UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2016

 

Commission file number: 001-33886

 

ACORN ENERGY, INC.

(Exact name of registrant as specified in charter)

 

Delaware

(State or other jurisdiction of incorporation or organization)

 

22-2786081

(I.R.S. Employer Identification No.)

     

3844 Kennett Pike, Wilmington, Delaware

(Address of principal executive offices)

 

19807

(Zip Code)

 

302-656-1707

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [  ] Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class   Outstanding at May 12, 2016
Common Stock, $0.01 par value per share   27,791,178

 

 

 

 
 

 

ACORN ENERGY, INC.

Quarterly Report on Form 10-Q

for the Quarterly Period Ended March 31, 2016

 

TABLE OF CONTENTS

 

    PAGE
PART I Financial Information  
     
Item 1. Unaudited Condensed Consolidated Financial Statements:  
     
Condensed Consolidated Balance Sheets as of December 31, 2015 and March 31, 2016 1
     
Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 and 2016 2
     
Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2015 and 2016 3
     
Condensed Consolidated Statement of Changes in Equity for the three months ended March 31, 2016 4
     
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2016 5
     
Notes to Condensed Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
     
Item 4. Controls and Procedures 36
     
PART II Other Information  
     
Item 6. Exhibits 37
     
Signatures 38

 

Certain statements contained in this report are forward-looking in nature. These statements are generally identified by the inclusion of phrases such as “we expect”, “we anticipate”, “we believe”, “we estimate” and other phrases of similar meaning. Whether such statements ultimately prove to be accurate depends upon a variety of factors that may affect our business and operations. Many of these factors are described in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

 

 
 

 

PART I

 

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

ACORN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

 

    As of
December 31, 2015
    As of
March 31, 2016
 
ASSETS                
Current assets:                
Cash and cash equivalents   $ 124     $ 63  
Restricted deposits     2,172       1,749  
Escrow deposit     100       50  
Accounts receivable, net of provisions for doubtful accounts of $20 and $22 at December 31, 2015 and March 31, 2016, respectively     6,389       5,551  
Unbilled revenue     3,849       4,515  

Inventory, net

    506       602  
Other current assets     1,633       1,857  
Current assets – discontinued operations     1,079       316  
Total current assets     15,852       14,703  
Property and equipment, net     954       874  
Severance assets     3,558       3,756  
Restricted deposits     2,951       2,643  
Goodwill     516       535  
Other assets     470       354  
Non-current assets – discontinued operations     29        
Total assets   $ 24,330     $ 22,865  
LIABILITIES AND EQUITY                
Current liabilities:                
Short-term bank credit and current maturities of long-term debt   $ 1,916     $ 1,902  
Leap Tide loan payable, net of discount     1,900       1,940  
Director loans           375  
Accounts payable     2,346       2,895  
Accrued payroll, payroll taxes and social benefits     1,320       2,118  
Deferred revenue     5,251       4,078  
Other current liabilities     2,260       2,651  
Current liabilities – discontinued operations     1,827       2,000  
Total current liabilities     16,820       17,959  
Long-term liabilities:                
Accrued severance     4,984       5,222  
Other long-term liabilities     849       822  
Non-current liabilities – discontinued operations     19       16  
Total long-term liabilities     5,852       6,060  
Commitments and contingencies                
Equity:                
Acorn Energy, Inc. shareholders                
Common stock - $0.01 par value per share:                
Authorized – 42,000,000 shares; Issued –28,127,511 shares at December 31, 2015 and March 31, 2016     281       281  
Additional paid-in capital     98,977       99,194  
Warrants     1,597       1,600  
Accumulated deficit     (97,191 )     (100,166 )
Treasury stock, at cost – 801,920 shares at December 31, 2015 and March 31, 2016     (3,036 )     (3,036 )
Accumulated other comprehensive loss     (262 )     (244 )
Total Acorn Energy, Inc. shareholders’ equity (deficiency)     366       (2,371 )
Non-controlling interests     1,292       1,217  
Total equity (deficiency)     1,658       (1,154 )
Total liabilities and equity   $ 24,330     $ 22,865  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1
 

 

ACORN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

 

    Three months ended
March 31,
 
    2015     2016  
Revenues:                
Projects   $ 2,966     $ 3,818  
Products     225       435  
Services     519       508  
Total revenues     3,710       4,761  
Cost of sales:                
Projects     2,179       2,658  
Products     169       341  
Services     120       131  
Total cost of sales     2,468       3,130  
Gross profit     1,242       1,631  
Operating expenses:                
Research and development expenses, net of credits     410       365  
Selling, general and administrative expenses     2,322       2,625  
Total operating expenses     2,732       2,990  
Operating loss     (1,490 )     (1,359 )
Finance expense, net           (273 )
Loss before income taxes     (1,490 )     (1,632 )
Income tax (expense) benefit     33       (8 )
Net loss from continuing operations     (1,457 )     (1,640 )
Loss from discontinued operations, net of income taxes     (1,477 )     (1,386 )
Net loss     (2,934 )     (3,026 )
Non-controlling interest share of net loss – continuing operations     20       51  
Non-controlling interest share of net loss – discontinued operations     145        
Net loss attributable to Acorn Energy, Inc. shareholders   $ (2,769 )   $ (2,975 )
                 
Basic and diluted net loss per share attributable to Acorn Energy, Inc. shareholders:                
Continuing operations   $ (0.06 )   $ (0.06 )
Discontinued operations     (0.05 )     (0.05 )
Total attributable to Acorn Energy, Inc. shareholders   $ (0.11 )   $ (0.11 )
Weighted average number of shares outstanding attributable to Acorn Energy, Inc. shareholders – basic and diluted     26,476       27,325  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2
 

 

ACORN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

(IN THOUSANDS)

 

   

Three months ended

March 31,

 
    2015     2016  
             
Net loss attributable to Acorn Energy, Inc. shareholders   $ (2,769 )     (2,975 )
Other comprehensive income (loss):                
Foreign currency translation adjustments     (68 )     19  
Comprehensive loss     (2,837 )     (2,956 )
Comprehensive income attributable to non-controlling interests     (2 )     (1 )
Comprehensive loss attributable to Acorn Energy, Inc. shareholders   $ (2,839 )     (2,957 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3
 

 

ACORN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

(IN THOUSANDS)

 

    Acorn Energy, Inc. Shareholders              
    Number of Shares     Common Stock     Additional Paid-In Capital     Warrants     Accumulated Deficit     Treasury Stock     Accumulated Other Comprehensive Income (Loss)     Total Acorn Energy, Inc. Shareholders’ Equity (Deficit)     Non-controlling interests     Total Equity (Deficit)  
Balances as of December 31, 2015     28,128     $ 281     $ 98,977     $ 1,597     $ (97,191 )   $ (3,036 )   $ (262 )   $ 366     $ 1,292     $ 1,658  
Net loss                             (2,975 )                 (2,975 )     (51 )     (3,026 )
Differences from translation of subsidiaries’ financial statements                                         18       18       1       19  
Accrued dividend in OmniMetrix preferred shares                                                     (25 )     (25 )
Warrants issued                 (3 )     3                                      
Stock option compensation                 220                               220             220  
Balances as of March 31, 2016     28,128     $ 281     $ 99,194     $ 1,600     $ (100,166 )   $ (3,036 )   $ (244 )   $ (2,371 )   $ (1,217 )   $ (1,154 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4
 

 

ACORN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(IN THOUSANDS)

 

    Three months ended
March 31,
 
    2015     2016  
Cash flows used in operating activities:                
Net loss   $ (2,934 )   $ (3,026 )
Adjustments to reconcile net loss to net cash used in operating activities (see Schedule A)     1,931      

2,304

 
Net cash used in operating activities – continuing operations     (1,003 )    

(722

)
Net cash used in operating activities – discontinued operations     (1,535 )    

(401

)
Net cash used in operating activities     (2,538 )    

(1,123

)
Cash flows provided by (used in) investing activities:                
Acquisitions of property and equipment     (80 )     (24 )
Restricted deposits     (98 )     (82 )
Release of restricted deposits    

99

     

818

 
Release of escrow deposits           50  
Amounts funded for severance assets     (91 )     (69 )
Net cash provided by (used in) investing activities – continuing operations     (170 )     693  
Net cash used in investing activities – discontinued operations            
Net cash provided by (used in) investing activities     (170 )     693  
Cash flows provided by (used in) financing activities:                
Short-term credit, net     382       16  
Proceeds from loans from directors           375  
Repayments of long-term debt     (32 )     (32 )
Net cash provided by financing activities – continuing operations     350       359  
Net cash used in financing activities – discontinued operations     (270 )     (17 )
Net cash provided by financing activities     80       342  
                 
Effect of exchange rate changes on cash and cash equivalents – continuing operations           3  
Effect of exchange rate changes on cash and cash equivalents – discontinued operations     (59 )     51  
                 
Net decrease in cash and cash equivalents     (2,687 )    

(34

)
Cash and cash equivalents at the beginning of the year – discontinued operations     192       48  
Cash and cash equivalents at the beginning of the year – continuing operations     4,681       124  
Cash and cash equivalents at the end of the period – discontinued operations   142       75  
Cash and cash equivalents at the end of the period – continuing operations   $ 2,044     $ 63  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5
 

 

ACORN ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(IN THOUSANDS)

 

      Three months ended
March 31,
 
      2015     2016  
A. Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
  Loss from discontinued operations   $ 1,477     $

1,386

 
  Depreciation and amortization     75      

72

 
  Increase in accrued severance     109      

67

 
  Accretion of Leap Tide discount          

40

 
  Stock-based compensation     208      

220

 
  Deferred taxes    

(33)

     

15

 
  Other     10       35  
  Change in operating assets and liabilities:                
  Decrease (increase) in accounts receivable, unbilled revenue, other current and other assets     (223        54 
  Decrease (increase) in inventory     1      

(96

)
  Decrease in deferred revenue     (449 )    

(1,174

)
  Increase in accounts payable, accrued payroll, payroll taxes and social benefits, other current liabilities and other liabilities     756      

1,685

 
      $ 1,931     $

2,304

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6
 

 

NOTE 1— BASIS OF PRESENTATION AND LIQUIDITY

 

The accompanying unaudited condensed consolidated financial statements of Acorn Energy, Inc. and its subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. All dollar amounts in the notes to the condensed consolidated financial statements are in thousands except for per share data.

 

Certain reclassifications have been made to the Company’s condensed consolidated financial statements for the three month period ended March 31, 2015 to conform to the current period’s condensed consolidated financial statement presentation. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

The Company currently does not have sufficient cash flow for the next twelve months. As of March 31, 2016, the Company had less than $50 of non-escrow corporate cash and cash equivalents. On April 21, 2016, the Company closed on the sale of a portion of its interests in DSIT and received gross proceeds of $4,913 before escrow ($579), Israeli withholding taxes ($266) and fees (see Note 12 – Subsequent Events). On April 29, 2016, the Company repaid all principal ($2,000) and interest ($15) due to Leap Tide as well as $275 of principal and $41 of interest due to directors who had lent the Company money in the first quarter of 2016 (see Note 12 - Subsequent Events). Remaining cash after these debt repayments will be used to support the corporate cash needs of Acorn and its subsidiaries to the extent possible.

 

Additional liquidity will be necessary to finance the operating activities of Acorn and the operations of its OmniMetrix subsidiary. The Company will continue to pursue sources of funding, which may include loans from related and/or non-related parties, a sale or partial sale of one or more of its companies, finding a strategic partner for one or more of the Company’s businesses or equity financings. There can be no assurance additional funding will be available at terms acceptable to the Company. There can be no assurance that we will be able to successfully utilize any of these possible sources to provide additional liquidity. If additional funding is not available in sufficient amounts, Acorn will not be able to fund its own corporate activities during the next twelve months, which could materially impact its ability to continue operations, and the Company may not be able to fund OmniMetrix as it has historically, which could materially impact its carrying value. As such, these factors raise substantial doubt as to the Company’s ability to continue as a going concern.

 

7
 

 

NOTE 2—RECENT AUTHORITATIVE GUIDANCE

 

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-15 “Presentation of Financial Statements—Going Concern,” outlining management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern, along with the required disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016 with early adoption permitted. The Company does not anticipate a material impact to our financial statements as a result of this change.

 

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 changes the presentation of debt issuance costs in financial statements, by requiring them to be presented in the balance sheet as a direct deduction from the related debt liability, rather than as an asset. Amortization of the costs is reported as interest expense. There is no change to the current guidance on the recognition and measurement of debt issuance costs. For public business entities, ASU 2015-03 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The Company does not expect ASU 2015-03 to have a material impact on its consolidated financial statements.

 

In January 2016, the FASB issued ASU 2016-01 “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted under certain circumstances.” The Company is currently assessing the impact of ASU 2016-01 on its financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. Under Accounting Standards Update 2016-02, lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right-to-use asset, which is an asset that represents the lessee’s right to use or control the use of a specified asset for the lease term.  The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which includes multiple provisions intended to simplify various aspects of the accounting for share-based payments, including treatment of excess tax benefits and forfeitures, as well as consideration of minimum statutory tax withholding requirements. The ASU will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early application permitted in any interim or annual period. The Company is evaluating the future impact of this ASU on the consolidated financial statements.

 

Other relevant recently issued accounting updates are not expected to have a material impact on the Company’s consolidated financial statements.

 

8
 

 

NOTE 3— Discontinued Operations

 

(a) GridSense

 

On April 21, 2016, the Company announced that it has decided to cease operations of its GridSense subsidiary and initiate the liquidation of the GridSense assets. As a result of this decision, GridSense is being reported as a discontinued operation effective with the Company’s first quarter 2016 report. Following the decision to cease GridSense operations, the Company has written down all GridSense assets to their estimated realizable values and has accrued for estimated severance costs of $140 and lease commitments of $100 in GridSense’s first quarter results. The Company intends to sell its GridSense assets and is exploring ways to maximize value for creditors and other stakeholders, expecting that most of the proceeds from any sale of its assets will be used to pay creditors. It is uncertain whether there will be any proceeds available to the Company.

 

Assets and liabilities related to the discontinued operations of GridSense are as follows:

 

    As at  
    December 31, 2015     March 31, 2016  
             
Cash and cash equivalents   $ 48     $ 75  
Other current assets and non-current assets     1,060       241  
   Total assets   $ 1,108     $ 316  
Short-term bank credit   $ 138     $ 121  
Accounts payable     950       978  
Accrued payroll, payroll taxes and social benefits     186       303  
Other current and non-current liabilities     572       614  
   Total liabilities   $ 1,846     $ 2,016  

 

GridSense had a working agreement with its bank to allow GridSense to borrow against 80% of certain accounts receivable balances up to $750 for a period of one year (to July 16, 2016) at an interest equal to 1.25% per month. At December 31, 2015, GridSense was utilizing approximately $138 of its accounts receivable line. At March 31, 2016, GridSense was utilizing approximately $121 of its accounts receivable line.

 

GridSense granted a lien to its bank on substantially all of its assets other than intellectual property. GridSense further promised not to grant a lien on its intellectual property to any other party, nor commit to any such party to abstain from giving a lien.

 

GridSense’s losses for the three months ended March 31, 2015 and 2016 are included in “Loss from discontinued operations, net of income taxes” in the Company’s Condensed Consolidated Statements of Operations. Summarized financial information for GridSense’s operations for the three months ended March 31, 2015 and 2016 are presented below:

 

9
 

 

   

Three months ended

March 31,

 
    2015     2016  
Revenues   $ 908     $ 143  
Gross profit (loss)   277     (30 )
Net loss   $ (325 )   $ (1,386 )

 

(b) US Seismic Systems Inc. (“USSI”)

 

In early 2015, the Company’s Board of Directors decided that it would no longer continue to fund USSI’s activities following the significant decline in oil prices which led to significantly reduced demand for USSI’s products. At that time, USSI effectively suspended operations and terminated substantially all employees.

 

On September 28, 2015, the Board of Directors of USSI approved a motion to file a voluntary petition for protection under Chapter 7 of the United States Bankruptcy Code (a “Chapter 7 Bankruptcy”). Such filing was made on September 30, 2015. Under a Chapter 7 Bankruptcy, control of USSI no longer rests with the Company, but rather with a court-appointed trustee. Accordingly, effective September 30, 2015, the Company is no longer consolidating the assets, liabilities or operating results of USSI.

 

USSI’s losses for the three months ended March 31, 2015 are included in “Loss from discontinued operations, net of income taxes” in the Company’s Condensed Consolidated Statements of Operations. Summarized financial information for USSI’s operations for the three months ended March 31, 2015 is presented below:

 

   

Three months ended

March 31, 2015

 
Revenues   $  
Gross profit   (90 )
         
Net loss   (1,152 )
Net loss attributable to non-controlling interests     145  
 Net loss attributable to Acorn Energy Inc.   $ (1,007 )

 

10
 

 

NOTE 4— RESTRUCTURING AND RELATED CHARGES

 

In 2013, OmniMetrix restructured its operations to better align expenses with revenues following a change in management. The restructuring involved employee severance and termination benefits as well as a charge for a significant reduction in the utilization of its leased facility in Buford and a write-down of a majority of the remaining book value of leasehold improvements associated with the leased facility. At December 31, 2015, $204 of lease payments associated with the reduced utilization of leased facilities remained unpaid. During the three months ended March 31, 2016, OmniMetrix paid $11 of this liability. The total remaining accrued restructuring balance of $193 is expected to be paid in full by December 31, 2019 and is included in Other current liabilities ($46) and Other liabilities ($147) in the Company’s condensed consolidated balance sheets.

 

11
 

 

NOTE 5—INVENTORY, NET

 

The composition of inventory is as follows:

 

    As of
December 31, 2015
    As of
March 31, 2016
 
Raw materials   $ 287     $ 362  
Work-in-process     189       189  
Finished goods     30       51  
    $ 506     $ 602  

 

At both December 31, 2015 and March 31, 2016, the Company’s inventory reserve was $22.

 

12
 

 

NOTE 6—GOODWILL

 

The changes in the carrying amount of goodwill in the Company’s Energy & Security Sonar Solutions segment from December 31, 2015 to March 31, 2016 was as follows:

 

    Total  
Balance at December 31, 2015   $ 516  
Translation adjustment     19  
Balance at March 31, 2016   $ 535  

 

Following the closing of the DSIT Transaction (see Note 12 – Subsequent Events), the Company will no longer be consolidating the results of DSIT, but will be reporting on its investment in DSIT on the equity method. Accordingly, beginning with the Company’s second quarter 2016 report, the Company will no longer be including goodwill from its Energy & Security Sonar Solutions segment on the Company’s condensed consolidated balance sheets.

 

13
 

 

NOTE 7— Loans from Directors

 

In January 2016, the Company borrowed a total of $300 ($200 from one director and $100 from another director) under promissory notes which were to mature three days following the receipt of proceeds from the closing of the DSIT Transaction. In March 2016, the Company borrowed, on similar terms, an additional $75 from another director. Upon maturity, the Company was to pay to each director a single payment equal to 115% of the amounts borrowed under the promissory notes. Under the terms of each promissory note, at maturity, the lender could elect to convert the entire amount due under the promissory note into Common Stock of the Company at a conversion price equal to the closing price of the Company’s Common Stock on the trading day immediately preceding the maturity date of the loan. The lender of the most recent loan has agreed to lend the Company up to an additional $75 upon request by the Company under similar terms. All the above notes were repaid in full or converted to the Company’s common shares following the closing of the DSIT Transaction – see Note 12 - Subsequent Events.

 

14
 

 

NOTE 8—CHANGE OF SENIOR MANAGEMENT

 

(a) Resignation of the Company’s President and CEO

 

Effective January 28, 2016, the Company’s President and CEO (John A. Moore) tendered his resignation to the Board. The Board determined that such resignation was for “Good Reason” as such term is defined under Mr. Moore’s Employment Agreement. Accordingly, commencing on or about July 28, 2016 and continuing until on or about July 27, 2017, the Company shall make aggregate severance payments to Mr. Moore of $425. The Company shall make such severance payment in accordance with its regular payroll practices. In addition, the Company will reimburse Mr. Moore up to an aggregate of $17 over the twelve-month period from February 2016 to January 2017 for the costs associated with Mr. Moore’s medical insurance. The above amounts have been accrued for at March 31, 2016 and are included in Selling, general and administrative expenses in the Company’s unaudited condensed consolidated Statements of Operations. In addition, in accordance with his Employment Agreement, all of Mr. Moore’s unvested options become vested as of the date of his resignation.

 

(b) Appointment of new President and CEO

 

Effective January 28, 2016, Acorn engaged Jan H. Loeb to be the Company’s President and CEO under a consulting agreement (the “Consulting Agreement”) with a company (the “Consultant”) managed by Mr. Loeb. Under the Consulting Agreement, the Consultant is to be paid a monthly fee of $17 for the term of the Consulting Agreement (through January 7, 2017). Pursuant to the Consulting Agreement, on March 16, 2016, Acorn issued to the Consultant, for nominal consideration, warrants exercisable for 35,000 shares of Acorn common stock. The exercise price of the warrants is $0.13 per share. One-fourth of the warrants are immediately exercisable; the remainder becomes exercisable in equal increments on each of June 16, 2016, September 16, 2016 and December 16, 2016. The warrants expire on the earlier of (a) March 16, 2023 and (b) 18 months from the date Mr. Loeb ceases to be a director, officer, employee or consultant of Acorn.

 

15
 

 

NOTE 9—EQUITY

 

(a) Acorn Stock Options

 

A summary of stock option activity for the three months ended March 31, 2016 is as follows:

 

   

 

 

Number

of Options

(in shares)

   

Weighted

Average

Exercise

Price Per Share

    Weighted Average Remaining Contractual Life    

 

 

Aggregate Intrinsic Value

 
Outstanding at December 31, 2015     2,364,918     $ 3.51                  
Granted                            
Exercised                            
Forfeited or expired     (66,666 )   $ 3.70                  
Outstanding at March 31, 2016     2,298,252     $ 3.50       5.1 years     $  
Exercisable at March 31, 2016     2,186,583     $ 3.58       5.0 years     $  

 

In connection with the January 28, 2016 resignation of the Company’s then President and CEO (John A. Moore), all of Mr. Moore’s unvested options at that time became fully vested.

 

(b) Stock-based Compensation Expense

 

Stock-based compensation expense included in Selling, general and administrative expenses in the Company’s Condensed Statements of Operations for the three month periods ended March 31, 2015 and 2016 was $208 and $220, respectively. In addition, $6 was recorded in the Company’s USSI subsidiary included in Discontinued Operations for the three month period ended March 31, 2015. See Note 3(b).

 

(c) Warrants

 

The Company previously issued warrants at exercise prices equal to or greater than market value of the Company’s common stock at the date of issuance. A summary of warrant activity follows:

 

   

Number

of Warrants

(in shares)

    Weighted Average Exercise Price Per Share     Weighted Average Remaining Contractual Life  
Outstanding at December 31, 2015     2,619,423     $ 1.48          
Granted     35,000       0.13          
Exercised                    
Forfeited or expired                    
Outstanding at March 31, 2016     2,654,423     $ 1.46       3.9 years  

 

The fair value of the warrants granted ($0.08 per warrant during the three months ended March 31, 2016) was estimated on the grant dates using the Black-Scholes option-pricing model with the following weighted average assumptions:

 

Risk-free interest rate     1.79%
Expected term of warrants     7.0 years
Expected annual volatility     78%
Expected dividend yield     —%

  

(d) Vested Share Rights – see Subsequent Events (Note 12)

 

16
 

 

NOTE 10—FAIR VALUE MEASUREMENTS

 

Financial items measured at fair value are classified in the table below in accordance with the hierarchy established in applicable accounting principles.

 

    As at March 31, 2016  
    Level 1     Level 2     Level 3     Total  
Restricted deposits – current   $ 1,749     $     $     $ 1,749  
Restricted deposits –non-current     2,643                   2,643  
Derivative assets     122                   122  
Total   $ 4,514     $     $     $ 4,514  

 

    As at December 31, 2015  
    Level 1     Level 2     Level 3     Total  
Restricted deposits – current   $ 2,172     $     $     $ 2,172  
Restricted deposits –non-current     2,951                   2,951  
Derivative liabilities     (4 )                 (4 )
Total   $ 5,119     $     $     $ 5,119  

 

Current restricted deposits are comprised of security deposits with respect to various performance and bank guarantees provided in the normal course of business for DSIT’s operations that are expected to be released by March 31, 2017. DSIT has also provided $2,643 of security deposits for guarantees that are expected to be released through the middle of 2018.

 

Level 1 derivative assets and liabilities are related to forward contracts for the purchase of New Israeli Shekels for which market prices are readily available. Unrealized gains or losses from forward contracts are recorded in Finance income (expense), net.

 

17
 

 

NOTE 11—SEGMENT REPORTING

 

The Company currently operates in two reportable operating segments:

 

  Energy & Security Sonar Solutions. The Company provides sonar and acoustic related solutions for energy, defense and commercial markets with a focus on underwater site security for strategic energy installations and other advanced acoustic systems and real-time embedded hardware and software development and production through its DSIT Solutions Ltd. (“DSIT”) subsidiary. (See below)
     
 

Power Generator Monitoring (“PGM”) (formerly known as Machine-to-Machine Critical Asset Monitoring & Control). The PGM segment provides wireless remote monitoring and control systems and services for critical assets as well as Internet of Things applications. These activities are performed through the Company’s OmniMetrix subsidiary.

 

Other operations include certain IT activities (protocol management software for cancer patients and billing software) and outsourced consulting activities performed by the Company’s DSIT subsidiary as well as Corrosion Protection Monitoring activities performed by the Company’s OmniMetrix subsidiary (for remote monitoring of cathodic protection systems on gas pipelines for gas utilities and pipeline companies) that do not meet the quantitative thresholds under applicable accounting principles.

 

Previously, the Company reported GridSense’s activities in its Smart Grid Distribution Automation segment which developed and produced fiber optic sensing systems for the energy and security markets. With the suspension of operations at GridSense (see Note 3(a)), its activities are reflected as discontinued operations.

 

Following the closing of the DSIT Transaction (see Note 12 – Subsequent Events), beginning with the Company’s second quarter 2016 report, the Company will no longer be consolidating the results of DSIT, but will be reporting on its investment in DSIT on the equity method. Accordingly, beginning with the Company’s second quarter 2016 report, the Company will no longer be reporting on the results of its Energy & Security Sonar Solutions segment.

