other obligation
or liability to which it is a party or by which it is bound or to which any of
its assets is subject or result in the creation of any lien or encumbrance upon
any of said assets, or (c) violate or result in a breach of or constitute a
default under any judgment, order, decree, rule or regulation of any court or
governmental agency to which Seller is subject, and which, in each of clauses
(a), (b) and (c) above, would have a Material Adverse Effect.
9.
<PAGE>
4.1.5 Financial Information. The unaudited balance sheet data as of
June 30, 1999 and June 30, 1998, and the related unaudited income statement data
for the periods ended June 30, 1999 and June 30, 1998, of the Business included
in the Confidential Offering Memorandum dated September 1999 and the unaudited
balance sheet data as of December 25, 1999 and the related unaudited income
statement data for the period ended December 25, 1999 (collectively, the
"Financial Information") fairly present, in all material respects, in conformity
with GAAP (including adjustments necessary to present the Business on a stand-
alone basis), the financial position of the Business as of the dates thereof and
the operating income of the Business for the periods then ended (subject to
normal year end adjustments). There are no obligations or liabilities relating
to the Business that are owed to Seller or any of its divisions or affiliates
and not disclosed in the Financial Information.
4.1.6 Insurance. Seller has in full force and effect policies of
insurance in amounts generally maintained by companies engaged in businesses
similar to that of the Business, and will cause such policies to remain in full
force and effect until the Closing Date.
4.1.7 Litigation. There are no actions, suits, proceedings or
governmental investigations pending or, to Seller's knowledge, threatened
against Seller involving the Business or the Purchased Assets, at law or in
equity or before any court, governmental department, commission, board, agency,
authority or instrumentality, domestic or foreign, or that have been settled,
dismissed or resolved on or since December 25, 1999. Seller is not subject to
any judgment, stipulation, order or decree arising from any action, suit,
proceeding or investigation involving the Business or the Purchased Assets.
4.1.8 Licenses and Permits; Compliance with Laws . Except as set forth
in Schedule 4.1.8 attached hereto, Seller owns, holds or possesses in its own
name, all Licenses and Permits necessary to entitle it to carry on and conduct
the Business and its operations as presently conducted, except for such Licenses
and Permits the absence of which would not, individually or in the aggregate,
have a Material Adverse Effect. Seller is not in violation of or default under
any Licenses and Permits or any judgment, order, writ, injunction or decree of
any court or administrative agency issued against it and relating to the conduct
of the Business or any statute, law, ordinance, rule or regulation applicable to
the conduct of the Business, which would, individually or in the aggregate, have
a Material Adverse Effect or which would, individually or in the aggregate,
interfere materially with the consummation of the transactions contemplated by
this Agreement.
4.1.9 Taxes.
(a) For purposes of this Agreement:
(i) the term "Taxes" means all federal, state,
local, foreign, and other net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties, or other taxes, fees, assessments,
or charges of any kind whatever, together with any interest and any penalties,
additions to tax, or additional amounts with respect thereto, and the term "Tax"
means any one of the foregoing Taxes;
10.
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(ii) the term "Returns" means all returns,
declarations, reports, statements, and other documents required to be filed in
respect of Taxes, and the term "Return" means any one of the foregoing Returns;
and
(iii) the term "Code" means the Internal Revenue Code
of 1986, as amended. All citations to the Code or to the regulations promulgated
thereunder shall include any amendments or any substitute or successor
provisions thereto.
(b) Except as provided in Section 2.5 hereof, Seller has
paid or will pay when due or finally settled all Taxes relating to the Business
or to the Purchased Assets which are or become due and payable for all periods
up to and including the Closing Date. Seller has properly filed on a timely
basis, or so will file, when due, all Returns relating to the Business or the
Purchased Assets for all periods up to and including the Closing Date.
(c) There are no liens for Taxes (other than for current
Taxes not yet due or payable without penalty) on the Purchased Assets.
(d) Seller is not a person other than a United States
person within the meaning of the Code.
4.1.10 Brokers, Finders. Except as set forth in Schedule 4.1.10
attached hereto, Seller has not retained any broker or finder in connection with
the transactions contemplated herein and is not obligated and has not agreed to
pay any brokerage or finder's commission, fee or similar compensation.
4.1.11 Seller Contracts.
(a) Seller has delivered to or made available to Purchaser
accurate and complete copies of all Seller Contracts. Each Seller Contract is
valid and in full force and effect.
(b) To Seller's best knowledge, no Person has violated or
breached, or declared or committed any default under, any material term or
condition of any Seller Contract. No event has occurred, and no circumstance or
condition exists, that would reasonably be expected to (with or without notice
or lapse of time) (i) result in a material violation or breach of any of the
provisions of any Seller Contract, (ii) give any Person the right to declare a
default or exercise any remedy under any Seller Contract, (iii) give any Person
the right to accelerate the maturity or performance of any Seller Contract, or
(iv) give any Person the right to cancel, terminate or modify any Seller
Contract. Seller has not received any written or oral communication regarding
any actual, alleged, possible or potential violation or breach of, or default
under, any Seller Contract. Seller has not waived any right under any Seller
Contract.
(c) To Seller's best knowledge, each Person against which
Seller has or may acquire any rights under any Seller Contract is solvent and is
able to satisfy all of such Person's current and future monetary obligations and
other material obligations and liabilities thereunder.
(d) The performance of the Seller Contracts will not result
in any violation of or failure to comply with any Legal Requirement.
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(e) No Person is renegotiating, or has the right to
renegotiate, any amount paid or payable to Seller under any Seller Contract or
any other term or provision of any Seller Contract .
(f) To Seller's best knowledge, no party to any Seller
Contract intends to object to the assignment to Purchaser of any rights under
such Seller Contract or the delegation to or performance by Purchaser of any
obligations under such Seller Contract.
(g) Schedule 4.1.11(g) attached hereto identifies and
provides an accurate and complete description of each proposed Contract as to
which any bid, offer, written proposal, term sheet or similar document involving
amounts in excess of $50,000 and related to the Business has been submitted or
received by Seller.
4.1.12 Purchased Assets Required to Conduct Business. Except as set
forth in Schedule 4.1.12 attached hereto, the Purchased Assets constitute all of
the assets necessary to enable Seller to conduct the Business in the manner in
which it currently is being conducted.
4.1.13 Title To Purchased Assets. Except as set forth in Schedule
4.1.13 attached hereto and except for personal property subject to valid leases
included among the Seller Contracts, Seller has good and valid title to all of
the Purchased Assets, subject to no mortgage, pledge, lien, encumbrance or
charge or conditional sale or title retention agreement other than minor
encumbrances, restrictions or liens which do not, individually or in the
aggregate, materially impair the value or usefulness of, or restrict Purchaser's
right to the continued use of the encumbered property. The tangible assets are
in good operating condition, subject to normal wear and tear.
4.1.14 Intellectual Property Rights. Except as set forth in Schedule
4.1.14 attached hereto, Seller solely owns or has the exclusive right to use,
free and clear of any lien or other encumbrance or restriction, (i) all of the
Intellectual Property Assets and (ii) the Raychem mark licensed to Purchaser by
Seller pursuant to Section 6.9 below. Except as set forth in Schedule 4.1.14
attached hereto, there is no claim or demand of any person pertaining to, or any
proceeding pending or, to the best knowledge of Seller, threatened, which
challenges the exclusive rights of Seller in respect of the Intellectual
Property Assets.
4.1.15 No Consent. Subject to compliance by Purchaser with the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
except as set forth in Schedule 4.1.15 attached hereto, no consent, approval,
authorization order, filing, registration or qualification of or with any court,
governmental authority or third person is required to be made or obtained by
Seller in connection with the execution and delivery of this Agreement by Seller
or the consummation by Seller of the transactions contemplated hereby.
4.1.16 Absence of Changes. Since December 25, 1999:
(a) there has not been any Material Adverse Change in, and
no event has occurred that might have a material adverse effect on, the
business, condition, assets, liabilities, operations, financial performance, net
income or prospects of Seller;
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(b) there has not been any loss, damage or destruction to, or
any interruption in the use of, any of the Purchased Assets (whether or not
covered by insurance);
(c) Seller has not leased or licensed any material asset used in
the Business from any other Person;
(d) Seller has not made any capital expenditure over $25,000
with respect to the Business;
(e) Seller has not sold or otherwise transferred, or leased or
licensed to any other Person, any asset of greater than $25,000 in value and
used in the Business (other than the sale of inventory in the ordinary course of
business);
(f) Seller has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness;
(g) Seller has not made any loan or advance to any other Person
(other than payment of withholding taxes in the ordinary course of business);
(h) other than pursuant to a Plan disclosed in Schedule 4.1.17,
Seller has not
(i) established or adopted any Employee Benefit Plan for the
benefit of any Business Employee, or (ii) paid any bonus or made any profit-
sharing or similar payment to, or increased the amount of the wages, salary,
commissions, fees, fringe benefits or other compensation or remuneration payable
to, any of its directors, officers, employees or independent contractors
employed by or providing services to the Business;
(i) no Seller Contract has been amended or terminated;
(j) Seller has not, with respect to the Business, incurred,
assumed or otherwise become subject to any liability, other than accounts
payable (of the type required to be reflected as current liabilities in the
"liabilities" column of a balance sheet prepared in accordance with GAAP)
incurred by Seller in bona fide transactions entered into in the ordinary course
of business;
(k) Seller has not entered into any transaction or taken any
other action outside the ordinary course of business; and
(l) Seller has not agreed, committed or offered (in writing or
otherwise) to take any of the actions referred to in clauses "(c)" through "(k)"
above.
4.1.17 Benefit Plans; ERISA . Schedule 4.1.17 attached hereto lists
each employee pension, profit sharing, deferred compensation, severance,
cafeteria, stock option, stock purchase, incentive, golden parachute, bonus,
group or individual medical, welfare, insurance or other employee benefit plan,
program or arrangement regardless of whether such plan is described in Section 3
of ERISA (each a "Plan") which is maintained by Seller for Business Employees or
to which Seller is required to contribute on behalf of Business Employees.
Except as set forth in Schedule 4.1.17 attached hereto, Seller does not maintain
and has not maintained for any Business Employee or made any contributions on
behalf of any
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Business Employee to any employee pension benefit plan or employee welfare
benefit plan, as such terms are defined in Section 3 of ERISA. With respect to
each Plan listed in Schedule 4.1.17 attached hereto, Seller does not have any
liability for any failure to comply with ERISA or the Code or for any action or
failure to act in connection with the administration of such Plan. Seller does
not sponsor or contribute to any Plan on behalf of or for the benefit of any
Business Employee that is subject to Section 412 of the Code or Title IV of
ERISA or is a multiemployer plan, as such term is defined in Section 3 of ERISA.
4.1.18 No Transfer of Employees. Since December 25, 1999, no person
who has been employed by Seller in the Business in the 12 months prior to the
date of this Agreement has been transferred from the Business to another
division of Seller or to any Affiliate of Seller.
ARTICLE 5
Representations and Warranties of Purchaser
5.1 Representations and Warranties . Purchaser represents and warrants to
Seller as follows:
5.1.1 Corporate Organization and Standing. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all corporate power and authority to carry on the
business in which it is engaged and to own or lease and operate its properties.
Purchaser is qualified to do business and is in good standing in each state of
the United States in which the nature of its business in such jurisdiction
requires it to be so qualified except where the failure to so qualify would not
have a material adverse effect on the financial condition or results of
operations of Purchaser and its subsidiaries, taken as a whole.
5.1.2 SEC Filings; Financial Statements.
(a) Purchaser has delivered to Seller accurate and complete
copies (excluding copies of exhibits) of each report, registration statement (on
a form other than Form S-8) and definitive proxy statement filed by Purchaser
with the SEC between August 17, 1998 and the date of this Agreement (together
with Purchaser's registration statements on Form S-8, the "Terayon SEC
Documents"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the Terayon SEC Documents complied in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act (as the case may be); and (ii) none of the Terayon SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The consolidated financial statements contained in the
Terayon SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered, except as may be indicated in
the notes to such financial statements and (in the case of unaudited
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statements) as permitted by Form 10-Q of the Exchange Act, and except that
unaudited financial statements may not contain footnotes and are subject to
year-end audit adjustments; and (iii) fairly present the consolidated financial
position of Purchaser and its subsidiaries as of the respective dates thereof
and the consolidated results of operations and cash flows of Purchaser and its
subsidiaries for the periods covered thereby.
5.1.3 Corporate Authorization; Binding Agreement. The execution
and delivery of this Agreement and all other documents and instruments executed
or to be executed by Purchaser pursuant to this Agreement, and the consummation
of the transactions contemplated hereby and thereby, have been duly authorized
by all necessary corporate and other action on the part of Purchaser. This
Agreement and all other documents and instruments executed or to be executed by
Purchaser pursuant to this Agreement have been, or will have been, at the time
of their respective executions and deliveries, duly executed and delivered by a
duly authorized officer of Purchaser. This Agreement constitutes the valid and
legally binding obligation of Purchaser, enforceable in accordance with its
terms, except as such enforceability may be limited by equitable principles and
by applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
similar laws relating to or affecting the rights of creditors generally.
5.1.4 No Conflict. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
result in the acceleration of, or the creation in any party of any right to
accelerate, terminate, modify or cancel any material indenture, Contract, lease,
sublease, loan agreement, note or other obligation or liability to which
Purchaser is a party or by which it is bound or to which any of its assets is
subject, (b) conflict with or result in a breach of or constitute a default
under any provision of the certificate of incorporation or bylaws (or other
charter documents) of Purchaser, or a default under or violation of any material
restriction, lien, encumbrance, indenture, Contract, lease, sublease, loan
agreement, note or other obligation or liability to which it is a party or by
which it is bound or to which any of its assets is subject or result in the
creation of any lien or encumbrance upon any of said assets, or (c) violate or
result in a breach of or constitute a default under any judgment, order, decree,
rule or regulation of any court or governmental agency to which Purchaser is
subject, and which, in each of clauses (a), (b) and (c) above, would have a
material adverse effect on the financial condition or results of operations of
Purchaser and its subsidiaries, taken as a whole.
5.1.5 Litigation. There are no actions, suits, proceedings or
governmental investigations pending or, to Purchaser's knowledge, threatened
against Seller that question the validity of this Agreement or any actions taken
or to be taken in connection herewith or the consummation of the transactions
contemplated hereunder, at law or in equity or before any court, governmental
department, commission, board, agency, authority or instrumentality, domestic or
foreign. Purchaser is not subject to any judgment, stipulation, order or decree
that would materially and adversely affect the ability of Purchaser to
consummate the transactions contemplated hereunder.
5.1.6 No Consent. Subject to compliance by Purchaser with the HSR
Act, no consent, approval, authorization order, filing, registration or
qualification of or with any court, governmental authority or third person is
required to be made or obtained by Purchaser in
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connection with the execution and delivery of this Agreement by Purchaser or the
consummation by Purchaser of the transactions contemplated hereby.
5.1.7 Brokers, Finders. Purchaser has not retained any broker or
finder in connection with the transactions contemplated herein and is not
obligated and has not agreed to pay any brokerage or finder's commission, fee or
similar compensation.
5.1.8 Capitalization. The authorized capital stock of Purchaser
consists of 45,000,000 shares of common stock, $.001 par value per share
("Purchaser Shares"). As of February 1, 2000, 24,880,776 Purchaser Shares were
issued and outstanding, all of which are validly issued, fully paid and non-
assessable. As of February 1, 2000, approximately (i) 4,343,213 Purchaser Shares
were reserved for issuance upon exercise of outstanding options and other rights
granted under Purchaser's equity incentive plans, (ii) 2,357,448 Purchaser
Shares were reserved for future issuance under Purchaser's equity incentive
plans and (iii) 3,560,879 Purchaser Shares were reserved for issuance upon the
exercise of outstanding warrants. The Acquisition Shares to be issued to Seller
have been duly authorized and, when issued and delivered in accordance with the
terms of this Agreement, will have been validly issued and will be fully paid
and nonassessable, and the issuance thereof is not subject to any preemptive or
other similar right.
5.1.9 No Undisclosed Material Liabilities. There are no
liabilities or obligations of Purchaser or any of its subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) liabilities or obligations disclosed in the Terayon SEC
Documents filed prior to the date hereof;
(b) liabilities or obligations that would not reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
the financial condition or results of operations of Purchaser and its
subsidiaries, taken as a whole; or
(c) liabilities or obligations incurred in connection with
this Agreement.
5.1.10 Absence of Changes. Since September 30, 1999, except as
disclosed in the Terayon SEC Documents, the business of Purchaser and its
subsidiaries has been conducted in the ordinary course consistent with past
practice and there has not been any event, occurrence, development or state of
circumstances or facts that has had or would reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the financial
condition or results of operations of Purchaser and its subsidiaries, taken as a
whole.
5.1.11 Registration Statement.
(a) The Registration Statement (including the prospectus
included therein and any amendments or supplements to the Registration Statement
or such prospectus) will not, at the time it is filed with the SEC, at the time
it is declared effective by the SEC or on the date of the Closing, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements included therein, in light of the circumstances
under which they were made, not misleading. The Registration Statement
(including any amendments
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thereto), when filed, will comply as to form in all material respects with the
requirements of the Securities Act.
(b) Notwithstanding the foregoing, Purchaser makes no
representation or warranty with respect to any information supplied by the
Seller that is contained in, or furnished in connection with the preparation of,
the Registration Statement.
ARTICLE 6
Covenants and Agreements of Seller
6.1 Conduct of Business. During the period from the date of this Agreement
through and including the Closing Date (the "Pre-Closing Period"), except as
contemplated by this Agreement or referred to in the Disclosure Schedule
attached hereto, and except as may be necessary to carry out the transactions
contemplated by this Agreement or any transaction contemplated by or relating to
any of the contracts or other matters referred to in this Agreement or the
Disclosure Schedule attached hereto, Seller shall not:
(a) voluntarily permit to be incurred any lien or
encumbrance on any of the Purchased Assets;
(b) increase the rate of compensation for any of the
Business Employees, except for increases in the ordinary course and consistent
with past practices, or otherwise enter into or alter any employment,
consulting, or service agreement respecting the Business;
(c) except for changes in Seller's company-wide benefit
plans and programs, commence, enter into, or alter any profit sharing, deferred
compensation, bonus stock purchase, pension, retirement, or incentive plan or
any fringe benefit plan for the Business Employees;
(d) sever or terminate any of the Business Employees except
for cause in the ordinary course of the Business;
(e) make or commit to any new, unbudgeted capital
expenditure, except for capital expenditures that, when added to all other
capital expenditures made on behalf of Seller with respect to the Business
during the Pre-Closing Period, do not exceed $25,000 per month;
(f) dispose of any of the Purchased Assets, except for
sales of products of the Business in the ordinary course of business;
(g) enter into any material transaction in connection with
the Business outside the ordinary course of business;
(h) conduct the Business in a manner that departs
materially from the manner in which the Business was being conducted prior to
the date of this Agreement;
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(i) enter into or commit to any joint venture, teaming
arrangement or similar arrangement relating to the Business;
(j) commence any material legal proceeding with respect to
the Business; or
(k) agree or commit to take any of the actions described in
the foregoing clauses.
Notwithstanding the foregoing, Seller may take any action described in
clauses "(a)" through "(k)" above if Purchaser gives its prior written consent
to the taking of such action by Seller, which consent will not be unreasonably
withheld (it being understood that Purchaser's withholding of consent to any
action will not be deemed unreasonable if it is reasonably likely that the
taking of such action would not be in the best interests of the Business) or if
such action is taken at the written request of Purchaser.
6.2 No Shop. During the Pre-Closing Period, Seller and its legal and
financial advisors will negotiate exclusively with Purchaser with respect to the
sale of the Business and, accordingly, Seller shall not directly or indirectly:
(a) enter into any agreement, understanding or arrangement
relating to any Acquisition Proposal (as defined herein);
(b) engage in any discussions or negotiations relating to,
any Acquisition Proposal;
(c) provide any information regarding the Business to any
party (other than to representatives of Purchaser);
(d) solicit or encourage the submission of any Acquisition
Proposal; or
(e) permit any representative or affiliate of Seller or the
Business or of any stockholder of either of them to do any of the foregoing.
