<PAGE> 1
As filed with the Securities and Exchange Commission on July 6, 1998
Registration No. 333___________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
CISCO SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 77-0059951
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
170 WEST TASMAN DRIVE
SAN JOSE, CALIFORNIA 95134
(408) 526-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOHN T. CHAMBERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CISCO SYSTEMS, INC.
255 WEST TASMAN DRIVE
SAN JOSE, CALIFORNIA 95134
(408) 526-4000
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
Copy to:
THERESE A. MROZEK, ESQ.
CURTIS L. MO, ESQ.
BROBECK, PHLEGER & HARRISON LLP
TWO EMBARCADERO PLACE
2200 GENG ROAD
PALO ALTO, CALIFORNIA 94303
(650) 424-0160
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================================================================================================
Title of Each Amount Proposed Maximum Proposed Maximum Amount
Class of Securities to Be Offering Aggregate of Registration
to be Registered Registered Price Per Share(1) Offering Price(1) Fee
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 161,159 $92.3125 $14,876,990.19 $4,388.71
$0.001 par value per share
========================================================================================================================
</TABLE>
(1) The price of $92.3125 was the average of the high and low prices of the
Common Stock on the Nasdaq National Market System on June 30, 1998, is set forth
solely for the purpose of computing the registration fee pursuant to Rule
457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) of THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
161,159 SHARES
CISCO SYSTEMS, INC.
COMMON STOCK
This Prospectus relates to the public offering, which is not being
underwritten, of 161,159 shares of Common Stock, par value of $0.001 per share,
of Cisco Systems, Inc. (the "Company" or the "Registrant"). All 161,159 shares
(the "Shares") may be offered by certain shareholders of the Company or by
pledgees, donees, transferees or other successors in interest that receive such
shares as a gift, partnership distribution or other non-sale related transfer
(the "Selling Shareholders"). All of the shares were originally issued by the
Company in connection with the purchase of the capital stock of C.D.S.I. Ltd.
("CDSI"), by and through the purchase of all of the capital stock and options to
purchase capital stock of CDSI whereby CDSI became a wholly-owned subsidiary of
the Company. The Shares were issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), provided by Section 4(2) thereof. The Shares are being
registered by the Company pursuant to the Stock Purchase Agreement, dated May 2,
1998 by and among the Company and the Selling Shareholders identified therein.
The Shares may be offered by the Selling Shareholders from time to time
in transactions in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the Shares
for whom such broker-dealers may act as agents or to whom they sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions). See "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares. The Company has agreed to bear certain expenses in connection with the
registration of the Shares being offered and sold by the Selling Shareholders.
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "CSCO." On June 30, 1998, the average of the high and low price for
the Common Stock was $92.3125.
-------------------------------
The Selling Shareholders and any broker-dealers or agents that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
-------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------------
The Company has undertaken to keep a Registration Statement of which this
Prospectus constitutes a part effective until the disposition of the securities
offered hereby. After such period, if the Company chooses not to maintain the
effectiveness of the registration statement of which this Prospectus constitutes
a part, the securities issuable upon exercise hereof and offered hereby may not
be sold, pledged, transferred or assigned, except in a transaction which is
exempt under the provisions of the Securities Act, as amended, or pursuant to an
effective registration statement thereunder.
================================================================================
The date of this Prospectus is July 6, 1998
<PAGE> 3
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by the
Company, any Selling Shareholder or by any other person. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that information herein is correct as of any time
subsequent to the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the securities
covered by this Prospectus, nor does it constitute an offer to or solicitation
of any person in any jurisdiction in which such offer or solicitation may not
lawfully be made.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, information statements and
other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at 75 Park Place,
New York, New York 10007 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained by mail from the
Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The Common Stock of the Company is quoted on the
Nasdaq National Market, and such material may also be inspected at the offices
of Nasdaq Operations, 1735 K Street N.W. Washington, D.C. 20006. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's web site is
http://www.sec.gov.
The Company has filed with the Commission a registration statement on
Form S-3 (herein, together with all amendments and exhibits thereto, referred to
as the "Registration Statement") under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information regarding the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. The Registration Statement, including the exhibits
and schedules thereto, may be inspected at the public reference facilities
maintained by the Commission at Room 450 Fifth Street, N.W., Washington, D.C.
20549 and copies of all or any part thereof may be obtained from such office
upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 0-18225)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended July 26, 1997, filed October 22, 1997;
2. The Company's Quarterly Report on Form 10-Q for the quarter
ended October 25, 1997 filed on December 9, 1998, for the quarter ended January
24, 1998 filed on March 9, 1998 and for the quarter ended April 25, 1998 filed
on June 8, 1998;
3. The Company's Current Reports on Form 8-K filed on June 11,
1998, May 15, 1998, April 29, 1998, February 11, 1998, September 9, 1997, and on
August 22, 1997;
4. Definitive Proxy Statement dated October 1, 1997, filed on
October 1, 1997 in connection with the Company's 1997 Annual Meeting of
Shareholders;
2
<PAGE> 4
5. The description of the Company's Common Stock, $0.001 par value
per share, contained in its registration statement on Form 8-A filed on January
8, 1990, including any amendment or report filed for the purpose of updating
such description; and
6. All reports and other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering.
Any statement contained in a document incorporated by reference herein
shall be deemed to be incorporated by reference in this Prospectus and to be
part hereof from the date of filing of such documents. Any statement modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. The Company will provide without charge to
each person to whom this Prospectus is delivered a copy of any or all of such
documents which are incorporated herein by reference (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into the documents that this Prospectus incorporates). Written requests for
copies should be directed to Larry R. Carter, Chief Financial Officer and
Secretary, at the principal executive offices of Cisco Systems, Inc., 255 West
Tasman Drive, San Jose, California 95134. The Company's telephone number is
(408) 526-4000.
3
<PAGE> 5
THE COMPANY
The principal executive offices of the Company are located at 255 West
Tasman Drive, San Jose, California 95134. The Company's telephone number is
(408) 526-4000.
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering. The Shares
offered hereby may be sold from time to time by the Selling Shareholders or by
pledgees, donees, transferees or other successors in interest. The Selling
Shareholders will act independently of the Company in making decisions with
respect to the timing, manner and size of each sale. Such sales may be made on
one or more exchanges or in the over-the-counter market or otherwise, at prices
and at terms then prevailing or at prices related to the then current market
price, or in negotiated transactions. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers. The Shares may
be sold by one or more of the following: (a) a block trade in which the
broker-dealer so engaged will attempt to sell the Shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this Prospectus; (c) an exchange
distribution in accordance with the rules of such exchange; (d) ordinary
brokerage transactions and transactions in which the broker solicits purchasers
and (e) in privately negotiated transactions. To the extent required, this
Prospectus may be amended or supplemented from time to time to describe a
specific plan of distribution. In effecting sales, broker-dealers engaged by the
Selling Shareholders may arrange for other broker-dealers to participate in the
resales.
In connection with distributions of the Shares or otherwise, the Selling
Shareholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Shares in the course of hedging the positions they assume with Selling
Shareholders. The Selling Shareholders may also sell Shares short and redeliver
the Shares to close out such short positions. The Selling Shareholders may also
enter into option or other transactions with broker-dealers which require the
delivery to the broker-dealer of the Shares registered hereunder, which the
broker-dealer may resell or otherwise transfer pursuant to this Prospectus. The
Selling Shareholder may also loan or pledge the Shares registered hereunder to a
broker-dealer and the broker-dealer may sell the Shares so loaned or upon a
default the broker-dealer may effect sales of the pledged shares pursuant to
this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Shareholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions) in amounts to be
negotiated in connection with the sale. Such broker-dealers or agents and any
other participating broker-dealers or the Selling Shareholders may be deemed to
be "underwriters" within the meaning of the Securities Act in connection with
such sales and any such commission, discount or concession may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
securities covered by this Prospectus which qualify for sale pursuant to Rule
144 may be sold under Rule 144 rather than pursuant to this Prospectus.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Shares may not simultaneously engage
in market making activities with respect to the Common Stock of the Company for
a period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, each Selling Shareholder will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Regulation M, which
provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Shareholders. The Company will make copies
of this Prospectus available to the Selling Shareholders and has informed them
of the need for delivery of copies of this Prospectus to purchasers at or prior
to the time of any sale of the
4
<PAGE> 6
Shares offered hereby The Company assumes no obligation to so deliver copies of
this Prospectus or any related Prospectus Supplement.
At the time a particular offer of Shares is made, if required, a
Prospectus Supplement will be distributed that will set forth the number of
Shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation, any discount,
commission or concession allowed or reallowed or paid to any dealer, and the
proposed selling price to the public.
All costs, expenses and fees in connection with the registration of the
Shares will be borne by the Company. Commissions and discounts, if any,
attributable to the sales of the Shares will be borne by the Selling
Shareholders. The Selling Shareholders may agree to indemnify any broker-dealer
or agent that participates in transactions involving sales of the Shares against
certain liabilities, including liabilities arising under the Securities Act. The
Selling Shareholders have agreed to indemnify certain persons including
broker-dealers or agents against certain liabilities in connection with the
offering of the Shares, including liabilities arising under the Securities Act.
5
<PAGE> 7
SELLING SHAREHOLDERS
The following table sets forth the number of shares of Common Stock
owned by each of the Selling Shareholders. Except as indicated, none of the
Selling Shareholders has had a material relationship with the Company within the
past three years other than as a result of the ownership of the Shares or other
securities of the Company. Because the Selling Shareholders may offer all or
some of the Shares which they hold pursuant to the offering contemplated by this
Prospectus, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the Shares, no estimate can be
given as to the amount of Shares that will be held by the Selling Shareholders
after completion of this offering. The Shares offered by this Prospectus may be
offered from time to time by the Selling Shareholders named below.
<TABLE>
<CAPTION>
Number of Number of
Shares Percent of Shares
Beneficially Outstanding Registered for
Name of Selling Shareholder Owned Shares Sale Hereby(1)
- --------------------------- ------------ ----------- --------------
<S> <C> <C> <C>
Robert Berger 128 * 128
Ron Cohen 5,774 * 5,774
Melani Crescini 770 * 770
Shimon Dahan 12,830 * 12,830
Nir Dinur 770 * 770
Irit Edberg 385 * 385
Nisan Elfassy 2,053 * 2,053
Amir Eyal 4,277 * 4,277
Erez Faigenbaum 1,540 * 1,540
Ilan Frenkel 1,283 * 1,283
Anat Geffen 1,925 * 1,925
Roman Geller 1,540 * 1,540
Arik Hadass 3,849 * 3,849
Sholomo Hai 1,283 * 1,283
Eyal Hertzog 1,604 * 1,604
Yosi Hindin 2,438 * 2,438
Alma Kantz 1,026 * 1,026
Dror Koren 1,540 * 1,540
</TABLE>
6
<PAGE> 8
<TABLE>
<CAPTION>
Number of Number of
Shares Percent of Shares
Beneficially Outstanding Registered for
Name of Selling Shareholder Owned Shares Sale Hereby(1)
- --------------------------- ------------ ----------- --------------
<S> <C> <C> <C>
Nira Leibman 1,925 * 1,925
Dorit Licht 655 * 655
Jonathan Lifton 213 * 213
Ron Lifton 12,830 * 12,830
Dan Lynch 128 * 128
Shai Mohaban 12,830 * 12,830
Scott Mousley 3,464 * 3,464
Amir Naftali 1,540 * 1,540
Arad Naveh 44,104 * 44,104
Uri Nisani 1,283 * 1,283
Itzik Parnafes 12,830 * 12,830
Ron Perry 1,824 * 1,824
Yoram Ramberg 1,925 * 1,925
Jochai Rubinstein 1,283 * 1,283
Yoram Snir 1,925 * 1,925
Steven M. Woo 10,906 * 10,906
Yechiam Yemini 128 * 128
Arthur Zavalkovsky 1,540 * 1,540
Gilad Zlotkin 4,811 * 4,811
------- -------
TOTAL 161,159 * 161,159
</TABLE>
- --------------
* Represents beneficial Ownership of less than 1%.
(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable in connection with the shares registered for
sale hereby by reason of any stock divided, stock split, recapitalization or
other similar transaction effected without the receipt of consideration which
results in an increase in the number of the Registrant's outstanding shares of
Common Stock.
7
<PAGE> 9
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The consolidated balance sheets as of July 26, 1997 and July 28, 1996
and the consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended July 26, 1997 incorporated
by reference in this prospectus, have been incorporated herein in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
8
<PAGE> 10
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee.
<TABLE>
<S> <C>
SEC Registration fee $ 4,389
Legal fees and expenses 15,000
Accounting fees and expenses 5,000
Printing Fees 5,000
Transfer Agent Fees 5,000
Miscellaneous 15,611
-------
Total $50,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California Corporations Code authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit indemnification (including
reimbursement of expenses incurred) under certain circumstances for liabilities
arising under the Securities Act. The Registrant's Restated Articles of
Incorporation, as amended and Amended Bylaws provide for indemnification of its
directors, officers, employees and other agents to the maximum extent permitted
by the California Corporations Code. In addition, the Company has entered into
Indemnification Agreements with each of its directors and officers.
ITEM 16. EXHIBITS
2.1 Stock Purchase Agreement, dated as of May 2, 1998, by and among the
Company and the Selling Shareholders identified therein.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
23.1 Consent of PricewaterhouseCoopers, independent public accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1
hereto).
24.1 Power of Attorney (included on page II-3 of this Registration
Statement).
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to include
any prospectus required by section 10(a)(3) of the Securities Act; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
9
<PAGE> 11
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
10
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Santa Clara, State of California, on this 6th day
of July, 1998.
CISCO SYSTEMS, INC.