 

    Energy & Security Sonar Solutions     PGM     Other     Total  
Three months ended March 31, 2016                                
Revenues from external customers   $ 3,582     $ 667     $ 512     $ 4,761  
Intersegment revenues                          
Segment gross profit     1,133       333       165       1,631  
Depreciation and amortization     43       16       12       71  
Segment net income (loss) before income taxes     67       (239 )    

(26

)     (198 )
                                 
Three months ended March 31, 2015                                
Revenues from external customers   $ 2,660     $ 553     $ 497     $ 3,710  
Intersegment revenues                        
Segment gross profit     605       340       297       1,242  
Depreciation and amortization     45       18       11       74  
Segment net income (loss) before income taxes     (294 )     (278 )     105       (467 )

 

18
 

 

Reconciliation of Segment Income (Loss) to Consolidated Net Loss Before Income Taxes

 

   

Three months ended March 31,

 
    2015     2016  
Total net loss before income taxes for reportable segments   $ (572 )   $ (172 )

Other operational segment net income (loss) before income taxes

    105       (26 )
Total segment net loss before income taxes     (467 )     (198 )
Unallocated cost of corporate headquarters*     (1,033 )     (1,419 )
Unallocated benefit (cost) of DSIT headquarters     10       (15 )
Consolidated loss before income taxes   $ (1,490 )   $ (1,632 )

 

* Includes stock compensation expense of $208 and $220 for the three month periods ended March 31, 2015 and 2016, respectively. The three month period ended March 31, 2016 also includes $460 of salary and associated costs and medical insurance associated with the resignation of Mr. Moore and $250 of interest expense to Leap Tide and directors.

 

19
 

 

NOTE 12 — SUBSEQUENT EVENTS

 

Sale of interest in DSIT

 

On April 21, 2016, the Company closed on a transaction (the “DSIT Transaction”) initially entered into on January 28, 2016 for the sale of a 50% interest in its DSIT Solutions, Ltd. business to Rafael Advanced Defense Systems Ltd., a major Israeli defense company. At closing, Acorn received gross proceeds of $4,913 before escrow, fees and taxes. From the gross proceeds, Acorn deposited approximately $579 to satisfy the escrow requirements in the sale. The Company will be able access those funds, net of any disbursements, in October 2017. Acorn also paid an Israeli withholding tax of approximately $266. Acorn is also eligible to receive its pro-rata share of a $1,000 earn-out over a three-year period. Following the sale, Acorn owns approximately 41.2% of DSIT.

 

The Unaudited Pro Forma Condensed Consolidated Statements of Operations below (the “Pro Forma Statements of Operations”) have been prepared as if the DSIT Transaction had occurred at the beginning of each period presented. These Pro Forma Statements of Operations eliminate the historical consolidated statements of operations of DSIT from the consolidated operations of the Company for the three months periods ended March 31, 2016 and 2015 and give effect to unaudited pro forma adjustments necessary to account for the sale.

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months Ended March 31, 2016

(in thousands, except per share data)

 

    Acorn consolidated     Less DSIT     Pro Forma Adjustments     Note     Pro Forma  
Sales   $ 4,761     $ (3,920 )                   $ 841  
Cost of sales     3,130       (2,714 )                     416  
   Gross profit     1,631       (1,206 )                     425  
Total operating expenses     2,990       (1,145 )                     1,845  
   Operating income     (1,359 )     61                     (1,420 )
Finance expense, net     (273 )     14       (5 )     (1 )     (264 )
   Loss before taxes on income     (1,632 )     47     (5 )             (1,684 )
Income tax expense     (8 )     8                       --  
Loss before equity income     (1,640 )     39                     (1,684 )
 Equity income in DSIT     --       --       18       (2 )     18  
   Net loss from continuing operations     (1,640 )     39     13               (1,666 )
Loss from discontinued operations, net of income taxes     (1,386 )     --                       (1,386 )
Net loss     (3,026 )     39     13               (3,052 )
 Non-controlling share of loss – continuing operations     51       (6 )                     57  
 Net loss attributable to Acorn Energy Inc., shareholders   $ (2,975 )   $ (33 )   $ 13             $ (2,995 )
                                         
                                         
                                         
Basic and diluted net loss per share attributable to Acorn Energy, Inc. shareholders:                                        
   From continuing operations   $ (0.06 )   $ (0.00 )                   $ (0.06 )
   From discontinued operations     (0.05 )     (0.00 )                     (0.05 )
Basic and diluted net loss per share attributable to Acorn Energy, Inc. shareholders   $ (0.11 )   $ (0.00 )                   $ (0.11

 

)

 

  20  
 

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months Ended March 31, 2015

(in thousands, except per share data)

 

    Acorn consolidated     Less DSIT     Pro Forma Adjustments     Note     Pro Forma  
Sales   $ 3,710     $ (3,037 )                   $ 673  
Cost of sales     2,468       (2,233 )                     235  
Gross profit     1,242       (804 )                     438  
Total operating expenses     2,732       (978 )                     1,754  
Operating loss     (1,490 )     (174 )                     (1,316 )
Finance expense, net                                  
Loss before taxes on income     (1,490 )     (174 )                     (1,316 )
Income tax expense     33       (33 )                      
Loss before equity loss     (1,457 )     (141 )                     (1,316 )
Equity loss in DSIT                 (58 )     (2 )     (58 )
Net loss from continuing operations     (1,457 )     (141 )     (58 )             (1,374 )
Loss from discontinued operations, net of income taxes     (1,477 )                           (1,477 )
Net loss     (2,934 )     (141 )     (58 )             (2,851 )
Non-controlling share of loss – continuing operations     20       (20 )                      
Non-controlling share of loss – discontinued operations     145                             145  
Net loss attributable to Acorn Energy Inc., shareholders   $ (2,769 )   $ (121 )     (58 )           $ (2,706 )
                                         
Basic and diluted net loss per share attributable to Acorn Energy, Inc. shareholders:                                        
From continuing operations   $ (0.06 )   $ 0.01                   $ (0.05 )
From discontinued operations     (0.05 )                           (0.05 )
Basic and diluted net loss per share attributable to Acorn Energy, Inc. shareholders   $ (0.11 )   $ 0.01                   $ (0.10 )

 

(1) – Represents the Company’s interest expense to DSIT for the period

 

(2) – Represents equity loss in DSIT for the period

 

The Unaudited Pro Forma Condensed Consolidated Balance Sheet below (the “Pro Forma Balance Sheet”) has been prepared as if the DSIT Transaction occurred on March 31, 2016. This Pro Forma Balance Sheet eliminates the consolidated assets and liabilities of DSIT from the condensed consolidated balance sheet of the Company as at March 31, 2016 and gives effect to unaudited pro forma adjustments necessary to account for the sale and subsequent repayments of debt.

 

  21  
 

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

As of March 31, 2016

(in thousands, except per share data)

 

    Acorn consolidated     Less DSIT     Pro Forma Adjustments     Note     Pro Forma  
Cash, cash equivalents and escrow   $ 113     $ (5 )   $ 2,166       (1 )   $

2,274

 
Other current assets     14,590       (12,660 )                     1,930  
   Total current assets     14,703       (12,665 )     2,166               4,204  
Investment in DSIT     --       --       5,397       (2 )     5,397  
Other non-current assets     8,162       (7,605 )       --                 557  
   Total assets   $ 22,865     $ (20,270 )   $ 7,563             $ 10,158  
                                         
Current liabilities   $ 17,959     $ (9,507 )   $ (2,405 )     (3 )   $ 6,047  
Non-current liabilities     6,060       (5,249 )     874       (3 )     1,685  
   Total liabilities     24,019       (14,756 )     (1,531 )            

7,732

 
Total Acorn Energy, Inc. shareholders’ equity (deficiency)     (2,371 )     --        

3,951

      (4 )    

1,580

 
Non-controlling interests     1,217       --         (371 )     (5 )     846  
   Total equity (deficiency)     (1,154 )     --        

3,580

              2,426  
   Total liabilities and equity   $ 22,865     $

(14,756

)   $

2,049

            $ 10,158  

 

(1) – Represents the gross proceeds from the DSIT Transaction ($4,913) less taxes of $266 and excluding transaction costs, less repayment of the Leap Tide loan and accrued interest ($2,050) and the Director Loans and interest ($431).

 

(2) – Represents the equity investment in DSIT following the DSIT Transaction

 

(3) – Represents amounts due to DSIT ($16) less the repayment of the Leap Tide loan and accrued interest and Director Loans and interest noted above and the elimination of the remaining discount ($40) associated with the Leap Tide loan.

 

(4) – Represents net adjustments in the Company’s shareholder equity as a result of the DSIT Transaction

 

(5) – Represents the elimination of non-controlling interests associated with DSIT

 

Repayment of Leap Tide Loan

 

On August 13, 2015, the Company executed a Loan and Security Agreement with Leap Tide Capital Partners III, LLC (“Leap Tide”), pursuant to which the Company borrowed $2,000 from Leap Tide (the “LT Loan”). Jan H. Loeb, the Company’s new President and CEO (see Note 8) is the Manager of Leap Tide. Principal and accrued interest was due and payable on August 13, 2016. Interest accrued and was payable quarterly at a rate of 10% per annum. On April 29, 2016, following the receipt of the net proceeds from the DSIT Transaction, the Company repaid in full the $2,000 of principal and all accrued interest in full satisfaction of the cash due to Leap Tide under the LT Loan.

 

In addition to the interest payable in cash described above, Leap Tide received 850,000 shares of the Company’s common stock (the “Initial Shares”) at the closing and was entitled to vested rights to receive 179,167 additional shares of the Company’s common stock (each vested right to receive one share, a “Vested Share Right”) per month for each full month that the full principal amount of the LT Loan was outstanding. The number of Vested Share Rights that accrued in a given month was prorated to the extent less than the full principal amount was outstanding and/or for any partial month in which no principal amount was outstanding. Leap Tide is entitled to receive the Company’s common stock underlying its Vested Share Rights after the expiration of the Cash Settlement Period (defined below). Through April 29, 2016, Leap Tide earned 1,531,396 Vested Share Rights.

 

  22  
 

 

Under the terms of the LT Loan, the Company may on or prior to 30 days after the repayment of the LT Loan (such 30-day period being referred to herein as the “Cash Settlement Period”) repurchase any or all Initial Shares and settle any or all Vested Share Rights accrued under the LT Loan for cash in lieu of stock. The cash repurchase/settlement price would be $0.30 for each Initial Share so repurchased and each Vested Share Right so settled. The Company does not expect to repurchase any of the Initial Shares or settle any of the accrued Vested Share Rights for cash.

 

Repayment of Loans from Directors

 

On April 29, 2016, following the receipt of the net proceeds from the DSIT Transaction, the Company repaid in full $275 ($200 from one director and $75 from a another director) under promissory notes plus interest equal to 15% of the amounts borrowed under the promissory notes.

 

In addition, a third director who had lent the Company $100 under similar terms, elected to convert the principal and $15 of interest due into Common Stock of the Company. In accordance with the terms of the promissory note, the director received 465,587 shares of Common Stock of the Company.

 

  23  
 

 

ACORN ENERGY, INC.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion includes statements that are forward-looking in nature. Whether such statements ultimately prove to be accurate depends upon a variety of factors that may affect our business and operations. Certain of these factors are discussed in this report and in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

FINANCIAL RESULTS BY COMPANY

 

The following table shows, for the periods indicated, the financial results (dollar amounts in thousands) attributable to each of our consolidated companies.

 

    Three months ended March 31, 2016  
    DSIT     OmniMetrix     Acorn     Total Continuing Operations  
Revenues   $ 3,920     $ 841     $     $ 4,761  
Cost of Sales     2,714       416             3,130  
Gross profit     1,206       425             1,631  
Gross profit margin     31 %     51 %             34 %
R& D expenses, net of credits     288       77             365  
Selling, general and administrative expenses     857       596       1,172       2,625  
Operating income (loss)   $ 61     $ (248 )   $ (1,172 )   $ (1,359 )

 

    Three months ended March 31, 2015  
    DSIT     OmniMetrix     Acorn     Total Continuing Operations  
Revenues   $ 3,037     $ 673     $     $ 3,710  
Cost of Sales     2,233       235             2,468  
Gross profit     804       438             1,242  
Gross profit margin     26 %     65 %           33 %
R& D expenses, net of credits     267       143             410  
Selling, general and administrative expenses     711       578       1,033       2,322  
Operating loss   $ (174 )   $ (283 )   $ (1,033 )   $ (1,490 )

 

BACKLOG

 

As of March 31, 2016, our backlog of work to be completed was as follows (amounts in millions of U.S. dollars):

 

DSIT Solutions   $ 20.6  

OmniMetrix (deferred revenue)

    2.3  
Total   $ 22.9  

 

  24  
 

 

RECENT DEVELOPMENTS

 

Sale of interest in DSIT

 

On April 21, 2016, we closed on a transaction (the “DSIT Transaction”) initially entered into on January 28, 2016 for the sale of nearly 50% of our interest in our DSIT Solutions, Ltd. business to Rafael Advanced Defense Systems Ltd., a major Israeli defense company. At closing, we received gross proceeds of approximately $4.9 million before escrow, fees and taxes. From the gross proceeds, we deposited approximately $579,000 to satisfy the escrow requirements in the sale. We will be able access those funds, net of any disbursements, in October 2017. We also paid an Israeli withholding tax of approximately $266,000. We are also eligible to receive our pro-rata share (approximately 82.4%) of a $1.0 million earn-out over a three-year period. Following the sale, we own approximately 41.2% of DSIT with DSIT management owning approximately 8.8% and Rafael owning 50%. Beginning with our 10-Q report for the three month period ending June 30, 2016, we will no longer be consolidating the results of DSIT, but rather will be reporting the results of DSIT using the equity method of accounting.

 

Repayment of the Leap Tide Loan

 

On April 29, 2016, following the receipt of the net proceeds from the DSIT Transaction, we repaid in full the $2.0 million of principal and approximately $15,000 of accrued interest (since April 1, 2016) in full satisfaction of the cash due to Leap Tide Capital Partners III, LLC (“Leap Tide”) under the Leap Tide loan.

 

In addition to the interest payable in cash described above, Leap Tide received 850,000 shares of our common stock (the “Initial Shares”) at the closing and was entitled to vested rights to receive 179,167 additional shares of our common stock (each vested right to receive one share, a “Vested Share Right”) per month for each full month that the full principal amount of the Leap Tide loan was outstanding. The number of Vested Share Rights that accrued in a given month was prorated to the extent less than the full principal amount was outstanding and/or for any partial month in which no principal amount was outstanding. Leap Tide is entitled to receive the common stock underlying its Vested Share Rights after the expiration of the Cash Settlement Period (defined below). Through April 29, 2016, Leap Tide earned 1,531,396 Vested Share Rights.

 

Under the terms of the Leap Tide loan, we may on or prior to 30 days after the repayment of the loan (such 30-day period being referred to herein as the “Cash Settlement Period”) repurchase any or all Initial Shares and settle any or all Vested Share Rights accrued under the Leap Tide loan for cash in lieu of stock. The cash repurchase/settlement price would be $0.30 for each Initial Share so repurchased and each Vested Share Right so settled. We do not expect to repurchase any of the Initial Shares or settle any of the accrued Vested Share Rights for cash.

 

Repayment of Loans from Directors

 

On April 29, 2016, following the receipt of the net proceeds from the DSIT Transaction, we repaid in full $275,000 ($200,000 from one director and $75,000 from a another director) under promissory notes plus interest equal to 15% of the amounts borrowed under the promissory notes.

 

In addition, a third director who had lent us $100,000 under similar terms, elected to convert the principal and $15,000 of interest due into our Common Stock. In accordance with the terms of the promissory note, the director received 465,587 shares of our Common Stock.

 

  25  
 

 

Liquidation of GridSense

 

On April 21, 2016, we announced that we decided to cease operations of our GridSense subsidiary and initiate the liquidation of the GridSense assets. As a result of this decision, GridSense is being reported as a discontinued operation effective with our first quarter 2016 report. Following the decision to cease GridSense operations, we have written down all GridSense assets to their estimable realizable values and have accrued for estimated severance costs of $140,000 and lease commitments of $100,000 in GridSense’s first quarter results. We intend to sell GridSense’s assets and are exploring ways to maximize value for creditors and other stakeholders, expecting that most of the proceeds from any sale of its assets will be used to pay creditors. It is uncertain whether there will be any proceeds available to us.

 

OVERVIEW AND TREND INFORMATION

 

Acorn Energy, Inc. (“Acorn” or “the Company”) is a holding company focused on technology driven solutions for energy infrastructure asset management. Each of our two businesses is focused on helping its customers achieve greater productivity, reliability, security and efficiency.

 

Through our majority operating subsidiaries, we provide the following services and products:

 

Energy & Security Sonar Solutions. We provide sonar and acoustic related solutions for energy, defense and commercial markets with a focus on underwater site security for strategic energy installations and other advanced acoustic systems and real-time embedded hardware and software development and production through our DSIT Solutions Ltd. (“DSIT”) subsidiary.

 

● Power Generator Monitoring (formerly known as Machine-to-Machine Critical Asset Monitoring & Control). These products and services are provided by our OmniMetrix, LLC (“OmniMetrix”) subsidiary. OmniMetrix’s PGM activities provide wireless remote monitoring and control systems and services for critical assets as well as Internet of Things applications.

 

During 2016, each of the two abovementioned activities represents a reportable segment. Our “Other” segment represents certain IT activities (protocol management software for cancer patients and billing software) and outsourced consulting activities performed by our DSIT subsidiary as well as Corrosion Protection Monitoring activities (for remote monitoring of cathodic protection systems on gas pipelines for gas utilities and pipeline companies) performed by our OmniMetrix subsidiary, that do not meet the quantitative thresholds and which may be combined for reporting under applicable accounting principles.

 

Previously, we reported GridSense’s activities in its Smart Grid Distribution Automation segment which developed and produced fiber optic sensing systems for the energy and security markets. With the suspension of operations at GridSense (see Recent Developments), its activities are reflected as discontinued operations in our condensed consolidation statements of operations.

 

Following the closing of the DSIT Transaction (see Recent Developments), we will no longer be consolidating the results of DSIT, but will be reporting on our investment in DSIT on the equity method. Accordingly, beginning with our second quarter 2016 report, we will no longer be reporting on the results of its Energy & Security Sonar Solutions segment.

 

The following analysis should be read together with the segment information provided in Note 11 to the interim unaudited condensed consolidated financial statements included in this quarterly report.

 

DSIT Solutions

 

On April 21, 2016, we closed on the sale of nearly 50% of our interest in our DSIT Solutions, Ltd. business to Rafael Advanced Defense Systems Ltd. As DSIT has grown, we came to recognize the value of it having a strong strategic partner with the size, resources and scope of Rafael’s capabilities. We believe this partnership will accelerate DSIT’s growth by leveraging Rafael’s technological capabilities and reputation as well as its impressive global sales reach in support of DSIT’s industry-leading sonar technology and its fiber-optic based sensing solutions. We believe that DSIT’s global reach and sales potential is significantly enhanced through our partnership with Rafael.

 

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DSIT revenue of $3,920,000 in the first quarter of 2016 was $883,000 or 29% above revenue for the first quarter of 2015 ($3,037,000). First quarter 2016 revenue also represents a $487,000 or 14% increase as compared to the fourth quarter of 2015 ($3,433,000). Both gross profit and operating income improved for DSIT in 2016. Gross profit increased as a result of both increased revenue and an increase in gross margin from 26% in 2015 (for all of DSIT’s activities) to 31% in 2016. The improvement in operating income (as compared to an operating loss in 2015) was the result of the increased revenue and gross profit.

 

Revenue in Acorn’s Energy & Security Sonar Solutions segment increased from $2,660,000 for the first quarter of 2015 to $3,582,000 for the first quarter of 2016. The increase in revenue was due to approximately $1.4 million of revenue recorded with respect to DSIT’s $15.4 million project received in the first quarter of 2015 for Hull Mounted Sonar (HMS) systems and an Anti-Submarine Warfare (ASW) Trainer for an unnamed navy. Revenue from DSIT’s other IT and consulting activities which are included in Acorn’s Other segment activities decreased slightly in 2016 (a decrease of $39,000 to $338,000). The decrease in first quarter 2016 revenue from DSIT’s other IT and consulting activities was primarily due to one-time revenue generated in 2015 from upgrade and support services related to a new version of DSIT’s protocol management software for cancer patients.

 

DSIT’s gross profit increased from $804,000 in the first quarter of 2015 to $1,206,000 in the first quarter of 2016. The increase in gross profit was due to increased gross margins in the quarter as well as increased revenue. The increase in the gross margin in the first quarter of 2016 as compared to the first quarter of 2015 was due to the mix of projects worked on during the first quarter of 2 016 which reflected increased revenue in higher-margin Naval projects as compared to the first quarter of 2015 which had a greater concentration of revenue in generally lower-margin non-Naval projects.

 

During the first quarter of 2016, DSIT recorded approximately $288,000 of R&D expense, which was slightly above the $267,000 recorded in the first quarter of 2015 and well below the $381,000 recorded in the fourth quarter of 2015. The decrease in R&D expense during the first quarter of 2016 as compared to the fourth quarter of 2015 was primarily due to decreased materials used during the first quarter of 2016 related to DSIT’s development work on land-based security fiber-optic products and a Structural Health Monitoring interrogator based on fiber-optic sensing.

 

In 2012, DSIT and USSI were awarded a grant from the Israel-U.S. Binational Industrial Research and Development Foundation (“BIRD Foundation”) for the joint development of a next generation integrated passive/active threat detection system for underwater site protection (PAUSS). The BIRD Foundation provides funding money for projects involving joint innovation and development between American and Israeli companies. Following the suspension of USSI’s operations and its subsequent Chapter 7 Bankruptcy filing in 2015, we were unable to complete the PAUSS project. We have submitted a final report to the BIRD Foundation which has been audited by the BIRD Foundation. DSIT does not believe that the BIRD Foundation will pursue recovery of previously funded amounts ($379,000).

 

During the first quarter of 2016, DSIT recorded approximately $857,000 of SG&A expense, which was approximately $146,000 or 21% above the $711,000 recorded in the first quarter of 2015 and slightly above the $816,000 recorded in the fourth quarter of 2015. The increase from the first quarter of 2015 was due in part to the strengthening of the New Israeli Shekel (NIS) in the period as most of DSIT’s SG&A expense is denominated in NIS. In addition, first quarter of 2016 SG&A expense included certain one-time costs associated with the sale to Rafael. We expect that SG&A expense going forward will return to fourth quarter 2015 levels.

 

At December 31, 2015, DSIT had a backlog of approximately $20.6 million. During the first three months of 2016, DSIT received new orders totaling approximately $3.9 million and at the end of March 2016 had a backlog of approximately $20.6 million. Such backlog includes approximately $11.3 million remaining from the multi-year HMS and ASW project noted above and approximately $3.0 million for long-term maintenance and support for another project expected to begin in mid-2016.

 

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OmniMetrix

 

Following the emergence of machine-to-machine and Internet of Things applications whereby companies aggregate multiple sensors and monitors into a simplified dashboard for customers, OmniMetrix believes it can play a key role in this new economic ecosystem. In addition, OmniMetrix sees a rapidly growing need for backup power infrastructure to secure critical military and government assets against emergency events including terrorist attacks, natural disasters, and cybersecurity threats. As residential and industrial standby generators as well as turbines, compressors, pumps, pumpjacks, light towers and other industrial equipment are part of the critical infrastructure increasingly becoming monitored in Internet of Things applications, and given that OmniMetrix monitors all major brands of critical equipment, OmniMetrix believes it is well-positioned to be a competitive participant in this new market.

 

OmniMetrix has two divisions: Power Generation Monitoring (“PGM”) and Corrosion Protection Monitoring (“CPM”). A leading market indicator within the PGM division is new generator sales. The standby generator market in the United States is structured such that there are a small number of generator original equipment manufacturers (Kohler, Cummins, CAT, Generac, etc.), each of which has its own nationwide and global network of dealers. These dealers then sell generators to end users across multiple industries, as well as multiple segments including industrial, commercial and residential. Over its 18-year history, OmniMetrix has developed strong relationships with key generator dealers across the country and world, as well as strong relationships with each of the generator original equipment manufacturers.

 

The PGM division’s growth strategy is three-fold: adding new dealers as customers, expanding subscriptions with existing dealer customers, and adding new large opportunity end-users (such as hospitals, telecom, military, etc.) as customers.

 

Demand for the CPM division is led by gas utilities, pipeline companies, refineries, and other businesses needing to more efficiently manage their pipeline network and infrastructure. These business are constantly looking for technology solutions that reduce operating expenses and improve accuracy of corrosion levels, both of which our CPM division provides.

 

The CPM division’s growth strategy is also three-fold: adding new end-user customers, expanding subscriptions with existing customers and adding new distribution relationships.

 

In the first quarter of 2016, OmniMetrix recorded revenue of $841,000 ($667,000 in its PGM activities and $174,000 in its CPM activities) as compared to $673,000 ($553,000 in its PGM activities and $120,000 in its CPM activities) recorded in the first quarter of 2015, representing an increase of 25%. The increase in revenue continues to be driven by the increase in the number of units being monitored. First quarter 2016 revenue also represented a decrease of 6% as compared to fourth quarter 2015’s revenues of $898,000. The decrease in revenue from the fourth quarter is due to certain one-time sales recorded in the fourth quarter of 2015.

 

First quarter 2016 gross profit of $425,000 reflected a gross margin of 51% on the quarter’s revenues. Such gross profit represents slight decrease from first quarter 2015 gross profit of $438,000 (gross margin of 65%). The decrease in the gross profit compared to first quarter 2015 was attributable to the decreased gross margins. The decreased gross margins were the result of increased residential generator monitoring which caused the decline in monitoring margins from 86% in 2015 to 83% in 2016 as residential generator monitoring margins are slightly lower than that of commercial and industrial generator monitoring. In addition, margins on hardware revenue also declined from 23% to 14% due to reduced margins on our CPM sales.

 

During the first quarter of 2016, OmniMetrix recorded approximately $77,000 of R&D expense as compared to approximately $143,000 of R&D in the first quarter of 2015. We expect R&D expense to increase slightly in coming quarters as we undertake certain initiatives to redesign certain products to reduce their costs in order to increase our margins.