The term "Acquisition Proposal" as used in this Section 6.2 refers to any
proposal, plan, agreement, understanding or arrangement contemplating (i) any
merger, consolidation, reorganization, recapitalization (other than the
extension of the conversion or payment terms of outstanding convertible
securities or debt of the Business) or similar transaction involving the
Business, (ii) any transfer of the Business, (iii) any transfer of any asset of
the Business outside of the ordinary course of business or (iv) any transaction
that would be inconsistent with or that may have an adverse effect upon the
consummation of the transactions contemplated pursuant to this Agreement.
6.3 No Transfer of Employees. Between the date of this Agreement and the
earlier of the Closing Date or the termination of this Agreement, Seller will
not transfer (a) any Business Employee to any other division or Affiliate of
Seller, or (b) employees of any other division or Affiliate of Seller to the
Access Network Electronics Division without the prior written consent of
Purchaser.
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6.4 Termination of Employees. Seller will terminate each Business Employee
immediately prior to the Closing in conjunction with Purchaser's offer of
employment to each such Business Employee. For a period of one year following
the Closing Date, Purchaser shall provide to each Business Employee who becomes
an employee of Purchaser as of the Closing Date and whose employment is
terminated due to a reduction in force ("RIF") (as defined by Seller's RIF plan
in effect as of the date of such RIF), severance and termination benefits that
are at least equivalent to the severance and termination benefits provided by
Seller under Seller's plans and practices in effect as of the date of the
Business Employee's termination due to the RIF. To the extent that such
severance benefits are greater than the severance benefits otherwise offered by
Purchaser to its other employees at the time of such RIF, Seller shall reimburse
Purchaser for the additional expense of such severance benefits. For purposes of
providing such severance and termination benefits, the Business Employees will
receive credit for their respective years of service with Seller.
6.5 Estoppel Certificate. Seller shall use commercially reasonable efforts
to obtain an estoppel certificate, dated as of a date not more than five days
prior to the Closing Date and satisfactory in form and content to Purchaser,
executed by the landlord of 1455 Adams Court, Menlo Park, California 94025;
provided that no estoppel certificate shall be required if Seller has terminated
its lease agreement with such landlord;
6.6 Records and Information.
6.6.1 Purchaser agrees that all documents delivered to Purchaser by
Seller pursuant to this Agreement and all documents of the Business (including,
but not limited to, files, books and records) shall after the Closing be open
for inspection by representatives of Seller at any time during regular business
hours for reasonable and necessary purposes until such time as documents are
destroyed or possession thereof is given to the other party as provided for in
Section 6.6.2 herein and that Seller may during such period at its expense make
such copies thereof as it may reasonably request. Seller agrees that all
documents that are retained by Seller after the Closing Date and that are
related to the Business (other than tax records of Seller) shall be open for
inspection by representatives of Purchaser at any time during regular business
hours until such time as documents are destroyed or possession thereof is given
up to the other party as provided for in Section 6.6.2 herein and that Purchaser
may during such period at its expense make such copies thereof as it may
reasonably request.
6.6.2 Without limiting the generality of Section 6.6.1, for a period
ending on the sixth anniversary of the Closing Date, neither Purchaser nor
Seller shall destroy or give up possession of any item referred to in Section
6.6.1 hereof without first offering to the other, the opportunity, at such
other's expense (but without any other payment), to obtain the same. Thereafter
each party shall be free to dispose of such items as it deems fit.
6.6.3 Purchaser shall use reasonable efforts to afford Seller access
to Employees who were previously employees of Seller, and remain in the employ
of Purchaser or its affiliates, as Seller shall reasonably request for its
proper corporate purposes, including, without limitation, the defense of legal
proceedings. Such access may include interviews or attendance at depositions or
legal proceedings. All out-of-pocket expenses reasonably incurred by Purchaser
in connection with this Section 6.6.3 shall be paid or promptly reimbursed by
Seller.
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6.7 Tax Matters.
6.7.1 Taxes Through Closing Date.
(a) Seller shall be solely responsible for and shall
indemnify and hold harmless Purchaser for all Taxes with respect to the Business
for or pertaining to all periods up to and including the Closing Date, and
Purchaser shall be responsible for and indemnify and hold harmless Seller for
all Taxes with respect to the Business for or pertaining to all periods
thereafter except that any Taxes imposed upon the ownership of property on a
particular date, or similar tax, shall be prorated over the period ending on the
Closing Date and the period thereafter. Any claim for indemnification hereunder
shall be subject to the procedures set forth in Section 10.4 herein.
(b) Purchaser and Seller agree that, in accordance with the
"Alternative Procedure" provided in Section 5 of Revenue Procedure 96-60 1996-53
Cumulative Bulletin 24, with respect to filing and furnishing Internal Revenue
Service forms W-2, W-3 and 941, from and after the Closing Date (i) Seller shall
be considered a "predecessor" employer and Purchaser shall be considered a
"successor" employer with respect to any of the Business Employees, (ii) Seller
shall be relieved of furnishing forms W-2 to the Business Employees to whom it
would have been obligated to furnish such forms for the present calendar year,
and (iii) Purchaser shall assume the obligations of Seller to furnish such forms
to Business Employees for the present calendar year.
6.7.2 Cooperation and Exchange of Information . Purchaser shall
provide Seller with such cooperation and information as Seller reasonably may
request with respect to the filing of any Return, amended Return or claim for
refund, the determination of a liability for Taxes, or a right to refund of
Taxes, or the conduct of any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all relevant
Returns, together with accompanying schedules and related work papers, documents
relating to rulings or other determinations by taxing authorities, and records
concerning the ownership and tax basis of property, which Purchaser may possess
concerning the Business. Purchaser shall make its employees available to Seller
on a mutually convenient basis to provide explanation of any documents or
information provided hereunder. Notwithstanding the foregoing, Purchaser shall
not be required to prepare any documents, or determine any information not then
in its possession in response to a request under this Section 6.7.2. Seller
shall reimburse Purchaser for any reasonable out-of-pocket costs incurred by
Purchaser in providing any Return, document or other written information, and
shall reimburse Purchaser for any reasonable out-of-pocket costs (including
regular wages, salaries and traveling expenses) of making employees available,
upon receipt of reasonable documentation of such costs. Except as otherwise
provided in Section 1.2(c) hereof, Seller shall retain all Returns, schedules
and work papers and all material records or other documents relating thereto,
until the expiration of the period of time beginning on the Closing Date and
ending on the date on which taxes may no longer be assessed under the applicable
statutes of limitation, including the period of waivers or extensions thereof.
Any information obtained under this Section 6.7.2 shall be kept confidential,
except as may be otherwise necessary in connection with the filing of returns or
claims for refund or in conducting any audit or other proceeding.
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6.8 Covenant Not to Compete.
(a) Seller agrees that, as part of the consideration for
the payment by Purchaser of the Purchase Price, for a period of three years
immediately following the Closing Date, neither Seller nor any of its
subsidiaries or affiliates, will, directly or indirectly, operate, perform, have
any interest in or otherwise be engaged in or concerned with a business which
develops, manufactures, prepares, sells, installs or distributes products or
performs services in competition with the Business as conducted on the Closing
Date; provided, however that nothing herein contained shall be construed to
prevent Seller or any of its subsidiaries or affiliates from acquiring or
merging with any business or Person eighty percent (80%) or more of whose
consolidated revenues for the most recently completed fiscal year prior to such
acquisition were derived from businesses that are not competitive with the
Business as conducted on the Closing Date; and provided further that Seller
shall divest itself of any business so acquired within twelve (12) months of
Seller's acquisition of such business. For these purposes, ownership of
securities of a company whose securities are publicly traded under a recognized
securities exchange not in excess of five percent (5%) of any class of such
securities shall not be considered to be competition with the Business.
(b) Seller acknowledges that the restrictions on its
activities under Section 6.8(a) are necessary for the reasonable protection of
Purchaser and constitute a material inducement to Purchaser's entering into and
performing this Agreement. Seller further acknowledges, stipulates and agrees
that a breach of any such obligations and agreements will result in irreparable
harm and continuing damage to Purchaser for which there will be no adequate
remedy at law and further agrees that in the event of any breach of said
obligations and agreements, Purchaser shall be entitled to injunctive relief and
to such other relief as is proper under the circumstances.
6.9 License Grant. Seller hereby grants to Purchaser a non-exclusive,
royalty free, worldwide right and license to use the mark "Raychem" on or in
connection with the sale of products of the Business, during the period
beginning on the Closing and ending on the first anniversary of the Closing.
Purchaser shall only use the licensed mark in connection with products meeting
the standards and quality established by Seller prior to the sale of the
Business to Purchaser. Seller shall have the right, upon request of Purchaser at
least two business days in advance, to inspect during normal business hours such
products of Purchaser to determine that they are of proper quality.
ARTICLE 7
ADDITIONAL COVENANTS OF THE PARTIES
7.1 Reasonable Efforts to Close . During the period commencing on the date
of the execution of this Agreement and continuing until the Closing Date,
Purchaser and Seller shall use their reasonable efforts to comply promptly with
all requests or requirements which applicable federal or state law or
governmental officials may impose on them with respect to the transactions which
are the subject of this Agreement, and to consummate such transactions as
promptly as practicable. The reasonable efforts of Purchaser and Seller shall
include, without limitation, good faith response, in cooperation with each
other, to all requests for information,
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documentary or otherwise, by any governmental agency. Accordingly, Purchaser and
Seller shall promptly make all filings required pursuant to the HSR Act and
request early termination of the applicable waiting period thereunder.
7.2 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, Seller and Purchaser
shall promptly notify the other party in writing of:
(i) the discovery by Seller or Purchaser, as the case may
be, of any event, condition, fact or circumstance that occurred or existed on or
prior to the date of this Agreement and that caused or constitutes a material
inaccuracy in or breach of any representation or warranty made by such party in
this Agreement;
(ii) the discovery by Seller or Purchaser, as the case may
be, of any event, condition, fact or circumstance that occurs, arises or exists
after the date of this Agreement and that would cause or constitute a material
inaccuracy in or breach of any representation or warranty made by such party in
this Agreement if (A) such representation or warranty had been made as of the
time of the occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such event, condition, fact or circumstance had occurred,
arisen or existed on or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of Seller or
Purchaser, as the case may be; and
(iv) the discovery by Seller or Purchaser, as the case may
be, of any event, condition, fact or circumstance that would make the timely
satisfaction of any of the conditions set forth in Section 8.1 or 8.2 impossible
or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed by Seller pursuant to Section 7.2(a) requires any
change in the Disclosure Schedule attached hereto, or if any such event,
condition, fact or circumstance would require such a change assuming the
Disclosure Schedule were dated as of the date of the occurrence, existence or
discovery of such event, condition, fact or circumstance, then Seller shall
promptly deliver to Purchaser an update to the Disclosure Schedule specifying
such change. If any event, condition, fact or circumstance is required to be
disclosed by Purchaser pursuant to Section 6.2(a), then Purchaser shall promptly
deliver to Seller written disclosure of such event, condition, fact or
circumstance. No such update by Seller or disclosure by Purchaser shall be
deemed to supplement or amend the Disclosure Schedule in the case of Seller, or
Section 5 of this Agreement, in the case of Purchaser, for the purpose of (i)
determining the accuracy of any of the representations and warranties made by
Seller or Purchaser, as the case may be, in this Agreement, or (ii) determining
whether any of the conditions set forth in Section 8.1 or 8.2 has been
satisfied.
7.3 Employee Retention Program. Purchaser and Seller shall use their
mutual efforts to establish an employee retention program covering the employees
identified on and incorporating the features identified in Exhibit F.
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7.4 Registration Statement.
7.4.1 Purchaser shall prepare a registration statement on Form S-3
under the Securities Act (the "Registration Statement") with respect to the
Acquisition Shares; provided that in the event Purchaser is not eligible to use
Form S-3, Purchaser shall prepare a registration statement on Form S-1 or any
other appropriate form that is available to Purchaser for the registration of
the Acquisition Shares. Purchaser shall file the Registration Statement within
five (5) business days following the Closing and shall use its best efforts to
have the Registration Statement declared effective as soon as practicable.
7.4.2 Purchaser's obligation to keep the Registration Statement
effective shall terminate on such date as Seller has the ability to sell all of
the Acquisition Shares held by Seller pursuant to Rule 144 of the Securities Act
during any ninety (90) day period.
7.5 Disclosures, Press Releases. At all times, the parties shall remain
subject to the terms of that certain Non-Disclosure Agreement between Purchaser
and Seller dated as of January 5, 2000. During the Pre-Closing Period,
Purchaser and Seller will keep the terms of this Agreement and the transactions
contemplated hereunder strictly confidential. Accordingly, during the Pre-
Closing Period, except as required by law, neither Seller nor Purchaser, without
the prior written consent of the other, will make any press release or any
similar public announcement concerning the transactions contemplated hereby. In
addition, during the Pre-Closing Period, other than as necessary to obtain any
consent required to consummate the transactions contemplated hereunder or as
required by law, no written or oral announcement or private disclosure with
respect to the transactions contemplated hereby will be made to any person
unrelated to Seller or Purchaser unless jointly approved by Seller and
Purchaser. If disclosure is required by law, the disclosing party shall consult
in advance with the other party and attempt in good faith to reflect such other
party's concerns in the required disclosure.
7.6 Non-Solicitation. Seller agrees that it shall not, for a period of
three years from the Closing Date, directly or indirectly hire or solicit for
employment any Business Employee or any employee of Purchaser, except that
Seller shall not be precluded from soliciting for employment or hiring any such
employee who has been discharged from employment by Purchaser. Similarly,
Purchaser agrees that it shall not, for a period of three years from the Closing
Date, directly or indirectly hire or solicit for employment any employee of
Seller, except that Purchaser shall not be precluded from soliciting for
employment or hiring any such employee who has been discharged from employment
by Seller.
ARTICLE 8
Closing Conditions and transactions
8.1 Conditions Precedent to the Obligations of Purchaser. The obligations
of Purchaser under this Agreement are subject to the fulfillment by Seller prior
to or at the Closing of each of the following conditions, any one or more of
which may be waived by Purchaser:
8.1.1 No Injunctive Proceedings. No preliminary or permanent
injunction or other order (including a temporary restraining order) of any state
or federal court or other
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governmental agency which prevents the consummation of the transactions which
are the subject of this Agreement or prohibits Purchaser's ownership of the
Business shall have been issued and remain in effect.
8.1.2 Accuracy of Representations and Warranties. Each of the
representations and warranties made by Seller in this Agreement and in each of
the other agreements and instruments delivered to Purchaser in connection with
the transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the Closing Date as if made on the Closing Date except
for items specifically permitted by this Agreement or consented to in writing by
Purchaser (without giving effect to any update to the Disclosure Schedule).
8.1.3 Performance of Covenants. All of the covenants and
obligations that Seller is required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects; provided however that any noncompliance or nonperformance that results
from Purchaser's activities related to the operations of the Business during the
Pre-Closing Period shall not constitute noncompliance or nonperformance by
Seller for the purposes of this Section 8.1.3.
8.1.4 Consents and Approvals. All consents and approvals required
to be obtained in connection with this Agreement and the transactions
contemplated by this Agreement shall have been obtained and shall be in full
force and effect, other than those consents that, if not obtained and in full
force and effect, would not result in a Material Adverse Effect or would not
prevent the consummation of the transactions contemplated hereunder. Without
limiting the generality of the foregoing, any applicable waiting period under
the HSR Act and other applicable antitrust or competition laws relating to the
transactions contemplated by this Agreement shall have expired or been
terminated.
8.1.5 Audit Complete. In the event that Purchaser's independent
auditors determine that, based upon Purchaser's pro forma financial statements
for the 1999 fiscal year included in the Form 8-K to be filed in connection with
Purchaser's acquisition of Telegate, Ltd., audited financial statements of
Access Network Electronics Division (the "ANE Financial Statements") will be
required to be included in a Form 8-K to be filed by Purchaser upon consummation
of the transactions contemplated by this Agreement, then the audit of the ANE
Financial Statements shall be complete. In such event, the ANE Financial
Statements shall be prepared in conformity with GAAP and the published rules and
regulations of the SEC for the purposes of the filing of a current report on
Form 8-K promulgated under the Exchange Act. In the event an audit of the ANE
Financial Statements is required pursuant to this Section 8.1.5, then the cost
of such audit shall be borne equally by Purchaser and Seller; provided, however,
that if the cost exceeds $75,000, then Seller shall be solely responsible for
payment of all amounts in excess of $75,000.
8.1.6 Agreements and Documents. Purchaser shall have received the
following agreements and documents, each of which shall be in full force and
effect:
(a) the Key Employment Agreements in the form of Exhibit D,
executed by Mr. Erwin De Bruycker and substantially all of the other individuals
identified on Exhibit C;
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(b) the Noncompetition Agreements in the form of Exhibit E,
executed by Mr. Erwin De Bruycker and substantially all of the other individuals
identified on Exhibit C;
(c) confidential invention and assignment agreements, in
form and content comparable to similar agreements required to be signed by other
employees of Purchaser, executed by each Business Employee;
(d) legal opinions of (i) in-house counsel to Seller, dated
as of the Closing Date, in the form of Exhibit G-1, and (ii) Kramer Levin
Naftalis & Frankel LLP, special counsel to Seller, dated as of the Closing Date,
in the form of Exhibit G-2;
(e) a compliance certificate, dated the Closing Date,
executed by Seller's duly authorized representative certifying that: (1) each of
the representations and warranties set forth in Section 4 is accurate in all
respects as of the Closing Date as if made on the Closing Date and (2) the
conditions set forth in Sections 8.1.2 , 8.1.3 and 8.1.4 hereof have been duly
satisfied; and
(f) the Transition Services Agreement executed by Purchaser
and Seller in substantially the form of Exhibit H.
8.2 Conditions Precedent to the Obligations of Seller. The obligations of
Seller under this Agreement are subject to the fulfillment by Purchaser prior to
the Closing of each of the following conditions, any one or more of which may be
waived by Seller:
8.2.1 No Injunctive Proceedings. No preliminary or permanent
injunction or other order (including a temporary restraining order) of any state
or federal court or other governmental agency which prevents the consummation of
the transactions which are the subject of this Agreement or prohibits
Purchaser's ownership of the Business shall have been issued and remain in
effect.
8.2.2 Payment. Purchaser shall have delivered to Seller a stock
certificate representing the Acquisition Shares as provided for in Section
2.2(a) hereof.
8.2.3 Accuracy of Representations and Warranties . Each of the
representations and warranties made by Purchaser in this Agreement and in each
of the other agreements and instruments delivered to Seller in connection with
the transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the Closing Date as if made on the Closing Date except
for items specifically permitted by this Agreement or consented to in writing by
Seller.
8.2.4 Consents and Approvals. All consents and approvals required to
be obtained in connection with this Agreement and the transactions contemplated
by this Agreement shall have been obtained and shall be in full force and
effect, other than those consents that, if not obtained and in full force and
effect, would not result in a Material Adverse Effect or would not prevent the
consummation of the transactions contemplated hereunder. Without limiting the
generality of the foregoing, any applicable waiting period under the HSR Act,
and other
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applicable antitrust or competition laws relating to the transactions
contemplated by this Agreement shall have expired or been terminated.
8.2.5 Performance of Covenants. All of the covenants and
obligations that Purchaser is required to comply with or to perform at or prior
to the Closing shall have been complied with and performed in all material
respects.
8.2.6 Agreements and Documents. Seller shall have received the
following agreements and documents, each of which shall be in full force and
effect:
(a) a legal opinion of Cooley Godward llp, dated as of the
Closing Date, in the form of Exhibit I; and
(b) a compliance certificate, dated the Closing Date,
executed by Purchaser's Chief Executive Officer or Chief Financial Officer
certifying that: (1) each of the representations and warranties set forth in
Section 5 is accurate in all respects as of the Closing Date as if made on the
Closing Date and (2) the conditions set forth in Sections 8.2.3, 8.2.4 and 8.2.5
hereof have been duly satisfied.
8.3 Non-Compliance with and Termination of this Agreement.
(a) Each of the parties hereto agrees to use its reasonable
best efforts to bring about the satisfaction of the conditions required to be
performed by it hereunder prior to and at the Closing, including, without
limitation, compliance with the requirements of Section 7.2 hereof.
