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FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 26, 1996
MRV COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-23452 06-1340090
(Commission File Number) (I.R.S. Employer Identification No.)
8917 Fullbright Ave.
Chatsworth, CA 91311
(Address of principal executive officers) (Zip Code)
818 773-9044
Registrant's telephone number, including area code
N.A.
(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets
On September 26, 1996, the Company completed an acquisition from Elbit
Ltd. ("Elbit") of certain of the assets and selected liabilities of Elbit's
wholly-owned subsidiary, Fibronics Ltd. and its subsidiaries (collectively
"Fibronics") related to Fibronics' computer networking and telecommunications
businesses (the "Fibronics Business") in the United States, Germany, the United
Kingdom, the Netherlands and Israel. The assets acquired include Fibronics'
technology in progress and existing technology, its marketing channels, its
GigaHub family of computer networking products and other rights. The purchase
price for the Fibronics Business was approximately $22.8 million, approximately
$10.5 million of which was paid by the delivery of 458,991 shares of Common
Stock and the balance in cash. Of the Common Stock delivered to Elbit as
partial payment of the purchase price, the Company has guaranteed that (i)
184,381 shares can be resold by Elbit for at least $4.23 million and to secure
any shortfall the Company has delivered to Elbit pending resale of the shares a
letter of credit from a major bank in the amount of $4.3 million, and (ii)
274,610 shares can be resold by Elbit for at least $6.3 million and to secure
any shortfall the Company has delivered to a trustee pending resale of the
shares an additional 137,305 shares of its Common Stock. The source of the
funds used for the acquisition were a portion of the proceeds of the Company's
private placement of $30 million principal amount of 5% convertible
subordinated debentures.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
It is impracticable to file the required financial statements of
Fibronics with this Form 8-K report. Such of the required financials
statements as are available are being filed herewith as Exhibit 2.2 to this
Form 8-K report. Registrant plans to file the remainder of the required
financial statements as an amendment to this Form as soon as practicable, but
not later than December 10, 1996, which is 60 days following the date that this
report on Form 8-K must be filed.
(b) Pro forma Financial Information
It is impracticable to file the required pro forma financial
information with this Form 8-K report. Registrant plans to file the required
pro forma financial information as an amendment to this Form as soon as
practicable, but not later than December 10, 1996, which is 60 days following
the date that this report on Form 8-K must be filed.
(c) Exhibits
2.1 Agreement for the Sale and Purchase of Assets of
Fibronics Ltd. Group dated September 26, 1996
2.2 Fibronics Ltd. Group Annual Report for the year ended
December 31, 1995 and 1994
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MRV Communications, Inc.
Dated October 9, 1996 /s/ EDMUND GLAZER
-----------------------------------
Edmund Glazer
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT PAGE NO.
- ------- --------
2.1 Agreement for the Sale and Purchase of Assets of Fibronics Ltd.
Group dated September 26, 1996 5
2.2 Fibronics Ltd. Group Annual Report for the year ended
December 31, 1995 and 1994 36
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ASSET PURCHASE AGREEMENT
Entered into in Haifa, Israel, this 26th day of September 1996
Between
1. Elbit Ltd., a company incorporated in Israel
(hereinafter "Elbit")
of the first part,
2. (a) Fibronics Ltd., a company incorporated in
the State of Israel;
(b) Fibronics International Inc., a company
incorporated in the State of Delaware;
(c) Fibronics Europe GmbH, a company
incorporated in Germany;
(d) Fibronics Telecommunications (1991) Ltd.,
a company incorporated in Israel;
(e) Fibronics Italia S.r.l., a company
incorporated in Italy;
(f) Fibronics Benelux B.V., a company
incorporated in the Netherlands;
(g) Fibronics (U.K.) Ltd., a company
incorporated in England.
(each referred to hereinafter as a
"Subsidiary" and collectively as the
"Seller")
of the second part,
and
3. MRV Communications, Inc., a company
incorporated in the State of Delaware, U.S.A.
(hereinafter the "Buyer" or "MRV") on its
own behalf or on behalf of its wholly-owned
subsidiaries
of the third part.
WHEREAS, Elbit directly and/or beneficially owns the entire issued and
outstanding share capital of each of the Subsidiaries; and
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WHEREAS, Elbit is engaged in a variety of businesses including the business of
designing, manufacturing and marketing a variety of data
communication equipment, a portion of which is operated by Seller
under the name "Fibronics"; and
WHEREAS, subject to the terms and conditions hereof, Seller and Elbit desire
to sell certain rights, properties and assets which currently
constitute Seller's business; and
WHEREAS, subject to the terms and conditions hereof, Buyer desires to purchase
such rights, properties and assets in order to continue to operate
the business as currently conducted by Seller without interruption as
of the Closing Date; and
WHEREAS, Buyer and Seller agree that Buyer is purchasing the assets free and
clear of liabilities and obligations unless such liabilities and
obligations have been specifically assumed by Buyer.
NOW, THEREFORE, in order to consummate said purchase and sale in consideration
of the mutual agreements set forth herein, the parties hereby agree as follows.
SECTION 1. PURCHASE AND SALE OF ASSETS
1.1 Sale of Assets. Subject to the provisions of this Agreement, Seller
shall sell, convey, assign, transfer and deliver to Buyer, and Buyer shall
purchase, accept, assume and receive all of each Subsidiary's assets of any
kind including rights of any kind, properties of every kind and description,
tangible and intangible, real, personal, intellectual or mixed, and wherever
located, contractual or otherwise, including those listed in Schedule 1.1
hereto, other than the Excluded Assets (as defined in Section 1.2 below). The
rights, properties and assets to be sold by Seller and purchased by Buyer under
this Agreement are hereinafter referred to as the "Purchased Assets".
1.2 Excluded Assets. Notwithstanding anything in this Agreement to the
contrary, the following rights, properties and assets (the "Excluded Assets")
are specifically excluded from the Purchased Assets and shall not be
transferred to Buyer:
(a) All cash or cash equivalents as such terms are defined with
respect to the Seller's financial statements;
(b) All trade receivables from customers, as defined in Schedule
1.2 (b) hereto;
(c) All prepaid VAT receivables in Israel, Italy, the Netherlands
and Spain;
(d) All rights and obligations of Seller under that certain lease
among Altira Properties (1979) Ltd., Altira Investments Ltd. and Elbit dated
January 25, 1995 for real
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property located at the Matam Advanced Technology Center in Haifa, Israel (the
"Matam Property");
(e) Each Subsidiary's corporate seals, Articles of Incorporation
and By-Laws (or comparable charter documents), stock record books, corporate
record books containing minutes of meetings of directors and stockholders and
such other records as have to do exclusively with such Subsidiary's
organization, stock capitalization or permanent accounting or tax records
(collectively, "Corporate Records"). Notwithstanding the foregoing, Seller and
Elbit shall provide Buyer with copies of Corporate Records to the extent
reasonably necessary for Buyer to comply with U.S. securities laws or other
reasonable requirements of Buyer.
1.3 Assumed Obligations. At Closing, Buyer shall assume and agree to
satisfy or otherwise discharge all of the written obligations ("Assumed
Obligations") of Seller listed in this Subsection 1.3(a)(b)(c) and (d), other
than obligations for goods and services received by Seller prior to Closing, as
follows:
(a) Unfilled customer orders;
(b) Obligations under all leases of real and personal property,
other than the lease for the Matam Property;
(c) Obligations under all other written contracts and agreements
of Seller other than: (i) guarantees securing loans, (ii) loans or promissory
notes, (iii) employment agreements or (iv) obligations to any tax authorities
related to Seller's activities prior to the Closing Date, if any. Buyer's
liability for liabilities under this Subsection 1.3(c) that were not disclosed
by Seller in the Schedules to this Agreement shall be limited to an aggregate
amount of $150,000.
(d) Obligations for all warranty and support claims or credits
extended to customers for defective products sold by Seller prior to Closing,
in accordance with Seller's written warranty policy contained in Exhibit A.
Buyer also agrees to support the products sold by Seller prior to Closing, in
accordance with Buyer's best commercial practice. It is not intended that
Buyer is assuming the obligation for any credit balance due to customers prior
to Closing. In consideration for Buyer's assumption of obligations under this
Subsection 1.3(d) Seller shall pay Buyer a monthly fee of $200,000 on the 30th
day of each month for the six (6) consecutive months beginning October 30,
1996 and ending March 30, 1997 and $136,000 on the 30th day of each month for
the six (6) consecutive months beginning April 30, 1997 and ending September
30, 1997. Seller shall indemnify Buyer for expenses incurred as a direct
result of this Subsection 1.3(d) to the extent that such expenses exceed $ 2.0
million for the twelve (12) month period ending October 30, 1997.
As security for the payments due Buyer under Subsection 1.3(d), Elbit will
furnish MRV's Israel Division as per Buyer's instructions with a bank guarantee
issued by Bank Leumi Le-Israel BM or Bank Hapoalim Limited, in Israel, in the
aggregate sum of US$2.016 million.
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Buyer's failure to provide such instructions in a timely manner, thereby
causing a delay in the provision of the said guarantee will not constitute a
breach of this Agreement by Elbit. The beneficiary of the said guarantee will
be entitled to claim thereunder up to the amount of any overdue payment made by
Seller under Subsection 1.3(d). The bank guarantee will be reduced upon
payment of each sum referenced in Subsection 1.3(d), by the amount thereof. The
bank guarantee expenses will be borne equally by Elbit and MRV. Such bank
guarantee will be delivered prior to October 30, 1996.
1.4 Assumed Liabilities to Agencies . All liabilities of all kinds to
Agencies due for the period after the Closing will be paid by Buyer. All
liabilities of all kinds to Agencies due for the period before Closing will be
paid by Seller. "The term "Agencies" is defined as the Office of the Chief
Scientist, the Investment Center and the Fund for the Advancement of Marketing
of the Ministry of Industry and Trade and the Canada-Israel Industrial Research
and Development Foundation.
SECTION 2. PURCHASE PRICE AND PAYMENT
(a) In consideration of the sale and transfer by Seller to Buyer of
the Purchased Assets, and Seller's covenant in Subsection 9.8 to do all acts
required to release the liens referenced in Schedule 8.16, and in addition to
the assumption by Buyer of the Assumed Liabilities and Obligations as they
become due, Buyer shall pay to Elbit (at Seller's instruction) the sum of US
$22,770,000 (Twenty-Two Million Seven Hundred Seventy Thousand United States
Dollars) (the "Purchase Price") (plus value added tax). The Purchase Price
shall be payable as follows:
(i) US$2,000,000 (Two Million United States Dollars) to
be paid in cash or bank wire transfer at Closing to account number 756201 at
Bank Leumi Le-Israel BM, Haifa Main Branch Number 876 for the account of Elbit
Ltd., and US$10,240,000 (Ten Million Two Hundred and Forty Thousand United
States Dollars) will be deposited with a trustee as provided in Subsection
12.1.
