SELLER'S AGREEMENT
THIS SELLER'S AGREEMENT ("Agreement") is made as of September 8, 1997,
by and among: CYLINK CORPORATION, a California corporation (the "Purchaser");
A.R. DATA SECURITY LTD., a limited liability company organized and existing
under the laws of the State of Israel (the "Seller"); and each of the
shareholders of the Seller, all of which are identified on Schedule A hereto
(the "Parent Shareholders").
RECITALS
A. Contemporaneously with the execution and delivery of this Agreement,
the Purchaser is acquiring from the Seller (i) all of the issued and outstanding
shares of Algorithmic Research Ltd., a limited liability company organized under
the laws of the State of Israel (the "Company"), that are owned by the Seller,
and (ii) all of the issued and outstanding shares of Algart Holdings Ltd., a
limited liability company organized under the laws of the State of Israel
("Holdings"), pursuant to that certain Stock Purchase Agreement, dated as of
September 7, 1997, among the Purchaser, the Company and the Seller (the
"Purchase Agreement").
B. As part of the purchase price for the shares of the Company and
Holdings being acquired by the Purchaser pursuant to the Purchase Agreement, the
Purchaser is issuing a total of 2,593,169 shares of common stock of the
Purchaser (the "Transaction Shares"), of which 1,272,300 shares are being
deposited in escrow in accordance with the terms of the Purchase Agreement.
C. The Seller is in the process of a voluntary liquidation. It is
contemplated that, in connection with the liquidation of the Seller, the
Transaction Shares held by the Seller will be distributed "in kind" by the
Seller to the Parent Shareholders.
D. This Agreement is being executed and delivered pursuant to Sections
4.6, 7.6 and 8.5 of the Purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. All capitalized terms used and not otherwise
defined herein shall have the meanings given to them in the Purchase Agreement.
In addition, as used in this Agreement, the following terms shall have the
following respective meanings:
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"Affiliate" shall mean, with respect to any Person, any other
Person controlling, controlled by or under common control with such Person.
A "Change in Control of the Purchaser" shall be deemed to have
occurred if: (a) any Person (other than Pittway Corporation) or "group" (within
the meaning of Rule 13d-5 under the Exchange Act) becomes the "beneficial owner"
(within the meaning of Rule 13d-3 under the Exchange Act) of at least 50% of the
voting securities of the Purchaser; (b) a merger, consolidation or similar
transaction involving the Purchaser or any affiliate of the Purchaser is
effected, and the shareholders of the Purchaser immediately prior to such
transaction own less than 60% of the voting securities of the surviving
corporation in such transaction; (c) assets representing more than 50% of the
aggregate net book value of the Purchaser's assets (exclusive of its wireless
communications division) are sold or otherwise transferred to any Person or
Persons (in a single transaction or a series of transactions); or (d) the
individuals who, as of the date of this Agreement, are members of the Board of
Directors of the Purchaser (the "Incumbent Board") cease for any reason to
constitute at least two-thirds of the Board of Directors of the Purchaser
(provided, however, that if the election, or nomination for election by the
Purchaser's shareholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of this
Agreement, be considered as a member of the Incumbent Board).
A "Change in Control of the Company" shall be deemed to have
occurred if: (a) a Person (other than the Purchaser) becomes the "beneficial
owner" (within the meaning of Rule 13d-5 under the Exchange Act) of at least 50%
of the voting securities of the Company (other than in connection with a Change
in Control of the Purchaser); (b) the Purchaser ceases to own more than 50% of
the outstanding shares of the Company; or (c) assets representing more than 50%
of the aggregate net book value of the Company's assets are sold or otherwise
transferred to any Person or Persons (in a single transaction or a series of
transactions).
"Commission" shall mean the United States Securities and
Exchange Commission, or any other federal agency at the time administering the
Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder.
"First Restricted Period" shall mean the period commencing on
the Closing Date and ending on the day that is 182 days after the Closing Date.
"Form X-0," "Xxxx X-0," "Form S-4" and "Form S-8" shall mean
(as the case may be) such form under the Securities Act as is in effect on the
date hereof, or any successor registration form to such form under the
Securities Act subsequently adopted by the Commission.
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"Fourth Restricted Period" shall mean the period commencing on
the second anniversary of the Closing Date and ending on the day immediately
preceding the third anniversary of the Closing Date.
"Holders" shall mean: (a) each Potential Seller who holds
Registrable Shares; (b) each Permitted Transferee who holds Registrable Shares;
and (c) each other Person holding Registrable Shares to whom any rights under
this Agreement shall have been assigned in accordance with Section 7 hereof.
"Individual Parent Shareholders" shall mean Xxxxx Xxxxxx, Xxxx
Fiat and Xxxxx Xxxxx.
A Parent Shareholder's "Percentage Share" shall mean the
"Percentage Share" set forth opposite such Parent Shareholder's name on Schedule
A hereto.
"Permitted Transferee" shall mean: (a) any Parent Shareholder;
(b) any Affiliate, shareholder, spouse or lineal descendant of the Seller, of
any Parent Shareholder or of any shareholder of any Parent Shareholder
(including, without limitation, any corporation or other entity controlled by
any Parent Shareholder); (c) any administrator, liquidator, executor, guardian,
curator or person acting in a similar capacity for any of the Persons described
in clauses "(a)" and "(b)" of this sentence; and (d) any trustee of a trust, the
primary beneficiary or beneficiaries of which are any of the Persons described
in clauses "(a)," "(b)" and "(c)" of this sentence; provided, however, that Koor
Capital Markets and Telrad Holdings Ltd. shall not be deemed to be Permitted
Transferees of any Restricted Shares transferred to them by (i) an Individual
Parent Shareholder or (ii) a Permitted Transferee who received such Restricted
Shares from an Individual Parent Shareholder.
