1
STOCK PURCHASE AGREEMENT
BETWEEN
BATM ADVANCED COMMUNICATIONS LIMITED,
AND
WORLD ACCESS, INC.
FEBRUARY 2, 2000
2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), is entered into and
made effective this 2nd day of February, 2000 (the "Effective Date"), by and
between WORLD ACCESS, INC., a Delaware corporation with its principal place of
business in Atlanta, Georgia (the "Seller"), and BATM ADVANCED COMMUNICATIONS
LIMITED, an Israeli corporation with its principal place of business in Ros
Ha'xxx, Israel (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Seller owns all of the issued and outstanding shares of
capital stock of Telco Systems, Inc., a Delaware corporation (the "Company,"
which term, unless the context otherwise requires, shall include the majority
owned subsidiaries of the Company but shall not include World Access Investment
Corp.);
WHEREAS, Xx. Xxx Xxxxx, a significant shareholder of the Buyer, has
entered into a Voting Agreement dated as of the date hereof, pursuant to which
he agrees to vote in favor of the transactions contemplated by this Agreement;
and
WHEREAS, upon and subject to the terms and conditions contained
herein, the Seller desires to sell to the Buyer, and the Buyer desires to
purchase from the Seller, all of the issued and outstanding capital stock of
the Company (the "Transaction").
NOW, THEREFORE, in consideration of the mutual representations,
warranties, promises and covenants contained herein and upon and subject to the
terms and conditions set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE 1: SALE OF SHARES
SECTION 1.1 PURCHASE AND SALE OF SHARES OF THE COMPANY.
The Buyer shall purchase from the Seller, and the Seller shall sell,
transfer, assign and deliver to the Buyer, at the Closing (as hereinafter
defined), all of the issued and outstanding shares of capital stock of the
Company, which consists of 100 shares of common stock, $0.01 par value per
share (the "Shares").
SECTION 1.2 PURCHASE PRICE.
The aggregate purchase price (the "Purchase Price") to be paid by the
Buyer for the Shares shall equal (i) Two Hundred Sixty Million Eight Hundred
Thousand Dollars ($260,800,000) (the "Closing Cash Payment"), plus (ii) 960,000
Ordinary Shares, .10 NIS per share, of the Buyer (the "Buyer Shares"). At the
Closing, the Buyer shall deliver to the Seller certificates representing the
Buyer Shares and pay to the Seller the Closing Cash Payment by wire transfer of
immediately available funds in United States currency.
3
SECTION 1.3 ADJUSTMENT FOR INTERCOMPANY BALANCE.
(a) The parties agree that the Company's cash and short-term
investments in the amount of $3,970,587 shown on the Company's unaudited
December 31, 1999, balance sheet shall belong to the Seller, and that for
purposes of determining the Intercompany Balance as of the Closing Date, the
Intercompany Balance as of December 31, 1999 shall be deemed to be $0. For
purposes of this Agreement, "Intercompany Balance" shall mean the net amount
shown on the Company's balance sheet as owed to the Company by the Seller and
its subsidiaries (other than the Company), on the one hand, or owed to the
Seller and its subsidiaries (other than the Company) by the Company, on the
other.
(b) The parties further agree that, during the period from
January 1, 2000 through and including the Closing Date, all expenditures by the
Seller or any of its subsidiaries incurred on behalf of the Company are subject
to the Buyer's prior written approval. The Buyer acknowledges that the Seller
pays certain direct expenses of the Company in the Ordinary Course of Business,
including, but not limited to, payroll expenses, payroll taxes and insurance.
The Intercompany Balance shall not include any direct expenses paid by the
Seller on behalf of entities other than the Company and its subsidiaries, such
other entities including those referred to in Section 9.1(f).
(c) Two (2) business days prior to the Closing Date, the
Seller shall provide the Buyer with a statement, as of the Closing Date, of the
Intercompany Balance and of all intercompany transactions between the Seller
and its subsidiaries (other than the Company), on the one hand, and the
Company, on the other, since January 1, 2000 (the "Intercompany Balance
Statement"). On the Closing Date, if the Intercompany Balance is owed to the
Seller, the Company shall pay such amount to the Seller, and if the
Intercompany Balance is owed to the Company, the Seller shall pay such amount
to the Company.
(d) The Buyer and the Seller shall use good faith efforts to
resolve any dispute involving the amount shown on the Intercompany Balance
Statement. If the Seller and the Buyer fail to agree on the proper amount, then
the Buyer shall set forth in writing its determination of the Intercompany
Balance, and the parties shall submit the dispute for resolution to an
independent, "Big Five" public accounting firm, jointly selected by the Buyer
and the Seller, which has no prior relationship with the Buyer or the Seller
(the "Accountant"). The Accountant's resolution of the dispute shall be final
and binding on the parties, and a judgment may be entered thereon in any court
of competent jurisdiction. Any fees of the Accountant shall be shared equally
by the Buyer and the Seller.
SECTION 1.4 TRANSFER OF SHARES.
At the Closing, the Seller shall deliver to the Buyer certificates
evidencing the Shares, duly endorsed in blank or accompanied by duly executed
stock transfer powers.
2
4
ARTICLE 2: SELLER'S REPRESENTATIONS AND WARRANTIES
The Seller hereby represents and warrants to the Buyer as of the date
hereof the following:
SECTION 2.1 ORGANIZATION OF THE SELLER.
The Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to carry on and conduct its business as it is now
being conducted and to own or lease its properties and assets, and is duly
qualified and in good standing in every state in which the conduct of its
business or the ownership of its properties and assets requires it to be so
qualified and the absence of such qualification would have a Material Adverse
Effect (as hereinafter defined) on the Company.
SECTION 2.2 POWER AND AUTHORITY OF THE SELLER.
The Seller has the right, power and capacity to execute, deliver and
perform this Agreement and all the documents and instruments referred to herein
and contemplated hereby together with all other agreements to be signed or
delivered at the Closing (the "Transaction Agreements") and to consummate the
transactions contemplated by this Agreement. The execution, delivery and
performance of this Agreement and the Transaction Agreements, and the
consummation of the transactions contemplated hereby and thereby, have been
duly and validly authorized by all necessary corporate action on the part of
the Seller. This Agreement has been, and each of the Transaction Agreements
after execution and delivery thereof at the Closing will have been, duly and
validly executed and delivered by the Seller and constitute the Seller's legal,
valid and binding obligation, enforceable in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws in effect which affect
the enforcement of creditors' rights generally, or equitable principles.
SECTION 2.3 OWNERSHIP OF THE SHARES.
The Seller owns, of record and beneficially, good and valid title to
the Shares. The Shares (i) are validly issued, fully paid and non-assessable;
and (ii) are free and clear of any liens, restrictions, claims, rights of first
refusal, options or encumbrances. Upon consummation of the Closing, the Buyer
shall have obtained good and valid title to the Shares, free and clear of any
liens, restrictions, claims, rights of first refusal, options or encumbrances.
The Seller has full and exclusive power, right and authority to vote the
Shares. The Seller is not a party to or bound by any agreement affecting or
relating to its right to transfer or vote the Shares.
SECTION 2.4 ORGANIZATION OF THE COMPANY.
(a) Telco Systems Inc. is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to carry on and conduct its
business as it is now being conducted and to own or lease its properties and
assets, and is duly qualified and in good standing in every state in which the
3
5
conduct of its business or the ownership of its properties and assets requires
it to be so qualified and the absence of such qualification would have a
Material Adverse Effect on the Company. The Seller has provided to the Buyer
true and correct copies of the Company's Certificate of Incorporation and
bylaws.
(b) Section 2.4 of the Disclosure Schedule sets forth an
accurate and complete list of the name, jurisdiction of incorporation and
capitalization of each subsidiary of the Company. Except as set forth in
Section 2.4 of the Disclosure Schedule, the Company neither owns, nor has any
commitment or agreement to acquire any equity securities of any other
corporation, partnership, limited liability company or other entity. Without
limiting the generality of foregoing, the Company owns no assets, and is not
responsible for any liabilities or obligations related to any of the matters
referred to in Section 9.1(f).
(c) Except as set forth in Section 2.4 of the Disclosure
Schedule, all of the outstanding capital stock of each subsidiary of the
Company is owned directly by the Company, free and clear of all options, liens,
claims, charges or encumbrances of any kind. There are no outstanding options,
rights or agreements of any kind relating to the issuance, sale or transfer of
any capital stock or other equity securities of any subsidiary of the Company
to any person, other than as contemplated by Section 6.8 hereof, and all
outstanding shares of capital stock or other equity securities of each
subsidiary of the Company are validly issued, fully paid and nonassessable.
(d) Each subsidiary of the Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power and authority to
carry on its business as it is now being conducted and to own and lease the
property and assets that it now owns and leases. Each subsidiary of the Company
is qualified or licensed to do business as a foreign corporation and is in good
standing in each jurisdiction in which the properties owned or leased or the
nature of the business conducted by such subsidiary makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not have a Material Adverse Effect on the Company. The copies of the
Certificate of Incorporation and bylaws (or other organizational documents) of
each subsidiary of the Company, as heretofore delivered by the Seller or the
Company to the Buyer, are complete and correct copies of such instruments as
currently in effect.
SECTION 2.5 AUTHORIZED AND OUTSTANDING STOCK.
The authorized capital stock of the Company consists of 1000 shares of
common stock of which only the Shares are issued and outstanding. The Shares
are validly issued, fully paid and non-assessable. There are no shares of
capital stock of the Company held in the treasury of the Company. There is not
outstanding, nor is the Company bound by, any subscriptions, options,
preemptive rights, warrants, calls, commitments or agreements or rights of any
character requiring the Company to issue, or entitling any person or entity to
acquire, any additional shares of capital stock or any other equity security of
the Company, including any right of conversion or exchange under any
outstanding security or other instrument, and the Company is not obligated to
issue or transfer any shares of its capital stock for any purpose. There are no
outstanding
4
6
obligations of the Company to repurchase, redeem or otherwise acquire any
outstanding shares of capital stock of the Company.
SECTION 2.6 CONFLICTS; REQUIRED CONSENTS.
Subject to obtaining the consents and approvals and making the filings
described in Section 2.6 of the Disclosure Schedule and except, in the case of
clauses (ii), (iii) and (iv), for such matters that would not have a Material
Adverse Effect on the Company, the execution and delivery of this Agreement by
the Seller, and the consummation of the transactions contemplated herein by the
Seller, will not directly or indirectly (with or without notice or lapse of
time): (i) violate or conflict with any of the provisions of any charter
document or bylaws of the Seller; or (ii) violate, conflict with or result in a
breach or default under or cause termination, or give rise to any right to
declare a default or exercise any remedy under, or to accelerate the maturity
or performance of, any term or condition of any mortgage, indenture, contract,
license, permit, instrument, or other agreement, document or instrument to
which either the Seller or the Company is a party or by which either the Seller
or the Company or any of their properties may be bound; (iii) violate any
provision of law or any valid and enforceable court order or ruling of any
governmental authority, to which either the Seller or the Company is a party or
by which any of their properties may be bound; or (iv) result in the creation
or imposition of any lien or other encumbrance upon any of the Company's
properties or assets. Except as set forth in Section 2.6 of the Disclosure
Schedule, no consent, approval, or authorization of, or filing with, any
governmental or regulatory authority or, except for such matters that would not
have a Material Adverse Effect on the Company, any other party, is required to
be obtained in connection with the execution of this Agreement or the
Transaction Agreements or the consummation of the transactions contemplated
thereby.
SECTION 2.7 FINANCIAL STATEMENTS; ABSENCE OF UNDISCLOSED
LIABILITIES.
The Seller has furnished the Buyer with the audited balance sheet of
the Company as of August 31, 1998 and the related audited statements of income,
retained earnings and cash flows for the 12-month period then ended, including
the notes thereto (the "Audited Financial Statements"), and the unaudited
balance sheets of the Company as of December 31, 1998 and December 31, 1999 and
the related unaudited statements of income for the periods then ended, (the
"Unaudited Financial Statements," and together with the Audited Financial
Statements, the "Financial Statements"). The Unaudited Financial Statements are
attached hereto as Exhibit 2.7. The Financial Statements fairly present, in all
material respects, the financial position, results of its operations, changes
in Stockholders' equity and cash flow of the Company as of the respective dates
and for the periods referred to in such financial statements and have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved, except that the unaudited financial statements for the year
ended December 31, 1999 are subject to non-material audit adjustments. Except
as and to the extent reserved against on the Unaudited Financial Statements or
as shown in Section 2.7 of the Disclosure Schedule, as of December 31, 1999,
the Company had no material liabilities or obligations, whether known or
unknown and whether absolute, accrued, contingent, or otherwise. Since December
31, 1999, the Company has not incurred any liabilities or obligations, whether
absolute, accrued, contingent or otherwise, except for liabilities and
obligations incurred by the Company in the Ordinary Course of
5
7
Business or as reflected in Section 2.7 of the Disclosure Schedule. For
purposes of this Section 2.7, the parties agree that liabilities in connection
with product liability claims or employment benefit claims shall not constitute
liabilities in the Ordinary Course of Business.
SECTION 2.8 EVENTS SUBSEQUENT TO DECEMBER 31, 1999.
Since December 31, 1999 (the "Most Recent Balance Sheet Date"), there
has been no change in the business, operations, properties, prospects, assets
or financial condition of the Company which would have a Material Adverse
Effect on the Company and no event has occurred or circumstance exists that
could reasonably be expected to have a Material Adverse Effect on the Company,
other than changes resulting from developments or occurrences relating to or
affecting applicable law, the economy or financial markets in general, or any
industry in which the Company operates, in general, and not specifically and
solely relating to the Company, or other changes that are the result of actions
taken by the Buyer prior to the Closing Date or actions taken as contemplated
herein or in the other agreements contemplated hereby that have an effect on
the Company. Since the Most Recent Balance Sheet Date, the Company has operated
only in the Ordinary Course of Business in all material respects and the
Company has not:
(a) suffered any damage or destruction adversely affecting
the properties, assets, business, financial condition or prospects of the
Company (whether or not covered by insurance) which individually or in the
aggregate had or could reasonably be expected to have a Material Adverse Effect
on the Company;
(b) incurred or discharged any obligation or liability,
except in the Ordinary Course of Business;
(c) created or assumed any mortgage, lien, security interest,
or other encumbrance on its assets, except for the security interests,
easements or other encumbrances described in Section 2.8 of the Disclosure
Schedule and liens for taxes not yet due and payable;
(d) sold, transferred or otherwise disposed of any of its
assets, except in the Ordinary Course of Business;
(e) waived any claims or rights, except any waiver which did
not have and could not reasonably be expected to have a Material Adverse Effect
on the Company;
(f) entered into, amended or terminated any material
contract, lease or permit except in the Ordinary Course of Business;
(g) acquired any assets which are material, individually or
in the aggregate, to the business of the Company, except in the Ordinary Course
of Business; or
(h) changed the Company's authorized or issued capital stock;
granted any stock options or rights to purchase shares of capital stock of the
Company; issued any securities convertible into such capital stock; granted any
registration rights; purchased, redeemed, retired, or otherwise acquired any
shares of its capital stock; or declared or paid any dividend or other
distribution or payment in respect of shares of capital stock;
6
8
(i) amended the Company's Certificate of Incorporation or
bylaws;
(j) except in the Ordinary Course of Business, paid or
increased any bonuses, salaries, or other compensation to any stockholder,
director, officer, or employee or entered into any employment, severance, or
similar contract with any director, officer, or employee;
(k) made any material change in the accounting methods used
by the Company; or
(l) agreed to take any action described in this Section 2.8.
