ASSET PURCHASE AGREEMENT

Exhibit 10.1

ASSET PURCHASE AGREEMENT

by and between

TEVET PROCESS CONTROL TECHNOLOGIES LTD.

and

NANOMETRICS-ISRAEL LTD.

(a wholly owned subsidiary of Nanometrics Incorporated)

DATED AS OF: MAY 7, 2008

TABLE OF CONTENTS

 

 

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ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT is entered into as of May 7, 2008, by and between NANOMETRICS-ISRAEL LTD. (“ Buyer ”), a company formed under the laws of Israel and a wholly-owned subsidiary of Nanometrics Incorporated, and TEVET PROCESS CONTROL TECHNOLOGIES LTD ., a company formed under the laws of Israel (“ Seller ”).

RECITAL

The parties hereto desire that Seller sell, transfer and assign to Buyer, and that Buyer purchase from Seller, substantially all of the assets and business of Seller, excluding only the Retained Assets (as defined below), and assume certain liabilities, all on the terms and subject to the conditions set forth in this Agreement.

In order to induce Buyer to enter into this Agreement and cause the transactions contemplated hereunder to be consummated, concurrently with the execution and delivery of this Agreement the shareholders of the Seller listed on Schedule A and the Seller are executing a Shareholder Support and Voting Agreement in the form set out in Exhibit A in favor of Parent and granting an irrevocable proxy to a mutually-agreed-upon proxy holder, pursuant to which each such shareholder is undertaking certain obligations and irrevocably directing the proxy holder to vote all securities of the Seller directly or beneficially owned by it in favor of the approval of this Agreement and the transactions contemplated hereunder.

In consideration of the respective representations, warranties, covenants and agreements contained herein, and subject to the terms and conditions set forth herein, the parties hereto, intending to be legally bound, agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01 Specific Definitions . As used in this Agreement, the following terms shall have the meanings set forth below:

“ Affiliate ” of a specified person (natural or juridical) means a person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the person specified. “ Control ” in this context means (i) ownership of more than fifty percent (50%) of the shares of stock entitled to vote for the election of directors in the case of a corporation, and more than fifty percent (50%) of the voting power in the case of a business entity other than a corporation, or (ii) the possession, directly or indirectly, of the power to affirmatively direct, or affirmatively cause the direction of, the management and policies of a specified person, whether through the ownership of voting securities, by contract or otherwise.

“ Assets ” means all the assets, properties, rights, interests, claims and business as of the Closing of Seller of every kind, nature and description, wherever located, whether now owned or hereafter acquired, whether tangible or intangible, real, personal or mixed, absolute or contingent, known or unknown, including, but not limited to:

(i) all business, financial, legal, regulatory, tax and other books, records (computer or otherwise), files, lists and data (including customer and supplier lists, files related to Business Intellectual Property and personnel records regarding employees other than Terminated Employees), reports, plans, drawings and operating records, customer service histories, warehouse and other Inventories;

 

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(ii) all rights under Contracts;

(iii) all manufacturing-related assets, benches, molding, machinery, equipment, fixtures, office furniture, tools, automobiles, other vehicles, computers, printers, copiers, telecopy machines and other tangible property held, owned or leased;

(iv) all Inventories, spare parts, service tools, instruments and supplies;

(v) all causes of action, judgments, settlements, claims, indemnity, or other rights, including all rights to all claims or other causes of action, whether known or unknown, accrued or to accrue for past or present infringement or unauthorized use of Intellectual Property or otherwise with respect to monies or rights accruing to Seller, except for any causes of action, claims or other rights pertaining to the Retained Liabilities;

(vi) all Intellectual Property, all Intellectual Property licenses (granted to or by Seller or its Affiliates) required to make, have made, use, modify, sell or offer to sell any products currently commercialized by or being developed by Seller including, but not limited to, the Intellectual Property listed on Part 3.16 of the Disclosure Schedule;

(vii) all other intangible assets, including goodwill;

(viii) all Authorizations, registrations, licenses, approvals, certifications, permits and other similar requirements used in connection with the Business;

(ix) all available product brochures primarily related to products currently commercialized by Seller;

(x) any security interests, Liens or rights to repossess products or equipment sold by Seller; and

(xi) all accounts receivable and notes receivable; and

(xii) all unrestricted cash and cash equivalent assets of Seller in Seller’s banks or on hand.

Notwithstanding the foregoing, “Assets” shall not include any items included in the definition of “Retained Assets” in Section 2.02 below.

“ Business” means all of the business and operations of Seller as currently conducted and as currently contemplated to be conducted by Seller.

“ Contract” means any contract, note, evidence of indebtedness purchase or sale order, lease, license, instrument, commitment or other agreement to which Seller is a party or an assignee or other beneficiary thereof or by which the Seller is bound, whether written or oral.

“ Current Employees ” means all persons who immediately prior to the Closing are employees of Seller, including any such employee who is on short-term or long-term disability or other authorized leave of absence and is so identified in Part 3.18 of the Disclosure Schedule.

“ Employee Plans ” means any health care plan or arrangement; life insurance or other death benefit plan or arrangement; deferred compensation or other pension or retirement plan or arrangement; stock option, bonus or other incentive plan or arrangement; severance, change of control or early retirement plan or arrangement; or other fringe or employee benefit plan or arrangement; managers’ insurance; education fund [ keren hishtalmut ]; or any employment or consulting contract or executive compensation agreement; whether the same

 

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are written or otherwise, formal or informal, voluntary or required by law or by Seller’s policies or practices, for the benefit of or relating to any present or former employees, leased employees, consultants, agents, directors, and/or their dependents, of Seller, including, without limitation, any pension plan or similar plan (whether or not any of the foregoing is funded) (i) to which Seller is a party or by which Seller is bound, (ii) that Seller has at any time established or maintained for the benefit of or relating to any present or former employees, consultants, agents, directors, and/or their dependents, of Seller, or (iii) with respect to which Seller has made any payments or contributions in any of the last seven (7) years, or otherwise has any liability (including any such plan or other arrangement formerly maintained by Seller).