By: /s/ JOHN T. CHAMBERS
-------------------------------------
John T. Chambers,
President, Chief Executive Officer
and Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John T. Chambers and Larry R. Carter, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ John T. Chambers President, Chief Executive July 6, 1998
- ---------------------------- Officer and Director
John T. Chambers (Principal Executive Officer)
/s/ Larry R. Carter Senior Vice President, Finance and July 6, 1998
- ---------------------------- Administration, Chief Financial
Larry R. Carter Officer and Secretary
(Principal Financial and Accounting
Officer)
/s/ John P. Morgridge Chairman of the Board and Director July 6, 1998
- ----------------------------
John P. Morgridge
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Donald T. Valentine Director July 6, 1998
- ----------------------------
Donald T. Valentine
/s/ James F. Gibbons Director July 6, 1998
- ----------------------------
James F. Gibbons
/s/ Robert L. Puette Director July 6, 1998
- ----------------------------
Robert L. Puette
/s/ Masayoshi Son Director July 6, 1998
- ----------------------------
Masayoshi Son
/s/ Steven M. West Director July 6, 1998
- ----------------------------
Steven M. West
/s/ Edward R. Kozel Director July 6, 1998
- ----------------------------
Edward R. Kozel
/s/ Carol A. Bartz Director July 6, 1998
- ----------------------------
Carol A. Bartz
/s/ James C. Morgan Director July 6, 1998
- ----------------------------
James C. Morgan
/s/ Mary Cirillo Director July 6, 1998
- ----------------------------
Mary Cirillo
</TABLE>
<PAGE> 14
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
- ------- -------------
<S> <C>
2.1 Stock Purchase Agreement, dated May 2, 1998, by and among the
Company and the Selling Shareholders identified therein.
5.1 Opinion of Brobeck, Phleger & Harrison LLP
23.1 Consent of PricewaterhouseCoopers LLP, independent public
accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1
hereto)
24.1 Power of Attorney (included on page II-3 of this Registration
Statement)
</TABLE>
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
CISCO SYSTEMS, INC.
AND
THE SELLING SHAREHOLDERS
IDENTIFIED HEREIN
May 2, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I PURCHASE AND SALE OF STOCK........................................... 1
1.1 Purchase and Sale of the Shares...................................... 1
1.2 Closing.............................................................. 2
1.3 Deliveries at the Closing............................................ 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS........................ 2
2.1 Organization, Standing and Power..................................... 3
2.2 Capitalization; Title to the Shares.................................. 3
2.3 Authority............................................................ 4
2.4 Financial Statements................................................. 5
2.5 Absence of Certain Changes........................................... 6
2.6 Absence of Undisclosed Liabilities................................... 6
2.7 Litigation........................................................... 6
2.8 Restrictions on Business Activities.................................. 6
2.9 Governmental Authorization........................................... 7
2.10 Title to Property.................................................... 7
2.11 Intellectual Property................................................ 7
2.12 Environmental Matters................................................ 9
2.13 Taxes................................................................ 10
2.14 Employee Benefit Plans............................................... 10
2.15 Certain Agreements Affected by the Transaction....................... 13
2.16 Employee Matters..................................................... 13
2.17 Interested Party Transactions........................................ 14
2.18 Insurance............................................................ 14
2.19 Compliance With Laws................................................. 14
2.20 Minute Books......................................................... 14
2.21 Inventory............................................................ 14
2.22 Accounts Receivable.................................................. 15
2.23 Customers and Suppliers.............................................. 15
2.24 Material Contracts................................................... 15
2.25 No Breach of Material Contracts...................................... 16
2.26 Export Control Laws.................................................. 16
2.27 Board Approval....................................................... 17
2.28 Complete Copies of Materials......................................... 17
2.29 Brokers' and Finders' Fees........................................... 17
2.30 Representations Complete............................................. 17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR........................... 17
3.1 Organization, Standing and Power..................................... 18
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.2 Authority............................................................ 18
3.3 SEC Documents; Financial Statements.................................. 18
3.4 Litigation........................................................... 19
3.5 Broker's and Finders' Fees........................................... 19
3.6 Representations Complete............................................. 19
ARTICLE IV CONDUCT PRIOR TO THE CLOSING DATE.................................... 20
4.1 Conduct of Business of Target........................................ 20
4.2 Conduct of Business of Target........................................ 20
4.3 No Solicitation...................................................... 22
ARTICLE V ADDITIONAL AGREEMENTS................................................ 23
5.1 Access to Information................................................ 23
5.2 Confidentiality...................................................... 23
5.3 Public Disclosure.................................................... 24
5.4 Consents; Cooperation................................................ 24
5.5 Best Efforts and Further Assurances.................................. 25
5.6 Legal Requirements................................................... 25
5.7 Employee Benefit Plans............................................... 25
5.8 Form S-8............................................................. 26
5.9 Listing of Additional Shares......................................... 27
5.10 Employees............................................................ 27
5.11 Escrow Agreement..................................................... 27
5.12 Code Section 338 Election............................................ 27
ARTICLE VI CONDITIONS TO THE CLOSING............................................ 27
6.1 Conditions to Obligations of Each Party to Effect the Closing........ 27
6.2 Additional Conditions to Obligations of the Sellers.................. 28
6.3 Additional Conditions to the Obligations of Acquiror................. 29
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER..................................... 31
7.1 Termination.......................................................... 31
7.2 Effect of Termination................................................ 32
7.3 Expenses and Termination Fees........................................ 32
ARTICLE VIII ESCROW AND INDEMNIFICATION............................................ 33
8.1 Escrow Fund.......................................................... 33
8.2 Indemnification...................................................... 33
8.3 Damage Limits........................................................ 34
8.4 Escrow Period........................................................ 34
8.5 Claims upon Escrow Fund.............................................. 34
8.6 Objections to Claims................................................. 34
8.7 Resolution of Conflicts; Arbitration................................. 35
</TABLE>
ii.
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.8 Sellers' Agent....................................................... 36
8.9 Actions of the Sellers' Agent........................................ 36
8.10 Third-Party Claims................................................... 36
ARTICLE IX GENERAL PROVISIONS................................................... 37
9.1 Survival............................................................. 37
9.2 Notices.............................................................. 37
9.3 Interpretation....................................................... 38
9.4 Entire Agreement; Assignment......................................... 38
9.5 Amendment Waiver..................................................... 38
9.6 Severability......................................................... 39
9.7 Remedies............................................................. 39
9.8 Consent to Jurisdiction; Service of Process.......................... 39
9.9 Governing Law........................................................ 40
9.10 Rules of Construction................................................ 40
9.11 Counterparts......................................................... 40
</TABLE>
iii.
<PAGE> 5
SCHEDULES
Acquiror Disclosure Schedule
Sellers Disclosure Schedule
Schedule 2.10 - Target Real Property
Schedule 2.11 - Target Intellectual Property
Schedule 2.14 - Target Employee Plans
Schedule 2.21 - Inventory
Schedule 2.24 - Material Contracts
Schedule 5.7 - Holders of Outstanding Target Options
EXHIBITS
Exhibit A - Form of Escrow Agreement
Exhibit B-1, et seq. - Forms of Waiver
Exhibit C-1, et seq. - Forms of Employment Agreement
Exhibit D - Form of Legal Opinion of Counsel to Acquiror
Exhibit E - Form of Legal Opinion of Counsel to the Sellers and
Target
Exhibit F - Exchange Ratio
iv.
<PAGE> 6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of May 2, 1998, by and among CISCO SYSTEMS, INC., a California
corporation ("Acquiror"), and each of the shareholders of C.D.S.I. Ltd., a
corporation organized under the laws of Israel ("Target"), identified on the
signature pages hereto (each, a "Seller" and collectively, the "Sellers").
RECITALS
A. Target has a registered share capital consisting of (i)
4,000,000 Preferred Shares of NIS 0.01 each, 3,000,000 of which are issued and
outstanding (such issued and outstanding shares, together with any other such
Preferred Shares issued hereafter, the "Preferred Shares"), and (ii) 2,260,000
Ordinary Shares of NIS 0.01 each, 2,015,000 of which are issued and outstanding
(such issued and outstanding shares, together with any other such Ordinary
Shares issued hereafter, the "Ordinary Shares" and collectively together with
the Preferred Shares, the "Shares").
B. The 5,015,000 aforesaid Shares constitute all of the
outstanding capital stock and voting securities of Target, and the Sellers own
of record and (except for Shares held by the Existing Trustee for the benefit of
employees and consultants of Target, as further described herein) beneficially
all of the Shares.
C. Acquiror wishes to purchase from the Sellers, and the Sellers
wish to sell to the Acquiror, the Shares, upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 Purchase and Sale of the Shares. Upon the terms and subject
to the conditions set forth in this Agreement, Acquiror agrees to purchase from
each of the Sellers, and each of the Sellers agrees to sell, assign, transfer
and deliver to Acquiror, the Shares owned by such Seller, in each case free and
clear of all liens, pledges, claims, charges, restrictions or other
encumbrances, for a cash purchase price per share equal to the quotient
determined by dividing fifty million U.S. Dollars (US$50,000,000) by the total
number of Shares so sold, assigned, transferred and delivered to Acquiror (the
"Purchase Price"), of which (i) an amount per share equal to the quotient
determined by dividing (x) five million U.S. Dollars (US$5,000,000) by (y) the
total number of Shares (excluding those Shares which constitute Trustee Shares
at the Closing hereunder) so sold, assigned, transferred and delivered to
Acquiror (the "Escrow Amount") shall be deposited in escrow at the Closing
pursuant to Article VIII below and (ii) the remainder (the "Closing Payment")
shall be paid at the Closing. Notwithstanding anything herein to the
1.
<PAGE> 7
contrary, the Trustee Shares shall not be sold, assigned, transferred and
delivered as provided in this Section 1.1, and shall instead be exchanged for
shares of Acquiror Common Stock in accordance with Section 5.7.
1.2 Closing. The closing of the purchase and sale of the Shares
(the "Closing") shall take place as soon as practicable after the satisfaction
or waiver of each of the conditions set forth in Article VI hereof or at such
other time as the parties hereto agree (the "Closing Date"). The Closing shall
take place at the offices of Brobeck, Phleger & Harrison LLP, Two Embarcadero
Place, 2200 Geng Road, Palo Alto, California, or at such other location as the
parties hereto agree.
1.3 Deliveries at the Closing. At the Closing:
(a) the Sellers shall deliver to Acquiror the certificates
representing the Shares, accompanied by share transfer forms in proper form duly
executed and attested to the satisfaction of Acquiror and its counsel; and
(b) the Sellers shall deliver to Acquiror all other
documents and instruments required hereunder to be delivered by (or at the
direction of) the Sellers to Acquiror at the Closing; and
(c) Acquiror shall (i) deposit the total Escrow Amount for
the Shares sold to Acquiror hereunder with the Escrow Agent in accordance with
Article VIII, (ii) pay to each Seller the Closing Payment for the Shares sold by
such Seller to Acquiror hereunder and (iii) deliver to the Sellers all other
documents and instruments required hereunder to be delivered by Acquiror to the
Sellers at the Closing. The obligation of Acquiror to pay the Closing Payments
to the Sellers hereunder shall be deemed satisfied and discharged by delivery of
checks to, or wire transfer of funds to accounts designated by, the Sellers'
Agent (as defined below), for the account of the appropriate payee or payees.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
In this Agreement, any reference to any event, change, condition
or effect being "material" with respect to any entity or group of entities means
any event, change, condition or effect which (i) is material to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations, or results of operations of such entity and
its subsidiaries, taken as a whole or (ii) would prevent or materially alter or
delay any of the transactions contemplated by this Agreement. In this Agreement,
any reference to a "Material Adverse Effect" with respect to any entity or group
of entities means any event, change or effect that (x) is materially adverse to
the condition (financial or otherwise), properties, assets, liabilities,
business, operations, or results of operations of such entity and its
subsidiaries, taken as a whole or (y) would prevent or materially alter or delay
any of the transactions contemplated by this Agreement. In the case of Target,
contracts, liabilities, events and other matters shall be deemed to be material
or to cause a Material Adverse Effect if they involve or are reasonably
2.
<PAGE> 8
expected to involve payments, expenditures, costs or liabilities of more than
$25,000 individually or in the aggregate.
In this Agreement, any reference to a party's "knowledge" means
(i) with respect to any natural person, the actual knowledge, after reasonable
inquiry, of such person or (ii) with respect to any corporation or other entity,
the actual knowledge of such party's officers, directors and other managers
provided that such persons shall have made reasonable inquiry of those employees
of such party whom such officers, directors and managers reasonably believe
would have actual knowledge of the matters represented.
Except as disclosed in that section of the document of even date
herewith and delivered by the Sellers to Acquiror prior to the execution and
delivery of this Agreement (the "Sellers Disclosure Schedule") corresponding to
the Section of this Agreement to which any of the following representations or
warranties pertain, the Sellers jointly and severally represent and warrant to
Acquiror as follows:
2.1 Organization, Standing and Power. Each of Target and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each of Target
and its subsidiaries has the corporate power to own its properties and to carry
on its business as now being conducted and as proposed to be conducted and is
duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified and in good standing would have a Material
Adverse Effect on Target. Target has delivered to Acquiror a true and correct
copy of the Memorandum and Articles of Association and Bylaws or other charter
or organizational documents, as applicable, of Target and each of its
subsidiaries, each as amended to date. Neither Target nor any of its
subsidiaries is in violation of any of the provisions of its Memorandum and
Articles of Association or Bylaws or other charter or organizational documents.
Except for its subsidiaries identified in Section 2.1 of the Sellers Disclosure
Schedule, Target does not own, and has never directly or indirectly owned, any
equity or similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
2.2 Capitalization; Title to the Shares.
(a) The authorized capital stock of Target consists of (i)
4,000,000 Preferred Shares of NIS 0.01 each, and (ii) 2,260,000 Ordinary Shares
of NIS 0.01 each. The issued and outstanding capital stock of Target consists
solely of 3,000,000 Preferred Shares and 2,015,000 Ordinary Shares. There are no
other outstanding shares of capital stock or voting securities and no
outstanding commitments to issue any shares of capital stock or voting
securities other than pursuant to the exercise of options outstanding under the
Target Stock Option Plan, as amended (the "Target Stock Option Plan"). All
outstanding Shares are duly authorized, validly issued, fully paid and
non-assessable and are free and clear of any liens or encumbrances and are not
subject to preemptive rights or rights of first refusal created by statute, the
Memorandum and Articles of Association, Bylaws or other charter or
organizational documents of Target or any agreement or instrument to which
Target is a party or by which it is bound. Of the Ordinary Shares issued and
outstanding, 1,000,000 shares are held by KH Trustees Ltd. (the "Existing
3.
