EXHIBIT 99.1
AGREEMENT OF MERGER
by and among
XXXXXXXXXX B.V.,
FP ACQUISITION LTD.
and
PARADIGM GEOPHYSICAL LTD.
Dated as of May 21, 2002
TABLE OF CONTENTS
Page
ARTICLE I
MERGER
1.1 The Merger............................................................1
1.2 Closing Date..........................................................2
1.3 Effective Time........................................................2
1.4 Conversion of Securities upon Merger..................................2
1.4.1 Conversion of Prototype Shares................................2
1.4.2 Exchange of Prototype Certificates............................3
1.4.3 Unclaimed Merger Consideration; No Escheat....................3
1.4.4 Withholding...................................................4
1.4.5 Lost Certificates.............................................4
1.4.6 Prototype's Transfer Books Closed.............................4
1.5 Further Action........................................................4
1.6 Treatment of Stock Options............................................4
1.7 Directors and Officers................................................5
1.8 Adjustments...........................................................5
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Organization and Standing.............................................6
2.2 Agreement Authorized and its Effect on Other Obligations..............6
2.2.1 Authorization and Enforceability..............................6
2.2.2 Approvals.....................................................7
2.2.3 No Violation..................................................8
2.3 Capitalization........................................................8
2.4 Subsidiaries.........................................................10
2.5 Reports and Financial Statements.....................................11
2.6 Additional Prototype Information.....................................12
2.6.1 Employee Compensation Plans..................................12
2.6.2 Certain Salaries.............................................12
2.6.3 Employee Agreements..........................................13
2.7 No Undisclosed Liabilities...........................................13
2.8 Material Contracts...................................................13
2.9 Absence of Certain Changes and Events................................16
2.10 Taxes................................................................16
2.10.1 Tax Returns Filed; Taxes Paid................................16
2.10.2 Open and Closed Returns Disclosed............................17
2.10.3 Extensions Disclosed.........................................17
2.10.4 Claims Disclosed.............................................17
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2.10.5 Scheduled Tax Liabilities Sufficient.........................18
2.10.6 Tax Allocation Agreements....................................18
2.10.7 United States Real Property Holding Corporation..............18
2.10.8 Change of Accounting Method..................................18
2.10.9 Partnerships; Foreign Corporations...........................18
2.10.10 Safe Harbor Leases; Tax-Exempt Use Property..................18
2.10.11 Section 341(f) Election......................................18
2.10.12 Activity Limitations.........................................18
2.10.13 Affiliated Groups............................................19
2.10.14 Tax Incentives...............................................19
2.10.16 Industrial Company...........................................19
2.11 Intellectual Property................................................19
2.12 Properties...........................................................24
2.13 Litigation...........................................................24
2.14 Environmental Matters; Permits.......................................24
2.15 Compliance with Other Laws...........................................26
2.16 Finder's Fee.........................................................26
2.17 Employment Matters...................................................26
2.18 Board Approval.......................................................29
2.19 Information Supplied by Prototype....................................29
2.20 Inapplicability of Certain Articles and Statutes.....................29
2.21 Certain Shareholders; Affiliates.....................................29
2.22 Relationships with Related Persons...................................29
2.23 Grants, Incentives and Subsidies.....................................30
2.24 Foreign Corrupt Practices Act........................................30
2.25 Hedging Transactions.................................................30
2.26 Opinion of Financial Advisor.........................................30
2.27 Customers and Suppliers..............................................31
2.28 Restrictions on Business Activities..................................31
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
3.1 Organization and Standing............................................31
3.2 Agreement Authorized and its Effect on Other Obligations.............32
3.2.1 Authorization and Enforceability.............................32
3.2.2 Approvals....................................................32
3.2.3 No Violation.................................................32
3.3 Information for Proxy Statement......................................33
3.4 Financing............................................................33
3.5 Finder's Fees........................................................33
3.6 Merger Sub...........................................................33
ARTICLE IV
OBLIGATIONS PENDING EFFECTIVE TIME
4.1 Conduct of Business by Prototype.....................................33
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4.2 Financial Statements; Shareholder Communications.....................37
4.3 Access to Information................................................37
4.4 No Solicitation......................................................38
4.5 Agreements of Parent and Prototype...................................41
4.5.1 Merger Proposal..............................................41
4.5.2 Proxy Statement..............................................41
4.5.3 Prototype General Meeting....................................42
4.5.4 Merger Sub Shareholder Approval..............................42
4.5.5 Further Action...............................................42
4.5.6 Notice of Material Development...............................44
4.5.7 Resignation of Directors.....................................44
4.6 Repayment of Indebtedness............................................44
4.7 Prototype Warrants...................................................44
ARTICLE V
CONDITIONS TO THE MERGER
5.1 Conditions Precedent to Each Party's Obligation to Effect the Merger.45
5.1.1 No Orders....................................................45
5.1.2 Shareholder Approval.........................................45
5.1.3 Required Consents............................................45
5.1.4 Legal Opinions...............................................45
5.2 Additional Conditions to Obligations of Prototype....................45
5.2.1 Accuracy of Parent Representations and Warranties............45
5.2.2 Performance of Parent Obligations............................45
5.2.3 Parent Certificate...........................................45
5.3 Additional Conditions to Obligations of Parent and Merger Sub........46
5.3.1 Accuracy of Prototype Representations and Warranties.........46
5.3.2 Performance of Prototype Obligations.........................46
5.3.3 Prototype Certificate........................................46
5.3.4 Consent of Certain Parties...................................46
5.3.5 Tax Matters..................................................46
5.3.6 No Material Adverse Effect...................................46
5.3.7 Litigation...................................................47
5.3.8 Indebtedness.................................................47
5.3.9 Opinion of Counsel...........................................47
ARTICLE VI
TERMINATION AND ABANDONMENT
6.1 Termination..........................................................48
6.1.1 By Mutual Consent............................................48
6.1.2 By Parent Because of Conditions Precedent....................48
6.1.3 By Prototype Because of Conditions Precedent.................48
6.1.4 By Parent or Prototype Because of an Order...................48
6.1.5 By Parent or Prototype Because of Delay......................48
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6.1.6 By Parent or Prototype Because of Failure to Obtain the
Required Prototype Shareholder Vote..........................48
6.1.7 By Parent Because of Certain Events..........................49
6.1.8 By Prototype Because of Certain Events.......................49
6.2 Termination by Board of Directors....................................49
6.3 Effect of Termination................................................49
6.4 Termination Fee......................................................49
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Indemnification of Directors and Officers............................50
7.2 Employee Benefit Plans of Prototype..................................51
ARTICLE VIII
MISCELLANEOUS
8.1 Entirety.............................................................52
8.2 Counterparts.........................................................52
8.3 Notices and Waivers..................................................52
8.4 Termination of Representations, Warranties...........................53
8.5 Amendment; Waiver....................................................53
8.6 Expenses.............................................................54
8.7 Headings.............................................................54
8.8 Successors and Assigns...............................................54
8.9 Severability.........................................................54
8.10 Governing Law........................................................54
8.11 Assignment...........................................................54
8.12 Jurisdiction; Waiver of Jury Trial...................................55
8.13 Other Remedies; Specific Performance.................................55
8.14 Interpretation.......................................................55
8.15 Public Announcements.................................................56
8.16 Definitions..........................................................56
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AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Agreement"), dated as of May 21, 2002, is
made by and among Xxxxxxxxxx B.V., a company formed under the laws of The
Netherlands ("Parent"), FP Acquisition Ltd., an Israeli company and wholly owned
subsidiary of Parent ("Merger Sub"), and Paradigm Geophysical Ltd., an Israeli
company ("Prototype").
W I T N E S S E T H:
WHEREAS, Parent, Merger Sub and Prototype intend to effect a merger of
Merger Sub with and into Prototype (the "Merger") in accordance with this
Agreement and the Israeli Companies Law-5759-1999 (the "Companies Law") pursuant
to which Merger Sub will cease to exist, and Prototype will become a wholly
owned subsidiary of Parent;
WHEREAS, the board of directors of Prototype (the "Board of Directors")
has (i) determined that the Merger is fair to, and in the best interests of,
Prototype and its shareholders, and that no reasonable concern exists that the
Surviving Corporation will be unable to fulfill the obligations of Prototype to
its creditors, (ii) approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) determined to recommend
that the shareholders of Prototype approve this Agreement, the Merger and the
other transactions contemplated by this Agreement;
WHEREAS, (i) the board of directors of each of Parent and Merger Sub has
approved this Agreement, the Merger and the other transactions contemplated by
this Agreement and (ii) the board of directors of Merger Sub has determined that
no reasonable concern exists that the Surviving Corporation will be unable to
fulfill the obligations of Merger Sub to its creditors; and
WHEREAS, as a condition and inducement to Parent's and Merger Sub's
willingness to enter into this Agreement and to consummate the Merger,
concurrently with the execution and delivery of this Agreement certain
shareholders of Prototype are entering into voting agreements relating to the
Merger and the transactions contemplated by this Agreement in the form attached
hereto as Exhibit A (collectively, the "Voting Agreements").
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants and agreements herein contained, and in order to set forth the
terms and conditions of the Merger, the mode of carrying the same into effect,
the manner and basis of converting the rights of the current holders of the
presently outstanding ordinary shares, nominal value NIS 0.5 per share, of
Prototype (the "Prototype Shares") into the right to receive the Merger
Consideration, and such other details and provisions as are set forth herein,
the parties hereto agree as follows:
ARTICLE I
MERGER
1.1. The Merger. Subject to and in accordance with the terms and conditions
of this Agreement, at the Effective Time, Merger Sub (as the target company
(Chevrat Ha'Yaad) in the
Merger) shall be merged with and into Prototype (as the absorbing company
(HaChevra Ha'Koletet) in the Merger), the separate existence of Merger Sub shall
cease, and Prototype (i) shall continue as the surviving company (the "Surviving
Corporation"), (ii) shall be governed by the laws of the State of Israel, (iii)
shall maintain a registered office in the State of Israel, and (iv) shall
succeed to and assume all of the rights, properties and obligations of Merger
Sub in accordance with the Companies Law.
1.2. Closing Date. Subject to the terms and conditions set forth in this
Agreement, the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Meitar, Liquornik, Geva & Co., 00
Xxxx Xxxxxx Xxxxxx Xx., 00000 Xxxxx-Xxx, Xxxxxx on a date to be designated by
Parent (the "Closing Date"), which shall be no later than the fifth business day
following the satisfaction or waiver of the conditions set forth in Article V.
1.3. Effective Time. The Merger shall become effective upon the issuance of
a certificate of merger by the Companies Registrar (as defined in the Companies
Law) in accordance with Section 323(5) of the Companies Law (the "Effective
Time"). Subject to the satisfaction of all of the other conditions in Article V,
Merger Sub agrees to deliver the shareholder approval notice described in
Section 4.5.4 to the Companies Registrar in accordance with the Companies Law on
or before the Closing Date so that the certificate of merger may issue on the
Closing Date.
1.4. Conversion of Securities upon Merger. The manner and basis of
converting the issued and outstanding Prototype Shares into the Merger
Consideration shall be as hereinafter set forth in this Section 1.4.
1.4.1. Conversion of Prototype Shares. At the Effective Time, by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, Prototype or any shareholder of Parent, Merger Sub or Prototype:
(a) any Prototype Shares then held by Prototype or any wholly owned
subsidiary of Prototype (or held in Prototype's treasury) shall remain
outstanding, and no consideration shall be delivered in exchange therefor;
(b) any Prototype Shares then held by Parent, Merger Sub or any other
wholly owned subsidiary of Parent shall remain outstanding, and no
consideration shall be delivered in exchange therefor;
(c) each other Prototype Share then issued and outstanding immediately
prior to the Effective Time shall automatically be converted into the right
to receive US$5.15 in cash, without interest thereon (the "Per Share Merger
Consideration") for each such Prototype Share, upon surrender, in
accordance with Section 1.4.2, of certificates theretofore evidencing
Prototype Shares ("Prototype Certificates"). The aggregate amount of cash
to be paid in the Merger is hereinafter referred to as the "Merger
Consideration";
(d) each Prototype Share that has been converted into the right to
receive the Per Share Merger Consideration shall be registered in the name
of Parent; and
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(e) each ordinary share, nominal value NIS 1 per share, of Merger Sub
outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall be cancelled and retired and shall cease to exist.
1.4.2. Exchange of Prototype Certificates. Prior to the Effective
Time, Parent shall appoint an agent (the "Paying Agent") reasonably acceptable
to Prototype for the purpose of exchanging Prototype Certificates for the Merger
Consideration. Parent will cause to be deposited with the Paying Agent, at the
Closing, the Merger Consideration to be paid in respect of Prototype Shares
converted pursuant to Section 1.4.1(c), and the amount required to be paid to
the holders of Prototype Options under Section 1.6. Such deposited amounts shall
not be used for any other purpose. Promptly after the Effective Time, Parent
will send, or will cause the Paying Agent to send, to each holder of record of
Prototype Shares at the Effective Time a letter of transmittal and instructions
(which shall specify that the delivery shall be effected, and risk of loss and
title shall pass, only upon proper delivery of Prototype Certificates to the
Paying Agent) for use in such exchange. Each holder of Prototype Shares that
have been converted into the right to receive the Per Share Merger Consideration
(without interest thereon) pursuant to Section 1.4.1(c) will be entitled to
receive, upon surrender to the Paying Agent of a Prototype Certificate, together
with a properly completed letter of transmittal, and all other documents Parent
or the Paying Agent may reasonably require, the Per Share Merger Consideration
(without interest thereon) payable for each Prototype Share represented by such
Prototype Certificate. However, before surrender, each outstanding certificate
representing issued and outstanding Prototype Shares shall be deemed, for all
purposes, only to evidence the right to receive the amount of cash into which
such shares have been so converted in accordance with Section 1.4.1(c). If any
portion of the Merger Consideration is to be paid to a person other than the
person in whose name the surrendered Prototype Certificate is registered, it
shall be a condition to such payment that the Prototype Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such payment shall pay to the Paying
Agent any Tax required as a result of such payment to a person other than the
registered holder of such Prototype Certificate or establish to the satisfaction
of Parent that such Tax has been paid or is not payable.
1.4.3. Unclaimed Merger Consideration; No Escheat. Subject to any
contrary provision of governing law, all consideration (and any interest or
other income earned thereon) deposited with the Paying Agent or held by Parent
for the payment of the consideration into which the outstanding Prototype Shares
shall have been converted, and remaining unclaimed for six months after the
Effective Time, shall be paid or delivered to Parent, and the holder of any
unexchanged Prototype Certificate which before the Effective Time represented
Prototype Shares shall thereafter look only to Parent for payment of the Per
Share Merger Consideration (without interest thereon) upon surrender of such
Prototype Certificates to Parent. Notwithstanding the foregoing, Parent shall
not be liable to any holder of Prototype Shares for any amount paid to a public
official pursuant to applicable abandoned property, escheat or similar laws. Any
amounts remaining unclaimed by holders of Prototype Shares two years after the
Effective Time (or such earlier date immediately prior to such time when the
amounts would otherwise escheat to or become property of any Governmental
Entity) shall become, to the extent permitted by applicable law, the property of
Parent free and clear of any claims or interest of any person previously
entitled thereto.
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1.4.4. Withholding. Parent (or any affiliate thereof) shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any former holder of Prototype Shares or Prototype
Options such amounts as Parent (or any affiliate thereof) is required to deduct
and withhold with respect to the making of such payment under any applicable
U.S. federal, state or local or Israeli or other Tax law. To the extent that
amounts are so withheld by Parent, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the former holder of
Prototype Shares or Prototype Options, as applicable, in respect of which such
deduction and withholding was made by Parent.
1.4.5. Lost Certificates. If any Prototype Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Prototype Certificate to be lost, stolen or destroyed and,
if required by the Surviving Corporation, the posting by such person of a bond,
in such reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made against it with respect to such Prototype
Certificate, the Paying Agent will pay, in exchange for such lost, stolen or
destroyed Certificate, the Per Share Merger Consideration to be paid in respect
of the Prototype Shares represented by such Prototype Certificate, as
contemplated by this Section 1.4.
1.4.6. Prototype's Transfer Books Closed. At the Effective Time, (a)
the stock transfer books of Prototype shall be deemed closed, and no transfer of
any certificates theretofore representing the Prototype Shares shall thereafter
be made or consummated, and (b) all holders of Prototype Certificates
representing Prototype Shares that were outstanding immediately prior to the
Effective Time shall cease to have any rights as shareholders of the Surviving
Corporation. No further transfer of any such Prototype Shares shall be made on
such share transfer books after the Effective Time. If, after the Effective
Time, a valid Prototype Certificate is presented to the Paying Agent or to the
Surviving Corporation or Parent, such Prototype Share Certificate shall be
canceled and shall be exchanged as provided in Section 1.4.2.
1.5. Further Action. If at any time after the Effective Time Parent
or the Surviving Corporation shall consider or be advised that any deeds, bills
of sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of Prototype or Merger Sub acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with the
Merger or otherwise to carry out this Agreement, the officers and directors of
the Surviving Corporation and Parent shall be fully authorized to execute and
deliver, in the name and on behalf of either Prototype or Merger Sub, all such
deeds, bills of sale, assignments and assurances and to take and do, in the name
and on behalf of each of such companies or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties or assets in
the Surviving Corporation or otherwise to carry out this Agreement.
1.6. Treatment of Stock Options.
1.6.1. At least thirty days prior to the Closing Date, Prototype shall
give a notice to the holder of each Notice Option stating that such Notice
Option, whether vested or unvested, may be exercised during the period
commencing on receipt of such notice and ending
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immediately prior to the Closing Date. For purposes of this Agreement, a "Notice
Option" means a Prototype Option that was granted pursuant to an award agreement
that expressly allows Prototype to provide for the expiration of such option
immediately prior to the Closing Date. Any Notice Option not exercised prior to
the Closing Date shall be treated in the manner set forth in Section 1.6.2
below.
1.6.2. Unless otherwise agreed by Parent and the holder of a Prototype
Option, each option to purchase Prototype Shares outstanding immediately prior
to the Effective Time under Prototype's stock option plans (the "Prototype
Option Plans"), Prototype's stock option agreements (the "Prototype Option
Agreements") or otherwise, whether vested or unvested, excluding Prototype
Warrants (collectively, the "Prototype Options"), will by virtue of the Merger
and without any further action on the part of any holder thereof (herein, an
"Optionholder"), be terminated immediately prior to the Effective Time solely in
exchange for the right to receive, as soon as practicable following the
Effective Time, promptly upon the surrender to the Paying Agent of such
Prototype Option, an amount in cash (less any applicable withholding taxes)
equal to the product of (i) the number of Prototype Shares subject to such
Prototype Option immediately prior to the Effective Time and (ii) the amount, if
any, by which the Per Share Merger Consideration exceeds the exercise price per
Prototype Share subject to such Prototype Option. Prior to the Effective Time,
Prototype shall take any and all actions necessary to effectuate this Section
1.6. Prototype shall deliver to Parent prior to the Effective Time a true and
complete list of the Prototype Options that remain outstanding as of immediately
prior to the Effective Time. Prior to the Effective Time, Prototype shall take
any and all actions necessary to terminate the Prototype Option Plans and the
Prototype Option Agreements (and provide for no further right to receive any
Prototype Shares or other securities under such Prototype Plans), and any other
plan, program or arrangement providing for the issuance of capital stock
(including any phantom or notional interest with respect thereto) of Prototype,
effective immediately prior to the Effective Time.
1.7. Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of Merger Sub at the Effective Time shall be
the directors of the Surviving Corporation and (ii) other than the directors set
forth in clause (i) above, the officers of Prototype at the Effective Time shall
be the officers of the Surviving Corporation.