SECTION 2.9 TITLE TO, CONDITION AND SUFFICIENCY OF ASSETS.
Except for Permitted Liens, the Company has good and valid title to, or a valid
leasehold interest in, all personal property owned, leased or used by the
Company, free and clear of all material liens, charges and encumbrances, except
for Permitted Liens. Except for liens in connection with the Credit Agreement
referred to in Section 7.10 hereof, the release of which is a condition to the
Buyer's obligations to consummate the Transaction, the existence of the
Permitted Liens, taken individually or in the aggregate, would not have a
Material Adverse Affect on the Company. No assets have been transferred between
the Seller and Company since the Most Recent Balance Sheet Date. The Seller
shall not transfer to the Buyer any assets or liabilities other than those of
the Company and those of the subsidiaries listed in Section 2.4 of the
Disclosure Schedule. The buildings, plants, structures and equipment of the
Company are structurally sound, are in good operating condition and repair, are
reasonably sufficient for the uses to which they are being put, and none of
such buildings, plants, structures, or equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost. The buildings, plants, structures and equipment of
the Company are sufficient in all material respects for the continued conduct
of the Company's business after the Closing in substantially the same manner as
conducted prior to the Closing. "Permitted Liens" shall mean any of the
following, to the extent incurred in the Ordinary Course of Business (i) the
security interests, easements or other encumbrances described in Section 2.9 of
the Disclosure Schedule; (ii) liens in connection with workers' compensation,
unemployment insurance or other social security obligations; (iii) deposits,
pledges or liens to secure the performance of bids, tenders, contracts, leases,
statutory obligations, surety, customs, appeal, performance and payment bonds
and other obligations of like nature; (iv) mechanics', workers', carriers',
warehousemen's, materialmen's, landlords' or other like liens with respect to
obligations which are not due or which are being contested in good faith and by
appropriate proceedings diligently conducted; (v) liens for taxes, assessments,
fees or governmental charges or levies not yet due and payable, and (vi) liens
for due but unpaid state taxes as set forth in Section 2.22 of the Disclosure
Statement.
SECTION 2.10 ACCOUNTS RECEIVABLE.
Section 2.10 of the Disclosure Schedule sets forth a true and complete
list of all accounts receivable of the Company as of the Most Recent Balance
Sheet Date and the aging thereof. All accounts receivable of the Company
represent sales actually made or services actually performed in the Ordinary
Course of Business and, to the Knowledge of the Seller and except as otherwise
listed as uncollectible on Section 2.10 of the Disclosure Schedule, are current
and either have
7
9
been collected in full or are collectible in full, subject to the reserve for
bad debt shown on the most recent balance sheet, without any setoff except for
returns granted in the Ordinary Course of Business.
SECTION 2.11 INVENTORIES.
Except as disclosed in Section 2.11 of the Disclosure Schedule, the
inventories of the Company as reflected on the most recent balance sheet
consist only of items in good condition and salable or usable in the Ordinary
Course of Business except to the extent of the inventory reserve included in
the Financial Statements, which reserve is adequate for such purpose, and are
recorded on such balance sheet in accordance with GAAP applied in a manner
consistent with past practices and experience with respect to the time required
to sell slow-moving inventory. All inventories not written off have been priced
at the lower of cost or net recognizable value on a first in, first out basis.
The quantities of each item of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable in
the present circumstances of the Company.
SECTION 2.12 PRODUCT WARRANTIES, DEFECTS AND LIABILITIES.
Except as set forth in Section 2.12 of the Disclosure Schedule, each
product manufactured, sold, leased, or delivered by the Company has been in
conformity in all material respects with all applicable federal, state, local,
or foreign laws and regulations, contractual commitments and all express and
implied warranties, except where a failure to conform, singly or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect
on the Company, and, to the Seller's Knowledge, the Company has no liability
for replacement or repair thereof or other damages in connection therewith,
except for liabilities incurred in the Ordinary Course of Business. Other than
guaranties, warranties and indemnities granted in the Ordinary Course of
Business (which guarantees, warranties and indemnities, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect
on the Company), no product manufactured, sold, leased, or delivered by the
Company is subject to any guaranty, warranty, or other indemnity beyond their
standard terms and conditions of sale or lease for such products. To the
Seller's Knowledge, the Company has no material liability arising out of any
injury to individuals or property as a result of the ownership, possession, or
use of any product manufactured, sold, leased, or delivered by the Company and,
to the Knowledge of the Seller, there has been no inquiry or investigation made
in respect thereof by any person or entity.
SECTION 2.13 NO VIOLATION OF LAW.
The Company is not in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency or authority or court binding on
it, relating to its assets or the business in which it is engaged, except for
violations, if any, which would not have a Material Adverse Effect on the
Company. The Company has received no written notice of any actual, alleged or
potential obligation on the part of the Company to undertake, or to bear all or
any portion of the cost of, any remedial action of any nature relating to the
business of the Company or its assets in
8
10
connection with any violation or alleged violation of applicable law, except
any violation or alleged violation that would not have a Material Adverse
Effect on the Company.
SECTION 2.14 REAL PROPERTY.
The Company owns no real property. Section 2.14 of the Disclosure
Schedule sets forth a list of agreements pursuant to which the Company leases
or sub-leases real property ("Leases"). All of the Leases are in full force and
effect and have not been modified or amended, and, to the Knowledge of the
Seller, there are no disputes, oral agreements or forbearance programs in
effect as to the Leases. There has not occurred any default by the Company of
any Lease, except for defaults, if any, which would not have a Material Adverse
Effect on the Company, and to the Seller's Knowledge, there has not occurred
any default thereunder by any other party thereto.
SECTION 2.15 INTELLECTUAL PROPERTY.
(a) Except as set forth on Section 2.15 of the Disclosure
Schedule, the Company owns, free and clear of all liens, mortgages, security
interests, charges and encumbrances and has good and merchantable title to, or
holds adequate licenses or otherwise possesses all rights necessary to use, all
patents, trademarks, service marks, trade names, copyrights (including any
applications for any of the foregoing), inventions, discoveries, processes,
know-how, trade secrets, scientific, technical engineering and marketing data,
object and source codes, and techniques used in, or necessary for, the conduct
of the Company's business as now conducted (collectively, the "Intellectual
Property"), except where the failure to own, license, or otherwise have the
right to use such Intellectual Property could not reasonably be expected to
have a Material Adverse Effect on the Company.
(b) Section 2.15 of the Disclosure Schedule contains an
accurate and complete list of (i) all such patents, trademarks, trade names,
service marks and registered copyrights, and all applications therefor and,
with respect to registered items, contains a list of all jurisdictions in which
such items are registered and all registration numbers; (ii) all licenses,
permits and other agreements relating thereto which are material to the Company
(other than licenses of the Intellectual Property granted to end users in the
Ordinary Course of Business); and (iii) all material agreements relating to any
of the Intellectual Property that the Company is licensed or authorized to use
by others. The patents, trademarks and copyrights constituting a part of the
Intellectual Property are valid, subsisting and enforceable, and are duly
recorded in the name of the Company.
(c) The Company has the right to use all of the Intellectual
Property in all jurisdictions in which the Company conducts or proposes to
conduct business, except where the failure to have such right would not
reasonably be expected to have a Material Adverse Effect on the Company, and
the consummation of the transactions contemplated hereby will not alter or
impair any such rights.
(d) Except as disclosed in Section 2.15 of the Disclosure
Schedule, no claims have been asserted in writing challenging or questioning
the ownership, validity, enforceability, or use by the Company, of the
Intellectual Property owned by the Company or, to the Knowledge
9
11
of the Seller, of the Intellectual Property licensed to the Company, which, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect on the Company, and, to the Knowledge of the Seller, there is no valid
basis for any such claim, and the use or other exploitation by the Company, of
the Intellectual Property owned by the Company or, to the Knowledge of the
Seller, of the Intellectual Property licensed to the Company, does not infringe
on or dilute the rights of any person; and, to the Knowledge of the Seller, no
other Person is infringing on the rights of the Company with respect to any of
the Intellectual Property.
(e) The Company has taken reasonable security measures to
protect the secrecy, confidentiality and value of its trade secrets and other
confidential information.
(f) To the Knowledge of the Seller, the Seller and the
Company have delivered to the Buyer all material documents with respect to any
invention, process, design, computer program, or other know-how or trade secret
included in the Intellectual Property.
SECTION 2.16 LITIGATION.
Section 2.16 of the Disclosure Schedule sets forth all litigation,
suits, actions, investigations, indictments or informations, or proceedings or
arbitrations pending, or to the Knowledge of the Seller, threatened, before any
court, arbitration tribunal, or judicial, governmental or administrative
agency, against the Company or against the Seller relating to the business or
the assets of the Company that, if adversely determined, could reasonably be
expected to have a Material Adverse Effect on the Company. Further, there are
no judgments, orders, writs, injunctions, decrees, indictments or informations,
grand jury subpoenas or civil investigative demands, or awards against the
Company or against the Seller relating to the business or the assets of the
Company that would have a Material Adverse Effect on the Company or that
challenge, or that may have the effect of preventing, delaying or otherwise
interfering with any of the transactions contemplated by this Agreement or the
Transaction Agreements.
SECTION 2.17 EMPLOYEE BENEFIT PLANS.
(a) Section 2.17 of the Disclosure Schedule sets forth a
complete list of each Employee Benefit Plan. To the extent the Buyer has
requested, the Company has provided to the Buyer true and correct copies of (i)
each Employee Benefit Plan, (ii) the most recent Forms 5500 filed with respect
to each Employee Benefit Plan, and (iii) the most recent determination letter
issued by the Internal Revenue Service with respect to each Employee Benefit
Plan. The Employee Benefit Plans are in material compliance with all applicable
requirements of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Internal Revenue Code of 1986, as amended (the "Code"), and
other applicable laws and have been administered in accordance with their terms
and such laws, except where the failure to so comply or be administered would
not reasonably be expected to have a Material Adverse Effect on the Company.
Each Employee Benefit Plan which is intended to be qualified within the meaning
of Section 401 of the Code has a favorable determination letter as to its
qualification, and, to the Knowledge of the Seller, nothing has occurred that
would cause the loss of such favorable determination.
10
12
(b) No Employee Benefit Plan is a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) and neither the Company nor any ERISA
Affiliate (defined as any corporation or trade or business (whether or not
incorporated) which would be treated as a member of a controlled group
including the Company under Section 4001(a)(14) of ERISA) has sponsored or
contributed to any "multiemployer plan." No event or condition has occurred in
connection with which the Company or any of its ERISA Affiliates would be
reasonably likely to be subject to any material liability, encumbrance or lien
with respect to any Employee Benefit Plan under ERISA, the Code or any other
applicable law or under any agreement or arrangement pursuant to or under which
the Company or any of its ERISA Affiliates are required to indemnify any person
against such liability, where such liability, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on the Company.
Except as could not reasonably be expected to have a Material Adverse Effect on
the Company, (i) there are no pending or, to the Knowledge of the Seller,
threatened, claims, suits, audits or investigations related to any Employee
Benefit Plan and (ii) no Employee Benefit Plan provides post-retirement welfare
benefits to any Company Employees other than as required by law.
(c) Except as set forth in Section 2.17 of the Disclosure
Schedule and except as would not be reasonably likely to result in any material
liability, the consummation of the transactions contemplated by this Agreement
(alone or in connection with any subsequent event, including a termination of
employment) will not (i) accelerate the vesting or payment of any economic
benefit provided or made available to any Company Employees, (ii) increase the
amount of any economic benefit provided or made available to any Company
Employees, or (iii) accelerate or increase the funding obligation of the
Company with respect to any Employee Benefit Plan.
SECTION 2.18 LABOR MATTERS.
(a) The Company is currently complying in all material
respects with all applicable laws relating to employment and employment
practices, terms and conditions of employment, and wages and hours, and is not
engaged in any unfair labor practice or unlawful employment practice.
(b) There is no unfair labor practice charge or complaint
against the Company pending or, to the Knowledge of the Seller, threatened
before the National Labor Relations Board nor, to the Knowledge of the Seller,
is there any basis for any such charge or complaint.
(c) There is no labor strike, slowdown or work stoppage
pending or overtly threatened against the Company.
(d) The Company has not experienced any significant work
stoppages or been a party to any proceedings before the National Labor
Relations Board involving any significant issues for the past three years or
been a party to any arbitration proceeding arising out of or under collective
bargaining agreements for the past three years.
(e) There is no material charge or complaint pending or, to
the Knowledge of the Seller, threatened, against the Company before the Equal
Employment Opportunity Commission
11
13
or the Department of Labor or any state or local agency or similar
jurisdiction. No employees of the Company are represented by any labor union
and there is no collective bargaining agreement in effect with respect to such
employees. During the past three years, to the Knowledge of the Seller, no
labor union has engaged in any organizing activities with respect to the
Company's employees.
SECTION 2.19 GOVERNMENTAL PERMITS.
Section 2.19 of the Disclosure Schedule sets forth a list of all
material franchises, approvals, permits, licenses, waivers, orders,
registrations, certificates or similar rights obtained from or granted by
local, state, federal or foreign governments or agencies, or commissions or
departments thereof, or pursuant to any law or regulation applicable to the
Company, held by the Company ("Governmental Permits"). Each material
Governmental Permit is valid and in full force and effect. The Company is in
compliance with all material terms and requirements of each Governmental Permit
required to be identified in Section 2.19 of the Disclosure Schedule. Except to
the extent that the absence thereof would not have a Material Adverse Effect on
the Company, the Governmental Authorizations listed in Section 2.19 of the
Disclosure Schedule collectively constitute all of the Governmental
Authorizations necessary to permit the Company to lawfully conduct and operate
its business and own and use its assets in the manner in which the Company
currently owns and uses such assets. There is no action pending or, to the
Knowledge of the Seller, threatened, seeking the revocation, cancellation,
suspension or adverse modification or amendment of any of the Governmental
Permits, which action, if determined adversely to the Company, could reasonably
be expected to have a Material Adverse Effect on the Company.
SECTION 2.20 CONTRACTS.