"Person" shall mean any individual, corporation, partnership,
limited liability company, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, governmental or regulatory body or
other entity.
"Potential Sellers" shall mean the Seller and the Parent
Shareholders.
"Purchaser Common Stock" shall mean the common stock, $0.01
par value per share, of the Purchaser; provided, however, that if the Purchaser
Common Stock is converted into or exchanged for other securities of the
Purchaser or of any other Person (pursuant to a merger or recapitalization
involving the Purchaser or otherwise), then, for purposes of Section 4 hereof,
"Purchaser Common Stock" shall refer to such other securities.
"Registrable Shares" shall mean: (a) the Transaction Shares;
and (b) any securities issued with respect to, in exchange for or in replacement
of any of the Transaction Shares (whether by way of a stock dividend or stock
split, in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or similar event or
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otherwise); provided, however, that shares of Purchaser Common Stock shall be
treated as Registrable Shares only if and so long as such shares are held by a
Holder.
"Registration Expenses" shall mean: (a) all expenses, except
Selling Expenses, incurred in connection with a registration pursuant to
Sections 4.1, 4.2 and 4.4 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, fees and
disbursements of counsel for the Purchaser and Blue Sky fees and expenses; and
(b) reasonable fees and disbursements (not to exceed $100,000 for all
registrations effected pursuant to this Agreement) of a single U.S. counsel and
a single Israeli counsel for the Holders who are participating in a
registration.
The terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement with
the Commission and the declaration or ordering of the effectiveness of such
registration statement.
"Regulation S" shall mean Regulation S promulgated under the
Securities Act.
"Restriction Expiration Date" shall mean the earliest to occur
of: (a) the fourth anniversary of the Closing Date; (b) the date of commencement
of a tender or exchange offer relating to at least 50% of the outstanding shares
of Purchaser Common Stock; (c) the date on which a Change in Control of the
Purchaser occurs; (d) the date on which a Change in Control of the Company
occurs; (e) the date of execution of any binding letter of intent, contract,
agreement or understanding contemplating or otherwise relating to an event of
the type referred to in clause "(c)" of this sentence; or (f) the date of
occurrence of any material breach or default by the Purchaser with respect to
any of its obligations under Section 2 or 4 of this Agreement or Article V of
the Purchase Agreement, which breach or default is not cured within twenty (20)
days after notice thereof is given to the Purchaser.
"Restricted Periods" shall mean the First, Second, Third and
Fourth Restricted Periods.
"Restricted Shares" shall mean only those Transaction Shares
that are held by the Seller, the Escrow Agent (in its capacity as such), any
Parent Shareholder or any Permitted Transferee; provided, however, that
notwithstanding anything to the contrary contained in this Agreement: (a) a
Transaction Share shall cease to be a Restricted Share (and shall cease to be
subject to the restrictions contained in this Agreement) upon the earlier of (i)
the Restriction Expiration Date, or (ii) the sale of such Transaction Share
pursuant to Section 3.1(a), 3.1(b), 3.1(c), 3.1(d) or 3.1(f) hereof; and (b)
upon the occurrence of a Special Termination Event with respect to an Individual
Parent Shareholder, all Transaction Shares held by such Individual Parent
Shareholder, and all Transaction Shares held by any Permitted Transferee to whom
such Individual Parent Shareholder has transferred any Transaction Shares, shall
cease to be Restricted Shares (and shall cease to be subject to the restrictions
contained in this Agreement).
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"Rule 144" shall mean Rule 144 promulgated under the
Securities Act, or any similar or analogous rule promulgated under the
Securities Act.
"Second Restricted Period" shall mean the period commencing on
the day immediately following the last day of the First Restricted Period and
ending on the day immediately preceding the first anniversary of the Closing
Date.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and (except as otherwise specified above in the
definition of "Registration Expenses") all fees and disbursements of counsel for
any Holder.
A "Special Termination Event" with respect to an Individual
Parent Shareholder shall be deemed to have occurred if: (a) the employment of
such Individual Parent Shareholder with the Company or any of the Company's
Affiliates shall have been terminated by the Company or any of the Company's
Affiliates (other than for reasons described in sub-paragraph 6.3 of the
Employment Agreement between the Company and such Individual Parent
Shareholder); or (b) such Individual Parent Shareholder shall have died or
become disabled.
"Special Qualifying Block Trade" shall mean a sale of
Restricted Shares that: (a) is made in a block trade at a price of at least $15
per share; and (b) is designated by the Seller of such Restricted Shares (in a
written notice given to the Purchaser within 120 days following such sale) to be
a "Special Qualifying Block Trade"; provided, however, that at any time prior to
the second anniversary of the Closing Date, any Potential Seller may (without
the consent or approval of the Purchaser or any other Person) rescind its
designation of any such sale as a "Special Qualifying Block Trade."
"Third Restricted Period" shall mean the period commencing on
the first anniversary of the Closing Date and ending on the day immediately
preceding the second anniversary of the Closing Date.