<PAGE> 9
Trustee") solely for delivery to employees and consultants of Target and its
subsidiaries upon exercise of options outstanding under the Target Stock Option
Plan, and 656,250 shares are held by the Existing Trustee solely for delivery to
Mr. Arad Naveh, the President of Target, pursuant to the terms of the Founders
Employment Agreement dated November 5, 1996 between Target and Mr. Naveh (the
"Executive Agreement"). The Sellers have furnished to Acquiror a true and
complete copy of the Executive Agreement, as amended or modified to date. Since
April 30, 1998, Target has not issued or granted additional options under the
Target Stock Option Plan. Except for the rights created pursuant to this
Agreement, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Target is a party or by which it is bound
obligating Target to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of capital stock of
Target or obligating Target to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. Except for this Agreement, there are no
contracts, commitments or agreements relating to voting, purchase or sale of
Target's capital stock (i) between or among Target and any of its
securityholders, and (ii) between or among any of Target's securityholders. The
terms of the Target Stock Option Plan and the applicable stock option agreements
permit the assumption or substitution of options to purchase Acquiror Common
Stock as provided in this Agreement, without the consent or approval of the
holders of such securities, the Target securityholders or otherwise, and all
outstanding options shall, to the extent necessary, be amended pursuant to the
acceleration waiver required under Section 5.10 to modify the exercise schedule
and vesting provisions in effect for those options so as to preclude any
accelerated vesting or exercisability of those options by reason of the
transactions contemplated by this Agreement. The terms of the Executive
Agreement permit the assumption or substitution of rights to receive Acquiror
Common Stock as provided in this Agreement, without the consent or approval of
Mr. Naveh or otherwise, and all outstanding rights to acquire shares of Target
capital stock thereunder shall, to the extent necessary, be amended pursuant to
the acceleration waiver required under Section 5.10 to modify the exercise
schedule and vesting provisions in effect for those rights so as to preclude any
accelerated vesting, exercisability or entitlements related to such rights by
reason of the transactions contemplated by this Agreement. True and complete
copies of all agreements and instruments relating to or issued under the Target
Stock Option Plan and the Executive Agreement have been provided to Acquiror and
such agreements and instruments have not been amended, modified or supplemented,
and there are no agreements to amend, modify or supplement such agreements or
instruments in any case from the form provided to Acquiror. All outstanding
shares of capital stock and other securities of Target were issued in compliance
with all applicable laws.
(b) The sale and delivery of the Shares as contemplated by
this Agreement are not subject to any preemptive right, right of first refusal
or other right or restriction. Upon delivery of the certificates representing
the Shares in accordance with this Agreement, Acquiror will acquire good and
marketable title to the Shares, free and clear of any lien, pledge, claim,
charge, restriction or other encumbrance and with no title defects, and will be
entitled to all the rights of a holder of such Shares.
2.3 Authority.
4.
<PAGE> 10
(a) The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any provision of
the Memorandum and Articles of Association or Bylaws or other charter or
organizational documents of Target or any of its subsidiaries, each as amended,
or (ii) any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Target or any of its
subsidiaries or any of their properties or assets. No consent, approval, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity") is required by or with respect to Target
or any of its subsidiaries in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for such consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not have a Material Adverse Effect on Target and
would not prevent, or materially alter or delay any of the transactions
contemplated by this Agreement.
(b) Each of the Sellers has full power, authority and
legal capacity to execute and deliver this Agreement, to perform such Seller's
obligations hereunder and to consummate the transactions contemplated hereby
(including, without limitation, the sale of the Shares to Acquiror). This
Agreement has been duly executed and delivered by each of the Sellers and
constitutes the legal, valid and binding obligation of each of the Sellers,
enforceable against each of the Sellers in accordance with its terms. The
execution and delivery of this Agreement by each of the Sellers does not, and
the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under any mortgage,
indenture, trust, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to any of the Sellers or any of their
properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to any Seller in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby,
except for such consents, authorizations, filings, approvals and registrations
which, if not obtained or made, would not have a Material Adverse Effect on
Target and would not prevent, or materially alter or delay any of the
transactions contemplated by this Agreement.
2.4 Financial Statements. Target has delivered to Acquiror its
audited financial statements as at and for the fiscal years ended December 31,
1996 and 1997, and its unaudited financial statements (balance sheet, statement
of operations and statement of cash flows) as at, and for the quarter ended
March 31, 1998, and any notes thereto (collectively, the "Financial
Statements"). The Financial Statements have been prepared in accordance with
Israel generally accepted accounting principles ("GAAP") (except that the
unaudited financial statements do not have notes thereto) applied on a
consistent basis throughout the periods indicated and with each other. The
Financial Statements fairly present the consolidated financial condition and
operating results of Target and its subsidiaries as of the dates, and for the
periods, indicated therein, subject to normal and recurring year-end audit
adjustments. Each of Target and its subsidiaries maintains
5.
<PAGE> 11
and will continue to maintain an adequate system of internal controls
established and administered in accordance with GAAP.
2.5 Absence of Certain Changes. Since December 31, 1997, (the
"Target Balance Sheet Date"), each of Target and its subsidiaries has conducted
its business in the ordinary course consistent with past practice and there has
not occurred: (i) any change, event or condition (whether or not covered by
insurance), other than in the ordinary course of business consistent with past
practice, that has resulted in, or might reasonably be expected to result in, a
Material Adverse Effect on Target; (ii) any acquisition, sale or transfer of any
material asset of Target or any of its subsidiaries, other than in the ordinary
course of business consistent with past practice; (iii) any change in accounting
methods or practices (including any change in depreciation or amortization
policies or rates) by Target or any of its subsidiaries or any revaluation by
Target or any of its subsidiaries of any of its assets; (iv) any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the shares of Target or any of its subsidiaries, or any direct or indirect
redemption, purchase or other acquisition by Target or any of its subsidiaries
of any of its capital stock; (v) any material contract entered into by Target or
any of its subsidiaries, or any material amendment or termination of, or default
under, any material contract to which Target or any of its subsidiaries is a
party or by which it is bound, other than in the ordinary course of business
consistent with past practice; (vi) any amendment or change to the Memorandum
and Articles of Association, Bylaws or other charter or organizational documents
of Target or any of its subsidiaries; (vii) any increase in or modification of
the compensation or benefits payable or to become payable by Target or any of
its subsidiaries to any of its directors or employees or (viii) any agreement by
Target or any of its subsidiaries to do any of the things described in the
preceding clauses (i) through (vii) (other than negotiations with Acquiror and
its representatives regarding the transactions contemplated by this Agreement).
2.6 Absence of Undisclosed Liabilities. Neither Target nor any of
its subsidiaries has any material obligations or liabilities of any nature
(matured or unmatured, fixed or contingent) other than (i) those set forth or
adequately provided for in the Balance Sheet included in the Financial
Statements as of December 31, 1997 (the "Target Balance Sheet"), (ii) those
incurred in the ordinary course of business and not required to be set forth in
the Target Balance Sheet under GAAP, (iii) those incurred in the ordinary course
of business since the Target Balance Sheet Date and consistent with past
practice, and (iv) those incurred in connection with the execution of this
Agreement.
2.7 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of the Sellers,
threatened against Target or any of its subsidiaries or any of their respective
properties or officers or directors (in their capacities as such) or against any
of the Sellers or their respective affiliates or properties. There is no
judgment, decree or order against Target or any of its subsidiaries or, to the
knowledge of the Sellers, any of their respective properties or directors or
officers (in their capacities as such) or against any of the Sellers or their
respective affiliates or properties, that could prevent, enjoin, or materially
alter or delay any of the transactions contemplated by this Agreement, or that
could reasonably be expected to have a Material Adverse Effect on Target. The
Sellers Disclosure Schedule also lists all litigation that any of Target or its
subsidiaries has pending against other parties.
6.
<PAGE> 12
2.8 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Target or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or impairing any current or future business practice of Target or
any of its subsidiaries, any acquisition of property by Target or any of its
subsidiaries or the conduct of business by Target or any of its subsidiaries as
currently conducted or as proposed to be conducted by Target or any of its
subsidiaries.
2.9 Governmental Authorization. Each of Target and its
subsidiaries has obtained each governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to which Target or any
of its subsidiaries currently operates or holds any interest in any of its
properties or (ii) that is required for the operation of the business of Target
or any of its subsidiaries or the holding of any such interest ((i) and (ii)
herein collectively called "Target Authorizations"), and all of such Target
Authorizations are in full force and effect, except where the failure to obtain
or have any such Target Authorizations could not reasonably be expected to have
a Material Adverse Effect on Target.
2.10 Title to Property. Each of Target and its subsidiaries has
good and marketable title to all of its properties, interests in properties and
assets, real and personal, reflected in the Target Balance Sheet or acquired
after the Target Balance Sheet Date (except properties, interests in properties
and assets sold or otherwise disposed of since the Target Balance Sheet Date in
the ordinary course of business), or with respect to leased properties and
assets, valid leasehold interests in, free and clear of all mortgages, liens,
pledges, charges or encumbrances of any kind or character, except (i) the lien
of current taxes not yet due and payable, (ii) such imperfections of title,
liens and easements as do not and will not materially detract from or interfere
with the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) liens
securing debt which is reflected on the Target Balance Sheet. The plants,
property and equipment of Target and its subsidiaries that are used in the
operations of their businesses are in good operating condition and repair,
subject to normal wear and tear. All properties used in the operations of Target
and its subsidiaries are reflected in the Target Balance Sheet to the extent
GAAP require the same to be reflected. Schedule 2.10 identifies each parcel of
real property owned or leased by Target or any of its subsidiaries.
2.11 Intellectual Property.
(a) Each of Target and its subsidiaries owns, or is
licensed or otherwise possesses legally enforceable rights to use all patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, maskworks, net lists, schematics, technology, know-how, trade secrets,
inventory, ideas, algorithms, processes, computer software programs or
applications (in source code and/or object code form), and tangible or
intangible proprietary information or material ("Intellectual Property") that
are used or proposed to be used in the business of Target or any such subsidiary
as currently conducted or as proposed to be conducted by Target or any such
subsidiary. Without limiting the foregoing, neither Target nor any of its
subsidiaries has, directly or indirectly, (i) licensed any of its Intellectual
Property in source code form to any third party, (ii) entered into any agreement
requiring Target or any of its subsidiaries to license or otherwise provide
future versions, upgrades or enhancements of its Intellectual
7.
<PAGE> 13
Property in source code form, or (iii) entered into any exclusive agreements
relating to its Intellectual Property with any party.
(b) Schedule 2.11 lists (i) all patents and patent
applications and all registered and unregistered trademarks, trade names and
service marks, registered and unregistered copyrights, and maskworks, included
in the Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements as to which Target or any of its
subsidiaries is a party and pursuant to which any person is authorized to use
any Intellectual Property, and (iii) all licenses, sublicenses and other
agreements as to which Target or any of its subsidiaries is a party and pursuant
to which Target or any of its subsidiaries is authorized to use any third party
patents, trademarks or copyrights, including software ("Third Party Intellectual
Property Rights") which are incorporated in, are, or form a part of any product
of Target or any of its subsidiaries.
(c) There is no unauthorized use, disclosure, infringement
or misappropriation of any Intellectual Property rights of Target or any of its
subsidiaries, or any Intellectual Property right of any third party to the
extent licensed by or through Target or any of its subsidiaries by any third
party, including any employee or former employee of Target or any of its
subsidiaries. Neither Target nor any of its subsidiaries has entered into any
agreement to indemnify any other person against any charge of infringement of
any Intellectual Property, other than indemnification provisions contained in
purchase orders, contracts, consulting agreements and licenses arising in the
ordinary course of business.
(d) Neither Target nor any of its subsidiaries is, nor
will any of the same be as a result of the execution and delivery of this
Agreement or the performance of its obligations under this Agreement, in breach
of any license, sublicense or other agreement relating to the Intellectual
Property or Third Party Intellectual Property Rights.
(e) All patents, registered trademarks, service marks and
copyrights held by Target and/or its subsidiaries are valid and subsisting.
Neither Target nor any of its subsidiaries (i) has been sued in any suit, action
or proceeding which involves a claim of infringement of any patents, trademarks,
service marks, copyrights or violation of any trade secret or other proprietary
right of any third party; (ii) has any knowledge that the manufacturing,
marketing, licensing or sale of its products infringes any patent, trademark,
service mark, copyright, trade secret or other proprietary right of any third
party or (iii) has brought any action, suit or proceeding for infringement of
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party.
(f) Each of Target and its subsidiaries has secured valid
written assignments from all consultants and employees who contributed to the
creation or development of Intellectual Property of the rights to such
contributions that Target and/or its subsidiaries do not already own by
operation of law.
(g) Each of Target and its subsidiaries has taken all
necessary and appropriate steps to protect and preserve the confidentiality of
all Intellectual Property not
8.
<PAGE> 14
otherwise protected by patents, patent applications or copyright ("Confidential
Information"). All use, disclosure or appropriation of Confidential Information
owned by Target and/or its subsidiaries by or to a third party has been pursuant
to the terms of a written agreement between Target and/or its subsidiaries, on
the one hand, and such third party, on the other hand. All use, disclosure or
appropriation of Confidential Information not owned by Target has been pursuant
to the terms of a written agreement between Target and/or its subsidiaries, on
the one hand, and the owner of such Confidential Information, on the other hand,
or is otherwise lawful.
2.12 Environmental Matters.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any
laws, ordinances, codes, regulations, rules, policies and orders that are
intended to ensure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which are intended
to assure the safety of employees, workers or other persons, including the
public.
(ii) "Hazardous Materials" shall mean any toxic or
hazardous substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without limitation,
those substances, materials and wastes defined in or regulated under any
Environmental and Safety Laws.
(iii) "Property" shall mean all real property leased
or owned by Target or any of its subsidiaries, either currently or in the past.
(iv) "Facilities" shall mean all buildings and
improvements on the Property of Target or any of its subsidiaries.
