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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 0-29538
PARADIGM GEOPHYSICAL LTD.
(Exact Name of Registrant as specified in its charter)
ISRAEL
(Jurisdiction of incorporation or organization)
Gav-Yam Center No. 3, 9 Shenkar St., P.O. Box 2061, Herzlia B 46120 ISRAEL
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
NONE
(Title of Class)
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Securities registered or to be registered pursuant to Section 12(g) of the Act.
Title of each class
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Ordinary Shares, par value NIS 0.5 per share
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Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
Title of each class
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Ordinary Shares, par value NIS 0.5 per share
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Indicate the number of outstanding shares of each of the issuer's classes of
capital of common stock as of the close of the period covered by the annual
report:
13,026,336 Ordinary Shares
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d)of the Securities Exchange act of 1934 during
the proceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2)has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by checkmark which financial statement item the registrant has elected
to follow:
[ ] Item 17 [X] Item 18
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TABLE OF CONTENTS
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ITEM Page
<S> <C>
1. DESCRIPTION OF BUSINESS 3
2. DESCRIPTION OF PROPERTY 16
3. LEGAL PROCEEDINGS 16
4. CONTROL OF REGISTRANT 17
5. NATURE OF TRADING MARKET 19
6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS 20
7. TAXATION 20
8. SELECTED CONSOLIDATED FINANCIAL DATA 29
9. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 32
10. DIRECTORS AND OFFICERS OF REGISTRANT 42
11. COMPENSATION OF DIRECTORS AND OFFICERS 44
12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES 45
13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS 48
14. DESCRIPTION OF SECURITIES TO BE REGISTERED 48
15. DEFAULTS UPON SENIOR SECURITIES 48
16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES 48
17. FINANCIAL STATEMENTS 48
18. FINANCIAL STATEMENTS 48
</TABLE>
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In order to utilize the "Safe Harbor" provisions of the United States Private
Securities Litigation Reform Act of 1995, Paradigm Geophysical Ltd. ("Paradigm"
or the "Company")is providing the following cautionary statement. This document
contains certain forward-looking statements with respect to the financial
condition, results of operations and business of Paradigm and certain of the
plans and objectives of Paradigm with respect to these items. In particular,
among other statements, certain statements in Item 1: "Description of Business"
with regard to management objectives, market trends, market standing and product
volumes, and the statements in Item 9: "Management's Discussions and Analysis of
Financial Condition and Results of Operations" with regard to trends in results
of operations, margins, overall market trends, risk management and exchange
rates are forward-looking in nature. By their nature, forward-looking statements
involve risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. The Company's actual results could
differ materially from the results reflected in those forward-looking
statements. The Company disclaims any obligation to update it's forward-looking
statements. There are a number of factors that could cause actual results and
developments to differ materially from those expressed or implied by these
forward-looking statements. These factors include, but are not limited to, the
price of oil, levels of business spending, employee costs, future exchange and
interest rates, changes in tax rates and future business combinations and
acquisitions.
ITEM 1 - DESCRIPTION OF BUSINESS
INTRODUCTION
Paradigm Geophysical Ltd. is a geoscience knowledge solutions company,
which provides computer-aided exploration and production software products and
services to the oil and gas industry. Paradigm's enabling technologies through
its products and services facilitate the field asset teams of oil and gas
companies to explore, model, simulate and manage oil and gas reservoirs with
precision and accuracy so as to reduce exploration and production costs,
minimize risk in drilling and increase the productivity of proven reserves.
Paradigm achieves this objective by focusing on two major categories of
business activity to the oil and gas industry: (i) providing comprehensive
software solution suites for the processing and interpretation of prospective
drilling site data for sub-surface modeling, prospective drilling site
evaluation, mapping, reservoir characterization and management; and (ii) data
processing services to extract the most geoscience knowledge from the seismic
and geological well and reservoir production data.
In 1993, Paradigm introduced time to depth technology. By the end of 1998,
Paradigm also provided a full set of unique tools for computer aided
exploration, covering seismic data processing and inversion, visualization and
model building in both the time and depth domains. Output and interpretation
tools today employ solid modeling techniques and computer graphics volume
visualization. In early 1999, Paradigm acquired additional products and
technologies that enhance the geological aspects of its geoscience-based
software (See "PTM and Related Acquisitions "), enabling it to provide the
initial products for a planned broad suite of production tools.
Paradigm markets its products and services globally to a broad range of
customers, including all the major, independent and national oil companies as
well as oil services companies. The Company has sales and service offices in the
United States, Canada, Venezuela, Argentina, the United Kingdom, Russia, China,
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Australia, Indonesia and Singapore. The Company, through its global presence and
resources, has the flexibility to operate in the framework most appropriate to a
particular customer's needs, goals, and budget through software licensing,
outsourcing and consulting.
The Company's principal executive offices are located at
Shenkar St. 9, Gav Yam Center No.3, Herzlia 46120, Israel and its
telephone number is + 972-9-9709300.
The Company's Ordinary Shares are listed on the NASDAQ National Market
under the symbol PGEO.
INDUSTRY BACKGROUND
Seismic data consists of measurements of time intervals and reflection
strengths of sound waves reflected off the boundaries of different subsurface
formations, and is the principal source of information used by geoscientists to
map potential oil and natural gas-bearing subsurface strata and reservoirs. The
sound waves are generated through the discharge of compressed air, the
detonation of small explosive charges or other energy generating techniques. As
the sound waves reflect off the boundaries of different subsurface formations,
electronic sensors record the varying time intervals and reflection strengths.
The seismic data is then digitally cleaned and enhanced by a seismic data
processing system. Paradigm's suite of software solutions transforms the
processed seismic data, through complex mathematical algorithms, into two and
three dimensional computer-graphics images of the earth's subsurface. These
images can then be interpreted to create detailed maps of either exploration
drilling prospects or known oil and natural gas reservoirs.
The diagram below depicts the primary steps of the traditional seismic
acquisition, processing and interpretation process:
<TABLE>
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ACQUISITION PROCESSING INTERPRETATION
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Energy source to --> Electronic sensors --> Computers to filter --> Workstations/software --> Geological modeling
create sound waves to record signals & process data to image and interpret drilling decisions
</TABLE>
Seismic data analysis is used by oil and gas companies during almost every
phase of exploration, production and reservoir management. This analysis
consists of the processing and interpretation of two-dimensional ("2D") and
three-dimensional ("3D") seismic and other geophysical data, which is needed to
produce computer-generated graphic cross-sections and maps of the subsurface
strata. The resulting cross-sections and maps are then analyzed and interpreted
by a range of geoscientists, petrophysicists and engineers and are used to: (i)
determine whether subsurface conditions are likely to be favorable for finding
oil and natural gas reserves; (ii) appraise identified reservoirs to determine
the presence of commercially viable oil and natural gas accumulations; (iii)
plan the exploitation of the prospective drilling site; (iv) monitor reservoirs
under production, and (v) enhance oil and natural gas recovery during
production.
Analysis of seismic data through computer-aided technology, reduces
drilling risk, improves drilling success rates and lowers capital costs of field
development. The advanced analysis of seismic data through software has been a
major contributing factor in reducing oil and gas companies' costs of
exploration, finding and field development in recent years. The integration of
the sub-surface models derived from seismic and geological data, with
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well log data and other field production data, provide powerful tools for the
simulation and management of reservoirs under production. The objective of these
reservoir characterization and management tools is to increase the full-life
production volumes from oil and natural gas fields, while contributing to
lowering production costs.
In general, the largest and geologically simplest oil and natural gas
reserves have been discovered and developed. As a result, the oil and gas
industry has increasingly focused its exploration and development efforts on
smaller potential accumulations of oil and natural gas in mature producing
basins and in new areas with more complex geology and more difficult logistics.
Therefore, oil and gas companies have sought more accurate models of subsurface
geological formations to: (i) better identify and interpret potential oil and
natural gas reserves; (ii) improve the quality of their exploration and drilling
decisions to substantially reduce drilling and field preparation risk; and (iii)
lower production costs while increasing recovery rates from fields under
production. They achieve this through the use of increasingly sophisticated
computer-based software tools.
Despite the recent lower oil price that has resulted in a serious cut-back
in exploration and development expenditures from mid-1998 to-date, the Company
believes that, in the medium term, growth in demand for computer-based
geoscience knowledge solutions will resume. This is expected to be generated by
several factors: including: (i) improved data acquisition techniques (e.g
"multi-component seismic") that have greatly increased the amount of seismic
data gathered demanding software programs that can process the ever larger
volumes of data from these seismic surveys; (ii) the decline in the number of
geoscience knowledge staff retained within the oil companies; and (iii) the
demand for new reservoir characterization management tools that integrate
seismic and non-seismic data. The Company believes that the long-run trend of
increased spending on geoscience-related knowledge solutions for exploration and
production will continue and that Paradigm is well positioned to benefit from
this growth.
The trend toward "complete solutions" and the need to quickly and
accurately produce and analyze seismic and related geoscience data has led to
the growth of the software industry devoted to oil and natural gas exploration
tools. This demands sophisticated software, which is science and mathematics
intensive, and powerful computing resources to process very large volumes of
data and to yield accurate science-based models and images of the subsurface.
Oil and natural gas companies are now identifying geoscience knowledge solutions
companies that can offer computer software product suites that provide
integrated and complete solutions to their range of seismic and related data
processing, modeling, imaging and interpretation efforts. At the same time,
there is increasing concern over the costs of computing resources and the oil
and natural gas companies are now seeking solutions providers that contribute to
their goal of significantly lowering enterprise-wide information technology
("IT") costs. Due to the fragmented nature of the software industry, Companies
in the oil and gas industry have, in the past, engaged the services and
purchased the products of numerous software providers to meet their range of
exploration needs. Today, the trend is for the leading software developers in
this industry to provide complete solutions in their software product suites.
The "complete solutions" objective is the core of the Company's product
development strategy.
CORE TECHNOLOGIES AND PRODUCTS
TECHNOLOGIES: The Company has built or acquired a suite of software
products to process,
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analyze and interpret geophysical and related data for the oil and natural gas
industry. Most of the software is written in C++ code using software industry
standards and conventions. All products are currently available for the UNIX
operating system on a wide range of vendors' computing platforms. During 1999,
products will be migrated to the NT operating system, and will support UNIX/NT
co-existence.
Each product contains five major operative and functional components:
(i) GEOSCIENCE ALGORITHMS, capturing the underlying theory of the
industry and translating it into operative tools for day-to-day use
by the industry's geoscience-knowledge staff. Many of the algorithms
are proprietary or the latest state of the art;
(ii) DATA PROCESSING, storage and retrieval modules, capable of handling
data sets of large volume and ensuring the integrity of such very
large data sets, while proving the optimal use of computing
resources to minimize data processing time and computing resources;
(iii) COMPUTER-BASED GRAPHICS AND VISUALIZATION MODULES, that translate
the data into visual displays, and enable three dimensional model
building and visualization of the large data sets characteristic of
geoscience-based applications;
(iv) SOFTWARE ENGINEERING ENVELOPE, encompassing industry standards for
screen displays, menu and icon driven applications, forward and
backward compatibility to data bases and other common utilities; and
(v) SOFTWARE PROGRAMMING ENVIRONMENT, using the latest computer aided
software engineering ("CASE") tools, this system enables the user to
track, coordinate and control a large and diverse development team,
including automatic tracing of software versions, enhancement and
bugs and programming resources allocations.
PRODUCTS: The Company has pioneered a number of innovations in the
industry:
(i) the inversion to depth of traditional time-based seismic data;
(ii) volume based interpretation; and
(iii) the integrated common earth model for all geoscience applications
for oil and gas prospect exploration and evaluation.
On the basis of these innovations, the Company established a set of
product suites that provides tools for the analysis and interpretation of
geoscience data, covering a range of requirements for oil and gas prospect
exploration and evaluation.
Development of each new product consists primarily of the development of
new algorithms that are then embedded in an enabling environment composed of
selected library modules for graphics, data management and processing, and
software engineering. This software manufacturing environment, using the optimal
number of common elements, enables the Company to bring new products and product
enhancements to market in a cost and time effective manner, and obtain the full
benefit from the Company's past and continuing large investment in product
development and intellectual property.
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EXPANSION OF PRODUCT OFFERINGS
The Company's acquisition of all of the outstanding stock of CogniSeis
Development Inc. ("CogniSeis") in October 1997, permitted the Company to move
from a supplier of specialized depth-imaging products to integrated product
suites that provide a complete range of solutions in the time and depth domains
for processing, inversion and interpretation of seismic and non-seismic data.
The integration of CogniSeis and Paradigm products into coherent product suites
was introduced to the market in September 1998, transforming Paradigm into a
total solution provider of seismic and related data for oil and natural gas
exploration.
MICROSOFT WINDOWS NT VERSIONS OF PARADIGM'S PRODUCT SUITES. On March 23,
1999, Paradigm announced an initiative to provide its entire integrated suite of
products on the Microsoft Windows NT platform. A unified Windows NT/UNIX
strategy is a logical solution for IT and business decision-makers because of
the reduced operational costs, increased functionality and ease of integration
the Windows platform provides. The Company expects that the product migration
will be completed by the end of the year, with the majority of its ERGOS(TM)
suite of interpretation and modeling solutions available as beta releases on
qualified Windows NT platforms by the end of 1999. There can be no assurance
that the product migration will be completed by the end of 1999.
PTM AND RELATED ACQUISITIONS. In March 1999, Paradigm acquired the
Petroleum Technology division of Mincom Limited ("PTM") for approximately $9
million. PTM's flagship product, GEOLOG(TM), is a complete suite of well
information software tools for log analysis and petrophysics, widely used
throughout the oil and natural gas exploration and production industry.
GEOLOG(TM) allows Paradigm to enter the growing reservoir management market.
On June 10, 1999, the Company announced the acquisition of PlaNET, an
integrated suite of software for reservoir modeling and oil and gas field
network planning, from Dr. Andrew Wadsley. Dr. Wadsley has joined Paradigm to
continue development and integration of the software into Paradigm's existing
technologies.
These acquisitions permitted the Company to replace previously acquired or
developed software modules in the ERGOS product suite and to initiate
reorganization of certain physical and human resources.
PRODUCTS
Paradigm currently offers two major software suites, ECHOS(TM) (for data
analysis and inversion) and ERGOS(TM) (for data interpretation, model building
and quality control), and has announced the development of POROS(TM) (for
reservoir characterization and production management). Scalable and modular,
these open architecture suites include software products dedicated to performing
all of the tasks in seismic data analysis and interpretation, and increasingly
to incorporate and integrate non-seismic data. Through interactive information
sharing between geoscientists working on the prospective drilling site and an
asset team, the use of Paradigm's product suites enables the development of more
and better geoscience-based information and knowledge from the available data in
significantly less time.
ECHOS is a fully integrated suite for seismic processing and inversion. It
enables the asset team to move projects from field tapes to an earth model and a
seismic image in depth, all in a unified environment. By sharing common data
structures, file systems, applications and standard interfaces, geophysicists
generate more meaningful, reliable and direct information. Streamlined
workflows, rather than
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serial manipulations of data, reduce setup and idle time and eliminate
redundancies in the process. The suite comprises three powerful tools which
provide: (i) seismic data processing (FOCUS(R));(ii) velocity model building and
depth imaging (POWER(TM)); and (iii) amplitude versus offset ("AVO") inversion
and analysis (PROBE(TM)).
SEISMIC DATA PROCESSING
Generating high-resolution seismic data sections and volumes is a prerequisite
for most exploration projects. FOCUS is a 2D and 3D seismic processing system
for exploration geophysicists. As seismic exploration objectives become more
demanding, FOCUS readily adapts to meet these demands. It accommodates new
processing techniques and integrates advanced geophysical applications for
field, desktop, or production processing. The popularity of the system is
largely due to its broad scope of geophysical applications, system maturity,
stability, openness, and versatility of its programming environment.
VELOCITY MODEL BUILDING AND DEPTH IMAGING
POWER is used by many of the world's leading oil and gas exploration firms for
obtaining accurate depth imaging results. This cost-effective system integrates
velocity analysis, time-to-depth conversion, model building, model verification,
and depth migration to resolve the challenging seismic data imaging and
positioning problems. The system provides a full range of accurate 2D and 3D
depth and time imaging tools for any size project of any geological complexity.
AVO INVERSION AND ANALYSIS
Oil and gas field exploration and development requires the accurate prediction
of rock composition and rock properties including their capacity to hold
hydrocarbon fluids. The PROBE system provides the geoscientist with a set of
powerful tools and fully interactive work flows for detecting the presence of
hydrocarbon fluids using AVO technology. By incorporating information from
velocity models, PROBE results (obtained from the inversion of seismic amplitude
data) have been demonstrated to be more reliable than conventional methods in
detecting the presence of hydrocarbons. PROBE effectively integrates all of the
tasks (inversion, analysis, and modeling) involved in AVO studies into one
unified environment to greatly enhance the productivity of geoscientists.
ERGOS(TM) is a comprehensive and integrated software suite dedicated to seismic
data interpretation, model building, and mapping. It offers unparalleled power
and productivity to concurrently analyze the structure and stratigraphic
properties of large amounts of seismic data. The suite incorporates both
volume-based visualization and solid-based modeling technologies in order to
better understand the subsurface. A shared earth model assures data integrity
and accuracy, allowing concurrent application of solutions for maximum
productivity. The suite consists of six products which provide for: (i) seismic
data interpretation (SEISX(TM));(ii) depth conversion and map-based
geostatistics (EARTHMODEL/ EXPLORER(TM));(iii) mapping and solid model building
(SOLIDGEO(TM));(iv) volume-based visualization and interpretation (VOXELGEO*);
(v) structural modeling, restoration and balancing (GEOSEC(TM)); and (vi) well
logging and geological interpretation (GEOLOG(TM)) .
SEISMIC DATA INTERPRETATION
Paradigm offers SEISX, a cost-effective, field-proven interpretation product
which integrates multiple 2D and 3D seismic data surveys with well log data in a
high performance
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* Voxel(R) is the registered trademark of Vital Images, Inc., and is licensed
exclusively to Paradigm for use in sub-surface visualization products.
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interpretation and mapping environment. SEISX is an industry standard seismic
data interpretation solution. It offers an intuitive, easy to use, and
customizable interpretation solution for stratigraphic and structural
exploration projects. Through efficient loading and display, SEISX merges data
from massive regional projects, involving thousands of wells, hundreds of 2D
lines and multiple 3D surveys, into one integrated project. The system is fully
compatible with Unix and Windows NT operating systems.
MAPPING AND TIME-TO-DEPTH CONVERSION
Time-to-depth conversion is a necessary yet difficult process in earth model
building and seismic data imaging. The EARTHMODEL/EXPLORER enables the
interpreter to perform and verify these conversions in time frames required for
making drilling assessments. The system effectively integrates all seismic and
well data required for the conversion while offering a variety of time to depth
conversion strategies suitable for different regional requirements.
Comprehensive and easy to use, this productive system yields reliable time to
depth conversions.
MAPPING AND SOLID MODEL BUILDING
Geoscientists need interactive tools for building, editing, visualizing, and
verifying geologic models of the subsurface. SOLIDGEO provides geoscientists
with advanced technologies to accurately model and map subsurface features
composed of closed formation solids. SOLIDGEO is engineered to handle
multi-valued surfaces, fault geometry, and closed-body definitions, requirements
for modeling in today's exploration environments. Field-tested on the most
complex models, SOLIDGEO accelerates the process of building and refining models
of the earth's subsurface. Additionally, it provides the means to visualize and
share earth models within Paradigm's ECHOS and ERGOS product suites.
VOLUME-BASED VISUALIZATION
To reveal both structural complexity and stratigraphic detail in a true
three-dimensional setting, geoscience professionals need to visualize and
interpret seismic data directly in the 3D volume rather than as a series of
contiguous cross sections. By combing Voxel-based technology with unique
rendering capabilities, VOXELGEO gives the seismic interpreter and reservoir
engineer a direct path to the interior of the earth's subsurface. Volume
visualization enables interpreters to analyze the subsurface faster and more
thoroughly. This early analysis of large amounts of seismic data provides
insights into potential drilling locations within a time frame that is
unachievable by conventional interpretation methods.
STRUCTURAL MODELING, RESTORATION AND BALANCING
Structural interpretations generated from seismic data of poor or questionable
data quality must be constrained and validated with alternative procedures.
GEOSEC enables interpreters and structural geologists to interactively
construct, restore, and validate geologic cross sections and 3D structural
models. Using algorithms that model the behavior of rock deformation, GEOSEC
users are able to validate seismic interpretations, predict faults, model
strain, and evaluate potential hydrocarbon migration pathways.
GEOLOGICAL INTERPRETATION AND WELL LOGS
GEOLOG(TM), is a complete suite of well information software tools for log
analysis and petrophysics permitting geological interpretation of the
prospective drilling site independently, and in conjunction with seismic
information provided from other products in the ERGOS suite.
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GEOPHYSICAL SERVICES
Paradigm offers its own geophysical specialists and computer resources in
partnership with the customer's exploration team. Paradigm also provides
complete solutions for seismic data processing, velocity model building, depth
imaging and amplitude versus offset analysis. With the acquisition of PTM in
March 1999, Paradigm now provides services for the management, analysis and
interpretation of well-log data.
Paradigm has three regional service centers in Houston, London and Perth,
and seven local centers in Aberdeen, Beijing, Brisbane, Buenos Aires, Calgary,
Caracas, and Moscow. Additional local centers in Latin America, Europe, the
former Soviet Union and the Far East are under consideration for 1999 and 2000.
Each center is equipped with powerful hardware, and skilled and experienced
geoscientists with knowledge of the local geological and production environments
that they serve.
The Company's computing capacity world wide has increased from 72 Central
Processing Units ("CPU's") at the end of 1997, to 148 CPU's at the end of 1998,
and 262 CPU's at the end of May 1999. This reflects the Company's response to
increasing demand by oil companies for outsourced geophysical analysis services.
MAINTENANCE AND SUPPORT
The Company employs geoscientists and computer scientists to provide
installation and training, telephone hot-line and e-mail technical support
through the Company's headquarters, and local offices. A typical software
license agreement provides the customer's first year of maintenance and support
in conjunction with the initial purchase of the software license. The Company
provides its customers with optional post-contract maintenance and support
agreements which are renewable annually. Most of the Company's customers have
entered into post-contract maintenance and support agreements, which entitle
them to receive all product updates as well as e-mail and telephone technical
support.
TURNKEY DATA PROCESSING CENTER FOR SEISMIC DATA
PROCESSING AND INTERPRETATION
On March 30, 1999, Paradigm announced the award of a tender valued at
approximately $10 million by a major Asia Pacific state-owned oil and gas
company. Under the terms of the contract, Paradigm will provide a turnkey data
processing center (hardware and software) for seismic data processing and
interpretation, as well as post-installation services, including staff training,
work flows and technology transfer consultancy, maintenance and support.
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SALES AND MARKETING
The Company's strategy is to market its products and services to the
international oil and gas industry as a unique, comprehensive and cost-effective
integrated solution for processing, modeling, imaging and interpreting seismic
and non-seismic geoscience data and to leverage these solutions across potential
markets by capitalizing on the Company's technological leadership. The Company
sells its products and geophysical services worldwide to end-users through its
12 local sales and support offices and through sales agents.
In implementing its sales and marketing strategy, the Company seeks to
maintain a local presence in its markets by acquiring significant in-house
knowledge of local geology and markets. The Company's local offices are staffed
with highly-trained, senior technical and marketing personnel. Sales agents in
certain markets, particularly the Middle East, Far East and South America,
assist the Company in initiating business contacts and provide the means for
operating in countries where a full-time staff presence and infrastructure is
not yet justified.
In February 1999, the Company completed its acquisition of certain assets
and assumed certain liabilities of Geotech Joint Stock Company ("Geotech"), a
Russian based seismic software development company, for a minimum payment of
$500,000 to Geotech and to shareholders of Geotech. The agreement with Geotech
provides for additional payments of up to $1,300,000 in the event certain sales
targets are achieved. This acquisition enables Paradigm to significantly expand
its sales and marketing efforts in the countries of the former Soviet Union.
The Company conducts worldwide educational workshops and seminars for
senior geoscientists as part of its sales and marketing strategy in order to
demonstrate the application of its products. Regional trade shows offer the
Company an additional opportunity to implement its sales and marketing strategy
through showcasing its technology at customized demonstration booths and
presenting technical papers to show attendees. The Company participates in all
major industry events worldwide.
Major trade journal advertisements and direct mail campaigns offer the
Company opportunities to aggressively market its product and service solutions.
CUSTOMERS
The Company licenses its products and provides geophysical services to all
the major international oil and gas companies, leading state-owned oil and gas
companies, independent oil and gas producers and oilfield service companies. The
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Company is not dependant on any single customer, and no customer represented
more than 5% of the Company's revenue during 1998.
RESEARCH AND DEVELOPMENT
The oil and natural gas exploration and production software industry is
characterized by rapid technological change and aggressive competition in
product innovation and enhancement. The development of new and improved seismic
processing and interpretation products and technologies, the enhancement of
existing ones, the integration of non-seismic data, and the recent emphasis on
upgrading production software, are integral to Paradigm's operations.
The Company, therefore, commits substantial resources to research and
development. Research and development expenditure in 1998 totaled $8,061,000 or
17.8% of revenues, compared with $5,095,000 in 1997 or 20.5% of revenues and
$1,840,000 in 1996 or 15.9% of revenues.
The core of the Company's 95 research and development staff is situated in
Israel, with additional product development and research staff in the USA,
Australia and Russia. Many of the Company's research and development personnel
hold advanced degrees in the fields of geoscience, mathematics, and computer
science.
The Company believes in, and encourages collaboration with, customers in
the development of product applications. The Company's research and development
efforts are enhanced by feedback received from its geophysical services
operations, which provides important information regarding the application of
the latest releases of Company software products.
The Company typically releases one new product version and several updates
on an annual basis. Distribution of these new versions and updates is also
available through electronic transmission to customers.
Part of the Company's research and development activities have been funded
by grants from the Office of the Chief Scientist of the Government of Israel
("OCS"). Elements of the Company's products developed by Paradigm (i.e. those
products not acquired) are covered to some extent under the royalty agreements
with the OCS. As of July 1996, the Company chose not to apply for further
research grants from the OCS. There are continuing royalty obligations to the
OCS. (See note 11(a) of the Financial Statements) The Company has expensed
royalties in the amounts of $351,000, $402,000 and $400,000 for the years ended
December 31, 1996, 1997 and 1998, respectively. These royalty payments are
expected to continue through 2000. However, the Company may elect, in a
negotiated agreement with the OCS, to terminate these grant agreements with a
lump sum payment based on the outstanding balance of amounts granted to the
Company.
INTELLECTUAL PROPERTY
The Company's business results depend substantially upon its proprietary
technology. The Company relies on a combination of trademark laws to establish
and protect its proprietary rights in its technology. To date, the Company has
not applied for patent protection for its software products, but has already
obtained and has applied for patents for specific geoscience algorithms. In
addition, the Company enters into confidentiality and license agreements with
its employees and customers,
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which limit access to, and distribution of its technology. The Company also
relies, in part, on certain technology which it licenses from third parties,
including software which is integrated with Company-developed software and used
in its products and geophysical services.
INDUSTRY OUTLOOK
In the past twelve months, oil prices have fallen to their lowest levels
since 1986. In addition, this decrease has been maintained for much longer than
the last price collapse in 1986, and the average price in 1998 was the lowest
annual average since 1973. Such a development goes against what could have been
described as conventional wisdom in the industry, throughout at least the last
decade, that oil prices would remain at least stable and that at some point
would increase. This conventional view had important consequences for
expectations about the relative levels of return likely to be achievable in the
different phases of the industry and important consequences, therefore, for the
strategies of oil companies.
The events of the past twelve months have severely shaken the conventional
view and are already having significant impacts on investments in the oil
industry as well as the organizational structure of the industry.
The primary response of oil companies to the dramatically lower level of
oil prices has been to slash exploration and development expenditures. The oil
price drop in the mid-1980's encouraged the utilization of technical innovation
as a way of trying to remain competitive.
In the oil services sector, companies can expect to be effected by the
drive to cut costs and by the reduced exploration and development budgets. Cost
cutting has in the past been a spur to outsourcing. The reduction in overhead
cost can make outsourcing attractive both as a way of actually cutting costs but
also as way of demonstrating a commitment to cutting costs.
The pressure to cut costs is likely to promote use of improved technologies
and will provide rewards to the most efficient, both in oil and gas production
and oil field services.
COMPETITION
SOFTWARE PROVIDERS
The development, sale and support of software designed to facilitate the
exploration and development of oil and natural gas reserves is a highly
competitive business. Competitive factors include product quality,
first-to-market product capabilities, product performance, ease of use, price,
customer support and reputation for dependability, and relative financial
strength. The Company believes that its major competitors worldwide are:
GeoQuest, a division of Schlumberger Ltd.; Landmark Graphics Corporation, a
subsidiary of Haliburton Company; Compagnie Generale de Geophysique; and Western
Geophysical, a division of Western Atlas, Inc., which is a subsidiary of Baker
Hughes Inc. Since these competitors are divisions or subsidiaries of large
multinational industrial enterprises, the Company believes they have far greater
financial and other resources than the Company and more extensive and
longstanding business relationships with the larger oil and natural gas
companies world-wide. Accordingly, these competitors may be able to devote more
financial
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resources to the development of technology and utilize their relationships to
gain advantage in the future. The Company also faces competition from a large
number of much smaller competitors that provide products that serve niche
portions of the Company's markets.
SERVICE PROVIDERS
The Company believes there are numerous competitors in the geophysical
services business. Although reliable comparative figures are not available, the
Company believes its principal competitors in the geophysical services business
have more extensive and diversified operations and also have financial,
operating and other resources substantially in excess of those available to the
Company. These competitors include, among others, Geco-Prakla, a division of
Schlumberger Ltd., Compagnie Generale de Geophysique, PGS Tensor, a division of
Petroleum Geo-Services; and Western Geophysical, a division of Western Atlas
Inc. a subsidiary of Baker Hughes Inc.
If the Company is unable to compete effectively against current and future
competitors, the Company's business, financial condition and results of
operations will be materially adversely affected.
EMPLOYEES
As of May 1, 1999, Paradigm employed a total of 354 persons, an increase of
115 persons over a one year period. The PTM and related acquisitions account for
40 persons of this increase. As of May 1, 1999, Paradigm employees included 4 in
executive management, 95 in research and development, 75 in marketing and sales,
79 in maintenance and support, 36 in seismic data processing and interpretation
services, and 65 in administration. The Company employed 85 persons in Israel,
with the remaining 269 located in its other offices.
With respect to the Company's operations, competition for appropriately
qualified and experienced geoscience and software personnel is intense and there
are a limited number of professionals with the level of knowledge and experience
required by the Company.
The Company invests significant resources in recruiting, training and
retaining quality personnel. The Company's future success substantially depends
upon its continuing ability to attract and retain highly qualified
managerial, technical, sales and marketing personnel.
The Company has to comply with various labor and immigration laws
throughout the world, including laws and regulations in the United States,
Europe, Israel, Latin America, the Far East and Australia.
The Company's operating subsidiaries are not a party to any collective
bargaining agreements. However, certain provisions of the collective bargaining
agreements between the Histradrut (General Federation of Labor) and
the Coordination Bureau of Economic Organizations (including the Industrialists
Associations) are applicable to the Company's Israeli employees by order of the
Israeli Ministry of Labor and Welfare. These provisions principally concern cost
of living increases, recreation pay and other conditions of employment. The
Company generally provides its employees with benefits and working conditions
above the required minimums. None of the Company's employees is currently
represented by a labor union. The Company has not, to date, experienced any work
stoppages.
Israeli labor laws and regulations are applicable to all of the Company's
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<PAGE> 15
employees in Israel. The laws principally concern matters such as paid annual
vacation, paid sick days, the length of the workday, pay for overtime, insurance
for work-related accidents, severance pay and other conditions of employment.
Israeli law generally requires severance pay, which may be funded by Manager's
Insurance upon the retirement or death of an employee or termination of
employment with cause (as defined by law). The payments therefore are
approximately 8.3% of wages. This policy provides a combination of savings
plans, insurance and severance pay, if legally entitled, upon termination of
employment. Furthermore, Israeli employees and employers are required to pay
predetermined sums to the National Insurance Institute, which is similar to the
United States Social Security Administration. Since January 1, 1995, such
amounts also include payments for national health insurance. The payments to the
National Insurance Institute are approximately 14.5% of wages (up to a specified
maximum amount), of which the employee contributes approximately 66.0% and the
employer contributes approximately 34.0%.
Although not legally required, the Company regularly contributes to a
"Managers' Insurance" fund on behalf of its employees located in Israel. This
fund provides these employees with a lump sum payment upon retirement or
severance pay, if legally entitled, upon termination of employment. Each
employee who agrees to participate in the Managers' Insurance plan contributes
an amount equal to 5.0% of such employee's salary and the employer contributes
an average of approximately 13.3% of such salary.
OPERATIONS IN ISRAEL
The Company is incorporated under the laws of, and its principal offices
are located in, the State of Israel. The Company is directly influenced by the
political, economic and military conditions affecting Israel such as hostilities
with neighboring countries and risks of cessation of trade.
The Company may benefit from certain Israeli government programs and tax
benefits, particularly as a result of the "Approved Enterprise" status of the
Company's Israeli operations and receipt of research and development grants from
the OCS. To be eligible for these programs and tax benefits, the Company must
continue to meet certain conditions. If the Company fails to meet such
conditions in the future, it could be required to refund all tax benefits
previously received. There can be no assurance that such programs and tax
benefits will be continued at their current levels, or otherwise. The
termination or reduction of such programs and tax benefits could have a material
adverse effect on the Company's business, operating results and financial
condition.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, prior to January 1, 2000, computer systems
and/or software used by many companies may need to be upgraded to comply with
such "Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential consequences of the Year 2000 phenomenon.
The Company's software products are not date dependant . All but one of
these products have been modified to comply with the Year 2000 requirements.
This Company expects that this product will be Year 2000 compliant by the end of
the third quarter of 1999.
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<PAGE> 16
Certain products and services provided to the Company's customers by other
software vendors may not be Year 2000 compliant, thereby disrupting the ability
of the Company's customers to use the Company's software. Due to the Company's
dependence on a limited number of significant customers, any material adverse
impact on such customers due to Year 2000 issues could also have a material
adverse effect on the results of operations, business and financial condition of
the Company.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company does not own any real property.
Paradigm's corporate headquarters, support center and research and
development activities have recently relocated to a 26,900 square foot leased
facility in Herzlia, Israel, at an annual rent per square foot of $16, subject
to adjustment. The lease expires in June 2009.
Following the relocation of the corporate headquarters, the Company is
finalizing arrangements for the early termination of the lease of its vacated
headquarters in Herzlia.
The Company currently has leased nine local sales and service centers in
Houston, Texas; Slough, England; Aberdeen, Scotland; Calgary, Canada; Beijing,
China; Perth and Brisbane in Australia; Caracas, Venezuela; and in Buenos Aries,
Argentina. The leased premises in use by the Company aggregate approximately
110,000 square feet and are generally suitable and adequate for the requirements
of the Company. The Company is currently negotiating a lease in Moscow
commencing in late 1999.
As a result of the CogniSeis and PTM acquisitions, the Company has vacant
premises in Crawley, England, Houston Texas and Calgary Canada. The Company has
retained real estate agents to sublet these vacated facilities.
ITEM 3 - LEGAL PROCEEDINGS
In October 1995, Mr. Eitan Zucker ("Zucker") filed a claim in the District
Court of Tel Aviv against the Company and Eldad Weiss ("Weiss"), the CEO and
President of the Company. Zucker, a former Company employee, claims that in
1987, prior to the formation of the Company, Zucker, Weiss and other individuals
entered into an oral founders' agreement pursuant to which Weiss was entrusted
as an agent and trustee to pursue the rights of Zucker in the Company and to
cause the Company to allocate shares to him upon its formation. Zucker further
claims that when his employment by the Company was terminated in December 1993,
he discovered that the shares had not been allocated to him. Zucker claims, as a
result of the foregoing, that he is entitled to receive 6.875% of the shares of
the Company outstanding as of October 1995, and seeks from the Court an order
either (i) directing the Company to issue to him 170,077 Ordinary Shares against
payment of NIS 2,266,227, or (ii) directing the defendants to pay him NIS
2,205,013 calculated as of May 30, 1999. Based on the opinion of its counsel,
Eliahu E. Zuck law offices, the Company and Weiss believe that they have
meritorious defenses and have denied all of the material allegations of the
claim and asserted various defenses, including that the claim does not state a
cause of action against the Company. Zucker has made certain settlement
proposals at the instigation of the Court, all, of which, have been rejected by
the Company and Weiss. The next trial date has been set for June 30, 1999.
The Company is the plaintiff/appellee in the matter of Geophysical Micro
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<PAGE> 17
Computer Applications (International) Ltd. v. Paradigm Geophysical Ltd., Cause
No. 05-98-02016-CV in the Fifth Circuit Court of Appeals, Dallas, Texas.
Geophysical Micro Computer Applications (International) Ltd. ("GMA") is
appealing a final judgment entered by the trial court in the matter of Paradigm
Geophysical Ltd. v. Geophysical Micro Computer Applications (International)
Ltd., Cause No. 97-11010, in the 134th Judicial District Court of Dallas County,
Texas. On December 11, 1997, the Company filed suit for a declaratory judgment
to determine whether it has any obligation to GMA under a letter of intent (the
"Letter of Intent"). Under the terms of the Letter of Intent, the Company and
GMA contemplated a transaction in which GMA would purchase certain computer
software programs and related products ("SeisX") from the Company, provided that
the Company acquired the SeisX assets from a third party. On May 5, 1998, GMA
filed a counterclaim for breach of contract claiming that the Letter of Intent
required the Company to sell SeisX to GMA. GMA sought compensatory, injunctive,
and declaratory relief. On September 11, 1998, the trial court granted summary
judgment in favor of the Company and declared that the Company has no obligation
to sell the SeisX assets or related products to GMA and that GMA takes nothing
on its counterclaim. On December 7, 1998, GMA filed the above-referenced appeal
which has not yet been considered by the court.
Paradigm Geophysical Ltd. and Paradigm Geophysical Corp. are the
defendants/appellees (collectively, the "Defendants") in the matter of Michael
Burstein v. Paradigm Geophysical Ltd. and Paradigm Geophysical Corp., Cause No.
05-99-0613-CV, which is currently pending in the Fifth Circuit Court of Appeals,
Dallas, Texas. Mr. Burstein, the former Chief Financial Officer of Paradigm
Geophysical Ltd., is appealing an order dismissing his claims entered by the
trial court in Michael Burstein v. Paradigm Geophysical Ltd., et al., Cause No.
DV98-04398-A in favor of Defendants. In his suit, Mr. Burstein alleged claims
for breach of his employment contract and wrongful termination. The wrongful
termination claim asserted that Mr. Burstein was fired in retaliation for his
refusal to commit an alleged illegal act. Mr. Burstein demanded between $600,000
and $1,000,000 in actual damages, as well as punitive damages, attorneys fees
and court costs. The Defendants denied any liability and responded to the
lawsuit by filing a Motion to Dismiss, which the Court granted. Mr. Burstein
appealed but it has not yet been considered or ruled upon by the Court.
The Company is not a party to any other material legal proceedings.
ITEM 4 - CONTROL OF REGISTRANT
As of May 31, 1999, 13,026,336 Ordinary Shares of the Company were issued
and outstanding.
The following table sets forth, as of May 31, 1999, certain information
with respect to the beneficial owners of the Company's Ordinary Shares, as well
as options and
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<PAGE> 18
warrants exercisable within 60 days of May 31, 1999, by:
a) Each person known by the Company to beneficially own more than 10%
of the outstanding Ordinary Shares; and
b) All officers and directors of the Company as a group:
<TABLE>
<CAPTION>
ORDINARY SHARES, OPTIONS AND
NAME AND ADDRESS OF WARRANTS BENEFICIALLY OWNED
BENEFICIAL OWNERS NUMBER PERCENT
<S> <C> <C>
Mashov Gruss Investments Ltd. 1,497,766 11.5%
5 Haplada St., Or Yehuda 60219
Israel
Bachow Investment Partners III L.P. 1,399,000 10.7%
3 Bala Plaza East, 5th floor
Bla Cynwyd, PA 19004 U.S.A.
All officers and directors as a group(1) 594,966 4.1%
(12 persons)
</TABLE>
(1) Comprised of 258,782 Ordinary Shares and options to purchase 336,184
Ordinary Shares of the Company which were exercisable within 60 days of
May 31, 1999.
To the Company's knowledge, there is no arrangement, the operation of
which may at a subsequent date, result in a change in control of the Company.
The Company's Articles of Association provide that the Company may not
engage in any business combination with an interested shareholder (in general,
the Articles of Association define an interested shareholder as any entity or
person beneficially owning 15% or more of the outstanding voting shares of the
Company and any entity or person affiliated with, controlling or controlled by
such entity or person) for a period of three years following the date that such
shareholder became an interested shareholder, unless:
(a) prior to such date, the Board of Directors approved either the
business combination or the transaction that resulted in the
shareholder becoming an interested shareholder; or
(b) upon consummation of the transaction that resulted in the
shareholder becoming an interested shareholder, the interested
shareholder owned at least 75% of the voting shares of the Company
outstanding at the time the transaction commenced.
A business combination includes:
(a) any merger or consolidation involving the Company and the interested
shareholder;
(b) any sale, transfer, pledge or other disposition of 10% or more of
the assets of the Company in a transaction involving the interested
shareholder;
(c) subject to certain exceptions, any transaction that results in the
issuance or transfer by the Company of any shares of the Company to
the interested shareholder;
(d) subject to certain minor exceptions, any transaction involving the
Company (or any direct or indirect majority owned subsidiary of the
Company) which has the effect of increasing the proportionate
shareholding or convertible securities of the Company (or any such
subsidiary) which is owned by the interested shareholder; or
(e) the receipt by the interested shareholder of the benefit of any
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loans, advances, guarantees, pledges or other financial benefits
provided by or through the Company.
SPECIAL PREFERRED SHARES
The Company has 2,000,000 Special Preferred Shares authorized ("Special
Preferred Shares"). The Board of Directors has the authority to issue the
Special Preferred Shares in one or more series and to fix the rights,
preferences, privileges and restrictions of such Shares, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption
(including price), liquidation preferences and the number of Shares constituting
any series, without further vote or action by the shareholders. The issuance of
Special Preferred Shares may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
shareholders. For example, the Board of Directors could issue Special Preferred
Shares with voting and conversion rights that may adversely affect the voting
power of the holders of Ordinary Shares, including the loss of voting control to
others. The Company has not issued, and currently has no plans to issue, any
Special Preferred Shares.
Although Israeli law does not prohibit the issuance of preferred shares
with rights which were not approved by the shareholders at the time such
preferred shares were authorized, this matter has not been determined by
Israeli courts, and there is substantial doubt as to the validity of such an
issuance. Consequently, to the extent that the rights, preferences and
privileges attached to the Special Preferred Shares, if and when issued,
derogate from the rights of the Ordinary Shares of the Company, there can be no
assurance that, if such issuance was challenged in legal proceedings, the
legality of such issuance would be upheld by an Israeli court.
ITEM 5 - NATURE OF TRADING MARKET
The Company's Ordinary Shares are quoted on the NASDAQ National Market
under the symbol "PGEO."
The following table shows the high and low sale prices of the Ordinary
Shares of the Company in the indicated quarters. Trading in the Company's
Ordinary Shares commenced on June 15, 1998.
<TABLE>
<CAPTION>
1998 HIGH LOW
<S> <C> <C>
6/15/98-6/30/98 $7.375 $7.00
Third Quarter $7.125 $4.50
Fourth Quarter $5.875 $4.188
</TABLE>
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<TABLE>
<S> <C> <C>
1999
First Quarter $5.125 $4.25
</TABLE>
As of June 1, 1999 there were 27 shareholders of record, of whom 15 have
addresses registered in the United States, holding 67% of the outstanding
Ordinary Shares of the Company.
ITEM 6 - EXCHANGE CONTROL REGULATIONS
Since May 1998, the system of currency control legislation which existed
in Israel has been abolished (except for certain restrictions on Pension Funds,
Insurance Companies and certain other institutional investors). Consequently,
there are currently no Israeli currency control restrictions on the repatriation
of dividends and proceeds from any sale of securities; however, legislation
remains in effect pursuant to which currency controls can be imposed by
administrative action at any time.
ITEM 7 - TAXATION
U.S. TAX CONSIDERATIONS
The following summary describes certain of the material U.S. federal
income tax consequences to U.S. Holders (as defined below) arising from the
purchase, ownership and disposition of Ordinary Shares. This summary is based on
the provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
final, temporary and proposed U.S. Treasury Regulations promulgated thereunder,
and administrative and judicial interpretations thereof, all as in effect as of
the date hereof, and all of which are subject to change, possibly with
retroactive effect.
This discussion does not consider all aspects of U.S. federal income
taxation that may be relevant to particular U.S. Holders by reason of their
particular circumstances, including potential application of the alternative
minimum tax, or any aspect of state, local or non-U.S. tax laws. In addition,
this summary is directed only to U.S. Holders that hold Ordinary Shares as
capital assets and does not address the considerations that may be applicable to
particular classes of U.S. Holders who may subject to special rules, including,
without limitation, financial institutions, broker-dealers, tax-exempt
organizations, U.S. Holders who own (directly, indirectly or through
attribution) 10% or more of the Company's outstanding Ordinary Shares, U.S.
Holders who acquired their Ordinary Shares pursuant to the exercise of options
or similar derivative securities or otherwise as compensation, U.S. Holders who
hold their Ordinary Shares as part of a "straddle," "hedge" or "conversion
transaction," or persons who own Ordinary Shares through a partnership or other
pass-through entity.
This discussion is addressed only to "U.S. Holders." A US. Holder is a
holder of Ordinary Shares that is a U.S. citizen, an individual resident in the
United States for U.S. federal income tax purposes, a domestic corporation, an
estate the income of which is included in its gross income for U.S. federal
income tax purposes without regard to its source, or a trust if either: (i) a
U.S. court is able to exercise primary supervision over the administration of
the trust and one or more U.S. persons have the authority to control all the
substantial decisions of the trust or (ii) the trust was in existence on August
20, 1996 and, in general, would have been treated as a U.S. Holder under rules
applicable prior to such time, provided the trust elects to continue such
treatment thereafter.
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U.S. HOLDERS OF ORDINARY SHARES ARE ADVISED TO CONSULT WITH THEIR OWN TAX
ADVISORS WITH RESPECT TO THE U.S. FEDERAL, STATE AND LOCAL TAX CONSEQUENCES, AS
WELL AS THE TAX CONSEQUENCES IN OTHER JURISDICTIONS, OF THE PURCHASE, OWNERSHIP
AND SALE OF ORDINARY SHARES APPLICABLE IN THEIR PARTICULAR TAX SITUATIONS
Sale or Exchange of Ordinary Shares
A U.S. Holder's sale or exchange of Ordinary Shares generally will result
in the recognition of capital gain or loss by such U.S. Holder in an amount
equal to the difference between the amount realized and the U.S. Holder's tax
basis in the Ordinary Shares sold. Such capital gain or loss will be long-term
capital gain or loss if the Ordinary Shares sold have been held for more than
one year at the time of the sale or exchange. If the U.S. Holder's holding
period on the date of the sale or exchange was one year or less, such gain or
loss will be short-term capital gain (generally subject to the same effective
federal income tax rates as ordinary income) or loss. See "Item 7:
Taxation-Israel -- Capital Gains Tax" for a discussion of taxation by Israel of
capital gains realized on the sale or exchange of Ordinary Shares. In general,
any capital gain or loss recognized by a U.S. Holder upon the sale or exchange
of Ordinary Shares will be treated as U.S. source income for U.S. foreign tax
credit purposes. Any capital loss realized upon the sale, exchange or other
disposition of Ordinary Shares generally is deductible only against capital
gains and not against ordinary income, except that in the case of noncorporate
taxpayers, a capital loss is deductible only to the extent of capital gains plus
ordinary income of up to $3,000.
A U.S. Holder's tax basis in his, her or its Ordinary Shares generally
will be the purchase price paid therefor by such U.S. Holder. The holding period
of each Ordinary Share owned by a U.S. Holder will commence on the day following
the date of the U.S. Holder's purchase of such Ordinary Share and will include
the day on which the Ordinary Share is sold by such U.S. Holder.
Treatment of Dividend Distributions
For U.S. federal income tax purposes, the gross amount of any distribution
made with respect to, or in some cases a partial purchase or redemption of,
Ordinary Shares (including the amount of any U.S. taxes withheld therefrom) will
be included in a U.S. Holder's income as ordinary dividend income to the extent
that the dividends are paid out of current or accumulated earnings and profits
of the Company, as determined based on U.S. tax principles. Such dividends will
not be eligible for the dividends received deduction allowed to U.S.
corporations under Section 243 of the Code. Dividend distributions in excess of
the Company's current and accumulated earnings and profits will be treated first
as a non-taxable return of the U.S. Holder's tax basis in his, her or its
Ordinary Shares to the extent thereof and then as a gain from the sale of
Ordinary Shares. Dividends paid in NIS will be included in income in a U.S.
dollar amount based on the exchange rate at the time of their receipt. Any gain
or loss resulting from currency fluctuations during the period from the date a
dividend is paid to the date such payment is converted into U.S. dollars
generally will be treated as ordinary income or loss.
Dividends paid to a U.S. Holder with respect to Ordinary Shares will be
treated as foreign source dividend income for U.S. foreign tax credit limitation
purposes. Subject to certain conditions and limitations, any U.S. withholding
tax imposed on such dividends generally will be eligible for credit against such
U.S.
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Holder's U.S. federal income tax liability or, at the U.S. Holder's election,
may be claimed as a deduction against income in determining such tax liability.
However, a U.S. Holder will be denied a foreign tax credit with respect to U.S.
withholding tax deducted from dividends if such holder has not held Ordinary
Shares for a specified minimum period during which it is not protected from risk
of loss or to the extent such U.S. Holder is under an obligation to make certain
related payments with respect to positions in substantially similar or related
property. The limitations on claiming a foreign tax credit include computation
rules under which foreign tax credits allowable with respect to specific classes
of income cannot exceed the U.S. federal income taxes otherwise payable with
respect to each such class of income. Dividends with respect to the Ordinary
Shares generally will be classified as "passive income," or, in the case of
certain holders, "financial services income" for purposes of computing the
foreign tax credit limitation. Foreign income taxes exceeding the credit
limitation for the year of payment or accrual generally may be carried back for
two taxable years and forward for five taxable years in order to reduce U.S.
federal income taxes, subject to the credit limitation applicable in each of
such years. Other restrictions on the foreign tax credit include a prohibition
on the use of the credit to reduce liability for the U.S. individual and
corporation alternative minimum taxes by more than 90%. The calculation of
allowable foreign tax credits and, in the case of a U.S. Holder that elects to
deduct foreign taxes, the availability of deductions for foreign taxes paid
involve the application of rules that depend on a U.S. Holder's particular
circumstances. Accordingly, U.S. Holders should consult their own tax advisors
regarding their eligibility for foreign tax credits or deductions.
Passive Foreign Investment Company Status
Generally, the Company will treated as a passive foreign investment
company ("PFIC") for U.S. federal income tax purposes for any tax year if, in
such tax year, either (i) 75% or more of its gross income is passive in nature,
or (ii) on average for the taxable year, 50% or more of its assets (by value)
produce or are held for the production of passive income. The Company does not
believe that it will satisfy either of the foregoing tests for PFIC status for
1999 because the nature of its income and its assets are not expected to be
sufficiently passive within the meaning of the PFIC rules. However, since the
determination whether the Company is a PFIC will be made annually based on facts
and circumstances that, to some extent, may be beyond the Company's control,
there can be no assurance that the Company will not become a PFIC for 1999 or at
some time in the future.
If the Company were treated as a PFIC for U.S. federal income tax purposes
for any year during a U.S. Holder's holding period and such U.S. Holder does not
make either a QEF Election or a "mark to market" election (each as described
below), any gain recognized by such U.S. Holder upon the sale of Ordinary Shares
(or the receipt of certain distributions) would be treated as ordinary income,
such income would be allocated over such U.S. Holder's holding period with
respect to such Ordinary Shares and an interest charge would be imposed on the
amount of deferred tax on such income allocated to prior taxable years. Although
the Company generally will be treated as a PFIC as to any U.S. Holder if it is a
PFIC for any year during such U.S. Holder's holding period, if the Company
ceases to satisfy the requirements for PFIC classification, such U.S. Holder may
avoid such classification for years after such cessation if he, she or it elects
to recognize gain based on the unrealized appreciation in the Ordinary Shares
through the close of the tax year in which the Company ceased to be a PFIC.
Additionally, if the Company were to become a PFIC, U.S. Holders who acquire
Ordinary Shares from decedents would be denied the normally available step-up in
income tax basis for such Ordinary Shares to fair market
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<PAGE> 23
value at the date of death and instead would have a tax basis equal to the
decedent's.
For any tax year in which the Company is determined to be a PFIC, a U.S.
Holder could elect to treat his, her or its Ordinary Shares as an interest in a
qualified electing fund (a "QEF Election"), in which case, the U.S. Holder would
be required to include in income currently his, her or its proportionate share
of the Company's earnings and profits in years in which the Company is a PFIC
regardless of whether distributions of such earnings and profits are actually
distributed to such U.S. Holder, but any gain subsequently recognized upon the
sale by such U.S. Holder of his, her or its Ordinary Shares generally would be
taxed as capital gain and the denial of the basis step-up at death described
above would not apply. As an alternative to a QEF Election, a U.S. Holder
generally could elect to mark the Ordinary Shares to market annually,
recognizing ordinary income or loss (subject to certain limitations) equal to
the difference between the fair market value of its Ordinary Shares and the
adjusted basis of such stock. Losses would be allowed only to the extent of net
mark to market gain accrued under the election. If a mark to market election
with respect to Ordinary Shares is in effect on the date of a holder's death,
the normally available step-up basis to fair market value will not be available.
Rather, the tax basis of such shares in the hands of a U.S. Holder who acquired
them from the decedent will be the lesser of the decedent's basis or the fair
market value of the shares. U.S. Holders should consult their own tax advisors
regarding the eligibility, manner and advisability of making a QEF Election or a
mark to market election if the Company is treated as a PFIC.
Information Reporting and Backup Withholding
Any dividends paid on the Ordinary Shares to U.S. Holders may be subject
to U.S. information reporting requirements and the 31% U.S. backup withholding
tax. In addition, the proceeds of a U.S. Holder's sale of Ordinary Shares may be
subject to information reporting and the 31% U.S. backup withholding tax. Backup
withholding will not apply if the holder (i) is a corporation or other exempt
recipient or (ii) the holder provides a U.S. taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with any applicable backup withholding requirements. Any amounts
withheld under the U.S. backup withholding tax rules will be allowed as a refund
or a credit against the U.S. Holder's U.S. federal income tax, provided the
required information is furnished to the U.S. Internal Revenue Service.
ISRAELI TAXATION AND INVESTMENT PROGRAMS
The following discussion summarizes the material current tax laws of the
State of Israel as they relate to the Company, its shareholders and ownership
and disposition of its Ordinary Shares. This summary does not discuss all
aspects of Israeli tax law that may be relevant to a particular shareholder's
personal investment circumstances or to certain types of investors subject to
special treatment under Israeli law (for example, traders in securities or
persons that own, directly or indirectly, 10% or more of the Company's
outstanding voting shares). The following also includes a discussion of certain
Israeli government programs benefiting various Israeli businesses such as the
Company. To the extent that the discussion is based on new legislation still
subject to judicial or administrative interpretation, there can be no assurance
that the views expressed herein will accord with any such interpretation in the
future. In addition, this discussion does not cover all possible tax
consequences or situations. Investors should consult with their own tax advisors
regarding their personal tax situation.
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<PAGE> 24
GENERAL CORPORATE TAX STRUCTURE
Israeli companies are generally subject to "Company Tax" at the rate of
36.0% of taxable income, such rate having become effective January 1, 1996.
However, the effective tax rate payable by a company which derives income from
an Approved Enterprise (as further discussed below), may be considerably less.
Subject to relevant tax treaties, dividends or interest received by an Israeli
corporation from foreign subsidiaries are generally subject to tax regardless of
its status as an Approved Enterprise.
TAXATION UNDER INFLATIONARY CONDITIONS
The Income Tax Law (Adjustment for Inflation), 1985 (the "Adjustment for
Inflation Law") attempts to overcome some of the problems experienced in a
traditional tax system by an economy experiencing rapid inflation, which was the
case in Israel at the time the Adjustment for Inflation Law was enacted.
Generally, the Adjustment for Inflation Law was designed to neutralize, for
Israeli tax purposes, the erosion of capital investments in businesses and to
prevent unintended tax benefits resulting from the deduction of inflationary
financing expenses. The Adjustment for Inflation Law applies a supplementary set
of inflationary adjustments to a normal taxable profit computed according to
regular historical cost principles.
The Adjustment for Inflation Law introduced a special adjustment for the
preservation of equity for tax purposes based on changes in the Israeli CPI,
whereby corporate assets are classified broadly into fixed (inflation resistant)
assets and non-fixed assets. Where the shareholders' equity, as defined in the
Adjustment for Inflation Law, exceeds the depreciated cost of fixed assets, a
corporate tax deduction which takes into account the effect of inflationary
change on such excess is allowed (up to a ceiling of 70% of taxable income in
any single tax year, with the unused portion permitted to be carried forward on
an inflation-linked basis with no ceiling). If the depreciated cost of fixed
assets exceeds shareholders' equity, then such excess, multiplied by the annual
rate of inflation is added to taxable income.
In addition, subject to certain limitations, depreciation on fixed assets
and loss carry forwards are adjusted for inflation based on changes in the
Israeli CPI. The net effect of the Adjustment for Inflation Law on the Company
might be that the Company's taxable income, as determined for Israeli corporate
tax purposes, would be different from the Company's U.S. dollar income, as
reflected in its financial statements, due to the difference between the annual
changes in the CPI and in the NIS exchange rate with respect to the U.S. dollar,
causing changes in the actual tax rate.
CAPITAL GAINS AND INCOME TAXES APPLICABLE TO NON-ISRAELI RESIDENT SHAREHOLDERS
Under existing regulations, any capital gain realized by an individual
shareholder with respect to the Ordinary Shares acquired on or after the listing
of such shares for trading will be exempt from Israeli capital gains tax if the
Ordinary Shares are listed on an approved foreign securities market (which
includes NASDAQ in the United States), provided that the company continues to
qualify as an Industrial Company under Israeli law and that the individual
does not hold such shares for business purposes.
If the Company does not maintain its status as an Industrial Company, then
subject to any
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<PAGE> 25
applicable tax treaty, the Israeli capital gains tax rates would be up to 50%
for non-Israeli resident individuals, and 36% for companies, who are
shareholders of the Company.
Upon a distribution of dividends other than bonus shares (stock
dividends), income tax is generally withheld at source at the rate of 25% (or
the lower rate payable with respect to Approved Enterprises), unless a double
taxation treaty is in effect between Israel and the shareholder's country of
residence that provides for a lower tax rate in Israel on dividends.
A tax treaty between the United States and Israel (the "Treaty"), provides
for a maximum tax of 25% on dividends paid to a resident of the United States
(as defined in the Treaty). Dividends distributed by an Israeli company and
derived from the income of an Approved Enterprise are subject to a 15% dividend
withholding tax. The Treaty further provides that a 12.5% Israeli dividend
withholding tax applies to dividends paid to a United States corporation owning
10% or more of an Israeli company's voting shares throughout the current year to
the date the dividend is paid and the preceding taxable year (as applicable).
The 12.5% rate applies only on dividends from a company that does not have any
prospects with Approved Enterprise status in the applicable period.
If for any reason shareholders do not receive the above exemption for a
sale of shares in an Industrial Company, the Treaty provides U.S. resident
investors with an exemption from Israeli capital gains tax in certain
circumstances (there may still be U.S. taxes) upon a disposition of shares in
the Company if they held under 10% of the Company's voting stock through out the
12 months prior to the share disposition. If Israeli capital gains tax is
payable, it can be credited against a shareholder's U.S. federal tax under the
circumstances specified in the Treaty.
A non-resident of Israel who has had dividend income derived or accrued in
Israel from which the applicable tax was withheld at source is currently exempt
from the duty to file an annual Israeli tax return with respect to such income,
provided such income was not derived from a business carried on in Israel by
such non-resident and that such non-resident does not derive other non-passive
income from sources in Israel.
LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969
The Company currently qualifies as an "Industrial Company" within the
meaning of the Law of the Encouragement of Industry (Taxes), 1969 (the "Industry
Encouragement Law") According to the Industry Encouragement Law, an "Industrial
Company" is a company resident in Israel, at least 90% of the income of which in
any tax year, determined in Israeli currency (exclusive of income from defense
loans, capital gains, interest and dividends) is derived from an "Industrial
Enterprise" that it owns. An "Industrial Enterprise" is defined by that law as
an enterprise whose major activity in a given tax year is industrial production
activity.
Included among the tax benefits for an Industrial Company are deductions
of 12.5% per annum of the purchase price of a patent or of know-how, an election
under certain conditions to file a consolidated return and accelerated
depreciation rates on equipment and buildings.
Eligibility for the benefits under the Industry Encouragement Law is not
subject to receipt of prior approval from any governmental authority. No
assurance
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<PAGE> 26
can be given that the Company will continue to qualify as an "Industrial
Company" or that the benefits described above will be available in the future.
LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959
The Law for the Encouragement of Capital Investments, 1959, as amended
(the "Investment Law"), provides that a capital investment in production
facilities (or other eligible facilities) may, upon application to the Israel
Investment Center, be designated as an Approved Enterprise. Each certificate of
approval for an Approved Enterprise relates to a specified capital investment
program delineated both by its financial scope, including its capital sources,
and its physical characteristics, i.e. the equipment to be purchased and
utilized pursuant to the program. The tax benefits derived from any such
certificate of approval relate only to taxable profits attributable to the
specific Approved Enterprise.
Taxable income derived from an Approved Enterprise is subject to a reduced
corporate tax rate of 25% (the "Corporate Tax"). Such income is eligible for
further reductions in tax rates depending on the percentage of the foreign
investment in the company's share capital (conferring rights to profits, voting
and appointment of directors) and of its combined share and loan capital which
is owned by non-Israeli residents. The tax rate is 20% if the foreign
investment is 49% or more but less than 74%; 15% if the foreign investment
is 74% or more but less than 90%; and 10% if the foreign investment is
90% or more. The lowest level of foreign investment during the year is used to
determine the relevant tax rate for that year. These tax benefits are granted
for a limited period not exceeding 7 or 10 years from the first year in which
the Approved Enterprise has taxable income. The period of benefits may in no
event, however, exceed the lesser of twelve years from the year in which
production commenced or fourteen years from the year of receipt of Approved
Enterprise status.
A company that has an Approved Enterprise status which was approved after
April 1, 1986 may elect to forego any entitlement to the grants otherwise
available under the Investment Law and, in lieu of the foregoing, participate in
an alternative benefits program (the "Alternative Benefits Program"), under
which the undistributed income from the Approved Enterprise is fully tax exempt
for a defined period of time. The period of tax exemption ranges between 2 and
10 years, depending upon the location within Israel of the Approved Enterprise
and the type of Approved Enterprise. On the expiration of the exemption period,
the Approved Enterprise would be eligible for beneficial tax rates under the
Investment Law for the remainder, if any, of the otherwise applicable benefits
period. The Company elected to participate in the Alternative Benefits Program
will continue to be available or that the Company will qualify for the benefits
under the current program.
A company that has elected to participate in the Alternative Benefits
Program and that subsequently pays a dividend out of the income derived from the
Approved Enterprise during the tax exemption period will be subject to Corporate
Tax (in the year in which the dividend is distributed) with respect to the
amount distributed (plus withholding tax thereon) at the rate that would have
been applicable in the year in which the distributed income was generated had
the company not been exempt from tax in such year. The dividend recipient is
taxed at the reduced rate of 15% applicable to dividends from Approved
Enterprise if the dividend is distributed within twelve years after the tax
exemption period. The withholding tax rate will be 25% after such period. In
case of a company with over 25% foreign shareholding (as defined by law), the
twelve-year limitation on reduced withholding tax on dividends
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<PAGE> 27
does not apply. This tax should be withheld by a company at source, regardless
of whether the dividend is converted into foreign currency.
The Company has been granted "Approved Enterprise" status under the
Investment Law with respect to three projects. Pursuant to the provisions of the
Investment Law, the Company chose the Alternative Benefits Program which, as
discussed above, provides for the waiver of grants in return for tax-exemption.
Accordingly, income derived from each Approved Enterprise is tax-exempt for a
period of two to four years, commencing with the year it first earns taxable
income, and is then subject to Corporate Tax at the rate of 25%, for additional
periods of six to eight years.
The Investment Law also provides that a company with an Approved
Enterprise is entitled to accelerated depreciation on its property and equipment
included in an approved investment program.
Future applications to the Investment Center will be reviewed separately,
and decisions as to whether or not to approve such applications will be based,
among other things, on the then prevailing criteria set forth in the Investment
Law, on the specific objectives of the applicant company set forth in such
applications and on certain financial criteria of the applicant company.
Accordingly, there can be no assurance that any such applications will be
approved. In addition, the benefits available to an Approved Enterprise are
conditional upon the fulfillment of certain conditions stipulated in the
Investment Law and its regulations and the criteria set forth in the specific
certificate of approval, as described above. In the event that these conditions
are violated, in whole or in part, the Company would be required to refund the
amount of tax benefits, plus the CPI linkage adjustment and interest.
TAX BENEFITS FOR RESEARCH AND DEVELOPMENT
Under certain conditions, Israeli tax law allows a tax deduction in the
year incurred for expenditures (including depreciation on capital expenditures
but excluding depreciable capital expenditures) in connection with scientific
research and development projects, if the expenditures are approved by the
relevant Israeli Government Ministry (determined by the field of research) and
the research and development is for the promotion of the enterprise.
Expenditures not so approved are deductible over a three-year period. However,
expenditures made out of the proceeds of government grants are not deductible,
i.e. the Company will be able to deduct the unfunded portion of the research and
development expenditures but not the gross amount.
LAW FOR THE ENCOURAGEMENT OF INDUSTRIAL RESEARCH AND DEVELOPMENT, 1984
Under the Law for the Encouragement of Industrial Research and
Development, 1984, (the "Research Law") and the Instructions of the Director
General of the Ministry of Industry and Trade, research and development
programs, plans for the intermediate stage between research and development, and
manufacturing and sales approved by a governmental committee of the Office of
the Chief Scientist (OCS) (the "Research Committee") are eligible for grants of
up to 50% of the project's expenditure, if they meet certain criteria. These
grants are issued in return for the payment of royalties from the sale of
products developed in accordance with the program as follows: 3% of revenues
during the first three years, 4% of revenues during the following three years,
and 5% of revenues in the seventh year and thereafter, with the total royalties
not to exceed 100% of the dollar value of the OCS grant (or in some cases up to
300%). Following the full payment of such royalties, there is no further
liability for payment.
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The Israeli government further requires that products developed with
government grants are to be manufactured in Israel. However, in the event that
any portion of the manufacturing is not conducted in Israel, if approval is
received from the OCS, the company would be required to pay royalties that are
adjusted in proportion to manufacturing outside of Israel as follows: when the
manufacturing is performed outside of Israel by the company or an affiliate
company, the royalties are to be paid as described above with the addition of
1%, and when the manufacturing outside of Israel is not performed by the company
or an affiliate the royalties paid shall be equal to the ratio of the amount of
grant received from the OCS divided by the amount of grant received from the OCS
and the investment(s) made by the company in the project. The payback also will
be adjusted to 120%, 150% or 300% of the grant if the portion of manufacturing
that is performed outside of Israel is up to 50%, between 50% and 90%, or more
than 90%, respectively. The technology developed pursuant to the terms of these
grants may not be transferred to third parties without the prior approval of the
Research Committee. Such approval is not required for the export of any products
resulting from such research or development. Approval of the transfer of
technology may be granted only if the recipient abides by all the provisions of
the Research Law and the regulations promulgated thereunder, including the
restrictions on the transfer of know-how and the obligation to pay royalties in
an amount that may be increased.