2. TRANSFERABILITY OF TRANSACTION SHARES.
Except as expressly provided in this Agreement, the
Transaction Shares (and any other securities issued with respect to, in exchange
for or in replacement of any of the Transaction Shares) shall be freely
tradeable and transferable, and the Purchaser shall take or cause to be taken
all actions necessary to ensure that the Transaction Shares (and any such other
securities) can legally be sold, publicly and otherwise, within and outside the
United States, without any restriction or limitation of any nature; provided,
however, that, in the event that applicable U.S. federal securities laws shall
limit the ability of any Holder to sell any of the
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Transaction Shares, the obligations of the Purchaser to cause such Transaction
Shares to be freely tradeable and transferrable shall be limited to those
obligations of the Purchaser set forth in Section 4 hereof. Without limiting the
generality of the foregoing, to the extent that any Holder determines (in such
Holder's reasonable judgment) that in order for such Holder to be able to
legally sell publicly in the United States (without any restriction or
limitation of any nature) any Transaction Shares that such Holder is otherwise
not restricted from selling pursuant to Section 3 hereof, such Holder shall
notify the Purchaser of such determination and the Purchaser shall take or cause
to be taken the actions referred to in Sections 4.1 and 4.4 hereof (or the
actions referred to in Section 4.8 hereof). The Purchaser agrees that it will
use reasonable efforts to furnish to the Potential Sellers, on or before
September 18, 1997, a written opinion of Xxxxxxxx & Xxxxxxxx LLP or other
reputable U.S. securities counsel (reasonably satisfactory to the Potential
Sellers in form and substance) that, from and after the forty-first day
following the Closing Date, the sale of the Transaction Shares by the Potential
Sellers will be exempt from registration under the Securities Act and will be
exempt from (or otherwise not subject to) registration and qualification under
state securities laws; provided, however, that the Purchaser shall have no
obligation under this sentence if any of the representations and warranties of
the Seller contained in Section 2.33, 2.34 or 2.35 of the Purchase Agreement is
inaccurate in any material respect.
3. RESALES OF RESTRICTED SHARES.
3.1 Resale Restrictions.
The Potential Sellers shall not be permitted to sell,
transfer or assign any Restricted Shares during the Restricted Periods, except
as follows:
(a) During the Second Restricted Period, the
Potential Sellers may (without being deemed to have breached this Agreement)
sell, transfer and/or assign a total of up to 218,000 Restricted Shares.
(b) During the Third Restricted Period, the Potential
Sellers may (without being deemed to have breached this Agreement) sell,
transfer and/or assign a total of up to 1,307,000 Restricted Shares, minus the
number of Restricted Shares that were sold by the Potential Sellers during the
Second Restricted Period pursuant to Section 3.1(a) hereof.
(c) In addition to the Restricted Shares that may be
sold, transferred and assigned by the Potential Sellers pursuant to Sections
3.1(a) and 3.1(b) hereof, during the First, Second and Third Restricted Periods
(exclusive of the first 40 days of the First Restricted Period), the Potential
Sellers may (without being deemed to have breached this Agreement) sell a total
of up to 250,000 Restricted Shares in Special Qualifying Block Trades; provided,
however, that, during the period commencing on the Closing Date and ending on
the day immediately preceding the second anniversary of the Closing Date, the
Purchaser may, on one occasion, prohibit the sale of Restricted Shares in
Special Qualifying Block Trades (but may not prohibit
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any other sale of Restricted Shares except as expressly provided in this
Agreement) (i) while the Purchaser is actively engaged in a firm commitment
underwritten public offering of at least 1,000,000 shares of Purchaser Common
Stock, or (ii) for a period of 30 days following the consummation by the
Purchaser of a public sale of at least 1,000,000 shares of Purchaser Common
Stock pursuant to a firm commitment underwriting, provided that the Purchaser
first furnishes to the Potential Sellers written notice and reasonably
satisfactory evidence that the Purchaser is actively engaged in such an
offering, or has so consummated such a sale.
(d) During the Fourth Restricted Period, the
Potential Sellers may (without being deemed to have breached this Agreement)
sell, transfer and/or assign up to 2,376,000 Restricted Shares, minus the number
of Restricted Shares that were sold by the Potential Sellers during the Second
and Third Restricted Periods pursuant to Sections 3.1(a) and 3.1(b) hereof.
(e) The Potential Sellers may (without being deemed
to have breached this Agreement) sell, transfer and/or assign any number of
Restricted Shares to any Permitted Transferee at any time and from time to time
during any Restricted Period, provided that any such Permitted Transferee agrees
in writing, prior to the sale, transfer or assignment to him of such Restricted
Shares, to be bound by all of the applicable provisions of this Agreement as to
all such Restricted Shares so sold, transferred or assigned to him.
(f) The Potential Sellers may (without being deemed
to have breached this Agreement) sell, transfer and/or assign Restricted Shares
during any Restricted Period in accordance with the provisions of Section 4.2
hereof.
3.2 Overall Monthly Limitation.
The number of Restricted Shares that may be sold by
the Potential Sellers pursuant to Sections 3.1(a), 3.1(b), 3.1(c) and 3.1(d)
hereof in any particular calendar month during the period commencing on the
Closing Date and ending on the last day of the full calendar month immediately
preceding the fourth anniversary of the Closing Date shall not exceed 8.711% of
the aggregate number of shares of Purchaser Common Stock traded on all
securities exchanges and reported through Nasdaq and any other automated
quotation system during the calendar month immediately preceding such particular
calendar month.
3.3 Percentage Share Limitation.
Each Individual Parent Shareholder agrees that the
total number of Restricted Shares sold by such Individual Parent Shareholder
pursuant to Sections 3.1(a), 3.1(b), 3.1(c) and 3.1(d) hereof during the period
from the Closing Date through the end of the Fourth Restricted Period will not
exceed such Individual Parent Shareholder's Percentage Share of 2,376,000.
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3.4 Termination of Restrictions.
(a) Notwithstanding anything to the contrary
contained in this Agreement, all restrictions set forth in Section 3 hereof
(that have not previously terminated) shall terminate and cease to be of any
further force or effect upon the Restriction Expiration Date; provided, however,
that the rights granted to the Potential Sellers and the other Holders under
this Agreement (including the registration rights granted under Section 4
hereof) shall survive any such termination and continue in full force and
effect. Without limiting the generality of the foregoing, the rights granted by
the Purchaser pursuant to Section 4 hereof shall survive any merger involving,
and any other Change in Control of, the Purchaser.