(b) This Agreement may be terminated at any time prior to
the Closing without any liability of either party to the other:
(i) by the mutual agreement of Purchaser and
Seller, provided such agreement to terminate is set forth in a writing executed
by both parties;
(ii) by Purchaser if Purchaser reasonably determines
that the timely satisfaction of any condition set forth in Section 8.1 has
become impossible (other than as a result of any failure on the part of
Purchaser to comply with or perform any covenant or obligation of Purchaser set
forth in this Agreement);
(iii) by Seller if Seller reasonably determines that
the timely satisfaction of any condition set forth in Section 8.2 has become
impossible (other than as a result of any failure on the part of Seller to
comply with or perform any covenant or obligation set forth in this Agreement or
in any other agreement or instrument delivered to Purchaser);
(iv) by Purchaser if the Closing has not taken place
on or April 30, 2000 (other than as a result of any failure on the part of
Purchaser to comply with or perform any covenant or obligation of Purchaser set
forth in this Agreement);
(v) by Seller if the Closing has not taken place on
or before April 30, 2000 (other than as a result of any failure on the part of
Seller to comply with or
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perform any covenant or obligation set forth in this Agreement or in any this
agreement or instrument delivered to Purchaser);
ARTICLE 9
Closing Documents
9.1 Seller's Obligations. On the Closing Date, in addition to the
agreements, documents and certificates required pursuant to Section 8.1.5
hereof, Seller shall deliver to Purchaser physical possession of all tangible
Purchased Assets and shall execute and/or deliver to Purchaser all of the
following:
9.1.1 Resolutions. Copies of resolutions of the Board of Directors of
Seller certified by the Secretary or an Assistant Secretary of Seller
authorizing the execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
9.1.2 Bill of Sale. A bill of sale, duly executed by Seller, in form
and substance reasonably satisfactory to counsel for Purchaser, sufficient to
convey, transfer and assign to Purchaser all right, title and interest of Seller
in and to the Purchased Assets free and clear of liens, claims, encumbrances and
security interests in accordance with this Agreement.
9.1.3 Assignments and Consents. Assignments of the registered
Intellectual Property Assets, Sales Orders, Unfilled Purchase Orders, Seller
Contracts, and Licenses and Permits, duly executed by Seller,form and substance
reasonably satisfactory to counsel for Purchaser, and all consents which Seller
is able to obtain therefor, or permitted alternate arrangements with respect
thereto, such consents to be in form and substance reasonably satisfactory to
counsel for Purchaser.
9.2 Purchaser's Obligations. At the Closing, in addition to the
agreements, documents and certificates required pursuant to Section 8.2.6
hereof, Purchaser shall deliver to Seller the following:
9.2.1 Resolutions. Copies of resolutions of the Board of Directors of
Purchaser certified by the Secretary or an Assistant Secretary of Purchaser,
authorizing the execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
9.2.2 Assumption Agreement. The Assumption Agreement, duly executed
by Purchaser, in substantially the form of Exhibit B.
9.2.3 Payment. A stock certificate representing the Acquisition Shares
as provided for in Section 2.2(a) hereof.
9.2.4 Resale Certificate. A resale certificate, duly executed by
Purchaser, in substantially the form of Exhibit J.
9.3 Joint Obligations. The parties will deliver each to the other the
certificates, records, schedules, and the other documents required by the terms
of this Agreement.
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ARTICLE 10
Indemnification
10.1 Indemnification by Seller. Subject to the limits set forth in this
Article 10, Seller agrees to indemnify, defend and hold Purchaser and each of
Purchaser's stockholders, affiliates, officers, directors, employees, agents,
successors and assigns (Purchaser and such persons are collectively hereinafter
referred to as "Purchaser's Indemnified Persons"), harmless from and against any
and all loss, liability, damage or deficiency (including interest, penalties,
costs of preparation and investigation, and reasonable attorneys' fees)
(collectively "Losses") that Purchaser's Indemnified Persons may suffer,
sustain, incur or become subject to, arising out of or due to: (a) any
inaccuracy of any representation of Seller in this Agreement; (b) the breach of
any warranty of Seller in this Agreement; (c) the non-fulfillment of any
covenant, undertaking, agreement or other obligation of Seller under this
Agreement; (d) any noncompliance by Seller with bulk sales laws or similar laws
which may be applicable to the sale or transfer of the Purchased Assets; (e) any
Losses arising out of or resulting from any Excluded Liability; and (f) any
violation of the Securities Act relating to the Registration Statement that
occurs in reliance upon and in conformity with written information furnished by
Seller under an instrument duly executed by Seller and stated to be specifically
for use in connection with the Registration Statement.
10.2 Indemnification by Purchaser. Subject to the limits set forth in this
Article 10, Purchaser agrees to indemnify, defend and hold Seller and Seller's
affiliates, officers, directors, employees, agents, successors and assigns
(Seller and such persons are hereinafter collectively referred to as "Seller's
Indemnified Persons"), harmless from and against any and all Losses that
Seller's Indemnified Persons may suffer, sustain, incur or become subject to
arising out of or due to: (a) any inaccuracy of any representation of Purchaser
in this Agreement; (b) the breach of any warranty of Purchaser in this
Agreement; (c) the non-fulfillment of any covenant, undertaking, agreement or
other obligation of Purchaser under this Agreement, including but not limited
to, the discharge of the Assumed Liabilities; (d) the manufacture, sale,
shipment or other distribution of the products of the Business by Purchaser
after the Closing Date; (e) the ownership, operations or control of the Business
after the Closing Date; (f) any Losses arising out of or resulting from any
Assumed Liability; and (g) any violation by the Company of the Securities Act
relating to the Registration Statement; provided, however, that the Company will
not be liable in any such case to the extent that any such Losses arise out of
or are based on any untrue statement or omission of any statement from written
information furnished to the Company by Seller or its agents, underwriter or
persons who control Seller and stated to be specifically for use in connection
with the Registration Statement.
10.3 Survival of Representations and Warranties; Threshold and Payment for
Losses . Except as provided herein, the covenants in this Agreement shall
survive in accordance with their respective terms. The several representations
and warranties of the parties contained in this Agreement or in any document
delivered pursuant hereto and the parties' right to indemnity in accordance with
this Article 10 shall survive the Closing Date and shall remain in full force
and effect thereafter for a period of 12 months after the Closing Date and shall
be effective with respect to any inaccuracy therein or breach thereof, notice of
which shall have been duly given within such 12-month period in accordance with
Section 10.4 herein after which
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12-month period they shall terminate and be of no further force or effect.
Notwithstanding the foregoing, (i) Purchaser may give notice of, and make a
claim relating to, and shall be indemnified in connection with: (a) the breach
of the representations and warranties contained in Section 4.1.9 hereof at any
time prior to the expiration of the appropriate statute of limitations and any
extensions thereof and (b) any breach of the representations and warranties
contained in Sections 4.1.12 and 4.1.13 hereof at any time; and (ii) Seller may
give notice of, and make a claim relating to, and shall be indemnified in
connection with: (a) any rights to indemnification pursuant to Section 10.2(g)
above at any time prior to the expiration of the appropriate statute of
limitations and any extensions thereof relating to claims under the Securities
Act and (b) any breach of the representations and warranties contained in the
last sentence of Section 5.1.8 hereof at any time. Anything to the contrary
contained herein notwithstanding, neither party shall be entitled to any
recovery from the other party with respect to any inaccuracy or breach of such
warranties or representations unless and until the amount of such Loss suffered,
sustained or incurred by the asserting party, or to which such party becomes
subject, by reason of such inaccuracy or breach, shall exceed $250,000 in the
aggregate (the "Threshold Loss"), at which time the asserting party shall be
entitled to indemnification for all Losses, including any amounts in respect of
the Threshold Loss. Indemnification for Purchaser's Losses shall be paid, at
Seller's option, in cash or by Seller's return of shares of the Common Stock of
Purchaser. Indemnification for Seller's Losses, shall be paid, at Purchaser's
option, in cash or shares of the Common Stock of Purchaser. In the event any
payment hereunder is made with shares of the Common Stock of Purchaser, the
value of such shares shall be equal to the Weighted Average Terayon Stock Price
on the day preceding the date on which such payment is made.
10.4 Notice and Opportunity to Defend. If there occurs an event which
either party asserts is an indemnifiable event pursuant to Sections 10.1 or 10.2
hereof, the party seeking indemnification (the "Indemnitee") shall notify the
party obligated to provide indemnification (the "Indemnitor") promptly. If such
event involves (a) any claim, or (b) the commencement of any action or
proceeding by a third person, the Indemnitee will give the Indemnitor written
notice of such claim or the commencement of such action or proceeding. Delay or
failure to so notify the Indemnitor shall only relieve the Indemnitor of its
obligations to the extent, if at all, that it is prejudiced by reasons of such
delay or failure. The Indemnitor shall have a period of 30 days within which to
respond thereto. If the Indemnitor accepts responsibility or does not respond
within such 30-day period, the Indemnitor shall be obligated to compromise or
defend, at its own expense and by counsel chosen by the Indemnitor and
reasonably satisfactory to the Indemnitee, such matter, and the Indemnitor shall
provide the Indemnitee with such assurances as may be reasonably required by the
Indemnitee to assure that the Indemnitor will assume and be responsible for the
entire liability at issue. If the Indemnitor does respond within such 30-day
period and rejects responsibility for such matter in whole or in part, the
Indemnitee shall be free to pursue, without prejudice to any of its rights
hereunder, such remedies as may be available to the Indemnitee under applicable
law. The Indemnitee agrees to cooperate fully with the Indemnitor and its
counsel in the defense against any such asserted liability. In any event, the
Indemnitee shall have the right to participate at its own expense in the defense
of such asserted liability. Any compromise of such asserted liability by the
Indemnitor shall require the prior written consent of the Indemnitee and until
such consent is obtained the Indemnitor shall continue the defense of such
asserted liability. If, however, the Indemnitee refuses its consent to a bona
fide offer of settlement which the Indemnitor wishes to accept, the Indemnitee
may continue to pursue such matter, free of any participation by the Indemnitor,
at the sole expense of
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the Indemnitee. In such event, the obligation of the Indemnitor to the
Indemnitee shall be equal to the lesser of (i) the amount of the offer of
settlement which the Indemnitee refused to accept plus the costs and expenses of
the Indemnitee prior to the date the Indemnitor notifies the Indemnitee of the
offer of settlement, and (ii) the actual out-of-pocket amount the Indemnitee is
obligated to pay as a result of the Indemnitee's continuing to pursue such
matter. The Indemnitor shall be entitled to recover from the Indemnitee any
additional expenses incurred by the Indemnitor as a result of the decision of
the Indemnitee to pursue such matter.
10.5 Reduction for Insurance. The amount which the Indemnitor is required
to pay to, for, or on behalf of the Indemnitee pursuant to this Article 10 shall
be reduced (including, without limitation, retroactively) by any insurance
proceeds actually recovered by or on behalf of the Indemnitee in reduction of
the related indemnifiable loss (the "Indemnifiable Loss"). Amounts required to
be paid, as so reduced, are hereinafter sometimes called an "Indemnity Payment".
If the Indemnitee shall have received, or if the Indemnitor shall have paid on
its behalf, an Indemnity Payment in respect of an Indemnifiable Loss and shall
subsequently receive, directly or indirectly, insurance proceeds (which
duplicate in whole or in part, the Indemnity Payment) in respect of such
Indemnifiable Loss, then the Indemnitee shall promptly pay to the Indemnitor the
amount of such insurance proceeds, or, if less, the amount of the Indemnity
Payment. The parties hereto agree that the foregoing shall not affect the
subrogation rights of any insurance companies making payments hereunder.
10.6 Defense of Third-Party Claims. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against
Purchaser or against any other Person) with respect to which any of Purchaser's
Indemnified Persons shall have the right to seek indemnification pursuant to
this Section 10, Purchaser shall have the right, at its election, to proceed
with the defense of such claim or Legal Proceeding on its own. If Purchaser so
proceeds with the defense of any such claim or Legal Proceeding:
(a) Seller shall indemnify Purchaser against all reasonable expenses
relating to the defense of such claim or Legal Proceeding;
(b) Purchaser shall have the right to settle, adjust or compromise
such claim or Legal Proceeding with the consent of Seller; provided, however,
that such consent shall not be unreasonably withheld.
Purchaser shall give Seller prompt notice of the commencement of any such Legal
Proceeding against Purchaser; provided, however, that any failure on the part of
Purchaser to so notify Seller shall not limit any of the rights of Purchaser's
Indemnified Persons under this Section 10 (except to the extent such failure
materially prejudices the defense of such Legal Proceeding).
ARTICLE 11
Miscellaneous
11.1 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the
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prevailing party shall be entitled to recover reasonable attorneys' fees, costs
and disbursements (in addition to any other relief to which the prevailing party
may be entitled).
11.2 Notices. All notices, requests, demands and other communications
given hereunder (collectively, "Notices") shall be in writing and personally
delivered, sent by facsimile or mailed by registered or certified mail, postage
prepaid, as follows:
(a) If to Purchaser at:
Terayon Communication Systems, Inc.
2952 Bunker Hill Lane
Santa Clara, CA 95054
Attn: Edward Lopez, General Counsel
Facsimile: (408) 727-7205
with a copy to:
Cooley Godward llp
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attn: Karyn S. Tucker
Facsimile: (415) 951-3699
If to Seller at:
Tyco Electronics Corporation
307 Constitution Drive
Menlo Park, CA 94025-1164
Attention: Associate General Counsel
Facsimile: (650) 361-5942
with a copy to:
Tyco International (US) Inc.
One Tyco Park
Exeter, NH 03833
Attention: General Counsel
Facsimile: (603) 778-7330
(b) All notices shall be deemed delivered when actually
received if personally delivered or sent by facsimile, or one business day after
having been deposited with an overnight delivery service or three business days
after having been placed in the mail, addressed in accordance with Sections
11.2(a) or 11.2.(b) hereof, as the case may be, provided that any notice sent by
facsimile must immediately be placed in the mail or deposited with an overnight
deliver service. Each of the parties shall hereafter notify the other in
accordance with this Section 11.2 of any change of address to which notice is
required to be mailed.
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1.1.3 Assignment and Amendment of Agreement . This Agreement shall be
binding upon the respective successors and assigns of the parties hereto. This
Agreement may be amended only by written agreement of the parties hereto, duly
executed by an authorized representative of each of the parties hereto.
Notwithstanding the forgoing, Purchaser may freely assign any or all of its
rights under this Agreement (including its indemnification rights under Section
10), in whole or in part, to any other Person without obtaining the consent or
approval of any other party hereto or of any other Person. None of the rights
hereunder may be assigned by Seller without prior written consent of Purchaser.
11.4 Remedies Cumulative; Specific Performance . The rights and remedies
of the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.
11.5 Waiver.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of
any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except
in the specific instance in which it is given.
11.6 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of California
(without giving effect to the conflict of laws principles).
11.7 Failure to Close. If for any reason this Agreement is terminated
prior to the Closing, Purchaser shall return to Seller all documents and other
information, including all originals and all copies thereof, theretofore
delivered to Purchaser by Seller. Purchaser shall not retain copies of any such
documents or other information, and shall not thereafter for a period of five
years disclose to any person for any purpose or use any information conveyed to
Purchaser in connection with the transactions contemplated by this Agreement,
except for such information which was: (a) possessed by Purchaser prior to the
disclosure thereof by Seller, as evidenced by documents in Purchaser's
possession; (b) disclosed to Purchaser by an independent third party without a
violation of any obligation of confidentiality on the part of such third party
to Seller; or (c) ascertainable from public or published information or trade
sources.
32.
<PAGE>
11.8 Further Assurances. Each party agrees that it will execute and
deliver, or cause to be executed and delivered, on or after the date of this
Agreement, all such other instruments and will take all reasonable actions as
may be necessary to transfer and convey the Purchased Assets to Purchaser, on
the terms herein contained, and to consummate the transactions herein contained
to effectuate the provisions and purposes hereof.
11.9 No Third Party Rights. This Agreement is not intended and shall not
be construed to create any rights in any parties other than Seller and Purchaser
and no person shall any rights as a third party beneficiary hereunder,
including, without limitation, any rights with respect to the provisions of
Section 6 hereof.
11.10 Waiver of Bulk Sales Laws. Subject to the provisions of Section 10.1
hereof, the parties hereto waive compliance with the provisions of any
applicable bulk sales laws.
11.11 Severability. The invalidity of any provision of this Agreement or
portion of a provision shall not affect the validity of any other provision of
this Agreement or the remaining portion of the applicable provision.
11.12 Counterparts. This Agreement may be executed simultaneously in
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11.13 Entire Agreement. This Agreement, including the schedules attached
hereto, constitutes the entire agreement between the parties and supersedes any
prior understandings, agreements, or representations by or among the parties,
written or oral, to the extent they related in any way to the subject matter
hereof; provided, however, that the Non-Disclosure Agreement between Purchaser
and Seller dated as of January 5, 2000 shall not be superseded by this Agreement
and shall remain in effect in accordance with its terms until the earlier of (a)
the Closing Date, or (b) the date on which such Non-Disclosure Agreement is
terminated in accordance with its terms.
11.14 Headings. The headings contained in this Agreement and in the
schedules attached hereto are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
11.15 Construction.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
33.
<PAGE>
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
34.
<PAGE>
In Witness Whereof, Seller and Purchaser have duly executed and delivered
this Amended and Restated Asset Purchase Agreement as of the day and year first
above written.
Terayon Communication Systems, Inc.
By: /s/ Zaki Rakib
__________________________________
Zaki Rakib
Chief Executive Officer
Tyco Electronics Corporation
By: /s/ Edward Federman
__________________________________
Edward Federman
Executive Vice President and Chief
Financial Officer
<PAGE>
Exhibit A
CERTAIN DEFINITIONS
For Purposes of the Agreement (including this Exhibit A):
Agreement. "Agreement" shall mean the Amended and Restated Asset Purchase
Agreement to which this Exhibit A is attached (including the Disclosure
Schedule), as it may be amended from time to time.
Business Employees. "Business Employees" shall mean all employees of the
Business, both salaried and hourly, who are employees of the Business on the
Closing Date.
Consent. "Consent" shall mean any approval, consent, ratification, permission,
waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral or other agreement, contract,
subcontract, lease, instrument, note, warranty, insurance policy, benefit plan
or legally binding commitment or undertaking of any nature.
Damages. "Damages" shall include any loss, damage, injury, decline in value,
liability, settlement, judgment, award, fine, penalty, Tax, fee (including
reasonable attorneys' fees), charge, cost (including costs of investigation) or
expense of any nature.
Disclosure Schedule. "Disclosure Schedule" shall mean the schedule (dated as of
the date of the Original Agreement) previously delivered to Purchaser on behalf
of Seller. Any disclosure in any Schedule of the Disclosure Schedule shall be
treated as an exception to each and all of the representations, warranties and
covenants of the Agreement to which they relate.
Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation, charge,
mortgage, security interest, encumbrance, claim, infringement, interference,
option, right of first refusal, preemptive right, community property interest or
restriction of any nature (including any restriction on the voting of any
security, any restriction on the transfer of any security or other asset, any
restriction on the receipt of any income derived from any asset, any restriction
on the use of any asset and any restriction on the possession, exercise or
transfer of any other attribute of ownership of any asset).
Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company).
Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Governmental Authorization. "Governmental Authorization" shall mean any: (a)
permit, license, certificate, franchise, permission, clearance, registration,
qualification or authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Body; or (b) right under
any Contract with any Governmental Body.
A-1.
<PAGE>
Governmental Body. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
Legal Proceeding. "Legal Proceeding" shall mean any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, material inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
Legal Requirement. "Legal Requirement" shall mean any federal, state, local,
municipal, foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
Material Adverse Effect. "Material Adverse Effect" means any change, effect or
circumstance that, individually or when taken together with all other changes,
effects or circumstances that have occurred prior to the date of determination
of the occurrence of the material adverse effect (considered together with all
other matters that would constitute exceptions to the representations and
warranties set forth in the Agreement or in Seller's compliance certificate but
for the presence of the "Material Adverse Effect" or other materiality
qualifications, or any similar qualifications, in such representations and
warranties), is materially adverse to the Purchased Assets or to the financial
condition or results of operation of the Business, except for any such changes,
effects or circumstances resulting from or arising in connection with (a) this
Agreement or the transactions contemplated by this Agreement of the announcement
hereof (including without limitation the resignation of any employees of Seller
employed in the Business as of the date of this Agreement), (b) any occurrence
or circumstance affecting the telecommunications industry generally, (c) any
change in economic, regulatory or political conditions in the United States, or
(d) any issue or condition otherwise disclosed to Purchaser in writing prior to
the date of this Agreement.
Original Agreement. "Original Agreement" shall mean the Asset Purchase
Agreement between the parties dated February 3, 2000.