1.8. Adjustments. If at any time during the period between the date of this
Agreement and the Effective Time, (a) any change in the outstanding Prototype
Shares shall occur by reason of any recapitalization, reclassification of
shares, stock split or combination, division or subdivision of shares,
readjustment of shares, or any stock dividend thereon with a record date during
such period, or (b) if the representations set forth in Section 2.3 shall not be
true and correct and, solely in the case of clause (b), Parent elects to do so,
the Per Share Merger Consideration shall be appropriately adjusted to provide
the holders of Prototype Shares (in the aggregate) the same economic effect as
contemplated by this Agreement prior to such event or in the absence of such
failure to be true and correct, as the case may be.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF PROTOTYPE
Prototype represents and warrants to each of Parent and Merger Sub as
follows:
2.1. Organization and Standing.
2.1.1. Prototype is a company duly organized and validly existing
under the laws of the State of Israel, has all requisite corporate power and
authority to carry on its business as it is currently conducted and to own and
operate the properties currently owned and operated by it, and is duly qualified
or licensed to do business and is in good standing as a foreign corporation
authorized to do business in all jurisdictions in which the character of the
properties owned or the nature of the business conducted by it would make such
qualification or licensing necessary, except where the failure to be so
qualified or licensed would not reasonably be expected to have a Material
Adverse Effect. For purposes of this Agreement, "Material Adverse Effect" means
any effect, change, event, circumstance or condition which, when considered with
all other effects, changes, events, circumstances or conditions, has or would
reasonably be expected to have a material adverse effect on (A) the business,
assets (including intangible assets), prospects (including due to the loss or
resignation, or notice of loss or resignation, of key employees of Prototype and
its subsidiaries), cash flows, results of operations or financial condition of
Prototype and its subsidiaries taken together as a whole, in each case whether
or not covered by insurance, or (B) the ability of Prototype to consummate the
Merger and the other transactions contemplated hereby; provided that,
notwithstanding the foregoing, none of the following shall be deemed, in and of
itself, to constitute a Material Adverse Effect: (i) a change in the trading
price of Prototype Shares between the date hereof and the Effective Time, (ii)
any adverse cash or earnings effects resulting solely from payments expressly
authorized to be made by Prototype under this Agreement, (iii) the loss or
resignation of any single key employee of Prototype or any of its subsidiaries
(other than the chief executive officer of Prototype), provided that this
exception shall not apply to the loss or resignation of any number or group of
key employees of Prototype and/or any of its subsidiaries, (iv) any effects or
changes resulting from a change in GAAP after the date of this Agreement, and
(v) effects, changes, circumstances or conditions affecting the oil and gas
industries generally.
2.1.2. Prototype has delivered to Parent accurate and complete copies
of its memorandum of association, articles of association and other
organizational documents, including all amendments thereto (collectively,
"Formation Documents"). Such Formation Documents are in full force and effect
and no other organizational documents are applicable to or binding upon
Prototype. Prototype is not in material default or material violation of any of
the provisions of its Formation Documents.
2.2. Agreement Authorized and its Effect on Other Obligations.
2.2.1. Authorization and Enforceability. Prototype has all requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and, subject to the Required Prototype Shareholder
Vote, to consummate the transactions contemplated hereby. The execution and
delivery by Prototype of this Agreement and the
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performance by Prototype of its obligations hereunder have been duly and validly
authorized by all necessary corporate action on the part of Prototype (other
than, with respect to the Merger, the receipt of the Required Prototype
Shareholder Vote). This Agreement has been duly executed and delivered by
Prototype and (assuming due authorization, execution and delivery hereof by the
other parties hereto) constitutes a legal, valid and binding obligation of
Prototype, enforceable against Prototype in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
debtor relief or similar laws affecting the rights of creditors generally and by
general principles of equity. The affirmative vote (the "Required Prototype
Shareholder Vote") of a simple majority of the voting power of Prototype
represented (in person or by proxy) and voting at the Prototype General Meeting
is the only vote of the holders of any Prototype Securities necessary to approve
the Merger. The quorum required for the Prototype General Meeting is a minimum
of two shareholders who hold at least 25% of the voting rights of the issued
share capital of Prototype. No vote or approval of (i) any creditor of
Prototype, (ii) any holder of any option or warrant granted by Prototype, or
(iii) any shareholder of any of Prototype's subsidiaries is necessary in order
to approve or permit the consummation of the Merger.
2.2.2. Approvals. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency,
commission, tribunal or other governmental commission, board, bureau, agency,
authority or instrumentality (each, a "Governmental Entity") or any third party,
is required by or with respect to Prototype or any of its subsidiaries in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except (a) the consent of the Israeli
Investment Center of the Israeli Ministry of Trade & Industry (the "Investment
Center"), (b) the consent of the Office of the Chief Scientist of the Israeli
Ministry of Trade & Industry (the "OCS"), (c) delivery of the Merger Proposal
and the shareholder approval notices described in Sections 4.5.3 and 4.5.4 to
the Companies Registrar, (d) notification of the transactions contemplated by
this Agreement to the National Association of Securities Dealers, Inc. (the
"NASD"), the Tel Aviv Stock Exchange, Ltd. (the "TASE") and the Israel
Securities Authority (the "ISA"), and (e) such other consents, approvals,
orders, authorizations, registrations, declarations and filings, the failure of
which to be obtained or made would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect (the consents,
approvals, orders, authorizations, registrations, declarations and filings
referred to in the foregoing clauses (a) through (c), together with those set
forth in Section 2.2.2 of the Prototype Disclosure Schedule, dated the date
hereof, delivered by Prototype to Parent (the "Prototype Disclosure Schedule"),
being referred to as the "Required Consents"). The Merger is exempt from the
filing and notice requirements of the Israeli Restrictive Trade Practices Law.
Prototype and its subsidiaries (including all entities which Prototype controls
as that term is defined in 16 C.F.R. Section 801.1(b)) (i) do not hold
beneficial ownership, whether direct, or indirect through fiduciaries, agents,
controlled entities or other means, of assets located in the United States
(other than cash, deposits in financial institutions, other money market
instruments, instruments evidencing government obligations, and voting or
nonvoting securities of a person not controlled by Prototype within the meaning
of 16 C.F.R. Section 801.1(b)) having an aggregate total fair market value of
over US$50 million; and (ii) did not make aggregate sales in or into the United
States of over US$50 million in their most recent fiscal year.
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2.2.3. No Violation. Except as set forth in Section 2.2.3 of the
Prototype Disclosure Schedule, assuming the receipt of the Required Consents,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) conflict with or result in a violation
or breach of any term or provision of, nor constitute a default under, the
Formation Documents of Prototype or any of its subsidiaries; (ii) contravene,
conflict with or result in a violation or breach of, or result in a default
under, or result in the acceleration or cancellation of any obligation or right
under, or give rise to a right by any person to terminate, cancel, modify or
amend in any respect its obligations or rights under, any indenture, mortgage,
deed of trust, conveyance to secure any debt, note, loan, lien, lease,
agreement, license, instrument, order, judgment, decree, contract or other
arrangement or commitment to which Prototype or any of its subsidiaries is a
party or by which any of them or their properties or assets are bound, (iii)
contravene, conflict with or result in a violation of, or give any Governmental
Entity or other person the right to challenge the Merger or to exercise any
remedy or obtain any relief under, any legal requirement or any order, writ,
injunction, judgment or decree to which Prototype or its subsidiaries, or any of
the assets owned or used by Prototype or its subsidiaries, is subject, (iv)
contravene, conflict with or result in a violation of any of the terms or
requirements of, or give any Governmental Entity the right to revoke, withdraw,
suspend, cancel, terminate, modify or exercise any right or remedy or require
any refund or recapture with respect to, any Grant or benefit given by any
Governmental Entity or under applicable law (or any benefit provided or
available thereunder) or other permit, license, consent, authorization, Grant,
benefit, right that is held by Prototype or that otherwise relates to the
business or assets of Prototype, (v) result in the imposition, creation or
crystallization of any Encumbrance upon or with respect to any asset or property
owned, leased or used by Prototype or its subsidiaries, or (vi) with the passage
of time, the giving of notice, or the taking of any action by a third person, or
any combination thereof, have any of the effects set forth in clauses (i)
through (v) of this Section 2.2.3, in each case (other than clause (i) hereof)
other than such violations, breaches or defaults as would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 2.2.3 of the Prototype Disclosure Schedule sets forth a complete and
accurate list of (A) all holders of any outstanding Indebtedness of Prototype,
the lessors of any property leased by Prototype and the holders of any Prototype
Warrant or Prototype Option to which Prototype or any of its subsidiaries is a
party or bound, in each case whose consent is required in connection with the
Merger and the other transactions contemplated hereby (including as contemplated
by Section 4.7) and (B) all other parties to any Contract to which Prototype or
any of its subsidiaries is a party or bound whose consent is required in
connection with the Merger and the other transactions contemplated hereby the
failure of which to obtain would reasonably be expected to lead to a Material
Adverse Effect or adversely impact, in any material respect, any of the
anticipated benefits of the Merger to Parent or its affiliates (each, a "Consent
Person").
2.3. Capitalization.
2.3.1. The authorized share capital of Prototype consists of NIS
10,000,000 divided into (i) 18,000,000 Prototype Shares, of which as of the date
hereof 14,891,902 are issued and outstanding, and (ii) 2,000,000 Special
Preferred Shares, none of which were outstanding as of the date hereof. All
outstanding Prototype Shares are validly issued, fully paid and non-assessable,
and were not issued in violation of any preemptive rights of any person. Section
2.3.1 of the Prototype Disclosure Schedule sets forth a complete list of (i) all
outstanding
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options, warrants or obligations of any kind to issue any shares of capital
stock of Prototype, (ii) the plan or other arrangement or agreement under which
such options, warrants or obligations were granted, (iii) the name of the
holders thereof, (iv) the number of shares of capital stock of Prototype subject
to such option, warrant or other obligation, (v) the date on which such option,
warrant or other obligation was granted, (vi) the exercise price per Prototype
Share applicable to such option, warrant or other obligation and (vii) the
vesting schedule applicable to such option, warrant or other obligation to issue
shares of capital stock of Prototype. Other than as set forth in Section 2.3.1
of the Prototype Disclosure Schedule, there are outstanding (i) no shares of
capital stock or other voting securities of Prototype, (ii) no securities of
Prototype or any of its subsidiaries convertible into or exchangeable for shares
of capital stock or voting securities of Prototype, (iii) no options or other
rights to acquire from Prototype or any of its subsidiaries, and no obligations
of Prototype or any of its subsidiaries to issue, now or in the future, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of Prototype, and (iv) no equity
equivalents, phantom or notional equity interests, interests in the ownership or
earnings of Prototype or any of its subsidiaries or other similar rights
(collectively, "Prototype Securities"). Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
result in an adjustment to, or give rise to a right to adjust, the exercise or
conversion price set forth in Section 2.3.1 of the Prototype Disclosure Schedule
for any Prototype Security (including any Indebtedness of Prototype or any of
its subsidiaries) that is exchangeable for or convertible into capital stock or
voting securities of Prototype at or prior to the Effective Time, and, assuming
cancellation of the Prototype Options, termination of the Prototype Warrants and
repayment of Prototype's Indebtedness at or prior to the Effective Time, no
Prototype Security (including any Indebtedness of Prototype or any of its
subsidiaries) that is exchangeable for or convertible into capital stock or
voting securities of Prototype that is outstanding on the date hereof will
remain outstanding after the Effective Time.
2.3.2. Except as set forth in Section 2.3.2 of the Prototype
Disclosure Schedule: (i) none of the outstanding Prototype Shares, Prototype
Options or Prototype Warrants, and no holder of any Prototype Shares, Prototype
Options or Prototype Warrants, is entitled or subject to any preemptive right,
right of participation or similar right; (ii) none of the outstanding Prototype
Shares, Prototype Options or Prototype Warrants, and no holder of Prototype
Shares, Prototype Options or Prototype Warrants, is subject to any right of
first offer or refusal; and (iii) there are no contracts, undertakings or
agreements or voting trusts or other agreements or understandings to which
Prototype or any of its subsidiaries is a party (or of which Prototype has
received notice in writing) relating to the voting or registration of, or
restricting any person from purchasing, selling, pledging or otherwise disposing
of (or granting any option or similar right with respect to), any Prototype
Shares, Prototype Options or Prototype Warrants. Prototype is not under any
obligation, or bound by any contract pursuant to which it may become obligated,
to repurchase, redeem or otherwise acquire any Prototype Shares, Prototype
Options or Prototype Warrants.
2.3.3. Section 2.3.3(a) of the Prototype Disclosure Schedule sets
forth the outstanding Indebtedness of Prototype and any of its subsidiaries in
excess of US$50,000 for any single item. The aggregate amount of all
Indebtedness of Prototype and its subsidiaries that is not set forth in Section
2.3.3(a) of the Prototype Disclosure Schedule does not exceed US$200,000. Except
as described in Section 2.3.3(b) of the Prototype Disclosure Schedule, no
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Indebtedness of Prototype or its subsidiaries contains (i) any restriction upon
(A) the repayment, prepayment or redemption of such Indebtedness without
penalty, make-whole payments or similar obligation, (B) the incurrence of
Indebtedness by Prototype or its subsidiaries, respectively, or (C) the ability
of Prototype or its subsidiaries to grant any Encumbrances on its properties or
assets, or (ii) any obligation to maintain minimum equity, capital, net worth,
profitability or income. For purposes of this Agreement, "Indebtedness" means
(i) all mortgages, indentures, loans or credit agreements, security agreements
or other agreements or instruments relating to the borrowing of money or
extension of credit or for the deferred purchase price of property or services
(other than current trade liabilities incurred in the ordinary course of
business), (ii) any other indebtedness which is evidenced by a note, bond,
debenture or similar instrument, (iii) all obligations under conditional sale or
other title retention agreements relating to property purchased, (iv) capital
lease or sale-leaseback obligations, (v) all liabilities secured by any
Encumbrance on any property, and (vi) any guarantee or assumption of any of the
foregoing in clauses (i) through (v), or guaranty of minimum equity, capital,
net worth, profitability or income or any make-whole or similar obligation with
respect to itself, its subsidiaries or affiliates, or a third party.
2.3.4. Except as set forth in Section 2.3.4(a) of the Prototype
Disclosure Schedule, each outstanding Prototype Option is a Notice Option. Other
than the consent of the Optionholders set forth in Section 2.3.4(b) of the
Prototype Disclosure Schedule, the treatment of Prototype Options in accordance
with Section 1.6 does not require the consent of any Optionholder, and will not
violate or conflict with the terms of any Prototype Option Plans, Prototype
Option Agreements or any other agreement or plan governing the terms of the
Prototype Options. Each Optionholder set forth in Section 2.3.4(b) of the
Prototype Disclosure Schedule has executed and delivered to Prototype a consent
substantially in the form set forth as Exhibit B hereto (a complete and correct
copy of which has been delivered to Parent), which consent has not thereafter
been modified, amended or waived in any respect.
2.4. Subsidiaries. Section 2.4 of the Prototype Disclosure Schedule lists
each subsidiary of Prototype existing at the date hereof, and shows as to each
of such subsidiary the (i) percentage of the total outstanding capital stock,
partnership, membership, limited liability company or other ownership interests
thereof which is owned by Prototype and (ii) jurisdiction of formation of each
such subsidiary. All outstanding shares of capital stock, partnership,
membership, limited liability company or other ownership interests of such
subsidiaries that are owned by Prototype are validly issued, fully paid, and
non-assessable, and Prototype has good and valid title thereto free and clear of
any mortgage, pledge, lien, charge (whether fixed, floating or otherwise),
security interest, option, right of first offer or refusal, preferential
purchase right, defect, encumbrance or other right or interest of any other
person (collectively, an "Encumbrance"). Each such subsidiary is duly organized,
validly existing, and in good standing under the laws of the jurisdiction under
which it is incorporated or otherwise formed and has full requisite corporate or
other analogous power and authority to own its property and carry on its
business as presently conducted by it and is duly qualified or licensed to do
business and is in good standing as a foreign corporation or business entity
authorized to do business in all jurisdictions in which the character of the
properties owned or the nature of the business conducted makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed could not reasonably be expected to have a Material
Adverse Effect. As used in this Article II, the term "Prototype" also includes
any and all of Prototype's directly and
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indirectly held subsidiaries (whether or not such subsidiaries are otherwise
expressly included), except where the context clearly indicates to the contrary.
Prototype has delivered to Parent accurate and complete copies of the Formation
Documents relating to each of its subsidiaries. Such Formation Documents are in
full force and effect and no other organizational documents are applicable to or
binding upon such subsidiaries of Prototype. Such subsidiaries of Prototype are
not in material violation of any of the provisions of their respective Formation
Documents. Except as set forth in Section 2.4 of the Prototype Disclosure
Schedule, Prototype does not own any equity or similar interest in any person.
2.5. Reports and Financial Statements.
2.5.1. Prototype has filed all reports, schedules, forms, registration
statements, definitive proxy statements and other documents required to be filed
by Prototype with the Securities and Exchange Commission (the "Commission")
since the filing of Prototype's Registration Statement on Form F-1 (the
Registration Statement on Form F-1, together with any other documents filed with
the Commission at or prior to the Effective Time, the "Prototype Reports") under
the Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and applicable rules and
regulations of the Commission thereunder. All of the Prototype Reports filed on
or prior to the date hereof are publicly available and all of the Prototype
Reports filed after the date hereof will be publicly available when filed with
the Commission. As of its respective filing date, the consolidated financial
statements (including, in each case, any related notes thereto) contained in the
Prototype Reports filed on or prior to the date hereof were (and those filed
after the date hereof will be) prepared in accordance with the published
regulations of the Commission and in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved and fairly present (or will fairly present when filed), in all
material respects, the consolidated financial position for Prototype and its
subsidiaries as of the date thereof and the consolidated results of their
operations, cash flows and changes in financial position for the periods then
ended (except with respect to interim period financial statements, for normal
year-end adjustments which are, individually or in the aggregate, not material
in amount). As of their respective dates, the Prototype Reports filed on or
prior to the date hereof complied (and those filed after the date hereof will
comply), in all material respects, with the requirements of the Securities Act
and the Exchange Act, as the case may be, and applicable rules and regulations
of the Commission thereunder, and, as of the time of filing of any Prototype
Report, such Prototype Report, (i) if filed on or prior to the date hereof, did
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 under whey they were made, not misleading, and
(ii) if filed after the date hereof, will 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 under
whey they were made, not misleading. None of Prototype's subsidiaries is
required to file any reports or other documents with the Commission. Prototype
is a "foreign private issuer" as such term is defined in Rule 3b-4(c) under the
Exchange Act.
2.5.2. Section 2.5.2 of the Prototype Disclosure Schedule sets forth
true and correct copies of the audited consolidated financial statements
(including any related notes thereto) of Prototype and its subsidiaries as of,
and for the periods ended, December 31, 2001,
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including audited consolidated balance sheets of Prototype and its subsidiaries
as of December 31, 2001 and 2000 and audited consolidated statements of
operations and cash flows for the years ended December 31, 2001, 2000 and 1999,
together with a signed report of Prototype's independent auditors attached
thereto (collectively, the "2001 Financials"). The 2001 Financials were prepared
in accordance with the published regulations of the Commission (including
regulations relating to the preparation of audited annual financial statements
for inclusion in annual reports filed with the Commission) and in accordance
with GAAP applied on a consistent basis during the periods involved and fairly
present, in all material respects, the consolidated financial position for
Prototype and its subsidiaries as of the date thereof and the consolidated
results of their operations, cash flows and changes in financial position for
the periods then ended. The 2001 Financials comply, in all material respects,
with the requirements of the Securities Act and the Exchange Act, as the case
may be, and applicable rules and regulations of the Commission thereunder, and
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 under whey they were made, not
misleading. When filed, Prototype's Annual Report on Form 20-F for the year
ended December 31, 2001 will contain the 2001 Financials (including the signed
report of Prototype's independent auditors included therein), as set forth in
Section 2.5.2 of the Prototype Disclosure Schedule (except for de minimis
changes thereto), as the audited consolidated financial statements of Prototype
and its subsidiaries as of, and for the periods ended, December 31, 2001.