(b) The Sellers represent and warrant as follows: (i) to
the knowledge of the Sellers, no methylene chloride or asbestos is contained in
or has been used at or released from the Facilities; (ii) all Hazardous
Materials and wastes used at or released from the Facilities, or otherwise used
or created by Target or any of its subsidiaries, have been disposed of in
accordance with all Environmental and Safety Laws; and (iii) neither Target nor
any of its subsidiaries has received any notice (oral or written) of any
noncompliance of the Facilities or its past or present operations with
Environmental and Safety Laws; (iv) no notices, administrative actions or suits
are pending or threatened relating to a violation of any Environmental and
Safety Laws; (v) neither Target nor any of its subsidiaries is a potentially
responsible party under the federal Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), or similar statute, arising out of
events resulting from the actions of Target or any such subsidiary occurring
prior to the Closing Date; (vi) to the knowledge of the Sellers, there have not
been in the past, and are not now, any Hazardous Materials on, under or
migrating to or from the Facilities or Property; (vii) there have not been in
the past, to the knowledge of the Sellers, and are not now, any underground
tanks or underground improvements at, on or under the Property including without
limitation, treatment or storage tanks, sumps, or water, gas or oil wells;
(viii)
9.
<PAGE> 15
to the knowledge of the Sellers, there are no polychlorinated biphenyls (PCBs)
deposited, stored, disposed of or located on the Property or Facilities or any
equipment on the Property containing PCBs at levels in excess of 50 parts per
million; (ix) to the knowledge of the Sellers, there is no formaldehyde on the
Property or in the Facilities, nor any insulating material containing urea
formaldehyde in the Facilities; (x) the Facilities and Target's uses and
activities therein have at all times complied with all Environmental and Safety
Laws; and (xi) Target has all the permits and licenses required to be issued
under all applicable laws regarding Environmental and Safety Laws and are in
full compliance with the terms and conditions of those permits.
2.13 Taxes. Target and any consolidated, combined, unitary or
aggregate group for Tax (as defined below) purposes of which Target is or has
been a member, have timely filed all Tax Returns required to be filed by them
and have paid all Taxes shown thereon to be due. Target has provided adequate
accruals in accordance with GAAP in its financial statements for any Taxes that
have not been paid, whether or not shown as being due on any Tax Returns. There
is (i) no material claim for Taxes that is a lien against the property of Target
or is being asserted against Target other than liens for Taxes not yet due and
payable, (ii) no audit of any Tax Return of Target being conducted by a Tax
Authority, and (iii) no extension of the statute of limitations on the
assessment of any Taxes granted by Target and currently in effect. Target is not
a party to any tax sharing or tax allocation agreement nor does Target owe any
amount under any such agreement. For purposes of this Agreement, the following
terms have the following meanings: "Tax" (and, with correlative meaning, "Taxes"
and "Taxable") means (i) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any governmental entity (a "Tax Authority")
responsible for the imposition of any such tax (domestic or foreign), (ii) any
liability for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any Taxable period and (iii) any liability for the payment of any
amounts of the type described in (i) or (ii) as a result of any express or
implied obligation to indemnify any other person. As used herein, "Tax Return"
shall mean any return, statement, report or form (including, without
limitation,) estimated Tax Returns and reports, withholding Tax Returns and
reports and information reports and returns required to be filed with respect to
Taxes. Target is in full compliance with all terms and conditions of any Tax
exemptions or other Tax-sharing agreement or order of a foreign government and
the consummation of the transactions contemplated hereby shall not have any
adverse effect on the continued validity and effectiveness of any such Tax
exemptions or other Tax-sharing agreement or order.
2.14 Employee Benefit Plans.
(a) Schedule 2.14 lists, with respect to Target and its
subsidiaries, and any trade or business (whether or not incorporated) which is
treated as a single employer with Target or any such subsidiary (an "ERISA
Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the Code,
(i) all material employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), (ii)
each loan to
10.
<PAGE> 16
a non-officer employee in excess of $10,000, loans to officers and directors and
any stock option, stock purchase, phantom stock, stock appreciation right,
supplemental retirement, severance, sabbatical, medical, dental, vision care,
disability, employee relocation, cafeteria benefit (Code Section 125) or
dependent care (Code Section 129), life insurance or accident insurance plans,
programs or arrangements, (iii) all bonus, pension, profit sharing, savings,
deferred compensation or incentive plans, programs or arrangements, (iv) other
fringe or employee benefit plans, programs or arrangements that apply to senior
management of Target or any such subsidiary and that do not generally apply to
all employees, and (v) any current or former employment or executive
compensation or severance agreements, written or otherwise, as to which
unsatisfied obligations of Target or any such subsidiary of greater than $10,000
remain for the benefit of, or relating to, any present or former employee,
consultant or director of Target or any such subsidiary (together, the "Target
Employee Plans").
(b) Target has furnished to Acquiror a copy of each of the
Target Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and any material employee communications
relating thereto) and has, with respect to each Target Employee Plan which is
subject to ERISA or Code Section 6039D reporting requirements, provided copies
of the Form 5500 reports filed for the last three plan years (if any). Any
Target Employee Plan intended to be qualified under Section 401(a) of the Code
has either obtained from the Internal Revenue Service a favorable determination
letter as to its qualified status under the Code, including all amendments to
the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or
has applied (or will apply) to the Internal Revenue Service for such a
determination letter prior to the expiration of the requisite period under
applicable Treasury Regulations or Internal Revenue Service pronouncements in
which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination (if the expiration for such
requisite period is prior to the Closing Date). Target has also furnished
Acquiror with the most recent Internal Revenue Service determination letter
issued with respect to each such Target Employee Plan, and nothing has occurred
since the issuance of each such letter which could reasonably be expected to
cause the loss of the tax-qualified status of any Target Employee Plan subject
to Code Section 401(a). Target has also furnished Acquiror with all registration
statements and prospectuses prepared in connection with each Target Employee
Plan.
(c) Each Target Employee Plan has been administered in
accordance with its terms and in compliance with the requirements prescribed by
any and all statutes, rules and regulations (including ERISA and the Code),
except as would not have, in the aggregate, a Material Adverse Effect, and
Target or any ERISA Affiliate have performed all obligations required to be
performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any material default or violation by any
other party to, any of the Target Employee Plans. With respect to each Target
Employee Plan subject to ERISA as either an employee pension plan within the
meaning of Section 3(2) of ERISA or an employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, Target has prepared in good faith and timely
filed all requisite governmental reports (which were true and correct as of the
date filed) and has properly and timely filed and distributed or posted all
notices and reports to employees required to be filed, distributed or posted
with respect to each such Target Employee
11.
<PAGE> 17
Plan. No suit, administrative proceeding, action or other litigation has been
brought, or to the best knowledge of the Sellers is threatened, against or with
respect to any such Target Employee Plan, including any audit or inquiry by the
IRS or United States Department of Labor.
(d) None of the Target Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person. Neither Target
nor any ERISA Affiliate has engaged in or knowingly permitted to occur and, to
the knowledge of the Sellers, no other party has engaged in or permitted to
occur any transaction prohibited by Section 406 of ERISA or "prohibited
transaction" under Section 4975 of the Code with respect to any Target Employee
Plan (except for any transactions which are exempt under Section 408(a) of ERISA
or Section 4975 of the Code), which could reasonably be expected to have, in the
aggregate, a Material Adverse Effect. Neither Target nor any ERISA Affiliate is
subject to any liability or penalty under Sections 4976 through 4980 of the Code
or Title I of ERISA with respect to any of the Target Employee Plans. All
contributions required to be made by Target or any ERISA Affiliate to any Target
Employee Plan have been made on or before their due dates and a reasonable
amount has been accrued for contributions to each Target Employee Plan for the
current plan years. With respect to each Target Employee Plan, no "reportable
event" within the meaning of Section 4043 of ERISA (excluding any such event for
which the thirty (30) day notice requirement has been waived under the
regulations to Section 4043 of ERISA) nor any event described in Section 4062,
4063 or 4041 or ERISA has occurred. No Target Employee Plan is covered by, and
neither Target nor any ERISA Affiliate has incurred or expects to incur any
liability under Title IV of ERISA or Section 412 of the Code. Each Target
Employee Plan can be amended, terminated or otherwise discontinued after the
Closing Date in accordance with its terms, without liability to Acquiror (other
than ordinary administrative expenses typically incurred in a termination
event).
(e) With respect to each Target Employee Plan, Target has
complied with (i) the applicable health care continuation and notice provisions
of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
regulations (including proposed regulations) thereunder except to the extent
that such failure to comply would not, in the aggregate, have a Material Adverse
Effect, (ii) the applicable requirements of the Family Medical and Leave Act of
1993 and the regulations thereunder except to the extent that such failure to
comply would not, in the aggregate, have a Material Adverse Effect, and (iii)
the applicable requirements of the Health Insurance Portability and
Accountability Act of 1996 and the regulations (including proposed regulations)
thereunder, except to the extent that such failure to so comply would not, in
the aggregate, have a Material Adverse Effect.
(f) The consummation of the transactions contemplated by
this Agreement will not (i) entitle any current or former employee or other
service provider of Target or any ERISA Affiliate to severance benefits or any
other payment, except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting (assuming the amendments set forth in
Section 2.2 become effective), or increase the amount of compensation due any
such employee or service provider.
(g) There has been no amendment to, written interpretation
or announcement (whether or not written) by Target, or any other ERISA Affiliate
relating to, or
12.
<PAGE> 18
change in participation or coverage under, any Target Employee Plan which would
materially increase the expense of maintaining such Plan above the level of
expense incurred with respect to that Plan for the most recent fiscal year
included in Target's financial statements.
(h) Target does not currently maintain, sponsor,
participate in or contribute to, nor has it ever maintained,established,
sponsored, participated in, or contributed to, any pension plan (within the
meaning of Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of
Title I of ERISA, Title IV of ERISA or Section 4.12 of the Code.
(i) Neither Target nor any ERISA Affiliate is a party to,
or has made any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA.
2.15 Certain Agreements Affected by the Transaction. Neither the
execution and delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of Target or any of its
subsidiaries, (ii) materially increase any benefits otherwise payable by Target
or any of its subsidiaries or (iii) result in the acceleration of the time of
payment or vesting of any such benefits. No payment or benefit which will or may
be made by Target or any of its subsidiaries to any Employee will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code.
2.16 Employee Matters. Each of Target and its subsidiaries is in
compliance in all material respects with all currently applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice. Each of
Target and its subsidiaries has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries, and other payments to
employees; and is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing. Neither Target nor any
of its subsidiaries is liable for any payment to any trust or other fund or to
any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending claims against
Target or any of its subsidiaries under any workers compensation plan or policy
or for long term disability. There are no controversies pending or, to the
knowledge of the Sellers, threatened between Target or any of its subsidiaries,
on the one hand, and any of their respective employees, on the other hand, which
controversies have or could reasonably be expected to result in an action, suit,
proceeding, claim, arbitration or investigation before any agency, court or
tribunal, foreign or domestic. Neither Target nor any of its subsidiaries is a
party to any collective bargaining agreement or other labor unions contract nor
does Target know of any activities or proceedings of any labor union or organize
any such employees. To the knowledge of the Sellers, no employees of Target or
any of its subsidiaries are in violation of any term of any employment contract,
patent disclosure agreement, noncompetition agreement, or any restrictive
covenant to a former employer relating to the right of any such employee to be
employed by Target or any of its subsidiaries because of the nature
13.
<PAGE> 19
of the business conducted or presently proposed to be conducted by Target or any
of its subsidiaries or to the use of trade secrets or proprietary information of
others. No employees of Target or any of its subsidiaries have given notice to
Target or any of its subsidiaries, nor is Target otherwise aware, that any such
employee intends to terminate his or her employment with Target or any of its
subsidiaries.
2.17 Interested Party Transactions. Neither Target nor any of its
subsidiaries is indebted to any director, officer, employee or agent of Target
or any such subsidiary (except for amounts due as normal salaries and bonuses
and in reimbursement of ordinary expenses), and no such person is indebted to
Target or any such subsidiary.
2.18 Insurance. Target and its subsidiaries have the policies of
insurance and bonds listed on Schedule 2.18. There is no material claim pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and each of
Target and its subsidiaries is otherwise in compliance with the terms of such
policies and bonds. The Sellers have no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
2.19 Compliance With Laws. Each of Target and its subsidiaries
has complied with, is not in violation of, and has not received any notices of
violation with respect to, any statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not be reasonably expected to
have a Material Adverse Effect on Target.
2.20 Minute Books. The minute books of Target and its
subsidiaries made available to Acquiror contain a complete and accurate summary
of all meetings of directors and shareholders or actions by written consent
since the time of incorporation of Target or such subsidiary, as the case may
be, through the date of this Agreement, and reflect all transactions referred to
in such minutes accurately in all material respects.
2.21 Inventory. The inventories shown on the Financial Statements
or thereafter acquired by Target or any of its subsidiaries, consisted of items
of a quantity and quality usable or salable in the ordinary course of business.
Since the Balance Sheet Date, each of Target and its subsidiaries has continued
to replenish inventories in a normal and customary manner consistent with past
practices. Neither Target nor any of its subsidiaries has received written or
oral notice that it will experience in the foreseeable future any difficulty in
obtaining, in the desired quantity and quality and at a reasonable price and
upon reasonable terms and conditions, the raw materials, supplies or component
products required for the manufacture, assembly or production of its products.
The values at which inventories are carried reflect the inventory valuation
policy of Target, which is consistent with its past practice and in accordance
with GAAP applied on a consistent basis. Since the Balance Sheet Date, due
provision was made on the books of Target and its subsidiaries in the ordinary
course of business consistent with past practices to provide for all
slow-moving, obsolete, or unusable inventories to their estimated useful or
scrap values and such inventory reserves are adequate to provide for such
slow-moving, obsolete or unusable inventory and inventory shrinkage. As of March
31, 1998, the inventory
14.
<PAGE> 20
of Target in the distribution channel does not exceed the amount set forth on
Schedule 2.21. Target has no commitments to purchase inventory in an amount that
exceeds the amount set forth on Schedule 2.21.
2.22 Accounts Receivable. Subject to any reserves set forth in
the Financial Statements, the accounts receivable shown on the Financial
Statements represent and will represent bona fide claims against debtors for
sales and other charges, and are not subject to discount except for normal cash
and immaterial trade discounts. The amount carried for doubtful accounts and
allowances disclosed in the Financial Statements is sufficient to provide for
any losses which may be sustained on realization of the receivables.
