July 27, 2005
SHARE PURCHASE AGREEMENT
By and Among
DATA SYSTEMS & SOFTWARE INC.
KARDAN COMMUNICATION LTD.
NEUWIRTH INVESTMENTS LTD.
MEIR GIVON
DSIT TECHNOLOGIES LTD.
-and-
TALDOR COMPUTER SYSTEMS (1986) LTD.
SHARE PURCHASE AGREEMENT
This SHARE PURCHASE AGREEMENT (this "Agreement") is entered into as of July 27,
2005, by and among Data Systems & Software Inc., a company organized under the
laws of the State of Delaware ("DSSI"), Kardan Communication Ltd. (Reg. No.
512051590), a company organized under the laws of the State of Israel
("Kardan"), Mr. Meir Givon (Israeli I.D. No. 069337418) ("Givon"), Neuwirth
Investments Ltd. (Reg. No.513164616), a company organized under the laws of the
State of Israel ("Neuwirth", and together with DSSI, Kardan and Givon, the
"Sellers"), dsIT Technologies Ltd. (Reg. No. 512816117) ("dsIT" or the
"Company"), and Taldor Computer Systems (1986) Ltd. (Reg. No. 52-003971-0), a
company organized under the laws of the State of Israel ("Buyer", and together
with the Sellers and the Company, the "Parties").
WITNESSETH:
WHEREAS, as of the date hereof the Sellers are collectively the legal
and beneficial owners of 11,844,181 Ordinary Shares, NIS 1.0
par value each, and 100 Preferred Shares, NIS 1.0 par value
each (collectively, the "Shares") of the Company, constituting
100% of the issued and outstanding share capital of the
Company;
WHEREAS, pursuant to the Restructuring, as defined in Section 6.3
below, which was commenced prior to the date hereof, the
Company has sold the Excluded Subsidiaries and the Excluded
Business (as defined below);
WHEREAS, the Company and the Subsidiaries are engaged in the business
of supplying computer outsourcing services on a time and
materials basis and the development of certain real time and
embedded systems for clients; and
WHEREAS, subject to the completion of the Restructuring of the Company,
the Sellers desire to sell to the Buyer and the Buyer desires
to buy from the Sellers all of the Shares, all in accordance
with and subject to the terms and conditions of this
Agreement.
NOW THEREFORE, in consideration of the foregoing recitals, the mutual
representations, warranties and covenants set forth herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:
1. DEFINITIONS AND INTERPRETATION.
1.1. The Schedules and Preamble hereto form an integral part hereof.
1.2. Unless the context otherwise requires, words denoting the singular
number only shall include the plural and vice versa. Masculine
terms shall include the feminine gender. Headings in this
Agreement are inserted for convenience only and shall not affect
the construction of this Agreement.
1.3. The Parties have participated jointly in the negotiation and
drafting of this Agreement. In the event that an ambiguity or
question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or disfavoring
any Party by virtue of the authorship of any provisions of this
Agreement.
1.4. For the purpose of this Agreement the following capital terms
shall have the meaning set forth below:
2
"Adjusting Balance Sheet" shall have the meaning set forth in Section
2.3(a).
"Applicable Laws" means the laws and regulations of the State of Israel,
as amended from time to time.
"Balance Sheet Date" shall have the meaning set forth in Section 4.11.1.
"Beneficiary of the Service" shall have the meaning set forth in Section
6.3.9.
"Business Day" means Sunday to Thursday, inclusive, with the exception of
any day which is recognized by the Bank of Israel as not being a business
day.
"Buyer Indemnified Person" shall have the meaning set forth in Section
9.2.1.
"Cash Adjustments" shall have the meaning set forth in Section 2.3.
"Closing" shall have the meaning set forth in Section 3.1.
"Closing Date" shall have the meaning set forth in Section 3.1.
"Company's Disclosure Schedule" shall mean the Disclosure Schedule
delivered to the Buyer by the Sellers and the Company, which is attached
to this Agreement as Annex 1.
"Company Financial Statements" shall have the meaning set forth in Section
4.11.1.
"Contracts" shall have the meaning set forth in Section 4.8.1.
"Controller" shall mean the head of the Israeli Antitrust Commission.
"Determining Percentage" shall mean the pro-rata percentage holdings of
each of the Sellers in the Company immediately prior to Closing hereunder,
namely: for DSSI 68.49%, for Kardan 13.8%, for Givon 0.93%, and for
Neuwirth 16.78%.
"Employee Benefit Plan" shall mean a written or oral plan, agreement or
arrangement involving compensation or benefits, including, without
limitation, insurance coverage, severance benefits, change of control,
retention, performance, holiday pay, vacation pay, gross-up payments,
fringe benefit, disability benefits, pension, retirement plans, profit
sharing, deferred compensation, bonuses, stock options, stock purchase,
phantom stock, stock appreciation or other forms of incentive compensation
or post-retirement compensation.
"Environmental Laws" shall mean any law statute, rule or regulation of any
Government Entity or the common law relating to the environment or
occupational health and safety, including, without limitation, any
statute, regulation or order pertaining to (a) air, water and noise
pollution; (b) radiation; and (c) health and safety of employees and other
persons.
"Environmental Permits" means any permit, approval, identification number,
license and other authorization required under any applicable
Environmental Law.
3
"Escrow Agent" shall mean Joel Stein, Adv. or the trust company managed by
Pearl Cohen Zedek Latzer, Law offices.
"Escrow Amount" shall have the meaning set forth in Section 2.4.1.
"Excluded Business" means all of the business activities of the Company
and the Subsidiaries other than the Retained Business. For the avoidance
of doubt, the Excluded Business shall include the provision, by the
Company or the Excluded Subsidiaries, of project development services
(whether the calculation of consideration therefor is done on a time and
material basis or on a fixed price basis) under which responsibility for
the project is imposed on the Company or the Excluded Subsidiaries, in
accordance with a defined statement of work or product specifications
including, without limitation, (i) the customer Contracts listed in
Section 4.8.1 of the Company's Disclosure Schedule; and (ii) any products
and services provided by the Company to RAFAEL Armament Development
Authority Ltd. (including services provided to RAFAEL Armament Development
Authority Ltd. on a time or time and materials basis).
"Excluded Business Balance Sheet" shall have the meaning set forth in
Section 4.11.4.
"Excluded Contracts " shall have the meaning set forth in Section 4.8.2.
"Excluded Employees" means the employees of the Excluded Subsidiaries and
certain employees of the Company and of the Retained Subsidiary, the
employment of which was transferred to one of the Excluded Subsidiaries
prior to the date hereof pursuant to the Restructuring, all of whom are
listed in Section 4.17.4 of the Company's Disclosure Schedule and any
additional employees employed by the Excluded Subsidiaries prior to the
Closing Date in the Excluded Business.
"Excluded Subsidiaries" means Mofet Venture Capital Fund Management (1992)
Ltd. a company organized under the laws of the State of Israel ("Mofet"),
Endan IT Solutions Ltd., a wholly owned subsidiary of the Company
organized under the laws of the State of Israel ("Endan") and JBE Software
Services Ltd., a subsidiary of Endan organized under the laws of the State
of Israel, in which Endan has a 54% equity interest ("JBE").
"Independent Auditor" a partner of Deloitte & Touche Israel as shall be
designated by the managing partner thereof.
"GAAP" shall mean generally accepted accounting principles in the USA.
"Government Entity" or "Governmental Entities" means any Israeli
governmental or official body(ies), agency(ies) or authority(ies).
"Guaranty" shall mean the acknowledgement and guaranty provided by Endan
in accordance with Section 6.12.
"Indemnified Party" shall have the meaning set forth in Section 9.3.2.
"Indemnifying Party" shall have the meaning set forth in Section 9.3.2.
4
"Insurance Policies" shall have the meaning set forth in Section 4.19.
"Intellectual Property" means each of the following (i) all registered
copyrights, all applications therefore and all associated goodwill; (ii)
all patents and patent applications, all associated technical information,
know-how, trade secrets, processes, operating, maintenance and other
manuals, drawings and specifications, process flow diagrams and related
data, and all associated goodwill; (iii) all software and documentation
thereof (including all electronic data processing systems and program
specifications, source codes, input data and report layouts and format,
record file layouts, diagrams, functional specifications, narrative
descriptions and flow charts); (iv) all other inventions, discoveries,
improvements, processes, formulas (secret or otherwise), data, drawings,
specifications, trade secrets, proprietary rights, know-how and ideas
(including those in the possession of third parties, but which are the
property of Seller), and all drawings, records, books or other tangible
media embodying the foregoing; (v) confidential technology (including
know-how and show-how), manufacturing and production processes and
techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable
works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists
and information, (vi) copies and tangible embodiments of all the
foregoing, in whatever form or medium, and (vii) all rights to obtain and
rights to apply for patents, and to register trademarks and copyrights.
"Interim Financial Statements" shall have the meaning set forth in Section
4.11.5.
"Knowledge" shall mean, with respect to the Sellers and the Company, the
knowledge of any of the individuals listed in Section 1(a) of the
Company's Disclosure Schedule. Such individuals shall be deemed to have
"knowledge" of a particular fact or other matter if: (a) such individual
is actually aware of such fact or other matter; or (b) a prudent director
or officer, as the case may be, would or should have been aware of such
fact or other matter in the course of business.
"Liens" shall mean any charges, claims, community property interests,
conditions, conditional sale or other title retention agreements,
covenants, easements, encumbrances, equitable interests, exceptions,
liens, mortgages, options, pledges, reservations, rights of first refusal,
security interests, statutory liens, warrants, or restrictions of any
kind, including any restrictions on use, voting, transfer, receipt of
income, or exercise of any other attribute of ownership.
"Losses" shall mean all damages, costs, expenses, awards, judgments, fines
and other losses actually awarded by a court of competent jurisdiction or
by an arbitration procedure if consented to by the Parties.
"Material Adverse Effect" or "Material Adverse Change" shall mean any
material adverse effect on or change in, as the case may be, the financial
condition, properties, business, operations, prospects, assets or results
of operations of the Company and the Subsidiaries, other than the fact
that the Company shall not include the Excluded Business. Without
derogating from the generality of the previous sentence it is agreed that
a decrease of 5% or more in the gross profit of the Retained Business
relative to the gross profit reflected in the Interim Financial
Statements, shall be deemed a Material Adverse Change in the Company and
the Subsidiaries.
5
"Person" means any person, entity or any body whether incorporated or
unincorporated.
"Profitable Retained Employees" means (A) each of the Retained Employees
employed by the Company or the Subsidiaries prior to July 1, 2005 (other
than those employees listed in Section 1(b) of the Company's Disclosure
Schedule, as serving in recruiting or management positions); plus (B) (i)
any of the Retained Employees the employment of whom shall have commenced
on or after July 1, 2005 and prior to the Closing Date and (ii) any new
Retained Employees the employment of whom shall commence on or after the
Closing Date and prior to January 1, 2006 pursuant to the recruiting
efforts of Endan, as provided in Section 2.4 below; provided that, in both
case (i) and (ii) above, the expected annual revenue from the customer, in
respect of such employee, minus the direct costs of employment, shall be
at least US$10,000 and that there is a valid and binding agreement with a
client with respect to the of services to be provided by such employee;
minus (C) any Retained Employee that, as of the Closing Date, the
employment of whom shall have either terminated or expired or notice of
such termination or expiration (whether by the employee or by the client
at the site of which such employee is employed) shall have been delivered
to the Company or otherwise Known to the Sellers.
"Provider of Services" shall have the meaning set forth in Section 6.3.9.
"Purchase Price" shall have the meaning set forth in Section 2.1.
"Q3 Consolidated Financial Statements" shall have the meaning set forth in
Section 2.5.1.
"Recognition Period" shall have the meaning set forth in Section 9.3.2.
"Registrar" means the Israeli Registrar of Companies.
"Representative" shall have the meaning set forth in Section 9.3.2.
"Restructuring" shall have the meaning set forth in Section 6.3.
"Retained Business" means the business activities of the Company and the
Subsidiaries, which include the supply of IT (Information Technology)
outsourcing services on a time or a time and materials basis to clients in
Israel (known in the industry as "Gulgalot") (the "Gulgalot Services"),
pursuant to: (i) the current customer Contracts, listed in Section 4.8.1
of the Company's Disclosure Schedule; (ii) customer Contracts to be
entered into by the Company prior to the Closing Date for the supply of
such Gulgalot Services; and (iii) all of the Company's rights pursuant to
tender No. 2002-3 issued by the Israeli Ministry of Finance, but
specifically excluding any products and services supplied by the Company
or any of its Subsidiaries to RAFAEL Armament Development Authority Ltd.
"Retained Business Financial Statements" shall have the meaning set forth
in Section 4.11.3.
"Retained Employees" means the employees of the Company listed in Section
4.17.3 of the Company's Disclosure Schedule (which list includes certain
employees of the Excluded Subsidiaries, the employment of which was
transferred to the Company prior to the date hereof pursuant to the
Restructuring) and any additional employees employed by the Company prior
to the Closing Date in the Retained Business, provided that the Buyer
consented to the engagement of employment of any such additional employee,
in accordance with Section 6.2.1(i) below.
6
"Retained Subsidiary" or "DSS" means Defense Systems and Software Ltd., a
company organized under the laws of the state of Israel.
"Reviewed Interim Financial Statements" shall have the meaning set forth
in Section 4.11.6.
"Reviewed Balance Sheet" means the balance sheet of the Retained Business
included within the Reviewed Interim Financial Statements.
"Seller Indemnified Person" shall have the meaning set forth in Section
9.2.2.
"Sellers' Group" shall have the meaning set forth in Section 9.3.2.
"Semi-annual Consolidated Financial Statements" shall have the meaning set
forth in Section 4.11.2.
"Shares" have the meaning set forth in the Recitals hereto.
"Subsidiaries" means the Retained Subsidiary and the Excluded
Subsidiaries.
"Survival Period" shall have the meaning set forth in Section 9.1.
"Taxes" or "Taxation" shall mean all taxes, and any and all other charges,
fees, levies, duties, deficiencies, customs or other similar assessments
or liabilities, including without limitation any income, gross receipts,
ad, premium, value-added, excise, severance, stamp, occupation, real
property, personal property, sales, use, transfer, transfer gains,
withholding, employment and unemployment insurance, social security,
business license, business organization, environmental, workers
compensation, payroll, profits, license, lease, service, service use, and
franchise taxes, imposed by any, state, local, or foreign government, or
any agency or political subdivision thereof; any interest, fines,
penalties, assessments or additions resulting from, attributable to, or
incurred in connection with any items described in this paragraph or any
contest or dispute thereof; any items described in this paragraph that are
attributable to another person but that the Company is liable to pay by
law, by contract, or otherwise; regardless of whether disputed.
"Tax Liabilities" means any judgment of a court of competent jurisdiction
or governmental body, authority or agency having jurisdiction, all in
connection with the payment by the Company or any Subsidiary of Tax debt
or liability, which; (a) was incurred by the Company or the Subsidiaries
prior to the Closing and (b) was not reserved or reflected in the Reviewed
Balance Sheet.