(b) Notwithstanding anything to the contrary
contained in this Agreement: (i) upon the occurrence of a Special Termination
Event with respect to an Individual Parent Shareholder, all restrictions set
forth in Section 3 hereof (that have not previously terminated) shall cease to
apply to such Individual Parent Shareholder and shall cease to apply to any
Permitted Transferee to whom such Individual Parent Shareholder has transferred
any Transaction Shares; (ii) any shares of Purchaser Common Stock sold by such
Individual Parent Shareholder or any such Permitted Transferee after the
occurrence of a Special Termination Event shall not be taken into account in
determining the number of Restricted Shares sold pursuant to Section 3.1(a),
3.1(b), 3.1(c), 3.1(d) or 3.2 hereof; and (iii) for each Restricted Period after
the Restricted Period in which a Special Termination Event occurs with respect
to an Individual Parent Shareholder, the aggregate maximum number of Restricted
Shares that can be sold by the remaining Parent Shareholders pursuant to the
applicable provision of Section 3.1 shall be reduced by the number of shares
equal to such Individual Parent Shareholder's Percentage Share of the previously
applicable aggregate maximum number of Restricted Shares that could be sold
under said provision of Section 3.1. (Thus, for example, if a Special
Termination Event occurs with respect to Xxxxx Xxxxxx (whose Percentage Share is
31.407%) in the Third Restricted Period, then the maximum number of Restricted
Shares that could be sold pursuant to Section 3.1(d) hereof by the other Parent
Shareholders would be equal to 68.593% of the amount by which 2,376,000 exceeds
the number of Restricted Shares that were sold by the Potential Sellers pursuant
to Sections 3.1(a) and 3.1(b) hereof.) Notwithstanding anything to the contrary
contained in this Agreement, the rights granted to the Individual Parent
Shareholders and their Permitted Transferees under this Agreement (including the
registration rights granted under Section 4 hereof) shall survive any such
termination and continue in full force and effect.
3.5 Hedging Transactions.
Nothing contained in this Agreement will operate to
limit the ability of any Potential Seller to lend any Restricted Shares in
connection with, or otherwise engage in, conventional "collar"-type or other
"hedging" transactions at any time after the Closing; provided, however, that
(i) the Potential Sellers shall not be permitted to engage in any "hedging"
transactions with respect to their Restricted Shares during the 40-day period
commencing as of the Closing Date if such transactions would jeopardize the
availability of the
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Regulation S exemption for the issuance of the Purchaser Common Stock being
issued to the Seller at the Closing; and (ii) nothing contained in this Section
3.5 shall be deemed to allow a Potential Seller to sell or otherwise transfer
all of such Potential Seller's beneficial interest in his Restricted Shares if
such transfer would violate Section 3.1 hereof.
4. REGISTRATION.
4.1 Shelf/Demand Registration.
(a) If the Purchaser shall not have delivered to the
Potential Sellers, on or prior to September 18, 1997, the written opinion
referred to in the last sentence of Section 2 hereof, the Purchaser shall
promptly (and in any event prior to September 22, 1997) file with the Commission
a registration statement on Form S-3 (a "Shelf Registration Statement")
providing for the sale of 468,000 Registrable Shares, and the Purchaser shall
use its reasonable efforts to cause such Shelf Registration Statement to become
effective no later than the date 40 days after the Closing Date and to remain
continuously effective until the earlier of (i) the date on which the Potential
Sellers may sell all such Registrable Shares publicly in the United States (and
otherwise) without any restriction or limitation of any nature, or (ii) the date
on which the distribution described in the Shelf Registration Statement is
complete.
(b) Any Holder may request at any time during the
sixty day period immediately preceding the first day of the Third Restricted
Period that the Purchaser register under the Securities Act all or any part of
the Registrable Shares that may be sold during the Third Restricted Period. If
the Purchaser receives such a request, then, subject to Sections 4.1(d) and 4.8
hereof, the Purchaser shall (i) within 10 days after its receipt of such
request, give written notice thereof to all other Holders, and (ii) as soon as
practicable after its receipt of such request (but in any event within 30 days
after its receipt of such request), effect a registration under the Securities
Act of all Registrable Shares that (A) the Holders request to be registered, and
(B) may be sold during such Third Restricted Period in accordance with Sections
3.1(b) and 3.1(c) hereof. The Purchaser shall use its reasonable efforts to
cause such registration to remain continuously effective until the earliest of
(A) the day immediately preceding the second anniversary of the Closing Date,
(B) the date 30 days after delivery to all Holders of a legal opinion or
"no-action" letter and other documentation satisfying the requirements of
Section 4.8 hereof, or (C) the date on which the distribution covered by such
registration is complete.
(c) Any Holder may request at any time during the
sixty day period immediately preceding the first day of the Fourth Restricted
Period that the Purchaser register under the Securities Act all or any part of
the Registrable Shares that may be sold during the Fourth Restricted Period. If
the Purchaser receives such a request, then, subject to Sections 4.1(d) and 4.8
hereof, the Purchaser shall (i) within 10 days after its receipt of such
request, give written notice thereof to all other Holders, and (ii) as soon as
practicable after its receipt of such request (but in any event within 30 days
after its receipt of such request), effect a registration under the Securities
Act of all Registrable Shares that (A) the Holders request to be registered,
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and (B) may be sold during such Fourth Restricted Period in accordance with
Section 3.1(d) hereof. The Purchaser shall use its reasonable efforts to cause
such registration to remain continuously effective until the earlier of (A) the
date 30 days after delivery to all Holders of a legal opinion or "no action"
letter and other documentation satisfying the requirements of Section 4.8
hereof, or (B) the date on which the distribution covered by such registration
is complete.