2.23 Customers and Suppliers. No customer which individually
accounted for more than 1% of Target's consolidated gross revenues during the
12-month period preceding the date hereof, and no supplier of Target or any of
its subsidiaries, has canceled or otherwise terminated, or made any written
threat to Target or any such subsidiary to cancel or otherwise terminate its
relationship with Target or any such subsidiary, or has decreased materially its
services or supplies to Target or any such subsidiary in the case of any such
supplier, or its usage of the services or products of Target or any such
subsidiary in the case of such customer, and to the knowledge of the Sellers, no
such supplier or customer intends to cancel or otherwise terminate its
relationship with Target or any such subsidiary or to decrease materially its
services or supplies to Target or any such subsidiary or its usage of the
services or products of Target or any such subsidiary, as the case may be.
Neither Target nor any of its subsidiaries has knowingly breached, so as to
provide a benefit to Target or any such subsidiary that was not intended by the
parties, any agreement with, or engaged in any fraudulent conduct with respect
to, any customer or supplier of Target or any such subsidiary.
2.24 Material Contracts. Except for the material contracts
described in Schedule 2.24 (collectively, the "Material Contracts"), neither
Target nor any of its subsidiaries is a party to or bound by any material
contract, including without limitation:
(a) any distributor, sales, advertising, agency or
manufacturer's representative contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contact more
than $20,000 over the life of the contract;
(c) any contract that expires or may be renewed at the
option of any person other than Target so as to expire more than one year after
the date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with generally accepted accounting
principles;
15.
<PAGE> 21
(e) any contract for capital expenditures in excess of
$20,000 in the aggregate;
(f) any contract limiting the freedom of Target or any of
its subsidiaries to engage in any line of business or to compete with any other
person or entity, or any confidentiality, secrecy or non-disclosure contract
outside the ordinary course of business consistent with past practice;
(g) any contract pursuant to which Target or any of its
subsidiaries is a lessor of any machinery, equipment, motor vehicles, office
furniture, fixtures or other personal property;
(h) any contract with any person with whom Target or any
of its subsidiaries does not deal at arm's length;
(i) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other Person;
(j) any agreement presently in effect relating to the sale
of any securities, assets or business, by merger or otherwise; or
(k) any agreement to do any of the foregoing.
2.25 No Breach of Material Contracts. Each of Target and its
subsidiaries has performed all of the obligations required to be performed by it
and is entitled to all benefits under, and is not alleged to be in default in
respect of any Material Contract. Each of the Material Contracts is in full
force and effect, unamended, and there exists no material default or event of
default or event, occurrence, condition or act, with respect to Target or any of
its subsidiaries or, to the knowledge of the Sellers, with respect to any other
party thereto, which, with the giving of notice, the lapse of the time or the
happening of any other event or condition, would become a material default or
event of default under any Material Contract. True, correct and complete copies
of all Material Contracts have been delivered to Acquiror.
2.26 Export Control Laws. Target has conducted its export
transactions in accordance with applicable provisions of all export control laws
and regulations, including but not limited to the U.S. Export Administration Act
and Export Administration Regulations, except to the extent that any violations
or noncompliance with any such laws and regulations would not or would not be
deemed to have a Material Adverse Effect on Target. Without limiting the
foregoing, Target represents and warrants that:
(a) Each of Target and its subsidiaries has obtained all
export licenses and other approvals required for its exports of products,
software and technologies from Israel or the United States;
16.
<PAGE> 22
(b) Each of Target and its subsidiaries is in compliance
with the terms of all applicable export licenses or other approvals;
(c) There are no pending or threatened claims against
Target with respect to such export licenses or other approvals;
(d) There are no actions, conditions or circumstances
pertaining to export transactions involving Target or any of its subsidiaries
that may give rise to any future claims; and
(e) No consents or approvals for the transfer of export
licenses to Acquiror or the Surviving Corporation are required, or such consents
and approvals can be obtained expeditiously without material cost.
The Sellers and, prior to the Closing Date, Target shall
indemnify, defend and hold harmless Acquiror against any and all liability in
connection with alleged non-compliance with United States export control laws
and regulations by Target or any of its subsidiaries prior to the Closing Date.
2.27 Board Approval. The Board of Directors of Target has
unanimously (i) approved this Agreement and the transactions contemplated
hereby, (ii) determined that the transactions contemplated hereby are in the
best interests of the shareholders of Target and are on terms that are fair to
such holders and (iii) recommended that the shareholders of Target enter into
this Agreement and sell their shares of Target capital stock to Acquiror upon
the terms hereof.
2.28 Complete Copies of Materials. Target has delivered or made
available true and complete copies of each document which has been requested by
Acquiror or its counsel in connection with their legal and accounting review of
Target and its subsidiaries.
2.29 Brokers' and Finders' Fees. None of Target or any of the
Sellers has incurred, nor will any of them incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or investment
bankers' fees or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.30 Representations Complete. None of the representations or
warranties made by the Sellers or Target herein or in any Schedule hereto,
including the Sellers Disclosure Schedule, or certificate furnished by any of
the Sellers or Target pursuant to this Agreement, when all such documents are
read together in their entirety, contains or will contain at the Closing Date
any untrue statement of a material fact, or omits or will omit at the Closing
Date to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which made,
not misleading.
17.
<PAGE> 23
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Except as disclosed in that section of the document of even date
herewith and delivered by Acquiror to the Sellers' Agent, on behalf of the
Sellers, prior to the execution and delivery of this Agreement (the "Acquiror
Disclosure Schedule") corresponding to the Section of this Agreement to which
any of the following representations or warranties pertains, Acquiror represents
and warrants to the Sellers as follows:
3.1 Organization, Standing and Power. Each of Acquiror and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of Acquiror
and its subsidiaries has the corporate power to own its properties and to carry
on its business as now being conducted and as proposed to be conducted and is
duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified and in good standing would have a Material
Adverse Effect on Acquiror. Neither Acquiror nor any of its subsidiaries is in
violation of any of the provisions of its Articles of Incorporation or Bylaws or
equivalent organizational documents.
3.2 Authority. Acquiror has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Acquiror. This Agreement has
been duly executed and delivered by Acquiror and constitutes the legal, valid
and binding obligations of Acquiror. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a benefit
under (i) any provision of the Articles of Incorporation or Bylaws of Acquiror,
each as amended, or (ii) any material mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Acquiror or its properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity, is required by or with respect to Acquiror in connection with the
execution and delivery of this Agreement by Acquiror or the consummation by
Acquiror of the transactions contemplated hereby, except for (i) the filing, if
any, of a current report on Form 8-K with the U.S. Securities and Exchange
Commission (the "SEC") and National Association of Securities Dealers ("NASD")
after the Closing Date, (ii) any filings as may be required under applicable
state securities laws, (iii) the filing of a registration statement on Form S-8
with the SEC, or other applicable form covering the shares of Acquiror Common
Stock issuable pursuant to outstanding options and rights under the Target Stock
Option Plan and the Executive Agreement assumed by Acquiror, (iv) the filing
with the Nasdaq National Market of a Notification Form for Listing of Additional
Shares with respect to the shares of Acquiror Common Stock issuable upon
exercise of the options and rights under the Target Stock Option Plan and the
Executive Agreement assumed by Acquiror, and (v) such other consents,
authorizations, filings, approvals and registrations which, if not obtained
18.
<PAGE> 24
or made, would not have a Material Adverse Effect on Acquiror and would not
prevent, materially alter or delay any of the transactions contemplated by this
Agreement.
3.3 SEC Documents; Financial Statements. Acquiror has made
available to the Sellers Agent, on behalf of the Sellers, each statement,
report, registration statement, definitive proxy statement, and other filing
filed with the SEC by Acquiror since July 31, 1996 (collectively, the "Acquiror
SEC Documents"). In addition, Acquiror has made available to the Sellers' Agent,
on behalf of the Sellers, all exhibits to the Acquiror SEC Documents filed prior
to the date hereof, and will promptly make available to the Sellers' Agent, on
behalf of the Sellers, all exhibits to any additional Acquiror SEC Documents
filed prior to the Closing Date. As of their respective filing dates, the
Acquiror SEC Documents complied in all material respects with the requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act of 1933, as amended (the "Securities Act"), and none of the
Acquiror SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a subsequently
filed Acquiror SEC Document. The financial statements of Acquiror, including the
notes thereto, included in the Acquiror SEC Documents (the "Acquiror Financial
Statements") were complete and correct in all material respects as of their
respective dates, complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto as of their respective dates, and have been prepared in
accordance with United States generally accepted accounting principles applied
on a basis consistent throughout the periods indicated and consistent with each
other (except as may be indicated in the notes thereto or, in the case of
unaudited statements included in Quarterly Reports on Form 10-Qs, as permitted
by Form 10-Q of the SEC). The Acquiror Financial Statements fairly present the
consolidated financial condition and operating results of Acquiror and its
subsidiaries at the dates and during the periods indicated therein (subject, in
the case of unaudited statements, to normal, recurring year-end adjustments).
3.4 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Acquiror, threatened
against Acquiror or its properties or any of its officers or directors (in their
capacities as such) that, individually or in the aggregate, could reasonably be
expected to materially alter or delay any of the transactions contemplated by
this Agreement. There is no judgment, decree or order against Acquiror or, to
the knowledge of Acquiror, any of its respective directors or officers (in their
capacities as such) that could prevent, enjoin, or materially alter or delay any
of the transactions contemplated by this Agreement.
3.5 Broker's and Finders' Fees. Acquiror has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or investment bankers' fees or any similar charges
in connection with this Agreement or any transaction contemplated hereby.
3.6 Representations Complete. None of the representations or
warranties made by Acquiror herein or in any Schedule hereto, including the
Acquiror Disclosure Schedule, or certificate furnished by Acquiror pursuant to
this Agreement, when all such documents are read
19.
<PAGE> 25
together in their entirety, contains or will contain at the Closing Date any
untrue statement of a material fact, or omits or will omit at the Closing Date
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE IV
CONDUCT PRIOR TO THE CLOSING DATE
4.1 Conduct of Business of Target. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Closing Date, except to the extent expressly contemplated
by this Agreement or as consented to in writing by Acquiror, the Sellers shall
cause Target to carry on its and its subsidiaries' business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted. The Sellers shall cause Target to pay debts and Taxes when due
subject (i) to good faith disputes over such debts or Taxes and (ii) to
Acquiror's consent to the filing of material Tax Returns if applicable, to pay
or perform other obligations when due, and to use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organizations, keep available the services of its present officers and
key employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it,
to the end that its goodwill and ongoing businesses shall be unimpaired at the
Closing Date. The Sellers shall cause Target to promptly notify Acquiror of any
event or occurrence not in the ordinary course of its or its subsidiaries'
business, and of any event which could have a Material Adverse Effect.
4.2 Conduct of Business of Target. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Closing Date, except as set forth in the Sellers
Disclosure Schedule and as expressly contemplated by this Agreement, the Sellers
shall not permit Target or any of its subsidiaries to do, cause or permit, any
of the following without the prior written consent of Acquiror:
(a) Charter Documents. Cause or permit any amendments to
its Memorandum and Articles of Association or Bylaws or other charter or
organizational documents, or form any subsidiaries;
(b) Dividends; Changes in Capital Stock. Declare or pay
any dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it;
(c) Stock Option Plans, Etc. Accelerate, amend or change
the period of exercisability or vesting of options or other rights granted under
its stock plans (except for the
20.
<PAGE> 26
acceleration waiver required pursuant to Section 5.10) or authorize cash
payments in exchange for any options or other rights granted under any of such
plans;
(d) Material Contracts. Enter into any material contract
or commitment, or violate, amend or otherwise modify or waive any of the terms
of any of its material contracts, other than in the ordinary course of business
consistent with past practice;
(e) Issuance of Securities. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of its Ordinary Shares pursuant
to the exercise of stock options, warrants or other rights therefor outstanding
as of the date of this Agreement;
(f) Intellectual Property. Transfer to any person or
entity any rights to its Intellectual Property other than in the ordinary course
of business consistent with past practice;
(g) Exclusive Rights. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of its products or
technology;
(h) Dispositions. Sell, lease, license or otherwise
dispose of or encumber any of its properties or assets which are material,
individually or in the aggregate, to its business, taken as a whole except for
sales of products in the ordinary course;
(i) Indebtedness. Incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(j) Leases. Enter into any operating lease in excess of
$10,000;
(k) Payment of Obligations. Pay, discharge or satisfy in
an amount in excess of $10,000 in any one case or $25,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the Target Financial Statements;
(l) Capital Expenditures. Make any capital expenditures,
capital additions or capital improvements except in the ordinary course of
business and consistent with past practice;
(m) Insurance. Materially reduce the amount of any
material insurance coverage provided by existing insurance policies;
21.
<PAGE> 27
(n) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(o) Employee Benefit Plans; New Hires; Pay Increases.
Adopt or amend any employee benefit or stock purchase or option plan, or hire
any new director level or officer level employee, pay any special bonus or
special remuneration to any employee or director or increase the salaries or
wage rates of its employees;
(p) Severance Arrangements. Grant any severance or
termination pay (i) to any director or officer or (ii) to any other employee
except payments made pursuant to standard written agreements outstanding on the
date hereof;
(q) Lawsuits. Commence a lawsuit other than (i) for the
routine collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material impairment
of a valuable aspect of its business, provided that it consults with Acquiror
prior to the filing of such a suit, or (iii) for a breach of this Agreement;
(r) Acquisitions. Acquire or agree to acquire by merging
or consolidating with, or by purchasing a substantial portion of the assets of,
or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to its business;
(s) Taxes. Other than in the ordinary course of business,
make or change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or any
amendment to a material Tax Return, enter into any closing agreement, settle any
claim or assessment in respect of Taxes, or consent to any extension or waiver
of the limitation period applicable to any claim or assessment in respect of
Taxes;
(t) Notices. Give all notices and other information
required to be given to the employees of Target, any collective bargaining unit
representing any group of employees of Target, and any applicable government
authority under Israel law, the WARN Act, the National Labor Relations Act, the
Code, the Consolidated Omnibus Budget Reconciliation Act, and other law in
connection with the transactions provided for in this Agreement, to the extent
any such law is applicable;
(u) Revaluation. Revalue any of its assets, including
without limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; or
(v) Other. Take or agree in writing or otherwise to take,
any of the actions described in Sections 4.2(a) through (u) above, or any action
which would make any of its representations or warranties contained in this
Agreement untrue or incorrect in any material respect or prevent it from
performing or cause it not to perform its covenants hereunder or which could
reasonably be expected to have a Material Adverse Effect on Target.
22.