2.6. Additional Prototype Information. Set forth in Section 2.6 of the
Prototype Disclosure Schedule are true, complete and correct lists of the
following items, and Prototype has made available to Parent true, complete and
correct copies of all documents referred to in such lists:
2.6.1. Employee Compensation Plans. Any employee benefit plan,
program, policy, practice, or other arrangement providing benefits to any
current or former employee, officer or director of Prototype or any beneficiary
or dependent thereof that is sponsored or maintained by Prototype or to which
Prototype contributes or is obligated to contribute, or with respect to which
Prototype could have any liability, whether or not written, including without
limitation any employee welfare benefit plan within the meaning of Section 3(1)
of the Employment Retirement Income Security Act of 1974, as amended ("ERISA"),
any employee pension benefit plan within the meaning of Section 3(2) of ERISA
(whether or not such plan is subject to ERISA) and any bonus, incentive,
deferred compensation, vacation, stock purchase, stock option, severance,
employment, change of control or fringe benefit plan, program, agreement or
policy ("Prototype Plans"), together with (i) each writing constituting a part
of such Plan, including without limitation all plan documents, material employee
communications, benefit schedules, trust agreements, and insurance contracts and
other funding vehicles; (ii) the most recent Annual Report (Form 5500 Series)
and accompanying schedule, if any; (iii) the current summary plan description
and any material modifications thereto, if any (in each case, whether or not
required to be furnished under ERISA); (iv) the most recent annual financial
report, if any; (v) the most recent actuarial report, if any; and (vi) the most
recent determination letter from the Internal Revenue Service, if any;
2.6.2. Certain Salaries. The names and salary rates of all present
officers and employees of Prototype whose current regular annual salary rate,
together with any bonuses paid
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or payable to such persons for the fiscal year ended December 31, 2001, or since
that date, is US$75,000 (or the non-U.S. currency equivalent thereof) or more,
and, to the extent existing on the date of this Agreement, all arrangements with
respect to any bonuses to be paid to them from and after the date of this
Agreement (including compensation payable pursuant to bonus, deferred
compensation or commission arrangements or in connection with any manager's
insurance, education fund and health fund), and such employee's employer, date
of employment and position; and
2.6.3. Employee Agreements. Any collective bargaining agreements of
Prototype with any labor union or other representative of employees, or by which
Prototype is otherwise bound, including amendments, supplements, and
understandings, and all employment, severance, change of control and consulting
agreements between Prototype and any of its employees, consultants or directors
in effect on the date hereof.
2.7. No Undisclosed Liabilities. Except as set forth in Section 2.7 of the
Prototype Disclosure Schedule, neither Prototype nor any of its subsidiaries has
any liabilities (whether absolute, accrued, contingent or otherwise) except (i)
liabilities provided for in Prototype's balance sheet as of December 31, 2001
and the related notes thereto set forth in the 2001 Financials or (ii)
liabilities incurred since December 31, 2001 in the ordinary course of business,
(iii) liabilities that have been discharged or repaid in full, or (iv)
liabilities that, in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.
2.8. Material Contracts.
2.8.1. Section 2.8.1 of the Prototype Disclosure Schedule sets forth,
under the corresponding subsection, a list of all of the contracts, agreements,
plans, options, leases, subleases, licenses, sublicenses, supply contracts,
purchase orders, sales orders, arrangements, commitments, understandings,
undertakings, writings and other instruments (whether written or oral)
("Contracts") of Prototype or any of its subsidiaries, or to which Prototype or
any of its subsidiaries are bound at the date hereof, described below (together
with any Contract filed or incorporated by reference as an exhibit to
Prototype's Annual Report on Form 20-F for the year ended December 31, 2000, the
"Material Contracts"):
(a) all Contracts: (A) which provide for Prototype and/or its
subsidiaries to pay or otherwise give consideration of more than US$100,000
in the aggregate during any calendar year (including pursuant to contingent
payment obligations) or (B) which provide for Prototype and/or its
subsidiaries to pay or otherwise give consideration of more than US$200,000
in the aggregate over the remaining term of such contract (including
pursuant to contingent payment obligations), in each case, other than sales
of products or services by Prototype and its subsidiaries in the ordinary
course of business;
(b) all material research and/or development, broker, distributor,
dealer, manufacturer's representative, franchise, agency, sales promotion,
market research, marketing, consulting and advertising Contracts;
(c) all service, operating and management Contracts and Contracts with
independent contractors or consultants (or similar Contracts) which are not
cancelable by
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Prototype or its subsidiary on notice of 30 days or less without penalty or
further payment in excess of US$50,000;
(d) all employment and consulting Contracts between Prototype or any
subsidiary of Prototype, on the one hand, and any officer, director or
employee of Prototype or any subsidiary of Prototype, on the other hand;
(e) (i) all third party Indebtedness, liabilities and commitments of
others as to which Prototype or any of its subsidiaries is a guarantor,
endorser, co-maker, surety, or accommodation maker, or is contingently
liable therefor (not including Indebtedness solely between Prototype and
any of its wholly owned subsidiaries or solely between any wholly owned
subsidiaries of Prototype), in each case, which provides for aggregate
payments in excess of US$50,000 individually or US$100,000 in the
aggregate, (ii) all letters of credit, whether stand-by or documentary,
issued by any third party and (iii) all other Contracts relating to
Indebtedness of Prototype or any of its subsidiaries (not including
Indebtedness solely between Prototype and any of its wholly owned
subsidiaries or solely between any wholly owned subsidiaries of Prototype),
in each case, which provides for aggregate payments in excess of US$50,000
individually or US$100,000 in the aggregate;
(f) all Contracts, including, without limitation, any Prototype Plan,
any of the benefits of which will be increased or otherwise modified, or
the vesting, funding or delivery of benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement
(either alone or in conjunction with any other event) or the value of any
of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement;
(g) all Contracts of indemnification and all guaranties other than any
Contract of indemnification entered into in connection with the sale or
license of products or services in the ordinary course of business;
(h) all Contracts with any Governmental Entity;
(i) all Contracts containing any provision or covenant prohibiting,
impairing, limiting or restricting, or purporting to prohibit, impair,
limit or restrict, the ability of Prototype or any of its subsidiaries to
(i) sell or license any products or services of or to any other person,
(ii) engage in any line of business, (iii) compete with or to obtain
products or services from any person or limiting the ability of any person
to provide products or services to Prototype or any of its subsidiaries, in
each case in any geographic area or during any period of time, (iv) grant
any distribution or licensing rights or (v) acquire any property, assets or
business;
(j) all Contracts currently in force relating to (i) the disposition
or acquisition by Prototype or any of its subsidiaries after December 31,
2001 of a material amount of assets or pursuant to which Prototype or any
of its subsidiaries has any material ownership interest in any corporation,
partnership, joint venture or other business
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enterprise other than Prototype's subsidiaries or (ii) capital expenditure
or expenditures in excess of US$75,000 in any calendar year;
(k) all Contracts relating to the lease of real property leased
(whether as lessor or lessee), used or operated by Prototype or any of its
subsidiaries;
(l) all dealer, distributor, joint marketing and development Contracts
currently in force under which Prototype or any of its subsidiaries have
continuing obligations to jointly market any product, technology or service
and which may not be canceled by Prototype or its subsidiary without
penalty upon notice of 30 days or less, and all Contracts pursuant to which
Prototype or any of its subsidiaries have continuing obligations to jointly
develop any Intellectual Property that may not be canceled by Prototype or
its subsidiary without penalty on notice of 30 days or less;
(m) all Contracts currently in force to license any third party to
manufacture or reproduce any Prototype product, service or technology and
all Contracts currently in force to sell or distribute any Prototype
products, service or technology except agreements with distributors or
sales representatives in the ordinary course of business having expected
payments of less than US$100,000 in the aggregate for any such agreement;
(n) all Contracts currently in force to provide source code to any
third party for any product or technology that is material to Prototype and
its subsidiaries taken as a whole;
(o) all material IP Agreements, including any Licenses or Marketing
Agreements;
(p) all settlement agreements and similar Contracts under which
Prototype has ongoing obligations;
(q) all stockholder agreements, voting agreements, buy-sell
agreements, and other Contracts granting any party any rights to exercise
control over Prototype or any of its subsidiaries, or any of Prototype's or
its subsidiaries' capital stock, and all such Contracts to which Prototype
and its subsidiaries are not a party or otherwise bound the existence of
which Prototype has received notice in writing; and
(r) all other Contracts, whether or not made in the ordinary course of
business, which are material to Prototype and its subsidiaries, taken as a
whole, or the conduct of the business of Prototype and its subsidiaries,
taken as a whole, or the absence of which would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
2.8.2. To the knowledge of Prototype, each Material Contract: (i) is
legal, valid and binding on Prototype or its respective subsidiary party thereto
and, to the knowledge of Prototype, the other parties thereto, and is in full
force and effect and (ii) upon consummation of the Merger, shall continue in
full force and effect without penalty or other adverse consequence to Prototype
or any of its subsidiaries, except for such failures as would not reasonably be
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expected to have a Material Adverse Effect. Neither Prototype nor any of its
subsidiaries is in breach of, or default under, any Material Contract, nor is
there any existing or prospective default or event of default or event which
with notice or lapse of time, action by any third party, or combination thereof,
would constitute a default by Prototype under any Material Contract, other than
such breaches as would not reasonably be expected to have a Material Adverse
Effect. Neither Prototype nor any subsidiary of Prototype has received any
written notice, and otherwise has no knowledge, of a material default (which has
not been cured), offset or counterclaim under any Material Contract, or any
other communication calling upon it to comply with any provision of any Material
Contract or asserting noncompliance therewith or asserting that Prototype or any
of its subsidiaries has waived or altered its rights thereunder, or that any
party to any Material Contract intends or is threatening to terminate or fail to
exercise any renewal or extension of any Material Contract. No other party to
any Material Contract is, to the knowledge of Prototype, in material breach
thereof or default thereunder. Each of the properties that is leased by
Prototype or any of its subsidiaries (the "Leased Properties") (including any
easements, rights of access, rights of way or similar rights benefiting the
properties) (i) is in good repair, free of defects and is otherwise adequate and
sufficient to permit the continued use of such facility in the manner and for
the purpose to which it is presently devoted, and (ii) has adequate and
sufficient access to and from public areas. To Prototype's knowledge, all
certificates of occupancy necessary for the current use and operation of the
Leased Properties have been issued and are in full force and effect, and the use
of the Leased Properties is in conformity in all material respects with such
certificates of occupancy. The Leased Properties (taking into account all liens
and third party rights related thereto) are in all respects suitable and
adequate to support the operations of Prototype and its subsidiaries and for the
purposes to which they are presently used, except as would not have a Material
Adverse Effect. Except as set forth in Section 2.8.2 of the Prototype Disclosure
Schedule, Prototype and its subsidiaries are the sole tenants and occupants of
the Leased Properties. There is no Contract granting any person any preferential
right to purchase any of the material properties or material assets of Prototype
or any of its subsidiaries.
2.9. Absence of Certain Changes and Events. Except as disclosed in the
Prototype Reports filed prior to the date hereof (other than in any "risk
factor," forward-looking statement disclaimer or similar section of any
Prototype Report), since December 31, 2001:
(a) each of Prototype and its subsidiaries has conducted its business
only in the ordinary course of business;
(b) none of Prototype or its subsidiaries has taken any of the actions
prohibited under paragraphs (a) through (r) of Section 4.1.2, if such
section applied during the period between December 31, 2001 and the date
hereof; and
(c) there has not occurred any Material Adverse Effect, or, to
Prototype's knowledge, any development or combination of developments which
would reasonably be likely to have a Material Adverse Effect.
2.10. Taxes.
2.10.1. Tax Returns Filed; Taxes Paid. Except as set forth in Section
2.10.1 of the Prototype Disclosure Schedule, (i) all material returns,
declarations, claims for refund, information
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returns and reports ("Tax Returns") of or with respect to any and all taxes,
charges, fees, levies, assessments, duties or other amounts payable to any U.S.
federal, state or local or Israeli or other taxing authority or agency,
including, without limitation, (x) income, franchise, profits, gross receipts,
minimum, alternative minimum, estimated, ad valorem, value added, sales, use,
service, real or personal (tangible and intangible) property, environmental,
capital stock, leasing, lease, user, license, registration, payroll,
withholding, disability, employment, social security (or similar), workers
compensation, unemployment compensation, utility, severance, excise, stamp,
windfall profits, transfer and gains taxes, (y) customs, duties, imposts,
charges, levies or other similar assessments of any kind, and (z) interest,
penalties and additions to tax imposed with respect thereto ("Tax" or "Taxes")
which are required to be filed on or before the Closing by or with respect to
Prototype or any of its subsidiaries have been or will be duly and timely filed,
on or before the Closing Date, except to the extent valid extensions for the
filing of such Tax returns are properly obtained, (ii) all material items of
income, gain, loss, deduction and credit or other items required to be included
in each such Tax Return have been or will be so included and all such
information and any other information provided in each such Tax Return is true,
correct and complete in all material respects, (iii) all Taxes owed by Prototype
or any of its subsidiaries which have become or will become due on or before the
Closing Date have been or will be timely paid in full, (iv) all Tax withholding
and deposit requirements imposed on or with respect to Prototype or any of its
subsidiaries on or before the Closing Date have been or will be satisfied in
full, (v) no penalty, interest or other charge is or will become due with
respect to the late filing of any such Tax Return or late payment of any such
Tax, and (vi) except as set forth in Section 2.10.1 of the Prototype Disclosure
Schedule, and other than statutory liens for taxes which are not yet due and
payable, there are no Encumbrances on any of the assets of Prototype or any of
its subsidiaries that arose in connection with any failure (or alleged failure)
to pay any Tax.
2.10.2. Open and Closed Returns Disclosed. Section 2.10.2 of the
Prototype Disclosure Schedule sets forth each Tax Return filed by Prototype or
any of its subsidiaries for any Tax period ending prior to the date hereof,
which has been audited by a taxing authority, and indicates which such Tax
Returns currently remain the subject of a continuing audit by a taxing
authority.
2.10.3. Extensions Disclosed. Except as set forth in Section 2.10.3
of the Prototype Disclosure Schedule, there is not in force any extension of
time with respect to the due date for the filing of any Tax Return of or with
respect to Prototype or any of its subsidiaries or any waiver or agreement for
any extension of time for the assessment or collection of any Tax of or with
respect to Prototype or any of its subsidiaries.
2.10.4. Claims Disclosed. There is no pending written claim,
assessment, notice of proposed deficiency, notice of deficiency, notice of
proposed, or notice of adjustment received by Prototype or any of its
subsidiaries from any taxing authority with respect to any Tax Return of or with
respect to Prototype or any of its subsidiaries with respect to any period for
which the statute of limitations on the assessment of Tax deficiencies has not
expired. No written claim has ever been made by a taxing authority in a
jurisdiction where Prototype or any of its subsidiaries do not file Tax Returns
that it or any such subsidiary is or may be subject to taxation in that
jurisdiction.
-17-
2.10.5. Scheduled Tax Liabilities Sufficient. As of the date hereof,
no deficiencies for any Taxes have been asserted or assessed against Prototype
or any of its subsidiaries which are not adequately reserved for in Prototype's
financial statements included in the 2001 Financials, except for such failure to
so reserve as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
2.10.6. Tax Allocation Agreements. Prototype has previously delivered
to Parent true and complete copies of each written Tax allocation or sharing
agreement and a true and complete description of each unwritten Tax allocation
or sharing arrangement affecting Prototype or any of its subsidiaries. No
payments are due or will become due by Prototype or any of its subsidiaries
pursuant to any such agreement or arrangement or any Tax indemnification
agreement.
2.10.7. United States Real Property Holding Corporation. Neither
Prototype nor any of its subsidiaries has been a United States real property
holding corporation within the meaning of section 897(c)(2) of the Code since
December 31, 1996.
2.10.8. Change of Accounting Method. Neither Prototype nor any of its
subsidiaries is required to make any such change in accounting method, or has
agreed with any taxing authority to make any such change in accounting method,
that would result in Prototype or any of its subsidiaries being required to
report taxable income in any Tax period beginning after the Closing Date that
otherwise would have been reported in a Tax period ended on or before the
Closing Date but for such change.
2.10.9. Partnerships; Foreign Corporations. None of the property of
Prototype or any of its subsidiaries is held in an arrangement that is
classified as a partnership for Tax purposes, and neither Prototype nor any of
its subsidiaries is, or owns any interest in any, controlled foreign corporation
(as defined in section 957 of the Internal Revenue Code of 1986, as amended (the
"Code")), personal holding company (as defined in section 542 of the Code),
foreign personal holding company (as defined in section 552 of the Code),
passive foreign investment company (as defined in section 1297 of the Code) or
other entity the income of which is required to be included in the income of
Prototype or any of its subsidiaries.
2.10.10. Safe Harbor Leases; Tax-Exempt Use Property. Except as set
forth in Section 2.10.10 of the Prototype Disclosure Schedule, none of the
property of Prototype or any of its subsidiaries is subject to a safe-harbor
lease (pursuant to section 168(f)(8) of the Internal Revenue Code of 1954 as in
effect after the Economic Recovery Tax Act of 1981 and before the Tax Reform Act
of 1986) or is "tax-exempt use property" (within the meaning of section 168(h)
of the Code) or "tax-exempt bond financed property" (within the meaning of
section 168(g)(5) of the Code).
2.10.11. Section 341(f) Election. Neither Prototype nor any of its
subsidiaries has made an election under section 341(f) of the Code.
2.10.12. Activity Limitations. Neither Prototype nor any of its
subsidiaries has entered into any agreement or arrangement with any taxing
authority that requires it to take any action or to refrain from taking any
action, except for the undertaking in connection with the
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grant of an "Approved Enterprise" status as described in Section 2.10.14 and the
undertaking in connection with the grant of options under Section 102 of the
Israeli Income Tax Ordinance.
2.10.13. Affiliated Groups. Except as set forth in Section 2.10.13
of the Prototype Disclosure Schedule, neither Prototype nor any of its
subsidiaries (i) has been a member of an U.S. affiliated group filing a
consolidated federal income Tax Return or (ii) has any liability for Taxes of
any person under Treasury Regulations section 1.1502-6 (or any similar provision
of U.S. federal, state or local or Israeli or other law), as a transferee or
successor, by contract or otherwise.
2.10.14. Tax Incentives. Section 2.10.14 of the Prototype Disclosure
Schedule, together with Prototype's Annual Report on Form 20-F for the year
ended December 31, 2000, lists each tax incentive granted to Prototype and its
subsidiaries under the laws of the State of Israel, the period for which such
tax incentive applies, and the nature of such tax incentive, including but not
limited to certain investment programs of Prototype which are qualified by the
Investment Center as an "Approved Enterprise" (an "Approved Enterprise") within
the definition of the Law for the Encouragement of Capital Investments (1959),
as amended. Prototype and its subsidiaries have complied in all material
respects with all requirements of Israeli law to be entitled to claim all such
incentives. Subject to the receipt of the approvals set forth in Section 2.2.2,
the consummation of the Merger will not adversely affect the remaining duration
of the incentive or require any recapture of any previously claimed incentive,
and no consent or approval of any Governmental Entity is required, other than as
contemplated by Section 2.2.2, prior to the consummation of the Merger in order
to preserve the entitlement of Prototype or its subsidiaries to any such
incentive.
2.10.15. Industrial Company. Prototype is qualified as an "Industrial
Company" within the definition of the Law for the Encouragement of Industry
(Taxes), 1969. To the knowledge of Prototype, there is no reason for
disqualifying Prototype from being an Industrial Company for any past or present
period, nor would such reason arise through the conduct and performance of
Prototype's business and operations in accordance with its plans and projections
(including as a result of the Merger or the other transactions contemplated
hereby).
2.11. Intellectual Property.
2.11.1. For purposes of this Agreement, the following terms have the
following definitions:
"Copyrights" means any copyrights, copyrights registrations and applications
therefor, and mask works and mask work registrations and applications therefor,
and all other rights corresponding thereto, in each case which are material to
the business of Prototype and its subsidiaries taken as a whole.
"Intellectual Property" means any or all of the following: (i) Copyrights, moral
rights, works of authorship including, without limitation, Software Programs,
computer programs, source code and executable code, whether embodied in
software, firmware or otherwise, documentation, designs, files, records, data
and mask works, (ii) Patents, inventions (whether or not patentable),
improvements, technology, methods, processes, tools and designs, (iii)
proprietary and
-19-
confidential information, trade secrets and know how, (iv) databases, data
compilations and collections and technical data, (v) Trademarks, (vi) domain
name registrations, web addresses and sites, and all other intellectual property
(whether registered or unregistered) and all applications and economic rights of
authors and inventors, however denominated, for any such rights, anywhere in the
world.
"Intellectual Property Rights" means all rights in any Intellectual Property.
"Patents" means all United States, Israeli and other patents and utility models
and applications therefor and all reissues, divisions, re-examinations,
renewals, extensions, provisionals, continuations and continuations-in-part
thereof, and equivalent or similar rights anywhere in the world in inventions
and discoveries including without limitation invention disclosures.
"Prototype Intellectual Property Rights" means any Intellectual Property Rights
that are owned by or licensed to Prototype or its subsidiaries.
"Prototype Registered Intellectual Property Rights" means Registered
Intellectual Property Rights owned by Prototype or its subsidiaries.