"Tax Returns" shall mean all reports, returns, declarations, documents,
statements, forms, or other information required to be supplied to a
taxing authority or to any Person in connection with Taxes and any
associated Sections or work papers provided in connection with such items.
7
"Tax Ruling" shall have the meaning set forth in Section 6.3.4.
"Third Party Claim" shall have the meaning set forth in Section 9.3.2.
"Threshold" shall have the meaning set forth in Section 9.2.1.
"Transition Period" shall have the meaning set forth in Section 6.2.
"Un-assignable Contract" shall have the meaning set forth in Section
6.3.9.
2. SALE AND PURCHASE OF THE SHARES; THE PURCHASE PRICE AND ADJUSTMENT THEREOF
2.1. Subject to the terms and conditions set forth in this Agreement and
in reliance upon the representations and warranties of the Sellers
and the Company set forth herein, at the Closing, each of the
Sellers shall sell to the Buyer and the Buyer shall purchase from
each of the Sellers, all the Shares owned by such Seller, free and
clear of any Liens, for the following consideration, payable to each
of the Sellers, in NIS in accordance with the then most recent
available official representative rate of exchange published by the
Bank of Israel:
2.1.1. DSSI - US$ 4,109,400.
2.1.2. Kardan - US$ 828,000.
2.1.3. Neuwirth - US$ 1,006,800.
2.1.4. Givon - US$55,800.
-----------
Total - US$ 6,000,000.
The aggregate purchase price payable by the Buyer to the Sellers shall be
referred to hereinafter as the "Purchase Price". The Purchase Price shall
be adjusted in accordance with Sections 2.3 and 2.4 below. The sums
payable to each of the Sellers as aforesaid have been calculated based on
the allocation of the Purchase Price in accordance with the Determining
Percentage.
2.2. The Purchase Price shall be paid to each Seller at the Closing, by wire
transfer in immediately available funds to an Israeli bank account to be
designated by each Seller no later than three (3) Business Days prior to
the Closing Date, against the presentation by each Seller of an exemption
from withholding of Taxes at source and receipt of payment. To the extent
any Seller shall not deliver to the Buyer, prior to the Closing Date, an
exemption from withholding of Taxes at source, the Buyer shall have the
right to deduct from the amount payable to such Seller any amount of Taxes
required by the Applicable Laws to be deducted at source.
2.3. The Purchase Price shall be adjusted by the payment of an additional
amount in cash by the Buyer to the Sellers or the deduction of such amount
from the Purchase Price, as the case may be, payable to the Sellers (the
"Cash Adjustment"), which shall be calculated in accordance with the
following provisions:
(a) Immediately after the receipt by the Buyer of the Reviewed Balance
Sheet and assuming the Agreement was not terminated pursuant to
Section 8.1.3 below, the Parties shall cooperate in the preparation
of an additional balance sheet, for the sole purpose of adjusting
the Purchase Price (the "Adjusting Balance Sheet").
8
(b) The Adjusting Balance Sheet shall be prepared based on the Reviewed
Balance Sheet and the amounts recorded therein, except that it shall
include only certain of the items included in the Reviewed Balance
Sheet:
The assets side shall include the following items: (i) cash and cash
equivalents; (ii) any accounts receivable based on invoices issued
by the Company and the Retained Subsidiary, provided that such
accounts receivable are not either doubtful or more than 90 days old
(any doubtful accounts receivable or accounts receivable more than
90 days old have been assigned to Endan as part of the
Restructuring); (iii) accrued income derived from the Retained
Business; (iv) deposits made with third parties, serving the needs
of the Retained Business; (v) prepaid expenses serving the needs of
the Retained Business; (vi) advances and long term loans made to the
Retained Employees; and (vii) withholding taxes deducted at source
from payments made to the Company by third parties. For the
avoidance of doubt, the Adjusting Balance Sheet shall not include
(A) deferred taxes; (B) intangible assets and goodwill associated
with the Retained Business; (C) advance payments to the tax
authorities on account of non-deductible expenses ("Odfot") in
respect of the Company and the Retained Subsidiary; and (D) any
other item which may be included in the Reviewed Balance Sheet not
specifically mentioned above.
The liabilities side shall include the following items: (i) accounts
payable of the Company and the Retained Subsidiary; (ii) prepayments
received for services to be provided by the Retained Business; (iii)
indebtedness to banks as are listed in Section 2.3(b) of the Company
Disclosure Schedule; (iv) all unpaid liabilities toward Retained
Employees as of the Reviewed Balance Sheet Date (including, but not
limited to, salaries, any outstanding debts to employees insurance
policies or similar pension or provident funds or accrued
liabilities for severance payments (in an amount equal to the amount
payable to the said employees as if the employment of each of them
was terminated by the Company or the Retained Subsidiary on the date
of the Reviewed Balance Sheet), outstanding debt balance due to
education funds, unused leave balances, accrued convalescence pay,
accrued bonuses, and any other benefits payable to the Retained
Employees); (v) any Taxes payable by the Company and the Retained
Subsidiary to any Government Entity to the extent not payable prior
to the date of the Reviewed Balance Sheet; and (vi) all other
liabilities of the Company and the Retained Subsidiary which were
not assigned to and assumed by Endan.
(c) In the event that there is a positive difference between the
aggregate value of the assets recorded in the Adjusting Balance
Sheet minus the aggregate value of the liabilities recorded therein,
then at the Closing, the Buyer shall pay the Sellers an additional
amount in cash, equal to such positive difference; if the difference
between the assets and liabilities is negative, then at the Closing,
Buyer shall deduct from the Purchase Price an amount in cash equal
to such negative difference. The additional amount payable to or
deducted from each Seller shall be in accordance with its
Determining Percentage.
9
(d) Notwithstanding Subsection 2.3(b) above, should Buyer, despite
making such efforts as Buyer generally makes in respect of
collection for its own account (i) fail to collect, within 90 days
of their date of creation, any of the accounts receivable or amounts
recorded as accrued income reflected in the Adjusting Balance Sheet,
or (ii) fail to collect any of accounts receivable or accrued income
created after the date of the Reviewed Balance Sheet but prior to
the Closing Date, within 90 days of their date of creation, then
Sellers shall cause Endan to pay the Buyer, within 7 days of the
Buyer's demand, such uncollected amount, and Buyer shall assign to
Endan the rights to collect such funds from the applicable
customers. Buyer shall provide Endan with an update, as to the
status of such uncollected funds (A) no later than 14 days prior to
the assignment of any uncollected accounts; and (B) within a
reasonable time from Endan's request, provided that such request
shall not be made more frequently than once every 60 days, and
provided further that the information regarding such uncollected
accounts shall be as of the last day of the preceding month.
2.4. Further Adjustment of the Purchase Price.
2.4.1. If as of the Closing the Retained Business shall not include 114
Profitable Retained Employees (as of such date), then at the
Closing, the Buyer shall deduct from the Purchase Price (as adjusted
pursuant to Section 2.3 above), an additional amount in NIS equal to
the product of (A) the difference between 115 and the number of
Profitable Retained Employees and (B) US$30,000 (such product shall
be referred to hereinafter as the "Escrow Amount"). The Escrow
Amount shall be deposited with the Escrow Agent. The Escrow Agent
shall deposit the amount in a dollar linked weekly deposit with a
recognized Israeli banking institution. For such purpose, the
Parties and the Escrow Agent shall execute an Escrow Agreement in
the form customarily used by the Escrow Agent; provided that, such
agreement shall prohibit the Escrow Agent to release any part of the
Escrow Amount or the proceeds accrued thereon to the Parties without
the written consent of Endan and the Buyer (or their respective
legal counsels) or the instruction of the Independent Auditor, as
contemplated under Section 2.4.4 below.
2.4.2. Between the Closing Date and December 31, 2005, Endan shall have
the right to recruit additional Profitable Retained Employees for
the purpose of placing them with the Company. The Company shall not
withhold its consent to the employment of such additional Profitable
Retained Employees, other than for reasonable cause.
2.4.3. Upon the Expiration of three (3) months of the actual employment
(at the site of the client) by the Company of any such new
Profitable Retained Employees, and provided that during such term,
neither (i) the new Profitable Retained Employees has given notice
of termination of such employment nor; (ii) the Customer had
provided notice of termination of such contract in connection with
which the said Profitable Retained Employee is employed; nor (iii)
the Company has given such Profitable Retained Employee a notice of
termination for cause, the Sellers shall be entitled to receive from
the Escrow Agent an amount equal to US$30,000 plus the accrued
interest thereon, per each such unterminated new Profitable Retained
Employee, up to the limit of the amount held by the Escrow Agent.
Subject to the provisions of Section 2.4.4 below, the balance of the
Escrow Amount shall be released back to the Buyer, no later than 95
days after the date of placement of the last Profitable Retained
Employee, in accordance with the provisions of Section 2.4.2. above.
10
2.4.4. In the event there is any dispute with respect to the Escrow
Amounts due and payable to the Buyers pursuant to this Section 2.4,
the Parties shall negotiate in good faith, for a period of seven (7)
days, in an attempt to resolve the said dispute. For such purpose,
the Buyer hereby appoints Mr. Barak Dotan, Chairman of its Board of
Directors as its representative with respect to such discussions,
and Sellers appoint Mr. Yacov Neuwirth as their representative.
In the event the representatives of the Sellers and the Buyer are
unable to resolve the dispute within the said seven days, they shall
refer the dispute to the Independent Auditor. The Independent
Auditor shall review this Agreement, and each of the Parties'
arguments and shall (i) render, as promptly as possible, a decision
with respect to the dispute, and (ii) instruct the Escrow Agent as
to the manner of division of the Escrow Amount among the Parties.
The determination of the Independent Auditor shall be final and
binding on all Parties, and the Escrow Agent shall pay or refund
such amounts to the applicable Parties.
Each of the Sellers and the Buyer shall bear its own costs and
expenses in connection with the resolution of the said dispute and
the Parties shall pay the fees of the Independent Auditor in equal
parts, unless the Independent Auditor shall determine otherwise.
2.5. Post Closing Adjustment.
2.5.1. As soon as practicable after September 30, 2005, but in any event
no later than December 1, 2005, the Buyer shall cause the Company to
prepare an unaudited consolidated balance sheets and statement of
income of the Company (collectively, the "Q3 Consolidated Financial
Statements") as of and for the three month period ending September
30, 2005. The Q3 Consolidated Financial Statements: (a) shall be
prepared in accordance with the principles of Israeli general
accepted accounting principles regarding quarterly unaudited
financial statements, other than as contemplated under this Section
2.5 below; and (b) fairly present the financial condition of the
Company as of such date and the results of operations and cash flows
of the Company for such period; The Company shall cause the Q3
Consolidated Financial Statements to be reviewed by the Buyer's
independent auditors, upon receipt of such report, shall deliver a
copy thereof to Endan.
2.5.2. The Parties shall share any "gross profit" or "gross losses" (i.e.,
the recorded revenues minus the direct "costs of services provided"
(including, for the avoidance of doubt, the costs of employment of
the six Retained Employees serving in recruiting or management
positions or any substitutes thereof)) generated during the said 3
month period, calculated in accordance with the following formula,
representing the share of the profit payable to (or the share of the
losses payable by) the Sellers:
11
GP x RPCD
SPP = --------------------
TRP
Whereby:
"SPP" means the Sellers' portion of the profit/losses.
"GP" means the gross profit/losses for the entire 3
month period.
"RPCD" means the revenues of the Retained Business
created prior to the Closing Date, wherein the revenues
due to any complete month shall be the actual revenues
recorded on the Company's books for such month, and the
revenues for any partial month (i.e., the month in
which the Closing shall take place) shall be deemed as
the actual revenues recorded on the Company's books for
such month, multiplied by the ratio of the number of
Business Days prior to the Closing Date to the total
number of Business Days during such month.
"TRP" means the total revenues recorded on the
Company's books for the 3 month period.
2.5.3. To the extent that during the 3rd quarter the Company shall
generate profits, then as soon as practicable after September 30,
2005, but in any event no later than December 7, 2005, the Buyer
shall pay to each of the Sellers its proportional part of the
Sellers' portion of the profit (in accordance with the Determining
Percentage), subject to the issuance of the tax receipts and
exemptions from withholding of Taxes at source. To the extent that
during such term the Company shall generate losses, then each of the
Sellers shall refund the buyer its proportional part of losses (in
accordance with the Determining Percentage).
2.5.4. Any dispute among the Parties with respect to the calculation of
the profit or losses, shall be resolve in accordance with provisions
of Section 2.4.4 above.
3. THE CLOSING
3.1. Time and Place. Subject to the provisions of Article 8 hereof, the
closing of the transactions contemplated herein (the "Closing")
shall take place at the offices of Danziger Klagsbald & Co., 7
Menachem Begin Street, Ramat Gan, Israel, at 10:00 a.m. local time,
on the third (3) business day after all the conditions set forth in
Article 7 have been satisfied or waived (other than those conditions
that by their nature are to be satisfied at the Closing, but subject
to the fulfillment or waiver of such conditions), or at such other
time and place as Buyer and Seller shall mutually agree in writing
(the "Closing Date").
3.2. Deliveries and Transactions at the Closing. At the Closing, the
following transactions shall occur simultaneously and the following
documents will be delivered (no transaction shall be deemed to have
been completed or any document delivered until all such transactions
have been completed and all required documents delivered):
3.2.1. Delivery by the Buyer. At or prior to the Closing, Buyer shall
deliver to the Seller:
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(a) Board Approval. A duly certified copy of Buyer's board of
directors' resolution approving the execution and delivery of
this Agreement and the transactions contemplated hereunder.
(b) Payment of the Purchase Price. Buyer shall pay the Sellers the
Purchase Price, as adjusted pursuant to Section 2.3 above.
(c) Certification. A certificate as contemplated by Section 7.2.4,
duly executed by the Chief Executive Officer of Buyer and
dated as of the Closing Date, in the form attached hereto as
Annex 2.
(d) Appointment of the Directors and Officers: Applicable
resolutions, effective as of immediately following the
Closing, appointing new directors and officers in the Company
and the Retained Subsidiary.
(e) Regulatory Approvals. Copies of all regulatory approvals
required by Buyer for the purpose of consummating the
transactions contemplated hereunder.
3.2.2. Delivery by the Sellers. At or prior to the Closing Sellers (or
each of them, as the case may be) shall deliver to the Buyer:
(a) Board Approval of the Company. A duly certified copy of the
resolution of the Company's Board of Directors, approving the
execution and delivery of this Agreement, the transactions
contemplated hereunder and the transfer of the Shares to the
Buyer.
(b) Board Approval of each of the Sellers. A duly certified copy
of resolutions adopted by the respective Boards of Directors
of each of DSSI, Kardan and Neuwirth approving the execution
and delivery of this Agreement and the transactions
contemplated hereunder.
(c) Register of Shareholders. A true and complete copy of the
Register of the Shareholders of the Company and the Retained
Subsidiary.
(d) Register of directors. A true and complete copy of the
Register of the Directors of the Company and of the Retained
Subsidiary.