<PAGE> 28
4.3 No Solicitation. The Sellers will not (and will cause Target
and its subsidiaries and the officers, directors, employees or other agents and
representatives of Target and its subsidiaries not to), directly or indirectly,
(i) take any action to solicit, initiate or encourage any Takeover Proposal (as
defined below) or (ii) engage in negotiations with, or disclose any nonpublic
information relating to Target or any of its subsidiaries to, or afford access
to the properties, books or records of Target or any of its subsidiaries to, any
person that has advised Target or any of its subsidiaries that it may be
considering making, or that has made, a Takeover Proposal. The Sellers shall not
permit Target or any of its subsidiaries or any officers, directors, employees
or other agents or representatives of any of the same to agree to or endorse any
Takeover Proposal. The Sellers will, and will cause Target to, promptly notify
Acquiror after receipt of any Takeover Proposal or any notice that any person is
considering making a Takeover Proposal or any request for nonpublic information
relating to Target or any of its subsidiaries or for access to the properties,
books or records of Target or any of its subsidiaries by any person that has
advised Target or any of its subsidiaries that it may be considering making, or
that has made, a Takeover Proposal and will keep Acquiror fully informed of the
status and details of any such Takeover Proposal notice, request or any
correspondence or communications related thereto and shall provide Acquiror with
a true and complete copy of such Takeover Proposal notice or request or
correspondence or communications related thereto, if it is in writing, or a
written summary thereof, if it is not in writing. For purposes of this
Agreement, "Takeover Proposal" means any offer or proposal for, or any
indication of interest in, a merger, consolidation or other business combination
involving Target or any of its subsidiaries or the acquisition of beneficial
ownership of 35% or more of the aggregate outstanding capital stock or voting
power of securityholders of Target or any of its subsidiaries, or any material
portion of the assets or properties of Target and its subsidiaries, other than
the sale of Shares to Acquiror contemplated by this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access to Information.
(a) The Sellers shall cause Target to afford Acquiror and
its officers, directors, employees, accountants, counsel and other agents and
representatives, reasonable access during normal business hours during the
period prior to the Closing Date to (i) all of Target's properties, books,
contracts, commitments and records, and (ii) all other information concerning
the business, properties and personnel of Target as Acquiror may reasonably
request. The Sellers shall cause Target to provide to Acquiror and its officers,
directors, employees, accountants, counsel and other agents and representatives
copies of internal financial statements promptly upon request.
(b) Subject to compliance with applicable law, from the
date hereof until the Closing Date, the Sellers shall cause Target to confer on
a regular and frequent basis with one or more representatives of Acquiror to
report operational matters of materiality and the general status of ongoing
operations.
23.
<PAGE> 29
(c) No information or knowledge obtained in any
investigation pursuant to this Section 5.3 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Closing.
5.2 Confidentiality. The parties acknowledge that Acquiror and
Target have previously executed a non-disclosure agreement dated April 14, 1998
(the "Confidentiality Agreement"), which Confidentiality Agreement shall
continue in full force and effect in accordance with its terms. Each of the
Sellers agrees to be bound by the Confidentiality Agreement, with the same
duties and obligations as Target thereunder.
5.3 Public Disclosure. Unless otherwise permitted by this
Agreement, Acquiror and the Sellers' Agent, on behalf of the Sellers, shall
consult with each other before issuing any press release or otherwise making any
public statement or making any other public (or non- confidential) disclosure
(whether or not in response to an inquiry) regarding the terms of this Agreement
and the transactions contemplated hereby, and neither shall issue any such press
release or make any such statement or disclosure without the prior approval of
the other (which approval shall not be unreasonably withheld), except as may be
required by law or by obligations pursuant to any listing agreement with any
national securities exchange or with the NASD.
5.4 Consents; Cooperation.
(a) Acquiror shall, and the Sellers shall cause Target to,
promptly apply for or otherwise seek, and use its best efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of the
transactions contemplated hereby (including, without limitation, the consents
and approvals referred to in Section 6.1(d)), and shall use commercially
reasonable efforts to obtain all necessary consents, waivers and approvals under
any of its material contracts in connection with the transactions contemplated
hereby for the assignment thereof or otherwise. The parties hereto will consult
and cooperate with one another, and consider in good faith the views of one
another, in connection with any analyses, appearances, presentations, memoranda,
briefs, arguments, opinions and proposals made or submitted by or on behalf of
any party hereto in connection with the foregoing.
(b) Acquiror shall, and the Sellers shall cause Target to,
use all commercially reasonable efforts to resolve such objections, if any, as
may be asserted by any Governmental Entity with respect to the transactions
contemplated by this Agreement. In connection therewith, if any administrative
or judicial action or proceeding is instituted (or threatened to be instituted)
challenging any transaction contemplated by this Agreement as violative of any
applicable law or agreement, Acquiror shall (and the Sellers shall cause Target
and each of its subsidiaries to) cooperate and use all commercially reasonable
efforts vigorously to contest and resist any such action or proceeding and to
have vacated, lifted, reversed, or overturned any decree, judgment, injunction
or other order, whether temporary, preliminary or permanent (each an "Order"),
that is in effect and that prohibits, prevents, or restricts consummation of the
Closing or any such other transactions, unless by mutual agreement Acquiror and
a majority in interest of the Sellers decide that litigation is not in their
respective best interests. Acquiror shall, and the Sellers shall cause Target
to, use all commercially reasonable efforts to take such action as may be
required to cause the expiration of all applicable
24.
<PAGE> 30
waiting or notice periods under any and all applicable laws with respect to such
transactions as promptly as possible after the execution of this Agreement.
(c) Notwithstanding anything to the contrary in Section
5.4(a) or (b), neither Acquiror nor any of it subsidiaries shall be required to
divest any of their respective businesses, product lines or assets, or to take
or agree to take any other action or agree to any limitation that could
reasonably be expected to have a Material Adverse Effect on Acquiror after the
Closing Date.
5.5 Best Efforts and Further Assurances. Each of the parties to
this Agreement shall use such party's reasonable best efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement. Each party hereto, at the reasonable
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.6 Legal Requirements. Each of the parties hereto will take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with and
furnish information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
5.7 Employee Benefit Plans.
(a) Waiver. Prior to the Closing Date, the Sellers shall
cause Target to obtain from each individual named in Schedule 5.7 a written
waiver, in substantially the form of Exhibit B hereto (the "Waiver").
(b) New Trustee; Conversion of Trustee Shares. Immediately
prior to the Effective Time, the Existing Trustee shall resign as trustee for
(i) the outstanding Ordinary Shares issued under the Target Stock Option Plan
and held by the Existing Trustee for the benefit of those employees and
consultants of Target and its subsidiaries, in the respective amounts, indicated
on attached Schedule 5.7 (the "Option Plan Shares") and (ii) the outstanding
Ordinary Shares issued pursuant to the Executive Agreement and held by the
Existing Trustee for the benefit of Mr. Arad Naveh in the amount indicated on
attached Schedule 5.7 (the "Executive Shares" and, together with the Option Plan
Shares, the "Trustee Shares"). As of the Closing, the Existing Trustee shall
assign all of its rights, title, interest and obligations with respect to the
Trustee Shares to a new trustee designated by Acquiror and reasonably acceptable
to the Sellers' Agent (the "New Trustee") prior to the Closing and shall at that
time deliver all of the Trustee Shares to the New Trustee, pursuant to
instruments in form and substance satisfactory to
25.
<PAGE> 31
Acquiror. At the Closing, each Trustee Share issued and outstanding immediately
prior to the Closing shall be exchanged for such number of shares of Acquiror
Common Stock as shall be determined in accordance with Exhibit F hereto (the
"Exchange Ratio"). The shares of Acquiror Common Stock delivered in exchange for
the Trustee Shares shall thereafter be held by the New Trustee for the benefit
of the individuals named as participants in the Target Stock Option Plan and the
Executive Agreement in attached Schedule 5.7, in the same proportion as the
Trustee Shares were held by such individuals prior to the Closing, until such
time as those shares have vested in accordance with the original vesting
schedules (as modified by the Waiver) applicable to the shares.
(c) Assumption of Options. At the Closing, each
outstanding option award to purchase Ordinary Shares under the Target Stock
Option Plan (the "Target Options"), whether vested or unvested (as modified by
the Waiver), shall be assumed by Acquiror. The Sellers represent and warrant to
Acquiror that Schedule 5.7 hereto sets forth a true and complete list as of the
date hereof of all holders of outstanding Target Option, including the number of
Ordinary Shares subject to each such option, the exercise or vesting schedule
(as modified by the Waiver to be executed prior to the Closing Date), the
exercise price per share and the term of each such Target Option. On the Closing
Date, the Sellers shall cause Target to deliver to Acquiror an updated Schedule
5.7 hereto current as of such date. Each such Target Option so assumed by
Acquiror under this Agreement shall continue to have, and be subject to, the
same terms and conditions set forth in the Option Plan and the applicable stock
option agreement (as modified by the Waiver) immediately prior to the Closing,
except that (i) such Target Option shall be exercisable for that number of whole
shares of Acquiror Common Stock equal to the product of the number of Ordinary
Shares that were issuable upon exercise of such option immediately prior to the
Closing Date multiplied by the Exchange Ratio and rounded down to the nearest
whole number of shares of Acquiror Common Stock, and (ii) the per share exercise
price for the shares of Acquiror Common Stock issuable upon exercise of such
assumed Target Option shall be equal to the quotient determined by dividing the
exercise price per Ordinary Share at which such option was exercisable
immediately prior to the Closing by the Exchange Ratio, rounded up to the
nearest whole cent. Consistent with the terms of the Target Stock Option Plan
and the documents governing the outstanding Target Options (including the
Waiver), the transactions contemplated hereby shall not terminate any of the
outstanding Target Options or accelerate the exercisability or vesting of such
options or the Ordinary Shares which will be subject to those options upon the
Acquiror's assumption of the options at the Closing. After the Closing, each
assumed Target Option shall continue to be subject to Section 102 (and the
regulations thereunder) of the Israeli Income Tax Ordinance ("Section 102") only
to the extent the option was so subject prior to the Closing and the continuing
applicability of Section 102 to such options is approved by the Israeli Tax
Authorities pursuant to Section 6.3(j) hereof. Within 20 business days after the
Closing Date, Acquiror shall issue to each person who, immediately prior to the
Closing Date, was a holder of an outstanding Target Option a document in
appropriate form evidencing the foregoing assumption of such option by Acquiror.
(d) Assignment of Repurchase Options. Any outstanding
rights of Target which it may hold immediately prior to the Closing Date to
repurchase its unvested Ordinary Shares (the "Repurchase Options") shall be
assigned to Acquiror at the Closing and shall thereafter be exercisable by
Acquiror upon the same terms and conditions in effect immediately
26.
<PAGE> 32
prior to the Closing, except that the Ordinary Shares purchasable pursuant to
the Repurchase Options and the purchase price per shall be adjusted to reflect
the Exchange Ratio.
5.8 Form S-8. Acquiror agrees to file, no later than 10 business
days after the Closing Date, a registration statement on Form S-8 covering the
shares of Acquiror Common Stock issuable pursuant to outstanding options and
rights under the Target Stock Option Plan and the Executive Agreement assumed by
Acquiror hereunder. The Sellers shall, and shall cause Target to, cooperate with
and assist Acquiror in the preparation of such registration statement.
5.9 Listing of Additional Shares. Prior to the Closing, Acquiror
shall file with the Nasdaq National Market a Notification Form for Listing of
Additional Shares with respect to the shares of Acquiror Common Stock issuable
upon exercise of the options and rights under the Target Stock Option Plan and
Executive Agreement assumed by Acquiror hereunder.
5.10 Employees. The Sellers acknowledge receipt of a letter of
even date herewith from Acquiror, setting forth a list of employees of Target to
whom Acquiror will make an offer of employment pursuant to an Employment and
Non-Competition Agreement, substantially in the form of Exhibit C-1 et seq.
hereto (the "Employee Letter"). Acquiror will negotiate in good faith to enter
into an agreement with the employees listed in the Employee Letter. The Sellers
shall cause Target to cooperate with Acquiror to assist Acquiror in entering
into an agreement with such employees. Acquiror shall have no obligation to make
an offer of employment to any employee of Target except those listed in the
Employee Letter.
5.11 Escrow Agreement. At or before the Closing Date, the parties
will cause the Escrow Agent to, and the Sellers' Agent will, execute the Escrow
Agreement contemplated by Article VIII in substantially the form attached hereto
as Exhibit A (the "Escrow Agreement").
5.12 Code Section 338 Election. Acquiror shall be entitled, in
its discretion, to elect under Section 338 of the Internal Revenue Code of 1986,
as amended, to treat the transactions contemplated hereby as an asset purchase
for United States federal income tax purposes.
ARTICLE VI
CONDITIONS TO THE CLOSING
6.1 Conditions to Obligations of Each Party to Effect the
Closing. The respective obligations of each party to this Agreement to
consummate and effect the transactions contemplated hereby shall be subject to
the satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, by agreement of all the parties hereto
(to the extent permitted by law):
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the sale of the Shares hereunder
shall be in effect, nor shall any proceeding brought by an
27.
<PAGE> 33
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
nor shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the sale of the Shares
hereunder, which makes the consummation of the sale of the Shares hereunder
illegal. In the event an injunction or other order shall have been issued, each
party agrees to use its reasonable efforts to have such injunction or other
order lifted.
(b) Governmental Approval. Acquiror, Target, their
respective subsidiaries and the Sellers shall have timely obtained from each
Governmental Entity all approvals, waivers and consents, if any, necessary for
consummation of or in connection with the transactions contemplated hereby,
including such approvals, waivers and consents as may be required under Israel
law.
(c) Escrow Agreement. Acquiror, Target, Escrow Agent and
the Shareholder's Agent shall have entered into the Escrow Agreement.
(d) Tax Ruling. The Israeli Tax Authorities shall have (i)
consented to or approved the appointment of the New Trustee as trustee under
Section 102 for the Ordinary Shares of Acquiror to be issued to certain
employees of Target (or any successor in interest thereto) pursuant to the
assumed Target Options, (ii) confirmed that the assumption by Acquiror of the
Target Options will not result in a taxable event with respect to any such
Target Option which was subject to Section 102 immediately prior to the Closing
and (iii) consented to or approved of the continued applicability of Section 102
following the Closing to each such Target Option to which that Section applied
immediately prior to the Closing. Acquiror and the Sellers' Agent shall have
been furnished with evidence reasonably satisfactory to them of the foregoing.