(a) Section 2.20 of the Disclosure Schedule lists:
(i) all written and, to the Seller's Knowledge,
oral, contracts and other agreements to which the Company is
a party, the performance of which will involve consideration,
or otherwise have a value, in excess of $100,000;
(ii) each licensing agreement or other contract
with respect to patents, trademarks, copyrights, or other
intellectual property, including material agreements with
current or former employees, consultants, or contractors
regarding the appropriation or the non-disclosure of any of
the Intellectual Property;
(iii) each joint venture, partnership, and other
contract (however named) involving a sharing or profits,
losses, costs, or liabilities by the Company with any other
person or entity; and
(iv) each contract containing covenants that in
any way purport to restrict the business activity of the
Company or limit the freedom of the Company to engage in any
line of business or to compete with any person or entity.
12
14
(b) The Seller has made available to the Buyer, prior to the
date hereof, a complete copy of each written contract or other agreement
required to be listed in Section 2.20 of the Disclosure Schedule.
(c) To the Knowledge of the Seller, all parties to the
contracts, commitments, instruments and agreements required to be listed in
Section 2.20 of the Disclosure Schedule have complied with the provisions
thereof in all material respects and no party is in material default
thereunder.
(d) Except as set forth in Section 2.20 of the Disclosure
Schedule, the Company is not a party to or bound by any contracts that require
payments in excess of $100,000 by any party thereto and are not cancellable by
the Company on notice of not longer than 30 days.
(e) Subject to obtaining any requisite consents of third
parties, the enforceability of the contracts and commitments required to be set
forth in Section 2.20 of the Disclosure Schedule will not be affected in any
manner by the execution and delivery of this Agreement and the Transaction
Agreements or the consummation of the transactions contemplated hereby or by
the Transaction Agreements.
(f) Except as set forth in Section 2.20 of the Disclosure
Schedule, the Company is not a party to or bound by any contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancellable by or
on notice of not longer than 30 days and without liability, penalty or premium
or any agreement or arrangement providing for the payment of any bonus or
commission based on sales or earnings.
SECTION 2.21 CUSTOMERS AND VENDORS.
Section 2.21 of the Disclosure Schedule sets forth a list of the
Company's ten largest customers and vendors in terms of purchases during the 12
months ended December 31, 1999, showing the approximate total purchases by or
from the Company during such year. No change has occurred in the business
relationship of the Company with any such customer or vendor since January 1,
1999, that could reasonably be expected to have a Material Adverse Effect on
the Company.
SECTION 2.22 TAXES.
Except as disclosed in Section 2.22 of the Disclosure Schedule:
(a) the Company or an affiliated, combined or unitary group
of which the Company is or was a member (a "Tax Affiliate") with respect to the
Company has timely filed with the appropriate federal, state, local, foreign
and other governmental agencies all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of any Taxes
as defined herein ("Tax Returns") required to be filed by or with respect to
it, its operations and assets, and as of the time of filing, all such Tax
Returns were (and, as to Tax Returns not filed as of the date hereof, will be)
true, complete and correct in all material respects;
13
15
(b) the Company (or a Tax Affiliate on behalf of the Company)
has (i) timely paid all Taxes that are due and payable with respect to it, its
operations and assets, except for Taxes that are being contested in good faith
by appropriate proceedings and as to which adequate reserves have been
reflected on the Company's unaudited balance sheet as of December 31, 1999, a
copy of which has been previously delivered to the Buyer, and (ii) established
reserves that are adequate for the payment of all Taxes not yet due and payable
with respect to the results of operations through the Closing Date;
(c) the Company (or a Tax Affiliate on behalf of the Company)
has complied with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes and has timely withheld from employee wages
and paid over to the proper governmental authorities all amounts required to be
so withheld and paid over for all periods under all applicable laws;
(d) neither the Company (nor a Tax Affiliate on behalf of the
Company) has requested any extension of time within which to file any Tax
Return, which Tax Return has not since been filed;
(e) to the Knowledge of the Seller or the Company, (i) the
United States federal income Tax Returns of the Company have not been examined
by the Internal Revenue Service ("IRS"), (ii) the state and local income or
franchise Tax Returns of the Company have not been examined by the relevant
taxing authority, and (iii) no deficiencies have been proposed, asserted or
assessed by any federal, state, local, foreign or other taxing authority that
have not been paid;
(f) no federal, state, local or foreign Tax audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes for which the Company would be liable;
(g) neither the Company (nor a Tax Affiliate on behalf of the
Company) has executed or filed with the IRS or any other taxing authority any
agreement or other document extending or having the effect of extending the
period for assessment or collection of any Taxes for which the Company would be
liable and no power of attorney granted by the Company with respect to any Tax
matter is currently in force;
(h) neither the Company (nor a Tax Affiliate on behalf of the
Company) has executed or entered into any closing agreement pursuant to Section
7121 of the Code, or any predecessor provision thereof or any similar provision
of state, local or foreign law;
(i) the Company is not a party to, bound by or subject to any
obligation under any Tax sharing, Tax indemnity, Tax allocation or similar
agreement (whether or not written);
(j) neither the Company (nor a Tax Affiliate on behalf of the
Company) has filed a consent pursuant to Section 341(f) of the Code or agreed
to have Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by
the Company;
(k) no property owned by the Company is property that the
Buyer or the Company is or will be required to treat as being owned by another
person or entity pursuant to the
14
16
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended and in effect immediately prior to the enactment of the Tax Reform Act
of 1986 or is "tax-exempt use property" within the meaning of Section 168(h)(1)
of the Code;
(l) neither the Company (nor a Tax Affiliate on behalf of the
Company) (i) has agreed to or is required to make any adjustment pursuant to
Section 481(a) of the Code (or any similar provision of state, local or foreign
law) by reason of a change in accounting method initiated by the Company; (ii)
has Knowledge that the IRS or any taxing authority has proposed any such
adjustment or change in accounting method, or (iii) has an application pending
with any taxing authority requesting permission for any change in accounting
methods that relates to the business and operations of the Company;
(m) there is no contract, agreement, plan or arrangement in
respect of the Company covering any person or entity that, individually or
collectively, would reasonably be expected to give rise to the payment of any
amount that would not be deductible by the Buyer or the Company by reason of
Section 280G of the Code (or any similar provision of state, local or foreign
law);
(n) there are no liens for Taxes upon the assets of the
Company except for statutory liens for Taxes not yet due;
(o) true and complete copies of the consolidated federal
income Tax Return filed by the Seller and which included the Company for the
taxable period ended December 31, 1998, and the federal and state income Tax
Returns of the Company relating to taxable periods ended on August 31, 1997,
August 31, 1998 and November 30, 1998 have been delivered or made available to
the Buyer; and
(p) the Company has not knowingly waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
SECTION 2.23 ENVIRONMENTAL MATTERS.
(a) As of the date hereof, no written notice, notification,
demand, request for information, citation, summons or complaint has been
received or order has been issued, no complaint has been filed, no penalty has
been assessed and no investigation or review is pending or, to the Seller's
knowledge, threatened, by any governmental entity or other person with respect
to any (i) alleged violation by the Company of any federal, state and local,
provincial and foreign, civil and criminal laws, regulations, rules,
ordinances, codes, decrees, judgments, directives or judicial or administrative
orders relating to pollution or protection of the environment, natural
resources or human health and safety, including, without limitation, laws
relating to releases or threatened releases of hazardous substances ("Hazardous
Substances") (including, without limitation, releases to ambient air, surface
water, groundwater, land, surface and subsurface strata) or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, release,
transport, disposal or handling of Hazardous Substances. "Environmental Laws"
include, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. xx.xx. 601 et seq.), the Hazardous
Materials Transportation Act (49 U.S.C.
15
17
xx.xx. 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
xx.xx. 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. xx.xx.
251 et seq.), the Clean Air Act (42 U.S.C. xx.xx. 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. xx.xx. 2601 et seq.), the Oil Pollution Act
(33 U.S.C. xx.xx. 2701 et seq.), the Emergency Planning and Community
Right-to-Know Act (42 U.S.C. xx.xx. 11001 et seq.), the Occupational Safety and
Health Act (29 U.S.C. xx.xx. 651 et seq.) and all other state laws analogous to
any of the above ("Environmental Laws"), or liability thereunder, (ii) alleged
failure by the Company to have any permit, certificate, license, approval,
registration or authorization required under any Environmental Law in
connection with the conduct of its business, or (iii) release of any toxic or
otherwise Hazardous Substances which are regulated under Environmental Laws.
(b) Except as disclosed in Section 2.23 of the Disclosure
Schedule, to the Seller's Knowledge, as of the date hereof, there are no
liabilities under any Environmental Laws that have had, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company.
(c) Except as set forth in Section 2.23 of the Disclosure
Schedule, no state of facts exists as to environmental matters or Hazardous
Substances that involves the reasonable likelihood of a material capital
expenditure by the Company or that may otherwise have a Material Adverse Effect
on the Company, and no Hazardous Substances have been treated, stored or
disposed of, or otherwise deposited, in or on or are present beneath the
properties owned, leased or used by the Company in violation of or which may be
required to be investigated or remediated under any applicable Environmental
Laws. The environmental compliance programs of the Company comply in all
material respects with all Environmental Laws.
(d) Except as set forth in Section 2.23 of the Disclosure
Schedule, to the Knowledge of the Seller, there are no Hazardous Substances
present, and there has been no disposal, escape, seepage, leakage, spillage,
discharge, emission, release or threatened release of any Hazardous Substances
(i) on, from or affecting any of the Company's properties, or (ii) for which
the Company is or is alleged to be responsible as a result of conduct occurring
or conditions existing at or before Closing except those that are used by the
Company in the Ordinary Course of Business and are stored and used in
compliance with all Environmental Laws.
SECTION 2.24 INSURANCE.
The assets, properties and operation of the Company are insured under
various policies of general liability and other forms of insurance, all of
which are listed in Section 2.24 of the Disclosure Schedule. All such policies
are in full force and effect in accordance with their terms, all premiums with
respect thereto covering all periods up to and including the Closing Date have
been paid, no notice of cancellation has been received and there is no existing
default or event which, with the giving of notice or the lapse of time or both,
would constitute a default thereunder and the coverage provided thereby, with
respect to any act or event occurring on or prior to the Closing Date, will not
in any way be affected by or terminate or lapse by reason of the transactions
contemplated by this Agreement. Such insurance policies provide adequate
16
18
insurance coverage for the assets and the operations of the Company for all
risks to which the Company is normally exposed and for all risks customarily
insured against by an entity carrying on the same business as the Company. No
risks with respect to the business of the Company have been designed as being
self-insured. Neither the Company nor the Seller, in respect of the Company,
has been refused any insurance nor has coverage been limited by any insurance
carrier to which any of them has applied for such insurance or with which any
of them has carried such insurance in the last three years.
SECTION 2.25 RELATIONSHIPS WITH RELATED PERSONS.
Subject to Section 10.13 hereof, neither the Seller nor any direct or
indirect subsidiary of the Seller or the Company has any interest in any
property (whether real, personal, or mixed and whether tangible or intangible),
used in or pertaining to the Company's business. Neither the Seller nor any
direct or indirect subsidiary of the Seller or the Company owns (of record or
as a beneficial owner), any equity interest or any other financial or profit
interest in, a person or entity that has had business dealings or a material
financial interest in any transaction with the Company. Except as set forth in
Section 2.25 of the Disclosure Schedule, neither the Seller nor any direct or
indirect subsidiary of the Seller is a party to any contract with, or has any
claim or right against the Company. The Seller has not made any improper
allocation of any intercompany services or charges between the Seller and the
Company.
SECTION 2.26 PURCHASE FOR INVESTMENT.
(a) The Seller is acquiring the Buyer Shares for its own
account and not with a view to the distribution or resale thereof or any
interest therein in violation of the Securities Act of 1933 (the "Securities
Act") or any applicable state securities laws. The Seller understands that (i)
the offer and sale of the Shares has not been registered under the Securities
Act or any such laws, (ii) the Shares may not be resold, pledged, or otherwise
transferred (a "Transfer") in whole or in part, in a transaction governed by
the Securities Act or under the jurisdiction of the Securities Exchange
Commission, unless so registered or pursuant to an exemption from registration,
and (iii) the certificates representing the Shares shall bear a legend to such
effect.
(b) In addition, the Seller shall not directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose of (or announce any offer, sale, offer of
sale, contract of sale, pledge, grant of any option to purchase or other sale
or disposition) or otherwise transfer the Buyer Shares, in whole or in part, or
any interest therein, for a period of one year following the Closing.
(c) The Seller has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
an investment in the Shares and making an informed investment decision with
respect thereto. The Seller has had the opportunity to ask questions of, and
receive answers from, the Buyer regarding the Buyer's financial condition,
results of operations, business, property, management and prospects sufficient
to enable it to make an informed investment decision with respect to the
Shares.
17
19
SECTION 2.27 DISCLOSURE.
No representation or warranty by the Seller contained in this
Agreement (as modified by the Disclosure Schedule or the certificate to be
delivered by the Company pursuant to Section 7.1 hereof) or in any Transaction
Agreement contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading, and, to the knowledge of Xxxx X.
Xxxxxxxx, W. Xxx Xxxxx, Xxxx X. Xxxxxx, or Xxxxxxx Xxxxxxx, no statement
contained in any document, list, certificate or other writing furnished or to
be furnished by or on behalf of the Seller to the Buyer or any of its
representatives in connection with the Transaction contains or will contain any
untrue statement of a material fact, or omits or will omit to state any
material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements therein not misleading.
ARTICLE 3: BUYER'S REPRESENTATIONS AND WARRANTIES
The Buyer hereby represents and warrants to the Seller the following:
SECTION 3.1 ORGANIZATION OF THE BUYER.
The Buyer is a corporation duly organized, validly existing and in
good standing under the laws of Israel, and has all requisite corporate power
and authority to carry on and conduct their businesses as they are now being
conducted and to own or lease their properties and assets, and are duly
qualified and in good standing in every state and jurisdiction in which the
conduct of their businesses or the ownership of their properties and assets
requires them to be so qualified and the absence of such qualification would
have a Material Adverse Effect on the Buyer.
SECTION 3.2 POWER AND AUTHORITY OF THE BUYER.
The Buyer has the right, power and capacity to execute, deliver and
perform this Agreement and the Transaction Agreements and to consummate the
transactions contemplated by this Agreement. The execution, delivery and
performance of this Agreement and the Transaction Agreements, and the
consummation of the transactions contemplated hereby and thereby, have been
duly and validly authorized by all necessary corporate action on the part of
the Buyer. This Agreement has been, and each of the Transaction Agreements
after execution and delivery thereof at the Closing will have been, duly and
validly executed and delivered by the Buyer and constitute the Buyer's legal,
valid and binding obligation, enforceable in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws in effect which affect the
enforcement of creditors' rights generally, or equitable principles.
SECTION 3.3 CONFLICTS; REQUIRED CONSENTS.