(ii) US$4,230,000 (Four Million Two Hundred and Thirty
Thousand United States Dollars) plus interest thereon from January 1, 1997 to
the date of realization of such amount by Elbit at the rate of .67% per month,
or pro rata for any part thereof to be paid by the issuance to Elbit at the
Closing of shares of the Common Stock of MRV (the "MRV Shares"), with the
number of such MRV Shares (the "LC Shares") to be computed on the basis of the
average closing bid price of MRV shares for the thirty (30) business days prior
to the Closing Date. The LC Shares shall be accompanied by the delivery to
Elbit of an irrevocable letter of credit in the amount of US$4,300,853 (Four
Million Three Hundred Thousand Eight Hundred and Fifty Three United States
Dollars) (the "Letter of Credit"), issued by Bank of America (whom Buyer will
instruct to issue the Letter of Credit in conformity with the provisions of
this Section 2), or a bank guarantee issued by a major Israeli bank, in a form
acceptable to Elbit , and expiring on March 15, 1997, which provides as
follows:
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In the event that Elbit certifies any time after December 31,
1996 that Elbit had not realized from the sale, if any, of the LC
Shares a minimum of $4.23 million plus interest thereon from January
1, 1997 to the date of drawdown at the rate of .67% per month, or pro
rata for any part thereof, Elbit shall have the right to draw upon
the Letter of Credit in the amount which equals the difference between
(a) $4.23 million plus interest thereon from January 1, 1997 to the
date of drawdown at the rate of .67% per month, or pro rata for any
part thereof, and (b) the amount realized, if any, by Elbit from the
sale of the LC Shares. Upon drawdown, Elbit shall return to Buyer any
LC Shares remaining in its possession.
(iii) US$6,300,000 (Six Million Three Hundred Thousand
United States Dollars) plus interest thereon from January 1, 1997 at the rate
of .67% per month, or pro rata for any part thereof, to be paid by the
issuance to Mr. David Stone, of Weil Gotshal & Manges, as trustee on behalf of
Elbit, of additional MRV Shares, with the number of such additional shares (the
"Additional Shares") to be computed on the basis of the average closing bid
price of MRV shares for the thirty (30) business days before the Closing Date.
The trustee will act only in accordance with instructions received from Elbit,
which shall include instructions to act in accordance with the provisions of
Subsection 2(f) below.
(b) Elbit hereby acknowledges, represents, warrants, and
covenants as follows:
(i) The MRV Shares to be purchased by and issued to Elbit
hereunder have not been registered under the United States Securities Act of
1933, as amended (the "Act"), and are not freely tradeable. The MRV Shares must
be held indefinitely unless either a registration statement with respect to the
MRV Shares is filed and declared effective under the Act or an exemption from
the registration requirement of the Act is available,
(ii) MRV Shares are being acquired for investment for
Elbit's own account and not with a view to sale or resale, distribution (as
that term is defined in the Act) or transfer, or to offers in connection
therewith. When the MRV Shares have been purchased and issued to Elbit , no
other person will have a beneficial interest in the Shares.
(iii) MRV will affix a legend in substantially the
following form to the certificates evidencing the MRV Shares:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be sold, pledged, hypothecated, donated, or otherwise transferred,
whether or not for consideration, unless either the shares have been
registered under said Act or an exemption from such registration
requirement is a available. If the shares are to be sold or
transferred pursuant to an exemption from the registration
requirement, the Company may require a written opinion of counsel,
satisfactory to counsel for Company, to the effect that registration
is not required and that such transfer will not violate said Act or
applicable state securities law.
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(c) On or before December 31, 1996, MRV shall file, and shall use
its best efforts to cause to become effective, under the Act , a Registration
Statement (the "Registration Statement"), with respect to the LC Shares and
the Additional Shares (the "Registered Shares"), which shall provide for the
resale to the public of any and all of the Registered Shares by Elbit in
such manner as Elbit shall specify to MRV in writing. At all times beginning
upon the effectiveness of the Registration Statement and ending at such time as
Elbit shall have sold or otherwise disposed of all of the Registered Shares,
MRV shall use its best efforts to maintain the Registration Statement in effect
and shall use its best efforts to cause the prospectus contained therein (the
"Prospectus") to be and remain current, so that (i) such Prospectus shall at no
time contain an untrue statement of a material fact or omit to state a material
fact required so as not to be misleading and (ii) Elbit may, in accordance
with applicable law, make public offers, sales and other distributions of all
of the Registered Shares by means of the Prospectus.
(d) In the event that, at any time following December 31, 1996,
the Registration Statement shall not be effective or the Prospectus shall not
be current as provided in Section 2(b) hereof:
(i) Elbit shall have, with respect to the LC Shares, all
of the rights provided in Section 2(a)(ii) hereof (including, without
limitation, the right of drawdown under the letter of credit).
(ii) At any time on or after January 15, 1997, Elbit
shall have, with respect to the Additional Shares, the right to cause MRV to
purchase from Elbit within five (5) business days of Seller's notice all of
the Additional Shares then held by Elbit at a cash purchase price equal to the
sum of (A) the per share price ascribed to such shares in Section 2(a)(iii)
hereof and (B) interest on $6.3 million computed from January 1, 1997 to the
date of such MRV purchase at the rate of .67% per month, or pro rata for any
party thereof less any amount already realized by Elbit from the sale of
Additional Shares. The Buyer has the right, at any time after Closing and prior
to the sale of Additional Shares, to deliver amounts due according to Section
2(a)(iii) in exchange for all Additional Shares.
(e) (i) MRV shall indemnify and hold Elbit harmless (and
every person who shall be deemed to control Elbit from and against any loss,
cost, damage or expense of any nature whatsoever which such indemnified party
may suffer or incur in the event that the Registration Statement (including the
Prospectus) shall at any time contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided however, that MRV shall
not be liable to the extent that any such loss, damage or expense arises out of
or is based upon an untrue statement or omission or alleged omission made in
the Registration Statement (including the Prospectus), in reliance upon, and in
conformity with, information relating to Elbit or its plan of distribution
furnished to MRV for use in the preparation thereof.
(ii) Elbit shall indemnify and hold MRV harmless (and
every person who shall be deemed to control MRV) from and against any loss,
cost, damage or expense
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of any nature whatsoever which such indemnified party may suffer or incur in
the event that the Registration Statement (including the Prospectus) shall at
any time contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
relating to Elbit or its plan of distribution furnished to MRV for use in the
preparation thereof.
(f) In the event that the proceeds Elbit realizes from the sale
of Additional Shares are less than $6.3 million plus interest thereon from
January 1, 1997 to the date of sale at the rate of .67% per month, or pro rata
for any part thereof, Buyer shall pay Elbit such difference within five (5)
business days of receipt of written notification by Elbit of such sale. In the
event that the proceeds Elbit realizes from the sale of Additional Shares are
more than this amount, the trustee, mentioned in Subsection 2(a)(iii) above,
shall pay to Buyer the excess within fifteen (15) days of receipt of such
proceeds and shall sell the remaining Additional Shares in accordance with
Buyer's instructions.
(g) Buyer's obligations under Section 2(d)(ii) and 2(f) above
shall be secured by the issuance to Elbit on or before Closing of MRV Shares
the number of which shall be determined based on the average closing bid
price of MRV Shares for the thirty (30) business days prior to Closing divided
into $3.15 million. These MRV Shares shall be held by Argom Trustees (1992)
Ltd., as trustee on behalf of Buyer and Elbit and shall be released to Elbit
upon notification by Elbit to the trustee, no earlier than January 20, 1997,
that Buyer has not fulfilled its obligations under Sections 2(d) (ii) or 2(f)
of this Agreement. These MRV Shares shall be returned to Buyer upon
notification to the trustee by Elbit that Elbit has realized a minimum of
$6.3 million plus interest thereon from January 1, 1997 at the rate of .67% per
month, or pro rata thereof.
(h) If Elbit decides to sell 70,000 or more MRV Shares received
hereunder in a single transaction, Elbit shall notify Buyer of its decision.
If fewer than 100,000 MRV Shares are to be sold, Buyer or its nominee shall
have two (2) day in which to make an offer for such shares. If 100,000 or more
MRV Shares are to be sold, Buyer or its nominee shall have four (4) days in
which to make an offer for such shares. Such offer shall not be binding on
Elbit and Elbit may, in its sole discretion, decide whether to accept or reject
Buyer's offer. Without derogating from the foregoing, Elbit shall not sell such
shares below the price offered by Buyer or its nominee.
SECTION 3. TIME AND PLACE OF CLOSING
The closing of the purchase and sale provided for in this Agreement
(hereinafter the "Closing") shall be held at Elbit's office on September 26,
1996, at 17:00 which date may be deferred by Buyer or Seller (the "Closing
Date"), but no later than September 29, 1996.
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SECTION 4. TRANSFER OF PURCHASED ASSETS
(a) At the Closing, Seller shall deliver or cause to be delivered
to Buyer possession and good and sufficient instruments of transfer
transferring to Buyer title to all the Purchased Assets, free and clear of all
liens, restrictions and encumbrances, and third party rights, subject to the
provisions of Subsection 5(b). Such instruments of transfer (i) shall be in
the form and will contain provisions consistent with the provisions hereof
which are usual and customary for transferring the type of property involved
under the laws of the jurisdictions applicable to such transfers, and (ii)
shall effectively vest in Buyer all right, title and interest in and to all the
Purchased Assets. Without prejudice to Buyer's other remedies, in the event
Seller cannot transfer a certain Purchased Asset at Closing, Seller shall
provide Buyer with a specific power of attorney authorizing Buyer to effectuate
the transfer of such asset.
(b) At Closing, each Subsidiary shall deliver to Buyer resolutions
of its Board of Directors and, if necessary, approval of its shareholders
authorizing such Subsidiary to change its name so that it no longer includes
the name "Fibronics". After Closing, Seller and Elbit shall have no right to
the name "Fibronics" nor to any other trade name or name used in the past
and/or being used currently by Fibronics and shall provide Buyer with any
consents of Seller necessary for Buyer's use of such name, insofar as Seller
has the right to so consent.
SECTION 5. DELIVERY OF RECORDS AND CONTRACTS; FURTHER ASSURANCES; ACCESS.
(a) At the Closing, subject to Subsection 5(b) below, Seller shall
deliver or cause to be delivered to Buyer all of the Purchased Assets, with
such assignments thereof and consents to assignments as are necessary to assure
Buyer of the full benefit of the same. Seller shall also deliver to Buyer at
the Closing all of Seller's business records, books and other data relating to
the Purchased Assets (except Corporate Records) and Seller shall take all
requisite steps to put Buyer in actual possession and operating control of the
Purchased Assets. For a period of six (6) years after Closing, or such longer
period as may be reasonably requested by Elbit, upon written request of Elbit,
Buyer or any successor thereto shall make or cause to be made available to
Elbit, as the case may be, (i) all books and records, remaining in Buyer's
possession or which Buyer is able to obtain, which are included in the
Purchased Assets that are needed by Elbit or Seller or any successors or
assigns and permit Elbit or Seller and its agents to inspect and copy such
books and records and (ii) assistance in arranging discussions with officers,
employees and agents of Buyer and its parent or affiliate companies on matters
which relate to the Purchased Assets as previously used by Seller, provided
that all such inspection or assistance shall be at the reasonable times as may
be mutually agreed upon by Buyer and Elbit or Seller.