"Registered Intellectual Property Rights" means all Patents (including
registrations and applications to register), Trademarks (including registrations
and applications to register) and Copyrights (including registrations and
applications to register).
"Trademarks" means trademarks and service marks, trade names, brand names,
corporate names, logos, trade dress, and other words, designations, labels,
symbols, designs, colors, color combinations or product configurations, whether
registered or unregistered.
2.11.2. Section 2.11.2 of the Prototype Disclosure Schedule lists, to
the extent material to the conduct of the business of Prototype and its
subsidiaries, all Registered Prototype Intellectual Property Rights (including
but not limited to registration numbers and application serial numbers) as well
as any proceedings or actions before any court, tribunal (including the United
States Patent and Trademark Office or equivalent authority anywhere in the
world) related to any of the Prototype Intellectual Property Rights. To the
extent any Prototype Intellectual Property Rights that are material to the
conduct of the business of Prototype and its subsidiaries are not registered or
the subject of an application to register, they shall be identified as
accurately and concisely as reasonable under the circumstances.
2.11.3. Except as set forth in Section 2.11.3(a) of the Prototype
Disclosure Schedule, Prototype has no knowledge of any information, materials,
facts or circumstances that would render any Prototype Intellectual Property
Rights invalid or unenforceable, except as would not have a Material Adverse
Effect. Except as set forth in Section 2.11.3(b) of the Prototype Disclosure
Schedule (including references to applicable sections of relevant agreements),
to the knowledge of Prototype, (i) each of the Prototype Intellectual Property
Rights, including all Prototype Registered Intellectual Property Rights, is free
and clear of any third-party rights including any statute, rule, regulation,
executive order, order, decree, ruling, injunction or other legal requirements
of any Governmental Entity (each, an "Order") or any Encumbrance, (ii) Prototype
is the exclusive owner or exclusive licensee of all material Prototype
Intellectual Property Rights (including all improvements, derivative works and
the
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like), (iii) except as would not have a Material Adverse Effect, Prototype has
obtained (by agreement or operation of law) a valid and enforceable assignment
sufficient to irrevocably transfer all Intellectual Property Rights (including
the right to seek past and future damages with respect thereto) from third
parties for all Intellectual Property developed or owned by those third parties
and used in the conduct of Prototype's business, (iv) Prototype does not license
any Prototype Intellectual Property Rights to third parties, or permit third
parties to use any Prototype Intellectual Property Rights other than in
accordance, in all material respects, with the terms and conditions of its
standard end-user agreements, complete and correct copies of which are attached
as Attachment A to Section 2.11.3 of the Prototype Disclosure Schedule, (except
for price and terms of payment), and (v) Prototype owes no royalties or payments
to any third party for using or licensing to others any Prototype Intellectual
Property Rights.
2.11.4. The Prototype Intellectual Property Rights, technology in the
public domain and any Commercial Software licensed to Prototype, constitutes all
of the Intellectual Property used in and/or necessary to the conduct of the
business of Prototype as it currently is conducted, and, to Prototype's
knowledge, no facts or circumstances exist (including the ownership of any
Intellectual Property Rights by any person) that would reasonably be expected to
preclude, or limit or impair in any material respect, Prototype's ability to
conduct its business as planned to be conducted.
2.11.5. Other than inbound "shrink-wrap," "click wrap" and similar
generally available, generally not negotiated, commercial binary code end-user
or enterprise licenses ("Commercial Software"), Prototype has made available to
Parent or its counsel a copy of all material Contracts to which Prototype is a
party, a third-party beneficiary, or otherwise bound by such material Contract
with respect to any Intellectual Property Rights, including the Licenses and
Marketing Agreements (collectively, the "IP Agreements"), and a list of all
material IP Agreements are set forth in Section 2.8.1(o) of the Prototype
Disclosure Schedule. To the knowledge of Prototype, (i) all IP Agreements (a)
are in full force and effect and (b) are not the subject of any dispute
regarding the rights and obligations specified in such IP Agreements, or
performance under such IP Agreements, and (ii) Prototype is not in material
breach of and has not failed, in any material respect, to perform under, any IP
Agreement and, to Prototype's knowledge, no other party to any IP Agreement is
in material breach thereof or has failed to perform thereunder in any material
respect.
2.11.6. To the knowledge of Prototype, the operation of the business
of Prototype as it currently is conducted or is contemplated to be conducted by
Prototype, including but not limited to the design, development, use, import,
manufacture and sale of the products, technology or services (including
products, technology or services currently under development) of Prototype does
not, and will not when conducted by Prototype in substantially the same manner
following the Closing, infringe or misappropriate any Intellectual Property
Right of any third party or constitute unfair competition or trade practices
under the laws of any jurisdiction in which Prototype operates or distributes
its products.
2.11.7. All registrations for Prototype Registered Intellectual
Property Rights are valid and subsisting, and all necessary registration,
maintenance and renewal fees in connection with such Prototype Registered
Intellectual Property Rights have been paid and all reasonably necessary
documents and certificates in connection with such Prototype Registered
-21-
Intellectual Property Rights have been filed with the relevant patent,
copyright, trademark or other authorities in the United States, Israel and other
jurisdictions, as the case may be, for the purposes of maintaining such
Prototype Registered Intellectual Property Rights.
2.11.8. To the knowledge of Prototype, no person is infringing or
misappropriating any Prototype Intellectual Property Rights in any material way.
2.11.9. Prototype has in force the trade secret protection program
set forth in Section 2.11.9 of the Prototype Disclosure Schedule. To Prototype's
knowledge, there has been no material violation of such program by any person or
entity. To Prototype's knowledge, none of its employees or consultants has
disclosed or used any Confidential Information in a manner adverse to Prototype.
Prototype has taken all commercially reasonable steps to protect Prototype's
rights in confidential information and trade secrets of Prototype or as required
by any other person who has provided its confidential information, source code
or trade secrets to Prototype. Except as set forth in Section 2.11.9 of the
Prototype Disclosure Schedule, all personnel who are currently or formerly have
been employees, agents, consultants and contractors of Prototype who have
contributed to or participated in the conception and development of all
Intellectual Property for or on behalf of Prototype have executed nondisclosure
agreements in form provided by Prototype to Parent and either (i) have been a
party to a "work-for-hire" arrangement or agreements with Prototype in
accordance with applicable national and state law that has accorded Prototype
full, exclusive and original ownership of all tangible and intangible property
thereby arising, or (ii) have executed appropriate instruments of assignment in
favor or Prototype as assignee that have conveyed to Prototype, effective, and
exclusive ownership of all tangible and intangible property thereby arising,
except where the failure to do so would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
2.11.10. To the knowledge of Prototype, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
by this Agreement, including the assignment to Prototype, by operation of law or
otherwise, of any Contracts to which Prototype is a party, will result in (i)
the Surviving Corporation's granting to any third party any right to or with
respect to any Intellectual Property Rights owned by, or licensed to, either of
them, (ii) the Surviving Corporation's being bound by, or subject to, any
non-compete or other restriction on the operation or scope of their respective
businesses, (iii) an obligation of the Surviving Corporation or any of its
subsidiaries to pay any additional amounts or consideration under any IP
Agreement other than ongoing fees, royalties or payments which Prototype would
otherwise be required to pay or (iv) require the consent of any party to any IP
Agreement.
2.11.11. Except as set forth in Section 2.11.11 of the Prototype
Disclosure Schedule, none of the Intellectual Property covered by the Prototype
Intellectual Property Rights was developed by or on behalf of or using grants of
any Governmental Entity.
2.11.12. Software Programs; Contracts.
(a) Section 2.11.12(a) of the Prototype Disclosure Schedule accurately
identifies all software programs currently being marketed by Prototype and
all material
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software products or programs under development by Prototype but not
currently marketed (collectively, the "Software Programs"). Except as set
forth in Section 2.11.12(a) of the Prototype Disclosure Schedule, to the
knowledge of Prototype, there are no freeware, shareware or similarly
restricted computer code or programs contained in or comprising any
Software Programs.
(b) To Prototype's knowledge, the Software Programs have performed in
accordance with the warranties set forth in the standard end-user
agreements attached as Attachment A to Section 2.11.3 of the Prototype
Disclosure Schedule.
(c) To Prototype's knowledge, Prototype has not taken any action, or
failed to take any action, that would reasonably be likely to result in a
material adverse effect on the protection of the Software Programs under
applicable Intellectual Property laws, or in the release of source code
from escrow.
(d) Section 2.11.12(d) of the Prototype Disclosure Schedule sets forth
a list of all material licenses and sublicenses of the Software Programs in
effect on the date hereof which have generated, or are reasonably expected
to generate, revenue of US$250,000 or more and all current material
customer trial agreements for the Software Programs granted by Prototype to
other parties (collectively, the "Licenses"). All Contracts identified in
Section 2.11.12(d) of the Prototype Disclosure Schedule constitute only
end-user agreements, each of which grants the end user thereunder
principally the nonexclusive right and license to use an identified
Software Program and related user documentation, for internal purposes only
and only in the form of software object code. In addition, Section
2.11.12(d) of the Prototype Disclosure Schedule sets forth the general
product licensing and pricing policies of Prototype by categories of
Software Programs and further accurately identifies each Software Program
which generated 5% or more of Prototype's revenues on a consolidated basis
for the year ended December 31, 2001.
(e) The technical documentation of the Software Programs (the "Technical
Documentation") includes the source code (with comments, to the extent they
exist within the source code) for all Software Programs, as well as any
pertinent comments by or explanation that may be necessary to render such
materials understandable and usable, all according to customary industry
standards. The Technical Documentation also includes any programs
(including compilers), "workbenches," tools and higher level (or
"proprietary") languages necessary for the development, maintenance and
implementation of the Software Programs. Section 2.11.12(e) of the
Prototype Disclosure Schedule sets forth a complete list of all material
contracts, agreements, licenses, or other material commitments or
arrangements in effect with respect to the marketing, remarketing,
distribution, licensing or promotion of (i) the Software Programs or any
other Technical Documentation or the Intellectual Property by any
independent salesperson, distributor, sublicensor or other remarketer or
sales organization (which is not a direct or indirect wholly owned
subsidiary of Prototype) or (ii) any third party's software products by
Prototype (collectively, the "Marketing Agreements"). Section 2.11.12(e) of
the Prototype Disclosure Schedule accurately identifies each
-23-
Marketing Agreement which generated 5% or more of Prototype's revenues on a
consolidated basis during the preceding four fiscal quarters.
2.12. Properties. Except for merchandise and other property and assets
sold, used or otherwise disposed of in the ordinary course of business,
Prototype has good and valid title to all its properties and assets, real and
personal, reflected in the balance sheet of Prototype, dated as of December 31,
2001, included in the 2001 Financials or otherwise in the Prototype Reports, or
acquired subsequent to December 31, 2001, free and clear of any Encumbrance of
any nature whatsoever, except (i) Encumbrances reflected in the balance sheet of
Prototype, dated as of December 31, 2001, included in the 2001 Financials, (ii)
Encumbrances for current Taxes not yet due and payable, and (iii) such
imperfections of title, easements and Encumbrances, if any, as are not
substantial in character, amount, or extent and do not and will not materially
detract from the value, or interfere with the present use, of the property or
assets subject thereto or affected thereby, or otherwise materially impair
business operations. All leases pursuant to which Prototype leases (whether as
lessee or lessor) any substantial amount of real or personal property are in
good standing, valid and effective, and there is not, under any such leases, any
existing or prospective default or event of default or event which with notice,
lapse of time or action by any third party, or any combination thereof, would
constitute a default by Prototype and in respect to which Prototype has not
taken adequate steps to prevent a default from occurring, except as would not
reasonably be expected to have a Material Adverse Effect. The buildings and
premises of Prototype that are used in its business are in satisfactory
condition and are adequate for the continued conduct of Prototype's business on
a basis consistent with past practice, subject to ordinary wear and tear, except
as would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Except as set forth in Section 2.12 of the Prototype
Disclosure Schedule, all major items of equipment of Prototype are in good and
sufficient operating condition and in a state of reasonable maintenance and
repair for the continued conduct of Prototype's business on a basis consistent
with past practice, ordinary wear and tear excepted, and are free from any known
defects or Encumbrances.
2.13. Litigation. Except as set forth in Section 2.13 of the Prototype
Disclosure Schedule, there is no suit, action, or legal, administrative,
arbitration, or other proceeding or governmental investigation pending, or to
the knowledge of Prototype, threatened, against or affecting Prototype or any of
its subsidiaries at law or in equity, or before any Governmental Entity, which
would involve a liability in excess of US$100,000. There is no suit, action, or
legal, administrative, arbitration, or other proceeding or governmental
investigation pending, or to the knowledge of Prototype, threatened, against or
affecting Prototype at law or in equity, or before any Governmental Entity
(including those set forth in Section 2.13 of the Prototype Disclosure
Schedule), which would reasonably be expected to have a Material Adverse Effect.
2.14. Environmental Matters; Permits.
2.14.1. Except as set forth in the Prototype Reports filed prior to
the date hereof, (i) Prototype and each of its subsidiaries is in compliance
with all applicable laws relating to pollution or protection of human health or
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or emissions, discharges,
releases, disposal, migration or handling of any Hazardous Substance
(collectively, "Environmental Laws"), except for non-compliance that
individually or in the aggregate would
-24-
not reasonably be expected to have a Material Adverse Effect, which compliance
includes, but is not limited to, the possession by Prototype and its
subsidiaries of all permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof; (ii) neither Prototype nor any of its subsidiaries has received written
(or, to the Prototype's knowledge, oral) notice of, or, is the subject of, any
material action, cause of action, claim, investigation, demand or notice by any
such person alleging liability under or non-compliance with any Environmental
Law (an "Environmental Claim") including, without limitation, relating to any
contractor, subcontractor or agent of Prototype or for the business, or relating
in any way to any prior facilities, locations, or business of Prototype or any
of its subsidiaries; and (iii) there are no conditions or circumstances that are
reasonably likely to result in any liability of Prototype or any of its
subsidiaries under any Environmental Law, prevent or interfere with any such
compliance thereunder in the future including, without limitation, relating to
any contractor, subcontractor or agent of Prototype or any of its subsidiaries
or for the business, or relating in any way to any prior property, facilities,
locations, or business owned, leased or otherwise occupied or used by Prototype
or any of its subsidiaries, except for any such conditions or circumstances that
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect. Prototype has provided to Parent all environmental
assessments, reports, data, results of investigations, or compliance or other
environmental audits conducted by or for Prototype or any of its subsidiaries,
or otherwise relating to Prototype's or any of its subsidiary's business or
properties (whether owned, leased or operated).
2.14.2. There are no Environmental Claims which individually or in the
aggregate would reasonably be expected to have a Material Adverse Effect that
are pending or threatened against Prototype or any of its subsidiaries or
against any person whose liability for any Environmental Claim Prototype or any
of its subsidiaries has or is reasonably likely to have been retained or assumed
by Prototype or any of its subsidiaries either contractually or by operation of
law.
2.14.3. For purposes of this Agreement, a "Hazardous Substance"
means (i) any regulated, hazardous, toxic or dangerous waste, emission,
substance or material (including gases, liquids and solids) defined as such in
(or for the purposes of) any Environmental Law, including Environmental Laws
relating to or imposing liability or standards or conduct concerning any
regulated, hazardous, toxic or dangerous waste, emission, substance or material,
(ii) petroleum, petroleum products, asbestos or asbestos containing materials,
polychlorinated biphenyls, radon or lead or lead-based paints or materials and
(iii) any other chemical, material or substance, exposure to or emission of
which is prohibited, limited or regulated by any Governmental Entity pursuant to
any Environmental Law or any health and safety or similar law, statute or
regulation and which poses or could reasonably be expected to pose a hazard to
the health and safety of any person or property including workers at or users of
any properties of Prototype or any of its subsidiaries, or cause damage to the
environment or natural resources.
2.14.4. Prototype and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals and other authorizations from
Governmental Entities which are material to the operation of the business of
Prototype and its subsidiaries taken as a whole (collectively, the "Prototype
Permits"). Prototype and its subsidiaries have been and are in compliance in all
material respects with the terms of the Prototype Permits and any conditions
-25-
placed thereon. Prototype does not know of any reason it would not be able to
renew any of the Prototype Permits required to operate or use any of Prototype's
or any of its subsidiary's assets for their current or anticipated purposes and
uses. There are no permits, licenses, variances, exemptions, orders or approvals
or other authorizations from Governmental Entities held by Prototype or any of
its subsidiaries, or required for Prototype's or any of its subsidiary's
business, that are required to be transferred or reissued, or that are otherwise
prohibited from being transferred or reissued, as a result of the transactions
contemplated by this Agreement.
2.15. Compliance with Other Laws. Except as set forth in the Prototype
Reports filed prior to the date hereof, none of Prototype or any of its
subsidiaries is in violation of or in default with respect to any applicable law
or any applicable rule, regulation, or any writ or decree of any Governmental
Entity, or delinquent with respect to any report required to be filed with any
Governmental Entity, except for violations which, either singly or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
2.16. Finder's Fee. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by Prototype and its
counsel directly with Parent and its counsel, without the intervention of any
other person as the result of any act of Prototype or any of its affiliates, and
without the intervention of any other person in such manner as to give rise to
any valid claim against any of the parties hereto for a brokerage commission,
finder's fee or any similar payments, other than financial advisory fees to be
paid by Prototype to Xxxxxx & Co., Inc. (the "Financial Advisor") in connection
with the Merger, under an engagement agreement, a true and correct copy of which
has been provided to Parent, which engagement agreement has not thereafter been
amended, modified or waived in any respect.
2.17. Employment Matters.
2.17.1. Except as set forth in Section 2.17.1 of the Prototype
Disclosure Schedule, Prototype is not a party to, or otherwise bound by, any
collective bargaining contract, collective labor agreement or other collective
contract or arrangement with a labor union, trade union or other organization or
body involving any of its employees that requires it to provide benefits or
working conditions in excess of the minimum benefits and working conditions
required by law to be provided pursuant to rules and regulations of the
Histadrut (General Federation of Labor), the Coordinating Bureau of Economic
Organization and the Industrialists' Association. Except as set forth in Section
2.17.1 of the Prototype Disclosure Schedule, Prototype has not recognized or
received a demand for recognition from any collective bargaining representative
with respect to any of its employees. Except as set forth in Section 2.17.1 of
the Prototype Disclosure Schedule, Prototype does not have and is not subject
to, and no employee of Prototype benefits from, any extension order (tzavei
harchava) or any contract or arrangement with respect to employment or
termination thereof. All of the employees of Prototype are "at will" employees
subject to the termination notice provisions included in employment agreements
or applicable law. Except as set forth in Section 2.17.1 of the Prototype
Disclosure Schedule, there is no claim or complaint that is pending or, to the
knowledge of Prototype, has been threatened against Prototype by any person who
is or has been an employee or director of Prototype that, if individually or
collectively resolved against Prototype would reasonable be expected to have a
Material Adverse Effect. Without limiting the generality of the foregoing, there
are no unfair labor practice claims or charges that are pending, or that, to the
-26-
knowledge of Prototype, have been threatened against Prototype. Since December
31, 1997, (i) there has been no labor strike, slowdown or stoppage pending (or,
to the best knowledge of Prototype, threatened) against or affecting Prototype,
(ii) there has been no dispute between Prototype and any group of its employees,
(iii) no event has occurred and no circumstance or condition exists that could
reasonably be expected to give rise to any such labor strike, slowdown, stoppage
or dispute and (iv) there has been no effort on the part of any labor union to
organize any employees of Prototype. Prototype has good labor relations, and
Prototype has no knowledge of any facts indicating that (i) the consummation of
the Merger or any of the other transactions contemplated by this Agreement would
reasonably be expected to have a material adverse effect on any of Prototype's
labor relations, or (ii) to Prototype's knowledge, any of the employees of
Prototype intends to terminate his or her employment with Prototype.
2.17.2. Except for the employment agreements described in Section
2.17.2 of the Prototype Disclosure Schedule, there is no Contract between
Prototype and any of its employees or directors, or other set of circumstances
known to Prototype, that would give rise to a claim for damages or compensation
in excess of US$25,000 (other than statutory severance pay) if any employee or
director is terminated by Prototype with or without notice. Prototype is in
compliance in all material respects with all applicable legal requirements and
contracts relating to employment, employment practices, wages, bonuses and other
compensation matters and terms and conditions of employment.
