EXHIBIT 2.1
(Translated from German to English)
-1-
No. of the document register 1996
-------------------------------------
Recorded
in Frankfurt am Main on November 05, 1996
Before me, the undersigned notary
Dr. Harald Jung
with official residence in Frankfurt am Main,
--------------------------------------------------------------------
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
-2-
appeared today in the offices of the law firm Bruckhaus Westrick Stegemann,
Taunusanlage 11, 60329 Frankfurt am Main where the acting notary betook himself
at the request of the persons appearing.
1. Mr. Heinrich R. Wirt, with business address at Max-Planck-Strasse 38, 50858
Cologne, identifying himself by presenting his valid federal identity card;
2. Mr. Reiner Kasbach, with business address at Max-Planck-Strasse 38, 50858
Cologne, identifying himself by presenting his valid federal identity card;
3. Attorney-at-law Dr. Konstantin Mettenheimer, having his business address at
Taunusanlage 11, 60329 Frankfurt am Main, personally known.
The persons appearing under 1. and 2. (hereinafter collectively referred to as
the "Sellers") declared that they were acting in their own names and as managing
directors of PRODAC Prozessdatentechnik GmbH having its registered office in
Cologne, registered in the Commercial Register of the Local Court of Cologne
under register number HRB 10002 (hereinafter referred to as the "Company"),
authorized to represent the Company individually and being released from the
restrictions set forth in (S) 181 German Civil Code. The acting notary has
assured himself on the basis of a certified excerpt of the Commercial Register
dated August 12, 1996 that the persons appearing under 1. and 2. are authorized
to represent the Company. The notary was provided with a sharholders resolution
adopted on November 06, 1996 in which the release of the persons appearing under
1. and 2. from the restrictions set forth in (S) 181 German Civil Code was
confirmed as a matter of precaution. The notary took such shareholders
resolution to this deed.
The person appearing under 3. declared that he was not acting in his own name
but
a) as attorney in fact on behalf of MagiNet GmbH i.G. with registered office
in Cologne, established in the notarial deed of September 10, 1996 No.
1274/96 of the notary public Dr. Gerhard Hess in Frankfurt am Main
(hereinafter referred to as the "Purchaser"). The notary has, on the basis
of an executed copy of the Incorporation Deed which has been taken to this
Deed as copy and a power-of-attorney dated November 06, 1996, which was
presented in original and is attached as certified copy, assured himself
that the person appearing under 3. has the power to represent the Purchaser
and is released from the restrictions set forth in (S) 181 German Civil
Code.
b) as attorney in fact on behalf of MagiNet Corporation with registered office
in Sunnyvale, California, 94089 USA (hereinafter referred to as "MagiNet
Corp."), as chairman of the board of directors having sole signature power.
The notary has satisfied himself on the basis of a notarially certified and
legalized Secretary's Certificate which was presented in original
-3-
and a power-of-attorney dated November 05, 1996, which was presented in
original and is attached as certified copy, assured himself that the person
appearing under 3. has the power to represent MagiNet Corp. individually.
I.
Acting as stated, the persons appearing then requested the recording of the
following
SHARE PURCHASE AND TRANSFER AGREEMENT.
PREAMBLE
The Sellers are the sole shareholders of the Company. The share capital of the
Company is DM 1,000,000.-- and has been paid up in full. Each of the Sellers
holds a share in a nominal amount of DM 500,000.-- in the Company (hereinafter
collectively referred to as the "Shares").
The Purchaser is a wholly-owned subsidiary of MagiNet Corp. MagiNet Corp.
proposes to file a registration statement with the United States Security and
Exchange Commission (the "Commission") under the United States Securities Act of
1933, as amended (hereinafter referred to as the "1933 Act"), covering the
initial public offering of the Common Stock of MagiNet Corp. (the "IPO"). In
connection with the IPO, MagiNet Corp. proposes to list its Common Stock for
trading on the National Market of The Nasdaq Stock Market. The date of the
closing of the IPO pursuant to the Registration Statement, as declared effective
by the Commission under the 1933 Act, will hereinafter be referred to as the
"IPO Date". The per-share price at which the Common Stock of MagiNet Corp. is
initially offered to the public in the IPO (as set forth in the final prospectus
therefore) will hereinafter be referred to as the "IPO Price".
The Sellers are interested in selling their Shares. The Purchaser is
interested in acquiring the Shares. MagiNet Corp. is prepared to undertake
responsibility for the liabilities of the Purchaser arising from the following
Agreement. For the purposes of technical simplification of the notarization of
this Share Purchase and Transfer Agreement a reference deed was executed on
November 5, 1996 (Role of Deeds No. ______/96 of the notary Dr. Harald Jung in
Frankfurt am Main). The reference deed contains all of the attachments except
Attachment 3 referred to in the
-4-
following Agreement. The original of the Reference Deed is at the disposal of
the parties for inspection.
Now therefore the parties agree as follows:
ARTICLE 1
SALE AND ASSIGNMENT OF THE SHARES,
ALLOCATION OF DIVIDEND, DATE OF TRANSFER
1. The Sellers herewith sell and assign the Shares to the Purchaser. The
Purchaser accepts this sale and assignment. In accordance with Art. 15 of
the memorandum of association of the Company, the Sellers mutually declare
their consent to the sale and assignment of the Shares.
2. The assignment of the Shares pursuant to paragraph 1 above shall not become
effective before 5 days have elapsed since the IPO Date, but not later than
on February 28, 1996. The assignment shall also be subject to the
suspensive condition of payment of the purchase price in accordance with
Art. 2 (1) a) and transfer of the shares in MagiNet Corp. in accordance
with Art. 2 (1) b). The date at which the assignment of the Shares shall
become effective is hereinafter referred to as the "Closing".
3. The Company's profit for the business year 1996, as well as a profit from
prior years not distributed to the shareholders (i.e. profit brought
forward and profit from prior years for which no resolution regarding its
appropriation has been adopted), shall be - in the event that the Closing
should be prior to January 1, 1997 - due to the Purchaser and if the
Closing should be after December 31, 1996 - due to the Sellers. The
foregoing does not apply to retained earnings in the amount of DM 600.000,--.
This amount shall be distributed to the Sellers prior to the closing in
any case. The resolutions in respect of the establishment of the annual
accounts and the distribution of profits shall be adopted by the Purchaser
accordingly. If necessary, profit determination and profit appropriation
resolutions shall be adopted.
-5-
ARTICLE 2
PURCHASE PRICE, CONSIDERATION IN SHARES
1. As consideration for the sale of the Shares the Sellers shall receive from
the Purchaser the following:
a) DM 20,000,000.-- (in words: twenty million Deutsche Marks) in cash
payable within 10 bank working days (the banking centre of Frankfurt am
Main shall be decisive) from the IPO Date, but not later than on January
10, 1997, in equal parts into the account No. 149702524 of Mr. Heinrich
R. Wirt at Kreissparkasse Siegburg (Bank Code 38650000) and account No.
510477014 of Mr. Reiner Kasbach at Raiffeisen Bank Vorgebirge, Bornheim
(Bank Code 38061636). In the event that the Purchaser is not in
possession of the bank guaranties on first demand to the provided by the
Sellers pursuant to (S) 7, the Purchaser is entitled to retain without
any obligation to pay interest a share of the purchase price in the
amount of DM 1,000,000.-- to secure its claims against the Sellers
arising from this Agreeement. The payment of this retained amount shall
be effected only upon delivery of the bank guaranties to the Purchaser.
The retaining of the Purchase Price Share of DM 1,000,000.-- does not
prevent the transfer of the Shares pursuant to (S) 1 para. 2 of this
Agreement.
b) Non-registered common shares in MagiNet Corp. in a total equivalent
of DM 5,000,000.-- (in words: five million Deutsche Marks) shall be
transferred to the Sellers within 10 bank working days after the IPO-
Date, but not later than on March 10, 1997. The total number of non-
registered common shares to be transferred (hereinafter referred to as
the "Common Shares") shall be determined by the following computation
formula:
Consideration
Number of Common Shares = ----------------------------
Price per Common Share
Consideration = The US dollar equivalent of DM 5,000,000.-- on the
basis of the official middle rate of exchange
determined on the Frankfurt am Main Exchange for the
US dollar at the IPO Date .