(b) Subject to Section 12, if an attempted sale, conveyance,
assignment, transfer or delivery of any of the Purchased Assets would be
ineffective without the consent of any other person, and such consent has not
been obtained on or before Closing, this Agreement shall not constitute an
assignment or an attempted assignment of such Purchased Asset if
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such assignment or attempted assignment would constitute a breach thereof or be
unlawful. In such case, Seller shall use commercially reasonable efforts to
obtain, as soon as practicable, the consent of each such person in all cases in
which such consent is required, and Seller and Buyer will cooperate in any
reasonable arrangement designed to enable Seller to perform its obligation
hereunder, and to provide for the assumption by Buyer of the benefits and
burdens, insofar as they have been assumed under this Agreement (the
"Burdens"), of any such agreement. Nothing in this subsection 5(b) is intended
to impose any additional cost or expense on Buyer. In the event, Buyer is
unable to assume the benefits and Burdens of any agreement, Buyer shall not be
required to pay costs and expenses associated therewith. Without derogating
from Seller's obligation to transfer all of the Purchased Assets to Buyer in
accordance with the terms of this Agreement, other than owing to the continued
existence of liens or lack of consents (whereupon the provisions of Section 12
will apply) if Seller is unable to transfer to Buyer any material Purchased
Asset within one year of Closing, Buyer and Seller shall appoint a mutually
agreeable third party to determine if an adjustment to the Purchase Price is
appropriate and, if so, in what amount; such adjustment will be considered as
fulfillment of Seller's obligations toward Buyer in relation to the specific
Purchased Asset.
(c) From time to time after Closing, at the request of Buyer and
without further consideration, Seller shall execute and deliver further
instruments of transfer and assignment and take such other action as Buyer may
reasonably require to more effectively transfer and assign to, and vest in,
Buyer after Closing, to the extent possible, each of the Purchased Assets.
(d) Seller shall cooperate with Buyer to the extent reasonably
possible during the transition period following the Closing. Buyer and Seller
shall each designate two persons who will be primarily responsible for
addressing issues which arise during the six months after Closing with respect
to this Agreement.
SECTION 6. USE OF MATAM PROPERTY
For the six month period commencing at Closing, Seller shall permit
Buyer to use the 2,016 square meters of office space located on the second
floor of the Matam Property consistent with the term of the lease governing
such property, at no cost to Buyer. Buyer shall have the option to vacate the
Matam Property on or before the last day of the fourth month after Closing, in
which case Seller shall refund to Buyer the sum of $80,000.
SECTION 7. APPORTIONMENT
Water and sewer use charges, Arnona, maintenance, telephone and any
similar charges, if any, incurred in connection with the transfer of the
Purchased Assets contemplated hereby, shall be apportioned and adjusted as of
the Closing Date and the net amount thereof shall be added to or deducted from,
as the case may be, the Purchase Price.
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The difference will be paid by cash transfer within sixty (60) days after the
Closing and the said apportionment and adjustment will be made, within sixty
(60) days after Closing.
SECTION 8. REPRESENTATIONS AND WARRANTIES OF SELLER
Each Subsidiary hereby represents and warrants to Buyer, as of the date hereof
as follows:
8.1 Organization and Qualification of Subsidiaries. The Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of its place of incorporation with full corporate power and authority to
own and lease its properties and/or rights and to conduct its business in the
manner and in the places where such properties are owned or leased and where
such rights are owned or such business is currently conducted.
8.2 Authority of Subsidiaries. The Subsidiary has all necessary authority
and power to enter into this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery and performance by the Subsidiary
of this Agreement and the consummation by the Subsidiary of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
of the Subsidiary, including shareholder approval, and no other action on the
part of such Subsidiary is required in connection therewith. This Agreement,
when executed and delivered, constitutes the valid and binding obligation of
the Subsidiary, enforceable in accordance with its terms. The execution,
delivery and performance by the Subsidiary of the transactions contemplated
hereby, will not:
(a) violate any provision of the Memorandum and Articles of
Association of such Subsidiary;
(b) violate any laws of any country or state or other jurisdiction
applicable to the Subsidiary or require the Subsidiary to obtain any approval,
consent or waiver of, or make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made, except as
disclosed in Schedule 8.6; or
(c) result in a violation or any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which such
Subsidiary is a party, except for any such violations, breaches, defaults or
other occurrences which would not prevent or delay in any material respect the
Subsidiary from performing its obligations under this Agreement.
8.3 Status of Tangible Property
(a) Owned Real Property. The Subsidiary does not own any real
property.
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(b) Leased Real Property. Schedule 8.3(b) contains a complete and
correct list of all real property leased by the Subsidiary (the "Leased Real
Property"). True, complete and accurate copies of all leases or other
agreements ("Leases") under which the Subsidiary leases Leased Real Property,
together with all amendments thereto, are attached to the Schedule 8.3(b).
The Subsidiary represents and warrants that: (a) each such material Lease has
been duly authorized and executed by such Subsidiary and is in full force and
effect; and (b) the Subsidiary is not in default under any of such material
Leases, nor has any event occurred which, with notice or passage of time, or
both, would give rise to a default.
8.4 Financial Statements. Seller represents it has provided Buyer the
following financial statements, copies of which are attached hereto as a part
of Schedule 8.4 hereto:
(a) Audited financial statements for 1992 and 1993;
(b) Condensed combined financial statements for 1994, 1995 and
the first half of 1996.
Financial statements of 1995 and 1996 have been prepared in accordance with
Elbit's standard accounting policy for its consolidated operations, which
policy conforms with generally accepted accounting principles in the United
States, to the extent applicable to proforma condensed financial statements,
applied consistently during the periods covered thereby and present fairly in
all material respects the financial condition of Seller's assets at the dates
of said statements and the results of its operations for the periods covered
thereby; provided, however, that none of the financial statements have
footnotes required under generally accepted accounting principals and the June
30, 1996 financial statements are subject to normal year-end adjustments.
8.5 Absence of Certain Changes. Since June 30, 1996 there has not been:
(a) any purchase, sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of the
material properties or material assets other than in the ordinary course of
business;
(b) any damage, destruction or loss, whether or not covered by
insurance, with respect to any material property or asset of the Subsidiary and
having a material adverse effect on such property or asset;
(c) any material obligation or liability of any nature incurred by
the Subsidiary, whether absolute, contingent or otherwise, other than
obligations and liabilities incurred in the ordinary course of business;
(d) any material change in the compensation payable by the
Subsidiary to any of its officers, employees, agents or independent contractors
other than normal merit increases in accordance with its usual practices; or
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(e) any material change in accounting methods or practices, credit
practices, or collection policies used by the Subsidiary.
8.6 Consents and Approvals. Except as set forth in Schedule 8.6 hereto,
to the best knowledge of the Subsidiary, the execution and delivery of this
Agreement by the Subsidiary do not, and the performance of the transactions
contemplated by this Agreement by the Subsidiary will not, require any filing
with or notification to, or any consent, approval, authorization or permit
from, any governmental or regulatory authority or any other person except where
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, (i) would not prevent or delay in any
material respect consummation of the transactions contemplated by this
Agreement, and (ii) would not otherwise prevent or delay the Subsidiary from
performing its obligations under this Agreement in any material respect.
8.7 Intellectual Property. Schedule 8.7 hereto sets forth a true and
correct list of all patents, patent applications, trademarks, trademark
registrations and applications and registered copyrights owned by or licensed
to the Subsidiary, other than retail software which the Subsidiary licenses for
its own internal use (collectively, "Intellectual Property"). Except as set
forth in Schedule 8.7 hereto, the Subsidiary owns or has a valid license to use
all of the material Intellectual Property and has not licensed or granted the
right to use such Intellectual Property to any other person. The Subsidiary
has no knowledge of any infringement by others of any of its Intellectual
Property. To the knowledge of the Subsidiary, the present business, activities
and products of the Subsidiary do not infringe any Intellectual Property of any
other person.
8.8 Litigation. There is no litigation against the Seller. To the
knowledge of the Subsidiary, there is no governmental or administrative
proceeding or investigation pending against the Subsidiary or, to the knowledge
of the Subsidiary, threatened against such, which may have a material adverse
effect on the conduct of the business or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement or which would
cause the assumption of an undisclosed liability by Buyer or a liability that
has not been expressly assumed by Buyer in this Agreement.
8.9 Employee Litigation. To the best knowledge of the Subsidiary, there
are no pending material claims, suits or other proceedings, alone or in the
aggregate by present or former employees of the Subsidiary.
8.10 Material Contracts. Except for contracts, commitments, plans,
agreements and licenses described in Schedule 8.10 hereto, the Subsidiary is
not a party to or subject to:
(a) any obligation under written contracts or agreements in an
amount of $100,000 or more;
(b) any contract with any sales agent or distributor of products
of the Subsidiary, which is not subject to cancellation by Seller without
penalty;
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(c) any contract or agreement which materially limits the ability
of the Subsidiary to purchase, sell, or distribute products under the name
"Fibronics" or any other tradename of Seller;
8.11 Compliance with Laws. The Subsidiary is in compliance in all material
respects with all applicable statutes, ordinances, orders, rules and
regulations promulgated by any federal, foreign, state, municipal or other
governmental authority which apply to the conduct of its business, and the
Subsidiary has not received notice of a violation or alleged violation of any
such statute, ordinance, order, rule or regulation.
8.12 Employees; Labor Matters. The Seller employs approximately the number
of employees set forth in Schedule 8.12 and generally enjoys a good
employer-employee relationship. Next to the name of each employee is a
description of such employee's current compensation including any loans or
other special arrangement such employee has with the Subsidiary.
8.13 Use of Assets. To the best of Elbit's and the Subsidiary's knowledge,
at the time of Closing, there is no material obstacle to the use by Buyer of
the Purchased Assets in the manner used by such Subsidiary prior to Closing.
8.14 Broker's Fee. To the best of Seller's knowledge, Seller has not
incurred or become liable for any broker's commission or fee relating to or in
connection with the transactions contemplated by this Agreement.
8.15 Disclosure. No representation or warranty by the Seller in this
Agreement or in any Schedule hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant hereto, contains or will contain any untrue statement of a
material fact or omits or will omit any material fact necessary in order to
make the statements contained therein not misleading.