6.2 Additional Conditions to Obligations of the Sellers. The
obligations of the Sellers to consummate and effect the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any of which may be waived, in
writing, by a majority in interest of the Sellers:
(a) Representations, Warranties and Covenants. Except as
disclosed in the Acquiror Disclosure Schedule, (i) the representations and
warranties of Acquiror in this Agreement shall be true and correct in all
material respects (except that these representations and warranties that are
qualified by their terms as to materiality shall be true and correct in all
respects) as of the Closing as though such representations and warranties were
made as of such time and (ii) Acquiror shall have performed and complied in all
material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it at or prior to the
Closing.
(b) Certificate of Acquiror. The Sellers shall have been
provided with a certificate executed on behalf of Acquiror by an executive
officer to the effect that, as of the Closing:
(i) except as disclosed in the Acquiror Disclosure
Schedule, all representations and warranties made by Acquiror under this
Agreement are true and complete in
28.
<PAGE> 34
all material respects (except that these representations and warranties that are
qualified by their terms as to materiality shall be true and correct in all
respects) as of the Closing as though such representations and warranties were
made as of such time; and
(ii) all covenants, obligations and conditions of
this Agreement required to be performed or complied with by Acquiror at or
before the Closing have been so performed or complied with in all material
respects.
(c) Legal Opinion. The Sellers' Agent, on behalf of the
Sellers, shall have received a legal opinion from Acquiror's legal counsel
substantially in the form of Exhibit D hereto.
(d) Employment and Non-Competition Agreements. Acquiror
and shall have entered into an Employment and Non-Competition Agreement
substantially in the form attached hereto as Exhibit C-1 et. seq. with each
employee of Target listed in the Employee Letter who has executed such
agreement.
6.3 Additional Conditions to the Obligations of Acquiror. The
obligations of Acquiror to consummate and effect the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing of each
of the following conditions, any of which may be waived, in writing, by
Acquiror:
(a) Representations, Warranties and Covenants. Except as
disclosed in the Sellers Disclosure Schedule dated the date of this Agreement
(i) the representations and warranties of the Sellers in this Agreement shall be
true and correct in all material respects (except that those representations and
warranties that are qualified by their terms as to materiality shall be true and
correct in all respects) as of the Closing as though such representations and
warranties were made as of such time and (ii) the Sellers shall have performed
and complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied with by any
of them at or prior to the Closing.
(b) Certificate of Target. Acquiror shall have been
provided with a certificate executed on behalf of Target by its President and
Chief Financial Officer and executed by each of the Specified Sellers and by the
Sellers' Agent, in the name and on behalf of the other Sellers, to the effect
that, as of the Closing Date:
(i) except as set forth in the Sellers Disclosure
Schedule, all representations and warranties made by the Sellers under this
Agreement are true and complete in all material respects (except that those
representations and warranties that are qualified by their terms as to
materiality shall be true and correct in all respects) as of the Closing as
though such representations and warranties were made as of such time; and
(ii) all covenants, obligations and conditions of
this Agreement required to be performed or complied with by the Sellers at or
before the Closing have been so performed or complied with in all material
respects.
29.
<PAGE> 35
(c) Third Party Consents. Acquiror shall have been
furnished with evidence satisfactory to it of the consent or approval of those
persons whose consent or approval shall be required in connection with the
transactions contemplated hereby.
(d) Injunctions or Restraints on Closing and Conduct of
Business. No proceeding brought by any administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking to
limit or restrict the conduct or operation of the business of Target or any of
its subsidiaries by Acquiror shall be pending. In addition, no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision limiting or restricting Acquiror's conduct or operation of the
business of Target following the Closing shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.
(e) Legal Opinion. Acquiror shall have received a legal
opinion from legal counsel to the Sellers and Target, in substantially the form
of Exhibit E.
(f) No Material Adverse Changes. There shall not have
occurred any material adverse change in the condition, (financial or otherwise)
properties, assets (including intangible assets), liabilities, business,
operations, or results of operations of Target and its subsidiaries, taken as a
whole.
(g) Resignation of Directors and Officers. The directors
and officers of Target in office immediately prior to the Closing shall have
resigned as directors and/or officers, as applicable, of Target effective as of
the Closing Date, and Acquiror shall have received letters of resignation
(including waivers of claims against Target) from such persons in form and
substance satisfactory to Acquiror.
(h) Employment and Non-Competition Agreements; Waivers.
The employees of Target listed in the Employee Letter shall have accepted
employment with Acquiror and shall have entered into an Employment and
Non-Competition Agreement substantially in the form attached hereto as Exhibit
C-1 et. seq. Each individual named in the Employee Letter shall have executed
the Waiver required under Section 5.7 with respect to such individual's
outstanding options under the Target Stock Option Plan.
(i) Resignation of Existing Trustee. The Existing Trustee
shall have resigned at or prior to the Closing and, concurrently therewith,
shall have assigned all of its rights, title, interest and obligations with
respect to the Trustee Shares to the New Trustee as provided in Section 5.7
hereof.
(j) Certificates. Acquiror shall have been provided with
such certificates and other closing documents as Acquiror may reasonably request
and are customary for transactions of the type contemplated hereby.
(k) Transfer Taxes. Each of the Sellers shall have paid,
or caused to be paid, all stock transfer and other Taxes required to be paid in
connection with the sale and
30.
<PAGE> 36
delivery to Acquiror of the Shares owned by each of the Sellers, and shall have
caused all appropriate and required stock transfer Tax stamps to be affixed to
the certificate or certificates representing the Shares so sold and delivered.
(l) Submission of Expenses. Acquiror shall have received a
statement of fees, costs and expenses (including, without limitation, fees and
expenses of legal counsel and financial advisors and accountants, if any)
incurred by Target in connection with the transactions contemplated hereby,
which statement shall be certified by the Sellers' Agent as being true and
complete.
(m) Complete Acquisition. All holders of securities of Target
shall have entered into this Agreement or otherwise agreed in writing to sell
(or else has been required to sell under the charter documents of Target or
applicable law) all such securities held by such holders to Acquiror upon the
terms and conditions of this Agreement.
(n) Waiver or Release. Any and all litigation, disputes or
demands by or between Target, on the one hand, and any of its shareholders or
existing or former shareholders, on the other hand, shall have been discharged
in full, and Target shall have been irrevocably and unconditionally released
from all liability related thereto, in each case to the reasonable satisfaction
of Acquiror.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. At any time prior to the Closing, this Agreement
may be terminated:
(a) by mutual consent duly authorized by the Board of
Directors of Acquiror and by a majority in interest of the Sellers;
(b) by either Acquiror or a majority in interest of the
Sellers, if the Closing shall not have occurred on or before July 31, 1998
(provided, a later date may be agreed upon in writing by the parties hereto, and
provided further that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose action or failure to act has
been the cause or resulted in the failure of the Closing to occur on or before
such date and such action or failure to act constitutes a breach of this
Agreement);
(c) by Acquiror, if (i) any Seller shall breach any
representation, warranty, obligation or agreement hereunder in any material
respect and such breach shall not have been cured within five (5) business days
of receipt by Target of written notice of such breach (provided that the right
to terminate this Agreement by Acquiror under this Section 7.1(c)(i) shall not
be available to Acquiror if Acquiror is at that time in material breach of this
Agreement), or (ii) the Board of Directors of Target shall have withdrawn or
modified its recommendation of this Agreement or the transactions contemplated
hereby in a manner adverse to Acquiror or shall have resolved to do any of the
foregoing;
31.
<PAGE> 37
(d) by a majority in interest of the Sellers, if Acquiror
shall breach any representation, warranty, obligation or agreement hereunder in
any material respect and such breach shall not have been cured within five (5)
days following receipt by Acquiror of written notice of such breach, provided
that the right to terminate this Agreement by Sellers under this Section 7.1(d)
shall not be available if any of the Sellers is at that time in material breach
of this Agreement;
(e) by Acquiror, if a Trigger Event (as defined below) or
Takeover Proposal shall have occurred and, in the case of a Takeover Proposal,
neither Target nor its Board of Directors shall have rejected such Takeover
Proposal (or, unless the Takeover Proposal is so rejected, the Takeover Proposal
shall not have been withdrawn) within forty-eight (48) hours after arising;
(f) by either Acquiror or a majority in interest of the
Sellers, if any permanent injunction or other order of a court or other
competent authority preventing the consummation of the Closing shall have become
final and nonappealable.
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror or the
Sellers or the Sellers' Agent or their respective officers, directors,
shareholders or affiliates, or on the part of the Sellers, except to the extent
that such termination results from the breach by a party hereto of any of its
representations, warranties or covenants set forth in this Agreement; provided
that the provisions of Section 5.2 (Confidentiality), Section 7.3 (Expenses and
Termination Fees) and this Section 7.2 shall remain in full force and effect and
survive any termination of this Agreement.
7.3 Expenses and Termination Fees.
(a) Subject to Sections 7.3(b), 7.3(c) and 7.3(d), whether
or not the Closing is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisers, accountants and legal
counsel) shall be paid by the party incurring such expense; provided, however,
that any out-of-pocket expenses incurred by Target in excess of $150,000 for
fees and expenses related to the transactions contemplated hereby, including,
without limitation, fees and expenses of legal counsel and financial advisors
and accountants, if any, shall be borne by the Sellers. If Acquiror or Target
receives any invoices for amounts in excess of said amounts, it may, with
Acquiror's written approval, pay such fees; provided, however, that such payment
shall, if not promptly reimbursed by the Sellers at Acquiror's request,
constitute "Damages" recoverable under the Escrow Agreement and such Damages
shall not be subject to the Escrow Basket (as defined below).
(b) In the event that Acquiror shall terminate this
Agreement other than pursuant to Section 7.1(a), 7.1(b), 7.1(d) or 7.1(f), then
the Specified Sellers (as defined below) shall reimburse Acquiror for all of the
out-of-pocket costs and expenses incurred by Acquiror in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisors, accountants and legal
counsel), and, in addition
32.
<PAGE> 38
to any other remedies Acquiror may have, the Sellers shall promptly pay to
Acquiror the sum of $3,750,000. The "Specified Sellers" shall mean,
collectively, Mr. Arad Naveh, Manakin Investments B.V. and Euro American II LLP.
Except as provided in Section 7.3(c), the fee provided for in this paragraph
shall be the sole remedy for Acquiror with respect to any such termination of
the Agreement, except that Acquiror shall retain all available rights and
remedies (whether under this Agreement or otherwise) in the event of any fraud
or willful misconduct.
(c) In the event that (i) Acquiror shall terminate this
Agreement other than pursuant to Section 7.1(a), 7.1(b), 7.1(d) or 7.1(f), and
(ii) Target shall enter into an agreement relating to a Takeover Proposal or
shall consummate a Takeover Proposal, or a Trigger Event shall occur, within
twelve months of the later of (x) such termination of this Agreement or (y) the
payment in full of the fees and expenses provided in Section 7.1(b), the
Specified Sellers shall promptly pay to Acquiror the additional sum of
$3,750,000 (provided that, in the case of an agreement relating to a Takeover
Proposal or a tender or exchange offer constituting a Trigger Event, any such
payment shall be made, if at all, only upon consummation of the relevant
Takeover Proposal or the tender or exchange offer, as the case may be).
(d) In the event that any of the Sellers shall terminate
this Agreement pursuant to Section 7.1(d), Acquiror shall promptly reimburse the
Sellers for the fees and expenses of its regular Israel legal counsel, one
special Israel legal counsel, one United States legal counsel and all other
out-of-pocket costs and expenses incurred by the Sellers, collectively and not
individually, directly in connection with this Agreement and the transactions
contemplated hereby.
(e) As used herein, a "Trigger Event" shall occur if any
person or entity acquires beneficial ownership of securities representing 35% or
more, or commences a tender or exchange offer following the successful
consummation of which the offeror and its affiliate would beneficially own
securities representing 35% or more, of the aggregate outstanding capital stock
or voting power of Target.
ARTICLE VIII
ESCROW AND INDEMNIFICATION
8.1 Escrow Fund. As soon as practicable after the Closing Date,
the aggregate Escrow Amount for all of the Shares sold hereunder shall be
deposited with State Street Bank and Trust Company of California, N.A. (or
another institution selected by Acquiror as escrow agent (the "Escrow Agent"),
such deposit (together with interest and other income and proceeds thereon) to
constitute the "Escrow Fund" and to be governed by the terms set forth herein
and in the Escrow Agreement. The Escrow Fund shall be available to compensate
Acquiror pursuant to the indemnification obligations of the Sellers.
8.2 Indemnification. Subject to the limitations set forth in this
Article VIII, the Sellers will indemnify and hold harmless Acquiror and its
officers, directors, agents and employees, and each person, if any, who controls
or may control Acquiror within the meaning of the Securities Act (hereinafter
referred to individually as an "Indemnified Person" and
33.
<PAGE> 39
collectively as "Indemnified Persons") from and against any and all losses,
costs, damages, liabilities and expenses arising from claims, demands, actions,
causes of action, including, without limitation, reasonable legal fees
(collectively, "Damages") resulting from any misrepresentation or breach of or
default in connection with any of the representations, warranties, covenants and
agreements given or made by Target or any Seller in this Agreement, the Sellers
Disclosure Schedules or any exhibit or schedule to this Agreement.
8.3 Damage Limits. Notwithstanding the foregoing, (i) Acquiror
may not receive any amounts from the Escrow Fund unless and until an Officer's
Certificate or Certificates (as defined in Section 8.5 below) identifying
Damages the aggregate amount of which exceeds $150,000 has been delivered to the
Escrow Agent as provided in Section 8.5 below and such amount is determined
pursuant to this Article VIII to be payable, in which case Acquiror shall
receive payment from the Escrow Fund for the full amount of Damages, and (ii)
the total liability of the Sellers for Damages under or in connection with this
Agreement shall in no event exceed the aggregate amount of the Escrow Fund
contemplated hereunder, which shall be the sole and exclusive source for
satisfaction of the Sellers' obligations contained in Section 8.2 or for Damages
resulting from any misrepresentation or breach of or default in connection with
any representations, warranties, covenants and agreements given or made by the
Sellers in this Agreement, the Sellers Disclosure Schedule, or any exhibit or
schedule hereto (provided that nothing in this Section 8.3 shall limit or
otherwise affect the provisions of Section 7.3, it being understood that the
Sellers or the Specified Sellers, as the case may be, shall bear the full amount
of all fees, costs and expenses as provided in Section 7.3 irrespective of the
provisions of this Section 8.3). In determining the amount of any Damage
attributable to a breach, any materiality standard contained in a
representation, warranty or covenant of Acquiror shall be disregarded.