2.17.3. All amounts that Prototype is legally or contractually
required either (i) to deduct from its employees' salaries or to transfer to
such employees' pension or provident, life insurance, incapacity insurance,
continuing education fund or other similar fund or (ii) to withhold from their
employees' salaries and pay to any Governmental Entity as required by the
Israeli Tax Ordinance have, in each case, been duly deducted, transferred,
withheld and paid.
2.17.4. (i) Each Prototype Plan has been maintained and administered
in material compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations (including, with
respect to Prototype or any trade, business or entity under common control with
Prototype within the meaning of Section 414(b), (c), (m) or (o) of the Code
(each, an "ERISA Affiliate"), all obligations pursuant to Section 4980B of the
Code and Part 6 of Title I of ERISA), and is, to the extent required by
applicable law or contract, fully funded (including establishing book reserves
in accordance with normal accounting practices) without having any deficit or
unfunded actuarial liability; (ii) except as would not reasonably be expected to
have a Material Adverse Effect, all required contributions under any such plans
have been made and the applicable funds have been funded in accordance with the
terms thereof and no past service funding liabilities exist thereunder; (iii)
each Prototype Plan that is required or intended to be qualified under
applicable law or registered or approved by a Governmental Entity has been so
qualified, registered or approved by the appropriate Governmental Entity, and,
to the knowledge of Prototype, nothing has occurred since the date of the last
qualification, registration or approval to materially and adversely affect, or
cause, the appropriate Governmental Entity to revoke such qualification,
registration or approval; (iv) to the extent applicable, and any Prototype Plan
intended to be qualified under Section 401(a) of the Code has been determined by
the Internal Revenue Service to be so qualified (or has time remaining under
applicable regulations or Internal Revenue Service pronouncements to obtain a
favorable determination or opinion letter) and, to the
-27-
knowledge of Prototype, nothing has occurred to cause or would reasonably be
expected to cause the loss of such qualified status and each trust funding any
Prototype Plan which is intended to meet the requirements of Section 501(c)(9)
of the Code meets such requirements in all material respects and provides no
material disqualified benefits (as such term is defined in Code Section
4976(b)); (v) no Prototype Plan is subject to Title IV or Section 302 of ERISA
or Section 412 of the Code or is a defined benefit pension plan; (vi) there are
no pending or, to the knowledge of Prototype, threatened material claims against
or otherwise involving any of the Prototype Plans and no suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of
Prototype Plan activities) has been brought against or with respect to any
Prototype Plan and, no set of circumstances exists which may reasonably give
rise to a claim or lawsuit, against the Prototype Plans, any fiduciaries thereof
with respect to their duties to the Prototype Plans or the assets of any of the
trusts under any of the Prototype Plans which could reasonably be expected to
result in any material liability of Prototype to the Pension Benefit Guaranty
Corporation, the Department of Treasury, the Department of Labor, any Prototype
Plan, any participant in a Prototype Plan, or any other party; (vii) neither
Prototype nor any ERISA Affiliate has incurred or is reasonably expected to
incur any liability under subtitle C or D of Title IV of ERISA with respect to
any "single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by Prototype; (viii) neither Prototype nor any
ERISA Affiliate has incurred or is reasonably expected to incur any withdrawal
liability under Subtitle E of Title IV of ERISA with respect to any
"multiemployer plan," within the meaning of Section 4001(a)(3) of ERISA,
currently or formerly maintained by Prototype; (ix) Prototype has substantially
performed all material obligations, whether arising by law or by contract,
required to be performed by it in connection with the Prototype Plans; (x) to
the knowledge of Prototype, no act, omission or transaction has occurred which
could reasonably be expected to result in imposition on Prototype of (a) a
material civil penalty assessed pursuant to subsections (c), (i) or (l) of
Section 502 of ERISA, (b) material breach of fiduciary duty liability damages
under Section 409 of ERISA or (c) a material Tax imposed pursuant to Chapter 43
of Subtitle D of the Code; (xi) neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(either alone or in conjunction with any other event) result in, cause the
accelerated vesting, funding or delivery of, or increase the amount or value of,
any payment or benefit to any employee, officer or director of Prototype, or
result in any limitation on the right of Prototype to amend, merge, terminate or
receive a reversion of assets from any Prototype Plan or related trust or any
employment agreement or related trust, and without limiting the generality of
the foregoing, no amount paid or payable (whether in cash, in property, or in
the form of benefits) by Prototype in connection with the transactions
contemplated hereby could be an "excess parachute payment" within the meaning of
Section 280G of the Code; (xii) there are no amendments increasing benefits
under to any Prototype Plan that have been adopted or approved nor has Prototype
undertaken to make any such amendments or to adopt or approve any new Prototype
Plan; (xiii) to Prototype's knowledge, each individual who renders services to
Prototype who is classified by Prototype as having the status of an independent
contractor or other non-employee status for any purpose (including for purposes
of taxation and Tax reporting and under a Prototype Plan) is properly so
characterized; and (xiv) Prototype has no obligations for retiree welfare
benefits and life benefits under any Prototype Plan, except for health
continuation coverage pursuant to Section 4980B of the Code or Part 6 of Title I
of ERISA or applicable state healthcare continuation law, and there are no
agreements or undertakings (whether written or unwritten) that would prevent
Prototype
-28-
from amending or terminating any such Prototype Plan (other than individual
agreements or contracts) without incurring any material liability thereunder.
2.18. Board Approval. The Board of Directors of Prototype has (i)
determined that the Merger fair to, and in the best interests of, Prototype and
its shareholders, and that no reasonable concern exists that the Surviving
Corporation will be unable to fulfill the obligations of Prototype to its
creditors, (ii) approved this Agreement, the Merger and the other transactions
contemplated by this Agreement and (iii) determined to recommend that the
shareholders of Prototype approve this Agreement, the Merger and the other
transactions contemplated by this Agreement.
2.19. Information Supplied by Prototype. None of the information or data
(including financial statements) concerning Prototype which will be included in
a proxy statement to be sent to the shareholders of Prototype in connection with
the Prototype General Meeting to be held to obtain the Prototype Shareholder
Vote in accordance with applicable Israeli law (the "Proxy Statement") will, at
the time the Proxy Statement is mailed to the shareholders of Prototype or at
the time of the Prototype General Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading and the Proxy Statement
will comply with applicable law in all material respects.
2.20. Inapplicability of Certain Articles and Statutes. To the knowledge of
Prototype, other than Article 100 of the Amended and Restated Articles of
Association of Prototype, Prototype is not subject to any takeover law, statute
or regulation or provision of its Formation Documents, that might delay, impair
or prohibit consummation of the Merger or any other transaction contemplated by
this Agreement. Prototype and the Board of Directors have taken all necessary
action to approve this Agreement, the Merger and the other transactions
contemplated hereby under any takeover law, statute or regulation and for
purposes of Article 100 of the Amended and Restated Articles of Association of
Prototype and any other similar takeover provision so that such provisions will
not apply to this Agreement, the Merger or the other transactions contemplated
hereby.
2.21. Certain Shareholders; Affiliates. To the knowledge of Prototype,
except for the persons set forth in Section 2.21 of the Prototype Disclosure
Schedule, there is no person who, as of the date hereof, "beneficially owns" (as
defined in Rule 13d-3 under the Exchange Act) 5% or more of the outstanding
Prototype Shares.
2.22. Relationships with Related Persons. Except as set forth in the
Prototype Reports filed prior to the date hereof or as identified in Section
2.22 of the Prototype Disclosure Schedule, there are no, and since January 1,
2000, there have not been any, Contracts or other transactions between Prototype
or any of its subsidiaries, on the one hand, and any director or executive
officer of Prototype or any of their respective Related Persons, on the other
hand, and no director or executive officer of Prototype or any of their
respective Related Persons have any material interest in any of the material
assets or properties of Prototype or any of its subsidiaries. Except as set
forth in Section 2.22 of the Prototype Disclosure Schedule, to the knowledge of
Prototype, no executive officer, key employee or director of Prototype or any of
their respective Related Persons has any claim, charge, action or cause of
action against Prototype or any of its
-29-
subsidiaries, except for claims for accrued vacation pay, accrued benefits under
Prototype's benefit plans, claims for compensation, expense reimbursement and
similar obligations and similar matters and agreements, in the ordinary course
of business. For purposes hereof, the term "Related Persons" means (a) each
other member of such individual's Family; and (b) any person or entity that is
directly or indirectly controlled by any one or more members of such
individual's Family. For purposes of this definition, the "Family" of an
individual includes (i) such individual, (ii) the individual's spouse, siblings,
or ancestors (iii) any lineal descendent of such individual, or their siblings,
or ancestors or (iv) a trust for the benefit of any of the foregoing.
2.23. Grants, Incentives and Subsidies. Section 2.23 of the Prototype
Disclosure Schedule provides a complete list of all pending and outstanding
grants, incentives and subsidies from the Government of the State of Israel or
any agency thereof, or from any other Governmental Entity, granted to Prototype,
including, without limitation, (i) Approved Enterprise status from the
Investment Center and (ii) grants from the OCS (collectively, "Grants").
Prototype has made available to Parent, prior to the date hereof, complete and
correct copies of all documents evidencing the Grants and of all letters of
approval, and supplements thereto, granted to Prototype in connection therewith.
Section 2.23 of the Prototype Disclosure Schedule details all material
undertakings of Prototype given in connection with the Grants. Without limiting
the generality of the above, Section 2.23 of the Prototype Disclosure Schedule
includes the aggregate amounts of each Grant, and the aggregate outstanding
obligations thereunder of Prototype with respect to royalties, and the
outstanding amounts paid or to be paid by the OCS to Prototype (and by Prototype
to the OCS) and the composition of such obligations or amount by the product or
product family to which it relates. Prototype is in compliance, in all material
respects, with the terms and conditions of the Grants and, except as disclosed
in Section 2.23 of the Prototype Disclosure Schedule hereto, has duly fulfilled,
in all material respects, all undertakings relating thereto.
2.24. Foreign Corrupt Practices Act. To Prototype's knowledge, the
activities of each of Prototype, its subsidiaries and its officers, directors
and employees has complied in all material respects, and the operations of each
of Prototype and its subsidiaries has complied in all material respects, with
all applicable laws governing corrupt or illicit business practices, including,
without limitation, laws dealing with improper or illegal payments, gifts or
gratuities and/or the payment of money or anything of value directly or
indirectly to any person (whether a government official or private individual)
for the purpose of illegally or improperly inducing any person or government
official, or political party or official thereof, or any candidate for any such
position, in making any decision or improperly assisting any person in obtaining
or retaining business or taking any other action favorable to such person,
and/or dealing with business practices in relation to investments outside of the
United States (including, by way of example, if applicable, the U.S. Foreign
Corrupt Practices Act, as amended).
2.25. Hedging Transactions. None of Prototype nor any of its subsidiaries
is a party to or, or bound by, any outstanding hedging transaction or
arrangement.
2.26. Opinion of Financial Advisor. The Financial Advisor has delivered its
written opinion to the Board of Directors to the effect that, as of the date of
such opinion, the Per Share Merger Consideration to be received in the Merger by
the holders of Prototype Shares is fair from a financial point of view to such
holders, and a complete and correct copy of such opinion
-30-
has been delivered to Parent (and has not been withdrawn, amended or otherwise
modified subsequent to such delivery).
2.27. Customers and Suppliers . Since December 31, 2001 through the date hereof,
except as set forth in Section 2.27 of the Prototype Disclosure Schedule, no
material licensor, vendor, supplier, licensee or customer of Prototype or any of
its subsidiaries has canceled or otherwise modified (in a manner materially
adverse to Prototype and its subsidiaries taken as a whole) its relationship
with Prototype or its subsidiaries and, to Prototype's knowledge, no such person
has notified Prototype of its intention to do so. Section 2.27 of the Prototype
Disclosure Schedule accurately identifies each customer of Prototype which
accounted for 5% or more of Prototype's revenues during the preceding four
fiscal quarters.
2.28. Restrictions on Business Activities. To Prototype's knowledge, there is no
order, decree, ruling, injunction or other similar legal requirement of any
Governmental Entity expressly binding Prototype or any of its subsidiaries, or
any Contract to which Prototype or any of its subsidiaries is a party or which
is otherwise binding upon Prototype or any of its subsidiaries, which (A)
contains any provision or covenant prohibiting, impairing, limiting or
restricting, or purporting to prohibit, impair, limit or restrict, the ability
of Prototype or any of its subsidiaries to (i) sell or license any products or
services of or to any other person in any material respect, (ii) engage in any
material line of business, (iii) compete with or to obtain products or services
from any person or limiting the ability of any person to provide products or
services to Prototype or any of its subsidiaries in any material respect, (iv)
grant any material distribution or licensing rights or (v) acquire any property,
assets or business that could be material to Prototype or any of its
subsidiaries or (B) would reasonably be expected to have any of the effects
described in clauses (i) through (v) above.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Each of Parent and Merger Sub, jointly and severally, represents and
warrants to Prototype as follows:
3.1. Organization and Standing. Parent is a company duly organized and
validly existing under the laws of The Netherlands and Merger Sub is a company
duly organized and validly existing under the laws of the State of Israel. Each
of Parent and Merger Sub has all requisite power and authority to carry on its
business as it is currently conducted and to own and operate the properties
currently owned and operated by it and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not reasonably be expected to have a material adverse effect on the
ability of Parent to consummate the Merger and the other transactions
contemplated by this Agreement.
-31-
3.2. Agreement Authorized and its Effect on Other Obligations.
3.2.1. Authorization and Enforceability. Each of Parent and Merger Sub
has all requisite power and authority to execute and deliver this Agreement and
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery by each of Parent and Merger Sub
of this Agreement and the performance by each of Parent and Merger Sub of its
obligations hereunder have been duly and validly authorized by all necessary
corporate action on the part of each of Parent and Merger Sub. This Agreement
has been duly executed and delivered by each of Parent and Merger Sub and
(assuming due authorization, execution and delivery hereof by the other parties
hereto) this Agreement constitutes the legal, valid and binding obligation of
each of Parent and Merger Sub, enforceable against each of Parent and Merger Sub
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, debtor relief or similar laws affecting
the rights of creditors generally and by general principles of equity.
3.2.2. Approvals. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Parent or any of its subsidiaries in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except (a) the Required Consents and (b) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings, the failure of which to be obtained or made could not have a material
adverse effect on the ability of Parent to consummate the Merger and the other
transactions contemplated by this Agreement.
3.2.3. No Violation. Assuming the receipt of all consents, approvals,
orders or authorizations of, and the registration, declaration or filing with,
any Governmental Entity contemplated by Section 3.2.2, neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby will (i) conflict with or result in a violation or breach of
any term or provision of, nor constitute a default under, the organizational
documents of Parent or Merger Sub, (ii) contravene, conflict with or result in a
violation or breach of, or result in a default under, or result in the
acceleration or cancellation of any obligation under, or give rise to a right by
any party to terminate, cancel, modify or amend in any respect its obligations
under, any indenture, mortgage, deed of trust, conveyance to secure debt, note,
loan, lien, lease, agreement, instrument, order, judgment, decree, contract or
other arrangement or commitment to which Parent or any of its subsidiaries is a
party or by which any of them or their properties or assets are bound, (iii)
contravene, conflict with or result in a violation of, or give any Governmental
Entity or other person the right to challenge the Merger or to exercise any
remedy or obtain any relief under, any legal requirement or any order, writ,
injunction, judgment or decree to which Parent or Merger Sub, or any of the
assets owned or used by Parent or Merger Sub, is subject; or (iv) with the
passage of time, the giving of notice, or the taking of any action by a third
person, or any combination thereof, have any of the effects set forth in clause
(ii) and (iii) of this Section 3.2.3, in each case (other than clause (i)
hereof) other than such violations, breaches or defaults as could not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of Parent to consummate the Merger and the other
transactions contemplated by this Agreement.
-32-
3.3. Information for Proxy Statement. None of the information and data
concerning Parent or Merger Sub to be furnished in writing by Parent or Merger
Sub to Prototype explicitly for use in the Proxy Statement will, at the time the
Proxy Statement is mailed to the shareholders of Prototype or at the time of the
Prototype General Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they are made, not misleading.
3.4. Financing. Parent and Merger Sub collectively have available to them
(and hereby agree that they shall continue to have through the Effective Time)
all funds from their cash and cash equivalents, committed equity capital
available on call or borrowings currently available under existing credit
facilities necessary to purchase all outstanding Prototype Shares (on a
fully-diluted basis) in accordance with and subject to the terms and conditions
of this Agreement, to perform their other obligations under this Agreement and
to pay all fees and expenses related to the transactions contemplated by this
Agreement that are payable by them.
3.5. Finder's Fees. There is no investment banker, broker, finder or other
intermediary that has been retained by or is authorized to act on behalf of
Parent or Merger Sub who is entitled to any fee or commission from Prototype in
connection with the transactions contemplated by this Agreement that is not
contingent on the consummation of the Merger.
3.6. Merger Sub. Merger Sub was formed by Parent or at Parent's direction
for the purpose of engaging in the transactions contemplated by this Agreement,
and, as of the date hereof, has engaged in no business and has incurred no
liabilities other than in connection with the transactions contemplated by this
Agreement.
ARTICLE IV
OBLIGATIONS PENDING EFFECTIVE TIME
4.1. Conduct of Business by Prototype.
4.1.1. During the period from the date of this Agreement continuing
until the earlier of the termination of this Agreement pursuant to its terms or
the Effective Time, except with the prior written consent of Parent, Prototype
shall, and shall cause its subsidiaries to:
(a) carry on its business only in the ordinary course of business, use
its commercially reasonable efforts to (i) maintain the goodwill it now
enjoys and to preserve intact its present business organization, (ii) keep
available the services of its officers and employees, and (iii) preserve
its relationships with customers, suppliers, licensors, licensees,
distributors, and others having business dealings with it, and in
connection therewith it shall not substantially deviate from its licensing
and pricing practices;
(b) maintain all of its property and assets in good repair, order, and
condition, reasonable wear and use excepted;
(c) maintain its books of accounts and records in the ordinary course,
in accordance with GAAP applied on a consistent basis;
-33-
(d) duly comply in all material respects with all laws applicable to
it and to the conduct of its business;
(e) at its expense, take or agree to take any commercially reasonable
actions in the ordinary course of business the failure of which to take
would reasonably be expected to result in the representations and
warranties made by it herein being materially inaccurate at the Effective
Time;
(f) maintain insurance upon all its properties and with respect to the
conduct of its business of such kinds and in such amounts as is customary
in the type of business in which it is engaged, but not less than that
presently carried by it; and
(g) observe in all material respects all provisions of, and perform in
all material respects all its obligations under, its Material Contracts.