(d) Notwithstanding anything to the contrary
contained in Section 4.1 hereof, the Purchaser shall have no obligation to
effect any registration pursuant to Section 4.1(b) or 4.1(c) unless the
aggregate number of Registrable Shares requested to be registered shall be equal
to or greater than 100,000.
4.2 Purchaser Registration.
(a) Notice of Registration. If at any time or from
time to time the Purchaser shall determine to effect a registration with the
Commission of any securities for its own account (other than on Form S-4 or Form
S-8) or for the account of any other Person, the Purchaser will:
(i) promptly (and in any event at least 45
days prior to the filing of a registration statement under the Securities Act
with respect to such securities) give to all Holders written notice thereof; and
(ii) include in such registration (and any
related registration or qualification under Blue Sky laws), and in the related
underwriting (if any) all Registrable Shares that the Holders request to have
included in such registration (such request to be in writing and to be made
within 30 days after receipt by all Holders of such written notice from the
Purchaser).
(b) Underwriting. If the registration of which the
Purchaser gives notice is for a registered public offering involving an
underwriting, the Purchaser shall so advise the Holders as a part of the written
notice given pursuant to Section 4.2(a)(i) hereof. In such event the right of
any Holder to have Registrable Shares included in the registration pursuant to
this Section 4.2 shall be conditioned upon such Holder's participation in such
underwriting. All Holders proposing to distribute any Registrable Shares through
such underwriting shall (together with the Purchaser and the other shareholders
of the Purchaser distributing their shares of Purchaser Common Stock through
such underwriting) enter into an underwriting agreement in customary form with
the managing underwriter selected for such underwriting by the Purchaser.
Notwithstanding any other provision of this Section 4.2, if such managing
underwriter reasonably determines that marketing factors require a limitation of
the number of shares of Purchaser Common Stock to be included in such
registration and underwriting, the managing underwriter may exclude or otherwise
limit the number of shares of Purchaser Common Stock to be included in such
registration and underwriting by shareholders of the Purchaser, including,
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without limitation, the Holders, prior to the exclusion of any shares to be sold
pursuant to such registration and underwriting by the Purchaser. The number of
Registrable Shares that may be included in the registration and underwriting
shall be allocated among all the participating Holders and other shareholders of
the Purchaser participating in such registration and underwriting in proportion,
as nearly as practicable, to the respective numbers of Registrable Shares held
by such Holders (and requested to be included in such registration) and the
number of shares of Purchaser Common Stock held by such other shareholders (and
requested to be included in such registration) at the time of filing the
registration statement. To facilitate the allocation of shares in accordance
with the above provisions, the Purchaser may round the number of shares
allocated to any Holder or shareholder to the nearest 100 shares. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Purchaser and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
(c) Restrictions Not Applicable. None of the
restrictions contained in Section 3 hereof shall apply to any sale of
Registrable Shares pursuant to a registration under this Section 4.2.
(d) Right to Terminate Registration. The Purchaser
shall have the right to terminate or withdraw any registration initiated by it
under this Section 4.2 prior to the effectiveness of such registration, whether
or not any Holder has elected to include Registrable Shares in such
registration.
(e) No Other Grants of Registration Rights. Without
the prior written consent of the Potential Sellers, the Purchaser shall not
grant to any Person any rights to have any shares of Purchaser Common Stock, or
any securities convertible into or exchangeable for shares of Purchaser Common
Stock, registered under the Securities Act on terms more favorable than those
set forth in this Agreement.
4.3 Expenses of Registration. All Registration Expenses shall
be borne exclusively by the Purchaser. Unless otherwise stated, all Selling
Expenses relating to Registrable Shares shall be borne by the Holders of such
Registrable Shares pro rata on the basis of the number of Registrable Shares so
sold.
4.4 Registration Procedures. In the case of each registration
effected by the Purchaser pursuant to this Agreement, the Purchaser will: (a) a
reasonable number of days prior to filing any registration statement, prospectus
or amendment or supplement thereto with the Commission, furnish a copy of such
registration statement, prospectus or amendment or supplement to each Holder
participating in such registration for such Holder's review; (b) keep each
Holder advised in writing as to the initiation of each registration and
qualification and as to the completion thereof; and (c) at the Purchaser's own
expense and as expeditiously as possible:
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(i) prepare and file with the Commission a
registration statement on Form S-3 (in the case of a registration under
Section 4.1(a) hereof) and, in all other cases, on Form S-1 or Form
S-3, as the Purchaser shall determine, and use its reasonable efforts
to cause such registration statement to become and remain effective for
such period as may be specified in this Agreement or, if not so
specified, such period that shall end on the earlier of: (A) the date
270 days after its effectiveness, or (B) the date upon which all of the
securities covered thereby have been sold by the Holders;
(ii) furnish to each Holder participating in such
registration upon request such reasonable number of copies of the
registration statement (and each amendment thereto), preliminary
prospectus and final prospectus (and each supplement thereto) as such
Holder may reasonably request in order to facilitate the public
offering of the securities covered thereby, including all documents
incorporated therein by reference (whether filed with the Commission
before or after the registration statement becomes effective) and all
exhibits thereto;
(iii) use its reasonable efforts to (A) register and
qualify (or obtain appropriate exemptions for) the shares covered by
such registration statement under such other securities or Blue Sky
laws of such states and other jurisdictions as shall be reasonably
requested by the Holders, and (B) keep such registrations and
qualifications in effect for so long as each registration statement
remains in effect; provided, however, that the Purchaser shall not be
required in connection therewith or as a condition thereto to (1)
qualify to do business in any such jurisdiction, (2) subject itself to
taxation in any such jurisdiction, or (3) file a general consent to
service of process in any such jurisdiction;
(iv) in the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement (in usual and customary form) with the managing underwriters
of such offering;
(v) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective for the applicable period set
forth in this Agreement, and comply with the provisions of the
Securities Act with respect to the disposition of all shares covered by
such registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in
such registration statement;
(vi) cause all securities covered by such
registration statement to be listed on each securities exchange or
interdealer quotation system of the National Association of Securities