-6-
Price per share = The IPO Price less 10 percent hereof. Should the
Common Share IPO Date be after February 28, 1997, a
price of US$ 12 per Common Share shall be taken as a
basis.
The resulting number of Common Shares must be divisible by two. The
Sellers shall each receive half the number of Common Shares determined
in accordance with the above formula. Receipt of any difference
remaining in comparison to the equivalent of DM 5.000.000,-- is waived
by the Sellers. The Purchaser undertakes to transfer the Common Shares
to the Sellers with due observance of the legal regulations applicable
to their transfer. The share certificates, if any, shall be handed over
to the Sellers. The obligation to transfer the Shares can be fulfilled
also by MagiNet Corp. directly.
c) Each of the Sellers is granted the right to acquire a further 150,000
non-registered Common Shares in MagiNet Corp. at a price of US$ 8 per
share in accordance with the Option Agreements attached to this
Agreement as Annexes 2.2.1 and 2.2.2.
------------- -----
2. The Purchaser shall take the necessary steps to achieve that the shares
aquired by the Sellers through this Agreement, can get registered on their
request. The regulations for the management of the MagiNet Corp. apply
accordingly.
3. Interest at a rate of 6% p.a. shall be paid on the part of the purchase
price determined in para. 1 a) from the day of recording of this Agreement
until Closing. The interest shall be part of the purchase price and shall
be paid together with the part of the purchase price pursuant to para. 1
a).
4. The purchase price to be paid in accordance with para. 1 a) shall be
subsequently reduced by the amount by which the pre-tax profit, net of
corporate and trade tax of the Company for the business year 1996
determined in accordance with the German generally accepted accounting
principles (Grundsatze ordnungsmaiger Buchfuhrung) under continuation of
the accounting principles remains below an amount of DM 3,000,000.--. Any
reduction of the purchase price pursuant to this paragraph shall not exceed
DM 3,000,000.--. In the event that the purchase price should already have
been paid by the Purchaser, the amount of the reduction shall be repaid to
the Purchaser immediately upon adoption of the annual accounts of the
Company as per December 31, 1996 plus 6% interest from the date of
recording of this Agreement.
-7-
5. In the event that payment of the purchase price pursuant to para. 1 a) and
transfer of the Shares pursuant to para. 1 b) should not have been effected
by March 31, 1997, the Sellers shall have the right to rescind this
Agreement by means of a written declaration to be submitted to the
Purchaser. The right of rescission can be exercised by each Seller,
however, only with effect for both the Sellers.
6. Sec. 454 German Civil Code does not apply.
ARTICLE 3
EARNOUT PLAN
1. As further consideration for the transfer of the Shares - such further
consideration to be dependent on the future financial situation of the
Company -the Purchaser is obliged to grant to the Sellers in the years 1997
to 1999 payment or MagiNet Common Shares, as the case may be, pursuant to
the following provisions:
a) If the Company has achieved in the fiscal year 1997 the targets
contained in the business plan for the said fiscal year which is
attached as Attachment 3 to this Deed (hereinafter also referred to as
------------
the "Earnout Plan"), the Sellers shall receive a combined cash/share
payment equivalent to an amount of up to DM 5,000,000.--(in words: five
million Deutsche Marks).
b) If the Company has achieved in the fiscal year 1998 the targets
contained in the business plan for the said fiscal year which is
attached as Attachment 3 to this Deed, the Sellers shall receive a
------------
combined cash/share payment equivalent to an amount of DM 5,000,000.--
(in words: five million Deutsche Mark).
c) If the Company has achieved in the fiscal year 1999 the targets
contained in the business plan for the said fiscal year which is
attached as Attachment 3 to this Deed, the Sellers shall receive a
------------
combined cash/share payment equivalent to an amount of DM 5,000,000.--
(in words: five million Deutsche Mark).
2. The aforementioned consideration is due upon the establishing of the
accounts of the respective fiscal year.
-8-
3. The respective overall consideration shall be divided into cash- and share
portions such that the cash portion covers the tax which accrues to the
share portion. The cash- and share portions shall be approximately
calculated by the Purchaser. If necessary, the Sellers shall provide any
information required therefor. For the determination of the number of
Common Shares which shall be transferred to the Sellers the stock price -
alternatively the market price - of the MagiNet Corp. Share on the Nasdaq
on the one hand, and the official middle exchange rate for US$ determined
on the Frankfurt currency exchange on the other hand, on the respective due
date shall be decisive.
4. For the method of payment of the cash portion and the method of transfer of
the Common Shares to the Sellers, the provisions in Sec. 2 para. 1 a) and
b) of this Agreement apply accordingly.
5. Should a Seller be removed or suspended from his office as managing
director of the Company, notwithstanding the minimum-targets of the Earnout-
Plan- under exception of the category "Average monthly net revenue per
room" - being met and without an important cause exisiting in respect of
the person (in der Person) or in the behaviour (im Verhalten) of the
respective Seller, he shall receive the further consideration under the
Earnout-Plan also in the event, the targets were not met. Basis for
determining the yearly payment to the affected Seller under the Earnout-
Plan shall be the level achieved in the fiscal year preceeding his
revocation or suspension as managing director of the Company.
ARTICLE 4
WARRANTIES OF THE SELLERS
The Sellers warrant to the Purchaser as joint and several debtors (Sec. 421 et
seq. of the German Civil Code) in the form of a separate warranty that the
following statements are correct and true as of the date of the recording as
well as at the Closing:
1. The statements in the Preamble of this Agreement with respect to the
Sellers and the Company are complete and correct.
2. The Company is a company with limited liability (Gesellschaft mit
beschrankter Haftung) duly organized under the laws of the Federal Republic
of Germany and validly existing in accordance with the Articles of
Association and the excerpt from the Commercial Register
-9-
attached as Attachment 4.2 to the Reference Deed. There are no shareholder
--------------
resolutions amending the Articles of Association which have not yet been
registered in the Commercial Register nor are there any side agreements
relating to the constitution and organisation of the Company.
3. The Company has no participations in any other businesses than the
subsidiaries set forth in Attachment 4.3.1 (the "Subsidiaries") to the
----------------
Reference Deed and is under no obligation to acquire such participations.
All Subisidaries were duly established under the laws of their respective
jurisdiction and are validly exisitng since their establishment. Except as
set forth in Attachment 4.3.2 to the Reference Deed, the Company holds 100
----------------
% of the outstanding shares of capital stock of each of the Subsidiaries.
4. The Company has not entered into any enterprise contracts
(Unternehmensvertrage) within the meaning of Sec. 291 et seq. of the Stock
--------------------
Corporation Act (Aktiengesetz) nor any agreement relating to the
------------
establishment of a silent partnership.
5. The Sellers are the legal and beneficial owner of the Shares which are free
of any encumbrances or any other rights for the benefit of third parties.
The Sellers have the right and the power to freely dispose of the Shares
without that the consent of any third party would be required for such
disposal or that such disposal would violate the right of any third party.
The Shares do not constitute all or substantially all of the assets of each
of the Sellers.
6. The Shares are fully paid up and no repayment of capital contributions has
been made, neither openly nor concealed. There are no shareholders of the
Company other than the Sellers.
7. Attachment 4.7 to the Reference Deed sets forth a complete and correct
--------------
description of the development of the Stated Capital and a composition of
the shareholders of the Company since its establishment, indicating all
notarial deeds with which the Company has been established, the Stated
Capital of the Company has to date been increased or reduced as well as all
notarial deeds with which to date shares of the Company have been
subscribed to, transferred or otherwise affected.
8. Neither against the Sellers nor the Company any bankruptcy or composition
proceedings have been initiated nor are there any circumstances which would
justify the initiation of such proceedings in the future.