“ Environmental Laws ” means and includes any one or more of the following: (a) any municipal, local or other statute, law, ordinance or regulation that relates to or deals with Hazardous Substances, human health or the environment, all as they may be amended from time to time; and all regulations promulgated by a regulatory body pursuant to any of the foregoing statutes, laws, regulations, or ordinances; and (b) judgments, orders, decrees, injunctions, permits, concessions, grants, franchises, licenses or agreements, to the extent that either they relate to safety, human health, the environment or emissions, discharges, or releases of Hazardous Substances into the environment including ambient air, surface water, ground water, facilities, structures, or land, or otherwise relate to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, Hazardous Substances, or wastes or the investigation, clean-up, or other remediation thereof.

“ EVP Loan ” means the line(s) of credit or any other loans made available to the Seller by the European Venture Leasing Company Limited (“ EVP ”) under the terms of the Agreement for the Provision of a Loan Facility of US$1,500,000, between EVP and the Seller, dated November 16, 2005, and any amendments thereto.

“ EVP Liens ” means the Liens granted by the Seller or any of its Affiliates for the benefit of EVP pursuant to the terms of the EVP Loan.

“ Exclusivity Fee Advances ” means all amounts paid to the Seller by Buyer as “Exclusivity Fees” pursuant to Letter of Intent, dated April 6, 2008, entered into between Buyer and Seller.

“ Hazardous Substance ” means asbestos, urea formaldehyde, polychlorinated biphenyls, nuclear fuel or materials, chemical waste, radioactive materials, explosives, known carcinogens, petroleum products, pesticides, fertilizers, or any other substance that is dangerous, toxic, or hazardous, or that is a pollutant, contaminant, chemical, material or substance defined as hazardous or as a pollutant or contaminant in, or the use, transportation, storage, release or disposal of which is regulated by, any Environmental Laws.

“ Intellectual Property ” means any or all of the following and all rights in, arising out of, or associated therewith: (a) Israeli, United States, international and other patents and applications therefore and all divisions, continuations, continuations-in-part, renewals, extensions, revisions, reissues and re-examinations relative thereto, and all patents, applications, documents and filings claiming priority to or serving as a basis for priority thereof; (b) copyrights and all works of authorship including all translations, adaptations, combinations, compilations and derivations of each of the foregoing, whether or not registered; (c) registered and unregistered trademarks, trade names, brand names, service marks, service names, trade dress, logos and corporate names including all translations, adaptations, combinations and derivations thereof, together with all common law rights and

 

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all goodwill associated with each of the foregoing; (d) technology, know-how, methods, processes, systems, trade secrets, inventions (whether or not patentable, copyrightable or susceptible to any other form of legal protection and whether or not reduced to practice), proprietary data, formulae, research and development data, and confidential information (including conceptions, ideas, innovations, manufacturing, development and production techniques, drawings, specifications, designs, proposals, financial and accounting data, business and marketing plans, customer and supplier lists and related information and documentation), in each case irrespective of whether in human or machine readable form; (e) computer software (including both source and object code) and all related program listings and data, systems, user and other documentation; (f) mask works; (g) industrial designs; (h) databases and data collections and all rights therein; (i) Internet addresses, sites and domain names and numbers; (j) all applications, registrations, renewals and extensions for any and each of the foregoing throughout the world; and (k) any similar or equivalent rights to any of the foregoing anywhere in the world, and all other forms of right by which one may effectively exclude another from using or otherwise enjoying any and each of the foregoing.

“ Inventories ” means finished goods, raw materials and ingredients, work-in-process, consignment goods, wares, merchandise, wrapping, packing materials and similar items.

“ Key Employees ” means the employees listed on Schedule 7.09 .

“ knowledge ” of Seller means actual knowledge of the officers and directors of the Seller or, with respect to the representations and warranties set forth in Article III, the actual knowledge of any such persons and Pini Alezra and the knowledge that any of such persons would reasonably be expected to have assuming reasonable inquiry of any facts or circumstances actually known to and recognized by such person to create significant doubt concerning the accuracy of any representation, warranty, or statement without regard to any applicable “knowledge” qualifier.

“ Liens ” means liens, mortgages, charges (including fixed and/or floating charges), security interests, pledges or encumbrances.

“ Material Adverse Effect ” means any state of facts, change, effect, condition, development, event or occurrence that, individually or in the aggregate with other related effects, is or could reasonably be expected to be materially adverse to the business, results of operation or condition (financial or otherwise) of the Purchased Assets or the Business, considered as a whole, or is or could reasonably be expected to be materially adverse to the ability of Buyer to conduct the Business following the Closing as the Business is presently conducted or presently contemplated to be conducted by Seller, not including (i) changes in economic conditions or financial markets, (ii) changes in any applicable law or GAAP, (iii) changes in any regulatory or political conditions, or (iv) acts of war or terrorism (other than, in the case of (i), (iii) or (iv), any such changes having a disproportionate and adverse effect on the Purchased Assets or the Business.)

“ New Buyer Employees ” means the Current Employees employed by Buyer from and after the Closing.

“ OCS ” means Office of the Chief Scientist of the Israeli Ministry of Industry, Trade and Labor, a governmental entity established and existing under, inter alia , the Israeli R&D Law.

“ OCS Grants ” means the grants received by the Seller or its Affiliates in connection with the R&D Law and/or the OCS.

 

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“ Person ” means any individual and any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, cooperative, foundation, society, political party, union, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization or entity.

“ Prime Rate ” means, for any calendar quarter, the prime commercial lending rate quoted by US Bank National Association as in effect on the first day of such quarter.