Person. "Person" shall mean any individual, Entity or Governmental Body.
Representatives. "Representatives" shall mean officers, directors, employees,
agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
Securities Act. "Securities Act" shall mean the Securities Act of 1933, as
amended.
Seller Contract. "Seller Contract" shall mean the Sales Orders, Unfilled
Purchase Orders, Other Contracts, Personal Property Leases, Real Property Lease,
and Licenses and Permits.
A-2.
<PAGE>
Tax. "Tax" shall mean any tax (including any income tax, franchise tax, capital
gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem
tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff, duty (including any
customs duty), deficiency or fee, and any related charge or amount (including
any fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body.
Tax Return. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
Weighted Average Terayon Stock Price. "Weighted Average Terayon Stock Price"
shall be the average of the volume weighted average of the per share sale prices
of the Common Stock of Purchaser as reported on The Nasdaq National Market for
the ten consecutive trading days immediately prior to a specified date.
A-3.
<PAGE>
EXHIBITS
Exhibit A - Certain definitions
Exhibit B - Form of Assignment and Assumption of Liabilities Agreement
Exhibit C - Persons to sign Key Employment and Noncompetition Agreements
Exhibit D - Form of Key Employment Agreement
Exhibit E - Form of Noncompetition Agreement
Exhibit G-1 - Form of legal opinion of In-house Counsel to Seller
Exhibit G-2 - Form of legal opinion of Kramer Levin Naftalis & Frankel LLP
Exhibit H - Form of Transition Services Agreement
Exhibit I _ Form of legal opinion of Cooley Godward LLP
Exhibit J - Form of Resale Certificate
<PAGE>
EXHIBIT 2.4
SHARE PURCHASE AGREEMENT
This Share Purchase Agreement (this "Agreement") is made and entered into
as of March 26, 2000, by and among: Terayon Communication Systems, Inc., a
Delaware corporation ("Terayon"); Ultracom Communications Holdings (1995) Ltd.,
a company organized under the laws of the State of Israel (the "Company"); and
the persons whose names are set forth on the signature page attached hereto
(each, individually, a "Seller" and, collectively, the "Sellers" or the
"Shareholders"). Certain other capitalized terms used in this Agreement are
defined in Exhibit A.
Recitals
A. The Company is engaged principally in the development of chips for
data communications over the TV cable infrastructure for Custom Premises
Equipment, and its principal place of business is at 11 Harugey Hamalchut
Street, Tel Aviv, Israel.
B. The Sellers, collectively, own all the issued and outstanding shares
of the Company (the "Shares").
C. Terayon desires to acquire all of the Sellers' Shares and the Sellers
desire to sell such Shares to Terayon.
D. The Sellers and Terayon desire to make certain representations and
warranties and other agreements in connection with the transactions contemplated
hereby.
E. For accounting purposes, it is intended that the transaction
contemplated by this Agreement be treated as a "purchase."
F. This Agreement has been approved by the respective boards of directors
of Terayon and the Company.
Agreement
The parties to this Agreement agree as follows:
Section 1. Description of Transaction.
1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, on the Closing Date (as defined below), the Sellers shall sell,
transfer, assign, convey and deliver to Terayon, and Terayon shall purchase from
the Sellers all such Sellers' Shares, in each case, free and clear of all Liens.
The closing of the purchase and sale (the "Closing") shall take place at the
offices of Naschitz Brandes & Co., 5 Tuval Street, Tel Aviv, Israel at 10:00
a.m., on March [15], 2000 or on such later date (which is no later than 40
business days after the date hereof) on which all the conditions set forth in
Sections 6 and 7 have been satisfied or waived, or on such other date, time and
place as the parties may mutually agree
<PAGE>
(the "Closing Date"). At the Closing, the Sellers shall cause the Company to
deliver to Terayon one or more instruments representing the Sellers' Shares, and
Terayon shall (i) issue the Share Consideration (as defined below) to the
Sellers' Representative for distribution to the Sellers in accordance with the
column in Schedule A captioned "Share Consideration", (ii) pay the cash payment
to the Sellers' representative for distribution to the Sellers in accordance
with the column in Schedule A captioned "Cash Payment", and (iii) deposit the
Escrow Shares (as defined below) with the Escrow Agent, which amounts together
represent the aggregate portion of the Purchase Consideration (as defined below)
payable to the Sellers hereunder.
1.2 Further Assurances. If, at any time after the Closing Date, Terayon
shall consider or be advised that any deeds, bills of sale, assignments or
assurances or any other acts or things are reasonably necessary, desirable or
proper (a) to vest, perfect or confirm, of record or otherwise, in Terayon, its
right to, and title or interest in, the Sellers' Shares or (b) otherwise to
carry out the purposes of this Agreement, Terayon shall so advise the Sellers'
Representative in writing, and the Sellers thereupon shall execute and deliver
all such deeds, bills of sale, assignments and assurances and do all such other
acts and things reasonably necessary, desirable or proper to vest, perfect or
confirm its right, title or interest in, to or under the Sellers' Shares, and
otherwise to carry out the purposes of this Agreement.
1.3 Purchase Consideration. The consideration for the Sellers' Shares
and Vested Options (the "Purchase Consideration"), shall be as follows: Terayon
shall deliver to the Sellers' Representative for distribution to the Sellers,
the number of shares of Common Stock of Terayon (the "Terayon Shares" or the
"Share Consideration") having a value of (i) US$30,000,000 plus (ii)
US$2,270,000, which represents the Company's Net Cash as of March 1, 2000, plus
(iii) the aggregate exercise price which will have been paid upon exercise of
the Vested Options. Such number of Terayon Shares shall be calculated using the
closing price of Terayon Common Stock at the fifth business day prior to the
Closing. The Share Consideration may be increased pursuant to Section 5.6 below.
Of the Share Consideration, shares of Common Stock of Terayon with a value equal
to three million US dollars ($3,000,000) shall be deposited with the Escrow
Agent to be held in the Escrow Fund and shall be available to satisfy the
indemnification obligations as provided in Section 9 (the "Escrow Shares"). As
set forth in Section 1.4 below, Terayon shall be entitled to pay the Sellers
cash in an amount of up to two hundred and fifty thousand US Dollars ($250,000)
(the "Cash Payment") in lieu of such equal portion of the Share Consideration
set forth above. The Share Consideration (which includes the shares to be
delivered to the Sellers, the Escrow Shares and the shares to be delivered to
all holders of Vested Options as specified in Section 1.6 below) and the Cash
Payment shall constitute, collectively, the Purchase Consideration.
1.4 Method of Share Transfer. The Transfer of the Terayon Shares as set
forth in Section 1.3 above shall be made by Terayon to the Sellers'
Representative on the Closing Date. The Cash Payment made by Terayon to the
Sellers' Representative on the Closing Date shall be made by wire transfer of
immediately available funds to the account specified by the Sellers'
Representative in writing to Terayon at least two (2) business days prior to the
Closing Date (the "Account"). The Cash Payment shall reduce the Share
Consideration by such number of Terayon Shares, the value of which (calculated
in the manner set forth in Section 1.3 above with respect to the Share
Consideration) shall be equal to the Cash Payment.
<PAGE>
1.5 Accounting Treatment. For accounting purposes, the transaction
contemplated by this Agreement is intended to be treated as a "purchase."
1.6 Employee Options.
(a) There are currently outstanding and unexercised options to
acquire Ordinary Shares (the "Options") issued by the Company to employees,
directors and consultants listed in Schedule A (the "Option Holders"). The names
of the Option Holders and the number of Ordinary Shares covered by each Option
are set forth on Schedule A.
(b) At Closing, all Options that are vested as of the Closing Date
(the "Vested Options"), shall be exercised or canceled , and thereafter Terayon
shall grant to each Holder of Vested Options such number of options to purchase
Common Stock of Terayon ("Terayon Options"), fully vested, indicated opposite
such Option Holder's name on Schedule A. All Such Terayon Options shall have an
exercise price equal to the par value of the underlying Common Stock ($0.01),
and shall be exercisable at any time during the five (5) year period following
the Closing Date. Prior to the Closing, no Option Holder shall exercise or
transfer any Options.
(c) All Options that are not vested as of the Closing Date (the
"Unvested Options") shall be canceled and replaced with Terayon Options
provided, however, that the material terms (including the vesting schedule and
the exercise price with respect to such Terayon Options) shall be
substantially identical to the terms and conditions of the canceled and replaced
Unvested Options. If necessary, the Company shall cause any trustee holding such
Options to take appropriate action to facilitate and effect the above.
Notwithstanding the foregoing, in the event that the vesting of any Terayon
Option is accelerated upon the termination of any employment of holder of such
Terayon Option at any time prior to the first anniversary of the Closing in
accordance with the vesting schedule that would have applied to such holder's
Unvested Options, the Shares of Common Stock of Terayon underlying such Terayon
Options, less the exercise price thereof, shall be deducted from the Purchase
Consideration and Terayon shall be entitled to receive such shares from the
Escrow Shares.
(d) As soon as practicable following the date hereof and in any event
prior to the Closing, the Company shall secure the written agreement, in form
and substance reasonably acceptable to Terayon, of each Option Holder and
Warrant Holder to the terms and conditions of this Agreement (the "Option and
Warrant Holder Consent Letter and Counterpart Signature Page"). For the
avoidance of doubt, the total number of shares of Common Stock to be issued to
the Sellers and the Option and Warrant Holders hereunder shall be equal to the
Share Consideration.
Section 2. Representations and Warranties of the Company.
The Company represents and warrants, to and for the benefit of the
Indemnitees, as follows:
<PAGE>
2.1 Due Organization; Subsidiaries; Etc.
(a) The Company is duly organized and validly existing under the laws
of the State of Israel. The Company has all requisite corporate power and
authority to conduct its business in the manner in which its business is
currently being conducted and to own and use its assets in the manner in which
its assets are currently owned and used.
(b) Except as set forth in Part 2.1 of the Disclosure Schedule, the
Company has not conducted any business under or otherwise used, for any purpose
or in any jurisdiction, any fictitious name, assumed name, trade name or other
name, other than the name "Ultracom Communications Holdings (1995) Ltd."
(c) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a Material Adverse Effect
on the Company.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth (i) the
names of the members of the Company's board of directors, (ii) the names of the
members of each committee of the Company's board of directors, and (iii) the
names and titles of the Company's officers.
(e) The Company has two subsidiaries (the "Subsidiaries") both of
which are wholly owned by the Company: (i) Ultracom Communications (Israel) Ltd.
(the "Israeli Subsidiary"), a private Company duly incorporated and organized
and validly existing under the laws of the State of Israel, and (ii) Ultracom
Communications Inc. (the "Delaware Subsidiary"), a Delaware corporation duly
incorporated and organized and validly existing and in good standing under the
laws of Delaware.
(f) Ultracom Communications (Israel) Ltd. has not been active since
the end of fiscal year 1998, and all of its activities and rights and
obligations have been assigned to the Company.
(g) Except for the Subsidiaries, the Company does not own any
controlling interest in any Entity and the Company has never owned, beneficially
or otherwise, any shares or other securities of, or any direct or indirect
equity interest in, any Entity. The Company has not agreed and is not obligated
to make any future investment in or capital contribution to any Entity. The
Company has not guaranteed and is not responsible or liable for any obligation
of any of the Entities in which it owns or has owned any equity interest.
2.2 Articles of Association and Memorandum of Association; Records. The
Company has delivered to Terayon accurate and complete copies of: (1) the
Memorandum of Association and Articles of Association of the Company and each of
the Subsidiaries, including all amendments thereto; (2) the stock records of the
Company and the Subsidiaries; and (3) the minutes and other records of the
meetings and other proceedings (including any actions taken by written consent
without a meeting) of the stockholders of the Company, the board of directors of
the Company and all committees of the board of directors of each of the Company
and the Subsidiaries. There have been no formal meetings or other proceedings
of the stockholders of the Company, the board of directors of the Company or any
committee of
<PAGE>
the board of directors of the Company or any of the Subsidiaries, that are not
fully reflected in such minutes or other records. Except as set forth in Part
2.2 of the Disclosure Schedule, there has not been any violation of any of the
provisions of the Company's Articles of Association or Memorandum of
Association, nor has the Company taken any action that is inconsistent with any
resolution adopted by the Company's stockholders, the Company's board of
directors or any committee of the Company's board of directors, which would have
a Material Adverse Effect on the Company. Except as set forth in Part 2.2 of the
Disclosure Schedule, the books of account, stock records, minute books and other
records of the Company are accurate, up-to-date and complete in all material
respects, and have been maintained in accordance with prudent business
practices.
2.3 Capitalization. The authorized share capital of the Company
immediately prior to the Closing is 415,500 New Israeli Shekels, consisting of
(i) 23,304,373 Ordinary Shares, NIS 0.01 nominal value per share, of which
15,387 shares are issued and outstanding, (ii) 400,000 Series A Preferred
Shares, NIS 0.01 nominal value per share, of which 400,000 shares are issued and
outstanding, (iii) 443,333 Series B Preferred Shares, NIS 0.01 nominal value per
share, of which 409,998 shares are issued and outstanding, (iv) 65,000 Series C
Preferred Shares, NIS 0.01 nominal value per share, none of which are issued,
(v) 15,250,000 Series D Preferred Shares, NIS 0.01 nominal value per share, of
which 14,608,061 shares are issued and outstanding and (vi) 2,087,294 Series D1
Preferred Shares, NIS 0.01 nominal value per share, of which 2,087,294 shares
are issued and outstanding. The issued and outstanding share capital of the
Company, on a fully diluted and as-converted basis taking into consideration all
convertible or exchangeable securities and other interests in the Company is set
forth in Part 2.3 of the Disclosure Schedule. Except as set forth in Part 2.3 of
the Disclosure Schedule, at the Closing Date, there will not be any outstanding
or authorized subscriptions, options, warrants, calls, rights, commitments,
convertible securities, or any other agreements of any character directly or
indirectly obligating the Company to issue any additional shares or any
securities convertible into, or exchangeable for, or evidencing the right to
subscribe for, any shares.
2.4 Financial Statements.
(a) The Company has delivered to Terayon the following financial
statements and notes (collectively, the "Company Financial Statements"):
(i) The audited balance sheets of the Company as of December 31,
1998, 1997 and 1996, and the related audited statements of operations,
statements of stockholders' equity and statements of cash flows of the Company
for the years then ended, together with the notes thereto and the unqualified
report and opinion of a recognized firm of independent certified accountants
relating thereto; and
(ii) The unaudited balance sheet of the Company as of December
31, 1999 (the "Unaudited Balance Sheet"), and the related unaudited statements
of operations, statements of stockholders' equity and statements of cash flows
of the Company for the year then ended.
(b) The Company Financial Statements are accurate and complete in all
material respects and present fairly the financial position of the Company as of
the respective
<PAGE>
dates thereof and the results of operations and (in the case of the financial
statements referred to in Section 2.4(a)(i)) cash flows of the Company for the
periods covered thereby. The Company Financial State have been prepared in
accordance with generally accepted accounting principles consistently applied in
Israel throughout the periods covered (except that the financial statements
referred to in Section 2.4(a)(ii) do not contain footnotes and are subject to
normal and recurring year-end audit adjustments, which will not, individually or
in the aggregate, be material in magnitude) and comply with the requirements of
all applicable Israeli regulations.
(c) Except as set forth in Part 2.2 of the Disclosure Schedule, all
proper and necessary books of account, minute books, registers and records have
been maintained by the Company, are in its possession and contain accurate
information relating to all material transactions to which the Company has been
a party, except where the failure to maintain such books of account, minute
books, registers and records would not have a Material Adverse Effect on the
Company.
(d) A complete list of the Company's debts and loan facilities as of
December 31, 1999, is set forth in Part 2.4(d) of the Disclosure Schedule.
2.5 Absence of Changes. Except as set forth in Part 2.5 of the
Disclosure Schedule, since December 31, 1999:
(a) there has not been any material adverse change in the Company's
business, prospects, operations, assets, liabilities, debts, work force or its
condition (financial or otherwise) and no event has occurred that will, or could
reasonably be expected to, have a Material Adverse Effect on the Company;
(b) there has not been any material loss, damage or destruction to,
or any material interruption in the use of, any of the Company's assets (whether
or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance of
(i) any capital stock or other security, (ii) any option or right to acquire any
capital stock or any other security or (iii) any instrument convertible into or
exchangeable for any capital stock or other security;
(e) the Company has not amended or waived any of its rights under, or
permitted the acceleration of vesting under (i) any provisions of employee
option plans (written or oral), (ii) any provision of any agreement evidencing
any outstanding Option or Warrant, or (ii) any restricted share purchase
agreement;
(f) there has been no amendment to the Company's Articles of
Association or Memorandum of Association, and the Company has not effected or
been a party to any Acquisition Transaction, recapitalization, reclassification
of shares, stock split, reverse stock split or similar transaction;
<PAGE>
(g) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any Entity other than the Subsidiaries;
(h) the Company has not made any capital expenditure which alone, or
as a part of a series of capital expenditures made on behalf of the Company
since December 31, 1999, exceeds $25,000.
(i) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or would
constitute a Material Agreement (as defined in Section 2.10(a)), or (ii) amended
or prematurely terminated, or waived any material right or remedy under, any
such Contract;
(j) the Company has not (i) acquired, leased or licensed any right or
other asset from any other Person, (ii) sold or otherwise disposed of, or leased
or licensed, any right or other asset to any other Person, or (iii) waived or
relinquished any right, except for immaterial rights or other immaterial assets
acquired, leased, licensed or disposed of in the ordinary course of business and
consistent with the Company's past practices;
(k) the Company has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness;
(l) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with the Company's past practices;
(m) the Company has not (i) lent money to any Person, or (ii)
incurred or guaranteed any indebtedness for borrowed money.
(n) the Company has not (i) established or adopted any Employee
Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar payment
to, or increased the amount of the wages, salary, commissions, fringe benefits
or other compensation or remuneration payable to, any of its directors, officers
or employees, or (iii) hired any new employees;
(o) there has been no resignation or termination of employment of any
officer or key employee of the Company;
(p) the Company has not changed any of its methods of accounting or
accounting practices in any respect;
(q) the Company has not made any Tax election;
(r) the Company has not commenced or settled any Legal Proceeding;
(s) the Company has not entered into any transaction or taken any
other action outside the ordinary course of business or inconsistent with its
past practices; and
(t) the Company has not agreed or committed to take any of the
actions
<PAGE>
referred to in clauses "(c)" through "(s)" above.
2.6 Properties and Assets. Full and accurate details of the Company's
material properties and assets are contained in Part 2.6 of the Disclosure
Schedule. Except as disclosed in Part 2.6 of the Disclosure Schedule or in the
notes to the Company Financial Statements, the Company has good and marketable
title to, or a license for the designated use of, its assets including without
limitation those reflected in the Company Financial Statements, free and clear
of any right, interest or equity of any individual or entity (including any
right to acquire, option, or right of preemption) or any mortgage, charge,
pledge, lien, or assignment, or any other encumbrance or security interest or
arrangement of whatsoever nature over or in the relevant property ("Security
Interests"). With respect to the assets that are leased, the Company is in
compliance with all material provisions of such leases, such leases are valid
and binding, and, to the best of its knowledge, the Company holds leasehold
interests in such assets free and clear of all Security Interests, except for
Security Interests that, both individually and in the aggregate with all other
exceptions to any of the representations in this Section 2 which are not
specified in the Disclosure Schedule, would not have a material adverse effect
on the Company.
2.7 Bank Accounts; Receivables.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Company as of December 31, 1999. Except as set forth
in Part 2.7(b) of the Disclosure Schedule, all existing accounts receivable of
the Company (including those accounts receivable reflected on the Unaudited
Balance Sheet that have not yet been collected and those accounts receivable
that have arisen since December 31, 1999 and have not yet been collected) (i)
represent valid obligations of customers of the Company arising from bona fide
transactions entered into in the ordinary course of business, (ii) are current
and will be collected in full when due, without any counterclaim or set off (net
of an allowance for doubtful accounts not to exceed $25,000 in the aggregate).
2.8 Equipment; Leasehold.
(a) All material items of equipment and other tangible assets owned
by or leased to the Company are adequate for the uses to which they are being
put, are in good condition and repair (ordinary wear and tear excepted) and are
adequate for the conduct of the Company's business in the manner in which such
business is currently being conducted.
(b) The Company does not own any real property or any interest in
real property, except for the leasehold created under the real property lease
identified in Part 2.10 of the Disclosure Schedule.