4.1.2. Except as set forth in Section 4.1.2 of the Prototype
Disclosure Schedule, Prototype agrees that, without the prior written consent of
Parent, during the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement pursuant to its terms or the
Effective Time, Prototype shall not, and shall not permit any of its
subsidiaries to:
(a) (i) increase the compensation payable or to become payable or the
benefits provided or to become provided to current or former directors,
officers, employees, or consultants of Prototype, or increase the
compensation payable or benefits provided under any Prototype Plan or
collective bargaining agreement or otherwise increase or accelerate the
vesting or payment of the compensation payable or the benefits provided or
compensation or benefits to become payable or provided to any current or
former director, officer, employee or consultant of Prototype other than in
the ordinary course of business to employees who are not officers or
directors; (ii) grant any severance or termination pay (except as required
by applicable law) to, or enter into or amend any employment, consulting,
severance or other individual Contract with, any director, officer,
employee or consultant of Prototype, or establish, adopt, enter into or
amend any Prototype Plan; or (iii) hire the services of any director,
officer, employee or consultant other than for total compensation
(including salary, bonus and other benefits) not exceeding US$100,000 on an
annualized basis;
(b) split, reverse split, combine, consolidate, reclassify, divide or
subdivide any shares of its capital stock, declare, set aside or pay any
dividend or other distribution (whether in cash, shares, property or any
combination thereof) in respect of its capital stock, or redeem or
otherwise acquire (whether directly or indirectly) any of its securities or
any securities of its subsidiaries;
(c) (i) incur or assume any Indebtedness except trade payables
incurred in the ordinary course of business, (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person, (iii)
make any loans, advances or capital contributions to, or investments in,
any other person (other than to wholly owned subsidiaries of Prototype or
customary
-34-
loans or advances to employees in the ordinary course of business and in
amounts not material to the maker of such loan or advance) or make any
change in its existing borrowing or lending arrangements for or on behalf
of any such person, whether pursuant to an employee benefit plan or
otherwise, (iv) pledge or otherwise encumber shares of capital stock of
Prototype or any of its subsidiaries, or (v) mortgage or pledge any of its
material assets, tangible or intangible, or create or suffer to exist any
material Encumbrance thereupon;
(d) authorize for issuance, issue, sell, deliver, or agree or commit
to issue, sell or deliver, dispose of, encumber or pledge (whether through
the issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase, conversion or otherwise) any shares of any class or any
securities (including, without limitation, any phantom or notional
interest), except as required by agreements with Prototype's employees
under the Prototype Plans, Prototype Option Agreements or Prototype
Warrants, in each case as in effect as of the date hereof, or, except as
contemplated by Section 4.7 hereof, amend any of the terms of any such
securities or agreements outstanding as of the date hereof;
(e) enter into any commitment relating to or incur any capital
expenditure or contingent liability which would exceed US$100,000,
individually or US$200,000 in the aggregate, except for sales of goods and
services by Prototype and its subsidiaries in the ordinary course of
business;
(f) adopt a plan of complete or partial liquidation or adopt
resolutions or enter into any Contract providing for the complete or
partial liquidation, dissolution, merger, consolidation, amalgamation,
arrangement, business combination, sale of all or a significant portion of
assets, sale of securities, recapitalization, tender or exchange offer for
securities of, or similar transaction involving Prototype or any of its
subsidiaries (other than the Merger) or any other material corporate
transaction, or consummate any of the foregoing;
(g) acquire, sell, transfer, lease, encumber or dispose of any assets
outside the ordinary course of business or any assets which are material to
Prototype and its subsidiaries taken as a whole, or enter into any
commitment or transaction outside the ordinary course of business which
would be material to Prototype and its subsidiaries taken as a whole;
(h) acquire (by merger, consolidation, or acquisition of capital stock
or assets) any corporation, partnership or other business entity or
division thereof or any equity interest therein;
(i) except as may be required as a result of a change in GAAP or
applicable law, change any of the accounting principles, practices or
methods used by it;
(j) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory or writing-off
notes, accounts receivable
-35-
or other assets, other than in the ordinary course of business not to
exceed US$50,000 in the aggregate;
(k) amend or modify its Formation Documents or the character of its
business;
(l) (i) make any Tax election, settle or compromise any Tax liability
of Prototype or any of its subsidiaries or file any Tax Return of Prototype
or any of its subsidiaries or (ii) waive or extend the period for
assessment or collection of any Taxes of Prototype or any of its
subsidiaries;
(m) (i) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than in the ordinary course of business, (ii) settle or
compromise any pending or threatened suit, action or claim involving
payments in excess of US$150,000 in the aggregate or (iii) settle or
compromise any pending or threatened suit, action or claim other than
solely for money damages;
(n) permit any insurance policy naming it as a beneficiary or a loss
payable payee to be canceled or terminated unless Prototype shall have
obtained a comparable replacement policy;
(o) terminate, amend, modify, materially extend, or waive any material
provision of, any Material Contract, or enter into any Contract other than
in the ordinary course of business which could be material to Prototype and
its subsidiaries taken as a whole, or enter into any Contract that would be
a Material Contract;
(p) take any action that would, or fail to take any action the failure
of which would, cause directly or indirectly any material Intellectual
Property to enter the public domain or that could otherwise adversely
affect any material Prototype Intellectual Property Rights;
(q) directly or indirectly enter into, modify or renew any collective
bargaining agreement with any labor union or other representative of
employees; or
(r) take, agree in writing or otherwise to take, or propose or commit
to take any action (i) described in this Section 4.1.2, (ii) which would
reasonably be expected to make any of the representations or warranties of
Prototype contained in this Agreement untrue or incorrect in any material
respect as of the date when made or as of the Closing Date, (iii) which
could reasonably be expected to result in any of the conditions set forth
in Article V not being satisfied (other than actions taken in strict
compliance with Section 4.4), (iv) inconsistent with the transactions
contemplated by this Agreement or the Voting Agreements or (v) to
challenge, question or call into doubt the validity or enforceability of
the Merger, any Voting Agreement or any of the transactions contemplated
hereby or by any Voting Agreement.
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4.2. Financial Statements; Shareholder Communications.
4.2.1. Prototype shall promptly prepare at the end of each
calendar month and promptly deliver to Parent, but in no event later than
fifteen (15) calendar days after the end of each calendar month, internal
management accounts of income, retained earnings and cash flows of Prototype and
its subsidiaries. In addition, Prototype shall promptly prepare at the end of
each fiscal quarter and promptly deliver to Parent, but in no event later than
twenty (20) calendar days after the end of each fiscal quarter, unaudited
consolidated and consolidating balance sheets and related unaudited statements
of income, retained earnings and cash flows of Prototype and its subsidiaries as
of the end of such fiscal quarter. Prototype hereby represents and warrants that
such unaudited consolidated and consolidating quarterly financial statements
shall (i) be complete in all material respects except for the omission of notes
and schedules contained in audited financial statements, (ii) present fairly in
all material respects the consolidated financial position for Prototype and its
subsidiaries as of the date thereof and the consolidated and consolidating
results of their operations, cash flows and changes in financial position for
the periods then ended (except for normal year-end adjustments which are,
individually or in the aggregate, not material), (iii) have been prepared in
accordance with GAAP applied on a consistent basis and (iv) contain
consolidating data that is consistent with the financial books and records of
each of Prototype's entities, divisions and segments for financial reporting
purposes. In addition, Prototype shall promptly prepare and deliver to Parent
weekly operating reports in a form to be mutually agreed and all other financial
information reasonably requested by Parent. The weekly operating reports and
monthly internal management accounts delivered pursuant to this Section 4.2.1
shall be prepared in a manner consistent in all material respects with the
weekly operating reports and internal management accounts provided by Prototype
prior to the date hereof.
4.2.2. Prototype shall promptly furnish to Parent copies of all
communications from Prototype to its shareholders and all reports and other
documents filed with, or furnished to, the Commission by Prototype after the
date hereof.
4.3. Access to Information.
(a) Prior to the Effective Time, Prototype will give Parent and its
officers, directors, employees, agents, partners, accountants, counsel,
consultants, bankers, financial advisors and other representatives of
Parent and of persons controlling Parent or any such person (each, a
"Representative") reasonable access during normal working hours and other
reasonable times to all officers, employees, agents, representatives,
plants, offices, warehouses and other facilities and properties, including
for purposes of transition planning (subject to applicable law) and to all
books and records of Prototype and its subsidiaries, will permit Parent and
its authorized representatives to make such inspections (including any
physical inspections or soil or groundwater investigations), as they may
reasonably request and will cause Prototype's officers and employees and
those of its subsidiaries to furnish Parent with such financial and
operating data and other information with respect to the business and
properties of Prototype and any of its subsidiaries as Parent may from time
to time reasonably request.
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(b) Except as otherwise agreed to by Prototype, until the earlier of
the Effective Time and the second anniversary of the date hereof, and
notwithstanding termination of this Agreement, Parent and Merger Sub will,
and will instruct their Representatives to (x) keep, all Confidential
Information confidential and (y) not to disclose any Confidential
Information to any person other than its Representatives, and then only on
a confidential basis; provided, however, that Parent may disclose
Confidential Information (i) as required by law, rule, regulation or
judicial process, including as required to be disclosed in connection with
the Merger or any other transaction contemplated hereby and (ii) as
requested or required by any Governmental Entity. For purposes of this
Agreement, "Confidential Information" shall include all confidential
information about Prototype which has been furnished by Prototype to Parent
or its Representatives pursuant to or in connection with the negotiation,
execution and consummation of this Agreement; provided, however, that
Confidential Information does not include information which (x) is or
becomes available in the public domain other than as a result of a
disclosure by Parent not permitted by this Agreement, (y) was already
available to, or in the possession of, Parent prior to its disclosure by,
or at the direction of, Prototype or (z) becomes available to Parent from a
person (other than Prototype) who, to the knowledge of Parent, is not
otherwise bound by a confidentiality agreement with Prototype.
(c) No investigation pursuant to this Section 4.3 or otherwise shall
affect any representations or warranties of the parties herein or any
condition to the obligations of the parties hereto.
4.4. No Solicitation.
4.4.1. From the date hereof continuing through the Effective Time,
Prototype shall not, nor shall it permit any of its subsidiaries to, nor shall
it or any of its subsidiaries authorize or permit any director or officer of
Prototype or any of its subsidiaries, and Prototype shall direct and use its
reasonable best efforts to cause its and its subsidiaries' employees, agents and
representatives, including any investment banker, attorney, accountant or other
advisor or representative of Prototype or any of its subsidiaries, not to,
directly or indirectly: (i) solicit, initiate, negotiate or encourage, or take
any other action to facilitate, any inquiry, offer or the making of any proposal
for (or which may reasonably be expected to lead to) any acquisition or purchase
of a substantial amount of assets of, or more than a fifteen percent (15%)
equity interest in, Prototype or any of its subsidiaries or any merger,
consolidation, amalgamation, arrangement, business combination, sale of all or a
significant portion of assets, sale of securities, recapitalization, tender or
exchange offer for securities of, liquidation, dissolution, winding up,
extraordinary dividend or distribution, significant share repurchase or other
similar transaction involving Prototype or any of its subsidiaries (other than
the Merger) or any other material corporate transaction the consummation of
which would, or could reasonably be expected to, impair, impede, frustrate,
interfere with, prevent or delay the Merger (each a "Takeover Proposal") or (ii)
propose, continue, enter into or participate in any discussions or negotiations
regarding any of the foregoing, or terminate, modify or waive, or fail to
enforce any provisions of any standstill or similar agreement (other than
involving Parent or its affiliates), or furnish to another person any
information with respect to Prototype's or any of its subsidiaries' business,
properties or assets in connection with or relating to any of the foregoing, or
where it might
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reasonably be likely to lead to any of the foregoing, or otherwise cooperate in
any way with, or assist or participate in, facilitate or encourage, an effort or
attempt by any person (other than Parent and its affiliates) to do or seek any
of the foregoing; provided that, at any time prior to the obtaining of the
Required Prototype Shareholder Vote, if Prototype receives a written proposal
for a Takeover Proposal that (x) was not initiated, solicited or encouraged
after April 9, 2002 by Prototype, its subsidiaries or affiliates, or any of its
or their directors, officers, employees, agents or representatives, and did not
otherwise result from a breach of this Section 4.4, and (y) the Board of
Directors or a special committee thereof determines in good faith, after receipt
of advice from its financial advisor and outside legal counsel, would reasonably
be expected to result in a third party making a proposal for a Superior
Proposal, Prototype may, (A) furnish information with respect to Prototype to
the person making such proposal pursuant to a customary confidentiality
agreement the terms of which shall be no less favorable to Prototype than the
confidentiality agreement entered into by Prototype and an affiliate of Parent
on February 27, 2002, and (B) participate in discussions or negotiations with
such person regarding such proposal. Prototype agrees to use its reasonable best
efforts to promptly inform its and its subsidiaries' directors, officers,
employees, agents and representatives of the obligations undertaken in this
Section 4.4. Nothing in this Section 4.4 shall (i) permit Parent or Prototype to
terminate this Agreement (except as specifically provided in Article VI) or (ii)
affect or limit any other obligation of Parent or Prototype under this Agreement
except as explicitly provided herein. It is understood and agreed that any
violation of the restrictions set forth in this Section 4.4 by any subsidiary or
affiliate of Prototype, or any of Prototype's or its subsidiaries' officers,
directors, agents or representatives, whether or not such person is purporting
to act on behalf of Prototype or any of its subsidiaries or otherwise, shall be
deemed to be a breach of this Section 4.4 by Prototype. Prototype shall, and
shall cause its subsidiaries and its and its subsidiaries' officers, directors,
employees, agents and representatives, including any investment banker,
attorney, accountant or other advisor or representative of Prototype or any of
its subsidiaries, to, immediately cease all existing activities, discussions and
negotiations with any parties conducted heretofore with respect to any Takeover
Proposal and request the return of all Confidential Information regarding
Prototype or any of its subsidiaries provided to any such parties prior to the
date hereof pursuant to the terms of any confidentiality agreement or otherwise.
4.4.2. In the event Prototype or any of its subsidiaries, or any of
Prototype's or any of its subsidiaries' directors, officers, employees, agents
or representatives receives a Takeover Proposal, Prototype shall promptly inform
Parent of all material terms and conditions thereof and the identity of the
person making such Takeover Proposal and shall keep Parent promptly and
reasonably informed of the status and details of any such Takeover Proposal and
of all steps it is taking in response to such Takeover Proposal, including,
without limitation, promptly providing to Parent any information provided to any
person making a Takeover Proposal, to the extent not previously provided to
Parent or, if previously provided, to the extent updated.
4.4.3. Except as expressly permitted by this Section 4.4, neither the
Board of Directors nor any committee thereof shall (a) withdraw, modify or
change in a manner adverse to Parent (including by amendment or supplement to
the Proxy Statement), or adopt or approve any resolution to, or publicly
disclose its intention to, withdraw, modify or change in a manner adverse to
Parent (including by amendment or supplement to the Proxy Statement), the
Prototype Board Recommendation, or (b) approve or recommend, or publicly
disclose its intention to
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approve or recommend, any Takeover Proposal. Notwithstanding the foregoing, in
the event that, at any time prior to the obtaining of the Required Prototype
Shareholder Vote, the Board of Directors receives a Superior Proposal (as
determined in accordance with Section 4.4.4), the Board of Directors may, if it
believes in good faith, after receipt of advice from its outside legal counsel,
that the failure to take such action could reasonably be expected to result in a
breach of its fiduciary duties to Prototype's shareholders under applicable law,
withdraw or modify the Prototype Board Recommendation in a manner adverse to
Parent and Merger Sub (an "Adverse Recommendation Change"), provided that the
Board of Directors shall not exercise its right to make an Adverse
Recommendation Change (A) until after the third full business day following
Parent's receipt of written notice of its intention to do so and (B) only if,
after such time, the Board of Directors continues to believe in good faith,
after receipt of advice from its outside legal counsel, that the failure to take
such action could reasonably be expected to result in a breach of its fiduciary
duties under applicable law to Prototype's shareholders. Notwithstanding the
foregoing, no such Adverse Recommendation Change shall (i) change the approval
of the Board of Directors for purposes of causing Article 100 of Prototype's
Amended and Restated Articles of Association, or any applicable takeover law, to
be inapplicable to the transactions contemplated hereby or (ii) provided this
Agreement shall not have been terminated prior to the Prototype General Meeting,
(A) change the obligation of the Board of Directors to present the Merger and
the Merger Agreement for approval by Prototype's shareholders at the Prototype
General Meeting or (B) otherwise limit or affect any of Prototype's obligations
under Section 4.5.2 or 4.5.3(a) (except as explicitly contemplated hereby).
4.4.4. If at any time prior to the obtaining of the Required Prototype
Shareholder Vote, (a) the Board of Directors shall determine in good faith,
after receipt of advice from its financial advisor and outside legal counsel,
that any bona fide written proposal from a third party for a Takeover Proposal
(provided that references in the definition of "Takeover Proposal" to 15% shall
be 50% for purposes of this sentence) received after the date hereof that was
not initiated, solicited or encouraged after April 9, 2002 by Prototype, its
subsidiaries, or any of its or their directors, officers, agents or
representatives, and did not otherwise result from a breach of this Section 4.4,
(x) is reasonably likely to and capable of being consummated prior to October
30, 2002 and (y) is in the best interests of Prototype's shareholders (taking
into account, among other things, all legal, financial, regulatory and other
aspects of the Takeover Proposal and the person making the Takeover Proposal),
(b) the Board of Directors has further determined in good faith, after receipt
of advice from its outside legal counsel, that the failure to enter into such
Takeover Proposal could reasonably be expected to constitute a breach of the
Board of Directors' fiduciary duties to its shareholders under applicable law,
and (c) the Board of Directors shall have received advice from the Financial
Advisor (or another internationally or U.S. recognized investment banking firm),
that such Takeover Proposal is more favorable from a financial point of view to
the shareholders of Prototype than the Merger (a "Superior Proposal"), Prototype
may terminate this Agreement under Section 6.1.8 and enter into a letter of
intent, agreement in principle, merger agreement, acquisition agreement or other
similar agreement (each, an "Acquisition Agreement") with respect to such
Superior Proposal provided, that, in connection with terminating this Agreement
or entering into an Acquisition Agreement, (i) Prototype shall have provided
Parent written notice that it intends to terminate this Agreement pursuant to
Section 6.1.8, identifying the Superior Proposal determined to be more favorable
and the parties thereto and delivering a copy of the Acquisition Agreement for
such Superior Proposal in the form to be entered into, (ii) at least three full
business days after Prototype shall
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have delivered to Parent the notice referred to in clause (i) above, Prototype
shall have delivered to Parent a written notice of termination of this Agreement
pursuant to Section 6.1.8, (iii) Prototype shall have delivered to Parent
(concurrently with such termination) a check or wire transfer of immediately
available funds in an amount equal to the Termination Fee and Expenses provided
for in Section 6.4 and (iv) Parent shall have received a written acknowledgment
from Prototype and from any other party to the Superior Proposal that Prototype
and such other parties have irrevocably waived any right to contest such
payments.
4.4.5. Subject to compliance with Section 4.4.3, nothing contained in
this Section 4.4 shall prohibit Prototype or the Board of Directors from taking
and disclosing to Prototype's shareholders a position contemplated by Rule 14e-2
under the Exchange Act or from making any disclosure to Prototype's shareholders
required by applicable law, provided that, in each case, Prototype or the Board
of Directors, as applicable, shall have determined in good faith, based upon the
advice of its outside legal counsel, that the failure to take such action would
be inconsistent with applicable law.
4.5. Agreements of Parent and Prototype. Parent and Prototype agree to take
the following actions after the date hereof:
4.5.1. Merger Proposal. Immediately after the execution and delivery
of this Agreement, (a) Prototype and Merger Sub shall cause a merger proposal
(in the Hebrew language) in the form of Exhibit C hereto (the "Merger Proposal")
to be executed in accordance with Section 316 of the Companies Law and (b)
Prototype shall deliver the Merger Proposal to the Companies Registrar.
Prototype and Merger Sub shall cause a copy of the Merger Proposal to be
delivered to each of their secured creditors, if any, no later than three days
after the date on which the Merger Proposal is delivered to the Companies
Registrar, and shall promptly inform their non-secured creditors of the Merger
Proposal and its contents in accordance with Section 318 of the Companies Law
and the regulations promulgated thereunder. Promptly after Prototype and Merger
Sub shall have complied with the preceding sentence, Prototype and Merger Sub
shall inform the Companies Registrar, in accordance with Section 317(b) of the
Companies Law, that notice was given to their creditors under Section 318 of the
Companies Law and the regulations promulgated thereunder.
4.5.2. Proxy Statement.
(a) As promptly as practicable after the execution and delivery of
this Agreement, Parent and Prototype shall cooperate (and shall cause their
respective counsel, auditors, agents and representatives to cooperate) in
the preparation of the Proxy Statement, which shall be in form and
substance reasonably satisfactory to Parent and shall comply in all
material respects with all requirements of applicable law. The Proxy
Statement shall include: (i) the recommendation of the Board of Directors
to Prototype's shareholders that they approve this Agreement, the Merger
and the other transactions contemplated by this Agreement at the Prototype
General Meeting (the "Prototype Board Recommendation"), and (ii) the
opinion of the Financial Advisor referred to in Section 2.26 hereof.
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(b) Prototype shall cause the Proxy Statement to be mailed to
Prototype's shareholders as promptly as practicable after the date of this
Agreement, but in any case within seven days of the date hereof. If any
event relating to Prototype occurs, or if Prototype becomes aware of any
information, that should be disclosed in an amendment or supplement to the
Proxy Statement, then Prototype shall promptly inform Parent thereof and
shall mail an appropriate amendment or supplement, which shall be
reasonably satisfactory to Parent in form and substance, to the
shareholders of Prototype.