“ Product Liability ” means any liability, claim or expense, including but not limited to attorneys’ fees and medical expenses, arising in whole or in part out of a breach of any express or implied product warranty, strict liability in tort, negligent manufacture of product, negligent provision of services, product recall, or any other allegation of liability arising from the design, testing, manufacture, packaging, labeling (including instructions for use), marketing, distribution or sale of products (whether for clinical trial purposes, commercial use or otherwise).

“ R&D Law ” means the Israeli Encouragement of Industrial and Development Law, 5744-1984, all related regulations, orders and rules, as well as published OCS policy.

“ Real Property Lease ” means the lease agreement, dated July 26, 2004, between Seller and Industrial Buildings Company Ltd., for the lease of property located in Yokneam, Israel.

“ Registered Intellectual Property ” means any or all of the following and all rights in, arising out of, or associated therewith: (a) Israeli, United States, international and other patents and applications therefore and all divisions, continuations, continuations-in-part, renewals, extensions, revisions, reissues and re-examinations relative thereto, and all patents, applications, documents and filings claiming priority to or serving as a basis for priority thereof; (b) registered trademarks, trade names, brand names, service marks, service names, trade dress, logos and corporate names including all translations, adaptations, combinations and derivations thereof (but excluding any common law rights and all goodwill associated with each of the foregoing); and (c) Internet addresses, sites and domain names.

“ Securities ” means shares, stock, options, phantom stock, warrants, convertible securities or other rights to acquire stock of Seller.

“ Specified Off Balance Sheet Liabilities ” means the following off balance sheet liabilities: (x) liabilities associated with the payment of salary for the period of advance notice required by law or contract (excluding payments resulting from “change of control” or “acceleration” provisions) or payment in lieu of the period of advance notice with respect to employees terminated by Seller in connection with the transaction contemplated by this Agreement, in the amount of $170,000 (one hundred seventy thousand U.S. dollars) (“ Advance Notice Liabilities ”); and (y) liabilities in connection with the termination by Seller of the Real Property Lease in the amount of $55,000 (fifty-five thousand U.S. dollars) (“ Lease Termination Liabilities ”.

“ Taxes” (and “Tax”) means all taxes, additions to tax, penalties, interest, linkage differentials [ hefreshei hatzmada ], fines, duties, withholdings, assessments, and charges assessed or imposed by any governmental authority, including but not limited to all Israeli, U.S. federal, national, state, county, local and foreign income, profits, gross receipts, import, ad valorem, real and personal property, franchise, license, sales, use, value added, stamp, transfer, withholding, payroll, employment, excise, custom, duty, and any other taxes, obligations and assessments of any kind whatsoever; the foregoing shall include, but not be limited to, any liability arising as a result of being (or ceasing to be) a member of any affiliated, consolidated, combined, or unitary group as well as any liability under any Tax allocation, Tax sharing, Tax indemnity or similar agreement.

 

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“ Transfer and Sales Taxes ” means all use taxes, stamp duty taxes, conveyance taxes, transfer taxes, filing fees, recording fees, prepayment fees or penalties, reporting fees and other similar duties, taxes and fees, if any, imposed upon, or resulting from, the transfer of the Purchased Assets or the Assumed Liabilities hereunder and the filing of any instruments relating to such transfer, including any sales tax, but not including Value Added Tax (“ VAT ”).

SECTION 1.02 Additional Definitions. The following table sets forth certain other defined terms and the Section of the Agreement in which the meaning of each such term appears:

 

 

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SECTION 1.03 Other Definitional Provisions; Interpretation. The words “hereof,” “herein,” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provisions of this Agreement. The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. References to an “Exhibit” or to a “Schedule” are, unless otherwise specified, to one of the Exhibits or Schedules attached to or referenced in this Agreement, and references to an “Article” or a “Section” are, unless otherwise specified, to one of the Articles or Sections of this Agreement. The term “person” includes any individual, partnership, joint venture, corporation, limited liability company, trust, unincorporated organization or government or any department or agency thereof and will also include its permitted successors and assigns. The term “ Dollars ” or “$” shall refer to the currency of the United States of America, and the term “ NIS ” shall refer to the currency of the State of Israel. All references to time shall refer to Tel Aviv, Israel time. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”. The term “or” is not exclusive. The word “extent” in the phrase “to the extent” means the degree to which a subject or other thing extends, and such phrase shall not mean simply “if”. Any agreement or instrument defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement or instrument as from time to time amended, modified or supplemented. This Agreement shall be construed without regard to any presumption or other rule requiring construction hereof against the party causing this Agreement to be drafted. Other terms may be defined elsewhere in the text of this Agreement and shall have the meaning indicated throughout this Agreement

ARTICLE II

PURCHASE AND SALE OF ASSETS

SECTION 2.01 Purchased Assets . Upon the terms and subject to the conditions set forth in this Agreement, effective as of the Closing, Seller hereby sells, transfers, assigns and conveys to Buyer, and Buyer hereby purchases, all of the Assets, other than the Retained Assets (the “ Purchased Assets ”), free and clear of all Liens.

 

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SECTION 2.02 Retained Assets . Seller hereby retains all of its respective right, title and interest in and to, and there shall be excluded from sale, assignment or transfer to Buyer hereunder, the following assets of Seller as of the Closing (the “ Retained Assets ”):

(a) this Agreement and the amounts, including any Exclusivity Fee Advances, to be received by Seller hereunder;

(b) all Contracts not specifically assumed by Buyer pursuant to Section 2.03(a);

(c) the originals of Seller’s minute books, share ledgers, share transfer records and tax returns, which, however, shall remain available for review and copying by Buyer upon reasonable request; and

(d) all rights, awards, insurance proceeds and similar assets or rights.

SECTION 2.03 Assumed Liabilities; Retained Liabilities .