2.9 Intellectual Property and Other Intangible Assets.
(a) As used herein, the term "Intellectual Property" shall mean all
<PAGE>
registered patents, designs and trademarks, all applications for registration
thereof, and all computer programs including, but not limited to, computer
programs embodied in semiconductor chips, and related flow-charts and updates,
and any data relating thereto, whether in object or source code form,
developed, or used in connection with the business of the Company, and all
hardware, algorithms, utilities flowcharts, documentation, processes,
formulations, experimental methods, or results, descriptions, business or
scientific plans, customer lists and any other written, printed or
electronically stored materials or information relating thereto, including
specifications, pricing plans, market research or data, potential marketing
strategies, prospective users and distribution channels, engineering drawings,
information concerning specialized suppliers, specifications for products and/
or processes and/or software, test protocols, and all other materials relating
thereto, and copies thereof in any storage media, and all other works of
authorship, inventions, concepts, ideas, and discoveries developed, discovered,
conceived, created, made, or reduced to practice by the Company and all
intellectual property rights therein, including, without limitation, all
copyrights in the United States, Israel and elsewhere, including all rights of
registration and publication, rights to create derivative works, and all other
rights incident to copyright ownership, for the residue now unexpired of the
present term of any and all such copyrights and any term thereafter granted
during which such information is entitled to copyright, and all inventions
(patentable or unpatentable), trade secrets, know-how, ideas and confidential
information embodied or reflected in such information, for the longest period of
protection accorded to such interests under applicable law.
(b) Except as specifically set forth in Part 2.9(b) of the Disclosure
Schedule, the Company (i) owns or has the right to use, free and clear of all
liens, claims and restrictions, the Intellectual Property used in the conduct of
its business, and (ii) to the best knowledge of the Company, such Intellectual
Property does not infringe upon or violate any right, lien, or claim of others,
including without limitation of its present or former employees or the former
employers of all such persons. Except as set forth in Part 2.9(b) of the
Disclosure Schedule, the Company is not currently obligated or under any
liability whatsoever to make any payments by way of royalties, fees or otherwise
to any owner or licensee of, or other claimant to, any patent, trademark,
service mark, trade name, copyright or other intangible asset, with respect to
the use thereof or in connection with the conduct of its business or otherwise.
(c) Except as specifically set forth in Part 2.9(c) of the Disclosure
Schedule, any and all Intellectual Property of any kind which has been developed
or, is currently being developed, by any of the Company or any employees of the
Company shall be the property solely of the Company. The Company has taken
security measures to protect the secrecy, confidentiality and value of all the
Intellectual Property, which measures are reasonable and customary in the
industry in which the Company operates. Each employee, consultant and
contractor of the Company who, either alone or in concert with others,
developed, invented, discovered, derived, programmed or designed the
Intellectual Property, or who has knowledge of or access to information about
the Intellectual Property, has entered into a written non-disclosure agreement
with the Company regarding ownership and confidentiality of the Intellectual
Property, in a form reasonably satisfactory to the Company.
(d) Except as specifically set forth in Part 2.9(d) of the Disclosure
Schedule, neither the Company nor, to the best knowledge of the Company, any of
its
<PAGE>
directors, officers or employees has received any communications alleging that
the Company has violated or by conducting its business as currently conducted,
would violate, any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person or
entity. Except as set forth in Part 2.9(d) of the Disclosure Schedule, neither
the Company nor, to the best knowledge of the Company, any of its directors,
officers or employees has received notice nor is it otherwise aware of any
infringement of or conflict with asserted rights of others, with respect to any
of the Intellectual Property, or of any facts, or assertion of any facts, which
would render any of the Intellectual Property invalid or unenforceable.
(e) To the best knowledge of the Company, none of the Company's
employees, officers or directors are obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such persons' best efforts to promote the
interests of the Company or that would conflict with the Company's business as
conducted and as proposed to be conducted. To the best knowledge of the Company,
neither the execution nor delivery of the Agreement, nor the carrying on of the
Company's business by employees of the Company, nor the conduct of the Company's
business as proposed to be conducted, will materially conflict with or result in
a material breach of the terms, conditions or provisions of, or constitute a
material default under, any contract, covenant or instrument under which any of
the Company's employees, officers or directors is now obligated. It is not, and
will not become, necessary to utilize any inventions, and specifically, patent
applications, of any of the Company's employees (or people the Company currently
intends to hire) made prior to their employment by the Company other than those
that have been assigned to the Company pursuant to valid and legally binding
instruments of assignment.
(f) To the best knowledge of the Company, the Intellectual Property
owned or licensed by the Company constitutes all of the Intellectual Property
reasonably necessary to enable the Company to conduct its business in the manner
in which such business has been and is being conducted. Except as set forth in
Part 2.9(f) of the Disclosure Schedule, the Company has not licensed any of the
Company Intellectual Property to any Person on an exclusive basis, nor has the
Company entered into any covenant not to compete or Contract limiting its
ability to exploit fully any of its Intellectual Property or to transact
business in any market or geographical area or with any Person.
(g) The Company's products (the "Products") have not and will not
experience fatal errors and/or invalid and/or incorrect results as a result of
the change of year from 1999 to 2000; provided, that the Products receive
correct and properly formatted date inputs from all software and hardware that
exchange data with or provide data to the Products.
2.10 Agreements and Trading.
(a) All agreements for the provision of goods or services in excess
of $50,000, or which are essential for the Company's conduct of its business, to
which the Company is a party (including instruments, leases, licenses,
arrangements, or undertakings of any nature, written or oral) (the "Material
Agreements") are listed in Part 2.10(a) of the
<PAGE>
Disclosure Schedule.
(b) To the best of the Company's knowledge, and except as set forth
in Part 2.10(c) of the Disclosure Schedule, all the Material Agreements are in
full force and effect and the Company has no knowledge of the invalidity of or
grounds for rescission, avoidance or repudiation of any of the Material
Agreements and, except as set forth in Part 2.10(b) of the Disclosure Schedule,
the Company has not received any notice of any intention to terminate any such
agreement.
(c) To the best of the Company's knowledge and other than as set
forth in Part 2.10(c) of the Disclosure Schedule, the Company has performed in
all respects all of their material obligations under the Material Agreements,
except for such non performance that, both individually and in the aggregate
with all other exceptions to any of the representations in this Section 2 which
are not specified on schedules hereto, would not have a Material Adverse Effect
on the Company. To the best of the Company's knowledge, and except as set forth
in Part 2.10(c) of the Disclosure Schedule, no party to any of the Material
Agreements is in breach or in default in any respect of its material obligations
thereunder. Except as set forth in Part 2.10(c) of the Disclosure Schedule, no
party to any of the material Agreements has made a claim of which the Company is
aware to the effect that the Company has failed to perform a material obligation
thereunder.
(d) Except as set forth in Part 2.10(d) of the Disclosure Schedule,
there are no agreements, promises or understandings in force restricting the
competitive freedom of the Company to provide and take goods and services by
such means and from and to such individuals or entities as it may from time to
time think fit.
(e) The Company has delivered to Terayon accurate and complete copies
of all written Material Agreements identified in Part 2.10(a) of the Disclosure
Schedule, including all amendments thereto. Part 2.10(a) of the Disclosure
Schedule provides an accurate description of the terms of each Material
Agreement that is not in written form. Except as set forth in Parts 2.10(b) and
2.10(c) of the Disclosure Schedule, each Material Agreement identified in Part
2.10(a) of the Disclosure Schedule is valid and in full force and effect, and,
to the Company's best knowledge, is enforceable by the Company in accordance
with its terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(f) Except as set forth in Part 2.10(c) of the Disclosure Schedule:
(i) the Company has not violated or breached, or committed any
material default under, any Material Agreement, and, to the Company's best
knowledge, no other Person has violated or breached, or committed any material
default under, any Material Agreement;
(ii) no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could reasonably
be expected to, (A) result in a material violation or breach of any of the
provisions of any Material Agreement, (B) give any Person the right to declare a
material default or exercise any remedy
<PAGE>
under any Material Agreement, (C) give any Person the right to accelerate the
maturity or performance of any Material Agreement, or (D) give any Person the
right to cancel, terminate or modify any Material Agreement;
(iii) the Company has not received any notice or other
communication regarding any actual or possible material violation or breach of,
or material default under, any Material Agreement; and
(iv) the Company has not waived any of its material rights under
any Material Agreement.
(g) No Person is renegotiating, or has a right pursuant to the terms
of any Material Agreement to re-negotiate, any amount paid or payable to the
Company under any Material Agreement or any other material term or provision of
any Material Agreement.
(h) The Material Agreements identified in Part 2.10(a) of the
Disclosure Schedule collectively constitute all of the Contracts necessary to
enable the Company to conduct its business in the manner in which its business
is currently being conducted.
(i) Part 2.10(i) of the Disclosure Schedule identifies and provides a
brief description of each proposed Contract as to which any bid, offer, award,
written proposal, term sheet or similar document has been submitted or received
by the Company regarding the business of the Company since January 1, 1999, or
which is otherwise still pending.
(j) Part 2.10(j) of the Disclosure Schedule provides an accurate
description and breakdown of the Company's backlog under Material Agreements.
2.11 Capital Expenditure and Commitments. Except as disclosed in Part
2.11 of the Disclosure Schedule or in the Company Financial Statements:
(a) The Company has not undertaken to make any material capital
commitment, expenditure or purchase in excess of $50,000.
(b) The Company is not a party to any material hire, hire purchase,
credit sale or conditional sale agreement or any contract providing for payment
on deferred terms in respect of assets purchased by the Company.
(c) The Company is not in breach of any material obligation under any
material deed, agreement or transaction to which it is a party, and to the best
of its knowledge, no third party that has transacted business with the Company
is in breach of any of its material obligations under any material deed,
agreement, or transaction with the Company to which it is a party.
(d) The Company is not aware of any security interest on, over or
affecting the issued or unissued share capital of the Company and there is no
agreement or commitment to give or create any such Security Interest and no
claim has been made by any Person to be entitled to any such Security Interest.
(e) The Company has not given any guarantee, indemnity or security
for,
<PAGE>
or otherwise agreed to become directly or contingently liable for, any
obligation of any other individual or entity, except in its ordinary course of
business, and to the best of its knowledge, no individual or entity has given
any guaranty of or security for any of the Company's obligations.
(f) There are in force no powers of attorney given by the Company
with respect to any asset or business of the Company, and no individual or
entity, as agent, representative, distributor or otherwise, is entitled or
authorized to bind or commit the Company to any obligation not in the ordinary
course of the Company's business.
(g) The Company has not applied for or received any grant or
allowance from any governmental authority.
2.12 Compliance with Legal Requirements.
(a) To the best of its knowledge, information and belief, and except
as set forth in Part 2.12(a) of the Disclosure Schedule, the Company has carried
on its business and affairs in all material respects in accordance with all
applicable laws and regulations, to the extent material to the Company's
business or assets, including, inter alia, in accordance with the provisions of
the Israel Companies Ordinance [New Version], 1983, and in accordance with the
Company's Memorandum of Association and Articles of Association, and, the
Company is not aware of any material violation or default with respect to any
statute, regulation, order, decree, or judgment of any court or any governmental
agency which could have a material adverse effect upon the Company's assets or
business, and the Company has been granted and there are now in force all
material approvals, consents, and licenses necessary for the carrying on of its
business in the places and in the manner in which it is now carried on, and,
except as set forth in Part 2.12(a) of the Disclosure Schedule, the Company is
not aware of any circumstances which evidence or indicate that any such
approvals, consents or licenses, to the extent material to the Company's
business or assets, are likely to be suspended, canceled, revoked or not
renewed.
(b) The copy of each of the Memorandum of Association and Articles of
Association of the Company provided to Terayon, is complete, true and accurate
and has not been amended or repealed.
(c) To the best of the Company's knowledge, and except as
specifically set forth in Part 2.12(c) of the Disclosure Schedule, all documents
required to be filed with or delivered to the Registrar of Companies in respect
of the Company have been properly delivered in a timely manner, except for such
non compliance that, both individually and in the aggregate with all other
exceptions to any of the representations in this Section 2 which are not
specified on schedules hereto, would not have a Material Adverse Effect on the
Company.
2.13 Governmental Authorizations. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to Terayon accurate and complete copies of all
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule.
The Governmental Authorizations identified in Part 2.13 of the Disclosure
Schedule are valid and in full force and effect, and
<PAGE>
collectively constitute all Governmental Authorizations necessary to enable the
Company to conduct its business in the manner in which its business is currently
being conducted. Except as set forth in Part 2.13 of the Disclosure Schedule,
the Company is, and at all times since December 31, 1997 has been, in
substantial compliance with the terms and requirements of the respective
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule.
Since December 31, 1997, the Company has not received any notice or other
communication from any Governmental Body regarding (a) any actual or possible
violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization.
2.14 Tax Matters.
(a) To the best of the Company's knowledge, except as specifically
set forth in Part 2.14(a) of the Disclosure Schedule, the Company Financial
Statements make full provisions for all Taxes for which the Company was then or
thereafter became or may hereafter become liable or accountable in respect of or
by reference to any income, profit, receipt, gain, transaction, agreement,
distribution or event which was earned, accrued, received, or realized, entered
into except as specifically set forth in Part 2.14(a) of the Disclosure
Schedule, paid, made or accrued on or before December 31, 1998, and the Company
promptly paid or fully provided in its books of account for all Taxes for which
it has or may hereafter become liable or accountable in the period from the date
of its incorporation to the Closing Date.
(b) To the best of the Company's knowledge, and except as set forth
in Part 2.14(b) of the Disclosure Schedule, the Company has at all times and
within the requisite time limits promptly, fully and accurately observed,
performed and complied with all material obligations or conditions imposed on
it, or to which any claim, deduction, allowance or relief made, claimed by or
afforded to it was made subject, under any legislation relating to Taxes, except
for such non compliance that, both individually and in the aggregate with all
other exceptions to any of the representations in this Section 2 which are not
specified in the Disclosure Schedule, would not have a Material Adverse Effect
on the Company.
(c) Except as specifically set forth in Part 2.14(c) of the
Disclosure Schedule, the Company is not aware of any circumstances which will or
may, whether by lapse of time or the issue of any notice of assessment or
otherwise, give rise to any dispute with any relevant Government Body in
relation to its liability or accountability for Taxes, any claim made by it, any
relief, deduction, or allowance afforded to it, or in relation to the status or
character of the Company or any of its enterprises under or for the purpose of
any provision of any legislation relating to Taxes, except for such dispute or
claim that, both individually and in the aggregate, would not have a Material
Adverse Effect on the Company.
2.15 Employees.
(a) Full particulars of all the officers, employees and consultants
of the Company (each, an "Employee"), including their present compensation
packages, are disclosed in Part 2.15(a) of the Disclosure Schedule, which
particulars show all material benefits including, without limitation, salaries,
directors' fees, social benefits, bonuses,
<PAGE>
commissions, profit shares, automobile, reimbursement of expenses and benefits
in kind ("Benefits") payable or which the Company is bound to provide (whether
now or in the future) to each officer, employee and consultant of the Company
and are true, accurate and complete.
(b) Except as set forth in Part 2.15(b) of the Disclosure Schedule,
no key employee of the Company has been dismissed in the last six months or has
given notice of termination of his employment.
(c) Part 2.15(c) of the Disclosure Schedule includes the form of
contracts under which substantially all the Employees of the Company at the date
hereof are engaged.
(d) Subject to the provisions of any applicable Israeli law and
binding custom and except as set forth in Part 2.15(a) of the Disclosure
Schedule, there are no agreements or arrangements (whether legally enforceable
or not) for the payment of any pensions, allowances, lump sums, or other like
benefits on retirement or on death or termination or during periods of sickness
or disablement for the benefit of any officer or former officer or employee or
former employee of the Company or for the benefit of the dependents of any such
individual in operation at the date hereof.
(e) Except as set forth in Part 2.15(e) of the Disclosure Schedule,
all the Benefits to which any officer or former officer or employee or former
employee of the Company is or may be entitled including, inter alia, severance
pay, leave and health, have been paid or adequately provided for in the Company
Financial Statements.
(f) A complete list of all of the shares and options granted to or
purchased by employees, directors, officers or consultants of the Company, and
their respective vesting schedules, is set forth in Part 2.15(f) of the
Disclosure Schedule. Except as set forth therein, the Company does not operate
any share incentive scheme, share option scheme or profit sharing scheme for the
benefit of any of its directors, officers, employees or consultants.
(g) Neither the execution, delivery or performance of this Agreement,
nor the consummation of any of the other transactions contemplated by this
Agreement, will result in any payment (including any bonus, golden parachute or
severance payment) to any current or former Employee or director of the Company
(whether or not under any Plan), or materially increase the benefits payable
under any Plan, or result in any acceleration of the time of payment or vesting
of any such benefits, except as provided therein or by law.
(h) Part 2.15(a) of the Disclosure Schedule contains a list of all
salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions.
(i) Part 2.15(i) of the Disclosure Schedule identifies each Employee
who is not fully available to perform work because of disability or other leave
and sets forth the basis of such leave and the anticipated date of return to
full service.
(j) Except as set forth in Part 2.15(j) of the Disclosure Schedule,
the
<PAGE>
Company is in compliance in all material respects with all applicable Legal
Requirements and Contracts relating to employment, employment practices, wages,
bonuses and terms and conditions of employment, including employee compensation
matters.
(k) Except as set forth in Part 2.15(k) of the Disclosure Schedule,
the Company is not aware of any organizational campaigns, petitions or other
unionization activities seeking recognition of a collective bargaining unit
which could affect the Company; nor is the Company aware of any controversies,
strikes, slowdowns or stoppages pending or threatened between the Company and
any of its employees. To the Company's best knowledge, the consummation of any
of the transactions contemplated by this Agreement will not have a material
adverse effect on the Company's labor relations, and none of the Company's key
employees has notified the Company of any intention to terminate his or her
employment with the Company.
2.16 Environmental Matters. The Company is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that the Company is not in
compliance with any Environmental Law, and, to the Company's best knowledge,
there are no circumstances that may prevent or interfere with the Company's
compliance with any Environmental Law in the future. To the Company's best
knowledge, no current or prior owner of any property leased or controlled by the
Company has received any notice or other communication (in writing or
otherwise), whether from a Government Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or the Company is not
in compliance with any Environmental Law with respect to such property. All
Governmental Authorizations currently held by the Company pursuant to
Environmental Laws are identified in Part 2.16 of the Disclosure Schedule. (For
purposes of this Section 2.16: (i) "Environmental Law" means any federal,
state, local or foreign Legal Requirement relating to pollution or protection of
human health or the environment (including ambient air, surface water, ground
water, land surface or subsurface strata), including any law or regulation
relating to emissions, discharges, releases or threatened releases of Materials
of Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern; and (ii) "Materials of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products and any other substance that is now regulated
by any Environmental Law or that is otherwise a danger to health, reproduction
or the environment.).
2.17 Insurance.
(a) Full and accurate details of the Company's insurance policies are
contained in Part 2.17(a) of the Disclosure Schedule, including such policies as
are required under the Company's agreements with its customers.
(b) The Company has the benefit of customary insurance policies
against all risks and losses usually insured against by companies carrying on
the same or a similar
<PAGE>
business, subject to customary exclusions, and (without prejudice to the
generality of the foregoing) for the full replacement or reinstatement value of
all its assets of an insurable nature and against accident, damage, injury,
third party loss (including product liability) and loss of profits with a well
established and reputable insurer.
(c) Except as specifically set forth in Part 2.17(c) of the
Disclosure Schedule, the Company has not done anything or suffered any damage
which has rendered or might render any policies of insurance taken out by it
void or voidable or which might result in an increase in premiums and the
Company has complied with all conditions attached to such policies.
(d) There is no claim outstanding under any of such policies nor, to
the best of the Company's knowledge, are there any circumstances likely to give
rise to such a claim.