In order to meet certain conditions in connection with the grants and
programs of the OCS, the Company has made certain representations to the Israeli
government about the Company's future plans for its Israeli operations. From
time to time, the extent of the Company's Israeli operations has differed and
may in the future differ, from the Company's representations. If, after
receiving grants under certain programs, the Company fails to meet certain
conditions to those benefits, including, with respect to grants received from
the OCS, the maintenance of a material preserve in Israel, or if there is any
material deviation from the representations made by the Company to the Israeli
government, the Company could be required to refund to the State of Israel tax
or other benefits previously received (including interest and CPI linkage
difference) and would likely be denied receipt of such grants or benefits, and
participation of such programs, thereafter.
The Company participates in programs sponsored by the OCS for the support
of research and development activities (See notes to the Financial Statements).
Each application to the OCS is reviewed separately, and grants are based
on a program approved by the Research Committee. Expenditures supported under
other incentive programs of the State of Israel are not eligible for OCS grants.
As a result, there can be no assurance that applications to the OCS will be
approved or, if approved, what the amounts of the grants will be.
FUND FOR THE ENCOURAGEMENT OF MARKETING ACTIVITIES
The Company has received grants relating to its overseas marketing
expenses from the Marketing Fund. These grants are awarded for specific expenses
incurred by the Company for overseas marketing and are based upon the expenses
reported by the Company to the Marketing Fund. All marketing grants recorded
from the Marketing Fund until 1997 are linked to the dollar and are repayable as
royalties at the rate of 3% of the amount of increases in export sales realized
by the Company from the Marketing Fund. Grants recorded beginning January 1,
1998 bear royalties of 4% plus interest at LIBOR rates. The Company will face
royalty obligations on grants from the
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Marketing Fund only to the extent that it actually achieves increases in export
sales. The proceeds of these grants are presented in the Company's Consolidated
Financial Statements as offsets to marketing expenses. Through December 31,
1998, the Company had received grants from the Marketing Fund in the amount of
approximately$430,000. At March 31, 1999, the aggregate contingent liability was
approximately $418,000.
ITEM 8 - SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data
for the five fiscal years 1998, 1997, 1996, 1995 and 1994, and should be read in
conjunction with the Company's Consolidated Financial Statements and
accompanying notes for the years ended December 31, 1998, 1997,1996, and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations included as part of this document.
The selected financial data are derived from the Consolidated Financial
Statements of the Company for the years stated. These Consolidated Financial
Statements have been prepared in accordance with United States generally
accepted accounting principles ("US GAAP") and have been audited by Kost, Forer
and Gabbay, a member of Ernst & Young International.
The CogniSeis acquisition occurred in October 1997. The business of
CogniSeis has been included in the results of Paradigm from the date of
acquisition. Prior to the CogniSeis acquisition, Paradigm's and CogniSeis'
businesses operated separately. The selected financial data does not include
information for CogniSeis prior to the date of acquisition. Audited financial
statements for CogniSeis for 1995 and 1996, and unaudited financial statements
for the first nine months of 1997, were included in the Company's Registration
Statement on Form F-1 (File No. 333-7926). Therefore, the Company's historical
financial data do not provide a basis to assess trends for the future financial
position and results of operations of the Company or what the financial position
and results of operations of Paradigm and CogniSeis would have been had their
combined businesses been operated on an integrated basis during all of the
periods presented.
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CONSOLIDATED INCOME STATEMENT DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUES:
SOFTWARE LICENSES $4,250 $6,192 $ 5,981 $15,243 $27,491
MAINTENANCE & SUPPORT 503 1,144 1,737 4,736 10,583
GEOPHYSICAL SERVICES 657 2,056 3,884 4,886 7,288
----------------------------------------------------------
TOTAL REVENUES $5,410 $9,392 $11,602 $24,865 $45,362
----------------------------------------------------------
Year -to- year % change 73.6% 23.5% 114.3% 82.4%
COST OF REVENUES:
SOFTWARE LICENSES 264 980 2,438 4,139 5,479
MAINTENANCE & SUPPORT 519 1,054 1,302 2,492 5,783
GEOPHYSICAL SERVICES 218 1,607 1,910 2,533 4,108
==========================================================
TOTAL COST OF REVENUE 1,001 3,641 5,650 9,164 15,370
GROSS PROFIT 4,409 5,751 5,952 15,701 29,992
----------------------------------------------------------
GROSS MARGIN 81% 61% 51% 63% 66%
OPERATING EXPENSES :
RESEARCH AND DEVELOPMENT, NET 534 967 1,840 5,095 8,061
SELLING & MARKETING, NET 1,930 3,164 5,466 6,102 9,642
GENERAL AND ADMINISTRATIVE 1,125 2,952 4,072 4,227 6,720
OTHER EXPENSES 0 10,676 0
----------------------------------------------------------
TOTAL OPERATING EXPENSES 3,589 7,083 11,378 26,100 24,423
----------------------------------------------------------
OPERATING INCOME (LOSS) 820 (1,332) (5,426) (10,399) 5,569
FINANCIAL INCOME(EXPENSES),net (157) (213) 57 (446) (661)
----------------------------------------------------------
PRETAX INCOME(LOSS) 663 (1,545) (5,369) (10,845) 4,908
----------------------------------------------------------
INCOME TAX EXPENSE 0 0 0 0 (356)
==========================================================
NET INCOME(LOSS) $ 663 $(1,545) $(5,369) $(10,845) $4,552
==========================================================
NET INCOME (LOSS) PER ORDINARY SHARE
BASIC EARNINGS PER SHARE $0.29 $(0.68) $(2.33) $(4.66) $0.66
NUMBER OF SHARES USED IN COMPUTING 2,270 2,270 2,300 2,328 6,850
BASIC EARNINGS(LOSS) PER SHARE
DILUTED EARNINGS PER SHARE $0.26 $(0.68) $(2.33) $(4.66) $0.49
NUMBER OF SHARES USED IN COMPUTING 2,534 2,270 2,300 2,328 9,306
DILUTED EARNINGS(LOSS) PER SHARE
</TABLE>
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SELECTED CONSOLIDATED BALANCE SHEET DATA (AT
YEAR END - IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS $ 742 $ 592 $ 7,113 $ 8,229 $ 3,463
WORKING CAPITAL(DEFICIENCY) 1,043 963 7,958 (692) 8,195
TOTAL ASSETS 7,886 12,989 19,383 47,883 46,135
SHORT TERM DEBT(INCLUDING CURRENT
MATURITIES OF LONG TERM DEBT) 806 2,372 1,193 1,288 2,228
NOTE PAYABLE 0 0 0 9,500 0
BRIDGE LOAN PAYABLE 0 0 0 12,000 0
LONG TERM DEBTS(EXCLUDING
CURRENT MATURITIES) 331 399 367 483 39
LONG TERM PROVISIONS 136 496 751 1,031 1,151
SHAREHOLDERS' EQUITY 4,308 6,617 12,885 2,640 26,697
CASH FLOW DATA(IN $'000)
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 171 $(1,782) $(1,658) $ 1,633 $(1,773)
CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (2,017) (3,320) (2,436) (11,594) (4,516)
CASH PROVIDED BY FINANCING
ACTIVITIES 2,444 4,952 10,734 11,077 1,674
</TABLE>
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ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is based on the Consolidated Financial Statements
included in this report and should be read in conjunction with those Statements
and other financial information contained herein.
The Company's accounting policies are discussed in detail in the
Consolidated Financial Statements contained in this report.
Impact of recently issued accounting standards: In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities". The Statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. The Statement requires
that changes in the derivative's fair value be recognized currently in earnings,
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS 133 is effective for fiscal years beginning
after June 15, 1999, and must be applied to instruments issued, acquired, or
substantively modified after December 31, 1997. The Company does not expect the
adoption of the accounting pronouncement to have a material effect on its
financial position or results of operations.
GENERAL
The Company's acquisition of CogniSeis in October 1997, had a positive
impact on year end 1998 results. The 1997 results of operations described in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations include the twelve months of operations of Paradigm consolidated with
only three months of post-acquisition operations (October through December) of
CogniSeis. The contribution of CogniSeis products and operations, as well as
successful integration of the Company's activities, cannot be adequately
portrayed in a typical year-by-year discussion. As a consequence, the financial
results described in this Management's Discussion and Analysis of Financial
Condition and Results of Operations for these periods are not directly
comparable. Where appropriate, comparisons have been provided to consolidated
pro forma results for 1997, representing the combined results of operations as
if the Cogniseis acquisition had been completed on January 1, 1997.
OVERVIEW
Paradigm Geophysical Ltd. is a geoscience knowledge solutions company,
which provides computer-aided exploration and production software products and
services to the oil and gas industry. Paradigm's enabling technologies through
its products and services facilitate the field asset teams of oil and gas
companies to explore, model, simulate and manage oil and gas reservoirs with
precision and accuracy , so as to reduce exploration and production costs,
minimize risk in drilling and increase the productivity of exploitation of
proven reserves. Paradigm achieves this objective by focusing on two major
categories of business activity in the oil and gas industry by providing: (i)
comprehensive software solution suites for the processing
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<PAGE> 33
and interpretation of prospect data for sub-surface modeling, prospect
evaluation, mapping, reservoir characterization and management; and (ii) data
processing services to extract the most geoscience knowledge from the seismic
and geological, well and reservoir production data. Paradigm software systems
are in use in major oil companies throughout the world and leading state owned
oil and gas companies, as well as independent producers and oilfield service
providers.
Oil and gas prices, global and regional economic growth rates and the
resulting demand for products created from hydrocarbons affect the spending
decisions of the Company's customers. Despite current economic uncertainties,
over the long term the Company believes steadily rising population and greater
industrialization efforts will continue to propel global growth, particularly in
developing nations. These factors will also cause increasing demand for oil and
natural gas to supply growing needs for refined products, petrochemicals,
fertilizers, and power.
Although the prevailing industry climate is one of uncertainty, the
Company believes that long term industry fundamentals are sound. Despite the
recent slowdown, worldwide demand for oil and natural gas should recover and
grow. Over time, the accelerating depletion of existing reservoirs under
production, and the need for technologies that make exploration and production
economically feasible in the presence of low oil and gas prices will provide
growth opportunities. The Company believes that its customers will continue to
seek opportunities to lower the overall cost of exploring, developing and
enhancing the recovery of hydrocarbons through increased utilization of
integrated solutions, application of new technology and partnering and alliance
arrangements. The Company believes that it has opportunities to expand its
revenues and profit through greater participation in larger projects that
utilize its software and services capabilities. However, for the immediate
future there is still an atmosphere of uncertainty within the oil and gas
industry.
RESULTS OF OPERATIONS - 1998 COMPARED TO 1997 AND 1996
REVENUES.
The Company's revenues are derived mainly from the sale of software
licenses (product sales) and related maintenance and support contracts and from
providing geophysical services. In choosing to market both products and
geophysical services, Paradigm's management has chosen to diversify revenue
sources to try to minimize risk in seasonal and regional downturns. Maintenance
and support revenues also provide a predictable revenue stream.
Total revenues for the year ended December 31, 1998, increased to
$45,362,000 from $24,865,000 in 1997 and $11,602,000 in 1996. On a pro forma
basis total revenues for 1997 were $42,440,000.
Revenues in all geographic areas increased. In North and South America
revenues for the year ended December 31, 1998, increased to $21,721,000 from
$17,627,000 in 1997 and $5,922,000 in 1996. In Europe, Africa and the Middle
East revenues for the year ended December 31, 1998, increased to $12,962,000
from $3,642,000 in 1997 and $2,449,000 in 1996. In the Far East, revenues for
the year ended December 31, 1998, increased to $10,679,000 from $3,596,000 in
1997 and $3,231,000 in 1996.
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In the first quarter of 1999, the Company experienced a downturn in demand
for it's software products and services as a result of a slowdown in exploration
and capital expenditure by oil and gas companies. As previously stated, the
prevailing industry climate is one of uncertainty; however, the Company believes
that if the current recovery in oil prices continues and oil production
discipline is maintained amongst the OPEC producers, oil and gas companies
should resume some level of capital expenditures. There can be no assurance that
in the event of an increase in capital expenditure by oil and gas companies,
demand for the Company's products will return to its former levels.
This downturn was offset in part by income recognized on the recently
awarded $10 million tender to provide a turnkey data processing center for
seismic data processing and interpretation to a major Asia Pacific state-owned
oil and gas company.
SOFTWARE LICENSES (PRODUCT SALES).
Product sales represent mainly software license. Revenues for the year
ended December 31, 1998, increased to $27,491,000 from $15,243,000 in 1997 and
$5,981,000 in 1996. On a pro forma basis, product sales for 1997 were
$26,360,000, of which $6,950,000 represented hardware sales. The high proportion
of hardware sales is a consequence of the CogniSeis policy of actively
encouraging hardware sales. In 1998, Paradigm made only occasional sales of
hardware as part of small system turnkey solutions. On a pro forma basis,
software license sales in 1998, net of hardware, increased by 30% over 1997.
During 1998, management focused on the integration of the Paradigm and
CogniSeis point-products in to two product suites -Echos(TM) and Ergos(TM) (for
processing and inversion, and for interpretation, respectively). The sales
proportion of the two product suites changed significantly during 1998,
reflecting management's decision to emphasize the expansion of our installed
base for interpretation products. The proportion of Ergos sales in the overall
software sales mix increased from 30% of total software revenues in the first
quarter of 1998, to 55% in the fourth quarter, averaging 50% for the year.
Within the Echos product suite, traditional time-processing software (Focus)
represented the majority of sales in the first quarter of 1998, whereas by the
fourth quarter, depth processing (Paradigm's flagship GeoDepth product
suite), and the Company's AVO product (Power) dominated the processing product
sales. Within the Echos product suite sales growth has been led by Paradigm's
flagship volume interpretation product Voxelgeo.
MAINTENANCE AND SUPPORT.
Maintenance and support revenues for the year ended December 31, 1998
increased to $10,583,000 from $4,736,000 in 1997 and $1,737,000 in 1996. On a
pro forma basis maintenance and support revenues for 1997 were $11,200,000.
While maintenance and support revenues grew by 123% over 1997, 1998
revenues declined by 6% on a pro forma basis. The Company experienced a
reduction in the renewals in 1998 of one of CogniSeis' mature products,
Disco(R). With the increasing proportion of current product sales in the
installed base, it is not expected that future revenues from maintenance and
support will be similarly vulnerable to non-renewals from mature products.
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<PAGE> 35
GEOPHYSICAL SERVICES.
Geophysical services revenues for the year ended December 31, 1998
increased to $7,288,000 from $4,886,000 in 1997 and $3,884,000 in 1996.
Geophysical services revenues from Houston, London and Perth account for
80% of service revenues. CogniSeis did not provide such services and, therefore,
year-to-year comparisons of reported performance are meaningful, and reflect 49%
growth. In 1998, there was an increase in the number of larger sized contracts,
and an emphasis on total processing solutions (i.e. time, depth, and advanced
attributes). The Company's computing capacity worldwide has increased from 72
CPU's at the end of 1997, to 148 CPU's at the end of 1998, and 262 CPU's at the
end of May 1999. In 1999, service operations were added in Argentina and Russia.
These additions reflect the Company's response to increasing demand by oil
companies for outsourced geophysical analysis services.
GROSS PROFIT.
The Company's cost of revenues is comprised of software production and
distribution costs, amortization of acquired developed technology and
capitalized research and development costs, personnel costs associated with
providing maintenance and support and geophysical services, hardware costs for
turnkey solutions and the depreciation and maintenance of production and service
equipment.
Total gross profit for 1998 increased to $29,992,000 from $15,701,000 in
1997, and $5,952,000 in 1996. Gross margins increased to 66% in 1998 from 63% in
1997 and 51% in 1996.
SOFTWARE (PRODUCTS). Gross margins on software sales increased to 80% in
1998, from 73% in 1997 and 60% in 1996. This increase in gross margins is
attributable to two main factors: (a) a decrease in hardware costs associated
with turnkey solutions; and (b) a decrease in capitalized research and
development costs, resulting in a lower amortization charge.
The previously mentioned $10 million tender award to provide a turnkey
data processing center for seismic data processing and interpretation will, in
1999, increase the proportion of cost of revenues to total revenues and,
consequently decrease gross margins due to the relatively high cost of hardware
associated with the tender.
MAINTENANCE AND SUPPORT. Gross margins on maintenance and support
decreased to 45% in 1998, from 47% in 1997 and increased from 25% in 1996. On a
pro forma basis, the gross margins on maintenance and support revenues for 1997
were 57%. There is a significant increase in the level of customer support
provided by Paradigm to its installed base and in the level of maintenance and
support costs. This increase follows management's strategic decision to increase
the level of product development and support services to its installed base.
GEOPHYSICAL SERVICES: Gross margins on geophysical services
decreased to 44% in 1998, from 48% in 1997 and 51% in 1996. This was due mainly
to Paradigm's decision to increase service capacity worldwide in anticipation of
increased demand for outsourced services in 1999. This resulted in under-
utilized computing capacity in the second half of 1998.
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RESEARCH AND DEVELOPMENT, net.
Research and development expenses consist primarily of salaries and other
related expenses, the cost of facilities and the depreciation of capital
equipment, less grants received from the OCS. Since July 1996, the Company did
not apply for further grants from the OCS (See Note 14a. of the Consolidated
Financial Statements).
Research and development expenses increased from $1,840,000 in 1996 to
$5,095,000 in 1997, an increase of 177% and to $8,061,000 in 1998, an increase
of 58%. In 1998, research and development expenditures, represented 17.8% of
revenues, compared with 20.5% in 1997 and 15.9% in 1996. The decrease in
research and development expenditures as a percentage of revenues in 1998, was
achieved by streamlining duplicate facilities and cancelling development
projects which were not in the core product program, resulting from the
Cogniseis acquisition. In 1998, the Company introduced significant technical
advances and delivered integrated Paradigm and CogniSeis products.
The Company expects to maintain its current level of research and
development expenditure in 1999.
SELLING AND MARKETING
Selling and marketing expenses consist primarily of salaries, commissions
on sales, advertising, trade shows, cost of facilities and other related
expenses. Selling and marketing expenses increased from $5,466,000 in 1996, to
$6,102,000 in 1997, an increase of 12%, and to $9,642,000 in 1998, an increase
of 58%. In 1998, selling and marketing expenditures represented 21.3% of
revenues, compared with 24.5% in 1997 and 47% in 1996.
The acquisition of CogniSeis, the Company's initial public offering and
the positioning of Paradigm as a complete solutions provider, required
investment in products and corporate marketing. Despite this, as a consequence
of the integration of Paradigm's and CogniSeis's selling and marketing
activities, the Company was able to achieve consolidation and streamlining of
its selling and marketing activities in 1998.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist mainly of salaries and other
related expenses, outside professional fees and the cost of facilities.
General and administrative expenses increased from $4,072,000 in 1996, to
$4,227,000 in 1997, an increase of 4% , and to $6,720,000 in 1998, an increase
of 59%. However on a pro forma comparison basis, general and administrative
expenses for 1997-pro forma were $10,400,000, 55% greater than in 1998. This
change reflects the Company's efforts, post-acquistion, to achieve significant
savings and efficiencies through consolidation of offices and streamlining of
operations.
In 1998, general and administrative expenditures represented 14.8% of
revenues, compared with 17% in 1997 and 35% in 1996.
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OPERATING INCOME (LOSS).
The Company recorded operating income of $5,569,000 for the year ended
December 31, 1998, compared with an operating loss of $10,399,000 in 1997, and
an operating loss of $5,426,000 in 1996.
In 1997, the Company recorded expenses resulting from the CogniSeis
acquisition totaling $10,676,000. Excluding these acquisition-related expenses,
operating income for the Company in 1997 was $277,000.
FINANCIAL INCOME (EXPENSES), NET.
In 1998, net financial expenses were $661,000 compared with $446,000
in 1997, and net financial income of $56,000 in 1996.
In the fourth quarter of 1997 and the first half of 1998, the Company
incurred finance expenses for the bridge financing facility for the acquisition
of CogniSeis. The bridge loan was repaid from the proceeds of the Company's
initial public offering early in the third quarter of 1998. In the fourth
quarter of 1998, the Company began drawing down on it's bank financing
facilities (See "Liquidity, Capital Resources and Financing").
LIQUIDITY, CAPITAL RESOURCES AND FINANCING
The Company has financed its operations and capital requirements through
equity funding, bridge funding, bank borrowings and, in past years, with grants
from the OCS and the Government of Israel Marketing Fund. As of July 1996, the
Company decided not to apply for further grants from the OCS and the Company has
not applied for grants from the Marketing Fund since the end of 1995.
The Company ended 1998 with cash and equivalents of $3,463,000 compared
with $8,229,000 in 1997, and $7,113,000 in 1996. At the end of May 1999, cash
and equivalents were $9,400,000.
In October 1998, the Company signed agreements with two Israeli banks for
bank credit facilities to borrow short-term and long-term funds totaling $13
million. The interest rate on these borrowings is the London Inter Bank Offer
Rate ("LIBOR") plus 1.0% to 1.5%. As security for the credit facilities the
Company has registered a floating charge on all its assets in favor of the
banks.
CASH FROM OR USED IN OPERATING ACTIVITIES
Cash used in operating activities totaled $1,773,000 in 1998. This
compares with cash from operating activities of $1,633,000 in 1997 and cash used
in operating activities of $1,658,000 in 1996. The main factors causing cash
balances to decline in 1998 were a significant decrease in other payables and
accrued expenses, and an increase in trade receivables, related to the
significant growth in revenues over 1997.
With the current downturn in the industry, there may be a cash outflow
from operations in 1999, primarily resulting from extended receivables and an
increase in work in progress balances.
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CASH USED IN INVESTING ACTIVITIES
Cash used in investing activities in 1998 , all for fixed assets, totaled
$4,516,000. Cash used in investing activities in 1997 totaled $11,594,000 and
$2,436,000 in 1996.
In 1998, the Company invested in fixed assets, primarily computer
hardware, to expand the Company's geophysical services business in the United
States, and in office facility improvements. In 1997, the Company's main
investing activity was the acquisition of CogniSeis.
In March 1999, Paradigm acquired PTM for approximately $9 million.
In June 1999, Paradigm acquired PlaNET, an integrated suite of software
for reservoir modeling and oil and gas field network planning for approximately
$1.1 million.
The Company intends to continue to seek opportunities to expand its
product line and geophysical services business. Accordingly, future investing
activities may include acquisitions of businesses, technologies, product lines
or assets.
CASH FROM FINANCING ACTIVITIES
Cash from financing activities totaled $1,674,000 in 1998, compared with
$11,077,000 in 1997 and $10,734,000 in 1996.
In August 1996, the Company's private placement raised $11,883,000.
In October 1997, the Company entered into agreements for $12,000,000 of
Bridge Loans in connection with the CogniSeis acquisition. The bridge loans bore
interest at a rate of 10.0% per annum and were repaid in June 1998.
The Company's initial public offering in June 1998 raised $21,160,000. Of
this amount, $12,000,000 was used to repay the bridge loans incurred in
connection with the CogniSeis acquisition, including payments to certain
principals of Mashov Gruss Investments Ltd. and Bachow & Associates Inc.,
principal shareholders of the Company, and $8,457,000 was used to complete the
payment for the acquisition of CogniSeis.
As of May 31, 1999, the Company had utilized $7,000,000 of the $13,000,000
bank financing facility. In April and May 1999, the Company raised $13,400,000
from the sale and issuance of Ordinary Shares in three private placements and
from the exercise of warrants.
Surplus funds are deposited in short term interest bearing bank deposits.
CAPITAL COMMITMENTS
As of June 1, 1999, the Company had no material capital expenditure
commitments. However, the planned capital expenditure budget for 1999, for
ongoing equipment replacement and intrinsic growth needs, is estimated at about
$5 million, of which $2 million had been expended as of May 31, 1999. Where
appropriate, the Company has availed, and will in the future consider availing
itself of equipment leasing facilities for the acquisition of fixed assets.
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FUTURE FINANCING REQUIREMENTS
The Company expects to expand its research and development activities and
geophysical services and may acquire other businesses, product lines or assets.
These acquisitions may require additional debt or equity financing.
The Company believes that its cash resources and unutilized credit
facilities are adequate for the funding of ongoing operations in 1999.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
Because most of the Company's revenues are expected to be generated in US
dollars, and a significant portion of the Company's expenses are expected to be
incurred in new Israeli shekels ("shekels"), the Company is exposed to risk to
the extent that the rate of inflation in Israel exceeds the rate of devaluation
of the shekel in relation to the US dollar or if the timing of such devaluation
lags behind inflation in Israel. If US dollar or other foreign currency sales
increase as a percentage of total revenues and the rate of inflation in Israel
exceeds the devaluation of the shekel against the US dollar or such other
foreign currencies, then the Company's financial results may be adversely
affected.
Likewise, the Company's operations could be adversely affected if it is
unable to hedge against currency fluctuation in the future. Until recently the
Company did not engage in hedging transactions (See Item 9A Quantitative and
Qualitative Disclosure about Market Risk). In the future, the Company may enter
into currency hedging transactions to decrease the risk of financial exposure
from fluctuations in exchange rates; however, no assurance can be given that
such measures will adequately protect the Company from material adverse effects
arising from exchange rate fluctuation or the impact of inflation in Israel.
YEAR 2000 ISSUE
The Year 2000 (Y2K) issue is the risk that systems, products and equipment
utilizing date-sensitive software or computer chips with two-digit date fields
will fail to properly recognize the Year 2000. Such failures by the Company's
software and hardware or that of government entities, service providers,
suppliers and customers could result in interruptions of the Company's business
which could have a material adverse impact on the Company. In response to the
Y2K issue, the Company has implemented an enterprise-wide Year 2000 Program
designed to identify, assess and address significant Y2K issues in the Company's
key business operations, including products and services, suppliers, customers,
business applications, information technology systems, facilities and
infrastructure.
The Y2K Program is a comprehensive, integrated, multi-phase process
covering information technology systems and hardware as well as equipment and
products with embedded computer chip technology.
The primary phases of the program are:
a) inventorying existing equipment and systems;
b) assessing equipment and systems to identify those which are not Y2K
ready and to prioritize critical items;
c) remediating, repairing or replacing non-Y2K ready equipment and
systems;
d) testing to verify Y2K readiness has been achieved; and
e) deploying and certifying equipment and systems.
In the first quarter of 1999, the Company completed its inventory and
assessment of all mission critical items
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The Company estimates that it will complete the majority of its
remediation phase by the end of the third quarter of 1999. In the first quarter
of 1999, the Company issued a Year 2000 compliance statement
relating to its products.
Overall, the Company estimates that it has completed approximately 70% of
its Year 2000 Program and anticipates having its SeisX version 3.4 product and
mission-critical systems and equipment Y2K ready at the end of the third quarter
of 1999. The balance of 1999 will be focused on deployment, certification,
testing and implementation of new and modified programs as required.
The Y2K issue is a pervasive problem for most companies due to the
interdependence of computer systems. Therefore, the Company is continually
assessing the risks surrounding this issue and their potential impact on the
Company. This includes the initial phases of business continuity planning,
audits by customers and meetings with its material customers and suppliers.
Meetings and presentations with key suppliers to date have not identified
any key suppliers who expect significant Y2K interruption of services or
supplies to the Company. Failure to address Y2K issues could result in business
disruption that could materially affect the Company's operations. In an effort
to minimize business
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interruptions, the Company is currently in the process of developing contingency
plans in the event circumstances prevent the Company from meeting any of the
remaining portion of its current program schedule.
Because of the manner in which, the Company has historically managed its
software development and engineering, costs associated with the Year 2000
Program are insignificant and are being treated as period costs and expensed as
incurred.
Independent of, but concurrent with, the Company's Y2K review, the Company
has been installing an enterprise-wide business information system which has
replaced the Company's key finance, administrative and marketing software
systems. This system is Y2K compliant and will be fully operational by the end
of 1999.
ITEM 9 A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risks relating to the Company's operations may result from changes
in interest rates, foreign currency exchange rates and weak economic conditions
in foreign markets. In general, the Company does not invest in foreign currency
or engage in foreign currency hedging, interest-risk hedging or other
risk-related tradable financial instruments, and the Company has not held
derivative financial instruments. Since the beginning of 1999, the Company has
entered into short-term hedging where significant transaction-specific foreign
currency exposure was anticipated.
FOREIGN CURRENCY EXPOSURE AND RISK:
Most of the Company's sales and expenses are in US dollars. A
strengthening of the US dollar could make the Company's products less
competitive in foreign markets. A minority of the sales are denominated in
Canadian dollars, U.K sterling, Australian dollars and Russian rubles. To-date,
these foreign currency exposures have been fully offset by expenses incurred in
local currencies.
The Company does have foreign currency exposure with respect to the local
currencies in each of its office locations as local expenses are incurred in
local currency. The Company has judged this exposure not to be material because
most of the Company's revenues are in US dollars. Only a future weakening of the
US dollar against UK sterling, the Canadian or the Australian dollars would
change this risk profile. The Company, because 15% of its expenses are in New
Israeli Shekels, does have an ongoing exposure to the risk of exchange rate
changes between the shekel and the US dollar. See Management's Discussion and
Analysis of Financial Condition and Results of Operations--Impact of Inflation
and Currency Fluctuations.
Under these circumstances, there has been no material foreign currency
exposure and the over-all effect of foreign currency exchange rate fluctuations
on the Company in 1998 was not material.
INTEREST RATE RISK:
The Company's interest expenses are sensitive to changes in the London
InterBank offered rate (LIBOR), since all of its short and medium term
borrowings bear a LIBOR-based interest rate. Excess liquidity is invested in
short term investments which bear minimal interest rate risk.
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As of December 31,1998,the Company had only $1.8 million in short term
bank credit. As of May 31, 1999, the short- and medium-term debt balance was $7
million, with a consequent increase in interest risk exposure. The Company has
concluded that this risk is not material and has not availed itself of financial
instruments to hedge this risk. Under these circumstances no quantitative
tabular disclosures are required.
ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT
Pursuant to the Articles of Association of the Company, Directors are
elected at each annual general meeting of shareholders of the Company (an
"Annual Meeting"), by a vote of the holders of a majority of the voting power
represented at such Annual Meeting. The Articles of Association provide that the
Chief Executive Officer of the Company must be a Director. Each Director holds
office until the first Annual Meeting following the Annual Meeting at which such
Director was elected. The number of Directors may not exceed eight. Currently
there are eight directors. Executive Officers are appointed by and serve at the
discretion of the Board of Directors.
As at May 31, 1999, the Company's executive officers and directors were as
follows:
<TABLE>
<CAPTION>
NAME: AGE: POSITION:
- ----- ---- ---------
<S> <C> <C>
Eldad Weiss 43 Chief Executive Officer, President and Director
Yehezkel Marueli 45 Chief Operating Officer
Brian W. Berman 53 Chief Financial Officer
Dr. Ozdagan Yilmaz 49 Chief Technology Officer
Jacob Dunietz (2) 43 Chairman of the Board
Erel Margalit (1) 36 Director
Ofer Nemirovsky(2) 40 Director
Jay Seid (1) 38 Director
Elie Barr (1) 52 Director
Amos Nur 61 Director
Michael Geiger 61 Director
Jonathan Keller 47 Corporate Secretary and Treasurer
</TABLE>
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
ELDAD WEISS has served as President, Chief Executive Officer and a director of
the Company since the commencement of its operations in 1988. From July 1992 to
July 1993, Mr. Weiss served as the Vice President of Grant-Tensor Geophysical
Corporation, a Houston based geophysical services Company, where he was Senior
Vice President in charge of the computer aided exploration division. From June
1985 until February 1988, Mr. Weiss was employed in the research and development
department of Scitex Corporation Ltd. ("Scitex"). Mr. Weiss holds a Bachelors
and a Masters Degree in Electrical Engineering from Tel Aviv University.
YEHEZKEL MARUELI has served as the Company's Chief Operating Officer since April
1997. From November 1995 until December 1996, Mr. Marueli served as the Vice
President of Business Operations at Scitex Europe S.A., and from January 1991
until November 1995, he served as Scitex's Vice President of Corporate
Logistics. Mr. Marueli holds a Bachelor of Arts in Economics, with honors, from
Tel Aviv University.
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BRIAN W. BERMAN has served as the Chief Financial Officer of the Company since
April 1998. From February 1993 until April 1998, Mr. Berman served in various
capacities at the World Bank, including a position as the head of a strategy and
advisory group on agribusiness investments. Prior to that time, Mr. Berman
served as a consultant for Israeli high technology start-up companies, including
the Company. Mr. Berman holds a B.Sc. in Chemistry and Physics, a B.Sc. (Honors)
in Chemistry and a M.Sc. in Chemistry from the University of Natal in South
Africa. In addition, Mr. Berman holds an M.B.A. from the Columbia University
Graduate School of Business in New York.
DR. OZDAGAN YILMAZ has served as the Chief Technology Officer of the Company
since October 1, 1997. From February 1993 until December 1996, he served as the
Director of Product Development and Inversion Services at Schlumberger
Geco-Prakla. From October 1991 to January 1993, Dr. Yilmaz served as Director of
Inversion Services and Corporate Market Coordinator at Landmark Graphics
Corporation. Dr. Yilmaz holds a Bachelor of Science in geology with a geophysics
minor, with first honors, from the University of Missouri-Rolla, along with a
Masters of Science and a Ph.D. in geophysics from Stanford University.
JACOB DUNIETZ has served as Chairman of the Board of Directors of the Company
since 1993. Mr. Dunietz is Chief Executive Officer, Managing Director and a
member of the Board of Directors of Mashov Computers Ltd., a publicly-traded
holding Company, which is quoted on the Tel Aviv Stock Exchange ("Mashov"), and
a member of the Boards of Directors of all of Mashov's subsidiaries. Mr. Dunietz
also services as Chief Executive Officer of Magic Software Enterprises Ltd., an
Israeli software Company (and a subsidiary of Mashov) whose securities are
publicly-traded on the Nasdaq National Market. In addition, Mr. Dunietz is a
member of the Board of Directors of Dunietz Brothers Ltd., a construction and
real estate Company, whose securities are publicly traded on the Tel Aviv Stock
Exchange, and also serves as a member of the Board of Directors of all of its
subsidiaries. Mr. Dunietz holds a B.S. (with Honors) in Computer Science from
The Technion - Israel Institute of Technology.
EREL MARGALIT has served as a Director since May 1995. Mr. Margalit is the
General Partner of each of two venture capital funds, Jerusalem Pacific Ventures
(1994) L.P. and Jerusalem Venture Partners (1997) L.P., targeted at early stage
communications and software companies, Mr. Margalit also serves on the Boards of
Directors of several privately-held companies. From 1990 to 1993, Mr. Margalit
was Director of Business Development for the City of Jerusalem. Mr. Margalit has
a B.A. in Philosophy and an M.B.A. from the Hebrew University of Jerusalem. In
addition, Mr. Margalit is a Ph.D candidate at Columbia University of New York.
OFER NEMIROVSKY has served as a Director since July 1996. Mr. Nemirovsky has
been a Managing Director of HarbourVest Partners, LLC since January 1997.
HarbourVest Partners, LLC was formed by the management team of Hancock Venture
Partners, Inc. ("HVP"), where Mr. Nemirovsky had served in various capacities
since 1986. Prior to joining HVP, Mr. Nemirovsky held various computer sales and
marketing positions at Hewlett-Packard Company. He holds a B.S. in electrical
engineering and a B.S. in Finance from the University of Pennsylvania and an
M.B.A. from Harvard Business School. He is currently a director of OneWave,
Inc., as well as several privately-held companies.
JAY SEID has served as a Director since April 1999. Mr. Seid is a Managing
Director of Bachow & Associates Inc. Prior to joining Bachow & Associates Inc.
in December
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1992, Mr. Seid was President of Judicate, Inc., a publicly traded nationwide
provider of alternative dispute resolution (mediation and arbitration) services.
Previously, he was an attorney specializing in mergers and acquisitions at Wolf,
Block, Schorr and Solis-Cohen in Philadelphia. Mr. Seid holds a B.A., Summa Cum
Laude, from Rutgers University and a J.D., with honors, from New York University
School of Law.
ELIE BARR has served as a Director since June 1996. Mr. Barr has been a Managing
Partner of Mofet Israel Technology Fund since 1996. Prior to that, Mr. Barr was
a consultant to high-tech companies and certain governmental entities. From 1992
to 1995, Mr. Barr was an Executive Vice President of Teledata Communications
Ltd., a telecommunications Company, whose securities are publicly traded on the
Nasdaq National Market. Mr. Barr has a B.A. in Economics and Political Sciences
from Tel Aviv University and a B.A. in Philosophy from Bar-Ilan University.
AMOS NUR has served as a Director since October 1998. Professor Nur is Professor
of Earth Sciences at Stanford University. Professor Nur joined the faculty of
Stanford University in 1970, and has served as a Professor of Geophysics at
Stanford since 1979, and Chairman of the University's Department of Geophysics
between 1985 and 1991, and again since 1997. He was appointed to the Wayne Loel
chair of Earth Sciences in 1988. In addition, he was a distinguished lecturer in
1997 of the Society of Exploration Geophysicists and is currently a
distinguished lecturer for the American Association of Petroleum Geologists.
Professor Nur holds a Bachelor of Science Degree in geology from the Hebrew
University, Jerusalem and a Ph.D. in geophysics from M.I.T.
MICHAEL GEIGER has served as a Director since May 1999. Mr. Geiger has been a
senior international consultant to the Shamrock International Group since 1987.
Mr. Geiger serves on the supervisory board of Netia Holdings and is a director
of Tel Ad Jerusalem studios and Formula Ventures Ltd. Mr. Geiger served as a
consultant to Occidental Petroleum Corporation for their energy and chemical
industry activities in Israel. Mr. Geiger holds a Bachelor of Science Degree in
Economics from Tel-Aviv University, of which he is a Governor, and a M.A. in
Economics from the University of California in Los Angeles.
JONATHAN KELLER has served as Secretary since January 1994. From January 1994
until August 1997, Mr. Keller served as the Company's Financial Controller.
Prior to January 1994, Mr. Keller was a self employed Certified Public
Accountant and in this capacity provided financial services to the Company. Mr.
Keller is a qualified Israeli Certified Public Accountant and is a Fellow of the
Institute of Chartered Accountants in England and Wales. Mr. Keller holds an
accounting degree from London Guildhall University.
Pursuant to the agreement between the Company and Shamrock Holdings Inc.
("Shamrock"), the Company undertook that as long as Shamrock holds more than
three and a half percent (3.5%) of the issued and outstanding shares of the
Company, the Company will recommend to the shareholders of the Company prior to
any general meeting of shareholders of the Company, at which directors may be
proposed to be elected, to elect a representative of Shamrock to the Board of
Directors of the Company and will take all lawful actions to solicit such
election.
Pursuant to the agreement between the Company and Jerusalem Venture
Partners ("JVP"), the Company undertook to make its best efforts to ensure that
as long as JVP holds more than three and a half percent (3.5%) of the issued
and outstanding shares of the Company, at least one of two members of the
Board of Directors of the Company who will be individuals who have expertise in
the field of operation of the Company, and who are not employees of the
Company, and who have no material economic connection to any shareholder of the
Company, will be nominated for election by agreement between the Company and
JVP. As long as JVP holds more than three and a half percent (3.5%) of the
issued and outstanding shares of the Company, the Company will recommend to the
annual general meeting of shareholders of the Company to elect Mr. Erel
Margalit to the Board of Directors of the Company.
ITEM 11 - COMPENSATION OF OFFICERS AND DIRECTORS
The aggregate remuneration paid by the Company to all persons as a group
(12 persons) who served in the capacity of director or officer in the year ended
December 31, 1998, was approximately $493,000, which includes amounts paid to
provide pension, retirement or similar benefits, but does not include expenses
for automobiles made available to all of its officers, expenses reimbursed to
officers and other fringe benefits commonly reimbursed or paid by companies in
Israel. In 1998, the Company set aside approximately $63,000 for the pension and
severance fund benefits of its executive officers and directors.
The Company has entered into an employment agreement with Mr. Eldad
44
<PAGE> 45
Weiss which expires in March 2000. Pursuant to his employment agreement, Mr.
Weiss receives an annual base salary and may, at the discretion of the Board of
Directors, receive a bonus based on achieving targets set by the Board of
Directors. Furthermore, Mr. Weiss has received options to purchase Ordinary
Shares of the Company. Mr. Weiss's employment agreement also contains
confidentiality and non-competition provisions.
The Company's United Kingdom subsidiary, Paradigm Geophysical (U.K.)
Limited, has entered into an employment agreement with Dr. Ozdagan Yilmaz which
is terminable at will by the subsidiary, and terminable by Dr. Yilmaz upon three
months, prior written notice. Upon the termination of the employment of Dr.
Yilmaz for any reason other than "Justifiable Cause", as such term is defined in
the employment agreement, Dr. Yilmaz will be entitled to payment of his monthly
gross salary for a period of six months following termination. Pursuant to his
employment agreement, Dr. Yilmaz receives an annual base salary and certain
fringe benefits. Furthermore, Dr. Yilmaz has received options to purchase
Ordinary Shares of the Company. Dr. Yilmaz's employment agreement also contains
confidentiality and non-competition provisions.
The Company has entered into an employment agreement with Mr. Brian Berman
which is terminable upon 180 days prior written notice. Pursuant to his
employment agreement, Mr. Berman receives an annual base salary and may, at the
discretion of the Board of Directors, receive a bonus based on achieving targets
set by the Board of Directors. Furthermore, Mr. Berman has received options to
purchase Ordinary Shares of the Company. Mr. Berman's employment agreement
provides for a one-time reimbursement of certain relocation costs and requires
compliance with confidentiality and non-competition provisions.
The Company has entered into an employment agreement with Mr. Hezi
Marueli, which is terminable upon 180 days prior written notice. Pursuant to his
employment agreement, Mr. Marueli receives an annual base salary and may, at the
discretion of the Board of Directors, receive a bonus based on achieving targets
set by the Board of Directors. Furthermore, Mr. Marueli has received options to
purchase Ordinary Shares of the Company. Mr. Marueli's employment agreement
requires compliance with confidentiality and non-competition provisions.
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
STOCK OPTION PLANS
THE 1994 STOCK OPTION PLANS
In 1994, the Company approved a stock option plan for key employees (the
"Key Employee Plan"), the May 1994 Stock Option Plan (the "May 1994 Plan") and
the 1994 General Stock Option Plan (the "1994 General Plan") (the Key Employee
Plan, the May 1994 Plan and the 1994 General Plan are collectively referred to
as "the 1994 Plans").
Under the Key Employee Plan, the Company granted options to six key
employees of the Company to purchase a total of 63,336 Ordinary Shares,
exercisable at $.59 per Ordinary Share, with the purchase price of the Ordinary
Shares payable in
45
<PAGE> 46
full against issuance of the Ordinary Shares. The options issued pursuant to the
Key Employee Plan are vested and became exercisable immediately upon the grant
of such options.
Under the May 1994 Plan and the 1994 General Plan, the Company has granted
options to purchase a total of 226,184 and 60,176 Ordinary Shares, respectively.
Both the May 1994 Plan and the 1994 General Plan are administered by either the
Board of Directors or the Compensation Committee. The option exercise price
under the May 1994 Plan for 114,678 Ordinary Shares is $2.50 per Ordinary Share,
and for 111,506 Ordinary Shares is $4.00 per Ordinary Share. The option exercise
price under the 1994 General Plan is $7.00 per Ordinary Share. Furthermore,
under each of such Plans, the option exercise price is payable in cash, by check
or by any other form of payment that is satisfactory to the Board of Directors
or the Compensation Committee and the Company may provide loans to employees to
assist them in purchasing shares upon exercise of the options. Under the May
1994 Plan 226,184 options are vested and are exercisable immediately. Options
granted under the 1994 General Plan are vested, two thirds are exercisable
immediately and one-third twenty-five months after the date of the Company's
initial public offering. Options granted under the May 1994 Plan and 1994
General Plan, if unexercised, expire ten years from the date of grant.
Options granted under the 1994 Plans are not transferable by the option
holder, other than by will or pursuant to the laws of descent and distribution.
Under the 1994 Plans, the options expire immediately upon the termination of the
option holder's employment, unless the Board of Directors or the Compensation
Committee authorizes an extension of the exercise term beyond the employees
termination date. In the event of a termination of employment without cause, any
unexpired vested options may be exercised up to 90 days following the date of
termination of employment, but only with respect to the number of shares
purchasable at the time of the option holder's termination of employment. In the
event of the termination of employment as a result of death or disability of the
option holder, any unexpired vested options may be exercisable up to six months
from the date of such termination but only with respect to the number of shares
purchasable at the time of such termination. In the event of the option holder's
retirement, any outstanding options shall, at the discretion of the Board of
Directors or the Compensation Committee, accelerate and become immediately
exercisable as of the later of the date of retirement or one year following the
date of the grant.
As of March 31, 1999, the Company had granted options under the 1994 Plans
to certain directors and officers of the Company to purchase an aggregate of
139,439 Ordinary Shares at exercise prices ranging from $.59 to $7.00 per share;
in each case, the option exercise price was equal to the fair market value of
the Ordinary Shares on the date of grant, as determined by the Company's Board
of Directors.
THE 1997 STOCK OPTION PLANS
Under the 1997 Stock Option Plan for Qualifying Israel Employees, the 1997
Executive Stock Option Plan and the 1997 Stock Option Plan for U.S. Employees
(collectively, the "1997 Plans"), the Company has reserved for issuance an
aggregate of 1,950,000 Ordinary Shares. The 1997 Plans are administered by the
Board of Directors or the Compensation Committee and will terminate on January
4, 2005. The option exercise price per Ordinary Share will be determined by the
Board of Directors or the Compensation Committee and will be set forth in an
option agreement between the Company and each optionee, with the option price
not being less that 100% of the
46
<PAGE> 47
fair market value of each option share at the date of the option grant, unless
otherwise determined by the Board or the Compensation Committee. Fair market
value is defined in the 1997 Plans as the mean between the highest and lowest
quoted selling prices of the Company's publicly traded shares listed on a stock
exchange on such date. If no sales occur on the desired date, then fair market
value will be determined by taking a weighted average of the mean between the
highest and lowest quoted selling prices for a reasonable period both before and
after the desired date. The option exercise price will be payable in cash, by
check or by any other form of payment that is satisfactory to the Board of
Directors or the Compensation Committee. In addition, the Company may provide
loans to employees to assist them in purchasing shares upon exercise of the
options The 1997 Plans vest as to 25% of the options granted after a period of
employment with the Company or its subsidiaries of 12 consecutive months from
the date of the grant. The remaining 75% vest in 12 equal quarterly installments
commencing from the end of the first 12 month vesting period. These options
expire eight years from the date of grant.
Options granted under the 1997 Plans are not transferable by the option
holder, other than by will or pursuant to the laws of descent and distribution.
Additionally, the options expire immediately upon the termination of the option
holder's employment, unless the Board of Directors or the Compensation Committee
authorizes an extension of the exercise term beyond the employee termination
date. In the event of termination of employment without cause, any unexpired
vested options may be exercised up to 90 days following the date of termination
of employment, but only with respect to the number of shares purchasable at the
time of the option holder's termination of employment. In the event of the
termination of employment as a result of death or disability of the option
holder, any unexpired vested options may be exercised up to six months following
the date of such termination, but only with respect to the number of shares
purchasable at the time of such termination. In the event of the option holder's
retirement, any outstanding options shall, at the discretion of the Board of
Directors or the Compensation Committee, accelerate and become immediately
exercisable as of the later of the date of retirement or one year following the
date of the grant. The shares underlying any options which expire or are
cancelled prior to exercise are subject to future options grants under the 1997
Plans.
As of March 31, 1999, the Company had granted options under the 1997 Plans
to certain directors and officers of the Company to purchase an aggregate of
378,934 Ordinary Shares at exercise prices ranging from $5.00 to $7.00 per
share; in each case, the option exercise price was equal to or above the fair
market value of the Ordinary Shares on the date of grant, as determined by the
Company's Board of Directors.
1994 WARRANTS
In July 1994, the Company issued to certain investors and their
affiliates warrants (the "1994 Warrants") to purchase an aggregate of 539,244
Ordinary Shares of the Company at an aggregate exercise price equal to the
lesser of (i) 80% of the share price of the Company's most recent private
placement or (ii) 80% of the initial public offering price of the Company's
Ordinary Shares.
The 1994 Warrants were fully exercised by the warrant holders, including
warrants held by Eldad Weiss, the Company's Chief Executive Officer, President
and a Director, during the period ending May 31, 1999.
1997 WARRANTS
In September 1997, the Company issued warrants to purchase an aggregate of
720,000 Ordinary Shares at an exercise price of $6.00 per Ordinary share (the
"1997 Warrants"). The 1997 Warrants contain anti-dilution protections and expire
on September 30, 2004.
47
<PAGE> 48
Resulting from the completion of a share issuance in April and May 1999 of
2,017,544 Ordinary Shares at $5.70 per share to new and existing investors,
under the terms of the 1997 warrant agreements, the holders of the 1997 Warrant
will be entitled to a further 5,619 warrants. The exercise price on all of the
warrants will be $5.95 per Ordinary Share.
1999 WARRANTS
As compensation for services provided to the Company in connection with
the Company's private placement of Ordinary Shares in May 1999, Schroder & Co.,
Inc. was issued warrants to purchase 250,000 Ordinary Shares exercisable during
a three year period at an exercise price of $5.70 per Ordinary Share. These
warrants have incidental registration rights with respect to the underlying
shares.
ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Certain principals of Mashov Gruss Investments Ltd. and Bachow & Associates
Inc. (including Jay Seid, a director of the Company and a Managing Director of
Bachow & Associates Inc.), principal shareholders of the Company, as part of the
group of lenders with whom the Company entered into bridge loans in connection
with the acquisition of CogniSeis at an interest rate of 10% per annum, were
repaid $1,180,000 and $87,000, respectively, of such bridge loans plus accrued
interest thereon.
ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED
None
ITEM 15 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 16 - CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR
REGISTERED SECURITIES AND USE OF PROCEEDS
None
ITEM 17 - FINANCIAL STATEMENTS
Not Applicable
ITEM 18 - FINANCIAL STATEMENTS
See - Item 19.
ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS
(a) Index to Financial Statements:
1. Report of Independent Auditors................................... F-2
2. Consolidated Balance Sheets...................................... F-3
3. Consolidated Statements of Operations............................ F-5
4. Statements of Changes in Shareholders' Equity.................... F-6
5. Consolidated Statements of Cash Flows............................ F-7
6. Notes to the Financial Statements................................ F-9
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
(b) Exhibits:
EXHIBIT
NO. EXHIBIT
3.1 Memorandum of Association of Registrant.++**
3.2 Amended and Restated Articles of Association of Registrant.**
3.3 Proposed Amendment to the Amended and Restated Articles of Association
of the Registrant*******
5.1 Opinion of Eliahu E. Zuck.
10. Form of Warrant Agreement dated as of October 10, 1997 between the
Company and the Bridge Loan lenders.**
10.2 Form of Warrant Certificate by the Company in favor of the Bridge Loan
lenders.**
10.3 Stock Purchase Agreement, dated as of September 5, 1997,** as amended
September 24, 1997 among Paradigm Geophysical Ltd., Paradigm
Geophysical Corp. and GeoScience Corporation.***
10.4 Key Employee Plan.**
10.5 May 1994 Stock Option Plan.**
10.6 1994 General Stock Option Plan.**
10.7 1997 Executive Stock Option Plan.**
10.8 1997 Stock Option Plan for Qualifying Israel Employees.**
10.9 1997 Stock Option Plan for U.S. Employees.**
10.10 Form of 1994 Warrant issued in connection with a private placement of
the Company's securities.**
10.11 Lease Agreement between Ofer Brothers Properties (1957) Ltd. and the
Registrant dated October 1, 1990,*** and as amended October 2, 1994,***
July 3, 1995,*** March 6, 1996*****, March 26, 1997**** and July
1997,****++
10.12 Amended and Restated Asset Purchase Agreement by and among Geotech
Joint Stock Company and Dr. Nikolai L. Baransky, Dr. Evgenii A. Kozlov,
Mr. Dimitry V. Sulitsky, Mr. Christopher D. Kim, Paradigm Geophysical
(U.K.) Ltd., Paradigm Geophysical Europe Ltd., Paradigm Geophysical
Services Ltd. and Paradigm Geophysical Ltd.
10.13 Business Sale Agreement, dated March 31, 1999, by and among Mincom
Limited, Mincom Inc., Mincom International Pty Limited, Mincom Pty
Ltd., Mincom Services Pty Ltd., Mincom Inc. and Paradigm Geophysical
Ltd.
10.14 Share Purchase Agreement, dated March 12, 1999, by and among Paradigm
Geophysical Ltd., Jerusalem Venture Partners L.P. and Jerusalem Venture
Partners (Israel) L.P.
10.15 Registration Rights Agreement, dated March 12, 1999, by and among
Paradigm Geophysical Ltd., Jerusalem Venture Partners L.P. and
Jerusalem Venture Partners (Israel) L.P.
10.16 Share Purchase Agreement, dated April 14, 1999, by and between Paradigm
Geophysical Ltd. and Shamrock Holdings, Inc.
10.17 Registration Rights Agreement by and among Paradigm Geophysical Ltd.,
Shamrock Holdings, Inc., Eastgate Fund L.P., Eastgate International
Limited, Mr. Harris Kaplan and Berman Eastgate Growth Fund.
10.18 Share Purchase Agreement, dated April 14, 1999, between Paradigm
Geophysical Ltd. and Eastgate Fund L.P., Eastgate International
Limited, Mr. Harris Kaplan and Berman Eastgate Growth Fund.
11.1 Statement regarding computation of per share earnings (loss).***
21.1 Subsidiaries of the Registrant.**
23.1 Consent of Eliahu E. Zuck (contained in his opinion constituting
Exhibit 5.1).
23.2 Consent of Kost Forer and Gabbay.
- ----------
** Incorporated herein by reference to the Company's Registration
Statement on Form F-1 (File No. 333-7926), filed with the Commission on
November 10, 1997.
*** Incorporated herein by reference to Amendment No. 1 to the Company's
Registration Statement on Form F-1 (File No. 333-7926), filed with the
Commission on November 21, 1997.
**** Incorporated herein by reference to Amendment No. 2 to the Company's
Registration Statement on Form F-1 (File No. 333-7926), filed with the
Commission on April 7, 1998.
***** Incorporated herein by reference to Amendment No. 3 to the Company's
Registration Statement on Form F-1 (File No. 333-7926), filed with the
Commission on May 13, 1998.
****** Incorporated herein by reference to Amendment No. 4 to the Company's
Registration Statement on Form F-1 (File No. 333-7926), filed with the
Commission on June 2, 1998.
******* Incorporated herein by reference to Amendment No. 6 to the Company's
Registration Statement on Form F-1 (File No. 333-7926), filed with the
Commission on June 5, 1998.
++ English translations from Hebrew original.
(c) Financial Statement Schedule.
Not Applicable.
<PAGE> 49
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to
be signed on its behalf by the undersigned thereunto duly authorized.
PARADIGM GEOPHYSICAL LTD.
By: /s/ Brian Berman
--------------------------
Brian Berman
Chief Financial Officer
Date: June 30, 1999
<PAGE> 50
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
IN U.S. DOLLARS
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Operations F-5
Statements of Changes in Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7 - F-8
Notes to Financial Statements F-9 - F-27
</TABLE>
- - - - - - - -
F-1
<PAGE> 51
ERNST & YOUNG [LOGO]
KOST FORER & GABBAY
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
PARADIGM GEOPHYSICAL LTD.
We have audited the accompanying consolidated balance sheets of
Paradigm Geophysical Ltd. ("the Company") and subsidiaries as of December 31,
1997 and 1998 and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company'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 Paradigm Geophysical (U.K.) Ltd. and Paradigm Geophysical
(Singapore) Pte (Ltd.), wholly-owned subsidiaries, whose statements reflect
total assets of $ 4,061 thousand and $ 7,443 thousand as of December 31, 1997
and 1998, respectively, and total revenues of $ 2,449 thousand, $ 3,642 thousand
and $ 17,746 thousand, for the years ended December 31, 1996, 1997 and 1998,
respectively. Those statements were audited by other auditors whose reports have
been furnished to us and our opinion, insofar as it relates to the amounts
included for those other subsidiaries is based solely on the reports of the
other auditors.
We conducted our audits in accordance with generally accepted
auditing standards in the United States. 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 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 on the reports of other
auditors, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company and
subsidiaries as of December 31, 1997 and 1998, and the related consolidated
results of operations and cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles in the United States.
Tel-Aviv, Israel KOST FORER & GABBAY
January 25, 1999 Certified Public Accountants (Israel)
(Except for Note 11d(3) for which A Member of Ernst & Young
the date is February 15, 1999) International
F-2
<PAGE> 52
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
<TABLE>
<CAPTION>
December 31,
1997 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,229 $ 3,463
Trade receivables (net of allowance for doubtful accounts -
$ 568 in 1997 and $ 1,222 in 1998 - including unbilled $ 784
in 1997 and $ 5,677 in 1998) 16,592 19,958
Other receivables and prepaid expenses (Note 3) 5,409 2,470
-------- --------
Total current assets 30,230 25,891
-------- --------
LONG-TERM TRADE RECEIVABLES 446 275
-------- --------
SEVERANCE PAY FUNDS 500 605
-------- --------
FIXED ASSETS (Note 4):
Cost 9,537 14,997
Less - accumulated depreciation (3,471) (5,738)
-------- --------
6,066 9,259
-------- --------
OTHER ASSETS:
Computer software development costs (net of accumulated
amortization - $ 538 in 1997 and $ 1,041 in 1998) 1,182 679
Acquired developed technology (net of accumulated
amortization of $ 350 in 1997 and $ 1,878 in 1998)
(Note 1b) 6,662 7,322
Other assets, net (Note 5) 2,797 2,104
-------- --------
10,641 10,105
-------- --------
$ 47,883 $ 46,135
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 53
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
<TABLE>
<CAPTION>
December 31,
------------
1997 1998
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank credit (Note 7) $ 711 $ 1,778
Current maturities of long-term bank loans (Note 7) 577 450
Trade payables 1,967 3,024
Other payables and accrued expenses (Note 6) 12,564 8,770
Deferred revenues 5,603 3,674
Note payable 9,500 --
-------- --------
Total current liabilities 30,922 17,696
-------- --------
LONG-TERM BANK LOANS (Note 7) 483 39
-------- --------
BRIDGE LOAN PAYABLE 12,000 --
-------- --------
ACCRUED SEVERANCE PAY (Note 8) 1,031 1,151
-------- --------
DEFERRED TAX LIABILITY (Note 1b) 807 552
-------- --------
SHAREHOLDERS' EQUITY (Note 9):
Preferred shares:
Authorized - 4,735,806 shares of NIS 0.5 par value at December 31, 1997 and
0 shares at December 31,
1998;
Issued and outstanding - 4,735,806 shares at
December 31, 1997 and 0 shares at December 31, 1998 765 --
Ordinary shares:
Authorized - 20,000,000 shares of NIS 0.5 par value at
December 31, 1998;
Issued and outstanding - 2,328,682 shares at
December 31, 1997 and 10,514,484 shares at
December 31, 1998 521 1,758
Additional paid-in capital 19,707 39,236
Accumulated other comprehensive income (loss) (246) (742)
Accumulated deficit (18,107) (13,555)
-------- --------
Total shareholders' equity 2,640 26,697
-------- --------
$ 47,883 $ 46,135
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 54
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
U.S. dollars in thousands except per share amounts
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues: (Note 13)
Software licenses $ 5,981 $ 15,243 $ 27,491
Maintenance and support 1,737 4,736 10,583
Seismic data processing and interpretation services 3,884 4,886 7,288
-------- -------- --------
11,602 24,865 45,362
-------- -------- --------
Cost of revenues:
Software licenses 2,438 4,139 5,479
Maintenance and support 1,302 2,492 5,783
Seismic data processing and interpretation services 1,910 2,533 4,108
-------- -------- --------
5,650 9,164 15,370
-------- -------- --------
Gross profit 5,952 15,701 29,992
-------- -------- --------
Operating expenses:
Research and development, net (Note 14a) 1,840 5,095 8,061
Selling and marketing, net 5,466 6,102 9,642
General and administrative 4,072 4,227 6,720
Other expenses (Note 14b) -- 10,676 --
-------- -------- --------
Total operating expenses 11,378 26,100 24,423
-------- -------- --------
Operating income (loss) (5,426) (10,399) 5,569
Financial income (expenses), net 57 (446) (661)
-------- -------- --------
Income (loss) before income taxes (5,369) (10,845) 4,908
Income taxes -- -- 356
-------- -------- --------
Net income (loss) $ (5,369) $(10,845) $ 4,552
======== ======== ========
Basic income (loss) per share (Note 15) $ (2.33) $ (4.66) $ 0.66
======== ======== ========
Number of shares used in computing
basic income (loss) per share 2,300 2,328 6,850
======== ======== ========
Diluted income (loss) per share (Note 15) $ (2.33) $ (4.66) $ 0.49
======== ======== ========
Number of shares used in computing
diluted income (loss) per share 2,300 2,328 9,306
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 55
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
U.S. dollars in thousands
<TABLE>
<CAPTION>
Preferred shares Ordinary shares
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance as of January 1, 1996 2,338,202 $ 388 2,269,346 $ 512
Comprehensive income (loss):
Loss for the year -- -- -- --
Other comprehensive income (loss)
Foreign currency translation
-- -- -- --
Other comprehensive income (loss)
Comprehensive income (loss)
Issuance of Class C and C-1
preferred shares 2,397,600 377 -- --
Exercise of warrants -- -- 59,336 9
---------- ---------- ---------- ----------
Balance as of December 31, 1996 4,735,802 765 2,328,682 521
Comprehensive income (loss):
Loss for the year -- -- -- --
Comprehensive income (loss)
Debt issuance costs from
warrants issued -- -- -- --
---------- ---------- ---------- ----------
Balance as of December 31, 1997 4,735,802 765 2,328,682 521
Comprehensive income (loss):
Net income for the year -- -- -- --
Other comprehensive income (loss)
Foreign currency translation
adjustment -- -- -- --
Other comprehensive income (loss)
Comprehensive income (loss)
Issuance of ordinary shares -- -- 3,350,000 458
Exercise of over-allotment -- -- 100,000 14
Conversion of preferred shares
into ordinary shares (4,735,802) (765) 4,735,802 765
---------- ---------- ---------- ----------
Balance as of December 31, 1998 -- $ -- 10,514,484 $ 1,758
========== ========== ========== ==========
</TABLE>
F-6
This is an eight column table split into two pages and should be read as a
single unit.
<PAGE> 56
<TABLE>
<CAPTION>
Accumulated
Additional other Total
paid-in comprehensive Accumulated shareholders'
capital income (loss) deficit equity
------- ------------- ------- ------
<S> <C> <C> <C> <C>
Balance as of January 1, 1996 $ 7,610 $ -- $ (1,893) $ 6,617
Comprehensive income (loss):
Loss for the year -- -- (5,369) (5,369)
----------
Other comprehensive income (loss)
Foreign currency translation
-- (246) -- (246)
----------
Other comprehensive income (loss) (246)
----------
Comprehensive income (loss) (5,615)
----------
Issuance of Class C and C-1
preferred shares 11,358 -- -- 11,735
Exercise of warrants 139 -- -- 148
---------- ---------- ---------- ----------
Balance as of December 31, 1996 19,107 (246) (7,262) 12,885
Comprehensive income (loss):
Loss for the year -- -- (10,845) (10,845)
----------
Comprehensive income (loss) (10,845)
----------
Debt issuance costs from
warrants issued 600 -- -- 600
---------- ---------- ---------- ----------
Balance as of December 31, 1997 19,707 (246) (18,107) 2,640
Comprehensive income (loss):
Net income for the year -- -- 4,552 4,552
Other comprehensive income (loss)
Foreign currency translation
adjustment -- (496) -- (496)
----------
Other comprehensive income (loss) (496)
----------
Comprehensive income (loss) 4,056
----------
Issuance of ordinary shares 18,892 -- -- 19,350
Exercise of over-allotment 637 -- -- 651
Conversion of preferred shares
into ordinary shares -- -- -- --
---------- ---------- ---------- ----------
Balance as of December 31, 1998 $ 39,236 $ (742) $ (13,555) $ 26,697
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 57
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) for the period $ (5,369) $(10,845) $4,552
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,083 3,197 4,778
Loss on disposal of property 108 139 --
Write-off of intangible assets 879 207 --
In process research and development write-off upon
acquisition of CogniSeis -- 6,577 --
Increase in other assets (106) (183) --
Increase in trade receivables (717) (5,486) (5,035)
Decrease (increase) in other receivables and
prepaid expenses 415 (2,742) 1,432
Increase in deferred tax assets and liabilities, net -- (363) (202)
Increase (decrease) in trade payables (236) 1,052 1,057
Increase (decrease) in deferred revenues 823 1,612 (1,929)
Increase (decrease) in other payables and accrued
expenses 331 8,322 (6,441)
Increase in accrued severance pay, net 131 146 15
-------- -------- --------
Net cash provided by (used in) operating activities (1,658) 1,633 (1,773)
-------- -------- --------
Cash flows from investing activities:
Capitalization of computer software costs (1,247) (649) --
Cash received on disposal of fixed assets -- 171 --
Purchase of fixed assets (1,189) (2,575) (4,516)
Investment in CogniSeis, net of cash acquired (1) -- (8,541) --
-------- -------- --------
Net cash used in investing activities (2,436) (11,594) (4,516)
-------- -------- --------
Cash flows from financing activities:
Amortization of debt issuance costs from warrants issued 25 125 475
Issuance of share capital 11,883 -- 21,160
Deferred offering expenses -- (759) --
Proceeds from long-term loans 631 1,089 --
Proceeds from bridge loans -- 12,000 --
Repayment of bridge loan -- -- (12,000)
Repayment of note payable -- -- (8,457)
Repayment of long-term loans (461) (883) (571)
Short-term bank credit, net (1,381) (495) 1,067
Loans of affiliates 37 -- --
-------- -------- --------
Net cash provided by financing activities 10,734 11,077 1,674
-------- -------- --------
Effect of exchange rate changes
on cash and cash equivalents (119) -- (151)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 6,521 1,116 (4,766)
Cash and cash equivalents at the beginning of the year 592 7,113 8,229
-------- -------- --------
Cash and cash equivalents at the end of the year $ 7,113 $ 8,229 $3,463
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 58
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1996 1997 1998
------------ ------------- -------------
<S> <C> <C> <C>
(1) On October 14 1997, the Company acquired all of the outstanding shares
of CogniSeis, Development Inc.
The net fair value of assets acquired was as follows (see Note 1b):
Working capital, excluding cash and cash equivalents $ (455)
Fixed assets 1,943
Excess of cost over net fair value upon acquisition 16,553
-------------
18,041
Less - amounts financed by a note payable (9,500)
-------------
$ 8,541
=============
Supplemental disclosure of cash flow information:
Cash paid during the
period for:
Interest $ 278 $ 491 $ -
============ ============= =============
Non-cash transactions:
Purchase of fixed assets $ 327 $ 1,007 $ 863
============ ============= =============
Note payable in the acquisition of CogniSeis(see Note 1b) $ - $ 9,500 $ -
============ ============= =============
Offering expenses $ - $ 400 $ 1,159
============ ============= =============
Reduction of note payable to CogniSeis as a result of
reevaluation of certain assets purchased $ - $ - $ 1,043
============ ============= =============
Additional acquired technology associated with the CogniSeis acquisition $ - $ - $ 2,343
============ ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE> 59
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 1:- BUSINESS AND ORGANIZATION
a. General:
Paradigm Geophysical Ltd. ("Paradigm" or the "Company") was
incorporated under the laws of Israel. The Company is
engaged in the development and licensing of computer
software and the provision of seismic data processing and
interpretation services which facilitate the exploration
and development of oil and gas reserves. The Company's
customers include all of the major international oil and
gas companies as well as leading state-owned oil companies,
independent producers and oil field service providers.
Paradigm operates worldwide through wholly-owned
subsidiaries in the U.S.A., Canada, U.K., Australia and in
Singapore and through representative offices in Russia and
in China. These subsidiaries and representative offices
coordinate the activities of the Company's direct sales
force and its network of representative agents in the Far
East, Near East, Pacific Rim and South America.