 

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During the first quarter of 2016, OmniMetrix recorded approximately $596,000 of SG&A costs. Such costs reflect a slight increase of $18,000 (3%) as compared to first quarter 2015 SG&A costs of $578,000 and $138,000 less than fourth quarter 2015 SG&A costs. The decreased SG&A costs as compared to the fourth quarter of 2015 were the result of certain one-time payroll costs incurred in the fourth quarter of 2015. We anticipate that SG&A costs will remain relatively stable in upcoming quarters.

 

In February 2016, OmniMetrix signed a Loan and Security Agreement with a lender providing OmniMetrix with access to accounts receivable formula-based financing of up to $500,000. In connection with this financing arrangement, OmniMetrix granted the lender a security interest in OmniMetrix’s receivables, inventory and certain other assets. Debt incurred under this financing arrangement bears interest at the greater of prime (3.5% at December 31, 2015 and March 31, 2016) plus 2% or 6% per year. In addition, OmniMetrix must pay a monthly service charge of 1.125% of the average aggregate principal amount outstanding for the prior month, for a current effective rate of interest on advances of 19.5%. Currently, while the Loan and Security Agreement reflects a $500,000 credit line, the lender has imposed a sublimit of $300,000 and has sole discretion as to when to remove the sublimit. Under the Loan and Security Agreement all indebtedness of OmniMetrix to Acorn is subordinated to the credit line, although it permits OmniMetrix to pay Acorn (or affiliates and related companies) up to $130,000. As at May 9, 2016, OmniMetrix had an outstanding balance of approximately $110,000 pursuant to the Loan and Security Agreement.

 

We have no assurance that OmniMetrix’s credit facility will provide sufficient liquidity for all of OmniMetrix’s working capital needs in 2016. Additional financing for OmniMetrix may be in the form of a bank line, new investment by others, a loan by Acorn, or a combination of the above. The availability and amount of any additional loans from us to OmniMetrix may be limited by the working capital needs of our corporate activities and other operating companies.

 

GridSense

 

On April 21, 2016, we announced that we decided to cease operations of our GridSense subsidiary and initiate the liquidation of the GridSense assets. As a result of this decision, GridSense is being reported as a discontinued operation effective with our first quarter 2016 report. Following the decision to cease GridSense operations, we have written down all GridSense assets to their estimable realizable values and have accrued for estimated severance costs of $140,000 and lease commitments of $100,000 in GridSense’s first quarter results. We intend to sell GridSense’s assets and are exploring ways to maximize value for creditors and other stakeholders, expecting that most of the proceeds from any sale of its assets will be used to pay creditors. It is uncertain whether there will be any proceeds available to us. First quarter results reflect activity through March 31, 2016. We expect that there will continue to be some residual activity at GridSense through either the date of its sale or final liquidation.

 

Corporate

 

Corporate general and administrative expense of $1,172,000 in the first quarter of 2016 was approximately $139,000 greater than the $1,033,000 of expense recorded in the first quarter of 2015 and an increase of $332,000 compared to the $840,000 recorded in the fourth quarter of 2015. First quarter 2016 expense includes approximately $460,000 of severance and related costs associated with the resignation of John A. Moore, our former CEO. Corporate general and administrative expense in 2016 includes $220,000 of non-cash stock compensation expense ($208,000 in the first quarter of 2015) of which approximately $174,000 is associated with the acceleration of the vesting of Mr. Moore’s options following his resignation. During the first quarter of 2016, we made significant cuts in our directors’ fees and expect corporate general and administrative quarterly expense for the remainder of 2016 be below first quarter 2016 expense (excluding the one-time expense related to Mr. Moore) as we continue to seek ways to further reduce our operating expenses going forward.

 

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Results of Operations

 

The following table sets forth certain information with respect to the consolidated results of operations of the Company for the three month periods ended March 31, 2015 and 2016, including the percentage of total revenues during each period attributable to selected components of the operations statement data and for the period to period percentage changes in such components. For segment data see Note 11 to the Unaudited Condensed Consolidated Financial Statements included in this quarterly report.

 

    Three months ended March 31,  
    2015     2016     Change from  
    ($,000)     % of revenues     ($,000)     % of revenues       2015 to 2016  
Revenue   $ 3,710       100 %   $ 4,761       100 %     28 %
Cost of sales     2,468       67 %     3,130       66 %     27 %
Gross profit     1,242       33 %     1,631       34 %     31 %
R&D expenses, net     410       11 %     365       8 %     (11 )%
SG&A expenses     2,322       63 %     2,625       55 %     13 %
Operating loss     (1,490 )     (40 )%     (1,359 )     (29 )%     (9 )%
Finance expense, net           0 %     (273 )     (6 )%        
Loss before taxes on income     (1,490 )     (40 )%     (1,632 )     (34 )%     10 %
Income tax benefit     33       1 %     (8 )     (0 )%     (124 )%
Net loss from continuing operations     (1,457 )     (39 )%     (1,640 )     (34 )%     13 %
Loss from discontinued operations, net of income taxes     (1,477 )     (40 )%     (1,386 )     (29 )%     (6 )%
Net loss     (2,934 )     (79 )%     (3,026 )     (64 )%     3 %
Non-controlling interests share of net loss – continuing operations     20       1 %     51       1 %     155 %
Non-controlling interests share of net loss – discontinued operations     145       4 %                 (100 )%
Net loss attributable to Acorn Energy, Inc.   $ (2,769 )     (75 )%   $ (2,975 )     (62 )%     7 %

 

Revenue. Revenue in the first three months of 2016 increased by $1,051,000 or 28% from $3,710,000 in the first three months of 2015 to $4,761,000 in the first three months of 2016. Increased revenue was reported by both DSIT (an increase from $3,037,000 to $3,920,000) and OmniMetrix (from $673,000 to $841,000). Increased revenue at DSIT was primarily attributable revenue recorded with respect to DSIT’s $15.4 million project received in the first quarter of 2015 for HMS systems and an ASW Trainer for an unnamed navy. OmniMetrix’s increased revenue was attributable to an increase in the number of units being monitored.

 

Gross profit. Gross profit in the first three months of 2016 reflected an increase of $389,000 (31%) as compared to the first three months of 2015.

 

DSIT’s first quarter 2016 gross profit increased from $804,000 to $1,206,000. DSIT’s gross margin increased from 26% in 2015 to 31% in 2016. The increase in DSIT’s gross margin in the first quarter of 2016 as compared to the first quarter of 2015 was due to the mix of projects worked on during the first quarter of 2016 which reflected increased revenue in higher-margin Naval projects as compared to the first quarter of 2015 which had a greater concentration of revenue in generally lower-margin non-Naval projects. OmniMetrix recorded gross profit of $425,000 in the first quarter of 2016 as compared to a $438,000 gross profit recorded in 2015. OmniMetrix’s gross margin decreased from 65% in 2015 to 51% in 2016. The decreased gross margins were the result of increased residential generator monitoring which caused the decline in monitoring margins from 86% in 2015 to 83% in 2016 as residential generator monitoring margins are slightly lower than that of commercial and industrial generator monitoring. In addition, margins on hardware revenue also declined from 23% to 14% due to reduced margins on our CPM sales.

 

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Research and development (“R&D”) expenses. R&D expenses decreased $45,000 (11%) to $365,000 in the first quarter of 2016. The decrease in R&D expenses was attributable to a $66,000 (45%) reduction at OmniMetrix whose R&D expense decreased from $143,000 in 2015 to $77,000 in 2016. DSIT R&D expense increased slightly from $267,000 in the first quarter of 2015 to $288,000 in the first quarter of 2016.

 

Selling, general and administrative (“SG&A”) expenses. SG&A expenses in the first quarter of 2016 increased by $303,000 or 13% as compared to the first quarter of 2015. Increased SG&A expense was recorded at both DSIT and OmniMetrix. DSIT’s SG&A expense in the first quarter increased by $146,000 as compared to 2015. The increase from the first quarter of 2015 was due in part to the strengthening of the New Israeli Shekel (NIS) in the period, as most of DSIT’s SG&A expense is denominated in NIS, as well as certain one-time costs associated with the sale to Rafael. The increase at OmniMetrix was nominal ($18,000). Corporate expense increased from $1,033,000 in 2015 to $1,172,000 in 2016. The increase was attributable to approximately $460,000 of severance and related costs associated with the resignation of John A. Moore, our former CEO. Corporate general and administrative expense in the first quarter of 2016 also includes approximately $174,000 of non-cash stock compensation associated with the acceleration of the vesting of Mr. Moore’s options following his resignation.

 

Loss from discontinued operations, net of income taxes. During the first quarter of 2015, GridSense recorded losses net of income tax of $1,386,000. During the first quarter of 2016, GridSense recorded losses net of income tax of $325,000 while USSI recorded a loss of $1,152,000.

 

Net loss attributable to Acorn Energy. We had a net loss attributable to Acorn Energy of $3.0 million in the first quarter of 2016 compared to a net loss of $2.8 million in the first quarter of 2015. Our loss in 2016 is comprised of losses of $1.4 at GridSense which is included in discontinued operations, corporate expenses of $1.4 million and a loss at OmniMetrix of approximately $250,000. These losses were partially offset by DSIT’s reported net income of approximately $40,000. Corporate expenses include approximately $460,000 of severance and related costs plus an additional $174,000 of non-cash stock compensation associated with resignation of our former CEO. Corporate expense also includes approximately $250,000 of interest expense associated with our borrowings from Leap Tide and directors.

 

Liquidity and Capital Resources

 

As of March 31, 2016 we had negative working capital of $3.3 million (negative $1.6 million in our continuing operations). Our working capital includes $113,000 of cash and cash equivalents and escrow deposits and also includes restricted deposits of approximately $1.7 million.  Net cash decreased during the three months ended March 31, 2016 by $61,000, of which approximately $1,128,000 was used in operating activities ($727,000 in continuing operations).

 

In our continuing operations, our DSIT subsidiary used approximately $0.4 million in its operations during the first quarter of 2016 while our corporate headquarters used $0.3 million during the period. Our OmniMetrix subsidiary was breakeven in its use of cash for operations during the first quarter of 2016. Our discontinued operations (GridSense) used $0.4 million in their operations in the first quarter of 2016.

 

Cash provided by activities of $698,000 was primarily due to net release of cash in restricted ($736,000) and escrow ($50,000) deposits partly offset by amounts funded for severance assets ($69,000).

 

Net cash of $342,000 was provided by financing activities primarily from director loans of $375,000 received during the period.

 

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At March 31, 2016, DSIT had approximately $4.4 million of restricted cash in banks ($1.8 million in current and $2.6 million in non-current) and NIS 4.5 million (approximately $1.2 million) in Israeli credit lines available to it from two Israeli banks (approximately $665,000 from one bank and $530,000 from the other. At March 31, 2016, DSIT was utilizing approximately $0.8 million of its lines-of-credit. The lines-of-credit are subject to maintaining certain financial covenants. At March 31, 2016, DSIT was in compliance with its financial covenants. In addition, to the above lines-of-credit, DSIT in the past entered into an agreement with another bank to allow DSIT to borrow against certain accounts receivable balances at an interest rate equal to the Israeli prime rate plus 1.8%. At March 31, 2016, DSIT had borrowed approximately $0.9 million against certain accounts under this agreement. The restricted cash noted above represents DSIT deposits with two Israeli banks as collateral for various performance and bank guarantees for various projects as well as for its credit facilities at the banks. DSIT expects to redeposit a portion of these funds again as collateral for new guarantees for new projects when the guarantees expire.

 

In April 2016, following the closing of the DSIT Transaction (see Recent Developments), DSIT received approximately $390,000 of proceeds from the exercise of options by employees.

 

On May 9, 2016, DSIT had approximately $4.2 million of restricted cash in banks, was utilizing approximately $1.5 million of its lines-of-credit and had borrowed approximately $0.8 million against certain accounts receivable balances.

 

On April 21, 2016, we announced that we decided to cease operations of our GridSense subsidiary and initiate the liquidation of the GridSense assets. As a result of this decision, GridSense is being reported as a discontinued operation effective with our first quarter 2016 report. We intend to sell GridSense’s assets and are exploring ways to maximize value for creditors and other stakeholders, expecting that most of the proceeds from any sale of its assets will be used to pay creditors. It is uncertain whether there will be any proceeds available to us. During this period, Acorn continues to lend money to GridSense to manage this process. Through May 9, 2016, Acorn has lent GridSense a total of approximately $5.1 million, including $404,000 in 2016.

 

In February 2016, OmniMetrix signed a Loan and Security Agreement with a lender providing OmniMetrix with access to accounts receivable formula-based financing of up to $500,000. In connection with this financing arrangement, OmniMetrix granted the lender a security interest in OmniMetrix’s receivables, inventory and certain other assets. Debt incurred under this financing arrangement bears interest at the greater of prime (3.5% at December 31, 2015 and March 31, 2016) plus 2% or 6% per year. In addition, OmniMetrix must pay a monthly service charge of 1.125% of the average aggregate principal amount outstanding for the prior month, for a current effective rate of interest on advances of 19.5%. Currently, while the Loan and Security Agreement reflects a $500,000 credit line, the lender has imposed a sublimit of $300,000 and has sole discretion as to when to remove the sublimit. Under the Loan and Security Agreement all indebtedness of OmniMetrix to Acorn is subordinated to the credit line, although it permits OmniMetrix to pay Acorn (or affiliates and related companies) up to $130,000. As at May 9, 2016, OmniMetrix had an outstanding balance of approximately $110,000 pursuant to the Loan and Security Agreement.

 

We have no assurance that OmniMetrix’s credit facility will provide sufficient liquidity for all of OmniMetrix’s working capital needs in 2016. Additional financing for OmniMetrix may be in the form of a bank line, new investment by others, a loan by Acorn, or a combination of the above. The availability and amount of any additional loans from us to OmniMetrix may be limited by the working capital needs of our corporate activities and other operating companies.

 

The accompanying unaudited condensed consolidated financial statements included in this Form 10-Q have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, our ability to continue as a going concern will be dependent upon our ability to generate sufficient cash flow from our operations to satisfy our liabilities on a timely basis and to obtain additional funding or generate sufficient revenue to cover our operating expenses. Our unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

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We currently do not have sufficient cash flow for the next twelve months. On March 31, 2016, we had less than $50,000 of non-escrow corporate cash and cash equivalents. On April 21, 2016, we closed on the sale of a portion of our interests in DSIT and received gross proceeds of $4,913,000 before escrow ($579,000), Israeli withholding taxes ($266,000) and fees (see Recent Developments). On April 29, 2016, we repaid all principal ($2,000,000) and interest ($15,000) due to Leap Tide as well at $275,000 of principal and $41,000 of interest due to directors who had lent the Acorn money in the first quarter of 2016 (see Recent Developments). Remaining cash after these debt repayments will be used to support the corporate cash our needs and of our subsidiaries to the extent possible.

 

Additional liquidity will be necessary to finance the operating activities of Acorn and the operations of our OmniMetrix subsidiary, and we will continue to pursue sources of funding, which may include loans from related and/or non-related parties, a sale or partial sale of one or more of our companies, finding a strategic partner for one or more of our businesses or equity financings. There can be no assurance additional funding will be available at terms acceptable to us or that we will be able to successfully utilize any of these possible sources to provide additional liquidity. If additional funding is not available in sufficient amounts, we will not be able to fund our corporate activities during the next twelve months, which could materially impact our ability to continue operations, and we may not be able to fund OmniMetrix as we have historically, which could materially impact its carrying value. As such, these factors raise substantial doubt as to Acorn’s ability to continue as a going concern.

 

Contractual Obligations and Commitments

 

The table below provides information concerning obligations under certain categories of our contractual obligations as of March 31, 2016.

 

CASH PAYMENTS DUE TO CONTRACTUAL OBLIGATIONS

 

    Years Ending March 31, (in thousands)  
    Total     2017     2018-2019     2020-2021    

2022 and

thereafter

 
Bank and other debt   $ 4,277     $ 4,277     $     $     $  
Operating leases – continuing operations     1,557       592       883       82        
Potential severance obligations (1)     5,724       391       1,387       79       3,867  
Minimum royalty payments (2) (3)                              
Contractual cash obligations – continuing operations     11,558       5,260       2,270       161       3,867  
Contractual cash obligations – discontinued operations (4)     359       359                    
Total contractual cash obligations   $ 11,917     $ 5,619     $ 2,270     $ 161     $ 3,867  

 

We expect to finance the contractual commitments for continuing operations from cash currently on hand and cash generated from operations.

 

(1) Under Israeli law and labor agreements, DSIT is required to make severance payments to dismissed employees and to employees leaving employment under certain other circumstances. The obligation for severance pay benefits, as determined by the Israeli Severance Pay Law, is based upon length of service and last salary. These obligations are substantially covered by regular deposits with recognized severance pay and pension funds and by the purchase of insurance policies. As of March 31, 2016, we accrued a total of $5.3 million for potential severance obligations to our Israeli employees of which approximately $3.8 million was funded. The timing of actual payment of severance obligations are uncertain as employees may continue to work beyond the legal retirement age.

 

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(2) In September 2012, our DSIT and USSI subsidiaries were awarded a joint $900,000 grant from the BIRD Foundation for the joint development of the next generation integrated passive/active threat detection system for underwater site protection (“PAUSS”). Under the terms of the grant agreement, both DSIT and USSI were to repay the grant based on 5% of gross sales of the commercialized product, if any. The above table does not include any royalties that may be paid under this arrangement. Due to the suspension of USSI’s operations in 2015, the BIRD Foundation has decided that it will no longer fund DSIT’s continued development of the PAUSS. It is unclear at this time how the suspension of activities at USSI and the cancellation of participation in the funding of this project by the BIRD Foundation may impact DSIT’s obligations under this arrangement. DSIT does not believe that the BIRD Foundation will pursue recovery of previously funded amounts (approximately $379,000).

 

(3) Our DSIT subsidiary was awarded grants from MEIMAD. Under the terms of the grant agreement between the OCS and DSIT, DSIT will have to repay the grant based on 5% of gross sales of the commercialized product, if any. The above table does not include any royalties that may be paid under this arrangement.

 

(4) Contractual cash obligations for discontinued operations include $121,000 of bank debt currently due, $98,000 of payments due for operating leases in 2017 and $140,000 due for potential severance obligations due in 2017. All the above amounts including all operating lease payments and potential severance obligations have been accrued and are included as current liabilities on GridSense’s balance sheet at March 31, 2016 (see Note 3 to our unaudited condensed Consolidated Financial Statements). Our GridSense subsidiary is required to pay a royalty on any project sale of a particular product of not less than $100,000 to two former employees. The royalty rate is on a sliding scale from 1.5% to 6.0%. The above table does not include any royalties that may be paid under this arrangement.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Foreign Currency Risk

 

Our non-US dollar monetary assets and liabilities (net liabilities of approximately $2.3 million) in Israel at our DSIT subsidiary are exposed to fluctuations in exchange rates. At times, our DSIT subsidiary enters into various hedging contracts which do not qualify as hedging instruments under accounting principles to try to mitigate its foreign currency exposure risks. At March 31, 2016, DSIT entered into forward contracts through November 2016 to sell U.S. dollars (from $400,000 to $800,000 per month at a weighted average exchange rate of 3.877). Furthermore, approximately $6.2 million of our backlog of projects are contracts and orders that are not denominated in US dollars.

 

Concentrations of Credit Risk

 

Financial instruments, which potentially subject Acorn to concentrations of credit risk, consist principally of cash and cash equivalents, restricted deposits, escrow deposits, accounts receivable and unbilled revenues. Our cash, cash equivalents, restricted cash and escrow deposits were deposited primarily with U.S. and Israeli banks and other financial institutions amounted to approximately 4.6 million at March 31, 2016. We use major banks and brokerage firms to invest our cash and cash equivalents and escrow deposits, primarily in money market funds. The counterparties to the restricted deposits are two major Israeli banks. We do not believe there is significant risk of non-performance by these counterparties. Related credit risk would result from a default by the financial institutions or issuers of investments to the extent of the recorded carrying value of these assets. Approximately 55% of the accounts receivable at March 31, 2016 was due from two customers who pay their receivables over usual credit periods. Credit risk with respect to the balance of trade receivables is generally diversified due to the number of entities comprising our customer base. Approximately 77% of the balance in unbilled revenue at March 31, 2016 was due from 3 customers that, when billed, pay their trade receivables over usual credit periods. Credit risk with respect to the remaining balance of unbilled revenue is generally diversified due to the number of entities comprising our customer base.

 

Fair Value of Financial Instruments

 

Fair values of financial instruments included in current assets and current liabilities are estimated to approximate their book values due to the short maturity of such investments.

 

Interest Rate Risk

 

In the normal course of business, we are exposed to fluctuations in interest rates on our lines-of-credit ($1.2 million available; $0.8 million of which was being used at March 31, 2016) to finance our operations in Israel. The interest rate of one of our lines-of-credit interest is linked to the Israeli prime rate (1.60% at December 31, 2015 and at March 31, 2016).

 

In February 2016, OmniMetrix signed a Loan and Security Agreement with a lender providing OmniMetrix with access to accounts receivable formula-based financing of up to $500,000. Debt incurred under this financing arrangement bears interest at the greater of prime (3.5% at December 31, 2015 and at March 31, 2016) plus 2% or 6% per year. In addition, OmniMetrix must pay a monthly service charge of 1.125% of the average aggregate principal amount outstanding for the prior month. Currently, while the Loan and Security Agreement reflect a $500,000 credit line, the lender has imposed a sublimit of $300,000 and has sole discretion as to when to remove the sublimit. As at March 31, 2016, OmniMetrix had borrowed $123,000 against these accounts receivables.

 

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ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to material weaknesses noted in our Annual Report on Form 10-K for the year ended December 31, 2015, to ensure that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) accumulated and communicated to our management (including our Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

As noted in our Annual Report on Form 10-K for the year ended December 31, 2015, we employ a decentralized internal control methodology, coupled with management’s oversight, whereby each subsidiary is responsible for mitigating its risks to financial reporting by implementing and maintaining effective control policies and procedures and subsequently translating that respective risk mitigation up and through to the parent level and to our external financial statements. In addition, as our subsidiaries are not large enough to effectively mitigate certain risks by segregating incompatible duties, management must employ compensating mechanisms throughout our company in a manner that is feasible within the constraints it operates.

 

The material weaknesses management identified were caused by an insufficient complement of resources at our subsidiaries, including employee turnover and limited IT system capabilities, such that individual control policies and procedures at certain subsidiaries could not be implemented, maintained, or remediated when and where necessary. As a result, a majority of the significant process areas management identified for our OmniMetrix and GridSense subsidiaries had one or more material weaknesses present.

 

Changes in Internal Control Over Financial Reporting

 

There was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II

 

ITEM 6. EXHIBITS.

 

#4.1 Amended and Restated Articles of Incorporation of OMX Holdings, Inc.
   
#4.2 Promissory Note, dated January 14, 2016, of Acorn Energy, Inc., in favor of Edgar S. Woolard.
   
#4.3 Promissory Note, dated January 15, 2016, of Acorn Energy, Inc., in favor of Visionary Enhancement, LLC.
   
#4.4 Form of Warrant, dated as of March 16, 2016, of Acorn Energy, Inc., issued to Leap Tide Capital Management LLC.
   
#4.5 Promissory Note, dated March 28, 2016, of Acorn Energy, Inc., in favor of Christopher Clouser.
   
#4.6 Promissory Note Amendment, dated March 28, 2016, to Promissory Note dated January 14, 2016, of Acorn Energy, Inc., in favor of Edgar S. Woolard.
   
#4.7 Promissory Note Amendment, dated March 28, 2016, to Promissory Note dated January 15, 2016, of Acorn Energy, Inc., in favor of Visionary Enhancement, LLC.
   
#10.1 Series A Preferred Stock Subscription Agreement, dated as of November 23, 2015, between OMX Holdings, Inc., and Edgar Woolard.
   

#10.2*

 

Consulting Agreement, dated as of January 8, 2016, by and between Acorn Energy, Inc. and Leap Tide Capital Management LLC.
   
#10.3 Share Purchase Agreement, dated as of January 28, 2016, between DSIT Solutions Ltd., Rafael Advanced Defense Systems Ltd., the sellers named therein and Michael Barth as Shareholders Representative.
   
#10.4* Separation Agreement between John A. Moore and Acorn Energy, Inc., dated as of January 28, 2016.
   
#10.5 Letter Agreement, dated as of March 28, 2016, between Acorn Energy, Inc. and Christopher Clouser.
   
#10.6 Shareholders Agreement, dated as of April 21, 2016, by and among DSIT Solutions Ltd. and the Shareholders named therein.
   
#10.7 Letter Agreement, dated as of April 21, 2016, between Acorn Energy, Inc. and certain shareholders of DSIT Solutions Ltd.
   
#31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
#31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

#32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
#32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
#101.1 The following financial statements from Acorn Energy’s Form 10-Q for the quarter ended March 31, 2016, filed on May 16, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Changes in Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.
   
* This exhibit includes a management contract, compensatory plan or arrangement in which one or more directors or executive officers of the Registrant participate.
   
# This exhibit is filed or furnished herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by its principal financial officer thereunto duly authorized.

 

  ACORN ENERGY, INC.
     
Dated: May 16, 2016    
     
  By: /s/ MICHAEL BARTH
    Michael Barth
    Chief Financial Officer

 

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AMENDED AND RESTATED

 

ARTICLES OF INCORPORATION

 

OF

 

OMX HOLDINGS, INC.

 

ARTICLE ONE

NAME

 

The name of the Corporation is: OMX HOLDINGS, INC.

 

ARTICLE TWO

CAPITALIZATION

 

A. Number and Classes of Authorized Stock . The total number of shares of stock which the Corporation is authorized to issue is Forty Thousand (40,000) shares, divided into two classes as follows:

 

1. Preferred Stock . Ten Thousand (10,000) shares of preferred stock, par value $0.001 per share, of which Five Thousand (5,000) shares shall be designated “ Series A Preferred Stock ” (collectively with any other series of preferred stock as the Board of Directors may in accordance herewith designate, the “ Preferred Stock ”); and

 

2. Common Stock . Thirty Thousand (30,000) shares of Common Stock, without par value (collectively, the “ Common Stock ”).