2.18 Related Party Transactions. Except as set forth in Part 2.18 of the
Disclosure Schedule: (a) no Related Party has, and no Related Party has at any
time since December 31, 1997 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of the Company; (b)
no Related Party is, or has at any time since December 31, 1997 been, indebted
to the Company; (c) since December 31, 1997, no Related Party has entered into,
or has had any direct or indirect financial interest in, any Material Agreement,
transaction or business dealing involving the Company; (d) no Related Party is
competing, or has at any time since December 31, 1997 competed, directly or
indirectly, with the Company; and (e) no Related Party has any claim or right
against the Company (other than rights under Options and rights to receive
compensation for services performed as an employee of the Company). (For
purposes of this Section 2.18 each of the following shall be deemed to be a
"Related Party": (i) the Seller and any person who owns an aggregate of five
percent (5%) or more of the capital stock of the Seller; (ii) each individual
who is, or who has at any time since December 31, 1997 been, an officer of the
Company; (iii) each member of the immediate family of each of the individuals
referred to in clauses '(i)' and '(ii)' above; and (iv) any trust or other
Entity (other than the Company) in which any one of the individuals referred to
in clauses '(i)' '(ii)' and '(iii)' above holds (or in which more than one of
such individuals collectively hold), beneficially or otherwise, a material
voting, proprietary or equity interest.)
2.19 Legal Proceedings; Orders.
(a) As of three days prior to the date hereof and three days prior to
the Closing Date, except as set forth in Part 2.19 of the Disclosure Schedule
there is no, nor will there have been any pending Legal Proceeding, and, to the
Company's best knowledge, no Person has threatened to commence any Legal
Proceeding: (i) that involves the Company or any of the assets owned or used by
the Company or any Person whose liability the Company has or may have retained
or assumed, either contractually or by operation of law; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, any of the transactions contemplated by this
Agreement. To the Company's best knowledge, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that will, or that could
reasonably be expected to, give rise to or serve as a basis for the commencement
of any such Legal Proceeding.
<PAGE>
(b) Except as set forth in Part 2.19 of the Disclosure Schedule, no
Legal Proceeding has ever been commenced by or has ever been pending against the
Company.
(c) As of three days prior to the date hereof and three days prior to
the Closing Date, there is no order, writ, injunction, judgment or decree to
which the Company, or any of the assets owned or used by the Company, is
subject. To the Company's best knowledge, no officer or other employee of the
Company is subject to any order, writ, injunction, judgment or decree that
prohibits such officer or other employee from engaging in or continuing any
conduct, activity or practice relating to the Company's business.
2.20 Authority; Binding Nature of Agreement. Except as set forth in Part
2.21 of the Disclosure Schedule, the Company has the absolute and unrestricted
right, power and authority to enter into and to perform its obligations under
this Agreement; and the execution, delivery and performance by the Company of
this Agreement have been duly authorized by all necessary action on the part of
the Company and its board of directors. This Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other remedies.
2.21 Non-Contravention; Consents. Except as set forth in Part 2.21 of the
Disclosure Schedule, neither (1) the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement, nor (2)
the consummation of any of the transactions contemplated by this Agreement, will
directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the Company's Articles of Association or Memorandum of
Association, or (ii) any resolution adopted by the Company's shareholders, the
Company's board of directors or any committee of the Company's board of
directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction, judgment
or decree to which the Company, or any of the assets owned or used by the
Company, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the Company's business
or to any of the assets owned or used by the Company;
(d) contravene, conflict with or result in a material violation or
breach of, or result in a material default under, any provision of any Material
Agreement that is or would constitute a Material Agreement, or give any Person
the right to (i) declare a default or exercise any remedy under any such
Material Agreement, (ii) accelerate the maturity or performance of any such
Material Agreement, or (iii) cancel, terminate or modify any such
<PAGE>
Material Agreement; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of the Company).
Except as set forth in Part 2.21 of the Disclosure Schedule, the Company is not
and will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (i) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, or (ii) the consummation of any of the
transactions contemplated by this Agreement.
2.22 No Conflicting Interest. Except as set forth in Part 2.22 of the
Disclosure Schedule, the Company is not aware that any director, officer, key
employee or Related Party of the Company has any interest in any corporation,
partnership, or other entity that is engaged in a business which is in
competition with that of the Company, is a supplier or customer of the Company,
or is a party to any contract which may have any effect on the business of the
Company.
2.23 Brokers. Except as set forth in Part 2.23 of the Disclosure Schedule,
no broker, finder or investment banker, for which the Company or the Seller may
be liable, is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Company or any of its directors, officers,
employees or agents.
2.24 Claims from Sellers. None of the Sellers has any claims or rights of
action against the Company as of the Closing, and none of the agreements between
the Company and any of the Sellers is in violation, or is contested by, any of
the Company's shareholders.
2.25 Experience; Receipt of Information. The Sellers have knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks relating to the Share Consideration paid to the Sellers in
accordance with the acquisition of the Company by Terayon, and have reviewed and
inspected all of the data and information provided to them by Terayon in
connection with this Agreement. The sellers have been furnished by Terayon with
all the documents and information regarding the Company which the Sellers have
requested, and have been afforded the opportunity to ask questions of and
receive answers from duly authorized officers or other representatives of
Terayon concerning Terayon's business, assets and financial position.
2.26 Full Disclosure. This Agreement (including the Disclosure Schedule)
does not, and the Company Closing Certificate will not, (i) contain any
representation, warranty or information that is false or misleading with respect
to any material fact, or (ii) omit to state any material fact necessary in
order to make the representations, warranties and information contained and to
be contained herein and therein (in the light of the circumstances under which
such representations, warranties and information were or will be made or
provided) not false or misleading.
<PAGE>
Section 3. Representations and Warranties of Terayon
Terayon represents and warrants to the Company and the Sellers as follows:
3.1 Due Organization. Terayon is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Terayon
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its businesses as now conducted.
3.2 SEC Filings; Financial Statements.
(a) Terayon has timely filed all required forms, reports and
documents with the SEC since August 17, 1998, each of which has complied in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder, each as in
effect on the dates such forms, reports, and documents were filed. Terayon has
made available to the Company and the Seller accurate and complete copies
(excluding copies of exhibits) of each report, registration statement (on a form
other than Form S-8) and definitive proxy statement filed by Terayon with the
SEC between August 17, 1998 and the date of this Agreement (the "Terayon SEC
Documents"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the Terayon SEC Documents, including, any financial
statements or schedules included or incorporated by reference therein, complied
in all material respects with the applicable requirements of the Securities Act
or the Exchange Act (as the case may be); and (ii) none of the Terayon SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The consolidated financial statements contained in the Terayon
SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered, except as may be indicated in
the notes to such financial statements and (in the case of unaudited statements)
as permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to year-end audit
adjustments; and (iii) fairly present the consolidated financial position of
Terayon and its subsidiaries as of the respective dates thereof and the
consolidated results of operations of Terayon and its subsidiaries for the
periods covered thereby. Except as and to the extent disclosed in the Terayon
SEC Reports, since August 17, 1998, there has not been any event, occurrence or
development which does or could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Terayon.
3.3 Authority; Binding Nature of Agreement. Terayon has the absolute and
unrestricted right, power and authority to perform its obligations under this
Agreement; and the execution, delivery and performance by Terayon of this
Agreement (including the contemplated issuance of Common Stock in accordance
with this Agreement) have been duly authorized by all necessary action on the
part of Terayon and its board of directors. No vote of Terayon's stockholders
is needed to approve any of the transactions contemplated by this
<PAGE>
Agreement. This Agreement constitutes the legal, valid and binding obligation of
Terayon, enforceable against it in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
3.4 Valid Issuance. The Common Stock to be issued in the transactions
contemplated by this Agreement will, when issued in accordance with the
provisions of this Agreement, be validly issued, fully paid and nonassessable.
3.5 Consents and Approvals. Except as set forth on Schedule 3.5 hereto,
no filing or registration with, no notice to and no permit, authorization,
consent or approval of any third party or any Governmental Body is necessary for
the consummation by Terayon of the transactions contemplated by this Agreement.
3.6 No Violation. Neither the execution and delivery of this Agreement
by Terayon, the performance by Terayon of its obligations hereunder nor the
consummation by Terayon of the transactions contemplated hereby will (a)
violate, conflict with or result in any breach of any provision of the
Certificate of Incorporation or Bylaws of Terayon, (b) violate, conflict with or
result in a violation or breach of, or constitute a default (with or without due
notice or lapse of time or both) under the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, lease or agreement
to which Terayon is a party or (c) violate any order, writ, judgment,
injunction, decree, statute, rule or regulation of any court or domestic or
foreign Governmental Body applicable to Terayon.
3.7 Legal Proceedings. Except as set forth in Schedule 3.7 hereto,
Terayon is not aware of any pending Legal Proceeding, and, to Terayon's best
knowledge, no Person has threatened to commence any Legal Proceeding: (i) that
involves Terayon or any of the assets owned or used by Terayon or any Person
whose liability Terayon has or may have retained or assumed, either
contractually or by operation of law; or (ii) that challenges, or that may have
the effect of preventing, delaying, making illegal or otherwise interfering
with, any of the transactions contemplated by this Agreement. To Terayon's best
knowledge, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that will, or that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
3.8 Experience; Receipt of Information. Terayon has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks relating to the acquisition of the Company and has reviewed and
inspected all of the data and information provided to it by the Company in
connection with this Agreement. Terayon has been furnished by the Company with
all the documents and information regarding the Company which Terayon has
requested, and has been afforded the opportunity to ask questions of and receive
answers from duly authorized officers or other representatives of the Company
concerning the Company's business, assets and financial position.
3.9 Brokers. No broker, finder or investment banker, for which the
Company or the Sellers may be liable, is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Terayon or any of its
directors, officers, employees or agents.
<PAGE>
3.10 Full Disclosure. This Agreement does not, and the Terayon Closing
Certificate will not, (i) contain any representation, warranty or information
that is false or misleading with respect to any material fact, or (ii) omit to
state any material fact necessary in order to make the representations,
warranties and information contained and to be contained herein and therein (in
the light of the circumstances under which such representations, warranties and
information were or will be made or provided) not false or misleading.
Section 4. Certain Covenants of the Company.
4.1 Access and Investigation. During the period from the date of this
Agreement through the Closing, or the earlier termination hereof in accordance
with Section 8 (the "Pre-Closing Period"), the Company shall, and shall cause
its Representatives to: (a) provide Terayon and Terayon's Representatives with
reasonable access to the Company's Representatives, personnel and assets and to
all existing books, records, Tax Returns, work papers and other documents and
information relating to the Company; and (b) provide Terayon and Terayon's
Representatives with copies of such existing books, records, Tax Returns, work
papers and other documents and information relating to the Company, and with
such additional financial, operating and other data and information regarding
the Company, as Terayon may reasonably request.
4.2 Operation of the Company's Business. Other than as contemplated
hereunder, or in the Disclosure Schedule, during the Pre-Closing Period:
(a) the Company shall conduct its business and operations in the
ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(b) the Company shall use reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and maintain its relations and good will with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with the Company;
(c) the Company shall keep in full force all insurance policies
referred to in Part 2.17 of the Disclosure Schedule;
(d) the Company shall cause its officers to report regularly (but in
no event less frequently than weekly) to Terayon concerning the status of the
Company's business;
(e) the Company shall not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, and shall not repurchase, redeem or otherwise reacquire any shares of
capital stock or other securities.
(f) except as set forth in part 4.2(f) of the Disclosure Schedule,
the Company shall not sell, issue or authorize the issuance of (i) any capital
stock or other security, (ii) any option or right to acquire any capital stock
or other security, or (iii) any instrument convertible into or exchangeable for
any capital stock or other security;
(g) the Company shall not amend or waive any of its rights under, or
<PAGE>
permit the acceleration of vesting under, (i) any provision of the Plan for
Issuance of Options to Directors Executives and Senior Employees of the Company,
(ii) any provision of any agreement evidencing any outstanding Option, or (iii)
any provision of any restricted stock purchase agreement;
(h) the Company shall not amend or permit the adoption of any
amendment to the Company's Articles of Association, except to the extent
necessary to effect or permit the Company to become a party to any Acquisition
Transaction, recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction;
(i) the Company shall not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(j) the Company shall not make any capital expenditure, except
capital expenditures that do not exceed $25,000 per month;
(k) the Company shall not, other than in the ordinary course of
business, (i) enter into, or permit any of the assets owned or used by it to
become bound by, any Contract that is or would constitute a Material Agreement,
or (ii) amend or prematurely terminate, or waive any material right or remedy
under, any such Contract;
(l) the Company shall not (i) acquire, lease or license any right or
other asset from any other Person, except for rights or other assets acquired,
leased or licensed in the ordinary course of business, (ii) sell or otherwise
dispose of, or lease or license, any right or other asset to any other Person,
except for rights or other assets disposed of, leased or licensed in the
ordinary course of business, or (iii) waive or relinquish any right, except for
assets acquired, leased, licensed or disposed of by the Company pursuant to
Contracts that are not Material Agreements;
(m) the Company shall not (i) lend money to any Person, or (ii) incur
or guarantee any indebtedness for borrowed money other than in the ordinary
course of business and consistent with past practices;
(n) the Company shall not (i) establish, adopt or amend any employee
benefit plan, (ii) pay any bonus or make any profit-sharing payment, cash
incentive payment or similar payment to, or increase the amount of the wages,
salary, commissions, fringe benefits or other compensation or remuneration
payable to, any of its directors, officers or employees, or (iii) hire any new
key employee;
(o) the Company shall not change any of its methods of accounting or
accounting practices in any material respect;
(p) the Company shall not make any Tax election;
(q) the Company shall not commence or settle any material Legal
Proceeding;
(r) the Company shall not agree or commit to take any of the actions
described in clauses "(e)" through "(q)" above.
<PAGE>
Notwithstanding the foregoing, the Company may take any action described in
clauses "(e)" through "(r)" above if Terayon gives its prior written consent to
the taking of such action by the Company, which consent will not be unreasonably
withheld (it being understood that Terayon's withholding of consent to any
action will not be deemed unreasonable if Terayon determines in good faith that
the taking of such action would not be in the best interests of the Company,
currently and/or under the ownership of Terayon).
4.3 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, the Sellers and/or the Company
shall promptly notify Terayon in writing of:
(i) the discovery by the Sellers and/or the Company of any
event, condition, fact or circumstance that occurred or existed on or prior to
the date of this Agreement and that caused or constitutes an inaccuracy in or
breach of any representation or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made by
the Company in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such event,
condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement;
(iii) any material breach of any material covenant or obligation
of the Sellers and/or the Company; and
(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 6 or
Section 7 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 4.3(a) requires any change in the Disclosure
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company shall promptly deliver to Terayon an update to
the Disclosure Schedule specifying such change. No such update shall be deemed
to supplement or amend the Disclosure Schedule for the purpose of (i)
determining the accuracy of any of the representations and warranties made by
the Company in this Agreement, or (ii) determining whether any of the conditions
set forth in Section 6 has been satisfied.
4.4 No Negotiation. During the Pre-Closing Period, neither the Sellers
nor the Company shall directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal or
offer from any Person (other than Terayon) relating to a possible Acquisition
Transaction;
(b) participate in any discussions or negotiations or enter into any
<PAGE>
agreement with, or provide any non-public information to, any Person (other than
Terayon) relating to or in connection with a possible Acquisition Transaction;
or
(c) negotiate, entertain or accept any proposal or offer from any
Person (other than Terayon) relating to a possible Acquisition Transaction.
The Seller and/or the Company shall promptly notify Terayon in writing of any
material inquiry, proposal or offer relating to a possible Acquisition
Transaction that is received by the Company or any of its Representatives during
the Pre-Closing Period.
4.5 Name and Logo: Terayon and the Company may continue to use the name
"Ultracom Communications Holdings (1995) Ltd." and the logo and trade marks (if
any) perpetually and free of any charges whatsoever. The Sellers and its
Affiliates shall not use the "Ultracom" name after the Closing Date.
Section 5. Additional Covenants of the Parties.
5.1 Filings and Consents. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) 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,
and (b) shall use all commercially reasonable efforts to obtain all Consents (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. Each party to this Agreement shall (upon
request) promptly deliver to the other parties a copy of each such filing made,
each such notice given and each such Consent obtained by such party during the
Pre-Closing Period. Each party shall promptly provide the other parties with
copies of all filings made by the other party with the SEC or any other state,
federal or foreign Governmental Body in connection with this Agreement and the
transactions contemplated hereby.
5.2 Public Announcements. During the Pre-Closing Period, (a) the Company
and the Sellers shall not (and the Company shall not permit any of its
Representatives to) issue any press release or make any public statement
regarding this Agreement, or regarding any of the transactions contemplated by
this Agreement, without Terayon's prior written consent, and (b) Terayon shall
not (and Terayon shall not permit any of its Representatives to) issue any press
release or make any public statement regarding this Agreement, or regarding any
of the transactions contemplated by this Agreement, without Company's prior
written consent. Notwithstanding the provisions of the preceding sentence, each
party shall be permitted to issue any press release or make any public statement
as such party is advised by counsel is legally required to be issued or made
under any applicable laws; provided, however, that in such event the party
issuing such press release or making such public statement will provide the
other parties with prompt advance written notice of such requirement and a copy
of the press release to be issued or public statement to be made, and the
parties shall use reasonable commercial efforts to coordinate the content of
such press release or public statement.
<PAGE>
5.3 Best Efforts. During the Pre-Closing Period, (a) the Company shall
use its best efforts to cause the conditions set forth in Section 6 to be
satisfied on a timely basis, and (b) Terayon shall use its best efforts to cause
the conditions set forth in Section 7 to be satisfied on a timely basis.
5.4 Employment and Non-Competition Agreements. The Company shall use all
commercially reasonable efforts to cause the individuals identified in Exhibit D
to execute and deliver to the Company and Terayon, at the Closing, an Employment
and Non-Competition Agreement in the form set forth as Exhibit E hereto.
5.5 Termination of Employee Plans. At the Closing, the Company shall
terminate its existing stock option plans, and shall ensure that no employee or
former employee of the Company has any rights under any of such plans and that
any liabilities of the Company under such plans (including any such liabilities
relating to services performed prior to the Closing) are fully extinguished at
no material cost to the Company.
5.6 Registration of Shares. Terayon will, as promptly as practicable but,
in any event, not later than sixty (60) days following the Closing Date, prepare
and file with the SEC a registration statement on Form S-3 under the Securities
Act with respect to the registration of the shares of Common Stock issuable to
the Sellers in connection with the transactions contemplated by this Agreement
(the "Registration Statement"). Terayon will, and will cause its accountants
and lawyers to, cause the Registration Statement to be declared effective as
promptly as practicable after filing with the SEC, and the Registration
Statement shall be kept effective continuously for a period of one year
following the date on which the Registration Statement is declared effective by
the SEC. Terayon shall make reasonable efforts to cause the Registration
Statement to become effective on the Closing Date; provided, however, that if
the Registration Statement is declared effective later than the Closing Date
(but, in any event, not later than sixty (60) days following the Closing Date),
the Share Consideration set forth in Section 1.3 above shall be increased by
such number of additional shares of Terayon Common Stock (the "Additional
Shares"), having a value equal to the difference between (i) the value of the
Share Consideration as determined on the Closing Date pursuant to Section 1.3
above, and (ii) the value of the Share Consideration as determined by
calculating the average closing price of the shares of Common Stock of Terayon
over the fifteen (15) trading days immediately preceding the fifth business day
prior to the date on which the Registration Statement becomes effective.
Notwithstanding the foregoing, in the event that the number of Additional Shares
is equal to or exceeds 35% of the number of Terayon Shares delivered at the
Closing, Terayon may, at its sole discretion, and provided that the Sellers have
not waived their right to receive an additional number of Terayon Shares in
excess of such additional 35%, annul the proposed Transaction and the entire
Purchase Consideration shall be returned to Terayon against the return of the
Shares of the Company to the Sellers' Representative (for distribution to the
Sellers), without liability to either party.
None of the information supplied or to be supplied by Terayon for inclusion
or incorporation by reference in the Registration Statement will, at the time
the Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If at any time
<PAGE>
prior to the date on which the Registration Statement is declared effective by
the SEC any event in respect of Terayon, its officers and directors, or any of
its subsidiaries should occur which is required to be described an amendment of,
or a supplement to, the Registration Statement, Terayon shall promptly so advise
the Sellers and such event shall be so described, and any such amendment or
supplement to the Registration Statement (which the Sellers' Representative
shall have a reasonable opportunity to review, and, to the extent such
amendments have a Material Adverse Effect on the value of the Share
Consideration, may rescind the transaction) shall be promptly filed with the
SEC. The Registration Statement will comply as to form in all material respects
with the provisions of the Securities Act and the rules and regulations
thereunder.
5.7 Employees. As soon as practicable after the Closing Date, Terayon
shall provide to all employees of the Company such employee benefits plans,
programs and arrangements as are generally made available to Israeli employees
of Terayon, provided, with respect to each employee, that such employee does not
voluntarily terminate his or her employment with the Company prior to the first
anniversary of the Closing Date.