In 1998, the Company completed an initial public offering
("IPO") of 3,450,000 ordinary shares and listed these
shares on the NASDAQ.
b. Acquisition of CogniSeis:
On October 14, 1997 (the "Closing Date"), Paradigm acquired
(the "Acquisition") all of the outstanding shares of
CogniSeis Development, Inc. ("CogniSeis"), a multinational
company whose product line complements products offered by
Paradigm for total of acquisition costs of $ 18,913.
The acquisition has been accounted for using the purchase
method of accounting, and accordingly, the purchase price
has been allocated to the assets acquired and liabilities
assumed based upon their fair values. In 1998, the purchase
price was retroactively reallocated and the development
technology was increased by approximately $900 to correct
an overstatement of certain accounts receivable balances
included at the date of the acquisition. The excess of the
purchase price over the fair value of the tangible assets
has been allocated to identifiable intangible assets of
acquired development software, in-process research and
development and assembled work force, as follows:
<TABLE>
<S> <C>
Net tangible assets of CogniSeis $ 2,360
Developed technology 9,355
In-process research and development 6,577
Assembled work force 1,428
Deferred tax liability (807)
---------
$ 18,913
=========
</TABLE>
The acquired assembled work force and developed software
are being amortized over the expected period to be
benefited, which is estimated at five years, and the
in-process research and development was charged to the
statement of operations at the date of acquisition.
F-9
<PAGE> 60
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
The financial statements of CogniSeis were consolidated
with the accounts of the Company, commencing on October 1,
1997.
Pro-forma information:
The following are pro-forma unaudited results of operations
for the year ended December 31, 1997 representing the
combined results of operations as if CogniSeis acquisition
had been completed on January 1, 1997 as follows:
<TABLE>
<CAPTION>
1996 1997
------- -----------
<S> <C> <C>
Revenues $34,461 $ 42,440
======= ===========
Loss before income taxes $14,117 $ (10,748)
======= ===========
Net loss $14,117 $ (10,748)
======= ===========
Basic and diluted loss per share $ (6.14) $ (4.62
======= ===========
Number of shares used in computing basic and
diluted loss per share 2,300 2,328
======= ===========
</TABLE>
These pro-forma unaudited results of operations do not
include a non-recurring charge write-off of in-process
research and development in the amount of $ 6,577, related
to CogniSeis acquisition.
c. Geotech acquisition:
In June 1998, the Company entered into a contract, which
was completed and signed in February 1999, with Geotech
Joint Stock Company ("Geotech") and its shareholders to
acquire certain assets and assume certain liabilities of
Geotech for a minimum payment of $ 500 thousand. Geotech is
a Russian-based seismic software development company which
markets CAEX in the countries of the former Soviet Union.
d. Restructuring costs:
During the fourth quarter of 1997, following the
acquisition of CogniSeis, the Company incurred costs of
$4,099 through the implementation of its worldwide
restructuring plan (see Note 14b).
Those costs included substantial severance pay costs
incurred in the process of reducing its combined workforce.
In addition, while consolidating workforces, duplicate
offices were vacated resulting in a substantial lease
write-off, as well as the write-off of all obsolete fixed
assets.
F-10
<PAGE> 61
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
The following is a breakdown of the restructuring costs incurred:
<TABLE>
<S> <C>
Employee termination expense $ 1,394
Lease write-off 1,765
Fixed asset write-off 733
Other 207
----------
$ 4,099
==========
</TABLE>
As of December 31, 1998, the Company had paid all the
termination costs, and the remaining liability of the
leases will be paid over their respective periods.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the
United States.
a. Financial statements in U.S. dollars:
A majority of the Company's sales are made in United States
dollars. In addition, a substantial portion of the
Company's costs are incurred in dollars. Since the dollar
is the primary currency in the economic environment in
which the Company operates, the dollar is its functional
currency, and, accordingly, monetary accounts maintained in
currencies other than the dollar are remeasured using the
foreign exchange rate at the balance sheet date.
Operational accounts and non-monetary balance sheet
accounts are measured and recorded at the rate in effect at
the date of the transaction. The effects of foreign
currency remeasurement are reported in current operations.
The functional currency of all subsidiaries has been
determined to be the local currency. Assets and liabilities
are translated at year-end exchange rate and statement of
operations items are translated at the average rates
prevailing during the year. These translation adjustments
are recorded as a separate component of "Other
comprehensive income".
b. Consolidation:
The financial statements of the Company are consolidated
with the accounts of its subsidiaries. Significant
intercompany balances and transactions have been eliminated
(see also Note 1b).
c. Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that effect
the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
F-11
<PAGE> 62
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
d. Fixed assets:
Fixed assets are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful
lives of the assets at the following annual rates:
<TABLE>
<CAPTION>
%
---------------------------
<S> <C>
Computers and related equipment 20 - 33
Furniture and equipment 6 - 15
Motor vehicles 15
Leasehold improvements over the term of the lease
</TABLE>
e. Cash and cash equivalents:
The Company considers all highly liquid investments with a
maturity of three months or less, when purchased, to be
cash equivalents. The carrying amounts of cash and cash
equivalents approximate their fair values.
f. Income taxes:
Income taxes are provided for in accordance with Statement
No. 109 of the FASB, "Accounting for Income Taxes", which
requires recognition of deferred income taxes under the
asset and liability method. Under this method, deferred
income tax assets and liabilities are determined based on
temporary differences between the financial reporting and
tax bases of assets and liabilities, and are measured using
enacted tax rates and laws.
g. Software development costs:
Research and development costs incurred in the process of
software development before the establishment of
technological feasibility, are charged to the statement of
operations as incurred. Based on the Company's product
development process, technological feasibility is
established upon the completion of a detailed program
design. Costs of the development of a product's master
incurred subsequent to the establishment of technological
feasibility are capitalized.
Amortization of capitalized costs is at the greater of the
amount computed using the:
1. Ratio that current gross revenues from sales of the
software bear to the total of current and
anticipated future gross revenues from sales of that
software.
2. Straight-line method over the remaining estimated
useful life of the product (not to exceed three
years).
Amortization expense for capitalized software development
costs for 1996, 1997 and 1998 was $ 932, $ 724 and $ 503,
respectively. The Company wrote down capitalized software
development costs for certain products in the amount of $
718 and $ 207 to net realizable value during 1996 and 1997,
respectively.
F-12
<PAGE> 63
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
h. Revenue recognition:
The Company generates revenues from licensing the rights to
use its software products directly to end-users. The
Company also generates revenues from sales of professional
services, including projects, training and maintenance.
Revenues from software license agreements are recognized
upon delivery of the software if: (i) collection is
probable; (ii) all license payments are due within one
year; (iii) the license fee is otherwise fixed and
determinable; (iv) vendor-specific evidence exists to
allocate the total fee to the elements of the arrangement;
and (v) execution of a signed contract exists. If an
acceptance period is included in an arrangement, revenues
are recognized at the earlier of customer acceptance or
expiration of the acceptance period.
Revenues from fixed-price contracts are recognized using
the percentage of completion method.
Revenues from training services are recognized as the
services are performed.
Maintenance revenue is recognized ratably over the term of
the maintenance period. If maintenance is included in a
software license arrangement, the amounts related to
maintenance are segregated from the software license fees
and recognized ratably over the maintenance period, based
on their fair value as established by independent sale of
maintenance to customers.
i. Advertising expenses:
Advertising expenses are charged to the statement of
operations as incurred. Advertising expenses for the years
ended December 31, 1996, 1997 were immaterial, and for the
year ended December 31, 1998 were $ 442.
j. Concentrations of credit risk:
Financial instruments that potentially subject the Company
to concentrations of credit risk consist principally of
trade receivables and cash and cash equivalents. The
Company's cash and cash equivalents are invested in
deposits with major Israeli and U.S. banks. Management
believes that the financial institutions that hold the
Company's investments are financially sound and,
accordingly, minimal credit risk exists with respect to
these investments.
The Company's accounts receivable are derived from sales to
customers located primarily in the United States, Europe
and the Far East. The allowance for doubtful accounts is
calculated on both specific customers and on an aging basis
in respect of those debts where, in management's opinion,
collection is doubtful
F-13
<PAGE> 64
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
k. Basic and diluted income (loss) per share:
Basic income (loss) per share is computed based on the
weighted average number of ordinary shares outstanding
during each year. Diluted income (loss) per share is
computed based on the weighted average number of ordinary
shares outstanding during each year, plus dilutive
potential ordinary shares considered outstanding during the
year, in accordance with FASB Statement No. 128, "Earnings
Per Share".
l. Accounting for shares issued to employees:
The Company has elected to follow Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") in accounting for its employee stock
options plans. Under APB 25, when the exercise price of the
Company's employee stock options equals the market price of
the underlying stock on the date of grant, no compensation
expense is recognized.
m. Comprehensive income:
As of January 1, 1998, the Company adopted Statement No.
130, "Reporting Comprehensive Income". Statement No. 130
establishes new rules for the reporting and display of
comprehensive income and its components. However, the
adoption of this Statement had no impact on the Company's
net income or shareholders' equity. Statement No. 130
requires foreign currency translation adjustment which,
prior to adoption, were reported separately in
shareholders' equity, to be included in other comprehensive
income. Prior year financial statements have been
reclassified to conform to the requirements of Statement
No. 130.
n. Long-lived assets:
On January 1, 1996, the FASB issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("FAS 121") which
became effective as of that date. This Statement requires
impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and
the undiscounted cash flow estimated to be generated by
those assets is less than the asset's carrying amount. The
effect of this adoption was immaterial for all years
presented.
o. Segment reporting:
The Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information", in
1997. SFAS No. 131 supercedes SFAS No. 14, replacing the
"industry segment approach" with the "management approach",
whereby companies report financial and descriptive
information about their operating segments. Operating
segments are revenue-producing components of the enterprise
for which separate financial information is produced
internally and are subject to evaluation by the chief
operating decision-maker in deciding how to allocate
resources to segments (see Note 13).
F-14
<PAGE> 65
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
p. Impact of recently issued accounting standards:
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities". The Statement establishes accounting
and reporting standards requiring that every derivative
instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair
value. The Statement requires that changes in the
derivative's fair value be recognized currently in
earnings, unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on
the hedged item in the income statement, and requires that
a company must formally document, designate and assess the
effectiveness of transactions that receive hedge
accounting. SFAS 133 is effective for fiscal years
beginning after June 15, 1999, and must be applied to
instruments issued, acquired, or substantively modified
after December 31, 1997. The Company does not expect the
adoption of the accounting pronouncement to have a material
effect on its financial position or results of operations.
q. Reclassification:
Certain prior year amounts have been reclassified to
conform to the current year's presentation.
NOTE 3:- OTHER RECEIVABLES AND PREPAID EXPENSES
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1998
----------- -----------
<S> <C> <C>
Government authorities $ 417 $ 264
Prepaid expenses 1,149 714
Deferred offering expenses 1,159 -
Deposits 785 553
Due from GeoScience 795 -
Other 1,104 939
----------- -----------
$ 5,409 $ 2,470
=========== ===========
</TABLE>
F-15
<PAGE> 66
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 4:- FIXED ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
-------- -------
<S> <C> <C>
Cost:
Computers and related equipment $ 7,778 $12,265
Furniture and equipment 1,161 1,369
Motor vehicles 194 194
Leasehold improvements 404 1,169
-------- -------
9,537 14,997
-------- -------
Accumulated depreciation:
Computers and related equipment 3,100 4,910
Furniture and equipment 122 434
Motor vehicles 91 112
Leasehold improvements 158 282
-------- -------
3,471 5,738
-------- -------
Depreciated cost $ 6,066 $ 9,259
======== =======
</TABLE>
Depreciation expense amounted to $ 753, $ 2,012 and $ 2,298 for the years ended
December 31, 1996, 1997 and 1998, respectively.
NOTE 5: - OTHER ASSETS, NET
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1998
-------- ------------
<S> <C> <C>
Assembled work force (net of accumulated
amortization of $ 70 in 1997 and $ 346 in 1998) $ 1,358 $ 1,042
Goodwill (net of accumulated amortization of
$ 178 in 1997 and $ 218 in 1998) 198 433
Deferred debt issuance costs (net of accumulated
amortization of $ 125 in 1997 and $ 600 in 1998) 475 -
Deferred tax asset (Note 10c) 363 310
Other 403 319
-------- ------------
$ 2,797 $ 2,104
======== ============
</TABLE>
F-16
<PAGE> 67
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 6:- OTHER PAYABLES AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1998
--------- ---------
<S> <C> <C>
Accrued expenses $ 2,161 $ 933
Prepaid income 956 -
Employee and related payroll accruals 2,141 1,784
Royalties 1,605 2,519
Restructuring costs (see Note 1d) -
employee termination expense 1,259 -
Restructuring costs (see Note 1d) -
Lease write-off 1,765 1,294
Income and other taxes 720 1,353
Other payables 1,957 887
--------- ---------
$ 12,564 $ 8,770
========= =========
</TABLE>
NOTE 7:- FINANCING ARRANGEMENTS
Short-term loans consist of bank loans, primarily revolving credit
lines which bear interest rates ranging from 7%-12%. The weighted
average interest rate on the short term debt for the three years
ending December 31, 1998, 1997 and 1996 was approximately 9%.
Long-term loans represent other bank loans which are linked to the
U.S. dollar and bear interest rates ranging from 7%-12%.
Aggregate maturities of long-term loans:
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
-------- --------
<S> <C> <C>
First year (current maturities) $ 577 $ 450
-------- --------
Second year 420 39
Third year 62 -
Fourth year 1 -
-------- --------
483 39
-------- --------
$ 1,060 $ 489
======== ========
</TABLE>
The fair market value of the Company's short-term loans and
long-term loans approximated the carrying value as of December 31,
1997 and 1998. Fair values were estimated using discounted cash
flow analyses, based on the Company's incremental borrowing rates
for similar types of borrowing arrangements.
F-17
<PAGE> 68
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 8:- ACCRUED SEVERANCE PAY
The Company's liability for severance pay, pursuant to Israeli
law, is fully provided by an accrual. Part of the liability is
funded through insurance policies.
Severance pay expenses amounted to $ 230, $ 1,530 and $ 2,019 for
the years ended December 31, 1996, 1997 and 1998, respectively. In
1997, these expenses include severance pay relating to the
restructuring.
NOTE 9:- SHARE CAPITAL
a. Preferred shares:
In connection with the Company's IPO (see Note 1a.), all of
the Company's preferred shares outstanding as of the date
of the IPO, were converted into ordinary shares, on a
one-to-one basis.
b. Stock options:
Under the Company's 1994 and 1997 Stock Option Plans ("the
Plans"), options may be granted to employees, officers,
directors and consultants of the Company or any subsidiary.
Pursuant to the Plans, a total of 2,300,000 ordinary shares
of the Company are reserved for issuance.
Each option granted under the Plans may expire no later
than eight years from the date of the grant. Options
granted under the Plans are generally exercisable in
installments during the option term. Any options which are
canceled or not exercised before expiration become
available for future grants.
The following is a summary of the options granted among the
various Plans.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1997 1998
--------------------------- --------------------------- --------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Number price Number price Number price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the
beginning of year 263,148 $ 3.19 265,474 $ 3.35 1,043,104 $ 4.88
Granted 28,312 $ 4.06 785,426 $ 5.55 629,000 $ 7.00
Canceled (25,986) $ 2.50 (7,796) $ 2.50 (79,488) $ 6.31
------- ---------- --------- ---------- --------- ----------
Outstanding at the
end of year 265,474 $ 3.35 1,043,104 $ 5.01 1,592,616 $ 5.65
======= ========== ========= ========== ========= ==========
</TABLE>
F-18
<PAGE> 69
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
The number of options exercisable as of December 31, 1996,
1997 and 1998 were 143,505, 371,781 and 664,430,
respectively.
In June 1998, the Company re-priced certain options at an
exercise price of $ 7, the fair market value at the date of
the re-pricing, following of which the exercise price of
the options outstanding as of December 31, 1998 was between
$ 0.59 and $ 7.
All options granted were at an exercise price equal to the
fair market value of the Company's ordinary shares on the
date of grant. The weighted expected life of the options as
of December 31, 1998 was eight years.
Under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") pro-forma information regarding
net income is required (for grants issued after December
1994) and has been determined as if the Company had
accounted for its employee stock option under the fair
value method of that Statement.
The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1996, 1997
and 1998: risk-free interest rates of 6%, dividend yields
of 0%, volatility factors of the expected market price of
the Company's ordinary shares of 0.5-0.561 and expected
life of the options of 5 to 8 years.
The weighted average fair value of the options at their
dates of grant in 1996, 1997 and 1998 was $ 1.37, $ 3.48
and $ 3.99, respectively.
Because changes in the subjective input assumptions can
materially effect the fair value estimate, it is
management's opinion that the existing option pricing
models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
Pro-forma information under FAS 123:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1996 1997 1998
---------- -------- ----------
<S> <C> <C> <C>
Net income (loss) as reported $ (5,369) $ (10,845) $ 4,552
Pro-forma net income (loss) for SFAS 123 $ (5,387) $ (11,423) $ 3,488
Pro-forma basic income (loss) per share
for SFAS 123 $ (2.34) $ (4.9) $ 0.51
Shares used in computing pro-forma basic
income (loss) per share for SFAS 123 2,300 2,328 6,850
Pro-forma diluted net income (loss)
per share for SFAS 123 $ (2.34) $ (4.9) $ 0.37
Shares used in computing pro-forma diluted
income (loss) per share for SFAS 123 2,300 2,328 9,306
</TABLE>
F-19
<PAGE> 70
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
Because SFAS 123 is applicable only to stock options
granted subsequent to December 31, 1994, its pro-forma
effect will not be fully realized until the year 2002.
c. Warrants:
In 1994, the Company issued 539,244 warrants to purchase
ordinary shares of the Company to various shareholders, in
connection with their loan guarantees to the Company. These
warrants are exercisable over five years, terminating on
July 21, 1999, at an exercise price of the lower of either:
(i) 80% of the price of the last private placement or (ii)
80% of the IPO price of the Company's shares. As of
December 31, 1998, 59,336 warrants were exercised and
479,908 warrants to purchase ordinary shares of the Company
were outstanding.
In October 1997, the Company issued 720,000 warrants in
connection with the bridge loans at an exercise price of
$6.00 per ordinary share. These warrants are exercisable
over seven years. The fair value of these warrants in the
amount of $ 600 was amortized as additional interest
expense in 1997 and 1998, amounting to $ 125 and $ 475,
respectively.
NOTE 10:- INCOME TAXES
a. Domestic:
1. Tax benefits under the Law for the Encouragement of
Capital Investments, 1959 ("the law"):
The Company's production facilities and its two
expansion programs have been granted the status of
"Approved Enterprise", under the law. According to
the provisions of this law, the Company has chosen
to enjoy "alternative benefits" - waiver of grants
in return for tax exemption - and, accordingly, the
Company's income is tax-exempt for a period of two
to four years commencing with the year it first
earns taxable income. In the remaining six to eight
years of benefits, the Company will be liable to
corporate tax at the rate of 25%.
In the event of distribution of cash dividends from
income which is tax exempt due to the above, the
Company would have to pay tax at the rate of 25% on
an amount equal to the amount distributed. The
Company currently has no plans to distribute
dividends and intends to retain future earnings to
finance the development of its business. The tax
exempt income attributable to the "Approved
Enterprise" can be distributed to shareholders
without subjecting the Company to taxes only upon
the complete liquidation of the Company.
The period of tax benefits, detailed above, is
subject to limits of 12 years from the commencement
of production, or 14 years from the approval date,
whichever is earlier.
F-20
<PAGE> 71
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
The law also grants entitlement to claim accelerated
depreciation on buildings, machinery and equipment
used by the "Approved Enterprise", during the first
five tax years.
Should the Company derive income from sources other
than the "Approved Enterprise" during the relevant
period of benefits, such income will be taxable at
regular corporate tax rates of 36%.
2. Tax benefits under the Law for the Encouragement of
Industry (Taxation), 1969:
The Company currently qualifies as an "industrial
company", under the above law and, as such, is
entitled to certain tax benefits, mainly the right
to claim for tax purposes expenses incurred in
public issuances of securities.
3. Carryforward tax losses:
The net operating loss carryforward amounted to
approximately $ 3.9 million as of December 31, 1998,
and can be carried forward indefinitely.
b. Foreign:
Carryforward tax losses:
The Company had an available tax loss carryforward in the
amount of approximately $ 1,400 in the UK subsidiary, and $
230 in the Singapore subsidiary. These losses can be
carried forward indefinitely.
c. Deferred tax assets:
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1996 1997 1998
---------- --------- ---------
<S> <C> <C> <C>
Various accrued liabilities
(including a provision for
restructuring charges in 1997) $ 21 $ 1,110 $ 466
Net operating loss carryforward 2,181 3,278 1,991
---------- --------- ---------
2,202 4,388 2,457
Valuation allowance (2,202) (4,025) (2,147)
---------- --------- ---------
Net deferred tax asset $ - $ 363 $ 310
========== ========= =========
</TABLE>
F-21
<PAGE> 72
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
The Company has provided valuation allowances against the
deferred tax assets in respect of its tax loss
carryforwards and other temporary differences, due to a
history of losses and current uncertainty concerning its
ability to realize these deferred tax assets in the future.
d. Income tax reconciliation:
A reconciliation of the theoretical tax expense, assuming
all income is taxed at the statutory rate applicable to
income of the Company, and the actual tax expense are as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1996 1997 1998
----------- ---------- ---------
<S> <C> <C> <C>
Theoretical tax (benefit) computed
at the statutory rate of 36% $ (1,933) $ (3,904) $ 1,767
Increase (decrease) in income
taxes resulting from:
Tax adjustment in respect of
inflation in Israel (39) 64 (309)
Non-deductible expenses 66 87 61
Utilization of tax loss carryforwards
previously not recognized - (438) -
Write-off of in-process research
and development - 2,368 -
Losses for which benefits
are not recognized 1,906 1,823 189
Prior year's accrued restructuring costs
paid in 1998
- - (623)
Amortization of prior year's write-off
of in-process research and development
- - (474)
Amortization of deferred tax liabilities
recorded upon acquisition of CogniSeis - - (255)
----------- ---------- ---------
Income tax expense $ - $ - $ 356
=========== ========== =========
e. Income taxes consist of the following:
Current $ - $ 363 $ 558
Deferred - (363) (202)
----------- ---------- ---------
$ - $ - $ 356
=========== ========== =========
f. Income (loss) before income taxes consists
of the following:
Domestic $ (2,383) $ (2,756) $ 2,412
Foreign (2,986) (8,089) 2,496
----------- ---------- --------
$ (5,369) $ (10,845) $ 4,908
=========== ========== ========
</TABLE>
F-22
<PAGE> 73
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 11:- CONTINGENT LIABILITIES AND COMMITMENTS
a. Under the Company's research and development agreements
with the Office of the Chief Scientist and pursuant to
applicable laws, the Company is required to pay royalties
at the rate of 3% of sales of products developed with funds
provided by the Office of the Chief Scientist, up to an
amount equal to 100%-150% of the Office of the Chief
Scientist's research and development grants (dollar-linked)
related to such projects.
The Company has expensed royalties in the amounts of $ 351,
$ 402 and $ 400 for the years ended December 31, 1996, 1997
and 1998, respectively, relating to the repayment of such
grants.
As of December 31, 1998, the Company had a contingent
liability to pay royalties in the amount of approximately $
1.5 million.
b. The Israeli Government, through the Fund for the
Encouragement of Marketing Activities, awarded the Company
grants for participation in foreign marketing expenses. The
Company is committed to pay royalties at the rate of 3% of
the increase in foreign sales. Total royalties are not to
exceed the amounts of grants received by the Company
(dollar-linked). The Company did not receive grants for the
years ended December 31, 1996, 1997 and 1998.
The Company has expensed royalties in the amounts of $ 130,
$ 181 and $ 49 for the years ended December 31, 1996, 1997
and 1998, respectively, relating to the repayment of such
grants.
As of December 31, 1998, the Company had a contingent
liability to pay royalties in the amount of approximately $
418.
c. The Company and its subsidiaries have entered into rental
agreements in regard to space for their operations. The
rental fees are linked in part to the dollar and in part to
the Israeli Consumer Price Index.
Future minimum commitments under non-cancelable rental
agreements as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
-----------------------------------------
<S> <C>
1999 $ 1,889
2000 1,502
2001 1,429
2002 1,122
2003 1,122
2004 and thereafter 5,382
--------
$ 12,446
========
</TABLE>
F-23
<PAGE> 74
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
Rent expense for the years ended December 31, 1996, 1997
and 1998 amounted to $ 835, $ 1,052 and $ 1,753,
respectively.
d. Legal:
1. In October 1995, Mr. Eitan Zucker ("Zucker") filed a
claim in the District Court of Tel-Aviv against the
Company and Eldad Weiss ("Weiss"), the President and
CEO of the Company. Zucker, a former Company
employee, claims that in 1987, prior to the
formation of the Company, Zucker, Weiss and other
individuals entered into an oral founders'
agreement, pursuant to which Zucker was entitled to
an allocation of shares. Such shares allegedly were
to be held for him by Weiss, who was entrusted as an
agent and trustee to pursue the rights of Zucker in
the Company, and to cause the Company to allocate
shares to him upon its formation. Zucker further
claims that when his employment by the Company was
terminated in December 1993, he discovered that the
shares had not been allocated to him. Zucker claims
that as a result of the foregoing, he is entitled to
receive 6.875% of the shares of the Company
outstanding as of October 1995, and, therefore,
seeks an order from the Court directing the Company
to issue to him 170,077 ordinary shares against the
payment of NIS 2,266,227.
Zucker has indicated that he is willing to accept a
financial compromise which Weiss and the Company
reject.
At this time, the Company is unable to determine
with any certainty the ultimate outcome of the
litigation and its effect on the Company's business,
operating results and financial condition. However,
the Company believes it has meritorious defenses and
intends to vigorously defend against such
allegations.
2. On December 11, 1997, the Company filed suit for a
declaratory judgment to determine whether it has any
obligation to GMA (an American corporation) under a
letter of intent (the "Letter of Intent").
Under the terms of the Letter of Intent, the Company
and GMA contemplated a transaction in which GMA would
purchase certain computer software programs and
related products ("SeisX") from the Company, provided
that the Company acquired the SeisX assets from a
third party. On May 5, 1998, GMA filed a counterclaim
for breach of contract claiming that the Letter of
Intent required the Company to sell SeisX to GMA. GMA
sought compensatory, injunctive, and declaratory
relief. On September 11, 1998, the Trial Court
granted summary judgment in favor of the Company and
declared that the Company has no obligation to sell
the SeisX assets or related products to GMA and that
GMA takes nothing on its counterclaim. On December 7,
1998, GMA filed an appeal which has not yet been
considered by the Court. The Company is unable to
express an opinion with respect to the likelihood of
an unfavorable outcome of this matter or to estimate
the amount or range of potential loss should the
outcome be unfavorable.
3. The former Chief Financial Officer of Paradigm
Geophysical Ltd. alleged claims for breach of his
employment contract and wrongful termination. The
defendants have denied any liability and responded to
the lawsuit by filing a "Motion to Dismiss".
F-24
<PAGE> 75
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
On February 15, 1999, the Court dismissed entirely
without prejudice the plaintiff's lawsuit regarding
the former chief financial officer of the Company.
However, the plaintiff has 30 days in which he can
appeal the Court's decision.
NOTE 12:- CHARGES (ASSETS PLEDGED)
Long-term bank loans:
All long-term bank loans are related to the financing of equipment
which is pledged to the related finance institutions.
NOTE 13:- GEOGRAPHIC OPERATION INFORMATION
Summary information about geographic areas:
The following presents total revenues for the year ended December
31, 1996, 1997 and 1998 and long-lived assets as of December 31,
1997 and 1998.
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
Long- Long- Long-
Total lived Total lived Total lived
revenues*) assets revenues*) assets revenues*) assets
---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
North and South America $ 5,922 $1,267 $ 17,627 $ 12,337 $ 21,721 $ 13,896
Europe, Africa, Middle East 2,449 4,391 3,642 4,996 12,962 5,673
Far East 3,231 387 3,596 320 10,679 675
-------- ------ -------- -------- -------- --------
$ 11,602 $6,045 $ 24,865 $ 17,653 $ 45,362 $ 20,244
======== ====== ======== ======== ======== ========
</TABLE>
*) Net revenues are attributed to countries based on invoicing
of customers.
NOTE 14:- SELECTED STATEMENTS OF OPERATIONS DATA
a. Research and development, net:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Total research and development costs $ 3,337 $ 5,744 $ 8,061
Less - capitalization of computer
software costs (1,247) (649) -
Less - royalty bearing grants (250) - -
-------- -------- -------
$ 1,840 $ 5,095 $ 8,061
======== ======== =======
</TABLE>
F-25
<PAGE> 76
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
b. Other expenses:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
In-process research and development
write off (Note 1b) $ - $ 6,577 $ -
Restructuring costs (Note 1d) - 4,099 -
---------- -------- -----------
$ - $ 10,676 $ -
========== ======== ===========
</TABLE>
NOTE 15: - INCOME (LOSS) PER SHARE DATA
The following table sets forth the reconciliation of basic and
diluted income (loss) per share.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income (loss) to shareholders of
ordinary shares $ (5,369) $(10,845) $ 4,552
Effect of conversion of preferred shares -- -- --
-------- -------- --------
Numerator for diluted income (loss)
per share - income (loss) available to
shareholders of ordinary shares $ (5,369) $(10,845) $ 4,552
======== ======== ========
Denominator:
Weighted average number of ordinary
shares (denominator for basic income
(loss) per share) 2,300 2,328 6,850
-------- -------- --------
Effect of securities:
Employee stock options -- -- 145
Warrants issued to third parties -- -- 196
Convertible preferred shares
for the period outstanding prior to conversion into
ordinary shares -- -- 2,115
-------- -------- --------
Dilutive potential ordinary shares -- -- 2,456
-------- -------- --------
Denominator for diluted income (loss) per share - adjusted
weighted average number of shares, assumed conversions and
exercise of options and/or warrants 2,300 2,328 9,306
======== ======== ========
</TABLE>
F-26
<PAGE> 77
PARADIGM GEOPHYSICAL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 16:- SUBSEQUENT EVENTS (UNAUDITED)
Short and long-term loans:
In February 1999, the Company concluded credit arrangements with
two banks under the terms of which the Company and its
subsidiaries will have available short- and long-term credit
totaling $ 13 million.
All of the Company's assets are pledged in favor of the two banks
by fixed and floating charges.
- - - - - - - -
F-27
<PAGE> 78
EXHIBIT INDEX
EXHIBIT
NO. EXHIBIT
3.1 Memorandum of Association of Registrant.++**
3.2 Amended and Restated Articles of Association of Registrant.**
3.3 Proposed Amendment to the Amended and Restated Articles of Association
of the Registrant*******
5.1 Opinion of Eliahu E. Zuck.
10. Form of Warrant Agreement dated as of October 10, 1997 between the
Company and the Bridge Loan lenders.**
10.2 Form of Warrant Certificate by the Company in favor of the Bridge Loan
lenders.**
10.3 Stock Purchase Agreement, dated as of September 5, 1997,** as amended
September 24, 1997 among Paradigm Geophysical Ltd., Paradigm
Geophysical Corp. and GeoScience Corporation.***
10.4 Key Employee Plan.**
10.5 May 1994 Stock Option Plan.**
10.6 1994 General Stock Option Plan.** 10.7 1997 Executive Stock Option
Plan.**
10.8 1997 Stock Option Plan for Qualifying Israel Employees.**
10.9 1997 Stock Option Plan for U.S. Employees.**
10.10 Form of 1994 Warrant issued in connection with a private placement of
the Company's securities.**
10.11 Lease Agreement between Ofer Brothers Properties (1957) Ltd. and the
Registrant dated October 1, 1990,*** and as amended October 2, 1994,***
July 3, 1995,*** March 6, 1996*****, March 26, 1997**** and July
1997,****++
10.12 Amended and Restated Asset Purchase Agreement by and among Geotech
Joint Stock Company and Dr. Nikolai L. Baransky, Dr. Evgenii A. Kozlov,
Mr. Dimitry V. Sulitsky, Mr. Christopher D. Kim, Paradigm Geophysical
(U.K.) Ltd., Paradigm Geophysical Europe Ltd., Paradigm Geophysical
Services Ltd. and Paradigm Geophysical Ltd.
10.13 Business Sale Agreement, dated March 31, 1999, by and among Mincom
Limited, Mincom Inc., Mincom International Pty Limited, Mincom Pty
Ltd., Mincom Services Pty Ltd., Mincom Inc. and Paradigm Geophysical
Ltd.
10.14 Share Purchase Agreement, dated March 12, 1999, by and among Paradigm
Geophysical Ltd., Jerusalem Venture Partners L.P. and Jerusalem Venture
Partners (Israel) L.P.
10.15 Registration Rights Agreement, dated March 12, 1999, by and among
Paradigm Geophysical Ltd., Jerusalem Venture Partners L.P. and
Jerusalem Venture Partners (Israel) L.P.
10.16 Share Purchase Agreement, dated April 14, 1999, by and between Paradigm
Geophysical Ltd. and Shamrock Holdings, Inc.
10.17 Registration Rights Agreement by and among Paradigm Geophysical Ltd.,
Shamrock Holdings, Inc., Eastgate Fund L.P., Eastgate International
Limited, Mr. Harris Kaplan and Berman Eastgate Growth Fund.
10.18 Share Purchase Agreement, dated April 14, 1999, between Paradigm
Geophysical Ltd. and Eastgate Fund L.P., Eastgate International
Limited, Mr. Harris Kaplan and Berman Eastgate Growth Fund.
<PAGE> 79
11.1 Statement regarding computation of per share earnings (loss).***
21.1 Subsidiaries of the Registrant.**
23.1 Consent of Eliahu E. Zuck (contained in his opinion constituting
Exhibit 5.1).
23.2 Consent of Kost Forer and Gabbay.
- ----------
** Incorporated herein by reference to the Company's Registration
Statement on Form F-1 (File No. 333-7926), filed with the Commission on
November 10, 1997.
*** Incorporated herein by reference to Amendment No. 1 to the Company's
Registration Statement on Form F-1 (File No. 333-7926), filed with the
Commission on November 21, 1997.
**** Incorporated herein by reference to Amendment No. 2 to the Company's
Registration Statement on Form F-1 (File No. 333-7926), filed with the
Commission on April 7, 1998.
***** Incorporated herein by reference to Amendment No. 3 to the Company's
Registration Statement on Form F-1 (File No. 333-7926), filed with the
Commission on May 13, 1998.
****** Incorporated herein by reference to Amendment No. 4 to the Company's
Registration Statement on Form F-1 (File No. 333-7926), filed with the
Commission on June 2, 1998.
******* Incorporated herein by reference to Amendment No. 6 to the Company's
Registration Statement on Form F-1 (File No. 333-7926), filed with the
Commission on June 5, 1998.
++ English translations from Hebrew original.
<PAGE> 1
Exhibit 5.1
[ELIAHU E. ZUCK (ZUCKER) LETTERHEAD]
Paradigm Geophysical Ltd.
Gav-Yam Center No. 3
9 Shenkar Street
Herzliya B
Israel 46120
Dear Sirs:
Re: PARADIGM GEOPHYSICAL LTD. - FORM 20-F
We have acted as Israeli counsel to Paradigm Geophysical Ltd. (The "Company")
and Mr. Eldad Weiss ("Weiss") in connection with the claim (the "Claim") filed
by Mr. Eitan Zucker in the Tel Aviv District Court (Case Number CA 1496/95).
Based on the documents provided to us by the Company, we are of the opinion
that the Company and Mr. Weiss have meritorious defenses to the Claim.
We consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the 20-F of the Company and to the reference to our
name under the heading "Legal Proceedings".
Very truly yours,
/s/ Eliahu E. Zuck
Eliahu E. Zuck
Law Offices and Notary
<PAGE> 1
Exhibit 10.12
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT
Duly made and entered into as of the ____ day of
_________________1999
by and between
GEOTECH JOINT STOCK COMPANY
a Russian joint stock company
(the "COMPANY")
and
1 DR. NIKOLAI L. BARANSKY
2 DR. EVGENII A. KOZLOV
3 MR. DIMITRY V. SULITSKY
4 MR. CHRISTOPHER D. KIM
(jointly and severally, the "SHAREHOLDERS")
and
PARADIGM GEOPHYSICAL (U.K.) LTD
an English company
(the "U.K.COMPANY")
PARADIGM GEOPHYSICAL EUROPE LTD
an English company
and
PARADIGM GEOPHYSICAL SERVICES LTD
an English company
(Collectively: the "PURCHASER")
and
PARADIGM GEOPHYSICAL LTD.
an Israeli company
("PARADIGM")
WHEREAS, the Company, the Shareholders, the U.K. Company and Paradigm entered
into an Asset Purchase Agreement dated June 30, 1998 (the June Agreement"); and
WHEREAS, the parties wish to replace the June Agreement by this
Agreement and the Purchaser will herein replace the U.K. Company as
the Purchaser; and
WHEREAS, the Company is a joint-stock company formed and existing under the laws
of Russia, engaged in developing, marketing and supporting geophysical
technologies, algorithms and software for seismic data interpretation for oil
and gas exploration; and
WHEREAS, the Shareholders are the holders of the entire issued share capital of
the Company; and
WHEREAS, the Purchaser is a wholly-owned subsidiary of Paradigm; and
WHEREAS, the Company agrees to sell the Selected Company's Assets, defined
below, to the Purchaser, which agrees to purchase same from the Company and to
assume the Selected Liabilities, as defined below, from the Company, on the
terms and conditions set forth in this Agreement; and
WHEREAS, the Shareholders agree to sell the Selected Shareholders' Assets,
defined below, to the Purchaser, which agrees to purchase same from the
Shareholders, on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the foregoing premises and the
mutual representations, warranties and covenants herein contained, and for other
good and valuable consideration, the parties hereto agree, in this Amended and
Restated Agreement, as follows:
<PAGE> 2
2
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set
out below:
1.1. "ACQUISITION" shall mean the purchase, sale, transfer, assignment,
conveyance and delivery of the Selected Company's Assets and/or the
Selected Shareholders' Assets, as the case may be, and the
assumption of the Selected Assumed Liabilities pursuant to the terms
of this Agreement.
1.2. "AFFILIATE" shall mean, with respect to any Person, any other Person
that, directly or indirectly, controls or is controlled by or is
under common control with such Person. As used in this definition of
"Affiliate" the term "control" and any derivatives thereof mean the
possession, directly or indirectly, of more than 50% of the voting
rights or the rights to appoint directors whether through ownership
of voting securities, by contract, or otherwise.
1.3. "AGREEMENT" shall mean this Amended and Restated Asset Purchase
Agreement and the preamble and all appendices hereto.
1.4. "APPROVED MAINTENANCE AGREEMENTS" means those maintenance agreements
of the Company listed in APPENDIX 1.4 hereto. The Company warrants
that it has not entered into any maintenance agreements.
"ASSUMED LIABILITIES" shall mean only (a) those liabilities of the
Company expressly set forth in APPENDIX 4.13 attached hereto ,.
1.6. 1.6. "CLOSING" shall mean the consummation of the Acquisition
pursuant to this Agreement.
1.7. "CLOSING DATE" shall mean the date of consummation of the
Acquisition pursuant to this Agreement pursuant to Section 12 below.
1.8. "CONFIDENTIAL INFORMATION" shall mean all trade secrets and other
confidential information concerning the Company including, without
limitation, information regarding the operations, future plans,
projected and historical sales, marketing, costs, production, growth
and distribution, any customer lists, customer information,
information relating to governmental relations, technical
information, Intellectual Property and information relating to the
products or services, whether patentable, or able to be copyrighted,
or not. Confidential Information shall not include information that
is publicly available at the time of disclosure or subsequently
became publicly available information in the possession of the
receiving party prior to its disclosure by the disclosing party or
information that came to the knowledge of the receiving party
otherwise than through a breach by the receiving party of
obligations of confidentiality (but only from the time that such
information becomes publicly available). Confidential Information
shall also not include any information relating to Mercury
International Technology Inc. ("MIT") and/or Japex Geoscience
Institute, Inc. ("JGI").
1.9. Reserved.
1.10. "EXCLUDED LIABILITIES" shall mean all liabilities of the Company
which are not Selected Assumed Liabilities, including without
limitation. (a) all liabilities of the Company of any kind,
character or description, whether accrued, absolute contingent or
otherwise and whether arising or asserted before or after the date
of this Agreement, (b) all liabilities of the Company arising after
June 30, 1998 which were not incurred in the ordinary course of
business, consistent with past practice, (c) any and all taxes,
charges, fees, levies and duties of whatever kind whatsoever imposed
by the Russian government or any foreign government or any
subdivision or agency of them and any and all interest, penalties or
additions attributable thereto - unless and to the extent that such
items are reflected as a liability in APPENDIX 4.13 or accrued after
June 30, 1998 in the ordinary course of business, consistent with
past practice, (d) any liability, undertaking and/or obligation of
any kind whatsoever,
<PAGE> 3
3
known or unknown, contingent or otherwise, to present or former
directors, shareholders or employees of the Company incurred or
relating to the period prior to the Closing Date, including, without
limitation, salary, pension payments, severance pay, holiday pay,
sick payments, shares or options or commission arrangements unless
such undertakings or liabilities are expressly included in the
employment agreement between the Purchaser and any such person,
irrespective of whether or not such liability/ies or undertaking/s
was/were incurred in the ordinary course of business, consistent
with past practice; (e) any damage and/or expense relating to
product liability claims for products delivered or services provided
prior to the Closing Date, unless such product liability claim is of
the sort customarily associated with the Company's line of products
and services in the normal course of its business; (f) any liability
for transactional and advisory costs, including, without limitation,
attorney's and accountants' fees and expenses incurred in connection
with the transactions contemplated herein; (g) any liability for
brokerage, commission or similar payment in connection with the
transactions contemplated by this Agreement, (h) any and all
liabilities with respect to criminal and civil fines, penalties and
punitive damages arising out of or relating to events occurring or
actions taken prior to the date hereof; (i) any maintenance
agreements or undertakings other than the Approved Maintenance
Agreements, and (j) any and all liabilities (including liabilities
for bodily injury, death and property damage) arising out of or
relating to products manufactured or services performed by the
Company and sold or shipped prior to the Closing Date, unless such
liability is of the sort customarily associated with the Company's
line of products and services in the normal course of its business,
(k) any Excluded Receivables Related Costs, (l) any and all
liabilities or obligations arising under any action, suit or
proceeding commenced on or prior to the Closing Date against or
affecting the Purchaser or any of its shareholders, directors,
officers, employees, agents or affiliates, relating to the Company's
business or the Assets; (m) any debts, liabilities and claims
relating any understandings, undertakings, contracts, agreements,
commitments, letters of understanding, arrangements with MIT and JGI
and (n) any and all payments, liabilities for loss, damages,
out-of-pocket fees, expenses arising out of or incidental to any of
the foregoing Excluded Liabilities, or any and all indebtedness,
liabilities or obligations of, or guaranties of the same made by the
Purchaser that have been incurred to pay or repay any of the
aforegoing Excluded Liabilities.
1.11. "EXCLUDED RECEIVABLES" shall mean all receivables of the Company of
whatever kind (which are not Selected Receivables) including those
listed in APPENDIX 1.11 hereto.
1.12. "EXCLUDED RECEIVABLES RELATED COSTS" shall mean all costs and
expenses of whatever kind whatsoever relating to the performance of
the undertakings of the Company underlying the Excluded Receivables,
including those costs listed in APPENDIX 1.12.
1.13. "GOODWILL" shall mean the goodwill of the Company and/or of the
Shareholders, as the case may be, including without limitation, in
the reputation of the Company, the relationship with customers, high
scientific standards and experience and the exclusive use of the
name of the Company.
1.14. "KEY EMPLOYEES" shall mean those employees of the Company listed in
APPENDIX 1.14 hereto.
1.15. "LIABILITY" or LIABILITIES" shall mean any liability of the Company
(whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, (whether
liquidated or unliquidated) including, without limitation, future
claims brought against the Company relating to any cause of action
arising prior to the Closing Date, but shall not include any
liabilities approved by the Purchaser in writing.
1.16. "LIBOR" shall mean the London Interbank Offered Rate for six month
deposits as quoted by the Wall Street Journal from time to time
accruing quarterly.
1.17. "LIENS" shall mean liens, charges, claims,
pledges, security interests, third party rights of the Company, and
encumbrances of any nature whatsoever.
1.18. "NET REVENUES" shall mean total revenues of the Representative
Offices, less the cost of hardware, third party commissions and
royalties. An indication of the calculation of the third party
expenses is set out in the business plan of the Representative
Offices attached hereto as APPENDIX 1.18.
<PAGE> 4
4
1.19. "PERSON" shall mean an individual, partnership, corporation, limited
liability company, joint venture, unincorporated organization
cooperative or a government entity or agency thereof
1.20. "PURCHASER'S BUSINESS" shall mean the development, sale and
distribution of geophysical hardware and software and the processing
of geophysical data on computer or electronic data processing
equipment, and consulting related to geophysical data acquisition
and processing in Russia and the C.I.S. or any other territories in
which the Purchaser is active.
1.21. "REPRESENTATIVE OFFICES" shall mean the two representative offices
established by the two Purchaser companies in Russia .
1.22. "SELECTED COMPANY'S ASSETS" has the meaning set forth in Section
2.1.1 below.
1.23. "SELECTED COMPANY'S KNOW HOW" shall mean all technology and know how
owned by or of the Company at the Closing Date regardless of its
state of development, relating to the Company's business and/or the
Company, including without limitation, software, source codes,
object codes, inventions, methods, processes, techniques, know-how,
data and other information relating to or used for the Company's
business or for any other purpose and all intellectual property
rights associated with any of the foregoing, including, without
limitation, the Intellectual Property as well as all designs, plans,
diagrams, specifications, documents or other media containing or
embodying any of the aforegoing. However, the Company's Know-How
shall not include any understandings, undertakings, contracts,
agreements, commitments and letters of understanding and other
arrangements with MIT and JGI relating to technology and know-how of
the Company, or any products, know-how, software, source indexes,
object codes, inventions, methods, processes and techniques
developed by, for or together with MIT and/or JGI.
1.24. "SELECTED RECEIVABLES" shall mean those accounts receivable of the
Company listed in APPENDIX 1.24 hereto.
1.25. "SELECTED SHAREHOLDERS' ASSETS" has the meaning set forth in Section
2.1.2 below.
1.26. "SHAREHOLDERS' KNOW HOW" shall mean all technology and know how
owned by or of the Shareholders at the Closing Date regardless of
its state of development, relating to the Company's business and/or
the Company, and its clients and services, including without
limitation, software, source codes, object codes, inventions,
methods, processes, techniques, know-how, data and other information
relating to or used for the Company's business or for any other
purpose and all intellectual property rights associated with any of
the foregoing, including, without limitation, the Intellectual
Property as well as all designs, plans, diagrams, specifications,
documents or other media containing or embodying any of the
aforegoing, or any products, know-how, software, source codes,
object codes, inventions, methods, processes and techniques
developed by, for or together with, MIT and/or JGI.
1.27. "THIRD PARTY PAYMENTS" shall have the meaning specified in Section
10.2 below.
2. SALE AND PURCHASE OF ASSETS
2.1. PURCHASE AND SALE OF ASSETS. Upon the terms and subject to the
conditions set forth in this Agreement:
2.1.1 PURCHASE AND SALE OF ASSETS. The Purchaser agrees to purchase,
accept, and acquire from the Company, and the Company agrees
to sell, transfer, assign, convey and deliver to the Purchaser
at the Closing, all right, title, and interest of the Company
in and to the Selected Company's Assets (as defined below)
free and clear of all Liens. The Company's Assets shall be
divided between the Purchaser companies as determined by the
Purchaser companies at the Closing. The "Selected Company's
Assets" shall mean all right, title and/or interest owned or
held by the Company in the following:
2.1.1.1. AGREEMENTS. All rights and benefits accruing to the
Company pursuant to the contracts, agreements, and
other commitments and
<PAGE> 5
5
arrangements with any person or entity to which the
Company is a party as listed in APPENDIX 2.1.1.1
hereto (including all geophysical service contracts),
but excluding any contracts, agreements and other
commitments and arrangements relating to the
Company's Know-How and to any agreements, commitments
and letters of understanding and other arrangements
with MIT and/or JGI.
2.1.1.2. EQUIPMENT. All manufacturing, production, maintenance
and testing machinery, equipment and devices
including computers, computer hardware, supplies,
furniture, fixtures, vehicles and other tangible
property (the "Equipment"), including the Company's
rights under all related warranties, all as listed in
APPENDIX 2.1.1.2 hereto.
2.1.1.3. LEASES. The entire leasehold or rental interest,
rights and benefits accruing to the Company under
all leases of any property, including: (i) buildings,
and improvements located thereon, (ii) equipment,
including hardware and associated telecommunication
equipment, (iii) office furnishings and fixtures (iv)
vehicles and other tangible property, all as listed
in APPENDIX 2.1.1.3 hereto.
2.1.1.4. BUSINESS RECORDS. All business and marketing records
of the Company, including accounting and operating
records, asset ledgers, inventory records, budgets,
personnel records, payroll records, customer lists,
consagreements, supplier lists, information and data
respecting leased or owned equipment, files,
correspondence and mailing lists, advertising
materials and brochures, and other business records,
and including the Confidential Information, in so far
as such records relate to Selected Company's Assets,
Selected Assumed Liabilities, Selected Receivables
and Selected Receivable Related Costs.
2.1.1.5. AUTHORIZATIONS. All approvals, authorizations,
certifications, consents, variance, permissions,
licenses, and permits to or from, or filings,
notices, or recordings to or with, governmental
authorities and or bodies relating to the Selected
Company's Assets, and the activities of the Company
including as listed in APPENDIX 2.1.1.5 hereto (the
"Authorizations"), to the extent that such
Authorizations are capable of transfer or assignment
to the Representative Office.
2.1.1.6. SELECTED ACCOUNTS RECEIVABLE. All the Selected
Receivables
2.1.1.7. CLAIMS. All claims, warranties, rights, causes of
action and other similar business rights
(collectively "Claims") relating to the business of
the Company, or which the Company may have against
any Person, including rights to recoveries for
damages or defective goods, and refunds, insurance
claims, and/or actions in so far as such Claims
relate to Selected Company's Assets and Selected
Receivables
2.1.2. SELECTED SHAREHOLDERS' ASSETS. The Purchaser agrees to
purchase, accept, and acquire from the Shareholders, and the
Shareholders agree to sell, transfer, assign, convey and
deliver to the Purchaser at the Closing, all right, title,
and interest of the Shareholders in and to the Shareholders'
Assets (as defined below) as determined by the Purchaser
companies at the Closing. The "Selected Shareholders' Assets"
shall mean all those, real, intellectual, personal, and
mixed, tangible or intangible assets and properties of the
Shareholders or owned, held by or due to the Shareholders in
any manner whatsoever relating to seismic data analysis in
Russia and the CIS Without in any way limiting the generality
of the foregoing, the Selected Shareholders' Assets shall
include, but not be limited to, all right, title and/or
interest owned or held by the shareholders in the following:
2.1.2.1. The Shareholders' Know-How.
2.1.2.2. The personal relationships of the Shareholders with
the clients in the
<PAGE> 6
6
oil and gas industry and the knowledge and ability
of the Shareholder with regard to geophysical
technologies, algorithms and software for seismic
data interpretation for oil and gas exploration in
Russia and the CIS.
2.1.2.3. All or any interest held or owned by the
Shareholders in work in progress or the development
of intangible assets owned by them for oil and gas
exploration in Russia and the CIS.
2.1.2.4. All or any interest held or owned by the
Shareholders in any goodwill appertaining thereto.
It is explicitly agreed that Selected Shareholder Assets do
not include any assets, whether tangible or intangible,
relating to MIT and JGI.
2.2. INTENT OF THE PARTIES. Although the Selected Company's Assets and
the Selected Shareholders' Assets identified in Sections 2.1.1 and
2.1.2. hereof are intended to be complete, to the extent that all
rights and/or assets of the Company or of the Shareholders are not
properly itemized or do not appear in this Agreement (including any
of its Schedules), then, unless this Agreement otherwise provides
directly for the Purchaser to provide for or obtain such rights or
assets in a different manner, the general language of Section 2.1
shall govern and such rights and assets shall nonetheless be
transferred to the Purchaser (or the Representative Office, if the
Purchaser so designates) at the Closing.
2.3. INSTRUMENTS OF CONVEYANCE AND TRANSFER OF BOOKS AND RECORDS. At the
Closing as provided in Section 11 hereof, and after the Closing, if
necessary, the Company shall deliver to the Purchaser such deeds,
bills of sale, endorsements, assignments and other instruments of
sale, conveyance, transfer and assignment, reasonably satisfactory
in form and substance to the Purchaser and its counsel, as may be
reasonably required by the Purchaser, in order to convey to the
Purchaser good and marketable title to the Selected Company's Assets
and the Selected Shareholders' Assets, free and clear of all Liens.
The Company and the Shareholders, jointly and severally, shall pay
all sales, capital, franchise, income, use, transfer, or other
taxes, payable by a seller by reason of the sale hereunder. The
Company and the Shareholders shall also provide the Purchaser with
irrevocable Powers of Attorney enabling the Purchaser to cede,
assign, transfer, convey or register to or in favor of the
Purchaser, all the Selected Company's Assets and the Selected
Shareholders' Assets.
3. ASSUMPTION OF SELECTED LIABILITIES
Upon the terms and subject to the conditions set forth in this Agreement,
the Purchaser agrees, at the Closing, to assume all the Assumed
Liabilities.
4. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND THE COMPANY
The Shareholders and the Company hereby, as of the date hereof and as of
the Closing Date, jointly and severally, represent and warrant to the
Purchaser and Paradigm, and acknowledge that the Purchaser and Paradigm
are entering into this Agreement in reliance on the said warranties, as
follows:
4.1. STATUS OF THE COMPANY. The Company is duly incorporated and validly
existing under the laws of Russia and has all the corporate powers
and governmental licenses, authorizations, consents and approvals
required to carry on its business as is now conducted, and is in
good standing with and before all governmental authorities.
4.2. VALIDITY OF AGREEMENT. This Agreement and all documents and
instruments referred to or contemplated by this Agreement, have been
duly, authorized, executed and delivered by the Company, and all
documents and instruments referred to or contemplated by this
Agreement will be the valid and legally binding obligation of the
Company, enforceable in accordance with their respective terms,
except as may be limited by bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting creditors' rights generally.
Neither the execution and delivery of this Agreement by the Company
and the Shareholders, nor the compliance and performance by the
Company with the terms and provisions hereof, including the
execution and delivery of all documents, and instruments referred to
or
<PAGE> 7
7
contemplated by this Agreement will (a) conflict with or result in a
breach by the Shareholders or the Company of any of the terms and
provisions of (i) any law, rule, ordinance, regulation, permit,
order, judgment or decree of any court, arbitrator or governmental
instrumentality or (ii) any lien, lease, license, agreement, or
instrument to which the Shareholders or the Company are a party or
by which they or their properties may be bound, including any
agreement or undertaking towards customers of the Company or towards
MIT Inc. and JIG, Inc. or (b) create in any Person the right to
terminate, accelerate, modify, cancel or otherwise cause a material
adverse change with respect to any such lien, lease, agreement,
contract, instrument or assets or (c) result in the creation of any
lien, charge, or other encumbrance on any property right or asset of
the Company.
4.3. OWNERSHIP OF THE COMPANY. All of the issued shares of the Company
are owned by the Shareholders and duly authorized, validly issued,
fully paid and non-assessable and were not issued and are not owned
or held in violation of any preemptive or other rights of any person
to acquire securities of the Company. There are no outstanding
options, convertible securities, rights (preemptive, conversion or
other warrants, calls or agreements relating to the Company's
capital stock. The Company is not a party to any option, warrant,
purchase right or other contract or commitment that could require
the Company to sell, transfer, or otherwise dispose of any capital
stock of the Company.
4.4. SUBSIDIARIES. The Company has no Subsidiaries and does not hold
securities or investments in any company, organization (whether
incorporated or not) or any other entity.
4.5. BOARD OF DIRECTORS. The present members of the Board of Directors of
the Company are as set forth in APPENDIX 4.5.
4.6. COMPLIANCE. Except as specified in APPENDIX 4.6 hereto there are no
defaults by the Company, or another party to any contract,
agreement, license or similar document to which the Company is a
party. The Company is in compliance in all material respects with
all applicable laws, ordinances, permits, rules, regulations,
judgments, orders, decrees, rulings and governmental requirements.
The Company has not incurred any indebtedness for borrowed money as
to which a creditor has a claim against the Assets of the Company.
4.7. LITIGATION. There is no action, suit, arbitration, litigation
proceeding, investigation, claim or inquiry (formal or informal)
pending or threatened against the Shareholders or the Company, and
to the best knowledge of the Company and the Shareholders there are
no acts or matters which have occurred or may occur, to give rise to
the foregoing which (a) questions the validity of the Agreement or
the transactions contemplated hereby, (b) if adversely determined
would, materially and adversely affect the Company's performance
hereof or the Company's business, operations or assets, or (c) may
subject Paradigm and/or the Purchaser to any liability after the
Closing Date.
4.8. TITLE TO PROPERTY AND ASSETS. The Equipment is owned by the Company
free and clear of all Liens. The Equipment will be transferred only
with software for which the Company has purchased a fully licensed
copy and the Purchaser will have the right to utilize any residual
support for that software to be provided by the software producer.
With respect to the property and assets that are leased, the Company
is in compliance with all material provisions of such leases and
holds a valid leasehold interest free of any liens, claims, loans or
encumbrances. All properties and assets owned, leased or licensed by
the Company are free of material defects, maintained in good and
usable operating condition and are suitable for the purposes for
which they are used.
4.9. ACCOUNTS RECEIVABLE. The Selected Receivables are and will be good
and collectable in a timely manner and in accordance with their
terms, in each case at the aggregate amounts thereof specified in
APPENDIX 1.24 without right of recourse, defense, deduction, return
of goods, counterclaim, offset, or set-off on the part of the
obligor. The inability and/or inaction of the Company or the
Shareholders in collecting the excluded Receivables will not subject
the Purchaser, Paradigm or the Representative Office to any claim
from any third party.
4.10. INTELLECTUAL PROPERTY. There are no communications alleging that the
Company has violated or would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets
or other proprietary rights of any other person or entity. Neither
the
<PAGE> 8
8
Shareholders nor any director, officer, or employee of the Company,
or any third party possesses any Intellectual Property which relates
to the business of the Company except for the Selected Shareholders
Assets. The Company, has not infringed or received notice of
infringement in respect of asserted intellectual property of others.
There is no infringement by others of intellectual property of the
Company.
4.11. TAXES. The Company has no liability to any domestic or foreign
taxing authority which would have the effect of restricting or
delaying the performance by the Company of all its obligations
pursuant to this Agreement.
4.12. AGREEMENTS. APPENDIX 4.12 attached hereto contains a complete
schedule of all outstanding contractual undertakings and quotations
of the Company and all other contracts, leases, licenses, debt
instruments, loan agreements, partnership or joint venture
agreements, confidentiality and non-competition agreements, lease
agreements, license agreements, merchandise commitments, and all
other material obligations of the Company to date relating to the
Selected Company's Assets or Selected Assumed Liabilities. With
respect to each such agreement: (a) the agreement is legal, valid,
binding, enforceable and in full force and effect without any
material default thereunder, (b) the agreement will continue to be
legal, valid, binding, enforceable and in full force and effect on
identical terms following the consummation of the transactions
contemplated hereby, except as disclosed in APPENDIX 4.12, (c) no
party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or
permit termination, modification or acceleration under the agreement
except as set forth in APPENDIX 4.12, and (d) no party has
repudiated any provision of the agreement. There are no outstanding
powers of attorney executed on behalf of the Company.
4.13. Except as set forth in APPENDIX 4.13 attached hereto, , there are no
fixed or contingent liabilities, asserted or unasserted (and there
is no basis for any present or future action, suit, proceeding,
investigation, charge, claim, or demand giving rise to any such
liability), including without limitation such liabilities arising
out of any injury to individuals or property as a result of the
ownership, possession or use of any product manufactured, sold,
leased or delivered by the Company with respect to any claim for the
breach of any express or implied product warranty on any other
similar claim with respect to any of such products.
4.14. INTERIM OPERATIONS. Except as set forth in APPENDIX 4.14, since
December 31, 1997 (a) there have not been any material adverse
changes in the financial condition, material assets or results of
operations of the Company, (b) there has not been any increase in
the payment of compensation to any director or employee of the
Company.
4.15. BANKRUPTCY. Neither the Company nor the Shareholders have admitted
their inability to pay their debts generally as they become due, or
filed or consented to the filing of a petition in bankruptcy, nor
consented to the appointment of a receiver for itself or for any
substantial part of its property, or made any determination in
respect of the distribution thereof. No notice has been received of
the intent of any entity to request dissolution of the assets of the
Shareholders or the Company and, to the knowledge of the Company, no
event or condition exists which could give rise to any of such
events.
4.16. EMPLOYEES; LABOR CONTRACTS.
4.16.1. APPENDIX 4.16.1 contains a full list of all the employees of
the Company and an accurate statement of their current
salaries and all benefits. The Company is currently not
under any obligation to increase any such remuneration or
alter any other terms except other than in the ordinary
course of business.
4.16.2. There is no restriction on the hiring of certain employees
of the Company by the Representative Offices at the Closing
Date and after the Closing Date neither the Purchaser nor
the Representative Offices will have any obligations towards
such employees, except as specifically set forth in the
employment agreements between the Representative Offices and
each such employee entered into pursuant to Section 11.1.6
below.
<PAGE> 9
9
4.16.3 Upon hiring of certain of the employees of the Company by
the Representative Offices, neither the Purchaser nor the
Representative Offices will have any obligations or
liabilities towards such employees, including for part
salaries, pensions, holiday, sick pay or royalties, except
as specifically set forth in the employment agreements
between the Representative Offices and each such employee
pursuant to Section 11.1.6 below. The Company and the
Shareholders warrant that they have made all statutory and
contractual and other agreed payments due to the Company's
employees that will be hired by the Purchaser, and that the
Company and/or the Shareholders will be solely responsible
for any claims that may be made by, connected to or
involving those employees, and for any claims that may be
existing at date of hiring or that may arise in the future
if incurred prior to such date, and for which the Company
and the Shareholders hereby, jointly and severally,
indemnify the Purchaser.
4.16.4 Upon hiring of certain of the employees of the Company, the
Representative Offices agrees that those employees hired
will be entitled to ten working days paid vacation. This
vacation will be taken at a time to be agreed by each of the
hired employees of the Company with the Representative
Offices .
4.16.5 The Company and the Shareholders acknowledge that neither
the Purchaser nor the Representative Office undertake to
employ any of the Company's employees but that all employees
of the Company will have the right to become employees of
the Representative Office as of the Closing Date, if, at the
Representative Office's discretion, it wishes to employ any
or all of such employees.
4.17. BROKER'S OR FINDER'S FEE. No person acting on behalf of the Seller
or the Shareholders is or will be entitled to any broker's or
finder's fee or any other commission or similar fee, directly or
indirectly, from the Purchaser or Paradigm in connection with any of
the transactions contemplated in this Agreement.
4.18. DISCLOSURE. Neither this Agreement nor any statements or
certificates made or delivered in connection herewith contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements herein or therein not
misleading. There is no fact material to the Selected Company's
Assets, Selected Assumed Liabilities and Selected Receivables that
has not been disclosed to the Purchaser and set forth in this
Agreement, including the exhibits hereto, or otherwise disclosed in
writing to the Purchaser and Paradigm.
4.19. MATERIALITY. Each reference to any material adverse effect upon the
financial condition, operation, or prospects of the Company or the
Assets, or any other reference to a material item or circumstance,
shall be construed to include any act, omission, event, or
circumstances that would entail loss, liability, damage, or expense
to the Purchaser or Paradigm (with respect to the rights and
benefits expected by the Purchaser to be obtained) exceeding $10,000
in any single instance, whether under one or more representations,
warranties, covenants, or agreements contained herein.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser and Paradigm hereby represent and warrant , as of the date
hereof and as of the Closing, to the Company and the Shareholders and
acknowledge that the Company and the Shareholders are entering into this
Agreement in reliance on said warranties as follows:
5.1. ORGANIZATION. Each of the Purchaser and Paradigm is a corporation
duly organized, validly existing and in good standing under the laws
of England and Israel respectively, with corporate power to carry on
its business as now being conducted.
5.2. POWER AND AUTHORITY; ENFORCEABILITY. Each of the Purchaser and
Paradigm has all requisite corporate power to enter into this
Agreement and to perform its obligations hereunder. This Agreement
has been duly authorized, executed and delivered on behalf of the
Purchaser and Paradigm, assuming due authorization, execution and
delivery by the Company, constitutes a legal, valid and binding
obligation of the Purchaser and Paradigm, enforceable in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights
<PAGE> 10
10
generally or by the availability of equitable remedies.
5.3. BROKER'S OR FINDER'S FEE. No person acting on behalf of the
Purchaser or Paradigm is or will be entitled to any broker's or
finder's fee or any other commission or similar fee, directly or
indirectly, from the Company in connection with any of the
transactions contemplated hereby.
6. CONSIDERATION
6.1 In full and final consideration for the performance by the Company
and the Shareholders of their obligations pursuant to this
Agreement, including the sale, transfer and assignment of the
Selected Company's Assets and the Shareholders' Assets to the
Purchaser, the Purchaser or Paradigm will pay to the Company a
purchase consideration of US $175,000 (one hundred and seventy five
thousand US dollars) and to the Shareholders, in equal shares, an
aggregate purchase consideration of up to US $1,625,000 (one million
six hundred and twenty five thousand US dollars) (subject to
adjustment as set out in this Section 6) as follows :
6.1.1 LUMP SUM PAYMENTS: At the Closing, the amount of US$100,000
(one hundred thousand US dollars) will be paid by the
Purchaser to the Company. Furthermore, an aggregate amount of
US $150,000 (one hundred and fifty thousand US dollars) will
be paid by the Purchaser to the Shareholders the amount
payable to the Shareholders to be divided between the
Shareholders in equal shares. On each of April 30th, 1999 and
July 31, 1999, the Purchaser shall also pay to Company $
37,500( thirty seven thousand five hundred US dollars) and to
the Shareholders $ 37,500( thirty seven thousand five hundred
US dollars) , to be divided between the Shareholders in equal
shares.
6.1.2 ADDITIONAL PAYMENTS :
6.1.2.1 The Purchaser shall pay to the Shareholders, to be
divided between the Shareholders in equal shares, the
aggregate amount of US $400,000 (four hundred thousand
US dollars) (less any Third Party Payments and less
any other amounts for which the Shareholders or the
Company may be or become liable to the Purchaser in
terms of this Agreement) on condition that the Net
Revenues (as defined below) of the Representative
Office for the period October, 1, 1998 to June 30,
1999 equals at least US $1,600,000. In the event that
such Net Revenues target is less than US $1,600,000
but is equal to or greater than US $1,400,000, the
payment will be reduced to US $250,000 (two hundred
and fifty thousand US dollars), which will be paid as
follows: US $150,000 within fourteen (14) days after
calculation of the Net Revenues for the relevant
period and US $100,000 twelve (12) months after such
date. However, in the event that such Net Revenues
target is less than US $1,400,000, the total payment
of US $250,000 will be reduced to US $100,000 (one
hundred thousand US dollars), which will be paid in
one payment within fourteen (14) days after
calculation of the Net Revenues for the relevant
period.
6.1.2.2 The Purchaser shall pay to the Shareholders, to be
divided between the Shareholders in equal shares, an
additional aggregate payment of up to an additional
$200,000 according to the Net Revenues of the
Representative Office for the period October, 1, 1998
to June 30, 1999 as follows:
<TABLE>
<CAPTION>
NET REVENUES (US$) PAYMENT (US$)
------------------ -------------
<S> <C>
Less than 1,600,000 No payment
1,600,001 - 1,750,000 50,000
1,750,001 - 1,800,000 60,000
1,800,001 - 1,850,000 70,000
1,850,001 - 1,900,000 80,000
1,900,001 - 1,950,000 90,000
1,950,001 - 2,050,000 100,000
2,050,001 - ,2,150,000 150,000
Greater than 2,150,001 200,000
</TABLE>
<PAGE> 11
11
In the event that none of these Net Revenues targets is
achieved, the Purchaser will not be obliged to make any
additional payments to the Company and/or to the
Shareholders.