8.4 Escrow Period. The Escrow Period shall terminate at the
expiration of twelve (12) months after the Closing Date; provided, however, that
a portion of the Escrow Fund which, in the reasonable judgment of Acquiror, is
necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate theretofore delivered to the Escrow Agent prior to termination of
the Escrow Period with respect to facts and circumstances existing prior to
expiration of the Escrow Period, shall remain in the Escrow Fund until such
claims have been resolved.
8.5 Claims upon Escrow Fund. Upon receipt by the Escrow Agent on
or before the last day of the Escrow Period of a certificate signed by any
officer of Acquiror (an "Officer's Certificate"):
(a) stating that, Damages exist in an aggregate amount
greater than $150,000, and
(b) specifying in reasonable detail the individual items of
such Damages included in the amount so stated, the date each
such item was paid, or properly accrued or arose, the nature of
the misrepresentation, breach of warranty or claim to which such
item is related,
34.
<PAGE> 40
the Escrow Agent shall, subject to the provisions of Section 8.6 and 8.7 below,
deliver to Acquiror out of the Escrow Fund, as promptly as practicable, cash or
other assets held in the Escrow Fund having a value equal to such Damages.
8.6 Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such Officer's
Certificate shall be delivered to the Sellers' Agent (defined in Section 8.8
below) and for a period of forty-five (45) days after such delivery to the
Escrow Agent of such Officer's Certificate, the Escrow Agent shall make no
delivery of cash or other assets pursuant to Section 8.5 hereof unless the
Escrow Agent shall have received written authorization from the Sellers' Agent
to make such delivery. After the expiration of such forty-five (45) day period,
the Escrow Agent shall make delivery of the cash or other assets in the Escrow
Fund in accordance with Section 8.5 hereof, provided that no such payment or
delivery may be made if the Sellers' Agent shall object in a written statement
to the claim made in the Officer's Certificate, and such statement shall have
been delivered to the Escrow Agent and to Acquiror prior to the expiration of
such forty-five (45) day period.
8.7 Resolution of Conflicts; Arbitration.
(a) In case the Sellers' Agent shall so object in writing
to any claim or claims by Acquiror made in any Officer's Certificate, Acquiror
shall have forty-five (45) days after receipt by the Escrow Agent of an
objection by the Sellers' Agent to respond in a written statement to the
objection of the Sellers' Agent. If after such forty-five (45) day period there
remains a dispute as to any claims, the Sellers' Agent and Acquiror shall
attempt in good faith for sixty (60) days to agree upon the rights of the
respective parties with respect to each of such claims. If the Sellers' Agent
and Acquiror should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the cash or other assets from the Escrow Fund in accordance with the
terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either Acquiror or the Sellers' Agent may, by written notice to the
other, demand arbitration of the matter unless the amount of the damage or loss
is at issue in pending litigation with a third party, in which event arbitration
shall not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by arbitration as provided herein. Acquiror and the Sellers' Agent
shall attempt to mutually agree upon an arbitrator within five (5) days after
such written notice is sent. If those parties are unable to mutually agree upon
an arbitrator within such period, then within fifteen (15) days after such
written notice is sent, Acquiror and the Sellers' Agent shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The decision of the arbitrators or arbitrators, as the case may be, as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 8.6 hereof, the Escrow Agent shall be entitled to act in accordance
with such decision and make or withhold payments out of the Escrow Fund in
accordance therewith.
35.
<PAGE> 41
(c) Judgment upon any award rendered by the arbitrator or
arbitrators, as the case may be, may be entered in any court having
jurisdiction. Any such arbitration shall be held in Santa Clara or San Mateo
County, California under the commercial rules then in effect of the American
Arbitration Association. Acquiror, on the one hand, and the Sellers, on the
other hand, shall each bear its own expenses (including, attorneys' fees and
expenses) incurred in connection with any such arbitration, and the fees and
expenses of each arbitrator and the administrative fee of the American
Arbitration Association shall be allocated by the arbitrator or arbitrators, as
the case may be (or, if not so allocated, shall be borne equally by Acquiror, on
the one hand, and the Sellers, on the other hand).
8.8 Sellers' Agent.
(a) Mr. Arad Naveh shall be constituted and appointed as
agent ("Sellers' Agent") for and on behalf of the Sellers to enter into the
Escrow Agreement for himself and on behalf of the other Sellers, to give and
receive notices and communications, to authorize delivery to Acquiror of the
cash or other assets from the Escrow Fund in satisfaction of claims by Acquiror,
to object to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Sellers' Agent for the
accomplishment of the foregoing. Such agency may be changed by the holders of a
majority in interest of the Escrow Fund from time to time upon not less than 10
days' prior written notice to Acquiror. No bond shall be required of the
Sellers' Agent, and the Sellers' Agent shall receive no compensation for his
services. Notices or communications to or from the Sellers' Agent shall
constitute notice to or from each of the Sellers.
(b) The Sellers' Agent shall not be liable for any act
done or omitted hereunder as Sellers' Agent while acting in good faith and in
the exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The Sellers
shall jointly and severally indemnify the Sellers' Agent and hold him harmless
against any loss, liability or expense incurred without gross negligence or bad
faith on the part of the Sellers' Agent and arising out of or in connection with
the acceptance or administration of his duties hereunder.
(c) The Sellers' Agent shall have reasonable access to
information about Target and the reasonable assistance of Target's officers and
employees for purposes of performing its duties and exercising its rights
hereunder, provided that the Sellers' Agent shall treat confidentially and not
disclose any nonpublic information from or about Target to anyone (except on a
need to know basis to individuals who agree to treat such information
confidentially).
8.9 Actions of the Sellers' Agent. A decision, act, consent or
instruction of the Sellers' Agent shall constitute a decision of all Sellers for
whom Escrow Amounts otherwise payable to them are deposited in the Escrow Fund
and shall be final, binding and conclusive upon each such Sellers, and the
Escrow Agent and Acquiror may rely upon any decision, act, consent or
instruction of the Sellers' Agent as being the decision, act, consent or
instruction of each and
36.
<PAGE> 42
every Seller. The Escrow Agent and Acquiror are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Sellers' Agent.
8.10 Third-Party Claims. In the event Acquiror becomes aware of a
third-party claim which Acquiror believes may result in a demand against the
Escrow Fund, Acquiror shall promptly notify the Sellers' Agent of such claim,
and the Sellers' Agent and the Target shareholders for whom cash otherwise
payable to them are deposited in the Escrow Fund shall be entitled, at their
expense, to participate in any defense of such claim. Acquiror shall have the
right in its sole discretion to settle any third-party claim that is not
expected to result in a claim against the Escrow Fund. If Acquiror will seek
recourse from the Escrow Fund with respect to a claim, Acquiror may not effect
the settlement of any such claim without the consent of the Sellers' Agent,
which consent shall not be unreasonably withheld or delayed. In the event that
the Sellers' Agent has consented to any such settlement, the Sellers' Agent
shall have no power or authority to object under Section 8.6 or any other
provision of this Article VIII to the amount of any claim by Acquiror against
the Escrow Fund for indemnity with respect to such settlement.
ARTICLE IX
GENERAL PROVISIONS
9.1 Survival. The representations and warranties of the parties
contained herein shall survive until the first anniversary of the Closing Date
(or, if later, the final resolution of any indemnity claims hereunder), except
that the representations and warranties contained in Section 2.2(b) shall
survive indefinitely
9.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, California 95134
Attention: Vice President for Legal and Governmental Affairs
Facsimile No.: (408) 526-5925
Telephone No.: (408) 526-8252
37.
<PAGE> 43
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Two Embarcadero Place
Palo Alto, CA 94303
Attention: Therese A. Mrozek, Esq.
Curtis L. Mo, Esq.
Facsimile No.: (415) 496-2885
Telephone No.: (415) 424-0160
(b) if to any Seller, to:
c/o C.D.S.I. Ltd.
13 Hasadna St.
P.O. Box 2229
Ra'anana, Israel 43650
Attention: Mr. Arad Naveh
Facsimile No.: 972-9-746-2021
Telephone No.: 972-9-746-2020
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Herbert P. Fockler, Esq.
Facsimile No.: (650) 493-6811
Telephone No.: (650) 493-9300
9.3 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof", and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to the date set forth in the first
paragraph of this Agreement. Whenever the singular is used herein, the same
shall include the plural, and whenever the plural is used herein, the same shall
include the singular, where appropriate. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
9.4 Entire Agreement; Assignment. This Agreement and the
documents and instruments and other agreements specifically referred to herein
or delivered pursuant hereto, including the Exhibits, the Sellers Disclosure
Schedule, the Acquiror Disclosure Schedule and
38.
<PAGE> 44
other Schedules, (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, except for the Confidentiality Agreement, which shall
continue in full force and effect, and shall survive any termination of this
Agreement or the Closing, in accordance with its terms, (b) are not intended to
confer upon any other person any rights or remedies hereunder, and (c) shall not
be assigned by operation of law or otherwise except as otherwise specifically
provided.
9.5 Amendment Waiver. This Agreement may not be changed, amended,
terminated, augmented, rescinded, or discharged (other than by performance), in
whole or in part, except by a writing executed by the Acquiror and a majority in
interest of the Sellers, and no waiver of any of the provisions or conditions of
this Agreement or any of the rights of a party hereto shall be effective or
binding unless such waiver shall be in writing and signed by the party claimed
to have given or consented thereto. At any time prior to the Closing Date any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Except to the extent that a party hereto
may have otherwise agreed in writing, no waiver by that party of any condition
of this Agreement or breach by the other party of any of its obligations or
representations hereunder or thereunder shall be deemed to be a waiver of any
other condition or subsequent or prior breach of the same or any other
obligation or representation by the other party, nor shall any forbearance by
the first party to seek a remedy for any noncompliance or breach by the other
party be deemed to be a waiver by the first party of its rights and remedies
with respect to such noncompliance or breach.
9.6 Severability. In the event that any provision of this
Agreement, or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
9.7 Remedies. Each of the parties agree that, in addition to all
other remedies to which the others may be entitled (but except as otherwise
limited herein), each other party shall have the right to enforce the terms of
this Agreement by a decree of specific performance, provided such other party is
not in material default hereunder. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
39.
<PAGE> 45
9.8 Consent to Jurisdiction; Service of Process. Any action, suit
or proceeding arising out of or relating to this Agreement may be instituted in
any United States Federal court or any state court located in San Jose,
California, and each party agrees not to assert, by way of motion, as a defense
or otherwise, in any such action, suit or proceeding, any claim it may now or
hereafter have that it is not subject personally to the jurisdiction of such
court, that the action, suit or proceeding is brought in an inconvenient forum,
that the venue of the action, suit or proceeding is improper or that this
Agreement or the subject matter hereof may not be enforced in or by such court.
Each party further irrevocably submits to the jurisdiction of such court in any
such action, suit or proceeding, and irrevocably agrees to be bound by any final
judgment rendered thereby in connection with this Agreement from which no appeal
has been taken or is available. Any and all service of process and any other
notice in any such action, suit or proceeding shall be effective against any
party if given personally or by registered or certified mail, postage prepaid
and return receipt requested, or by personal service on such party. Nothing
contained herein shall be deemed to affect the right of any party to serve
process in any manner permitted by law or to commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction.
9.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of California without reference to such
state's principles of conflicts of law, except that the provisions of Article I
with respect to the purchase and sale of the Shares shall be governed by and
construed in accordance with the laws of Israel.
9.10 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.
9.11 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but both of which taken
together shall constitute one and the same instrument.
40.
<PAGE> 46
IN WITNESS WHEREOF, the undersigned have executed or caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized, all as of the date first written above.
CISCO SYSTEMS, INC.
By:_______________________________________
Name:_______________________________
Title:______________________________
KH TRUSTEES LTD.
By:_______________________________________
Name:_______________________________
Title:______________________________
MANAKIN INVESTMENTS B.V.
By:_______________________________________
Name:_______________________________
Title:______________________________
EURO AMERICAN II LLP
By:_______________________________________
Name:_______________________________
Title:______________________________
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE> 47
SELLER:
___________________________________________
Name:_______________________________
Company, Title (if applicable):
____________________________________
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE> 1
EXHIBIT 5.1
July 6, 1998
Cisco Systems, Inc.
255 W. Tasman Drive
San Jose, California 95134
Re: Cisco Systems, Inc. Registration Statement on Form S-3 for
Resale of 161,159 Shares of Common Stock
Ladies and Gentlemen
We have acted as counsel to Cisco Systems, Inc., a California
corporation (the "Company"), in connection with the registration for resale of
161,159 shares of Common Stock (the "Shares"), as described in the Company's
Registration Statement on Form S-3 ("Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act").
This opinion is being furnished in accordance with the
requirements of Item 16 of Form S-3 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents, the corporate
proceedings taken by the Company in connection with the original issuance and
sale of the Shares, and a certificate of a Company officer regarding (among
other things) the Company's receipt of consideration upon the original issuance
and sale of the Shares. Based on such review, we are of the opinion that the
Shares are duly authorized, validly issued, fully paid and nonassessable.
We consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
<PAGE> 2
July 6, 1998
Page 2
This opinion letter is rendered as of the date first written
above and we disclaim any obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company or the Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement on Form S-3 of Cisco Systems, Inc. for the registration of 161,159
shares of its common shares, of our reports dated August 4, 1997, on our audits
of the consolidated financial statements and financial statement schedule of
Cisco Systems, Inc. as of July 26, 1997 and July 28, 1996, and for the years
ended July 26, 1997, July 28, 1996, and July 30, 1995 which reports are included
in the Company's 1997 Annual Report on Form 10-K, filed with the Securities and
Exchange Commission. We also consent to the reference to our firm under the
caption "Experts."
PRICEWATERHOUSECOOPERS LLP
San Jose, California
July 2, 1998