Dealers, Inc. on which similar securities issued by the Purchaser are
then listed;
12
(vii) provide a transfer agent and registrar for all
securities covered by such registration statement not later than the
effective date of such registration statement;
(viii) notify each Holder participating in such
registration, promptly after the Purchaser receives notice thereof, (A)
of the time when such registration statement has become effective, and
(B) at any time when a prospectus is required to be delivered under the
Securities Act in connection with any registration statement (1) of the
happening of any event as a result of which such registration
statement, such prospectus, any prospectus supplement or any document
incorporated by reference in any of the foregoing contains an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they are made,
not misleading or (2) that the Purchaser is in possession of material
information that it deems advisable not to disclose in a registration
statement;
(ix) advise each Holder participating in such
registration, promptly after the Purchaser shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement
or the initiation or threatening of any proceeding for such purpose and
promptly use its reasonable efforts to prevent the issuance of any stop
order or to obtain its withdrawal (at the earliest practicable date) if
such stop order should be issued; and
(x) prior to the effectiveness of such registration
statement and any post-effective amendment thereto and at each closing
of an underwritten offering, (A) make such reasonable representations
and warranties to the Holders participating in such registration, and
the underwriters, if any, with respect to the Registrable Shares and
the registration statement as are customarily made by issuers to
underwriters and selling shareholders in underwritten offerings, (B)
obtain opinions of counsel to the Purchaser and updates thereof (which
counsel and which opinions shall be reasonably satisfactory to the
underwriters, if any, and to Holders who hold a majority of the
Registrable Shares being sold pursuant to such registration) addressed
to each selling Holder and the underwriters, if any, covering the
matters customarily covered in opinions requested in public offerings
and such other matters as may be reasonably requested by such Holders
and underwriters or their counsel, (C) obtain "comfort" letters and
updates thereof from the Purchaser's independent certified public
accountants addressed to the selling Holders and the underwriters, if
any, such letters to be in customary form and to cover matters of the
type customarily covered in "comfort" letters given to underwriters and
selling shareholders in connection with secondary underwritten
offerings, and (D) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority of the Registrable
Shares being sold pursuant to such registration and by the
underwriters, if any, to evidence compliance with clause (A) of this
clause "(x)" and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the
Purchaser.
13
4.5 Indemnification.
(a) The Purchaser will indemnify each Holder who
holds any Registrable Shares that are included in a registration or
qualification pursuant to this Agreement and each person controlling or
controlled by such Holder within the meaning of Section 15 of the Securities Act
against any expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on (i) any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, used in connection with such registration or
qualification, or (ii) any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or (iii) any violation by the Purchaser of the Securities Act, the
Exchange Act, any state or other securities laws or any rule or regulation
promulgated under such acts or laws applicable to the Purchaser in connection
with any such registration or qualification. In addition, the Purchaser will
reimburse each such Holder, and each person so controlling or controlled by such
Holder, for any legal or other expenses reasonably incurred, as such expenses
are incurred, in connection with investigating, preparing to defend or defending
any such claim, liability or action; provided, however, that the Purchaser will
not be liable to any such Holder in any such case to the extent that any such
expense, loss, damage or liability arises out of or is based on any untrue
statement of a material fact made by the Purchaser in the applicable
registration statement in reliance upon and in conformity with inaccurate
information furnished in writing to the Purchaser by any Holder or person
controlling such Holder expressly for use in the applicable registration
statement.
(b) Each Holder will, if Registrable Shares held by
such Holder are included in the shares as to which a registration or
qualification is being effected pursuant to this Agreement, indemnify the
Purchaser and each person controlling or controlled by the Purchaser within the
meaning of Section 15 of the Securities Act against any expenses, claims,
losses, damages or liabilities (or actions in respect thereof) arising out of or
based on any untrue statement of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereto, used in connection with such registration or qualification,
and will reimburse the Purchaser, and each person so controlling or controlled
by the Purchaser, for any legal or other expenses reasonably incurred, as such
expenses are incurred, in connection with investigating, preparing to defend or
defending any such claim, liability or action based on such untrue statement of
a material fact, in each case to the extent, but only to the extent, that such
untrue statement of a material fact is made in reliance upon and in conformity
with inaccurate information furnished in writing to the Purchaser by such Holder
or person controlling such Holder expressly for use in the applicable
registration statement. Notwithstanding anything to the contrary contained in
this Section 4.5(b) or elsewhere in this Agreement, any obligation of any Holder
to indemnify or reimburse any person pursuant to this Section shall be several
and not joint and shall be limited to the net amount of
14
proceeds received by such Holder from the sale of Registrable Shares pursuant to
the registration or qualification in connection with which indemnification or
reimbursement has been sought.
(c) Each party entitled to indemnification under this
Section 4.5 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought; provided, however, that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 4.5 unless the failure to give such notice
materially prejudices the rights or defenses of the Indemnifying Party, in which
case the Indemnifying Party shall be relieved of its obligations under this
Section 4.5 to the extent of such prejudice. In the event of the assertion or
commencement of any claim or litigation for which indemnification may be sought,
the Indemnifying Party shall have the right to assume the defense of any such
claim or litigation with counsel approved by the Indemnified Party (whose
approval shall not be unreasonably withheld), and the Indemnified Party shall
have the right to participate in such defense at its own expense; provided,
however, that the Indemnifying Party shall not have the right to assume the
defense of any matters as to which representation of both the Indemnifying Party
and the Indemnified Party by the same counsel would be inappropriate (as
reasonably determined by the Indemnified Party based on the written advice of
counsel) due to actual or potential differing interests between them, but shall
instead in such event pay the reasonable fees and costs of separate counsel for
the Indemnified Party. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party (which
consent shall not be unreasonably withheld) consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.