6.1.2.3 In the event that a Net Revenues target of at least
$1,650,000 is achieved for the period October 1, 1998
to June 30,, 1999, the Purchaser shall pay the
Shareholders, to be divided between the Shareholders
in equal shares, an additional aggregate payment of up
to US $400,000, according to the Net Revenues of the
Representative Office for the period July 1, 1999 to
March 31, 2000, as follows:
<TABLE>
<CAPTION>
NET REVENUES (US$) PAYMENT (US$)
------------------ -------------
<S> <C>
Less than 1,800,000 No payment
1,800,001 - 2,000,000 75,000
2,000,001 - 2,200,000 150,000
2,200,001 - 2,400,000 225,000
2,400,001 - 2,500,000 300,000
Greater than 2,500,001 400,000
</TABLE>
In the event that the Net Revenues are between
$1,400,000 and $1,650,000 for the period October 1,
1998 to June 30 , 1999,the amount by which the Net
Revenues fall short of $1,650,000 for this period will
be added to the Net Revenue target for the period July
1, 1999 to March 31, 2000 in order to determine
eligibility for the additional aggregate payment in
this Section 6.1.2.3.
6.1.2.4 The Purchaser shall pay the Shareholders, to be
divided between the Shareholders in equal shares an
additional aggregate payment of up to an additional
$400,000 according to the Net Revenues of the
Representative Office for the period April 1, 2000 to
March 31, 2001 as follows:
<TABLE>
<CAPTION>
NET REVENUES (US$) PAYMENT (US$)
------------------ -------------
<S> <C>
Less than 2,500,000 No payment
2,500,001 - 2,700,000 100,000
2,700,001 - 2,900,000 150,000
2,900,001 - 3,100,000 200,000
3,100,001 - 3,300,000 250,000
3,300,001 - 3,500,000 300,000
3,500,001 - 3,800,000 350,000
Greater than 3,800,001 400,000
</TABLE>
6.1.2.5 The payments in 6.1.2.2, 6.1.2.3 and 6.1.2. above will
be made within fourteen (14) days after calculation of
the Net Revenues for the relevant period if the Net
Revenues target for that period is achieved. It is
clarified that if the Net Revenue Targets target for
the period October 1, 1998 to June 30, 1999, as
detailed in 6.1.2.3 above is not achieved, the
Purchaser will not make any additional payments to the
Company and/or the Shareholders even if the Net
Revenue targets for the period April 1, 2000 to March
31, 2001 is achieved.
6.1.2.6 The Company and the Shareholders acknowledge that, as
the primary asset of the Company is the goodwill
established by the Company and the Shareholders in
Russia and other territories in the CIS, largely due
to the efforts of the Shareholders, it is of the
utmost importance that the Shareholders will continue
to contribute to the Purchaser's Business and to
preserve its goodwill. Consequently, it is agreed that
the Purchaser will have the right to withhold payments
due according to Sections 2.2 and
<PAGE> 12
12
6.1.2., if, at any payment date, the Company or any of
the Shareholders are in breach of the provisions of
Section 9 below or if any of the Shareholders are not
in material compliance with their respective
employment agreements with the Purchaser, except to
the extent that any non-compliance is due to forces
beyond the control of the parties, such as illness,
death or act of God.
6.1.2.7 In the event that the amount of the Excluded
Receivables plus the Excluded Receivables Related
exceeds $200,000 (two hundred thousand US dollars)
such amounts will be deducted from the payments due to
the Shareholders pursuant to Sections 6.1.2.2 and
6.1.2.3 above. Any Excluded Receivables received by
the Company will belong to the Company and will not
constitute a Company Asset assumed by the Purchaser.
6.2 GROSS PAYMENTS. All payments by the Purchaser to the Company and/or
the Shareholders are in gross terms and if the Purchaser is required
to deduct at source or to pay any taxes (including VAT), levies or
fees in Russia on or in respect of such payments, any amounts of any
taxes, levies or fees paid by the Purchaser will be deducted from
the consideration.
6.3 THIRD PARTY PAYMENTS:
Any Third Party Payments or any other amount which under the terms
of this Agreement should have been made by the Company or the
Shareholders but which Paradigm and/or the Purchaser are forced by
circumstances to make will be deducted from the next payment due
pursuant to Section 6.1.2 above. In the event that the amount of the
next payment due is not sufficient to cover the Third Party Payments
or any other amounts made by Paradigm and/or by the Purchaser, such
amount will be deducted from subsequent payments. In the event that
the payments due are insufficient to cover the Third Party Payments,
the indemnification provisions of Section 10 will apply. In the
event that a Third Party Payment has been claimed but not paid by
Paradigm or the Purchaser, Paradigm or the Purchaser may withhold a
portion of the payment due the Company up to, but not in excess of,
the disputed or unpaid amount claimed by or owed to the third party,
until the claim is resolved.
6.4 PAYMENT IN SHARES:
Paradigm shall, at its sole and absolute option, make any or all of
the payments pursuant to Section 6.1.2, in duly issued and fully
paid-up Ordinary shares of Paradigm, provided that no more than
thirty five percent (35%) of the aggregate amount of such payments
shall be made in shares. Paradigm shall give notice to the Company
and the Shareholders of its election at least thirty (30) days
before each payment date.
Paradigm's Ordinary Shares, to be delivered pursuant to this Section
6.4, shall be valued at the market price per share on the date of
delivery, which shall be deemed to be the average of the mean
between the high bid and low asked quotations per share in the
over-the-counter market as reported by the National Quotation
Bureau, Inc. on the ten trading days immediately preceding the third
trading day prior to the date of delivery.
6.5 LATE PAYMENT.
In the event that Paradigm or the Purchaser fails to make any
payment on the due date, the unpaid amount shall accrue annual
interest of LIBOR plus 3%, commencing fourteen (14) days following
the due date of payment.
6.6 METHOD OF PAYMENT
All payments according to Sections 6.1.1 and 6.1.2 will be made to
the Company or a company designated by it, by wire transfer of
immediately available funds to the bank account(s) specified in
APPENDIX 6.6 hereto, unless the Purchaser received a written notice
signed by the Company or all the Shareholders, as the case may be,
specifying otherwise, at least ten (10) days before the scheduled
payment date.
7. LEASE OF PREMISES
<PAGE> 13
13
The Company undertakes, on the Closing Date, at the Purchaser's request,
to enter into an agreement of lease or sub-lease in favor of the Purchaser
in respect of the premises where the Company's business is being carried
on, at Pokrovra Street 22, Moscow 10100, Russia, for a period of 6 (six)
months from the Closing Date and at a rental equivalent to the rental
being paid by the Company to VNII Geofizika. The Purchaser shall not be
responsible for any costs involved in any termination of the Company's
lease with VNII Geofizika, or for any costs arising out of any lease or
tenancy by the Company of the premises for any period previous to the
Closing Date.
8. COVENANTS OF PARTIES.
The parties hereby covenant and agree as follows with respect to the
period between the execution of this Agreement and the Closing:
8.1 GENERAL. Each of the parties will use his, or its best efforts to
take all action and to do all things necessary, proper or advisable
in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not
waiver, of the Closing conditions set forth in Section 10 below).
8.2 NOTICES AND CONSENTS. The Company will provide any notices to third
parties and will obtain any third party consents in connection with
the transactions contemplated in this Agreement. The Company will
provide any notices to and will make any filings with, and use its
best efforts to obtain any authorizations, consents and approvals of
governments and governmental agencies in connection with the matters
referred to in this Agreement.
8.3 FULL ACCESS SUPERVISOR
8.3.1 The Company will permit the Purchaser and Paradigm and their
authorized employees, agents, accountants, legal counsel and
representatives to have full access to the books, records,
facilities, properties, customers, personnel and officers of
the Company.
8.3.2 The Purchaser shall be permitted to nominate a supervisor who
will have the right to supervise the activities of the Company
and to ensure compliance with Section 8.4 below. The Company
and the Shareholders will provide the supervisor with any
assistance and documents requested by the supervisor.
8.4 OPERATION OF BUSINESS.
8.4.1 Prior to the Closing, the Company will not take and the
shareholders will not cause the Company to take any of the
following actions, without the prior written consent of the
Purchaser:
1) increase the rate or form of compensation payable to any
employee or increase any employees benefits, except
increases in compensation and benefit changes made in
the ordinary course of business in accordance with
established policies and past practice;
2) sell, dispose of, license, mortgage or encumber any
properties, rights or assets, relating to the Selected
Company's Assets except in the ordinary course of
business consistent with past practice.
3) create, incur, assume, guarantee or otherwise become
liable or obligated with respect to any indebtedness, or
make any loan or advance to, or investment in, any
person or entity, except in each case in the ordinary
course of business or, even if in the ordinary course of
business, involving a liability in excess of US$5,000 or
US$20,000 in the aggregate for the period prior to the
Closing;
4) issue any securities relating to the capital stock of
the Company or grant or enter into any agreement to
grant any options, convertibility rights, other rights,
warrants, calls or agreements relating to the capital
stock of the Company or redeem, repurchase or otherwise
<PAGE> 14
14
acquire any of the capital stock of the Company.
5) consolidate or merge with any other person, entity or
business.
8.4.2 CONTINUED OPERATION OF BUSINESS. Prior to the Closing, the
Company will, to the extent required for the continued
operation of the business of the Company, use commercially
reasonable efforts to, (a) keep available the services of the
employees of the Company and (b) preserve the present
relationships of the Company with persons having significant
business relations therewith, including licensers, suppliers
and customers.
8.4.3 PRESS RELEASES. Neither the Shareholders nor the Company shall
issue or cause publication of any press release or other
announcement or public communication with respect to this
Agreement or the transactions contemplated herein without the
consent of the other, which consent shall not be unreasonably
withheld; provided that nothing herein shall prohibit either
party from issuing or causing publication of any such press
release, or public communication to the extent that such
action is required by law.
8.4.4 PENDING OR THREATENED LITIGATION; UNDISCLOSED DISCOVERIES.
Between the date of this Agreement and the Closing Date, the
Company and the Purchaser shall each inform the other promptly
upon receiving knowledge of any pending or threatened
litigation which could reasonably be anticipated to prohibit
or restrain the consummation of the transactions contemplated
herein including those involving the Company.
9. COVENANTS
9.1 GENERAL. If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement,
each of the parties will take such further action, including the
execution and delivery of such further instruments and documents as
the other party reasonably may request, all at the sole cost and
expense of the requesting party. The Sellers acknowledge and agree
that from and after the Closing the Purchaser will be entitled to
possession of all documents, books, records, including tax records,
agreements and financial data of any sort relating to the Selected
Company's Assets, Selected Assumed Liabilities, and the Selected
Receivables.
9.2 COVENANT NOT TO COMPETE. For a period of thirty (30) months
following the Closing Date, the Company and each Shareholder shall
not compete or engage directly or indirectly in the Purchaser's
Business as defined by this Agreement, within the territory of
Russia, the CIS, China, Mongolia and India.
9.3 NO SOLICITATION OF EMPLOYEES. For a period of thirty-six (36) months
following the Closing Date, the Shareholders shall not directly or
indirectly (a) solicit, entice, persuade or induce any current or
future employee of the Company or of the Purchaser or any client
then under contract with the Purchaser or the Representative Office
to terminate his employment by or contractual relationship with the
Purchaser or the Representative Office or to become employed by or
to enter into contractual relations with a competitor of the
Purchaser or the Representative Office, or directly or indirectly
authorize or assist in the taking of any such actions by any third
party, or (b) employ any of the current or future employees of the
Purchaser or the Representative Office, or be a director or hold any
senior management or consulting position with a company in which any
current or future employee of the Purchaser holds a ten percent
(10%) or more equity interest or options to purchase such equity
interest.
9.4 INVALIDITY OR UNENFORCEABILITY. If the final judgment of a court of
competent jurisdiction declares that any term or provision of
Sections 9.3 and 9.4 is invalid or unenforceable, the parties agree
that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration
or area of the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
<PAGE> 15
15
9.5 CONFIDENTIALITY. The Shareholders shall maintain in confidence all
Confidential Information and all confidential information relating
to Paradigm, the Purchaser or the Representative Office.
9.6 CESSATION OF OPERATIONS. After the Closing, the Company shall cease
all operations in the field of the Purchaser's Business.
10. INDEMNITY
10.1 SURVIVAL OF REPRESENTATIONS. All of the representations and
warranties of the Shareholders, the Company, the Purchaser and
Paradigm contained in this Agreement shall survive the Closing
hereunder and continue in full force and effect forever thereafter,
subject to any applicable statutes of limitations.
10.2 INDEMNIFICATION. The Shareholders and the Company hereby, jointly
and severally, agree to indemnify and hold harmless the Purchaser
and its directors, officers, shareholders and Affiliates against any
losses, liabilities, damages and expenses including but not limited
to counsel fees and litigation expenses ("Third Party Payments"), ,
as and when incurred arising out of, based upon, or in connection
with (i) any breach of any representation, warranty, covenant or
agreement of Shareholders or the Company contained in this
Agreement; and (ii) any Excluded Liability provided that the
Shareholders shall not be required to indemnify the Purchaser for
any Third Party Payments unless and until the amount of the Third
Party Pay exceeds $50,000 (Fifty thousand US dollars) in the
aggregate (the "Cushion"). However, if the amount of the Third Party
Payments exceed the Cushion, the Purchaser will have the right to
indemnification for those amounts exceeding the Cushion. To the
extent sufficient to cover all Third Party Payments, indemnification
will be made by way of set-off deduction from the payments due to
the Company according to this Agreement, (iii) any taxes payable to
the Russian authorities up to the Closing Date, through any cause
whatsoever.
10.3 NOTICE OF CLAIM. The Purchaser shall provide the Shareholders and
the Company with prompt notice of any claim asserted or threatened
against the Purchaser on the basis of which the Purchaser intends to
seek indemnification as provided for in this Section 10. However,
the obligations of the Purchaser under this Section 10 shall not be
conditional upon receipt of any such notice and no delay on the part
of the Purchaser in providing notice shall relieve the Shareholders
or the Company from any obligation hereunder.
10.4 OTHER REMEDIES. The foregoing indemnification provisions are in
addition to, and not in derogation of, any statutory, equitable, or
common law remedy the Purchaser may have with respect to the
Shareholders or the Company.
10.5 LIMITATION OF LIABILITY. Notwithstanding anything to the contrary in
this Agreement, the liability of the Shareholders and the Company
pursuant to this Section 10 shall not exceed US $2,000,000 plus
interest at the LIBOR rate accruing from the Date of the Closing,
provided further that no Shareholder shall in any event be liable
for more than his pro rata share of any such liability based on his
shareholding in the Company at the Closing.
11. CONDITIONS TO THE CLOSING
11.1 OBLIGATIONS OF PURCHASER The obligations of the Purchaser to
consummate the transactions contemplated hereby are subject to the
fulfillment prior to or at the Closing of each of the following
conditions:
11.1.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 3 hereof,
shall be true and correct as of the date when made and as
of the Closing as though such representations and
warranties were made at and as of such date.
11.1.2 PERFORMANCE OF UNDERTAKINGS. The Shareholders and the
Company shall have
<PAGE> 16
16
performed and complied with all agreements, obligations and
conditions required by this Agreement to be performed or
complied with by the Shareholders, and the Company on or
prior to the Closing. No suit, action, investigation,
inquiry or other proceeding by any governmental body or
other person or legal or administrative proceeding shall
have been instituted or threatened which questions the
validity or legality of the transactions contemplated
hereby, or wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (a) prevent
consummation of any of the transactions contemplated by
this Agreement, (b) cause any of the transactions
contemplated by this Agreement to be rescinded following
consummation, (c) affect adversely the right of the
Purchaser to own the Shares and to control the Company or
(d) affect adversely the right of the Company to own the
Assets and to operate its businesses.
11.1.3 CONSENTS. The Shareholders and the Company shall have
procured all of the third party consents, as specified in
APPENDIX 11.1.3, if and to the extent required to enter
into this Agreement and to consummate the transactions
hereunder.
11.1.4 CERTIFICATES. The Shareholders shall have furnished the
Purchaser with certificates, including without limitation,
certificates of officers of the Company, to evidence
compliance in all respects with the conditions set forth in
this Section in the form attached as APPENDIX 11.1.4.
11.1.5 OPINION OF COUNSEL. The Company and the Shareholders shall
have furnished the Purchaser with an opinion of counsel to
the Company, and the Shareholders dated the Closing Date,
substantially in the form of APPENDIX 11.1.5 hereto.
11.1.6 EMPLOYMENT AGREEMENTS. In order to facilitate the ongoing
business of the Representative Office and to preserve the
goodwill established by the Company over the years, the Key
Employees and all other employees of the Company listed in
APPENDIX 11.1.6(a) shall have entered into employment
agreements with the Representative Office in the form
acceptable to the Purchaser.
11.1.7 ALL ACTION. All actions to be taken by the Shareholders and
the Company in connection with consummation of the
transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be
satisfactory in form and substance to the Purchaser.
11.1.8 NO ADVERSE CHANGE. Since the date hereof, no material
adverse change in the financial condition, assets, business
or prospects of the Company taken as a whole, shall have
occurred. The Purchaser shall have completed a review on
the Company in respect of its financial, business and legal
due diligence, to its complete satisfaction.
11.1.9 INTELLECTUAL PROPERTY OF MIT AND JGI: The Company shall
have provided the Purchaser with proof as reasonably
required by the Purchaser, that as of the Closing Date, the
Company has physically removed all confidential information
and software, including source codes, object codes, and all
documents and computer discs, diskettes and other computer
readable form containing any know-how, software,
inventions, methods, processes and techniques belonging to,
developed by, for or together with MIT and/or JGI have been
from the premises to be used by the Representative Office
and from all equipment used or to be used by the Purchase
and/or the Representative Office.
11.1.10 AGREEMENT WITH JGI: The Company will deliver to the
Purchaser written confirmation, in the form reasonably
acceptable to the Purchaser, that the Sales Representative
Agreement between the Company and JGI dated July, 1997 has
either (i) been terminated and JGI will have no claims
against Paradigm, Purchaser or the Representative Office
with respect to such termination, or (ii)
<PAGE> 17
17
been unconditionally assigned to the Representative Office
To the representative Office as of the Closing Date.
11.1.11 TERMINATION OF MIT AGREEMENT: The Company will provide the
Purchaser with written confirmation reasonably acceptable
to the Purchaser, to the effect that the International
Sales Representative Agreement dated April 1, 1995 between
the Company and MIT has been terminated with effect as of
the Closing Date.
11.1.12 APPENDICES: All the Appendices to be attached to this
Agreement shall be completed and shall be to Purchaser's
satisfaction.
11.2 OBLIGATIONS OF THE COMPANY AND SHAREHOLDERS. The obligations of
the Company and the Shareholders to consummate the transactions
hereby contemplated are subject to the fulfillment at the Closing
of each of the following conditions:
11.2.1 PURCHASE PRICE. The Purchaser shall have paid to the
Company the first installment of the purchase price as
specified in Section 6.1 above.
11.2.2 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser contained in Section 4 hereof,
shall be in all material respects true and correct as of
the date when made and as of the Closing as though such
representations and warranties were made at and as of such
date.
11.2.3 PERFORMANCE OF UNDERTAKINGS. the Purchaser shall have
performed and complied with all agreements, obligations and
conditions required by this agreement to be performed or
complied with by the purchaser on or prior to the Closing.
no suit, action, investigation, inquiry or other proceeding
by any governmental body or other person or legal or
administrative proceeding shall have been instituted or
threatened which questions the validity or legality of the
transactions contemplated hereby, or wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge
would (a) prevent consummation of any of the transactions
contemplated by this Agreement or(b) cause any of the
transactions contemplated by this Agreement to be rescinded
following consummation.
12. THE CLOSING
12.1 The Closing shall take place on February 3, 1999 at the offices of
Paradigm Geophysical Limited in Herzlia at 1.00 p.m. or any other
date or place agreed by the parties (the "Closing"). In the event
that the Closing shall not have occurred by February 28, 1999, for
whatever reason, then any party may notify the other parties that
this Agreement has been terminated and none of the parties will
have any claims against any of the other parties.
12.2 All Closing documents shall be in English, except for those
documents which are required to be in Russian, owing to the
requirements of The Government of the Russian Federation, and such
latter documents shall be translated into English unless agreed
otherwise by the parties.
12.3 If copies of this Contract or the Closing documents are executed
in multiple languages, the English language version shall be the
official version.
13. POST CLOSING MANAGEMENT
In order to remove doubt the parties agree that after the Closing
the management of the representative office and all matters
relating to the representative office including budgets will be
directed entirely by the Purchaser.
<PAGE> 18
18
14. MISCELLANEOUS
14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter
hereof and, subject to the effectiveness of the Closing,
supersedes all prior agreements between the parties thereto.
14.2 WAIVER. Omission or delay on the part of any party in requiring
due and punctual fulfillment of any of the obligations of the
other parties hereunder shall not be deemed a waiver of such
obligation, or any other obligations, present or future, or of any
resulting remedy for the breach thereof.
14.3 COSTS AND EXPENSES. Any tax (except income tax) or taxes payable
upon the transfer of the Shares and required by Russian law shall
be payable by the Company. Save as otherwise expressly provided
herein, all costs, taxes, levies, fees and charges of any kind
whatsoever incurred pursuant to this Agreement will be borne by
the party incurring same.
14.4 LAW AND JURISDICTION. This Agreement shall be governed by and
construed in accordance with the laws of Israel (without
consideration to conflict of laws). The parties hereto submit to
the exclusive jurisdiction of the courts of Tel Aviv Israel for
the resolution of any dispute arising in connection with this
Agreement.
The parties agree that it would be difficult, if not impossible,
to calculate damages in the event of any breach of this Agreement.
Accordingly, the parties desire to make this Agreement
specifically enforceable by equitable remedies including, but not
limited to, injunction. Such right to equitable remedies shall be
in addition to any remedy at law for damages that either party may
have.
14.5 HEADINGS. The headings of the sections of this Agreement are not a
part of and are not intended to govern, limit or aid in the
construction of any term or provision hereof.
14.6 ASSIGNMENT. No party may assign or delegate any of its rights or
obligations hereunder to a third person without the prior written
consent of the other party (which shall not be unreasonably
withheld); provided, however, that the Purchaser may assign or
delegate its rights and obligations hereunder to a subsidiary or
Affiliate of The Purchaser. An "Affiliate" of the Purchaser shall
mean an entity controlled by, controlling or under common control
with the Purchase.
14.7 AMENDMENTS AND WAIVERS. No waiver by a party or failure to enforce
any of its rights thereunder shall be construed as a waiver to
enforce other rights or the same right on future occasions. No
amendment, modification, or waiver of any of the provisions of
this Agreement shall be effective unless in writing and signed by
the party against whom such amendment, modification or waiver is
sought to be enforced.
14.8 NOTICES. Notices to be served thereunder shall be in writing as
hereinafter provided and shall be serve upon the parties at the
asset forth below. Notices served by registered airmail shall be
deemed served on the day of actual delivery by the addressee's
receipt, or at the expiration of the 7 (seven) days after the date
of mailing, whichever is earlier. Notices served by telex,
telegram, telecopier or cable shall be deemed to be in writing and
to have been served within 12 (twelve) hours (in the case of telex
or telecopier) and within 24 (twenty-four) hours (in the case of
telegrams or cables) or dispatch.
ADDRESSES OF THE PARTIES. The addresses of the parties for the purposes of this
agreement are as follows:
GEOTECH JOINT STOCK COMPANY
Pokrovra Street 22
Moscow 10100
Russia
DR. NIKOLAI L. BARANSKY DR. EVGENY A. KOZLOV
Apt. 242 Korpus 1, 7, Apt. 495, 2 Serafimovicha Street
Kashirskoe schosse Moscow
<PAGE> 19
19
Moscow
--------------------------------- -------------------------------
MR. DIMITRI V. SULITSKY MR. CHRISTOPHER D. KIM
Apt. 40, 12 7431, S. Houstoun Waring Circle
Alabyana Street Littleton, Colorado
Moscow 80120, USA
--------------------------------- -------------------------------
PARADIGM GEOPHYSICAL SERVICES LTD. PARADIGM GEOPHYSICAL LTD.
Regal Court Bet Mercazim
42-44 High Street 32 Maskit Street
Slough, Berkshire, Sl1 1El Herzlia B, Israel
United Kingdom
PARADIGM GEOPHYSICAL EUROPE LTD. PARADIGM GEOPHYSICAL (UK) LTD.
Regal Court Regal Court
42-44 High Street 42-44 High Street
Slough, Berkshire, Sl1 1El Slough, Berkshire, Sl1 1El
United Kingdom United Kingdom
14.9 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held
to be prohibited by or invalid under applicable law, such provisions
will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or
the remaining provisions of this Agreement.
14.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first written above:
PARADIGM GEOPHYSICAL (U.K.) LTD. GEOTECH JOINT STOCK COMPANY
/s/ Eldad Weiss /s/ Nikolai L. Baransky
________________________________ ____________________________
By: _________________________ By: _____________________
Title: _________________________ Title: _____________________
PARADIGM GEOPHYSICAL LTD.
/s/ Nikolai L. Baransky
________________________________
NIKOLAI L. BARANSKY /s/ Eldad Weiss
_____________________________
/s/ Evgeny A. Kozlov
________________________________
EVGENY A. KOZLOV By: ______________________
/s/ Dimitry V. Sulitsky
________________________________ Title: ______________________
DIMITRY V. SULITSKY
________________________________
<PAGE> 20
20
/s/ Christopher D. Kim
_________________________________
CHRISTOPHER D. KIM
PARADIGM GEOPHYSICAL SERVICES LTD. PARADIGM GEOPHYSICAL EUROPE LTD.
/s/ Eldad Weiss /s/ Eldad Weiss
_________________________________ _______________________________
By: __________________________ By: ________________________
Title: __________________________ Title: ________________________
<PAGE> 21
21
LIST OF APPENDICES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
APPENDIX NO. DESCRIPTION SECTION NO.
- ------------ ----------- -----------
<S> <C> <C>
1.4 List of Company's maintenance agreements 1.4
NONE
- ----------------------------------------------------------------------------------------------------------
1.11 Excluded Receivables 1.11
- ----------------------------------------------------------------------------------------------------------
1.12 Excluded Receivables Related Costs 1.12
- ----------------------------------------------------------------------------------------------------------
1.14 List of Key Employees 1.44, 4.9
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
1.18 Business Plan for Representative Offices 1.18
- ----------------------------------------------------------------------------------------------------------
1.24 Selected Receivables 1.24, 4.9
- ----------------------------------------------------------------------------------------------------------
2.1.1.1 List of contracts, agreements, commitments and arrangements 2.1.1.1
- ----------------------------------------------------------------------------------------------------------
2.1.1.2 List of equipment, office furnishings, and fixtures, vehicles, 2.1.1.2
- ----------------------------------------------------------------------------------------------------------
2.1.1.3 List of Rental Agreements 2.1.1.3
- ----------------------------------------------------------------------------------------------------------
2.1.1.5 List of Approvals, Authorisations, Consents, etc. 2.1.1.5
NONE
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
4.5 Present Members of the Board of Directors of the Company. 4.5
- ----------------------------------------------------------------------------------------------------------
4.6 Defaults of Company NONE 4.6
- ----------------------------------------------------------------------------------------------------------
4.8 Equipment owned by Company free and clear of liens 4.8
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
4.12 Schedule of all outstanding undertakings of the Company NONE 4.12
- ----------------------------------------------------------------------------------------------------------
4.13 Liabilities 4.13
- ----------------------------------------------------------------------------------------------------------
4.14 Material Adverse Changes NONE 4.14
- ----------------------------------------------------------------------------------------------------------
4.16.1 Full list of employees of Company including Salaries, benefits,etc 4.16.1
- ----------------------------------------------------------------------------------------------------------
6.6 Bank Accounts for Payment 6.6
- ----------------------------------------------------------------------------------------------------------
11.1.3 Third party consents NONE REQUIRED 11.1.3
- ----------------------------------------------------------------------------------------------------------
11.1.4 Shareholders' and officers' certificates evidencing compliance 11.1.4
- ----------------------------------------------------------------------------------------------------------
11.1.5 Opinion of Counsel to the Company 11.1.5
- ----------------------------------------------------------------------------------------------------------
11.1.6 (a) List of Key Employees who must sign agreements with the Representative Offices 11.1.6
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 10.13
MINCOM LIMITED
MINCOM INC (USA)
MINCOM INTERNATIONAL PTY LIMITED
MINCOM PTY LTD
MINCOM SERVICES PTY LTD
MINCOM INC (CANADA)
(Vendor)
and
PARADIGM GEOPHYSICAL LIMITED
(Purchaser)
BUSINESS SALE AGREEMENT
SALE OF PETROLEUM TECHNOLOGY DIVISION
(C)Allen Allen & Hemsley, 1999
Brisbane
Ref: PCJ
J:\mincom\ptpara5.doc
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<TABLE>
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MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page i
T A B L E O F C O N T E N T S
1. DEFINITIONS AND INTERPRETATION.......................................................................................1
1.1 DEFINITIONS..........................................................................................................1
1.2 INTERPRETATION.......................................................................................................4
1.3 KNOWLEDGE OF THE BOARD...............................................................................................5
2. CONDUCT BEFORE COMPLETION............................................................................................6
2.1 CONDUCT OF BUSINESS..................................................................................................6
2.2 PROFITS OF THE BUSINESS PENDING COMPLETION...........................................................................6
2.3 BUSINESS CONDUCT LIABILITIES.........................................................................................6
2.4 RECEIPTS AND OUTGOINGS PENDING COMPLETION............................................................................7
2.5 ACCESS TO SCOTT MCTAGGART PENDING COMPLETION.........................................................................7
2.6 SOURCE CODE STORAGE..................................................................................................8
3. CONDITION TO COMPLETION..............................................................................................8
4. DISTRIBUTION AGREEMENT TO MINCOM.....................................................................................8
5. SALE AND PURCHASE....................................................................................................8
5.1 SALE AND PURCHASE....................................................................................................8
5.2 EXCLUDED ASSETS......................................................................................................9
5.3 PURCHASE PRICE.......................................................................................................9
5.4 [NOT USED]...........................................................................................................9
5.5 TITLE AND RISK.......................................................................................................9
5.6 DEPOSIT AND BALANCE OF PURCHASE PRICE................................................................................9
6. ACCOUNTS PREPARATION................................................................................................10
6.1 1998 HISTORICAL ACCOUNTS............................................................................................10
6.2 31 MARCH 1999 ACCOUNTS..............................................................................................10
6.3 IMPACT OF 1998 ACCOUNTS.............................................................................................10
6.4 EMPLOYEE ENTITLEMENTS...............................................................................................10
7. COMPLETION..........................................................................................................10
7.1 PLACE FOR COMPLETION................................................................................................10
7.2 PURCHASER'S OBLIGATIONS.............................................................................................11
7.3 VENDOR'S OBLIGATIONS................................................................................................11
7.4 ADJUSTMENT OF PURCHASE PRICE FOLLOWING MARCH ACCOUNTS...............................................................12
7.5 LICENCE OF GREENSLOPES LICENSED AREA................................................................................12
7.6 STORAGE OF DATA ROOM MATERIAL.......................................................................................13
8. NOTICE TO COMPLETE..................................................................................................13
8.1 NOTICE BY THE PURCHASER.............................................................................................13
8.2 TIME OF THE ESSENCE.................................................................................................14
9. WARRANTIES - VENDOR.................................................................................................14
9.1 WARRANTIES BY THE VENDOR............................................................................................14
9.2 EFFECTIVE DATES.....................................................................................................14
9.3 DISCLOSURES.........................................................................................................14
9.4 LIMITATION ON VENDOR'S LIABILITY....................................................................................14
9.5 NO RELIANCE.........................................................................................................15
9.6 TRADE PRACTICES ACT.................................................................................................16
</TABLE>
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<TABLE>
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MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page ii
9.7 DEALING WITH WARRANTY BREACH AFTER COMPLETION.......................................................................16
9.8 PROCEEDINGS IN RESPECT OF A CLAIM...................................................................................17
9.9 REDUCTION OF PURCHASE PRICE.........................................................................................17
9.10 NOTIFICATION OF WARRANTY BREACH BEFORE COMPLETION..................................................................17
10. WARRANTIES - PURCHASER..............................................................................................18
11. EMPLOYEES...........................................................................................................18
11.1 [NOT USED]..........................................................................................................18
11.2 VENDOR'S TERMINATION OF EMPLOYMENT..................................................................................18
11.3 PURCHASER'S OFFER OF EMPLOYMENT.....................................................................................18
11.4 TRANSFERRING EMPLOYEES..............................................................................................19
11.5 PURCHASER'S OBLIGATIONS FOR ACCRUING ENTITLEMENTS...................................................................19
12. CONTRACTS...........................................................................................................19
12.1 NOVATION TO THE PURCHASER...........................................................................................19
12.2 WHERE NOVATION IMPOSSIBLE...........................................................................................20
12.3 PURCHASER'S INDEMNITY...............................................................................................21
12.4 VENDOR'S INDEMNITY..................................................................................................21
13. CREDITORS, MARCH ACCOUNT LIABILITIES AND RECEIVABLES................................................................22
13.1 PURCHASER'S OBLIGATIONS FOR POST-COMPLETION CREDITORS...............................................................22
13.2 MARCH ACCOUNT LIABILITIES...........................................................................................22
13.3 VENDOR TO REMIT RECEIVABLES.........................................................................................22
14. ADJUSTMENTS.........................................................................................................22
15. ACCESS TO RECORDS AND EMPLOYEES AFTER COMPLETION....................................................................23
15.1 RECORDS.............................................................................................................23
15.2 EMPLOYEES...........................................................................................................23
16. NOTICES.............................................................................................................23
17. NO DISCLOSURE.......................................................................................................24
17.1 CONFIDENTIALITY.....................................................................................................24
17.2 PURCHASER'S INVESTIGATION...........................................................................................24
17.3 POST COMPLETION - VENDOR............................................................................................25
17.4 EXCEPTIONS..........................................................................................................25
17.5 PUBLIC ANNOUNCEMENTS................................................................................................25
17.6 CONFIDENTIALITY AGREEMENT UNAFFECTED................................................................................25
18. FURTHER ASSURANCES..................................................................................................25
19. ENTIRE AGREEMENT....................................................................................................25
20. AMENDMENT...........................................................................................................26
21. ASSIGNMENT..........................................................................................................26
22. NO WAIVER...........................................................................................................26
23. NO MERGER...........................................................................................................26
24. STAMP DUTY AND COSTS................................................................................................26
25. GOVERNING LAW.......................................................................................................26
</TABLE>
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<TABLE>
<CAPTION>
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MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page iii
26. LIMITED RESTRAINT OF TRADE..........................................................................................27
27. LICENCE OF GDB DISPLAY MECHANISM....................................................................................27
28. ESCROW AGREEMENTS...................................................................................................29
29. TERMINATION OF HEADS OF AGREEMENT...................................................................................30
SCHEDULE 1.....................................................................................................................31
SCHEDULE 2.....................................................................................................................34
SCHEDULE 3.....................................................................................................................35
SCHEDULE 4.....................................................................................................................44
SCHEDULE 5.....................................................................................................................45
SCHEDULE 6.....................................................................................................................52
SCHEDULE 7.....................................................................................................................53
SCHEDULE 8.....................................................................................................................55
ANNEXURE "A" - Year 2000 readiness statement.................................................................................59
ANNEXURE "B" - Drill bit device..............................................................................................64
ANNEXURE "C" - [NOT USED]....................................................................................................65
ANNEXURE "D" - Sketch of Licensed Area.......................................................................................66
ANNEXURE "E" - December Accounts.............................................................................................68
ANNEXURE "F" - Letter of offer of employment.................................................................................70
ANNEXURE "G" - Employee benefit lists........................................................................................72
</TABLE>
<PAGE> 5
BUSINESS SALE AGREEMENT
AGREEMENT dated 31 March 1999 between:
1. MINCOM LIMITED (ACN 010 087 608), an Australian company; MINCOM INC, a
company incorporated in Georgia, USA; MINCOM INTERNATIONAL PTY LIMITED
(ACN 010 547 270), an Australian company; MINCOM PTY LTD (No. 2931601),
a company incorporated in England and Wales; MINCOM SERVICES PTY LTD
(No. 2931602), a company incorporated in England and Wales; and MINCOM
INC, a company incorporated in Alberta, Canada (collectively the
VENDOR); and
2. PARADIGM GEOPHYSICAL LIMITED, a company incorporated in Israel (the
PURCHASER).
RECITALS
A. The Vendor carries on the Business around the world.
B. The Vendor wishes to sell and the Purchaser wishes to buy the Business.
IT IS AGREED as follows.
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
The following definitions apply unless the context requires otherwise.
ASSETS means the assets of the Business described in clause 5.1, but
does not include the Excluded Assets.
BOARD means the board of directors of each entity comprising the
Vendor.
BUSINESS means the whole of the business (as a going concern) the
Vendor carries on through its Petroleum Technology Division of
developing, enhancing, marketing, distributing or maintaining the
Software for the geophysical and petrophysical software industries and
marketing the Third Party Software for those industries.
<PAGE> 6
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 2
CGG AGREEMENT means the agreement between Mincom Limited and
Petrosystems S.A. of France commencing 1 March 1997.
CLAIM is defined in clause 9.4(a).
COMPLETION means completion of the sale and purchase of the Assets
under this Agreement.
COMPLETION DATE means 22 April 1999 or such earlier date being the next
business day (in Brisbane) after the Purchaser has deposited the
balance of the Purchase Price in clear funds into the account described
in clause 5.6(c).
CONFIDENTIAL INFORMATION includes know-how, trade secrets, technical
processes, information relating to products, finances, contractual
arrangements with customers or suppliers and other information which by
its nature, or by the circumstances of its disclosure to the holder of
the information, is or could reasonably be expected to be regarded as
confidential.
CONTRACT means a written or unwritten contract entered into by or on
behalf of the Vendor in the course of the Business which is current at
the date of this Agreement, including each Lease and each Escrow
Agreement. It does not include the Facilitation Agreements, which the
Vendor intends to terminate.
DATA ROOM means the place made available by the Vendor for the
inspection of data by the Purchaser and its advisers.
DECEMBER ACCOUNTS means the balance sheet for the Business as at 31
December 1998 as set out in Annexure "E".
DEPOSIT means the sum of $1 million, to be paid and dealt with in
accordance with clause 5.6.
DISCLOSURE MATERIAL means the material disclosed or made available by
the Vendor to the Purchaser (including material in the Data Room), or
which would be ascertainable by the Purchaser making reasonable
searches or enquiries.
EMPLOYEE LIABILITY means a liability to be assumed by the Purchaser
under clause 11.5 in respect of a Transferring Employee.
EMPLOYEE means any employee who is:
(a) listed in the Disclosure Material; or
(b) who is employed in the Business after the date of this
Agreement in accordance with clause 2.1,
and who is still employed by the Vendor when the Purchaser's offer of
employment is required to be made under clause 11.3.
ENCUMBRANCE means an interest or power:
<PAGE> 7
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 3
(a) reserved in or over any interest in any asset including any
retention of title; or
(b) created or otherwise arising in or over any interest in any
asset under a bill of sale, mortgage, charge, lien, pledge,
trust or power, by way of security for the payment of debt or
any other monetary obligation or the performance of any other
obligation and whether existing or agreed to be granted or
created.
ESCROW AGREEMENT means an agreement described in Schedule 8.
EXCLUDED ASSET means an asset excluded from sale under in clause 5.2.
EXCLUDED RECORDS means those records of the Business located at the
Vendor's offices at Teneriffe, Queensland or in a computer system and
which are intermingled with other records of the Vendor or not easily
located and extracted and includes invoices issued by the Vendor and
accounts issued to the Vendor.
FACILITATION AGREEMENTS means (a) the agreement dated around 19 October
1996 between Mincom Limited and Abdulla Fouad Co. Ltd of Damman, Saudi
Arabia; and (b) the agreement dated 7 August 1996 between Mincom
International Pty Ltd and Pares Engineering Services Sdn. Bhd of Kuala
Lumpa, Malaysia, as extended by letters dated 28 October 1997 and 18
September 1998, and as performed by Petra Resources Sdn. Bhd of
Malaysia.
GOVERNMENTAL AGENCY means any:
(a) government or governmental, semi-governmental or judicial
entity or authority; or
(b) minister, department, office, commission, delegate,
instrumentality, agency, board, authority or organisation of
any government.
It also includes any regulatory organisation established under
legislation and any stock exchange.
GREENSLOPES LICENSED AREA means that part of the ground floor of the
premises of the Vendor at 138 Juliette Street, Greenslopes, Queensland
shaded in the sketch plan in Annexure "D".
INTELLECTUAL PROPERTY means the items specified in Schedule 2.
LEASE means a lease or sublease in respect of Leasehold Property.
LEASEHOLD PROPERTY means the leasehold properties described in Schedule
1.
MARCH ACCOUNT LIABILITIES means all current and non-current liabilities
of the Business shown in the March Accounts.
MARCH ACCOUNTS means a balance sheet for the Business as at 31 March
1999, prepared on the same basis as the December Accounts and adjusted
in accordance with clause 11.4.
<PAGE> 8
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 4
PLANT AND EQUIPMENT means the plant and equipment owned and used by the
Vendor in the Business as listed in Schedule 3.
PREPAYMENTS AND DEPOSITS means the prepayments and deposits comprised
in the current assets of the Business shown in the March Accounts.
PURCHASE PRICE means the purchase price for the Assets specified in
clause 5.3.
RECEIVABLES means the receivables of the Business shown in the March
Accounts.
SERVICED OFFICE means the Vendor's rights to use a serviced office
suite at Windsor, Berkshire, United Kingdom.
SITE means a Leasehold Property or the Serviced Office.
SOFTWARE means the computer program marketed by the Vendor known as
Geolog, as more fully described in the Disclosure Material.
SOURCE MATERIAL means the source code of software and all related
necessary and available technical documentation, maintenance tools and
system utilities owned by the Purchaser on Completion or proprietary to
the Purchaser from time to time, which are required to enable a
reasonably skilled software engineer to maintain the software without
the assistance of the Purchaser.
THIRD PARTY SOFTWARE means the software described in Schedule 7, which
is marketed by the Vendor.
TRANSFERRING EMPLOYEE means each Employee of the Vendor who accepts the
Purchaser's offer of employment made under clause 11.3.
US GAAP means that accounts are prepared in US dollars and in
accordance with generally accepted accounting practices in the United
States of America.
VENDOR LOANS means the amount of working capital contributed from time
to time by the Vendor to the bank accounts described in clause 2.4
together with interest on those amounts calculated daily from the time
of their contribution to the account until they are drawn out and paid
to the Vendor, at the rate of 6.25% per annum.
VENDOR'S FUND means the Mincom Australia Superannuation Fund and the
Mincom, Inc. 401(K) Plan described in the Disclosure Material.
WARRANTY means a warranty and representation by the Vendor in Schedule
5.
1.2 INTERPRETATION
Headings are for convenience only and do not affect interpretation. The
following rules of interpretation apply unless the context requires
otherwise.
<PAGE> 9
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 5
(a) The SINGULAR includes the plural and conversely.
(b) A GENDER includes all genders.
(c) Where a WORD or PHRASE is defined, its other grammatical forms
have a corresponding meaning.
(d) A reference to a PERSON includes a body corporate, an
unincorporated body or other entity and conversely.
(e) A reference to a CLAUSE or SCHEDULE is to a clause of or
schedule to this Agreement.
(f) A reference to any PARTY to this Agreement or any other
agreement or document includes the party's successors and
permitted assigns.
(g) A reference to any AGREEMENT or DOCUMENT is to that agreement
or document as amended, novated, supplemented, varied or
replaced from time to time, except to the extent prohibited by
this Agreement.
(h) A reference to any LEGISLATION or to any provision of any
legislation includes any modification or re-enactment of it,
any legislative provision substituted for it, and all
regulations and statutory instruments issued under it.
(i) A reference to CURRENCY is to Australian currency.
(j) A reference to CONDUCT includes any omission, representation,
statement or undertaking, whether or not in writing.
(k) TERMS defined in Part 1.2 Division 6 of the CORPORATIONS LAW
have the same meaning when used in this Agreement.
(l) A reference to INCLUDES, INCLUDING, FOR EXAMPLE, IN PARTICULAR
or SUCH AS shall be read as if followed by the words "WITHOUT
LIMITATION".
(m) A provision in this Agreement will NOT BE CONSTRUED AGAINST A
PARTY merely because that party was responsible for the
preparation of that provision or because it may have been
inserted for that party's benefit.
(n) If any term of this Agreement is legally unenforceable or made
inapplicable, it shall be severed or READ DOWN, but so as to
maintain (as far as possible) all other terms of this
Agreement (unless to do so would change the underlying
principal commercial purposes of this Agreement).
1.3 KNOWLEDGE OF THE BOARD
Any statement made by the Vendor on the basis of the knowledge, belief
or awareness of the Board is made on the basis of the actual knowledge
of the Board after confirming the
<PAGE> 10
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 6
statement with the following employees in the Business; namely, Scott
McTaggart, Harvey Ford, David Flett and Jay Gunderson.
2. CONDUCT BEFORE COMPLETION
2.1 CONDUCT OF BUSINESS
From the date of this Agreement to the Completion Date (inclusive) each
of the following applies to the Vendor unless the Purchaser consents
otherwise, such consent not to be unreasonably withheld:
(a) (CONDUCT OF BUSINESS) The Vendor shall manage and conduct the
Business in its ordinary and usual course.
(b) (OPEN BANK ACCOUNTS) The Vendor may open separate bank
accounts, in the Vendor's name, in respect of the Business.
(c) (NO MATERIAL COMMITMENTS) The Vendor shall not enter into any
commitment which will involve expenditure relating to the
Business exceeding $25,000 or any related series of
commitments which would involve expenditure relating to the
Business exceeding $100,000 in total.
(d) (NO DISPOSALS) Except for transactions in the ordinary and
usual course of the Business, the Vendor shall not dispose of,
create any Encumbrance over, or declare itself trustee of any
of the assets of the Business.
(e) (SALES DISCOUNTS) The Vendor shall not give sales discounts
other than in accordance with existing sales practices.
2.2 PROFITS OF THE BUSINESS PENDING COMPLETION
Subject to Completion occurring, during the period on and from 1 April
1999 to and including Completion the Purchaser is entitled to the
takings and profits produced by, and shall pay all costs of and meet
all accruals of the Business including all outgoings in respect of the
Business and the Sites.
2.3 BUSINESS CONDUCT LIABILITIES
Subject to Completion occurring, the Purchaser, on and from 1 April
1999:
(a) assumes from the Vendor all obligations and liabilities of the
Vendor arising out of the Vendor's conduct of the Business
under clause 2.1 and will discharge them in the ordinary
course of business; and
<PAGE> 11
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 7
(b) will keep the Vendor indemnified in respect of an obligation
or liability and the Purchaser's performance or
non-performance of clause 2.3(a).
2.4 RECEIPTS AND OUTGOINGS PENDING COMPLETION
During the period between execution of this Agreement and Completion,
the Vendor will open bank accounts and deposit into those accounts
amounts it receives by way of takings produced by the Vendor's conduct
of the Business under clause 2.1. The Purchaser acknowledges that the
Vendor may also need to deposit into those accounts Vendor Loans as
working capital for the conduct of the Business under clause 2.1. The
Vendor will keep records of any costs or expenses it incurs in the
conduct of the Business under clause 2.1 and may pay those costs and
expenses out of funds deposited into the bank account described in this
clause 2.4. On or after Completion the Vendor shall produce a record
of:
(a) amounts of the Vendor Loans;
(b) the total amount of costs and expenses incurred by the Vendor
in the conduct of the business under clause 2.1; and
(c) the total amount of receipts and takings of the Business
conducted under clause 2.1.
The Vendor shall provide the Purchaser a copy of that record and a copy
of the bank statements for the accounts under this clause 2.3.
If the total amount of receipts and takings remaining in the account is
insufficient to fully repay the Vendor all of its Vendor Loans and to
fully reimburse the Vendor for all costs and expenses incurred in the
conduct of the Business under clause 2.1 then the Vendor may keep for
its own account the balance of the accounts and the Purchaser shall pay
to the Vendor on demand the amount of the shortfall.
If, after repayment to the Vendor of all of the Vendor Loans, the
amount remaining is sufficient to reimburse the Vendor for all costs
and expenses, the Vendor may reimburse itself out of that account for
those costs and expenses and shall pay the remaining balance to the
Purchaser.
2.5 ACCESS TO SCOTT MCTAGGART PENDING COMPLETION
Without limiting clause 9.5 or clause 17, the Vendor will allow the
Purchaser, pending Completion, full access to Scott McTaggart whenever
the Purchaser requires to discuss the conduct of the Business. Except
as otherwise approved in writing by the Vendor, Paradigm will not
directly contact any Employee except Scott McTaggart nor seek to direct
any Employee (including Scott McTaggart) until after Completion. The
Purchaser acknowledges that Scott McTaggart continues to report to the
Vendor throughout the period from execution of this Agreement until
immediately after Completion.
<PAGE> 12
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 8
2.6 SOURCE CODE STORAGE
Within 3 Brisbane business days after execution of this Agreement, the
Vendor shall deliver to FR Services Ltd (care of Allen Allen & Hemsley)
for secure storage, pending Completion, the source code for release 6
of the Software.
3. CONDITION TO COMPLETION
This Agreement, other than this clause 3 and clause 5.6, is subject to
the Purchaser paying the Deposit in accordance with clause 5.6(a). If
the Purchaser does not pay the Deposit in accordance with that clause,
the Vendor may terminate this Agreement by notice to the Purchaser. If
the Purchaser has performed its obligations under clause 5.6(a) and has
not revoked the authority referred to in that clause, the sole remedy
of the Vendor in respect of such a termination shall be to recover the
Deposit and interest from the Purchaser.
4. DISTRIBUTION AGREEMENT TO MINCOM
On Completion, the Purchaser shall grant to the Vendor distribution
rights in respect of the Software on terms no less favourable to the
Vendor than the terms granted under the CGG Agreement. Prior to
Completion, the parties shall settle a form of agreement for this
purpose, but if that is not agreed before Completion, the Purchaser
agrees that, until a replacement agreement is entered into by the
parties, the Vendor may exercise the same rights as if the parties had
executed an agreement in the same form as the CGG Agreement (with all
necessary changes being made), including the term granted under the CGG
Agreement.
5. SALE AND PURCHASE
5.1 SALE AND PURCHASE
The Vendor will sell and the Purchaser will purchase the following
assets of the Business on Completion, free from all Encumbrances (other
than a right or interest of a party to a Contract as party to that
instrument):
(a) the goodwill of the Business;
(b) Receivables of the Business;
(c) the benefit of all Prepayments and Deposits made in respect of
the Business;
(d) the Plant and Equipment;
<PAGE> 13
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 9
(e) the Intellectual Property;
(f) the benefit of the Contracts; and
(g) the benefit of the Leases.
5.2 EXCLUDED ASSETS
The following assets of the Vendor are excluded from sale under this
Agreement; that is, the names "Mincom", "Petroleum Technology Mincom",
"PT Mincom" and any similar name or mark (other than "PTM", which is
not excluded).
5.3 PURCHASE PRICE
The Purchase Price is $14,120,000 (fourteen million one hundred and
twenty thousand dollars), as adjusted under clause 7.4 (refer Schedule
6).
5.4 [NOT USED]
5.5 TITLE AND RISK
Subject to Completion occurring, risk in the Assets passes to the
Purchaser on execution of this Agreement. Title to the Assets will pass
to the Purchaser on Completion.
5.6 DEPOSIT AND BALANCE OF PURCHASE PRICE
(a) The Purchaser, within 10 days after execution of this
Agreement, shall pay the Deposit to Mincom Limited's bank
account (BSB 064 000 10282366, Commonwealth Banking
Corporation, 240 Queen Street, Brisbane).
(b) On or before 5 April 1999, the Purchaser shall unconditionally
authorise its bank to immediately transmit the Deposit to
Mincom Limited's bank account in accordance with clause
5.6(a). By close of business on 6 April 1999 the Purchaser
shall provide to the Vendor a copy of the wire transfer
authority and written confirmation from its bank that the
authority was received.
(c) The Purchaser by close of business on 21 April 1999 shall pay
the balance of the Purchase Price to the trust account of the
Vendor's lawyers, Allen Allen & Hemsley (Account No. 000 296
Westpac Banking Corporation BSB 034 002, at 260 Queen Street
Brisbane).
<PAGE> 14
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 10
6. ACCOUNTS PREPARATION
6.1 1998 HISTORICAL ACCOUNTS
As soon as reasonably practicable (but no later than 60 days after
execution of this Agreement) the parties shall procure that a calendar
1998 profit and loss statement and balance sheet for the Business are
prepared by the Vendor and audited by the Vendor's auditors, Ernst &
Young. These accounts shall be prepared under US GAAP. The Vendor and
the Purchaser shall retain Ernst & Young to perform the audit and shall
instruct Ernst & Young:
(a) to discuss the scope of audit with the parties prior to
commencing the audit;
(b) before finalising the audit, to discuss the audit with the
parties; and
(c) to take account of the reasonable views of the parties in the
conduct of the audit.
6.2 31 MARCH 1999 ACCOUNTS
Immediately after execution of this Agreement, the parties shall retain
Ernst & Young to prepare the March Accounts. The costs of having those
accounts prepared shall be shared equally between the Vendor and the
Purchaser.
6.3 IMPACT OF 1998 ACCOUNTS
Nothing in clause 6.1 or the accounts prepared under that clause
affects the Purchase Price or any transaction under this Agreement.
Completion shall not be delayed if the accounts and audit under that
clause are not finalised before the Completion Date. The Vendor and the
Purchaser shall be entitled to a copy of the audited accounts. The
Purchaser shall pay the costs of having those accounts prepared and
audited.
6.4 EMPLOYEE ENTITLEMENTS
The Vendor acknowledges that all employee entitlements were treated in
the December Accounts as current liabilities.
7. COMPLETION
7.1 PLACE FOR COMPLETION
Completion will take place at the offices of Allen Allen & Hemsley (or
another place agreed in writing) in Brisbane before 3 pm on the
Completion Date.
<PAGE> 15
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 11
7.2 PURCHASER'S OBLIGATIONS
On Completion:
(a) The Purchaser shall confirm in writing to the Vendor and to
Allen Allen & Hemsley that the Vendor is unconditionally
entitled to the Purchase Price and all interest on its
investment. Any adjustment to be made between the parties
under clause 7.4 shall be ignored for the purposes of
Completion.
(b) The Purchaser shall pay to the Vendor by bank cheque interest
on the outstanding daily balance of the Purchase Price (with
the Deposit deemed paid for this purpose upon the Vendor
receiving the confirmation of the wire transfer under clause
5.6(b)) calculated daily from and including 1 April 1999 to
and including the Completion Date at the rate of 6.25% per
annum.
(c) The Purchaser shall authorise FR Services Ltd (ACN 057 490
883) (care of Allen Allen & Hemsley) in writing to deliver the
Data Room material into storage (with Brambles Australia
Limited trading as "Recall Total Information", or such other
person agreed and nominated in writing by the Vendor and the
Purchaser) under clause 7.6 on behalf of the Purchaser and to
issue instructions to the storage company in accordance with
clause 7.6; and
(d) If the terms of a distribution agreement have been agreed
under clause 4 prior to Completion, the Purchaser shall
execute and deliver to the Vendor that distribution agreement.
7.3 VENDOR'S OBLIGATIONS
On Completion, the Vendor shall confirm in writing that the Purchaser
may take possession and control of the Business and all of the Assets
and shall deliver to the Purchaser:
(a) (DELIVERY OF ASSETS) all of the Assets, title to which is
capable of passing by delivery, at the places where they are
located; and
(b) (BOOKS AND RECORDS) all books and records of the Business
(other than Excluded Records and records required by law to be
kept or maintained by the Vendor after Completion or which
relate to any business, asset or activity of the Vendor other
than the Business or Assets),
by way of allowing the Purchaser to occupy the Sites.
On Completion, the Vendor shall authorise FR Services Ltd (care of
Allen Allen & Hemsley) in writing:
(c) to deliver the Data Room material into storage (with Brambles
Australia Limited trading as "Recall Total Information", or
such other person agreed and nominated in writing by the
Vendor and the Purchaser) under clause 7.6 on behalf of the
Vendor
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and to issue instructions to the the storage company in
accordance with clause 7.6; and
(d) to deliver to the Purchaser the data medium containing the
source code delivered to FR Services Ltd under clause 2.6.
If, within 12 months after Completion, the Purchaser gives notice to
the Vendor identifying an Excluded Record and requesting its delivery,
the Vendor shall use reasonable efforts to locate the record and
provide a copy to the Purchaser.
7.4 ADJUSTMENT OF PURCHASE PRICE FOLLOWING MARCH ACCOUNTS
If the value of the net assets of the Business shown in the March
Accounts is less than the value of the net assets of the Business shown
in the December Accounts, the Vendor, within 7 days after the parties
receive the March Accounts, shall refund to the Purchaser, from the
amount received from the Purchaser at Completion, the amount of the
shortfall.
If the value of the net assets of the Business shown in the March
Accounts is greater than the value of the net assets of the Business
shown in the December Accounts, the Purchaser, within 7 days after the
parties receive the March Accounts, shall pay to the Vendor, as an
additional component of the Purchase Price, the amount of the excess.
7.5 LICENCE OF GREENSLOPES LICENSED AREA
(a) On Completion, the Vendor grants the Purchaser a licence to
occupy the Greenslopes Licensed Area and to use the fixtures
and fittings of the Vendor in the Greenslopes Licensed Area,
for a term of up to 6 months after Completion. The Purchaser
shall (and shall ensure all its employees and visitors) comply
with the Vendor's site and security rules advised to the
Purchaser from time to time in respect of the building in
which the Greenslopes Licensed Area is located. If the
Purchaser decides to cease to use the Greenslopes Licensed
Area before the end of the 6 month licence period, it shall
give notice to the Vendor. The Purchaser shall make good any
damage the Purchaser causes to the Greenslopes Licensed Area
or the building in which it is located or to fixtures and
fittings (other than the Assets) in that building. The
Purchaser shall reimburse the Vendor for the costs of all
services the Vendor provides, including electricity and
telephone charges. Where the Vendor is not able to precisely
determine those costs, the Vendor may make a reasonable
estimate of them and that estimate shall apply for the
purposes of this clause.
(b) From Completion, the Purchaser shall nominate a telephone
extension in the Greenslopes Licensed Area as its published
telephone number for general enquiries or calls to "switch",
with the intent that telephone calls to the Purchaser at
Greenslopes do not come through the Vendor's telephonists or
receptionists.
(c) Prior to Completion, the parties shall cooperate to plan the
smooth transition of the Business at the Greenslopes Licensed
Area and the use of facilities there; recognising the Vendor's
need to maintain the integrity and confidentiality of its
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business activities other than the Business. Immediately after
execution, the Vendor and the Purchaser shall each nominate
people to assist in the planning of that transition.
7.6 STORAGE OF DATA ROOM MATERIAL
After Completion, the Vendor and the Purchaser jointly shall place the
Data Room material in secure storage with a third party located in
Brisbane in the names of both the Vendor and the Purchaser. The Vendor
and the Purchaser jointly shall intruct the third party in writing:
(a) to securely store that material;
(b) except to the extent instructed to the contrary in writing by
the Vendor and the Purchaser, to allow access to that material
for review and copying (but not for removal from the storage
premises or withdrawal) by any entity comprising the Vendor,
the Purchaser and any person authorised in writing by an
entity comprising the Vendor or by the Purchaser;
(c) to maintain the material in secure storage until:
(i) the parties confirm in writing to the third party
(with a copy to each other) that the period in clause
9.4(b) has expired without reasonable particulars of
any Claim having been given to the Vendor; or
(ii) the parties confirm in writing to the third party
(with a copy to each other) that the Data Room
material may be delivered to the Purchaser.
If the Data Room materials are delivered to the Purchaser, the
Purchaser shall store them securely in Brisbane for a further 3 years
and allow the Vendor access to the records, on giving reasonable notice
to the Purchaser.The Vendor and the Purchaser shall share equally the
costs invoiced by the third party in respect of that storage. Each
party shall bear their own costs of accessing, reviewing or copying any
of the material.
8. NOTICE TO COMPLETE
8.1 NOTICE BY THE PURCHASER
If the Vendor fails to satisfy its obligations under clause 7.3 on or
before Completion, the Purchaser may give the Vendor a notice
specifying the relevant obligations and what is required to satisfy
them and requiring it to satisfy those obligations within 14 days after
the date of receipt of the notice. If the Vendor fails to satisfy those
obligations on the date specified in the Purchaser's notice, the
Purchaser, without affecting or limiting any other rights it might
have, may terminate this Agreement.
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8.2 TIME OF THE ESSENCE
Time is of the essence of the Purchaser's obligations under clause 7.2.
When a notice is given under clause 8.1, time shall be of the essence
of the Vendor's obligations under clause 8.1.
9. WARRANTIES - VENDOR
9.1 WARRANTIES BY THE VENDOR
The Vendor represents and warrants to the Purchaser in the terms set
out in Schedule 5.
9.2 EFFECTIVE DATES
The Warranties are given both as at the date of this Agreement and as
at the Completion Date, except that, where a Warranty is expressed to
be made as at another date or only one of those dates, the Warranty is
given with respect to that date only.
9.3 DISCLOSURES
Each Warranty is subject to any matter or transaction, whether
expressed or implied, that:
(a) is provided for or described in this Agreement;
(b) is disclosed in or ascertainable from the Disclosure Material;
(c) is disclosed to the Purchaser during the course of any
investigation it undertakes of the affairs of the Vendor or
the Business; or
(d) would have been disclosed to the Purchaser had the Purchaser
conducted searches prior to Completion of records open to
public inspection maintained by a Government Agency.
9.4 LIMITATION ON VENDOR'S LIABILITY
Notwithstanding any other provision of this Agreement, each of the
following applies:
(a) (MAXIMUM LIABILITY) the maximum aggregate liability of the
Vendor for any breach of this Agreement or under the
Warranties or for any other claim related directly or
indirectly to this Agreement, an Asset or the Business
(whether in contract, tort (including negligence), under
statute or otherwise) (each a CLAIM) will be limited to the
Purchase Price;
(b) (NOTICE OF CLAIMS) the Vendor will not have any liability in
respect of any Claim unless the Claim relates to facts or
circumstances arising before the end of 18 months after the
date of execution of this Agreement and reasonable particulars
of
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the Claim are given to the Vendor before the end of 2 years
after the date of execution of this Agreement;
(c) (POST COMPLETION ACTIONS) the liability of the Vendor in
respect of any Claim will be reduced or extinguished (as the
case may be) to the extent that the Claim has arisen directly
as a result of any conduct after Completion by the Purchaser;
(d) (CREDIT) if, after the Vendor has made a payment to the
Purchaser under a Claim, the Purchaser receives any benefit or
credit by reason of the matters to which the Claim relates,
then the Purchaser shall immediately repay to the Vendor a sum
corresponding to the amount of the payment or (if less) the
amount of the benefit or credit;
(e) (DISCLOSURES) the Vendor will not be liable in respect of any
matter or transaction to which a Warranty is subject under
clause 9.3;
(f) (THRESHOLDS) the Vendor will not have any liability in respect
of any Claim unless the amount of the Claim made against the
Vendor under this Agreement exceeds the sum of $100,000; and
(g) (CHANGE OF LAW OR INTERPRETATION) the Vendor will not be
liable to the Purchaser for any Claim:
(i) where the Claim is as a result of any legislation not
in force at the date of this Agreement, including
legislation which takes effect retrospectively; or
(ii) where the Claim is as a result of or in respect of a
change in the judicial interpretation of the law in
any jurisdiction after the date of this Agreement.
9.5 NO RELIANCE
The Purchaser acknowledges that:
(a) at no time has:
(i) the Vendor, or any person on the Vendor's behalf,
made or given; or
(ii) the Purchaser relied on,
any representation, warranty, promise or forecast except those
referred to in clause 9.1; and
(b) no other statements or representations:
(i) have induced or influenced the Purchaser to enter
into this Agreement or agree to any or all of its
terms;
(ii) have been relied on in any way as being accurate by
the Purchaser;
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MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 16
(iii) have been warranted to the Purchaser as being true;
or
(iv) have been taken into account by the Purchaser as
being important to the Purchaser's decision to enter
into this Agreement or agree to any or all of its
terms.
Without limiting the foregoing, the Purchaser acknowledges that neither
Scott McTaggart nor any other employee or advisor of the Vendor
(including Bankers Trust Australia Limited, BT Wolfensohn,
PricewaterhouseCoopers, Allen Allen & Hemsley and their respective
employees and agents) had authority prior to this Agreement to bind the
Vendor in relation to a transaction in this Agreement or to make any
statement, representation or promise on behalf of the Vendor. The
Purchaser acknowledges that it has not relied on statements,
representations or promises by such persons and that any such
statements, representations or promises are not represented or
warranted (except to the extent expressly set out in this Agreement)
and that the Purchaser has made and relied on its own assessment of the
Disclosure Material and other information it ascertained about the
Business.
9.6 TRADE PRACTICES ACT
To the extent permitted by law, the Purchaser agrees not to make and
waives any right it may have to make any claim against the Vendor or
any of its officers, employees, agents or advisers under Part V of the
Trade Practices Act 1974, or the corresponding provision of any State
or Territory enactment.
9.7 DEALING WITH WARRANTY BREACH AFTER COMPLETION
If the Purchaser becomes aware after Completion of any circumstances
which constitute or could (whether alone or with any other possible
circumstances) constitute a breach of any Warranty, including a claim
against the Purchaser which if satisfied would result in a Claim, the
Purchaser must do each of the following:
(a) promptly give the Vendor full details of the circumstances and
any further related circumstances of which the Purchaser
becomes aware;
(b) without limiting paragraph (c) below, take reasonable steps to
mitigate any loss which may give rise to a claim against the
Vendor for breach of any Warranty;
(c) not make any admission of liability, agreement or compromise
with any person in relation to the circumstances without first
consulting with and obtaining the written approval of the
Vendor, such approval not to be unreasonably withheld;
(d) give the Vendor and its professional advisers reasonable
access to:
(i) the personnel and premises of the Purchaser; and
(ii) relevant chattels, accounts, documents and records
within the power, possession or control of the
Purchaser,
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MINCOM AND PARADIGM
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to enable the Vendor and its professional advisers to examine
the circumstances, premises, chattels, accounts, documents and
records and to take copies or photographs of them at their own
expense; and
(e) at the Vendor's expense, take all action in good faith and
with due diligence that the Vendor directs to avoid, remedy or
mitigate the breach, including legal proceedings and
disputing, defending, appealing or compromising the claim and
any adjudication of it.
9.8 PROCEEDINGS IN RESPECT OF A CLAIM
Any Claim by the Purchaser will (if not previously satisfied, settled
or withdrawn) be taken to be waived or withdrawn and will be barred and
unenforceable on the first anniversary of the date the Claim is made
unless proceedings in respect of the Claim have been commenced against
the Vendor. Proceedings will not be taken to be commenced unless they
have been both issued and served on the Vendor.
9.9 REDUCTION OF PURCHASE PRICE
Any monetary compensation received by the Purchaser as a result of any
breach by the Vendor of any Warranty shall be in reduction and refund
of the Purchase Price.
9.10 NOTIFICATION OF WARRANTY BREACH BEFORE COMPLETION
If on or before Completion the Purchaser becomes aware of any breach or
potential breach of any Warranty, the Purchaser must:
(a) notify the Vendor of this; and
(b) allow the Vendor a reasonable opportunity to remedy the breach
or potential breach.
If the Vendor determines in its discretion that it is unable to remedy
it or if the Purchaser does not give notice to the Vendor either:
(c) accepting the result as a remedy and waiving any such breach
or potential breach; or
(d) acknowledging that the maximum potential liability of the
Vendor to the Purchaser in relation to the breach or potential
breach will not exceed $50,000 in any circumstance,
the Vendor may terminate this Agreement by giving notice to the
Purchaser. If the Vendor does not terminate this Agreement, that shall
not be taken as an admission of liability or of the matters claimed by
the Purchaser.