 

B. Attributes of Preferred Stock .

 

1. Issuance of Preferred Stock in Series . In addition to the Series A Preferred Stock designated above, Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided. Authority is hereby expressly granted to the Board of Directors from time to time to issue Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issuance of the shares thereof, to determine and fix the number of shares of such series and such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the Georgia Business Corporation Code. Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series or class shall be superior or rank equally or be junior to the Preferred Stock of any other series or class to the extent permitted by law, and subject to the provisions of this Certificate.

 

     
 

 

2. Series A Preferred Stock . The rights, preferences, privileges and restrictions granted to and imposed on the Series A Preferred Stock are as set forth below:

 

(a) Voting.

 

(i) General. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of this Certificate, holders of each series of Series A Preferred Stock shall vote together with the holders of Common Stock as a single class. Holders of Series A Preferred Stock are not entitled to cumulative voting.

 

(ii) Consent for Certain Amendments . The Corporation shall not amend or modify the Certificate of Incorporation in a manner that materially and adversely affects the terms, powers, preferences or special rights of the Series A Preferred Stock, except with the affirmative vote or consent of the Series A Majority. In addition, no such amendment or modification may, without the consent of each holder of Series A Preferred Stock affected thereby, (x) adversely affect any of the conversion features of such series; or (y) reduce the percentage of outstanding shares of such series necessary to modify or amend the terms thereof or to grant waivers thereof.

 

(b) Dividends . From and after the date of the issuance of any shares of Series A Preferred Stock, dividends at the rate per annum of $50.00 per share shall accrue on such shares of Series A Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock) (the “Accruing Dividends”). Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative. Provided, that there are funds lawfully available therefor, Accruing Dividends shall be paid on the first anniversary of the Series A Original Issue Date and every three months thereafter. At the election of each holder of Series A Preferred Stock, Accruing Dividends may be paid in cash or in shares of Series A Preferred Stock.

 

(c) Liquidation . Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, holders of Series A Preferred Stock shall be entitled to share ratably with the holders of the Common Stock in the remaining assets of the Corporation available for distribution to its stockholders.

 

(d) Optional Conversion .

 

(i) Optional Conversion . Each outstanding share of Series A Preferred Stock shall be convertible at any time, at the option of the holder thereof, into a number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series A Original Issue Price by the Series A Conversion Price for such series as in effect at the time of conversion (each, an “Optional Conversion”). The Series A Conversion Price and the Series A Conversion Ratio are subject to possible adjustment as provided in subsection (e) below.

 

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(ii) Other Provisions regarding Optional Conversion .

 

(A) No fractional shares shall be issued upon the conversion of any shares of Series A Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series A Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the Fair Market Value of such fraction on the date of conversion (as determined in good faith by the Board).

 

(B) An Optional Conversion may be effected by surrender to the Corporation at the principal office of the Corporation of the certificate for the series of Series A Preferred Stock to be converted accompanied by a written notice from the holder stating that such holder elects to convert all or a specified number of such shares (which may be fractional shares) in accordance with the provisions of this Section B.2(d) and specifying the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued.

 

(C) In case the written notice specifying the name or names in which a holder of shares of Series A Preferred Stock converted in accordance with this Section B.2(d) wishes the certificate or certificates for shares of Common Stock to be issued shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. As promptly as practicable, and in any event within five (5) Business Days after the surrender of such certificate or certificates and the receipt of such notice relating thereto and, if applicable, payment of all transfer taxes (or the demonstration to the satisfaction of the Corporation that such taxes have been paid), the Corporation shall deliver or cause to be delivered (x) certificates representing the number of validly issued, fully paid and nonassessable full shares of Common Stock to which the holder of shares of Series A Preferred Stock being converted shall be entitled, and (y) if less than the full number of shares of Series A Preferred Stock evidenced by the surrendered certificate or certificates is being converted, a new certificate or certificates, of like tenor, for the number of shares of Series A Preferred Stock evidenced by such surrendered certificate or certificates less the number of shares thereof being converted.

 

(D) In the case of an Optional Conversion, such conversion shall be deemed to have been made at the close of business on the date of giving the written notice referred to in the first sentence of Section B.2.(d)(ii)(B) above and of such surrender of the certificate or certificates representing the shares of Series A Preferred Stock to be converted so that the rights of the holder thereof as to the shares being converted shall cease except for the right to receive shares of Common Stock in accordance herewith, and the Person entitled to receive the shares of Common Stock shall be treated for all purposes as having become the record holder of such shares of Common Stock at such time.

 

(iii) Reservation of Common Stock. The Corporation shall at all times reserve, and keep available for issuance upon the conversion of the Series A Preferred Stock, such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all outstanding shares of Series A Preferred Stock, and shall take all action required to increase the authorized number of shares of Common Stock if necessary to permit the conversion of all outstanding shares of Series A Preferred Stock.

 

  3  
 

 

(e) Conversion Price Adjustments for Splits and Certain Dilutive Issuances. The Conversion Price applicable to the Series A Preferred will be subject to adjustment from time to time as follows:

 

(i) Adjustments for Stock Dividends, Distributions, Reclassifications, Etc. If the Corporation shall, at any time or from time to time after the Series A Original Issue Date, subdivide the Common Stock (or other shares of capital stock convertible into Common Stock), by stock split or otherwise, or combine the Common Stock, or issue additional shares of Common Stock (or other shares of capital stock convertible into Common Stock) in payment of a stock dividend on the Common Stock, the Series A Conversion Price shall forthwith be proportionately decreased in the case of a subdivision or stock dividend, or proportionately increased in the case of a combination, with the effect that the Series A Conversion Ratio shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination.

 

(ii) Full Ratchet Protection . If at any time after the date of filing of these Articles (x) the Corporation shall issue shares of Common Stock (or other shares of capital stock convertible into Common Stock), and (y) the consideration per share payable to the Corporation for the Common Stock (or other share of capital stock convertible into Common Stock) reflects a pre-money imputed equity value of the Corporation of less than $5.5 million, then in each such case (subject to Section B.2(e)(iv)), the Series A Conversion Price, shall be reduced to the lowest price per share at which any such share of Common Stock (or other share of capital stock convertible into Common Stock) has been so issued or sold.

 

(iii) Adjustments Only After Stock Issued; Determination of Consideration .

 

(A) The mere issuance of options, warrants or other securities (other than capital stock) convertible into capital stock of the Corporation shall not require an adjustment hereunder until such securities are exercised or converted into Common Stock capital stock of the Corporation (or capital stock convertible into Common Stock of the Corporation).

 

(B) For purposes of Section B.2(e)(ii), the reference to the consideration received by the Corporation for an issuance of capital stock convertible into Common Stock shall mean the aggregate of the consideration received for the issuance of such capital stock, plus the consideration that will be payable to the Corporation upon its conversion into Common Stock.

 

(iv) Exceptions. The provisions of Section B.2(e)(ii) shall not apply to the following issuances:

 

(A) any issuance covered by Section B.2(e)(i);

 

(B) any stock options granted to employees or directors of the Corporation or the issuance of shares upon exercise thereof;

 

(C) any issuance as consideration for mergers or acquisitions;

 

(D) any issuance in connection with the formation of joint ventures, strategic business relationships, or corporate partnering transactions; or

 

(E) any issuance of shares in an initial public offering.

 

  4  
 

 

(v) Effectiveness. Any adjustment made pursuant to Section B.2(e)(ii) above shall be made on the next Business Day following the date on which any such issuance is made and shall be effective retroactively immediately after the close of business on such date.

 

(f) Other Provisions.

 

(i) Certain Distributions . In the event the Corporation shall declare a distribution payable in securities of other Persons, evidences of indebtedness issued by the Corporation or other Persons, assets (excluding cash dividends) or options or rights not referred to in this Section B.2 to the holders of Common Stock, then, in each such case for the purpose of this Section B.2, the holders of the Series A Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which such shares of Series A Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution.

 

(ii) Recapitalization . If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section B.2), provision shall be made so that the holders of the Series A Preferred Stock shall thereafter be entitled to receive upon conversion of their Series A Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section B.2 with respect to the rights of the holders of the Series A Preferred Stock after the recapitalization to the end that the provisions of this Section B.2 (including adjustment of the applicable Series A Conversion Price for the Series A Preferred Stock then in effect and the number of shares issuable upon conversion of the Series A Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable.

 

(iii) No Impairment . The Corporation will not, by amendment of its Certificate or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section B.2 and in the taking of all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Series A Preferred Stock against impairment.

 

(iv) Reorganization . If any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with and into another corporation shall be effected while any shares of Preferred Stock are outstanding in such a manner that holders of shares of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, consolidation or merger, lawful and adequate provision shall be made whereby each holder of Series A Preferred Stock shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon conversion of Series A Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore so receivable had such reorganization or reclassification, consolidation, merger or sale not taken place, and in such case appropriate provision shall be made with respect to the rights and interests of the holders of Series A Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Series A Conversion Price and of the number of shares of Common Stock issuable upon conversion thereof) shall thereafter be applicable, as nearly as may be reasonably possible, in relation to any shares of stock, securities or assets thereafter deliverable upon the conversion of such shares of Series A Preferred Stock. Prior to or simultaneously with the consummation or any such consolidation or merger of the Corporation, the survivor or successor corporation (if other than the Corporation) resulting from such consolidation or merger shall assume by written instrument executed and mailed or delivered to each holder of Series A Preferred Stock, the obligation to deliver to such holders of Series A Preferred Stock such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder of Series A Preferred Stock may be entitled to receive, and containing the express assumption of such successor corporation of the due and punctual performance and observance of every provision of this Certificate (as such may be amended from time to time) to be performed and observed by the Corporation and of all liabilities and obligations of the Corporation hereunder with respect to the Series A Preferred Stock.

 

  5  
 

 

(v) Certificate of Adjustment. Upon the occurrence of each adjustment or readjustment of the applicable Series A Conversion Price pursuant to this Section B.2, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock so affected a statement, signed by its chief financial officer or other appropriate officer, setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) Series A Conversion at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of Series A Preferred Stock held by such holders.

 

(vi) Notice of Certain Corporate Action . If any time or from time to time the Corporation shall pay any stock dividend or make any other non-cash distribution to the holders of its Common Stock, or shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or any other right, or there shall be any capital reorganization or reclassification of the Common Stock of the Corporation or consolidation or merger of the Corporation with or into another corporation, or any sale or conveyance to another corporation of the property of the Corporation as an entirety or substantially as an entirety, or there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation, then, in any one or more of said cases, the Corporation shall give at least 20 days’ prior written notice to the registered holders of Series A Preferred Stock at the addresses of each as shown on the books of the Corporation as of the date on which (i) the books of the Corporation shall close or a record shall be taken for such stock dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, sale or conveyance, dissolution, liquidation or winding up shall take place, as the case may be, provided that in the case of any liquidation to which this Section B.2(f)(vi) applies the Corporation shall give at least 30 days’ prior written notice as aforesaid. Such notice shall also specify the date as of which the holders of the Common Stock of record shall participate in said dividend, distribution or subscription rights or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or conveyance or participate in such dissolution, liquidation or winding up, as the case may be. Notwithstanding the foregoing, failure to give such notice shall not invalidate any action so taken.

 

(vii) Enforcement . Any registered holder of Series A Preferred Stock may proceed to protect and enforce its rights by any available remedy by proceeding at law or in equity to protect and enforce any such rights, whether for the specific enforcement of any provision in this Certificate or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

 

  6  
 

 

(viii) No Reissuance of Preferred Stock . No Series A Preferred Stock acquired by the Corporation by reason of redemption, purchase, or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Corporation shall be authorized to issue.

 

(ix) Notices . All notices to the Corporation or to the holders of the Series A Preferred Stock permitted hereunder shall be in writing personally delivered or sent by first class mail, postage prepaid, addressed (A) in the case of a notice to the Corporation, to its principal executive offices, attention of the Chief Executive Officer (or to such other address as the Corporation shall designate by notice thereof given to the holders of the Series A Preferred Stock) or (B) in the case of a notice to the holders of the Series A Preferred Stock, to their respective addresses appearing on the books of the Corporation.

 

(g) Redemption of Series A Preferred Stock . At any time following the first anniversary of the Series A Original Issuance Date, the Company may, provided that the value of the Corporation exceeds $6 million as determined by the Board of Directors of the Company, redeem all, but not less than all, of the outstanding shares of Series A Preferred Stock on ten (10) days prior written notice to the holders thereof, in consideration for payment by the Corporation to the holders of $500 per share of Series A Preferred Stock plus all Accruing Dividends then accrued.

 

C. Attributes of Common Stock .

 

1. Voting . The holders of Common Stock are entitled to one vote for each share held. There shall be no cumulative voting.

 

2. Dividends . Dividends may be declared and paid on the Common Stock from funds lawfully available therefor if, as and when determined by the Board of Directors in their sole discretion, subject to provisions of law, any provision of this Certificate, and subject to the relative rights and preferences of any shares of Series A Preferred Stock authorized and issued hereunder.

 

3. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, holders of Common Stock shall be entitled to share ratably in the remaining assets of the Corporation available for distribution to its stockholders.

 

ARTICLE THREE

DIRECTOR’S LIABILITY

 

(a) To the fullest extent permitted by applicable law, no director of the Corporation shall have any liability to the Corporation or its shareholders for monetary damages for any action or failure to take action, including, without limitation, for breach of duty of care or other duty as a director, except that this provision shall not eliminate or limit the liability of a director for:

 

(i) any appropriation, in violation of his or her duties, of any business opportunity of the Corporation;

 

(ii) acts or omissions which involve intentional misconduct or a knowing violation of law;

 

  7  
 

 

(iii) the types of liability set forth in Section 14-2-832 of the Georgia Business Corporation Code dealing with unlawful distributions of corporate assets to shareholders; or

 

(iv) any transaction from which the director received an improper personal benefit.

 

(b) Neither the amendment or repeal of this Article nor the adoption of any provisions to the Amended and Restated Articles of Incorporation inconsistent with this Article shall eliminate or adversely affect any right or protection of any director of the Corporation existing immediately prior to such amendment or repeal or adoption.

 

(c) If the Code is amended, after this Article becomes effective, to authorize corporate action further eliminating or limiting personal liability of directors, then, without further corporate action, the liability of each director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Code, as so amended.

 

ARTICLE FOUR

INDEMNIFICATION

 

(a) Each person who is or was a director or officer of the Corporation shall be indemnified by the Corporation to the fullest extent permitted by applicable law against those expenses (including attorneys’ fees), judgments, fines, penalties, and amounts paid in settlement which are allowed to be paid or reimbursed by the Corporation under the laws of the State of Georgia and which are actually and reasonably incurred in connection with any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, in which such person may be involved by reason of his being or having been a director or officer of this Corporation.

 

(b) Notwithstanding anything contained herein to the contrary, this Article is intended to provide indemnification to each director and officer of the Corporation to the fullest extent authorized by the Code, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader rights than said statute permitted the Corporation to provide prior thereto).

 

These Amended and Restated Articles of Incorporation contain amendments requiring shareholder approval and were duly adopted in accordance with the applicable provisions of Section 14-2-1003 of the Georgia Business Corporation Code by the Board of Directors of and shareholders of the Corporation on November 23, 2015.

 

IN WITNESS WHEREOF, the undersigned has executed these Amended and Restated Articles of Incorporation the 10th day of February, 2016.

 

  OMX HOLDINGS, INC.
   
  By:  
    Sheldon Krause, Secretary

  

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PROMISSORY NOTE

 

Principal Amount: $200,000 Funding Date: January 14, 2016

 

FOR VALUE RECEIVED, Acorn Energy, Inc., a Delaware corporation (the “Borrower”), hereby promises to pay to the order of Edgar S. Woolard or the holder of this Note (the “Lender”), on the Maturity Date (as defined below) at such place of payment as the holder of this Promissory Note (this “Note”) may specify from time to time in writing, in lawful money of the United States of America, a single payment equal to 115% of the Principal Amount set forth above, which payment shall be in full satisfaction of any and all obligations of the Borrower to Lender under this Note. The Maturity Date shall be the third business day following the date of the receipt by the Borrower of proceeds upon the closing of the contemplated sale by the Borrower of a portion of its shares of DSIT Solutions Ltd. (the “DSIT Closing Date”).

 

By written notice, the Lender, assuming that he is not at such time in possession of material inside information, may by written notice to the Borrower on or prior to the day preceding Maturity Date, elect to all (but not part) of the amount payable to Lender under this Note into Common Stock of the Borrower at a conversion price equal to the closing price of the Common Stock of the Borrower on the principal market for such Common Stock on the trading day immediately preceding the Maturity Date.

 

This Promissory Note has been negotiated and delivered to Lender and is payable in the State of Delaware. This Note shall be governed by and construed and enforced in accordance with, the laws of the State of Delaware, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction.

  

  ACORN ENERGY, INC.
     
  By: John A. Moore
  Title: Chief Executive Officer

 

     
 

   

PROMISSORY NOTE

 

Principal Amount: $100,000 Funding Date: January 15, 2016

 

FOR VALUE RECEIVED, Acorn Energy, Inc., a Delaware corporation (the “Borrower”), hereby promises to pay to the order of Visionary Enhancement, LLC or the holder of this Note (the “Lender”), on the Maturity Date (as defined below) at such place of payment as the holder of this Promissory Note (this “Note”) may specify from time to time in writing, in lawful money of the United States of America, a single payment equal to 115% of the Principal Amount set forth above, which payment shall be in full satisfaction of any and all obligations of the Borrower to Lender under this Note. The Maturity Date shall be the third business day following the date of the receipt by the Borrower of proceeds upon the closing of the contemplated sale by the Borrower of a portion of its shares of DSIT Solutions Ltd. (the “DSIT Closing Date”).

 

By written notice, the Lender, assuming that he is not at such time in possession of material inside information, may by written notice to the Borrower on or prior to the day preceding Maturity Date, elect to all (but not part) of the amount payable to Lender under this Note into Common Stock of the Borrower at a conversion price equal to the closing price of the Common Stock of the Borrower on the principal market for such Common Stock on the trading day immediately preceding the Maturity Date.

 

This Promissory Note has been negotiated and delivered to Lender and is payable in the State of Delaware. This Note shall be governed by and construed and enforced in accordance with, the laws of the State of Delaware, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction.

 

  ACORN ENERGY, INC.
     
  By: John A. Moore
  Title: Chief Executive Officer

 

     
 

 

 

THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ACORN ENERGY, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

 

Void after 5:00 P.M. New York City time on the last day of the Exercise Period,
as defined in this Warrant

 

COMMON STOCK PURCHASE WARRANT

OF

ACORN ENERGY, INC.

 

This is to certify that, FOR VALUE RECEIVED, Leap Tide Capital Management LLC (the “ Holder ”), is entitled to purchase, subject to the provisions of this Warrant, from ACORN ENERGY, INC., a Delaware corporation (the “ Company ”), at an exercise price per share of Thirteen Cents ($0.13), subject to adjustment as provided in this Warrant (the “ Warrant Exercise Price ”), thirty-five thousand (35,000) shares of common stock, par value $0.01 per share, of the Company (the “ Common Stock ”). The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as the “ Warrant Shares .”

 

1. DEFINITIONS . The following terms shall have the meanings set forth below:

 

Convertible Securities ” shall mean evidences of indebtedness, shares of stock or other securities, which are convertible into or exchangeable, with or without payment of additional consideration in cash and/or property, for shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event.

 

Exercise Period ” shall mean the period (i) commencing (A) on the Issuance Date with respect to one-fourth of the Warrant Shares, (B) on June 16, 2016 with respect to an additional one-fourth of the Warrant Shares, (C) on September 16, 2016 with respect to an additional one-fourth of the Warrant Shares and (D) on December 16, 2016 with respect to the remaining one-fourth of the Warrant Shares, and (ii) ending at 5:00 p.m., Eastern Time, on the earlier of (A) March 16, 2023 or (B) 18 months from the date Jan H. Loeb ceases to be a director, officer, employee or consultant of the Company.

 

“Fair Market Value ” of a share of Common Stock as of a particular date (the “Determination Date”) shall mean:

  

(a) If the Company’s Common Stock is traded on an exchange, then the closing or last sale price, reported for the last business day immediately preceding the Determination Date.

 

(b) If the Company’s Common Stock is not traded on an exchange but is traded on the OTCQB, the Pink Sheets, or other public trading market, then the mean of the average of the closing bid and asked prices on such market reported for the last business day immediately preceding the Determination Date.

 

     
 

 

“Issuance Date” shall mean March 16, 2016.

 

“Securities Act” means the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder.

 

2. EXERCISE OF WARRANT .

 

(a) This Warrant may be exercised in whole or in part at any time or from time to time from the Issuance Date until the end of the Exercise Period by presentation and surrender of this Warrant to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Warrant Exercise Price (or in certain events, by “cashless” exercise as provided in Sections 2(b) and 2(c) below) for the number of shares of Common Stock specified in such form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder to purchase the balance of the shares of Common Stock purchasable hereunder. Upon receipt by the Company of this Warrant at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then actually be delivered to the Holder. As soon as practicable after each exercise of this Warrant, in whole or in part, and in any event within five (5) days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder hereof or, subject to Section 10 hereof, as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct, a certificate or certificates (with appropriate restrictive legends, as applicable) for the number of duly authorized, validly issued, fully paid and non-assessable shares of Common Stock to which the Holder shall be entitled upon exercise. All issuances of Common Stock pursuant to the exercise of this Warrant shall be rounded down to the nearest whole share.

 

(b) If a registration statement filed by the Company under the Securities Act is effective and the Holder may utilize it to sell the Warrant Shares, this Warrant may be exercisable in whole or in part for cash only as set forth in Section 2(a) above. If no such registration statement is then effective, then payment upon exercise may be made at the option of the Holder either in (i) cash, wire transfer or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Warrant Exercise Price, (ii) by surrender of all or a portion of this Warrant in accordance with Section 2(c) below (“cashless exercise”) or (iii) by a combination of any of the foregoing methods, for the number of shares of Common Stock specified in such form and the Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (or other securities) determined as provided herein.

 

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(c) If the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below) and no registration statement relating to the shares of Common Stock underlying this Warrant is effective, in lieu of exercising this Warrant for cash, the holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being cancelled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Subscription Form, in which event the Company shall issue to the holder a number of shares of Common Stock computed using the following formula:

 

X= Y ( A-B )
     A

 

  Where X=   the number of shares of Common Stock to be issued to the Holder
       
  Y=   the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)
       
  A=   the Fair Market Value of one share of the Company’s Common Stock (at the date of such calculation)
       
  B=   Warrant Exercise Price (as adjusted to the date of such calculation)

 

(d) Common Stock Legend . The Holder acknowledges and agrees that until such time as the Warrant Shares have been registered and sold in accordance with an effective registration statement, or pursuant to an exemption from registration, certificates and other instruments representing any of the Warrant Shares shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of any such securities):

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ACORN ENERGY, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

3. RESERVATION OF SHARES/FRACTIONAL SHARES . The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of Common Stock as shall be required for issuance and delivery upon exercise of this Warrant. No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant. Instead, the Company will round up to the nearest whole share.

 

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4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT . This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender of this Warrant to the Company for other Warrants of different denominations entitling the Holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any applicable transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation of this Warrant at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term “Warrant” as used herein includes any Warrants into which this Warrant may be divided or for which it may be exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, (and, in the case of loss, theft or destruction, of a reasonably satisfactory surety bond), and upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone; provided, however, that if the original Warrant shall be presented for transfer by a protected purchaser (as defined in Section 8-303 of the Uniform Commercial Code), then in addition to any rights on the surety bond or indemnity, the Company may recover the new Warrant in accordance with the provisions of Section 8-405 of the Uniform Commercial Code.

 

5. RIGHTS AND OBLIGATIONS OF THE HOLDER . The Holder shall not, by virtue of this Warrant, be entitled to any rights of a stockholder of the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein. In addition, no provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

6. ANTI-DILUTION PROVISIONS .

 

The Warrant Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of each Warrant, shall be subject to adjustment as follows. The Company shall give each Holder notice of any event described below which requires an adjustment pursuant to this Section 6 at the time of such event:

 

(a) Stock Dividends, Subdivisions and Combinations . If at any time the Company shall:

 

(i) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, shares of Common Stock,

 

(ii) subdivide or reclassify its outstanding shares of Common Stock into a larger number of shares of Common Stock, or

 

(iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares of Common Stock or otherwise effect a reverse stock split, then:

 

(A) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event, would own or be entitled to receive after the happening of such event, and (B) the Warrant Exercise Price shall be adjusted to equal: (x) the Warrant Exercise Price immediately prior to such event multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (y) the number of shares for which this Warrant is exercisable immediately after such adjustment.

 

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(b) Certain Other Distributions and Adjustments .

 

(i) If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of:

 

(A) cash,

 

(B) any evidences of its indebtedness, any shares of its capital stock or any other securities or property of any nature whatsoever (other than Convertible Securities or shares of Common Stock), or

 

(C) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or shares of Common Stock), then, in the case of (A) the Warrant Exercise Price shall be reduced by the amount of such cash dividend when paid, or in the case of (B) or (C) the Warrant Holder shall be given notice as provided by Section 8 of this Warrant and the opportunity to exercise the Warrant prior to any such distribution.

 

A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock and in such event the Holder shall be entitled to receive such distribution as if the Holder had exercised this Warrant and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 6(a).

 

7. OFFICER’S CERTIFICATE . Whenever the Warrant Exercise Price(s) shall be adjusted as required by the provisions of Section 6 of this Warrant, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer’s certificate showing the adjusted Warrant Exercise Price(s) and the adjusted number of shares of Common Stock issuable upon exercise of this Warrant, determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer’s certificate shall be forwarded to the Holder in the manner provided in Section 12 hereof.

 

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8. NOTICES TO WARRANT HOLDERS . So long as this Warrant shall be outstanding, (a) if the Company shall pay any dividend or make any distribution upon Common Stock, or (b) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another entity, tender offer transaction for the Company’s Common Stock, sale, lease or transfer of all or substantially all of the property and assets of the Company, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, or (c) if the Company shall file a registration statement under the Securities Act, on any form other than on Form S-4 or S-8 or any successor form, then in any such case, the Company shall cause to be mailed by certified mail to the Holder, at least ten (10) days prior to the date specified in clauses (a), (b) or (c) as the case may be, of this Section 8 a notice containing a brief description of the proposed action and stating the date on which (i) a record is to be taken for the purpose of such dividend, distribution or rights, or (ii) such reclassification, reorganization, consolidation, merger, tender offer transaction, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up, or (iii) such registration is filed with the Securities and Exchange Commission.