(e) Resignation of Directors and Officers. Duly executed letters
of resignation effective as of the Closing, by each of the
directors and officers of the Company and of the Retained
Subsidiary all of which are listed in Section 3.2.2(e) of the
Company's Disclosure Schedule.
(f) Share Transfer Deeds. Duly executed copies of Share Transfer
Deeds, duly signed by each of the Sellers, transferring the
Shares of such Seller to the Buyer, and a Share Transfer Deed
transferring 1 ordinary share of DSS owned by Mr. George
Morgenstern.
(g) Certification. A certificate as contemplated by Section 7.3.7
below, duly executed by the Chief Executive Officer of each of
DSSI, Kardan, Neuwirth and the Company, dated as of the
Closing Date, in the form attached hereto as Annex 3.
(h) The Reviewed Interim Financial Statements. Interim Financial
Statements reviewed by the Company's independent auditors,
whose report thereon shall be attached to such review as
contemplated under Section 4.11.6.
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(i) Regulatory Approvals. Copies of all regulatory approvals
required by Sellers for the purpose of consummating the
transactions contemplated hereunder.
(j) Warrant to acquire an Equity interest in the Excluded
Subsidiaries. A Warrant duly executed by Endan, in the form
attached hereto as Annex 4.
(k) Instruments relating to Employees. Copies of all of the
letters executed by certain of the Retained Employees and the
Excluded Employees as contemplated under Section 4.17.4 below,
and letters executed by the other Retained Employees as
contemplated under Section 6.13 below, as well as the
documentation evidencing filings made with the Tax authorities
with respect to the transfer of the various employees in
connection with the Restructuring, by means of "retention and
continuity of rights".
(l) Guaranties. Duly executed copies of the Guaranties executed
and delivered by Endan and Mr. Yacov Neuwirth in accordance
with the terms of Section 6.12 below.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS.
The Sellers and the Company hereby represent and warrant to the Buyer that
the following representations and warranties are as of the date hereof and
shall be as of the Closing Date, correct, true and not misleading, except
as otherwise set forth in the Company's Disclosure Schedule attached
hereto, it being understood that (i) all representations and warranties
regarding the Company and any of the Subsidiaries are made by the Company
and the Sellers and (ii) the representations and warranties specifically
regarding each Seller and the Shares owned thereby are made only by such
Seller. For the avoidance of doubt, with respect to the representations
made individually by each Seller about such Seller, no Seller makes any
representation in the name of any other Seller nor will any such Seller be
liable to such representations made by any other Seller. Notwithstanding
the foregoing, it is specifically agreed that the division of liability
among the Sellers, the Company and Endan, with respect to the
representations and warranties, shall be that set forth in Section 9.2
below.
4.1. Organization; Qualification.
4.1.1. The Company and the Retained Subsidiary are corporations duly
incorporated, and validly existing under the laws of the State of
Israel. The Company and the Retained Subsidiary has all requisite
power to own its properties and carry on its business as now
conducted by the Company and the Retained Subsidiary, respectively.
4.1.2. DSSI is a corporation duly incorporated, validly existing and in
good standing existing under the laws of the State of Delaware, USA.
4.1.3. Each of Kardan and Neuwirth is a corporation duly incorporated, and
validly existing under the laws of the State of Israel.
4.1.4. No proceeding or resolution for bankruptcy, dissolution,
liquidation, winding-up, appointment of receiver and/or similar
proceeding has been instituted or taken by any of the Sellers, the
Company or the Subsidiaries and to the Sellers' Knowledge, no such
proceeding has been instituted or threatened against the Sellers,
the Company or the Retained Subsidiary.
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4.2. Authorization of Transaction. The Sellers and the Company have all
requisite power and authority to execute and deliver this Agreement
and to perform their respective obligations hereunder. The execution
and delivery of this Agreement and the performance by the Sellers
and the Company of this Agreement and the consummation by each of
the Sellers and the Company of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate
action on the part of the Sellers and the Company. This Agreement
has been duly and validly executed and delivered by each of the
Sellers and by the Company, and assuming the due authorization,
execution and delivery by the Buyer, constitutes a valid and binding
obligation of the Sellers and the Company enforceable against them
in accordance with its terms, subject to (a) the laws of general
application relating to bankruptcy, insolvency, and the relief of
debtors, and (b) the rules of law governing specific performance,
injunctive relief and other equitable remedies.
4.3. Non-Contravention. Except as set forth in Section 4.3 of the
Company's Disclosure Schedule, the execution, delivery and
performance of this Agreement and the other agreements and
instruments contemplated hereby by each of the Sellers, the Company
and the Subsidiaries and the consummation of the transactions
contemplated hereby shall not: (a) require the consent, approval or
authorization of any person or public authority other than the
consent of the Controller; (b) violate any provision of law
applicable to the Company or the Subsidiaries and/or any of the
Sellers; or (c) conflict with, violate or constitute a breach of or
default under any indenture, mortgage, deed of trust or other
agreement, instrument, order, judgment, award, decree, statute,
ordinance, regulation or any other restriction of any kind or
character, to which any of the Company, the Subsidiaries, or the
Sellers are a party, or by which any of the Company the Subsidiaries
or the Sellers or any of their respective assets are bound.
4.4. Capitalization.
4.4.1. The Company. The authorized share capital of the Company is and
shall consist immediately prior to the Closing, of NIS 20,000,000
divided into: 19,999,900 Ordinary Shares, and 100 Preferred Shares,
of which 11,844,181 Ordinary Shares are issued and outstanding, and
100 Preferred Shares are issued and outstanding. All of the issued
and outstanding Shares, are duly authorized, validly issued, fully
paid, nonassessable and free of all preemptive rights, and were
issued in compliance with all Applicable Laws concerning the
issuance of securities.
Except as provided in Section 4.4.1 of the Company's Disclosure
Schedule, there are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion or exchange rights
or other agreements or commitments to which the Company is a party
or which are binding upon the Company providing for the issuance or
redemption of any securities of Company. Following the
Restructuring, the options granted to various employees or officers
of the Company to acquire securities of the Company (as disclosed in
Section 4.4.1 of the Company's Disclosure Schedule) shall be
cancelled or waived by the applicable employees, so that as of the
Closing no Person other than the Sellers shall own or have any right
to purchase or receive any Shares of the Company.
15
There are no outstanding or authorized stock appreciation, phantom
stock, profit participation rights, rights of first refusal or
similar rights with respect to the Company. There are no agreements
to which any of the Sellers or the Company is a party or by which it
is bound with respect to the voting or sale or transfer of any
securities of the Company.
Except as provided in Section 4.4.1 of the Company's Disclosure
Schedule, the Company does not, directly or indirectly, own of
record or beneficially or have any right or obligation to acquire,
any outstanding securities or other interest in any corporation,
partnership, limited liability company, joint venture or other legal
entity.
4.4.2. The Subsidiaries. All of the Company's current subsidiaries as well
as the subsidiaries of the Company during the 5 years prior to the
date hereof, are listed in Section 4.4.2 of the Company's Disclosure
Schedule, which specifies the number of shares of each subsidiary
(and their respective percentage) owned directly or indirectly by
the Company, as well as the identity and the number of shares owned
by any other shareholders of each subsidiary.
Except as set forth in Section 4.4.2 of the Company's Disclosure
Schedule, the Company and the Retained Subsidiary do not presently
own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity, nor are they,
either directly or indirectly, a participant in any joint venture,
partnership, or similar arrangement.
All of the issued and outstanding shares in each Subsidiary, are
duly authorized, validly issued, fully paid, nonassessable and free
of all preemptive rights, and were issued in compliance with all
Applicable Laws concerning the issuance of securities.
4.4.3. Ownership of Shares. Each Seller is and shall immediately prior to
the Closing be the sole record and beneficial owner and holder of
that portion of the Shares sold by it hereunder, free and clear of
all Liens. The exact number and class of Shares owned by each Seller
is as specified in Section 4.4.3 of the Company's Disclosure
Schedule.
4.5. Litigation. Except as set forth in Section 4.5 of the Company's Disclosure
Schedule, the Company and each of the Subsidiaries are not involved in any
suit, action, claim, arbitration or other proceeding (administrative or
otherwise) and no such action, suit, claim, arbitration proceeding or
investigation is currently pending. To the Sellers' Knowledge, there is no
suit or action (equitable, legal or administrative), arbitration or other
proceeding threatened against the Company, including claims, suits,
proceedings or investigations: (a) on which the Company may be vicariously
liable; (b) which questions the validity of this Agreement, the right of
each of the Company and the Sellers to enter into this Agreement or to
consummate the transactions contemplated hereby; or (c) which might result
in any Material Adverse Effect.
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4.6. Title to Tangible Personal Property. Other than as set forth in Section
4.6 of the Company's Disclosure Schedule, the Company and Retained
Subsidiary have good title to, or a valid leasehold interest in, the
tangible personal property utilized by them in the conduct of their
business, free and clear of Liens, other than liens for Taxes, assessments
or other governmental charges not yet due and payable. Section 4.6. of the
Company's Disclosure Schedule sets forth a ledger listing all fixed assets
currently owned by the Company and the Retained Subsidiary and used by
them in the conduct of their business ((eaon ea', after giving effect to
the Restructuring.
4.7. Compliance with Laws. The Company and the Retained Subsidiary have
complied and are in compliance, in all material respects, with all
Applicable Laws and laws of foreign states applicable to the business of
the Company and the Subsidiaries, and all orders necessary for the conduct
or operation of their business as conducted prior to the Restructuring and
as currently conducted, or the ownership or use of their respective assets
and all permits issued by any Government Entity thereto; no event has
occurred or circumstance exists that is reasonably likely to (with or
without the giving of notice or the lapse of time or both) constitute or
result, directly or indirectly, in a violation by the Company or the
Retained Subsidiary of, or a failure on the part of the Company or the
Retained Subsidiary to comply with, any Applicable Law or permit; and the
Company and the Retained Subsidiary have not received any notice or other
communication (whether oral or written) from any Governmental Entity or
any other Person regarding any actual, alleged, possible, or potential
violation of, or failure on the part of the Company or the Retained
Subsidiary to comply with any Applicable Law, except where the failure to
so comply with any single requirement of any of the Applicable Laws,
foreign laws, regulations, orders or the requirements thereof are not
reasonably likely to have a Material Adverse Effect.
4.8. Contracts and Commitments.
4.8.1. Section 4.8.1 of the Company's Disclosure Schedule sets forth a
list of all written or oral material contracts, agreements,
undertakings and instruments outstanding as of the date hereof to
which, after giving effect to the Restructuring, the Company or the
Retained Subsidiary is a party and which meets any of the
descriptions set forth below (collectively, the "Contracts"):
4.8.1.1 involves the receipt of funds or expenditures in excess of fifty
thousand U.S. Dollars (US$50,000) for any single transaction or a
series of related transactions or under which the Company has
received in the 12 months preceding the date hereof an aggregate
amount in excess of fifty thousand Dollars (US$50,000) for the
provision of any IT outsourcing services;
4.8.1.2 is a warranty or guaranty creating an obligation, contingent or
otherwise, in any case in an amount in excess of fifty thousand U.S.
Dollars (US$50,000) given to any customer or other party by the
Company or the Retained Subsidiary with respect to their respective
performance or the performance of the Retained Business;
4.8.1.3 is a material license, lease, contract or other arrangement under
which the Company or the Retained Subsidiary has acquired or
licensed any property or assets of a third party or under which the
Company or the Retained Subsidiary otherwise utilizes in its
business any properties or assets of another party or which are
jointly owned by the Company or the Retained Subsidiary with any
other party or parties which has not otherwise been described
pursuant to any other paragraph of this Section 4.8 (with any such
relationship identified in such description);
17
4.8.1.4 is a material agreement, license, permit, consent, approval,
authorization, qualification or order of any Governmental Entity
related to the conduct of the Company's or the Retained Subsidiary's
business, or otherwise to the Retained Business, which has not
otherwise been described pursuant to any other paragraphs of this
Section 4.8;
4.8.1.5 involves the delivery of supplies or products or services in an
amount in excess of fifty thousand U.S. Dollars (US$50,000) for any
single transaction or any series of related transactions, or may
result in repeated orders under any umbrella agreement or other
similar long term arrangement in an amount of fifty thousand U.S.
Dollars (US$50,000);
4.8.1.6 contains any covenant restricting the Company or the Retained
Subsidiary (directly or by virtue of them being currently or
formerly an affiliate of any Excluded Subsidiary) from engaging in
any line of business or competing with any Person or imposing on any
of them any other material restrictions;
4.8.1.7 contains a right of first refusal with respect to the Shares or
the shares of the Retained Subsidiary;
4.8.1.8 is an agreement between (i) the Company or the Retained Subsidiary
on the one hand and any of the Sellers, the Excluded Subsidiaries or
any of their shareholders or affiliates on the other hand, or (ii)
the Company on the one hand and the Retained Subsidiary on the other
hand;
4.8.1.9 includes product warranties, guaranties and/or other similar
undertakings with respect to contractual performance extended by the
Company or the Retained Subsidiary either more than 1 year from the
date hereof or with terms not consistent with those typically given
by the Company or the Retained Subsidiary in similar cases;
4.8.1.10 will no longer remain in force or which may be terminated by the
other party as a result of the transactions contemplated by this
Agreement;
4.8.1.11 the Company or the Retained Subsidiary may be deemed to have
breached as a result of the consummation of the transactions
contemplated hereunder;
4.8.1.12 relates to a partnership or a joint venture to which the Company
or the Retained Subsidiary are a party;
4.8.1.13 all contracts for the sale of shares of the Company or of the
Retained Subsidiary, any business unit thereof or other material
part of the assets of the Company or the Retained Subsidiary and all
agreements regarding any other corporate combination to which the
Company or the Retained Subsidiary is a party or which effects their
assets or the Shares;
18
4.8.1.14 is otherwise material to the business of the Company as currently
conducted.
4.8.2. Section 4.8.2 of the Company's Disclosure Schedule sets forth a
list of all written or oral material contracts, agreements,
undertakings and instruments outstanding as of the date hereof or in
effect at any time during the three years prior to the Closing, to
which the Company or the Retained Subsidiary were a party prior to
the Restructuring, and which relate to the conduct of the Excluded
Business (the "Excluded Contracts").
4.8.3. Each Contract is valid and binding and is in full force and effect
or has expired in accordance with its terms, as to the Company or
the Retained Subsidiary, as the case may be. No event has occurred
which is or, after the giving of notice or passage of time, or both,
would constitute a material default under or a material breach of
any Contract or Excluded Contract by the Company or the applicable
Subsidiary or, to Sellers' Knowledge, by any other party thereto. To
the Sellers' Knowledge, none of the other parties to any of the
Contracts intends to terminate the Contract as a result of the
entering into this Agreement or otherwise, or has notified the
Company or the Subsidiaries of such intention.
4.9. Real Estate Leases. After completion of the Restructuring the Company and
the Retained Subsidiary shall not own or lease any real property.