(d) If the indemnification provided for in this
Section 4.5 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any expenses, claims, losses, damages and
liabilities referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such expenses, claims,
losses, damages or liabilities in such proportion as is appropriate to reflect
not only the relevant benefits received by the Indemnifying Party but also the
relative fault of the Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the statements, omissions or violations
that resulted in such expenses, claims, losses, damages or liabilities as well
as any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference
to, among other things, whether any untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, however, that, in any such case,
no Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
15
4.6 Information Regarding Holder.
Each Holder whose Registrable Shares are included in
any registration under this Agreement shall furnish to the Purchaser such
information regarding such Holder, the Registrable Shares held by such Holder
and the distribution proposed by such Holder as the Purchaser may reasonably
request in writing, to the extent such information is required by law to be
disclosed in the applicable registration statement.
4.7 Termination of Registration Rights.
The rights granted pursuant to this Section 4 shall
terminate as to any Holder at such time as such Holder can immediately sell all
of the Registrable Shares held by such Holder without restriction (under the
Securities Act or otherwise) in accordance with Rule 144.
4.8 Opinion of Counsel/"No Action" Correspondence.
In lieu of taking the actions referred to in Sections
4.1 and 4.4 hereof, the Purchaser may, at its sole expense, obtain and deliver
to a Holder who desires to effect a sale of Registrable Shares: (a) a written
opinion of Xxxxxxxx & Xxxxxxxx LLP or other reputable U.S. securities counsel
(reasonably satisfactory to such Holder in form and substance) that, or such
other evidence (reasonably satisfactory in form and substance to such Holder)
indicating that, such sale is exempt from (or otherwise not subject to)
registration and qualification under state securities laws; and (b) either (i) a
written opinion of Xxxxxxxx & Xxxxxxxx LLP or other reputable U.S. securities
counsel (reasonably satisfactory in form and substance to such Holder) that such
sale is exempt from registration under the Securities Act, or (ii) a writing
executed by an authorized representative of the Commission to the effect that
the Commission would take no action with respect to such sale. Nothing in this
Section 4.8 or elsewhere in this Agreement shall be deemed to require that any
Holder obtain an opinion of counsel or a writing executed by a representative of
the Commission in order to sell Registrable Shares.
5. RULE 144 REPORTING.
With a view to making available to the Holders the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Registrable Shares to the public in the United States without registration, the
Purchaser agrees that, so long as any Holder owns any Registrable Shares:
(a) the Purchaser will make and keep public information
available (in accordance with Rule 144) at all times;
16
(b) the Purchaser will file with the Commission, in a timely
manner, all reports and other documents required to be filed by the Purchaser
under the Exchange Act; and
(c) the Purchaser will furnish to each Holder promptly upon
request (i) a written statement by the Purchaser as to its compliance with
applicable requirements of Rule 144 and of the Exchange Act, (ii) a copy of the
most recent annual or quarterly report of the Purchaser, and (iii) such other
reports and documents as such Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing it to sell any Registrable
Shares without registration.
6. GOVERNING LAW.
This Agreement and the legal relations between the parties
arising hereunder shall be governed by and interpreted in accordance with the
laws of the State of California without regard to its conflicts of law
provisions. Any dispute arising out of or relating to this Agreement shall be
resolved through binding arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce. The venue for such
arbitration proceedings shall be in London, England. The arbitrator's fees and
other related expenses of any arbitration under this Agreement (such as expenses
for transcripts of the arbitration proceedings) shall be borne by the Purchaser
and the other parties to such arbitration in such proportions as shall be
determined by the arbitrator, or if there is no such determination, then such
fees and other expenses shall be borne one-half by the Purchaser and one-half
divided equally among the other parties to such arbitration. The resolution of a
dispute by the arbitrator shall be conclusive and binding upon the parties
hereto and judgment may be entered thereon in any court having jurisdiction
thereof. The arbitrator shall have the authority to make an award of actual
compensatory damages incurred by a party in connection with a dispute, but shall
have no right to grant special, punitive or exemplary damages or indirect or
consequential damages or to grant any form of equitable relief (except that the
arbitrator may, as part of his award, require the Purchaser to perform its
registration and other obligations under this Agreement).
7. ASSIGNABILITY.
Except as otherwise provided herein, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, successors and assigns. A Holder may assign, to any Permitted
Transferee or other Person to which such Holder transfers at least 10,000
Registrable Shares, such Holder's registration rights and other rights hereunder
with respect to such Registrable Shares.
8. ENTIRE AGREEMENT.
This Agreement constitutes the full and entire understanding
and agreement among the parties regarding the matters set forth herein and
supersedes all prior agreements and
17
understandings, both written and oral, among or between any of the parties with
respect to the subject matter hereof.
9. NOTICES, ETC.
Any notice required or permitted hereunder shall be in writing
and shall be deemed given (a) when delivered in person, (b) three business days
after delivery to an "overnight" courier, or (c) 24 hours after delivery by
facsimile transmission (if receipt of such
18
facsimile is evidenced by a transmission report or other reasonable evidence of
the successful and accurate transmission of such notice), in each case addressed
as follows:
If to any Parent Shareholder: At such Parent Shareholder's address as set
forth on Schedule A hereto
19
With a copy to: Shinar, Shachor, Weissberger
0 Xxxx Xxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx 00000, Israel
Attn: Xxxxx Xxxxxx
Fax: 000-0-000-0000
If to the Purchaser: Cylink Corporation
000 Xxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx
Fax: 000-000-0000
With a copy to: Xxxxxxxx & Xxxxxxxx LLP
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxxx
Fax: 000-000-0000
Addresses may be changed (or in the case of a Holder, added) by written notice
given pursuant to this Section. Any notice given hereunder may be given on
behalf of a party by his counsel or other authorized representative.
10. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
11. AMENDMENTS.
This Agreement may not be amended, modified or supplemented,
except by means of a written amendment signed by all of the parties hereto;
provided, however, that the provisions of Section 4 hereof may be amended by
means of a written amendment signed by the Purchaser, on one hand, and Holders
representing a majority in interest of the Registrable Shares, on the other
hand, so long as such amendment does not take away any registration right of any
Holder or reduce the amount of reimbursable costs to any Holder in connection
with any registration hereunder without the consent of such Holder.
Notwithstanding the foregoing, any Holder may from time to time enter into one
or more agreements amending, modifying or
20
supplementing the provisions of this Agreement if such action does not adversely
affect the rights or interest of any other Holder. This Agreement is intended to
benefit, and may be enforced by, the parties hereto and the Permitted
Transferees who receive Transaction Shares; provided, however, that except as
set forth in this Section 11, this Agreement may be amended, modified or
supplemented without the consent of any Permitted Transferee.
12. STOCK SPLITS, STOCK DIVIDENDS, ETC.
All numerical references (including dollar amounts) referred
to in this Agreement shall be adjusted, if appropriate, to reflect any stock
split, stock dividend, combination of shares, recapitalization, merger,
consolidation or other reorganization or similar event with respect to the
Purchaser Common Stock.
13. LIQUIDATION OF THE SELLER; LIABILITY FOR BREACH.
Nothing contained in this Agreement shall be construed or
shall operate to prevent the Seller from dissolving, winding up, liquidating or
terminating its existence at any time after the date of this Agreement.
Notwithstanding anything to the contrary contained in this Agreement, in the
event of the dissolution or liquidation of the Seller, the then current
shareholder(s) of the Seller and their successors and assigns shall succeed to
and shall be entitled to exercise and enforce all of the rights of the Seller
under this Agreement. In the event of a breach of this Agreement, the liability,
if any, of each Parent Shareholder shall be limited to such Parent Shareholder's
Percentage Share of the compensable damages (if any) incurred by, and payable
to, the Purchaser as a result of such breach. Notwithstanding anything to the
contrary contained in this Agreement (and without limiting the effect of the
preceding sentence), the total cumulative maximum liability of each Parent
Shareholder for all breaches of this Agreement and the Parent Shareholders
Indemnity Agreement of even date herewith shall be limited in the aggregate to
the dollar value of the assets of the Seller distributed to such Parent
Shareholder by the Seller in the dissolution and liquidation of the Seller, and
no Parent Shareholder's liability hereunder and thereunder shall exceed such
amount.
14. INTERPRETATION OF CERTAIN TERMS.
All references in this Agreement to "$" or "dollars" shall
mean U.S. dollars, and all references in this Agreement to "calendar month"
shall be based on the Gregorian calendar. For purposes of this Agreement, the
masculine gender shall be deemed to including the feminine and neuter gender,
and the neuter gender shall be deemed to include the masculine and feminine
genders.
21
This Agreement is hereby executed as of the date first above written.
CYLINK CORPORATION
By: /s/ Xxxx X. Xxxx, Xx.
--------------------------------------
Xxxx X. Xxxx, Xx.
Vice President, Strategy and
Business Development
ALGORITHMIC RESEARCH LTD.
By: /s/ Xxxxx Xxxxxx
--------------------------------------
Xxxxx Xxxxxx
Chief Executive Officer
By /s/ Xxxxx Xxxxx
--------------------------------------
Xxxxx Xxxxx
Chief Operating Officer
A.R. DATA SECURITY LTD.
By: /s/ Xxxxx Xxxxxx
--------------------------------------
Xxxxx Xxxxxx
By: /s/ Xxxxx Xxxxx
--------------------------------------
Xxxxx Xxxxx
By: /s/ Xxxx Fiat
--------------------------------------
Xxxx Fiat
By: /s/ Oded Koritshoner
--------------------------------------
Oded Koritshoner
By: /s/ Zohar Tal
--------------------------------------
Zohar Tal
22
PARENT SHAREHOLDERS:
/s/ Xxxxx Xxxxxx
-----------------------------------------
Xxxxx Xxxxxx
/s/ Xxxx Fiat
-----------------------------------------
Xxxx Fiat
/s/ Xxxxx Xxxxx
-----------------------------------------
Xxxxx Xxxxx
KOOR CAPITAL MARKETS
By: /s/ Xxxxx Xxxxxxxxx
--------------------------------------
Xxxxx Xxxxxxxxx
President
By: /s/ Yair Na'aman
--------------------------------------
Yair Na'aman
Head of Finance Division
TELRAD HOLDINGS LTD.
By: /s/ Oded Koritshoner
--------------------------------------
Oded Koritshoner
Managing Director
By: /s/
--------------------------------------
23
Schedule A
Parent Shareholders
Name and Address of Parent Shareholder Percentage Share
-------------------------------------- ----------------
Xxxxx Xxxxxx 31.407%
00 Xxxx Xxxxxx, Xxxx Xxxxxx, Xxxxxx
Xxxx Fiat 31.407%
00 Xxxxxx Xxx Xxxxxx, Xxx Xxxx, Xxxxxx
Xxxxx Xxxxx 10.337%
00 Xxxxxxxxx Xxxxxx Xxxxxx, Xxxxx, Xxxxxx
Koor Capital Markets 7.501%
00 Xxxxxxxxxx Xxxxxxxxx, Xxx Xxxx, Xxxxxx
Telrad Holdings Ltd. 19.348%
00 Xxxxxxxxxx Xxxxxxxxx, Xxx Xxxx, Xxxxxx