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10. WARRANTIES - PURCHASER
The Purchaser warrants, both at the date of this Agreement and at
Completion, that:
(a) it has the power and authority to execute this Agreement and
perform and observe all its terms without the consent of any
person; and
(b) this Agreement has been duly executed by the Purchaser and is
a legal, valid and binding agreement of the Purchaser
enforceable against it in accordance with the terms of this
Agreement.
11. EMPLOYEES
11.1 [NOT USED]
11.2 VENDOR'S TERMINATION OF EMPLOYMENT
The Vendor, on and with effect from the Completion Date in consultation
with and in a manner reasonably acceptable to the Purchaser, shall
terminate the employment of all Transferring Employees.
11.3 PURCHASER'S OFFER OF EMPLOYMENT
(a) Before close of business on Friday 9 April 1999 (or such other
date the parties agree in writing), the Purchaser, using
substantially the form of letter in Annexure "F" or such other
form as the parties agree in writing, shall offer each
Employee employment with the Purchaser, with effect from and
conditional on Completion, on terms and conditions equivalent
to their current employment (including, in relation to
entitlements on termination by the Purchaser for redundancy,
recognition of the length of time employed with an entity
comprised in the Vendor); with the intent that the total value
of the package offered is no less than the total value of the
Employee's package with the Vendor. The Purchaser shall not do
anything to discourage any Employee from accepting employment
with the Purchaser. The Purchaser acknowledges that, to the
extent a benefit described in Annexure "G" applies in respect
of an Employee in a particular country, the offer to the
Employee shall compensate for benefits to an equivalent value.
(b) The Purchaser acknowledges that a number of Employees have
Mincom share options and would be interested in finding out
about the Purchaser's employee stock option arrangements. The
Purchaser will make known to Employees, as part of the offer
process, the particulars of its employee stock option scheme,
eligibility criteria and general practices (but without any
obligation to offer stock options to the Employees in those
offers).
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(c) If the Purchaser's offer to an Employee is not in accordance
with this clause 11.3 and the Vendor terminates that person's
employment, the Purchaser shall pay to the Vendor on demand
the amount of the redundancy entitlement of that person.
(d) If the Purchaser's offer to an Employee is in accordance with
this clause 11.3, the Employee does not accept the Purchaser's
offer and the Vendor terminates that person's employment, the
Purchaser shall not have any responsibility under this
Agreement in respect of any redundancy entitlements of that
person. To the extent the March Accounts include a provision
in respect of all or part of such a redundancy entitlement (as
evidenced by the working papers for those accounts), the
Purchaser shall pay to the Vendor the amount of that provision
within 7 days after the March Accounts are received.
11.4 TRANSFERRING EMPLOYEES
The Vendor shall pay to each Transferring Employee on the Completion
Date (with any necessary adjustment being made in the March Accounts):
(a) accrued salary, wages, sales commissions and bonuses as at
that date (which includes any bonus entitlement payable on or
before 30 June 1999 under terms and conditions applying
between the Vendor and the Employee at the date of this
Agreement); and
(b) any entitlements for accrued but untaken annual leave as at
that date other than those which the Transferring Employees
agree to be transferred for their benefit under their
employment with the Purchaser.
11.5 PURCHASER'S OBLIGATIONS FOR ACCRUING ENTITLEMENTS
Except for any entitlements paid to Transferring Employees under clause
11.4(b), the Purchaser shall:
(a) with effect from Completion assume liability for the long
service leave, annual leave and sick leave entitlements of the
Transferring Employees; and
(b) indemnify the Vendor against all liability in respect of such
entitlements.
12. CONTRACTS
12.1 NOVATION TO THE PURCHASER
Each party shall use reasonable endeavours to ensure the novation of
each of the Contracts to the Purchaser no later than 6 months after the
Completion Date. Without limiting the previous sentence, immediately
after execution of this Agreement, the parties shall together do all
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MINCOM AND PARADIGM
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reasonable things to obtain the consent of Petrosystems S.A. to have
the CGG Agreement novated to the Purchaser.
The Purchaser accepts the Vendor's performance of clause 12.1 and the
agency, subcontract and delegation described in paragraphs (a) and (b)
of clause 12.2 as the entire obligation and liability of the Vendor to
the Purchaser in relation to the Contracts (other than a liability
under clause 9).
12.2 WHERE NOVATION IMPOSSIBLE
(a) This clause 12.2 applies if, on or before the Completion Date,
a request under clause 12.1 has not been made or any person
refuses or fails to give its consent to the novation of any
Contract (where the consent of that person is necessary). The
Vendor shall do the following in relation to a Contract:
(i) duly perform the Contract through the Purchaser as
the Vendor's agent or by subcontracting the work
involved to the Purchaser on the same terms as those
in the Contract ;
(ii) delegate management of performance of the Contract to
the Purchaser if it is reasonably possible to do so;
(iii) at the expense of the Purchaser, enforce the Contract
against the other party or parties to it in the
manner that the Purchaser reasonably directs from
time to time; and
(iv) not agree to any amendment of the Contract or waiver
of the Vendor's rights without first obtaining the
written approval of the Purchaser, such approval not
to be unreasonably withheld.
(b) The Purchaser shall perform the agency, delegation and
subcontract described in clause 12.2(a). If it is not legally
permissible under a Contract for the Purchaser to perform the
Contract as agent for the Vendor or for the Vendor to perform
the Contract by appointing the Purchaser as subcontractor, the
Purchaser nevertheless shall use all reasonable efforts:
(i) to perform the Contract for the Vendor;
(ii) to overcome any objection the other party to the
Contract may have to such performance; and
(iii) to obtain the other party's consent to the novation
of the Contract to the Purchaser.
(c) If, despite the Purchaser's reasonable efforts, the other
party to the Contract will not accept the Purchaser's
performance and will not consent to the novation of the
Contract to the Purchaser, the Purchaser's indemnity in
paragraphs 12.3 (b), (c) or (d) does not apply to the extent
the Purchaser is so prevented from performance.
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However, for a Contract in the nature of a distribution
agreement, if the Vendor reasonably believes this clause
12.2(c) may apply, it may give notice to the Purchaser
(TRIGGER NOTICE). If a trigger notice is given and the Vendor
has discussed the notice with the Purchaser, then the Vendor
may offer in writing to the distributor to extend the
denouement period under the Contract until the date of expiry
of the Contract (assuming for that purpose the Contract would
run its full term). The Vendor agrees not to discuss with the
distributor an extension of the denouement period in these
circumstances unless the Vendor has first discussed with the
Purchaser a trigger notice in respect of that distributor.
(d) If ACS Laboratories does not consent to the novation of the
agreement with Mincom Limited dated 22 December 1997 (in
respect of "CorEval"), the Vendor, at the Purchaser's expense,
shall exercise any rights it has under that Contract in
respect of granting licences of CorEval as reasonably directed
by the Purchaser.
12.3 PURCHASER'S INDEMNITY
The Purchaser shall indemnify the Vendor against all claims and
liabilities of any nature (including costs on a full indemnity basis,
whether or not the subject of a court order) brought against or
suffered by the Vendor in connection with or incidental to:
(a) any breach or non performance by the Purchaser after
Completion of any Contract novated to the Purchaser under
clause 12.1;
(b) any breach or non performance by the Vendor after Completion
of any Contract to which clause 12.2 applies occurring due to
conduct by the Purchaser;
(c) any breach or non performance by the Purchaser of any
sub-contract referred to in clause 12.2;
(d) any act or omission of the Purchaser as agent of the Vendor in
relation to a software maintenance agreement or any other
Contract which the Purchaser is required to perform as agent
of the Vendor; or
(e) an undertaking given under clause 28.1.
12.4 VENDOR'S INDEMNITY
The Vendor shall indemnify the Purchaser against all claims and
liabilities of any nature (including costs, whether or not the subject
of a court order) brought against or suffered by the Purchaser at any
time in connection with or incidental to any breach or non performance
by the Vendor of any Contract occurring on or before Completion.
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13. CREDITORS, MARCH ACCOUNT LIABILITIES AND RECEIVABLES
13.1 PURCHASER'S OBLIGATIONS FOR POST-COMPLETION CREDITORS
The Purchaser will be responsible for debts incurred by it in the
course of the Business after Completion.
13.2 MARCH ACCOUNT LIABILITIES
Subject to Completion occurring, the Purchaser, on and from 1 April
1999:
(a) assumes from the Vendor all March Account Liabilities and will
discharge them in the ordinary course of business; and
(b) will keep the Vendor indemnified in respect of a March Account
Liability and the Purchaser's performance or non-performance
of clause 13.2(a).
If the Vendor prior to Completion discharges a March Account Liability,
it will give notice of that to the Purchaser and the Purchaser will
reimburse the Vendor within 7 days after Completion.
13.3 VENDOR TO REMIT RECEIVABLES
As soon as reasonably practicable after Completion, the Vendor shall
give notice to debtors to whom the Receivables relate that the debt
owed to the Vendor has been assigned to the Purchaser and that the
debtor should now account to the Purchaser in relation to the relevant
Receivable. If the Vendor, after Completion, receives money on account
of a Receivable the Vendor shall remit that amount to the Purchaser (in
the same country in which the Vendor received the amount) during the
month following the month of its receipt. If an amount received, after
checking with the debtor, cannot be identified as relating to a debt
included in the Receivables or an amount owing to the Vendor (in this
clause called the OTHER DEBT), that amount shall be taken to relate to
the other debt and any amount remaining after payment of the other debt
will be taken to relate to the Receivable. This clause 3.3 and clause
5.1(b)sets out the entire obligation and liability of the Vendor in
relation to the Receivables.
14. ADJUSTMENTS
On Completion the Purchaser shall pay to the Vendor an amount equal to
the prepayments made by the Vendor before Completion on goods, services
or other benefits in respect of the Business which will be received by
the Purchaser in respect of the Business after the Completion Date
which, are not recognised as prepayments in the March Accounts. These
include prepayments of the following:
(a) deposits, rent and outgoings on the Leasehold Property;
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MINCOM AND PARADIGM
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(b) gas, electricity, water and telephone charges relating to the
Business; and
(c) any similar charges to the Business agreed in writing between
the Vendor and the Purchaser.
15. ACCESS TO RECORDS AND EMPLOYEES AFTER COMPLETION
15.1 RECORDS
After the Completion Date:
(a) the Purchaser shall keep the books, records and other
documents relating to the Business delivered to the Purchaser
on Completion; and
(b) the Vendor shall keep the Excluded Records and the books,
records and other documents relating to the Business required
to be kept or maintained by the Vendor,
for seven years from the date of the creation of the relevant document.
Each party shall permit the other party to have access to those books,
records and documents during business hours as the other party
reasonably requires.
15.2 EMPLOYEES
After the Completion Date, the Purchaser shall allow the Vendor and its
representatives reasonable access, (for a period of one year from
Completion on reasonable notice to the Purchaser and for the purposes
described in this clause 15.2), to employees of the Vendor who become
and continue to be employees of the Purchaser to enable the Vendor and
its representatives to obtain details on any matters within the
knowledge of those employees which may be relevant to any claim made
under clause 9 or 12.4.
16. NOTICES
Any notice given under this Agreement:
(a) must be in writing addressed to the intended recipient at the
address shown below or the address last notified by the
intended recipient to the sender:
THE VENDOR:
Mincom Limited
61 Wyandra Street
TENERIFFE QLD 4005
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MINCOM AND PARADIGM
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GPO Box 1397 BRISBANE QLD 4001
Attention: Chief Financial Officer
Fax: (617) 3303 3047
THE PURCHASER:
Paradigm Geophysical Limited
Merkazim House
32 Maskit Street
P.O.B 206
Herzlia B, ISRAEL
Attention: Chief Executive Officer
Fax: 0019-972-9-955 3016
(b) must be signed by a person duly authorised by the sender
(which in the case of the Vendor, may be someone authorised by
Mincom Limited); and
(c) will be taken to have been given when delivered, received or
left at the above address. If delivery or receipt occurs on a
day when business is not generally carried on in the place to
which the communication is sent or is later than 4 pm (local
time) it will be taken to have been duly given at the
commencement of business on the next day when business is
generally carried on in that place.
17. NO DISCLOSURE
17.1 CONFIDENTIALITY
Subject to clause 17.4, each party shall keep the terms of this
Agreement confidential.
17.2 PURCHASER'S INVESTIGATION
Subject to clause 17.4, the Purchaser must keep any Confidential
Information in the Disclosure Material confidential:
(a) until Completion; and
(b) on and after Completion Date, if Completion does not occur.
<PAGE> 29
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 25
17.3 POST COMPLETION - VENDOR
From Completion, the Vendor shall keep confidential all Confidential
Information (whether in writing or otherwise) of the Business remaining
in its possession or control (if any).
17.4 EXCEPTIONS
A party may make any disclosures in relation to this Agreement as it
thinks necessary to:
(a) its professional advisers, bankers, financial advisers and
financiers, if those persons undertake to keep information
disclosed confidential;
(b) comply with any applicable law or such order of a court of
competent jurisdiction; or
(c) any of its employees to whom it is necessary to disclose the
information if that employee undertakes to keep the
information confidential.
17.5 PUBLIC ANNOUNCEMENTS
Except as required by applicable law or order of a court of competent
jurisdiction, all press releases and other public announcements
relating to the transactions dealt with by this Agreement must be in
terms agreed by the parties.
17.6 CONFIDENTIALITY AGREEMENT UNAFFECTED
If the Purchaser has entered into any separate agreement to keep
confidential the Confidential Information of the Vendor or the
Business, nothing in this clause shall limit or otherwise affect the
terms of that agreement.
18. FURTHER ASSURANCES
Each party shall take all steps, execute all documents and do
everything reasonably required by the other party to give effect to any
of the transactions contemplated by this Agreement.
19. ENTIRE AGREEMENT
This Agreement contains the entire agreement of the parties with
respect to its subject matter. It constitutes the only conduct relied
on by the parties (and supersedes all earlier conduct by the parties)
with respect to its subject matter. Except as set out in this
Agreement, there are no representations or warranties that have been
relied on by the Purchaser in entering into this Agreement.
<PAGE> 30
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 26
20. AMENDMENT
This Agreement may be amended only by another agreement executed by all
parties who may be affected by the amendment.
21. ASSIGNMENT
The rights and obligations of each party under this Agreement are
personal. They cannot be assigned, charged or otherwise dealt with, and
no party shall attempt or purport to do so, without the prior written
consent of all parties.
22. NO WAIVER
No failure to exercise and no delay in exercising any right, power or
remedy under this Agreement will operate as a waiver. Nor will any
single or partial exercise of any right, power or remedy preclude any
other or further exercise of that or any other right, power or remedy.
23. NO MERGER
The rights and obligations of the parties will not merge on Completion.
They will survive the execution and delivery of any assignment or other
document entered into for the purpose of implementing any transaction
under this Agreement.
24. STAMP DUTY AND COSTS
Each party shall bear its own costs arising out of the preparation of
this Agreement but the Purchaser shall bear any stamp duty (including
fines and penalties) chargeable on this Agreement, on any instruments
entered into under this Agreement, and in respect of a transaction
evidenced by this Agreement. The Purchaser shall indemnify the Vendor
on demand against any liability for that stamp duty (including fines
and penalties).
25. GOVERNING LAW
This Agreement is governed by the laws applying in Queensland. The
parties submit to the non-exclusive jurisdiction of the courts
exercising jurisdiction there.
<PAGE> 31
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 27
26. LIMITED RESTRAINT OF TRADE
26.1 The Vendor agrees that it will not:
(a) carry on a business or activity of a type the same or
substantially the same as the Business; or
(b) carry on a business or activity of a type which is competitive
with (or potentially competitive with) the Business;
for a period of five years from the date of Completion.
26.2 Nothing in clause 26.1 shall affect a right of the Vendor under another
agreement with the Purchaser (including the distribution agreement
entered into under clause 4) or under clause 17 or the Vendor's ability
to sell, market, use, distribute, supply, maintain, enhance or develop
software products other than the Software or otherwise conduct its
other business operations, including in relation to the following
software as it is developed from time to time (by whatever name it is
called from time to time):
(a) Minescape;
(b) Link One;
(c) MIMS Open Enterprise;
(d) MIMS Open Extender;
(e) MIMS Vu; and
(f) MineWorks.
26.3 The parties agree that any activity outside the geophysical and
petrophysical industries is not competitive with the Business for the
purposes of clause 26.1.
27. LICENCE OF GDB DISPLAY MECHANISM
27.1 The Intellectual Property referred to under clause 5.1(e) includes
intellectual property rights in a GDB display mechanism. The GDB
display mechanism forms part of the Software.
27.2 The Purchaser agrees and acknowledges that the GDB display mechanism
also forms part of certain software owned by the Vendor that is not the
subject of this Agreement.
<PAGE> 32
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 28
27.3 Despite clause 27.1, the Purchaser grants to the Vendor a non
exclusive, perpetual, royalty free licence to use, modify, enhance and
reproduce:-
(a) the GDB display mechanism and all related technical and user
documentation; and
(b) any and all modifications, additions and enhancements made to
the GDB display mechanism or to any related technical and user
documentation, by or on behalf of the Purchaser,
in relation to the Vendors' "Minescape" product (by whatever name it is
called from time to time) and agrees and acknowledges that any actions
of the Vendor under this clause will not amount to a breach of clause
26.1.
27.4 The rights granted in the previous clause include a right to sublicense
or authorise others to do anything the Vendor may do.
27.5 The benefit of the escrow arrangement described in item 3 of Schedule 8
and assumed by the Purchaser under clause 28.1 shall extend to the
Vendor in respect of the Source Material for the GDB display mechanism.
In addition, the Vendor shall be entitled to possession of the Source
Material for the GDB display mechanism if the Purchaser gives notice of
intention to cease (or does cease, with or without notice) to provide
support services under clause 27.6.
27.6 After Completion the parties shall seek to agree an arrangement under
which the Purchaser shall provide software support services to the
Vendor and its delegates and licensees in respect of the GDB display
mechanism for a reasonable annual maintenance fee (but no more than the
Purchaser generally charges other customers in relation to such
services).
27.7 If the parties do not execute such an agreement within 1 month after
Completion, or, at the Purchaser's election, at any time thereafter on
6 months notice to the Vendor, the Purchaser shall provide to the
Vendor the source code for the GDB display module and offer to make
Transferring Employees available to the Vendor to train employees of
the Vendor to enable the Vendor to maintain and support the GDB display
module. If the Purchaser performs this clause 27.7, it shall have no
further obligation under clauses 27.6 or 27.8 or an agreement entered
into under clause 27.6 (subject to the terms of such an agreement).
27.8 Negotiations for the agreement described in clause shall seek to
include the spirit of the following elements of software support:
(a) Correction of any faults or defects in the software, in as
short a time as is reasonably possible, to maintain the
software in good working order;
(b) Advice on request about the anticipated time required to
resolve a fault or defect reported to the Purchaser;
(c) Provision of fixes and corrected object code related to all
errors in the software;
<PAGE> 33
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 29
(d) Information and user and technical documentation in electronic
form in relation to such fixes and corrections;
(e) Provision of workarounds to enable continued use of the
software until a permanent fix is provided;
(f) Supply of all updates and general new releases of the software
and generally releases upgrades to existing functionality from
time to time and reasonable training in relation to these,
their use and installation;
(g) On request, the provision of answers to queries about fixes,
corrections, updates, new releases, workarounds, enhancements
and upgrades ;
(h) Telephone support hotline and facsimile and email support for
the services described in this clause 27.6, on a 24 hours, 365
day basis;
(i) Registration of software maintenance requests and maintenance
of records about each request and the actions taken to resolve
the request;
(j) The provision of monthly reports on the status of each request
for the correction of faults and defects, including details of
any faults or defects resolved during the month and the work
and time required to resolve any remaining requests; and
(k) The provision of a reasonable opportunity to review any user
requirements statement or specification for an amendment or
upgrade to the software which is intended to be made generally
available to licensees.
28. ESCROW AGREEMENTS
28.1 Immediately after execution of this Agreement (and before Completion)
the Purchaser shall give notice (in terms agreed in writing by the
Vendor):
(a) to each person the Vendor has licensed to use the Software or
Third Party Software covenanting (subject to Completion
occurring) to assume and perform all obligations of the Vendor
under an Escrow Agreement relevant to that licensee and
offering to be substituted for the Vendor under those
agreements; and
(b) to each escrow agent under an Escrow Agreement covenanting
(subject to Completion occurring) to perform the Vendor's
obligations under the agreement as if named in the agreement
in the place of the relevant Vendor entity.
28.2 The Purchaser shall provide to the Vendor a copy of each notice under
clause 28.1 and a copy of any replies received.
28.3 Nothing in clause 28.1 limits clause 12.
<PAGE> 34
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 30
29. TERMINATION OF HEADS OF AGREEMENT
The Heads of Agreement between Mincom Limited and the Purchaser
executed on 28 March 1999 is hereby terminated.
EXECUTED as an Agreement
<PAGE> 35
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 31
SCHEDULE 1
LEASEHOLD PROPERTIES
CANADA
Premises: Suite 1280, Aquitaine Tower, 540 Fifth Avenue, SW, Calgary,
Alberta, Canada (914 square feet)
Lessor: First Real Properties Limited
Lessee: Mincom Inc, incorporated in Alberta, Canada
Date: 2 October 1998, amended by agreement dated 27 October 1998
Term: 3 years 11 months commencing 1 November 1998 and ending 30
September 2002
Rental: Base rental of C$13,125 per annum
Deposit: C$3,576.48
UNITED KINGDOM
Winchester: Lease
Premises: Unit 3, Dolphin House, St Peter Street, Winchester
Lessor: Sun Alliance & London Assurance Company Limited
Lessee: Mincom Services Pty Limited (ACN 080 047 945)
Date: Undated (but authorised by the Winchester County Court 13 May
1998)
Term: 1 April 1998 to 31 March 1999, but terminable on 2 months
notice by either party
Rental: pound sterling 650 per month (plus VAT) in advance
Deposit: pound sterling 300
<PAGE> 36
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 32
Aberdeen: Sublease
Premises: Floor 2, office suite, 13 Bon Accord Square, Aberdeen
(79.05m2) plus 2 car parks
Sublessor: Cornhill Insurance Limited
Sublessee: Mincom Services Pty Limited (ACN 080 047 945)
Date: Registered 6 April 1998
Term: Until 30 October 2006 and from month to month thereafter until
terminated by 1 months notice by either party, but terminable
by Mincom from 9 March 2003 on 6 month written notice.
Rental: pound sterling 10,565 per annum (plus VAT), reviewable on each
date specified in the Head Lease for review of the rent
payable by the Principal Tenants under the Head Lease, and in
any event reviewable on 1 November 2001. Initial 3 months rent
free. In the event that the sublease is not terminated by
Mincom on 9 March 2003, a further rent free period of 2 months
(from 9 March 2003) will apply.
UNITED STATES OF AMERICA
Premises: First floor, 14811 St Mary's Lane, Houston, Texas (5654 square
feet), plus 22 car parks
Lessor: Ashford/In Site, L.P., a Texas limited partnership (purchased
from original landlord, CB Institutional Funds V1, a
Californian limited partnership).
Lessee: Mincom Inc (USA)
Date: August 14, 1991 (amended by First Addendum dated 14 August
1991, Second Addendum dated 18 August 1992, Third Addendum
dated 11 December 1996 and a Commencement Date Agreement dated
21 May 1997).
Term: Ending April, 14 2002 (Commencement Date Agreement). Tenancy
month to month if hold over after expiry with consent of
landlord.
<PAGE> 37
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 33
Rental: US $5,418.42 per month
Deposit: US $4,924.41
<PAGE> 38
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 34
SCHEDULE 2
INTELLECTUAL PROPERTY
1. Copyright, and all other intellectual property rights of the Vendor, in
the original form of the Software and all modifications, additions and
enhancements made by the Vendor and other works comprised in or
marketed with the Software (other than the Third Party Software) - in
both source and object code forms.
2. The following unregistered trade marks in relation to the Software and
the Third Party Software:
2.1 Geolog;
2.2 Drill bit device shown in Annexure "B" (but without the
letters "PTM");
2.3 GeologWorks;
2.4 GeologFrame; and
2.5 PTM.
3. Copyright in the Vendor's user documentation concerning the Software.
<PAGE> 39
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 35
SCHEDULE 3
PLANT AND EQUIPMENT
PART A: AUSTRALIAN FIXED ASSETS
MACHINE
NEC Monitor WX 02 9751100
SGI Indigo SGI GDM 20D11
SGI Indy
Sun Ultra Sparc 1
SGI Indy
SGI Octane
SGI Octane
SGI Indy
SGI Indigo
Sun Ultra Sparc 1
SGI Indy
Digital
Sun Sparc station
SGI Indy
SGI Indy
SGI Indy
SUN Ultra HPC 450 Server
PCS
MACHINE
Dell Poweredge 2300
Acer
Acer
Gateway 2000
Toshiba Laptop
Western Computer
Toshiba Laptop
Dell Laptitude Laptop
Dell Laptitude Laptop
Dell Laptitude Laptop
Dell Laptitude Laptop
Dell Workstation 400
Dell Laptitude Laptop
Dell Laptitude Laptop
Dell Laptitude Laptop
<PAGE> 40
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 36
PRINTERS
MACHINE DESCRIPTION
Ps (Phaser 560) Printer Tektronics Phaser 560 extended
Mx Printer HP 4SI - Model No C2000A
HP Laserjet Printer HP 5N Model No C3952A
HP755CM Printer HP 755cm
OTHER MACHINES
MACHINE DESCRIPTION
Zip Device Iomega
CDE100 Yamaha
Sun CD Rom Sun
SGI CD Rom SGI
Exa Byte Tape Device Third Party
Dat Tape HP
Dat autoloader HP Autoloader
External Disc Third Party
External Disc Third Party
External Disc Third Party
External Disc Third Party
Disc
External Third Party
Scanner Epson GT -8000
Switch 3300 3Com
MACHINE DESCRIPTION
HP Scan Jet 5s HP 5s
CD Duplicator Media Form
Model: VPL-X600M Sony LCD Projector
Model: Smart UPS400 APC Smart UPS
Model: Smart UPS420 APC Smart UPS
Model: Smart UPS 620 APC Smart UPS
Model: Smart UPS2200 NET APC Smart UPS
Fax Machine Xerox
Photocopier - Xerox Vivace
Sony Digital Mavrica Camera Sony MVC-FD7
MOBILE PHONE
Machine
Nokia 8110I
<PAGE> 41
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 37
Xterm Acer Monitor NCD Xterm
Xterm
<PAGE> 42
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 38
PART B: US FIXED ASSETS
COMPUTERS
Tape Drive Interface
Sun Sparc 10 Mod
Nutcracker X/DKV.1
4/8 GB 4MM Data Tape
Internet Devices #3973
EQUIPMENT
Adtran Cisco Serv16 (Hubs)
Category 5 Cables/Vo
Dataequp Circuit Bd
AFS2000 1/Telecom M
OFFICE FURNITURE
Laminating Doors,Conf Tabl&Storage
Conf Room TV & VCR
FURNITURE
Desk
Credenza
Bookcase
Lateral File Cabinet
Highback Chair
2 Side Chairs
CRT w/Casters
4 Shelf Bookcase
Side Chair
72x36 Executive Desk
72x22 Credenza
High Back Chair
Trade Show Booth
Office Furniture
Office Furniture
Desk/Credenza/Chairs
Furniture
Bookshelves
Booth Improvement
Doerner Off Furn
Infocus LP730 V/Z
IMPROVEMENTS
Electrical Work Houston
OFFICE EQUIPMENT
<PAGE> 43
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 39
Phone Sys AT&T
Comm Equip AT&T
3 Open Bookcases
TERMINALS AND PC'S
Compaq Computer
SCSI Subsystem
Toshiba Tecra 700
Toshiba Tecra CDRom
Mega 28.8 Eth + Mode
Projector/Litepro
Intel Pent 200MMX/MS
TechMedia 1280X1024
Intel Pent 200MMX/SDCD
Software Licenses
Inv/Timesheet Software
Gateway Computer
Gateway Computer
SUN Ultra 10
<PAGE> 44
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 40
PART C: CANADIAN FIXED ASSETS
DESCRIPTION
Iris Indigo 35016198
SGI O2 0800690C2356
Exabyte Tape Drive
Epson stylus 3KDX011326
COMPUTER HARDWARE
Lucent Phones 98SP53122326
Fax Maching Brother C81961664
COMMUNICATION EQUIPMENT
Terminals & PCs (HUB)
32KB RAM T400 Series
Toshiba Computer 12514129
Compac Computer
HP Laserjet Printer USBB046812
Terminals & PCs (17' monitor)
Dell Laptop Z369M
Sage US Software (Timesheets)
Ascot Computer 980362
<PAGE> 45
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 41
PART D: UK FIXED ASSETS
- ---------------------------
DESCRIPTION
COMPUTER EQUIPMENT - 013200
- ---------------------------
4.8GB DAT Tape
D Flett exp - CDROM
Hard Disk for SGI
Dell PC
Additional 32Mb RAM
8mm Exabyte Tape Drive
Floptical Drive
Toshiba P13 161.4 440CDX + RAM Upgrade
SGI 02 Workstation
External Disk Drive for SGI
New Docking Bay for Laptop
ZIP Drive 100Mb
PICO Mobile Ambassador
External 5/7 Gb 8mm Tape Drive
HPC450C A1 Plotter, 16Mb Memory
Latitude CP MT Workstation
C6069A Legs - HP450C
02 Workstation 200MHz R5000
02 Workstation 200MHz R5000
02 Workstation 200MHz R5000
02 Workstation 200MHz R5000
02 Workstation 195MHz R10000
SG-MEM-64-02 128 Memory
SGI Part No HU-M64A 64Mb Kit
ONC3FNFSfor IRIX 6x
Dell Latitude CP233XT 64Mb
Dell Latitude CP233XT 64Mb
D-Link DE1824 2port
MIPSpro F90 Compiler
ONC3/NFS 5 r-t-u
Internal 9 Gb SCSI Option Disk
Internal 9 Gb SCSI Option Disk
Dell XPS R350 440BX PII PC
R350 Pentium II computer
Carrera Computer System
C Port Replicator + AC
Dual Channel Display Board
<PAGE> 46
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 42
OFFICE EQUIPMENT - 013500
- -------------------------
Filing Cabinet * 2 + 4 chairs
Fax Machine Fax/Printer/Copier
NOBO 499 O/head Projector
Sasco Wall Screen 70*70 43022
Refrigerator
Company Signage
Plain paper fax machine
Krome PABX Mastering Unit
OFFICE FURNITURE - 013600
- -------------------------
Furniture Advances
TV/Microwave
Furniture Advances
C O'Connor elect appl.
Ostaline 4Dwr Filing Cabinet
Ostaline 4Dwr Filing Cabinet
Astral 1600 R/H Crescent Desk
Astral 1600 R/H Crescent Desk
Astral 1600 R/H Crescent Desk
Astral 1600 R/H Crescent Desk
Astral 1600 R/H Crescent Desk
Astral 800 Crescent Return Unit
Astral 800 Crescent Return Unit
Astral 800 Crescent Return Unit
Astral 800 Crescent Return Unit
Astral 800 Crescent Return Unit
Astral Mobile Desk 3D High Ped
Astral Mobile Desk 3D High Ped
Astral Mobile Desk 3D High Ped
Astral Mobile Desk 3D High Ped
Ostaline 2Dwr Filing Cabinet
Ostaline 2Dwr Filing Cabinet
Ostaline 2Dwr Filing Cabinet
Ostaline 2Dwr Filing Cabinet
<PAGE> 47
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 43
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Trump PT Tlt High Back Chair
Table 48"x24"x28" Oak Galaxy
Bookcase Galaxy Open Front
Bookcase Galaxy Open Front
Bookcase Galaxy Open Front
Dahle Anti-Static Mat 48"x53"
City Desk 1750mmx1000mm
City Desk 1750mmx1000mm
Senator CA2418 Boardroom Table
Vertical Blinds to Windows
<PAGE> 48
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 44
SCHEDULE 4
[NOT USED]
<PAGE> 49
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 45
SCHEDULE 5
WARRANTIES
(refer to clause *9.1)
1. ACCURACY OF INFORMATION
With respect to the Disclosure Material:
(a) copies of documents provided are true copies; and
(b) the Disclosure Material is not intentionally misleading in any
material respect (whether by the inclusion of misleading
information or the omission of material information or both).
2. POWER
The Vendor has the power and authority to execute this Agreement and
perform and observe all its terms without the consent of any person
except as indicated in this Agreement or the Disclosure Material. This
Agreement has been duly executed by the Vendor and is a legal, valid
and binding agreement of the Vendor enforceable against it in
accordance with the terms of this Agreement. The Vendor has all
consents and approvals of relevant Governmental Agencies to conduct the
Business.
3. SOLVENCY
3.1 (ADMINISTRATION, WINDING UP, ARRANGEMENTS, INSOLVENCY ETC.) None of the
following has occurred and is subsisting, or so far as the Board is
aware, is threatened in relation to the Vendor:
(a) the appointment of an administrator;
(b) any step taken (including an application or order made,
proceedings commenced, a resolution passed or proposed in a
notice of meeting) for:
(i) the winding up, dissolution, or administration of the
Vendor, or
(ii) the Vendor entering into an arrangement, compromise
or composition with or assignment for the benefit of
its creditors or a class of them;
(c) the Vendor:
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MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 46
(i) being (or taken to be under applicable legislation)
unable to pay its debts, other than as the result of
a failure to pay a debt or claim the subject of a
good faith dispute; or
(ii) stopping or suspending, or threatening to stop or
suspend, payment of all or a class of its debts; or
(d) the appointment of a receiver, receiver and manager,
administrative receiver or similar officer to any of the
Assets and undertakings of the Vendor.
3.2 (CLAIM AGAINST ASSET) No Asset is, or may in the future be, liable to a
claim by a trustee in bankruptcy or liquidator by virtue of any act or
omission of the Vendor.
4. TITLE
4.1 (TITLE) Except for the interests of each lessor or sublessor under the
Leases:
(a) the Vendor is the legal and beneficial owner of the Assets;
and
(b) at Completion the Assets are not subject to any Encumbrance.
4.2 (COMPLETION) At Completion, the Assets and all documents which are
necessary to establish the title of the Purchaser to them will be in
the possession or under the control of the Vendor. On Completion, the
Purchaser will acquire the full beneficial ownership of the Assets free
and clear of any Encumbrance or claim of any person (other than the
interests of each lessor or sublessor under the Leases or any
Encumbrances which the Purchaser may create on Completion).
5. POST 1998 EVENTS
The Business has been conducted since 31 December 1998 in the following
manner:
(a) (ORDINARY COURSE) the Business has been conducted in the
ordinary and usual course and not otherwise; and
(b) (NO DISPOSALS) except for disposals in the ordinary and usual
course of business and at not less than market value, the
Assets have been and remain in the possession or under the
control of the Vendor.
6. ASSETS
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MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 47
6.1 (LOCATION) Each item of Plant and Equipment and all books and records
of the Business (except Excluded Records) are located at one of the
Sites.
6.2 (NO IMPAIRMENT) As far as the Board is aware, as at the date of this
Agreement, no notice has been served on the Vendor in respect of any of
the Assets which might materially impair, prevent or otherwise
interfere with the use of or proprietary rights in the Asset or give
rise to any right to terminate any Contract.
7. PLANT AND EQUIPMENT
The plant register in respect of the Business included in the
Disclosure Material is complete and accurate in all material respects.
8. CONTRACTS
8.1 (CONTRACTS) There is nothing (whether actual or, so far as the Board is
aware, threatened) which is likely to materially adversely affect the
Purchaser's ability to enforce the rights and entitlements of the
Vendor under the Contracts upon assignment or novation to the
Purchaser.
8.2 (BINDING CONTRACTS) No Contract:
(a) is outside the ordinary and usual course of business;
(b) imposes or is likely to impose an obligation on the Vendor to
make payments in excess of $100,000 after the date of this
Agreement;
(c) has more than 12 months to run from the date of this Agreement
until its expiration or termination;
(d) is not on arm's length terms.
8.3 (CHANGE OF CONTROL) As far as the Board is aware, no party to any
Contract is entitled:
(a) to terminate the Contract; or
(b) to require the adoption of terms less favourable to the
Vendor,
by reason of any change in the legal or beneficial ownership of the
Assets or any of them, or the performance of this Agreement.
8.4 (NO DEFAULT) The Vendor, as a party to any Contract or Lease, is not:
(a) in material default; or
<PAGE> 52
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 48
(b) but for the requirements of notice or lapse of time or both,
would be in material default.
8.5 (NO CLAIMS) As far as the Board is aware there are no set offs, counter
claims or other claims or rights of third parties in respect of any
Contract or Lease which could materially diminish or impair the
benefits of them on their being assigned to the Purchaser.
9. INTELLECTUAL PROPERTY
9.1 (DISCLOSURE) As far as the Board is aware, the Vendor does not own, use
or require in the Business the use of any copyright, patent, trade
mark, service mark, design, business name, trade secret, confidential
information or other intellectual or industrial property rights, except
for the Intellectual Property, the Excluded Assets and use of the Third
Party Software under Contracts.
9.2 (QUIET ENJOYMENT) As far as the Board is aware as at the date of this
Agreement, there is no event, circumstance or dispute (whether actual,
or as far as the Board is aware, threatened) which could affect the
full and quiet enjoyment by the Purchaser of the Intellectual Property
on its assignment to the Purchaser.
9.3 (NO INFRINGEMENTS) As far as the Board is aware no right, title or
interest in the Intellectual Property is, as at the date of this
Agreement, being infringed or under threat of infringement.
9.4 (OWNERSHIP) All of the Intellectual Property is the legal and
beneficial property of the Vendor.
9.5 (LICENCES) The Vendor uses all Third Party Software under Contracts
under which the Vendor is entitled to use the Third Party Software in
connection with the Business.
The Purchaser acknowledges the trade marks included in the Intellectual
Property have not been registered and that no representation or
warranty is made about the registerability of the marks anywhere in the
world.
10. SITES
10.1 (SITES) In respect of the Business, the Vendor does not have any
freehold or leasehold interest in land except for the Sites.
10.2 (QUIET ENJOYMENT) There is no event, circumstance or dispute (whether
actual, or so far as the Board is aware, threatened) which could
materially adversely affect:
(a) the occupation and quiet enjoyment of any of the Sites by the
Purchaser; or
<PAGE> 53
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 49
(b) the enforcement by the Purchaser of any rights and
entitlements as lessee of any of the Leasehold Property,
(except for the need to obtain the consent of the lessor or sublessor,
mortgagee or other interested person to the assignment or novation of
each Lease).
10.3 (LEASES) The Disclosure Material contains accurate copies of each
Lease.
10.4 (NO BREACH) The Vendor is not in material default under or in breach of
any material term of any Lease.
10.5 (PAYMENTS) The Vendor has paid all rent and other outgoings which have
become due in respect of the Sites.
10.6 (NO OTHER USE OF SITES) The Vendor does not use any Site for any
material purpose other than the conduct of the Business.
11. EMPLOYEES
11.1 (DISCLOSURE) The Disclosure Material contains accurate particulars of:
(a) each employee of the Vendor engaged in the Business;
(b) each consultant of the Vendor engaged in the Business;
(c) all remuneration and other benefits payable to or conferred on
each Employee and each such consultant; and
(d) each Employee's accrued long service leave, annual leave and
sick leave entitlements as at 28 February 1999.
11.2 (INDUSTRIAL DISPUTES) At the date of this Agreement, the Vendor is not
in relation to the Business involved in and, as far as the Board is
aware, there are no present circumstances which are likely to give rise
to any industrial or trade dispute or any dispute or negotiation
regarding a claim of material importance with any trade union or
association of trade unions or organisation or body of employees.
12. RECORDS AND CORPORATE MATTERS
12.1 The records of the Vendor relating to the Business:
(a) have been fully and properly maintained;
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MINCOM AND PARADIGM
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(b) give a true and fair view of the trading transactions,
financial and contractual position and assets and liabilities
of the Vendor in respect of the Business; and
(c) are in the possession and unqualified control of the Vendor.
12.2 The Vendor has lodged source code for release 6 of the Software in
escrow under an Escrow Agreement and has internal backup and archive
systems in respect of source code work in progress since that release.
13. FINDER'S FEES
The Vendor has not taken any action under which any person is or will
be entitled to receive from the Purchaser any finder's fee, brokerage
or other commission in connection with the acquisition of the Business.
14. YEAR 2000
As far as the Board is aware, the Vendor's "Year 2000 Readiness
Statement", a copy of which is in Annexure "A", is true and correct.
15. SUPERANNUATION AND OTHER BENEFITS FUNDS
15.1 NO AGREEMENTS
The Vendor is not a party to any agreement with any union or industrial
organisation in respect of superannuation benefits for any of the
Transferring Employees or sub-contractors of the Business.
15.2 NO FUNDS
Other than the Vendor's Fund:
(a) there are no superannuation, retirement or provident funds or
other arrangements providing for any payment to the
Transferring Employees on their retirement or death or on the
occurrence of any permanent or temporary disability in
operation by or in relation to the Vendor; and
(b) the Vendor does not contribute to any funds which will provide
the Transferring Employees or their respective dependants with
pensions, annuities or lump sum payments on retirement or
earlier death or otherwise.
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15.3 VENDOR'S FUND
The following applies with respect to the Vendor's Fund:
(a) otherwise than in the ordinary course of administration, there
are no outstanding and unpaid contributions on the part of the
Vendor or any other person (other than the Transferring
Employee) who is required to contribute to the fund for the
account of a Transferring Employee;
(b) otherwise than in the ordinary course of administration, there
are no outstanding and unpaid benefits currently due to any
Transferring Employee under the fund.
15.4 SUPERANNUATION GUARANTEE CHARGE
The Vendor will pay the superannuation guarantee charge in respect of
the Transferring Employees employed in Australia for that part of the
current contribution period (as defined in the Superannuation Guarantee
(Administration) Act 1992) up to Completion.
<PAGE> 56
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SCHEDULE 6
APPORTIONMENT OF PURCHASE PRICE
(refer to clause 5.4)
Assets Portion of Purchase Price
- --------------------------------------------------------------------------------
1. INTELLECTUAL PROPERTY
1.1 Geolog 1 - original copyright $12,551,000
1.2 Geolog 2 to 6 - programs and other copyright
- pre August 1989 $150,000
- post August 1989 $164,000
1.3 Rights in respect of Third Party Software $1,000
1.4 Results of research and development post $Nil
August 1989
2. GOODWILL $338,000
3. FIXED ASSETS $511,000
4. WORKING CAPITAL $405,000
-----------
Total $14,120,000
-----------
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SCHEDULE 7
THIRD PARTY SOFTWARE
The Vendor's rights in respect of the Third Party Software are as described in
the Disclosure Material. The following is merely for the purposes of
identification.
GEOLOG
The following modules of Geolog are supplied by third parties.
<TABLE>
<CAPTION>
MODULE SUPPLIER DETAILS
<S> <C> <C>
Imager Halliburton - Granted to Mincom International Pty Ltd on 13 June 1995
ConnecT Chevron - Granted to Mincom International Pty Ltd on 15 March 1994
Multimin Canadian Hunter - Granted to Mincom Inc. (USA) on 20 April 1992
CorEval ACS Laboratories - Granted to Mincom Limited - signed 22 December 1997 to
commence 1 November 1996
FuzzyLogic BP Exploration - Granted to Mincom Limited - signed 10 September 1998 to
Operating Company commence 1 September 1998
Nutcracker (Geolog NT) Data Focus - Granted to Mincom Inc. (USA) effective 20 March
1997
TCL Scriptics Internet freeware.
(Internet freeware)
</TABLE>
<PAGE> 58
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<TABLE>
<S> <C> <C>
Stratimagic Petrosystems - Granted to Mincom Limited effective 1 December 1998
</TABLE>
PLANET
The following describes third party software comprising PlaNET:
<TABLE>
<CAPTION>
MODULE SUPPLIER DETAILS
<S> <C> <C>
Resnet, Exploration & - Granted to Mincom Limited
Gasplan and Production
Ressim Consultants
</TABLE>
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MINCOM AND PARADIGM
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SCHEDULE 8
ESCROW AGREEMENTS
1. Agreement executed May 1995 between Mincom International Pty Limited,
BP Exploration Operating Company Limited and the National Computing
Centre Limited.
2. Agreement dated 9 April 1996 between Mincom Inc. (Canada), Canadian
Occidental Petroleum and the R-M Trust Company.
3. Agreement dated 21 February 1997 between Mincom Limited and Brambles
Australia Limited trading as "Recall Total Information Management".
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Each attorney executing this Agreement states that s/he has not received notice
of the revocation or suspension of the power of attorney.
SIGNED on behalf of )
MINCOM LIMITED )
in the presence of: )
---------------------------------------
Signature
- ----------------------------- ---------------------------------------
Witness Print name
- -----------------------------
Print name
SIGNED on behalf of )
MINCOM INC (USA) )
in the presence of: )
---------------------------------------
Signature
- ----------------------------- ---------------------------------------
Witness Print name
- -----------------------------
Print name
SIGNED on behalf of MINCOM )
INTERNATIONAL PTY LIMITED )
in the presence of: )
---------------------------------------
Signature
- ----------------------------- ---------------------------------------
Witness Print name
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- -----------------------------
Print name
SIGNED on behalf of MINCOM )
PTY LTD in the presence of: )
---------------------------------------
Signature
- ----------------------------- ---------------------------------------
Witness Print name
- -----------------------------
Print name
SIGNED on behalf of MINCOM )
SERVICES PTY LTD in the presence of: )
---------------------------------------
Signature
- ----------------------------- ---------------------------------------
Witness Print name
- -----------------------------
Print name
SIGNED on behalf of MINCOM )
INC (CANADA) in the presence of: )
---------------------------------------
Signature
<PAGE> 62
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- ----------------------------- ---------------------------------------
Witness Print name
- -----------------------------
Print name
SIGNED on behalf of PARADIGM )
GEOPHYSICAL LIMITED by )
Eldad Weiss, Chief Executive Officer )
in the presence of: )
---------------------------------------
)Signature
- ----------------------------- ---------------------------------------
Witness Print name
- -----------------------------
Jonathan Keller
<PAGE> 63
MINCOM AND PARADIGM
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ANNEXURE "A"
Year 2000 readiness statement
(refer to item 14 of Schedule 5)
1. YEAR 2000 INFORMATION DISCLOSURE ACT 1999 - AUSTRALIA
This statement is a Year 2000 disclosure statement for the purposes of the Year
2000 Information Disclosure Act 1999. A person may be protected by that Act from
liability for this statement in certain circumstances.
This statement is authorised by Douglas Thiele for and on behalf of Mincom Ltd.
2. YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT OF 1998 - USA
The statements contained herein regarding products and services offered by
Mincom Ltd are "Year 2000 Readiness Disclosures" as defined by the Year 2000
Information and Readiness Disclosure Act of 1998, (Public Law 105-271, 112 Stat.
86, a USA statute) enacted on October 19, 1998.
3. INTRODUCTION
This document aims to clearly communicate PTM's policy on Year 2000 issues and
to indicate the Year 2000 readiness of the Geolog product.
In particular, this document addresses:
- the functional capability of Geolog with respect to Year 2000
- the methodology for achieving Year 2000 conformance
- PTM's policy on third party products which are embedded in Geolog
and licensed with it
- PTM's policy on the compatibility with third party products used in
conjunction with Geolog, or in the same computer environment, but
over which PTM has no control
- the testing PTM has carried out on Geolog
- PTM's recommendation for customer preparation and testing for Year
2000 readiness
- PTM's position in relation to liability
- where to find up to date information.
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MINCOM AND PARADIGM
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4. GEOLOG YEAR 2000 READINESS
The British Standards Institution (and Standards Australia SAA/SNZ MP77) uses
four rules by which to identify the Year 2000 problem and hence define Year 2000
conformity. These rules are:
Rule 1. No value for current date will cause any
interruption in operation.
Rule 2. Date-based functionality must behave consistently for
dates prior to, during and after year 2000.
Rule 3. In all interfaces and data storage, the century in
any date must be specified either explicitly or by
unambiguous algorithms or inferencing rules.
Rule 4. Year 2000 must be recognized as a leap year in terms
of handling both 29th February and day 366.
The Geolog product from version 6.003 (12) onwards has substantially complied
with these rules with two minor exceptions.
The first is that the Unix date format currently utilised internally for system
operations on files means that Geolog may not operate correctly after early
2038. This limit will be expanded in the future when Geolog is built on 64 bit
versions of the operating systems and porting tools used for its development.
This depends on the third party vendors of these systems and tools making such
64 bit versions available. Access to these new versions of Geolog will be
available under PTM's Maintenance Agreements.
The second is that up to and including Geolog version 6.003 (15), system
generated dates were displayed in certain modules with two digit years even
though the underlying binary representation correctly stored four digits. From
version 6.003 (1), those dates will be displayed with four digits.
5. METHODOLOGY
Geolog utilises a binary date format unaffected by the Year 2000 problem for all
internal date handling including storage in the database.
All dates in text form are allowed and expected to be input with four digit
years. From version 6.003 (16) all system generated dates output in text form
will have four digit years.
Should any dates be encountered containing only a two digit year (for historical
or other reasons) the year is assumed to be 1970 or after.
A caveat on date handling relates to data loaded from contractor tapes. The
format for this data is not under control of PTM and in many cases has only a
two digit year. These are handled using the windowing technique described above.
These tapes may also contain dates that are not specifically in a date format
and as such are given no special treatment.
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6. EMBEDDED THIRD PARTY PRODUCTS
With the advance in technology to object systems and open network architectures,
most software manufacturers have specialised third party software components
embedded in their core software products. PTM is no exception, and Geolog is
licensed with a number of third party products.
PTM is not in control of the development of these products, and so we have a
policy of due diligence when we design them into our systems.
Firstly, when feasible, we check the third parties stated year 2000 readiness.
Secondly, we perform our own testing to ensure as far as possible that the
software is Year 2000 ready.
We make all commercially reasonable attempts to ensure that Geolog is compatible
with these systems and that they are also Year 2000 ready. However, we cannot
accept liability for any errors arising out of the development or use of these
systems over which we have no control. Should problems arise with these software
components, PTM would seek the assistance of the software manufacturer concerned
to address the matter promptly.
The third party products currently used and licenced in Geolog include:
- UIMX from Bluestone/Visual Edge
- Nutcracker from Datafocus (Windows NT version only)
- Acrobat Reader from Adobe
- Geoshare libraries from Schlumberger
- Openworks libraries from Halliburton/Landmark
- Tcl/Tk from Scriptics.
You should consult with the manufacturers of these products for information
relating to their degree of readiness for the Year 2000.
7. OTHER THIRD PARTY PRODUCTS
PTM software also uses, or works in conjunction with, other third party software
products such as databases and operating systems. These systems are normally
licensed separately from Geolog and directly to the customer.
We make all commercially reasonable attempts to ensure that Geolog is compatible
with these systems and that they are also Year 2000 ready. However, we cannot
take responsibility for any errors arising out of the development or use of
these systems over which we have no control. Similarly we cannot take any
responsibility for other unrelated systems which may run on the computer(s)
where you also have Geolog, or components of Geolog, installed. Clearly we
cannot take any responsibility for the function of these systems, or the effect
they could possibly have on the
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MINCOM AND PARADIGM
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products of PTM.
The third party products currently used in conjunction with Geolog include but
not licensed with it include:
- Solaris operating system from Sun
- Irix operating system from Silicon Graphics
- Windows NT operating system from Microsoft
- Motif and X11 from the operating system vendor on Unix
platforms
- Openworks from Halliburton/Landmark.
You should consult with the manufacturers of these products for information
relating to their degree of readiness for the Year 2000.
8. GENERAL THIRD PARTY SOFTWARE READINESS COMMENTS
Some of the third party subsystems Geolog is built or runs on (Nutcracker, OS's,
etc.) will not be Year 2000 ready until Geolog version 6.004 is released in
October 1999, though in practice we have not experienced any problems while
testing.
9. GEOLOG TESTING
We have carried out Year 2000 application regression testing of Geolog 6.003.
Geolog has been tested for year 2000 compliance using the following dates (where
EST is Greenwich Mean Time +10 hours):
- Fri Dec 31 16:15:10 EST 1999
- Sat Jan 1 05:00:04 EST 2000
- Sat Jan 1 16:11:51 EST 2000
- Tue Feb 29 22:00:02 EST 2000
- Fri Jan 1 16:11:06 EST 2010
10. CUSTOMER TESTING FOR YEAR 2000 READINESS
The ultimate test for Year 2000 readiness of a production implementation of
Geolog (or any software system) is to run the system in test mode in the exact
environment that will be used before, during and after 1st January 2000. This
test should be carried out with data that approximates, as closely as
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MINCOM AND PARADIGM
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possible, the data that will be used in live production.
While our testing was considerable, the tests were carried out in a laboratory
environment which can never give a 100% assurance for specific production site
and/or data configuration combinations. We therefore recommend that customers
conduct their own Year 2000 readiness testing on their site specific production
platforms once Geolog has been installed and using their own production data
converted for acceptance testing.
For maintained licensees, Year 2000 evaluation license keys will be available by
request from [email protected]. These keys are only available for Geolog
versions 6.003 (16) onwards and will allow execution windowed over the year
2000.
We invite users of those keys to return their test results for general
publication.
11. LICENCE TERMS AND LIABILITY
PTM's legal responsibilities and liabilities, including for Year 2000 related
matters, arise (if at all) solely under written agreements with customers and
are subject to the limits and exclusions in those agreements.
All other liability, however it arises (including for negligence), is expressly
excluded to the maximum extent permitted by law.
12. UPDATES
The information described in this document is correct for versions 6.003 (12)
through 6.003 (16) of Geolog and is subject to change without notice. Update
versions of this document may be found on the PTM web site at
"http://www.mincom.com/ptm".
13. INFORMATION
The information in this document is provided for information purposes only and
does not constitute a warranty of any kind nor does it amend or expand any
existing warranty that Mincom may have with a customer.
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ANNEXURE "B"
Drill bit device
(refer to item 2.2 of Schedule 2)
[GRAPHIC]
PTM
<PAGE> 69
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ANNEXURE "C"
[NOT USED]
<PAGE> 70
MINCOM AND PARADIGM
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ANNEXURE "D"
Sketch of Licensed Area
(refer to clause 7.5)
<PAGE> 71
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 67
- --------------------------------------------------------------------------------
GROUND FLOOR
[FLOOR PLAN DIAGRAM]
<PAGE> 72
MINCOM AND PARADIGM
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ANNEXURE "E"
December Accounts
PTM BALANCE SHEET
AS AT 31 DECEMBER 1998
(US$'000)(1)
<TABLE>
<S> <C>
CURRENT ASSETS
Receivables 2,377
Other 66
-----
TOTAL CURRENT ASSETS 2,443
-----
NON CURRENT ASSETS
Fixed Assets 326
-----
TOTAL NON CURRENT ASSETS 326
-----
TOTAL ASSETS 2,769
=====
CURRENT LIABILITIES
Trade Creditors and Accruals 80
Other Creditors and Accruals 252
Provisions 168
Deferred Revenue 1,685
-----
TOTAL CURRENT LIABILITIES 2,185
-----
TOTAL LIABILITIES 2,185
-----
NET ASSETS 584
=====
</TABLE>
<PAGE> 73
MINCOM AND PARADIGM
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Source: Mincom
Note: (1) Based on exchange rates of AUD/USD = 0.6096, AUD/GBP = 0.3669 and
AUD/CAD = 0.9435
<PAGE> 74
MINCOM AND PARADIGM
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ANNEXURE "F"
Letter of offer of employment
(refer to clause 11.3)
Dear [PTM Employee]
Following the acquisition of PTM by Paradigm Geophysical Limited, we are pleased
to offer you employment in the position of [current position] in the PTM
business unit of Paradigm. This offer is on terms and conditions equivalent to
the terms and conditions of your employment with Mincom at the time of the
acquisition of PTM by Paradigm. The key details of this offer include:
1. REMUNERATION
Your total gross annual salary will be $xx. In addition, you will also have the
opportunity to earn an "at risk" incentive component of $xx, dependent on your
individual performance and the overall financial performance of the group.
Details of the criteria that must be met in order to earn this incentive
component are attached.
2. TENURE
Your period of employment with PTM as part of the Mincom Group will be
recognised by Paradigm for the purposes of calculating any future redundancy.
3. LEAVE ENTITLEMENTS
Annual leave, long service leave and sick leave entitlements will be calculated
on the same basis as under your previous employment contract. You can elect to
roll over the balance of these entitlements to Paradigm or to receive the cash
component upon transfer of your employment.
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4. OTHER
Other key terms and conditions of your employment, such as those relating
to[insert key terms for each region] will remain equivalent to those detailed in
your previous employment contract. Attached is a summary of these additional
benefits for your review.
We look forward to your continued association with the PTM business.
Yours faithfully,
<PAGE> 76
MINCOM AND PARADIGM
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ANNEXURE "G"
Employee benefit lists
(refer to clause 11.3 (a))
SUMMARY OF STANDARD BENEFITS FOR US EMPLOYEES
Listed below is a brief summary of the standard benefits that are currently
offered to PTM employees in the USA and Canada as part of their total
remuneration package. This does not include the salary and incentive details
which are specified in each employees' individual employment contract.
ANNUAL AND SICK LEAVE
- - Four weeks paid annual leave per annum
- - Ten paid holidays per year, including two floating holidays
- - Ten Sick Days per annum
- - Unpaid family medical leave up to 12 weeks
MEDICAL BENEFITS / INSURANCE
- - Medical and life insurance for employees and their dependents effective
from commencement of employment with insurance coverage for each of these
paid by Mincom (refer attached plan).
- - Dental insurance for employees effective from the commencement of
employment with insurance coverage for each of these paid by Mincom.
- - Dependent coverage under a dental plan is not paid by Mincom but is
available as a salary deduction.
- - Accidental Death and Dismemberment coverage for employees paid by Mincom
- - Short Term Disability and Long Term Disability coverage for employees paid
by Mincom. This provides employees unable to work due to illness or
accident for up to 90 days with payment of
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MINCOM AND PARADIGM
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60% of their salary up to a total of $1500 and after 90 days with 60% of
their salary up to a maximum of $5000.
- - Voluntary Participation in the Section 125 Cafeteria Plan.
SUPERANNUATION
- - Participation in the 401(K) Plan with Mincom matching 50% of the
employee's contribution to a maximum of 6% and subject to a government
regulated maximum of approximately $10,000 per annum.
OTHER STANDARD BENEFITS
- - $100 annual allowance towards a health club membership upon proof of
membership
- - After 6 months, Tuition Reimbursement Program, providing partial
assistance to qualifying employees for undergraduate and graduate courses.
- - Mincom also funds access to computer based CD Rom self-instruction
training materials for both technical and personal development.
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SUMMARY OF STANDARD BENEFITS
FOR AUSTRALIAN EMPLOYEES
Listed below is a brief summary of the standard benefits that are currently
offered to PTM employees in Australia as part of their total remuneration
package. This does not include the salary and incentive details which are
specified in each employees' individual employment contract.
DEDUCTIONS FROM GROSS SALARY
- - In accordance with the Federal Government's Superannuation Guarantee
Charge, an amount of 7% of the employee's base salary paid to the
nominated fund.
LEAVE ENTITLEMENTS
- - Annual Leave accrues at the rate of 20 days per annum up to a maximum
accrual of 40 days. Any accrued leave in excess of this limit will be
forfeited by the employee if not taken within 3 months of the accrued
leave reaching this limit
- - Long Service Leave will accrue in accordance with the relevant state
legislation [13 weeks accrues after 15 years of service.]
- - Sick Leave of 10 days pro rated per annum
- - Unpaid parental leave of up to 12 months is available to Mincom employees
who have completed a minimum of one year of continuous service
- - Bereavement Leave of 1 - 5 days
INJURY / DEATH
- - All employees (full time or more than 20 hours a week part time) are
entitled to salary continuance cover providing a monthly benefit of 75% of
salary commencing after 90 days absence from work due to injury or
illness.
- - Mincom currently provides death cover to Australian employees who are
members of the Mincom Australia Superannuation Fund. This provides for a
lump sum to be paid to dependents if a fund member dies prior to age 65.
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OTHER BENEFITS
- - Membership of professional associations - Mincom will pay or reimburse the
annual subscription associated with a membership of a professional
association where membership is directly related to the employee's career
and job responsibilities
- - Study Assistance - Mincom reimburses employees for fees and books (to a
maximum of AUD$500 per annum) following a year's study in a relevant area
and subject to successful completion
- - Computer Based Training - Mincom funds access to computer based self
instruction training materials for both technical and personal development
- - Motor Vehicle Leases - the company provides eligible employees (those with
a total remuneration package of over $55,000) with the opportunity to
obtain a motor vehicle of their choice under a novated lease agreement.
The total cost of the vehicle is reflected in the remuneration package by
way of a salary sacrificing arrangement. In addition, Mincom negotiates a
corporate motor vehicle insurance policy with competitive rates for all
novated vehicles.
- - Mileage Allowances - Mincom provides a mileage allowance (46 cents / km)
for vehicles privately owned by employees but used for work purposes.
- - Private Health Cover - Mincom has negotiated corporate private health
cover insurance rates for all employees
- - Business Travel - employees travelling on business purposes are entitled
to economy class travel, accommodation and a per diem amount of $64.20 in
a capital city and $56.95 in a country town.
<PAGE> 80
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UK EMPLOYEE BENEFITS
- - SALARY CONTINUANCE (PERMANENT HEALTH INSURANCE POLICY): All employees of
Mincom Services Pty Ltd, are entitled to salary continuance cover which
provides a monthly benefit of 75% of salary commencing after 180 days
absence from work, due to injury or sickness.
- - DEATH COVER (LIFE INSURANCE): Mincom provides Death Cover to all
employees. If an employee dies while an employee prior to the age 65,
his/her dependants will receive a lump sum payment which is the equivalent
of 4 times gross salary. A dependent means any person who is financially
dependent on another person or was so at the time of the other person's
death.
- - LEAVE:
Annual Leave Entitlement: Employees are entitled to 5 weeks annual
leave per year (ie; 25 days per year). The leave year is fixed for
all staff and runs from January 1st to December 31st of each year.
Leave must be accumulated on a monthly pro-rated basis before it can
be taken. Currently staff are allowed to carry over from one year to
the next, up to 5 days and this should be taken within the first
three months of the new leave year. Leave vests to the employee on
termination or resignation of employment with Mincom.
Sick Leave Entitlement: Employees are entitled to 10 working days
sick leave per year. This leave accrues but does not vest to the
employee on termination or resignation of employment with Mincom.
Parental Leave: Mincom employees who have completed at least one
year of continuous service are eligible for unpaid leave for up to
12 months for parental care.
Carers Leave: This forms part of an employee's sick leave.
Bereavement Leave: Employees are entitled to 1 - 5 days bereavement
leave.
- - ANNUAL SALARY REVIEWS: Mincom salaries are reviewed on an annual basis
effective 1 October each year.
- - SUPERANNUATION: Employees may join the Mincom Services Pty Ltd Private
Pension Plan after 12 months service. This policy is arranged with
Standard Life Assurance Company. On the condition that the employee
contributes a minimum of 5% of his/her basic salary, Mincom will
contribute an additional 3% during the first year in the scheme, 4.5%
during the second year and 6% thereafter.
- - NATIONAL INSURANCE CONTRIBUTION: National Insurance contributions are
payable as per the statutory requirements in the United Kingdom by both
the employee and Mincom.
- - COMPUTER BASED TRAINING: Mincom funds access to computer based
self-instruction training materials for both technical and personal
development.
- - BUSINESS TRAVEL: Employees travelling are entitled to Economy class
travel, accommodation and reasonable expenses on the production of
receipts.
<PAGE> 81
MINCOM AND PARADIGM
PETROLEUM TECHNOLOGY DIVISION Page 77
- - BUSINESS RELATED CAR EXPENSES: EXPENSES INCURRED IN THE USE OF YOUR
PRIVATE VEHICLE ON COMPANY BUSINESS WILL BE REIMBURSED AT RATES APPROVED
BY THE INLAND REVENUE.
<PAGE> 1
Exhibit 10.14
SHARE PURCHASE AGREEMENT
between
PARADIGM GEOPHYSICAL LTD.
and
JERUSALEM VENTURE PARTNERS L.P.
JERUSALEM VENTURE PARTNERS (ISRAEL) L.P.
Dated as of March 12, 1999
<PAGE> 2
SHARE PURCHASE AGREEMENT
SHARE PURCHASE AGREEMENT (the "Agreement") dated as of March
12, 1999 by and between Paradigm Geophysical Ltd., an Israeli corporation (the
"Company"), and Jerusalem Venture Partners L.P, a United States partnership and
Jerusalem Venture Partners (Israel) L.P., an Israeli limited liability
partnership (jointly and severally the "Purchaser").
R E C I T A L S:
WHEREAS, the Purchaser wishes to purchase from the Company,
and the Company wishes to sell to the Purchaser, the number of Ordinary Shares
(NIS 0.5 par value) of the Company (the "Ordinary Shares") as is set forth in
Section 1.1 below, on the terms and subject to the conditions set forth herein;
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions
contained herein, the sufficiency of which is hereby acknowledged, and in order
to set forth the terms and conditions of the transactions described herein and
the mode of carrying the same into effect, the parties hereby agree as follows:
ARTICLE I
THE TRANSACTIONS
1.1 Purchase and Sale.
(a) Subject to the terms and conditions of this
Agreement, Purchaser agrees to purchase from the Company and the Company agrees
to sell to Purchaser at the Closing (as defined below) 877,193 Ordinary Shares
of NIS 0.5 nominal value NIS 0.5 each of the Company (the "Shares") in
consideration for an aggregate purchase price of $5,000,000.
1.2 Payment of Purchase Price.
(a) Payment by Purchaser of the aggregate purchase
price for the Shares shall be made in cash via wire transfer of immediately
available funds to a bank account designated by the Company on the Closing Date
(as defined below). At the Closing, the Company shall deliver to Purchaser the
documents specified in Section 5.3 below.
1.3 The Closing.
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Subject to the fulfillment of the conditions
precedent specified in Article V hereof (any or all of which may be waived in
writing by the respective parties whose performance is conditioned upon
satisfaction of such conditions precedent), the purchase and sale of the Shares
shall be consummated at a closing (the "Closing") to be held at the offices of
Efrati, Galili & Co., 6 Wissotsky Street, Tel Aviv, Israel, on April 15, 1999 at
10:00 am, Israeli time, or as soon as practicable thereafter following the
satisfaction or waiver of all relevant conditions precedent specified in Article
V hereof, or at such other place and time as the Company and Purchaser shall
mutually agree after the satisfaction or waiver of all conditions precedent
specified in Article V hereof (the date on which the Closing occurs being herein
referred to as the "Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
Purchaser represents and warrants to the Company, as to all
matters relevant thereto, as follows:
2.1 Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation.
2.2 Authority. Purchaser has full corporate power and
authority to execute and deliver this Agreement and each other agreement
contemplated hereby, to carry out its obligations hereunder and to consummate
the transactions contemplated on its part hereby. The execution, delivery and
performance by Purchaser of this Agreement and each other agreement contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Purchaser, and no other action on the part of Purchaser is necessary to
authorize the execution and delivery of this Agreement and each other agreement
contemplated hereby by Purchaser or the performance by Purchaser of its
obligations hereunder. This Agreement has been duly executed and delivered by
Purchaser and constitutes a legal, valid and binding agreement of Purchaser,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
creditors' rights generally and subject to general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
2.3 No Violation. The execution and delivery of this Agreement
and the Registration Rights Agreement (as defined below) by Purchaser, the
performance by Purchaser of its obligations hereunder and thereunder and the
consummation by it of the transactions contemplated hereby and thereby will not
(a) violate any provision of law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to Purchaser, (b) require
the consent, waiver, approval, license or authorization of or any filing by
Purchaser with any person or governmental authority, except for filings to be
made in connection with or in compliance with the provisions of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), Regulation D as
promulgated under the Securities Act of 1933, as amended (the "Securities Act")
and applicable state securities laws, and the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), to the extent applicable,
or (c) violate, result (with or without notice or the passage of time, or both)
in a material breach of or give rise to the right to accelerate, terminate or
cancel any obligation under or constitute (with or without notice or the passage
of time, or both) a material default under, any of the terms or provisions of
any charter or bylaw, partnership agreement, indenture, mortgage, agreement,
contract, order, judgment, ordinance, regulation or decree to which Purchaser is
subject or by which Purchaser is bound.