4.10. Permits. To the Sellers' Knowledge, the Company and the Retained
Subsidiary have all the permits from all foreign, national and local
authorities (i) which are necessary for the conduct of the Retained
Business as currently conducted and (ii) which were necessary prior to the
Restructuring for the conduct of their respective businesses, except where
the failure to have any permit is not reasonably likely to result in a
Material Adverse Effect.
4.11. Financial Statements.
4.11.1. A true and complete copies of the audited balance sheets and
statements of income and cash flow of the Company and its
Subsidiaries excluding Mofet (collectively, the "Company Financial
Statements") as of and for the fiscal year ended December 31, 2004
(the "Balance Sheet Date") are attached to Section 4.11.1 of the
Company's Disclosure Schedule.
4.11.2. A true and complete copy of the unaudited consolidated balance
sheet and statements of income and cash flow of the Company and the
Subsidiaries (collectively, the "Semi-Annual Consolidated Financial
Statements") as of and for the six month period ending June 30,
2005, prior to the giving effect to the Restructuring, prepared in
accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, are attached to Section 4.11.2 of the
Company's Disclosure Schedule.
19
4.11.3. An unaudited pro-forma balance sheet and statement of income of
the Company and the Retained Subsidiary (showing only the revenues,
the cost of services provided and the gross profit) (collectively,
the "Retained Business Financial Statements") as of and for the six
month period ending June 30, 2005, assuming the Restructuring has
been completed as of such date, are attached to Section 4.11.3 of
the Company's Disclosure Schedule.
4.11.4. A copy of the unaudited consolidated pro-forma balance sheet of
the Excluded Subsidiaries (collectively, the "Excluded Business
Balance Sheet") as of June 30, 2005, assuming the Restructuring has
been completed as of such date, are attached to Section 4.11.4 of
the Company's Disclosure Schedule.
4.11.5. Other than as specifically provided in Sections 4.11.2 to 4.11.4
above, each of the Semi-Annual Consolidated Financial Statements,
the Retained Business Financial Statements and the Excluded Business
Balance Sheet (collectively referred hereto as the "Interim
Financial Statements") and the Company Financial Statements: (a)
fairly present the financial condition of the Company and each
Subsidiary as of such date and the results of operations and cash
flows of the Company and each Subsidiary for such period; (b) are
consistent with the books and records of the Company and the
Subsidiaries, and (c) as of their date, do not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading.
4.11.6. The Company and Sellers shall cause the Company's independent
auditor to review the Interim Financial Statements (other than the
statement of income of the Company and the Retained Subsidiary) no
later than seven (7) days from the date hereof, and deliver the
reviewed Interim Financial Statements together with the Company's
independent auditor's report thereon (the "Reviewed Interim
Financial Statements") to the Buyer immediately thereafter. Upon
delivery by the Sellers of the Reviewed Interim Financial
Statements, such reviewed statements shall substitute the same
statements included within the Interim Financial Statements, and
Sellers and the Company shall no longer be deemed to have made a
representation with respect to such un-reviewed statements. In
addition, to the extent that the Reviewed Interim Financial
Statements shall have deviated from the Interim Financial
Statements, Sellers shall have the right to amend the balance sheet
and statement of income of the Company and the Retained Subsidiary
to reflect the adjustments made in the Reviewed Interim Financial
Statements, and in such event, the revised balance sheet and
statement of income shall substitute the initial balance sheet and
statement of income, and the Sellers and the Company shall no longer
be deemed to have made a representation with respect to the initial
balance sheet and statement of income.
4.12. Events Subsequent to the Balance Sheet Date and the Date of the
Interim Financial Statements.
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4.12.1. Since the Balance Sheet Date, except as provided in Section 4.12.1
of the Company's Disclosure Schedule: (a) The Company and the
Subsidiaries have conducted their business only in, and have not
engaged in any transaction other than according to, the ordinary and
usual course of such business in a manner consistent with their past
practice; (b) there has not been any change in the business,
operations, properties, prospects, assets, or condition of the
Company and the Retained Subsidiary, or to Seller's Knowledge any
such anticipated change, that is reasonably likely to result in a
Material Adverse Effect on the Company or the Retained Subsidiary;
(c) there has not been any event or development which, individually
or in the aggregate, could reasonably be foreseen to prevent or
materially delay the performance of this Agreement by the Company;
(d) the Company has not declared or paid any dividends, authorized
or made any distribution upon or with respect to any class or series
of its capital stock; (e) neither the Company nor the Retained
Subsidiary have given any guarantee, indemnity or security for or
otherwise agreed to become directly or contingently liable for any
obligation of any other person or consented to the creation of any
Lien on their respective assets; (f) the Company and the Retained
Subsidiary have not sold, exchanged or otherwise disposed of any of
their assets or rights other than in the ordinary course of
business; (g) neither the Company nor the Retained Subsidiary have
waived, written off or written down any accounts receivable or other
funds due to it from any of the Sellers or any affiliate of the
Sellers; (h) the Company and the Retained Subsidiary have not
incurred any significant new material liabilities, debt or
obligations or breached any of their Contracts; (i) no material
changes were made with respect to the compensation or benefits of
the Retained Employees; (j) neither the Company nor the Retained
Subsidiary had amended in any manner its Articles of Incorporation
or any other incorporation documents and (h) the Company and the
Retained Subsidiary have not entered into any transaction or
undertaken any commitment which was not in the ordinary course of
its business, except for such transactions and commitments
referenced in or contemplated by this Agreement.
4.12.2. Since the date of the Interim Financial Statements, the Company
and the Retained Subsidiary have not made any payments to or have
incurred any liability towards or undertook to make any payment to
any third party, other than with respect to (i) incurring
liabilities and making payments directly related to the costs of
services provided by the Retained Business; (ii) the settlement of
any of the liabilities reflected in the Reviewed Balance Sheet; and
(iii) any other payments specifically pre-approved in writing by the
Buyer. Since the date of the Interim Financial Statements, no
overhead or other costs or expenses were incurred by the Company or
the Retained Subsidiary. The books and records of the Company and
the Retained Subsidiary reflect the above.
4.12.3. Section 4.12.3 of the Company's Disclosure Schedule contains a
list of all payments made between the Balance Sheet Date and the
date hereof (i) by the Company and the Retained Subsidiary to the
Sellers or any of its affiliates or vice versa and (ii) by the
Company to the Subsidiaries or vice versa, and any accounts payable
and accounts receivable, with respect to such inter-company payments
due to the Company from Seller or any of its affiliates, by the
Company to Seller or any of its affiliates, by the Company to any of
the Subsidiaries or by any Subsidiary to the Company.
21
4.13. Undisclosed Liabilities. Except as set forth in Section 4.13 of the
Company's Disclosure Schedule, the Company and the Retained
Subsidiary have no liabilities (whether known, unknown, absolute,
accrued, contingent or otherwise) other than (i) those liabilities
set forth or adequately provided for in the Company Financial
Statements; (ii) those liabilities not required to be set forth in
the Company Financial Statements and the Interim Financial
Statements; (iii) those liabilities incurred in the ordinary course
of business and in a manner consistent with past practice since the
Balance Sheet Date or the Interim Financial Statements, as the case
may be which have not had, and are not likely to have (alone or in
aggregate) a Material Adverse Effect; (iv) those liabilities
incurred in connection with the execution and delivery of this
Agreement.
4.14. Tax Matters.
4.14.1. The Company and each Subsidiary have duly and timely filed all Tax
Returns required to be filed by it on or prior to the date hereof,
and all such Tax Returns are, in all material respects, true,
correct and complete and prepared in accordance with Applicable
Laws, for all years and periods (and portions thereof) in which any
such Tax Returns were due. The Company and each Subsidiary have paid
all Taxes as due and payable in respect of such Tax Returns, and
there is no current liability for any Taxes due in connection with
any Tax Returns. As of the date hereof, all Taxes, if any, not yet
due and payable (including in connection with any past audit and any
agreement entered into prior to the date hereof with the Tax
authorities) have been fully accrued on the books of the Company and
adequate reserves have been established therefor, as the case may
be.
4.14.2. The Company and each Subsidiary have: (a) withheld all required
amounts of Tax from its employees, agents, contractors and
nonresidents and remitted such amounts to the proper agencies; (b)
paid all required employer contributions and premiums due for social
security and unemployment tax purposes; and (c) filed all required
returns and reports with respect to Tax withholding, social security
unemployment Taxes and premiums, all in compliance, in all material
respects, with the withholding Tax provisions of the Applicable Laws
as in effect for the applicable year.
4.14.3. Neither the Company nor any of the Subsidiaries or the Sellers
have executed or filed with any taxing authority any agreement or
other document extending or having the effect of extending the
period for assessment, reassessment or collection of any Taxes and
no power of attorney granted by the Company or any Subsidiary with
respect to any Taxes is currently in force.
4.14.4. Other than as listed in Section 4.14.4 of the Company's Disclosure
Schedule, no Tax audits or other administrative proceedings or court
proceedings are pending as of the date hereof with regard to any
Taxes or Tax Returns of the Company.
22
4.14.5. Other than as listed in Section 4.14.5 of the Company's Disclosure
Schedule, the Company and the Subsidiaries have not agreed to and
are not required to make any adjustment (i) by reason of a change in
accounting methods that affects any taxable year ending after the
Closing Date or (ii) in any Tax Return filed by the Company or the
Subsidiaries prior to the date hereof and any draft of Tax Return
not yet filed by the Company (copies of which were delivered to the
Buyer prior to the date hereof), provided that certain changes to
Tax Returns for 2003 were agreed to by the Tax Authority in the form
disclosed by the Sellers. Neither the tax authority nor any other
agency has proposed any such adjustment or change in accounting
methods that affects any taxable year ending after the Closing Date
or in any Tax Return filed by the Company or the Subsidiaries prior
to the date hereof. The Company and the Subsidiaries do not have an
application pending with any taxing authority requesting permission
for any changes in accounting methods that relate to its business or
operations and that affects any taxable year ending after the
Closing Date. Copies of all of the agreements entered into with, and
any formal requests made to, the Tax authorities with respect to the
Company and/or the Retained Subsidiary (and any responses received
from the Tax authorities), are included in Section 4.14.5 of the
Company's Disclosure Schedule
4.14.6. The Company and the Retained Subsidiary are not and have not been
a party to any Tax sharing agreement or similar arrangement for the
sharing of Tax liabilities or benefits, nor have they obtained any
Tax-related opinions from any third parties, vis-a-vis Tax planning.
4.14.7. Other than as disclosed in Section 4.14.7 of the Company's
Disclosure Schedule, the Company and the Retained Subsidiary have no
debt or liability of any kind toward the Chief Scientist of the
Ministry of Industry and Trade's Industrial Research and Development
Administration or toward the Investment Center, nor have they
received any communications from such Governmental Entities
indicating any monetary liability thereto.
4.15. Related-Party Transactions. Other than as listed in Section 4.15 of
the Company's Disclosure Schedule, no officer, shareholder or
director of the Company or any Subsidiary is indebted to the Company
or the Retained Subsidiary, as the case may be, nor is the Company
or the Retained Subsidiary indebted to any of them. Except as set
forth in Section 4.15 of the Company's Disclosure Schedule, none of
such persons or entities has a beneficial interest in any contract
or agreement to which the Company is a party.
4.16. Intellectual Property.
4.16.1 The Restructuring shall cause the transfer from the Company and the
Retained Subsidiary to Endan, as of the date of such transfer, of
all of the Intellectual Property used thereby.
4.16.2 Other than as set forth in Section 4.16.2 of the Company's
Disclosure Schedule, to the best Knowledge of the Company and
Sellers, prior to the Restructuring the Intellectual Property used
by the Company and the Retained Subsidiary did not infringe the
rights of any Person. The Company and the Subsidiaries have not
received any warnings alleging that they have violated the
Intellectual Property rights of any other Person.
4.17. Employees.
23
4.17.1 The Company and the Retained Subsidiary are in compliance with all
currently Applicable Laws with respect to labor and employment,
including, discrimination in employment, terms and conditions of
employment, wages, hours of employment, occupational safety and
health and employment practices, and are not engaged in any unfair
labor practices. The Company and the Retained Subsidiary have
withheld all amounts required by Applicable Laws or by agreement to
be withheld from the wages, salaries and other payments to employees
and are not liable for any arrears of wages or any Taxes or any
penalty for failure to comply with any of the foregoing. There are
no pending claims against the Company or the Retained Subsidiary
under any Employee Benefit Plan or policy or for long term
disability.
4.17.2 There are no controversies pending or, to the Sellers' Knowledge,
threatened, between the Company or the Retained Subsidiary and any
of their respective current or former employees, which controversies
have or could reasonably be expected to result in an action, suit,
proceeding, claim, arbitration or investigation before any agency,
court or tribunal, foreign or domestic, against the Company or the
Retained Subsidiary. The Company and the Subsidiaries are not a
party to any collective bargaining agreement or other labor union
contract, and to the Seller's Knowledge, there are no activities or
proceedings of any labor union to organize any such employees.
4.17.3 Section 4.17.3 of the Company's Disclosure Schedule contains a
complete and accurate list of the following information with respect
to each Retained Employee and independent contractor engaged by the
Company or the Retained Subsidiary in the conduct of the Retained
Business: name, job title, date of employment, current compensation,
including base salary and all social benefits, guarantied bonuses,
any undertaking or promise (whether written or oral) to increase the
salary or benefits of such employee, use of Company vehicle or cell
phone, the number of accumulated vacation days as of the date
hereof, the amount of aggregate severance pay payable to each
Retained Employee (as if the employment thereof was terminated by
the Company) as of June 30, 2005 ("Atuda") and the amount of the
severance funding actually remitted to each of the Retained
Employees' managers insurance policies/pension funds, as of such
date ("Yeuda"). The Company and the Retained Subsidiary are in
compliance with the terms of all employment agreements of the
Retained Employees and any payments due to be paid by the Company
pursuant to such agreements through the date hereof have been paid
by the Company and the Retained Subsidiary.
4.17.4 As of the date hereof and as a result of the performance of the
Restructuring, neither the Company nor the Retained Subsidiary have
any liability whatsoever toward the Excluded Employees, and (A) each
of the Excluded Employees previously employed by the Company or the
Retained Subsidiary has executed a letter of a copy of which is
attached to Section 4.17.4(A) of the Company's Disclosure Schedule,
confirming, inter alia, that he or she (i) have no claims or demands
of any kind or nature against the Company or the Retained Subsidiary
with respect to the term of their employment by the Company or the
Retained Subsidiary and (ii) that they acknowledge and accept the
assumption by the Excluded Subsidiaries of any and all liabilities
of the Company or the Retained Subsidiary toward them, including the
payment of severance pay and unused leave with respect to the term
of their employment by the Company or the applicable Subsidiary, and
(B) each of the Retained Employees initially employed by any of the
Excluded Subsidiaries, executed an acknowledgement regarding his or
her transfer of employment to the Company and their respective
awareness of the transaction contemplated hereunder, a copy of which
is attached to Section 4.17.4(B) of the Company's Disclosure
Schedule.