Subject to obtaining the consents and approvals and making the filings
described in Section 3.3 of the Disclosure Schedule and except, in the case of
clauses (ii) and (iii), for such
18
20
matters that would not have a Material Adverse Effect on the Buyer, the
execution and delivery of this Agreement by the Buyer, and the consummation of
the transactions contemplated herein by the Buyer, will not directly or
indirectly (with or without notice or lapse of time): (i) violate or conflict
with any of the provisions of any charter document or bylaw of the Buyer; (ii)
violate, conflict with or result in breach or default under or cause
termination, or give rise to any right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, any term or
condition of any mortgage, indenture, contract, license, permit, instrument, or
other agreement, document or instrument to which the Buyer is a party or by
which the Buyer or any of its properties may be bound; or (iii) violate any
provision of law or any valid and enforceable court order or ruling of any
governmental authority, to which either the Buyer is a party or by which the
Buyer or any of its properties may be bound. Except as set forth in Section 3.3
of the Disclosure Schedule and except for such matters that would not have a
Material Adverse Effect on the Buyer or the Buyer, no consent, approval, or
authorization of, or filing with, any governmental or regulatory authority or
other party is required to be obtained in connection with the execution of this
Agreement or the Transaction Agreements or the consummation of the transactions
contemplated thereby.
SECTION 3.4 LITIGATION.
There is no litigation, suit, action investigation, indictment or
information, or proceeding or arbitration, pending, or to the Buyer's
Knowledge, threatened, before any court, arbitration tribunal, or judicial,
governmental or administrative agency, against the Buyer relating to the
business or the assets of the Buyer that, if adversely determined, could
reasonably be expected to have a Material Adverse Effect on the Buyer or effect
the ability of the Buyer to perform its obligations hereunder or which seeks to
prevent the consummation of the transactions contemplated herein. Further,
there are no judgments, orders, writs, injunctions, decrees, indictments or
informations, grand jury subpoenas or civil investigative demands, or awards
against the Buyer relating to the business or the assets of the Buyer that
would have a Material Adverse Effect on the Buyer or that challenge, or that
may have the effect of preventing, delaying or otherwise interfering with any
of the transactions contemplated by this Agreement or the Transaction
Agreements.
SECTION 3.5 PURCHASE FOR INVESTMENT.
The Buyer will be purchasing the Shares for investment purposes only
and not with a view to the resale or distribution thereof in whole or in part,
and agrees that it will not transfer, sell or dispose of any of the Shares in
any manner that will violate the Securities Act of 1933, as amended, or any of
the rules and regulations promulgated thereunder. The Buyer further understands
that the Shares are not registered or qualified for sale under any federal or
state securities laws or regulations and will not be readily marketable. The
Buyer acknowledges that no offering statement or prospectus has been issued or
delivered and that it has made its own investigation and independent analysis
of the transactions provided for herein based upon information furnished to it
by the Seller and the Company, provided, however, that the Buyer has relied
upon the representations and warranties of the Seller set forth in this
Agreement and this Section 3.5 shall not be interpreted to limit that reliance
19
21
SECTION 3.6 VALIDITY OF ISSUANCE.
The Buyer Shares, when issued in accordance with Section 1.2 hereof,
will be duly authorized, validity issued, fully paid and nonassessable.
SECTION 3.7 AUTHORIZED AND OUTSTANDING STOCK.
The authorized capital stock of the Buyer consists of 100,000,000
Ordinary Shares, .10NIS per share, of which as of the date hereof, 36,264,140
shares are issued and outstanding. There are no shares of capital stock of the
Buyer held in the treasury of the Buyer. Except as set forth in Section 3.7 of
the Disclosure Schedule, there is not outstanding, nor is the Buyer bound by,
any subscriptions, options, preemptive rights, warrants, calls, commitments or
agreements or rights of any character requiring the Buyer to issue, or
entitling any person or entity to acquire any additional shares of capital
stock or any other equity security of the Buyer, including any right of
conversion or exchange under any outstanding security or other instrument, and
the Buyer is not obligated to issue or transfer any shares of its capital stock
for any purpose. There are no outstanding obligations of the Buyer to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
of the Buyer.
SECTION 3.8 REPORTS AND FINANCIAL STATEMENTS.
(a) The Buyer has filed all material, required registration
statements, prospectuses, reports, schedules, forms, statements and other
documents required to be filed by it under the securities laws of the United
Kingdom and Israel (collectively, including all exhibits thereto, the "Buyer
Reports"). No subsidiary of the Buyer is required to file any form, report,
registration statement, prospectus or other document with The London Stock
Exchange Limited (the "London Exchange") not otherwise filed with a Buyer
Report. None of the Buyer Reports, as of their respective dates (or, if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing), contained any untrue statement of a material fact or omitted
to state 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. Each of the financial statements (including the related notes)
included in the Buyer Reports (or, if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) presents
fairly, in all material respects, the consolidated financial position and
consolidated results of operations and cash flows of the Buyer and its
subsidiaries as of the respective dates or for the respective periods set forth
therein all in conformity with GAAP consistently applied during the periods
involved except as otherwise noted therein, and subject, in the case of the
unaudited interim financial statements, to normal and recurring year-end
adjustments. All of such Buyer Reports, as of their respective dates (or as of
the date of any amendment to the respective Buyer Report filed prior to the
date of this Agreement), complied as to form in all material respects with the
applicable requirements of the London Exchange and the rules and regulations
promulgated thereunder.
(b) Since June 30, 1999, the Buyer and its subsidiaries have
not incurred any liabilities that are of a nature that would be required to be
disclosed on a balance sheet of the Buyer and its subsidiaries or the footnotes
thereto prepared in conformity with GAAP, other than
20
22
(i) liabilities incurred in the Ordinary Course of Business or (ii) liabilities
(including liabilities incurred in connection with acquisitions of assets or
entities by the Buyer) that would not have a Material Adverse Effect on the
Buyer.
SECTION 3.9 VOTE REQUIRED.
The affirmative vote of holders of the Ordinary Shares representing a
majority of the total votes cast at a meeting of the holders of the outstanding
Ordinary Shares (the "Required Buyer Vote"), is the only vote of the holders of
any class or series of Buyer capital stock necessary to approve the transactions
contemplated by this Agreement.
SECTION 3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except in connection with this Agreement or the
transactions contemplated hereby, and except as permitted in subsection (b) of
this Section, since June 30, 1999 through and including the date hereof, (a) the
Buyer and its subsidiaries have operated, in all material respects, only in the
Ordinary Course Business and (b) there has not been any change, circumstance or
event which has had, or would reasonably be expected to have, a Material Adverse
Effect on the Buyer, other than any change, circumstance or effect relating (i)
to the economy or financial markets in general, or (ii) in general to the
industries in which the Buyer and its subsidiaries operate and not specifically
relating to the Buyer and its subsidiaries.
(b) The parties acknowledge that the Buyer may incur
liabilities in connection with acquisitions of assets or entities by the Buyer
that would not have a Material Adverse Effect on the Buyer.
SECTION 3.11 TAXES.
(a) (i) All material Tax Returns of the Buyer and its
subsidiaries have been filed, or requests for extensions have been timely filed
and have not expired; (ii) all Tax Returns filed by the Buyer and its
subsidiaries are complete and accurate in all material respects; (iii) all Taxes
shown to be due on such Tax Returns or on subsequent assessments with respect
thereto have been paid or adequate reserves have been established for the
payment of such Taxes, and no other material Taxes are payable by the Buyer and
its subsidiaries with respect to items or periods covered by such Tax Returns
(whether or not shown on or reportable on such Tax Returns) or with respect to
any period prior to the date of this Agreement; (iv) there are no material liens
on any of the assets of the Buyer and its subsidiaries with respect to Taxes,
other than liens for Taxes not yet due and payable or for Taxes that the Buyer
or its subsidiaries is contesting in good faith through appropriate proceedings
and for which appropriate reserves have been established; and (v) there is no
audit, examination, deficiency or refund litigation or matter in controversy
with respect to any Taxes of the Buyer or its subsidiaries that might reasonably
be expected to result in a Tax determination which would have a Material Adverse
Effect on the Buyer.
(b) Neither the Buyer nor any of its subsidiaries is a party
to a Tax sharing agreement.
21
23
ARTICLE 4: PRE-CLOSING COVENANTS OF THE PARTIES
The Buyer and the Seller agree as follows with respect to the period
from the date of this Agreement through the Closing:
SECTION 4.1 REASONABLE EFFORT; PREPARATION OF SUPPORTING
DOCUMENTS.
Subject to the terms and conditions of this Agreement, each party will
use its commercially reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary or desirable under
applicable laws and regulations, to consummate the transactions contemplated by
this Agreement, including without limitation, preparing and making any filings
required to be made under applicable law. Each of the parties shall furnish to
the other parties such necessary information and reasonable assistance as such
other party may request in connection with the foregoing, including all such
information regarding the Company and the Seller as the Buyer may request in
connection with filings to be made with the London Stock Exchange. In addition
to such actions as the parties may otherwise be required to take under this
Agreement or applicable law to consummate this Agreement and the transactions
contemplated hereby and by the Transaction Agreements, the parties will take
such action, furnish such information, and prepare, or cooperate in preparing,
and execute and deliver such certificates, agreements and other instruments as
the other party may reasonably request from time to time, after the Closing,
with respect to compliance with obligations of the Buyer or the Seller in
connection with the transactions contemplated hereby or by the Transaction
Agreements. Without limiting the generality of the foregoing, the Seller will
cause the Company to give all notices to third parties required to comply with
Sections 7.4 and 7.5 hereof, and cause the Company to use commercially
reasonable efforts to obtain all third party consents required to comply with
Sections 7.4 and 7.5 hereof.
SECTION 4.2 HSR ACT NOTIFICATION.
The Buyer and the Seller shall each file or cause to be filed with the
Federal Trade Commission and the United States Department of Justice any
notifications required to be filed under the HSR Act with respect to the
transactions contemplated hereby, and the Buyer and the Seller shall bear the
costs and expenses of their respective filings. The Buyer and the Seller shall
use their respective best efforts to make such filings promptly (and in any
event within ten (10) business days) following the date hereof, the Buyer and
the Seller shall respond promptly to any requests for additional information
made by either of such agencies and to cause the waiting periods under the HSR
Act to terminate or expire at the earliest possible date, all to the end of
expediting consummation of the transactions contemplated hereby. Each of the
Buyer and the Seller shall consult with the other prior to any meetings, by
telephone or in person, with the staff of the Federal Trade Commission and the
United States Department of Justice relating to the transactions contemplated
hereby, and each of the Buyer and the Seller shall have the right to have a
representative present at any such meeting. The Buyer and the Seller shall
cooperate and consult with each other in connection with the making of all such
filings, including by providing copies of all such documents to the other party
and its advisors prior to filing, and giving due
22
24
consideration to their views with respect thereto. Neither the Buyer nor the
Seller shall consent to any voluntary extension of any statutory deadline or
waiting period or to any voluntary delay of the consummation of the transactions
contemplated hereby at the request of any such governmental agency without prior
consultation with the other party and due consideration of such party's views
with respect thereto.
SECTION 4.3 PRE-CLOSING ACCESS.
The Seller shall permit, and the Seller shall cause the Company to
permit, representatives of the Buyer to have full access at all reasonable
times, and upon two (2) days prior notice and in a manner so as not to interfere
with the normal business operations of the Company, to all premises, properties,
personnel, books, records (including tax records), contracts and documents of or
pertaining to the Company. The Buyer will treat and hold any such information
that constitutes Confidential Information (as defined under the Confidentiality
Agreement, dated as of November 9, 1999, between the Buyer and the Seller) it
receives from the Seller or the Company in the course of such review in
accordance with such agreement. No such investigation by the Buyer or its
representatives will affect any of the Seller's representations and warranties
in this Agreement.
SECTION 4.4 TAX MATTERS.
All sales or transfer taxes, including stock transfer taxes, document
recording fees, real property transfer taxes, sales and excise taxes, arising
out of or in connection with the consummation of the transactions contemplated
herein shall be shared equally by the Buyer and the Seller.
SECTION 4.5 CONDUCT OF THE BUSINESS.
From the date hereof until the Closing Date, except as provided in
Section 4.5 of the Disclosure Schedule or otherwise contemplated or permitted by
this Agreement, the Seller shall cause the Company to operate in the Ordinary
Course of Business; provided, however, that nothing in this Section 4.5 shall
prohibit the Company from taking the actions set forth in Section 6.8 hereof.
Without limiting the generality of the foregoing, except as otherwise
contemplated or permitted by this Agreement, from the date hereof until the
Closing Date, the Seller shall cause the Company to:
(a) maintain its properties and equipment in substantially the
same operating condition and repair as in effect on the date hereof;
(b) continue all existing policies of insurance in full force
and effect and at least at such levels as are in effect on the date hereof, up
to and including the Closing, and not cancel any such insurance or take or fail
to take any action that would enable the insurers under such policies to avoid
liability for claims arising out of occurrences prior to the Closing;
(c) not enter into any material transaction or make or enter
into any material contract or commitment, or terminate or amend any material
contract or commitment, except in the Ordinary Course of Business, or enter into
any contract or commitment with any officer,
23
25
director, shareholder, consultant or Affiliate outside the Ordinary Course of
Business, except as contemplated by this Agreement;
(d) use commercially reasonable efforts to preserve its
business organization and its current relationships with its employees,
suppliers, customers, distributors, advertisers, subscribers and others having
business relationships with it and to keep available the services of its
employees;
(e) except in the Ordinary Course of Business, not grant any
increase in the compensation payable to any director, officer or other employee
of the Seller;
(f) not grant any rights to severance or termination payable
to, or enter into any agreement providing benefits upon consummation of the
transactions contemplated by this Agreement to, any director, officer, or other
employee of the Company, and not contribute or make any commitment to, or
representation that it will, contribute any amounts to any Employee Benefit Plan
unless expressly required by the terms thereof, or adopt any new Employee
Benefit Plan;
(g) maintain its books, accounts and records in the Ordinary
Course of Business;
(h) not incur any obligation or liability, whether absolute,
fixed or contingent, except in the Ordinary Course of Business;
(i) not terminate, discontinue, close or dispose of any
facility;
(j) not make any capital expenditures or any commitments for
capital expenditures that individually exceed $50,000 or in the aggregate exceed
$250,000, except as set forth on the capital expenditure budget for the first
six months of the calendar year 2000 set forth in Section 4.5 of the Disclosure
Schedule;
(k) not transfer, lease or otherwise dispose of any property
or assets except in the Ordinary Course of Business;
(l) not pay, discharge or satisfy any claim, lien,
encumbrance, obligation or liability (whether absolute, accrued, contingent or
otherwise and whether due or to become due) other than in the Ordinary Course of
Business;
(m) not permit any of its properties or assets (real, personal
or mixed, tangible or intangible) to be subjected to any material mortgage,
pledge, lien, encumbrance, restriction or charge of any kind, except those in
effect on the date of this Agreement;
(n) not cancel any debts or waive any claims or rights of
substantial value;
(o) not reduce the quality or quantity of services provided to
customers or change the prices of any of its products or services except in the
Ordinary Course of Business;
24
26
(p) not make any loans, advances or capital contributions to,
or investments in any Person, except loans and advances to employees in the
Ordinary Course of Business;
(q) make any tax election or settle or compromise any material
federal, state, local, or foreign income tax liability, or any income tax
liability of any other jurisdiction, other than those made in the Ordinary
Course of Business and those for which specific reserves have been recorded on
the consolidated balance sheet of the Company as of December 31, 1999, and only
to the extent of such reserves;
(r) not issue, deliver, sell, dispose of, pledge or otherwise
encumber, or authorize or propose the issuance, sale, disposition or pledge or
other encumbrance of (x) any additional shares of capital stock of the Company,
or any securities or rights convertible into, exchangeable for, or evidencing
the right to subscribe for any shares of capital stock of the Company or any
rights, warrants, options, calls, commitments or any other agreements of any
character to purchase or acquire any shares of capital stock of the Company or
any securities or rights convertible into, exchangeable for, or evidencing the
right to subscribe for, any shares of capital stock of the Company, or (y) any
other securities in respect of, in lieu of, or in substitution for, shares
outstanding on the date hereof;
(s) not adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company;
(t) not make any acquisition of any business or entity by
means of merger, consolidation or otherwise; and
(u) not adopt any amendments to the Certificate of
Incorporation or Bylaws of the Company.