4.5.3. Prototype General Meeting.
(a) Subject to the terms and conditions set forth in this Agreement,
Prototype shall take any and all action necessary under all applicable
legal requirements to call (within one day of the execution and delivery of
this Agreement), give notice of and hold a general meeting of the holders
of Prototype Shares to vote on the proposal to approve this Agreement, the
Merger and the other transactions contemplated hereby (the "Prototype
General Meeting"). Subject to the notice requirements of the Companies Law
and the regulations thereunder and the Formation Documents of Prototype,
the Prototype General Meeting shall be held as promptly as practicable
after the date hereof (on a date selected by Prototype in consultation with
Parent, and the parties will use their commercially reasonable efforts to
select the date that is 21 days after the notice referred to in the
preceding sentence is given). Prototype shall 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 in doing, all things necessary, proper or advisable to
obtain the Required Prototype Shareholder Vote at the Prototype General
Meeting, including, without limitation, using its reasonable best efforts
to solicit from its shareholders proxies in favor of the approval of this
Agreement, the Merger and the other transactions contemplated hereby.
Prototype shall ensure that all proxies solicited in connection with the
Prototype General Meeting are solicited in compliance with all applicable
legal requirements. In the event that Parent shall cast any votes in
respect of the Merger, Parent shall disclose to Prototype its interest in
such shares so voted.
(b) Within one calendar day of the approval of the Merger by
Prototype's shareholders at the Prototype General Meeting, Prototype shall
(in accordance with Section 317(b) of the Companies Law) notify the
Companies Registrar in writing of the decision of the Prototype General
Meeting with respect to the Merger.
4.5.4. Merger Sub Shareholder Approval. No later than the Closing
Date, Parent (as the sole shareholder of Merger Sub) shall adopt a resolution to
approve the Agreement, the Merger and the other transactions contemplated hereby
in accordance with Section 76 of the Companies Law. Prior to the Closing Date,
Merger Sub shall (in accordance with Section 317(b) of the Companies Law and the
regulations thereunder) notify the Companies Registrar in writing of the
decision of Parent (as the sole shareholder of Merger Sub) with respect to the
Merger.
4.5.5. Further Action. Subject to the terms and conditions of this
Agreement, Parent and Prototype shall cooperate with each other, and shall each
use their respective commercially reasonable efforts, in the taking of such
actions as are necessary, proper or
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advisable to consummate the Merger and make effective the other transactions
contemplated by this Agreement, including (i) the preparation and filing of all
forms, registrations and notices required to be filed to consummate the Merger
and the other transactions contemplated by this Agreement, (ii) the taking of
such actions as are necessary to obtain any requisite approvals, consents,
orders, exemptions or waivers by any third party or Governmental Entity for the
consummation of the Merger and the other transactions contemplated hereby,
including the Required Consents, and (iii) the obtaining of all consents from
Consent Persons. Notwithstanding anything to the contrary contained in this
Agreement, none of Parent or its subsidiaries or affiliates shall have any
obligation under this Agreement to (i) agree to any (A) prohibition or
limitation on Parent's ownership or operation of all or a material portion of
its or Prototype's businesses or assets (or those of any of its or Prototype's
subsidiaries or affiliates) or (B) limitation on the ability of Parent or its
affiliates, or render Parent or its affiliates unable, to acquire or hold or to
exercise effectively all rights of ownership of Prototype Shares, or effectively
to control in any material respect the business, assets or operations of
Prototype or its subsidiaries or Parent or its subsidiaries, or any of their
respective affiliates, (ii) (A) dispose or transfer or cause any of its
subsidiaries to dispose of or transfer any assets, (B) discontinue offering any
product or service, (C) license or otherwise make available to any person, any
Intellectual Property or other proprietary asset or right except in the ordinary
course of business, (D) hold separate any assets or operations, (E) make any
commitment (to any Governmental Entity or otherwise) regarding its future
operations or the future operations of Prototype, the Surviving Corporation or
any of its subsidiaries, (F) commit to cause Prototype, the Surviving
Corporation or any of its subsidiaries to do any of the foregoing, or (iii)
otherwise take any action that could reasonably be expected to adversely impact,
in any material respect, any of the anticipated benefits of the Merger to Parent
or its affiliates; provided that Parent agrees to make, conditioned on the
consummation of the Merger and the other transactions contemplated hereby, the
undertaking to the OCS set forth in Section 4.5.5 of the Prototype Disclosure
Schedule with respect to the Encouragement of Research and Development in
Industry Law 5744-1984.
Each party to this Agreement shall (i) give the other parties prompt
notice of the commencement of any legal, judicial or administrative proceeding
by or before any Governmental Entity with respect to the Merger or the other
transactions contemplated hereby, or any Prototype Proceeding, (ii) keep the
other parties informed as to the status of any such legal, judicial or
administrative proceeding or other Prototype Proceeding and (iii) promptly
inform the other parties (and provide copies) of any communication with the OCS,
the Investment Center, the Companies Registrar, the Israeli taxing authorities
or any other Governmental Entity regarding the Merger or any of the other
transactions contemplated by this Agreement or any Prototype Proceeding. The
parties to this Agreement will consult and cooperate with one another, will
provide to the other parties an opportunity to discuss and review, and will
consider in good faith the views of one another, in connection with any
analysis, appearance, presentation, memorandum, brief, argument, opinion or
proposal made or submitted in connection with any legal, judicial or
administrative proceeding relating to the Merger, the other transactions
contemplated hereby or any Prototype Proceeding. In addition, except as may be
prohibited by any Governmental Entity or by any legal requirement, in connection
with any legal, judicial or administrative proceeding under or relating to any
antitrust, fair trade or other law, or any Prototype Proceeding, each party
hereto will permit authorized representatives of the other party to be present
at each meeting or conference (whether before a Governmental Entity or
otherwise) relating to any such legal, judicial or administrative proceeding or
other Prototype
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Proceeding and to have access to and be consulted in connection with any
document, opinion or proposal made or submitted to any Governmental Entity in
connection with any of the foregoing. For purposes hereof, a "Prototype
Proceeding" means any audit, examination, litigation or other legal, judicial or
administrative proceeding with respect to Taxes payable by, or financial
statements or other Tax or financial information of, Prototype or any of its
subsidiaries.
4.5.6. Notice of Material Development.
(a) Parent will promptly notify Prototype in writing of (i) any event,
circumstance or condition occurring after the execution and delivery of
this Agreement which could reasonably be expected to (A) render any
representation or warranty of Parent contained in this Agreement untrue or
inaccurate in any material respect or (B) have a material adverse effect on
Parent's ability to consummate the transactions contemplated by this
Agreement and (ii) any material breach or failure to perform by Parent of
any covenant or agreement contained in this Agreement; provided, however,
that the delivery of any notice pursuant to this Section 4.5.6(a) shall not
limit or otherwise affect the remedies available hereunder to Prototype.
(b) Prototype will promptly notify Parent in writing of (i) any event,
circumstance or condition occurring after the execution and delivery of
this Agreement which could reasonably be expected to (A) render any
representation or warranty of Prototype contained in this Agreement untrue
or inaccurate in any material respect or (B) have a Material Adverse Effect
and (ii) any material breach or failure to perform by Prototype of any
covenant or agreement contained in this Agreement; provided, however, that
the delivery of any notice pursuant to this Section 4.5.6(b) shall not
limit or otherwise affect the remedies available hereunder to Parent.
4.5.7. Resignation of Directors. Prototype shall obtain and deliver to
Parent prior to the Closing Date the resignation of each director of Prototype,
effective as of the Effective Time.
4.6. Repayment of Indebtedness. Prototype agrees, unless otherwise
requested by Parent, to call for prepayment or redemption (subject to Closing),
or to repay, prepay or redeem, as the case may be, any and all outstanding
Indebtedness of Prototype or its subsidiaries and to otherwise cooperate with
Parent to have the outstanding Indebtedness of Prototype and its subsidiaries
repaid, prepaid, redeemed or refinanced, and all Encumbrances on Prototype's or
any of its subsidiaries' assets or properties in connection with such
Indebtedness fully and unconditionally released or discharged, at the Effective
Time. Parent will provide funding at the Effective Time sufficient for Prototype
to comply with its obligations under this Section 4.6.
4.7. Prototype Warrants. Prototype shall use its commercially
reasonable efforts (which shall not include the payment of any money (x) prior
to the Closing and (y) without Parent's written consent), in accordance with the
requests of Parent, to obtain the consent (in form and substance satisfactory to
Parent in its discretion) of each holder (each, a "Warrantholder") of
outstanding warrants to purchase Prototype Shares ("Prototype Warrants") whose
consent is required to effect the termination at or immediately prior to the
Effective Time of all Prototype Warrants held by such Warrantholder.
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ARTICLE V
CONDITIONS TO THE MERGER
5.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
the Merger shall be subject to the satisfaction of the following conditions, or
to the waiver thereof by mutual written agreement of Parent and Prototype, at or
prior to the Closing.
5.1.1. No Order. No Order shall have been enacted, entered,
promulgated, or enforced, or be in effect or deemed applicable to the Merger
that prohibits, restrains, enjoins or restricts the consummation of the Merger.
5.1.2. Shareholder Approval. The Merger shall have been duly approved
by (i) the shareholders of Merger Sub and (ii) the shareholders of Prototype by
the Required Prototype Shareholder Vote.
5.1.3. Required Consents. The Required Consents shall have been
obtained and shall be in full force and effect and all required waiting periods
thereunder and under Section 323 of the Companies Law shall have expired or been
terminated.
5.1.4. Legal Opinions. Each of Parent and Prototype shall have
received (i) an opinion, dated as of the Closing Date, from Meitar, Liquornik,
Geva & Co., substantially in the form attached hereto as Exhibit D and (ii) an
opinion, dated as of the Closing Date, from Xxxxxxxxx Xxxxx Xxxxxxxxx,
substantially in the form attached hereto as Exhibit E.
5.2. Additional Conditions to Obligations of Prototype. The obligations of
Prototype to consummate and effect the Merger shall be subject to the
satisfaction of the following additional conditions, or to the waiver thereof by
Prototype, at or before the Closing:
5.2.1. Accuracy of Parent Representations and Warranties. The
representations and warranties of Parent contained herein shall be true and
correct in all respects (without regard to any qualifications as to materiality
or any other similar standard) both when made and at and as of the Closing Date
as though such representations and warranties were made at and as of the Closing
Date, except to the extent that such representations and warranties are made as
of a specified date, in which case such representations and warranties shall be
true and correct (without regard to any qualifications as to materiality or any
other similar standard) as of such specified date, unless the failure of any
such representations and warranties to be so true and correct, individually or
in the aggregate, at and as of the dates set forth above could not reasonably be
expected to have a material adverse effect on the ability of Parent to
consummate the Merger and the other transactions contemplated by this Agreement.
5.2.2. Performance of Parent Obligations. Parent shall have performed
and complied, in all material respects, with all covenants required by this
Agreement to be performed or complied with by Parent prior to or at the Closing.
5.2.3. Parent Certificate. Parent shall have delivered to Prototype a
certificate, dated the Closing Date and signed by an appropriate officer
thereof, certifying the fulfillment of the conditions set forth in Sections
5.2.1 and 5.2.2.
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5.3. Additional Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction of the following additional conditions, or to the
waiver thereof by Parent, at or prior to the Closing:
5.3.1. Accuracy of Prototype Representations and Warranties. (i) The
representations and warranties of Prototype contained herein, other than those
referred to in clause (ii) below, shall be true and correct in all respects
(without regard to any qualifications as to materiality, Material Adverse Effect
or any other similar standard) both when made and at and as of the Closing Date
as though such representations and warranties were made at and as of the Closing
Date, except to the extent that such representations and warranties are made as
of a specified date, in which case such representations and warranties shall be
true and correct (without regard to any qualifications as to materiality,
Material Adverse Effect or any other similar standard) as of such specified
date, unless the failure of any such representations and warranties to be so
true and correct, individually or in the aggregate, at and as of the dates set
forth above could not reasonably be expected to have a Material Adverse Effect
and (ii) the representations and warranties of Prototype contained in Sections
2.1, 2.2.1, 2.2.2, 2.3.1, 2.3.2, 2.3.3 and 2.3.4 shall be true and correct in
all material respects both when made and at and as of the Closing Date as though
such representations and warranties were made at and as of the Closing Date,
except to the extent that such representations and warranties made as of a
specified date, in which case such representations and warranties shall be true
and correct in all material respects as of such specified date.
5.3.2. Performance of Prototype Obligations. Prototype shall have
performed and complied, in all material respects, with all covenants required by
this Agreement to be performed or complied with by Prototype prior to or at the
Closing Date.
5.3.3. Prototype Certificate. Prototype shall have delivered to Parent
a certificate, dated the Closing Date and signed by its chairman of the board
and by its chief financial or accounting officer, certifying the fulfillment of
the conditions set forth in Sections 5.3.1 and 5.3.2.
5.3.4. Consent of Certain Parties. All Consent Persons shall have
consented to the Merger, which consents shall be in form and substance
reasonably satisfactory to Parent and shall not have been withdrawn or modified.
5.3.5. Tax Matters. (i) Tax counsel to Prototype reasonably acceptable
to Parent shall have delivered to Parent its written opinion (which may be based
on such representations, warranties and certificates it deems reasonable and
appropriate under the circumstances), dated as of the Closing Date, that the
Merger will not constitute a taxable event to Prototype, and such opinion shall
not have been withdrawn or modified, and (ii) Prototype shall have delivered to
Parent a certificate of Prototype's independent auditors certifying that
Prototype is qualified as an "Industrial Company" within the definition of the
Law for the Encouragement of Industry (Taxes), 1969.
5.3.6. No Material Adverse Effect. Since the date of this Agreement,
there shall not have occurred any Material Adverse Effect, or any effect,
change, event, circumstance or
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condition which, when considered with all other effects, changes, events,
circumstances or conditions, would reasonably be likely to have a Material
Adverse Effect.
5.3.7. Litigation. Except as set forth in Section 5.3.7 of the
Prototype Disclosure Schedule, there shall not be pending or threatened any
suit, action, proceeding or investigation by any Governmental Entity or any
other person or entity, or any Order enacted, entered, proposed, promulgated, or
enforced, or in effect or deemed applicable to the Merger or the other
transactions contemplated hereby, (i) seeking to (A) prohibit or impose any
limitation on Parent's ownership or operation of all or a material portion of
its or Prototype's businesses or assets (or those of any of its or Prototype's
subsidiaries or affiliates) or (B) impose any limitation on the ability of
Parent or its affiliates, or render Parent or its affiliates unable, to acquire
or hold or to exercise effectively all rights of ownership of Prototype Shares,
or effectively to control in any material respect the business, assets or
operations of Prototype or its subsidiaries or Parent or its subsidiaries, or
any of their respective affiliates, (ii) seeking to compel Parent or Prototype
to, before or after the Effective Time, (A) dispose or transfer or cause any of
its subsidiaries to dispose of or transfer any assets, (B) discontinue offering
any product or service, (C) license or otherwise make available to any person,
any Intellectual Property or other proprietary asset or right, (D) hold separate
any assets or operations, (E) to make any commitment (to any Governmental Entity
or otherwise) regarding its future operations or the future operations of
Prototype or any of its subsidiaries, (F) to commit to cause Prototype or any of
its subsidiaries to do any of the foregoing, (iii) prohibiting, restricting or
significantly delaying consummation of the Merger or any of the other
transactions contemplated by this Agreement, or challenging, questioning or
calling into doubt the validity or enforceability of the Merger, any Voting
Agreement or any of the transactions contemplated hereby or by any Voting
Agreement, (iv) seeking to obtain from Parent (or its affiliates) or Prototype
(or its affiliates) any damages that are material, respectively, in relation to
Parent (assuming Parent has assets equal to the amount of cash it is required to
have at the Effective Time pursuant to Section 1.4.1(c)) or Prototype and its
subsidiaries as taken as a whole, or (v) which otherwise could reasonably be
expected to have a Material Adverse Effect.
5.3.8. Indebtedness. Except as otherwise requested by Parent, any and
all outstanding Indebtedness of Prototype and its subsidiaries shall have been,
or concurrently with the Effective Time shall be, repaid, prepaid or redeemed,
in each case to the extent that Parent shall have provided sufficient funds
therefore, and Parent shall have received evidence thereof which is satisfactory
to it.
5.3.9. Opinion of Counsel. Parent shall have received a favorable
opinion, dated as of the Closing Date, from Efrati, Galili & Co., counsel to
Prototype, in the form attached hereto as Exhibit F, to the effect that (i)
Prototype has been duly incorporated and is validly existing as a company under
the laws of Israel; (ii) all outstanding Prototype Shares have been validly
issued and are fully paid and nonassessable; (iii) all corporate proceedings
required to be taken by or on the part of Prototype to authorize the execution
of this Agreement and the implementation of the Merger have been taken; (iv)
this Agreement has been duly executed and delivered by Prototype; (v) this
Agreement constitutes the legal, valid and binding obligation of Prototype,
enforceable in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity;
(vi) the Merger has been approved
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by the shareholders of Prototype by the Required Prototype Shareholder Vote,
which is the only vote of the holders of any securities of Prototype necessary
to approve the Merger and (vii) except as specified by such counsel, such
counsel is not aware of any pending or threatened suit, action, proceeding or
investigation by any Governmental Entity or any other person or entity, or any
Order enacted, entered, proposed, promulgated, or enforced, or in effect or
deemed applicable to the Merger or the other transactions contemplated hereby,
which could reasonably be expected to have any of the effects set forth in
Section 5.3.7. In rendering such opinion, such counsel may rely upon (i)
certificates of public officials and of officers of Prototype as to matters of
fact and (ii) the opinions of Meitar, Liquornik, Geva & Co. and Xxxxxxxxx Xxxxx
Xxxxxxxxx delivered pursuant to Section 5.1.4 as to the matters specifically
addressed by such opinions.
ARTICLE VI
TERMINATION AND ABANDONMENT
6.1. Termination. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the Merger abandoned at
any time (whether before or after the approval and adoption thereof by the
shareholders of Prototype) before the Effective Time:
6.1.1. By Mutual Consent. By mutual written consent of Parent and
Prototype.
6.1.2. By Parent Because of Failure of Conditions Precedent. By
Parent, if there has been a breach by Prototype of its representations,
warranties, covenants, or agreements set forth in this Agreement if, as a result
of such breach, the conditions set forth in Section 5.3 would not be satisfied,
and such breach cannot be cured on or prior to the Termination Date.
6.1.3. By Prototype Because of Failure of Conditions Precedent. By
Prototype, if there has been a breach by Parent of any of its representations,
warranties, covenants or agreements set forth in this Agreement if, as a result
of such breach, the conditions set forth in Section 5.2 would not be satisfied,
and such breach cannot be cured on or prior to the Termination Date.
6.1.4. By Parent or Prototype Because of an Order. By Parent or
Prototype if an Order shall have been enacted, entered, promulgated, or
enforced, or be in effect or deemed applicable to the Merger or the other
transactions contemplated hereby which prohibits, restrains, enjoins or
restricts the consummation of the Merger and such Order shall have become final
and non-appealable; provided that the party seeking to terminate this Agreement
pursuant to this Section 6.1.4 shall have complied with Section 4.5.5.
6.1.5. By Parent or Prototype Because of Delay. By either Parent or
Prototype, if all conditions to consummation of the Merger shall not have been
satisfied or waived on or before September 30, 2002 (the "Termination Date");
provided that the right to terminate this Agreement under this Section 6.1.5
shall not be available to any party hereto whose failure to fulfill any
obligation under this Agreement has been the primary cause of, or resulted in,
the failure of the Effective Time to occur on or before the Termination Date.
6.1.6. By Parent or Prototype Because of Failure to Obtain the
Required Prototype Shareholder Vote. (a) By either Parent or Prototype, if the
shareholders of Prototype
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have not approved this Agreement, the Merger and the other transactions
contemplated hereby by the Required Prototype Shareholder Vote at the Prototype
General Meeting or (b) by Parent, if the shareholders of Prototype have not
approved this Agreement, the Merger and the other transactions contemplated
hereby by the Required Prototype Shareholder Vote at the Prototype General
Meeting on or before June 30, 2002.
6.1.7. By Parent Because of Certain Events. By Parent, in the event
(a) the Board of Directors or any committee thereof shall, whether or not
permitted by Section 4.4, withdraw, modify or change (including by amendment or
supplement to the Proxy Statement), or adopt or approve any resolution to, or
publicly disclose its intention to, withdraw, modify or change (including by
amendment or supplement to the Proxy Statement), the Prototype Board
Recommendation in a manner adverse to Parent, (b) the Board of Directors shall,
whether or not permitted by Section 4.4, approve or recommend, or publicly
disclose its intention to approve or recommend, any Takeover Proposal, or shall
have failed to reject or recommend rejection of any Takeover Proposal within the
earlier of ten business days of receipt of such proposal and three business days
prior to the Prototype General Meeting or (c) Prototype willfully breaches any
of its obligations under Section 4.4 and such breach results in a person making
a Takeover Proposal.