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<PAGE> 4
2.4 Securities Act Representation. Purchaser is an "accredited
investor" as defined in Rule 501 promulgated as part of Regulation D under the
Securities Act. Purchaser is not acquiring the Shares with a view to a
distribution or resale of any of such securities in violation of any applicable
securities laws.
2.5 Purchase for Investment. This Agreement is concluded with
the Purchaser in reliance upon the Purchaser's representation to the Company
that the Shares to be issued to the Purchaser will be acquired for investment
for the Purchaser's own account, and not with a view to the sale or distribution
of any part thereof.
2.6 Status of Purchaser. Purchaser is purchasing the Shares
for its own account and not with the intention of effecting an offering of the
Shares to the public. Purchase is knowledgeable, sophisticated and experienced
in making, and is qualified to make, decisions with respect to investments in
securities such as the Shares. Subject to the Company's representations made in
this Agreement being correct, Purchaser has requested from the Company all
information it would deem relevant in making a decision to execute this
Agreement and to purchase the Shares.
2.7 Legends. Purchaser agrees that the certificates
representing the Shares purchased hereunder shall bear the legend set forth
below:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES
ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND
NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BESOLD,
ASSIGNED, TRANSFERRED OR PLEDGED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE
SECURITIES LAW COVERING SUCH SECURITIES OR THE CORPORATION
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
CORPORATION OR OTHER EVIDENCE REASONABLY ACCEPTABLE TO THE
CORPORATION INDICATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
PLEDGE IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES
LAW."
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to the Purchaser as
follows:
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<PAGE> 5
3.1 Corporate Organization. Each of the Company and its
subsidiaries, as listed on Schedule 3.1, which indicates their respective
jurisdictions of organization (the "Subsidiaries"), is a corporation or other
entity duly organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation or organization with all requisite corporate
power and authority to lease its properties and to carry on its business as it
is now being conducted, and is qualified or licensed to do business and is in
good standing in each jurisdiction in which it currently carries on business,
except where the failure to be so qualified or licensed or be in good standing
would not reasonably be expected, individually or in the aggregate, to have, a
material and adverse effect upon the operations, financial condition or results
of operations of the Company and its Subsidiaries considered as a whole (a
"Material Adverse Effect"). . .
3.2 Share Capital. The authorized share capital of the Company
consists in its entirety of 18,000,000 Ordinary Shares, of which, as of the date
hereof, 10,514,484 are issued and outstanding and 2,000,000 Special Preferred
Shares, none of which are issued and outstanding. In addition, (a) an aggregate
of 2,300,000 Ordinary Shares are reserved for issuance pursuant to the Company's
1994 Stock Option Plan for key employees, the May 1994 Stock Option Plan, the
1994 General Stock Option Plan, the 1997 Stock Option Plan for Qualifying Israel
Employees, the 1997 Executive Stock Option Plan and the 1997 Stock Option Plan
for U.S. Employees (collectively, the "1994 and 1997 Stock Option Plans"), of
which options to purchase 1,592,616 Ordinary Shares were outstanding as of the
date hereof; and (b) 1,199,908 Ordinary Shares are reserved for issuance in
connection with the exercise of certain outstanding warrants. All of the above
outstanding shares have been duly authorized and validly issued, are fully paid
and non-assessable, are not subject to preemptive rights, and are owned by the
Company's shareholders free and clear of any liens, encumbrances, security
interests, adverse claims or equities or rights in favor of another
("Encumbrances") imposed or created by the Company. Except as set forth in
Schedule 3.2, none of the outstanding capital shares of the Company are subject
to any co-sale right, registration right, right of first refusal or other
similar right to purchase any shares pursuant to any agreement to which the
Company is a party or otherwise imposed or created by the Company or imposed by
Israeli law. Other than as described above, there are no outstanding options,
warrants or other rights calling for the issuance of, and no commitments, plans
or arrangements to issue, any capital shares of the Company or any security
convertible into or exchangeable for share capital of the Company. All shares to
be issued upon the exercise of outstanding warrants or options or upon the
conversion of any security shall be, when issued or sold in accordance with the
terms of the applicable agreements, validly issued, fully paid and
non-assessable.
3.3 Share Capital of Subsidiaries. All the issued share
capital and other equity securities of each Subsidiary of the Company have been
duly and validly authorized and issued, are fully paid and non-assessable, with
no personal liability attaching thereto solely by virtue of the ownership
thereof and are legally and beneficially owned by the Company directly, or
indirectly through one of its other Subsidiaries, free and clear of all
Encumbrances, and there are no outstanding options, warrants or other rights
calling for the issuance of, and there are no commitments, plans or arrangements
to issue, any capital shares or other equity securities of any Subsidiary of the
Company or any security convertible or exchangeable or exercisable for capital
shares or other equity securities of any Subsidiary of the Company; except for
the capital shares or other equity securities of each Subsidiary of the Company
owned by the Company directly, or indirectly through one of its other
Subsidiaries, neither the Company nor any of its Subsidiaries owns, directly or
indirectly, any capital shares of any corporation or has or owns any equity
securities in any firm, partnership, joint venture or other entity. Except for
Paradigm Geophysical Corp., no Subsidiary of the Company is a Significant
Subsidiary, as such term is defined in
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<PAGE> 6
Rule 405 of the rules and regulations of the Securities and Exchange Commission
(the "Commission") under the Securities Act.
3.4 Newly Issued Shares. The Shares to be sold and issued by
the Company to the Purchaser in accordance with the terms of this Agreement have
been duly authorized and, when issued as contemplated hereby, will be validly
issued, fully paid and non-assessable, and no other person has any preemptive
right, option, warrant, subscription agreement or other right with respect to
such Shares. Upon the issuance of the Shares, the Purchaser will acquire good
and marketable title to the shares free and clear of any and all Encumbrances,
except such Encumbrances as may be created pursuant to this Agreement or by
Purchaser.
3.5 Authority; Enforcement. The Company has full corporate
power and authority to execute and deliver this Agreement, the Registration
Rights Agreement, the Amendment to 1997 Warrants, the Amendment to 1996 Purchase
Agreement, the Amendment to 1995 Purchase Agreement, the Amendment to 1994
Warrants, and each other agreement contemplated hereby (collectively the
"Agreements"), to carry out its obligations hereunder and thereunder and to
consummate the transactions contemplated on its part hereby and thereby. The
execution, delivery and performance by the Company of the Agreements and the
consummation of the transactions contemplated on its part hereby and thereby
have been duly authorized by the Board, and no other corporate proceedings on
the part of the Company to the Company's issuance of the Shares to be issued
pursuant to this Agreement and to the Company's entering into the Agreements are
necessary to authorize the execution and delivery of the Agreements by the
Company or the performance by the Company of its obligations thereunder. The
Agreements have been duly executed and delivered by the Company and constitute
legal, valid and binding obligations of the Company, enforceable against the
Company and each party thereto in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting creditors' rights generally and subject to general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
3.6 No Violation. The execution and delivery by the Company of
the Agreements, the performance by the Company of its obligations thereunder and
the consummation by it of the transactions contemplated thereby will not (a)
violate any provision of law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to the Company or any of
its Subsidiaries, or (b) require the consent, waiver, approval, license or
authorization of or any filing by thCompany with any person or governmental
authority, except for filings to be made or consents to be obtained in
connection with or in compliance with the provisions of the Exchange Act,
Regulation D as promulgated under the Securities Act, applicable state
securities laws, the Chief Scientist of the Israeli Ministry of Industry and
Commerce, the Investment Center, Bank Hapoalim B.M. and the Bank for Industrial
Development in Israel Ltd. and (with respect to registration rights to be
granted to Purchaser under the Registration Rights Agreement) certain existing
shareholders and warrantholders of the Company who have registration rights as
specified in Section 5.3, or (c) violate, result (with or without notice or the
passage of time, or both) in a breach of or give rise to the right to
accelerate, terminate or cancel any obligation under or constitute (with or
without notice or the passage of time, or both) a default under, any of the
terms or provisions of any charter, articles of association, or bylaw,
partnership agreement, indenture, mortgage, agreement, contract, order,
judgment, ordinance, regulation or decree to which the Company or any of its
Subsidiaries is subject or by which the Company or any of its Subsidiaries is
bound, except for any of the foregoing matters which would not have,
individually or in the aggregate, a Material Adverse Effect.
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<PAGE> 7
3.7 Brokers. The Company has not paid or become obligated to
pay any fee or commission to any broker, finder, investment banker or other
intermediary in connection with this Agreement.
3.8 Foreign Private Issuer. The Company is a "foreign private
issuer," as defined in Rule 3b-4 of the Exchange Act.
3.9 Commission Reports. Since its initial public offering in
June 1998, the Company has filed with the Commission all reports, filings, proxy
materials and registration statements required to be filed by it as a foreign
private issuer listed on the Nasdaq National Market pursuant to the federal
securities laws and has made all other filings with the Commission required to
be made where the failure to have made such filing has or is expected by the
Company to have a Material Adverse Effect on the Company (collectively and
together with the Company's Registration Statement on Form F-1, Commission File
No. 333-7926 (the "Registration Statement"), the "Commission Filings"). The
Commission Filings did not (as of their respective filing dates, mailing dates
or effective dates, as the case may be) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company has fully
complied in all material respects with the Israeli Securities Law of 1968 and
with the applicable term of any exemption granted thereunder. The Company
acknowledges that the Purchaser is relying on the Commission Filings with
respect to its purchases of the Shares pursuant to this Agreement.
3.10 Litigation. Except as disclosed in Commission Filings
prior to the date hereof or in Schedule 3.10, there is no legal action, suit,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or the
assets of any of them which could have, individually or in the aggregate, a
Material Adverse Effect on the Company, or on the Company's ability to perform
or observe any obligation or condition under the Agreements. Except as disclosed
in Schedule 3.10, there is no basis for a claim or a potential claim affecting
the Company or any of its Subsidiaries which could have a Material Adverse
Effect.
3.11 Disclosure. To the best knowledge of the Company after
due inquiry, there is no fact or facts (excluding general economic conditions
and prevailing economic conditions generally affecting the oil and gas industry)
peculiar to the Company or any of its Subsidiaries which the Company has not
disclosed to the Purchaser in writing or in the Commission Filings which could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company or the ability of the Company to perform the
Agreements.
3.12 Intellectual Property and Other Tangible Assets.
(a) The Company and the Subsidiaries own or have the
right to use, free and clear of all liens, claims and restrictions, all patents,
trademarks, service marks, trade names and copyrights, and applications,
licenses and rights with respect to the foregoing, and all trade secrets
including know-how, inventions, designs, processes, works of authorship,
computer programs and technical data and information (collectively,
"Intellectual Property") used and sufficient for use in the conduct of its
business as now conducted and/or as presently proposed to be conducted without
infringing upon or violating, in any material respect, any right, lien, or claim
of others, including without limitation former employees and former employers of
its past and present employees.
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<PAGE> 8
(b) Any and all Intellectual Property of any kind,
relating to the business of the Company, currently being developed by any
employee of the Company or any Subsidiary while in the employ of the Company or
such Subsidiary, shall be the property solely of the Company or such Subsidiary.
The Company and the Subsidiaries have taken security measures to protect the
secrecy, confidentiality and value of all the Intellectual Property, which
measures are reasonable and customary in the industry in which the Company
operates. Each of the Company's and the Subsidiaries' employees and other
persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed the Intellectual Property, or who
has a knowledge of or access to information about the Intellectual Property,
have entered into a written agreement with the Company or such Subsidiary, in
form and substance satisfactory to the Company's management and reasonable and
customary in the industry in which the Company operates (the "Proprietary
Information Agreement") regarding ownership and treatment of the Intellectual
Property.
(c) Neither the Company nor any Subsidiary has
received any communications alleging that the Company or any Subsidiary has
violated or by conducting its business as proposed, would violate, any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity. None of the Company's or
any Subsidiary's employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of such employee's best efforts to promote the interests
of the Company or that would conflict with the Company's or any Subsidiaries'
business as conducted and proposed to be conducted. Neither the execution nor
delivery of the Agreement, nor the carrying on of the Company or such
Subsidiary, nor the conduct of the Company's or any Subsidiaries' business as
proposed to be conducted, will conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under any contract,
covenant or instrument under which any of such employees is now obligated. It is
not, and will not become, necessary to utilize any inventions of any of the
Company's or any Subsidiary's employees (or people the Company or any Subsidiary
currently intends to hire) made prior to their employment by the Company or such
Subsidiary other than those that have been assigned to the Company pursuant to
the Proprietary Information Agreement signed by such employee.
3.13 Industrial Company. The Company is qualified as an
"Industrial Company" within the definition of the Law for the Encouragement of
Industry (Taxes), 1969., and has obtained a certificate of the Company's
auditors certifying such qualification, a copy of which is attached to this
Agreement as Schedule 3.13. According to the Company's best knowledge,
information and belief, there is no reason for disqualifying the Company from
being an Industrial Company, nor would such reason arise through the conduct and
performance of the Company's business and operations in accordance with its
plans and projections.
3.14 Compliance with Laws. Each of the Company and its
Subsidiaries is in compliance with all laws, ordinances, regulations, and orders
applicable to it, the failure to comply with which would have, individually or
in the aggregate, a Material Adverse Effect, including without limitation, the
provisions of the Law for Encouragement of Capital Investments, 1959, applicable
to the Company and the terms of any "Approval Letter" issued to the Company
thereunder and its extensions, amendments and supplements, if any. Except as set
forth on Schedule 3.14, the Company and its Subsidiaries have such licenses,
franchises, permits and other approvals or authorizations from governmental
regulatory authorities ("Permits") as are necessary under applicable law to own
their respective properties and to conduct their respective businesses in the
manner now being conducted and as described in the Registration Statement; and
the Company
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<PAGE> 9
and its Subsidiaries have fulfilled and performed all of their respective
obligations with respect to such Permits, except where the failure to hold such
Permits or perform such obligations would not have a Material Adverse Effect.
Except as set forth on Schedule 3.14 or otherwise in this Agreement, (a) there
are no citations, fines or penalties heretofore asserted against the Company or
its Subsidiaries under any federal, state or local law or regulation which
remain unpaid or which otherwise bind any assets material to the Company and its
Subsidiaries, and (b) the Company or any of its Subsidiaries has not received
any unresolved notice from any federal, state or local governmental authority
with respect to any violation of any federal, state or local law or regulation
which, if resolved against the Company or any of its Subsidiaries, would have,
individually or in the aggregate, a Material Adverse Effect.
3.15 Insurance. The Company and its Subsidiaries have in full
force insurance coverage of their respective properties, assets and business
(including casualty, general liability, products liability and business
interruption insurance) that is (i) no less protective in any material respect
than the insurance the Company and its Subsidiaries have carried in accordance
with their past practices or (ii) prudent given the nature of the business of
the Company and its Subsidiaries and the prevailing practice among companies
similarly situated.
3.16 Foreign Corrupt Practices Act. The activities of each of
the Company and its Subsidiaries and its officers, directors and employees have
complied, and the operations of each of the Company and its Subsidiaries and the
activities of the officers, directors and employees of each of the Company and
its Subsidiaries have complied, with all applicable laws governing corrupt or
illicit business practices, including, without limitation, laws dealing with
improper or illegal payments, gifts or gratuities and/or the payment of money or
anything of value directly or indirectly to any person (whether a government
official or private individual) for the purpose of illegally or improperly
inducing any person or government official, or political party or official
thereof, or any candidate for any such position, in making any decision or
improperly assisting any person in obtaining or retaining business or taking any
other action favorable to such person, and/or dealing with business practices in
relation to foreign investments (including, by way of example, if applicable,
the U.S. Foreign Corrupt Practices Act).
3.17 Foreign Currency Hedging Transactions. Neither the
Company nor any of its Subsidiaries has entered into any foreign currency
hedging arrangement.
3.18 Contracts. Except as set forth on Schedule 3.18, all
contracts that are material to the Company and its Subsidiaries and to which the
Company or any of its Subsidiaries is a party ("Material Contracts") which are
required to have been filed as exhibits to the Registration Statement, have been
so filed. All Material Contracts constitute valid and binding agreements of the
Company or such Subsidiary and are enforceable against the Company or such
Subsidiary in accordance with the terms thereof. There is not, with respect to
the Material Contracts, any existing default, or event of default by the Company
or its Subsidiaries or any other party, or event which with or without due
notice or lapse of time or both would constitute a default or event of default
on the part of the Company or its Subsidiaries, except such defaults or events
of default on the part of the Company or its Subsidiaries, or any other party
and other events which would not have, individually or in the aggregate, a
Material Adverse Effect. No default exists, and no event has occurred which with
notice or lapse of time, or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any Material
Contract or other indenture, mortgage, deed of trust, bank loan or credit
agreement, lease or other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of them or
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<PAGE> 10
their respective properties is bound or may be affected, which defaults would
have, individually or in the aggregate, a Material Adverse Effect.
3.19 Financial Statements. The Company has heretofore
delivered to Purchaser (i) a balance sheet of the Company and its Subsidiaries
as at December 31, 1997 and December 31, 1996, and statements of operations,
cash flow and stockholders' equity for each of the fiscal years then ended,
audited by the Company's independent public accountants, and (ii) an unaudited
balance sheet of the Company and its Subsidiaries as at the fiscal year ended
December 31,1998 and unaudited statements of operations, cash flow and
stockholder's equity for the three months and fiscal year then ended, each
without footnotes. Such balance sheets of the Company and its Subsidiaries and
the footnotes thereto present fairly the financial position of the Company and
its Subsidiaries as at the respective dates thereof, and such statements of
operations, cash flow and stockholders' equity of the Company and the footnotes
thereto present fairly in all material respects the results of operations, cash
flow and stockholders' equity of the Company for the periods therein referred
to, all in accordance with United States generally accepted accounting
principles consistently applied.
3.20 No Undisclosed Liabilities. The Company and its
Subsidiaries have no material liabilities which are not reflected or reserved
against in the balance sheets specified in Section 3.19 above, except for
liabilities incurred in the ordinary course of business and immaterial in amount
consistent with past practice.
3.21 Listing of Ordinary Shares. The outstanding Ordinary
Shares are listed on the Nasdaq National Market, and the Company's listing
agreement with respect thereto is in full force and effect. No action has been
taken or threatened by Nasdaq with respect to the delisting or suspension from
trading of the Ordinary Shares.
3.22 Taxes. The Company and each of its Subsidiaries has
timely filed all nectax returns and notices, and has paid all federal, state,
county, local and foreign taxes of any nature whatsoever to the extent such
taxes have become due (including, without limitation, all tax returns required
under the laws of the State of Israel). The Company has no knowledge, or any
reasonable grounds to know, of any tax deficiencies which might be assessed
against the Company which, if so assessed, may have a Material Adverse Effect;
the Company and each of its Subsidiaries has paid all taxes which have become
due, whether pursuant to any assessments or otherwise, and there is no further
liability (whether or not disclosed on such returns) or assessments for any such
taxes, and no interest or penalties accrued or accruing with respect thereto,
except as may be set forth or adequately reserved for in the Company's financial
statements , copies of which have been delivered to Purchaser. The Company has
been informed that the Israeli income tax authorities intend to audit its tax
returns for the years 1993 to 1997 (inclusive).
3.23 Certain Relationships. Except as set forth on Schedule
3.23, no material relationship, direct or indirect, exists between or among the
Company or its Subsidiaries on the one hand and the directors, officers,
shareholders, customers or suppliers of the Company or its Subsidiaries on the
other hand, other than those described in the Registration Statement, including
without limitation items required to be disclosed under Item 13 of Form 20-F of
the rules and regulations of the Securities and Exchange Commission under the
Securities Act if the Company were to file a Form 20-F as of the date hereof.
3.24 HSR Act. The transactions contemplated by the Purchase
Agreement are exempt from the requirements of the HSR Act because, for each of
the fiscal years ended
9
<PAGE> 11
December 31, 1997 and December 31, 1998, (i) the aggregate book value of the
Company's assets located in the U.S. (other than investment assets, voting or
nonvoting securities of another person, and assets included pursuant to
Section 801.40(c)(2) of the HSR Act) was less than $15 million, and (ii) the
Company's aggregate sales in or into the U.S. were less than $25 million. For
purposes of this Section 3.27, the "Company" shall include all entities
"controlled" by the Company, directly or indirectly, within the meaning of such
term as defined in Section 801.1(b) of the HSR Act.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 Independent Board Member. The Company undertakes to make
its best efforts to ensure that as long as the Purchaser holds more than three
and a half percent (3.5%) of the issued and outstanding shares of the Company,
at least one of two members of the Board of Directors of the Company who will be
individuals who have expertise in the field of operation of the Company, and who
are not employees of the Company, and who have no material economic connection
to any shareholder of the Company, will be nominated for election by agreement
between the Company and the Purchaser. As long as the Purchaser holds more than
three and a half percent (3.5%) of the issued and outstanding shares of the
Company, the Company will recommend to the annual general meeting of
shareholders of the Company to elect Mr. Erel Margalit to the Board of Directors
of the Company.
4.2 Best Efforts. Upon the terms and subject to the conditions
herein provided, each of Purchaser and the Company agrees to use its reasonable
best efforts to take, or cause to be taken, all action, and to do, or cause to
be done, all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement and each other agreement
contemplated hereby including to fulfill all conditions on its part to be
fulfilled under this Agreement and each other agreement contemplated hereby. In
case at any time after the Closing Date any further action is reasonably
necessary or desirable to carry out the purposes of this Agreement and each
other agreement contemplated hereby. No party hereto will take any action for
the purpose of delaying impairing or impeding the receipt of any required
consent, authorization, order or approval or the making of any required filing.
Each party hereto shall give prompt notice to all other parties of any material
failure of such party, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder, and such party shall use all reasonable efforts to remedy such
failure.
4.3 Financial Statements. The Company covenants and agrees to
furnish to the Purchaser as long as the Purchaser holds at least three and a
half percent (3.5%) of the issued and outstanding share capital of the Company,
all annual and quarterly financial statements and reports filed or required to
be filed with the Commission.
4.4 Indemnification.
(a) Each party (the "Indemnifying Party") shall
indemnify, defend and hold harmless, from and after the Closing Date, the other
party and each of its affiliates, officers, directors, employees, members,
agents, successors, transferees and assigns (each of the foregoing, an
"Indemnified Party") from and against all liabilities, losses, damages, claims,
costs, interest,
10
<PAGE> 12
judgments, fines, amounts paid in settlement and expenses (including without
limitation reasonable attorney's fees, whether incurred in connection with a
claim for indemnification hereunder or in connection with any third party claim)
(collectively, "Losses") incurred by any of them based upon, resulting from or
arising out of (i) the breach of any representation or warranty of the
Indemnifying Party contained in this Agreement or any other agreement
contemplated by this Agreement or (ii) the breach of any covenant or agreement
of the Indemnifying Party contained in this Agreement or any other agreement
contemplated by this Agreement. No claim may be asserted nor may any action be
commenced against the Indemnifying Party, unless prompt written notice of such
claim or action is received by the Indemnifying Party describing in reasonable
detail the facts and circumstances with respect to the subject matter of such
claim or action; provided that the failure of the Indemnified Party to give the
Indemnifying Party prompt notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, except to the extent that the
Indemnifying Party is prejudiced thereby; provided that (i) the amount to be
indemnified under this Section 4.4 shall be limited to the purchase price paid
by the Purchaser for the Shares and (ii) the Company's indemnification
obligations hereunder relating to any breach of Sections 3.10, 3.12, 3.14, 3.15,
3.16, 3.17, 3.18, 3.19, 3.20, or 3.23 shall terminate on the 180th day after the
Company has filed with the Commission a Form 20-F containing audited financial
statements for the Company for the fiscal year ended December 31, 1999.
(b) The Indemnified Party shall give the Indemnifying
Party under this Section 4.7, prompt written notice (the "Indemnification Claim
Notice") of any claim, assertion, event or proceeding by or in respect of a
third party, of which such Indemnified Party has knowledge concerning any Loss
as to which such Indemnified Party may request indemnification hereunder;
provided that failure of the Indemnified Party to give the Indemnifying Party
prompt notice as provided herein shall not relieve the Indemnifying Party of any
of his, her or its obligations hereunder except to the extent that the
Indemnifying Party is prejudiced thereby. The Indemnified Party may participate
in such defense, but in such case the expenses of the Indemnified Party shall be
paid by the Indemnified Party. The Indemnified Party shall, upon reasonable
notice, provide the Indemnifying Party with access to his, her or its records
and personnel relating to any such claim, assertion, event, proceeding or matter
during nobusiness hours and shall otherwise cooperate with the Indemnifying
Party in the defense settlement, or resolution thereof, and the Indemnifying
Party shall reimburse the Indemnified Party for all his, her or its reasonable
out-of-pocket expenses in connection therewith. The Indemnifying Party shall not
pay, or permit to be paid, any part of any claim, or demand arising from such
asserted liability unless the Indemnified Party consents in writing (which
consent shall not be unreasonably withheld) to such payment or unless the
Indemnifying Party withdraws from or fails to maintain the defense of such
asserted liability or unless a final judgment from which no appeal may be taken
by or on behalf of the Indemnifying Party is entered against the Indemnified
Party for such liability. No settlement in respect of any third party claim may
be effected by the Indemnifying Party without the Indemnified Party's prior
written consent (which consent shall not be unreasonably withheld) unless the
settlement involves a full and unconditional release of the Indemnified Party.
If the Indemnifying Party shall fail to undertake or maintain any such defense
within thirty (30) days of receipt of the Indemnification Claim Notice, the
Indemnified Party shall have the right to undertake the defense or settlement
thereof, at the Indemnifying Party's expense. If the Indemnified Party assumes
the defense of any such claim or proceeding pursuant to this Section 4.4 it may
conduct such defense as it reasonably deems appropriate (without regard to the
availability of indemnification hereunder), and the Indemnifying Party shall be
responsible for and pay all costs and expenses of such defense, including its
compromise or settlement.
11
<PAGE> 13
(c) The amounts for which an Indemnifying Party shall
be liable under this Section 4.4 shall be reduced by the (i) net reimbursement
to such party from any insurance proceeds received by the Indemnified Party in
connection with the circumstances giving rise to the right of indemnification
(to the extent such insurance proceeds exceed the Indemnified Party's expenses
in recouping such insurance proceeds) and (ii) net tax benefit actually realized
by such party (as reduced by any actual or projected tax detriment resulting
from receipt of the indemnification payment) directly resulting from the Losses
to which the indemnification relates.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligations. The respective
obligations of each party to effect the transactions contemplated by the
Agreement shall be subject to the conditions that no United States, state or
foreign governmental authority or other agency or commission or United States,
state or foreign court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, injunction or
other order (whether temporary, preliminary, or permanent) which is in effect
and has the effect of prohibiting consummation of the transactions contemplated
by this Agreement; and any filing required under U.S., state or other foreign
securities laws shall have been made prior to the Closing.
5.2 Conditions to the Obligations of the Company. The
obligation of the Company to effect the transactions contemplated by this
Agreement to occur at the Closing shall be subject to the fulfillment at or
prior to the Closing Date, of the following additional conditions:
(a) The Purchaser shall have performed its
obligations under this Agreement required to be performed by it on or prior to
the Closing, pursuant to the terms hereof.
(b) The representations and warranties of the
Purchaser contained in this Agreement shall be true and correct in all material
respects at and as of the Closing, as if made at and as of such date, except to
the extent that any such representation or warranty is made as of a specified
date in which case such representation or warranty shall have been true and
correct as of such date.
(c) All necessary waivers, consents and approvals to
or of the transactions contemplated by this Agreement to occur at the Closing,
and each agreement contemplated hereby shall have been obtained, including
without limitation the approval of the Chief Scientist of the Israeli Ministry
of Industry and Commerce, the Investment Center.
5.3 Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to effect the transactions contemplated by this
Agreement to occur at the Closing shall be subject to the fulfillment at or
prior to the Closing, of the following additional conditions:
(a) The Company shall have performed its obligations
under this Agreement required to be performed by it on or prior to the Closing,
pursuant to the terms hereof.
12
<PAGE> 14
(b) The representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing, as if made at and as of such date, except to the
extent that any such representation or warranty is made as of a specified date
in which case such representation or warranty shall have been true and correct
as of such date and the Purchaser shall not have discovered any material
conflict with any such representation or warranty.
(c) Since December 31, 1998, there shall have been no
event or occurrence which has or is likely to have a Material Adverse Effect on
the Company.
(d) The Purchaser shall have received on or prior to
the Closing Date fully executed copies of a registration rights agreement
between the Company and Purchaser, in the form of Exhibit A hereto (the
"Registration Rights Agreement"), and any and all other agreements, documents,
certificates or instruments contemplated by this Agreement and any of the
foregoing.
(e) The Purchaser shall have received on or prior to
the Closing Date fully executed copies of amendments to the Warrant Agreements
dated September 15, 1997 between the Company and each purchaser identified on
Schedule 1 to the Note and Warrant Purchase Agreement dated September 15, 1997
among the Company, Paradigm Geophysical Corp., a Delaware corporation, and such
purchasers, as amended ("1997 Warrants"), in accordance with the term sheet
attached as Exhibit B hereto ("Amendment to 1997 Warrants").
(f) The Purchaser shall have received on or prior to
the Closing Date fully executed copies of an amendment to the Share Purchase
Agreement dated July 1, 1996 among the Company and the purchasers identified on
Schedule 1 thereto, as amended ("1996 Purchase Agreement"), in accordance with
the term sheet attached as Exhibit C hereto ("Amendment to 1996 Purchase
Agreement").
(g) The Purchaser shall have received on or prior to
the Closing Date fully executed copies of an amendment to the Share Purchase
Agreement dated June 1, 1995 among the Company and the purchasers identified on
Schedule 1 thereto, as amended ("1995 Purchase Agreement"), in accordance with
the term sheet attached as Exhibit D hereto ("Amendment to 1995 Purchase
Agreement").
(h) The Purchaser shall have received on or prior to
the Closing Date a legal opinion delivered by the Company's U.S. counsel dated
as of the Closing Date , in substantially the form of Exhibit E hereto.
(i) The Purchaser shall have received on or prior to
the Closing Date a legal opinion delivered by the Company's Israeli counsel
dated as of the Closing Date, in substantially the form of Exhibit F hereto.
(j) The Purchaser shall have received on or prior to
the Closing Date a copy of minutes or resolutions of the Board, which shall not
have been rescinded or modified, approving the issuance of the Ordinary Shares
to the Purchaser in accordance with the terms and conditions of the Purchase
Agreement,, and all other terms and conditions of this Agreement and all
schedules and exhibits hereto, as certified by the Company's Secretary.
13
<PAGE> 15
(k) The Purchaser shall havereceived on or prior to
the Closing Date a certificate of the Company's Secretary confirming the
inscription of the Purchaser in the Company's register of members as the owner
of the Ordinary Shares issued according to this Agreement.
(l) The Purchaser shall have received on or prior to
the Closing Date a copy of the share issuance form to be filed with the
Company's Registrar, signed by the Company's Secretary. The Company shall have
such form duly stamped and filed with the Registrar of Companies within 30 days
after the Closing Date.
(m) The Purchaser shall have received on or prior to
the Closing Date a certificate of the Company's Chief Executive Officer or Chief
Financial Officer dated the Closing Date, in substantially the form of Exhibit G
hereto, certifying the satisfaction by the Company of all conditions precedent
set forth in this Section 5.3.
(n) The Purchaser shall have received on or prior to
the Closing Date consents duly signed by 100% of the holders under each of the
1997 Warrants and the 1995 Purchase Agreement and the 1994 Warrants, and 66% of
the holders under the 1996 Purchase Agreement, substantially in the form of
Exhibit H hereto.
(o) All necessary waivers, consents and approvals to
or of the transactions contemplated by this Agreement to occur on or prior to
the Closing, or each other agreement contemplated shall have been obtained on or
prior to the Closing Date, including without limitation the approval of the
Chief Scientist of the Israeli Ministry of Industry and Commerce, Investment
Center, and, with respect to registration rights to be granted to Purchaser
under the Registration Rights Agreement, the approval of certain securityholders
and warrantholders of the Company holding registration rights.
(q) There shall have been no lawsuit, filed or
threatened, which challenges this Agreement and all transactions contemplated
hereby or seeks to impose any limitation on Purchaser's purchase of the Shares.
ARTICLE VI
MISCELLANEOUS
6.1 Amendment. This Agreement may be amended by the parties
hereto. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
6.2 Waiver. Any waiver of or failure to insist on strict
compliance with any representation, warranty, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
14
<PAGE> 16
6.3 Termination. This Agreement may be terminated at any time
prior to the Closing without further Board or shareholder action of either
party:
(i) by the mutual written consent of both
parties;
(ii) by the Company or Purchaser, if the
closing conditions to the Closing have not been satisfied or waived by noon on
April 30, 1999, unless the failure to satisfy such conditions is a result of any
breach by such party; or
(iii) by the Company or Purchaser, if it can
be demonstrated that there is a reasonable likelihood that one or more
conditions to such party's obligations to be performed at the Closing cannot be
satisfied.
6.4 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been given
or made if in writing and delivered personally, sent by commercial carrier or
registered or certified mail (postage prepaid, return receipt requested) or
transmitted by facsimile with automated receipt confirmation to the parties at
the following addresses and numbers:
(a) If to Purchaser, to:
Jerusalem Venture Partners
1 Technology Park
Malha, Jerusalem
Attention: Erel Margalit
Fax No.: (02) 697
with a copy to:
Tulchinsky, Stern & Co.
22 Knafei Nesharim
Jerusalem, 95464
Attention: Doron Stern, Adv.
Fax No.: (02) 651 3133
with a copy to:
Gunderson, Detttmer, Stough, Villeneuve,
Franklin & Hachingan LLP
22 Constitution Drive,
Pallo Alto, CA, California, USA
Attention: Renee F. Lanam
Fax No.: (650) 312 2800
(b) If to the Company, to:
Paradigm Geophysical Ltd.
Merkazim Building
15
<PAGE> 17
32 Maskit Street
P.O.B. 2061
Herzliya B 46120, Israel
Attention: Eldad Weiss
Fax No.: 011-972-9-958-9327
with a copy to:
Efrati, Galili & Co.
6 Wissotsky Street
Tel Aviv 62338
Attention: Ian Rostowsky, Adv.
Fax No.: 011-972-3-601-0111
with a copy to:
Fulbright & Jaworski LLP
666 Fifth Avenue, 31st Floor
New York, New York 10103-3198
Attention: Andrew C. Freedman, Esq.
Fax No.: (212) 752-5958
6.5 Headings; Agreement. The headings contained in this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement. The term "Agreement" for purposes of representations and warranties
hereunder shall be deemed to include the exhibits hereto to be executed and
delivered by a party.
6.6 Publicity. So long as this Agreement is in effect and
except as required by law, the parties hereto shall not, and shall cause their
affiliates not to, issue or cause the publication of any press release or other
announcement with respect to the transactions contemplated by this Agreement or
the other agreements contemplated hereby without the consent of the other
parties, which consent shall not be unreasonably withheld or delayed.
6.7 Entire Agreement. This Agreement (including all exhibits
hereto) the entire agreement among the parties and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof.
6.8 Conveyance Taxes. The Company agrees to assume liability
for and to hold the Purchaser harmless against any sales, use, transfer, stamp,
and value added taxes, registration, recording or other fees, and any similar
taxes incurred as a result of the issuance and sale of the Shares as
contemplated hereby.
6.9 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Purchaser shall be permitted
to assign any of its rights, interests or obligations under this Agreement to
any individual or entity that directly, or through one or more intermediaries,
controls, or is controlled by, or is under common control with the Purchaser
(each, an "Affiliate"); provided, however, that the Purchaser shall not assign
this Agreement to a company engaged in the oil and natural gas exploration or
the software business.
16
<PAGE> 18
6.10 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
6.11 Governing Law. The validity and interpretation of this
Agreement shall be governed by the laws of the State of Israel, without
reference to the conflict of laws principles thereof.
6.12 Third Party Beneficiaries. This Agreement is not intended
to confer upon any other person any rights or remedies hereunder.
6.13 Costs and Expenses. Each party will pay its own costs and
expenses incurred in connection with the transactions contemplated hereby,
except that, at the Closing, the Company shall pay all reasonable fees and
expenses of legal counsel to Purchaser in an amount not to exceed $30,000. The
Company shall also pay all stamp issuance taxes, fees of the Company's transfer
agent and expenses of filing with the Israeli Registof Companies.
17
<PAGE> 19
IN WITNESS WHEREOF, the Purchaser and the Company have caused
this Agreement to be duly signed as of the date first written above.
PARADIGM GEOPHYSICAL LTD.
an Israeli corporation
By: /s/ Eldad Weiss
Name:
Title:
Jerusalem Venture Partners L.P
a Delaware partnership
By: /s/ Erel Margalit
Name:
Title:
Jerusalem Venture Partners (Israel) L.P
a Delaware partnership
By: /s/ Erel Margalit
Name:
Title:
18
<PAGE> 20
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
ARTICLE I THE TRANSACTIONS............................................ 1
1.1 Purchase and Sale............................................... 1
1.2 Payment of Purchase Price....................................... 1
1.3 The Closing..................................................... 1
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............ 2
2.1 Organization.................................................... 2
2.2 Authority....................................................... 2
2.3 No Violation.................................................... 2
2.4 Securities Act Representation................................... 3
2.5 Purchase for Investment......................................... 3
2.6 Status of Purchaser............................................. 3
2.7 Legends......................................................... 3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY............. 3
3.1 Corporate Organization.......................................... 4
3.2 Share Capital................................................... 4
3.3 Share Capital of Subsidiaries................................... 4
3.4 Newly Issued Shares............................................. 5
3.5 Authority; Enforcement.......................................... 5
3.6 No Violation.................................................... 5
3.7 Brokers......................................................... 6
3.8 Foreign Private Issuer.......................................... 6
3.9 Commission Reports.............................................. 6
3.10 Litigation..................................................... 6
3.11 Disclosure..................................................... 6
3.12 Intellectual Property and Other Tangible Assets................ 6
3.13 Industrial Company............................................. 7
3.14 Compliance with Laws........................................... 7
3.15 Insurance...................................................... 8
3.16 Foreign Corrupt Practices Act.................................. 8
3.17 Foreign Currency Hedging Transactions.......................... 8
3.18 Contracts...................................................... 8
3.19 Financial Statements........................................... 9
3.20 No Undisclosed Liabilities..................................... 9
3.21 Listing of Ordinary Shares..................................... 9
3.22 Taxes.......................................................... 9
3.23 Certain Relationships.......................................... 9
3.24 HSR Act........................................................ 9
ARTICLE IV COVENANTS AND AGREEMENTS................................... 10
4.1 Independent Board Member........................................ 10
4.2 Best Efforts.................................................... 10
4.3 Financial Statements............................................ 10
4.4 Indemnification................................................. 10
ARTICLE V CONDITIONS PRECEDENT........................................ 12
5.1 Conditions to Each Party's Obligations.......................... 12
</TABLE>
47662
<PAGE> 21
<TABLE>
<CAPTION>
<S> <C>
5.2 Conditions to the Obligations of the Company.................... 12
5.3 Conditions to the Obligations of the Purchaser.................. 12
ARTICLE VI MISCELLANEOUS.............................................. 14
6.1 Amendment....................................................... 14
6.2 Waiver.......................................................... 14
6.3 Termination..................................................... 15
6.4 Notices......................................................... 15
6.5 Headings; Agreement............................................. 16
6.6 Publicity....................................................... 16
6.7 Entire Agreement................................................ 16
6.8 Conveyance Taxes................................................ 16
6.9 Assignment...................................................... 16
6.10 Counterparts................................................... 17
6.11 Governing Law.................................................. 17
6.12 Third Party Beneficiaries...................................... 17
6.13 Costs and Expenses............................................. 17
</TABLE>
47662
<PAGE> 22
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A Form of Registration Rights Agreement
Exhibit B Terms of Amendment to 1997 Warrants
Exhibit C Terms of Amendment to 1996 Purchase Agreement
Exhibit D Terms of Amendment to 1995 Purchase Agreement
Exhibit E Form of Legal Opinion of Company's U.S. Counsel
Exhibit F Form of Legal Opinion of Company's Israeli Counsel
Exhibit G Form of Closing Certificate
Exhibit H Form of Consent
</TABLE>
47662
<PAGE> 23
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE> 24
EXHIBIT B
TERMS OF AMENDMENT TO 1997 WARRANTS
1. Amend the 1997 Warrants to permit registration rights to be granted to
Purchaser as provided in the Registration Rights Agreement providing
for the following:
(a) The holders under the 1997 Warrants (together with
other holders of registration rights, the "Holders")
may have piggyback registration rights on the
Purchaser's demand registrations, but the Purchaser
will maintain priority in case of an underwriter
cutback. Therefore, the relevant section of the 1997
Warrants must be revised including without limitation
the deletion of the proviso relating to the 25% floor
for including Registrable Securities in case of
underwriters' cutbacks.
(b) The Purchaser has piggyback registration rights to
Holders' demand and F-3 registrations (commencing
twelve months after the Closing), but Holders will
maintain priority in case of an underwriter cutback..
(c) If Purchaser, on the one hand, and Holders, on the
other hand, exercise piggyback registration rights on
a Company Registration or a third party's demand
registration, all are subject to a pro rata
underwriter cut back based on then current
shareholdings.
<PAGE> 25
EXHIBIT C
TERMS OF AMENDMENT TO 1996 PURCHASE AGREEMENT
1. Amend the definition of "IPO", defined in Section 7.9 of the 1996
Purchase Agreement, so that the Company's initial public offering of
June 1998 falls within the definition.
2. Amend the 1996 Purchase Agreement to provide that the following
provisions either be terminated upon the IPO (as newly defined) or
amended, as the case may be:
(a) Section 7 affirmative covenants:
(i) Sections 7.1, 7.2, and 7.7 shall be
terminated (effective as of the IPO, as
newly defined) .
(ii) Section 7.4 (Insurance) shall be amended so
that this provision is only applicable while
Mr. Weiss is a full-time chief executive
officer of the Company.
(iii) Section 7.11 (Preemptive Rights) shall be
terminated.
(b) Section 9 negative covenants shall be terminated.
(c) Section 9A voting agreement shall be terminated.
3. Amend the 1996 Purchase Agreement to permit registration rights to be
granted to Purchaser as provided in the Registration Rights Agreement
providing for the following:
(a) The holders under the 1996 Purchase Agreement
(together with other holders of registration rights,
the "Holders") may have piggyback registration rights
on the Purchaser's demand registrations, but the
Purchaser will maintain priority in case of an
underwriter cutback. Therefore, Section 8.2 of the
1996 Purchase Agreement must be revised including
without limitation the deletion of the proviso
relating to the 25% floor for including Registrable
Securities in case of underwriters' cutbacks.
(b) The Purchaser have piggyback registration rights to
Holders' demand and F-3 registrations (commencing
twelve months after the Closing), but Holders will
maintain priority in case of an underwriter cutback.
Therefore, Section 8.3 must be amended.
(c) If Purchaser, on the one hand , and Holders, on the
other hand, exercise piggyback registration rights on
a Company Registration or a third party's demand
registration, all are subject to a pro rata
underwriter cut back based on then current
shareholdings.
<PAGE> 26
EXHIBIT D
TERMS OF AMENDMENT TO 1995 PURCHASE AGREEMENT
1. Amend the 1995 Purchase Agreement to provide that the following
provisions either be terminated upon a public offering or amended, as
the case may be:
(a) Section 7 affirmative covenants:
(i) Section 7.4 (Insurance) shall be amended so
that this provision is only applicable while
Mr. Weiss is a full-time chief executive
officer of the Company.
(ii) Section 7.7 shall be terminated .
(iii) Section 7.11 (Preemptive Rights) shall be
terminated.
(b) Section 9 negative covenants shall bterminated.
2. Amend the 1995 Purchase Agreement to permit registration rights to be
granted to Purchaser as provided in the Registration Rights Agreement
providing for the following:
(a) The holders under the 1995 Purchase Agreement
(together with other holders of registration rights,
the "Holders") may have piggyback registration rights
on the Purchaser's and Other Investor's demand
registrations, but the Purchaser will maintain
priority in case of an underwriter cutback.
Therefore, Section 8.2 of the 1995 Purchase Agreement
must be revised including without limitation the
deletion of the proviso relating to the 25% floor for
including Registrable Securities in case of
underwriters' cutbacks.
(b) The Purchaser has piggyback registration rights to
Holders' demand and F-3 registrations (commencing
twelve months after the Closing), but Holders will
maintain priority in case of an underwriter cutback.
Therefore, Section 8.3 must be amended.
(c) If Purchaser, on the one hand, and Holders, on the
other hand, exercise piggyback registration rights on
a Company Registration or a third party's demand
registration, all are subject to a pro rata
underwriter cut back based on then current
shareholdings.
<PAGE> 27
EXHIBIT G
FORM OF CLOSING CERTIFICATE
CLOSING CERTIFICATE
PARADIGM GEOPHYSICAL LTD.
This Closing Certificate is delivered in connection with that certain
Share Purchase Agreement dated March 12, 1999 (the "Agreement"), between
Paradigm Geophysical Ltd. (the "Company") and Jerusalem Pacific Ventures L.P and
Jerusalem Pacific Ventures (Israel) L.P . (collectively the "Purchaser").
Capitalized terms defined in the Agreement and not otherwise defined herein are
used herein as defined therein.
I, _______________, do hereby certify that I am the duly elected and
qualified [Chief Executive Officer] [Chief Financial Officer] of the Company and
that:
1. The Company has performed its obligations under the Agreement
required to be performed by it on or prior to the date hereof pursuant to the
terms of the Agreement.
2. The representations and warranties of the Company contained in the
Agreement are true and correct in all material respects at and as of the date
hereof as if made at and as of the date hereof, except to the extent that any
such representation or warranty is made as of a specified date in which case
such representation or warranty is or was true and correct as of such date.
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IN WITNESS WHEREOF, the undersigned has executed this Certificate on
behalf of the Company as of this ____ day of __________, 1999.
___________________________________
Name: __________________________
Title: __________________________
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EXHIBIT H
FORM OF CONSENT
[Name and address of shareholder or warrantholder]
Re: Your Consent to Certain Transactions
Paradigm Geophysical Ltd. (the "Company") plans on consummating an
investment by Jerusalem Venture Partners L.P and Jerusalem Venture Partners
(Israel) L.P (collectively the "Purchaser") of $5,000,000 in consideration for
the Company's Ordinary Shares (the "Investment").
As a condition to the Investment, your consent to (i) a proposed
registration rights agreement between the Company and Purchaser, attached hereto
as Annex A (the "Registration Rights Agreement"), and (ii) an amendment to [name
of relevant purchase or warrant agreement], attached hereto as Annex B (the
"Amendment"), is required.
Consequently, we request your consent to the above-mentioned
Registration Rights Agreement and Amendment. To indicate your consent, please
sign where indicated below and sign the Amendment in the appropriate place
indicated therein. Then, please return this letter (with your signature) and the
Amendment (with your signature) as soon as possible but, in any event, not later
than _______________.
Very truly yours,
Eldad Weiss
Chief Executive Officer
AGREED AND CONSENTED TO:
By: __________________________
Name: __________________________
Title: __________________________
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as
of March 12, 1999 by and between PARADIGM GEOPHYSICAL LTD., an Israeli company
(the "Company"), and JERUSALEM VENTURE PARTNERS L.P., a Delaware limited
partnership and JERUSALEM VENTURE PARTNERS (ISRAEL) L.P., an Israeli limited
partnership (collectively, the "Holder"). Capitalized terms not defined herein
shall have the meanings assigned to such terms in the Purchase Agreement (as
defined below).
R E C I T A L S:
Pursuant to the terms and subject to the conditions of that certain
Share Purchase Agreement dated as of the date hereof (the "Purchase Agreement")
between the Company and the Holder, in its capacity as an investor thereunder,
the execution and delivery of this Agreement is a condition to the purchase and
sale by the Holder of certain Ordinary Shares (NIS 0.5 par value) (the "Ordinary
Shares").
A G R E E M E N T:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Approved Underwriter" shall have the meaning set forth in
Section 2.
"Closing Date" shall mean the Closing Date as defined in the
Purchase Agreement.
"Demand Registration" shall have the meaning set forth in
Section 2.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Form F-3" shall mean Form F-3 under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
"Form F-3 Registration" shall have the meaning set forth in
Section 4.
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"Incidental Registration" shall have the meaning set forth in
Section 3.
"Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such Prospectus.
"Register", "registered" and "registration" shall mean and
refer to a registration effected by preparing and filing a Registration
Statement and taking all other actions that are necessary or appropriate in
connection therewith, and the declaration or ordering of effectiveness of such
Registration Statement by the SEC.
"Registration Expenses" shall have the meaning set forth in
Section 8.
"Registrable Securities" shall mean all Ordinary Shares held
by the Holder as of the date hereof or subsequently transferred to a permitted
transferee under Section 16 hereof, provided that such term shall not include
any such Ordinary Shares sold to the public by the Holder pursuant to a
Registration Statement under the Securities Act or sold by the Holder in a
private transaction in which Holder's rights hereunder were not assigned to the
purchasers thereof.
"Registration Statement" shall mean any registration statement
of the Company in compliance with the Securities Act that covers Registrable
Securities pursuant to the provisions of this Agreement, including, without
limitation, the Prospectus, all amendments and supplements to such Registration
Statement, including all post-effective amendments, all exhibits and all
material incorporated by reference in such Registration Statement.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Underwritten registration" or "underwritten offering" shall
mean a registration in which securities of the Company are sold to an
underwriter or through an underwriter as agent for reoffering to the public.
2. Demand Registration.
(a) Request for Demand Registration. At any time after the
first anniversary of the Closing Date, the Holder shall be entitled to request
in writing that the Company use its best efforts to effect the registration
under the Securities Act, and under the securities or "blue sky" laws of any
jurisdiction designated by Holder, of Registrable Securities comprising at least
350,000 Ordinary Shares (including Registrable Securities as to which other
holders of Registrable Securities are also seeking registration pursuant to such
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request) in accordance with this Section 2 (each, a "Demand Registration"). Any
such request for a Demand Registration shall specify the amount of Registrable
Securities proposed to be sold and the intended method of disposition thereof.
Upon receiving a request for a Demand Registration, the Company will, as
provided in this Section 2, use its best efforts to effect the registration
under the Securities Act of the Registrable Securities which the Company has
been so requested by the Holder to register.
(b) Limitation on Demand Registrations. Notwithstanding
anything to the contrary set forth in Section 2(a) but subject to Section 8, the
Company shall not be obligated to file a Registration Statement with respect to
more than one (1) a Demand Registration upon a request by the Holder under
Section 2(a).
(c) Effective Demand Registration. A registration shall not
constitute a Demand Registration until the Registration Statement has become
effective and remains continuously effective for the lesser of (i) the period
during which all Registrable Securities registered in the Demand Registration
are sold and (ii) 180 days; provided, however, that a registration shall not
constitute a Demand Registration if (x) after such Demand Registration has
become effective, such registration or the related offer, sale or distribution
of Registrable Securities thereunder is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason not attributable to the Holder and such
interference is not thereafter eliminated or (y) the conditions to closing
specified in the underwriting agreement, if any, entered into in connection with
such Demand Registration are not satisfied or waived, other than by reason of a
failure by the Holder.
(d) Underwriting Procedures. If the Holder so elects, the
offering of Registrable Securities pursuant to a Demand Registration shall be in
the form of a firm commitment underwritten offering and the managing underwriter
or underwriters selected for such offering shall be the Approved Underwriter (as
hereinafter defined) selected in accordance with Section 2(e). With respect to
any firm commitment underwritten offering, the Company shall enter into a
reasonable and customary underwriting agreement with the Approved Underwriter.
If the Approved Underwriter advises the Company in writing that in its opinion
the aggregate amount of Ordinary Shares requested to be included in such
offering is sufficiently large to have a material adverse effect on the success
of such offering, then the Company shall include in such registration only the
aggregate amount of Ordinary Shares that in the opinion of the Approved
Underwriter may be sold without any such material adverse effect and shall
allocate the amount of the Ordinary Shares to be included in such registration
as follows: (i) first, the Holder shall be permitted to include all Registrable
Securities to be registered thereby; and (ii) second, the Company and any other
shareholder exercising piggyback registration rights shall be allowed to include
such amount of Ordinary Shares as the Approved Underwriter deems appropriate;
provided, however, that the amount of Ordinary Shares to be sold by the Company
and any other shareholders under clause (ii) and intended to be included in such
offering shall be reduced in its entirety prior to any reduction of the number
of Holder's Registrable Securities.
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(e) Selection of Underwriters. If any Demand Registration is
in the form of an underwritten offering, the Holder shall select and obtain one
or more investment banking firms of national reputation to act as the managing
underwriters of the offering (collectively, the "Approved Underwriter");
provided, however, that the Approved Underwriter shall, in any case, be
acceptable to the Company in its reasonable judgment.
3. Incidental Registration. If the Company shall determine to
register any Ordinary Shares, or any securities convertible into or exchangeable
or exercisable for Ordinary Shares, for its own account or for the account of
any stockholder (other than a registration on Forms F-4, or F-8 or any
replacement or successor form thereof), the Holder shall be entitled to include
Registrable Securities in such registration (and related underwritten offering,
if any) (each, an "Incidental Registration") on the following terms and
conditions:
(a) The Company shall promptly give written notice of such
determination to Holder, and Holder shall have the right to request, by written
notice given to the Company within thirty (30) days of the receipt by Holder of
such notice of determination, that a specific number of Registrable Securities
held by Holder be included in such Registration Statement;
(b) If the proposed registration relates to an underwritten
offering, the notice called for by Section 3(a) shall specify the name of the
managing underwriter for such offering and the number of securities to be
registered for the account of the Company and for the account of any other
stockholder of the Company;
(c) If the proposed registration relates to an underwritten
offering, Holder must (i) sell all or a portion of its Registrable Securities on
the same basis provided in the underwriting arrangements approved by the Company
and (ii) complete and execute all questionnaires, powers of attorney,
indemnities (but only to the extent such indemnities relate specifically to
information supplied by Holder), hold-back agreements, underwriting agreements
and other documents on the same basis as other similarly situated selling
shareholders (or, if there are no other selling shareholders, as would be
customary in a transaction of this type) required under the terms of such
underwriting arrangements or by the SEC;
(d) If the managing underwriter for the underwritten offering
under the proposed registration to be made by the Company determines that
inclusion of all or any portion of the Registrable Securities in such offering
would adversely affect the ability of the underwriter for such offering to sell
all of the securities requested to be included for sale or the price per share
in such offering, the number of shares that may be included in such registration
in such offering shall be allocated as follows: (i) first, the Company or the
selling shareholder exercising demand registration rights, as the case may be,
shall be permitted to include all Ordinary Shares to be registered thereby; and
(ii) second, the Holder and any other selling shareholder exercising piggyback
registration rights shall be allowed to include such amount of Registrable
Securities as the managing underwriter(s) deems appropriate (on a pro rata basis
with one another but only to the extent that such pro rata basis applies to the
number of Ordinary Shares still retained at the time of such cutback);
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(e) Holder shall have the right to withdraw its Registrable
Securities from the Registration Statement at any time prior to the effective
date thereof, but if the same relates to an underwritten offering, it may only
do so after the initial filing thereof during the time period and on terms
deemed appropriate by the underwriters for such underwritten offering; and
(f) The Company or any other shareholder exercising demand
registration rights shall have the right to terminate or withdraw any
registration statement filing under this Section 3 prior to the effective date
of such registration for any reason without liability to Holder as a result
thereof, whether or not Holder has elected to include such securities in such
registration.
4. Form F-3 Registration.
(a) At any time after the first anniversary of the Closing
Date, Holder shall, subject to the provisions of this Section 4, be entitled to
request that the Company effect a registration of Holder's Registrable
Securities comprising at least 150,000 Ordinary Shares on Form F-3 as shall be
specified in such request (a "Form F-3 Registration").
(b) As soon as practicable after receipt of any written
request pursuant to Section 4(a), the Company shall file a Form F-3 Registration
Statement covering the Registrable Securities and shall effect such registration
as would permit or facilitate the sale and distribution of all or such portion
of Holder's Registrable Securities as are specified in such request.
(c) At all times during which the Company is subject to the
reporting requirements of the Exchange Act, the Company shall use its best
efforts to make registrations on Form F-3 available for the sale of Registrable
Securities.
(d) If the Holder so elects, the offering of Registrable
Securities pursuant to a Form F-3 Registration shall involve a managing
underwriter or underwriters selected for such offering by the Holder; provided,
however, that such managing underwriter shall be acceptable to the Company in
its reasonable judgment. If the managing underwriter advises the Company in
writing that in its opinion the aggregate amount of Ordinary Shares requested to
be included in such offering is sufficiently large to have a material adverse
effect on the success of such offering, then the Company shall include in such
registration only the aggregate amount of Ordinary Shares that in the opinion of
the managing underwriter may be sold without any such material adverse effect
and shall allocate the amount of the Ordinary Shares to be included in such
registration as follows: (i) first, the Holder shall be permitted to include all
Registrable Securities to be registered thereby; and (ii) second, the Company
and any other shareholder exercising piggyback registration rights shall be
allowed to include such amount of Ordinary Shares as the managing underwriter
deems appropriate; provided, however, that, the amount of Ordinary Shares to be
sold by the Company and any other
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shareholders under clause (ii) and intended to be included in such offering
shall be reduced in its entirety prior to any reduction of the number of
Holder's Registrable Securities.
(e) Holder shall have the right to withdraw its Registrable
Securities from the Registration Statement at any time prior to the effective
date thereof, but if the same relates to an underwritten offering, it may only
do so after the initial filing thereof during the time period and on terms
deemed appropriate by the underwriters for such underwritten offering.
(f) Notwithstanding anything to the contrary in Section 4(a)
but subject to Section 8, the Company shall not be obligated to file a
Registration Statement with respect to a Form F-3 Registration upon a request by
the Holder under Section 4(a), if the Company has paid the Registration Expenses
for one Form F-3 Registrations in accordance with Section 8.
5. Blockage Periods. Notwithstanding any other provision of this
Agreement, the Company shall not be obligated to file any Registration Statement
under Section 2 or Section 4 at any time that the Company's Board of Directors
determines in good faith, as certified to the Holder in writing by the Company's
President or Chief Executive Officer, that the filing of such a Registration
Statement would be seriously detrimental to the Company. The Company may decline
to file any Registration Statement for this reason only once in any 12-month
period and only for a maximum period of 180 days at any one time.
6. Restrictions on Public Sale by Holder of Registrable
Securities. If Registrable Securities are included (in whole or in part) in a
Registration Statement filed by the Company under Sections 2 through 4 for sale
in an underwritten offering, Holder agrees, if requested by the managing
underwriter(s) of such offering, not to sell, make any short sale of, loan,
grant any option for the purchase of, dispose of or effect any public sale or
distribution of securities of the same series and class as (or securities
exchangeable or exercisable for or convertible into securities of the same
series and class as) the Registrable Securities included in the Registration
Statement, including a sale pursuant to Rule 144 under the Securities Act
(except as part of such underwritten registration), during the five (5) day
period prior to, and during the one hundred twenty (120) day period (or shorter
period requested by the managing underwriter(s)) beginning on the closing date
of such underwritten offering, to the extent timely notified in writing by the
Company or the managing underwriter(s).
7. Registration Procedures. In connection with the Company's
registration obligations pursuant to Sections 2 through 4 hereof, the Company
will use its best efforts to effect such registration to permit the sale of the
Registrable Securities covered thereby in accordance with the intended method or
methods of disposition thereof, and pursuant thereto the Company will act as
expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities and use its best efforts to cause
such Registration Statement to become effective, and, upon the request of
Holder, keep such registration statement effective for up to one hundred eighty
(180) days, provided that, before filing any Registration
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Statement or Prospectus or any amendments or supplements thereto, the Company
will furnish to Holder and its counsel, copies of all such documents proposed to
be filed at least five (5) days prior thereto, and the Company will not file any
such Registration Statement or amendment thereto or any Prospectus or any
supplement thereto to which Holder shall reasonably object within such five (5)
day period, provided, further, that the Company will not name or otherwise
provide any information with respect to Holder in any Registration Statement or
Prospectus without the express written consent of Holder, unless required to do
so by the Securities Act and the rules and regulations thereunder;
(b) prepare and file with the SEC such amendments,
post-effective amendments and supplements to the Registration Statement and the
Prospectus as may be necessary to comply with the provisions of the Securities
Act and the rules and regulations thereunder with respect to the disposition of
all securities covered by such Registration Statement;
(c) promptly notify the Holder (i) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectus or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose, (iv) if at any time the representations and warranties of the
Company contemplated by the Purchase Agreement cease to be true and correct, (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose and (vi) of
the happening of any event which makes any statement made in the Registration
Statement, the Prospectus or any document incorporated therein by reference
untrue or which requires the making of any changes in the Registration
Statement, the Prospectus or any document incorporated therein by reference in
order to make the statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at the
earliest possible moment;
(e) furnish to Holder, without charge, at least one signed
copy of the Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits (including those incorporated by reference);
(f) deliver to Holder, without charge, such reasonable number
of conformed copies of the Registration Statement (and any post-effective
amendment thereto) and such number of copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto (and any
documents incorporated by reference therein) as Holder may reasonably request,
all in full conformity with the Securities Act; the Company consents to the use
of the Prospectus or any amendment or supplement thereto by the Holder
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in connection with the offer and sale of the Registrable Securities covered by
the Prospectus or any amendment or supplement thereto;
(g) prior to any offering of Registrable Securities covered by
a Registration Statement, register or qualify or cooperate with Holder in
connection with the registration or qualification of such Registrable Securities
for offer and sale under the securities or blue sky laws of such jurisdictions
as Holder reasonably requests, and use its best efforts to keep each such
registration or qualification effective, including through new filings, or
amendments or renewals, during the period such Registration Statement is
required to be kept effective pursuant to the terms of this Agreement; and do
any and all other acts or things necessary or advisable to enable the
disposition in all such jurisdictions reasonably requested by Holder, provided
that under no circumstances shall the Company be required in connection
therewith or as a condition thereof to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions;
(h) cooperate with Holder and the managing underwriter or
underwriters to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, free of any and all restrictive
legends, such certificates to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, or Holder may
request;
(i) upon the occurrence of any event contemplated by Section
7(c)(vi) above, prepare a supplement or post-effective amendment to the
Registration Statement or the Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(j) make generally available to the holders of the Company's
outstanding securities earnings statements satisfying the provisions of Section
ll(a) of the Securities Act, no later than sixty (60) days after the end of any
twelve (12) month period (or ninety (90) days, if such period is a fiscal year)
(i) commencing at the end of any fiscal quarter in which Registrable Securities
are sold to underwriters in a firm or best efforts underwritten offering, or, if
not sold to underwriters in such an offering, (ii) beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of the Registration Statement, which statements shall cover said twelve (12)
month period;
(k) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by each Registration Statement
from and after a date not later than the effective date of such Registration
Statement;
(l) use its best efforts to cause all Registrable Securities
covered by each Registration Statement to be listed, subject to notice of
issuance, prior to the date of the first sale of such Registrable Securities
pursuant to such Registration Statement, on each securities exchange on which
the Ordinary Shares issued by the Company is then listed, and admitted to
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trading on the Nasdaq Stock Market, if the Ordinary Shares are then admitted to
trading on the Nasdaq Stock Market; and
(m) enter into such agreements (including underwriting
agreements in customary form containing, among other things, reasonable and
customary indemnities) and take such other actions as Holder shall reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities.
(n) furnish, at the request of Holder, on the date that
Registrable Securities are delivered to an underwriter for sale in connection
with an underwritten registration, or, in connection with any other
registration, on the date that the registration statement with respect to such
registration becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purpose of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to Holder, and (ii) a
letter dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to Holder, subject to Holder providing
information reasonably requested by such independent certified public
accountants to comply with the rules governing delivery of such letters.
Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 7(c)(vi)
hereof, Holder will forthwith discontinue disposition of Registrable Securities
under the Prospectus related to the applicable Registration Statement until
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 7(i) hereof, or until it is advised in writing by the
Company that the use of the Prospectus may be resumed. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 7 with respect to the Registrable Securities of Holder that Holder shall
furnish to the Company such information regarding itself and the Registrable
Securities held by it as shall be required by the Securities Act to effect the
registration of Holder's Registrable Securities.
8. Registration Expenses. All expenses incident to any registration to
be effected hereunder (whether or not the Registration Statement is filed or
declared effective) and incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, National Association of Securities
Dealers, Inc., stock exchange and qualification fees, fees and disbursements of
the Company's counsel and of independent certified public accountants of the
Company (including the expenses of any special audit required by or incident to
such performance), the fees of one counsel representing Holder in such offering,
expenses of the underwriters that are customarily requested in similar
circumstances by such underwriters (excluding discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities), all
such expenses being herein called "Registration Expenses," will be borne by the
Company. The Company will also pay its internal
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expenses, the expense of any annual audit and the fees and expenses of any
person retained by the Company. Notwithstanding the foregoing but subject to
Section 12, the Company will not be obligated to pay Registration Expenses for
more than two Demand Registrations effected pursuant to Section 2 of this
Agreement or for more than one Form F-3 Registration effected pursuant to
Section 4 of this Agreement. Registration Expenses incurred in connection with
Registration Statements requested under Section 2 or Section 4 that are not
filed or declared effective by the SEC will be paid by the Company and will not
count against such limit; provided, however, if such Registration Statement not
being filed or declared effective is the result of the actions of Holder, then
Holder shall bear the Registration Expenses of such Demand Registration or such
Form F-3 Registration, as the case may be, in which case such registration shall
not be counted as a Demand Registration under Section 2 or a Form F-3
Registration under Section 4, as the case may be. In the event that Holder bears
the Registration Expenses (and underwriting discounts and commissions and
transfer taxes, if any) in connection with any Demand Registration requested
under Section 2 or Form F-3 Registration under Section 4, such Registration
Expenses shall be apportioned among the holders whose Ordinary Shares are then
being registered, on the basis of the respective amounts (by number of Ordinary
Shares) then being registered by them or on their behalf.
9. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless Holder, its officers, directors, partners and
employees and each person who controls Holder (within the meaning of Section 15
of the Securities Act) from and against any and all losses, claims, damages and
liabilities (including any investigation, legal or other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted) (collectively, "Damages") to which
Holder may become subject under the Securities Act, the Exchange Act or other
federal or state securities law or regulation, at common law or otherwise,
insofar as such Damages arise out of or are based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or any amendment or supplement
thereto, (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and (iii)
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act or any state securities or blue sky laws in connection with the
Registration Statement, Prospectus or preliminary prospectus or any amendment or
supplement thereto, provided that the Company will not be liable to Holder to
the extent that such Damages arise from or are based upon any untrue statement
or omission (x) based upon written information furnished to the Company by
Holder expressly for the inclusion in such Registration Statement, (y) made in
any preliminary prospectus if Holder failed to deliver a copy of the Prospectus
with or prior to the delivery of written confirmation of the sale by Holder to
the party asserting the claim underlying such Damages and such Prospectus would
have corrected such untrue statement or omission and (z) made in any Prospectus
if such untrue statement or omission was corrected in an amendment or
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supplement to such Prospectus and Holder failed to deliver such amendment or
supplement prior to or concurrently with the sale of Registrable Securities to
the party asserting the claim underlying such Damages.
(b) Indemnification by Holder of Registrable Securities. If
Registrable Securities are sold under a Prospectus which is a part of a
Registration Statement, Holder agrees to indemnify and hold harmless the
Company, its directors and each officer who signed such Registration Statement
and each person who controls the Company (within the meaning of Section 15 of
the Securities Act) under the same circumstances as the foregoing indemnity from
the Company to Holder to the extent that such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue statement of a
material fact or omission of a material fact that was made in the Prospectus,
the Registration Statement, or any amendment or supplement thereto, in reliance
upon and in conformity with information relating to Holder furnished in writing
to the Company by Holder expressly for use therein, provided that in no event
shall the aggregate liability of Holder exceed the amount of the net proceeds
received by Holder upon the sale of the Registrable Securities giving rise to
such indemnification obligation. The Company and Holder shall be entitled to
receive indemnities from underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution, to
the same extent as customarily furnished by such persons in similar
circumstances.