SECTION 4.6 NO SOLICITATION.
Subject to Section 10.13 hereof, the Seller shall not, and shall not
authorize any officer, director, employee or agent of the Seller or the Company
to, or authorize any investment banker, attorney, accountant or other
representative retained by the Seller or any Affiliate of the Seller to (and the
Seller will not cause or permit the Company to), directly or indirectly, solicit
offers for sale or negotiate or discuss a possible merger, sale or
restructuring, refinancing or other disposition of all or any material part of
the Company, its assets or capital stock with any other potential purchaser
(including management of the Company) nor provide any information to any other
potential purchaser regarding the Company in connection with any such possible
transaction. The Seller will promptly advise the Buyer of any offer,
solicitation, or request for information received by it from any Person,
including the identity of the Person making such offer, solicitation, or request
and the nature and terms (if any) thereof. The Seller shall immediately
terminate, and shall instruct the Company and their respective officers,
directors, employees, investment bankers, attorneys, accountants and other
representatives to immediately terminate, all negotiations and discussions with
all persons (other than the Buyer and its representatives) with respect to any
such possible transaction.
25
27
SECTION 4.7 NOTICE OF CERTAIN EVENTS.
The Seller shall promptly give written notice to the Buyer of any event
or action that could reasonably be expected to have a Material Adverse Effect on
the Company or result in a breach of any of the Seller's representations or
warranties contained herein or cause any of the conditions to Closing applicable
to the Seller contained herein not to be satisfied at or prior to Closing. The
Buyer shall promptly give written notice to the Seller of any event or action
that could reasonably be expected to have a Material Adverse Effect on the Buyer
or result in a breach of the Buyer's representations or warranties contained
herein or cause any of the conditions to Closing applicable to the Buyer
contained herein not to be satisfied at or prior to Closing.
SECTION 4.8 OFFERING MEMORANDUM; EFFECT OF DUE DILIGENCE.
The Buyer represents that it is a sophisticated entity that was advised
by knowledgeable counsel and financial advisors and, to the extent it deemed
necessary, other advisors in connection with this Agreement and that it has
conducted its own independent review, evaluation and inspection of the Company.
Accordingly, the Buyer covenants and agrees that (i) except for the
representations and warranties set forth in this Agreement, the Disclosure
Schedule or in a certificate delivered pursuant hereto by or on behalf of the
Seller, the Buyer has not relied and will not rely upon, and the Seller shall
not be liable for or bound in any manner by, any express or implied verbal or
written information, warranties, promises, statements, inducements,
representations or opinions furnished to or discovered by the Buyer or its
representatives, including, without limitation, anything contained in the
Confidential Information Memorandum or any financial statements, projections or
data, (ii) there are no representations or warranties by or on behalf of the
Seller, its Affiliates or their representatives except for those expressly set
forth in this Agreement, and (iii) to the fullest extent permitted by law, the
Buyer's rights and obligations with respect to all of the foregoing matters will
be solely as set forth in this Agreement.
SECTION 4.9 INTERNAL INDEBTEDNESS.
At or prior to the Closing, the Seller shall cause all indebtedness
owed by the Company to the Seller or any of the Subsidiaries of the Seller, and
all indebtedness owed by the Seller or any of the Subsidiaries of the Seller to
the Company to be forgiven and extinguished.
SECTION 4.10 PREPARATION OF CIRCULAR; SHAREHOLDERS MEETING.
(a) As promptly as reasonably practicable following the date
hereof, the Buyer shall prepare and obtain the consent of the London Exchange to
the issuance of a circular in accordance with the rules of the London Exchange
(the "Circular") and provide to the Seller a copy of the Circular which shall be
used in connection with the Buyer Shareholders Meeting. The Buyer will use
reasonable best efforts to cause the Circular to be mailed to the Buyer's
stockholders as promptly as practicable under the rules of the London Exchange
and applicable law. The Buyer shall also take any action required to be taken
under any other applicable securities laws in connection with the issuance of
the Buyer Shares to the Seller. The Buyer
26
28
shall, as soon as reasonably practicable, notify the Seller of the approval of
the Circular by the London Exchange.
(b) The Buyer shall, as promptly as reasonably practicable
following the execution of this Agreement, duly take all lawful action to call,
give notice of, convene and hold a meeting of its stockholders (the "Buyer
Shareholders Meeting") for the purpose of obtaining the Required Buyer Vote with
respect to this Agreement and the issuance of the Buyer Shares and shall take
all reasonable and lawful action to solicit the approval of such matters by the
Required Buyer Vote and the issuance of the Buyer Shares , including the
inclusion in the Circular of the recommendation of the Board of Directors of the
adoption of this Agreement by the stockholders of the Buyer. Subject to
compliance with its fiduciary duties, the rules of the London Exchange and the
laws of Israel, the Board of Directors of the Buyer shall recommend approval of
such matters by the stockholders of the Buyer, and shall not withdraw, modify or
materially qualify in any manner adverse to the Seller such recommendation or
take any action or make any statement in connection with the Buyer Shareholders
Meeting materially inconsistent with such recommendation (collectively, an
"Adverse Change in the Buyer Recommendation"); provided, however, that nothing
herein shall prohibit accurate disclosure in the Proxy Statement (and such
disclosure shall not be deemed to be an Adverse Change in the Buyer
Recommendation) of factual information regarding the business, financial
condition or operations of the Company, or information regarding the
satisfaction of the conditions to the Buyer's obligation to consummate the
transactions contemplated hereby.
SECTION 4.11 REGISTRATION AND LISTING.
If any of the Buyer Shares require registration with or approval of any
governmental entity under any federal or other applicable law (whether domestic
or foreign) before such Buyer Shares may be issued or delivered to the Seller or
to permit the Seller to sell, transfer or otherwise dispose of such Buyer
Shares, the Buyer will cause such Buyer Shares to be duly registered or
approved, as the case may be as promptly as practical. So long as the Ordinary
Shares are quoted on the London Exchange or listed on any national securities
exchange, the Buyer, if permitted by the rules of such system or exchange, will
quote or list and keep quoted or listed on such system or exchange, upon
official notice of issuance, all the Buyer Shares.
SECTION 4.12 AUDITED FINANCIAL STATEMENTS.
As soon as practicable after the Effective Date, the Seller shall
provide the Buyer with audited financial statements for the 12-month period
ended December 31, 1999 and for the four-month period ended December 31, 1998,
in each case accompanied by a unqualified opinion of Ernst & Young and the
consent of Ernst & Young to the reliance on such financial statements by
Deloitte & Touche in connection with the preparation of the Circular. The Seller
shall use its best efforts to provide such financial statements, unqualified
opinions and consent within 14 days after the Effective Date.
27
29
SECTION 4.13 RELEASE OF GUARANTEES.
The Buyer shall use its best efforts to obtain, and the Seller shall
assist the Buyer in seeking to obtain, a complete release of the Seller's
obligations guaranteeing the payment by, or other obligations of, the Company to
third parties set forth in Section 6.6 of the Disclosure Schedule, provided,
however, that the Buyer shall not be obligated to pay any consideration to any
third party to obtain such releases. To the extent such releases cannot be
obtained prior to the Closing Date, the Buyer shall continue to use its best
efforts to obtain such releases and, until such releases are obtained, the Buyer
shall indemnify the Seller for any amounts that the Seller is required to pay
under any such guarantee; provided that the Buyer shall not be required to
indemnify the Seller to the extent that the Seller is called upon under such
guarantees with respect to events that occurred, or amounts owed, prior to the
Closing Date.
SECTION 4.14 RELEASE OF PLEDGES.
The Seller shall obtain the release of all liens on the assets of the
Company and pledges of the capital stock of the Company and the subsidiaries of
the Company.
ARTICLE 5: POST CLOSING COVENANTS
The Buyer and the Seller agree as follows with respect to the period
following the Closing.
SECTION 5.1 GENERAL.
In case at any time after the Closing any further action is necessary
to carry out the purposes of this Agreement, the Buyer and the Seller will take
such further action (including the execution and delivery of such further
instruments and documents) as the other reasonably may request, all at the sole
cost and expense of the requesting party (unless the requesting party is
entitled to indemnification therefor under Article 9).
SECTION 5.2 TRANSITION.
The Seller shall not take, and shall cause the Company not to take, any
action that is designed or intended to have the effect of discouraging any
lessor, licensor, customer, supplier, or other business associate of the Company
from maintaining the same business relationships with the Seller after the
Closing as it maintained with the Company prior to the Closing.
SECTION 5.3 COMPETITION.
(a) Subject to Section 10.13 hereof, the Seller acknowledges
that the Buyer would be irreparably damaged if the Seller's confidential
knowledge of the business of the Company were disclosed to or utilized on behalf
of any Person that is in competition with the Company. Accordingly, subject to
Section 10.13 hereof, the Seller shall not, and shall cause its subsidiaries not
to, at any time without the prior written consent of the Buyer, disclose or use
any confidential information. For purposes hereof, confidential information will
not include information that is approved in writing for release by the Buyer, or
is generally known by the recipient prior to its
28
30
disclosure to the recipient, is received by a recipient from a third party
rightfully in possession of such information or is otherwise required by law to
be disclosed.
(b) In furtherance of this Section 5.3 and to secure the
interests of the Buyer hereunder, for a period of two (2) years after the
Closing but subject to Section 10.13 hereof, the Seller shall not and shall not
permit any of its subsidiaries to, directly or indirectly, participate in the
ownership, management, operation, or control of, or have any financial interest
in or assist any person in the conduct of, any business (a "Competitive
Operation") that competes with the business as conducted by the Company at any
time during the two-year period immediately preceding the date of this Agreement
in any area where such business is then conducted; provided, however, that
ownership of not more than one percent of the equity securities of any publicly
held Competitive Operation and consummation of the transactions contemplated in
the Confidential Information Memorandum shall not constitute or give rise to a
violation of this paragraph (b). Notwithstanding the foregoing, nothing
contained in this Agreement shall prevent any current subsidiary or Affiliate of
the Seller from conducting its present business, whether or not such business
competes with the business conducted by the Company. Neither the Seller nor the
Company will release any employee of the Company from any non-competition
agreements to which such employee is bound.
(c) The Seller acknowledges that a violation by it or any of
its Affiliates of any of the covenants contained in this Section 5.3 would cause
immeasurable and irreparable damage to the Buyer. The Seller accordingly
acknowledges that the Buyer shall be entitled to injunctive relief in any court
of competent jurisdiction for any actual or threatened violation of any
covenant, without posting a bond or other security, in addition to any other
remedies available to the Buyer.
SECTION 5.4 PATENTS AND TRADEMARKS.
The Seller shall cooperate with the Buyer and take all action
reasonably requested by the Buyer to transfer and assign to the Buyer all rights
of the Seller or the Company in the trademarks referred to in the Assignment of
Patents and Trademarks to be in a form satisfactory to the Buyer and the Seller
(the "Patent Assignment"), including filing such documents and other materials
with the U.S. Patent and Trademark Office and other governmental and regulatory
agencies as may be necessary to effect such transfer and assignment.
SECTION 5.5 US ASSEMBLIES OBLIGATION.
The Buyer shall assume the liabilities and obligations of the Seller
under that certain Master Manufacturing and Purchase Agreement dated March 1,
1999 by and between US Assemblies, in Georgia, Inc. and the Seller (the "US
Assemblies Agreement").
SECTION 5.6 POST-CLOSING ACCESS.
It is recognized that the Seller may need Tax, financial or other data
after the Closing Date with respect to the business of the Company covering
several fiscal periods prior to the Closing Date to facilitate the preparation
of Tax Returns or in connection with any audit,
29
31
investigation, litigation, amended return, claim for refund or any proceeding in
connection therewith or to comply with the rules and regulations of the IRS, the
Securities and Exchange Commission or any other governmental organization or
agency. The Buyer will render reasonable cooperation and will afford access
during normal business hours, and upon at least two (2) business days written
notice, to all books, records, data and personnel concerning the operation and
conduct of the business of the Company with respect to periods prior to and
including the Closing Date to the Seller and its auditors, accountants, counsel
or other authorized representatives for such purpose. The Seller will bear all
reasonable out-of-pocket costs and expenses incurred by the Buyer (excluding
salaries or wages of its employees) with respect to the Buyer's obligations
pursuant to this Section 5.6.
SECTION 5.7 INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE.
From and after the Closing, the Buyer agrees to give effect to the
provisions of the Company's Certificate of Incorporation and Bylaws relating to
indemnification of officers and directors of the Company for acts or omissions
occurring at or prior to the Closing. The Buyer shall maintain, for a period of
four (4) years from the Closing, an insurance and indemnification policy that
provides coverage for the Company's current directors and officers for events,
acts or occurrences occurring prior to the Closing (the "D&O Insurance") that is
no less favorable than the Company's existing policy or, if substantially
equivalent insurance coverage is unavailable, the best available coverage at a
cost no greater than the cost of currently effective policy.
ARTICLE 6: CONDITIONS TO SELLER'S OBLIGATIONS
Each of the obligations of the Seller to consummate the transactions
contemplated hereby will be subject to the satisfaction (or written waiver by
the Seller) at the Closing Date of each of the following conditions:
SECTION 6.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING DATE.