8.16 Liens and Encumbrances. To the best of Seller's knowledge, except as
disclosed in Schedule 8.16, there are no liens and encumbrances burdening the
Purchased Assets. Attached hereto as Exhibit B is Elbit's letter to Buyer
concerning the registered liens in favour of the State of Israel (numbered 5
and 11 in Annex A2 to Exhibit C).The information in Schedule 8.16 will only
be disclosed by Buyer to persons with a need to know. The liens, except for
the lien in favor of the Government of Israel, were granted to secure the
monetary obligations referenced in Schedule 8.16.
8.17 Technology. Each Subsidiary represents that it is transferring to
Buyer all technology which such Subsidiary owns or has owned during the period
since January 1, 1995 and that it does not own and has not owned since such
date any other technology that is not being transferred to the Buyer pursuant
to this Agreement.
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SECTION 9. COVENANTS OF SELLER
9.1 Conduct of Business. Between the date of this Agreement and the
Closing Date, Seller shall conduct its business on in the ordinary course.
9.2 Access. Between the date of this Agreement and the Closing Date,
Seller shall permit Buyer and its authorized representatives to have reasonable
access at mutually convenient times to each Subsidiary's properties, assets,
records, contracts and documents and furnish to Buyer or its authorized
representatives such financial and other information with respect to its
business or properties as Buyer may from time to time reasonably request.
9.3 Authorization from Others. Elbit and Seller shall use commercially
reasonable efforts to obtain all material authorizations, consents and permits
of others required to permit the consummation of the transactions contemplated
by this Agreement not later than the Closing Date.
9.4 Cooperation of Seller. Elbit and Seller shall cooperate with all
reasonable requests of Buyer and Buyer's counsel in connection with the
consummation of the transactions contemplated hereby.
9.5 Audited Combined Financial Statements. Elbit and Seller shall
deliver to Buyer audited financial statements of Seller, and of individual
Subsidiaries as required by Buyer for fulfilling SEC filing requirements for
1994 and 1995 as soon as possible after execution of this Agreement with the
consent of the auditors to include these audited financial statements and the
auditors' unqualified opinions thereon as necessary in filings with the U.S.
Securities and Exchange Commission. These financial statements will be prepared
in accordance with Elbit's standard accounting policy for its consolidated
operations, which policy conforms with generally accepted accounting principles
in the United States, to the extent applicable to combined financial
statements, applied consistently during the periods covered thereby and present
fairly in all material respects the financial condition of Seller's assets and
liabilities at the dates of said statements and the results of its operations
for the periods covered thereby. In the event that Seller fails to deliver
these financial statements on or before November 1, 1996, Seller shall pay to
Buyer agreed upon compensation of $500,000 for damages and costs to be
incurred by Buyer. In the event Seller fails to deliver these financial
statements on or before the 75th day after Closing, Seller shall pay to Buyer
additional agreed upon compensation of $500,000 for damages and costs to be
incurred by Buyer . Seller shall not be liable to pay such compensation in the
event failure to deliver results from circumstances constituting "force
majeure".
9.6 Interim Financial Statements. Elbit and Seller shall use their best
efforts to provide Buyer, by October 31, 1996, with condensed interim financial
statements for the period from January 1, 1996 to the Closing Date.
9.7 Accounts Payable to Suppliers. Elbit or Seller shall pay all amounts
due suppliers for goods and services received prior to Closing when such
amounts become due.
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9.8 Liens. Elbit and Seller will do all acts required to release the
liens referenced in Schedule 8.16.
SECTION 10. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
10.1 Organization. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, operate or lease its properties and to
conduct its business in the manner and in the places where such business is
currently conducted.
10.2 Authority of Buyer. Buyer has all necessary authority and power to
enter into this Agreement and to carry out the transactions contemplated
hereby. The execution, delivery and performance by Buyer of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of Buyer and no other action on
the part of Buyer is required in connection therewith. The consent of Buyer's
stockholders is not required in connection with the execution, delivery and
performance by Buyer of this Agreement or the consummation of the transactions
contemplated hereby. This Agreement constitutes, or when executed and
delivered will constitute, the valid and binding obligation of Buyer,
enforceable in accordance with its terms. The execution, delivery and
performance by Buyer of this Agreement do not, and the performance by Buyer of
the transactions contemplated hereby will not:
(a) violate any provision of the Articles of Incorporation or
by-laws of Buyer;
(b) violate any laws of the United States or Israel, or any state
or other jurisdiction applicable to Buyer or require Buyer to obtain any
approval, consent or waiver of, or make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made except as
disclosed in Schedule 10.6 ; or
(c) result in a violation or any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Buyer is
a party, except for any such violations, breaches, defaults or other
occurrences which would not prevent or delay in any material respect Buyer from
performing its obligations under this Agreement.
10.3 Litigation. There is no litigation or, to the knowledge of Buyer,
governmental or administrative proceeding or investigation pending against
Buyer or, to the knowledge of Buyer, threatened against Buyer, which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement.
10.4 Broker's Fee. To the best of Buyer's knowledge, Buyer has not
incurred or become liable for any broker's commission or fee relating to or in
connection with the transactions contemplated by this Agreement.
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10.5 Sufficient Funds. Buyer has and will have funds sufficient to satisfy
the sums due as set forth in this Agreement and to perform and discharge the
Assumed Liabilities and Assumed Obligations.
10.6 Consents and Approvals. Except (a) as set forth in Schedule 10.6
hereto and (b) in connection with the performance of Buyer's obligations in
Section 2 concerning the MRV Shares, to the best knowledge of the Buyer, the
execution and delivery of this Agreement by the Buyer do not, and the
performance of the transactions contemplated by this Agreement by the Buyer
will not, require any filing with or notification to, or any consent, approval,
authorization or permit from, any governmental or regulatory authority or any
other person except where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, (i) would
not prevent or delay in any material respect consummation of the transactions
contemplated by this Agreement, and (ii) would not otherwise prevent or delay
the Buyer from performing its obligations under this Agreement in any material
respect.
10.7 Disclosure. No representation or warranty by the Buyer in this
Agreement or in any Schedule hereto, or in any list, statement, document or
information set forth in or attached to any Schedule delivered or to be
delivered pursuant hereto, contains or will contain any untrue statement or a
material fact or omits or will omit any material fact necessary in order to
make the statements contained therein not misleading.
SECTION 11. COVENANTS OF BUYER
11.1 Consummation of Agreement. Buyer shall use commercially reasonable
efforts to perform and fulfill all conditions and obligations to be performed
and fulfilled by it under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out.
11.2 Provision of Financial Information. Buyer shall provide Seller with
such financial information available to Buyer as any Subsidiary or Elbit may
request for the purpose of allowing each Subsidiary to prepare financial
reporting information required by any tax laws.
11.3 Consents. Buyer shall use its best efforts to obtain all
consents required to consummate this Agreement, including those listed in
Schedule 10.6.
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SECTION 12. CLOSING MATTERS
12.1 In the event that the following consents approvals or discharges of
liens ("Consents") have not been obtained by Seller or Elbit prior to Closing,
a bank guarantee in the sum of US$ 2,000,000 (Two Million United States
Dollars) will be provided by Elbit to Buyer (the "Guarantee") to secure the
fulfillment by Seller and Elbit of their obligations to discharge all liens
and to obtain the Consents, and the amount identified next to such Consent
shall be withheld by Buyer from the Purchase Price paid by Buyer to Seller at
Closing, and the Guarantee will be placed by Buyer in escrow and the said
amounts will be placed by Buyer in the interest-bearing escrow account number
419257 at the First International Bank Ltd., Main Branch Tel-Aviv, Branch
Number 046 with Argom Trustees (1992) Ltd. . (to be held pursuant to the
instructions contained in Exhibit C hereto).
<TABLE>
<S> <C>
Investment Centre of the Ministry of Industry
and Trade US$1 million
Bank letter to Companies Registrar confirming
release of the liens and encumbrances registered
in the name of such bank as described
in Schedule 8.16 US$9.24 million
</TABLE>
Upon obtaining all such Consents, the Guarantee and the escrowed amounts with
respect to such Consents will be passed to Elbit in accordance with the
provisions of Exhibit C. If any of such Consents are not obtained within six
months of the Closing Date, the Guarantee and the escrowed amount with respect
to such Consents shall be passed to Buyer. Buyer will have the right to use
such returned amount and the trade receivables due to Seller under this
Agreement, in order to pay such reasonable amounts of money as are necessary in
order to receive such Consents and to release the liens listed in Schedule
8.16, in whole or in part. Such receipt and releases will not derogate from
Buyer's rights under this Agreement.
12.2 In the event Seller has not obtained the release of the lien held by
the Government of Israel with respect to certain Purchased Assets in connection
with benefits received from the Investment Center within six (6) months of
Closing, Buyer shall be entitled to set off the amount required for Buyer to
obtain such release against the trade receivables (as listed in Section
1.2(b)) payable to Seller pursuant to Section 14 .
12.3 Buyer will deposit the MRV Shares referenced in Subsection 2(g) with
Argom Trustees (1992) Ltd. (to be held pursuant to the instructions contained
in Exhibit D hereto).
12.4 At Closing, Buyer and Seller shall each deliver to the other a copy of
the Board of Directors resolutions and, if necessary, shareholder approval,
authorizing the execution of this Agreement and authorizing their respective
signatories. Such resolutions and approval shall be certified by an attorney.
The delivery of these resolutions must occur on or before Closing.
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SECTION 13. EMPLOYEES
13.1 Following execution by all parties of this Agreement, Seller shall
provide Buyer the opportunity to interview all of Seller's employees. On or
before October 8, 1996 Buyer shall deliver to Seller a list of the employees
(the "Listed Employees") Buyer seeks to hire and Buyer shall have five (5)
business days from October 8, 1996 in which to enter into employment agreements
with the Listed Employees. The Listed Employees with whom Buyer enters into
employment agreements (the "Selected Employees") shall cease to be employees
of Seller as of the end of business on October 11, 1996.
Seller shall cooperate with Buyer as reasonably required in order to convince
such Selected Employees to start employment with Buyer as of October 11th.
Seller shall not incur any additional liability towards the Selected Employees
caused by such cooperation with Buyer. It is agreed that Seller's liabilities
towards the Selected Employees will be limited to the liabilities Seller has
towards such Selected Employees as of the date they signed employment contracts
with Buyer, or the date their employment was terminated, whichever was
earlier.
At the request of Buyer and provided the Selected Employee has consented to
such request, Seller shall transfer to Buyer for each Selected Employee all
amounts due to such employee for termination of his employment with Seller
according to law and according to Seller's contracts and policies. Such
amounts will include the full amounts due for severance pay, accrued vacation,
sick leave, pension funds and any other amounts due to such employee. Buyer
shall assume all of Seller's undertakings to various banks which provided
Selected Employees with loans according to the list of loans specified in
Schedule 13.1.