(c) Conduct of Indemnification Proceedings. Any person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party, provided, however,
that any person entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such claim, but the
fees and expenses of such counsel shall be at the expense of such person and not
of the indemnifying party unless (A) the indemnifying party has agreed to pay
such fees or expenses, (B) the indemnifying party shall have failed to assume
the defense of such claim and employ counsel reasonably satisfactory to such
person or (C) in the reasonable judgment of such person and the indemnifying
party, based upon advice of their respective counsel, a conflict of interest may
exist between such person and the indemnifying party with respect to such claims
(in which case, if the person notifies the indemnifying party in writing that
such person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person). If such defense is not assumed by the
indemnifying party, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent will not be
unreasonably withheld). No indemnified party will be required to consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by all claimants or plaintiffs to such
indemnified party of a release from all liability in respect to such claim or
litigation. Any indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim. As used in this Section 9(c), the terms
"indemnifying party", "indemnified party" and other terms of similar import are
intended to include only the Company (and its officers,
11
<PAGE> 12
directors and control persons as set forth above) on the one hand, and Holder
(and its officers, directors, partners, employees, attorneys and control persons
as set forth above) on the other hand, as applicable.
(d) Contribution. If for any reason the foregoing indemnity is
unavailable, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, in such proportion as
is appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other but
also the relative fault of the indemnifying party and the indemnified party as
well as any other relevant equitable considerations. Notwithstanding the
foregoing, Holder shall not be required to contribute any amount in excess of
the amount Holder would have been required to pay to an indemnified party if the
indemnity under Section 9(b) hereof was available. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11 of the Securities
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
(e) Timing of Payments. An indemnifying party shall make
payments of all amounts required to be made pursuant to the foregoing provisions
of this Section 9 to or for the account of the indemnified party from time to
time promptly upon receipt of bills or invoices relating thereto or when
otherwise due or payable.
(f) Survival. The indemnity and contribution agreements
contained in this Section 9 shall remain in full force and effect, regardless of
any investigation made by or on behalf of Holder, its officers, directors,
partners, attorneys, agents or any person, if any, who controls Holder as
aforesaid, and shall survive the transfer of such Registrable Securities by
Holder.
10. Preparation; Reasonable Investigation. In connection with the
preparation and filing of a Registration Statement pursuant to the terms of this
Agreement:
(a) the Company shall, with respect to a Registration
Statement filed by the Company, give the Holder, the underwriters, if any, and
their respective counsel and accountants the opportunity to participate in the
preparation of such Registration Statement (other than reports and proxy
statements incorporated therein by reference and lawfully and properly filed
with the SEC) and each Prospectus included therein or filed with the SEC, and
each amendment thereof or supplement thereto; and
(b) the Company shall give the Holder, its underwriters, if
any, and their respective counsel and accountants such reasonable access to its
books and records and such opportunities to discuss the business of the Company
with its officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the
12
<PAGE> 13
opinion of Holder or such underwriters, to conduct a reasonable investigation
within the meaning of Section ll(b)(3) of the Securities Act.
11. Rule 144. At all times during which the Company is subject to
the periodic reporting requirements of the Exchange Act, the Company covenants
that it will file, on a timely basis, the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder, and it will take such further action as Holder
may reasonably request (including, without limitation, compliance with the
current public information requirements of Rule 144(c) and Rule 144A under the
Securities Act), all to the extent required from time to time to enable Holder
to sell Registrable Securities without registration under the Securities Act
within the limitation of the conditions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, (b) Rule 144A
under the Securities Act, as such Rule may be amended from time to time, or (c)
any similar rule or regulation hereafter adopted by the SEC. Upon the request of
Holder, the Company will deliver to such holder a written statement verifying
that it has complied with such information requirements.
12. No Inconsistent Agreements. The Company will not enter into
any agreement offering registration rights of the nature set forth herein
without the consent of Holder, which consent may be withheld, in its sole
discretion; provided that the Company may grant demand and incidental
registration rights in the future to the holders of Ordinary Shares on the
following basis (in which event the consent of the Holder will not be required):
(a) all cutbacks on incidental registrations shall be on a pro rata basis with
the Ordinary Shares held by Holder and any other selling shareholder exercising
incidental registration rights (but only to the extent that such pro rata basis
applies to the number of Ordinary Shares still retained at the time of such
cutback); (b) an investor investing between $5,000,000 and $10,000,000 shall be
entitled to not more than one demand registration right and one F-3
Registration; (c) an investor investing between $10,000,000 and $20,000,000
shall be entitled to not more than two demand registration rights and two F-3
Registrations; (d) an investor investing greater than $20,000,000 shall be
entitled to not more than three demand registration rights and two F-3
Registrations; and (e) holders of any registration rights granted subsequent to
the date hereof shall not exercise any such rights, except incidental
registration rights, prior to the first anniversary of the closing of the
purchase of the Ordinary Shares as to which such registration rights were
granted.
13. Assignment of Rights. Holder may assign its rights under the
Agreement to (a) any transferee of the Registrable Securities of Holder, if such
transferee has executed this Agreement and agreed to be bound by the terms
hereof (it being understood, however, that Holder shall retain all of Holder's
rights hereunder with respect to all Registrable Securities not so transferred
thereby) or (b) any stockholder, subsidiary, partner, nominee or affiliate of
Holder or any such transferee. The transferor shall, within twenty (20) days
after such transfer, furnish the Company with written notice of the name and
address of such transferee and the securities with respect to which such
registration rights are being assigned.
13
<PAGE> 14
14. Specific Performance. Holder, in addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
15. Notices. All notices required or permitted under the terms of this
Agreement shall be delivered in the manner called for in the Purchase Agreement.
16. Successors and Assigns. Subject to Section 13, this Agreement shall
inure to the benefit of the successors and assigns of Holder, such that the
rights under this Agreement shall inure to the benefit of and be binding upon
subsequent holders of Registrable Securities without the need for an express
assignment. This Agreement shall inure to the benefit of and be binding upon the
Company and any corporation resulting from any merger or consolidation of the
Company with or into such corporation (in which the Company is not the surviving
corporation) or any corporation whose securities are issued in exchange for
Ordinary Shares.
17. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
18. Entire Agreement. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof and shall supersede and
preempt any prior understandings, agreements or representations, written or
oral, by or among the parties hereto.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be original, and all of which together shall
constitute one instrument.
20. Amendment. Any provision of this Agreement may be amended, waived
or modified only by a writing signed by the Company and holders of a majority of
the Registrable Securities.
21. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of Israel.
14
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the day and year first above written.
COMPANY: PARADIGM GEOPHYSICAL LTD.
By: /s/ Eldad Weiss
___________________________________
Name:___________________________
Title:____________________________
HOLDER: JERUSALEM VENTURE PARTNERS L.P
By: /s/ Erel Margalit
___________________________________
Name:___________________________
Title:____________________________
JERUSALEM VENTURE PARTNERS (ISRAEL) L.P
By: /s/ Erel Margalit
___________________________________
Name:___________________________
Title:____________________________
15
<PAGE> 1
Exhibit 10.15
--------------------------------------------------
SHARE PURCHASE AGREEMENT
BETWEEN
PARADIGM GEOPHYSICAL LTD.
AND
SHAMROCK HOLDINGS, INC.
--------------------------------------------------
Dated as of April 14, 1999
--------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE TRANSACTIONS 2
1.1 Purchase and Sale 2
1.2 Payment of Purchase Price 3
1.3 The Closing 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 3
2.1 Organization 3
2.2 Authority 3
2.3 No Violation 3
2.4 Securities Act Representation 4
2.5 Shareholding
2.5 Purchase for Investment 4
2.6 Status of Purchaser 4
2.7 Legends 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY 4
3.1 Corporate Organization 5
3.2 Share Capital 5
3.3 Share Capital of Subsidiaries 5
3.4 Newly Issued Shares 6
3.5 Authority; Enforcement 6
3.6 No Violation 6
3.7 Brokers 7
3.8 Foreign Private Issuer 7
3.9 Commission Reports 7
3.10 Litigation 7
3.11 Disclosure 7
3.12 Intellectual Property and Other Tangible Assets 7
3.13 Industrial Company 8
3.14 Compliance with Laws 9
3.15 Insurance 9
3.16 Foreign Corrupt Practices Act 9
3.17 Foreign Currency Hedging Transactions 9
3.18 Contracts 9
3.19 Financial Statements 10
3.20 No Undisclosed Liabilities 10
3.21 Listing of Ordinary Shares 10
3.22 Taxes 10
3.23 Certain Relationships 10
3.24 HSR Act 11
ARTICLE IV COVENANTS AND AGREEMENTS 11
4.1 Board Member 11
4.2 Best Efforts 12
4.3 Financial Statements 12
4.4 Indemnification 12
4.5 Registration of Conversion of Preferred Shares 13
4.6 Approval of Certain Business 13
ARTICLE V CONDITIONS PRECEDENT 14
5.1 Conditions to Each Party's Obligations 14
5.2 Conditions to the Obligations of the Company 14
5.3 Conditions to the Obligations of the Purchaser 14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI MISCELLANEOUS 16
6.1 Amendment 16
6.2 Waiver 16
6.3 Termination 17
6.4 Notices 17
6.5 Headings; Agreement 18
6.6 Publicity 18
6.7 Entire Agreement 18
6.8 Conveyance Taxes 18
6.9 Assignment 18
6.10 Counterparts 19
6.11 Governing Law 19
6.12 Third Party Beneficiaries 19
6.13 Costs and Expenses 19
</TABLE>
<PAGE> 4
SHARE PURCHASE AGREEMENT
SHARE PURCHASE AGREEMENT (the "Agreement") dated as of April 14,
1999 by and between Paradigm Geophysical Ltd., an Israeli corporation (the
"Company"), and Shamrock Holdings, Inc., a Delaware corporation (the
"Purchaser").
R E C I T A L S:
WHEREAS, the Purchaser wishes to purchase from the Company, and
the Company wishes to sell to the Purchaser, the number of Ordinary Shares (NIS
0.5 par value) of the Company (the "Ordinary Shares") as is set forth in Section
1.1 below, on the terms and subject to the conditions set forth herein;
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions
contained herein, the sufficiency of which is hereby acknowledged, and in order
to set forth the terms and conditions of the transactions described herein and
the mode of carrying the same into effect, the parties hereby agree as follows:
ARTICLE I
THE TRANSACTIONS
1.1 Purchase and Sale.
(a) Subject to the terms and conditions of this Agreement,
Purchaser agrees to purchase from the Company and the Company agrees to sell to
Purchaser at the Closing (as defined below) 877,193 Ordinary Shares of NIS 0.5
nominal value NIS 0.5 each of the Company (the "Shares") in consideration for an
aggregate purchase price of $5,000,000, representing 7.69% of the issued and
outstanding share capital of the Company immediately after the Closing (and
approximately 5.69% on a fully diluted basis, assuming exercise of all
outstanding warrants and options and assuming the investment by Eastgate as
defined below).
(b) The Purchaser agrees that the Company may issue
263,158 Ordinary Shares to Eastgate [full name] ("Eastgate") at the same price
and otherwise according to the same terms and conditions as specified in this
Agreement. The closing of the Eastgate investment is contemplated to take place
simultaneously with the Closing (as defined in Section 1.3 below).
1.2 Payment of Purchase Price.
2
<PAGE> 5
(a) Payment by Purchaser of the aggregate purchase price
for the Shares shall be made in cash via wire transfer of immediately available
funds to a bank account designated by the Company on the Closing Date (as
defined below). At the Closing, the Company shall deliver to Purchaser a
certificate registered in the name of the Purchaser representing the Shares
purchased by Purchaser in accordance with Section 1.1(a) hereof and the
documents specified in Section 5.3 below.
1.3 The Closing.
Subject to the fulfillment of the conditions precedent
specified in Article V hereof (any or all of which may be waived in writing by
the respective parties whose performance is conditioned upon satisfaction of
such conditions precedent), the purchase and sale of the Shares shall be
consummated at a closing (the "Closing") to be held at the offices of Efrati,
Galili & Co., 6 Wissotsky Street, Tel Aviv, Israel, on April 29, 1999 at 10:00
am, Israeli time, or as soon as practicable thereafter following the
satisfaction or waiver of all relevant conditions precedent specified in Article
V hereof, or at such other place and time as the Company and Purchaser shall
mutually agree after the satisfaction or waiver of all conditions precedent
specified in Article V hereof (the date on which the Closing occurs being herein
referred to as the "Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
Purchaser represents and warrants to the Company, as to all
matters relevant thereto, as follows:
2.1 Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation.
2.2 Authority. Purchaser has full corporate power and authority
to execute and deliver this Agreement and each other agreement contemplated
hereby, to carry out its obligations hereunder and to consummate the
transactions contemplated on its part hereby. The execution, delivery and
performance by Purchaser of this Agreement and each other agreement contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Purchaser, and no other action on the part of Purchaser is necessary to
authorize the execution and delivery of this Agreement and each other agreement
contemplated hereby by Purchaser or the performance by Purchaser of its
obligations hereunder. This Agreement has been duly executed and delivered by
Purchaser and constitutes a legal, valid and binding agreement of Purchaser,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
creditors' rights generally and subject to general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
2.3 No Violation. The execution and delivery of this Agreement
and the Registration Rights Agreement (as defined below) by Purchaser, the
performance by Purchaser of its obligations hereunder and thereunder and the
consummation by it of the transactions contemplated hereby and thereby will not
(a) violate any provision of law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to Purchaser, (b) require
the consent, waiver, approval, license or authorization of or any filing by
Purchaser with any person or governmental authority, except for filings to be
made in connection with or in compliance with the provisions of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), Regulation D
3
<PAGE> 6
as promulgated under the Securities Act of 1933, as amended (the "Securities
Act") and applicable state securities laws, and the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), to the extent applicable,
or (c) violate, result (with or without notice or the passage of time, or both)
in a material breach of or give rise to the right to accelerate, terminate or
cancel any obligation under or constitute (with or without notice or the passage
of time, or both) a material default under, any of the terms or provisions of
any charter or bylaw, partnership agreement, indenture, mortgage, agreement,
contract, order, judgment, ordinance, regulation or decree to which Purchaser is
subject or by which Purchaser is bound except for any of the foregoing matters
which would not have, individually or in the aggregate, a material and adverse
effect upon the operations, financial condition or results of operations (a
"Material Adverse Effect") of the Purchaser.
2.4 Securities Act Representation. Purchaser is an "accredited
investor" as defined in Rule 501 promulgated as part of Regulation D under the
Securities Act. Purchaser is not acquiring the Shares with a view to a
distribution or resale of any of such securities in violation of any applicable
securities laws.
2.5 Purchase for Investment. This Agreement is concluded with the
Purchaser in reliance upon the Purchaser's representation to the Company that
the Shares to be issued to the Purchaser will be acquired for investment for the
Purchaser's own account, and not with a view to the sale or distribution of any
part thereof.
2.6 Status of Purchaser. Purchaser is purchasing the Shares for
its own account and not with the intention of effecting an offering of the
Shares to the public. Purchaser is knowledgeable, sophisticated and experienced
in making, and is qualified to make, decisions with respect to investments in
securities such as the Shares. Subject to the Company's representations made in
this Agreement being correct, Purchaser has requested from the Company all
information it would deem relevant in making a decision to execute this
Agreement and to purchase the Shares.
2.7 Legends. Purchaser agrees that the certificates representing
the Shares purchased hereunder shall bear the legend set forth below:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY
AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND NEITHER SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, ASSIGNED,
TRANSFERRED OR PLEDGED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW
COVERING SUCH SECURITIES OR THE CORPORATION RECEIVES AN OPINION
OF COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION OR OTHER
EVIDENCE REASONABLY ACCEPTABLE TO THE CORPORATION INDICATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR PLEDGE IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND
ANY APPLICABLE STATE SECURITIES LAW."
ARTICLE III
REPRESENTATIONS AND WARRANTIES
4
<PAGE> 7
OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
3.1 Corporate Organization. Each of the Company and its
subsidiaries, as listed on Schedule 3.1, which indicates their respective
jurisdictions of organization (the "Subsidiaries"), is a corporation or other
entity duly organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation or organization with all requisite corporate
power and authority to lease its properties and to carry on its business as it
is now being conducted, and is qualified or licensed to do business and is in
good standing in each jurisdiction in which it currently carries on business,
except where the failure to be so qualified or licensed or be in good standing
would not reasonably be expected, individually or in the aggregate, to have, a
material and adverse effect upon the operations, financial condition or results
of operations of the Company and its Subsidiaries considered as a whole (a
"Material Adverse Effect"). True and complete copies of the Articles of
Association and the Memorandum of Association of the Company, each as amended to
date, have been delivered to the Purchaser.
3.2 Share Capital. The authorized share capital of the Company
consists in its entirety of 18,000,000 Ordinary Shares, of which, as of the date
hereof, 10,528,884 are issued and outstanding (11,406,077 assuming issuance of
the shares to Jerusalem Venture Partners L.P and Jerusalem Venture Partners
(Israel) L.P pursuant to that Share Purchase Agreement dated March 12, 1999)
(the "JVP Agreement") and 2,000,000 Special Preferred Shares, none of which are
issued and outstanding. In addition, (a) an aggregate of 2,285,600 Ordinary
Shares are reserved for issuance pursuant to the Company's 1994 Stock Option
Plan for key employees, the May 1994 Stock Option Plan, the 1994 General Stock
Option Plan, the 1997 Stock Option Plan for Qualifying Israel Employees, the
1997 Executive Stock Option Plan and the 1997 Stock Option Plan for U.S.
Employees (collectively, the "1994 and 1997 Stock Option Plans"), of which
options to purchase 1,578,216 Ordinary Shares were outstanding as of the date
hereof; and (b) 1,199,908 Ordinary Shares are reserved for issuance in
connection with the exercise of certain outstanding warrants. In addition, the
Company has undertaken to issue warrants to purchase 250,000 Ordinary Shares of
the Company to Schroder & Co., upon the closing of the investment by Eastgate,
exercisable at an exercise price per share which is no less than the purchase
price per Share payable hereunder. Other than the Shareholder Agreement (as
defined below), which shall be terminated prior to the Closing, the Company is
not aware of any other shareholders agreement or voting agreement affecting or
binding upon the capital shares of the Company. All of the above outstanding
shares have been duly authorized and validly issued, are fully paid and
non-assessable, are not subject to preemptive rights, and are owned by the
Company's shareholders free and clear of any liens, encumbrances, security
interests, adverse claims or equities or rights in favor of another
("Encumbrances") imposed or created by the Company. Except as set forth in
Schedule 3.2, none of the outstanding capital shares of the Company are subject
to any co-sale right, registration right, right of first refusal or other
similar right to purchase any shares pursuant to any agreement to which the
Company is a party or otherwise imposed or created by the Company or imposed by
Israeli law. Other than as described above, there are no outstanding options,
warrants or other rights calling for the issuance of, and no commitments, plans
or arrangements to issue, any capital shares of the Company or any security
convertible into or exchangeable for share capital of the Company. All shares to
be issued upon the exercise of outstanding warrants or options or upon the
conversion of any security shall be, when issued or sold in accordance with the
terms of the applicable agreements, validly issued, fully paid and
non-assessable.
3.3 Share Capital of Subsidiaries. All the issued share capital
and other equity securities of each Subsidiary of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable, with no
personal liability attaching thereto solely by virtue of the
5
<PAGE> 8
ownership thereof and are legally and beneficially owned by the Company
directly, or indirectly through one of its other Subsidiaries, free and clear of
all Encumbrances, and there are no outstanding options, warrants or other rights
calling for the issuance of, and there are no commitments, plans or arrangements
to issue, any capital shares or other equity securities of any Subsidiary of the
Company or any security convertible or exchangeable or exercisable for capital
shares or other equity securities of any Subsidiary of the Company; except for
the capital shares or other equity securities of each Subsidiary of the Company
owned by the Company directly, or indirectly through one of its other
Subsidiaries, neither the Company nor any of its Subsidiaries owns, directly or
indirectly, any capital shares of any corporation or has or owns any equity
securities in any firm, partnership, joint venture or other entity. Except for
Paradigm Geophysical Corp., no Subsidiary of the Company is a Significant
Subsidiary, as such term is defined in Rule 405 of the rules and regulations of
the Securities and Exchange Commission (the "Commission") under the Securities
Act.
3.4 Newly Issued Shares. The Shares to be sold and issued by the
Company to the Purchaser in accordance with the terms of this Agreement have
been duly authorized and, when issued as contemplated hereby, will be validly
issued, fully paid and non-assessable, and no other person has any preemptive
right, option, warrant, subscription agreement or other right with respect to
such Shares. Upon the issuance of the Shares, the Purchaser will acquire good
and marketable title to the shares free and clear of any and all Encumbrances,
except such Encumbrances as may be created pursuant to this Agreement or by
Purchaser.
3.5 Authority; Enforcement. The Company has full corporate power
and authority to execute and deliver this Agreement, the Registration Rights
Agreement, the Amendment to 1997 Warrants, the Amendment to 1996 Purchase
Agreement, the Amendment to 1995 Purchase Agreement, the Amendment to 1994
Warrants, the Shareholders Agreement and each other agreement contemplated
hereby (collectively the "Agreements"), to carry out its obligations hereunder
and thereunder and to consummate the transactions contemplated on its part
hereby and thereby. The execution, delivery and performance by the Company of
the Agreements and the consummation of the transactions contemplated on its part
hereby and thereby have been duly authorized by the Board, and no other
corporate proceedings on the part of the Company to the Company's issuance of
the Shares to be issued pursuant to this Agreement and to the Company's entering
into the Agreements are necessary to authorize the execution and delivery of the
Agreements by the Company or the performance by the Company of its obligations
thereunder. The Agreements have been duly executed and delivered by the Company
and constitute legal, valid and binding obligations of the Company, enforceable
against the Company and each party thereto in accordance with its terms, subject
to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
affecting creditors' rights generally and subject to general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
3.6 No Violation. The execution and delivery by the Company of
the Agreements, the performance by the Company of its obligations thereunder and
the consummation by it of the transactions contemplated thereby will not (a)
violate any provision of law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to the Company or any of
its Subsidiaries, or (b) require the consent, waiver, approval, license or
authorization of or any filing by the Company with any person or governmental
authority, except for filings to be made or consents to be obtained in
connection with or in compliance with the provisions of the Exchange Act,
Regulation D as promulgated under the Securities Act, applicable state
securities laws, the Chief Scientist of the Israeli Ministry of Industry and
Commerce, the Investment Center, Bank Hapoalim B.M. and the Bank for Industrial
Development in Israel Ltd. and (with respect to registration rights to be
granted to Purchaser under the Registration Rights Agreement) certain existing
shareholders and warrant holders of the Company who have
6
<PAGE> 9
registration rights as specified in Section 5.3, or (c) violate, result (with or
without notice or the passage of time, or both) in a breach of or give rise to
the right to accelerate, terminate or cancel any obligation under or constitute
(with or without notice or the passage of time, or both) a default under, any of
the terms or provisions of any charter, articles of association, or bylaw,
partnership agreement, indenture, mortgage, agreement, contract, order,
judgment, ordinance, regulation or decree to which the Company or any of its
Subsidiaries is subject or by which the Company or any of its Subsidiaries is
bound, except for any of the foregoing matters which would not have,
individually or in the aggregate, a Material Adverse Effect.
3.7 Brokers. The Company has not paid or become obligated to pay
any fee or commission to any broker, finder, investment banker or other
intermediary in connection with this Agreement.
3.8 Foreign Private Issuer. The Company is a "foreign private
issuer," as defined in Rule 3b-4 of the Exchange Act.
3.9 Commission Reports. Since its initial public offering in June
1998, the Company has filed with the Commission all reports, filings, proxy
materials and registration statements required to be filed by it as a foreign
private issuer listed on the Nasdaq National Market pursuant to the federal
securities laws and has made all other filings with the Commission required to
be made where the failure to have made such filing has or is expected by the
Company to have a Material Adverse Effect on the Company (collectively and
together with the Company's Registration Statement on Form F-1, Commission File
No. 333-7926 (the "Registration Statement"), the "Commission Filings"). The
Commission Filings did not (as of their respective filing dates, mailing dates
or effective dates, as the case may be) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company has fully
complied in all material respects with the Israeli Securities Law of 1968 and
with the applicable term of any exemption granted thereunder. The Company
acknowledges that the Purchaser is relying on the Commission Filings with
respect to its purchases of the Shares pursuant to this Agreement.
3.10 Litigation. Except as disclosed in Commission Filings prior
to the date hereof or in Schedule 3.10, there is no legal action, suit,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or the
assets of any of them which could have, individually or in the aggregate, a
Material Adverse Effect on the Company, or on the Company's ability to perform
or observe any obligation or condition under the Agreements. Except as disclosed
in Schedule 3.10, there is no basis for a claim or a potential claim affecting
the Company or any of its Subsidiaries which could have a Material Adverse
Effect.
3.11 Disclosure. To the best knowledge of the Company after due
inquiry, there is no fact or facts (excluding general economic conditions and
prevailing economic conditions generally affecting the oil and gas industry)
peculiar to the Company or any of its Subsidiaries which the Company has not
disclosed to the Purchaser in writing or in the Commission Filings which could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company or the ability of the Company to perform the
Agreements.
3.12 Intellectual Property and Other Tangible Assets.
(a) The Company and the Subsidiaries (i) own or have the
right to use, free and clear of all liens, claims and restrictions, all patents,
trademarks, service marks, trade
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names and copyrights, and applications, licenses and rights with respect to the
foregoing, and all trade secrets including know-how, inventions, designs,
processes, works of authorship, computer programs and technical data and
information (collectively, "Intellectual Property") used and sufficient for use
in the conduct of its business as now conducted and/or as presently proposed to
be conducted without infringing upon or violating, in any material respect, any
right, lien, or claim of others, including without limitation former employees
and former employers of its past and present employees and, (ii) except as
described in Schedule 3.12, which lists by payee the amount of royalties or fees
in excess of $50,000 per year that the Company or any of its Subsidiaries is
obligated to pay, are not obligated or under any liability whatsoever to make
any payments by way of royalties, fees or otherwise to any owner or licensee of,
or other claimant to, any patent, trademark, service mark, trade name, copyright
or other intangible asset, with respect to the use thereof or in connection with
the conduct of its business or otherwise.
(b) Any and all Intellectual Property of any kind, relating
to the business of the Company, currently being developed by any employee of the
Company or any Subsidiary while in the employ of the Company or such Subsidiary,
shall be the property solely of the Company or such Subsidiary. The Company and
the Subsidiaries have taken security measures to protect the secrecy,
confidentiality and value of all the Intellectual Property, which measures are
reasonable customary in the industry in which the Company operates. Each of the
Company's and the Subsidiaries' employees and other persons who, either alone or
in concert with others, developed, invented, discovered, derived, programmed or
designed the Intellectual Property, or who has a knowledge of or access to
information about the Intellectual Property, have entered into a written
agreement with the Company or such Subsidiary, in form and substance
satisfactory to the Company's management and reasonable and customary in the
industry in which the Company operates (the "Proprietary Information Agreement")
regarding ownership and treatment of the Intellectual Property.
(c) Neither the Company nor any Subsidiary has received any
communications alleging that the Company or any Subsidiary has violated or by
conducting its business as proposed, would violate, any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. None of the Company's or any
Subsidiary's employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of such employee's best efforts to promote the interests
of the Company or that would conflict with the Company's or any Subsidiaries'
business as conducted and proposed to be conducted. Neither the execution nor
delivery of the Agreement, nor the carrying on of the Company or such
Subsidiary, nor the conduct of the Company's or any Subsidiaries' business as
proposed to be conducted, will conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under any contract,
covenant or instrument under which any of such employees is now obligated. It is
not, and will not become, necessary to utilize any inventions of any of the
Company's or any Subsidiary's employees (or people the Company or any Subsidiary
currently intends to hire) made prior to their employment by the Company or such
Subsidiary other than those that have been assigned to the Company pursuant to
the Proprietary Information Agreement signed by such employee.
3.13 Industrial Company. The Company is qualified as an
"Industrial Company" within the definition of the Law for the Encouragement of
Industry (Taxes), 1969., and has obtained a certificate of the Company's
auditors certifying such qualification, a copy of which is attached to this
Agreement as Schedule 3.13. According to the Company's best knowledge,
information and belief, there is no reason for disqualifying the Company from
being an Industrial Company, nor would such reason arise through the conduct and
performance of the Company's business and operations in accordance with its
plans and projections.
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3.14 Compliance with Laws. Each of the Company and its
Subsidiaries is in compliance with all laws, ordinances, regulations, and orders
applicable to it, the failure to comply with which would have, individually or
in the aggregate, a Material Adverse Effect, including without limitation, the
provisions of the Law for Encouragement of Capital Investments, 1959, applicable
to the Company and the terms of any "Approval Letter" issued to the Company
thereunder and its extensions, amendments and supplements, if any. Except as set
forth on Schedule 3.14, the Company and its Subsidiaries have such licenses,
franchises, permits and other approvals or authorizations from governmental
regulatory authorities ("Permits") as are necessary under applicable law to own
their respective properties and to conduct their respective businesses in the
manner now being conducted and as described in the Registration Statement; and
the Company and its Subsidiaries have fulfilled and performed all of their
respective obligations with respect to such Permits, except where the failure to
hold such Permits or perform such obligations would not have a Material Adverse
Effect. Except as set forth on Schedule 3.14 or otherwise in this Agreement, (a)
there are no citations, fines or penalties heretofore asserted against the
Company or its Subsidiaries under any federal, state or local law or regulation
which remain unpaid or which otherwise bind any assets material to the Company
and its Subsidiaries, and (b) the Company or any of its Subsidiaries has not
received any unresolved notice from any federal, state or local governmental
authority with respect to any violation of any federal, state or local law or
regulation which, if resolved against the Company or any of its Subsidiaries,
would have, individually or in the aggregate, a Material Adverse Effect.
3.15 Insurance. The Company and its Subsidiaries have in full
force insurance coverage of their respective properties, assets and business
(including casualty, general liability, products liability and business
interruption insurance) that is (i) no less protective in any material respect
than the insurance the Company and its Subsidiaries have carried in accordance
with their past practices or (ii) prudent given the nature of the business of
the Company and its Subsidiaries and the prevailing practice among companies
similarly situated.
3.16 Foreign Corrupt Practices Act. The activities of each of the
Company and its Subsidiaries and its officers, directors and employees have
complied, and the operations of each of the Company and its Subsidiaries and the
activities of the officers, directors and employees of each of the Company and
its Subsidiaries have complied, with all applicable laws governing corrupt or
illicit business practices, including, without limitation, laws dealing with
improper or illegal payments, gifts or gratuities and/or the payment of money or
anything of value directly or indirectly to any person (whether a government
official or private individual) for the purpose of illegally or improperly
inducing any person or government official, or political party or official
thereof, or any candidate for any such position, in making any decision or
improperly assisting any person in obtaining or retaining business or taking any
other action favorable to such person, and/or dealing with business practices in
relation to foreign investments (including, by way of example, if applicable,
the U.S. Foreign Corrupt Practices Act).
3.17 Foreign Currency Hedging Transactions. Neither the Company
nor any of its Subsidiaries has entered into any foreign currency hedging
arrangement.
3.18 Contracts. Except as set forth on Schedule 3.18, all
contracts that are material to the Company and its Subsidiaries and to which the
Company or any of its Subsidiaries is a party ("Material Contracts") which are
required to have been filed as exhibits to the Registration Statement, have been
so filed. All Material Contracts constitute valid and binding agreements of the
Company or such Subsidiary and are enforceable against the Company or such
Subsidiary in accordance with the terms thereof. There is not, with respect to
the Material Contracts, any existing default, or event of default by the Company
or its Subsidiaries or any other party, or event which
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with or without due notice or lapse of time or both would constitute a default
or event of default on the part of the Company or its Subsidiaries, except such
defaults or events of default on the part of the Company or its Subsidiaries, or
any other party and other events which would not have, individually or in the
aggregate, a Material Adverse Effect. No default exists, and no event has
occurred which with notice or lapse of time, or both, would constitute a default
in the due performance and observance of any term, covenant or condition of any
Material Contract or other indenture, mortgage, deed of trust, bank loan or
credit agreement, lease or other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which any of them or their respective
properties is bound or may be affected, which defaults would have, individually
or in the aggregate, a Material Adverse Effect.
3.19 Financial Statements. Attached hereto as Schedule 3.19
balance sheets of the Company and its Subsidiaries as at December 31, 1998,
December 31, 1997 and December 31, 1996, and statements of operations, cash flow
and stockholders' equity for each of the fiscal years then ended, audited by the
Company's independent public accountants, each including the accompanying notes.
Such balance sheets of the Company and its Subsidiaries and the notes thereto
present fairly the financial position of the Company and its Subsidiaries as at
the respective dates thereof, and such statements of operations, cash flow and
stockholders' equity of the Company and the notes thereto present fairly in all
material respects the results of operations, cash flow and stockholders' equity
of the Company for the periods therein referred to, all in accordance with
United States generally accepted accounting principles consistently applied.
3.20 No Undisclosed Liabilities. Except as disclosed in Schedule
3.20, the Company and its Subsidiaries have no material liabilities which are
not reflected or reserved against in the balance sheets specified in Section
3.19 above, except for liabilities incurred in the ordinary course of business
and immaterial in amount consistent with past practice.
3.21 Listing of Ordinary Shares. The outstanding Ordinary Shares
are listed on the Nasdaq National Market, and the Company's listing agreement
with respect thereto is in full force and effect. No action has been taken or
threatened by Nasdaq with respect to the delisting or suspension from trading of
the Ordinary Shares.
3.22 Taxes. The Company and each of its Subsidiaries has timely
filed all necessary tax returns and notices, and has paid all federal, state,
county, local and foreign taxes of any nature whatsoever to the extent such
taxes have become due (including, without limitation, all tax returns required
under the laws of the State of Israel). The Company has no knowledge, or any
reasonable grounds to know, of any tax deficiencies which might be assessed
against the Company which, if so assessed, may have a Material Adverse Effect;
the Company and each of its Subsidiaries has paid all taxes which have become
due, whether pursuant to any assessments or otherwise, and there is no further
liability (whether or not disclosed on such returns) or assessments for any such
taxes, and no interest or penalties accrued or accruing with respect thereto,
except as may be set forth or adequately reserved for in the Company's financial
statements , copies of which have been delivered to Purchaser. The Company has
been informed that the Israeli income tax authorities intend to audit its tax
returns for the years 1993 to 1997 (inclusive).
3.23 Certain Relationships. No material relationship, direct or
indirect, exists between or among the Company or its Subsidiaries on the one
hand and the directors, officers, or shareholders of the Company, on the other
hand, other than in the ordinary course of the Company's business, nor any
relationship exists between or among the Company or its Subsidiaries on the one
hand, and any of its customers or suppliers on the other hand, in value
exceeding, with respect to any customer or supplier, 10% of the revenues or
profits of the Company, on a consolidated basis, all except those described in
the Registration Statement, including without limitation items required
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to be disclosed under Item 13 of Form 20-F of the rules and regulations of the
Securities and Exchange Commission under the Securities Act if the Company were
to file a Form 20-F as of the date hereof.
3.24 HSR Act. The transactions contemplated by the Purchase
Agreement are exempt from the requirements of the HSR Act because, for each of
the fiscal years ended December 31, 1997 and December 31, 1998, (i) the
aggregate book value of the Company's assets located in the U.S. (other than
investment assets, voting or nonvoting securities of another person, and assets
included pursuant to Section 801.40(c)(2) of the HSR Act) was less than $15
million, and (ii) the Company's aggregate sales in or into the U.S. were less
than $25 million. For purposes of this Section 3.27, the "Company" shall include
all entities "controlled" by the Company, directly or indirectly, within the
meaning of such term as defined in Section 801.1(b) of the HSR Act.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 Board Member. (a) As long as the Purchaser holds more than
three and a half percent (3.5%) of the issued and outstanding shares of the
Company, the Company will recommend to the shareholders of the Company prior to
any general meeting of shareholders of the Company, at which directors may be
proposed to be elected, to elect a representative of the Purchaser to the Board
of Directors of the Company (the "Purchaser's Director") and will take all
lawful actions to solicit such election.
(b) The Company shall notify the Purchaser of the proposed
date for the Company's annual general meeting ("AGM") as soon as reasonably
practicable but in any event not later than 21 days prior to the last day in
each calendar year on which a shareholder may propose a nominee for election to
the Board in accordance with Article 66(b) of the Company's Articles of
Association. Purchaser will furnish the Company with the names and other
information as is reasonably requested by the Company of the Purchaser's
Directors, as will be proposed for election to the Board at the AGM, within 21
days after such notice. An individual designated by the Purchaser as a
Purchaser's Director, other than any of Messrs. Stanley P. Gold, Michael Geiger,
Robert G. Moskowitz, William Wynperle or any Managing Director of Shamrock
Capital Advisors, Inc., shall be subject to the approval of the Board, which
approval shall not be unreasonably withheld or delayed. Purchaser agrees that in
the event that the Board submits to the shareholders of the Company a proposal,
which provides for an amendment to the Articles of Association of the Company
increasing the number of directors constituting the Board to nine, to be
considered for shareholder vote at the next occurring AGM in order to appoint an
additional independent director as contemplated by Section 4.1 of the JVP
Agreement, Purchaser agrees to vote all Ordinary Shares owned by it in favor of
such amendment and the appointment of such director.
(c) If a vacancy is created due to the death, incapacitation
or resignation of one of Purchaser's Director, the Company agrees to use its
best efforts in causing the election of a substitute director, as designated by
the Purchaser, to be placed on the agenda of the Company's next Board meeting.
(d) The Company agrees that all reasonable out-of-pocket
costs and expenses incurred by Purchaser's Director in his capacity as a member
of the Board shall be borne by the Company in accordance with the Company's
reimbursement policy.
(e) Notwithstanding the Articles of Association of the
Company, the
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Company shall give the Purchaser's Director prior notice of any meeting of the
Board of Directors at the same time and in the same manner as it shall first
notify any director of such meeting, but in any event it shall be in writing and
no less than 7 days prior to such meeting, unless impractical due to the urgency
of the matter.
4.2 Best Efforts. Upon the terms and subject to the conditions
herein provided, each of Purchaser and the Company agrees to use its reasonable
best efforts to take, or cause to be taken, all action, and to do, or cause to
be done, all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement and each other agreement
contemplated hereby including to fulfill all conditions on its part to be
fulfilled under this Agreement and each other agreement contemplated hereby. In
case at any time after the Closing Date any further action is reasonably
necessary or desirable to carry out the purposes of this Agreement and each
other agreement contemplated hereby. No party hereto will take any action for
the purpose of delaying impairing or impeding the receipt of any required
consent, authorization, order or approval or the making of any required filing.
Each party hereto shall give prompt notice to all other parties of (i) any
material failure of such party, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder, and such party shall use all reasonable efforts to remedy such
failure and (ii) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty of
such party contained in this Agreement to be untrue or inaccurate in any
material respect any time from the date hereof to the Closing Date.
4.3 Financial Statements and Information. The Company covenants
and agrees to furnish to the Purchaser as long as the Purchaser holds at least
three and a half percent (3.5%) of the issued and outstanding share capital of
the Company, all annual and quarterly financial statements and reports filed or
required to be filed with the Commission. In addition, the Company shall provide
all information reasonably requested by the Purchaser's Director.
4.4 Indemnification.
(a) Each party (the "Indemnifying Party") shall indemnify,
defend and hold harmless, from and after the Closing Date, the other party and
each of its affiliates, officers, directors, employees, members, agents,
successors, transferees and assigns (each of the foregoing, an "Indemnified
Party") from and against all liabilities, losses, damages, claims, costs,
interest, judgments, fines, amounts paid in settlement and expenses (including
without limitation reasonable attorney's fees, whether incurred in connection
with a claim for indemnification hereunder or in connection with any third party
claim) (collectively, "Losses") incurred by any of them based upon, resulting
from or arising out of (i) the breach of any representation or warranty of the
Indemnifying Party contained in this Agreement or any other agreement
contemplated by this Agreement or (ii) the breach of any covenant or agreement
of the Indemnifying Party contained in this Agreement or any other agreement
contemplated by this Agreement, including with respect to indemnification by the
Company, and without limiting any of the foregoing, the breach of its covenant
under Section 4.5 below. No claim may be asserted nor may any action be
commenced against the Indemnifying Party, unless prompt written notice of such
claim or action is received by the Indemnifying Party describing in reasonable
detail the facts and circumstances with respect to the subject matter of such
claim or action; provided that the failure of the Indemnified Party to give the
Indemnifying Party prompt notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, except to the extent that the
Indemnifying Party is prejudiced thereby; provided that (i) the amount to be
indemnified under this Section 4.4 shall be limited to the purchase price paid
by the Purchaser for the Shares and (ii) the Company's indemnification
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obligations hereunder relating to any breach of Sections 3.10, 3.12, 3.14, 3.15,
3.16, 3.17, 3.18, 3.19, 3.20, or 3.23 shall terminate on the 180th day after the
Company has filed with the Commission a Form 20-F containing audited financial
statements for the Company for the fiscal year ended December 31, 1999 unless a
claim for indemnification shall be made with respect thereto, in which case such
indemnification obligations shall remain in effect until the full and final
resolution of such claim.
(b) The Indemnified Party shall give the Indemnifying Party
under this Section 4.4, prompt written notice (the "Indemnification Claim
Notice") of any claim, assertion, event or proceeding by or in respect of a
third party, of which such Indemnified Party has knowledge concerning any Loss
as to which such Indemnified Party may request indemnification hereunder;
provided that failure of the Indemnified Party to give the Indemnifying Party
prompt notice as provided herein shall not relieve the Indemnifying Party of any
of his, her or its obligations hereunder except to the extent that the
Indemnifying Party is prejudiced thereby. The Indemnified Party may participate
in such defense, but in such case the expenses of the Indemnified Party shall be
paid by the Indemnified Party. The Indemnified Party shall, upon reasonable
notice, provide the Indemnifying Party with access to his, her or its records
and personnel relating to any such claim, assertion, event, proceeding or matter
during normal business hours and shall otherwise cooperate with the Indemnifying
Party in the defense settlement, or resolution thereof, and the Indemnifying
Party shall reimburse the Indemnified Party for all his, her or its reasonable
out-of-pocket expenses in connection therewith. The Indemnifying Party shall not
pay, or permit to be paid, any part of any claim, or demand arising from such
asserted liability unless the Indemnified Party consents in writing (which
consent shall not be unreasonably withheld) to such payment or unless the
Indemnifying Party withdraws from or fails to maintain the defense of such
asserted liability or unless a final judgment from which no appeal may be taken
by or on behalf of the Indemnifying Party is entered against the Indemnified
Party for such liability. No settlement in respect of any third party claim may
be effected by the Indemnifying Party without the Indemnified Party's prior
written consent (which consent shall not be unreasonably withheld) unless the
settlement involves a full and unconditional release of the Indemnified Party.
If the Indemnifying Party shall fail to undertake or maintain any such defense
within thirty (30) days of receipt of the Indemnification Claim Notice, the
Indemnified Party shall have the right to undertake the defense or settlement
thereof, at the Indemnifying Party's expense. If the Indemnified Party assumes
the defense of any such claim or proceeding pursuant to this Section 4.4 it may
conduct such defense as it reasonably deems appropriate (without regard to the
availability of indemnification hereunder), and the Indemnifying Party shall be
responsible for and pay all costs and expenses of such defense, including its
compromise or settlement.
(c) The amounts for which an Indemnifying Party shall be
liable under this Section 4.4 shall be reduced by the (i) net reimbursement to
such party from any insurance proceeds received by the Indemnified Party in
connection with the circumstances giving rise to the right of indemnification
(to the extent such insurance proceeds exceed the Indemnified Party's expenses
in recouping such insurance proceeds) and (ii) net tax benefit actually realized
by such party (as reduced by any actual or projected tax detriment resulting
from receipt of the indemnification payment) directly resulting from the Losses
to which the indemnification relates.
4.5 Registration of Conversion of Preferred Shares. The Company
will ensure the registration by the Israeli Registrar of Companies of the
conversion of all the Preferred Shares in the share capital of the Company
(except for the Special Preferred Shares) into Ordinary Shares.
4.6 Approval of Certain Business Combinations. Prior to the
Closing, the Board of Directors of the Company shall resolve, that
notwithstanding Article 110 of the Company's Articles of Association ("Article
110"), in the event that Purchaser shall at any time
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become an "interested shareholder" (within the meaning of such term under
Article 110), the Company shall not be limited by virtue of Article 110 from
engaging with Purchaser in any transaction falling under paragraph (iii) of the
definition of "business combination" in Article 110, provided that in such
transaction all or the majority of the Company's shareholders are offered to
participate on the same terms. Such resolution (i) shall apply also to any
assignee of Purchaser pursuant to Section 6.9 below, and (ii) shall not be
revoked or rescinded at any time subsequent to the Closing.
4.7 The Company shall not issue any Special Preferred Shares
without issuing at the same time to Purchaser a portion of such shares issued,
which portion corresponds to Purchaser's then portion of the outstanding shares
of the Company.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligations. The respective
obligations of each party to effect the transactions contemplated by the
Agreement shall be subject to the conditions that no United States, state or
foreign governmental authority or other agency or commission or United States,
state or foreign court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, injunction or
other order (whether temporary, preliminary, or permanent) which is in effect
and has the effect of prohibiting consummation of the transactions contemplated
by this Agreement; and any filing required under U.S., state or other foreign
securities laws shall have been made prior to the Closing.
5.2 Conditions to the Obligations of the Company. The obligation
of the Company to effect the transactions contemplated by this Agreement to
occur at the Closing shall be subject to the fulfillment at or prior to the
Closing Date, of the following additional conditions:
(a) The Purchaser shall have performed its obligations under
this Agreement required to be performed by it on or prior to the Closing,
pursuant to the terms hereof.
(b) The representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing, as if made at and as of such date, except to the
extent that any such representation or warranty is made as of a specified date
in which case such representation or warranty shall have been true and correct
as of such date.
(c) All necessary waivers, consents and approvals to or of
the transactions contemplated by this Agreement to occur at the Closing, and
each agreement contemplated hereby shall have been obtained, including without
limitation the approval of the Chief Scientist of the Israeli Ministry of
Industry and Commerce, the Investment Center.
5.3 Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to effect the transactions contemplated by this
Agreement to occur at the Closing shall be subject to the fulfillment at or
prior to the Closing, of the following additional conditions (any of which may
be waived by Purchaser in writing):
(a) The Company shall have performed its obligations under
this Agreement required to be performed by it on or prior to the Closing,
pursuant to the terms hereof.
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(b) The representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing, as if made at and as of such date, except to the
extent that any such representation or warranty is made as of a specified date
in which case such representation or warranty shall have been true and correct
as of such date and the Purchaser shall not have discovered any material
conflict with any such representation or warranty.
(c) Since December 31, 1997, there shall have been no event
or occurrence which has or is likely to have a Material Adverse Effect on the
Company.
(d) The Purchaser shall have received on or prior to the
Closing Date fully executed copies of a registration rights agreement between
the Company and Purchaser, in the form of Exhibit A hereto (the "Registration
Rights Agreement"), and any and all other agreements, documents, certificates or
instruments contemplated by this Agreement and any of the foregoing.
(e) The Purchaser shall have received on or prior to the
Closing Date fully executed copies of amendments to the Warrant Agreements dated
September 15, 1997 between the Company and each purchaser identified on Schedule
1 to the Note and Warrant Purchase Agreement dated September 15, 1997 among the
Company, Paradigm Geophysical Corp., a Delaware corporation, and such
purchasers, as amended ("1997 Warrants"), in accordance with the term sheet
attached as Exhibit D hereto ("Amendment to 1997 Warrants").
(f) The Purchaser shall have received on or prior to the
Closing Date fully executed copies of an amendment to the Share Purchase
Agreement dated July 1, 1996 among the Company and the purchasers identified on
Schedule 1 thereto, as amended ("1996 Purchase Agreement"), in accordance with
the term sheet attached as Exhibit E hereto ("Amendment to 1996 Purchase
Agreement").
(g) The Purchaser shall have received on or prior to the
Closing Date fully executed copies of an amendment to the Share Purchase
Agreement dated June 1, 1995 among the Company and the purchasers identified on
Schedule 1 thereto, as amended ("1995 Purchase Agreement"), in accordance with
the term sheet attached as Exhibit F hereto ("Amendment to 1995 Purchase
Agreement").
(h) The Purchaser shall have received on or prior to the
Closing Date fully executed copies of amendments to the Warrant Certificates
dated July 22, 1994 between the Company and each holder thereof, as amended
("1994 Warrants"), in accordance with the term sheet attached as Exhibit G
hereto ("Amendment to 1994 Warrants").
(i) The Purchaser shall have received on or prior to the
Closing Date fully executed copies of an amendment to the Shareholders Agreement
dated June 7, 1995 among the Company and certain shareholders of the Company, as
amended (the "Shareholders Agreement"), which provides for the termination of
the Shareholders Agreement upon the Closing ("Amendment to Shareholders
Agreement").
(j) The Purchaser shall have received on or prior to the
Closing Date a legal opinion delivered by the Company's U.S. counsel dated as of
the Closing Date, in substantially the form of Exhibit B hereto.
(k) The Purchaser shall have received on or prior to the
Closing Date a legal opinion delivered by the Company's Israeli counsel dated as
of the Closing Date, in
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<PAGE> 18
substantially the form of Exhibit C hereto.
(l) The Purchaser shall have received on or prior to the
Closing Date a copy of minutes or resolutions of the Board, which shall not have
been rescinded or modified, a) approving the issuance of the Ordinary Shares to
the Purchaser in accordance with the terms and conditions of the Purchase
Agreement, and all other terms and conditions of this Agreement and all
schedules and exhibits hereto, as certified by the Company's Secretary (b) as
provided in Section 4.6 above, and (c) the appointment of Mr. Michael Geiger (or
any other person designated by Purchaser in his stead) to the Board of Directors
of the Company.
(m) The Purchaser shall have received on or prior to the
Closing Date a certificate of the Company's Secretary confirming the inscription
of the Purchaser in the Company's register of members as the owner of the
Ordinary Shares issued according to this Agreement.
(n) The Purchaser shall have received on or prior to the
Closing Date a copy of the share issuance form to be filed with the Company's
Registrar, signed by the Company's Secretary. The Company shall have such form
duly stamped and filed with the Registrar of Companies within 30 days after the
Closing Date.
(o) The Purchaser shall have received on or prior to the
Closing Date a certificate of the Company's Chief Executive Officer or Chief
Financial Officer dated the Closing Date, in substantially the form of Exhibit H
hereto, certifying the satisfaction by the Company of all conditions precedent
set forth in this Section 5.3.
(p) All necessary waivers, consents and approvals to or of
the transactions contemplated by this Agreement to occur on or prior to the
Closing, or each other agreement contemplated shall have been obtained on or
prior to the Closing Date, including without limitation the approval of the
Chief Scientist of the Israeli Ministry of Industry and Commerce, Investment
Center, the consent of Bank Hapoalim B.M. and the Bank for Industrial
Development in Israel Ltd., and, with respect to registration rights to be
granted to Purchaser under the Registration Rights Agreement, the approval of
all securityholders and warrantholders of the Company holding registration
rights, in accordance with the terms of such registration rights.
(q) There shall have been no lawsuit, filed or threatened,
which challenges this Agreement and all transactions contemplated hereby or
seeks to impose any limitation on Purchaser's purchase of the Shares.
ARTICLE VI
MISCELLANEOUS
6.1 Amendment. This Agreement may be amended by the parties
hereto. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
6.2 Waiver. Any waiver of or failure to insist on strict
compliance with any representation, warranty, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of
16
<PAGE> 19
such party.
6.3 Termination. This Agreement may be terminated at any time
prior to the Closing without further Board or shareholder action of either
party:
(i) by the mutual written consent of both parties;
(ii) by the Company or Purchaser, if the closing conditions
to the Closing have not been satisfied or waived by noon on may 31, 1999, unless
the failure to satisfy such conditions is a result of any breach by such party.
6.4 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been given or
made if in writing and delivered personally, sent by commercial carrier or
registered or certified mail (postage prepaid, return receipt requested) or
transmitted by facsimile with automated receipt confirmation to the parties at
the following addresses and numbers:
(a) If to Purchaser, to:
Shamrock Holdings, Inc.
4444 Lakeside Drive, 2nd Floor
P.O. Box 7774
Burbank, California 91510-7774
Attention: Robert G. Moskowitz
Fax No.: (818) 559-7320
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
350 South Grand Avenue, Suite 3200
Los Angeles, California 90071
Attention: David K. Robbins, Esq.
Fax No.: (213) 473-2222
with a copy to:
Zellermayer & Pelossof, Advocates
Europe House
37 Shaul Hamelech Boulevard
Tel Aviv 64928, Israel
Attention: Michael Zellermayer, Adv.
Fax No.: 011-972-3-695-2884
(b) If to the Company, to:
Paradigm Geophysical Ltd.
Merkazim Building
32 Maskit Street
P.O.B. 2061
Herzliya B 46120, Israel
17
<PAGE> 20
Attention: Eldad Weiss
Fax No.: 011-972-9-958-9327
with a copy to:
Efrati, Galili & Co.
6 Wissotsky Street
Tel Aviv 62338
Attention: Ian Rostowsky, Adv.
Fax No.: 011-972-3-601-0111
with a copy to:
Fulbright & Jaworski LLP
666 Fifth Avenue, 31st Floor
New York, New York 10103-3198
Attention: Andrew C. Freedman, Esq.
Fax No.: (212) 752-5958
6.5 Headings; Agreement. The headings contained in this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement. The term "Agreement" for purposes of representations and warranties
hereunder shall be deemed to include the exhibits hereto to be executed and
delivered by a party.
6.6 Publicity. So long as this Agreement is in effect and except
as required by law, the parties hereto shall not, and shall cause their
affiliates not to, issue or cause the publication of any press release or other
announcement with respect to the transactions contemplated by this Agreement or
the other agreements contemplated hereby without the consent of the other
parties, which consent shall not be unreasonably withheld or delayed.
6.7 Entire Agreement. This Agreement (including all exhibits
hereto) the entire agreement among the parties and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof.
6.8 Conveyance Taxes. The Company agrees to assume liability for
and to hold the Purchaser harmless against any sales, use, transfer, stamp, and
value added taxes, registration, recording or other fees, and any similar taxes
incurred as a result of the issuance and sale of the Shares as contemplated
hereby.
6.9 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Purchaser shall be permitted to
assign any of its rights, interests or obligations under this Agreement, whether
prior or subsequent to the Closing, to (i) Trefoil Euro Fund, L.P., (ii) any
entity in which 30% or more of its voting or equity securities are owned,
directly or indirectly, by Shamrock Holdings, Inc. ("SHI"), any executive
officers of SHI, and/or any member of the Roy E. Disney family (or any trust for
his/her benefit), or (iii) any entity in which SHI or any of the foregoing
referenced in (i) or (ii) of this Section 6.10 serves as a general partner or
manager; provided, however, that the Purchaser shall not assign this Agreement
to any entity which derives revenues, in any material amount, from the oil and
natural gas exploration and/or production business or the GeoSeis software
business. Except as provided above, neither this Agreement nor any of the
rights, interests or obligations shall be assigned by either party hereto
without the prior written consent of the other party.
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<PAGE> 21
6.10 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
6.11 Governing Law. The validity and interpretation of this
Agreement shall be governed by the laws of the State of New York, without
reference to the conflict of laws principles thereof.
6.12 Third Party Beneficiaries. This Agreement is not intended to
confer upon any other person any rights or remedies hereunder.
6.13 Costs and Expenses. Each party will pay its own costs and
expenses incurred in connection with the transactions contemplated hereby,
except that, at the Closing, the Company shall pay all reasonable fees and
expenses of legal counsel to Purchaser in an amount not to exceed $150,000. The
Company shall also pay all stamp issuance taxes, fees of the Company's transfer
agent and expenses of filing with the Israeli Registrar of Companies.
19
<PAGE> 22
IN WITNESS WHEREOF, the Purchaser and the Company have caused
this Agreement to be duly signed as of the date first written above.
PARADIGM GEOPHYSICAL LTD.
an Israeli corporation
By: /s/ Eldad Weiss
Name:
Title:
SHAMROCK HOLDINGS INC.
a Delaware corporation
By: /s/ Stanley Gold
Name:
Title:
20
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as of
May ___, 1999 by and among (a) Paradigm Geophysical Ltd., an Israeli company
(the "Company") on the one part, (b)Shamrock Holdings, Inc., a Delaware
corporation ("Shamrock") on the second part, and (c) Eastgate Fund, L.P., an
Iowa limited partnership, Eastgate International Limited, a corporation formed
under the laws of the Commonwealth of the Bahamas, Mr. Harris Kaplan, Berman
Eastgate Growth Fund, an Iowa Partnership, (jointly "Eastgate"), on the third
part. (Each of Shamrock and Eastgate, severally and not jointly, shall
hereinafter be referred to as, the "Holder"). Capitalized terms not defined
herein shall have the meanings assigned to such terms in the Purchase Agreements
(as defined below).
R E C I T A L S:
Pursuant to the terms and subject to the conditions of that certain Share
Purchase Agreement dated as of April 14, 1999 (the "Shamrock Purchase
Agreements") between the Company and Shamrock, and that certain Share Purchase
Agreement dated as of May __, 1999 between the Company and Eastgate (the
"Eastgate Purchase Agreement"), the execution and delivery of this Agreement is
a condition to the purchase and sale by each Holder of certain Ordinary Shares
(NIS 0.5 par value) (the "Ordinary Shares") pursuant to the foregoing Purchase
Agreements (as defined below).
A G R E E M E N T:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Approved Underwriter" shall have the meaning set forth in Section 2.
"Closing Date" shall mean the Closing Date as defined in the Purchase
Agreements.
"Demand Registration" shall have the meaning set forth in Section 2.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Form F-3" shall mean Form F-3 under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"Form F-3 Registration" shall have the meaning set forth in Section 4.
"Incidental Registration" shall have the meaning set forth in Section
3.
<PAGE> 2
"Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by the Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such Prospectus.
"Register", "registered" and "registration" shall mean and
refer to a registration effected by preparing and filing a Registration
Statement and taking all other actions that are necessary or appropriate in
connection therewith, and the declaration or ordering of effectiveness of such
Registration Statement by the SEC.
"Registration Expenses" shall have the meaning set forth in Section 8.
"Registrable Securities" shall mean all Ordinary Shares held by Holder
as of the date hereof or subsequently transferred to a permitted transferee
under Section 16 hereof, provided that such term shall not include any such
Ordinary Shares, (i) sold to the public by a Holder pursuant to a Registration
Statement under the Securities Act, or (ii) sold by such Holder in a private
transaction in which such Holder's rights hereunder were not assigned to the
purchasers thereof,or (iii) Ordinary Shares that can be sold according to Rule
144(k) of the Securities Act within the subsequent three (3) month period.
"Registration Statement" shall mean any registration statement of the
Company in compliance with the Securities Act that covers Registrable Securities
pursuant to the provisions of this Agreement, including, without limitation, the
Prospectus, all amendments and supplements to such Registration Statement,
including all post-effective amendments, all exhibits and all material
incorporated by reference in such Registration Statement.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Underwritten registration" or "underwritten offering" shall mean a
registration in which securities of the Company are sold to an underwriter or
through an underwriter as agent for reoffering to the public.
2. Demand Registration.
(a) Request for Demand Registration. At any time after the first
anniversary of the Closing Date, Shamrock shall be entitled to request in
writing that the Company use its best efforts to effect the registration under
the Securities Act, and under the securities or "blue sky" laws of any
jurisdiction designated by Shamrock, of Registrable Securities comprising at
least 350,000 Ordinary Shares (including Registrable Securities as to which
other holders of Registrable Securities are also seeking registration pursuant
to such request) in accordance with this Section 2 (each, a "Demand
Registration"). Any such request for a Demand Registration shall specify the
amount of Registrable Securities proposed to be sold and the intended method of
disposition thereof. Upon receiving a request for a Demand Registration, the
Company will, as provided in this Section 2, use its best efforts to effect the
registration under the Securities Act of the Registrable Securities in the
manner which the Company has been so requested by Shamrock to register.
2
<PAGE> 3
(b) Limitation on Demand Registrations. Notwithstanding anything to
the contrary set forth in Section 2(a) but subject to Section 8, the Company
shall not be obligated to file a Registration Statement with respect to more
than one (1) a Demand Registration upon a request by Shamrock under Section
2(a).
(c) Effective Demand Registration. A registration shall not constitute
a Demand Registration until the Registration Statement has become effective and
remains continuously effective for the lesser of: (i) the period during which
all Registrable Securities registered in the Demand Registration are sold: and
(ii) 180 days; provided, however, that a registration shall not constitute a
Demand Registration if (x) after such Demand Registration has become effective,
such registration or the related offer, sale or distribution of Registrable
Securities thereunder is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court for any
reason not attributable to Shamrock and such interference is not thereafter
eliminated: or (y) the conditions to closing specified in the underwriting
agreement, if any, entered into in connection with such Demand Registration are
not satisfied or waived, other than by reason of a failure by Shamrock.
(d) Underwriting Procedures. If Shamrock so elects, the offering of
Registrable Securities pursuant to a Demand Registration shall be in the form of
a firm commitment underwritten offering and the managing underwriter or
underwriters selected for such offering shall be the Approved Underwriter (as
hereinafter defined in Section 2(e)) selected in accordance with Section 2(e).
With respect to any firm commitment underwritten offering, the Company shall
enter into a reasonable and customary underwriting agreement with the Approved
Underwriter. If the Approved Underwriter advises the Company in writing that, in
its opinion, the aggregate amount of Ordinary Shares requested to be included in
such offering is sufficiently large so as to have a material adverse effect on
the success of such offering, then the Company shall include in such
registration only the aggregate amount of Ordinary Shares that in the opinion of
the Approved Underwriter may be sold without any such material advereffect and
shall allocate the amount of the Ordinary Shares to be included in such
registration as follows: (i) first, Shamrock shall be permitted to include all
Registrable Securities to be registered thereby; (ii) second, Eastgate shall be
allowed to include such amount of Ordinary Shares as the Approved Underwriter
deems appropriate, pro rata among the Eastgate entities to the amount of shares
then held by each such Eastgate entity; and (iii) third, the Company and any
other shareholder exercising piggyback registration rights shall be allowed to
include such amount of Ordinary Shares as the Approved Underwriter deems
appropriate; provided, however, that the amount of Ordinary Shares to be sold by
the Company and any other shareholders under clause (iii) and/or (iv) and
intended to be included in such offering shall be reduced in its entirety prior
to any reduction of the number of Shamrock's Registrable Securities.
(e) Selection of Underwriters. If any Demand Registration is in the
form of an underwritten offering, Shamrock shall select and obtain one or more
investment banking firms of national reputation to act as the managing
underwriters of the offering (collectively, the "Approved Underwriter");
provided, however, that the Approved Underwriter shall, in any case, be
acceptable to the Company in its reasonable judgment.
3. Incidental Registration. If the Company shall determine to register
any Ordinary Shares, or any securities convertible into or exchangeable or
exercisable for Ordinary Shares, for its own account or for the account of any
shareholder (other than a registration on Forms F-4, or F-8 or any replacement
or successor form thereof), each Holder shall be entitled to include Registrable
Securities, on a pro rata basis with the other Holder based on the number of
Registrable Securities then held by each Holder, in such registration (and
related underwritten offering, if any) (each, an "Incidental Registration") on
the following terms and conditions:
3
<PAGE> 4
(a) The Company shall promptly give written notice of such
determination to the Holders, and the Holders shall have the right to request,
by written notice given to the Company within thirty (30) days of the receipt by
Holders of such notice of determination, that a specific number of Registrable
Securities held by Holders be included in such Registration Statement;
(b) If the proposed registration relates to an underwritten offering,
the notice called for by Section 3(a) shall specify the name of the managing
underwriter for such offering and the number of securities to be registered for
the account of the Company and for the account of any other stockholder of the
Company;
(c) If the proposed registration relates to an underwritten offering,
each Holder must: (i) sell all or a portion of its Registrable Securities on the
same basis provided in the underwriting arrangements approved by the Company;
and (ii) complete and execute all questionnaires, powers of attorney,
indemnities (but only to the extent such indemnities relate specifically to
information supplied by such Holder), hold-back agreements, underwriting
agreements and other documents on the same basis as other similarly situated
selling shareholders (or, if there are no other selling shareholders, as would
be customary in a transaction of this type) required under the terms of such
underwriting arrangements or by the SEC;
(d) If the managing underwriter for the underwritten offering under
the proposed registration to be made by the Company determines that inclusion of
all or any portion of the Registrable Securities in such offering would
adversely affect the ability of the underwriter for such offering to sell all of
the securities requested to be included for sale or the price per share in such
offering, the number of shares that may be included in such registration in such
offering shall be allocated as follows: (i) first, the Company (if such
registration was initiated thereby) or the selling shareholder exercising demand
registration rights, as the case may be, shall be permitted to include all of
the Ordinary Shares to be registered thereby; and (ii) second, the Holders, on a
pro rata basis with one another, based on the number of Registrable Securities
then held by each Holder, and any other selling shareholder exercising piggyback
registration rights shall be allowed to include such amount of Registrable
Securities as the managing underwriter(s) deems appropriate (on a pro rata basis
with one another but only to the extent that such pro rata basis applies to the
number of Ordinary Shares still retained at the time of such cutback);
(e) Each Holder shall have the right to withdraw its Registrable
Securities from the Registration Statement at any time prior to the effective
date thereof, but if the same relates to an underwritten offering, it may only
do so after the initial filing thereof during the time period and on terms
deemed appropriate by the managing underwriters for such underwritten offering;
and
(f) The Company or any other shareholder exercising demand
registration rights shall have the right to terminate or withdraw any
registration statement filing under this Section 3 prior to the effective date
of such registration for any reason without liability to the Holders as a result
thereof, whether or not either Holder has elected to include its securities in
such registration.
4. Form F-3 Registration.
(a) At any time after the first anniversary of the Closing Date,
Shamrock
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<PAGE> 5
shall, subject to the provisions of this Section 4, be entitled to request that
the Company effect a registration of its Registrable Securities comprising at
least 150,000 Ordinary Shares on Form F-3 as shall be specified in such request
(a "Form F-3 Registration").
(b) As soon as practicable after receipt of any written request
pursuant to Section 4(a), the Company shall file a Form F-3 Registration
Statement covering the Registrable Securities and shall effect such registration
as would permit or facilitate the sale and distribution of all or such portion
of Shamrock's Registrable Securities as are specified in such request.
(c) At all times during which the Company is subject to the reporting
requirements of the Exchange Act, the Company shall use its best efforts to make
registrations on Form F-3 available for the sale of Registrable Securities.
(d) If Shamrock so elects, the offering of Registrable Securities
pursuant to a Form F-3 Registration shall involve a managing underwriter or
underwriters selected for such offering by Shamrock; provided, however, that
such managing underwriter shall be acceptable to the Company in its reasonable
judgment. If the managing underwriter advises the Company in writing that in its
opinion the aggregate amount of Ordinary Shares requested to be included in such
offering is sufficiently large so as to have a material adverse effect on the
success of such offering, then the Company shall include in such registration
only the aggregate amount of Ordinary Shares that in the opinion of the managing
underwriter may be sold without any such material adverse effect and shall
allocate the amount of the Ordinary Shares to be included in such registration
as follows: (i) first, Shamrock shall be permitted to include all Registrable
Securities to be registered thereby; (ii) second, Eastgate shall be allowed to
include such amount of Ordinary Shares as the Approved Underwriter deems
appropriate, pro rata among the Eastgate entities to the amount of shares then
held by each such Eastgate entity; and (iii) third, the Company and any other
shareholder exercising piggyback registration rights shall be allowed to include
such amount of Ordinary Shares as the managing underwriter deems appropriate;
pr, however, that, the amount of Ordinary Shares to be sold by the Company and
any other shareholders under clause (ii) and /or (iii) and intended to be
included in such offering shall be reduced in its entirety prior to any
reduction of the number of Holders' Registrable Securities.
(e) Each Holder shall have the right to withdraw its Registrable
Securities from the Registration Statemat any time prior to the effective date
thereof, but if the same relates to an underwritten offering, it may only do so
after the initial filing thereof during the time period and on terms deemed
appropriate by the underwriters for such underwritten offering.