Except for changes as may be contemplated by this Agreement and the
representations and warranties made as of a specific date, each of the
representations and warranties of the Buyer contained in this Agreement that are
qualified as to materiality shall be true in all respects on and as of the
Closing Date with the same force and effect as though made on and as of such
date and each of the representations and warranties that are not so qualified
shall be true in all material respects; the Buyer must have performed and
complied in all material respects with each of the covenants and agreements set
forth herein to be performed or complied with by it on or before the Closing
Date; and the Buyer must have delivered to the Seller a certificate dated the
Closing Date and signed by its duly authorized officer to all such effects.
SECTION 6.2 LITIGATION.
No suit, investigation, action or other proceeding may be pending
against the Seller, the Company or their Affiliates or the Buyer before any
court or governmental agency which could, in the reasonable opinion of counsel
for the Seller, prohibit or materially restrict the consummation of the
Transaction.
30
32
SECTION 6.3 NO PROHIBITIONS.
No statute, rule, regulation, executive order, decree, or injunction
shall have been enacted, entered, promulgated, or enforced by any court or
governmental authority that prohibits the consummation of any of the
transactions contemplated hereby.
SECTION 6.4 REQUIRED GOVERNMENTAL APPROVALS.
All governmental authorizations, consents and approvals set forth in
Section 3.3 of the Disclosure Schedule must have been obtained and must be in
full force and effect, except for those governmental authorizations, consents
and approvals the failure to obtain would not have a Material Adverse Effect on
the Company or prohibit or materially restrict the consummation of the
Transaction. All applicable governmental pre-acquisition filing, information
furnishing and waiting period requirements, including expiration of all
applicable waiting periods pursuant to the HSR Act, as set forth on the
Disclosure Schedule, must have been met or such compliance must have been waived
by the governmental authority having authority to grant such waivers.
SECTION 6.5 OTHER NECESSARY CONSENTS.
The parties must have obtained all consents and approvals necessary for
consummation of the Transaction, except those consents and approvals the failure
to obtain would not have a Material Adverse Effect on the Seller or prohibit or
materially restrict the consummation of the Transaction.
SECTION 6.6 RELEASE OF GUARANTEES.
To the extent the guarantees referred to in 4.13 hereof have not been
released on or as of the Closing Date, the Buyer shall have provided the Seller
with indemnity in a form reasonably satisfactory to it for any amounts that the
Seller is required to pay under any such guarantee; provided that the Buyer
shall not be required to indemnify the Seller to the extent that the Seller is
called upon under such guarantees with respect to events that occurred, or
amounts owed, prior to the Closing Date.
SECTION 6.7 US ASSEMBLIES AGREEMENT.
The Buyer shall have executed an Assumption Agreement with respect to
the US Assemblies Agreement in form reasonably satisfactory to the parties
hereto.
SECTION 6.8 DISTRIBUTION OF WAIC STOCK.
The Company shall have distributed to the Seller all of the capital
stock of World Access Investment Corp., a Delaware corporation ("WAIC") that the
Company owns and, as set forth in Section 9.8(j) hereof, such distribution is
intended, for federal income tax purposes, to constitute a distribution to the
Seller pursuant to a deemed liquidation of the Company under Temporary Treasury
Regulation Sections 1.338(h)(10)-1(T)(d)(4) and (d)(5) pursuant to Section 332
of the Code.
31
33
ARTICLE 7: CONDITIONS TO BUYER'S OBLIGATIONS
Each of the obligations of the Buyer to consummate the transactions
contemplated hereby is subject to the satisfaction (or written waiver by the
Buyer) at or prior to the Closing Date of each of the following conditions:
SECTION 7.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING DATE.
Each of the representations and warranties of the Seller contained in
this Agreement that are qualified as to materiality shall be true in all
respects on and as of the Closing Date (except for the representations and
warranties made as of a specific date which shall be true in all material
respects as of such date) with the same force and effect as though made on and
as of such date and each of the representations and warranties of the Seller
that are not so qualified shall be true in all material respects; the Seller
must have performed and complied in all material respects with each of the
covenants and agreements set forth herein to be performed or complied with by it
on or before the Closing Date; and the Seller must have delivered to the Buyer a
certificate dated the Closing Date and signed by its duly authorized officer to
all such effects.
SECTION 7.2 LITIGATION.
No suit, investigation, action or other proceeding may be pending or
overtly threatened against the Buyer, the Seller or the Company or their
Affiliates before any court or governmental agency which has resulted, or could
reasonably be expected to result, in the restraint or prohibition of, or have a
Material Adverse Effect on, the Buyer, or could have a Material Adverse Effect
on the Buyer's ability to exercise control over or manage the Company after the
Closing or could, in the reasonable opinion of counsel for the Buyer, result in
the assessment of material damages or other material relief against the Buyer or
prohibit or materially restrict the consummation of the transactions
contemplated hereby.
SECTION 7.3 NO PROHIBITIONS.
No statute, rule, regulation, executive order, decree, or injunction
shall have been enacted, entered, promulgated, or enforced by any court or
governmental authority that prohibits the consummation of any of the
transactions contemplated hereby.
SECTION 7.4 REQUIRED GOVERNMENTAL APPROVALS.
All governmental authorizations, consents and approvals required to be
set forth in Section 2.6 of the Disclosure Schedule must have been obtained and
must be in full force and effect, except for those governmental authorizations,
consents and approvals, the failure to obtain would not have a Material Adverse
Effect on the Company or materially restrict the consummation of the
Transaction. All applicable governmental pre-acquisition filing, information
furnishing and waiting period requirements, including expiration of all
applicable waiting periods pursuant to the HSR Act, and as otherwise set forth
on the Disclosure Schedule, must have been met or such compliance must have been
waived by the governmental authority having authority to grant such waivers.
32
34
SECTION 7.5 OTHER NECESSARY CONSENTS.
The parties must have obtained all consents and approvals necessary for
valid consummation of the Transaction, except those consents and approvals the
failure to obtain would not have a Material Adverse Effect on the Buyer.
SECTION 7.6 CERTAIN APPROVALS.
This Agreement and the transactions contemplated hereby, including the
issuance of the Buyer Shares to the Seller pursuant to Section 1.2, shall have
been duly approved by the requisite vote of shareholders of the Buyer in
accordance with the laws of Israel and the listing by the London Exchange of the
Ordinary Shares to be sold by the Buyer to produce net proceeds of not less than
$60,800,000 shall have been approved.
SECTION 7.7 EQUIPMENT PURCHASE AGREEMENT.
The Seller shall have executed and delivered to the Buyer the Equipment
Purchase Agreement in substantially the form of Exhibit 7.7 attached hereto.
SECTION 7.8 ASSIGNMENT OF PATENTS AND TRADEMARKS.
The Seller shall have delivered to the Buyer an executed counterpart to
the Patent Assignment.
SECTION 7.9 TAX SHARING AGREEMENTS.
As of the Closing Date, and solely as to the Company, the Seller shall
cause all Tax sharing agreements to which the Company is a party to be
terminated and of no further force and effect, thereby extinguishing any rights
or obligations of the Company thereunder.
SECTION 7.10 CREDIT AGREEMENT.
The Company shall be fully released from all liabilities and
obligations under that certain First Amended and Restated Credit Agreement dated
December 7, 1999 by and among the Company, World Access Holdings, Inc., Bank of
America, N.A., as administrative agent, Fleet National Bank, as syndication
agent, Bank Austria Creditanstalt Corporate Finance, Inc., as documentation
agent and Banc of America Securities LLC, as lead arranger and book running
manager (the "Credit Agreement") and the Seller shall have obtained the release
of all liens on the assets of the Company and the pledges of the capital stock
of the Company and the Company's subsidiaries.
ARTICLE 8: CLOSING AND TERMINATION
SECTION 8.1 CLOSING.
Subject to the satisfaction or waiver of the conditions set forth
herein, the consummation of the purchase and sale of the Shares (the "Closing")
shall take place at 10 a.m. on the second
33
35
(2nd) business day following satisfaction or waiver of the conditions set forth
in Articles 6 and 7, in the offices of Long Xxxxxxxx & Xxxxxx LLP, 000 Xxxxxxxxx
Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxx 00000, or on such other date or at such
other time and place as the parties shall agree (the "Closing Date"). The Buyer
shall commence to operate and control the business of the Company as of the
Closing and the Buyer will make all payments to the Seller required to be paid
at the Closing as provided in this Agreement.
SECTION 8.2 TERMINATION OF AGREEMENT.
Anything herein to the contrary notwithstanding, this Agreement may be
terminated at any time (such date of termination being the "Termination Date")
before the Closing Date as follows, and in no other manner:
(a) Mutual Consent. By mutual written consent of the Buyer and
the Seller;
(b) By the Seller. By the Seller upon the material breach of
this Agreement by the Buyer, including the failure by the Buyer to proceed with
the Closing notwithstanding the satisfaction of each of the conditions to
Closing set forth in Article 6, whereupon the Seller shall be entitled to pursue
such remedies at law or equity as may be available to it;
(c) By the Buyer. By the Buyer upon the material breach of
this Agreement by the Seller, including the failure by the Seller to proceed
with the Closing notwithstanding the satisfaction of each of the conditions to
Closing set forth in Article 5, whereupon the Buyer shall be entitled to pursue
such remedies at law or equity as may be available to it; or
(d) Expiration Date. By either the Buyer or the Seller if the
Closing shall not have occurred on or prior to ninety (90) days after the
Effective Date; provided, however, that no entity may terminate this Agreement
in accordance with this Section 8.2(d) if the failure to consummate the Closing
shall be due to the action or failure to act of the party seeking to terminate
this Agreement in violation of its covenants under this Agreement, and provided
further, that the expiration date set forth in this Section 8.2(d) may be
extended by either party for up to an additional ninety (90) days in the event
the Closing is delayed as a result of such party's inability to obtain any third
party consents necessary for consummation of the Transaction, and provided
further, that the expiration date may be extended, at the Buyer's option, by the
number of days, in excess of 14, from the Effective Date until delivery by the
Seller of the audited financial statements referred to in Section 4.12 hereof.
SECTION 8.3 EFFECT OF TERMINATION.
In the event that this Agreement shall be terminated pursuant to
Section 8.2, all obligations of the parties hereto under this Agreement shall
terminate and there shall be no liability of any party to any other party hereto
and each party hereto will pay all costs and expenses incident to its
negotiation and preparation of this Agreement and to its performance of and
compliance with all agreements and conditions contained herein on its part to be
performed or complied with, including the fees, expenses and disbursements of
its counsel, its auditors and its actuaries, provided, however, that if this
Agreement shall be terminated pursuant to Section
34
36
8.2(b) or Section 8.2(c), such termination shall not release any party hereto
from any liability that such party may have for any breach occurring prior to
the Termination Date of any representation, warranty or covenant made by such
party in this Agreement.
ARTICLE 9: INDEMNIFICATION
SECTION 9.1 SELLER INDEMNIFICATION.
Except as otherwise provided in this Article 9, the Seller will
indemnify, hold harmless and reimburse the Buyer and its Affiliates and their
successors or assigns, and their respective directors, officers, employees,
consultants and agents (the "Buyer Protected Parties") for any and all claims,
losses, liabilities, damages, penalties, fines, costs and expenses (including,
in the case of any matter referred to in subsection (c) hereof, all costs
related to cleanup, remediation, monitoring and reporting, and, in any case,
including reasonable attorneys' fees, court costs and settlement costs but
excluding, except in the case of third party claims, consequential, incidental,
exemplary or punitive damages) (individually, a "Loss", collectively, "Losses")
incurred by the Buyer Protected Parties as a result of, with respect to, or
arising out of, (a) any breach or inaccuracy of any representation or warranty
of the Seller set forth in this Agreement or the certificate delivered to the
Buyer pursuant to Section 7.1 hereof; (b) any breach of or noncompliance by the
Seller with any covenant of the Seller contained in this Agreement; (c) the
existence of hazardous or toxic substances, contaminants, pollutants and/or
other materials regulated under the Environmental Laws (as defined in Section
2.23 hereof) on the properties located in Norwood, Massachusetts occupied by the
Company or owned by entities in which the Company has an economic interest; (d)
matters disclosed as "challenged" in Section 2.15 of the Disclosure Schedule,
(e) failure by the Seller to cooperate with the Buyer in connection with making
the election contemplated in Section 9.8(h) hereof, and (f) the operation or
ownership by the Company, the Seller or any of their Affiliates, or any
liabilities or claims existing or arising with respect to, any subsidiary,
division, business or product line not owned or operated by the Company on the
Closing Date; including, without limitation, the wireless and radio businesses,
Cellular Infrastructure Supply, Inc., Restor-AIT, Inc., Westec Communications,
Inc., World Access Telecommunications Group, Inc., World Access
Telecommunications Group Limited, Sunrise Sierra, Inc., and any other
subsidiary, division, business or product line associated with the Seller or the
Company that is not being acquired by the Buyer pursuant to this Agreement; and
further including, without limitation, any obligations under, or Losses arising
with respect to, the Master Manufacturing and Purchase Agreement between the
Company and SCI Technology, Inc. to the extent that such Agreement pertains to
the wireless or radio businesses; provided that, with respect to subsection (d)
of this Section, the Seller agrees to indemnify the Buyer Protected Parties as
contemplated by this Section only with respect to any Losses attributable to the
operation of the Company prior to the Closing Date.
SECTION 9.2 BUYER INDEMNIFICATION.
Except as otherwise provided in this Article 9, the Buyer will
indemnify and reimburse the Seller for any and all Losses incurred by the Seller
or its Affiliates and their successors or assigns, and their respective
directors, officers, employees, consultants and agents (the "Seller Protected
Parties"), as a result of, or with respect to, or arising out of, (i) any breach
or
35
37
inaccuracy of any representation or warranty of the Buyer set forth in this
Agreement or the certificate delivered to the Seller pursuant to Section 5.1
hereof or (ii) any breach of or noncompliance by the Buyer with any covenant or
agreement of the Buyer contained in this Agreement to be performed after the
Closing; or (iii) action taken in connection with the Buyer's operation of the
business of the Company after the Closing Date.
SECTION 9.3 INDEMNITY CLAIMS.
(a) Survival. The representations, warranties, covenants and
agreements contained herein will survive the Closing, subject to the limitations
set forth in subsection (b) below with respect to the time periods within which
claims for indemnity must be asserted. The right to indemnification or other
remedy based on such representations, warranties, covenants and agreements will
not be affected by any investigation conducted with respect to, or any knowledge
acquired at any time, whether before or after the execution and delivery of this
Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or
compliance with, any such representation, warranty, covenant or agreement. The
waiver of any condition based on the accuracy of any representation or warranty,
or on the performance of or compliance with any covenant or agreement, will not
affect the right to indemnification or other remedy based on such
representation, warranty, covenant and agreement.
(b) Time to Assert Claims. All claims for indemnification for
any breach or inaccuracy of a representation or warranty must be asserted no
later than eighteen months after the Closing Date; provided, however, that any
claims for indemnification for any breach or inaccuracy of a representation or
warranty contained in Section 2.22 (Taxes), Section 2.17 (Employee Benefits) or
Section 2.23 (Environmental Matters) may be asserted at any time prior to the
expiration of the applicable statute of limitations.