-10-
9. The annual statements of the Company and the Subsidiaries for the fiscal
years 1993, 1994, 1995 (the "Accounts") and - to the extent required by the
applicable law - the notes have been prepared in accordance with applicable
generally accepted accounting principles (Grundsatze ordnungsgemaber
--------------------------
Buchfuhrung) as well as observing continuity in the accounting and
-----------
evaluation principles and present a view of the assets, finance and
operating results of the Company and its Subsidiaries which is in
accordance with the actual circumstances. To the extent that there are
capitalization options (Aktivierungswahlrechte) no capitalization has taken
----------------------
place. To the extent that there are options to include items in the
liabilities (Passivierungswahlrechte) such items have been included. All
-----------------------
statutorily permitted depreciations have been taken. All statutorily
permitted accruals have been taken. On neither the Company nor any
Subsidiary had with exception of liabilities resulting from pending
contractual relationships which are not required to be shown on a balance
sheet any liabilities other than those shown in the balance sheet of
December 31, 1995 or covered by accruals. To the extent that contingent
liabilities did not have not be included in liabilities they have been
reflected as below-the-line items on the balance sheet (including
liabilities resulting from the issue of comfort letters). In respect of the
accounts of the Company for the fiscal years 1993, 1994, 1995 prepared in
accordance with the American principles of GAAP and in respect of the
interim accounts prepared by Ernst & Young as per June 30, 1996, the
Sellers represent and warrant only the completeness and the correctness of
the documentation and information provided to Ernst & Young by the Sellers
or by employees of the Company.
10. The receivables reflected in the balance sheet of December 31, 1995 -
except receivables listed in Attachment 4.10 to the Referece Deed the
---------------
value of which is uncertain, will be fully collectable upon their due date
without that any special collection measures are required, less any
specific or lumpsum value adjustment reflected in the Accounts. The equity
interest in PRODAC Hotelvideo Communication Systems Ltd., Bedford, Great
Britain, reflected in the balance sheet of December 31, 1995 will be fully
depreciated in the fiscal year 1996.
11. The inventories shown in the balance sheet of December 31, 1995 are with
respect to quantity and quality (1) in the case of raw materials, supplied
goods and semi-finished goods usable in the ordinary course of business
and (2) in the case of finished products and merchandise goods sellable in
the usual course of business at then prevailing market prices or
manufacturing cost or acquisition cost, whatever is higher.
12. The pension accrual shown in the Balance sheet of December 31, 1995 duly
reflects the cash value of the Company's liabilities from commitments for
company pension plans (both
-11-
direct and indirect commitments) on the basis of a calculation interest
rate of 6 per cent and the application of the orientation schedules of Dr.
Karl Heuberg in their 1982 version.
13. Neither the Company nor any Subsidiary owns any real property. Attachment
----------
4.13 to the Reference Deed sets forth a true and complete list of all office
----
lease contracts entered into by the Company or any of its Subsidiaries.
All such leases are valid and effective and there is no impending event of
default under any of such leases.
14. Attachment 4.14.1 to the Reference Deed sets forth all assets necessary
-----------------
for, or used in, the present business operations. Except as set forth in
Attachment 4.14.2 to the Reference Deed, all such assets are reflected in
-----------------
the balance sheet of December 31, 1995. Except as set forth in Attachment
----------
4.14.3 to the Reference Deed, the Company is the legal and beneficial
------
owner of all fixed assets (Gegenstanden des Anlagevermogens) used in its
--------------------------------
business operations. Such assets are free of any encumbrances or any other
rights for the benefit of third parties. Such assets are in a useable
operating and conservation condition. The Company is the legal and
beneficial owner of all current assets (Gegenstande des Umlaufvermogens)
-------------------------------
used in its business operations. With the exception of the items listed in
Attachment 4.14.4 to the Reference Deed, such assets are free of any
-----------------
encumbrances and any other rights for the benefits of third parties with
the exception of statutory pledges or retention of title rights entered
into the ordinary course of business for liabilities which are reflected
in the balance sheet of December 31, 1995. To the extent the Company or a
Subsidiary leases equipment which is necessary for the business, valid
lease contracts exist which grant the company a right of use until the end
of the contractually stipulated lease term.
15. Attachment 4.15 to the Reference Deed is a complete and correct list of all
---------------
industrial property rights and copyrights (patents, utility models,
trademarks, design patents, copyrights and topographic rights) which are
owned by the Company or any Subsidiary or with respect to which the
Company or any Subsidiary has been granted a license for use as well as
of, with respect to such rights in respect of which the Company or any
Subsidiary has been granted a licence for use, a list of the relevant
license agreements under exception of off-shelf standard software (DOS,
Windows etc.). With the exception of the industrial property rights and
copyrights set forth in this list neither the Company nor any Subsidiary
uses in its business operations any other industrial property rights or
copyrights nor is it dependent thereon. To the best knowledge of the
Sellers no industrial property or copyrights used by the Company or any
Subsidiary have been challenged by any third parties. The listed license
agreements are valid, and there is no impending cancellation or
termination of these agreements for any other reason.
-12-
16. Between the Company and any Subsidiary on the one side and the Sellers,
their relatives as well as enterprises affiliated with the Sellers within
the meaning of Sect. 15 of the Stock Corporation Act (Aktiengesetz) on the
------------
other side there are no contractual relationships with the exception of
those listed in Attachment 4.16 to the Reference Deed.
---------------
17. Attachment 4.17 to the Reference Deed is a complete and correct list of the
---------------
21 largest customers, the 10 largest direct sale customers (distributors)
and the 10 largest suppliers of the Company as per October 31, 1996 as
well as of all suppliers of the Company which, for goods and services of
any kind, are the sole source of supply, i.e. for which there is no
alternative source at comparable conditions (except for energy supply
agreements, mail and telecommunication services), listing in each case the
business volume for the fiscal year 1995. To the best knowledge of Sellers
there is no reason to believe that any of such customers or suppliers of
the Company will reduce the extent of its previous dealings with the
Company to any material degree except as for the general development of
the economy or market.
18. Attachment 4.18 to the Reference Deed is a complete and correct list of all
---------------
bank accounts of the Company and each Subsidiary as well as the respective
signatories.
19. Attachment 4.19 to the Reference Deed is a complete and correct list of all
---------------
insurance policies taken out by, or for the benefit of, the Company, a
Subsidiary or its business operations with the exception of any insurance
of the motor vehicles used in the Company's or a Subsidiary's business
operations. The respective policy holder is in good standing with respect
to its obligations under the insurance contract. Insurance policies which
lapse upon the acquisition of the Company by the Purchaser are marked.
20. Attachment 4.20.1 to the Reference Deed is a complete and correct list of
-----------------
certain important (written or orally concluded) agreements and obligations
of the Company or any Subsidiary (hereinafter referred to as the "Material
Contracts", i.e. all agreements and commitments which relate to one of the
following items or have been concluded with, or granted to, one of the
following parties to the extent that such contracts have not yet been
terminated or have not been fully performed:
a) All agreements and obligations relating to the acquisition,
divestiture, encumbrance or other disposal of real estate or real-
estate-like rights;
b) All agreements relating to the acquisition or the divestiture of
fixed assets (Gegenstande des Anlagevermogens) including intangible
-------------------------------
assets, physical fixed
-13-
assets (with the exception of real estate and real-estate-like
rights) and financial assets whose value exceeds DM 50,000.-- per
item or collectively DM 200,000.--;
c) All usufructuary lease agreements (Pachtvertrage), rental agreements
-------------
(Mietvertrage) including lease- and sublease agreements in respect of
------------
office-and business space, or leasing arrangements to the extent that
they trigger regardless of for which party annual payments of DM
10,000.-- per item or collectively of DM 50,000.--;
d) All license agreements into which the Company or any Subsidiary as
licensor or licensee has entered to the extent that they trigger
annual payments of DM 10,000.-- per item or collectively DM 50,000.--;
e) All credit agreements into which the Company or any Subsidiary, as
lender or borrower, has entered, with the exception of customary
extensions of the due date of receivables or payables agreed to in
the ordinary course of business, as well as all factoring
arrangements;
f) All agreements with domestic or foreign authorized dealers
(Vertragshandler), commercial agents (Handelsvertreter) or agents as
--------------- ----------------
well as all similar distribution agreements which either in case of
their termination trigger compensation claims against the Company or
whose notice period for termination exceeds three (3) months;
g) All operating- and film delivery contracts with hotels referencing
the contracting party and the location of the hotel, as well as all
supply agreements (Ausstattungsvertrage) which are not fully
performed or where the warranty period has not yet elapsed;
h) All employment agreements which provide for an annual aggregate
remuneration of more than DM 80,000.-- (as per the date of conclusion
of such agreement) as well as all agreements with advisers to the
extent that they trigger payments which exceed DM 50,000.-- per item
or collectively DM 200,000.--;
i) All agreements and obligations relating to pensions, other social
benefits, profit participations, turnover participations or other
success bonuses as well as similar agreements with the exception of
those already mentioned under Section 4.20. h);
-14-
j) All material collective bargaining agreements and material shop
agreements into which the Company or any Subsidiary has entered or to
which the Company or any Subsidiary is subject (with the exception of
multi-facility, regional or multi-regional collective bargaining
arrangements);
k) All cooperation and similar agreements with third parties as well as
any agreement or obligation having a restrictive impact on
competition;
l) All agreements or obligations which have been entered into or
assumed outside the ordinary course of business of the Company or any
Subsidiary to the extent that they trigger annual payments of DM
50,000 per item or collectively DM 200,000.--;
m) All securities granted and all obligations assumed by the Company in
favour of the Subsidiaries;
n) Other agreements and obligations which trigger annual payments
exceeding DM 100,000.-- per item or collectively DM 500,000.--.