(a) Assumed Liabilities . Upon the terms and subject to the conditions set forth in this Agreement, effective as of the Closing, Seller hereby assigns, transfers, and conveys to Buyer, and Buyer hereby assumes and agrees to pay and perform according to their respective terms those liabilities and obligations of Seller which are related to the Purchased Assets (including the Contracts) and the Business, provided that such liabilities and obligations are set forth (x) on Seller’s Financial Statements (excluding the Specified Off Balance Sheet Liabilities); or (y) in any Contract assumed by Seller or (z) on Schedule 2.03(a) of this Agreement (collectively, the “ Assumed Liabilities ”). For clarification purposes, the parties (i) confirm that as a result of the mechanism by which Seller will pay the EVP Loan Repayment Amount as set forth in Section 2.04(b)(v) below, the Closing Seller’s Financial Statements and the Assumed Liabilities will not include any amounts payable with respect to the EVP Loans and (ii) agree that the Assumed Liabilities will include :

(i) any amounts that may be due or payable to the OCS or under any OCS Grants; and

(ii) Product Liability or any other Liability with respect to products sold pursuant to Contracts assumed by Buyer (other than as specifically set forth in this Agreement).

(b) Retained Liabilities . The parties agree that Buyer is not, nor shall be considered, the successor to Seller, and that Buyer does not hereby agree to assume or become liable to pay, perform or discharge any obligation or liability whatsoever of Seller or relating to the Assets or any former or present employees of Seller, including those that may be hired by Buyer, except as expressly provided for in Section 2.03(a). Seller shall retain any liability or obligation of, or responsibility for any claim against, Seller or the Business, direct or indirect, known or unknown, absolute or contingent, not included in the Assumed Liabilities (the “ Retained Liabilities ”), and, notwithstanding anything to the contrary in the Agreement, none of the following shall be Assumed Liabilities (and each shall be included in the definition of “ Retained Liabilities ”):

(i) the obligations of Seller under this Agreement;

 

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(ii) any obligation, liability or claim that constitutes or arises from a breach by Seller of any representation, warranty, covenant or agreement contained in this Agreement;

(iii) any obligation, liability or claim that may arise from any lawsuits, actions or proceedings against Seller, except for a claim arising solely from an action carried out by Buyer subsequent to the Closing;

(iv) any obligation, liability or claim that may arise from any employee, or consultant (or any former employee or consultant), for any reason or actions, who is not a New Buyer Employee, including, (i) any claim or demand of a current or former employee relating to or arising as a result of employment, termination by Seller of the employment of such employee or consultants (or former employee or consultant), or an employment agreement, whether or not written, between Seller or its Affiliates and any Person, including, for this purpose, with respect to any Person claiming entitlements or benefits on the basis of a claimed employer-employee relationship between Seller and such Person, (ii) any liability under any Employee Plan at any time maintained, contributed to or required to be contributed to by or with respect to Seller or its Affiliates or under which Seller or its Affiliates may incur liability, or any contributions, benefits or liabilities therefor, or any liability with respect to Seller or its Affiliates’ withdrawal or partial withdrawal from or termination of any Employee Plan, (iii) any liability under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“ COBRA ”) arising as a result of any act or omission by Seller or its Affiliates, (iv) any liability of Seller or its Affiliates under the WARN Act, and any similar state, local U.S. or non-U.S. law or regulation, (v) any liability of Seller or its Affiliates for severance, accrued vacation and/or paid time and/or mandatory or customary payment and/or benefit and/or entitlement for employees of Seller or its Affiliates with respect to any Current Employees, and (vi) any claim of an unfair labor practice, or any claim under any state unemployment compensation or worker’s compensation law or regulation or under any federal, state or non-U.S. employment discrimination law or regulation, which shall have been asserted prior to the Closing Date or is based on acts or omissions by Seller which occurred prior to the Closing;

(v) any liability with respect to New Buyer Employees with respect to the period of time prior to the Closing Date unless such liability is expressly assumed by Buyer pursuant to this Agreement;

(vi) any and all Third Party Expenses (including, Transaction Expenses, Transaction Bonus Payments and Change in Control Payments) as such terms are defined in Section 5.09 below;

(vii) any other liability or obligation of, or claim against, Seller or the Business, of any kind or nature whatsoever, whether known or unknown, fixed or contingent, determined or determinable, due or not yet due, or otherwise, that is not expressly assumed by Buyer under this Agreement;

(viii) any liability of Seller or its Affiliates with respect to any Tax attributable to the Purchased Assets or the Business with respect to any pre-Closing Tax period, including any liability for the breach of the terms of any “approved enterprise” programs received by the Company which may result from the transactions contemplated by this Agreement;

(ix) any liability to the extent arising from any injury to or death of any person or damage to or destruction of any property, whether based on negligence, strict liability, enterprise liability or any other legal or equitable theory arising from defects in or use or misuse of products sold or from services performed by or on behalf of Seller or any other Person prior to the Closing Date;

 

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(x) except as expressly provided in this Agreement, any liability of Seller to the extent resulting from entering into, performing its obligations pursuant to or consummating the transactions contemplated by this Agreement;

(xi) any liability of Seller or its Affiliates that arises out of or relates to any Retained Asset;

(xii) any liability of Seller for the payment of fees or expenses of any broker or finder in connection with the origin, negotiation or execution of this Agreement or in connection with any transaction contemplated hereby; and

(xiii) the Specified Off Balance Sheet Liabilities.

SECTION 2.04 Purchase Price; Payment .