(f) Notwithstanding anything to the contrary in Section 4(a) but
subject to Section 8, the Company shall not be obligated to file a Registration
Statement with respect to a Form F-3 Registration upon a request by Shamrock
under Section 4(a), if the Company has paid the Registration Expenses for one
Form F-3 Registrations in accordance with Section 8; provided, however, that
only a Form F-3 Registration that has become effective and remained continuously
effective for the lesser of: (i) the period during which all Registrable
Securities registered thereunder are sold; and (ii) 180 days shall be counted as
a Form F-3 Registration and be counted against the aforesaid limitation; and
provided, further, however, that a registration shall not constitute a Form F-3
Registration if (x) after such Form F-3 Registration has become effective, such
registration or the related offer, sale or distribution of Registrable
Securities thereunder is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or court for
any reason not attributable to the Holders and such interference is not
thereafter eliminated; or (y) the conditions to closing specified in the
underwriting agreement, if any, entered into in connection with such Form F-3
Registration are not satisfied or waived, other than by any reason of a failure
not attributable to the Holders.
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<PAGE> 6
5. Blockage Periods. Notwithstanding any other provision of this
Agreement, the Company shall not be obligated to file any Registration Statement
under Section 2 or Section 4 hereof, if, at any time, the Company's Board of
Directors determines in good faith, as certified to the Holders in writing by
the Company's President or Chief Executive Officer, that the filing of such a
Registration Statement would be seriously detrimental to the Company. The
Company may decline to file any Registration Statement for this reason only once
in any twelve (12) month period and only for a maximum period of one hundred
twenty (120) days at any one time.
6. Restrictions on Public Sale by Holder of Registrable Securities. If
Registrable Securities are included (in whole or in part) in a Registration
Statement filed by the Company under Sections 2 through 4 for sale in an
underwritten offering, each Holder whose Registrable Securities are included in
such Registration Statement agrees, if requested by the managing underwriter(s)
of such offering, not to sell, make any short sale of, loan, grant any option
for the purchase of, dispose of or effect any public sale or distribution of
securities of the same class as (or securities exchangeable for or convertible
into securities of the same class as) Registrable Securities included in a the
Registration Statement, including a sale pursuant to Rule 144 under the
Securities Act (except as part of such underwritten registration), during the
five (5) day period prior to, and during the one hundred twenty (120) day period
(or shorter period requested by the managing underwriter(s)) beginning on the
closing date of such underwritten offering, to the extent timely notified in
writing by the Company or the managing underwriter(s).
7. Registration Procedures. In connection with the Company's registration
obligations pursuant to Sections 2 through 4 hereof, the Company will use its
best efforts to effect such registration to permit the sale of the Registrable
Securities covered thereby in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company will as expeditiously as
possible:
(a) prepare and file with the SEC a Registration Statement with
respect to such Registrable Securities and use its best efforts to cause such
Registration Statement to become effective, and, upon the request of Shamrock or
Eastgate, if it shall be a seller under each Registration Statement, keep such
Registration Statement effective for up to one hundred eighty (180) days,
provided that, before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, the Company will furnish to each Holder and
their respective counsel, copies of all such documents proposed to be filed at
least five (5) days prior thereto, and the Company will not file any such
Registration Statement or amendment thereto or any Prospectus or any supplement
thereto to which Shamrock (or Eastgate, if it shall be a seller) shall
reasonably object within such five (5) day period, provided, further, that the
Company will not name or otherwise provide any information with respect to the
Holders in any Registration Statement or Prospectus without the express written
consent of the Holders, unless required to do so by the Securities Act and the
rules and regulations thereunder;
(b) prepare and file with the SEC such amendments, post-effective
amendments and supplements to the Registration Statement and the Prospectus as
may be necessary to comply with the provisions of the Securities Act and the
rules and regulations thereunder with respect to the disposition of all
securities covered by such Registration Statement;
(c) promptly notify the Holders: (i) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the SEC for amendments or
supplements to the Registration Statement or the
6
<PAGE> 7
Prospectus or for additional information; (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iv) if at any time the
representations and warranties of the Company contemplated by the Purchase
Agreements cease to be true and correct; (v) of the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and (vi) of the happening of any
event which makes any statement made in the Registration Statement, the
Prospectus or any document incorporated therein by reference untrue or which
requires the making of any changes in the Registration Statement, the Prospectus
or any document incorporated therein by reference in order to make the
statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement as soon as possible;
(e) furnish to the Holders, without charge, at least one signed copy
of the Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits (including those incorporated by reference);
(f) deliver to the Holders, without charge, such reasonable number of
conformed copies of the Registration Statement (and any post-effective amendment
thereto) and such number of copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto (and any documents
incorporated by reference therein) as the Holders may reasonably request, all in
full conformity with the Securities Act; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by the Holders in connection
with the offer and sale of the Registrable Securities covered by the Prospectus
or any amendment or supplement thereto;
(g) prior to any of Registrable Securities covered by a Registration
Statement, register or qualify or cooperate with the Holders in connection with
the registration or qualification of such Registrable Securities for offer and
sale under the securities or blue sky laws of such jurisdictions as the Holders
reasonably request, and use its best efforts to keep each such regor
qualification effective, including through new filings, or amendments or
renewals, during the period such Registration Statement is required to be kept
effective pursuant to the terms of this Agreement; and do any and all other acts
or things necessary or advisable to enable the disposition of such Registrable
Securities in all such jurisdictions reasonably requested by the Holders,
provided that under no circumstances shall the Company be required in connection
therewith or as a condition thereof to qualify to do business or to file a
general consent to service of process in any such jurisdictions;
(h) cooperate with the Holders and the managing underwriter or
underwriters to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, free of any and all restrictive
legends, such certificates to be in such denominations and registered in such
names as the managing underwriter or underwriters, if any, or the Holders may
request;
(i) upon the occurrence of any event contemplated by Section 7(c)(vi)
above, prepare a supplement or post-effective amendment to the Registration
Statement or the Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material
7
<PAGE> 8
fact necessary to make the statements therein not misleading;
(j) make generally available to the holders of the Company's
outstanding securities earnings statements satisfying the provisions of Section
ll (a) of the Securities Act, no later than sixty (60) days after the end of any
twelve (12) month period (or ninety (90) days, if such period is a fiscal year):
(x) commencing at the end of any fiscal quarter in which Registrable Securities
are sold to underwriters in a firm or best efforts underwritten offering, or, if
not sold to underwriters in such an offering; (y) beginning with the first month
of the Company's first fiscal quarter commencing after the effective date of the
Registration Statement, which statements shall cover said twelve (12) month
period;
(k) provide and cause to be maintained a transfer agent and registrar
for all Registrable Securities covered by each Registration Statement from and
after a date not later than the effective date of such Registration Statement;
(l) use its best efforts to cause all Registrable Securities covered
by each Registration Statement to be listed, subject to notice of issuance,
prior to the date of the first sale of such Registrable Securities pursuant to
such Registration Statement, on each securities exchange on which the Ordinary
Shares issued by the Company is then listed, and admitted to trading, including,
the Nasdaq Stock Market, if the Ordinary Shares are then admitted to trading on
the Nasdaq Stock Market; and
(m) enter into such agreements (including underwriting agreements in
customary form containing, among other things, reasonable and customary
indemnities) and take such other actions as the Holders shall reasonably request
in order to expedite or facilitate the disposition of such Registrable
Securities.
(n) furnish, at the request of the Holders, on the date that the
Registrable Securities are delivered to an underwriter for sale in connection
with an underwritten registration, or, in connection with any other
registration, on the date that the registration statement with respect to such
registration becomes effective: (i) an opinion, dated such date, of the counsel
representing the Company for the purpose of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders; and (ii) a
letter dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders, subject to the Holders
providing information reasonably requested by such independent certified public
accountants to comply with the rules governing delivery of such letters.
The Holders agree that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 7(c)(vi) hereof, the
Holders will forthwith discontinue disposition of Registrable Securities under
the Prospectus related to the applicable Registration Statement until the
Holders' receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 7(i) hereof, or until it is advised in writing by the
Company that the use of the Prospectus may be resumed. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 7 with respect to the Registrable Securities of the Holders that the
Holders shall furnish them to the Company such information regarding themselves
and the Registrable Securities held by it as shall be required by the Securities
Act to effect the registration of the Holder's Registrable Securities.
8. Registration Expenses. All expenses incident to any registration to be
effected
8
<PAGE> 9
hereunder (whether or not the Registration Statement is filed or declared
effective) and incident to the Company's performance of or compliance with this
Agreement, including without limitation all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, National Association of Securities Dealers,
Inc., stock exchange and qualification fees, fees and disbursements of the
Company's counsel and of independent certified public accountants of the Company
(including the expenses of any special audit required by or incident to such
performance), the fees of one counsel representing the Holders in such offering
(which counsel shall be selected by Shamrock if Shamrock is participating in
such offering), expenses of the underwriters that are customarily requested in
similar circumstances by such underwriters (excluding discounts, commissions or
fees of underwriters, selling brokers, dealer managers or similar securities
industry professionals relating to the distribution of the Registrable
Securities), all such expenses being herein called "Registration Expenses," will
be borne by the Company. The Company will also pay its internal expenses, the
expense of any annual audit and the fees and expenses of any person retained by
the Company. Notwithstanding the foregoing but subject to Section 12, the
Company will not be obligated to pay Registration Expenses for more than two
Demand Registrations effected pursuant to Section 2 of this Agreement or for
more than one Form F-3 Registration effected pursuant to Section 4 of this
Agreement. Registration Expenses incurred in connection with Registration
Statements requested under Section 2 or Section 4 that are not filed or declared
effective by the SEC will be paid by the Company and will not count against such
limit; provided, however, if such Registration Statement not being filed or
declared effective as the result of the actions of Shamrock, then Shamrock may
in its sole and unlimited discretion elect to bear the Registration Expenses
(and underwriting discounts and commissions and transfer taxes, if any) of such
Demand Registration or such Form F-3 Registration, as the case may be, in which
case such registration shall not be counted as a Demand Registration under
Section 2 or a Form F-3 Registration under Section 4, as the case may be. In the
event that Shamrock bears the Registration Expenses (and underwriting discounts
and commissions and transfer taxes, if any) in connection with any Demand
Registration requested under Section 2 or Form F-3 Registration under Section 4,
such Registration Expenses shall be apportioned among the holders whose Ordinary
Shares are then being registered, on the basis of the respective amounts (by
number of Ordinary Shares) then being registerby them or on their behalf.
9. Indemnification.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless Holders, their respective officers, directors, partners and
employees and each person who controls Holder (within the meaning of Section 15
of the Securities Act) from and against any and all losses, claims, damages and
liabilities (including any investigation, legal or other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted) (collectively, "Damages") to which
Holder may become subject under the Securities Act, the Exchange Act or other
federal or state securities law or regulation, at common law or otherwise,
insofar as such Damages arise out of or are based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or any amendment or supplement
thereto, (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and (iii)
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act or any state securities or blue sky laws in connection with the
Registration Statement, Prospectus or preliminary prospectus or any amendment or
supplement thereto, provided that the Company will not be liable to Holder to
the extent that such Damages arise from or are based upon any untrue statement
or omission (x) based upon written information furnished to the Company by
Holders expressly for the inclusion in such Registration Statement, (y) made in
any preliminary prospectus if Holders failed to
9
<PAGE> 10
deliver a copy of the Prospectus with or prior to the delivery of written
confirmation of the sale by Holders to the [passerting] the claim underlying
such Damages and such Prospectus would have corrected such untrue statement or
omission and (z) made in any Prospectus if such untrue statement or omission was
corrected in an amendment or supplement to such Prospectus and Holders failed to
deliver such amendment or supplement prior to or concurrently with the sale of
Registrable Securities to the party asserting the claim underlying such Damages.
(b) Indemnification by Holders of Registrable Securities. If
Registrable Securities are sold under a Prospectus which is a part of a
Registration Statement, Shamrock and/or each of the Eastgate entities,
individually and not jointly, as to their own statements or omissions only,
agrees to indemnify and hold harmless the Company, its directors and each
officer who signed such Registration Statement and each person who controls the
Company (within the meaning of Section 15 of the Securities Act) under the same
circumstances as the foregoing indemnity from the Company to Holders to the
extent that such losses, claims, damages, liabilities or actions arise out of or
are based upon any untrue statement of a material fact or omission of a material
fact that was made in the Prospectus, the Registration Statement, or any
amendment or supplement thereto, in reliance upon and in conformity with
information relating to Shamrock or the Eastgate entity, as the case may be,
furnished in writing to the Company by such party expressly for use therein,
provided that in no event shall the aggregate liability of Shamrock or the
Eastgate entity, as the case may be, exceed the amount of the net proceeds
received by such party upon the sale of the Registrable Securities giving rise
to such indemnification obligation. The Company and Holders shall be entitled to
receive indemnities from underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution, to
the same extent as customarily furnished by such persons in similar
circumstances.
(c) Procedure for Indemnification Proceedings. Any person entitled to
indemnification hereunder will: (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification; and (ii) permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided, however, that any
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such person and not of
the indemnifying party unless: (A) the indemnifying party has agreed to pay such
fees or expenses; (B) the indemnifying party shall have failed to assume the
defense of such claim and employ counsel reasonably satisfactory to such person;
or (C) in the reasonable judgment of such person and the indemnifying party,
based upon advice of their respective counsel, a conflict of interest may exist
between such person and the indemnifying party with respect to such claims (in
which case, if the person notifies the indemnifying party in writing that such
person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person). If such defense is not assumed by the
indemnifying party, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent will not be
unreasonably withheld). No indemnified party will be required to consent to the
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by all claimants or plaintiffs to such
indemnified party of a release from all liability in respect to such claim or
litigation. Any indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim. As used in this Section 9(c), the terms
"indemnifying party", "indemnified party" and other terms of similar import are
intended to include only the Company (and its officers, directors and control
persons as set forth above) on the one hand, and the Holders (and their
respective officers, directors, partners,
10
<PAGE> 11
employees, attorneys and control persons as set forth above) on the other hand,
as applicable.
(d) Contribution. If for any reason the foregoing indemnity is
unavailable, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses: (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other; or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, in such proportion as
is appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other but
also the relative fault of the indemnifying party and the indemnified party as
well as any other relevant equitable considerations. Notwithstanding the
foregoing, the Holders shall not be required to contribute any amount in excess
of the amount the Holders would have been required to pay to an indemnified
party if the indemnity under Section 9(b) hereof was available. No person found
liable for making a fraudulent misrepresentation (within the meaning of Section
11 of the Securities Act) shall be entitled to contribution from any person who
was found liable for making such fraudulent misrepresentation.
(e) Timing of Payments. An indemnifying party shall make payments of
all amounts required to be made pursuant to the foregoing provisions of this
Section 9 to or for the account of the indemnified party from time to time
promptly upon receipt of bills or invoices relating thereto or when otherwisdue
or payable.
(f) Survival. These indemnity and contribution provisions shall remain
in full force and effect, regardless of any investigation made by or on behalf
of the Holders, its officers, directors, partners, attorneys, agents or any
person, if any, who controls the Holders as aforesaid, and shall survive the
transfer of such Registrable Securities by each Holder.
10. Preparation; Reasonable Investigation. In connection with the
preparation and filing of a Registration Statement pursuant to the terms of this
Agreement:
(a) the Company shall, with respect to a Registration Statement filed
by the Company, give the Holders, the underwriter(s), if any, and their
respective counsel and accountants the opportunity to participate in the
preparation of such Registration Statement (other than reports and proxy
statements incorporated therein by reference and lawfully and properly filed
with the SEC) and each Prospectus included therein or filed with the SEC, and
each amendment thereof or supplement thereto; and
(b) the Company shall give the Holders, their underwriters, if any,
and their respective counsel and accountants reasonable access to its books and
records and opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of the Holders or such
underwriter(s), to conduct a reasonable investigation within the meaning of
Section ll(b)(3) of the Securities Act.
11. Rule 144. At all times during which the Company is subject to the
periodic reporting requirements of the Exchange Act, the Company covenants that
it will file, on a timely basis, the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the SEC thereunder, and it will take such further action as the Holders may
reasonably request (including, without limitation, compliance with the current
public information requirements of Rule 144(c) and Rule 144A under the
Securities Act), all to the extent required from time to time to enable the
Holders to sell Registrable Securities without
11
<PAGE> 12
registration under the Securities Act within the limitation of the conditions
provided by: (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time; (b) Rule 144A under the Securities Act, as such Rule may be
amended from time to time; or (c) any similar rule or regulation hereafter
adopted by the SEC. Upon the request of any Holder, the Company will deliver to
such Holder a written statement verifying that it has complied with such
information requirements.
12. No Inconsistent Agreements. The Company will not enter into any
agreement offering registration rights of the nature set forth herein without
the consent of the holder(s) of the majority of the Registrable Securities held
by the Holders at such time, which consent may be withheld, in their sole
discretion; provided that the Company may grant demand and incidental
registration rights in the future to the Holders of Ordinary Shares on the
following basis (in which event the consent of the Holders will not be
required): (a) all cutbacks on incidental registrations shall be on a pro rata
basis with the Ordinary Shares held by the Holders and any other selling
shareholder exercising incidental registration rights (but only to the extent
that such pro rata basis applies to the number of Ordinary Shares still retained
at the time of such cutback); (b) an investor investing between $5,000,000 and
$10,000,000 shall be entitled to not more than one (1) demand registration right
and one F-3 Registration; (c) an investor investing between $10,000,000 and
$20,000,000 shall be entitled to not more than two (2) demand registration
rights and two F-3 Registrations; (d) an investor investing more than
$20,000,000 shall be entitled to not more than three (3) demand registration
rights and two (2) F-3 Registrations; and (e) holders of any registration rights
granted subsequent to the date hereof shall not exercise any such rights, except
incidental or registration rights, prior to the first anniversary of the closing
of the purchase of the Ordinary Shares as to which such registration rights were
granted.
13. Assignment of Rights. Each Holder may assign its respective rights
under the Agreement to: (a) any transferee of the Registrable Securities of such
Holder, if such transferee has executed this Agreement and agreed to be bound by
the terms hereof (it being understood, however, that the Holder effecting such
transfer shall retain all of its rights hereunder with respect to all
Registrable Securities not so transferred thereby); or (b) any shareholder,
subsidiary, partner, nominee or Affiliate of the Holder effecting such transfer
or any such transferee. The transferor shall, within twenty (20) days after such
transfer, furnish the Company with written notice of the name and address of
such transferee and the securities with respect to which such registration
rights are being assigned and a copy of this Agreement executed by the
Transferee.
14. Specific Performance. The Holders, in addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of their rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
15. Notices. All notices required or permitted under the terms of this
Agreement shall be delivered in the manner called for in the Purchase
Agreements.
16. Successors and Assigns. Subject to Section 13, this Agreement shall
inure to the benefit of the successors and permitted assigns of Holders, such
that the rights under this Agreement shall inure to the benefit of and be
binding upon such subsequent holders of Registrable Securities without the need
for an express assignment. This Agreement shall inure to the benefit of and be
binding upon the Company and any corporation resulting from any merger
12
<PAGE> 13
or consolidation of the Company with or into such corporation (in which the
Company is not the surviving corporation) or any corporation whose securities
are issued in exchange for Ordinary Shares.
17. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
18. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and shall supersede any
prior understandings, agreements or representations, written or oral, by or
among the parties hereto.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be original, and all of which together shall
constitute one instrument.
20. Amendment. Any provision of this Agreement may be amended, waived or
modified only by a writing signed by the Company and holders of a majority of
the Registrable Securities.
21. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. The parties hereby consent to
the sole and exclusive jurisdiction of any federal or state court in the State
of New York, City of New York.
[The remainder of the page is intentionally left blank.]
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the day and year first above written.
PARADIGM GEOPHYSICAL LTD.
an Israeli corporation
By: /s/ Eldad Weiss
Name: Eldad Weiss
Title: President and CEO
SHAMROCK HOLDINGS, INC.
By: /s/ Robert G. Moskowitz
Name:
Title:
EASTGATE FUND L.P.
by Eastgate Management Corporation, its general
partner
By: /s/ Harris Kaplan
Name: HarrisKaplan
Title: President
EASTGATE INTERNATIONAL LIMITED, by Eastgate
Management Corporation, its Investment
Manager and Authorized Agent
By: /s/ Harris Kaplan
Name: Harris Kaplan
Title: President
/s/ Harris Kaplan
MR. HARRIS KAPLAN
BERMAN EASTGATE GROWTH FUND, by
Eastgate Management Corporation, a
general partner
By: /s/ Harris Kaplan
Name: Harris Kaplan
Title: President
14
<PAGE> 1
Exhibit 10.16
--------------------------------------------------
SHARE PURCHASE AGREEMENT
BETWEEN
PARADIGM GEOPHYSICAL LTD.
AND
EASTGATE FUND L.P.
EASTGATE INTERNATIONAL LIMITED.
MR. HARRIS KAPLAN
BERMAN EASTGATE GROWTH FUND.
--------------------------------------------------
Dated as of April ___, 1999
--------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I THE TRANSACTIONS ........................................... 2
1.1 Purchase and Sale .............................................. 3
1.2 Payment of Purchase Price ...................................... 3
1.3 The Closing .................................................... 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ........... 3
2.1 Organization ................................................... 3
2.2 Authority ...................................................... 3
2.3 No Violation ................................................... 3
2.4 Securities Act Representation .................................. 4
2.5 Shareholding
2.5 Purchase for Investment ........................................ 4
2.6 Status of Purchaser ............................................ 4
2.7 Legends ........................................................ 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY ............ 5
3.1 Corporate Organization ......................................... 5
3.2 Share Capital .................................................. 5
3.3 Share Capital of Subsidiaries .................................. 6
3.4 Newly Issued Shares ............................................ 6
3.5 Authority; Enforcement ......................................... 6
3.6 No Violation ................................................... 6
3.7 Brokers ........................................................ 7
3.8 Foreign Private Issuer ......................................... 7
3.9 Commission Reports ............................................. 7
3.10 Litigation .................................................... 7
3.11 Disclosure .................................................... 7
3.12 Intellectual Property and Other Tangible Assets ............... 8
3.13 Industrial Company ............................................ 9
3.14 Compliance with Laws .......................................... 9
3.15 Insurance ..................................................... 9
3.16 Foreign Corrupt Practices Act ................................. 9
3.17 Foreign Currency Hedging Transactions ......................... 9
3.18 Contracts ..................................................... 10
3.19 Financial Statements .......................................... 10
3.20 No Undisclosed Liabilities .................................... 10
3.21 Listing of Ordinary Shares .................................... 10
3.22 Taxes ......................................................... 10
3.23 Certain Relationships ......................................... 11
3.24 HSR Act ....................................................... 11
ARTICLE IV COVENANTS AND AGREEMENTS .................................. 11
4.1 Best Efforts ................................................... 11
4.2 Indemnification ................................................ 11
4.3 Registration of Conversion of Preferred Shares ................. 13
4.4 The Company shall not...........................................
ARTICLE V CONDITIONS PRECEDENT ....................................... 12
5.1 Conditions to Each Party's Obligations ......................... 13
5.2 Conditions to the Obligations of the Company ................... 13
5.3 Conditions to the Obligations of the Purchaser ................. 13
ARTICLE VI MISCELLANEOUS ............................................. 15
6.1 Amendment ...................................................... 16
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
6.2 Waiver ......................................................... 16
6.3 Termination .................................................... 16
6.4 Notices ........................................................ 16
6.5 Headings; Agreement ............................................ 17
6.6 Publicity ...................................................... 17
6.7 Entire Agreement ............................................... 17
6.8 Conveyance Taxes ............................................... 17
6.9 Assignment ..................................................... 17
6.10 Counterparts .................................................. 17
6.11 Governing Law ................................................. 17
6.12 Third Party Beneficiaries ..................................... 18
6.13 Costs and Expenses ............................................ 18
</TABLE>
casgsp (paradigm)
<PAGE> 4
SHARE PURCHASE AGREEMENT
SHARE PURCHASE AGREEMENT (the "Agreement") dated as of April
__, 1999 by and between Paradigm Geophysical Ltd., an Israeli corporation (the
"Company"), and Eastgate Fund, L.P., an Iowa limited partnership, Eastgate
International Limited, a corporation formed under the laws of the Commonwealth
of the Bahamas, Mr. Harris Kaplan, a North Carolina resident, and Berman
Eastgate Growth Fund, an Iowa partnership (collectively the "Purchasers").
R E C I T A L S:
WHEREAS, the Purchasers wish to purchase from the Company, and
the Company wishes to sell to the Purchasers, the number of Ordinary Shares (NIS
0.5 par value) of the Company (the "Ordinary Shares") as is set forth in Section
1.1 below, on the terms and subject to the conditions set forth herein;
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions
contained herein, the sufficiency of which is hereby acknowledged, and in order
to set forth the terms and conditions of the transactions described herein and
the mode of carrying the same into effect, the parties hereby agree as follows:
ARTICLE I
THE TRANSACTIONS
1.1 Purchase and Sale.
Subject to the terms and conditions of this Agreement,
Purchasers agree to purchase from the Company and the Company agrees to sell to
Purchasers at the Closing (as defined below) 263,158 Ordinary Shares, NIS 0.5
nominal value, of the Company (the "Shares") in consideration for an aggregate
purchase price of $1,500,000, representing 2.02% of the issued and outstanding
share capital of the Company immediately after the Closing (and approximately
1.67% on a fully diluted basis, assuming exercise of all outstanding warrants
and options and assuming the investment by Purchasers as described below).
The amount of Shares to be purchased by each Purchaser and the
purchase price to be paid by each of the Purchasers is as follows:
<TABLE>
<CAPTION>
PURCHASER NUMBER OF SHARES PURCHASE PRICE
--------- ---------------- --------------
<S> <C> <C>
Eastgate Fund, LP 105,263 $600,000
Eastgate International Limited 87,719 $500,000
Harris Kaplan 17,544 $100,000
Berman Eastgate Growth Fund 52,632 $300,000
</TABLE>
2
<PAGE> 5
1.2 Payment of Purchase Price.
(a) Payment by Purchasers of the aggregate purchase price for
the Shares shall be made in cash via wire transfer of immediately available
funds to a bank account designated by the Company on the Closing Date (as
defined below). At the Closing, the Company shall deliver to each of the
Purchasers a certificate registered in the name of each such Purchasers
representing the Shares purchased by such Purchaser in accordance with Section
1.1 hereof and shall deliver to a representative of the Purchasers the documents
specified in Section 5.3 below.
1.3 The Closing.
Subject to the fulfillment of the conditions precedent
specified in Article V hereof (any or all of which may be waived in writing by
the respective parties whose performance is conditioned upon satisfaction of
such conditions precedent), the purchase and sale of the Shares shall be
consummated at a closing (the "Closing") to be held simultaneously with the
Closing of the transactions contemplated by the Share Purchase Agreement dated
as of April 14, 1999, between the Company and Shamrock Holdings, Inc. (the
"Shamrock Agreement"), at the offices of Efrati, Galili & Co., 6 Wissotsky
Street, Tel Aviv, Israel, on May 3, 1999, at 10:00 am, Israeli time, or as soon
as practicable thereafter following the satisfaction or waiver of all relevant
conditions precedent specified in Article V hereof, or at such other place and
time as the Company and Purchasers shall mutually agree (the date on which the
Closing occurs being herein referred to as the "Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS
Each of the Purchasers severally represents and warrants to
the Company, as to all matters relevant thereto, as follows:
2.1 Organization. Each Purchaser which is a corporation is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation.
2.2 Authority. Each Purchaser which is a corporation has full
corporate power and authority to execute and deliver this Agreement and each
other agreement contemplated hereby, to carry out its obligations hereunder and
to consummate the transactions contemplated on its part hereby. The execution,
delivery and performance of this Agreement and each other agreement contemplated
hereby by each Purchaser which is a corporation has been duly authorized by all
necessary corporate action on the part of each such Purchaser, and no other
action on the part of each such Purchaser is necessary to authorize the
execution and delivery of this Agreement and each other agreement contemplated
hereby or the performance by each such Purchaser of its obligations hereunder.
This Agreement has been duly executed and delivered by each such Purchaser and
constitutes a legal, valid and binding agreement of each such Purchaser,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
creditors' rights generally and subject to general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
2.3 No Violation. The execution and delivery of this Agreement
and the Registration Rights Agreement (as defined below) by such Purchaser, the
performance of such Purchaser's obligations hereunder and thereunder and the
consummation by such Purchaser of the
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transactions contemplated hereby and thereby will not (a) violate any provision
of law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award applicable to such Purchaser, (b) require the consent,
waiver, approval, license or authorization of or any filing by such Purchaser
with any person or governmental authority, except for filings to be made in
connection with or in compliance with the provisions of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), Regulation D as promulgated under
the Securities Act of 1933, as amended (the "Securities Act") and applicable
state securities laws, and the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), to the extent applicable, or (c) violate,
result (with or without notice or the passage of time, or both) in a material
breach of or give rise to the right to accelerate, terminate or cancel any
obligation under or constitute (with or without notice or the passage of time,
or both) a material default under, any of the terms or provisions of any charter
or bylaw, partnership agreement, indenture, mortgage, agreement, contract,
order, judgment, ordinance, regulation or decree to which such Purchaser is
subject or by which such Purchaser is bound except for any of the foregoing
matters which would not have, individually or in the aggregate, a material and
adverse effect upon the operations, financial condition or results of operations
(a "Material Adverse Effect") on such Purchaser.
2.4 Securities Act Representation. Such Purchaser is an
"accredited investor" as defined in Rule 501 promulgated as part of Regulation D
under the Securities Act. Each of the Purchasers is not acquiring the Shares
with a view to a distribution or resale of any of such securities in violation
of any applicable securities laws.
2.5 Purchase for Investment. This Agreement is concluded with
each Purchaser in reliance upon each such Purchaser's representation to the
Company that the Shares to be issued to such Purchaser will be acquired for
investment for the Purchaser's own account, and not with a view to the sale or
distribution of any part thereof.
2.6 Status of Purchasers. Each Purchaser is purchasing the
Shares for such Purchaser's own account and not with the intention of effecting
an offering of the Shares to the public. Each Purchaser is knowledgeable,
sophisticated and experienced in making, and is qualified to make decisions with
respect to investments in securities such as the Shares. Subject to the
Company's representations made in this Agreement being correct, each such
Purchaser has requested from the Company all information such Purchaser would
deem relevant in making a decision to execute this Agreement and to purchase the
Shares.
2.7 Legends. Each Purchaser agrees that the certificates
representing the Shares purchased hereunder shall bear the legend set forth
below:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES
ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND
NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD,
ASSIGNED, TRANSFERRED OR PLEDGED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE
SECURITIES LAW COVERING SUCH SECURITIES OR THE CORPORATION
RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
CORPORATION OR OTHER EVIDENCE REASONABLY ACCEPTABLE TO THE
CORPORATION INDICATING THAT SUCH SALE, TRANSFER,
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ASSIGNMENT OR PLEDGE IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAW."
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to the Purchasers as
follows:
3.1 Corporate Organization. Each of the Company and its
subsidiaries, as listed on Schedule 3.1, which indicates their respective
jurisdictions of organization (the "Subsidiaries"), is a corporation or other
entity duly organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation or organization with all requisite corporate
power and authority to lease its properties and to carry on its business as it
is now being conducted, and is qualified or licensed to do business and is in
good standing in each jurisdiction in which it currently carries on business,
except where the failure to be so qualified or licensed or be in good standing
would not reasonably be expected, individually or in the aggregate, to have, a
material and adverse effect upon the operations, financial condition or results
of operations of the Company and its Subsidiaries considered as a whole (a
"Material Adverse Effect"). True and complete copies of the Articles of
Association and the Memorandum of Association of the Company, each as amended to
date, have been delivered to the Purchaser.
3.2 Share Capital. The authorized share capital of the Company
consists in its entirety of 18,000,000 Ordinary Shares, of which, as of the date
hereof, 13,026,336 are issued and outstanding (assuming the issuance of 877,193
shares to Shamrock Holdings Inc. pursuant to the Shamrock Agreement) and
2,000,000 Special Preferred Shares, none of which are issued and outstanding. In
addition, (a) an aggregate of 2,285,600 Ordinary Shares are reserved for
issuance pursuant to the Company's 1994 Stock Option Plan for key employees, the
May 1994 Stock Option Plan, the 1994 General Stock Option Plan, the 1997 Stock
Option Plan for Qualifying Israel Employees, the 1997 Executive Stock Option
Plan and the 1997 Stock Option Plan for U.S. Employees (collectively, the "1994
and 1997 Stock Option Plans"), of which options to purchase 1,578,216 Ordinary
Shares were outstanding as of the date hereof and (b) 725,620 Ordinary Shares
are reserved for issuance in connection with the exercise of certain outstanding
warrants. In addition, the Company has undertaken to issue warrants to purchase
250,000 Ordinary Shares of the Company to Schroder & Co., upon the closing of
this Agreement, exercisable at a price per share which is no less than the
purchase price per Share payable hereunder. Other than the Shareholder Agreement
(as defined below), which shall be terminated prior to the Closing, the Company
is not aware of any other shareholders agreement or voting agreement affecting
or binding upon the capital shares of the Company. All of the outstanding shares
have been duly authorized and validly issued, are fully paid and non-assessable,
are not subject to preemptive rights, and are owned by the Company's
shareholders free and clear of any liens, encumbrances, security interests,
adverse claims or equities or rights in favor of another ("Encumbrances")
imposed or created by the Company. Except as set forth in Schedule 3.2, none of
the outstanding capital shares of the Company are subject to any co-sale right,
registration right, right of first refusal or other similar right to purchase
any shares pursuant to any agreement to which the Company is a party or
otherwise imposed or created by the Company or imposed by Israeli law. Other
than as described above, there are no outstanding options, warrants or other
rights calling for the issuance of, and no commitments, plans or arrangements to
issue, any capital shares of the Company or any security convertible into or
exchangeable for share capital of the Company. All shares to be issued upon the
exercise of
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outstanding warrants or options or upon the conversion of any security shall be,
when issued or sold in accordance with the terms of the applicable agreements,
validly issued, fully paid and non-assessable.
3.3 Share Capital of Subsidiaries. All the issued share
capital and other equity securities of each Subsidiary of the Company have been
duly and validly authorized and issued, are fully paid and non-assessable, with
no personal liability attaching thereto solely by virtue of the ownership
thereof and are legally and beneficially owned by the Company directly, or
indirectly through one of its other Subsidiaries, free and clear of all
Encumbrances, and there are no outstanding options, warrants or other rights
calling for the issuance of, and there are no commitments, plans or arrangements
to issue, any capital shares or other equity securities of any Subsidiary of the
Company or any security convertible or exchangeable or exercisable for capital
shares or other equity securities of any Subsidiary of the Company; except for
the capital shares or other equity securities of each Subsidiary of the Company
owned by the Company directly, or indirectly through one of its other
Subsidiaries, neither the Company nor any of its Subsidiaries owns, directly or
indirectly, any capital shares of any corporation or has or owns any equity
securities in any firm, partnership, joint venture or other entity. Except for
Paradigm Geophysical Corp., no Subsidiary of the Company is a Significant
Subsidiary, as such term is defined in Rule 405 of the rules and regulations of
the Securities and Exchange Commission (the "Commission") under the Securities
Act.
3.4 Newly Issued Shares. The Shares to be sold and issued by
the Company to the Purchasers in accordance with the terms of this Agreement
have been duly authorized and, when issued as contemplated hereby, will be
validly issued, fully paid and non-assessable, and no other person has any
preemptive right, option, warrant, subscription agreement or other right with
respect to such Shares. Upon the issuance of the Shares, the Purchasers will
acquire good and marketable title to the Shares free clear of any and all
Encumbrances, except any such Encumbrance as may be created pursuant to this
Agreement or by Purchasers.
3.5 Authority; Enforcement. The Company has full corporate
power and authority to execute and deliver this Agreement, the Registration
Rights Agreement, the Amendment to 1997 Warrants, the Amendment to 1996 Purchase
Agreement, the Amendment to 1995 Purchase Agreement, the Amendment to 1994
Warrants, the Shareholders Agreement and each other agreement contemplated
hereby (collectively the "Agreements"), to carry out its obligations hereunder
and thereunder and to consummate the transactions contemplated on its part
hereby and thereby. The execution, delivery and performance by the Company of
the Agreements and the consummation of the transactions contemplated have been
duly authorized by the Board, and no other corporate proceedings on the part of
the Company are necessary to authorize the Company's issuance of the Shares to
be issued pursuant to this Agreement, the Company's entering into the Agreements
or the execution and delivery of the Agreements by the Company or the
performance by the Company of its obligations thereunder. The Agreements have
been duly executed and delivered by the Company and constitute legal, valid and
binding obligations of the Company, enforceable against the Company and each
party thereto in accordance with their terms, subject to applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting creditors'
rights generally and subject to general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
3.6 No Violation. The execution and delivery by the Company of
the Agreements, the performance by the Company of its obligations thereunder and
the consummation by it of the transactions contemplated thereby will not (a)
violate any provision of law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to the Company or any of
its Subsidiaries, or (b) require the consent, waiver, approval, license or
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authorization of or any filing by the Company with any person or governmental
authority, except for filings to be made or consents to be obtained in
connection with or in compliance with the provisions of the Exchange Act,
Regulation D as promulgated under the Securities Act, applicable state
securities laws, the Chief Scientist of the Israeli Ministry of Industry and
Commerce, the Investment Center, Bank Hapoalim B.M. and the Bank for Industrial
Development in Israel Ltd. and (with respect to registration rights to be
granted to Purchasers under the Registration Rights Agreement) certain existing
shareholders and warrant holders of the Company who have registration rights as
specified in Section 5.3, or (c) violate, result (with or without notice or the
passage of time, or both) in a breach of or give rise to the right to
accelerate, terminate or cancel any obligation under or constitute (with or
without notice or the passage of time, or both) a default under any of the terms
or provisions of any charter, articles of association, or bylaw, partnership
agreement, indenture, mortgage, agreement, contract, order, judgment, ordinance,
regulation or decree to which the Company or any of its Subsidiaries is subject
or by which the Company or any of its Subsidiaries is bound, except for any of
the foregoing matters which would not have, individually or in the aggregate, a
Material Adverse Effect.
3.7 Brokers. Except as set forth in Section 3.2, the Company
has not paid or become obligated to pay any fee or commission to any broker,
finder, investment banker or other intermediary in connection with this
Agreement.
3.8 Foreign Private Issuer. The Company is a "foreign private
issuer," as defined in Rule 3b-4 of the Exchange Act.
3.9 Commission Reports. Since its initial public offering in
June 1998, the Company has filed with the Commission all reports, filings, proxy
materials and registration statements required to be filed by it as a foreign
private issuer listed on the Nasdaq National Market pursuant to the federal
securities laws and has made all other filings with the Commission required to
be made where the failure to have made such filing has or is expected by the
Company to have a Material Adverse Effect on the Company (collectively and
together with the Company's Registration Statement on Form F-1, Commission File
No. 333-7926 (the "Registration Statement"), the "Commission Filings"). The
Commission Filings did not (as of their respective filing dates, mailing dates
or effective dates, as the case may be) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Company has fully
complied in all material respects with the Israeli Securities Law of 1968 and
with the applicable term of any exemption granted thereunder. The Company
acknowledges that the Purchaser is relying on the Commission Filings with
respect to its purchases of the Shares pursuant to this Agreement.
3.10 Litigation. Except as disclosed in Commission Filings
prior to the date hereof or in Schedule 3.10, there is no legal action, suit,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or the
assets of any of them which could have, individually or in the aggregate, a
Material Adverse Effect , or interfere with the Company's ability to perform or
observe any obligation or condition under the Agreements. Except as disclosed in
Schedule 3.10, there is no basis for a claim or a potential claim affecting the
Company or any of its Subsidiaries which could have a Material Adverse Effect.
3.11 Disclosure. To the best knowledge of the Company after
due inquiry, there is no fact or facts (excluding general economic conditions
and prevailing economic conditions generally affecting the oil and gas industry)
peculiar to the Company or any of its Subsidiaries which the Company has not
disclosed to the Purchasers in writing or in the Commission Filings
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which could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect or interfere with the ability of the Company to perform
the Agreements.
3.12 Intellectual Property and Other Tangible Assets.
(a) The Company and the Subsidiaries (i) own or have the
right to use, free and clear of all liens, claims and restrictions, all patents,
trademarks, service marks, trade names and copyrights, and applications,
licenses and rights with respect to the foregoing, and all trade secrets
including know-how, inventions, designs, processes, works of authorship,
computer programs and technical data and information (collectively,
"Intellectual Property") used and sufficient for use in the conduct of its
business as now conducted and/or as presently proposed to be conducted without
infringing upon or violating, in any material respect, any right, lien, or claim
of others, including without limitation the rights of former employees and
former employers of its past and present employees and, (ii) except as described
in Schedule 3.12, which lists by payee the amount of royalties or fees in excess
of $50,000 per year that the Company or any of its Subsidiaries is obligated to
pay, are not obligated or under any liability whatsoever to make any payments by
way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(b) Any and all Intellectual Property of any kind, relating
to the business of the Company, currently being developed by any employee of the
Company or any Subsidiary while in the employ of the Company or such Subsidiary,
shall be the property solely of the Company or such Subsidiary. The Company and
each Subsidiary has taken security measures to protect the secrecy,
confidentiality and value of all the Intellectual Property, which measures are
reasonable and customary in the industry in which the Company operates. Each of
the Company's and the Subsidiaries' employees and other persons who, either
alone or in concert with others, developed, invented, discovered, derived,
programmed or designed the Intellectual Property, or who has knowledge of or
access to information about the Intellectual Property, has entered into a
written agreement with the Company or such Subsidiary, in form and substance
satisfactory to the Company's management and reasonable and customary in the
industry in which the Company operates (the "Proprietary Information Agreement")
regarding the ownership and treatment of Intellectual Property.
(c) Neither the Company nor any Subsidiary has received any
communication alleging that the Company or any Subsidiary has violated or by
conducting its business as proposed, would violate, any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. None of the Company's or any
Subsidiary's employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of such employee's best efforts to promote the interests
of the Company or any Subsidiary or that would conflict with the Company's or
any Subsidiaries' business as conducted and proposed to be conducted. Neither
the execution nor delivery of the Agreement, nor the carrying on of the Company
or such Subsidiary, nor the conduct of the current business of the Company's or
any Subsidiaries' business as proposed to be conducted, will conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under any contract, covenant or instrument under which any of such
employees is now obligated. It is not, and will not become, necessary to utilize
any inventions of any of the Company's or any Subsidiary's employees (or people
the Company or any Subsidiary currently intends to hire) made prior to their
employment by the Company or such Subsidiary other than those that have been
assigned to the Company pursuant to the Proprietary Information Agreement signed
by such employee.
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3.13 Industrial Company. The Company is qualified as an
"Industrial Company" within the definition of the Law for the Encouragement of
Industry (Taxes), 1969, and has obtained a certificate of the Company's auditors
certifying such qualification, a copy of which is attached to this Agreement as
Schedule 3.13. To the Company's best knowledge, information and belief, there is
no reason for disqualifying the Company from being an Industrial Company, nor
would such reason arise through the conduct and performance of the Company's
business and operations in accordance with its plans and projections.
3.14 Compliance with Laws. Each of the Company and its
Subsidiaries is in compliance with all laws, ordinances, regulations, and orders
applicable to it, the failure to comply with which would have, individually or
in the aggregate, a Material Adverse Effect, including without limitation, the
provisions of the Law for Encouragement of Capital Investments, 1959, applicable
to the Company and the terms of any "Approval Letter" issued to the Company
thereunder and its extensions, amendments and supplements, if any. Except as set
forth on Schedule 3.14, the Company and its Subsidiaries have such licenses,
franchises, permits and other approvals or authorizations from governmental
regulatory authorities (collectively, the "Permits") as are necessary under
applicable law to own their respective properties and to conduct their
respective businesses in the manner now being conducted and as described in the
Registration Statement; and the Company and its Subsidiaries have fulfilled and
performed all of their respective obligations with respect to such Permits,
except where the failure to hold such Permits or perform such obligations would
not have a Material Adverse Effect. Except as set forth on Schedule 3.14 or
otherwise in this Agreement (a) there are no citations, fines or penalties
heretofore asserted against the Company or its Subsidiaries under any federal,
state or local law or regulation which remain unpaid or which otherwise bind any
assets material to the Company and its Subsidiaries considered as a whole and
(b) neither the Company nor any of its Subsidiaries has received any unresolved
notice from any federal, state or local governmental authority with respect to
any violation of any federal, state or local law or regulation which, if
resolved against the Company or any of its Subsidiaries, would have,
individually or in the aggregate, a Material Adverse Effect.
3.15 Insurance. The Company and its Subsidiaries have in full
force insurance coverage of their respective properties, assets and business
(including casualty, general liability, products liability and business
interruption insurance) that is (a) no less protective in any material respect
than the insurance the Company and its Subsidiaries have carried in accordance
with their past practices, or (b) prudent given the nature of the business of
the Company and its Subsidiaries and the prevailing practice among companies
similarly situated.
3.16 Foreign Corrupt Practices Act. The activities of each of
the Company and its Subsidiaries and its officers, directors and employees have
complied, and the operations of each of the Company and its Subsidiaries and its
officers, directors and employees have complied with all applicable laws
governing corrupt or illicit business practices, including, without limitation,
laws dealing with improper or illegal payments, gifts or gratuities and/or the
payment of money or anything of value directly or indirectly to any person
(whether a government official or private individual) for the purpose of
illegally or improperly inducing any person or government official, or political
party or official thereof, or any candidate for any such position, in making any
decision or improperly assisting any person in obtaining or retaining business
or taking any other action favorable to such person, and/or dealing with
business practices in relation to foreign investments (including, by way of
example, if applicable, the U.S. Foreign Corrupt Practices Act).
3.17 Foreign Currency Hedging Transactions. Neither the
Company nor any of its Subsidiaries has entered into any foreign currency
hedging arrangement.
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3.18 Contracts. Except as set forth on Schedule 3.18, all
contracts that are material to the Company and its Subsidiaries and to which the
Company or any of its Subsidiaries is a party ("Material Contracts") which are
required to have been filed as exhibits to the Registration Statement, have been
so filed. All Material Contracts constitute valid and binding agreements of the
Company or such Subsidiary and are enforceable against the Company or such
Subsidiary in accordance with the terms thereof. There is not, with respect to
the Material Contracts, any existing default, or event of default by the Company
or any of its Subsidiaries or any other party, or event which with or without
due notice or lapse of time or both would constitute a default or event of
default on the part of the Company or any of its Subsidiaries, except such
defaults or events of default on part of the Company or its Subsidiaries, or any
other party and other events which would not have, individually or in the
aggregate, a Material Adverse Effect. No default exists, and no event has
occurred which with notice or lapse of time, or both, would constitute a default
in the due performance and observance of any term, covenant or condition of any
Material Contract or other indenture, mortgage, deed of trust, bank loan or
credit agreement, lease or other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which any of them or their respective
properties is bound or may be affected, which defaults would have, individually
or in the aggregate, a Material Adverse Effect.
3.19 Financial Statements. Attached hereto as Schedule 3.19
are balance sheets of the Company and its Subsidiaries as at December 31, 1998,
December 31, 1997 and December 31, 1996, and statements of operations, cash flow
and stockholders' equity for each of the fiscal years then ended, audited by the
Company's independent public accountants, each including the accompanying notes.
Such balance sheets of the Company and its Subsidiaries and the notes thereto
present fairly the financial position of the Company and its Subsidiaries as at
the respective dates thereof, and such statements of operations, cash flow and
stockholders' equity of the Company and the notes thereto present fairly in all
material respects the results of operations, cash flow and stockholders' equity
of the Company for the periods therein referred to, all in accordance with
United States generally accepted accounting principles consistently applied.
3.20 No Undisclosed Liabilities. Except as disclosed in
Schedule 3.20, the Company and its Subsidiaries have no material liabilities
which are not reflected or reserved against in the balance sheets specified in
Section 3.19 above, except for liabilities incurred in the ordinary course of
business and immaterial in amount consistent with past practice.
3.21 Listing of Ordinary Shares. The outstanding Ordinary
Shares are listed on the Nasdaq National Market ("NASDAQ"), and the Company's
listing agreement with respect thereto is in full force and effect. No action
has been taken or threatened by Nasdaq with respect to the delisting or
suspension from trading of the Ordinary Shares.
3.22 Taxes. The Company and each of its Subsidiaries has
timely filed all necessary tax returns and notices, and has paid all federal,
state, county, local and foreign taxes of any nature whatsoever to the extent
such taxes have become due (including, without limitation, all tax returns
required under the laws of the State of Israel). The Company has no knowledge,
or any reasonable grounds to know, of any tax deficiencies which might be
assessed against the Company which, if so assessed, may have a Material Adverse
Effect; the Company and each of its Subsidiaries has paid all taxes which have
become due, whether pursuant to any assessments or otherwise, and there is no
further liability (whether or not disclosed on such returns) or assessments for
any such taxes, and no interest or penalties accrued or accruing with respect
thereto, except as may be set forth or adequately reserved for in the Company's
financial statements , copies of which have been delivered to Purchasers. The
Company has been informed that the Israeli income tax authorities intend to
audit its tax returns for the years 1993 to 1997 (inclusive).
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3.23 Certain Relationships. No material relationship, direct
or indirect, exists between or among the Company or its Subsidiaries on the one
hand and the directors, officers, or shareholders of the Company, on the other
hand, other than in the ordinary course of the Company's business, nor does any
relationship exist between or among the Company or its Subsidiaries on the one
hand, and any of its customers or suppliers on the other hand, in value
exceeding, with respect to any customer or supplier, 10% of the revenues or
profits of the Company, on a consolidated basis, except those described in the
Registration Statement, including without limitation items required to be
disclosed under Item 13 of Form 20-F of the rules and regulations of the
Securities and Exchange Commission under the Securities Act if the Company were
to file a Form 20-F as of the date hereof.
3.24 HSR Act. The transactions contemplated by the Purchase
Agreement are exempt from the requirements of the HSR Act because, for each of
the fiscal years ended December 31, 1997 and December 31, 1998, (a) the
aggregate book value of the Company's assets located in the U.S. (other than
investment assets, voting or nonvoting securities of another person, and assets
included pursuant to Section 801.40(c)(2) of the HSR Act) was less than $15
million, and (b) the Company's aggregate sales in or into the U.S. were less
than $25 million. For purposes of this Section 3.27, the "Company" shall include
all entities "controlled" by the Company, directly or indirectly, within the
meaning of such term as defined in Section 801.1(b) of the HSR Act.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 Best Efforts. Upon the terms and subject to the conditions
herein provided, each of Purchasers and the Company agrees to use its or his
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement and each other agreement
contemplated hereby including to fulfill all conditions on its or his part to be
fulfilled under this Agreement and each other agreement contemplated hereby. In
case at any time after the Closing Date any further action is reasonably
necessary or desirable to carry out the purposes of this Agreement and each
other agreement contemplated hereby. No party hereto will take any action for
the purpose of delaying, impairing or impeding the receipt of any required
consent, authorization, order or approval or the making of any required filing.
Each party hereto shall give prompt notice to all other parties of (a) any
material failure of such party, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder, and such party shall use all reasonable efforts to remedy such
failure, and (b) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty of
such party contained in this Agreement to be untrue or inaccurate in any
material respect any time from the date hereof to the Closing Date.
4.2 Indemnification.
(a) Each party (the "Indemnifying Party") shall
indemnify, defend and hold harmless, from and after the Closing Date, each other
party and each of their affiliates, officers, directors, employees, members,
agents, successors, transferees and assigns (each of the foregoing, an
"Indemnified Party") from and against all liabilities, losses, damages, claims,
costs, interest, judgments, fines, amounts paid in settlement and expenses
(including without limitation reasonable
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attorney's fees, whether incurred in connection with a claim for indemnification
hereunder or in connection with any third party claim) (collectively, "Losses")
incurred by any of them based upon, resulting from or arising out of (a) the
breach of any representation or warranty of the Indemnifying Party contained in
this Agreement or any other agreement contemplated by this Agreement, or (b) the
breach of any covenant or agreement of the Indemnifying Party contained in this
Agreement or any other agreement contemplated by this Agreement, including with
respect to indemnification by the Company, and without limiting any of the
foregoing, the breach of its covenant under Se4.3 below. No claim may be
asserted nor may any action be commenced against the Indemnifying Party, unless
prompt written notice of such claim or action is received by the Indemnifying
Party describing in reasonable detail the facts and circumstances with respect
to the subject matter of such claim or action; provided that the failure of the
Indemnified Party to give the Indemnifying Party prompt notice as provided
herein shall not relieve the Indemnifying Party of its obligations hereunder,
except to the extent that the Indemnifying Party is prejudiced thereby; provided
that (a) the amount to be indemnified under this Section 4.2 shall be limited to
the purchase price paid by an aggrieved Purchaser for the Shares, and (b) the
Company's indemnification obligations hereunder relating to any breach of
Sections 3.10, 3.12, 3.14, 3.15, 3.16, 3.17, 3.18, 3.19, 3.20, or 3.23 shall
terminate on the 180th day after the Company has filed with the Commission a
Form 20-F containing audited financial statements for the Company for the fiscal
year ended December 31, 1999, unless a claim for indemnification shall be made
with respect thereto, in which case such indemnification obligations shall
remain in effect, only with respect to, and until the full and final resolution
of such claim.
(b) The Indemnified Party shall give the Indemnifying
Party under this Section 4.2, prompt written notice (the "Indemnification Claim
Notice") of any claim, assertion, event or proceeding by or in respect of a
third party, of which such Indemnified Party has knowledge concerning any Loss
as to which such Indemnified Party may request indemnification hereunder;
provided that failure of the Indemnified Party to give the Indemnifying Party
prompt notice as provided herein shall not relieve the Indemnifying Party of any
of his or its obligations hereunder except to the extent that the Indemnifying
Party is prejudiced thereby. The Indemnified Party may participate in such
defense, but in such case the expenses of the Indemnified Party shall be paid by
the Indemnified Party. The Indemnified Party shall, upon reasonable notice,
provide the Indemnifying Party with access to his or its records and personnel
relating to any such claim, assertion, event, proceeding or matter during normal
business hours and shall otherwise cooperate with the Indemnifying Party in the
defense settlement, or resolution thereof, and the Indemnifying Party shall
reimburse the Indemnified Party for all his or its reasonable out-of-pocket
expenses in connection therewith. The Indemnifying Party shall not pay, or
permit to be paid, any part of any claim or demand arising from such asserted
liability unless the Indemnified Party consents in writing (which consent shall
not be unreasonably withheld) to such payment or unless the Indemnifying Party
withdraws from or fails to maintain the defense of such asserted liability or
unless a final judgment from which no appeal may be taken by or on behalf of the
Indemnifying Party is entered against the Indemnified Party for such liability.
No settlement in respect of any third party claim may be effected by the
Indemnifying Party without the Indemnified Party's prior written consent (which
consent shall not be unreasonably withheld) unless the settlement involves a
full and unconditional release of the Indemnified Party. If the Indemnifying
Party fails to undertake or maintain any such defense within thirty (30) days of
receipt of the Indemnification Claim Notice, the Indemnified Party shall have
the right to undertake the defense or settlement thereof, at the Indemnifying
Party's expense. If the Indemnified Party assumes the defense of any such claim
or proceeding pursuant to this Section 4.2, it may conduct such defense as it
reasonably deems appropriate (without regard to the availability of
indemnification hereunder), and the Indemnifying Party shall be responsible for
and pay all costs and expenses of such defense, including its compromise or
settlement.
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<PAGE> 15
(c) The amounts for which an Indemnifying Party shall
be liable under this Section 4.2 shall be reduced by the (i) net reimbursement
to such party from any insurance proceeds received by the Indemnified Party in
connection with the circumstances giving rise to the right of indemnification
(to the extent such insurance proceeds exceed the Indemnified Party's expenses
in recouping such insurance proceeds), and (ii) net tax benefit actually
realized by such party (as reduced by any actual or projected tax detriment
resulting from receipt of the indemnification payment) directly resulting from
the Losses to which the indemnification relates.
4.3 Registration of Conversion of Preferred Shares. The
Company will ensure the registration by the Israeli Registrar of Companies of
the conversion of all the Preferred Shares in the share capital of the Company
(except for the Special Preferred Shares) into Ordinary Shares.
4.4 The Company shall not issue any Special Preferred Shares
without issuing at the same time to Purchaser a portion of such shares issued,
which portion corresponds to Purchasers' then portion of the outstanding shares
of the Company.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligations. The respective
obligations of each party to effect the transactions contemplated by the
Agreement shall be subject to the conditions that no United States, state or
foreign governmental authority or other agency or commission or United States,
state or foreign court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, injunction or
other order (whether temporary, preliminary, or permanent) which is in effect
and has the effect of prohibiting consummation of the transactions contemplated
by this Agreement; and any filing required under U.S., state or other foreign
securities laws shall have been made prior to the Closing.
5.2 Conditions to the Obligations of the Company. The
obligation of the Company to effect the transactions contemplated by this
Agreement to occur at the Closing shall be subject to the fulfillment at or
prior to the Closing Date, of each of the following additional conditions:
(a) Each of the Purchasers shall have performed
their obligations under this Agreement required to be performed by them at or
prior to the Closing Date, pursuant to the terms hereof.
(b) The representations and warranties of each
of the Purchasers contained in this Agreement shall be true and correct in all
material respects at and as of the Closing Date, as if made at and as of such
Date, except to the extent that any such representation or warranty is made as
of a specified date in which case such representation or warranty shall have
been true and correct as of such date.
(c) All necessary waivers, consents and
approvals to or of the transactions contemplated by this Agreement to occur at
or prior to the Closing, and each agreement contemplated hereby shall have been
obtained, including without limitation the approval of the Chief Scientist of
the Israeli Ministry of Industry and Commerce, the Investment Center.
5.3 Conditions to the Obligations of the Purchasers. The
obligations of the
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<PAGE> 16
Purchasers to effect the transactions contemplated by this Agreement to occur at
the Closing shall be subject to the fulfillment at or prior to the Closing Date,
each of the following additional conditions (any of which may be waived by each
of the Purchasers in writing):
(a) The Company shall have performed its obligations under
this Agreement required to be performed by it at or prior to the Closing Date,
pursuant to the terms hereof.
(b) The representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing Date, as if made at and as of such Closing Date, except
to the extent that any such represor warranty is made as of a specified date in
which case such representation or warranty shall have been true and correct as
of such date and the Purchasers shall not have discovered any material conflict
with any such representation or warranty.
(c) Since December 31, 1998, there shall have been no event
or occurrence which has or is likely to have a Material Adverse Effect.
(d) Each of the Purchasers shall have received at or prior
to the Closing Date fully executed copies of a registration rights agreement
between the Company, Shamrock Holdings, Inc. and Purchasers, in the form of
Exhibit A hereto (the "Registration Rights Agreement"), and any and all other
agreements, documents, certificates or instruments contemplated by this
Agreement and any of the foregoing.
(e) Each of the Purchasers shall have received at or prior
to the Closing Date fully executed copies of amendments to the Warrant
Agreements dated September 15, 1997 between the Company and each purchaser
identified on Schedule 1 to the Note and Warrant Purchase Agreement dated
September 15, 1997 among the Company, Paradigm Geophysical Corp., a Delaware
corporation, and such purchasers, as amended ("1997 Warrants"), in accordance
with the term sheet attached as Exhibit D hereto ("Amendment to 1997 Warrants").
(f) Each of the Purchasers shall have received at or prior
to the Closing Date fully executed copies of an amendment to the Share Purchase
Agreement dated July 1, 1996 among the Company and the purchasers identified on
Schedule 1 thereto, as amended ("1996 Purchase Agreement"), in accordance with
the term sheet attached as Exhibit E hereto ("Amendment to 1996 Purchase
Agreement").
(g) Each of the Purchasers shall have received at or prior
to the Closing Date fully executed copies of an amendment to the Share Purchase
Agreement dated June 1, 1995 among the Company and the purchasers identified on
Schedule 1 thereto, as amended ("1995 Purchase Agreement"), in accordance with
the term sheet attached as Exhibit F hereto ("Amendment to 1995 Purchase
Agreement").
(h) Each of the Purchasers shall have received at or prior
to the Closing Date fully executed copies of amendments to the Warrant
Certificates dated July 22, 1994 between the Company and each holder thereof, as
amended ("1994 Warrants"), in accordance with the term sheet attached as Exhibit
G hereto ("Amendment to 1994 Warrants").
(i) Each of the Purchasers shall have received at or prior
to the Closing Date fully executed copies of an amendment to the Shareholders
Agreement dated June 7, 1995 among the Company and certain shareholders of the
Company, as amended (the "Shareholders Agreement"), which provides for the
termination of the Shareholders Agreement upon the Closing
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<PAGE> 17
("Amendment to Shareholders Agreement").
(j) Each of the Purchasers shall have received at or prior
to the Closing Date a legal opinion delivered by the Company's U.S. counsel
dated as of the Closing Date, in substantially the form of Exhibit B hereto.
(k) Each of the Purchasers shall have received at or prior
to the Closing Date a legal opinion delivered by the Company's Israeli counsel
dated as of the Closing Date, in substantially the form of Exhibit C hereto.
(l) Each of the Purchasers shall have received at or prior
to the Closing Date a copy of minutes or resolutions of the Board, which shall
not have been rescinded or modified, approving the issuance of the Ordinary
Shares to the Purchaser in accordance with the terms and conditions of this
Agreement, and all other terms and conditions of this Agreement and all
Schedules and Exhibits hereto, as certified by the Company's Secretary.
(m) Each of the Purchasers shall have received at or prior
to the Closing Date a certificate of the Company's Secretary confirming the
inscription of each of the Purchasers in the Company's register of members as
the owner of the Ordinary Shares issued according to this Agreement.
(n) Each of the Purchasers shall have received at or prior
to the Closing Date a copy of the share issuance form to be filed with the
Company's Registrar, signed by the Company's Secretary. The Company shall have
such form duly stamped and filed with the Registrar of Companies within thirty
(30) days after the Closing Date.
(o) Each of the Purchasers shall have received at or prior
to the Closing Date a certificate of the Company's Chief Executive Officer or
Chief Financial Officer dated the Closing Date, in substantially the form of
Exhibit H hereto, certifying the satisfaction by the Company of all conditions
precedent set forth in this Section 5.3.
(p) All necessary waivers, consents and approvals to or of
the transactions contemplated by this Agreement to occur at or prior to the
Closing Date, or each other agreement contemplated to have been obtained at or
prior to the Closing Date shall have been obtained, including without limitation
the approval of the Chief Scientist of the Israeli Ministry of Industry and
Commerce, Investment Center, the consent of Bank Hapoalim B.M. and the Bank for
Industrial Development in Israel Ltd., and, with respect to registration rights
to be granted to each Purchaser under the Registration Rights Agreement, the
approval of all security holders and warrant holders of the Company holding
registration rights, in accordance with the terms of such registration rights.
(q) There shall have been no lawsuit, filed or threatened,
which challenges this Agreement and all transactions contemplated hereby or
seeks to impose any limitation on each Purchaser's purchase of the Shares.
ARTICLE VI
MISCELLANEOUS
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6.1 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
6.2 Waiver. Any waiver of or failure to insist on strict
compliance with any representation, warranty, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
6.3 Termination. This Agreement may be terminated at any time
prior to the Closing Date without further Board or shareholder action of any
party:
(i) by the mutual written consent of all
parties;
(ii) by the Company and any Purchaser,
if the conditions to the Closing have not been satisfied or
waived by noon on May 31, 1999.
6.4 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been given
or made if in writing and delivered personally, sent by commercial carrier or
registered or certified mail (postage prepaid, return receipt requested) or
transmitted by facsimile with automated receipt confirmation to the parties at
the following addresses and numbers:
(a) If to Purchasers, to:
The Eastgate Fund, L.P.
393 Little Laurel Road Extension,
Boone, North California 28607
Attention: Harris Kaplan
Fax No.: 828-265-1665
with a copy to:
Marcus & Thompson, P.C.
504 North 4th Street, Suite 105
Fairfield, Iowa 52556
Attention: Jay B. Marcus, Esq.
Fax No.: 515-472-5404
(b) If to the Company, to:
Paradigm Geophysical Ltd.
Merkazim Building
32 Maskit Street
P.O.B. 2061
Herzliya B 46120, Israel
Attention: Eldad Weiss
Fax No.: 011-972-9-958-9327
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with a copy to:
Efrati, Galili & Co.
6 Wissotsky Street
Tel Aviv 62338
Attention: Ian Rostowsky, Adv.
Fax No.: 011-972-3-601-0111
with a copy to:
Fulbright & Jaworski LLP
666 Fifth Avenue, 31st Floor
New York, New York 10103-3198
Attention: Andrew C. Freedman, Esq.
Fax No.: (212) 752-5958
6.5 Headings; Agreement. The headings contained in this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement. The "Agreement" for purposes of representations and warranties
hereunder shall be deemed to include the exhibits hereto to be executed and
delivered by a party.
6.6 Publicity. So long as this Agreement is in effect and
except as required by law, the parties hereto shall not, and shall cause their
Affiliates (as defined in Section 6.9) not to, issue or cause the publication of
any press release or other announcement with respect to the transactions
contemplated by this Agreement or the other agreements contemplated hereby,
without the consent of the other parties, which consent shall not be
unreasonably withheld or delayed.
6.7 Entire Agreement. This Agreement (including all Exhibits
and Schedules hereto) contain the entire agreement among the parties and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof.
6.8 Conveyance Taxes. The Company agrees to assume liability
for and to hold the Purchaser harmless against any sales, use, transfer, stamp,
and value added taxes, registration, recording or other fees, and any similar
taxes or fees incurred as a result of the issuance and sale of the Shares as
contemplated hereby.
6.9 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Purchasers shall be permitted
to assign any of their rights, interests or obligations under this Agreement, to
any individual or entity that directly, or through one or more intermediaries,
controls, or is controlled by, or is under common control with the Purchasers
(each, an "Affiliate"); provided, however, that the Purchasers shall not assign
this Agreement to a company engaged in the oil and natural gas exploration or
production or software business.
6.10 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
6.11 Governing Law. The validity and interpretation of this
Agreement shall be governed by the laws of the State of New York, without
reference to the conflict of laws principles
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<PAGE> 20
thereof.
6.12 Third Party Beneficiaries. This Agreement is not intended
to confer upon any other person any rights or remedies hereunder.
6.13 Costs and Expenses. Each party will pay its own costs and
expenses incurred in connection with the transactions contemplated hereby,
except that, at the Closing, the Company shall pay all reasonable fees and
expenses of legal counsel to Purchasers in an amount not to exceed $10,000. The
Company shall also pay all stamp issuance taxes, fees of the Company's transfer
agent and expenses of filing with the Israeli Registrar of Companies.
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<PAGE> 21
IN WITNESS WHEREOF, the Purchaser and the Company have caused
this Agreement to be duly signed as of the date first written above.
PARADIGM GEOPHYSICAL LTD.
By: /s/ Eldad Weiss
-------------------------------------
Name: Eldad Weiss
Title: President and CEO
EASTGATE FUND L.P.,
by Eastgate Management Corporation,
its general partner
By: /s/ Harris Kaplan
-------------------------------------
Name: Harris Kaplan
Title: President
EASTGATE INTERNATIONAL LIMITED,
by Eastgate Management
Corporation, its Investment Manager and
Authorized Agent
By: /s/ Harris Kaplan
-------------------------------------
Name: Harris Kaplan
Title: President
/s/ Harris Kaplan
-------------------------------------
MR. HARRIS KAPLAN
BERMAN EASTGATE GROWTH FUND,
by Eastgate Management
Corporation, a general partner
By: /s/ Harris Kaplan
-------------------------------------
Name: Harris Kaplan
Title: President
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<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the registration
statement on form S-8 (file #333-70047) filed on December 31, 1998 as to the
use of our report dated January 25, 1999, with respect to the consolidated
financial statements of Paradigm Geophysical Ltd., included in the form 20-F
as filed with the Securities and Exchange Commission.
Tel - Aviv, Israel /s/ Kost, Forer & Gabbay
June 30, 1999 Kost, Forer & Gabbay
Certified Public Accountants (Israel)
A member of Ernst & Young International