 

9. RECLASSIFICATION, REORGANIZATION OR MERGER . In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing or surviving corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance of all or substantially all of the assets of the Company, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that (i) the Holder shall have the right thereafter by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which could have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance, and (ii) the successor or acquiring entity shall expressly assume the due and punctual observance and performance of each covenant and condition of this Warrant to be performed and observed by the Company and all obligations and liabilities hereunder (including but not limited to the provisions of Section 6 regarding the increase in the number of Warrant Shares potentially issuable hereunder). Any such provision shall include provision for adjustments which shall be as nearly equivalent as possible to the adjustments provided for in this Warrant. The foregoing provisions of this Section 9 shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issuance of Common Stock covered by the provisions of Section 6 of this Warrant.

 

10. TRANSFER TO COMPLY WITH THE SECURITIES ACT . This Warrant, the Warrant Shares or any other security issued or issuable upon the exercise of this Warrant may not be sold or otherwise disposed of except as follows:

 

(a) to a person who, in the opinion of counsel for the Company, is a person to whom this Warrant or Warrant Shares may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act with respect thereto and then only against receipt by the Company of an agreement of such person to comply with the provisions of this Section 10 with respect to any resale or other disposition of such securities, which agreement shall be satisfactory in form and substance to the Company and its counsel; or

 

(b) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act relating to such securities and the offering thereof for such sale or disposition.

 

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11. GOVERNING LAW; JURISDICTION . The corporate laws of the State of New York shall govern all issues concerning the relative rights of the Company and its stockholders. All issues concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to the principles of conflicts of law thereof. The parties hereto agree that venue in any and all actions and proceedings related to the subject matter of this Warrant shall be in the state and federal courts in and for New York, New York, which courts shall have exclusive jurisdiction for such purpose, and the parties hereto irrevocably submit to the exclusive jurisdiction of such courts and irrevocably waive the defense of an inconvenient forum to the maintenance of any such action or proceeding. Service of process may be made in any manner recognized by such courts. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.

 

12. NOTICES . Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 5:00 p.m. (New York City time) on a Business Day, (b) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Agreement later than 5:00 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (c) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

 

  If to the Company: Acorn Energy, Inc.
    3844 Kennett Pike
    Wilmington, DE 19807
    Attn: Christopher E. Clouser, Chairman
     
  If to the Holder: Leap Tide Capital Management LLC
    10451 Mill Run Circle Suite 400
    Owings Mills, MD 21117
    Attn: Jan H. Loeb

 

13. PAYMENT OF TAXES . The Company will pay the cost of all applicable documentary stamp taxes, if any, attributable to the issuance of shares of Common Stock underlying this Warrant upon exercise of this Warrant; provided , however , that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificate for shares of Common Stock underlying this Warrant in a name other that of the Holder. The Holder is responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving shares of Common Stock underlying this Warrant upon exercise hereof.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF , this Warrant has been duly executed as of March 16, 2016.

 

  ACORN ENERGY, INC.
     
  By:  
    Christopher E. Clouser
    Chairman
     
  By:  
    Michael Barth
    Chief Financial Officer

 

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Exhibit A

FORM OF EXERCISE NOTICE

(To be signed only on exercise of Warrant)

 

TO: Acorn Energy, Inc.

 

The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box):

 

___ shares of the Common Stock covered by such Warrant; or

 

___the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Sections 2(b) and (c) of this Warrant.

 

The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes):

 

___ $__________ in lawful money of the United States; and/or
   
___ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or
   
___ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Sections 2(b) and (c) thereof.

 

The undersigned requests that the certificates for such shares be issued in the name of, and delivered to ____________________________________ whose address is _____________________________________________ _______________________________________________________________________________________________

 

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the “Securities Act”) or pursuant to an exemption from registration under the Securities Act.

 

Dated:      
      (Signature must conform to name of holder as specified on the face of the Warrant)
       
       
      (Print or Type Name)
       
       
      (Address)
       
       
      (Social Security or Tax I.D. Number)

 

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ASSIGNMENT FORM

 

FOR VALUE RECEIVED , __________________________________________ hereby sells, assigns and transfer unto:

 

Name:    
     
  (Please typewrite or print in block letters)  
     
     
Address:    
     
     

 

Social Security or Employer Identification No.:__________________________

 

The right to purchase Common Stock represented by this Warrant to the extent of shares as to which such right is exercisable and does hereby irrevocably constitute and appoint __________________________________ as attorney to transfer the same on the books of the Company with full power of substitution.

 

Dated: _________________, 20__.

 

Signature: _____________________________

 

Signature Guaranteed:

 

 

 

 

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PROMISSORY NOTE

 

Principal Amount: $75,000 Funding Date: March 28, 2016

 

FOR VALUE RECEIVED, Acorn Energy, Inc., a Delaware corporation (the “Borrower”), hereby promises to pay to the order of Christopher Clouser or the holder of this Note (the “Lender”), on the Maturity Date (as defined below) at such place of payment as the holder of this Promissory Note (this “Note”) may specify from time to time in writing, in lawful money of the United States of America, a single payment equal to 115% of the Principal Amount set forth above, which payment shall be in full satisfaction of any and all obligations of the Borrower to Lender under this Note. The Maturity Date shall be the earlier of (i) the third business day following the date of the receipt by the Borrower of proceeds upon the closing of the contemplated sale by the Borrower of a portion of its shares of DSIT Solutions Ltd. (the “DSIT Closing Date”) or (ii) September 1, 2016.

 

By written notice, the Lender, assuming that he is not at such time in possession of material inside information, may by written notice to the Borrower on or prior to the day preceding Maturity Date, elect to all (but not part) of the amount payable to Lender under this Note into Common Stock of the Borrower at a conversion price equal to the closing price of the Common Stock of the Borrower on the principal market for such Common Stock on the trading day immediately preceding the Maturity Date.

 

This Promissory Note has been negotiated and delivered to Lender and is payable in the State of Delaware. This Note shall be governed by and construed and enforced in accordance with, the laws of the State of Delaware, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction.

 

The obligation to pay the principal of and any interest accrued on this Note shall be parri passu with the indebtedness of Acorn under the Loan and Security Agreement with Leap Tide Capital Partners III, LLC.

 

  ACORN ENERGY, INC.
   
     
  By: Jan Loeb
  Title: Chief Executive Officer

 

 

 

 

 

 

 

3844 Kennett Pike

Suite 204-4, Mall Building, Powder Mill Square

Greenville, Delaware 19807

Phone: (302) 656-1708

 

TO: Edgar S. Woolard

 

Dear Mr. Woolard:

 

Reference is made to our promissory note payable to you in the principal amount of $200,000 with a Funding Date of January 14, 2016 (the “Note”).

 

The Note is modified by the addition of the following two paragraphs (shown below in bold) to be inserted at the end of the Note.

 

If the DSIT Closing Date shall not have occurred by September 1, 2016, this Note and all interest accrued thereunder shall be payable on September 1, 2016.

 

The obligation to pay the principal of and any interest accrued on this Note shall be parri passu with the indebtedness of Acorn under the Loan and Security Agreement with Leap Tide Capital Partners III, LLC.

The Note as originally executed and delivered to you remains in full force and effect, as modified pursuant hereto. .

 

  Very truly yours,
   
  Jan H Loeb
  President and CEO

 

 

 

 

 

 

3844 Kennett Pike

Suite 204-4, Mall Building, Powder Mill Square

Greenville, Delaware 19807

Phone: (302) 656-1708

 

TO: Visionary Enhancement, LLC

 

Dear Sirs:

 

Reference is made to our promissory note payable to you in the principal amount of $100,000 with a Funding Date of January 15, 2016 (the “Note”).

 

The Note is modified by the addition of the following two paragraphs (shown below in bold) to be inserted at the end of the Note.

 

If the DSIT Closing Date shall not have occurred by September 1, 2016, this Note and all interest accrued thereunder shall be payable on September 1, 2016.

 

The obligation to pay the principal of and any interest accrued on this Note shall be parri passu with the indebtedness of Acorn under the Loan and Security Agreement with Leap Tide Capital Partners III, LLC.

 

The Note as originally executed and delivered to you remains in full force and effect, as modified pursuant hereto.

 

  Very truly yours,
   
  Jan H Loeb
  President and CEO

 

     

 

 

 

SERIES A PREFERRED STOCK SUBSCRIPTION AGREEMENT

 

This Series A Preferred Stock Subscription Agreement (this “Agreement”) is made as of November 23, 2015, between OMX Holdings, Inc., a Georgia corporation (the “Company”) and Edgar Woolard (the “Purchaser”).

 

WHEREAS, as of October 16, 2015, the Purchaser agreed to acquire shares of Series A Preferred Stock, par value $.001 per share (the “Series A Stock”), to be created by the Company representing ten percent (10%) of the Company’s outstanding capital stock, in consideration for payment of $500,000 to the Company (the “October Shares”); and

 

WHEREAS, as of November 23, 2015, the Purchaser agreed to acquire Series A Preferred Stock representing an additional ten percent (10%) of the Company’s outstanding capital stock in consideration for payment of $500,000 to the Company, together with the October Shares representing twenty percent (20%) of the issued and outstanding capital stock of the Company (the “Shares”).

 

The Company and the Purchaser hereby agree as follows:

 

SECTION 1

Purchase and Sale of the Shares

 

The Purchaser and the Company agree, subject to the terms and conditions hereof and in reliance upon the representations, warranties and agreements contained herein, that the Purchaser will acquire the Shares at a price of $500.00 per share, an aggregate purchase price of $1,000,000 (the “Purchase Price”). The provisions of the Series A Stock are summarized in Exhibit A hereto and are fully set forth in the Amended and Restated Articles of Incorporation (the “Amended and Restated Articles”) to be filed on or before the Closing (as hereinafter defined).

 

SECTION 2

Closing, Payment and Delivery

 

2.1 Closing Date and Place of Closing . The closing (the “Closing”) of the purchase of the Shares shall take place on the date hereof or at such time and location as is mutually agreed by the Purchaser and the Company (the “Closing Date”).

 

2.2 Payment and Delivery of the Shares . The Purchaser has paid the Purchase Price to the Company. At the Closing, the Company will deliver to the Purchaser a certificate representing the Shares.

 

2.3 Covenant of Best Efforts and Good Faith . The Company and the Purchaser agree to use their respective best efforts and to act in good faith to cause to occur all conditions to a closing which are in their respective control.

 

     
 

 

SECTION 3

Representations, Warranties and Covenants of the Company

 

The Company hereby represents and warrants to the Purchaser that:

 

3.1 Organization and Authority . The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Georgia. The Company has all requisite corporate power and authority to own or lease and operate its properties, if any, and to carry on its business as now conducted and as proposed to be conducted.

 

3.2 Corporate Power; Binding Effect. The Company has all requisite power and full legal right to execute and deliver this Agreement, and to perform all of its obligations hereunder in accordance with the terms hereof. This Agreement and the transactions contemplated hereby have been duly approved and authorized by all requisite corporate action on the part of the Company, and this Agreement has been duly executed and delivered by the Company and constitutes a legal, valid, and binding obligation of the Company, enforceable against it in accordance with its respective terms. The execution, delivery, and performance by the Company of this Agreement in accordance with its terms, and the consummation by the Company of the transactions contemplated hereby, will not result (with or without the giving of notice or the lapse of time or both) in any conflict, violation, breach, or default, or the creation of any lien, or the termination, acceleration, vesting, or modification of any right or obligation, under or in respect of (x) the charter documents or by-laws of the Company, (y) any judgment, decree, order, statute, rule, or regulation binding on or applicable to the Company or (z) any agreement or instrument to which the Company is a party or by which it or any of its assets is or are bound.

 

3.4 Foreign Qualification . The Company is not qualified to do business in any jurisdiction other than Georgia.

 

3.5. Subsidiaries . The Company does not have any subsidiaries other than OmniMetrix LLC.

 

3.6. Capitalization .

 

(a) Immediately after the Closing contemplated hereunder, giving effect to the sale and purchase of the Shares provided for in this Agreement, the authorized and the outstanding capital stock of the Company will be as set forth in Exhibit B hereto, and all such outstanding shares of capital stock will be owned (of record and beneficially) by the persons and in the amounts there indicated. All of the Shares, when acquired in accordance with the terms of this Agreement, will be duly authorized, validly issued, fully paid, and nonassessable, and free and clear of liens.

 

(b) The Company does not have, is not bound by, and has no obligation to grant or enter into, any (i) outstanding subscriptions, options, warrants, calls, commitments, pre-emptive rights or agreements of any character calling for it to issue, deliver, or sell, or cause to be issued, delivered, or sold, any shares of its capital stock or any other equity security, or any securities described in the following clause, or (ii) securities convertible into, exchangeable for, or representing the right to subscribe for, purchase, or otherwise acquire any shares of its capital stock or any other equity security.

 

     
 

 

(c) The Company (i) has no outstanding obligations, contractual or otherwise, to repurchase, redeem, or otherwise acquire any shares of capital stock, or other equity securities of the Company, (ii) is not a party to or bound by, and has no knowledge of, any agreement or instrument relating to the voting of any of its securities, and (iii) is not a party to or bound by any agreement or instrument under which any person has the right to require it to effect, or to include any securities held by such person in, any registration under the Securities Act of 1933, as amended (the “Securities Act”).

 

(d) The Company has reserved and will continue to reserve, solely for the purpose of issuance upon conversion of shares of Series A Preferred Stock, a number of shares of Common Stock sufficient to cover the conversion of all such shares of Series A Preferred Stock. The shares Common Stock reserved for issuance upon conversion of the Series A Preferred Stock will be duly authorized, validly issued, fully paid and non-assessable and free and clear of any lien.

 

3.7. Valid Issuance of Purchased Securities . The Shares being issued and sold by the Company hereunder shall upon issuance pursuant to the terms hereof be duly authorized and validly issued, fully paid and non-assessable and free and clear of any lien. The issuance of the Shares will not be subject to any pre-emptive rights or similar rights with respect to the Shares.

 

3.8 Use of Proceeds . The Company shall use the proceeds from the sale of the Shares to the Purchaser for working capital needs of the Company’s Omnimetrix LLC subsidiary (“Omnimetrix”) and for the repayment of indebtedness Omnimetrix owed to the Company’s parent, Acorn Energy, Inc. (“Acorn”).

 

3.9 Board Seat . The holders of the Series A Preferred Stock shall be entitled to designate one member of the Board of Directors of the Company and one manager to serve on the Board of Managers of Omnimetrix.

 

SECTION 4

Representations and Warranties of the Purchaser

 

The Purchaser represents and warrants to the Company that:

 

4.1 Sufficient Resources . Purchaser has sufficient available financial resources to provide adequately for Purchaser’s current needs and can bear the economic risk of a complete loss of Purchaser’s investment hereunder without materially affecting Purchaser’s financial condition.

 

4.2 Access to Information . Purchaser is familiar with the Company from his service as director of the Company’s parent. Purchaser has been provided with all materials relating to the Company and its proposed activities which Purchaser has requested and has been afforded the opportunity to obtain any additional information necessary to verify the accuracy of any representations or information relating to the Company, its proposed activities and the purchase of the Shares.

 

     
 

 

4.3 Answers to Inquiries . The Company has answered all inquiries made by Purchaser concerning the Company and its proposed activities, or any other matters relating to the offering and sale of the Shares and the proposed operations of the Company.

 

4.4 Reliance on Information . The Purchaser has not been furnished any offering literature other than any materials and/or information made available to the Purchaser by the Company as described in subparagraph 4.2 above, and the Purchaser has relied only on such materials and/or information. Furthermore, other than as set forth in this Agreement, no representations or warranties have been made to the Purchaser by the Company, or by its officers or employees with respect to the intended business of the Company, the financial condition, prospects, profitability, operations and/or potential of the Company, and/or the economic or any other aspects of the consequences of an investment in the Shares, and the Purchaser has not relied upon any information concerning the offering, written or oral, other than information contained in this Agreement or provided by the Company to the Purchaser.

 

4.5 Investment Intent . The Purchaser is acquiring the Shares for which the Purchaser hereby subscribes for the Purchaser’s own account, as principal, for investment and not with a view to the resale or distribution of all or any part of such Shares. The Purchaser has no contract, undertaking, agreement, or arrangement with any person to sell, transfer, or grant participation to such person or to any third person, with respect to any of the Shares.

 

4.6 Accredited Investor . The Purchaser is an “accredited investor” within the meaning of Rule 501 of Regulation D of the rules and regulations promulgated under the Securities Act, specifically that the Purchaser has (i) individual net worth, or joint net worth with the Purchaser’s spouse that exceeds $1,000,000 or (ii) individual income in excess of $200,000 in each of the two most recent years or joint income with the Purchaser’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.

 

SECTION 5

Acknowledgments of Purchaser

 

The Purchaser understands and acknowledges that:

 

5.1 The offering of the Shares to the Purchaser has not been registered under the Securities Act, or any state securities laws or regulations, and the Shares will be restricted securities which must be held for an indefinite period of time unless they are subsequently so registered or an exemption from such registration is available.

 

5.2 The Shares are being offered and sold without registration under the Securities Act in reliance upon applicable exemptions under the Securities Act and similar exemptions under state securities laws for private offerings. The availability of the aforesaid exemptions depends in part upon the accuracy of certain of the representations, declarations and warranties which are made by the Purchaser herein and in any other information furnished by the Purchaser to the Company, and the same may be relied upon in determining the suitability of the Purchaser to invest in the Company.

 

     
 

 

5.3 There is no established market for the Shares or the shares of Common Stock issuable upon the conversion thereof and a significant probability exists that no public market for the Shares or shares of Common Stock will develop.

 

SECTION 6

Legend on Stock Certificate

 

The certificate representing the Shares shall be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under any applicable state securities laws):

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

 

Upon request of a holder of Shares, the Company shall remove the foregoing legend or issue to such holder a new certificate therefor free of any such legend, if the Company shall have received either an opinion of counsel or a “no-action” letter of the Securities and Exchange Commission, in either case reasonably satisfactory in substance to the Company and its counsel, to the effect that such legend is not longer required.

 

SECTION 7

Redemption

 

Commencing on the first anniversary of the Closing, the Company may, at any time that the value of the Company exceeds $6 million as determined by the Board of Directors of the Company, redeem all, but not less than all, of the Shares on ten (10) days written notice to the Purchaser, by payment to the Purchaser of the entire Purchase Price plus all accrued and unpaid dividends on the Shares. Purchaser may, during the ten (10) day period following notice of redemption, elect to remain as an investor in the Company by converting the Shares to Common Stock.

 

SECTION 8

Drag Along/Tag Along Rights

 

At any time that Acorn holds at least fifty percent (50%) of the outstanding capital stock of the Company, there shall be a sale of the Company (by way of a merger, recapitalization, sale of stock or all or substantially all of its assets or otherwise) in which Acorn intends to sell all of its capital stock of the Company (“Significant Transaction”), the Purchaser hereby agrees that if requested by the Acorn, the Purchaser shall be required to transfer all of the Shares pursuant to such sale and take any and all other steps required to consummate such sale. In the event that Acorn or the Company proposes to enter into a Significant Transaction, Acorn and the Company each agree to provide at least ten (10) days’ notice to the Purchaser of such proposed Significant Transaction and each further agrees that Purchaser shall be permitted to sell all of the Shares on the same terms as Acorn in such Significant Transaction if the Purchaser so chooses.

 

     
 

 

SECTION 9

Miscellaneous

 

9.1 Governing Law. This Agreement shall be governed by and interpreted and construed in accordance with the internal laws of the State of Delaware (without reference to principles of conflicts or choice of law).

 

9.2 Successors and Assigns . Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of and be binding upon the successors and assigns of the parties.

 

9.3 Entire Agreement; Amendment . This Agreement (including any exhibits hereto) and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated except by a written instrument signed by the Company and the Purchaser.

 

9.4 Notices . All notices and other communications required or permitted hereunder shall be mailed by first-class mail, postage prepaid, or sent by recognized overnight courier, or delivered either by hand or by messenger, addressed (a) if to the Purchaser, at the address set forth below or at such other address as the Purchaser shall have furnished to the Company in writing, or (b) if to any other holder of any Shares, at the address of such holder as shown on the records of the Company, or (c) if to the Company, at its address set forth below or at such other address as the Company shall have furnished to the Purchaser and each such other holder in writing. All such notices or communications shall be deemed given when actually delivered by hand, overnight courier, messenger, facsimile or, if mailed, three days after deposit in the U.S. mail.

 

9.5 Delays or Omission . No delay or omission to exercise any right, power or remedy accruing to any party to this Agreement, upon any breach or default of another party under this Agreement, shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

 

9.6 Severability . In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

9.7 Titles and Subtitles . The titles of the Sections and Subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

 

     
 

 

9.8 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers or partners, as the case may be, as of the day and year first above written.

 

    OMX HOLDINGS, INC.
     
    By:  
    Name: John A. Moore
    Title:  
     
     
    Edgar Woolard
     
    Address:
   
   

 

With respect to Section 8 only:    
     
ACORN ENERGY, INC.    
     
By:      
Name: John A. Moore    
Title: President and Chief Executive Officer    

 

     
 

 

EXHIBIT A

 

SERIES A PREFERRED STOCK TERMS

 

Dividend   Dividend of 10% per annum will accrue on the Series A Preferred Stock from the date of investment. The dividend will be payable on the first anniversary of closing of the initial funding of the investment and quarterly thereafter for so long as the Series A Preferred Stock shall be outstanding and shall not have been converted to Common Stock. The dividend and will be payable in cash or the form of additional shares of Series A Preferred Stock at the election of the Purchaser.
     
Redemption   Commencing 12 months after funding, the Company may, at any time that the value of Omnimetrix exceeds $6 million, redeem the Series A Preferred Stock on 10 days written notice, by payment of the entire amount invested plus all accrued dividends. The Purchaser may, during the 10 day period, elect to remain as an investor by converting the Series A Preferred Stock to Common Stock
     
Conversion; Antidilution Protection   Series A Preferred Stock will convert at the option of the Purchaser on a one-for-one basis into Common Stock, subject to appropriate adjustments for corporate reorganizations, mergers, stock splits, etc. The Series A Preferred Stock shall have full ratchet anti-dilution protection, except for certain excluded issuances, and will not be diluted by any issuances below a pre-money equity valuation of $5.5 million for Omnimetrix.
     
Ranking   Equivalent to the Common Stock, except for the dividend and the anti-dilution protection

 

     
 

 

EXHIBIT B

 

CAPITALIZATION

 

Authorized Capital

 

Common Stock     30,000  
Series A Preferred Stock     5,000  
Preferred Stock (undesignated)     5,000  
      40,000  

 

Issued Capital

 

Stockholder   Shares of Series A Preferred Stock     Shares of Common Stock  
             
Acorn Energy, Inc.     0       8,000  
Purchaser     2,000       0  
      2,000       8,000  

 

Share numbers set forth in this Exhibit B reflect an 80:1 common stock split effected as a dividend on October 15, 2015.

 

     
 

 

 

CONSULTING AGREEMENT

 

This Consulting Agreement is made as this 8th day of January, 2016, by and between Acorn Energy, Inc. (the “Company”) and Leap Tide Capital Management LLC (“Consultant”).

 

R E C I T A L S:

 

WHEREAS , the Board of Directors (the “Board”) of the Company has appointed Jan H. Loeb (“Loeb”) to serve as the Company’s president and chief executive officer;

 

WHEREAS , Loeb is owner of the Consultant;

 

WHEREAS , the Board desires to engage the Consultant to provide executive management services to the Company, upon the terms and conditions hereinafter set forth; and

 

WHEREAS , the Consultant has agreed to provide such executive management services to the Company, upon the terms and conditions hereinafter set forth.

 

NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 

1. Engagement . The Company hereby agrees to engage Consultant to render the consulting services described herein, and Consultant hereby accepts such engagement.
   
2. Term . The engagement of Consultant by the Company as provided in Section 1 shall commence on the date hereof and continue through and until January 7, 2017 unless further extended or earlier terminated as hereinafter provided (the period of such engagement, the “Term”).
   
3. Services . Consultant shall make the services of Loeb available to the Company and shall provide such other services to the Company as the Consultant and the Company shall mutually agree upon from time to time. The Consultant shall cause Loeb to serve as the Company’s principal executive officer in the capacities of president and chief executive officer, with all the power and authority and executing all the functions associated with such offices, and to cause Loeb to commit sufficient business time to effectively discharge the responsibilities of the Company’s president and Chief Executive Officer, without any additional compensation. The foregoing notwithstanding, nothing in this Agreement shall restrict Loeb from performing his other duties at the Consultant and/or accepting consulting or employment arrangements or other positions outside of his activities for the Company.
   
4. Payment and Expenses .
     
  (a) Cash Payment . The Company shall pay to Consultant compensation in the amount of $17,000.00 per month during the Term.

 

     

 

 

  (b) Warrants . Consultant shall be entitled to purchase at an aggregate price of $100, warrants to purchase 35,000 shares of Common Stock. The warrants shall be issued on the later of (i) the day of the filing of an amendment to the Certificate of Incorporation of the Company to increase the authorized shares of the Company or (ii) if such amendment is not approved, April 1, 2016. The warrants shall be exercisable at an exercise price equal to the closing price of the common stock on the trading day preceding the issue date and will allow for cashless exercise if there is no effective registration statement covering the issuance or resale of the shares. The vesting period, exercise period and other terms shall otherwise be substantially the same as the terms of the options granted by the Company to its outside directors.
     
  (c) Expenses . The Consultant and Loeb shall be entitled to reimbursement for any out of pocket expenses (travel, transportation, office, etc.) incurred in connection with the consulting services rendered pursuant hereto.
     
  (d) D&O Coverage. The Company has confirmed that Loeb will be covered by the Company’s primary and excess D&O insurance policy in his capacities of director as well as president and chief executive officer, notwithstanding the fact that he is not an employee of the Company, on the same basis as the other directors and executive officers of the Company.
     
  (e) No Other Compensation . Other than as set forth herein or otherwise agreed in writing, neither the consultant nor Loeb shall receive any other compensation or benefits in connection with this agreement or Mr. Loeb’s service as a director and president and chief executive officer of the Company.

 

5. Termination . Either party may terminate the Term for any or no reason upon thirty (30) days’ notice to the other party, provided however, that in the event of termination by the Company, Consultant shall still be entitled to the payments provided for in Section 4(a) through the end of the given Term.
   