(a) Purchase Price . The total consideration for the Purchased Assets (the “ Purchase Price ”) shall be:

(i) Cash Payment . $3,525,000 (three million five hundred twenty-five thousand U.S. Dollars) (the “ Total Cash Payment ”) comprised of: (x) $2,856,000 (two million eight hundred fifty-six million U.S. dollars) (the “ Enterprise Value ”), plus (y) $225,000 (two hundred twenty-five thousand U.S. dollars) (the amount of the Specified Off Balance Sheet Liabilities); plus (z) $444,000 (four hundred forty-four thousand U.S. dollars) (the “ Baseline Net Asset Value ”), which is based on the Estimated Closing Balance Sheet attached hereto as Schedule 2.04(a)(i) (the “ Estimated Balance Sheet ”); and

(ii) Assumption of Liabilities . Buyer’s assumption of the Assumed Liabilities pursuant to Section 2.03(a).

(b) Payment of Purchase Price; EVP Loan; Exclusivity Fee Advances . The Purchase Price shall be payable as follows:

(i) Closing Consideration . At the Closing, Buyer shall transfer the Total Cash Payment less (w) the aggregate Exclusivity Fee Advances, (x) the EVP Loan Repayment Amount, (y) the Escrow Amount and (z) the Final Balance Sheet Adjustment Escrow Amount, as defined below (the “ Closing Payment ”) to a bank account designated by Seller.

(ii) Final Balance Sheet Adjustment Escrow Amount . Contemporaneously with the making of the Closing Payment, Buyer shall deposit $176,250 (one hundred seventy-six thousand two hundred fifty U.S. dollars) (the “ Final Balance Sheet Adjustment Escrow Amount ”) with ESOP Trust Company or such other escrow agent as shall be mutually agreed upon by the parties (the “ Escrow Agent ”), to be held by the Escrow Agent on behalf of Seller pursuant to an Escrow Agreement in a form to be agreed as soon as possible after the date of this Agreement and prior to the Closing (the “ Escrow Agreement ”) in order to secure the obligations of Seller, if any, under Section 2.04(b)(iv) to make payment of the Final Balance Sheet Adjustment (as defined in Section 2.04(d)). The Balance Sheet Adjustment Escrow Amount shall be held by the Escrow Agent and distributed in accordance with the terms of the Escrow Agreement.

 

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(iii) Escrow Amount . Contemporaneously with the making of the Closing Payment, Buyer shall deposit an additional $352,500 (three hundred fifty-two thousand five hundred U.S. dollars) (the “ Escrow Amount ”) with the Escrow Agent, to be held by the Escrow Agent on behalf of Seller pursuant to the Escrow Agreement in order to secure the obligations of Seller under Article IX. The Escrow Amount shall be held by the Escrow Agent and distributed in accordance with the terms of the Escrow Agreement.

(iv) Final Balance Sheet Adjustment . On a date determined in accordance with Section 2.04(c), the Escrow Agent shall release to Buyer and/or Seller, as the case may be, such amounts required to be released as a result of the calculation of the Final Balance Sheet Adjustment in accordance with the provisions of Section 2.04(e).

(v) EVP Loan and Liens . Prior to the Closing, Seller shall provide Buyer with a letter from EVP stating that upon payment of the sum stated in the letter (the “ EVP Loan Repayment Amount ”), the EVP Loan shall be repaid in full and EVP will remove any Liens securing the EVP Loan, including the EVP Liens. At the Closing, Buyer shall pay the EVP Loan Repayment Amount to EVP.

(c) Net Asset Value . Within 60 days after the Closing Date, Buyer shall cause to be prepared, at its expense, and delivered to Seller: (i) an audited balance sheet of the Seller as of the Closing Date (the “ Closing Date Balance Sheet ”) which sets forth the calculation of Seller’s total assets less the Seller’s total liabilities (the “ Net Asset Value ”), in each case as of the Closing Date (which, to avoid doubt will assume that the payment of the EVP Loan Repayment Amount has already occurred) and (ii) the opinion of Brukner-Ingbar CPA, or a similar firm of independent accountants selected by Buyer, on the Closing Date Balance Sheet, which opinion shall be unqualified as to the scope of audit. The Closing Date Balance Sheet will be prepared in accordance with Israeli GAAP as previously applied by Seller in the preparation of the Estimated Closing Balance Sheet (it being understood that liabilities to OCS and all other Specified Off Balance Sheet Liabilities and the amount of the aggregate Exclusivity Fee Advances will not be taken into consideration in the preparation of such Estimated Closing Balance Sheet or Closing Date Balance Sheet), which shall take into account any information not available to the parties at the time the Estimated Closing Balance Sheet was delivered, and the former officers of the Company shall provide such assistance in the preparation of the proposed Closing Date Balance Sheet as shall be reasonably requested by Buyer in connection with the delivery of the proposed Closing Date Balance Sheet. Buyer shall also deliver to Seller a worksheet which sets forth Buyer’s revised calculation of the net assets and an explanation of any changes made to Seller’s calculation of such amount. Buyer’s revised calculation of the net assets is referred to herein as the “ Proposed Closing Date Net Assets Calculation ” . The proposed Closing Date Balance Sheet and the Proposed Closing Date Net Assets Calculation will be deemed final if Seller either (i) agrees in writing by notice to Buyer or (ii) does not express in a written notice to Buyer a disagreement, in either case within 30 days after its receipt of such Closing Date Balance Sheet from Buyer. During the 30-day period following Buyer’s receipt of any such notice of disagreement, Buyer and Seller will negotiate in good faith to resolve their disagreement. Failing such resolution, the issues that remain in dispute will be examined and recalculated by independent accountants other than the firm that has rendered its opinion as described in this Section 2.04(c) provided that such examination and recalculation shall not constitute or entail an audit. The independent accountants shall be instructed to submit the results of their examination within thirty (30) calendar days. Any amounts so recalculated shall be final and binding on the parties. The independent accountants shall make a ratable allocation of their charges for such work as a part of their determination based on the proportion by which the amount in dispute was determined in favor of one party or the other.

 

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(d) Final Balance Sheet Adjustment . The “ Final Balance Sheet Adjustment ” shall be an amount equal to the difference between (I) the Baseline Net Asset Value and (II) the Net Asset Value of the Business as reflected on the Closing Date Balance Sheet.