A list of all amounts due to and from each employee of Seller including amounts
deposited by Seller and the employee in severance and pension funds and any
other fund will be provided by Seller to Buyer at Closing.
Upon transfer by Seller to Buyer of all amounts due to each Selected Employee,
Buyer will indemnify Seller against any claims concerning such employee up to
the amount transferred by Seller to Buyer for such employee. Seller and Buyer
will make their best efforts to obtain a written disclaimer from each Selected
Employee prior to transfer of funds to Buyer.
Employees presently employed by Seller who will not be included in the list of
Selected Employees will be considered for the purposes of this Agreement as
continuing to be employed by Seller. Any amounts in dispute between Seller and
Selected Employee in connection with the period prior to Closing Date of such
Selected Employee shall be Seller's responsibility.
13.2 During the period ending three (3) months from the Closing Date,
Seller and Elbit shall not employ any Listed Employee without Buyer's
approval, which approval shall not be unreasonably withheld.
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13.3 During the period ending twelve (12) months from the Closing Date,
Seller and Elbit shall not employ any Selected Employee who resigns from his
employment with Buyer or is terminated by Buyer without Buyer's approval, which
approval shall not unreasonably withheld.
13.4 Any costs or expenses incurred by Seller as a result of the failure to
provide any employee of the Seller with the prior notice of termination
mutually agreed to by Buyer and Seller and, in no event, less than that
required by law or Seller's policy, shall be borne in equal portions by Seller
and Buyer, provided that such costs have actually been paid by Seller or Seller
has incurred liability therefor prior to October 11, 1996.
13.5 During the six (6) months following Closing, Seller may hire employees
terminated by Seller during the three (3) months preceding Closing only with
Buyer's approval, which approval shall not be unreasonably withheld.
13.6 To the extent necessary to allow the employment of the Selected
Employees by Buyer, Seller will not consider such employment as constituting a
breach of the competition or confidentiality provisions of their respective
employment contracts with Seller.
SECTION 14. TRADE RECEIVABLES
14.1 It is specifically agreed that all of Seller's trade receivables
constitute Excluded Assets and are not being transferred to Buyer. Buyer shall
serve as Seller's agent for the purpose of collecting the trade receivables in
the same manner as Buyer collects its own accounts receivable, but shall
instruct debtors to make payment of such trade receivables in accordance with
the instructions appearing in the relevant invoices.
14.2 For the purpose of this Section, trade receivables are those trade
receivables listed in Schedule 1.2(b).
14.3 In consideration for this service, Elbit will pay Buyer a fee
calculated as follows:
(a) on the first $3,000,000 (Three Million United States Dollars)
of trade receivables collected - 10% (ten percent);
(b) On any amount above $3,000,000 (Three Million United States
Dollars) of trade receivable collected - 20% (twenty percent).
14.4 Elbit will pay Buyer the above mentioned fees on the 15th day of the
month following the end of the month in which the trade receivables were
received or, if such day falls on a weekend, festival or national holiday, upon
the first working day thereafter.
14.5 Elbit will furnish Buyer with a bank guarantee issued by Bank Leumi
Le-Israel BM or Bank Hapoalim Ltd. in the sum of $500,000 (Five Hundred
Thousand United States Dollars), which will expire 6 (six) months following the
Closing Date. In the event that Elbit delays payment of any fees due as
aforesaid beyond 30 (thirty) days after their payment due date, Buyer will be
entitled to draw down under the bank guarantee such sum
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up to an aggregate amount of $100,000 (One Hundred Thousand United States
Dollars) per calendar month.
SECTION 15. FDDI TO ATM TECHNOLOGY
At the Closing, Buyer shall grant to Elbit a perpetual, worldwide,
transferable, non-exclusive, royalty-free license to use the FDDI to ATM bridge
technology (ATM including LAN emulation, bridge including spanning tree, and
FDDI dual attachment) ("FDDI/ATM Technology") for stand-alone systems and
products. Elbit shall be entitled to freely apply and develop such technology
for whatever purpose and the fruits of such activities will be the sole
property of Elbit. Elbit shall retain the use and any rights to use software
products acquired by Seller for the purpose of development of ATM products
prior to Closing and transferred as part of the Purchased Assets, to the extent
that Elbit's continued use does not violate the terms of the licenses governing
such software. If Seller's continued use violates the terms of such licenses,
Seller may procure such licenses at its own expense.
SECTION 16. MEMPSA
The Manufacturing, Engineering and Material Procurement Services Agreement
("MEMPSA") between Elbit and Fibronics Ltd., which is to be assigned by Elbit
to Elbit Systems Ltd. ("ESL") in the framework of the current reorganization of
Elbit, will be transferred as part of the Purchased Assets and continue in full
force and effect for a period of at least 6 months following the Closing.
Thereafter, Buyer and ESL shall each be entitled to cancel the MEMPSA in
accordance with its terms, provided that written notice of termination may be
given only after this six (6) month period after Closing. Buyer shall be
entitled to receive on-the-job training for 2-3 persons on the performance of
final acceptance tests. Elbit shall use its best efforts to see that MEMPSA is
performed in accordance with its terms.
SECTION 17. CONSENT OF GOVERNMENT AUTHORITIES
The parties declare that they are aware of the fact that certain transactions
contemplated herein require the consent of the Agencies and certain government
authorities and other consents listed in Schedules 8.6 and 10.6 hereto. The
parties and Elbit shall use their best efforts to obtain such consents as soon
as possible including submission of any reasonably necessary documents. To
the extent that such consents are not obtained prior to Closing, Buyer and
Seller shall cooperate in any reasonable arrangement designed to effectuate
this Agreement to the extent permitted by law until such consents are obtained
and the Agreement can be fully implemented. In the event after Closing, Seller
receives payments due Buyer from government Agencies, Seller shall pay such
amounts to Buyer within fifteen (15) days of receipt.
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SECTION 18. INDEMNIFICATION
18.1 Indemnification of Seller and Elbit. From and after the Closing, each
of Seller and Elbit, jointly and severally, will reimburse, indemnify and hold
harmless Buyer and its successors and assigns (an "Indemnified Purchaser
Party") against and in respect of:
(a) any and all damages, losses, deficiencies, liabilities, costs
and expenses incurred or suffered by any Indemnified Purchaser party that
result from, relate to or arise out of:
(i) any and all liabilities and obligations of Seller of
any nature whatsoever, except for those liabilities and obligations of Seller
which Purchaser specifically assumes pursuant to this Agreement;
(ii) any and all actions, suits, claims, or legal,
administrative, arbitration, governmental or other proceedings or investigation
against any Indemnified Purchaser Party that relate to Seller or the business
of Seller in which the principal event giving rise thereto occurred prior to
the Closing Date or which result from or arise out of any action or inaction
prior to the Closing Date of Seller or any director, officer, employee, agent,
representative or subcontractor of Seller, except for those which Buyer
specifically assumes pursuant to this Agreement; or
(iii) any misrepresentation, breach of warranty or
nonfulfillment of any agreement or covenant on the part of Seller under this
Agreement, or from any misrepresentation in or omission from any certificate,
schedule, statement, document or instrument furnished to Buyer pursuant hereto
or in connection with the negotiation, execution or performance of this
Agreement; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and other
expenses (including, without limitation, reasonable legal fees and expenses)
incident to any of the foregoing or to the enforcement of this Section 18.
18.2 Limitations on Indemnification by Elbit and Seller. Notwithstanding
the foregoing, the rights of Buyer to indemnification under this Agreement
shall be subject to the following provisions:
(a) No indemnification shall be payable to Buyer by Elbit or
Seller pursuant to Section 18 unless the total of all claims for
indemnification pursuant to Section 18 shall exceed US$150,000 in the
aggregate, whereupon only the amount of such claims in excess of the foregoing
threshold amount shall be recoverable in accordance with the terms hereof; and
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(b) No indemnification shall be payable to Buyer pursuant to
Section 18 unless Buyer has notified Elbit and Seller of such indemnification
claim on or before the second anniversary of the Closing Date.
18.3 Indemnification by Buyer. Buyer agrees to indemnify and hold Elbit
and each Subsidiary harmless from and against any damages, liabilities, losses,
costs and expenses (including, without limitation, reasonable fees of counsel
incurred in connection with investigating, defending against or settling any
such claims) resulting from (i) any breach of any representation, warranty or
covenant made by Buyer in this Agreement, (ii) any failure by Buyer to perform
and discharge any of the Assumed Liabilities or Assumed Obligations as set
forth in this Agreement, including, without limitation, any liability arising
out of or due to the failure of Buyer to perform and discharge any contract or
agreement assigned to and assumed by Buyer under this Agreement or (iii) any
activities of Buyer after the Closing, whether arising out of the operation of
the Business or the ownership or use of the Purchased Assets after the Closing,
including, without limitation, claims relating to environmental matters due to
or arising out of such activities, ownership or use.
18.4 Limitations on Indemnification by Buyer. Without derogating from the
provisions of Sections 1.3 and 1.4, the rights of Elbit and the Subsidiaries to
indemnification under this Agreement shall be subject to the following
provisions:
(a) No indemnification shall be payable to Elbit or the
Subsidiaries by Buyer pursuant to Section 18 unless the total of all claims for
indemnification pursuant to Section 18 shall exceed US$150,000 in the
aggregate, whereupon only the amount of such claims in excess of the foregoing
threshold amount shall be recoverable in accordance with the terms hereof; and
(b) No indemnification shall be payable to Elbit or the
Subsidiaries pursuant to Section 18 unless Elbit or the Subsidiaries have
notified Buyer of such indemnification claim on or before the second
anniversary of the Closing Date.
18.5 Notice; Defense of Claims. Promptly after receipt by an indemnified
party of notice of any claim, liability or expense to which the indemnification
obligations hereunder would apply, such party shall give notice thereof in
writing to the indemnifying party. Such notice shall state the information
then available regarding the amount and nature of such claim, liability or
expense. If within 20 days after receiving such notice the indemnifying party
gives written notice to the indemnified party stating that it disputes and
intends to defend against such claim, liability or expense at its own cost and
expense, then counsel for the defense shall be selected by the indemnifying
party. If no such notice of intent to dispute and defend is given by the
indemnifying party, the indemnified party shall, at the expense of the
indemnifying party, be entitled to undertake the defense of such claim,
liability or expense (with counsel selected by the indemnified party), and
shall have the right to compromise or settle the same (exercising reasonable
business judgment).
22
<PAGE> 23
18.6 Limitation on Remedies. It is specifically understood and agreed that
in the event a misrepresentation or breach of warranty or covenant is
discovered by Buyer after the Closing, Buyer's remedies shall be limited solely
to the indemnification set forth in this Section 18 of this Agreement. All
other cases of breach shall be subject to the provisions of the Law of
Contracts - Remedies, 1970.