6. Covenants of Consultant .
     
  (a) Consultant recognizes that the knowledge of, information concerning and relationship with customers, suppliers and agents, and the knowledge of the Company’s business methods, systems, plans and policies which Consultant will establish, receive or obtain as a consultant to the Company, are valuable and unique assets of the business of the Company. Consultant will not and agrees to ensure that Loeb will not, during or following the Term, use or disclose any such knowledge or information pertaining to the Company, its customers, suppliers, agents, policies or other aspects of its business, for any reason or purpose, whatsoever except pursuant to Consultant’s duties hereunder or as otherwise authorized by the Company in writing. The foregoing restriction shall not apply, following termination of Consultant’s engagement hereunder, to knowledge or information which (i) is in or enters the public domain without violation of this Agreement or other obligations of confidentiality by Consultant or its agents or representatives, (ii) Consultant can demonstrate was in its possession on a non-confidential basis prior to the commencement of this engagement with the Company, or (iii) Consultant can demonstrate was received or obtained by it on a non-confidential basis from a third party who did not acquire it wrongfully or under an obligation of confidentiality, subsequent to the termination of the Consultant’s engagement hereunder.

 

  2  

 

 

  (b) All memoranda, notes, records or other documents made or compiled by Consultant or made available to Consultant while engaged concerning customers, suppliers, agents or personnel of the Company, or the Company’s business methods, systems, plans and policies, shall be the Company’s property and shall be delivered to the Company on termination of Consultant’s engagement or at any other time on request.
     
  (c) During the term of Consultant’s engagement and for one year thereafter, Consultant shall not and shall ensure that Loeb shall not, except pursuant to and in furtherance of Consultant’s duties hereunder, directly or indirectly solicit or initiate contact with any employee of the Company or its subsidiaries with a view to inducing or encouraging such employee to leave the employ of the Company for the purpose of being hired by Consultant, an employer affiliated with Consultant or any competitor of the Company.
     
  (d) Consultant acknowledges that the provisions of this section are reasonable and necessary for the protection of the Company and that the Company will be irrevocably damaged if such covenants are not specifically enforced. Accordingly, Consultant agrees that, in addition to any other relief to which the Company may be entitled in the form of actual or punitive damages, the Company shall be entitled to seek and obtain injunctive relief from a court of competent jurisdiction for the purposes of restraining Consultant from any actual or threatened breach of such covenants.

 

7. Independent Contractor Status . It is the express intention of the Company and Consultant that the Consultant performs the covered services under this Agreement as an independent contractor to the Company and that Loeb is also provided such services, including his services as president and chief executive officer of the Company, as an independent contractor. Nothing in this Agreement shall in any way be construed to constitute the Consultant or Loeb as employees.
   
8. Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof. This Agreement may not be modified or extended except by a writing signed by both parties hereto. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and assigns.
   
9. Governing Law . This Agreement and all matters and issues collateral thereto shall be governed by the laws of the State of Delaware applicable to contracts performed entirely therein.

 

  3  

 

 

10. Severability . If any provision of this Agreement, as applied to either party or to any circumstance, shall be adjudged by a court to be void and unenforceable, the same shall in no way affect any other provision of this Agreement or the validity or enforceability thereof.
   
11. Notices. All notices or other communications hereunder shall be given in writing and shall be deemed given if served personally, mailed by registered or certified mail, return receipt requested or sent by nationally recognized courier service, to the parties at the addresses below, or at such other address or addresses as they may hereafter designate in writing.

 

If to the Company:

 

3844 Kennett Pike

Suite 204-4

Mall Building

Powder Mill Square

Greenville, Delaware 19807

 

If to Consultant:

 

10451 Mill Run Circle

Suite 400

Owings Mills, MD 21117

 

[Remainder of page intentionally left blank]

 

  4  

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written.

 

  ACORN ENERGY, INC.
   
  By:  
  Name: Christopher Clouser
  Title: Chairman of the Board
     
  By:  
  Name: Michael Barth
  Title: Chief Financial Officer
   
  Leap Tide Capital Management LLC
   
  By:  
  Name: Jan Loeb
  Title: Managing Member

 

  5  

 

 

 

 

SHARE PURCHASE AGREEMENT

 

THIS SHARE PURCHASE AGREEMENT (this “ Agreement ”), is entered into effective as of January 28, 2016 by and among (i) DSIT SOLUTIONS LTD. (the “ Company ”), (ii) RAFAEL ADVANCED DEFENSE SYSTEMS LTD. (the “ Purchaser ”), (iii) each of the Persons identified on Exhibit A , the “ Sellers ”), and (iv) Michael Barth, as the Shareholders Representative.

 

RECITALS

 

WHEREAS, the Sellers, the Signing Sellers and the Non-Signing Sellers, as defined below own of record and beneficially 100% of the issued and outstanding share capital of the Company on a Fully Diluted Basis, as of the date hereof and as of Closing;

 

WHEREAS, each of the Signing Sellers listed in Exhibit A-1 shall execute prior to the Closing an Exercise, Sale and Waiver Letter in the form attached hereto as Exhibit A-2 (the “Signing Sellers Exercise, Sale and Waiver Letter”) under which such Signing Seller shall exercise all of its Options prior to the Closing and shall sell certain of the Shares received pursuant to such exercise to Purchaser;

 

WHEREAS, each of the Non-Signing Sellers listed in Exhibit A-3 shall execute prior to the Closing an Exercise, Sale and Waiver Letter in the form attached hereto as Exhibit A-4 (the “Non-Signing Sellers Exercise, Sale and Waiver Letter”) under which each of such Non-Signing Seller shall exercise all of its Options prior to the Closing and shall sell all of the Shares received pursuant to such exercise to Purchaser;

 

WHEREAS, the Purchaser desires to acquire 50% of the share capital of the Company on a Fully Diluted Basis, free and clear of any Liens, and the Sellers, the Signing Sellers and the Non-Signing Sellers desire to sell to the Purchaser in the aggregate 50% of the shares of the Company on a Fully Diluted Basis, on the terms and conditions set forth herein; and

 

NOW, THEREFORE, in consideration of the mutual representations, warranties, promises, covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

 

Article I

Definitions

 

Section 1.01 Certain Definitions.

 

As used in this Agreement, the following terms have the following meanings:

 

Accounting Principles ” means generally accepted accounting principles in the United States (“ US GAAP ”), consistently applied throughout the respective periods covered.

 

Acquisition Proposal ” means any oral or written agreement, offer, proposal or bona fide indication of interest (other than this Agreement or any other offer, proposal or indication of interest by the Purchaser), or any public announcement of intention to enter into any such agreement or of (or intention to make) any offer, proposal or bona fide indication of interest, with respect to an Acquisition Transaction.

 

     
     

 

Acquisition Transaction ” means, whether in any single transaction or series of transactions: (a) any transaction or series of transactions involving the sale, lease, license, pledge, exchange, transfer or other disposition of all or any portion of the Company’s business or assets (or any material asset) (other than in the ordinary course consistent with past practice); (b) the issuance, disposition or acquisition of (i) any share capital or other equity security of the Company, (ii) any option, call, warrant or right (whether or not immediately exercisable) to acquire any share capital, unit or other equity security of the Company, or (iii) any security, instrument or obligation that is or may become convertible into or exchangeable for any share capital or other equity security of the Company; (c) any merger, consolidation, business combination, plan of arrangement, joint venture, reorganization, recapitalization, tender offer, exchange or similar transaction involving the Company, its equity or assets; or (d) any liquidation, dissolution or winding up of the Company.

 

Affiliate ” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with such Person. For purposes of this definition, “control” (including the terms “controlled by” and “under common control with”), when used with respect to any specified Person, means the possession, directly or indirectly, of the power to direct or cause the direction of such Person or the management of such Person, whether through ownership of voting securities, by contract or otherwise. With respect to any Persons jointly holding, each holder and its respective Affiliates. In case of any obligation of the Purchaser, such term shall only mean any other Person controlled by the Purchaser.

 

Antitrust Laws ” shall mean any applicable local or foreign competition, antitrust or investment or trade regulatory Applicable Laws, including the Israeli Restrictive Trade Practices Law, 5748-1988 and the regulations promulgated thereunder.

 

Applicable Law ” means, with respect to any Person, any law, including any federal, state, local, municipal, or other law (including common law), statutes, regulations, regulatory guidance, directives, constitution, treaty, convention, ordinance, code, rule, regulation, Order or other similar requirement enacted, adopted, promulgated or applied by a Governmental Authority that is binding upon or applicable to such Person, as amended, unless expressly specified otherwise.

 

Business Day ” means a day, other than Friday and Saturday or other day on which commercial banks in Tel Aviv, Israel are authorized or required by Applicable Law to close.

 

Change of Control Payments ” means the aggregate amount of all change of control, bonus, termination, severance or other similar payments that are payable by the Company to any Person as a result of or in connection with the transactions contemplated by this Agreement (alone or in combination with any other event), together with any employer-paid portion of any employment and payroll taxes related thereto.

 

Company Debt ” means at any specified time, any of the following indebtedness of the Company (whether or not contingent and including, without limitation, any and all principal, accrued and unpaid interest, prepayment premiums or penalties, redemption costs and fees, related expenses, commitment and other fees, sale or liquidity participation amounts, reimbursements, indemnities and other amounts which would be payable in connection therewith): (a) any obligations for borrowed money or in respect of loans or advances (whether or not evidenced by bonds, debentures, notes, or other similar instruments or debt securities); (b) any obligations as lessee under any lease or similar arrangement required to be recorded as a capital lease in accordance with Accounting Principles; (c) all liabilities under or in connection with letters of credit or bankers’ acceptances, performance bonds, sureties or similar obligations that have been drawn down, in each case, to the extent of such draw; (d) any obligations to pay the deferred purchase price of property, goods or services (including any “earn-out” or similar payments); (e) all liabilities arising from cash/book overdrafts; (f) all liabilities under conditional sale or other title retention agreements; (g) all liabilities arising out of interest rate, financial derivatives and currency swap arrangements and any other arrangements designed to provide protection against fluctuations in interest or currency rates; (h) any liability or obligation of others guaranteed by, or secured by any Lien on any assets or properties of, the Company; and (i) any long term liability required to be identified as such pursuant to Accounting Principles.

 

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Company Disclosure Schedule ” means the disclosure schedule dated the date of this Agreement that has been delivered by the Company and the Sellers to the Purchaser pursuant to Article III and Article IV .

 

Company Intellectual Property ” means any Intellectual Property that is owned by or licensed to the Company, or otherwise used or held for use in connection with the operation of the business of the Company, including Company-Owned Intellectual Property.

 

Company-Owned Intellectual Property ” means any Intellectual Property that is purported to be owned by or exclusively licensed to the Company.

 

Company Shares ” means the Ordinary Shares and the Preferred Shares.

 

Company Source Code ” means, collectively, any human readable Software source code, or any material portion or aspect of the Software source code, or any material proprietary information or algorithm contained, embedded or implemented in, in any manner, any Software source code, in each case for any Company Product.

 

Confidential Information ” means any and all non-public or confidential or proprietary information of the Company, including Trade Secrets, techniques, know-how, processes, equipment, algorithms, Software, design details and specifications, financial information, customer lists, business forecasts, sales and marketing plans, all notes, analyses, reports, compilations, studies, interpretations, summaries or other documents, and any and all non-public or confidential or proprietary information disclosed to the Company or any of its Representative by any other Person on a confidential basis.

 

Consent ” means any consent, approval, license, permission, requirement, exemption, Order, waiver, allowance, novation, authorization, declaration, clearances, filing, registration or notification.

 

Contract ” means, with respect to a Person, any contract, agreement, understanding, arrangement, undertaking, obligation, promise and commitment, indenture, note or bond (whether written or oral and whether express or implied) (i) to which such Person is a party, (ii) under which such Person has any rights, (iii) under which such Person has any Liability, or (iv) by which such Person, or any of the assets or properties owned or used by such Person, is bound, including all license agreements, manufacturing agreements, supply agreements, purchase orders, sales orders, distributor agreements, sales representation agreements, warranty agreements, indemnity agreements, maintenance and service agreements, employment and consulting agreements, guarantees, credit agreements, notes, mortgages, security agreements, financing leases, leases, comfort letters, derivative agreements, confidentiality agreements, joint venture agreements, partnership agreements, binding open bids and RFIs, RFPs and the like, powers of attorney, binding memoranda of understanding and binding letters of intent, including, in each case, all amendments, modifications and supplements thereto and Consents thereunder.

 

Copyrights ” means as set forth in the definition “Intellectual Property”.

 

Documents ” means all files, documents, instruments, correspondence, papers, books, reports, records, tapes, microfilms, photographs, letters, mails, e-mails, budgets, forecasts, ledgers, journals, customer lists, customer files, supplier lists, regulatory filings, operating data and plans, technical documentation (design specifications, functional requirements, operating instructions, logic manuals, flow charts, etc), user documentation (installation guides, user manuals, training materials, release notes, working papers, etc.), marketing and advertising documentation (sales brochures, flyers, pamphlets, promotional materials, web pages, etc.), and other similar materials, in each case in whatever form, including electronic databases, printed and other electronic media.

 

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Domain Names ” means all Internet domain names, general-use e-mail addresses, Internet electronic addresses, uniform resource locators (URL) and alphanumeric designations associated therewith and all registrations for any of the foregoing, worldwide.

 

Earnout Payment(s) ” means each of the 2016, 2017 and 2018 Earnout Payment(s) (as such terms are defined in the Earnout Schedule attached hereto as Exhibit B ), as the case may be.

 

Environmental Laws ” means any Applicable Law or any agreement with any Governmental Authority or other Person, relating to human health and safety, the environment or to Hazardous Substances, including, but not limited to, to the extent applicable, the Israeli Packaging Law, 5771-2011, the European Union Directive on Waste Electrical and Electronic Equipment in Europe and each state’s Electronic Waste Recycling Act in the United States and other Applicable Laws relating to the recycling of electronic waste.

 

Environmental Permits ” means all permits, licenses, franchises, certificates, approvals and other similar authorizations of Governmental Authorities relating to or required by Environmental Laws and affecting, or relating in any way to, the business of the Company and/or the Company Subsidiaries as currently conducted or as proposed to be conducted.

 

Escrow Agent ” means ESOP Management and Trust Services Ltd. or such other entity selected by the Purchaser and the Shareholders Representative to act as escrow agent under the Escrow Agreement.

 

Escrow Agreement ” means the escrow agreement by and among the Purchaser, the Shareholders Representative and the Escrow Agent in the form of Exhibit C attached hereto.

 

Fully Diluted Basis ” means the issued and outstanding share capital of the Company assuming and taking into account the exercise or conversion of all existing or promised securities, convertible debts, warrants, options and anti-dilution rights.

 

Governmental Authority ” means any: (a) nation, principality, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature, (b) federal, state, local, municipal, foreign or other government, (c) governmental, quasi governmental or regulatory body of any nature, including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, board, instrumentality, organization, unit, or body, or (d) court, arbitrator, public tribunal or other body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power of any nature; or (e) any official of any of the foregoing.

 

Governmental Authorization ” means any: (a) permit, license, certificate, franchise, permission, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Applicable Law; or (b) right under any Contract with any Governmental Authority.

 

Grant ” means any grant, incentive, subsidy, award, participation, exemption, status, cost sharing arrangement, reimbursement arrangement or other benefit, relief or privilege provided or made available by or on behalf of or under the authority or funding of any Governmental Authority or any other Person or entity.

 

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Hazardous Substances ” means any pollutant, contaminant, waste or chemical or any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous substance, waste or material, or any substance, waste or material having any constituent elements displaying any of the foregoing characteristics, including petroleum, its derivatives, by-products and other hydrocarbons, and any substance, waste or material regulated under any Applicable Law relating to human health and safety, the environment or any of the foregoing substances.

 

Intellectual Property ” means any and all worldwide industrial and intellectual property rights and all rights associated therewith, including (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), invention disclosures, improvements, and all patents (including utility and design patents, industrial designs and utility models), patent applications, and all other rights of inventorship, worldwide, together with all reissuances, renewals, extensions, provisionals, continuations, continuations-in-part, divisions, revisions, supplementary protection certificates, extensions and re-examinations thereof (collectively, “ Patents ”); (b) trademarks, common law trademarks, service marks, trade names, service names, brand names, trade dress rights, logos, Domain Names, other indicia of commercial source or origin (whether registered, common law, statutory or otherwise), together with the goodwill associated with any of the foregoing throughout the world, and all applications, registrations and renewals thereof anywhere in the world (collectively, “ Trademarks ”); (c) copyrights copyrightable works, rights in databases, data collections, registrations and applications for any of the foregoing, including in and to works of authorship, moral rights, mask works, mask work registrations and applications therefor, and any equivalent or similar rights in semiconductor masks, layouts, architectures or topology, and all other rights corresponding thereto throughout the world, whether published or unpublished, including rights to prepare, reproduce, perform, display and distribute copyrighted works and copies, compilations, collective works, and derivative works thereof (collectively, “ Copyrights ”); (d) all trade secrets and corresponding rights in confidential information and other non-public information (whether or not patentable), including research and development information, inventions, invention disclosures, unpatented blueprints, know-how, formulas, compositions, inventor’s notes, discoveries and improvements, manufacturing and production processes and techniques, testing information, proposals and technical data, business and marketing plans, market surveys, market know-how and customer lists and information, engineering, production and other designs, plans, drawings, engineering notebooks, industrial models, software and specifications (collectively, “ Trade Secrets ”); (e) all (i) software, computer programs, computer-based databases and compilations, in any form, including any and all software implementations of algorithms, models and methodologies, Internet web sites, web content and links, operating systems and specifications, data, databases, database management code, utilities, graphical user interfaces, menus, images, icons, forms, methods of processing, software engines, platforms, development tools, library functions, compilers, and data formats, whether in source code or object code, (ii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons, (iii) all versions, updates, corrections, enhancements and modifications related to any of the foregoing, and (iv) all Documents (including, user manuals, training documentation, developer notes, comments and annotations) related to any of the foregoing (collectively, “ Software ”); (f) all rights to sue for and remedies against past, present and future infringements of any or all of the foregoing and rights of priority and protection of interests therein under the Laws of any jurisdiction worldwide; (g) all copies and tangible embodiments of any or all of the foregoing (in whatever form or medium, including electronic media); and (h) all other proprietary, intellectual property and other rights relating to any or all of the foregoing.

 

Internet Resources ” means all Domain Names, electronic addresses, uniform resource locators (URL) and other online resources.

 

Israeli Tax Ordinance ” means the Israeli Tax Ordinance (New Version), and any regulations promulgated thereunder, as may be amended from time to time.

 

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Key Persons ” means the Persons identified on Exhibit D .

 

Knowledge ” (and expressions of similar import) means (i) with respect to the Company, the knowledge of each of the following: any of the Company’s directors, officers and Key Persons; and (ii) with respect to a Seller, the knowledge of such Seller (including such Seller’s directors and officers and any individual ultimately controlling such Seller, if applicable). A Person will be deemed to have “Knowledge” of a particular fact or matter if such Person (or any of its officers or directors) is actually aware of such fact or matter or if such Person should have become aware of such fact or matter after making reasonable inquiry or otherwise in the course of performing such Person’s duties (including, without limitation, to the extent required, inquiry of such Persons who may be reasonably expected to have knowledge of the fact or matter asserted).

 

Liability ” means any and all claims, debts, liabilities, Tax, penalty, fine, judgment, losses, loss of benefit or relief, cost or expense, obligations and commitments of whatever nature, fixed, absolute or contingent, matured or un-matured, accrued or unaccrued, liquidated or unliquidated or due or to become due, and whenever or however arising (including those arising out of any Contract or tort, whether based on negligence, strict liability or otherwise) regardless of whether the same would be required by Accounting Principles to be reflected as a liability in financial statements or disclosed in the notes thereto.

 

Lien ” means, with respect to any security, property or asset, as the case may be, any mortgage, lien, pledge, charge, security interest, encumbrance, hypothecation, options, easement, trust, equitable interest, servitude, proxies, right of first refusal, defect in title, impediment of title, impairment of title, imperfection of title, preemptive right or restrictions or rights of third parties of any nature (including any spousal community property rights, any restriction on the voting, transfer, receipt of any income derived from, the possession of any security, or the exercise or transfer of any other attribute of ownership of a security) or other adverse claim of any kind in respect of such property or asset, existing or known to be pending restriction on the use of any asset or the possession, exercise or transfer of any attribute of ownership of any asset, or any claim with respect to any of the foregoing. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset.

 

Losses ” means any and all losses, Liabilities, claims, damages, deficiencies, diminutions in value, fines, payments, Taxes, costs and expenses, whether or not arising from or in connection with any third-party claims (including, without limitation, interest, penalties, attorneys’, accountants’, consultants’ and experts’ costs, fees and expenses and all amounts paid in investigation, preparation for, defense or settlement of any Proceedings) or any other claim, default, demands, assessments, judgments, settlements and compromises (including in asserting, preserving or enforcing an indemnified party’s rights under this Agreement or any Transaction Document), plus interest from the date of incurrence to the extent applicable, and in all cases, with respect to Losses of the Company, taking into account, when determining the Losses of the Purchaser, the ownership percentage of the Purchaser in the Company.

 

Material Adverse Effect ” means any event, change, effect, condition or circumstance that, when taken individually or together with any other adverse events, changes or effects, is or is reasonably likely (a) to be materially adverse (i) to the business, assets, liabilities, affairs, operations, results of operations, cash flows or condition (financial or otherwise) of the Company or (ii) to the unrestricted right of the Purchaser to use, exploit or derive benefits from the assets, properties and business of the Company; or (b) to prevent or materially delay consummation of the transactions contemplated by this Agreement or performance by the Company or any Seller of any material obligations under this Agreement or the Transaction Documents; other than any change, effect, event, occurrence, condition, development or state of facts arising from or relating to changes or conditions generally affecting the industries or markets related to the business of the Company to the extent that such changes or conditions do not have a disproportionate adverse effect on the Company as a whole relative to other similarly situated companies.

 

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Open Source Materials ” means any means any Software or other material that (i) contains, or is derived in any manner (in whole or in part) from, any software that is or is required to be distributed as freeware, free software, open source software, shareware, or similar licensing or distributing models; or (ii) is subject to any agreement with terms or conditions that impose any requirement that any software using, linked with, incorporating, distributed with, based on, derived from or accessing, the software: (A) be disclosed, made available or distributed in source code or object code form; (B) be licensed for the purpose of making derivative works and/or redistributable; (C) be licensed under terms that allow or permit any third party to decompile, recompile, update, modify, reverse engineering, reverse assembly or disassembly all or any part of the software or merge the software into any other software; or (D) be redistributable at no charge. Open Source Materials includes, but is not limited to, any license which complies with the Open Source Initiative Corporation’s (OSI) open source definition or which is, or is equivalent to, a license approved by OSI, or software licensed or distributed under any of the following licenses or distribution models, or licenses or distribution models similar to any of the following: GNU’s General Public License (GPL) or Lesser/Library GPL (LGPL); the Artistic License (e.g., PERL); the Mozilla Public License(s); the Netscape Public License; the Berkeley Software Design (BSD) license including Free BSD or BSD-style license; the Sun Community Source License (SCSL) and the Sun Industry Standards License (SISL); an Open Source Foundation License (e.g., CDE and Motif UNIX user interfaces); the Apache Server license; and any licenses listed at http://www.opensource.org/licenses .

 

Options ” means (i) securities, instruments or obligations that are or may become convertible into or exchangeable for Company Shares or other securities of the Company; (ii) subscriptions, options, calls, convertible notes, warrants or rights (whether or not currently exercisable) to acquire any Company Shares or other securities of the Company; and (iii) Contracts under which the Company is or may become obligated to sell or otherwise issue any Company Shares or any other securities.

 

Order ” means any temporary, preliminary or permanent order, injunction, judgment, decree, edict, pronouncement, determination, reported decision, published opinion, verdict, sentence, stipulation, subpoena, ruling, writ, assessment or award that is or has been issued, made, entered, rendered or otherwise put into effect by or under the authority of any court, administrative agency or other Governmental Authority or any arbitrator or arbitration panel or any Contract with any Governmental Authority that is or has been entered into in connection with any Proceeding.

 

Ordinary Shares ” means the Ordinary Shares, nominal value NIS 0.01 each, of the Company.

 

Patents ” means as set forth in the definition “Intellectual Property”.

 

Paying Agent ” means ESOP Management and Trust Services Ltd. or such other entity selected by the Purchaser to act as a paying agent.

 

Payment Spreadsheet ” means the payment spreadsheet to be delivered to the Purchaser pursuant to ‎ Section 6.08 .

 

Person ” means any individual, corporation, partnership, limited liability company, firm, joint venture, association, trust, estate, unincorporated organization, Governmental Authority or other entity.

 

Preferred Shares ” means the Preferred A Shares, nominal value NIS 0.01 each, of the Company.

 

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Pro Rata Portion ” means, with respect to each Seller, the percentage appearing opposite the name of such Seller in Exhibit A in the column titled Pro Rata Portion.

 

Proceeding ” means any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Authority or any arbitrator or arbitration panel.

 

Registered Intellectual Property ” means any Intellectual Property that is the subject of an application, certificate, filing, registration, renewal or other document issued, filed with, or recorded by any Governmental Authority, including Patents, Trademarks, Copyrights and Domain Names.

 

Representative(s) ” means, with respect to any Person, such Person’s Affiliates, directors, officers, employees, agents, consultants, advisors and other representatives, including legal counsel, accountants and financial advisors.

 

Interim Loan Amount ” means an amount of up to USD 350,000 plus interest at the rate set forth in the Amended and Restated Loan Agreement owed by Acorn to the Company, in accordance with the terms of the Amended and Restated Loan Agreement (as defined below).

 

Sellers Disclosure Schedule ” means the disclosure schedule dated the date of this Agreement that has been delivered by the Sellers to the Purchaser pursuant to Article IV .

 

Shareholders Representative ” means the Person indicated above as Shareholders Representative on the date hereof, or any representative appointed as a successor or in replacement thereof, from time to time, in accordance with this Agreement.

 

Software ” means as set forth in the definition “Intellectual Property”.

 

Subsidiary ” means, with respect to any Person, any entity of which securities or other ownership interests having voting power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by such Person.