(i) If the amount in clause (I) is less than the amount in clause (II), then (x) Buyer shall, within five business days after the Closing Date Balance Sheet becomes final as provided in Section 2.04(c), pay the Final Balance Sheet Adjustment to Seller and (y) the Escrow Agent shall release the entire amount of the Final Balance Sheet Adjustment Escrow Amount to Seller.

(ii) If the amount in clause (I) is greater than the amount in clause (II), then the Escrow Agent shall (x) release the Final Balance Sheet Adjustment to Buyer and (y) release the balance of the Final Balance Sheet Adjustment Escrow Amount to Seller. If the Final Balance Sheet Adjustment is greater than the Final Balance Sheet Adjustment Escrow Amount, the difference will be released by the Escrow Agent to Buyer out of the Escrow Amount.

(e) Purchase Price Adjustment . Any Final Balance Sheet Adjustment or indemnification payment under Article IX of this Agreement shall be treated for tax purposes as an adjustment of the total consideration paid for the Purchased Assets under this Agreement to the extent such characterization is proper and permissible under relevant Tax law and pursuant to the positions taken by the relevant Tax authorities.

SECTION 2.05 Taxes .

(a) Transfer and Sales Taxes . Seller shall promptly pay all Transfer and Sales Taxes.

(b) Israeli Value Added Tax . The Purchase Price is exclusive of Value Added Tax (“ VAT ”). Buyer shall be entitled to file a request pursuant to Section 20 of Israeli Value Added Tax Law with respect to the amounts payable buy it pursuant to this Agreement (the “ VAT Request ”). At Buyer’s request, Seller shall cooperate with Buyer in preparing and filing the VAT Request. If the VAT Request is not approved by the Closing, the applicable VAT, to the extent required to be paid, shall be paid by Buyer to the Seller at any time after the date on which the Purchase Price is payable in accordance with this Agreement, but not later than two (2) business days prior to the date upon which Seller is required to remit the applicable VAT to the Israeli VAT authorities, against receipt by Buyer of a valid VAT invoice from the Seller.

(c) Withholding . Buyer shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to Seller such amounts as the Buyer is required to deduct and withhold under applicable Tax law, with respect to the making of such payment. To the extent that amounts are so withheld by Buyer, such withheld amounts shall be paid by Buyer to the applicable Tax Authority and, upon such payment, shall be treated for all purposes of this Agreement as having been paid to Seller. Buyer will not pay any such withheld amounts to the applicable Tax Authority earlier than one (1) business day prior to the date such amounts are required to be paid. If, prior to or at the Closing, Seller delivers to Buyer a certificate from the Israeli Tax Authority evidencing an exemption from withholding of Taxes, or a reduced rate of withholding, which shall be applicable, valid and in effect as of the Closing, Buyer shall honor such withholding tax exemption or reduction.

 

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SECTION 2.06 Purchase Price Allocation . Prior to the Closing the parties will attach as Schedule 2.06 an allocation of the Purchase Price among the Purchased Assets. The allocation shall be agreed to by Seller and Buyer after arm’s-length negotiations. Seller and Buyer will, to the extent permitted by applicable law, adopt and utilize the amounts allocated to each asset or class of assets, as such allocations may be adjusted pursuant to this Section 2.06, for purposes of all Israeli and U.S. federal, state, local and other tax returns or reports, in any claim for refund, or otherwise with respect to such tax returns or reports.

SECTION 2.07 Closing .

(a) The consummation of the purchase and sale of the Purchased Assets provided for herein (the “ Closing ”) shall take place at 10:00 a.m. (local time) within three (3) business days after the conditions to closing set forth in Article VII and Article VIII have been satisfied or waived in writing, or on such other date and/or at such other time as the parties hereto may agree upon (the “ Closing Date ”). The Closing shall take place (i) at the offices of Yigal Arnon & Co., 22 Rivlin Street, Jerusalem, Israel or (ii) on the mutual agreement of the parties, by delivery via facsimile or email transmission (with originals sent via overnight courier service) of the documents to be delivered at the Closing and wire transfer of the payments to be made in accordance with Sections 2.04(a) and 2.04(b), or (iii) at such other place or in such other manner as the parties hereto may agree.

(b) All proceedings taken and all documents executed and delivered by the parties hereto at the Closing shall be deemed to have been taken and executed simultaneously and no proceedings shall be deemed taken nor any documents executed or delivered until all have been taken, executed and delivered.

SECTION 2.08 Alternative Arrangements . Notwithstanding anything contained herein or in any agreement or certificate executed and delivered in connection with the transactions contemplated hereby to the contrary, neither this Agreement nor any such agreement or certificate shall constitute an agreement to assign any Contract, permit or any claim or right or any benefit arising thereunder or resulting therefrom if an attempted assignment thereof, without the consent of a third party thereto, would constitute a default thereof. If such consent is not obtained, or if an attempted assignment thereof would be ineffective or would affect the rights thereunder so that Buyer would not receive all such rights, Seller shall, at the expense of Buyer, use commercially reasonable efforts to effect alternative arrangements in the form of a license, sublease, or operating agreement in form and substance reasonably satisfactory to Buyer and Seller until such time as such consent or approval has been obtained that results in Buyer receiving substantially all of the benefits under and bearing all the ordinary course costs, liabilities and other obligations with respect to any such Contract or permit. Upon obtaining the requisite third party consent thereto, each such non-assignable Contract or permit shall be transferred and assigned to Buyer.