The validity or enforceability of none of the Material Contracts has been
legally contested or is doubtful. No Material Contract is terminated nor
to the best knowledge of Sellers is about to be prematurely terminated.
The Material Contracts listed in Attachment 4.20.2 to the Reference Deed
-----------------
or particularly indicated in the above attachments are already terminated
or about to be terminated. Neither the Company nor any Subsidiary nor to
the best knowledge of Sellers their respective contractual partner are in
breach of or in default with respect to, any Material Contract. The
transaction contemplated in this Agreement to the best knowledge of
Sellers will not give any party an express right to termination or
amendment of a Material Contract.
21. Attachment 4.21.1 to the Reference Deed is a complete and correct list of
-----------------
all employees of the Company and each Subsidiary, specifying their names,
job designations, place of employment and the total amount paid or payable
to such employee in the last fiscal year. No employee marked therein as
"important" has declared an intention to terminate the employment
relationship with the Company. There are no litigeous labour disputes with
the exception of those listed in Attachment 4.21.2 to the Reference Deed.
-----------------
22. Attachment 4.22 to the Reference Deed is a complete and correct list of all
---------------
powers of attorney issued by the Company and presently in force which are
not reflected in the
-15-
excerpt from the commercial register attached hereto as Attachment 4.2 to
--------------
the Reference Deed.
23. The Company and each Subsidiary has duly prepared and timely filed all
tax returns. All taxes, social security contributions
(Sozialversicherungsbeitrage) and all other public law dues of any kind
---------------------------
owned by the Company or any Subsidiary have been paid upon their due date
or, to the extent that such taxes, social security contributions and
other public law dues have not yet been due at the respective statement
day have been accrued for in the balance sheets being part of the
Accounts and the Balance sheet of December 31, 1995, respectively; in
particular, neither the Company nor any Subsidiary has made any hidden
profit distributions. Attachment 4.23 to the Reference Deed is a complete
---------------
and correct description of the corporate income tax structure of the
usable equity (verwendbares Eigenkapital) shown in the Annual Statement
-------------------------
1995. The Company, after December 31, 1995, did not have shareholders who
were not entitled to a set-off of corporation tax
(Korperschaftsteueranrechnung).
24. The Company has applied for, received and used all public grants only in
accordance with applicable law and in compliance with all regulatory
orders, conditions and impositions. No such grants will have to be repaid
as a result of the consummation of the transactions reflected in this
Agreement nor due to other circumstances already known.
25. Attachment 4.25 to the Reference Deed is a complete and correct list of all
---------------
legal disputes and regulatory proceedings to which the Company or any
Subsidiary or employees of the Company or any Subsidiary (the latter only
to the extent that such disputes or proceedings could result in a
liability of the Company) are party or subject. Aside from the listed
disputes and proceedings no disputes or proceedings are impending nor are
there any circumstances which are likely to give rise to such disputes or
proceedings.
26. The business facilities of the Company have been erected in compliance
with all applicable law and regulatory orders (especially in the area of
construction law and trade law). Neither their operation nor the other
present business operations of the Company nor any of its products or
services violate applicable law or regulatory orders. The Company has at
its disposal all regulatory permits which are required for the conduct
and continuation of its present business operations. To the best
knowledge of Sellers neither a revocation nor any restrictions of such
permits is impending.
27. The real estate used by the Company (whether or not such real estate is
the property of the Company or third parties) as well as the other
operational facilities are free of any pollution
-16-
of soil, ground water, air or any other environmental pollution for whose
curing and cleaning up the Company could be held liable. The business
operations of the Company do not result in any pollution of soil, water,
air or any other environmental pollution with respect to whose omission
the Company could be held liable. The Company has always observed all
applicable environmental and zoning laws and other provisions. The fresh
water supply, the disposal of waste water as well as of gases and solid
emissions and effluent is fully assured for the present business
operations.
28. Since December 31, 1995, the business operations of the Company have been
and will be conducted exclusively in the ordinary course of business, in
accordance with cautious practice and substantially in the same manner as
before; there have been no materially adverse changes with respect to
such business operations or the asset, financial or result situation or
with respect to important assets or contracts of the Company. Since
December 31, 1995 no profit distributions including preliminary and
constructive distributions have been made nor have, except for in the
ordinary course of business, hidden reserves been dissolved or withdrawn.
29. To the best knowledge of Sellers all information supplied to the
Purchaser and its advisers by the Sellers prior to the recording of this
Agreement is complete, correct and accurate in any respect. It is not
misleading and does not omit anything relating to the Shares, the Company
and its business operations which would be important for the individual
information or which the Purchaser at the time of the recording of this
Agreement for the evaluation of such information should know. To the best
knowledge of Sellers there are no material facts or circumstances which
in future could have a materially adverse impact on the Company and its
business operations with the exception of general developments of the
economy or the market.
ARTICLE 5
LEGAL CONSEQUENCES
1. If one or several of the statements for which Sellers pursuant to Article
4 of this Agreement has assumed, a representation turns out not to be
accurate, then the Purchaser and the Company have the right to demand
that the Sellers within an appropriate period of time but in any case not
later than 4 weeks after receipt of such demand remedy the situation. If
Sellers within such period of time do not remedy the situation in
accordance with this Agreement
-17-
or if such remedy in accordance with this Agreement is not possible, then
the Purchaser and the Company have the right to obtain from Sellers
monetary damages. A claim for monetary damages for the Purchaser only
exists to the extent that the loss exceeds in total DM 100.000,--. The
liability of the Sellers for damages is limited by the purchase price
including the earnout payments stipulated in clause 3 of this Agreement
and taking into account any purchase price reduction pursuant to clause 2
para. 4. The foregoing limit is initially reduced by an amount of DM
4,600,000.--, which equals the sum of the securities listed in clause 12
granted by the Sellers. The thus reduced limit shall be susequently
increased by the amount in which the Purchaser redeems such securities.
Any reduction of the purchase price pursuant to clause 2 para. 4 of this
Agreement shall not be considered as a loss. Economic disadvantages due
to the non-collection of the claims of the Company against PRODAC
Hotelvideo-Communication Systems Ltd., Bedford, Great Britain and due to
the worthlessness of the Company's interest in this company are also not
considered as a loss. The legal principle expressed in Section 460, 464
of the Civil Code (Burgerliches Gesetzbuch) does not apply. If the
-----------------------
seller's liability depends upon knowledge or imported knowledge, the
knowledge of employee of the corporation shall be attributed to them.
2. All warranty rights of the Purchaser pursuant to this Article 5 are
subject to a limitation period of two (2) years. This does not apply to
legal defects of the Share sold with respect to which the statutory
limitation period applies. The limitation period shall start to run with
the Effective Date.