24
4.17.5 Except as set forth in Section 4.17.5 of the Company's Disclosure
Schedule, the Company and the Retained Subsidiary are not liable for
any material payment, with respect to unemployment compensation
benefits, social security or other benefits or obligations for
employees, other than routine payments to be made in the normal
course of business and consistent with past practice.
4.18. Employees Benefits
4.18.1 Section 4.18.1 of the Company's Disclosure Schedule lists the
Retained Employees which receive Keren Hishtalmut and/ or a
Manager's Insurance/Pension Fund Plan that the Company and the
Retained Subsidiary maintain or to which the Company or the Retained
Subsidiary contribute funds. Other than Keren Hishtalmut and/ or a
Manager's Insurance/Pension Fund Plan, the Company and the Retained
Subsidiary do not maintain any Employee Benefit Plan.
4.18.2 No Employee Benefit Plan provides benefits, including, without
limitation, death or medical benefits (whether or not insured), with
respect to the Retained Employees beyond their retirement or other
termination of service, other than coverage mandated by Applicable
Laws.
4.19. Insurance. The Company's and the Retained Subsidiary's insurance
policies and binders (the "Insurance Policies") are valid and
enforceable in accordance with their terms, are in full force and
effect and insure against risks and liabilities of the kinds and in
amounts customarily insured against by persons of established
reputation engaged in the same or a similar business as that of the
Company and the Retained Subsidiary. The copies of the Insurance
Policies are attached to Section 4.19 of the Company's Disclosure
Schedule. All premiums on all such policies have been paid to date
and the Company and the Retained Subsidiary have complied with all
conditions of such policies and have received no notice of any
failure to comply with the terms of such policies.
4.20. Environmental Matters. Except as could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect:
4.20.1 the Company and the Retained Subsidiary (a) are in compliance
with all, and are not subject to any liability, in each case
with respect to any applicable Environmental Law, and (b) do
not hold or have applied for any Environmental Permits.
4.20.2 the Company and the Retained Subsidiary have not received any
written notice, demand, letter, claim or request for
information alleging that the Company or the Retained
Subsidiary may be in violation of, or liable under, any
Environmental Law.
4.21. Brokers' Fees. Except as set forth in Section 4.21 of the Company's
Disclosure Schedule, neither the Company nor the Retained Subsidiary
have any liability or obligation to pay any fees or commissions to
any broker, finder or agent with respect to the transactions
contemplated by this Agreement. For the avoidance of doubt the
broker's fees disclosed in the Company's Disclosure Schedule shall
be paid by the Sellers and not by the Company.
25
4.22. Minutes of the Board of Directors and the General Meeting; and Books
& Records.
4.22.1 The Sellers and the Company have heretofore delivered to the
Buyer true and complete copies of the Memorandum of
Association, Articles of Association, Certificate of
Incorporation or such other applicable organizational
documents of the Company and the Retained Subsidiary, as
currently in effect. All true copies of the minutes of the
meetings of the Boards of Directors of the Company and the
Retained Subsidiary, and resolutions of the General Meetings,
since January 1, 1998, have been provided to the Buyer.
4.22.2 The books and accounts to be of the Company and the Retained
Subsidiary are complete and correct, are maintained in
accordance with good business practice and accurately present
and reflect in all material respects all of the transactions
described therein.
4.23. Disclosure. The Sellers and the Company have provided the Buyer with
all the information the Buyer has requested for deciding whether to
purchase the Shares and to make the transactions contemplated in
this Agreement. The statements made herein and in documents and
information provided by the Sellers and the Company to the Buyer, in
connection with the due diligence review conducted by the Buyer, are
true in all material respects and do not omit to state a material
fact necessary to make the statements herein or therein not
misleading.
5. REPRESENTATIONS AND WARRANTIES OF THE BUYER.
The Buyer hereby represents and warrants to the Sellers that the
statements contained in this Section 5 are as of the date hereof and
shall be as of the Closing Date correct, true and not misleading.
5.1. Organization. The Buyer is a public corporation duly organized,
validly existing under the laws of the State of Israel and has full
power and authority to carry on its business as now conducted. No
proceeding or resolution for bankruptcy, dissolution, liquidation,
winding-up, appointment of receiver and/or similar proceeding has
been instituted or taken by the Buyer and to the Buyer's Knowledge,
no such proceeding has been instituted or threatened against the
Buyer.
5.2. Authorization of Transaction. The Buyer has all requisite power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement
and the performance by the Buyer of this Agreement and the
consummation by the Buyer of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate
action on the part of the Buyer. This Agreement has been duly and
validly executed and delivered by the Buyer and, assuming the due
authorization, execution and delivery by the Sellers and the
Company, constitutes a valid and binding obligation of the Buyer
enforceable against the Buyer in accordance with its terms, subject
to (a) laws of general application relating to bankruptcy,
insolvency and the relief of debtors; and (b) rules of law governing
specific performance, injunctive relief and other equitable
remedies.
26
5.3. Non-Contravention. The execution, delivery and performance of this
Agreement and the agreements and instruments contemplated hereby by
the Buyer and the consummation by Buyer of the transactions
contemplated hereby shall not: (a) require the consent, approval or
authorization of any Person or public authority other than the
consent of the Controller; (b) violate any provision of law
applicable to the Buyer; or (c) conflict with, violate or constitute
a breach of or default under any indenture, mortgage, deed of trust
or other agreement, instrument, order, judgment, award, decree,
statute, ordinance, regulation or any other restriction of any kind
or character, to which the Buyer is a party or by which the Buyer or
any of its assets is bound which is reasonably likely to have a
material adverse effect on Buyer.
5.4. Litigation. To the Buyer's Knowledge, there is no material suit or
action (equitable, legal or administrative), arbitration or other
proceeding threatened against Buyer, in each case which questions or
challenges the validity of this Agreement, including claims, suits,
proceedings or investigations: (a) on which the Buyer may be
vicariously liable; (b) which questions the validity of this
Agreement or the right of the Buyer to enter into such agreement, or
to consummate the transactions contemplated hereby; or (c) which
might result in any material adverse effect on Buyer.
5.5. Financial Resources. The Buyer has the financial resources necessary
to fulfill its obligations under this Agreement and the transactions
contemplated hereby and will take all steps necessary to insure it
will remain so, until effecting the Closing.
5.6. Diligence. The Buyer has had the opportunity to ask questions, and
has received answers to all such questions relating to the Company
and the Subsidiaries. Notwithstanding the foregoing, the Buyer has
only relied on the Representations and Warrantees made by the
Company and the Sellers under this Agreement, and the Buyer shall
not be deemed in any way to have known of any inaccuracy or
incorrectness of any representation or warrantee made the Company or
the Sellers hereunder, or to have accepted such inaccuracy or
incorrectness of such representation or warrantee.
6. COVENANTS OF THE PARTIES.
6.1 Best Efforts. Upon the terms and subject to the conditions set forth
in this Agreement, each of the Parties agrees to use its best
efforts to take, or cause to be taken, all actions and to do, or
cause to be done, and to assist and cooperate with the other Parties
in doing, all things necessary, proper or advisable to consummate
and to make effective, this Agreement and the other transactions
contemplated by this Agreement, including without limitation:
6.1.1 the obtaining of all necessary waivers, consents and approvals
from Governmental Entities and the making of all necessary
registrations and filings and the taking of all steps, as may
be necessary, to obtain an approval or waiver from, or to
avoid an action or proceeding by, any Government Entity;
6.1.2 the obtaining of all necessary consents, approvals or waivers
from third parties, including with respect to the performance
of the Restructuring, and the obtaining the consent to the
change in control of the Company and the Subsidiaries from the
Persons listed in Schedule 6.1.2 of the Company's Disclosure
Schedule;
27
6.1.3 the defending of any lawsuits or other legal proceedings,
whether judicial or administrative or otherwise, challenging
this Agreement or the consummation of the transactions
contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other
Governmental Entity vacated or reversed. In this respect, each
Party shall: (i) give the other Party prompt notice of the
commencement of any legal proceeding by or before any
Government Entity with respect to this Agreement; and (ii)
keep the other Party informed as to the status of any such
legal proceeding.
6.1.4 the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and
to fully carry out the purposes of, this Agreement, provided,
however, that none of the Parties shall be required to make
any material monetary expenditure to any third Person; or
Notwithstanding the foregoing or any other provisions contained in
this Agreement to the contrary, none of the Parties shall be under
any obligation of any kind to enter into any negotiations or to
otherwise agree with any Governmental Entity, with respect to the
sale or disposal or holding separately (through the establishment of
a trust or otherwise) of any particular assets or categories of
assets or businesses.
6.2 Transition Period. During the period commencing on the date hereof and
ending on the Closing Date (the "Transition Period"), the Parties
undertake to act and fully comply with the following applicable
provisions, any or all of which may be waived in whole or in part by the
relevant Party being benefited thereby, to the extent permitted by the
Applicable Laws:
6.2.1 Conduct of Business in the Ordinary Course. Except as
expressly contemplated by this Agreement, the Sellers and the
Company covenant and agree that, unless the Buyer shall
otherwise consent in writing, the Retained Business shall be
conducted only in, and the Sellers and the Company shall not
take any action, and cause the Retained Subsidiary not to take
any action, except in the ordinary course of business and in a
manner consistent with past practice. The Sellers and the
Company further covenant that they shall and shall cause the
Subsidiaries to use their respective best efforts to preserve
the current business organization of the Company and the
Retained Subsidiary intact (including all supply, license,
franchise and similar relationships of such business), keep
available the services of the current officers, employees, and
agents of the Company and the Retained Subsidiary, and
maintain the relationships and goodwill with suppliers,
distributors, sales representatives, customers, clients,
landlords, creditors, employees, agents, and others having
business relationships with the Company and the Retained
Subsidiary. Additionally, without limiting the generality of
the foregoing, except as expressly contemplated by this
Agreement (including, for the avoidance of doubt, for the
implementation of the Restructuring), prior to the Closing
Date, the Sellers and the Company, without the prior written
consent of the Buyer (consent not to be unreasonably withheld)
shall not, directly or indirectly: (i) solicit or encourage
any inquiry, discussion or proposal for; (ii) propose to
negotiate with or hold discussions with respect to; (iii)
enter into any agreement or understanding providing for; or
(iv) take any actions or permit the Company or the Retained
Subsidiary to take any actions which may cause or result in:
28
(a) the issuance of any new shares or any security convertible
into or exchangeable into shares or any option, warrant or
other right to acquire shares of the Company or the Retained
Subsidiary;
(b) the entering into any business combination between the Company
or the Retained Subsidiary and any third party, including any
merger, exchange of shares, sale, transfer or other conveyance
of any of the shares of the Company or the Retained Subsidiary
and/or the sale of any of the assets of the Company or the
Retained Subsidiary related to the Retained Business, other
than disposition of assets in the ordinary course of business
consistent with past practice;
(c) the declaration or payment of any distribution of any kind and
nature to the shareholders of the Company, excluding the
payment of any indebtedness to Mr. Yacov Neuwirth or Yacov Noy
Holdings Ltd., provided that such indebtedness is fully
reflected as a liability in the Reviewed Balance Sheet;
(d) the creation of debt securities or the grant of any option in
respect thereof or the agreement to do so;
(e) the adoption of any resolution in the Company's or the
Retained Subsidiaries' general meetings and Board of
Directors;
(f) the entering into a recapitalization or reorganization of the
Company (except as required for the Restructuring) or the
Retained Subsidiary or into a voluntary arrangement between
the Company or the Retained Subsidiary and their respective
creditors;
(g) the entering into any related party transactions or the
payment of any monies or the undertaking to make such payments
to any related party (other than to Mr. Yacov Neuwirth or
Yacov Noy Holdings Ltd. as contemplated under Section 6.2.1(c)
above), including the Sellers, the Excluded Subsidiaries or
any of their affiliates;
(h) the solicitation, negotiation of and/or acceptance of any
financing offers by other Persons or the incurrence,
assumption or guarantee of any debt for borrowed money and/or
the creation, assumption or incurrence of any encumbrances on
any material asset of the Company or the Retained Subsidiary;
(i) (A) the entering into any option, employment, deferred
compensation or other similar agreement (or the entering into
any amendment to any such existing agreement) with any
officer, director of the Company or the Retained Subsidiary or
any Retained Employee; (B) an increase of the salary or
benefits payable to the Retained Employees under any existing
severance or termination pay policies or agreements; (C) the
payment of or the provision for, any increase in compensation,
bonus, or other benefits payable to Retained Employees, all
except as required by the terms of contracts or agreements in
effect on the date hereof;
29
(j) a change of the accounting policies or practices of the
Company or any Subsidiary.
(k) the making of any payments to or incurring any liability
towards or undertaking to make any payment to any third party,
other than (a) incurring liabilities and making payments
directly related to the costs of services provided by the
Retained Business and (b) the settlement of any of the
liabilities fully reflected in the Reviewed Balance Sheet; and
(c) any other payments specifically pre-approved in writing by
the Buyer.
(l) negotiations with any Tax authorities and/or the filing of any
Tax Returns, excluding the negotiations to be conducted by the
Sellers pursuant to Section 6.3.4 and subject to the
restrictions set forth therein.
(m) the occurrence of any of the changes or events listed in
Section 4.12 above.
6.2.2 Obtaining Approvals from Controller. Without derogating from the
generality of Section 6.1.1 above, each Party to this Agreement
shall use its best efforts to deliver and file, as promptly as
practicable after the date hereof, a Notice of Merger with the
Controller. In this respect:
(a) the Parties shall prepare and file, no later than 7 days from
the date hereof, the Notice of Merger required to be filed
pursuant to Israeli Antitrust Law - 1988, in connection with
this Agreement and the Parties shall provide to the Controller
any information reasonably requested by such authority; and
(b) the Parties shall respond as promptly as practicable to any
inquiries or requests received from the Controller for
additional information or documentation.
(c) each Party shall promptly inform the other Party of any
communication to the Controller. The Parties shall consult and
cooperate with one another and shall consider in good faith
the views of one another, in connection with the analysis,
appearance, presentation, memorandum, brief, argument, opinion
or proposal made or submitted in connection with any Israeli
administrative proceeding relating to the transactions
contemplated by this Agreement. In addition, except as may be
prohibited by any Israeli Government Entity or by any Israeli
legal requirement, in connection with any such administrative
proceeding under or relating to the Israeli Antitrust Law -
1988, or any other Israeli antitrust or fair trade law, each
Party shall permit authorized representatives of the other
Party to be present at each meeting or conference relating to
any such administrative proceeding and to have access to and
be consulted in connection with any document, opinion or
proposal made or submitted to any Israeli Governmental Entity
in connection with any such administrative proceeding.