6.1.8. By Prototype Because of Certain Events. By Prototype, pursuant
to and in strict compliance with Section 4.4.4.
6.2. Termination by Board of Directors. An election by Parent to terminate
this Agreement and abandon the Merger as provided in Section 6.1 shall be
exercised on behalf of Parent by its board of directors or other governing body.
An election by Prototype to terminate this Agreement and abandon the Merger as
provided in Section 6.1 shall be exercised on behalf of Prototype by the Board
of Directors.
6.3. Effect of Termination. In the event of the termination and abandonment
of this Agreement pursuant to and in accordance with the provisions of Sections
6.1 and 6.2, this Agreement shall become void and have no effect, without any
liability on the part of any party hereto (or its shareholders or controlling
persons or directors or officers), except (i) the provisions of this Section 6.3
and Sections 4.3(b), 4.3(c), 6.4 and 8.6 shall survive such termination and
abandonment and (ii) neither party shall be released or relieved from any
liability arising from the willful and material breach by such party of any of
its representations, warranties, covenants or agreements set forth in this
Agreement. If this Agreement is terminated by Parent as a result of a willful
and material breach of any representation, warranty, covenant or agreement by
Prototype, Parent may pursue any and all remedies available to it at law or in
equity and shall be entitled to recover such additional amounts as Parent may be
entitled to receive at law or in equity.
6.4. Termination Fee. In the event that (i) Parent or Prototype shall have
terminated this Agreement pursuant to Section 6.1.5 or 6.1.6 and on or prior to
such time any person or group (other than Parent and its affiliates) shall have
made and not withdrawn a Takeover Proposal (or disclosed in writing or publicly
disseminated its intention to make a Takeover Proposal) and Prototype or any of
its subsidiaries or affiliates enters into an Acquisition Agreement with respect
to such Takeover Proposal within twelve (12) months of such
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termination (which Acquisition Agreement or successor thereto is thereafter
consummated), or such Takeover Proposal is otherwise consummated within twelve
(12) months of such termination, (ii) Parent shall have terminated this
Agreement pursuant to 6.1.7, or (iii) Prototype shall have terminated this
Agreement pursuant to Section 6.1.8, then Prototype shall pay to Parent a fee
(the "Termination Fee") in an amount equal to US$3.0 million, plus any and all
documented out-of-pocket expenses incurred by Parent and its affiliates in
connection with this Agreement and the transactions contemplated by this
Agreement, including without limitation the structuring thereof and diligence
with respect thereto, up to an aggregate of US$1.5 million ("Expenses"). For the
purposes of clauses (i) and (ii) of the foregoing sentence, the percentage in
the definition of Takeover Proposal shall be 50% in lieu of 15%. Any Termination
Fee or Expenses that become payable hereunder shall be paid by wire transfer of
immediately available funds to an account designated by Parent (x) in the case
of clause (i) above, within one business day following the occurrence of the
event giving rise to such payment and (y) in the case of clause (ii) or (iii)
above, prior to termination in the case of a termination by Prototype, and
within one business day following termination in the case of termination by
Parent. The parties hereto acknowledge that the agreements contained in this
Section 6.4 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, neither party would enter into
this Agreement; accordingly, if Prototype fails promptly to pay any amount due
pursuant to this Section 6.4, and, in order to obtain such payment, Parent
commences a suit which results in a judgment against Prototype for the fee set
forth in this Section 6.4, such party shall pay to the other party its costs and
expenses (including reasonable attorneys' fees and expenses) in connection with
such suit, together with interest on the amount of the fee at the prime rate of
Citibank, N.A. in effect on the date such payment was required to be made. The
parties hereto agree that any amount payable pursuant to this Section 6.4 shall
be deemed to represent liquidated damages and not a penalty and that the right
to receive such amounts shall be the exclusive remedy in respect of any
termination giving rise to such payment, except in the case of any willful and
material breach by Prototype of any representation, warranty, covenant or
agreement contained in this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. Indemnification of Directors and Officers. (a) On and after the
Effective Time, the Surviving Corporation shall indemnify and hold harmless each
present and former director and officer of Prototype, determined as of the
Effective Time, against any claims, losses, liabilities, damages, judgments,
fines, fees, costs or expenses, including without limitation reasonable
attorneys' fees and disbursements incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time (including matters relating to the Merger and the
other transactions contemplated hereby), whether asserted or claimed prior to,
at or after the Effective Time, to the fullest extent that Prototype would have
been permitted, under applicable law, indemnification agreements existing on the
date hereof or the Formation Documents of Prototype in effect on the date
hereof, to indemnify such person (and the Surviving Corporation shall also
advance expenses as incurred to the fullest extent permitted under applicable
law provided the person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such person is not
entitled to indemnification). In the event that any approval by shareholders of
the Surviving Corporation
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is required to give full legal effect to the undertaking in this Section 7.1,
Parent irrevocably undertakes to approve (as the sole shareholder of the
Surviving Corporation following the Merger), as soon as practicable following
the Effective Time, such undertaking subject to and in accordance with
applicable law.
(b) For a period of seven years after the Effective Time, the Surviving
Corporation shall maintain (to the extent generally available in the market) in
effect a directors' and officers' liability insurance policy covering those
persons who are currently covered by Prototype's directors' and officers'
liability insurance policy (a copy of which has been heretofore delivered to
Parent) with coverage in amount and scope at least as favorable as Prototype's
existing coverage (which coverage may be an endorsement extending the period in
which claims may be made under such existing policy); provided that, if the
aggregate annual premiums and brokerage costs for such insurance at any time
during such period shall exceed 150% of the per annum rate of premium and
brokerage costs paid by Prototype as of the date hereof (which such current
annual premium and brokerage costs the parties hereto acknowledge do not exceed
US$140,000), then the Surviving Corporation shall provide only such coverage as
shall then be available for an annual premium and brokerage costs equal to 150%
of such rate.
(c) The provisions of this Section 7.1 are intended to be for the
benefit of, and shall be enforceable by, each indemnified party under Section
7.1(a) and his or her heirs and representatives, and nothing herein shall affect
any indemnification rights that any indemnified party and his or her heirs and
representatives may have under the Amended and Restated Articles of Association
of Prototype or any of its subsidiaries, any contract or applicable law.
(d) The Formation Documents of the Surviving Corporation shall not be
amended, repealed or otherwise modified in any manner that would adversely
affect the right to indemnification of the persons indemnified under Section
7.1(a) with respect to periods prior to the Effective Time without the prior
written consent of any such person.
(e) This Section 7.1 shall survive the consummation of the Merger at the
Effective Time, and is intended to benefit Prototype, Parent, the Surviving
Corporation and the persons indemnified under Section 7.1(a), and shall be
binding on the successors and assigns of Parent and the Surviving Corporation.
If Parent, the Surviving Corporation or any of its successors or assigns (a)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (b) transfers or conveys all or substantially all of its properties and
assets to any Person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Parent or
the Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 7.1.
7.2. Employee Benefit Plans of Prototype. At and after the Effective Time,
Prototype shall or shall cause the Surviving Corporation to honor, in accordance
with their terms, any retention program, employment, change of control,
severance, retirement or termination agreement or arrangement between Prototype
and any of its current or former officers, directors or employees in effect
immediately prior to the Effective Time to the extent such agreements or
arrangements are disclosed in Section 7.2 of the Prototype Disclosure Schedule,
except as otherwise agreed to by any such officer, director or employee. Nothing
in this Agreement
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shall require Parent or Prototype to continue to maintain any specific Prototype
Plan, which is not required to be maintained pursuant to its terms, or to
continue the employment of any employee of Prototype.
ARTICLE VIII
MISCELLANEOUS
8.1. Entirety. This Agreement and the Exhibits and Schedules thereto embody
the entire agreement between the parties with respect to the subject matter
hereof, and all prior agreements between the parties with respect thereto are
hereby superseded in their entirety.
8.2. Counterparts. Any number of counterparts of this Agreement may be
executed and each such counterpart shall be deemed to be an original instrument,
but all such counterparts together shall constitute but one instrument.
8.3. Notices and Waivers. Any notice or waiver to be given to any party
hereof shall be in writing and shall be delivered by courier or sent by
facsimile transmission or first class registered or certified mail, postage
prepaid.
If to Parent or Merger Sub:
c/o Fox Xxxxx & Company, LLC
000 Xxxxx Xxxx -- Xxxxx 0000
Xxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxx
Facsimile: (000) 000-0000
with a copy to:
Wachtell, Lipton, Xxxxx & Xxxx
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
and:
Xxxxxx, Xxxxxxxxx, Xxxx & Xx.
00 Xxxx Xxxxxx Silver St.
52506 Ramat-Gan, Israel
Attention: Xxxxxxxx X. X. Xxxxx
Facsimile: (000-0) 000-0000
If to Prototype:
Paradigm Geophysical Ltd.
Gav-Yam Center Xx. 0
0 Xxxxxxx Xxxxxx, X.X.X. 0000
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Herzliya B 00000, Xxxxxx
Attention: Xxxxx Xxxxx
Facsimile: (000-0) 000-0000
with a copy to:
Efrati, Galili & Co.
6 Wissotsky Xxxxxx
00000 Xxx Xxxx, Xxxxxx
Attention: Xxx Xxxxxxxxx
Facsimile: (000-0) 000-0000
and:
Fulbright & Xxxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxxx
Xxxx Xxxxxx
Facsimile: (000) 000-0000
Any communication so addressed and mailed by first-class registered or
certified mail, postage prepaid, shall be deemed to be received on the fifth
business day after so mailed, and if delivered personally or by courier or
facsimile (receipt electronically confirmed) to such address, upon delivery
during normal business hours, local time, on any business day.
8.4. Termination of Representations, Warranties. Subject to Section 6.3(ii)
and the final sentence of Section 6.3, the respective representations and
warranties contained in this Agreement and in any officer's certificate
delivered pursuant hereto shall not survive the Effective Time or termination of
this Agreement. This Section 8.4 shall not limit any covenant or agreement of
the parties hereto which by its terms contemplates performance after the
Effective Time or after termination of this Agreement.
8.5. Amendment; Waiver.
8.5.1. Subject to applicable law, this Agreement may be amended by the
parties hereto at any time before or after approval of the Merger by the
shareholders of Prototype, but after any such approval, no amendment shall be
made which requires the approval of such shareholders under applicable law
without such approval. This Agreement may not be amended except by an instrument
in writing signed on behalf of the parties hereto.
8.5.2. At any time prior to the Effective Time, any party hereto may
(i) extend the time for the performance of any of the obligations or other acts
of the other party, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document, certificate
or writing delivered pursuant hereto, or (iii) waive compliance by the other
party with any of the agreements or conditions contained herein. Any agreement
on the
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part of any party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party. The
failure of either party hereto to assert any of its rights hereunder shall not
constitute a waiver of such rights. If the parties hereto determine, prior to
the Effective Time, that another transaction structure, including without
limitation an "arrangement" or "share exchange" under the Companies Law, could
reasonably be expected to result in the consummation of the transactions
contemplated by this Agreement in a more expeditious manner, and would be no
less favorable to each of the parties hereto than the transactions contemplated
hereby, the parties hereto agree to negotiate in good faith an amendment to this
Agreement necessary or desirable to accomplish such structure modification in a
manner reasonably acceptable to such parties.
8.6. Expenses. Upon consummation of the Merger, all costs and expenses
incurred by each party hereto in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, which, in the case
of counsel, financial advisors and accountants for Prototype, shall not exceed
US$1 million in the aggregate) shall be paid by Prototype or Prototype shall
promptly reimburse each such party, as the case may be. Except as set forth in
Section 6.4 or the previous sentence, each party shall bear its own expenses in
connection with this Agreement and the transactions contemplated by this
Agreement (including, without limitation, fees and disbursements of counsel,
financial advisors and accountants, and all fees, costs and expenses incurred in
connection with the preparation, printing, filing and mailing of the Proxy
Statement).
8.7. Headings. The table of contents and captions contained in this
Agreement are solely for convenient reference and shall not be deemed to affect
the meaning or interpretation of any article, section, or paragraph hereof.
8.8. Successors and Assigns. This Agreement and all of the provisions
hereof shall be binding upon and shall inure to the benefit of and be
enforceable by, the parties hereto and their permitted assigns and their
respective successors, heirs, agents, representatives, trust beneficiaries,
attorneys, affiliates and associates and all of their respective predecessors,
successors, permitted assigns, heirs, executors and administrators.
8.9. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
8.10. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of law; provided, however, that (a) any matter
involving the internal corporate affairs of any party hereto shall be governed
by the applicable law of such party's jurisdiction of formation and (b) the form
and content of the Merger Proposal and the consequences of the filing thereof
shall be governed by the Companies Law.
8.11. Assignment. Neither party may assign or delegate either this
Agreement or any of its rights, interests or obligations hereunder without the
prior written approval of the other parties. Notwithstanding the foregoing,
Parent and Merger Sub may assign or delegate their
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respective rights, interests and obligations hereunder, in whole or in part, (i)
to any present or future subsidiary, affiliate or shareholder of Parent without
the consent of Prototype or (ii) to any source of financing or co-investor with
the prior written consent of Prototype, which consent shall not be unreasonably
withheld, in each case which agrees to be bound by this Agreement as if a party
hereto, but no such transfer or assignment shall relieve Parent or Merger Sub of
its obligations hereunder.
8.12. Jurisdiction; Waiver of Jury Trial.
8.12.1. Any suit, action or proceeding seeking to enforce any
provision of, or based on any matter arising out of or in connection with, this
Agreement or the transactions contemplated hereby may be brought in any federal
court located in the State of Delaware or any Delaware state court, and each of
the parties hereby, on behalf of themselves and their subsidiaries, (i) consents
and submits itself and its property to the exclusive jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit, action or
proceeding, (ii) consents to and submits itself and its property to the personal
jurisdiction of such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding, and (iii) irrevocably waives, to the
fullest extent permitted by law, any objection that it may now or hereafter have
to the laying of the venue of any such suit, action or proceeding in any such
court or that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in Section 8.3
shall be deemed effective service of process on such party.
8.12.2. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
8.13. Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.14. Interpretation. As used herein, the words "ordinary course" or
"ordinary course of business" means the ordinary course of commercial operations
customarily engaged in by Prototype and its subsidiaries consistent with past
practices, and specifically does not include (i) the incurrence of any material
liability for any tort or any breach of or default under any agreement or law,
(ii) the failure to meet obligations of Prototype or its subsidiaries as they
become due or payable or (iii) any actions or omissions by Prototype and the
subsidiaries taken or not taken in contemplation of the marketing or sale of
Prototype or any part thereof, or of any
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merger, consolidation, tender offer or other business combination involving
Prototype or any of its subsidiaries. As used herein, "knowledge" of Prototype
or its subsidiaries means the matters that are known after reasonable inquiry by
the senior management of Prototype. As used herein, "including" shall be deemed
to be followed by "including without limitation" and shall not be construed to
limit any general statement that it follows to the specific or similar items or
matters immediately following it. As used herein, "law," "applicable law,"
"applicable legal requirements" and other similar phrases mean any and all
applicable laws, statutes, ordinances, rules, regulations, codes, Tax rulings
and other Orders of the United States, Israel or any other nation, or of any
federal, state, province, county, municipality or other Governmental Entity. As
used herein, words such as "herein," "hereinafter," "hereof," and "hereunder"
refer to this Agreement as a whole and not merely to a subdivision in which such
words appear unless the context otherwise requires. Any reference in this
Agreement to gender shall include all genders, and words imparting the singular
number only shall include the plural and vice versa, unless the context
otherwise requires. No provision of this Agreement shall be construed against
any party hereto based on the fact that such party or its legal representative
drafted such provision.
8.15. Public Announcements. Upon execution and delivery of this Agreement,
Parent and Buyer shall prepare a mutually agreeable press release announcing the
existence of this Agreement and the transactions contemplated hereby and any
required notice to the NASD, the TASE and/or the ISA. Except for such press
release, the parties hereto agree that prior to the Effective Time they shall
consult with each other before making any public announcement regarding the
existence of this Agreement, the contents hereof or the transactions
contemplated hereby, and to obtain the prior approval of the other party as to
the content of such announcement, which approval shall not be unreasonably
withheld. However, the foregoing shall not apply to any announcement or written
statement which, upon the written advice of counsel, is required by law to be
made, except that the party required to make such announcement shall advise the
other party of such requirement and the parties shall use their reasonable best
efforts to cause a mutually agreeable release or announcement to be issued.
8.16. Definitions. Capitalized terms used herein shall have the respective
meanings ascribed to such terms in the Section indicated below.
Term Section
2001 Financials 2.5.2
Acquisition Agreement 4.4.4
Adverse Recommendation Change 4.4.3
Agreement Preamble
Approved Enterprise 2.10.14
Board of Directors Recitals
Closing 1.2
Closing Date 1.2
Code 2.10.9
Commercial Software 2.11.5
Commission 2.5.1
Companies Law Recitals
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Term Section
---- -------
Confidential Information 4.3(b)
Consent Person 2.2.3
Contract 2.8.1
Copyrights 2.11.1
Effective Time 1.3
Encumbrance 2.4
Environmental Claim 2.14.1
Environmental Law 2.14.1
ERISA 2.6.1
ERISA Affiliate 2.17.4
Exchange Act 2.5.1
Expenses 6.4
Family 2.22
Financial Advisor 2.16
Formation Documents 2.1.2
GAAP 2.5.1
Governmental Entity 2.2.2
Grants 2.23
Hazardous Substance 2.14.3
Indebtedness 2.3.3
Intellectual Property 2.11.1
Intellectual Property Rights 2.11.1
Investment Center 2.2.2
IP Agreements 2.11.5
ISA 2.2.2
Leased Properties 2.8.2
Licenses 2.11.12(d)
Marketing Agreements 2.11.12(e)
Material Adverse Effect 2.1.1
Material Contracts 2.8.1
Merger Recitals
Merger Consideration 1.4.1(c)
Merger Proposal 4.5.1
Merger Sub Preamble
NASD 2.2.2
Notice Option 1.6.1
OCS 2.2.2
Optionholder 1.6.2
Order 2.11.3
Parent Preamble
Paying Agent 1.4.2
Patents 2.11.1
Per Share Merger Consideration 1.4.1(c)
Prototype Preamble
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Term Section
---- -------
Prototype Board Recommendation 4.5.2(a)
Prototype Certificates 1.4.1(c)
Prototype Disclosure Schedule 2.2.2
Prototype General Meeting 4.5.3(a)
Prototype Intellectual Property Rights 2.11.1
Prototype Option Agreements 1.6.2
Prototype Option Plans 1.6.2
Prototype Options 1.6.2
Prototype Permits 2.14.4
Prototype Plans 2.6.1
Prototype Proceeding 4.5.5
Prototype Registered Intellectual Property Rights 2.11.1
Prototype Reports 2.5.1
Prototype Securities 2.3.1
Prototype Shares Recitals
Prototype Warrants 4.7
Proxy Statement 2.19
Registered Intellectual Property Rights 2.11.1
Related Persons 2.22
Representative 4.3(a)
Required Consents 2.2.2
Required Prototype Shareholder Vote 2.2.1
Securities Act 2.5.1
Software Programs 2.11.12(a)
Superior Proposal 4.4.4
Surviving Corporation 1.1
Takeover Proposal 4.4.1
TASE 2.2.2
Tax 2.10.1
Tax Returns 2.10.1
Technical Documentation 2.11.12(e)
Termination Date 6.1.5
Termination Fee 6.4
Trademarks 2.11.1
Voting Agreements Recitals
Warrantholder 4.7
[Signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement of
Merger to be duly executed as of the date first above written.
XXXXXXXXXX B.V.
By: /s/ Xxxx X. Xxx
--------------------------
Name: Xxxx X. Xxx
Title: Director and Attorney-in-Fact
FP ACQUISITION LTD.
By: /s/ Xxxx X. Xxx
--------------------------
Name: Xxxx X. Xxx
Title: Director
PARADIGM GEOPHYSICAL LTD.
By: /s/ Xxxxx Xxxxx
--------------------------
Name: Xxxxx Xxxxx
Title: Chairman and
Chief Executive Officer