3. Any claims because of non-fulfillment of the warranties assumed in Sect.
4.23 expire due to the running of the limitation period (6) six months
after the end of the field audit for the relevant period; this does not
apply for cases of tax fraud and grossly negligent tax reduction. Mere
adjustment of periods, i.e. to the extent that tax claims or tax
reimbursements relating to the period before the Effective Date result in
tax credits or tax claims after the Effective Date shall not be taken
into account.
ARTICLE 6
LIABILITY FOR THE PATRICK SCULLY LITIGIATION
The Sellers shall be jointly and severally liable to the Purchaser for any
amount exceeding GBP 25,000.-- which has to be paid by the Company or by PRODAC
Hotelvideo-Communication
-18-
Systems Ltd., Bedford, Great Britain due to the litigation currently pending
before the High Court of Justice, Queens Bench Division in Nottingham against
Mr. Patrick Scully and Hotel Information Systems Limited with registered offices
in Dublin, Ireland, reduced by the actual reduction in the Company's taxes due
to the payment of the sum of judgment. The amount shall be payable within one
month after final judgement has been rendered. Such amount shall be reduced, if
possible, by the yearly earnout-payment pursuant to Sec. 3 of this Agreement. In
the event that - with respect to the profit situation of the Company - no
earnout-payment takes place or if the litigation is finally settled only after
all earnout payments were effected, the Sellers shall pay the amount due
directly to the Purchaser.
-19-
ARTICLE 7
BANK GUARANTY OF THE SELLERS
To secure claims of the Purchaser under Art. 5 and Art. 2 (4) sentence 2 and
Art. 6 of this Agreement, and regardless of any right to assert under this
Agreement a claim for a higher amount, each of the Sellers shall provide to the
Purchaser a bank guaranty on first demand of a major German bank (Grobank) in
the amount of DM 500,000.-- by the IPO-Date, at the latest, however, on February
28, 1997. The bank guaranties shall have a term of at least two and a half years
from the IPO-Date. The payment of the guaranty sum shall only be subject to the
express declaration of the Purchaser that the respective Seller has not
fulfilled its obligations under the Share Purchase Agreement.
ARTICLE 8
WARRANTIES OF THE PURCHASER, LEGAL CONSEQUENCES
1. The Purchaser warrants to the Sellers in the form of a separate warranty
that the following statements are correct and true as of the Closing:
a) MagiNet Corp. is a corporation duly organised under the laws of the
State of California and has been validly existing since then. MagiNet
intends to transfer its registered office to the State of Delaware in
compliance with the laws applying there.
b) The Purchaser is the legal and economic owner of theCommon Shares,
which are free from any encumbrances and other rights created in favour
of third parties. The Purchaser is entitled to freely dispose of the
Common Shares without the need to obtain the consent of any third party
and such a disposal would not infringe the rights of any third party or
general legal provisions;
c) The Common Shares have been paid up in full; no repayments of
contributions have been made either in a disclosed or undisclosed form;
-20-
d) No bankruptcy or composition proceedings have been instituted neither
against the Purchaser nor against MagiNet Corp., and no circumstances
are apparent which would justify the institution of such proceedings in
the future;
e) The annual accounts of the MagiNet Corp. for the business years 1993,
1994 and 1995 have been drawn up in compliance with generally accepted
auditing principles in the USA (GAAP) and give a fair view of the
assets and liabilities, financial position and earnings of the MagiNet
Corp.;
f) Since December 31, 1995 the business of MagiNet Corp. has been
conducted exclusively within the scope of ordinary operations in
accordance with prudent business practice and substantially in a
manner consistent with previous practice. No material adverse changes
have occurred in respect of the Company's operations, its assets and
liabilities, financial position and earnings or in respect of
important assets or agreements of the Company.
2. In the event that it should be found that one or more of the above
statements is or are incorrect, the legal consequences mentioned in Art. 4
shall be appropriately applied.
ARTICLE 9
ASSURANCES BY THE SELLERS CONCERNING THE PURCHASE OF THE SHARES;
RESTRICTIONS ON TRANSFER; INVESTMENT INTENT OF SELLERS;
UNITED STATES SECURITIES LAW COMPLIANCE; ADEQUACY OF DISCLOSURE
Each of the Sellers hereby severally represents and warrants to MagiNet Corp.
and the Purchaser, as of the date of this Agreement and as of the Closing, the
following statement with respect to its acquisition of the MagiNet Corp.
Common Shares (the "Common Shares") pursuant to this Agreement as follows:
1. EXPERIENCE. He has substantial experience in evaluating and investing in the
-----------
securities of private companies similar to MagiNet Corp. so that he is capable
of evaluating the merits and risks of his investment in the Common Shares and
has the capacity to protect his own interests.
2. INVESTMENT. He will acquire the Common Shares pursuant to this Agreement for
----------
investment for his own account, not as a nominee or agent, and not with the view
to, or for resale in
-21-
connection with, any distribution thereof. He understands that the Common
Shares and the underlying Common Stock have not been and will not be
registered under the 1933 Act by reason of a specific exemption from the
registration provisions of the 1933 Act, the availability of which depends
upon, among other things, the bona fide nature of his investment intent and
the accuracy of his representations as expressed herein and in response to the
inquiries of MagiNet Corp., if any.
3. RULE 144. He acknowledges that the Common Shares must be held indefinitely
--------
unless subsequently registered under the 1933 Act or unless an exemption from
such registration is available, and the Company is under no obligation to
register the Common Shares. He is aware of the provisions of Rule 144
promulgated under the 1933 Act, which permit limited resale of shares purchased
in a private placement subject to the satisfaction of certain conditions,
including among other things, the existence of a public market for the shares,
the availability of certain current public information about the Company, the
resale's occurring not less than two years after he has purchased and fully paid
for the securities to be sold, the sale's being effected through a "broker's
transaction" or in transactions directly with a "market maker" and the number of
shares being sold during any three-month period not exceeding specified
limitations.
4. LEGENDED CERTIFICATES. He understands that, in addition to any legend
---------------------
imposed by applicable state securities laws, the certificates representing the
Common Shares to be issued at the Closing will bear a restrictive legend (and
stop transfer orders shall be placed against the transfer thereof with the
transfer agent of MagiNet Corp.), stating substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933; AS AMENDED (THE "ACT"). THEY MAY NOT BE
SOLD, TRANSFERRED ASSIGNED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED -UNDER
THE ACT, OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION,
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
CONTRACTUAL RESTRICTIONS ON TRANSFER SET FORTH IN AN AGREEMENT BETWEEN THE
COMPANY AND THE HOLDER, A COPY OF WHICH IS AVAILABLE FROM THE SECRETARYOF
THE COMPANY.
-22-
5. NO PUBLIC MARKET. He understands that, although MagiNet Corp. has proposed
----------------
to file the Registration Statement with the Commission, no public market
currently exists for any of the securities issued by MagiNet Corp. and MagiNet
Corp. has made no assurances that the Registration Statement will be declared
effective or that a public market will ever exist for the securities of MagiNet.
6. ACCESS TO DATA: ADEQUACY OF DISCLOSURE. He has had an opportunity to discuss
---------------------------------------
the business of MagiNet Corp., its management, and its financial affairs with
its officers and has the opportunity to review the facilities of MagiNet Corp.
He has had the opportunities to ask questions of officers of MagiNet Corp., and
such questions were answered to his satisfaction. He understands that such
discussion, as well as any written information issued by MagiNet Corp., were
intended to describe certain aspects of the business of MagiNet and its
prospects but were not necessarily or exhaustive description. He has reviewed
the copies of the Registration Statement, including the matters discussed under
the caption "Risk Factors" therein, has relied only on the written disclosures
contained in the SEC Documents (including the Registration Statement) in making
his decision to acquire the Common Shares, and believes such disclosure is
adequate under the circumstances to permit him to make. such decision.
7. TAX LIABILITY. He has reviewed with his own tax advisors the domestic and
--------------
foreign tax consequences of his investment in the Common Shares. He has relied
solely on such advisors and not on any statements or representations of
MagiNet Corp. or any of its representatives or agents. He understands that he
(and not the Company, the Purchaser, or MagiNet Corp.) shall be responsible
for his own tax liability that may arise as a result of his investment in the
Common Shares.