SECTION 19. BUYER'S EXAMINATION
Buyer acknowledges that:
(a) Buyer and its agents have, to the best of Buyer's knowledge,
received or been given access to such information requested by Buyer in
connection with its determination to enter into this Agreement and consummate
the transactions contemplated herein, and all such information has been
reviewed by Buyer, and its agents.
(b) No representation or warranty is being made by Seller as to
the future operations or prospects of Seller's former business and Buyer is not
relying on any of Sellers forecasted information or plans.
SECTION 20. LIMITED NON-COMPETITION
Following the Closing, Elbit and its subsidiaries and Seller shall not produce
or sell any proprietary software or hardware developed by Seller prior to
Closing and transferred to Buyer as part of the Purchased Assets for a period
of 18 months from the date of Closing. Notwithstanding the above, Elbit and
its subsidiaries and Seller shall not be restricted in any way from developing,
using and selling any software or hardware which serves a similar or identical
function to the proprietary software or hardware described above, but which is
not based on proprietary know-how transferred as part of the Purchased Assets.
SECTION 21. INFRASTRUCTURE SERVICES
Buyer will procure from Elbit all the infrastructure services provided by Elbit
to its employees immediately prior to the Closing Date as they may be amended
from time to time. Buyer will be entitled to cancel all or any part of such
infrastructure services upon giving Elbit two (2) weeks prior notice. Elbit
will be entitled to cease providing such infrastructure services upon giving
Buyer three months prior notice. Elbit will invoice Buyer quarterly for the
costs and expenses of providing such infrastructure services.
23
<PAGE> 24
SECTION 22. MISCELLANEOUS
22.1 Joint and Several Responsibility. Elbit will be responsible jointly
and severally with Seller for performance of Seller's obligations in Sections
1.3(d), 1.4, 2(e), 4(a), 4(b), 5(a), 5(c), 5(d), 6, 8, 9, 12.2 and 13.
22.2 Fees and Expenses
(a) Each party will bear its own expenses in connection with the
negotiation and the consummation of the transactions contemplated by this
Agreement, including, without limitation, any broker's commission or finder's
fee incurred by such party.
(b) Each party shall pay all costs and fees or taxes incurred by
such party, whether at or subsequent to the Closing, in connection with the
transfer of the Purchased Assets as contemplated by this Agreement. Buyer
shall pay to Seller at Closing any VAT and any sales or similar tax which
Seller is required to collect from Buyer in connection with this Agreement,
against an appropriate invoice by way of cheque dated upon the VAT due date.
(c) All income taxes resulting from the sale of the Purchased
Assets by Seller shall be Seller's obligation. Any taxes, fees, customs duties
or VAT levied on the Purchased Assets for the period prior to Closing shall be
Seller's obligation.
22.3 Governing Law. This Agreement shall be construed under and governed
by the laws of Israel without regard to its conflict of laws provisions.
22.4 Jurisdiction. The competent court in Haifa shall have sole
jurisdiction over this Agreement.
22.5 Notices. Any notice, request, demand or other communication required
or permitted hereunder shall be in writing and shall be deemed to have been
given if delivered or sent by facsimile transmission or overnight courier, upon
receipt, or if sent by registered or certified mail, on the date on which
receipt is acknowledged. All notices to a party will be sent to the addresses
set forth below or to such other address or person as such party may designate
by notice to each other party hereunder:
To Seller and Elbit: Elbit Ltd.
The Advanced Technology Center
P.O. Box 539,
Haifa 31053, Israel
Attn.: Chief Executive Officer
To Buyer: MRV Communications Inc.
8943 Fullbright Ave., Chatsworth, CA 91311, USA
Attn.: Edmund Glazer
24
<PAGE> 25
Any notice given hereunder may be given on behalf of any party by counsel to
such party or other authorized representatives.
22.6 Entire Agreement. This Agreement, including the Schedules and
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of
the parties with respect to its subject matter, and supersedes all previous
written or oral negotiations, commitments and writings, including the MOU
signed on September 6, 1996; no promises, representations, understandings,
warranties and agreements have been made by any of the parties hereto, and all
inducements to the making of this Agreement relied upon by either party hereto
have been expressed herein or in such Schedules or Exhibits.
22.7 Schedules and Exhibits. The Exhibits and Schedules attached hereto
or to be attached hereafter are hereby incorporated as integral parts of this
Agreement.
22.8 Captions and Gender. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun
in reference to a party hereto shall be deemed to include the feminine or
neuter pronoun, as the context may require.
22.9 Execution in Counterparts. For the convenience of the parties and to
facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
22.10 Publicity and Disclosures. Subject to the requirements of applicable
law, no press releases or public disclosures, either written or oral, of the
transactions contemplated by this Agreement, shall be made by a party hereto
without the prior knowledge and written consent of Buyer and Elbit.
22.11 Confidentiality. All information not previously disclosed to the
public or generally known to persons engaged in the businesses of Seller or
Buyer which shall have been furnished by Buyer or Seller to the other party in
connection with the transactions contemplated hereby shall not be disclosed to
any person other than their respective employees, directors, attorneys,
accountants or financial advisors or other than as contemplated herein. In the
event that the transactions contemplated by this Agreement shall not be
consummated, all such information which shall be in writing shall be returned
to the party furnishing the same, including to the extent reasonably
practicable, all copies or reproductions thereof which may have been prepared,
and neither party shall at any time thereafter disclose to third parties, or
use, directly or indirectly, for its own benefit, any such information, written
or oral, about the business of the other party hereto.
22.12 Preamble. The preamble to this Agreement shall constitute an integral
part of this Agreement.
25
<PAGE> 26
22.13 Assignment. Buyer may assign its rights under this Agreement
provided that Buyer shall remain fully liable for all of its liabilities and
obligations hereunder.
IN WITNESS WHEREOF, THE PARTIES HAVE HEREUNTO SET THEIR HAND UPON THE DATE
FIRST ABOVE WRITTEN.
FIBRONICS LTD. MRV COMMUNICATIONS INC.
By: _____________________ By: ______________________
Title: _____________________ Title: ______________________
Sig: _____________________ Sig: ______________________
ELBIT LTD. S.R.L. FIBRONICS INTERNATIONAL INC.
By: _____________________ By: _____________________
Title: _____________________ Title: _____________________
Sig: _____________________ Sig: _____________________
FIBRONICS EUROPE GMBH FIBRONICS ITALIA S.R.L.
By: _____________________ By: _________________
Title: _____________________ Title:____________________
Sig: _____________________ Sig.:_____________________
FIBRONICS BENELUX B.V. FIBRONICS (U.K.) LTD.
By: _____________________ By: ___________________
Title: _____________________ Title: ___________________
Sig: _____________________ Sig: ___________________
26
<PAGE> 27
FIBRONICS TELECOMMUNICATIONS (1991) LTD.
By: _____________________
Title: _____________________
Sig: _____________________
27
<PAGE> 28
Schedule 1.1
Intangible Assets:
1. All Intangible Assets in all areas of the world:
including but not limited to: technology-in-progress title to the
user rights in the names of the Subsidiaries; title to the ownership
rights in their goodwill and trade marks; trade names; merchandise
marks and brand names, including names which the Subsidiaries have the
right to use by virtue of agreements; technological know-how owned and
used by the Subsidiaries; production files, patents registered or
applied for in favor of the Subsidiaries; copyrights; customer lists;
customer agreements; intellectual property rights; trade secrets;
exclusive right for the manufacture and sale of the Subsidiaries'
products; marketing rights; distribution rights; leasing rights;
employment rights; service contracts.
2. All of Elbit's rights and obligations under that certain agreement
between Elbit and Seller relating to research and development
effective January 1, 1994.
Tangible Assets:
3. All inventory in all areas of the world:
including all raw materials, work-in-process and finished goods at all
locations including but not limited to: Elbit locations; locations of
the Subsidiaries, and outside contractors; in transit; on loan to
customers.
4. All Property & Equipment in all areas of the world:
including but not limited to all fixed assets, machinery, equipment,
vehicles, furniture, fixtures, computers, software, test equipment,
production lines, production and development testing equipment.
5. All prepaid expenses as reflected on the Seller's balance sheet at
time of Closing, except as excluded under Section 1.2.
6. All loans extended to Seller's employees prior to Closing (except for
share loans).
28
<PAGE> 29
Schedule 8.6
1. Bank of Israel approval, if necessary - Seller
2. Office of Chief Scientist approval - Seller and Buyer
3. Investment Authority consent - Seller
4. The Canada-Israel Industrial Research and Development Foundation -
Seller
5. Fund for the Advancement of Marketing - Seller
6. Antitrust Authority, if necessary - Buyer
7. Releases of liens on the assets of the Subsidiaries and Seller by
all banks holding such liens
8. Board of Directors resolution of each Seller and Buyer
9. Subsidiaries shareholders' approval
10. Transfer deeds of all Purchased Assets, if necessary - Seller,.
11. Consents to registration by Buyer of companies by the name Fibronics
anywhere in the world - Seller
29
<PAGE> 30
Exhibit B
To: MRV Telecommunications, Inc.
Dear Sirs,
Re: Fibronics Ltd.
We hereby confirm that, to the best of our knowledge and belief, having made
reasonable enquiry, Fibronics Ltd has done everything in order to satisfy the
requirements of the State of Israel in order to allow the State of Israel to
order the release and removal of the two registered liens in its favour that
appear as items 5 and 11 in Annex A2 to Exhibit C to the Asset Purchase
Agreement to which this letter is appended as Exhibit B.
Yours faithfully,
Elbit Ltd.
Y. Baruchi, CEO
Yours
30
<PAGE> 31
AMENDMENT NO. 1
TO
SALES AGREEMENT NO. 017-95
By and Between
The Buyer, as defined in Annex 1 of the Sales Agreement
of the one part
And
The Company, as defined in Annex 2 of the Sales Agreement
(hereinafter the "Seller") of the other part
WHEREAS, the Buyer and the Seller entered into Sales Agreement No. 017-95 (the
"Sales Agreement"); and
WHEREAS, the Buyer and the Seller desire to add to the Sales Agreement as
provided in this Amendment No. 1, by the addition of one 105mm Battalion
System, one meteorological station and additional spare parts (collectively the
"Amendment No. 1 Items").
NOW, THEREFORE, the Buyer and the Seller hereby agree to amend the Sales
Agreement as follows:
1. A new Attachment C-1, as attached hereto, is added to the Sales
Agreement to increase the total program price by US$2,322,000 to a
total of $9,777,000 in consideration for supply of the Amendment No. 1
Items. Exhibit 1 to Attachment C-1 contains the prices for the
Amendment No. 1 Items, and Exhibit 2 to Attachment C-1 contains the
Payment Schedule and Milestones for the Amendment No. 1 Items.
2. A new Attachment, as attached hereto, E/SOW-ACCS rev. 03 for M2A1
Battalion RD-GOGO 20-00 is added with respect to the Amendment No. 1
Items.
3. A new Attachment F, as attached hereto, Technical Specifications-ACCS
rev. 03 for M2A1 Battalion RD-GOGO 21-00 is added with respect to the
Amendment No. 1 Items.