SECTION 9.4 DEDUCTIBLE.
Neither the Buyer Protected Parties nor the Seller Protected Parties
may make a claim against a Buyer Protected Party or a Seller Protected Party for
indemnification pursuant to this Agreement unless and until the aggregate amount
of all such claims by the Buyer Protected Parties or the Seller Protected
Parties, as the case may be, exceeds $1,000,000 (the "Deductible"), in which
event such parties may claim indemnification for the amount of such claims in
excess of the Deductible; provided that with respect to claims described in
Section 9.1(c), (d), (e) and (f) hereof, the Deductible shall not apply; and
provided further that with respect to Losses for state or federal income taxes,
the Deductible shall not apply.
SECTION 9.5 NOTICE OF CLAIM.
The Buyer Protected Parties or the Seller Protected Parties, as the
case may be, will notify the party against whom indemnification under this
Agreement is sought (the "Indemnifying Party"), in writing, of any claim for
indemnification, specifying in reasonable detail the nature of the Loss, and, if
known, the amount, or an estimate of the amount, of the liability arising
therefrom. The Buyer Protected Parties or the Seller Protected Parties, as the
case may be, will provide to the Indemnifying Party, as promptly as practicable
thereafter, such information and
36
38
documentation as may be reasonably requested by the Indemnifying Party to
support and verify the claim asserted, so long as such disclosure would not
violate the attorney-client privilege of the Buyer Protected Parties or the
Seller Protected Parties, as the case may be.
SECTION 9.6 DEFENSE.
If the facts pertaining to a loss arise out of the claim of any third
party, or if there is any claim against a third party (other than a Buyer
Protected Party or a Seller Protected Party, for the purposes of this Section
9.6 a Buyer Protected Party or a Seller Protected Party are referred to
individually as a "Protected Party") available by virtue of the circumstances of
the Loss, the Indemnifying Party may assume the defense or the prosecution
thereof by prompt written notice to the Buyer Protected Party or the Seller
Protected Party, as the case may be, including the employment of counsel or
accountants, at its cost and expense. The affected Protected Party will have the
right to employ counsel separate from counsel employed by the Indemnifying Party
in any such action and to participate therein, but the fees and expenses of such
counsel employed by the affected Protected Party will be at its expense. The
Indemnifying Party will not be liable for any settlement of any such claim
effected without its prior written consent, which will not be unreasonably
withheld; provided that if the Indemnifying Party does not assume the defense or
prosecution of a claim as provided above within thirty (30) days after notice
thereof from any Protected Party, the affected Protected Party may settle such
claim without the Indemnifying Party's consent. The Indemnifying Party will not
agree to a settlement of any claim which provides for any relief other than the
payment of monetary damages or which could have a material precedential impact
or effect on the business or financial condition of any Protected Party, or
which does not include a complete and unconditional release of the affected
Protected Party, without the affected Protected Party's prior written consent.
Whether or not the Indemnifying Party chooses to so defend or prosecute such
claim, the Indemnifying Party and the affected Protected Party will cooperate in
the defense or prosecution thereof and will furnish such records, information
and testimony, and attend such conferences, discovery proceedings, hearings,
trials and appeals, as may be reasonably requested in connection therewith. The
Indemnifying Party will be subrogated to all rights and remedies of any
Protected Party, except to the extent they apply against another Protected
Party.
SECTION 9.7 LIMITATION OF LIABILITY.
(a) In calculating any amount of damages to be paid by the
Indemnifying Party pursuant to this Agreement, the amount of such damages will
be reduced by all reimbursements credited to or received by the other party,
relating to such damages, and will be net of any insurance proceeds received by
the other party with respect to the matter for which indemnification is claimed.
(b) In no event shall the Seller's obligations to indemnify
the Buyer Protected Parties under this Agreement exceed the Purchase Price. The
parties agree that any obligation of the Seller for indemnification as provided
in this Article 9 may be discharged by tendering the Buyer Shares then owned by
the Seller to the extent permitted by applicable law. In no event shall the
Buyer's obligations to indemnify the Seller Protected Parties under this
Agreement exceed $65,200,000.
37
39
SECTION 9.8 TAX INDEMNIFICATION.
Notwithstanding anything to the contrary contained in this Article 9:
(a) Tax Sharing and Indemnification. The Seller shall
indemnify, defend and hold harmless the Buyer and the Company from and against
any and all Taxes that may be imposed on or assessed against or otherwise
claimed to be due from the Buyer with respect to the Company, or its Tax
Affiliates or the assets of the Company or its Tax Affiliates: (A) with respect
to taxable periods ending on or prior to the Closing Date; (B) with respect to
any and all Taxes of any member of a consolidated, combined or unitary group of
which the Company or any predecessor thereof is or was a member (other than the
Company) on or prior to the Closing Date, by reason of the liability of the
Company pursuant to Treasury Regulation Section 1.1502-6(a) or any analogous or
similar state, local or foreign law or regulation; (C) arising by reason or any
breach by the Seller of the representations, warranties and covenants contained
in Section 2.22 hereof; (D) by reason of being a successor-in-interest or
transferee of another entity on or prior to the Closing Date; (E) with respect
to any and all Taxes allocated to the Seller pursuant to Section 9.8(c) hereof;
and (F) arising from an election or deemed election imposed by a taxing
authority under Section 338(h)(10) of the Code (or any comparable provision of
state, local or foreign law) with respect to the purchase of the Shares. The
Seller shall also pay or cause to be paid and shall indemnify and hold harmless
the Buyer, the Company and the Tax Affiliates from and against (x) any liability
arising under any Tax sharing, Tax indemnity, Tax allocation or similar
agreement (whether or not written) to which the Company or any predecessor or
transferor with respect thereto is a party or is bound ("Tax Sharing Payments")
and (y) all losses, damages and reasonable third party costs and expenses
(including reasonable attorney, accountant and expert witness fees) ("Related
Costs") incurred in connection with the Taxes or Tax Sharing Payments for which
the Seller indemnifies the Buyer, the Company and their Tax Affiliates pursuant
to this Section 9.8(a) (or any asserted deficiency, claim, demand or assessment,
including the defense or settlement thereof relating to such Taxes or Tax
Sharing Payments) or the enforcement of this Section 9.8(a).
(b) The Buyer shall be responsible for, and shall pay or cause
to be paid, and shall indemnify and hold harmless the Seller from and against,
any and all Taxes that may be imposed on or assessed against the Company (i)
with respect to taxable periods of the Company beginning after the Closing Date,
(ii) with respect to any and all Taxes allocated to the Buyer pursuant to
Section 9.8(c) hereof, and (iii) because the Company is included in the federal
consolidated Tax Return of the Seller until the end of the acquisition date
under Temporary Treasury Regulation Section 1.338(h)(10)-1T(d)(3), with respect
to any transaction outside the Ordinary Course of Business that the Buyer causes
the Company to consummate on the Closing Date. The Buyer shall also pay or cause
to be paid and shall indemnify and hold harmless the Seller from and against all
Related Costs of the Seller incurred in connection with the Taxes for which the
Buyer indemnifies the Seller pursuant to this Section 9.8(b) (or any asserted
deficiency, claim, demand or assessment, including the settlement thereof,
relating to such Taxes) or the enforcement of this Section 9.8(b).
(c) (i) Taxes, attributable to any taxable period of the
Company beginning before and ending after the Closing Date hereof shall be
allocated (A) to the Seller for the portion of the
38
40
period up to and including the Closing Date, and (B) to the Buyer (or the
Company) for the portion of the period subsequent to the Closing Date.
(ii) For purposes of this Section 9.8(c), Taxes for
the period up to and including the Closing Date (the "Seller's Taxes") shall be
determined on the basis of an interim closing of the books as of the end of the
Closing Date; provided, however, that in the case of any Tax not based on
income, such Seller's Taxes shall be equal to the amount of any Tax for the
taxable year multiplied by a fraction, the numerator of which shall be the
number of days from the beginning of the taxable year through the Closing Date,
as the case may be, and the denominator of which shall be the number of days in
the taxable year.
(d) (i) Except as otherwise specifically provided herein, the
Seller shall be responsible for filing or causing to be filed all Tax Returns
required to be filed by or on behalf of the Company or its assets or operations
on or before the Closing Date or that relate to periods ending on or prior
thereto, including extensions, and the Buyer shall be responsible for filing or
causing to be filed all other Tax Returns required to be filed by or on behalf
of the Company or its assets or operations after the Closing Date including
extensions.
(ii) With respect to any Tax Returns of the Company
required to be filed by the Seller on or before the Closing Date or that relate
to periods ending on or prior thereto, at least 15 days prior to the due date
for filing of such Tax Returns (including extensions), the Seller shall provide
the Buyer with copies of such Tax Return for the Buyer's approval (which
approval shall not be unreasonably withheld).
(iii) With respect to any Tax Returns of the Company
required to be filed by the Buyer after the Closing Date, at least 15 days prior
to the due date for filing of such Tax Return (including extensions), the Buyer
shall provide the Seller with copies of such Tax Return for the Seller's
approval (which approval shall not be unreasonably withheld), together with a
statement setting forth the amount of Tax shown due thereon that is allocable to
the Seller pursuant to Section 9.8(c) hereof (the "Statement"). Not later than
five days before the due date for payment of Taxes with respect to such Tax
Return, the Seller shall pay to the Buyer an amount equal to the Taxes shown on
the Statement as being allocable to the Seller pursuant to Section 9.8(c)
hereof. No payment pursuant to this Section 9.8(d)(iii) shall excuse the Seller
from its indemnification obligations pursuant to Section 9.8(a) hereof should
the amount of Taxes as ultimately determined (on audit or otherwise), for the
periods covered by such Tax Return and which are the responsibility of the
Seller, exceed the amount of the Seller's payment under this Section
9.8(d)(iii).
(iv) Any dispute with respect to any Tax Return
referred to in this Section 9.8(d) shall be resolved by the independent
accounting firm referred to in Section 9.8(h) hereof.
(e) The Seller and the Buyer shall cooperate fully with each
other and make available to each other in a timely fashion such tax data and
other information as may be reasonably required for the preparation of any Tax
Returns required to be prepared and filed by the Buyer hereunder. The Seller and
the Buyer shall make available to the other, as reasonably
39
41
requested, all information, records or documents in their possession relating to
Tax liabilities of the Company for all taxable periods of the Company ending on,
prior to or including the Closing Date and shall preserve all such information,
records and documents until the expiration of any applicable Tax statute of
limitations or extensions thereof; provided, however, that in the event a
proceeding has been instituted for which the information, records or documents
is required prior to the expiration of the applicable statute of limitations,
such information, records or documents shall be retained until there is a final
determination with respect to such proceeding.
(f) The Buyer and the Seller shall promptly notify each other
in writing upon receipt by the Buyer, the Company or the Seller, as the case may
be, of any notice of any Tax audits of or assessments against the Company for
taxable periods of the Company ending on, prior to or including the Closing
Date. The Seller shall have the right to represent the Company's interests in
any Tax audit or administrative or court proceeding (a "Tax Proceeding")
relating to taxable periods of the Company ending on or prior to the Closing
Date and to employ counsel of its choice at its expense; provided, however, that
the Seller may not agree to a settlement or compromise thereof without the prior
consent of the Buyer, if such settlement or compromise could be expected to have
a Material Adverse Effect on the Company, the Buyer or its Tax Affiliates with
respect to Taxes or taxable periods for which the Buyer is responsible
hereunder. The Buyer shall have the right, at its expense, to represent the
Company's interests in any Tax Proceeding relating to any taxable period ending
after the Closing Date. The Buyer and the Seller each agree that they will
cooperate fully with each other and their respective counsel in the defense
against or compromise of any claim in any Tax Proceeding.
(g) Any dispute as to any matter covered under this Section
9.8 shall be resolved by an independent accounting firm mutually acceptable to
the Seller and the Buyer. The fees and expenses of such accounting firm shall be
borne equally by the parties.
(h) The Buyer and the Seller covenant and agree that, within
60 business days following the Closing Date (the "Filing Date"), the Buyer will
complete and they will file, or cause to be completed and filed, in the manner
prescribed by law, a Section 338(h)(10) basis election on IRS Form 8023 (and any
comparable election under state, local or foreign law) with respect to the
acquisition of the Shares. The Buyer shall provide the Seller and its authorized
representatives with copies of such completed election at least 30 business days
prior to the Filing Date, and at the same time the Buyer shall provide the
Seller a schedule (the "Price Allocation Schedule") allocating, with the consent
of the Seller, an appropriate portion of the Purchase Price among the assets of
the Company in accordance with the Temporary Treasury Regulations promulgated
under Section 338(h)(10). At the time of delivery of the Price Allocation
Schedule, the Buyer shall provide the Seller with a copy of any appraisal report
utilized by the Buyer in the preparation of such schedule. The costs of any such
appraisal report obtained by the Buyer in connection with the Price Allocation
shall by borne by the Buyer. The Seller and the Buyer agree to consult and
resolve in good faith any issues arising as a result of the review of such
election and the Price Allocation Schedule by the Seller, the Buyer or their
authorized representatives and to mutually consent to the filing of such
election and agreement on the Price Allocation Schedule. In the event the
parties are unable to resolve any dispute over the election or the Price
Allocation Schedule within 15 business days prior to the Filing Date, the
parties shall jointly request that the independent accounting firm referred to
in Section 9.8(h)
40
42
hereof resolve any issue in dispute by the Filing Date. The Buyer shall provide
the Seller with copies of such election as filed within five business days
thereof. The Price Allocation Schedule (as revised pursuant to Section 9.8(h) if
applicable) shall be binding on the parties hereto, and the Seller, the Company
and the Buyer agree to act in accordance with such schedule in the preparation,
filing and audit of any income Tax Return.
(i) Buyer hereby agrees with Seller that this Agreement
reflects their agreement with respect to an overall transaction for federal
income tax purposes, which involves the distribution by the Company pursuant to
Section 6.9 hereof of all of its capital stock in WAIC to the Seller prior to
the Seller's sale of Shares hereunder as to which Buyer and Seller will jointly
make the Section 338(h)(10) election pursuant to this Section 9.8(i). Pursuant
to such Section 338(h)(10) election, Buyer further acknowledges with Seller that
under Temporary Treasury Regulation Sections 1.338(h)(10)-1T(d)(3), (d)(4) and
(d)(5), the Company is deemed for federal income tax purposes to have sold its
assets in a single transaction at the close of the acquisition date, but that
before the close of the acquisition date and after the deemed sale of Company
assets, the Company is further deemed to transfer all its assets to the Seller
and then ceases to exist. In this regard, since the distribution by the Company
of its WAIC Stock to Seller is part of the overall transaction described in this
Agreement, the Seller intends solely for federal income tax purposes, that this
Agreement constitute a plan of liquidation which, under the above-referenced
temporary regulations, Seller is deemed to have adopted under Section 332 of the
Code such that the Company's actual distribution of the WAIC Stock to Seller
shall be treated as a liquidating distribution occurring pursuant to such deemed
Section 332 liquidation of the Company (consistent with Temporary Treasury
Regulation Section 1.338(h)(10)-1T(e), Example 2).