-23-
ARTICLE 10
MARKET STAND-OFF AGREEMENT; CONFIDENTIALITY;
ADDITIONAL COVENANTS OF SELLERS AND COMPANY
1. MARKET STAND-OFF AGREEMENT. Each of the Sellers agrees that he will not
---------------------------
sell, make any short sale of, loan, grant any option for the purchase of or
otherwise dispose of or transfer the Common Shares to any person or entity for a
period of one year from the IPO Date. Each Seller agrees that MagiNet Corp. may
instruct its transfer agent to place stop-transfer notations in its records to
enforce the provisions of this section. During the term of the aforementioned
restriction, each of the Sellers further agrees to execute and enter a market
stand-off agreement in such form as may be requested by any underwriter of any
public offering of the securities of MagiNet Corp.; provided, however, that such
any such market stand-off agreement shall not limit in any manner the Sellers'
obligations pursuant to this section.
2. CONDUCT OF BUSINESS. During the period from the date of this Agreement and
--------------------
continuing until the earlier of the Closing or the termination of this
Agreement in accordance with its terms, the Sellers and the Company agree that
the Company and each of the Subsidiaries shall carry on its business in the
usual, regular, and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business, use all
efforts consistent with past practice and policies to preserve intact the
present business organizations of the Company and the Subsidiaries, to keep
available the services of its present officers and key employees, and preserve
its relationships with customers, suppliers, distributors, licensors,
licensees, and others having dealings with it, to the end that the goodwill
and ongoing businesses of the Company and the Subsidiaries shall be unimpaired
at the Closing. The Sellers and/or the Company shall promptly notify MagiNet
Corp. of any event or occurrence or emergency not in the ordinary course of
business of the Company or any Subsidiary and any event which could have a
Material Adverse Effect on the Company or any Subsidiary.
3. NO SOLICITATION. Until the earlier of the Closing or the termination of this
----------------
Agreement in accordance with its terms, neither the Company nor the Sellers
will, and will not permit any of the officers, directors, employees, agents,
shareholders or representatives of the Company or any Subsidiary to solicit,
encourage, initiate, enter into, continue or participate in any negotiations
or discussion with, or provide any information to any third party concerning,
the possible acquisition of the Company or its capital stock, business, or
assets, or any other transaction that would be inconsistent with the
transactions contemplated by this Agreement. The Company and/or the Sellers
will promptly notify MagiNet Corp. If it or any of the officers, directors, or
shareholders of
-24-
the Company or any Subsidiary learns of any inquiry or proposal during the
term of this covenant concerning the possible acquisition of the Company or
its stock, business, or assets. Such notice shall include the name of the
inquiring party and the terms and conditions of such inquiry or proposal.
4. ACCESS TO INFORMATION. The Company and the Sellers shall afford MagiNet
-----------------------
Corp., the Purchaser, their accountants, counsel, and other representatives
reasonable access during normal business hours during the period prior to the
Closing to (i) all of its properties, books, contracts, commitments, and
records and (ii) all other information concerning the business, properties,
and personnel of the Company as MagiNet Corp., the Purchaser, their
accountants, counsel, and other representatives may reasonably request. The
Company and the Sellers agree to provide MagiNet Corp., the Purchaser, their
accountants, counsel and other representatives copies of internal financial
statements promptly upon request. No information or knowledge obtained in any
investigation pursuant to this provision shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the transactions contemplated by this
Agreement.
5. CONFIDENTIALITY. From the date hereof to and including the Closing Date, the
----------------
parties hereto shall maintain and cause their directors, employees, agents, and
advisors to maintain in confidence and not to disclosure or use for any purpose,
except the evaluation of the transactions contemplated hereby and the accuracy
of the respective representations and warranties of the parties hereto contained
herein, information concerning the other parties hereto and obtained directly or
indirectly from such parties, or their directors, employees, agents or advisors,
except such information as is or becomes (i) available to the non-disclosing
party from third parties not subject to an undertaking of confidentiality; (ii)
generally available to the public other than as a result of a breach by the non-
disclosing party hereunder, or (iii) required to be disclosed under applicable
law; and except such information as was in the possession of such party prior to
obtaining such information from such other party as to which the fact of prior
possession such possessing party shall have the burden of proof. In the event
that the transactions contemplated hereby shall not be consummated, all such
information which shall be in writing shall be returned to the party
furnishing the same, including to the extent reasonably practicable, copies or
reproductions thereof which may have been prepared. The Sellers and the
Company acknowledge and agree that the rules and regulations of the Commission
require that this Agreement and the employment agreements of the Sellers and
potentially other agreements be filed as exhibits to the Registration
Statement.
-25-
6. INSIDER TRADING POLICY. Each of the Seller's acknowledges that, following
-----------------------
the Closing, he will be subject to applicable rules on Insider Trading Policy
adopted August 8, 1996, as amended from time to time (the "Policy"), and agrees
to comply with its terms for so long as it applies to him.
7. REGISTRATION. MagiNet Corp. shall prepare and file, and the Sellers shall
-------------
assist in preparing and filing, a registration statement on Form S-3 under the
1933 Act ("Registration Statement") pertaining to the offer and sale of the
Common Shares to be issued to the Sellers pursuant to Article 2 of this
Agreement and that my be issued to the Sellers pursuant to Article 3 of this
Agreement. As contemplated by the Policy, the Sellers shall not sell, and the
Registration Statement shall not permit the sale of such Common Shares during
any "black-out period", as defined in the Policy. Each Seller shall provide to
MagiNet Corp. and its counsel for inclusion in the Registration Statement such
information concerning Sellers as MagiNet Corp. or its counsel may reasonably
request, and all of such information shall be in form and substance reasonably
satisfactory to MagiNet Corp. and its counsel and shall be true, complete and
correct. MagiNet Corp. and each of the Sellers shall use their reasonable
efforts to respond to any comments of the Commission and to have the
Registration Statement declared effective on or before the date that is one
year from the IPO Date. The Sellers will supply MagiNet Corp. with copies of
all correspondence between the Sellers or any of their respective
representatives, on the one hand, and the Commission on the other hand, with
respect to the Registration Statement. Whenever any event occurs that should
be set forth in an amendment or supplement to the Registration Statement,
MagiNet Corp. or the Sellers as the case may be, shall promptly inform the
other party of such occurrence and cooperate in filing with the Commission any
such amendment or supplement. MagiNet Corp. will use reasonable commercial
efforts to maintain the effectiveness of the Registration Statement until any
of the Common shares covered by the Registration Statement can otherwise be
sold pursuant to Rule 144. MagiNet Corp. shall bear all expenses incident to
preparing, filing and maintaining the effectiveness of the Registration
Statement pursuant to this Article 10 (7), provided that the Sellers shall be
responsible for expenses of their legal, accounting, financial and other
advisors and for any commissions, discounts or other selling expenses.
ARTICLE 11
CONTRIBUTION OF EQUITY CAPITAL
The Purchaser shall within one month after the Closing take the necessary
steps to increase the share capital of the Company by DM 5,000,000.-- in
particular to contribute in full the according
-26-
capital amount and to contribute within a further three month's period an
additional amount of DM 5,000,000.-- in the form of equity capital or
financial resources equivalent to equity capital.
ARTICLE 12
REDEMPTION OF CREDIT SECURITY
1. The Purchaser intends to redeem the following credit security items
provided by the Sellers or their spouses:
a) Land charge of DM 1,000,000.-- relating to the property registered in
the land register of the Local Court of Cologne, District of Lovenich
Folio 20467, Part III, serial number 3 in favour of Philips Mietsystem
GmbH, Steindamm 55, 20099 Hamburg, securing leasing claims;
b) Land charge of DM 1,000,000.-- relating to the property registered in
the land register of the Local Court of Cologne, District of Lovenich
Folio 20467, Part III, serial number 3 in favour of Philips Mietsystem
GmbH, Steindamm 55, 20099 Hamburg, securing leasing claims;
c) Surety as principal and co-debtor of Mr. Kasbach for DM 800,000.-- in
favour of Stadtsparkasse Koln securing a multifunctional loan facility
in the amount of DM 2.600.000,--;
d) Surety as principal and co-debtor of Mr. Wirt for DM 800,000.-- in
favour of Stadtsparkasse Koln securing a multifunctional loan facility
in the amount of DM 2.600.000,--;
-27-
e) Surety as principal and co-debtor of Mr. Kasbach for DM 500,000.-- in
favour of Deutsche Bank AG, Cologne Branch securing claims resulting
from the entire business relation;
f) Surety as principal and co-debtor of Mr. Wirt for DM 500,000.-- in
favour of Deutsche Bank AG, Cologne Branch securing claims resulting
from the entire business relation.