 

Tax ” or “ Taxes ” means any and all taxes, charges, duties, fees, levies, imposts or other assessments, reassessments, or mandatory payments of any kind whatsoever, whether direct or indirect, imposed by or payable to or accrued to the benefit of any federal, state, municipal, local or foreign tax authority and/or Governmental Authority, including, without limitation, gross income, net income, gross receipts, license, payroll, employment, workers’ compensation, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, property, personal property, sales, use, transfer, registration, value added, business, ad valorem, duties, turnover, goods, production, occupancy, utility, services, municipal, real property, abandoned property under escheatment laws, capital gain, transfer and gain, alternative or add-on minimum, estimated, or other taxes or mandatory payments of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not, including any liability for the foregoing by reason of membership in affiliated, consolidated, combined, unitary or similar Tax group by Contract, indemnity or otherwise and any obligation to indemnify or otherwise assume or succeed to the Liability of any other Person with respect to any of the forgoing.

 

Tax Return ” means any return, statement, declaration, notice, certificate, report or other document that is or has been filed with or submitted to, or is or was required to be filed with or submitted to any Governmental Authority in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Law related to any Tax (including any attachments thereto, and any amendment thereof) including, but not limited to, any information return, claim for refund, amended return or declaration of estimated Tax, and including, where permitted or required, combined, consolidated or unitary returns for any group of entities that includes Company, the Seller, or any of their Affiliates.

 

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Taxing Authority ” means any Israeli or foreign tax authority and any other Governmental Authority responsible for the imposition, assessment, collection or administration of any Tax.

 

Third Party ” means (whether or not a capitalized term) any Person, including the parties hereto, other than the referenced Person or Persons.

 

Trademarks ” means as set forth in the definition “Intellectual Property”.

 

Trade Secrets ” means as set forth in the definition “Intellectual Property”.

 

Transaction Documents ” means this Agreement, its exhibits and schedules and any and all other written Contracts, certificates and documents attached, ancillary or to be delivered pursuant hereto or thereto.

 

Transaction Expenses ” means any and all (whether or not disclosed) unpaid costs, fees and expenses (including value added tax thereon) of outside professionals incurred or payable by the Company (whether on its behalf or for any Seller) arising from or in connection with the negotiation, execution and consummation of the Transaction Documents and transactions contemplated thereby, including all legal fees, tax, consulting, accounting, audit, investment banking, broker, finder, financial advisor or other similar fees, including all applicable VAT.

 

Transactions ” means the purchase of the Company Shares by the Purchaser and all the other transactions contemplated by this Agreement and the other Transaction Documents.

 

Valid Tax Certificate ” means a valid certificate, ruling or any other written instructions regarding Tax withholding, issued by the Israeli Taxing Authority in customary form and substance reasonably satisfactory to the Purchaser (which includes the Purchaser’s opportunity to review, comment and approve the application to the Israeli Taxing Authority) that is applicable to the payments to be made to any Person pursuant to this Agreement stating that no withholding, or reduced withholding, of Israeli Tax is required with respect to such payment or providing any other instructions regarding Tax withholding.

 

Section 1.02 Reserved .

 

Section 1.03 Definitional and Interpretative Provisions .

 

(a) The words “hereof”, “herein” and “hereunder” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement.

 

(b) The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles, Sections, Exhibits and Schedules are to Articles, Sections, Exhibits and Schedules of this Agreement, unless otherwise specified.

 

(c) All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning as defined in this Agreement.

 

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(d) Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular.

 

(e) Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”, whether or not they are in fact followed by those words or words of like import.

 

(f) All references to time shall refer to Israel time. 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”.

 

(g) The use of the word “or” shall not, necessarily, be exclusive.

 

(h) Any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.

 

(i) 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. Other terms may be defined elsewhere in the text of this Agreement and shall have the meaning indicated throughout this Agreement.

 

(j) The term “foreign” when used with respect to Applicable Law or a Governmental Authority shall refer to all jurisdictions other than Israel.

 

(k) The term “Dollar”, “$”, or US$ shall refer to the currency of the United States of America.

 

(l) Unless otherwise specified, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends and by extending the period to the first Business Day following if the last day of the period is not a Business Day.

 

Article II

Purchase Of Company Shares

 

Section 2.01 Purchase and Sale of the Company Shares .

 

Subject to the terms and conditions set forth in this Agreement, and in reliance on the representations, warranties and covenants of the Company and the Sellers, at the Closing (i) the Non-Signing Sellers (acting through an instruction to ESOP Management and Trust Services Ltd. (“ ESOP ”), if applicable), shall sell and transfer to the Purchaser their respective Shares (in the aggregate, 73,142 of the Company Shares) pursuant to the terms of their respective Non-Signing Sellers Exercise, Sale and Waiver Letter (the total of such Shares of the Non-Signing Shares as is set forth on Exhibit A-3, hereinafter the “ Non-Signing Sellers’ Shares ”), (ii) the Signing Sellers (acting through an instruction to ESOP, if applicable), shall sell and transfer to the Purchaser a certain portion of their respective Shares (in the aggregate, 1,021,242 of the Company Shares) pursuant to the terms of their respective Signing Sellers Exercise, Sale and Waiver Letter (the total of such Shares of the Signing Shares as is set forth on Exhibit A-1, hereinafter the “ Signing Sellers’ Shares ”) and (iii) the Sellers, the Non-Signing Sellers and the Signing Sellers shall sell, assign, transfer and deliver to the Purchaser, in the aggregate, 1,094,384 of the Company Shares (each Seller, Non-Signing Seller and Signing Seller shall sell, assign, transfer and deliver to the Purchaser such number of Company Shares appearing opposite the name of such Seller, Signing Seller and Non-Signing Seller in Exhibit A, Exhibit A-1 and Exhibit A-3, respectively, in the column titled “Number of Purchased Shares” – such aggregate Shares, the “ Purchased Shares ”), representing 50% of the share capital of the Company on a Fully Diluted Basis, and (ii) the Purchaser shall purchase, acquire and accept from the Sellers, the Non-Signing Sellers and the Signing Sellers all of the Purchased Shares, in each case, free and clear of any and all Liens. At the Closing, the Purchaser shall purchase all (and not less than all) of the Purchased Shares.

 

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Section 2.02 Consideration .

 

(a) General . In consideration of the sale, assignment, transfer and delivery of the Purchased Shares to the Purchaser at the Closing under the terms and conditions of this Agreement, (i) the Purchaser shall transfer the Purchase Price, subject to withholding, deductions and the other terms and conditions of this Agreement, and (ii) each Seller, Signing Seller and Non-Signing Seller shall be eligible to receive, subject to the terms of this Agreement and the procedure set forth in this ‎Section 2.02 , such Seller’s, Signing Seller’s and Non-Signing Seller’s respective payments pursuant to ‎Section 2.02‎(d), subject to deductions as provided herein.

 

(b) Appointment of Paying Agent . No later than the Closing, the Purchaser shall appoint the Paying Agent to act as its paying agent and withholding agent (as instructed by Purchaser) with respect to the payment to the Sellers, the Signing Sellers and the Non-Signing Sellers due hereunder. Other than with respect to the withholding as may be required by Applicable Law, the Paying Agent shall act as the agent and upon the instructions of the Sellers Representative and the Purchaser, acting jointly.

 

(c) Payment Mechanism . The Purchaser shall deposit with the Paying Agent (i) each payment to Acorn in US$, and (ii) payments to the other Sellers, the Signing Sellers and the Non-Signing Sellers in NIS (in accordance with the representative rate of exchange published by the Bank of Israel immediately prior to the payment of the Purchaser to the Paying Agent), if and when payable by the Purchaser in accordance with the terms of this Agreement. The Paying Agent shall disburse from each such payment to the Sellers, to the Signing Sellers and to the Non-Signing Sellers in accordance with the Payment Spreadsheet, subject to ‎Section 2.03 , following receipt by the Paying Agent of an executed copy of a letter of transmittal in the form attached hereto as Schedule 2.02 (the “ Letter of Transmittal ”), accompanied by such Seller’s certificate(s) representing such Seller’s Company Shares (or affidavit of lost share certificate(s) in lieu). The allocation of the Purchase Price (and the Earnout Payments, if applicable) among the Sellers and the Non-Signing Sellers, as set forth on the Payment Spreadsheet, Exhibit A-1 and Exhibit A-3 is solely the responsibility of the Sellers. The Purchaser and the Paying Agent are permitted and authorized to rely at all times on the allocation set forth in Exhibit A-1 and Exhibit A-3 and the Payment Spreadsheet, and the wire instructions set forth in the Letter of Transmittal, and shall have no responsibility or liability with respect to such allocation or instructions.

 

(d) The Purchase Price . The purchase price shall consist of US$6,550,000 plus the Earnout Payments, subject to deductions as provided herein (collectively, the “ Purchase Price ”) and shall be paid, subject to withholdings and deductions, as follows:

 

(1) A payment in the amount of (A) US$6,550,000 (divided to NIS and USD as stipulated in Section 2.02(c)), less the Escrow Amount and (ii) a cash payment equals to the Interim Loan Amount (the “Interim Loan Amount Purchase Price”, and the result being the “ Closing Payment ”), shall be delivered by the Purchaser to the Paying Agent on the Closing Date, and (B) the Interim Loan Amount Purchase Price shall be delivered by the Purchaser to the Paying Agent, only following a written confirmation from the Company indicating that the Interim Loan Amount was paid to the Company in full (the “ Interim Loan Amount Confirmation Date ”). In the event that such confirmation was not presented within three (3) months of the Closing, such amount shall be deducted from Acorn’s consideration for its Purchased Shares.

 

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(2) The 2016 Earnout Payment, in an aggregate amount not exceeding US$333,333, to the extent payable in accordance with the Earnout Schedule (the “ Earnout Schedule ”);

 

(3) The 2017 Earnout Payment, in an aggregate amount not exceeding US$333,333, to the extent payable in accordance with the Earnout Schedule; and

 

(4) The 2018 Earnout Payment, in an aggregate amount not exceeding US$333,333, to the extent payable in accordance with the Earnout Schedule.

 

(e) Escrow Fund. At the Closing, the Purchaser will deliver to the Escrow Agent a cash amount of US$655,000 (such amount, as supplement in accordance with the following sentence, the “ Escrow Amount ”) to be held by the Escrow Agent pursuant to the Escrow Agreement (together with all income and interest earned or accrued thereon, the “ Escrow Fund ”) until the expiration of 18 months from the Closing (the “ Escrow Period ”), subject to extensions under ‎Section 10.03(b). The Escrow Fund will be available to secure the indemnification and other payment obligations of the Sellers pursuant hereto, and shall be held and distributed in accordance with the terms of this Agreement and the Escrow Agreement. The Escrow Amount shall be contributed by each Seller based on its Pro Rata Portion.

 

(f) For the avoidance of doubt, the Purchase Price and the payments provided under this Agreement are for the entire Purchased Shares, and for the benefit of all the Sellers, the Signing Sellers and the non-Signing Sellers, and any payment required to be made by the Purchaser pursuant to the Signing Sellers Exercise, Sale and Waiver Letter and the Non-Signing Sellers Exercise, Sale and Waiver Letter (or under any other agreement, for purchasing the Purchased Shares from the Signing Sellers and the Non-Signing Sellers) shall be part of the Purchase Price and shall not require any additional payment whatsoever by the Purchaser.

 

Section 2.03 Withholding Tax .

 

(a) Each of the Purchaser, the Paying Agent and the Escrow Agent and any other person acting on their behalf shall be entitled to deduct and withhold (and timely remit to the applicable Taxing Authority) from any consideration payable or otherwise deliverable to any Person pursuant to this Agreement (including any portion of the Escrow Amount and any Earnout Payment and the Interim Loan Amount Purchase Price), such amounts as the Purchaser at its sole discretion determines that are required to be deducted and withheld with respect to the making of any such payment under any Applicable Law, including, without limitation, the Israeli Income Tax Ordinance, at the maximum applicable rate for such withholding, as determined by the Purchaser, unless the Purchaser is provided with an exemption from such withholding tax in respect of each such payment, or a withholding certificate from the Israeli Taxing Authority which determines the withholding tax rate or tax amount, to its reasonable satisfaction (and for the avoidance of doubt, with respect to Israeli Taxes, with a Valid Tax Certificate) at least five (5) Business Days prior to the date of such payment. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the payment recipient, in respect of which such deduction and withholding was made. The Purchaser, Paying Agent and Escrow Agent, as applicable, shall provide to the relevant payee evidence regarding any such withholding, following its request.

 

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(b) Notwithstanding the provisions of ‎(a) ‎Section 2.03(a) above, with respect to Israeli Taxes, the respective portion of Purchase Price payable to the Sellers at Closing shall be retained by the Purchaser/Paying Agent for the benefit of each such payment recipient for a period of one-hundred eighty (180) days from the Closing Date or an earlier date required in writing by a payment recipient (the “ Withholding Drop Dead Date ”) (during which time no payments shall be made to any payment recipient and no amounts for Israeli Taxes shall be withheld from the payments deliverable pursuant to this Agreement‎, except as provided below and during which time each payment recipient may obtain a Valid Tax Certificate). If a payment recipient delivers, no later than three (3) Business Days prior to the Withholding Drop Dead Date a Valid Tax Certificate to the Purchaser/Paying Agent, then the deduction and withholding of any Israeli Taxes shall be made only in accordance with the provisions of such Valid Tax Certificate and the balance ‎of the payment that is not withheld shall be paid to such payment recipient. If any payment recipient (i) does not provide a Valid Tax Certificate by no later than three (3) Business Days before the Withholding Drop Dead Date, or (ii) submits a written request to the Purchaser to release the payment otherwise due to such recipient prior to ‎the Withholding Drop Dead Date and fails to submit a Valid Tax Certificate no later than three (3) Business Days before such time, then the amount to be withheld from such payment recipient’s portion of the Purchase Price at Closing shall be calculated according to the applicable withholding rate as ‎reasonably determined by Purchaser, which amount shall be increased by the interest plus linkage differences as defined in Section 159A of the Israeli Income Tax Ordinance for the time period between the fifteenth (15th) calendar day of the month following the month during which the Closing Date occurs and the time the relevant payment is made, and calculated in NIS based on a U.S. dollars to NIS exchange rate not lower than the effective exchange rate at (i) the Closing Date and (ii) the date in which the relevant payment is made to the applicable Seller.

 

(c) For the avoidance of doubt, in the absence of a Valid Tax Certificate which also applies to the payment recipient’s portion of the Escrow Amount and any Earnout Payment and the Interim Loan Amount Purchase Price, the applicable amount to be withheld from such payment recipient’s portion of any amount received at the Closing Date or retained by the Purchaser/Paying Agent in accordance with above sections will be calculated (as provided in the above sections) also on such payment recipient’s portion of the Escrow Amount and any Earnout Payment and the Interim Loan Amount Purchase Price, and will be deducted, and delivered to the Israeli Taxing Authority as provided above unless the Israeli Taxing Authority provides different written instructions reasonably satisfactory to the Purchaser.

 

Section 2.04 Closing .

 

(a) Time and Place . The consummation of the Transactions (the “ Closing ”) shall take place at the offices of Tadmor & Co. Yuval Levy & Co., Azrieli Centre, Square Tower, 34 th floor, 132 Menachem Begin Road, Tel Aviv, Israel at a time and on a date to be specified by the parties, which shall be no later than the fifth Business Day after the satisfaction or waiver of all the conditions set forth in ‎Article VIII (other than those conditions that by their nature are to be satisfied at the Closing), or at such other time, date and location as the Purchaser and the Shareholders Representative agree in writing. The date on which the Closing actually takes place is referred to in this Agreement as the “ Closing Date ”.

 

(b) Transactions at Closing . At the Closing, the following transactions shall occur, which transactions shall be deemed to take place simultaneously, and no transaction shall be deemed to have been completed or any document delivered until all such transactions have been completed and all required documents delivered:

 

(1) The Company and the Sellers shall deliver to the Purchaser the following agreements and documents:

 

(i) the Escrow Agreement executed by the Shareholders Representative and the Escrow Agent;

 

(ii) a certificate, in the form attached hereto as Exhibit E , executed on behalf of the Company by its chief executive officer, certifying (i) that the conditions set forth in ‎ Section 8.01 and ‎Section 8.02 have been duly satisfied; and (ii) the resolutions of the board of directors and the shareholders of the Company approving this Agreement and the Transactions;

 

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(iii) a legal opinion of Pearl, Cohen, Zedek, Latzer, Baratz, counsel to the Company and to the Sellers other than Acorn and of Eillenberg & Krause counsel of Acorn, in the form attached hereto as Exhibit F and F-1, respectively ;

 

(iv) share transfer deeds for the Purchased Shares in the form attached hereto as Exhibit G , duly executed by each Seller in favor of the Purchaser (or as it shall otherwise direct in writing) accompanied by their respective share certificates or affidavit in the form attached hereto as Exhibit G-1 evidencing that such certificate was lost or never issued;

 

(v) executed resolutions of the shareholders of the Company in the form attached hereto as Exhibit H (i) approving this Agreement and the Transaction Documents, and the consummation of the Transactions, and (ii) amending the current articles of association of the Company, including all amendments thereto (the “Current Articles”) by replacing them in their entirety with the amended and restated articles of association of the Company, attached hereto as Exhibit H-1 (the “ Amended Articles ”), and approving the appointment as directors of the Company of such person or persons to be identified by the Purchaser, such number of persons shall not be more than three (3);

 

(vi) executed resolutions of the board of directors of the Company in the form attached hereto as Exhibit I approving this Agreement and the Transaction Documents, and the consummation of the Transactions, the registration of the Share Transfer Deeds, the appointment as directors of the Company such person or persons to be identified by the Purchaser, the acceptance of the resignations of the existing directors of the Company listed in Exhibit I-1 , and the adoption of new signatory rights in the Company acceptable to Purchaser;

 

(vii) the appointment of a firm of Independent Certified Public Accountants in the State of Israel who are affiliated with one of the “big four” U.S. accounting firms;

 

(viii) written resignations of directors, listed in Exhibit I-1 , from their positions as directors effective as of the Closing Date, in the forms attached hereto as Exhibit J ;

 

(ix) the Spousal Consent to entering into this Agreement and consummating the transactions contemplated hereby, including, without limitation, the transfer and sale of Purchased Shares held by such Seller to the Purchaser pursuant to the terms hereof, validly executed by the spouse of such Seller and delivered by the Seller to the Purchaser concurrently with the signing of this Agreement in the form of Exhibit K , shall be in full force and effect;

 

(x) the register of members of the Company evidencing the transfer and ownership of all of the Purchased Shares to the Purchaser certified by a director of the Company;

 

(xi) a new and validly executed share certificate(s) covering all of the Purchased Shares, issued in the name of the Purchaser;

 

(xii) evidence that the Company is in good standing and has paid any annual registration fees due to the Israeli Companies’ Registrar;

 

(xiii) the new employment agreements in the form attached hereto as Exhibit L , executed by each employee of the Company party thereto in a form approved by the Purchaser (the “ New Employment Agreements ”);

 

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(xiv) Assignments of Intellectual Property in favor of the Company in the form attached hereto as Exhibit M validly executed by each of the persons listed on Exhibit M-1 ;

 

(xv) Executed shareholders agreement executed by all parties thereto, other than the Purchaser, in the form attached hereto as Exhibit N (the “ Shareholders Agreement ”);

 

(xvi) The Amended and Restated Loan Agreement among the Company, Acorn and Purchaser (the “ Amended and Restated Loan Agreement ”), executed by all parties thereto on the date hereof, in the form attached hereto as Exhibit O ;

 

(xvii) A Non-Signing Seller Exercise, Sale and Waiver Letter executed by each of the Non-Signing Sellers;

 

(xviii) A Signing Seller Exercise, Sale and Waiver Letter executed by each of the Signing Sellers on the date hereof;

 

(xix) Executed releases on all Liens on the Purchased Shares ensuring that the Purchased Shares shall be transferred at Closing to the Purchaser free and clear of any and all Liens;

 

(xx) such other documents or instruments as the Purchaser may reasonably request or may be required to effect the transactions contemplated by the Transaction Documents.

 

(2) The Purchaser shall deliver to the Shareholders Representative the Escrow Agreement executed by the Purchaser and the Escrow Agent, the Shareholders Agreement executed by the Purchaser, and, subject to ‎Section 2.03, shall transfer to the Paying Agent the Closing Payment in readily available funds, enabling the Paying Agent to perform a distribution to each of the Sellers of such amounts as shall be determined in accordance with the terms of this Agreement, and shall transfer to the Paying Agent the Interim Loan Amount Purchase Price in readily available funds on the Interim Loan Amount Confirmation Date.

 

(c) Adjustments . Without derogating from the provisions of Section 6.01 , in the event of any stock split (bonus shares), consolidation, share dividend (including any dividend or distribution of securities convertible into share capital), reorganization, reclassification, combination, recapitalization or other like change with respect to the Company Shares occurring after the date hereof and prior to the Closing, all references in this Agreement to numbers of shares and all calculations provided for that are based upon numbers affected thereby, shall be equitably adjusted to the extent necessary to provide the parties the same economic effect as contemplated by this Agreement prior to such event.

 

Article III

Representations and Warranties of the Company

 

Subject to the disclosures set forth in the Company Disclosure Schedule (each of which disclosures, in order to be effective, shall clearly indicate the Section and, if applicable, the Subsection of this ‎Article III to which it relates (unless and only to the extent the relevance to other representations and warranties is readily apparent from the actual text of the disclosures), and each of which disclosures shall also be deemed to be representations and warranties made by the Company to Purchaser under this ‎Article III ), the Company represents and warrants to the Purchaser that the statements contained in this Article III are true and correct as of the date of this Agreement and will be true and correct as of the Closing Date.

 

Any references to the Company shall be deemed to include and apply to every Subsidiary of the Company, if applicable.

 

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Section 3.01 Corporate Existence and Power .

 

(a) The Company (i) is a limited liability company duly incorporated, validly existing and in good standing under the laws of the state of Israel; (ii) is duly licensed or qualified to do business and where applicable is in good standing as a foreign corporation in all jurisdictions in which the conduct of its business or the activities it is engaged makes such licensing, qualification or status necessary; and (iii) has all necessary power and authority: (A) to conduct its business in the manner in which its business is currently being conducted and currently proposed to be conducted; (B) to own and use its assets in the manner in which its assets are currently owned and used; and (C) to perform its obligations under all Contracts.

 

(b) Except as disclosed in ‎Section 3.01(b) of the Company Disclosure Schedule, the Company has no Subsidiaries and there are no corporations, limited liability companies, partnerships, joint ventures, associations or other entities or Persons in which the Company owns, of record or beneficially, any direct or indirect equity or other interest or any right (contingent or otherwise) to acquire the same.

 

(c) The Company has delivered to the Purchaser and listed in ‎ Section 3.01(c) of the Company Disclosure Schedule accurate and complete copies of: (i) the Current Articles, and (ii) the minutes of the meetings and other proceedings (including any actions taken by written consent or otherwise without a meeting) of the Company’s shareholders, board of directors, general managers or any equivalent body and all committees thereof since January 1, 2002. There has not been any violation of any of the provisions of the Current Articles, and the Company has not taken any action that is inconsistent with any resolution adopted by its shareholders, board of directors, general managers, any equivalent body or any committee thereof. The books of accounts, stock records, minute books and other records of the Company are accurate, up-to-date and complete in all material respects, and have been maintained in accordance with prudent business practices and all Applicable Law.

 

(d) ‎Section 3.01(d) of the Company Disclosure Schedule accurately sets forth: (i) the names of the members of the board of directors or of the general managers of the Company; (ii) the names of the members of each committee of the board of directors (or similar body) of the Company; and (iii) the names and titles of the officers of the Company.

 

(e) Except as set forth in ‎Section 3.01(e) of the Company Disclosure Schedule, the Company has not conducted any business under or otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, business name or other name, other than its corporate name as set forth in this Agreement.

 

(f) Except as disclosed in ‎ Section 3.01(f) of the Company Disclosure Schedule, no power of attorney that would entitle any Person to act on behalf of the Company is currently outstanding.

 

Section 3.02 Corporate Authorization .

 

(a) The Company has all necessary corporate power and authority to enter into and to perform its obligations under the Transaction Documents to which it is a party in accordance with the respective terms thereof; and the execution, delivery and performance by the Company of the Transaction Documents to which it is a party in accordance with the respective terms thereof have been duly authorized by all necessary corporate action on the part of the Company and its shareholders. This Agreement constitutes the legal, valid and binding obligation of the Company, and, assuming the due authorization, execution and delivery by the Purchaser, is enforceable against the Company in accordance with its terms, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. Upon the execution of each of the other Transaction Documents at the Closing, each of such Transaction Documents to which the Company is a party will constitute the legal, valid and binding obligation of the Company, and will be, assuming the due authorization, execution and delivery by the Purchaser (if party thereto), enforceable against the Company in accordance with its respective terms, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.

 

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(b) In a unanimous written consent or a duly convened meeting, the Company’s Board of Director has (i) approved, authorized and adopted this Agreement and the Transaction Documents, and the consummation of the transactions contemplated thereby (ii) unanimously approved the registration of the Share Transfer Deeds, and (iii) the acceptance of the resignations of the existing directors of the Company listed in Exhibit I-1 . In a resolution of all the Company’s shareholders, they (i) have approved, authorized and adopted this Agreement and the Transaction Documents, and the consummation of the transactions contemplated thereby, (ii) have approved the replacement in in their entirety of the Current Articles with the Amended Articles, and (iii) approved the appointment as directors of the Company such person or persons to be identified by the Purchaser prior to the Closing, such number of persons shall not be more than three (3).

 

(c) The Company has not: (i) received any notice from any applicable Governmental Authority that its registration may be revoked, stricken or erased, (ii) admitted an inability to pay its debts generally as they become due, filed or consented to the filing against it of a petition in bankruptcy, liquidation, winding up, stay of proceedings, plan of arrangement or any similar proceeding or passed any resolution approving any of the foregoing, or (iii) consented to the appointment of a receiver, liquidator, trustee or special manager for itself or for any substantial part of its properties or assets, or made any determination in respect of the distribution of its assets (the forgoing collectively referred to below as “ Bankruptcy Events ”). No notice has been received of any action for, or the intent of any Person to request to seek or pursue, any remedy under or in connection with a Bankruptcy Event and to the Company’s Knowledge there is no reasonable basis for (ii) or (iii) above.

 

Section 3.03 Compliance with Applicable Law .