 

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ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

Except as set forth on the disclosure schedule (the “ Disclosure Schedule ”), Seller represents and warrants to Buyer as set forth in this Article III. Seller will use all reasonable efforts to deliver the Disclosure Schedule to the Buyer at least four (4) Business Days prior to the estimated date of execution of this Agreement. Notwithstanding any other provision of this Agreement or such Disclosure Schedule, each exception set forth in the Disclosure Schedule will be deemed to qualify only each representation and warranty set forth in this Agreement (i) that is specifically identified (by cross-reference or otherwise) in the Disclosure Schedule as being qualified by such exception, or (ii) with respect to which the relevance of such exception is readily apparent on the face of the disclosure of such exception set forth in the Disclosure Schedule.

SECTION 3.01 Listing of Certain Assets and Data . Attached hereto as Schedule 3.01(a) through Schedule 3.01(g) are true and complete lists of the matters set forth in the following subsections of this Section 3.01, including in each case all written or oral agreements or understandings and all amendments and modifications, if any, to each such Contract, document or other instrument referenced or described (including, in the case of oral arrangements, a written description of all material terms thereof).

(a) Real Property . Schedule 3.01(a) sets forth a description of all real property owned, leased or subject to option by Seller or otherwise used by Seller in the conduct of its business. Prior to the date of this Agreement, Seller has delivered to Buyer true and complete copies of all purchase agreements, finance agreements, leases, options, title abstracts, insurance, licenses, permits, and other material documents relating to such real property that it has in its possession or control.

(b) Equipment . Schedule 3.01(b) sets forth a list of all material items of machinery, equipment, molding, benches, tools and dies, furniture, fixtures, spare parts, vehicles and other similar property and assets owned or leased by Seller or used in the conduct of the Business, setting forth with respect to all such listed property a summary description of all Liens relating thereto, specifically identifying and describing those items with remaining total lease or conditional sales payments or other payments due by Seller in excess of $20,000, identifying the parties thereto, the rental or other payment terms, expiration date and cancellation and renewal terms thereof. Prior to the date of this Agreement, Seller has delivered to Buyer true and complete copies of all currently effective leases, conditional and other sales agreements and any other similar documents concerning the items listed in Schedule 3.01(b) .

(c) Certain Agreements, etc . Schedule 3.01(c) sets forth a list of each of the following Contracts, written or otherwise, to which Seller is a party or by which it is bound (other than Contracts furnished pursuant to other subsections of this Section 3.01):

(i) any research and development agreement, joint development agreement, OEM, or other supply agreement whereby products or components are developed or made by or for Seller;

(ii) any joint venture or franchise agreement, and any purchase or disposition agreement and related significant agreements involving the acquisition or disposition of any products or process, or business by Seller;

(iii) any Contract for the purchase of any services, raw materials, supplies or equipment or other goods, including outstanding purchase orders, involving remaining payments estimated at more than $20,000;

 

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(iv) any Contract for the sale of assets, products or services that is in any way not yet performed and involving remaining payments estimated at more than $20,000;

(v) any dealer, distributor, broker, agent, sales representative or similar Contract by Seller for the sale of any products, identifying which Contracts might create any liability to Buyer or Seller if the right to sell or distribute new products is not offered by Seller or Buyer pursuant thereto or which cannot be terminated upon less than 90 days’ notice, without cause, by Seller or Buyer without liability to Seller or Buyer;

(vi) any Contract not made in the ordinary course of business of Seller, or any other Contract that has or could reasonably be expected to have a Material Adverse Effect;

(vii) any Contract (A) restricting Seller from engaging, participating, or competing with any other Person, in any line of business, market or geographic area, or to make use of any Intellectual Property; (B) granting most favored nation pricing, exclusive sales, distribution, marketing or other exclusive rights, rights of first refusal or rights of first negotiation to any other Person; or (C) otherwise limiting the right of Seller to sell, distribute or manufacture any products or services related thereto;

(viii) any Contract of indemnification or warranty, other than (A) under Seller’s unmodified forms of standard customer/distribution agreements, the forms of which have been made available to Buyer or its counsel, or (B) warranties implied by Law;

(ix) any Contract pursuant to which Seller has acquired or divested a business or entity, or all or substantially all of the assets of a business or entity, whether by way of merger, consolidation, purchase of stock, purchase or sale of assets, license or otherwise;

(x) any Contract between Seller and any governmental entity;

Prior to the date of this Agreement, Seller has delivered to Buyer true and complete copies of all Contracts identified in Schedule 3.01(c) . Such copies contain all the terms of the agreements, understandings and arrangements between the parties thereto with respect to the subject matter thereof.

(d) Permits, Licenses, Etc . Schedule 3.01(d) sets forth a list of all material Authorizations, permits, licenses, notifications, registrations, approvals or similar permissions. Prior to the date of this Agreement, Seller has delivered to Buyer true and complete copies of all permits, licenses, notifications, registrations, approvals or other documents identified in Schedule 3.01(d) .

(e) Loans and Credit Agreements, Etc . Schedule 3.01(e) sets forth a list of all outstanding notes, bonds, debentures, loans or other credit agreements or arrangements, escrow agreements, security agreements, mortgages, deeds of trust, guaranties, pledges, conditional or installment purchase agreements involving remaining payments in excess of $20,000, letters of credit and any other instruments evidencing indebtedness, written or otherwise, to which Seller is a party (as lender, borrower, or guarantor) or which affect or relate to its property or Assets. Prior to the date of this Agreement, Seller has delivered to Buyer true and complete copies of all documents identified in Schedule 3.01(e) .

 

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(f) Insurance Policies and Claims . Schedule 3.01(f) sets forth a list of all policies of insurance maintained by or for the benefit of Seller with respect to Seller and covering its officers, directors, employees, agents, properties, buildings, machinery, equipment, furniture, fixtures or operations and a description of each claim made by or for the benefit of Seller under any such policy of insurance within the past three years, describing such claim and the amount thereof. Prior to the date of this Agreement, Seller has delivered to Buyer true and complete copies of all policies of insurance identified in Schedule 3.01(f) , and true and complete copies of all documentation regarding claims made thereunder.