ARTICLE 10: MISCELLANEOUS
SECTION 10.1 EXPENSES.
(a) Except as otherwise specifically provided in this
Agreement, the Seller and the Buyer will each pay all costs and expenses
incurred by each of them, or on their behalf respectively, in connection with
this Agreement and the transaction contemplated hereby, including fees and
expenses of their own financial consultants, accountants and counsel. The Seller
will cause the Company not to incur any out-of-pocket expenses after the Closing
in connection with this Agreement and the Transaction.
(b) If this Agreement is terminated pursuant to Section 8.2(b)
or (c), the breaching party shall pay $1,000,000 to the non-breaching party for
payment of costs and expenses incurred in connection with the Transaction;
provided that such payment shall not prevent the non-breaching party from
pursuing indemnification under Article 9 hereof for damages other than such
costs and expenses.
(c) In the event this Agreement is terminated other than as a
result of a breach by the Seller or the failure of the Seller to satisfy the
conditions set forth in Article 7, then the Buyer shall pay the costs and
expenses incurred in preparing the audit with respect to the four-month period
ended December 31, 1998 and the fiscal year ended December 31, 1999.
41
43
SECTION 10.2 ENTIRE AGREEMENT.
This Agreement (including the Disclosure Schedule and all other
schedules and exhibits) and all other agreements to be signed or delivered at
Closing constitute the full understanding of the parties, a complete allocation
of risks between them and a complete and exclusive statement of the terms and
conditions of their agreement relating to the subject matter hereof and
supersede any and all prior agreements, whether written or oral, that may exist
between the parties with respect thereto; provided that this provision is not
intended to abrogate the Transaction Agreements or the Confidentiality
Agreements entered into between the parties hereto. Except as otherwise
specifically provided in this Agreement, no conditions, usage of trade, course
of dealing or performance, understanding or agreement purporting to modify,
vary, explain or supplement the terms or conditions of this Agreement will be
binding unless hereafter made in writing and signed by the party to be bound,
and no modification will be effected by the acknowledgment or acceptance of
documents containing terms or conditions at variance with or in addition to
those set forth in this Agreement, except as otherwise specifically agreed to by
the parties in writing.
SECTION 10.3 WAIVERS.
No waiver by a party with respect to any breach or default or of any
right or remedy and no course of dealing or performance, will be deemed to
constitute a continuing waiver of any other breach or default or of any other
right or remedy, unless such waiver is expressed in writing signed by the party
to be bound. Failure of a party to exercise any right will not be deemed a
waiver of such right or rights in the future.
SECTION 10.4 PARTIES BOUND BY AGREEMENT, SUCCESSORS AND ASSIGNS.
The terms, conditions and obligations of this Agreement will inure to
the benefit of and be binding upon the parties hereto and the respective
successors and assigns thereof, including any successors by way of merger,
consolidation, sale of stock or sale of assets of or by such parties. No party
hereto may assign its rights, duties or obligations hereunder or any part
thereof to any other person or entity without the prior written consent of the
other parties hereto; provided, however, that the Buyer may at any time transfer
its rights hereunder to any subsidiary or other Affiliate of the Buyer over
which the Buyer has voting control so long as the Buyer gives the Seller prior
written notice of such assignment and remains fully liable for the performance
of this Agreement. In the event the Buyer assigns its obligations under this
Agreement as permitted hereunder, it shall cause such assignee to become a party
to this Agreement and the representations and warranties of the Buyer set forth
in Sections 3.1 through 3.5 hereof shall be deemed to also be made by such
assignee.
42
44
SECTION 10.5 COUNTERPARTS.
This Agreement may be executed in multiple counterparts, each of which
will for all purposes be deemed to be an original and all of which will
constitute the same instrument.
SECTION 10.6 NOTICES.
Any notice, request, instruction or other document to be given
hereunder by any party hereto to any other party hereto must be in writing and
delivered personally (including by overnight courier or express mail service) or
sent by registered or certified mail, or be transmitted by facsimile or other
means of electronic data transmission, confirmed by express mail or overnight
courier, in each case with postage or fees prepaid,
If to the Buyer: BATM Advanced Communications Limited
00 Xxxxxxxx Xxxxxx, Xxxxxxxx 0
Cible Industrial Park, P. O. Box 11387
Ros Ha'xxx 00000 XXXXXX
Attention: Xx. Xxx Xxxxx
Telephone No.: 000 0 000 0000
Facsimile No.: 972 3 938 6896
With a copy to: Klehr, Harrison, Xxxxxx, Xxxxxxxxx & Xxxxxx LLP
000 X. Xxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Telephone No.: 000-000-0000
Facsimile No.: 215-568-6603
If to the Seller: World Access, Inc.
000 Xxxx Xxxxx Xxxxx Xxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attention: W. Xxx Xxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
With a copy to: Long Xxxxxxxx & Xxxxxx LLP
000 Xxxxxxxxx Xxxxxx, X.X. Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attention: H. Xxxxxxxx Xxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
or to such other address as may be specified from time to time in a notice given
by such party. Any notice which is delivered personally in the manner provided
herein will be deemed to have been duly given to the party to whom it is
directed upon actual receipt by such party or the office
43
45
of such party. Any notice which is addressed and mailed in the manner herein
provided will be conclusively presumed to have been duly given to the party to
which it is addressed at the close of business, local time of the recipient, on
the fourth business day after the day it is so placed in the mail or, if
earlier, the time of actual receipt.
SECTION 10.7 BROKERAGE.
The Seller and the Buyer do hereby expressly warrant and represent,
each to the other, that except for Dresdner Kleinwort Xxxxxx in the case of the
Buyer, and Xxxxxxxxx Lufkin & Xxxxxxxx, Inc. and Xxxxx Brothers Xxxxxxxx & Co.,
in the case of the Seller, no broker, agent, or finder has rendered services in
connection with the transaction contemplated under this Agreement. The Seller
hereby indemnifies and agrees to hold harmless the Buyer from and against any
and all Losses arising or resulting, or sustained or incurred by the Buyer, by
reason of any claim by any broker, agent, finder, or other person or entity
based upon any arrangement or agreement made or alleged to have been made by the
Seller in connection with the transactions contemplated by this Agreement. The
Buyer hereby indemnifies and agrees to hold harmless the Seller from and against
any and all Losses arising or resulting, or sustained or incurred by the Seller,
by reason of any claim by any broker, agent, finder, or other person or entity
based upon any arrangement or agreement made or alleged to have been made by the
Buyer in connection with the transactions contemplated under this Agreement.
SECTION 10.8 GOVERNING LAW; JURISDICTION.
(a) The validity, interpretation and performance of this
agreement and any dispute connected with this agreement will be governed by and
determined in accordance with the statutory, regulatory and decisional law of
the State of Delaware (exclusive of such state's choice or conflicts of laws
rules) and, to the extent applicable, the federal statutory, regulatory and
decisional law of the United States (except for the U.N. Convention on Contracts
for the International Sale of Goods, April 10, 1980, U.N. Doc. A/Conf. 97/18, 19
I.L.M. 668, 671 (1980) reprinted in Public Notice, 52 Fed. Reg. 662-80 (1987),
which is hereby specifically disclaimed and excluded).
(b) Any suit, action or proceeding against any party hereto
with respect to the subject matter of this Agreement, or any judgment entered by
any court in respect thereof, must be brought or entered in the federal and
state courts located within the State of Delaware and each such party hereby
irrevocably submits to the jurisdiction of such court for the purpose of any
such suit, action, proceeding or judgment. Each party hereto hereby irrevocably
waives any objection which either of them may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement brought as provided in this subsection, and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum. To the extent each
party hereto has or hereafter may acquire any immunity from jurisdiction of any
court or from legal process with respect to itself or its property, each party
hereto hereby irrevocably waives such immunity with respect to its obligations
under this subsection. The parties hereto agree that exclusive jurisdiction of
all disputes, suits, actions or proceedings between the parties hereto with
respect to the subject matter of this Agreement lies in the federal and state
courts
44
46
located within the State of Delaware, as hereinabove provided. Service of copies
of any summons and complaint and any other pleadings or process of any summons
and complaint and any other pleadings or process which may be served in any such
action or proceedings (by certified mail, return receipt requested) to the
address of such party as set forth in Section 10.6 hereof shall be deemed good
and sufficient service thereof.
SECTION 10.9 PUBLIC ANNOUNCEMENTS.
No public announcement may be made by any person with regard to the
transactions contemplated by this Agreement without the prior consent of the
Seller and the Buyer, provided that either party may make such disclosure if
advised by counsel that it is required to do so by applicable law or regulation
of any governmental agency or stock exchange upon which securities of such party
are registered. The Seller and the Buyer will discuss any public announcements
or disclosures concerning the transactions contemplated by this Agreement with
the other parties prior to making such announcements or disclosures.
SECTION 10.10 NO THIRD PARTY BENEFICIARIES.
With the exception of the parties to this Agreement any Seller
Protected Parties and any Buyer Protected Parties, there exists no right of any
person to claim a beneficial interest in this Agreement or any rights occurring
by virtue of this Agreement.
SECTION 10.11 INTERPRETATION.
Words of the masculine gender will be deemed and construed to include
correlative words of the feminine and neuter genders. Words importing the
singular number will include the plural number and vice versa unless the context
will otherwise indicate. References to Articles, Sections and other subdivisions
of this Agreement are to the Articles, Sections and other subdivisions of this
Agreement as originally executed. The headings of this Agreement are for
convenience and do not define or limit the provisions hereof. Words importing
persons include firms, associations and corporations. The term "herein,"
"hereunder," "hereby," "hereto," "hereof" and any similar terms refer to this
Agreement; the term "heretofore" means before the date of execution of this
Agreement; and the term "hereafter" means after the date of execution of this
Agreement. References herein to "include", "includes" or "including" shall mean
without limitation.
SECTION 10.12 SEVERABILITY.
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction will not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
SECTION 10.13 SELLER'S BUSINESS.
The Buyer acknowledges that the Seller (and its current subsidiaries
and Affiliates) operate businesses similar to that conducted by the Company, and
will continue to operate those
45
47
businesses after the Closing. Further, the Buyer acknowledges that the Seller is
currently undertaking to sell some of those businesses. The Buyer hereby agrees
that the Seller's (and its subsidiaries') continued operation of their
businesses as they are currently operated following the Closing and the Seller's
continuing efforts to sell certain of its businesses will not give rise to a
breach of the representations and warranties contained herein or a default under
this Agreement.
SECTION 10.14 CERTAIN DEFINITIONS.
(a) As used in this Agreement, "Affiliate" of a person or
entity shall mean: (i) any other person or entity directly, or indirectly
through one or more intermediaries, controlling, controlled by, or under common
control with such person or entity, (ii) any officer, director, partner,
employee, or direct or indirect beneficial owner of 10% or greater of the equity
or voting interests of such person or entity, or (iii) any other person or
entity for which a person or entity described in clause (ii) acts in such
capacity.
(b) "Company Employees" means present or former employees of
the Company.
(c) The term "Disclosure Schedule" means the schedules,
including all attachments to all schedules, attached hereto and, together with
all exhibits hereto, part hereof. The Disclosure Schedule will be arranged in
paragraphs corresponding to the applicable lettered and numbered sections and
subsections of this Agreement. Matters listed once on the Disclosure Schedule
shall be deemed disclosed with reference to all sections, subparts and
subdivisions of the Disclosure Schedule and all Sections of Articles 2 and 3 of
this Agreement, to the extent the subject matter of any item is applicable and
reference to such subject matter is made. Any capitalized and undefined term
used in the Disclosure Schedule shall have the same meaning assigned to such
term herein. Unless expressly labeled within the Disclosure Schedule as being
"material", the description or listing of a matter, event or thing within the
Disclosure Schedule (whether in response for a description or listing of
material items or otherwise) shall not be deemed an admission or acknowledgment
that such matter, event or thing is "material" for purposes of determining
termination or indemnification based on materiality. Matters reflected in the
Disclosure Schedule are not necessarily limited to matters required by this
Agreement to be reflected in the Disclosure Schedule. Such additional matters
are set forth for informational purposes only and do not necessarily include
other matters of a similar nature.
(d) "Employee Benefit Plan" means each benefit plan sponsored
or maintained by the Company, the Seller or any of their Affiliates in which
Company Employees participate.
(e) "GAAP" means generally accepted accounting principals
applied on a consistent basis, with respect to the Seller and the Company, in
the United States, and with respect to the Buyer, in England or Israel as the
case may be.
(f) As used in this Agreement, the phrase "to the Seller's
Knowledge" and phrases of like kind or import shall mean to the actual knowledge
of those officers of the Seller or the Company listed as "Knowledge Officers" on
Schedule 10.14 hereto, as of the date of this Agreement or the date as of which
a particular representation or warranty is given based on the such Knowledge.
46
48
(g) As used in this Agreement, the phrase "Material Adverse
Effect" shall mean, with respect to an entity, any change, circumstances or
effect or any breach of the provisions of this Agreement that, individually or
in the aggregate with all other changes, circumstances and effects or breaches,
is or would reasonably be expected to be materially adverse to (a) the business
condition or results of operations of such entity and its subsidiaries taken as
a whole, or (b) the ability of such party to consummate the transactions
contemplated by this Agreement. Notwithstanding the foregoing, any change,
circumstance or effect relating (i) to the economy or financial markets in
general, (ii) any industry in which the Company operates in general not
specifically relating to the Company or (iii) to applicable law shall not
constitute a Material Adverse Effect on the Company.
(h) "Ordinary Course of Business" means the ordinary course of
business consistent with past practice, including with respect to quantity and
frequency.
(i) "Person" means an individual, corporation, partnership,
limited liability company or other entity or association.
(j) "Taxes" means all taxes, charges, fees, imposts, levies or
other assessments of any kind, including, without limitation, all income, gross
receipts, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation, and property
taxes, customs duties, fees, assessments and charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority (domestic or foreign), including any
transferee liability in respect of taxes and any liability under any tax
sharing, tax indemnity, tax allocation or similar agreement (whether or not
written).
47
49
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives in the United States of
America as of the date first above written.
WORLD ACCESS, INC.
By: /s/ Xxxx X. Xxxxxx
-----------------------------------
Xxxx X. Xxxxxx
EVP and Chief Financial Officer
BATM ADVANCED COMMUNICATIONS LIMITED
By: /s/ Ofer Bar-Ner
-----------------------------------
Ofer Bar-Ner
Chief Financial Officer