4. All other provisions of the Sales Agreement shall remain in full force
and effect.
5. This Amendment No. 1 shall become effective upon signature by the
Buyer and by the Seller.
IN WITNESS WHEREOF, the parties have hereunto duly executed this Amendment no.
1 as of the date set forth below.
BUYER SELLER
By: ________________ By: _______________
Date: ________________ Date:______________
1a
<PAGE> 1
FIBRONICS LTD. GROUP
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
(in U.S. dollars)
<PAGE> 2
FIBRONICS LTD. GROUP
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT 2
COMBINED FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1995 and 1994 3 - 4
Statements of Operations
for the years ended December 31, 1995 and 1994 5
Statements of Cash Flows
for the years ended December 31, 1995 and 1994 6
Notes to the Combined Financial Statements 7 - 17
</TABLE>
# # # # # #
<PAGE> 3
LUBOSHITZ,
KASIERER & CO.
ARTHUR ANDERSEN
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF FIBRONICS LTD.
We have audited the combined balance sheets of the Fibronics Ltd. Group (the
"Group") as of December 31, 1995 and 1994, and the related combined statements
of operations and cash flows for the users then ended. These financial
statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of certain companies
included in the combined financial statements, which statements reflect total
assets constituting approximately 15% and 36% of the combined assets at
December 31, 1995 and 1994, respectively, and total revenues constituting
approximately 9% and 28% of the combined revenues for 1995 and 1994,
respectively. These statements were audited principally by other auditors
whose reports have been furnished to us, and our opinion, insofar as it relates
to the amounts included for such audited companies, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards in Israel and in the United States, including those prescribed by the
Auditor's (Mode of Performance) Regulations (Israel), 1973. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits and the reports of the other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material
respects, the combined financial position of the Group as of December 31, 1995
and 1994, and the combined results of their operations and their cash flows for
the years then ended, in conformity with accounting principles generally
accepted in Israel and in the United States (as applicable to the financial
statements of the Group, such principles are practically identical).
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)
Haifa, February 29, 1996
2
<PAGE> 4
FIBRONICS LTD. GROUP
COMBINED BALANCE SHEETS
In thousands of U.S. dollars
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
NOTE 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 1,145 759
Receivables, net (3) 10,938 8,529
Inventories (4) 7,380 6,671
Prepaid and other current assets 301 567
----------- -----------
Total current assets 19,764 16,526
----------- -----------
FIXED ASSETS (5)
Cost 12,994 14,021
Less - accumulated depreciation (9,893) (10,222)
----------- -----------
3,101 3,799
----------- -----------
OTHER ASSETS 299 349
----------- -----------
23,164 20,674
=========== ===========
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
NOTE 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
CURRENT LIABILITIES
Banks (6) 9,169 7,824
Trade payables 3,200 4,980
Accrued payroll and other expenses 3,371 6,215
Current maturities 5,176 4,610
----------- -----------
Total current liabilities 20,916 23,629
----------- -----------
LOAN FROM ELBIT LTD. (7) 6,781 -
----------- -----------
LONG-TERM LIABILITIES
Bank and others (8) 2,328 3,886
Accrued severance pay, net (9) 116 215
----------- -----------
2,444 4,101
----------- -----------
CONTINGENT LIABILITIES
AND COMMITMENTS (11)
SHAREHOLDERS' DEFICIENCY (12) (6,977) (7,056)
----------- -----------
23,164 20,674
=========== ===========
</TABLE>
. . . . . . . . . . . . . . . . . . . . . .
YIGAL BARUCHI PESAH DAVID
Chief Executive Officer Controller
and member of
Board of Directors
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE COMBINED FINANCIAL
STATEMENTS.
4
<PAGE> 6
FIBRONICS LTD. GROUP
COMBINED STATEMENTS OF OPERATIONS
In thousands of U.S. dollars
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
NOTE 1995 1994
--------- ----------- -----------
<S> <C> <C> <C>
Net sales 35,003 33,355
Cost of sales (13) 19,127 20,725
----------- -----------
Gross profit 15,876 12,630
----------- -----------
Selling expenses 15,129 16,712
Research and development costs, net (14) 545 76
Administrative and general expenses 1,485 3,751
----------- -----------
Total operating expenses 17,159 20,539
----------- -----------
Operating loss (1,283) (7,909)
Financing expenses, net (15) 1,753 1,577
Restructuring costs (16) - 1,953
Other income (expenses), net 815 (118)
----------- -----------
(2,221) (11,557)
Forgiveness of debt by Elbit 2,300 -
----------- -----------
Net income (loss) 79 (11,557)
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE COMBINED FINANCIAL
STATEMENTS.
5
<PAGE> 7
FIBRONICS LTD. GROUP
COMBINED STATEMENTS OF CASH FLOWS
In thousands of U.S. dollars
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVIES
Net income (loss) 79 (11,557)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Revenues and expenses not affecting operating cash
flows:
Forgiveness of debt by Elbit (2,300) -
Depreciation and amortization 1,459 2,455
Severance pay, net (99) (92)
Loss (gain) on disposal and write off of fixed assets (205) 410
Linkage increments on long-term loans 10 56
Changes in operating assets and liabilities:
Receivables (2,409) 751
Inventories (709) 1,524
Prepaid and other current assets 266 218
Payables and accrued expenses (4,624) 2,693
----------- -----------
Net cash used in operating activities (8,532) (3,542)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in fixed assets (786) (361)
Proceeds from disposal of fixed assets 280 156
----------- -----------
Net cash used in investing activities (506) (205)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Additional paid-in capital - 4,183
Long-term loans from banks - 192
Repayment of long-term loans from banks (1,002) (1,657)
Loan from Elbit 9,081 -
Short-term borrowings from banks, net 1,345 1,165
----------- -----------
Net cash provided by financing activities 9,424 3,883
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 386 136
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 759 623
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR 1,145 759
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE COMBINED FINANCIAL
STATEMENTS.
6
<PAGE> 8
FIBRONICS LTD. GROUP
NOTES TO THE COMBINED STATEMENTS OF CASH FLOWS
In thousands of U.S. dollars
NOTE 1 - GENERAL
A. BASIS OF PRESENTATION
The combined financial statements of the Fibronics Ltd. Group (the
"Group") comprise the accounts of the following companies which
are, directly and indirectly, wholly-owned subsidiaries of Elbit
Ltd. ("Elbit").
- Fibronics Ltd. (the "Company") and its marketing
subsidiaries (principally in the United Kingdom and in
Germany).
- Fibronics International Inc. (marketing company in the
U.S.)
Material intercompany balances and transaction among the companies
in the Group have been eliminated in the combined financial
statements.
B. The Group is engaged in the development, manufacture and
international marketing of high-speed information transfer and
distribution systems. The term "affiliated company", as used in
these financial statements, refers to affiliates of Elbit, and its
principal shareholder, Elron Electronic Industries Ltd. ("Elron").
C. The Group incurred significant losses from operations in previous
years resulting in a shareholders' deficiency of approximately
$6,977 as of December 31, 1995. Elbit has made a commitment that
it will assist the Group in meeting its working capital needs for
1996 in order to enable the Group to continue operations.
D. The accompanying financial statements have been prepared in U.S.
dollars, as the currency of the primary economic environment in
which the operations of the Group are conducted is the U.S.
dollar. The majority of the Group's sales are made outside Israel
in non-Israeli currencies (mainly the U.S. dollar), as are the
majority of purchases of materials and components. Thus, the
functional currency of the Group is the U.S. dollar. Transactions
and balances originally denominated in U.S. dollars are presented
at their original amounts. Transactions and balances in other
currencies are remeasured into U.S. dollars in accordance with
principles identical to those prescribed in Statement No. 52 or
the Financial Accounting Standards Board of the United States
(FASB). Exchange gains and losses from the aforementioned
remeasurement are reflected in the statement of operations.
7
<PAGE> 9
FIBRONICS LTD. GROUP
NOTES TO THE COMBINED STATEMENTS OF CASH FLOWS (CONT.)
In thousands of U.S. dollars
NOTE 1 - GENERAL (CONT.)
E. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F. REORGANIZATION OF ELBIT
In December 1995, Elbit announced that its Board of Directors
approved in principle the exploration of a strategic split of
Elbit's business segments into three separate publicly-traded
companies in the defense, healthcare and commercial businesses.
The proposal is subject to all necessary approvals, permits and
licenses required by law, in both Israel and in other applicable
countries. Upon final approval of this proposal by the Elbit
Board of Directors, it will be submitted for approval by Elbit's
shareholders. The accompanying financial statements do not
reflect the impact of any adjustments that may result from this
reorganization.
NOTE 2 - ACCOUNTING POLICIES
The financial statements have been prepared in conformity with
accounting principles generally accepted in Israel and in the United
States (as applicable to the financial statements of the Group such
principles are practically identical). The significant accounting
policies followed in the preparation of the financial statements, on a
consistent basis, are:
A. INVENTORIES
Inventories are valued at the lower of cost or market, cost being
determined as follows:
Raw materials - "first-in, first-out" method.
Finished products and
work in process - materials as above; labor and
overhead on an average basis
B. CASH EQUIVALENTS
All highly liquid investments are considered as cash equivalents
if the investments mature within three months from the date of
acquisition.
8
<PAGE> 10
FIBRONICS LTD. GROUP
NOTES TO THE COMBINED STATEMENTS OF CASH FLOWS (CONT.)
In thousands of U.S. dollars
NOTE 2 - ACCOUNTING POLICIES (CONT.)
C. FIXED ASSETS
Fixed assets are stated at cost, net of investment grants
received. Repairs and maintenance expenses are charged to
operations as incurred. Depreciation is calculated by the
straight-line method over the estimated useful lives of the assets
(principally five to fifteen years).
D. RESEARCH AND DEVELOPMENT COSTS
Research and development costs, net of participations, are charged
to operations as incurred.
E. PRODUCT WARRANTY
The provision for product warranty is recorded based on the
Company's experience and engineering estimates.
F. DOUBTFUL DEBTS
Known bad debts are written off. Doubtful debts are provided for
specifically.
G. BALANCES IN FOREIGN CURRENCY AND LINKED BALANCES
Balances in foreign currency are translated at the exchange rates
in effect at balance sheet date.
Balances linked to the Consumer Price Index in Israel (CPI) are
stated at the latest index published prior to balance sheet date.
Data regarding the representative exchange rate of the U.S. dollar
and the CPI are as follows:
<TABLE>
<CAPTION>
EXCHANGE RATE OF CONSUMER
END OF YEAR U.S. DOLLAR PRICE INDEX
-------------------------------------------- ------------------- -----------------
<S> <C> <C>
1995 3.135 313.3
1994 3.018 289.7
<CAPTION>
CHANGE DURING THE YEAR % %
-------------------------------------------- ------------------- -----------------
<S> <C> <C>
1995 3.9 8.1
1994 1.1 14.5
</TABLE>
9
<PAGE> 11
FIBRONICS LTD. GROUP
NOTES TO THE COMBINED STATEMENTS OF CASH FLOWS (CONT.)