(g) Employee Plans . Schedule 3.01(g) sets forth a list of all Employee Plans and any related insurance or other contracts and trust and custodial agreements. Prior to the date of this Agreement, Seller has delivered to Buyer true and complete copies of all Employee Plans and all employee agreements or policies for the last three years.

SECTION 3.02 Organization . Seller is a limited private company duly organized, and validly existing under the laws of the State of Israel. Seller has all necessary power and authority to own its properties and assets and conduct the business presently being conducted by it.

SECTION 3.03 Subsidiaries . Except as set forth in Schedule 3.03 , Seller does not have any interest, direct or indirect, in any other business, corporation, joint venture, partnership, proprietorship or other entity. Except as set forth in Schedule 3.03, none of the business of Seller is conducted through, and none of the Purchased Assets is owned by or through, any direct or indirect subsidiary or Affiliate of Seller.

SECTION 3.04 Authority . Seller has full power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery by Seller of this Agreement and other agreements contemplated hereby to which Seller is a party, and the consummation by Seller of the transactions hereby and thereby, have been duly and validly authorized by Seller’s Board of Directors and shareholders, no other action of Seller’s Board of Directors or shareholders, or corporate proceedings on the part of Seller or its Affiliates, is necessary to authorize this Agreement and no other action of Seller’s Board of Directors or shareholders, or corporate action on the part of Seller or its Affiliates, is necessary to consummate the transactions contemplated hereby except for the execution of documents and instruments and application for consents and approvals contemplated by this Agreement. This Agreement has been duly authorized by Seller and duly executed and delivered by Seller, and constitutes a legal, valid and binding agreement of Seller enforceable against it in accordance with its terms. Except as disclosed in Schedule 3.04 or Schedule 3.11 , neither the execution and delivery of this Agreement nor compliance by Seller with its terms and provisions will violate (i) any provision of the articles of association or other governing instruments of Seller, (ii) any Contract to be transferred to Buyer or any permit or license of Seller, or (iii) any law, statute, regulation, or, to the best of Seller’s knowledge, injunction, order or decree of any government agency or authority or court to which Seller or any of the Purchased Assets is subject.

SECTION 3.05 Financial Statements . Attached hereto as Schedule 3.05 are true and complete copies of audited financial statements of Seller, including balance sheets at December 31, 2007 and statements of earnings for the fiscal years then ended (“ Seller Audited Financial Statements ”); and an unaudited balance sheet (the “ Interim Balance Sheet ”) at March 31, 2008 and statement of earnings for the three (3) month period then

 

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ended (the “ Interim Income Statement ” and together with the Interim Balance Sheet, the “ Interim Financial Statements ”) (all of the above financial statements collectively referred to as the “ Seller’s Financial Statements ”). The Seller Audited Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied. All the Seller’s Financial Statements are true and correct in all material respects and fairly and accurately present the assets, liabilities (including all reserves) and financial position of the Seller as of the dates thereof and the results of operations, shareholders’ equity (deficit) and changes in cash flows of the Seller for the periods then ended, except that the un-audited Interim Financial Statements do not contain footnotes or comparisons to the financial results of prior periods and are subject to normal year-end adjustments. The Seller’s Financial Statements are in accordance with the books and records of Seller. The books and records of the Company are stated in reasonable detail and accurately reflect in all material respects all information relating to the Business, the nature, acquisition, disposition, maintenance, location and collection of its assets and properties, and the nature of all transactions giving rise to its obligations, including accounts payable, and rights, including accounts receivable. There were no changes in the method of application of the Seller’s accounting policies or changes in the method of applying the Seller’s use of estimates in the preparation of the un-audited Interim Financial Statements.

SECTION 3.06 Absence of Undisclosed Liabilities . There are no debts, liabilities, or obligations, of any nature, of Seller, the Business or the Purchased Assets, except: (i) to the extent expressly set forth or reserved against in the Seller’s Financial Statements; or (ii) as specifically set forth in Schedule 3.06 of the Disclosure Schedule. Since the date of the Interim Financial Statements, there has not been any Material Adverse Effect.

SECTION 3.07 Absence of Certain Changes and Events . Except as reflected in the Interim Financial Statements, since the date of the Interim Financial Statements, Seller has not:

(a) made any material change in the accounting methods or practices it follows other than as required by Law or GAAP;

(b) made any capital expenditures or commitments exceeding $20,000 per expenditure or commitment, or $50,000 in the aggregate in respect of the Business;

(c) sold, assigned, transferred or licensed any patents, trademarks, trade names, copyrights, trade secrets or other intangible assets, in each case used in connection with the Business, except nonexclusive licenses in the ordinary course of business consistent with past practice;

(d) sold, leased, licensed, transferred, or otherwise disposed of any of its properties or assets primarily used in the Business, except Inventory sold or transferred in the ordinary course of business consistent with past practice and obsolete or worn out equipment sold or otherwise disposed of in a manner consistent with past practice which was not otherwise material (individually or in the aggregate) to the Business, or canceled any material indebtedness or waived any material claims or rights of material value;

 

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(e) suffered any damage to or destruction or casualty of (whether or not covered by insurance) any asset individually or in the aggregate material to the operation of the Business;

(f) failed to pay any creditor any amount arising from the operation of the Business owed to such creditor when due, other than good faith disputes and trade payables arising in the ordinary course of business and not past due more than sixty (60) days;

(g) failed to discharge or satisfy any Lien on any of the Purchased Assets, at or prior to the time that the obligation with respect to such Lien became due;

(h) defaulted on any material obligation relating to the conduct or operation of the Business without curing such default;

(i) granted any allowances or discounts with respect to the Business outside the ordinary course of business consistent with past practice or sold Inventory materially in excess of reasonably anticipated consumption for the near term outside the ordinary course of business consistent with past practice;

(j) incurred or assumed