5.8 Tax Liability. Each party shall be responsible for all its
respective tax obligations deriving from the transactions contemplated in this
Agreement. Notwithstanding the above, stamp duty with respect to the
transactions contemplated in this Agreement or to any actions under this
Agreement, if applicable, shall be paid half by the Sellers and half by Terayon.
Section 6. Conditions Precedent to Obligations of Terayon.
The obligations of Terayon to consummate the transactions contemplated by
this Agreement are subject to the satisfaction, at or prior to the Closing, of
each of the following conditions any or all of which may be waived in writing by
Terayon:
6.1 Accuracy of Representations. Each of the representations and
warranties made by the Seller in this Agreement and in each of the other
agreements and instruments delivered to Terayon in connection with the
transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the Closing Date as if made on the Closing Date.
6.2 Performance of Covenants. All of the covenants and obligations that
the Seller or the Company is required to comply with or to perform at or prior
to the Closing shall have been complied with and performed in all material
respects.
6.3 Consents. All Consents required to be obtained in connection with
the transactions contemplated by this Agreement (including the Consents
identified in Part 2.21 of the Disclosure Schedule) shall have been obtained and
shall be in full force and effect.
6.4 Agreements and Documents. Terayon and the Company shall have
received the following agreements and documents, each of which shall be in full
force and effect:
(a) fully executed Escrow Agreement (the "Escrow Agreement") in the
form and substance reasonably satisfactory to counsel for Terayon and counsel
for the
<PAGE>
Sellers, which shall contain, without limitation, provisions regarding the
following: (i) the release of the Escrow Shares upon the termination of a one
(1) year period commencing on the Closing Date, (ii) provisions enabling the
Sellers' Representative to instruct the Escrow Agent as to the sale of the
Escrow Shares (with the proceeds of such sale(s) to be deposited in the Escrow
in lieu of the Escrow Shares), and (iii) such other terms and conditions as are
standard and customary in transactions of this nature ;
(b) employment and Non-Competition Agreements in the form of Exhibit
E, executed by the individuals identified on Exhibit D;
(c) confidential invention and assignment agreements, reasonably
satisfactory in form and content to Terayon, executed by all employees of the
Company and by all consultants and independent contractors to the Company who
have not already signed such agreements;
(d) a legal opinion of Tulchinsky Stern & Co., Law Offices, in form
and substance reasonably satisfactory to counsel for Terayon, addressed to
Terayon and dated as of the Closing Date;
(e) a certificate executed by the President of the Company (but
without personal liability thereto) certifying that each of the representations
and warranties set forth in Section 2 is accurate in all material respects as of
the Closing Date as if made on the Closing Date and that the conditions set
forth in Sections 6.1, 6.2 and 6.3 have been duly satisfied (the "Company
Closing Certificate");
(f) written resignations of all directors of the Company, effective
as of the Closing Date;
(g) certificates representing the Shares accompanied by share
transfer deeds duly executed for transfer in blank; and
(h) Option Holder Consent Letter and Counterpart Signature Pages,
executed by all of the Option Holders.
6.5 Securities Law Requirements. All permits, licenses, consents and
approvals necessary under any laws relating to the sale of securities have been
issued or given, and all restrictions or registration statements filed under any
laws relating to the sale of securities for the issuance of Common Stock
issuable pursuant to this Agreement shall have become effective, and no such
permit, license, consent, approval, registration or registration statement shall
have been revoked, canceled, terminated, suspended or made the subject of any
stop order or proceeding thereof.
6.6 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
transactions contemplated by this Agreement shall have been issued by any court
of competent jurisdiction and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable to the transactions contemplated by
this Agreement that makes consummation of the transactions contemplated by this
Agreement illegal, which Legal Requirement shall not have been removed within
thirty (30) days of enactment.
<PAGE>
6.7 No Legal Proceedings. No Person shall have commenced or taken
substantial steps towards any Legal Proceeding challenging or seeking the
recovery of a material amount of damages in connection with the transactions
contemplated by this Agreement or seeking to prohibit or limit the exercise by
Terayon of any material right pertaining to its ownership of stock of the
Company.
6.8 Termination of Employee Plans. The Company shall have provided
Terayon with evidence, reasonably satisfactory to Terayon, as to the termination
of the benefit plans referred to in Section 5.5.
6.9 ISA Exemption. Terayon shall have received from the Israel Securities
Authority an exemption from the obligation to publish a prospectus in the manner
required pursuant to the laws of the State of Israel in connection with the
issuance of the Common Stock to the Seller.
Section 7. Conditions Precedent to Obligations of the Sellers and the Company.
The obligations of the Sellers and the Company to consummate the
transactions contemplated by this Agreement are subject to the satisfaction, at
or prior to the Closing, of the following conditions any or all of which may be
waived in writing by the Sellers' representative:
7.1 Accuracy of Representations. Each of the representations and
warranties made by Terayon in this Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the Closing Date as if made on the Closing Date.
7.2 Performance of Covenants. All of the covenants and obligations that
Terayon is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all respects.
7.3 Documents. The Sellers and the Company shall have received the
following agreements and documents, each of which shall be in full force and
effect:
(a) a letter executed by Boston Equiserve, L.P., as Transfer Agent,
Registrar and Exchange Agent (the "Transfer Agent") of the Terayon Common Stock,
stating that it has received irrevocable instructions from Terayon to issue the
Share Consideration in the names of the respective Sellers, and that it will
forward validly executed share certificates covering the Common Stock, in the
names of the Sellers;
(b) fully executed Escrow Agreement;
(c) a legal opinion of Cooley Godward llp, in form and substance
reasonably satisfactory to counsel for the Sellers, addressed to the Sellers and
dated as of the Closing Date; and
<PAGE>
(d) a certificate executed by an Officer of Terayon (but without
personal liability thereto) certifying that each of the representations and
warranties set forth in Section 3 is accurate in all material respects as of the
Closing Date as if made on the Closing Date and that the conditions set forth in
Sections 7.1, 7.2 and 7.5 have been duly satisfied (the "Terayon Closing
Certificate")and.
7.4 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
transactions contemplated by this Agreement shall have been issued by any court
of competent jurisdiction and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable to the transactions contemplated by
this Agreement that makes consummation of the transactions contemplated by this
Agreement illegal, which Legal Requirement shall not have been removed within
(30) days of enactment.
7.5 Consents. All Consents required to be obtained in connection with
the transactions contemplated by this Agreement (including the Consents
identified in Part 2.21 of the Disclosure Schedule) shall have been obtained and
shall be in full force and effect.
7.6 No Legal Proceedings. No Person shall have commenced any Legal
Proceeding challenging or seeking the recovery of a material amount of damages
in connection with the transactions contemplated by this Agreement or seeking to
prohibit or limit the exercise by Terayon of any material right pertaining to
its ownership of stock of the Company.
Section 8. Termination.
8.1 Termination Events. This Agreement may be terminated prior to the
Closing:
(a) By either the Company and the Sellers' Representatives or by
Terayon if a court of competent jurisdiction or Governmental Body shall have
issued an order, decree or ruling or taken any other action (which order, decree
or ruling the parties hereto shall use their best efforts to lift) and such was
not at the request of the party seeking termination of the Agreement, in each
case permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement, and such order, decree, ruling or
other action shall have not been rescinded within 45 days of the date of
issuance thereof; or
(b) By Terayon if the Closing has not taken place on or before April
10 2000 (other than as a result of any failure on the part of Terayon to comply
with or perform any covenant or obligation of Terayon set forth in this
Agreement);
(c) By the Sellers' Representative and the Company if the Closing has
not taken place on or before April 10, 2000 (other than as a result of the
failure on the part of Sellers holding more than 20% of the Shares, or by the
Company to comply with or perform any covenant or obligation set forth in this
Agreement or in any other agreement or instrument delivered to Terayon); or (d)
By the mutual consent of Terayon, the Sellers' Representative and the Company.
8.2 Termination Procedures. If Terayon wishes to terminate this
Agreement
<PAGE>
pursuant to Section 8.1(a) or Section 8.1(b), Terayon shall deliver to the
Sellers' Representative and the Company (with a copy to the Company's counsel) a
written notice stating that Terayon is terminating this Agreement and setting
forth a brief description of the basis on which Terayon is terminating this
Agreement. If the Sellers' Representative and the Company wish to terminate this
Agreement pursuant to Section 8.1(a) or Section 8.1(c), the Sellers'
Representative and the Company shall deliver to Terayon (with a copy to
Terayon's counsel) a written notice stating that the Sellers and the Company are
terminating this Agreement and setting forth a brief description of the basis on
which the Sellers' Representative and the Company are terminating this
Agreement.
8.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) none of the Company, the Sellers or
Terayon shall be relieved of any obligation or liability arising from any prior
breach by such party of any provision of this Agreement; (b) the parties shall,
in all events, remain bound by and continue to be subject to the provisions set
forth in Section 10; and (c) the parties shall, in all events, remain bound by
and continue to be subject to Section 5.2.
Section 9. Indemnification, Etc.
9.1 Survival of Representations, Etc.
(a) The representations and warranties made by the Sellers (including
the representations and warranties set forth in Section 2 and the
representations and warranties set forth in the Company Closing Certificate)
shall survive the Closing until the end of one (1) year following the Closing
Date (the "Survival Period"); provided, however, that if, at any time prior to
the Survival Period, any Indemnitee (acting in good faith) delivers to the
Sellers' Representative a written notice alleging the existence of an inaccuracy
in or a breach of any of the representations and warranties made by the Company
(and setting forth in reasonable detail the basis for such Indemnitee's belief
that such an inaccuracy or breach may exist) and asserting a claim for recovery
under Section 9.2 based on such alleged inaccuracy or breach, then the claim
asserted in such notice shall survive the Survival Period until such time as
such claim is fully and finally resolved.
(b) The representations, warranties, covenants and obligations of the
Company, and the rights and remedies that may be exercised by the Indemnitees,
shall not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by or knowledge of, any of the
Indemnitees or any of their Representatives, other than as specifically set
forth in the representations and the Disclosure Schedule.
(c) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule shall be deemed to be a representation and warranty made by
the Sellers in this Agreement.
(d) The representations and warranties made by Terayon (including the
representations and warranties set forth in Section 3 and the representations
and warranties set forth in Terayon Closing Certificate) shall survive the
Survival Period; provided, however,
<PAGE>
that if, at any time prior to the Survival Period, the Sellers' Representative
(acting in good faith) shall deliver to Terayon a written notice alleging the
existence of an inaccuracy in or a breach of any of the representations and
warranties made by Terayon (and setting forth in reasonable detail the basis for
the Sellers' Representative belief that such an inaccuracy or breach may exist)
and asserting a claim for recovery under Section 9.2 based on such alleged
inaccuracy or breach, then the claim asserted in such notice shall survive the
Survival Period until such time as such claim is fully and finally resolved.
(e) The representations, warranties, covenants and obligations of
Terayon, and the rights and remedies that may be exercised by the Sellers, shall
not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by or knowledge of, the Sellers.
9.2 Indemnification.
(a) From and after the Closing Date (but subject to Section 9.1(a)),
the Indemnitees may seek indemnification first from the Escrow Fund and only
thereafter from the Sellers, severally and not jointly, for any Damages that are
directly or indirectly suffered or incurred by any of the Indemnitees or to
which any of the Indemnitees may otherwise become subject (regardless of whether
or not such Damages relate to any third-party claim) and which are from or as a
result of, or are directly or indirectly arising out of : (i) any breach of any
representation or warranty set forth in Section 2 or in the Company Closing
Certificate; (ii) any breach of any representation or warranty set forth in
Section 2; (iii) any breach of any covenant or obligation of the Company
(including the covenants set forth in Sections 4 and 5).
(b) The Sellers and the Company acknowledge and agree that, if the
Company suffers, incurs or otherwise becomes subject to any Damages as a result
of or in connection with any inaccuracy in or breach of any representation,
warranty, covenant or obligation, then (without limiting any of its rights as an
Indemnitee) Terayon shall also be deemed, by virtue of its ownership of the
shares of the Company, to have incurred Damages as a result of and in connection
with such inaccuracy or breach.
(c) From and after the Closing Date (but subject to Section 9.1(d)),
any Seller may seek indemnification from Terayon for any Damages that are
directly or indirectly suffered or incurred by such Seller or to which such
Seller may otherwise become subject (regardless of whether or not such Damages
relate to any third-party claim) and which arise from or as a result of, or are
directly or indirectly connected with: (i) any inaccuracy in or breach of any
representation or warranty set forth in Section 3; (ii) any inaccuracy in or
breach of any representation or warranty set forth in Section 3 as if such
representation and warranty had been made on and as of the Closing Date; or
(iii) any Legal Proceeding relating to any inaccuracy or breach of the type
referred to in clause "(i)" or "(ii)" above (including any Legal Proceeding
commenced by any Seller for the purpose of enforcing any of its rights under
this Section 9); provided, however, that the amount of indemnification sought by
the Sellers shall not exceed the Purchase Consideration.
<PAGE>
9.3 Notice of Claims; Defense of Third Party Claims.
(a) In the event of the assertion or commencement by any Person of
any claim, demand, notice or Legal Proceeding (whether against the Sellers,
against Terayon or against any other Person) with respect to which any of the
Indemnitees shall have the right to seek indemnification pursuant to this
Section 9, Terayon shall notify the Sellers' Representative and the Escrow Agent
with reasonable promptness of such action, claim or demand (the "Third Party
Claims"), specifying, to the extent known, the nature, circumstances and the
amount of such Third Party Claim (a "Third Party Claim Notice"). The Sellers'
Representative shall have thirty days from its receipt of a Third Party Claim
Notice (the "Third Party Claim Notice Period") to notify Terayon (i) whether the
Sellers' Representative disputes the Indemnitee's right of reimbursement from
the Escrow Fund with respect to such Third Party Claim, and (ii) if the Sellers'
Representative does not dispute such right of reimbursement, whether or not it
desires to defend the Indemnitee against such Third Party Claim.
(b) If the Sellers' Representative notifies Terayon within the Third
Party Claim Notice Period that (i) the Sellers' Representative does not dispute
the Indemnitee's right of reimbursement and (ii) the Sellers' Representative
desires to defend against such Third Party Claim, then the Sellers'
Representative shall have the right to assume and control the defense of such
Third Party Claim by appropriate proceedings with counsel reasonably acceptable
to Terayon, and the Seller's Representative shall be entitled to reimbursement
first out of the Escrow Fund for such Defense. The Indemnitee may participate
in, but not control, any such defense or settlement, at its sole cost and
expense; provided, however, that the Sellers' Representative and Terayon shall
jointly control the defense of any tax audit or proceeding which could
reasonably be expected to have a Material Adverse Effect on the business or
condition of the Company for any taxable period ending on or after the Closing.
(c) If the Sellers' Representative (i) disputes the Indemnitee's
right of reimbursement with respect to a Third Party Claim, or (ii) does not
dispute such right of reimbursement but fails to promptly assume and prosecute
the defense of such Third Party Claim, then Terayon or the Indemnitee shall be
entitled to assume and control the defense of such Third Party Claim. Unless the
Sellers' Representative has disputed the Indemnitee's right to reimbursement for
a Third Party Claim, Indemnitee shall be entitled to reimbursement first from
the Escrow Fund for such defense. If the Sellers' Representative does not assume
the defense of a Third Party Claim for any reason, it may still participate in,
but not control, the defense of such Third Party Claim at the Sellers'
Representative's sole cost and expense.
(d) The party responsible for the defense of any Third Party Claim
(the "Responsible Party") shall, to the extent reasonably requested by the other
party, keep such other party informed as to the status of any Third Party Claim
for which such party is not the Responsible Party, including, without
limitation, all settlement negotiations and offers. With respect to a Third
Party Claim for which the Sellers' Representative is the Responsible Party,
Terayon shall, and shall cause each Indemnitee to, make available to the
Sellers' Representative and its representatives all books and records of Terayon
and the Indemnitees relating to such Third Party Claim and shall render to the
Sellers' Representative such assistance and access to records and the
representatives of Terayon and the Indemnitees as
<PAGE>
the Sellers' Representative and its representatives may reasonably request.
(e) In the event that an Indemnitee has a claim out of the Escrow
Fund for reimbursement which does not involve a Third Party Claim (a "Direct
Claim"), Terayon shall notify the Sellers' Representative of such Direct Claim
with reasonable promptness, specifying, to the extent known, the nature,
circumstances and amount of such Direct Claim (a "Direct Claim Notice" and
together with Third Party Claim Notices, the "Claim Notices"). If the Sellers'
Representative notifies Terayon that it disputes an Indemnitee's right of
reimbursement from the Escrow Fund with respect to a Claim set forth in a Claim
Notice, Terayon, the Indemnitee and the Sellers' Representative shall use
reasonable efforts to resolve such dispute and, in the event that such efforts
are unsuccessful, shall resolve such dispute by arbitration. The Arbitration
proceedings will be in English and will take place in Tel Aviv, Israel or such
other place, as the parties shall agree upon. The arbitrator(s) shall not be
bound by any judicial rules of evidence or procedure but shall be bound by the
substantive laws of the State of Israel. The parties will attempt to select an
arbitrator on which Terayon and the Sellers' Representative shall agree. In the
event of disagreement as to the identity of the arbitrator, each party shall
select an arbitrator and the two arbitrators shall select, by mutual agreement,
a third arbitrator.
(f) Neither the Sellers' Representative, on the one hand, nor Terayon
or any other Indemnitee, on the other hand, shall enter into any settlement of
any Third Party Claim without the prior written consent of the other party,
which consent shall not be unreasonably withheld. The Responsible Party shall
promptly notify the other party of each settlement offer (including whether or
not the Responsible Party is willing to accept the proposed settlement offer)
with respect to a Third Party Claim. Such other party agrees to notify the
Responsible Party with reasonable promptness whether or not such party is
willing to accept the proposed settlement offer. If an Indemnitee fails to
consent to any settlement offer of a Third Party Claim (whether or not Terayon
is the Responsible Party with respect to such Third Party Claim), Terayon or the
Indemnitee may continue to contest or defend such Third Party Claim and, in such
event, the maximum reimbursement from the Escrow Fund with respect to such Third
Party Claim (including the reasonable costs and expenses of contesting or
defending such Third Party Claim incurred after the Indemnitee fails to consent
to such settlement offer) shall not exceed the amount of such settlement offer.
If the Sellers' Representative fails to consent to any settlement offer of a
Third Party Claim (whether or not the Sellers' Representative is the Responsible
Party with respect to such Third Party Claim), the Sellers' Representative may
continue to contest or defend such Third Party Claim and, in such event, subject
to the limitations on indemnification set forth in Section 9.5, the Indemnitee
may make a Claim against the Escrow Fund for the excess, if any, of the (i)
amount of Damages ultimately recovered against an Indemnitee as a result of such
Third Party Claim minus (ii) the amount of such settlement offer, and the
portion of the Damages equal to the settlement offer plus the Damages of the
Indemnitees incurred in connection with the defense of such Third Party Claim
through the date on which the Sellers' Representative rejected the settlement
offer.
9.4 Exercise of Remedies by Indemnitees Other Than Terayon. No Indemnitee
(other than Terayon or any successor thereto or assign thereof) shall be
permitted to assert any indemnification claim or exercise any other remedy under
this Agreement unless Terayon (or any successor thereto or assign thereof) shall
have consented to the assertion of
<PAGE>
such indemnification claim or the exercise of such other remedy.
9.5 Limitations on Indemnification.
(a) Except as specifically set forth herein, the maximum amount of
indemnifiable Damages that may be recovered from the Sellers arising out of or
resulting from Section 9.2(a) shall be an amount equal to the Purchase
Consideration; provided, however, that if the value of the claims made by
Terayon exceed 50% of the Share Consideration (valued in accordance with Section
1.3 above), the Sellers' Representative may, within 21 days following his
receipt of such claim(s), notify Terayon in writing of the Sellers' intention to
terminate this Agreement and purchase the Shares of the Company back from
Terayon for restitution of the Purchase Consideration. Terayon shall, within 14
days of its receipt of such written notice, either (i) amend the claim(s) so
that the aggregate amount of such claim(s) does not exceed 50% of the Share
Consideration; or (ii) deliver the shares of the Company to the Sellers'
Representative (for distribution to the Sellers) in exchange for the Purchase
Consideration or an amount equal thereto.