In thousands of U.S. dollars
NOTE 3 - RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Trade -
Elbit 198 -
Other (*) 9,999 7,673
Government departments 712 826
Sundry 29 30
----------- -----------
10,938 8,529
=========== ===========
(*) Net of allowance for doubtful debts 264 509
=========== ===========
</TABLE>
NOTE 4 - INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Raw materials 2,636 2,576
Work in process 1,246 833
Finished products 3,498 3,262
----------- -----------
7,380 6,671
=========== ===========
</TABLE>
NOTE 5 - FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Machinery, computers and vehicles 9,022 10,107
Office furniture and fixtures 3,801 3,706
Leasehold improvements 171 208
----------- -----------
12,994 14,021
Less - accumulated depreciation and
amortization (9,893) (10,222)
----------- -----------
3,101 3,799
=========== ===========
</TABLE>
Depreciation and amortization expense totaled approximately $1,409 and
$1,933 in 1995 and 1994, respectively.
Investment grants deducted from cost of fixed assets amount to $680
(1994 - same).
Liens - see Note 10.
10
<PAGE> 12
FIBRONICS LTD. GROUP
NOTES TO THE COMBINED STATEMENTS OF CASH FLOWS (CONT.)
In thousands of U.S. dollars
NOTE 6 - BANKS
The loans are linked to the U.S. dollar and bear interest at annual
rates of between 6.5% and 7.2%.
Collateral - see Note 10.
NOTE 7 - LOAN FROM ELBIT LTD.
The loan is linked to the U.S. dollar and bears interest at an annual
rate of 7.5%. maturity dates have not yet been determined.
NOTE 8 - LONG-TERM LIABILITIES
A. COMPOSITION:
<TABLE>
<CAPTION>
ANNUAL
INTEREST DECEMBER 31
RATE --------------------------
% (4) 1995 1994
----------- ------------ ------------
<S> <C> <C> <C> <C>
Bank loans (1) 7.2 4,250 4,250
Bank loans (2) 8.5-10.5 3,154 3,758
Capital lease - 173
Other (3) 10.0-11.5 100 315
------------ ------------
7,504 8,496
Less - current maturities 5,176 4,610
------------ ------------
2,328 3,886
============ ============
</TABLE>
(1) These loans are subject to various financial covenants.
(2) The loans are secured by guarantees from the Government of Israel
in accordance with the Law for the Encouragement of Capital
Investments, 1959.
(3) Loans of $100 (1994 - $280) are linked to the CPI.
(4) The loans bear interest mainly based on the LIBOR rate. The
abovementioned rates are the rates as of December 31, 1995.
11
<PAGE> 13
FIBRONICS LTD. GROUP
NOTES TO THE COMBINED STATEMENTS OF CASH FLOWS (CONT.)
In thousands of U.S. dollars
NOTE 8 - LONG-TERM LIABILITIES (CONT.)
B. MATURITIES
<TABLE>
<S> <C>
First year - current maturities 5,176
Second year 1,596
Third year 486
Fourth year 124
Fifth year 122
------------
7,504
============
</TABLE>
C. COLLATERAL - see Note 10.
NOTE 9 - ACCRUED SEVERANCE PAY, NET
The Company is obligated to make severance payments to employees upon
termination of their employment. For some of its employees, including
senior employees, the Company discharges its obligation for severance
pay by the payment of premiums to an insurance company under an
approve plan. Other employees have joined a comprehensive pension
plan. The deposits with the insurance company and the pension fund
are not under the control of the Company and, therefore, are not
presented in the balance sheet.
The Company makes deposits with a severance pay fund to cover a
portion of its liability for severance pay over and above its
contributions to the pension plan as detailed below:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Accrued severance pay 324 410
Less - deposits (including accrued profits) 208 195
------------- -------------
116 215
============= =============
</TABLE>
NOTE 10 - LIENS
As collateral for its liabilities to banks and to the State of Israel
(in respect of investment grants), the Company has registered fixed
and floating charges on its assets.
12
<PAGE> 14
FIBRONICS LTD. GROUP
NOTES TO THE COMBINED STATEMENTS OF CASH FLOWS (CONT.)
In thousands of U.S. dollars
NOTE 11 - CONTINGENT LIABILITIES AND COMMITMENTS
A. LEASES
Various companies in the Group lease facilities under operating
leases, certain of which include escalation clauses, purchase
options, renewal options and requirements to pay property taxes
and utilities. The companies also lease certain furniture and
equipment under non-cancellable operating lease agreements.
The future minimum lease commitments under operating leases as of
December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
------------------------
<S> <C>
1996 605
1997 450
1998 197
1999 91
2000 86
Thereafter 68
-----------
1,497
===========
</TABLE>
Rentals charged to operations under these leases for the year
ended December 31, 1995, amounted to approximately $460 (1994 -
$600).
B. ROYALTIES
In connection with its research and development, the Company has
received participation payments from the State of Israel. The
participation commits the Company to pay royalties of 2%, mainly
on the related product sales, and is subject to various time
restrictions and maximum amount. Royalties for the current year
amounting to $300 (1994 - $386) are included in selling expenses.
The Company received in prior years participations in selling
expenses by the Government of Israel. The participations commit
the Company to pay a royalty of 3% of the increase in sales over a
base amount.
C. According to a letter of understanding between the Company and a
supplier (Kalpana), the Company will pay the supplier royalties of
$25 per unit sold, after the first 12,000 units.
13
<PAGE> 15
FIBRONICS LTD. GROUP
NOTES TO THE COMBINED STATEMENTS OF CASH FLOWS (CONT.)
In thousands of U.S. dollars
NOTE 11 - CONTINGENT LIABILITIES AND COMMITMENTS (CONT.)
D. According to an agreement between the Company and a supplier
(QSP), the Company may be liable for payment of up to $200, if the
agreement with the supplier is terminated
E. According to terms of an agreement between the Company and Elbit,
Elbit has undertaken to finance the Company's research and
development expenses, contingent upon specific conditions, during
the years 1995 and 1996. In consideration for the financing of
its research and development programs, commencing on January 1,
1997, and for a period of five years, the Company is committed to
pay Elbit royalties for each product developed through this
financing at a rate of 3% of total sales.
F. According to an agreement between the Company and a supplier
(Plaintree), the Company has a commitment to purchase chips of the
supplier in 1996 of up to $1,200.
G. Short-term deposits amounting to $105 are pledged to secure bank
credit received by a company in Germany.
NOTE 12 - SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------
1995 1994
------------- ----------
<S> <C> <C>
Balance, beginning of year (7,056) 318
Additional paid-in capital - 4,183
Net income (loss) 79 (11,557)
------------- ----------
(6,977) (7,056)
============= ==========
</TABLE>
NOTE 13 - COST OF SALES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------
1995 1994
------------- ----------
<S> <C> <C>
Materials 16,951 15,115
Labor and subcontractors 1,452 2,416
Manufacturing overhead 965 1,745
Depreciation 408 937
------------- ----------
19,776 20,213
Decrease (increase) in inventories of finished
products and work in process (649) 512
------------- ----------
19,127 20,725
============= ==========
</TABLE>
14
<PAGE> 16
FIBRONICS LTD. GROUP
NOTES TO THE COMBINED STATEMENTS OF CASH FLOWS (CONT.)
In thousands of U.S. dollars
NOTE 14 - RESEARCH AND DEVELOPMENT COSTS, NET
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------
1995 1994
------------- ----------
<S> <C> <C>
Labor 2,648 3,035
Materials 213 218
Other 1,717 2,933
------------- ----------
4,578 6,186
Less - participation by:
The Government of Israel (2,233) (2,589)
Elbit Ltd. (1,800) (3,521)
------------- ----------
545 76
============= ==========
</TABLE>
NOTE 15 - FINANCING EXPENSES, NET
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------
1995 1994
------------- ----------
<S> <C> <C>
Expenses:
Long-term loans 694 658
Short-term loans and other 1,055 864
Loan from Elron 147 94
------------- ----------
1,896 1,616
Less - financing income 143 39
------------- ----------
1,753 1,577
============= ==========
</TABLE>
NOTE 16 - RESTRUCTURING COSTS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31
-------------
<S> <C>
Writedown of discontinued fixed assets
and facility closure costs 416
Severance payments in excess of regular
provisions and involuntary employee
termination costs 837
Lease buyout 325
Other 375
------------
1,953
============
</TABLE>
15
<PAGE> 17
FIBRONICS LTD. GROUP
NOTES TO THE COMBINED STATEMENTS OF CASH FLOWS (CONT.)
In thousands of U.S. dollars
NOTE 17 - TRANSACTIONS WITH RELATED PARTIES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-------------------------
1995 1994
------------- ----------
<S> <C> <C>
Income:
Sales 9,399 9,729
Participation in research and
development 1,800 3,521
Forgiveness of debt 2,300 -
Costs and expenses:
Cost of sales, net 1,917 302
Selling expenses 150 673
Financing expenses 147 94
Sales of fixed assets 320 -
</TABLE>
NOTE 18 - TAXES ON INCOME
A. The Company's production facilities have been granted the status
of "approved enterprise" entitling the Company to certain tax
benefits. The period of such benefits is limited to a certain
number of years. This period will terminate in 1996 and 1997 for
certain plant expansions and in 2005 and 2007 in respect of other
expansions.
Income deriving from the "approved enterprise" is subject to tax
at a reduced rate.
The above benefits are conditional, inter alia, on the Company
exporting specified percentages of its annual turnover. The
Company has fulfilled this condition to date.
B. The Group has tax loss carryforwards amounting to approximately
$14,500 some of which expire in varying amounts through 2009. A
valuation allowance has been provided for the full amount of the
deferred tax benefit related to these carryforwards due to the
uncertainty in respect of their realization.
C. Final tax assessments for the Company have been received through
1993.
16
<PAGE> 18
FIBRONICS LTD. GROUP
NOTES TO THE COMBINED STATEMENTS OF CASH FLOWS (CONT.)
In thousands of U.S. dollars
NOTE 19 - CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Group to
concentrations of credit risk consist principally of accounts
receivable. These concentrations of credit risk within geographical
markets may be affected by changes in economic or other conditions and
may, accordingly impact the Group's overall credit risk. The Group
performs ongoing credit evaluations of its customers and maintains
allowances for credit losses.
Accounts receivable-trade, classified by geographical markets at
December 31, 1995 and 1994 are:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994
------------- ---------
<S> <C> <C>
Americas 1,207 1,966
Israel 1,097 468
Europe 7,039 4,600
Other 656 639
------------- ----------
9,999 7,673
============= ==========
</TABLE>
# # # # # #
17