2. For this reason, the Purchaser together with the Sellers will use
reasonable efforts to obtain a written declaration from the afore-
mentioned secured parties that they will release the Purchaser from the
respective security obligations granted to it by the Sellers or their
spouses, at least in so far as that the Purchaser fulfills its capital
contribution obligation pursuant to Article 11 of this Agreement.
3. Should the redemption of any of the afore-mentioned security items fail
due to lack of consent by the secured party, the Purchaser will indemnify
the Sellers and/or their spouses inter partes in the event of any claims
being raised under such security.
4. In the event that the declarations pursuant to para. 2 have not been made
at the Closing (a condition precedent), the Purchaser hereby grants to the
Seller a pledge on the Shares to secure the indemnification claim pursuant
to para. 3. The Sellers hereby accept this pledge subject to the condition
precedent. The pledge shall cease to exist, when the last security is
released by the respective secured party.
ARTICLE 13
EMPLOYMENT AS MANAGING DIRECTORS
1. The employment relationships of the Sellers with the Company will be
continued from the Closing as stipulated in the employment contracts
attached as Attachment 13.1 and 13.2 to the Reference Deed to be entered
--------------- ----
into. In the event the management is transferred to another legal entity
due to a conversion of the Company into a partnership, the Purchaser shall
be responsible for the appointment of the Sellers as managing directors of
this legal entity with the consequent continuation of their employment
contracts.
-28-
2. The Purchaser agrees that the Company may pay the Sellers jointly a bonus
payment totalling DM 90,000.-- prior to the Closing. The distribution
inter se is up to the Sellers.
ARTICLE 14
DUTY OF MAGINET CORP. TO TAKE RESPONSIBILITY
MagiNet Corp. takes responsibility towards the Sellers for the performance of
the duties assumed by the Purchaser in this Agreement. Any objections and pleas
due to the Purchaser from this Agreement or from other legal relationships with
the Sellers may also be asserted by MagiNet Corp.
ARTICLE 15
COVENANT NOT TO COMPETE
1. Each of the Sellers undertakes that he will abstain during a period of 5
years from the Closing from engaging in any activity in the territory of
the European Economic Area by which he would compete directly or
indirectly with the current operations of the Company or which would
result directly or indirectly in such a competition. In particular, each
of the Sellers will not found or acquire or participate in or counsel any
company which operates in direct or indirect competition with the current
operations of the Company. Excepted from this covenant not to compete is
the acquisition of shares up to a maximum of 1% in listed companies and a
possible activity as a Director or member of the Executive Committee of
MagiNet Corp. pursuant to Art. 17 para. 4 of this Agreement.
2. In the event that a Seller should infringe the covenant not to compete as
agreed in paragraph 1 above and continues such infringement despite a
warning given by the Purchaser or MagiNet Corp., the Seller shall pay a
contractual penalty of DM 500,000 (in words: five hundred thousand
Deutsche Mark) to the Purchaser. Should the infringing act continue, the
Seller shall pay a further contractual penalty amount to DM 500,000.-- (in
words: five hundred thousand Deutsche Mark) for each further month of
infringement. The right of the Purchaser to assert any additional damage
which may be incurred by it or by the Company and to demand cessation of
the forbidden behaviour shall remain unaffected.
-29-
ARTICLE 16
CONFIDENTIALITY
1. The parties are agreed that they will treat as strictly confidential any
knowledge which they may obtain of one another and the affiliated
companies in connection with the negotiation and the conclusion of this
Agreement.
2. None of the parties will make a press statement or similar announcements
in respect of the legal acts regulated by this Agreement without
previously bringing about a written understanding with the other party.
Excepted from this are any announcements or other statements by MagiNet
Corp. in connection with the preparation of realisation of the IPO.
ARTICLE 17
PRINCIPLE OF FUTURE COOPERATION,
REPAYMENT OF SHAREHOLDER LOANS
1. Following recording of this Agreement, the Sellers in their capacity as
Managing Directors of the Company shall make decisions outside the
ordinary course of business or a plan agreed between the Company and
MagiNet Corp. in the following matters only in close coordination with
MagiNet Corp.:
a) Conclusion, amendment and termination of operating agreements;
b) Conclusion, amendment and termination of leasing agreements;
c) Pricing;
d) Personnel decisions;
e) Additional borrowings in excess of plans agreed upon between the
corporation and MagiNet Corp;
f) Marketing strategy;
g) Technology;
h) Any other matters of fundamental importance in which MagiNet Corp. as
the future acquiror of the Shares has a justified interest.
2. The Purchaser agrees that the Company will repay the shareholder loans
made available to it and currently outstanding in the amount of DM
130,000.-- to the Sellers within ten bank working days from the
-30-
Closing. The sellers shall document the repayment of the shareholder loan
in an appropriate manner.
3. The Purchaser further agrees that the current employee bonus plan of the
Company shall be performed without any changes in the fiscal year 1996.
4. The Purchaser shall be responsible to achieve that the Sellers after the
Closing and as long as they together hold 1% of the respective share
capital of the MagiNet Corp. and hold their offices as managing directors
of the Company are represented together by one seat on the Board of
Directors of MagiNet Corp.
The seat on the Board of Directors of MagiNet Corp. should be filled by the
Sellers, if appropriate, by regular rotation for one term of office each.
ARTICLE 18
RESCISSION OF THE CONTRACT IN THE EVENT OF BANKRUPTCY OR
COMPOSITION PROCEEDINGS OF MAGINET CORP.
In the event that (i) the IPO has not taken place on March 31, 1997 and (ii)
MagiNet Corp. prior to August 31, 1997 is subject to bankruptcy or composition
proceedings, the Sellers shall have the right to rescind this Agreement by means
of a written declaration to the Purchaser. The right of rescission can be
exercised by each Seller, however, only with effect for both the Sellers.
ARTICLE 19
MISCELLANEOUS
1. The cost of the financial audit and the due diligence examination shall be
borne by the Purchaser. The cost of recording by notary public shall be
borne at one half each by the Sellers and the Purchaser. Apart from this,
each party shall bear the costs of its own advisors.
2. Any modifications of and amendments to this Agreement, including this
provision, shall be made in writing, unless a notarial form must be
observed.
3. The Purchaser may assign its rights and obligations under this Agreement
without the consent of the Sellers to another domestic entity directly or
indirectly owned by MagiNet Corp. MagiNet Corp. may assign its rights and
obligations under this contract only with the consent of the Sellers;
provided, however, the Sellers hereby agree that MagiNet Corp. may
transfer its rights and obligations by way of merger to a successor
corporation organized under the laws of the State of Delaware. The Sellers
hereby already give their consent to such assignment.
4. Should any provision of this Agreement be wholly or partly ineffective or
unenforceable, the effectiveness and enforceability of all the remaining
provisions of this Agreement shall not be affected thereby. The
ineffective or unenforceable provision shall be considered replaced by
such effective and enforceable provision as comes as close as possible to
the economic purpose pursued by the parties to the Agreement by the
ineffective or unenforceable provision.
-31-
5. Any agreements made between the parties to the Agreement prior the the
conclusion of this Agreement have been superseded by the conclusion of this
Agreement.
6. This Agreement - except the Option Agreement - shall be governed by the
laws of the Federal Republic of Germany. In case of any disputes arising
between the parties to the Agreement out of this Agreement, the parties to
the Agreement agree as far as permitted by statute that Cologne shall be
the venue.
II.