(b) Notwithstanding anything to the contrary contained in this
Agreement, no Indemnitee shall be entitled to seek indemnification from the
Sellers under this Agreement with respect to any Damages arising out of or
resulting from Section 9.2(a), until the aggregate amount of such Damages
exceeds one hundred and fifty thousand US dollars ($150,000), and where such
damages exceed one hundred and fifty thousand US dollars ($150,000), the
Indemnitees shall be entitled to indemnification in full (with no deduction of
the one hundred and fifty thousand US dollars ($150,000)), subject to the
provisions of Section 9.5(a). This $150,000 threshhold shall not apply to (i) a
shortfall in the amount of Net Cash which the Company shall have, as of March
1, 2000, as compared to the Net Cash as calculated pursuant to Section 1.3
hereof or (ii) the shares of Terayon which may be delivered to holders of
Unvested Options pursuant to Section 1.6(c) hereof.
(c) Notwithstanding anything to the contrary contained in this
Agreement, the maximum amount of indemnifiable Damages that may be recovered
from Terayon arising out of or resulting from Section 9.2(c) shall be an amount
equal to the Purchase Consideration.
(d) Notwithstanding anything to the contrary contained in this
Agreement, the Sellers shall not be entitled to seek indemnification from
Terayon under this Agreement with respect to any Damages arising out of or
resulting from Section 9.2(c), until the aggregate amount of such Damages
exceeds one hundred and fifty thousand US dollars ($150,000), and where such
damages exceed one hundred and fifty thousand US dollars ($150,000), the Sellers
shall be entitled to indemnification in full (with no deduction of the one
hundred and fifty thousand US dollars ($150,000)), subject to the provisions of
Section 9.5(c).
9.6 Exclusive Remedies. Terayon acknowledges and agrees that its sole
and exclusive remedy (except in the case of fraud, in which case Terayon
reserves all rights available to it under the law with respect to the party
committing such fraud) with respect to any and all claims relating to the
subject matter of this Agreement and the other agreements, documents and
certificates specifically contemplated by this Agreement shall be pursuant to
<PAGE>
the indemnification provisions set forth in this Section 9 and specific
performance as contemplated by Section 10.11 below.
9.7 Prospectus Indemnification. Notwithstanding anything to the contrary
in this Agreement, in the event any shares of Common Stock are included in a
registration statement of Terayon:
(a) To the extent permitted by law, Terayon will indemnify and hold
harmless each of the Sellers, the officers, directors and legal counsel of each
of the Sellers, any underwriter (as defined in the Securities Act) for the
Sellers and each person, if any, who controls any of the Sellers or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by Terayon: (i) any untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission to state therein a material
fact required to be stated therein, or necessary to make the statements therein
not misleading, or (iii) any violation or alleged violation by Terayon of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law in connection with the offering covered by such registration
statement; and Terayon will reimburse such Seller, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 9.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of Terayon, which consent shall not
be unreasonably withheld, nor shall Terayon be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon or in conformity
with written information furnished expressly for use in connection with such
registration by such Seller, partner, officer, director, underwriter or
controlling person of the Seller.
(b) To the extent permitted by law, the Seller will, if Common Stock
held by the Seller are included in the securities as to which such registration
qualifications or compliance is being effected, indemnify and hold harmless
Terayon, each of its directors, its officers, and legal counsel and each person,
if any, who controls Terayon within the meaning of the Securities Act and any
underwriter selling securities under such registration statement, against any
losses, claims, damages or liabilities (joint or several) to which Terayon or
any such director, officer, controlling person, or underwriter may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
or in conformity with written information furnished by the Seller specifically
for use in connection with such registration; and each such Seller will
reimburse any legal or other expenses reasonably incurred by Terayon or any such
director, officer, controlling person or underwriter in connection with
investigating or defending any such loss, claim,
<PAGE>
damage, liability or action if it is judicial determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 9.7(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Seller, which consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
9.7 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 9.7, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own c, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if materially prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under this Section 9.7, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 9.7.
(d) If the indemnification provided for in this Section 9.7 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the 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.
<PAGE>
(e) The obligations of Terayon and the Sellers under this Section 9.7
shall survive completion of any offering of Common Stock in a registration
statement and the termination of this Agreement. No indemnifying party, in the
defense of any such claim or litigation, shall, except with the consent of each
indemnified party, 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.
SECTION 10. MISCELLANEOUS PROVISIONS.
10.1 Sellers' Representative. JVP Properties Ltd. is hereby designated by
the Sellers as the representative of the Sellers for purposes of this Agreement
and the Escrow Agreement and as agent and attorney-in-fact of the Sellers with
respect hereto and thereto (the "Sellers' Representative"). The Sellers'
Representative shall have the authority to take such actions and exercise such
discretion on behalf of its respective principals as are required of the
Sellers' Representative pursuant to the terms of this Agreement and the Escrow
Agreement (and any such actions shall be binding on each of the Sellers
represented by such Sellers' Representative), including without limitation the
following:
(i) To execute, acknowledge, deliver, record and file all ancillary
agreements, waivers, consents, certificates and documents which the Sellers'
Representative deems necessary or appropriate in connection with the
consummation of the transactions contemplated by the terms and provisions of
this Agreement;
(iii) To receive and make any payments provided for under this
Agreement and acknowledge receipt and payment thereof;
(iv) To waive any breach or default under the Agreement, or to waive
any condition precedent to the Closing under Section 7 hereof;
(v) To amend or terminate this Agreement pursuant to its terms;
(vi) To receive service of process in connection with any claims
under this Agreement or the Escrow Agreement; and
(vii) To perform the obligations and exercise the rights under the
Escrow Agreement, including the settlement of any claims and disputes arising
thereunder.
The designation and appointment of the Sellers' Representative is
irrevocable and shall not be affected by the subsequent death, incapacity,
insolvency or dissolution of any Seller. The Sellers' Representative shall be
indemnified by the Sellers for any expense and liability which it will incur in
connection with his actions as a sellers' representative (including, but not
limited to, any liability towards any or all of the Sellers resulting from
negligent actions or omissions, and erroneous resolutions taken in his capacity
as a sellers' representative under this section), and all his actions and
resolution are hereby approved by the Sellers as long as, and until he has been
replaced or removed from his role as Shareholders' representative pursuant to
the terms hereof. Terayon shall have the right to rely upon all actions taken or
omitted by the Sellers' Representative pursuant to this Agreement, all of which
actions and omissions shall be binding on each of the Sellers. If the
<PAGE>
Sellers' Representative shall be dissolved or otherwise be unable to fulfill his
responsibilities as agent of the Sellers, then the Sellers holding a majority in
interest of the capital stock of the Company (assuming the exercise of all
options and warrants and the exercise and conversion of all exercisable and
convertible securities) shall, within ten days after such circumstances, appoint
a successor agent and, promptly thereafter, shall notify Terayon of the identity
of such successor. Any such successor shall become the "Sellers' Representative"
for purposes of this Agreement. The Sellers hereby authorize the Sellers'
Representative to pay all reasonable and documented legal fees and expenses
incurred by the Company and the Sellers (as further described in Section 10.3
below) from the Purchase Consideration prior to the distribution of the Purchase
Consideration to the Sellers. The Sellers hereby agree to transfer to the
Sellers' Representative such additional cash amounts as shall be determined by
the Sellers' Representative are necessary to pay all legal fees and expenses
incurred by the Company and the Sellers (as further described in Section 10.3
below), and in connection with the performance of his duties as the Sellers'
Representative.
10.2 Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
10.3 Fees and Expenses. Each of the Company and Terayon shall bear and pay
all fees, costs and expenses (including legal fees, accounting fees and
brokerage fees) that have been incurred or that are incurred by such party,
including all fees, costs and expenses incurred by such party in connection with
or by virtue of (a) the investigation and review conducted by Terayon and its
Representatives with respect to the Company's business (and the furnishing of
information to Terayon and its Representatives in connection with such
investigation and review), (b) the negotiation, preparation and review of this
Agreement (including the Disclosure Schedule) and all agreements, certificates,
opinions and other instruments and documents delivered or to be delivered in
connection with the transactions contemplated by this Agreement, and (c) the
preparation and submission of any filing or notice required to be made or given
in connection with any of the transactions contemplated by this Agreement
(except with respect to stamp duty, as specified in Section 5.8 above) , and the
obtaining of any Consent required to be obtained in connection with any of such
transactions; provided however that all the Company's fees and expenses shall be
applied to reduce the Net Cash and, accordingly, the Purchase Consideration.
10.4 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
10.5 Notices. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed delivered, given and received when delivered (by hand, by registered
mail, by courier or express delivery service or by facsimile) to the address or
facsimile telephone number set forth beneath the name of such party below (or to
such other address or facsimile telephone number as such party shall have
specified in a written notice given to the other parties
<PAGE>
hereto):
if to Terayon:
Terayon Communication Systems, Inc.
2952 Bunker Hill Lane
Santa Clara, CA 95054
Fax: (408) 727-6205
Attention: Chief Executive Officer
with a copy to:
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Fax: (415) 951-3699
Attention: Karyn R. Tucker, Esq.
and
Naschitz, Brandes & Co.
5 Tuval Street
Tel-Aviv, Israel
Fax: 972 3 623 5021
Attention: Sharon A. Amir, Adv.
if to the Company:
Ultracom Communications Holdings (1995) Ltd.
11 Harugey Hamalchut Street
Tel Aviv, Israel
Fax: 03 6480461
Attention: Chief Executive Officer
with a copy to:
Tulchinsky Stern & Co., Law Offices
Riger Federman Bldg.
22 Kanfey Nesharim St.
Givat Shaul, Jerusalem, Israel
Fax: 972-2-6513133
Attention: Doron Stern, Adv.
If to the Sellers' Representative:
[JVP Properties Ltd.]
Bldg. 1, Technological Park
<PAGE>
Malha, Jerusalem, Israel
Tel: 972-2-6797270
Fax: 972-2- 6797273
with a copy to:
Tulchinsky - Stern, Law Offices
Riger Federman Bldg.
22 Kanfey Nesharim St.
Givat Shaul, Jerusalem, Israel
Fax: 972-2-6513133
Attention: Doron Stern, Adv.
10.5 Time of the Essence. Time is of the essence of this Agreement.
10.6 Headings. The boldface headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
10.8 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of Israel
(without giving effect to principles of conflicts of laws). Each party to this
Agreement consents to the exclusive jurisdiction and venue of the courts of
District of Tel Aviv-Jaffa in the State of Israel.
10.9 Successors and Assigns. This Agreement shall be binding upon: the
Company, the Sellers and their respective successors and assigns (if any);
Terayon and its successors and assigns (if any). This Agreement shall inure to
the benefit of: the Company; the Sellers the other Indemnitees (subject to
Section 9.5); and the respective successors and assigns (if any) of the
foregoing. Neither party may assign any of its rights under this Agreement to
any other Person (other than to any Seller's affiliates, and, with respect to
Sellers which act as trustees, to their beneficiaries) without obtaining the
consent or approval of the other parties hereto, provided that following the
Closing any Seller may sell and assign Terayon Shares (subject to applicable
law) without obtaining such approval.
10.10 Specific Performance. The parties to this Agreement agree that, in
the event of any breach or threatened breach by any party to this Agreement of
any covenant, obligation or other provision set forth in this Agreement for the
benefit of any other party to this Agreement, such other party shall be entitled
to (a) a decree or order of specific performance or mandamus to enforce the
observance and performance of such covenant, obligation or other provision, and
(b) an injunction restraining such breach or threatened
<PAGE>
breach.
10.11 Waiver.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
10.12 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.13 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.14 Parties in Interest. Except for the provisions of Section 9, none of
the provisions of this Agreement are intended to provide any rights or remedies
to any Person other than the parties hereto and their respective successors and
assigns (if any).
10.15 Entire Agreement. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof.
10.16 Construction.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
<PAGE>
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections," "Schedules" and "Exhibits" are intended to refer to Sections of
this Agreement and Schedules and Exhibits to this Agreement.
[The Remainder of this Page Intentionally Left Blank]
<PAGE>
The parties hereto have caused this Share Purchase Agreement to be executed
and delivered as of the date first above written.
TERAYON COMMUNICATION SYSTEMS, INC.,
a Delaware corporation
By: /s/ Shlomo Rakib
-----------------------------------------------------
Name: /s/ Shlomo Rakib
---------------------------------------------------
Title: President
--------------------------------------------------
ULTRACOM COMMUNICATIONS HOLDINGS (1995) LTD.,
a company organized under the laws of Israel
By: /s/ Erel Margalit
-----------------------------------------------------
Name: Erel Margalit
---------------------------------------------------
Title: Director
--------------------------------------------------
SELLERS' REPRESENTATIVE
/s/ Erel Margalit
--------------------------------------------------------
By: Erel Margalit
----------------------------------------------------
SELLERS:
Jerusalem Venture Partners (Israel) LP
/s/ Erel Margalit
--------------------------------------------------------
By: Erel Margalit
----------------------------------------------------
Title: Managing Partner
-------------------------------------------------
Jerusalem Venture Partners LP
/s/ Erel Margalit
--------------------------------------------------------
By: Erel Margalit
----------------------------------------------------
Title: Managing Partner
--------------------------------------------------
Gemini Israel II LP, by its General Partner
Gemini Capital Fund Management Ltd.
/s/ Y. Seler
--------------------------------------------------------
Gemini Israel II Parallel Fund LP, by its General
Partner
Gemini Capital Associates LP, by its General Partner
Gemini Capital Fund Management LTD
/s/ Y. Seler
--------------------------------------------------------
Gemini Partner Investors L.P
/s/ Y. Seler
--------------------------------------------------------
Advent PGGM Gemini LP, by its General Partner
Gemini Capital Associates LP, by its General Partner
Gemini Capital Fund Management LTD
/s/ Y. Seler
--------------------------------------------------------
Jerusalem Pacific Ventures (1994) L.P.
/s/ Jay Morrison
--------------------------------------------------------
By: Jay Morrison
----------------------------------------------------
Title: Auth Signatory
-------------------------------------------------
STAR Management of Investments (1993) L.P.
/s/ Meir Barel
--------------------------------------------------------
By:
----------------------------------------------------
Title:
-------------------------------------------------
SVM STAR Ventures Enterprises No. V
/s/ Meir Barel
--------------------------------------------------------
By: SVM STAR Ventures ManagementgeseLL
----------------------------------------------------
Title: Dr. Meir Barel
-------------------------------------------------
SVM STAR Ventures Managementge a ellschaft mbH Nr. 3 &
Co. Beteiligungs KG
/s/ Meir Barel
--------------------------------------------------------
By: SVM STAR Ventures ManagementgeseLL
----------------------------------------------------
Title: Dr. Meir Barel
-------------------------------------------------
SVE STAR Ventures Enterprises No. III A
/s/ Meir Barel
--------------------------------------------------------
By: SVM STAR Ventures ManagementgeseLL
----------------------------------------------------
Title: Dr. Meir Barel
-------------------------------------------------
SVE STAR Ventures Enterprises No. III GbR
/s/ Meir Barel
--------------------------------------------------------
By: SVM STAR Ventures ManagementgeseLL
----------------------------------------------------
Title: Dr. Meir Barel
-------------------------------------------------
Unicycle Trading Co.
/s/ Mark Chais
--------------------------------------------------------
By: Mark Chais
----------------------------------------------------
Title: President
-------------------------------------------------
Champenios Innovacon
/s/ Champenois Innovacon
--------------------------------------------------------
By: Champenois Innovacon
----------------------------------------------------
Title: Managing Director
-------------------------------------------------
Mofet Israel Technology Fund
/s/ Mofet Israel Technology Fund
--------------------------------------------------------
By: Samuel Fogel
----------------------------------------------------
Title: Managing Partner
-------------------------------------------------
Digital Media & Communications L.P.
By: Advent International Limited Partnership General
Partner
By: Advent International Corporation, General Partner
/s/ Adrew Fillat
--------------------------------------------------------
By: Andrew Fillat
----------------------------------------------------
Title: Senior Vice President
-------------------------------------------------
Gildc IT Fund B.V.
/s/ A. Arts
--------------------------------------------------------
By: A. Arts
----------------------------------------------------
Title: Partner
-------------------------------------------------
One Liberty Fund III L.P.
/s/ A. Arts
--------------------------------------------------------
By: A. Arts
----------------------------------------------------
Title: Partner
-------------------------------------------------
Moshe Shahaf
/s/ Moshe Shahaf
--------------------------------------------------------
Robert E. Richardson Jr.
/s/ Robert E. Richardson Jr.
--------------------------------------------------------
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
Acquisition Transaction. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or a
material portion of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any capital stock
or other equity security of the Company (other than Ordinary Shares issued to
employees of the Company, upon exercise of Options or Warrants and, the
conversion of the Company's debt to the Seller into Ordinary Shares, (ii) any
option, call, warrant or right (whether or not immediately exercisable) to
acquire any capital stock or other equity security of the Company (other than
stock options granted to employees of the Company in routine transactions in
accordance with the Company's past practices), or (iii) any security, instrument
or obligation that is or may become convertible into or exchangeable for any
capital stock or other equity security of the Company; or
(c) any merger, consolidation, business combination, reorganization
or similar transaction involving the Company.
Agreement. "Agreement" shall mean the Agreement to which this Exhibit A is
attached (including the Disclosure Schedule), as it may be amended from time to
time.
Consent. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
Damages. "Damages" shall include any loss, damage, injury, liability,
claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including
reasonable attorneys' fees), charge, cost (including costs of investigation) or
expense of any nature.
Disclosure Schedule. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to Terayon on behalf of the Sellers.
Encumbrance. "Encumbrance" shall mean any lien, pledge, charge, mortgage,
security interest, encumbrance, claim, option, right of first refusal,
preemptive right, community property interest or restriction of any nature
(including any restriction on the voting of any security, any restriction on the
transfer of any security or other asset, any restriction on the receipt of any
income derived from any asset, any restriction on the use of any asset and any
restriction on the possession, exercise or transfer of any other attribute of
<PAGE>
ownership of any asset).
Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
Exchange. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
Escrow Fund. "Escrow Fund" shall have the meaning ascribed to it in the
Escrow Agreement.
Governmental Authorization. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
Governmental Body. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
Indemnitees. "Indemnitees" shall mean the following Persons: (a) Terayon;
(b) the respective Representatives of the Person referred to in clause "(a)"
above; and (c) the respective successors and assigns of the Persons referred to
in clauses "(a)" and "(b)" above; provided, however, that the Sellers shall not
be deemed to be an "Indemnitee."
Liens. "Liens" shall mean all mortgages, pledges, liens, security
interests, conditional and installment sale agreements, encumbrances, charges or
other claims of third parties of any kind.
Legal Proceeding. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
Legal Requirement. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
Material Adverse Effect. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company if such violation or other
matter (considered
<PAGE>
together with all other matters that would constitute exceptions to the
representations and warranties set forth in the Agreement or in the Company
Closing Certificate but for the presence of "Material Adverse Effect" or other
materiality qualifications, or any similar qualifications, in such
representations and warranties) would have an effect on the Company's business,
condition, assets, liabilities, operations or financial performance or
prospects.
Net Cash. The sum of US$2,270,000, which is based on the Company's
representations regarding its cash and cash equivalents as of March 1, 2000,
such sum to be derived from the following calculation: the sum of US$3,480,000,
which consists of the Company's Cash as of March 1, 2000 and Tax refunds payable
to the Company, minus (i) The total amount owed by the Company to Orckit; (ii)
the Company's total transaction expenses; and (iii) an amount of US$170,000
which represents 50% of the compensation due to the Company's employees on March
1/st/, 2000 and 50% of the payment payable to Fujitsu Microelectronic GmbH on
March 1, 2000. .
Options. "Options" shall mean options to purchase Ordinary Shares under an
Option Plan.
Person. "Person" shall mean any individual, Entity or Governmental Body.
Representatives. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
Securities Act. "Securities Act" shall mean the Securities Act of 1933, as
amended.
Tax. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax,
transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff, duty (including any
customs duty), deficiency or fee, and any related charge or amount (including
any fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body.
Tax Returns. "Tax Returns" shall mean returns, reports and information
statements with respect to Tax required to be filed by or on behalf of the
Company with the Israel Income Tax Commission, the Israel Value Added Tax
Authority and any other taxing authority domestic or foreign.
Vested Options. "Vested Options" shall mean options to purchase Ordinary
Shares that vest prior to or at the Closing.