30
6.2.3 Access to Information. Prior to the Closing Date (or the termination
of this Agreement pursuant to Article 8 below), the Buyer shall be
entitled, through its employees and representatives, to make such
investigations and examinations of the Company and the Subsidiaries,
as it may reasonably request. Any such investigations and
examinations shall be conducted at reasonable times and under
reasonable circumstances. In addition, three (3) Business Days prior
to the Closing Date, the Company shall deliver to the Buyer a
detailed copy of the general ledger of the Company and the Retained
Subsidiary, containing journal entries of each of the transactions
and orders of payment recorded therein during the Transition Period,
and all amounts paid to the Company and the Retained Subsidiary
during such term. At the Buyer's request, the Company shall provide
the Buyer with explanation and all of the supporting documents
proving that all expenses so recorded are directly related to the
Retained Business and were incurred in accordance with the terms of
Section 6.2.1 above. Prior to the Closing Date, all information
regarding the Retained Business furnished to or obtained by Buyer
and its representatives pursuant to this Section 6.2.3 shall be
subject to the confidentiality undertaking previously made by Buyer
and shall be held in confidence in accordance therewith.
6.3 The Restructuring. Prior to the Closing Date, the Sellers and the
Company shall make their best effort to cause the Company and the
Subsidiaries to complete a restructuring of the Business commenced
prior to the date hereof, so as to separate the Retained Business
from the Excluded Business by way of assigning, conveying and
transferring (i) the Excluded Business, including all of the
Excluded Contracts, to Endan; and (ii) the Retained Business and the
Contracts to the Company; and (iii) the selling of the Excluded
Subsidiaries to certain of the Sellers, all in a manner that will
leave the Company and the Retained Subsidiary free of any rights and
liabilities relating or connected to, arising under or resulting
from the Excluded Business (the "Restructuring"). Without limiting
the generality of the foregoing sentence, in connection with the
implementation of the Restructuring the Company and the applicable
Subsidiaries (as the case may be) shall, inter alia:
6.3.1 Assign each of the Excluded Contracts listed in Section
6.3.1(a) of the Company's Disclosure Schedule initially
entered into by the Company or the Retained Subsidiary, to
Endan, which shall assume all liabilities for the performance
of such Excluded Contracts (both with respect to the period
preceding the assignment and thereafter) and rights
thereunder, and obtain the written consent of the other
parties to such Excluded Contracts to the said assignment. It
is agreed that each of the other parties to any Excluded
Contract assigned to Endan shall execute and deliver to the
Company, or the Retained Subsidiary, a letter of consent in
the form attached hereto as Annex 5, or any other form agreed
to in writing by the Buyer.
6.3.2 Assign each of the Contracts listed in Section 6.3.2 of the
Company's Disclosure Schedule, initially entered into by one
of the Excluded Subsidiaries, to the Company, which shall
assume all liabilities for the performance of such Contracts
(both with respect to the period preceding the assignment and
thereafter) and rights thereunder, and obtain the written
consent of the other parties to such Contracts to the said
assignment. It is agreed that each of the other parties to any
Contract assigned to the Company shall execute and deliver, a
letter of consent in the form attached hereto as Annex 6, or
any other form agreed to in writing by the Buyer. For the
avoidance of doubt, nothing in this Section 6.3.2 shall
derogate from the Seller's undertaking to indemnify the Buyer
Indemnified Persons for any breach of the said Contracts
occurring prior to the Closing Date, as provided and subject
31
to the limitations set forth in Section 9.2 below.
6.3.3 Obtain the approval of Chief Scientist of the Ministry of
Industry and Trade's Industrial Research and Development
Administration or any other Government Entity to the
Restructuring, to the extent required.
6.3.4 At Sellers' discretion, negotiated a preliminary Tax ruling
with respect to each of the Sellers, in connection with the
transactions contemplated by this Agreement and the
Restructuring (the "Tax Ruling"); provided, however, that (i)
the Sellers, the Company and the Retained Subsidiary shall
refrain from making any representation in the name of the
Company or the Retained Subsidiary in connection with the
obtaining of the Tax Ruling, or taking any other action which
may bind the Company or the Retained Subsidiary in any way
with respect to, or resulting from, the process of or the
obtaining of the Tax Ruling; (ii) prior to the agreeing with
the Tax authorities as to any binding Tax Ruling, the Sellers
shall disclose the terms of any such Tax Ruling to the Buyer.
Should the Buyer believe in good faith, and based on a written
opinion obtained by it from a respectable tax advisor who is
not then engaged by the Buyer or any affiliate thereof (other
than for the purpose of obtaining such opinion), that the Tax
Ruling is likely to have a material adverse effect on the
Company, the Retained Subsidiary and/or the Buyer, then Buyer
shall have the right to terminate the Agreement, in accordance
with Section 8.1.3 below; and (iii) should all of the Closing
Conditions included in Sections 7.1 and 7.3 be satisfied or
waived prior to the date of receipt of the Tax Ruling, the
Buyer shall have the right to Close the transaction without
the Sellers' obtaining the Tax Ruling.
6.3.5 Obtain any remaining consents and waivers from the Retained
Employees and Excluded Employees, as contemplated under
Section 4.17.4 above.
6.3.6 Assign, transfer or convey to Endan and cause Endan to assume
all assets and liabilities associated with the Company's
and/or DSS's leased real-estate.
6.3.7 Assign, transfer or convey to Endan and cause Endan to assume
Mr. Yacov Neuwirth's debt to the Company and any other debt of
any shareholders or any affiliates thereof to the Company or
the Retained Subsidiary;
6.3.8 Assign transfer or convey to Endan and cause Endan to assume
all intangible assets and goodwill associated with the
Excluded Business, as well as all of the other assets and
liabilities of the Company and the Retained Subsidiary
including without limitation the Excluded Contracts, other
than (i) the assets and liabilities directly connected to the
Retained Business, reflected in the Reviewed Balance Sheet;
(ii) other assets and liabilities (including, for the
avoidance of doubt, intangible assets and/or goodwill) which
the Parties shall have agreed not to assign to the Excluded
Subsidiaries and which shall also be reflected on the Reviewed
Balance Sheet; (iii) advance payments to the tax authorities
on account of non-deductible expenses ("Odfot") in respect of
the Company and the Retained Subsidiary, (iv) deferred Taxes
of the Company and the Retained Subsidiary, (v) the fixed
assets listed in Section 4.6 of the Company's Disclosure
Schedule; and (vi) any other assets of the Company and the
Subsidiaries that cannot be assigned to the Excluded
Subsidiaries under the Applicable Laws. Assets of the Company
and the Subsidiaries that were not included in the Reviewed
Balance Sheet or fall within the criteria set forth in
paragraphs (i) through (vi) above, shall be deemed transferred
to the Excluded Subsidiaries under the Restructuring, and the
Buyer shall sign all of the required documents to transfer
them and the benefits resulting therefrom, to the Excluded
Subsidiaries, if not transferred to the Excluded Subsidiaries
prior to the Closing.
32
6.3.9 To the extent that (i) any Excluded Contract entered into by
the Company or the Retrained Subsidiary or (ii) any Contract
entered into by an Excluded Subsidiary, which should have been
assigned, conveyed or transferred to or from the Company under
this Section 6.3, as the case maybe, or any claim, right or
benefit arising thereunder or resulting therefrom
("Un-assignable Contract"), is not capable of being conveyed,
assigned or transferred without the approval, consent or
waiver of the other party thereto, then except as expressly
provided herein (and without derogating from the provisions of
Section 6.1.2 above and Section 7.3.5 below (i.e., the Closing
Condition regarding completion of the Restructuring), this
Agreement shall not constitute a conveyance, assignment or
transfer thereof, or an attempted sale, conveyance, assignment
or transfer thereof absent such approvals, consents or
waivers. From and after the Closing, (A) the Excluded
Subsidiaries shall promptly and with reasonable degree of care
pay to the Company when received all monies received by any of
the Excluded Subsidiaries which are connected to or arising
from the Retained Business (against the issuance of a valid
tax receipt) and (B) the Company and/or the Retained
Subsidiary shall promptly and with reasonable degree of care
pay to the applicable Excluded Subsidiaries when received all
monies received by them, which are connected to or arising
from the Excluded Business (against the issuance of a valid
tax receipt). During the first six-month period commencing on
the Closing Date, each of the Company and the Subsidiaries
shall fulfill its obligations under this Section 6.3.9 free of
charge. Upon the expiration of such six-month period, the
Company shall have the right to charge the Excluded
Subsidiaries, a fee in an amount of 1% (one percent) of any
amounts collected and paid by it pursuant to the provisions of
this Section 6.3.9, and upon the expiration of a period of 12
months from the Closing Date, the said fee shall be increased
to 2% (two percent) of any amounts collected and paid by the
Company pursuant to the provisions of this Section 6.3.9.
Furthermore, the Company's obligation to collect and remit
payments to the Excluded Subsidiaries under this Section 6.3.9
shall expire on the second anniversary of the Closing Date.
For the avoidance of doubt, the Excluded Subsidiaries shall
not be entitled to collect any fees whatsoever in connection
with the provision of the said service to the Company nor
shall their obligation to do so expire at any time prior to
the completion of the assignment of each of the Contracts to
the Company or the expiration of their term in accordance with
the provisions thereof.
Furthermore, for the avoidance of doubt, and not withstanding any of
the limitations set forth in Article 9, it is agreed that the Person
for the benefit of whom the collecting and paying services are
performed pursuant to this Section 6.3.9 (the "Beneficiary of the
Service"), shall indemnify and hold harmless the Person providing
such collecting and remittance services (the "Provider of
Services"), from and against (x) any liability arising from or
connected to the provision of such services and (y) any other
liability resulting from the fact that the Provider of Services has
remained the "front" vis-a-vis the legal relationship with the other
party to the applicable Contract or Excluded Contract, as the case
may be (including any liability resulting from the breach of such
contract by the Beneficiary of the Service); provided however that
nothing in this paragraph shall be construed to release the Provider
of Services from its obligation to transfer to the Beneficiary of
the Service, any funds received by it belonging to the Beneficiary
of the Service, as provided in the previous paragraph.
33
6.4 Removal of Liens. No later than 15 days from the date hereof, the
Sellers and the Company shall obtain the consent of all third
parties who have Liens on any assets of the Company or the Retained
Subsidiary, whether or not registered with the Registrar of
Companies to the removal of such Lien, except to the extent that
such Lien is imposed on an asset connected to the Excluded Business,
in which case the Lien, together with the relevant asset, shall be
transferred to the Excluded Subsidiaries, after the receipt of
consent from the applicable creditor, in accordance with the terms
of Section 6.3 above, unless otherwise agreed to in writing by the
Buyer.
6.5 Cancellation of Guarantees for the Benefit of Sellers. Prior to the
Closing Date, Sellers shall cause the cancellation of any and all
guaranties given by the Company or the Retained Subsidiary for the
benefit of Sellers, any of Sellers' affiliates or the Excluded
Business (other than the Company).
6.6 Insurance.
6.6.1 Without derogating from the Sellers' liability pursuant to
this Agreement or any of their liability under the Applicable
Law, the Sellers undertake to purchase, maintain and renew, at
their expense or the expense of Endan, insurance policies in
connection with the Excluded Business (the "Insurance
Policies"), having the terms specified in the Certificate of
Insurance attached hereto as Annex 10 (the "Certificate of
Insurance"). The Insurance Policies shall cover any event
occurring after the Closing Date, and the Company and the
Retained Subsidiary shall be named as an additional insured
under the Insurance Policies. The Insurance Policies shall
remain in full force and effect for a term following the
Closing Date in which the Excluded Subsidiaries conduct the
Excluded Business or any part thereof under the name or in
conjunction with the Company or the Retained Subsidiary, and
for an additional term of three (3) years following the
completion of the valid assignment of each of the Excluded
Contracts to Endan. Either the Sellers or Endan shall furnish
the Buyer, the Certificate of Insurance duly executed by an
Israeli insurance company, no later than 3 Business Days prior
to the Closing Date and a Certificate of Insurance covering
any renewal of the initial Insurance Policy, no later than 14
Business Days Prior to the expiration of the term thereof.
6.6.2 Without derogating from any of the Sellers' liability pursuant
to this Agreement, the Buyer (or after the Closing - the
Company) shall have the right to purchase, maintain and renew,
for a period of 7 years following the Closing Date, at the
expense of the Sellers or Endan (not to exceed US$33,000 in
the aggregate), a run-off Professional Indemnity Insurance,
having a limit of US$1,000,000 per any one claim and in the
aggregate for the term of insurance, and covering the
liability of the Company and/or the Retained Subsidiary and/or
the Excluded Subsidiaries concerning activity performed prior
to the Closing Date (including such liability arising from
dishonesty of employees). Upon the purchasing or renewal of
such policy, the Sellers shall cause Endan to reimburse the
Buyer or the Company, as the case may be, the cost associated
with such insurance policy.
34
6.7 Nondisclosure. None of the Parties shall issue any press release or
make any other public disclosure (including disclosure to public
officials) with respect to this Agreement or the transactions
contemplated by this Agreement, except as required by law, without
the prior approval of the other Parties, which approval shall not be
unreasonably withheld; provided, that either Party may, if
considered necessary by its counsel to fulfill its obligations as a
publicly traded corporation, respond to inquiries and issue such
releases as it considers necessary and appropriate, if it notifies
the other Party in advance of the substance of such proposed
response or proposed release and gives such Party reasonable
opportunity for comment prior to such response or release.
6.8 Warrant to Acquire an equity interest in the Excluded Subsidiaries.
The Sellers shall cause the Excluded Subsidiaries to grant the
Company, a warrant in the form attached hereto as Annex 4.
6.9 Conduct of the Retrained Business. For as long as the Warrant
contemplated under Section 6.8 above shall be outstanding, those
Sellers who are the shareholders of Endan shall cause (i) all of the
Excluded Business in Israel (ii) any business similar in nature in
Israel, and (iii) any business in which Mr. Yacov Neuwirth and/or
Givon are directly or indirectly involved (including as direct or
indirect shareholders, or otherwise), to be owned only through Endan
or any subsidiary thereof or any joint venture with a third party
that is not an affiliate of the shareholders of Endan. For the
avoidance of doubt, the restrictions contained in this Section 6.9
shall not limit Endan from entering into joint ventures with
unrelated third parties, provided the intention behind such business
relations or its anticipated outcome is not to adversely affect the
value of the Warrant. In addition, for the avoidance of doubt, it is
clarified that any business connected to the supply of sonar-related
products or to IT systems that are used by Oncology Departments and
any derivatives thereof, whether in Israel or anywhere else in the
world, shall be owned only through Endan or any subsidiary thereof
or any joint venture with a third party that is not an affiliate of
the shareholders of Endan.
6.10 Non-Competition.
6.10.1 DSSI and Neuwirth hereby undertake, and the Sellers shall
cause the Excluded Subsidiaries to undertake, for a period of
30 months from the Closing Date, not to compete, directly or
indirectly (including as sub contractors of any third party),
with the Company or the Retained Subsidiary in providing the
type of services provided by the Retained Business as of the
Closing Date (i.e., the provision of time and time and
material services with no project responsibility (known in the
industry as "Gulgalot")), other than in connection with the
provision of any goods or services to RAFAEL Armament
Development Authority Ltd., and shall cause their affiliates
to refrain from so competing in Israel with the Company, and
shall not employ or offer employment to or otherwise solicit
the employment of any of the Retained Employees. For the
avoidance of doubt, the Excluded Subsidiaries may continue to
engage in the Excluded Business, i.e., the provision of
project development services (whether on a time and material
or on a fixed price basis) to any third party.