The Reference Deed referred to in the preamble of the above agreement was
available to the persons appearing during the recording of this Deed. The
notary advised the parties of their right to have such Reference Deed read out
again and attached to this Deed. The persons appearing confirmed that the
contents of such Reference Deed are known to them and that they waive their
rights to such reading and attachment.
The persons appearing then approved all statements made by Dr. Nicolas Baron von
Behr in connection with the execution of such Reference Deed as attorney without
power of representation ("vollmachtloser Vertreter").
------------------------
Thereafter, the persons appearing under 1. and 2., when questioned by the notary
public, stated that the assets of the Company do not include any domestic real
estate.
The notary thereupon advised the deponents that the acquisition of all shares in
a company whose assets include domestic real estate is subject to real estate
acquisition tax.
The notary advised the deponents,
- - that the persons acting on behalf of the Purchaser before its registration
in the Commercial Register will be personally liable;
- - that in case of a divestiture of shares in a GmbH only that party is vis-a-
vis the company recognized as the acquiror whose acquisition has been
notified to the company together with the submission of evidence of the
transfer;
-32-
- - that the acquiror is bound by acts taken before such notification by the
company vis-a-vis the vendor or by the vendor vis-a-vis the company with
respect to the shareholding relationship;
- - that the acquiror is together with the vendor liable for contributions on
the shares which are still outstanding at the time of such notification.
The deponents asked the notary to notify the acquisition of the shares by the
Purchaser to the Company by means of submitting a certified copy of this Deed.
The above protocol including the attachments was read in the presence of the
notary to the deponents, approved by them and then signed by them and the notary
in their own hands as follows:
/s/ Authorized signatures
Appendix 3
----------
Earn-out
--------
I. Goals and definitions
---------------------
1. THE GOALS FOR EACH OF THE YEARS 1997, 1998 AND 1999 CONSIST OF THE
FOLLOWING FOUR SUB-GOALS:
Sub-goal percentage share of total goal
-------- ------------------------------
New hotel rooms 20%
Average net monthly sales per
hotel room 20%
Operations costs and manufacturing
costs/sales 40%
Installation costs per hotel room 20%
2. NEW HOTEL ROOMS IS THE TOTAL NUMBER OF HOTEL ROOMS FOR WHICH THE
CORPORATION AND ITS 100% SUBSIDIARIES HAVE FULLY INSTALLED VIDEO SYSTEMS
WHICH YIELD SALES FOR THE RELEVANT FISCAL YEAR.
3. AVERAGE MONTHLY NET SALES PER HOTEL ROOM IS THE TOTAL SALES (within the
meaning of (S)(S) 275 par. 2 No. 1 German Commercial Code, excluding
value-added tax) during a fiscal year divided by 12 which arise from the
presentation of video films, excluding all other interactive systems and
services, per hotel room. "Hotel room" qualifies as all installed and
operating hotel rooms. If a new hotel room is not installed and in
operation for the entire year, said hotel room shall count on a pro rata
--------
temporis basis.
--------
2
4. Operating costs and manufacturing costs are defined by Ernst & Young
according to U.S. generally accepted accounting principles for the
financial statements for the period ended September 30, 1996.
5. Installation costs per hotel room are defined by Ernst & Young
according to U.S. general accepted accounting principles for the annual
financial statements for the period ended September 30, 1996.
Installation costs within the meaning of this paragraph 5 are costs for
the installation of systems for the presentation of film videos
excluding costs for the installation of other interactive systems and
service systems.
II. General rules
-------------
The following tables indicate standards and percentage rates for the
sub-goals. If a sub-goal is achieved or not met, a claim arises in the
amount of the relevant percentage rate of the relevant sub-goal.
Ernst & Young's methods for the determination of Prodac costs are to be
used as the basis for the definition of performance compared to the
earn-out goals. Services below the 40% level result in no earn-out for
the given year (see example for installation costs below).
The current sub-goals are based on PRODAC's operating results for the
period ended June 30, 1996. The sub-goals (1) operating costs and
manufacturing costs/sales, (2) average net monthly sales per hotel room
and (3) installation costs per hotel room are to be changed in such a
manner that PRODAC's operating results for the period ended September
30, 1996, are as determined by Ernst & Young. In each case, the 100%
sub-goal for 1996 must be replaced by the corresponding number for the
first nine months of 1996. The increases from year to year and the
drop from 100% to 40% remain the same in absolute numbers. Example:
Average net monthly sales per hotel room for the first nine months of
1996: [***].
--------------------------------------------------------------------
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
3
1997 1998 1999
100%
80% [***]
60%
40%
III. Example:
-------
Assumptions:
-----------
Sub-goals achieved in 1998:
New hotel rooms
Average net monthly sales per hotel room
Operations costs and manufacturing costs/sales [***]
Installation costs per hotel room
--------------------------------------------------------------------
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
4
Result:
------
New hotel room sub-goal: 80% achieved This totals 20% of the
total goal; thus 16%
has been achieved
Average net sales
per hotel room sub-goal: 40% achieved This totals 20% of the
total goal; thus 8% has
been achieved
Operating costs and
manufacturing costs
divided by sales sub-goal: 80% achieved This totals 40% of the
total goal; thus 32% has
been achieved
Installation costs sub-goal
not achieved 0% This totals 20% of the
total; thus 0% has
been achieved
New hotel rooms 16%
Average monthly net sales per hotel room 8%
Operating costs and manufacturing costs divided by sales 32%
---
56%
Thus a claim for DM 2,800,000.00 arises for 1998. Given an assumed tax
rate of 25%, DM 700,000.00 in cash and DM 2,100,000.00 in MagiNet
Corporation shares must be paid.
Operating
expenses and
New 97 98 99 cost of goods 97 98 99
Hotel rooms Rooms Rooms Rooms sold/revenue % % %
100% 100%
80% 80%
60% [***] 60% [***]
40% 40%
Average
monthly net
revenue per Installation 97 98 99
room DM DM DM cost DM DM DM
100% 100%
80% 80%
60% [***] 60% [***]
40% 40%
--------------------------------------------------------------------
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted
portions have been filed separately with the Commission.
OMITTED ATTACHMENTS AND ANNEXES TO EXHIBIT 2.1
The Registrant hereby agrees to furnish such attachments and annexes upon the
request of the Securities and Exchange Commission.
Annexes
- -------
2.2.1. Seller's right to purchase 150,000 options to buy Common Stock
under 1992 Key Personnel Stock Option Plan.
2.2.2. Seller's right to purchase 150,000 options to buy Common Stock
under 1992 Key Personnel Stock Option Plan.
Attachments
- -----------
4.2 Articles of Association
4.3.1 List of Subsidiaries
4.3.2 Exceptions to wholly owned subsidiaries
4.7 Stated capital description
4.10 List of receivables with uncertain value
4.13 List of office lease contracts
4.14.1 List of Assets in present business operations
4.14.2 List of assets not included on balance sheet
4.14.3 List of Assets where Prodac is not legal and beneficial owner
4.14.4 List of assets not free of all encumbrances and liens
4.15 List of industrial property rights and intellectual property rights
owned by Prodac
4.16 Agreements between Sellers and Prodac or its subsidiaries
4.17 List of 21 largest customers and 10 largest suppliers
4.18 List of bank accounts of Prodac and its subsidiaries
4.19 List of insurance policies of Prodac and its subsidiaries
4.20.1 List of material agreements
a. list of agreements relating to real estate
b. list of agreements relating to fixed assets
c. list of lease agreements
d. list of license agreements
e. list of credit agreements
f. list of agreements with domestic or foreign dealers
g. list of film operating and film delivery agreements
h. list of certain employment agreements
i. list of employee benefit agreements
j. list of collective bargaining agreements
k. list of cooperation agreements (restricting competition)
l. list of agreements outside the scope of normal business
operations
m. list of securities granted and obligations assumed by the
Company in favor of the subsidiaries
n. list of certain other agreements
4.20.2 List of material agreements that have been terminated
4.21.1 List of employees
4.21.2 List of labor disputes
4.22 List of Powers of Attorney
4.23 List of corporate income tax structure
4.25 List of all legal disputes and regulatory proceedings
13.1 Employment agreement for Seller as Managing Director of Prodac
13.2 Employment agreement for Seller as Managing Director of Prodac