35
6.10.2 Givon hereby undertakes that, for a period of 30 months
following the Closing Date it and any affiliates thereof shall
not, directly or indirectly, employ or offer employment or
otherwise solicit the employment of any of the Retained
Employees, and Kardan hereby undertakes that, for a period of
30 months following the Closing Date it and any affiliates
thereof shall not, directly or indirectly, solicit the
employment of any of the Retained Employees.
6.10.3 The Parties agree that the duration and geographic scope of
the non-competition provision set forth in this Section 6.10
are reasonable. In the event that any court of competent
jurisdiction shall determine that the duration or the
geographic scope, or both, are unreasonable and that such
provision is to that extent unenforceable, the Parties agree
that the non-competition provision shall remain in full force
and effect for the greatest time period and in the greatest
area that would not render it unenforceable, and in that event
that the Sellers hereby consent that such provision may be
judicially modified accordingly in any proceeding brought to
enforce the provisions of this Section 6.10. -------------
Sellers hereby agree that a breach of their obligations under
this Section may cause the Buyer irreparable damage and
therefore agree in advance that the Buyer should be entitled
and deserves to obtain an injunction order in order to keep
and reserve its rights.
6.11 Confidentiality.
6.11.1 The Sellers and the Buyer hereby agree and confirm that until
the Closing they shall continue to abide by that certain
Non-Disclosure undertaking included in the Term Sheet dated
June 1, 2005, by and between the Sellers and Buyer.
6.11.2 In addition, the Sellers hereby undertake that following the
Closing they shall keep in strict confidence any and all
information relating to the Retained Business, and not
disclose such information to any third party without the prior
written approval of the Buyer. For the avoidance of doubt,
following the Closing, the Buyer shall not be bound by any
confidentiality restrictions regarding the Company, its
Subsidiaries or the business thereof.
6.12 Acknowledgement and Guaranty.
6.12.1 At or prior to the Closing, the Sellers shall cause Endan to
execute and deliver to the Buyer an undertaking, in the form
attached hereto as Annex 7, pursuant to which (i) Endan
acknowledges that it is aware of each of the obligations
imposed on it under this Agreement and agrees to assume such
obligation and perform them as if it was a direct party to the
Agreement; and (ii) it undertakes to guaranty the performance
of each of the Sellers' obligations and liabilities hereunder
(including, for the avoidance of doubt, the Sellers'
indemnification undertakings under Article 9 hereof).
6.12.2 At or prior to the Closing, Neuwirth shall cause Mr. Yacov
Neuwirth, the sole shareholder of Neuwirth, to execute and
deliver to the Buyer the Guaranty in the form attached hereto
as Annex 8, securing the performance of Neuwirth's
indemnification obligations set forth in Section 9.2 below
6.13 Letters Executed by the Retained Employees. Unless waived by the
Buyer, the Sellers shall cause each of the Retained Employees (other
than such Retained Employees who were employed by the Excluded
Subsidiary prior to the Restructuring), to execute a letter in the
form attached hereto as Annex 9.
36
6.14 Filing of a Tax Return for the Year 2004. Sellers shall cause the
Company to file the Tax Return for the Company and the Retained
Subsidiary for the year 2004, with the applicable tax authorities,
no later than August 20, 2005. To the extent the Closing shall occur
prior to August 20, 2005, then Endan's CFO shall be responsible for
the completion of the draft Tax Return, and shall cooperate with the
Buyer and assists it vis-a-vis the finalizing and filing of the Tax
Return for the year 2004.
6.15 Liability with respect to the Retained Employees. Without derogating
from the indemnification obligations set forth in Article 9 below,
from and after the Closing, the Company shall continue to be liable
and responsible for all employee-employer obligations toward the
Retained Employees, including obligations which may have been
incurred from the date of the commencement of the employment of each
Retained Employee.
7. CONDITIONS PRECEDENT TO BOTH PARTIES OBLIGATIONS.
7.1. Conditions to obligations of Buyer and Sellers. The obligations of
each Party to consummate and effect the transactions contemplated
hereby are subject to obtaining the consent of the Controller and
all other approvals, waivers and consents from any other Government
Entity, if any, necessary for consummation of, or in connection
with, the transactions contemplated hereby.
7.2. Conditions to the Obligations of the Sellers. The obligations of the
Sellers to consummate and effect the transactions contemplated
hereby are subject to the fulfillment at or prior to the Closing of
each of the following additional conditions, any or all of which may
be waived in whole or part by the Sellers to the extent permitted by
Applicable Laws, provided, however, that only a waiver by all of the
Sellers shall be deemed, for the purpose of this Section 7.2 as a
valid waiver by the Sellers:
7.2.1. Representations and Warranties. The representations and
warranties of the Buyer contained in Article 5 above shall be
correct, true and not misleading in any material respect as of
the date hereof and as of the Closing Date, as if given on and
as of the Closing Date except as to matters specifically
contemplated by this Agreement.
7.2.2. Performance of Obligations. The Buyer shall have performed or
complied in all material respects with all agreements and
conditions contained herein required to be performed or
complied with by the Buyer prior to or at the Closing Date,
including the execution and delivery of each of the documents
listed in Section 3.2.1 above, which are to be delivered at
the Closing by the Buyer.
7.2.3. Litigation. On the Closing Date, there shall be no litigation
pending or threatened in writing in which any injunction is or
may be sought to prevent the transactions contemplated hereby,
or in which any relief is or may be sought against the Sellers
as a result of this Agreement.
7.2.4. Buyer's Officer Certificate. The Buyer shall have delivered
an officer's certificate confirming the matters set forth in
this Section 7.2, in the form attached hereto as Annex 2.
7.2.5. Payment of the Purchase Price. The Buyer shall have paid the
Sellers the full and entire Purchase Price, as adjusted by the
Cash Adjustment in accordance with Section 2.3 above.
7.3. Conditions to the Obligations of the Buyer. The obligations of the
Buyer to consummate and effect the transactions contemplated hereby
are subject to the fulfillment at or prior to the Closing of each of
the following conditions, any or all of which may be waived in whole
or in part by the Buyer to the extent permitted by Applicable Laws:
37
7.3.1. Representations and Warranties. The representations and
warranties of the Sellers and the Company contained in Article
5 shall be correct, true and not misleading in any material
respect as of the date hereof and as of the Closing Date, as
if given on and as of the Closing Date, except as to matters
specifically contemplated by this Agreement.
7.3.2. Performance of Obligations. The Company and each of the
Sellers shall have performed or complied in all material
respects with all agreements and conditions contained herein
required to be performed or complied with by them prior to or
at the time of the Closing, including the execution and
delivery of each of the documents listed in Section 3.2.2
above, which are to be delivered at the Closing by each of the
Sellers.
7.3.3. Litigation. On the Closing Date, there shall be no litigation
pending or threatened in writing in which any injunction is or
may be sought to prevent the transactions contemplated hereby,
or in which any relief is or may be sought against the Buyer
as a result of this Agreement.
7.3.4. Material Adverse Effect. Since the date hereof and through
the Closing no Material Adverse Effect or Material Adverse
Change has occurred.
7.3.5. Completion of the Restructuring. The Restructuring shall have
been completed prior to the Closing Date.
7.3.6. Retention of Retained Employees. As of the Closing Date, at
least 100 Profitable Retained Employees shall be employed by
the Company and have executed the letter in the form attached
hereto as Annex 8, or the letter in the form included in
Section 4.17.4(B) of the Company's Disclosure Schedule, as the
case may be.
7.3.7. Sellers' Officer Certificates. Each of the Sellers and the
Company shall have delivered an officer's certificate,
confirming the matters set forth in Section 7.3 above, in the
form attached hereto as Annex 3.
7.4. Conditions to the Obligations of Kardan. In addition to the conditions set
forth in Section 7.2, the obligations of Kardan to consummate and effect
the transactions contemplated hereby are subject to the releasing of
Kardan from any and all guarantees provided by it or its affiliates for
the benefit of Endan or the Company (and in particular the guarantees
provided by it to Ha'poalim Bank Ltd. and Mizrachi Bank Ltd.).
7.5. Frustration of Closing Conditions. None of the Parties may rely on the
failure of any condition set forth in Sections 7.1, 7.2 , 7.3 and 7.4
above to be satisfied, if such failure was caused by such Party's failure
to act in good faith or to use its best efforts to cause the condition to
be fulfilled and the Closing to occur, as required by this Article 7.
8. TERMINATION OF AGREEMENT.
8.1. Termination or Abandonment. Notwithstanding anything contained in
this Agreement to the contrary, this Agreement shall be terminated
and abandoned upon the occurrence of any of the following:
38
8.1.1. by the mutual written consent of the Sellers and the Buyer;
8.1.2. by the Sellers (acting together) or the Buyer if any court of
competent jurisdiction or Government Entity having
jurisdiction shall have issued an order, decree, ruling or
taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement
and such order, decree, ruling or other action shall have
become final and non- appealable;
8.1.3. by the Buyer, at its sole discretion and without incurring
any liability as a result of such termination, (i) in the
event that after due review by the Buyer, the Interim
Financial Statements or the Semi-Annual Consolidated Financial
Statements delivered to the Buyer shortly prior to the date
hereof, are unacceptable to the Buyer; (ii) if the Reviewed
Interim Financial Statements (or the revised statement of
income of the Company and the Retained Subsidiary referenced
in Section 4.11.6 above) shall be unacceptable to it due to
any material deviation from the Interim Financial Statement or
(iii) in the event, and subject to the restrictions, set forth
in Section 6.3.4 above;
8.1.4. by the Buyer, if one or more of the conditions set froth in
Section 7.3 above shall not be fully satisfied by September
30, 2005; or
8.1.5. by the Sellers (acting together), if one or more of the
conditions set forth in Section 7.2 above shall not be fully
satisfied by September 30, 2005.
8.2. Effect of Termination. If any of the Buyer or the Sellers
terminates this Agreement pursuant to Section 8.1 above, all
obligations of the Parties shall terminate without any
liability of any Party to any other Party as a result of the
termination; provided, however, that (a) the provisions of
Section 6.7 (Nondisclosure) above, and Article 10
(Miscellaneous) below shall survive the termination of this
Agreement; and (b) that nothing in this Section 8.2 shall
relieve any Party from liability for any breach of this
Agreement prior to the termination thereof.
9. SURVIVAL OF REPRESENTATIONS AND INDEMNIFICATION.
9.1. Survival. All representations and warranties contained in this
Agreement shall survive the Closing for a period of eighteen (18)
months from the Closing Date, other than the representations and
warranties contained in Sections 4.1 (Organization), 4.4
(Capitalization), and 4.14 (Tax Maters) which shall survive for
seven (7) years from the Closing Date, and Section 4.4.3 (Ownership
of Shares) which shall survive indefinitely (the "Survival Period).
9.2. Indemnification
9.2.1. Subject to the limitations set forth in this Section 9.2.1
below, Sellers and Endan shall indemnify, defend and hold
harmless the Buyer and its directors, officers, agents and
representatives, and from after the Closing - the Company and
the Retained Subsidiary (the "Buyer Indemnified Persons") from
and against any and all Losses which may be incurred or
suffered by any Buyer Indemnified Person and which may arise
out of or result from the following:
39
(a) any breach or inaccuracy of any representation or warranty of
the Sellers contained in this Agreement, provided that Buyer's
written notice with respect to any claim is delivered to the
Sellers or Endan within the time period specified in Section
9.1; and further provided that the aggregate amount of such
Losses for all claims for which indemnification is sought
exceeds ninety thousand US dollars (US$ 90,000) (the
"Threshold"), however, (i) if and when the aggregate Losses so
exceed the Threshold or (ii) the breach of the representations
and warranties was intentional, then all of the Losses (from
the first US$1) shall be subject to indemnification;
(b) any breach of the covenants or agreements of the Sellers (and
until the Closing - of the Company) contained in this
Agreement;
(c) any claim, suit or proceeding filed by any of the Retained
Employees, relating to or arising out of the employment of
such employees by the Company or any Subsidiary prior to the
Closing Date or the termination thereof prior to the Closing
Date, and/or any funds payable to any such employees in
connection with such employment prior to the Closing Date or
such termination, all other than to the extent that the said
liability toward such Retained Employees is fully reflected in
the Reviewed Balance Sheet;
(d) any obligations or liabilities of the Company or the Retained
Subsidiary with respect to, arising from or in connection
with, or resulting from any event or from the taking of any
action or the refraining from taking such action, with respect
to the operation of the Retained Business prior to the Closing
Date, except to the extent that such liability was fully
reflected in the Reviewed Balance Sheet;
(e) all Tax Liabilities imposed on the Company or the Retained
Subsidiary arising in respect of, or in connection with, or in
consequence of, any income, profit or gain, actual or deemed
treated as having been earned, accrued or received and/or any
event occurring or deemed to have accrued, during the period
prior to the Closing; provided that any claim or demand for
indemnification under this Section 9.2.1(e) shall be delivered
to the Sellers or Endan no later than 7 years following the
Closing Date;
(f) any claim, suit or proceeding filed by any current or former
employee of the Company or any Subsidiary other than the
Retained Employees, relating to or arising out of the
employment of such employee by the Company or any Subsidiary,
the termination thereof, and any funds payable to any such
employee in connection with such employment or such
termination; and
(g) any obligations or liabilities of the Company or any
Subsidiary with respect to, arising from or in connection with
the Excluded Business;
The Sellers and Endan's indemnification obligations pursuant to this
Section 9.2.1 shall be limited, as provided below:
40
(A) each of Kardan's and Neuwirth's indemnification obligations
under Section 9.2.1 above shall be (i) several and not joint;
(ii) allocated pro-rata among them in accordance with the
Determining Percentage; and (iii) limited to the portion of
the Purchase Price payable to such Seller after giving effect
to the adjustment set forth in Section 2.4 above but not to
any other adjustment provided in Article 2 (i.e., the pro-rata
portion of the six million dollars (US$6,000,000) minus the
pro-rata portion of the Escrow Amount actually returned to the
Buyer).
(B) each of DSSI's and the Endan's indemnification obligations
under Section 9.2.1 above shall be joint and several with
respect to each other and with respect to that of the other
Sellers (i.e., subject to the other limitations set forth in
this Section 9.2.1, the Buyer Indemnified Persons shall have
the right to claim indemnification from either DSSI or Endan
(or both) with respect to 100% of any Losses claimed by them;
provided that, DSSI's indemnification obligations hereunder
shall be limited to the aggregate Purchase Price payable to
all of the Sellers (i.e., six million dollars (US$6,000,000)
less the portion of the Escrow Amount actually returned to the
Buyer). For the avoidance of doubt, there shall be no
limitation as to Endan's indemnification obligations under
this Section 9.2.1.
(C) No claim or demand for indemnification under Sections 9.2.1(c)
and 9.2.1 (d) may be delivered to or made upon the Sellers at
any time after 18 months from the Closing Date, and Sellers'
indemnification obligations under Sections 9.2.1(c) and
9.2.1(d) shall expire 18 months after the Closing Date. For
the avoidance of doubt, there shall be no limitation as to
Endan's indemnification obligations under Sections 9.2.1(c)
and 9.2.1(d).
(D) No claim or demand for indemnification under Sections 9.2.1(f)
and (g) may be delivered or made upon each of the Sellers at
any time after four (4) years from the Closing Date, and the
Sellers' indemnification obligations under Sections 9.2.1(f)
and 9.2.1(g), shall expire four (4) years after the Closing
Date; provided, however, that to the extent that any Excluded
Contract is not assigned to Endan (after receipt of the
consent of the other party to such Excluded Contract, as
contemplated under Section 6.3.1 above) prior to the Closing
Date, then the four (4) years' expiration period with respect
to any liability arising from, under or in connection with
such Excluded Contract shall commence on the date of the
assignment of such Excluded Contract to Endan rather than on
the Closing Date. For the avoidance of doubt, there shall be
no limitation as to Endan's indemnification obligations under
Sections 9.2.1(f) and 9.2.1 (g) above.
(E) Givon shall only be liable for the breech of his obligations
pursuant to Sections 4.4.3 (ownership of Shares), 6.10
(non-compete), 6.11 (confidentiality), and Section 2.5 (post
closing adjustment).
41
Should any claim or demand be delivered to the Sellers or Endan
prior to the expiration of any term set forth in Section 9.2.1
above, then such indemnification obligation shall remain in full
force and effect with respect to such claim or demand until its
resolution either by a judgment of court of competent jurisdiction
or by the settlement of the dispute by the mutual agreement of the
Sellers and the Buyer.
9.2.2. Buyer shall indemnify, defend and hold harmless the Sellers
and their directors, officers, agents and representatives, and
until the Closing - the Company and the Subsidiaries (the
"Seller Indemnified Persons") from and against any and all
Losses which may be incurred or suffered by any Seller
Indemnified Person and which may arise out of or result from
the following:
(a) any breach or inaccuracy of any representation or warranty of
Buyer contained in this Agreement, provided that Sellers'
written notice with respect to any claim is delivered to Buyer
within the time period specified in Section 9.1 and subject to
the provisions of this Article 9;
(b) any breach of the covenants or agreements of Buyer contained
in this Agreement; and
(c) any claim, suit or proceeding filed after the Closing Date by
any Retained Employee, relating to or arising out of the
employment of such employee by the Company or any Subsidiary,
the termination thereof, and any funds payable to any such
employee in connection with such employment or such
termination, provided that the liability toward such Retained
Employee, with respect to the period preceding the Closing,
was fully reflected in the Reviewed Balance Sheet.
Notwithstanding the foregoing, Buyer shall be required to indemnify
the Seller Indemnified Persons for Losses covered by Section
9.2.2(a) above, if the aggregate amount of such Losses for all
claims for which indemnification is sought exceeds ninety thousand
US dollars (US$ 90,000), but if and when the aggregate Losses so
exceed ninety US dollars (US$ 90,000), all of the Losses shall be
subject to indemnification; provided, however, that there shall be
no limitation on Buyer's liability for (i) any intentional breach of
the representations contained in Article 5 of this Agreement, and
(ii) any indemnification under Sections 9.2.2 (b) - (c) above.
Indemnification to the Sellers shall be made pro rata among them in
accordance with the Determining Percentage.
9.3. General Provisions Relating to Indemnification.
9.3.1. The Party seeking indemnification shall give written notice
to the indemnifying party of the facts and circumstances
giving rise to any claim for indemnification as soon as
reasonably possible but in any event within thirty (30)
Business Days after it obtains knowledge of the basis for a
claim for indemnification hereunder. The Party entitled to
indemnification shall take all reasonable steps to mitigate
all indemnifiable liabilities and damages upon and after
becoming aware of any event which could reasonably be expected
to give rise to any liabilities and damages that are
indemnifiable hereunder.
9.3.2. With respect to each claim by a third party which could give
rise to an indemnification obligation under this Article 9 (a
"Third Party Claim"), the party seeking indemnification (the
"Indemnified Party") must give prompt notice to the
indemnifying party (the "Indemnifying Party") of the Third
Party Claim (i) no later then fourteen (14) Business Days
prior to the last date for the filing of an answer or pleading
on behalf of the defendant or (ii) in the event such term is
not applicable, immediately upon the receipt, by the
Indemnified Party, of notice of the Third Party Claim
provided, however, that the failure of the Indemnified Party
to give such prompt notice of the Third Party Claim shall not
affect the indemnification obligations of the Indemnifying
Party, except and to the extent the Indemnifying Party is
actually prejudiced thereby.
42
Should the Indemnifying Party or the Indemnified Party, as the case
may be, consist of more than one of the Sellers and/or Endan (the
"Sellers' Group"), then all of the members of the Sellers' Group
shall be deemed to have appointed DSSI as their single
representative (the "Representative"). The Representative shall be
authorized to act on behalf of all of the members of the Sellers'
Group, vis-a-vis the Buyer and any action taken by it shall be
deemed as an action taken and approved by all of the members of the
Sellers' Group.
The Indemnifying Party or the Representative, as the case may be,
shall notify the Indemnified Party in writing, no later than thirty
(30) days after receipt of notice of a Third Party Claim (the
"Recognition Period"), whether it assumes its indemnification
obligation in accordance with this Article 9 (i.e., agrees to
indemnify the Indemnified Party for such Third Party Claim), in
which case, the Indemnifying Party may, at its sole cost and
expense, assume the defense of the Third Party Claim, with counsel
of its choice.
9.3.3. The Indemnifying Party shall not consent to a settlement of,
or the entry of any judgment arising from, any Third Party
Claim, unless (a) the settlement or judgment is solely for
money damages, or (b) the Indemnified Party consents thereto,
which consent shall not be unreasonably withheld. The
Indemnifying Party shall provide the Indemnified Party with
fifteen (15) days prior notice before it consents to a
settlement of, or the entry of a judgment arising from, any
Third Party Claim.
9.3.4. Should the Indemnifying Party assume the defense against the
Third Party Claim, then the Indemnified Party shall be
entitled to participate in the defense of (but not control)
any Third Party Claim, the defense of which is assumed by the
Indemnifying Party, with its own counsel and at its own
expense; provided, however, that if the Indemnified Party, in
its sole discretion, determines that there exists a conflict
of interests between the Indemnifying Party and the
Indemnified Party, then the Indemnified Party shall have the
right to engage separate counsel, the reasonable costs and
expenses of which shall be paid by the Indemnifying Party, but
in no event shall the Indemnifying Party be liable to pay for
the costs and expenses of more than one such separate counsel.
9.3.5. The Parties shall cooperate in the defense of any Third Party
Claim and the relevant records of each party shall be made
available on a timely basis.
9.3.6. Prior to the expiration of the Recognition Period, the
Indemnified Party shall defend against such claim or
proceeding in a reasonable manner. Should the Indemnifying
Party refrain from (i) notifying the Indemnified Party that it
had assumed its indemnification obligation as contemplated
under Section 9.3.2 above, or (ii) assume the defense of the
Third Party Claim, all within the Recognition Period, then the
Indemnified Party may defend against such claim or
proceedings, as determined by it, at its sole discretion,
including settling such claim or proceeding on such terms as
the Indemnified Party may deem appropriate, and the
Indemnifying Party shall assert no claim in respect thereof.
43
9.3.7. To the extent that the Indemnifying Party discharges any
claim for indemnification hereunder, the Indemnified Party
shall be subrogated to all rights of Indemnified Party against
third parties.
9.4. Attorney's Fees. In addition to any amount payable to the Buyer
Indemnified Persons or the Seller Indemnified Persons (in this
Section 9.4 the "Plaintiff") under Section 9.2 above, should any
amount of indemnification or compensation be awarded to the
Plaintiff by a court judgment (or by an arbitration judgment -
should the parties agree on arbitration proceedings) with respect to
a claim brought by the Plaintiff pursuant to this Agreement, then in
addition to such award, the Plaintiff shall be entitled to collect
from the indemnifying parties (the "Defendants") (i) reasonable
attorney's fees actually incurred by it in connection with the
obtaining of such judgment, less (ii) any amount of legal fees
awarded thereto by the court. However, if the applicable court or
the arbitrator shall dismiss the claim, then the Defendants shall be
entitled to receive from the Plaintiff, (A) the reasonable
attorney's fees actually incurred by them in defense of the said
claim, less (B) any amount of legal fees awarded there to by the
court.
10. MISCELLANEOUS.
10.1. Entire Agreement; Amendment. This Agreement, together with all
exhibits and schedules hereto, and other documents contemplated
hereby to be delivered by the Parties, covers the entire
understanding of the parties hereto, superseding all prior
agreements or understandings relating to any of the subject matters
hereof, and no modification or amendment of the terms and conditions
shall be effective unless made in writing and signed by the Parties
or their respective duly authorized agents.
10.2. No Waiver. Any failure or delay on the part of either Party in the
exercise of any right or privilege hereunder shall not operate as a
waiver thereof, nor shall any single or partial exercise of any such
right or privilege preclude other or further exercise thereof or any
other right or privilege.
10.3. Delays or Omissions. No failure or delay by a Party in exercising
any claim, remedy, right, power or privilege under this Agreement
shall operate as a waiver nor shall any single or partial exercise
of any claim, remedy, right, power or privilege preclude any further
exercise thereof or exercise of any other claim, right, power or
privilege, nor shall it be construed to be a waiver of any such
breach or default therein or in any similar breach or default
thereafter occurring.
10.4. Successors and Assigns. Neither Party may assign its rights,
privileges or obligations under this Agreement without the express
written consent of the other Party.
44
10.5. No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies on any person other than the Parties.
10.6. Counterparts. This Agreement may be executed in one or more
counterparts, all of which together shall be deemed to constitute
one and the same instrument.
10.7. Severability. If any provision of this Agreement shall be found by
any court or administrative body of competent jurisdiction to be
invalid or unenforceable the invalidity or unenforceability of such
provision shall not affect the other provisions of this Agreement
and all provisions not affected by such invalidity or
unenforceability shall remain in full force and effect. The Parties
hereby agree to substitute for any invalid or unenforceable
provision a valid or enforceable provision which achieves to the
greatest extent possible the economic legal and commercial objects
of the invalid or unenforceable provision.
10.8. Expenses. All of the expenses incurred by the Sellers and the
Company in connection with the preparation, execution and
consummation of this Agreement and the transactions contemplated
herein shall be paid by the Sellers and all of the Buyer's expenses
in such connection shall be paid by the Buyer.
10.9. Notices All notices, requests, demands and other communications
hereunder shall be made in writing, and shall be deemed to have been
duly given if delivered by overnight courier, sent by mail to the
respective parties or personally delivered addressed as follows:
If to the Sellers: ata Systems & Software Inc.
-----------------
200 Route 17
Mahwah NJ, 07430
USA
Attention: George Morgenstern
Facsimile No.: 001-201-5293163
e-mail: george@dssiinc.com
with Copies to: Kardan Communication Ltd.
154 Menachem Begin Rd.
Tel - Aviv 64921
Israel
Fax No.: 972-3-6913457
Att. Kurzweil Avi
Mr. Meir Givon. 13 Admonit
St. Zoran 42823 Israel Fax
No.: 09-8949442 Att. Meir
Givon Email:
meir@giv-solutions.com
45
Neuwirth Investments Ltd.
250 Ben Gurion Avenue,
Givatim 53326
Attention: Mr. Yacov Neuwirth
Facsimile No.: 03-5730935
e-mail: noy@dsit.co.il
Ehrenreich & Krause,
11 East 44th St.
New York, NY 10017
Attention: Sheldon Krause
Facsimile No.: 001-212-9862399
e-mail: sk@ezlaw.com
If to the Company: dsIT Technologies Ltd.
-----------------
Ben Gurion Street 11
Givat Shmuel 54017
Attention: Jacob Neuwirth
Facsimile No.: (03) 531-3322
e-mail: noy@dsit.co.il
with a copy to: Pearl, Cohen-Zedek & Latzer
Attention: Jody Stein
Facsimile No.: (09) 972-8001
-------------
e-mail: joels@pczlaw.com
If to the Buyer: Taldor Computers Systems (1986) Ltd.
---------------
13 Hayetzira Street
Petach - Tiqva, Israel 49002
Attention: Asher Baharav, CEO
Facsimile No.: 03-9298236
e-mail: asher@taldor.co.il
With a copy to: Danziger, Klagsbald & Co.
Attention: Oren Shenkar
Facsimile No.: 03-6110707
e-mail: orens@danklaw.co.il
or to such other address as Buyer or Sellers may designate by
written notice to the other Parties. Any such notices, requests,
demands or other communications shall be deemed to have been duly
given when received, if delivered personally or, if mailed, on the
date five (5) days after the date so deposited in the mails, postage
prepaid, return receipt requested or on the day following the day
sent if sent by prepaid overnight delivery service. Notices,
requests and other communications hereunder may be delivered by
electronic facsimile transmission (fax) or e-mail if confirmation by
sender is made within three (3) Business Days by mail or personal
delivery. All periods of notice shall be measured from the date of
deemed delivery thereof.
10.10. Governing Law & Forum. This Agreement shall be governed and
construed under the laws of the State of Israel and the exclusive
place of jurisdiction in any matter arising out of or in connection
with this Agreement shall be the applicable Tel Aviv Court. DSSI
agrees that for the purpose of service of process its address in
Israel shall be at Pearl, Cohen-Zedek & Latzer, law offices' located
at 5 Shenkar Street, Herzlia, Israel or any other address in Israel
to be designated by DSSI from time to time.
46
10.11. Stamp Duty: Any stamp duty which may be imposed in connection with
the execution and delivery of this Agreement or the transfer of the
Shares in accordance with the terms hereof, shall be imposed on the
Sellers (as a group and allocated among them in accordance with the
Determining Percentage) and on the Buyer in equal parts. Should any
of the Parties pay the Stamp Duty, then the other Parties shall,
within 14 days of receipt of notice of such payment, reimburse such
Party for their share of such payment.
10.12. Further Assurances. The Parties undertake to sign, whether prior to
the Closing or thereafter, any document or instrument which may be
required for the purpose of consummating and giving effect to the
transactions contemplated hereby, and to fully carry out the
purposes of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[Signature Page Follows]
47
IN WITNESS WHEREOF, the parties hereto have executed this Share Purchase
Agreement as of the date first set forth above.
------------------ ---------------------------
Taldor Computer Systems Data Systems & Software Inc.
(1986) Ltd.
By: __________________ By: _________________
Title:__________________ Title: ________________
---------------------- ---------------------------
Kardan Communication Ltd. Meir Givon
By: __________________
Title:__________________
---------------------- ---------------------------
Neuwirth Investments Ltd. dsIT Technologies Ltd.
By: __________________ By: _________________
Title:__________________ Title: ________________