 

(a) The Company is, and has at all times been, in compliance with and has operated its business and maintained its assets and properties in compliance with all Applicable Laws. Neither the Company nor the operation of its business (whether by the Company or, to the Knowledge of the Company, by any shareholder or any Affiliates thereof) is or has been under investigation with respect to, given notice of any violation of, or, to the Company’s Knowledge, threatened to be charged with any violation of, Applicable Law or received any written inquiry (or such other inquiry, to the Knowledge of the Company), regarding the possible violation of, any Applicable Law. No event has occurred, and no condition or circumstance exists, that will or could reasonably be expected to (with or without notice or lapse of time) constitute or result in a violation by the Company, or a failure on the part of the Company to comply with or failure of its business and operations to be otherwise in compliance with, any Applicable Law.

 

(b) Neither the Company nor any Representative or other Person acting on behalf of the Company has at any time, directly or indirectly: (i) made any unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity and related in any way to the Company’s business; (ii) made any unlawful payment to any foreign or domestic government official or employee, foreign or domestic political parties or campaigns, official of any public international organization, or official of any state-owned enterprise; (iii) violated any provision of the United Stated Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act 2010, Title 5 of the Israeli Penalty Law (Bribery Transactions), the Israeli Prohibition on Money Laundering Law, 2000, or any other anti-corruption or anti-money laundering Applicable Law; (iv) made any bribe, payoff, influence payment, kickback or other similar unlawful payment; or (v) made any payment (whether or not lawful) to any Person, or provided (whether lawfully or unlawfully) any favor or anything of value (whether in the form of property or services, or in any other form) to any Person, for the purpose of obtaining or paying for: (a) favorable treatment in securing business or (b) any other special concession; or (vi) agreed, committed, offered or attempted to take any of the actions described in clauses (i) through (v) above.

 

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Section 3.04 Regulatory Matters, Trade Compliance and Encryption.

 

(a) To the extent any Company Product produced, manufactured, marketed or distributed at any time by or on behalf of the Company is being marketed internationally, the Company has obtained all necessary approvals of the required regulatory authorities in the relevant jurisdictions, and such regulatory authorities are listed in ‎ Section 3.04(a) of the Company Disclosure Schedule (collectively, the “ Regulatory Authorities ”) and is in compliance in all material respects with Applicable Law relating to the manufacturing, marketing and selling of any of the Company Products. There have been no recalls, field notifications or seizures ordered or adverse regulatory actions taken or, to the Company’s Knowledge, threatened by the Regulatory Authorities or any other Governmental Authority with respect to any of the Company Products, including any facilities where any Company Products are produced, manufactured, processed, packaged or stored. All filings with and submissions to the Regulatory Authorities and any other Governmental Authority made by the Company with regard to the Company Products were true, accurate and complete in all material respects as of the date made, and, to the extent required to be updated, as so updated remain true, accurate and complete in all material respects as of the date hereof, and do not materially misstate any of the statements or information included therein, or omit to state a material fact necessary to make the statements therein not misleading.

 

(b) Section 3.04(b) of the Company Disclosure Schedule contains a true and correct complete list of (i) all communications, filings and submissions (and with respect to non-material communications, filings and submissions, such communications, filings and submissions made within the past 3 years) with the any Regulatory Authority, whether pending or approved, pertaining to products manufactured, marketed, sold or distributed by the Company or which are under development by the Company; and (ii) all inspections of the Company conducted by any Regulatory Authority since January 1, 2010. Except as set forth in Section 3.04(b) of the Company Disclosure Schedule, all requirements of any Regulatory Authority and any Applicable Law with respect to the maintenance, compilation, filing and obtaining of approval or effectiveness of all documents specified in (i) and (ii) above have been complied with in all respects. Except as set forth in Section 3.04(b) of the Company Disclosure Schedule, there are no unfulfilled outstanding agreements with or commitments to, and no adverse regulatory actions by, any Regulatory Authority with respect to any of the Company Products; and the Company or the Sellers have not received any written, or to the Knowledge of the Company any other information with respect to the initiation, pendency, or threat by any Regulatory Authority of any adverse regulatory action affecting any of the Company Products. The Company has not received any written notice or other written communication from any Regulatory Authority alleging any violation of any laws by the Company. Section 3.04(b) of the Company Disclosure Schedule sets forth a list of all adverse event reports by or to any Regulatory Authority related to the Company Products.

 

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(c) The Company has conducted its marketing, export and trade in accordance with all Applicable Laws relating to export, import and trade compliance (including, without limitations, the Israeli Defense Export Control Law, 2007, the Israeli Order Governing the Control of Commodities and Services (Engagement in Encryption Items), 1974, the Israeli Order of Import and Export (Supervision of Export of Dual Use Goods, Services and Technologies), 2006, the Israeli Trading with the Enemy Ordinance, 1939, or other Applicable Laws related to or governing such matters), including that: (a) the Company has obtained all Consents and/or Governmental Authorizations required for its marketing, exports and import of the Company Products, the Software and technologies and related services, Documentation and Intellectual Property, from any Governmental Authorities necessary for marketing, exporting or importing the same from any country in which any Intellectual Property and/or Company Product or related services are currently marketed, sold, licensed for use or otherwise distributed or for importing the same into any country in which the Company Products are now sold or licensed for use, and all such Consents and/or Governmental Authorizations are valid, current and in full force and effect; (b) such Consents and/or Governmental Authorizations (and any and all summaries of the discussions from the relevant Governmental Authorities) are listed on ‎Section 3.04(a) of the Company Disclosure Schedule and a true, correct and complete copy thereof has been provided to the Purchaser; (c) all such Consents and/or Governmental Authorizations throughout the world are in the name of the Company, are valid, current, outstanding and in full force and effect, and the Company is in compliance with the terms of all such Consents and/or Governmental Authorizations, including the decisions of relevant Governmental Authority; (d) there are no pending or, to the Knowledge of the Company, threatened claims or Proceedings against the Company with respect to such marketing, export or import Consents and/or Governmental Authorizations; and (e) there are no actions, conditions or circumstances pertaining to the marketing, export or import transactions of the Company, and to the Knowledge of the Company, any threats with respect to such matters, that would reasonably be expected to give rise to any claims or Proceeding against the Company or any of its businesses or assets or any of their directors, managers or officers (in their capacity as directors, managers or officers of the Company).

 

(d) The Company Products, their underlying technology and related Intellectual Property, are owned exclusively by the Company, except as disclosed in ‎ Section 3.04(d) of the Company Disclosure Schedule.

 

(e) No Company Product is subject to any restriction or limitation under Applicable Laws relating to export control, except as disclosed in ‎Section 3.04(e) of the Company Disclosure Schedule.

 

(f) No Company Product is registered with or required to be registered with or is otherwise subject to regulation by any applicable Governmental Authority other than Regulatory Authorities.

 

(g) The Company has not distributed any Company Products or any of its components to and has no obligations to any third party located in Cuba, Iran, North Korea, Sudan, Lebanon or Syria.

 

(h) The Company has not entered into, and the business of the Company does not and has not contained any transaction that falls within the scope of, and has not, directly or indirectly, engaged in any operation in violation of, the sanctions and restrictive measures of the European Union or any member state thereof.

 

(i) The business of the Company, as conducted, and as currently proposed to be conducted (as evidenced by a written instrument or was discussed in any board or management meeting), does not involve the use or development of, or engagement in, encryption technology, or other technology whose development, commercialization or export is restricted, or requires a Consent or Governmental Authorization, under Applicable Law, except as disclosed in ‎Section 3.04‎(i) of the Company Disclosure Schedule. The Company Products do not contain any encryption or encryption functionality developed by the Company or otherwise used in or called by the Company Products (collectively, “ Encryption Items ”), except as disclosed in ‎Section 3.04‎(i) of the Company Disclosure Schedule (which contains a complete list by Company Product of each such Encryption Item, together with the export control classification information received from the supplier of, or by the Company for, each such Encryption Item). Any Encryption Item listed on such ‎Section 3.04‎(i) of the Company Disclosure Schedule which is Open Source Material is indicated as being Open Source Material on such schedule. The Company holds and maintains all Consents and Governmental Authorization required for any Encryption Item, or is exempted from such requirement (including, without limitation, from the Israeli Ministry of Defense or an authorized body thereof pursuant to Section 2(a) of the Order Governing the Control of Commodities and Services (Engagement in Encryption Items), 1974, as amended, or other local or foreign legislation regulating the development, commercialization or export of technology); all such Consents and Governmental Authorization are listed on ‎Section 3.04(a) , and correct and complete copy thereof have been provided to the Purchaser; and the Company is in compliance with the terms thereof.

 

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Section 3.05 Governmental Authorizations; Grants .

 

(a) ‎Section 3.05(a) of the Company Disclosure Schedule identifies each Governmental Authorization held by the Company or used for the business, assets or properties of the Company, and the Company has delivered to the Purchaser accurate and complete copies of all Governmental Authorizations identified in ‎Section 3.05(a) of the Company Disclosure Schedule and any and all correspondence and amendments related thereto. The Governmental Authorizations identified in ‎Section 3.05(a) of the Company Disclosure Schedule are valid and in full force and effect, and collectively constitute all Governmental Authorizations necessary to enable the Company to conduct its business in the manner in which such business is currently being conducted and as proposed to be conducted. Each of the Company and any other Person that held a Governmental Authorization on behalf of the Company or related to the Company or is holding the same is, and has at all times been, in compliance with the terms and requirements of the respective Governmental Authorizations identified in Section 3.05(a) of the Company Disclosure Schedule. Except as set forth in ‎Section 3.05(a) of the Company Disclosure Schedule, no written, or to the Knowledge of the Company, any other notice or other communication from any Governmental Authority was received regarding: (i) any actual or possible violation of or failure to comply with any term or requirement of any Governmental Authorization; or (ii) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any Governmental Authorization.

 

(b) ‎Section 3.05‎(b) of the Company Disclosure Schedule identifies each Grant that has been or is provided or available or applicable to the Company, its business or assets (including Company Intellectual Property). Except as set forth on ‎‎Section 3.05‎(b) of the Company Disclosure Schedule, the Company has never applied for or received any Grant nor is any asset owned or used by the Company or otherwise necessary for its business (including Company Intellectual Property) is subject to any limitations, restrictions, obligations or other Liabilities by virtue or as a result of any Grant made available to any other Person. Except as set forth in ‎ Section 3.05(b) of the Company Disclosure Schedule, no event has occurred, and no circumstance or condition exists, that would or that could reasonably be expected to give rise to or serve as the basis for: (A) the annulment, revocation, withdrawal, suspension, cancellation, recapture or modification of any Grant; (B) the imposition of any limitation on any Grant or any benefit available in connection with any Grant; (C) a requirement that the Company return or refund any benefits provided under any Grant; or (D) the applicability of any Grant (and any limitation or requirement arising therefore) on the Company, its business or assets.

 

(c) The Company has (i) submitted and possesses, or qualifies for applicable exemptions to, such valid and current registrations, listings, approvals, clearances, licenses, certificates, authorizations or permits and supplements or amendments thereto issued or required by the appropriate Israeli or foreign regulatory agencies or bodies necessary to conduct its business, and (ii) has not received any written notice of proceedings relating to the revocation or modification of, or non-compliance with, any such clearance, approval, license, certificate, authorization or permit.

 

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Section 3.06 Non-Contravention .

 

Except as set forth on ‎‎Section 3.06 of the Company Disclosure Schedule, neither: (1) the execution, delivery or performance by the Company of this Agreement or any of the Transaction Documents to which it is a party; nor (2) the consummation of the Transactions, will (with or without notice or lapse of time):

 

(a) contravene, conflict with or result in a violation of: (i) any of the provisions of any Current Articles or (ii) any Applicable Law;

 

(b) contravene, conflict with or result in a violation of, or give any Governmental Authority or other Person the right to challenge any of the Transactions or to exercise any remedy or obtain any relief under, any Applicable Law or any Order to which the Company or any of the assets owned or used by the Company, is subject;

 

(c) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by the Company or that otherwise relates to the Company’s business or to any of the assets owned or used by the Company;

 

(d) contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of any Contract or Grant by which the Company is bound, or give any Person the right to: (i) declare a default or exercise any remedy under any such Contract or Grant; (ii) accelerate the maturity or performance of any such Contract or Grant; or (iii) cancel, terminate or modify any such Contract or Grant; or

 

(e) result in any Liability to the Company or in the imposition or creation of any Lien upon or with respect to any assets, properties or rights owned or used by the Company or its share capital (registered or issued), other than in the terms hereof.

 

Except as set forth in ‎Section 3.06 of the Company Disclosure Schedule, the Company is not and will not be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with: (x) the execution, delivery or performance of this Agreement or any of the other Transaction Documents; or (y) the consummation of the Transactions contemplated by this Agreement.

 

Section 3.07 Capitalization .

 

(a) At the date of this Agreement, the authorized capital of the Company consists of 11,625,104 Ordinary Shares, out of which 1,578,520 are issued and outstanding and 514,896 Preferred Shares, out of which 370,724 are issued and outstanding and 239,524 Options to purchase 239,524 Ordinary Shares. At the Closing, the authorized capital of the Company shall consist of 12,140,000 Ordinary Shares, out of which 2,188,768 will be issued and outstanding and no Preferred Shares shall be issued and outstanding and no Options shall be outstanding. All of the issued and outstanding Company Shares are and were when issued duly authorized and validly issued, fully paid and nonassessable.

 

(b) Except as set forth in Section 3.07(b) of the Company Disclosure Schedule, there are no outstanding (i) Options or other securities of the Company or (ii) condition or circumstance that may give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any Company Shares, Options or other securities of the Company.

 

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(c) ‎Section 3.07(c) of the Company Disclosure Schedule sets forth a complete and accurate list, by name, of the Company’s shareholders, the addresses of the Company’s shareholders, the number of Company Shares owned by such shareholder identified by class and series as of the date hereof (Section 3.07(c)(i) of the Company Disclosure Schedule), as of immediately prior the Closing (taking into account the exercise of all of the Company’s Options pursuant to this Agreement) (Section 3.07(c)(ii) of the Company Disclosure Schedule), and as of immediately following the Closing (Section 3.07(c)(iii) of the Company Disclosure Schedule). All outstanding Company Shares have been issued and granted in compliance with (i) all applicable securities laws and other Applicable Law and (ii) all requirements set forth in applicable Contracts. None of the outstanding Company Shares were issued in violation of any preemptive rights or other rights to subscribe for or purchase securities of the Company. ‎Section 3.07(c) of the Company Disclosure Schedule accurately identifies each Contract relating to any securities of the Company that contains any information rights, management rights, registration rights, first refusal, tag along, pre-emptive or first offer rights, financial statement requirements or other terms that would survive the Closing unless terminated or amended prior to the Closing.

 

(d) At the Closing, the Purchaser will receive good and valid title, free and clear of any Liens, to all Purchased Shares. The Purchaser acknowledges that as of the date of this Agreement, all Company Shares held by Acorn are pledged to the Company and to Leap Tide pursuant to the terms of the Intercreditor Agreement.

 

(e) The Company has never repurchased, redeemed or otherwise reacquired any of its shares or other securities and there are no outstanding rights or obligations of the Company to repurchase or redeem any of its securities. All shares of the Company ever repurchased or redeemed by the Company were repurchased or redeemed in compliance with: (i) all applicable securities laws and other Applicable Law; and (ii) all requirements set forth in all applicable Current Articles and Contracts.

 

(f) The Pro Rata Portion appearing opposite the name of each Seller in Exhibit A, the details set forth in each Signing Seller Exercise, Sale and Waiver Letter and in each Non-Signing Seller Exercise, Sale and Waiver Letter, and the Payment Spreadsheet are true and correct as of the date hereof and as of the Closing and has been determined in accordance with the Company’s Current Articles and/or any other Contract or instrument governing the distribution of any payment made in connection with the Transactions. There are no claims by any Person or Proceedings pending in connection with the distribution of each payment to be made pursuant to the terms herein in accordance with the Pro Rata Portion appearing opposite the name of each Seller in Exhibit A upon the consummation of the Transactions, and there is no basis for such claim or Proceeding.

 

(g) ‎‎ ‎Section 3.07(g) of the Company Disclosure Schedule sets forth, as of the date hereof, a true, correct and complete list of all holders of outstanding Options of the Company, the number and class of Company Shares underlying such Options, the date of grant, the exercise price, the vesting schedule of such Options (and the terms of any acceleration thereof), the term of each such Option and the Option plan under which it was granted.

 

Section 3.08 Financial Statements .

 

(a) The Company has delivered to the Purchaser the Company’s audited consolidated balance sheets and related audited consolidated statements of income, changes in shareholders’ equity, cash flow and notes thereto for the fiscal year ended December 31, 2014 (such date the “ Balance Sheet Date ”) (the “ Financial Statements ”).

 

(b) The Financial Statements (i) have been prepared from the books and records of the Company, (ii) complied as to form in all respects with applicable accounting requirements with respect thereto as of their respective dates, (iii) have been prepared in accordance with Accounting Principles applied on a consistent basis throughout the periods indicated (except as may be indicated therein or in the notes thereto) and consistent with each other, and (iv) fairly present, in all material respects, the financial condition of the Company at the dates therein indicated and, when applicable, the consolidated results of operations and cash flows of the Company for the periods therein specified.

 

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(c) The books of account and other financial records of the Company have been kept accurately in the ordinary course of business consistent in all material respects with Applicable Law, the transactions entered therein represent bona fide transactions, and the revenues, expenses, assets and liabilities of the Company have been properly recorded therein in all material respects.

 

(d) Neither the Company nor any director, manager, officer, employee, auditor, accountant or representative of the Company, has received or otherwise had or obtained Knowledge of any complaint, allegation, assertion or claim, whether made in writing or made orally to any director, manager, executive officer, or inside legal counsel or, to the Company’s Knowledge, outside legal counsel to the Company, regarding any material deficiency in the accounting or auditing practices, procedures, methodologies or methods of the Company or its internal accounting controls, including any complaint, allegation, assertion or claim that the Company has engaged not in accordance with applicable accounting or auditing practices.

 

(e) ‎Section 3.08(e) of the Company Disclosure Schedule provides an accurate reconciliation of all accounts receivable, notes receivable and other receivables of the Company as of the Balance Sheet Date. Except as set forth in ‎Section 3.08(e) of the Company Disclosure Schedule, all existing accounts receivable of the Company (including those accounts receivable reflected on the Financial Statements that have not yet been collected and those accounts receivable that have arisen since the Balance Sheet Date and that have not yet been collected): (i) represent current and valid obligations arising from bona fide transactions entered into in the ordinary course of business and not in violation of Applicable Law; and (ii) are current and will be collected in accordance with generally accepted accounting principles when due, without any counterclaim or set off.

 

(f) ‎Section 3.08(f) of the Company Disclosure Schedule provides an accurate and complete breakdown of all amounts (including loans, advances or other indebtedness) owed to the Company by a director, manager officer, employee or shareholder of the Company (other than travel advances made in the ordinary course of business) (the “ Insider Receivables ”). All Insider Receivables (including those receivables reflected in the Financial Statements that have not yet been collected and those receivables that have arisen since the Balance Sheet Date and have not yet been collected): (i) represent valid obligations arising from bona fide transactions entered into in the ordinary course of business and not in violation of Applicable Law; and (ii) are current and will be collected in accordance with generally accepted accounting principles when due, without any counterclaim or set off. Except as set forth ‎Section 3.08(f) of the Company Disclosure Schedule, no Insider Receivables will remain outstanding as of the Closing.

 

(g) The financial projections provided to the Purchaser were prepared by the Company and its management in good faith based on the Company’s and its management’s experience in the industry and on assumptions of fact and opinion as to future events which the Company and its management believes to be reasonable, but neither the Company nor its management has Knowledge or provides assurance that such financial projections will be attained. To the Knowledge of the Company, no facts exist which would require the Company to revise or amplify the assumptions underlying such projections and other estimates or the conclusions derived therefrom in any material respect.

 

(h) Other than as set forth in ‎Section 3.08(h) of the Company Disclosure Schedule, the Company is not a party to any Contract which: (i) prevents the Company or its Affiliates from selling directly to customers or indirectly through any other Person (including exclusive distribution relationship with a distributor in any territory, region or market segment); (ii) promises delivery of products or services that will not be available for delivery at the actual date designated for delivery in the applicable Contract or order; (iii) promises products or services to be delivered now or in the future free of charge (except under a paid support engagement providing updates to a previously licensed product); (iv) promises post-contract support provided on a free-of-charge basis (whether for a finite or indefinite period) other than one-year support contracts included with the sale of a license; (v) is a side letter or side agreement which modifies the existing terms or obligations under any other Contract or provides additional terms or obligations not otherwise expressed in such other Contract without a formal authorized execution of an amendment to such other existing Contract; (vi) provides a right of return based on customer favorable subjective criteria; (vii) provides a right of return or refund which extends beyond three (3) months; (viii) provides a customer with an effective right of return or refund where the products or services as delivered fail to meet the warranted criteria (excluding customary penalties or liquidated damages); (ix) promises returns or credits on products or services previously delivered; (x) promises cancellation on executed transactions; or (xi) provides for the distribution of Company Products and which is not terminable with 90 days’ written notice.

 

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Section 3.09 Absence of Certain Changes .

 

Since the Balance Sheet Date, the business of the Company has been conducted in the ordinary course consistent with past practices (except for actions taken in connection with the negotiation of this Agreement and the Transactions) and, except as set forth in ‎Section 3.09 of the Company Disclosure Schedule, there has not been:

 

(a) any event, occurrence, development or state of circumstances or facts that has had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

 

(b) any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of the Company in any material manner;

 

(c) any amendment of the Current Articles of the Company and the Company has not effected or been a party to any Acquisition Transaction;

 

(d) any splitting, combination or reclassification of any Company Shares, Options or any other securities or declaration, setting aside or payment of any dividend or other distribution (whether in cash, shares or property or any combination thereof) in respect of any Company Shares, Options or any other securities, or redemption, repurchase or other acquisition or offer to redeem, repurchase, or otherwise acquire any Company Shares, Options or any other securities;

 

(e) (i) any issuance, delivery or sale, or authorization of the issuance, delivery or sale of, any Company Shares (other than pursuant to the exercise of the Options) or Options, or (ii) any amendment or waiver of (in each case, whether by merger, consolidation or otherwise) any term of any Company Shares or Options (other than as is required to permit the exercise of the Options);

 

(f) any capital expenditures or incurrence of any obligations or Liabilities in respect thereof by the Company, individually or in the aggregate, in excess of US$100,000;

 

(g) any acquisition (by merger, consolidation, acquisition of shares or assets or otherwise), directly or indirectly, by the Company of any, all or substantially all assets, properties or securities of any Person;

 

(h) any sale, lease or other transfer of, or creation or incurrence of any Lien on, any assets, securities, properties, interests or businesses of the Company or its share capital (registered or issued) in excess of US$100,000;

 

(i) the making by the Company of any loans (other than in the ordinary course of business), guarantee or capital contributions to, or investments in, any other Person;

 

(j) the creation of any Company Debt or the guarantee by the Company of any indebtedness formerly borrowed;

 

(k) (i) the entering into of any Contract that limits or otherwise restricts in any respect the Company or any of its Affiliates or any successor thereto from engaging or competing in any line of business, in any location or with any Person or (ii) the entering into any amendment or modification or termination of any Contract or waiver, release or assignment of any material rights, claims or benefits of the Company thereunder;

 

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(l) the sale, disposition, transfer or license to any Person of any rights, including any rights to any Company Intellectual Property or other assets by the Company other than on a non-exclusive basis in the ordinary course of business consistent with past practice, or the acquisition, lease or license from any Person of any rights including any Intellectual Property or other assets other than in the ordinary course of business, or the sale, disposition of, transfer or provision of a copy of the Company’s Source Code;

 

(m) (i) the grant or increase of any severance or termination pay to (or amendment of any existing arrangement with) any director, manager, officer, advisor, consultant or employee of the Company, (ii) any increase in benefits payable under any existing severance or termination pay policies or employment agreements, (iii) the entering into of any employment, deferred compensation or other similar agreement (or amendment of any such existing agreement) with any director, manager, officer, advisor, consultant or employee of the Company, (iv) the establishment, adoption or amendment (except as required by Applicable Law) of any collective bargaining, bonus, commission, profit-sharing, thrift, pension, retirement, deferred compensation, compensation, share option, restricted share or other benefit plan or arrangement covering any director, manager, officer, advisor, consultant or employee of the Company, or (v) any increase in compensation, bonus, commission or other benefits payable to any director, manager, officer, advisor, consultant or employee of the Company;

 

(n) any change in the methods of accounting or accounting practices of the Company, except as required by concurrent changes in Accounting Principles as agreed to by its independent public accountants;

 

(o) any settlement, or offer or proposal by the Company to settle: (i) any Proceeding or claim involving or against the Company, or (ii) any Proceeding that relates to the Transactions;

 

(p) any Tax election made or materially changed; any claim, notice, audit report or assessment in respect of Taxes settled or compromised (or agreement with respect thereto); any Tax Return filed; any Tax allocation agreement, Tax sharing agreement, advance pricing agreement, cost sharing agreement, pre-filing agreement, Tax indemnity agreement or closing agreement relating to any Tax entered into; any annual Tax accounting period or method of Tax accounting changed or adopted; any Tax petition, Tax complaint or administrative Tax appeal filed; any right to claim a Tax refund surrendered or foregone (which is reasonably be expected to be material to the Company); or any extension or waiver of the statute of limitations period applicable to any Tax claim or assessment consented to, nor has any application or negotiation for or receipt of a Tax ruling or arrangement been made by the Company or, to the Company’s Knowledge, any Seller or on their behalf, whether or not in connection with the Transactions, except as explicitly contemplated in this Agreement;

 

(q) any application for or receipt of a Grant;

 

(r) any write off as uncollectible, or the establishment of any general or specific reserve with respect to, any account receivable or other indebtedness, other than as set forth on Section 3.09(r) of the Company Disclosure Schedule;

 

(s) any pledge of or creation of a Lien on any of the assets, properties or rights of the Company or its share capital (registered or issued), except for pledges of immaterial assets made in the ordinary course of business and consistent with past practices;

 

(t) any material transaction or any other material action taken by the Company outside the ordinary course of business or inconsistent with its past practices;

 

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(u) any material amendment of the credit terms of Company’s suppliers and customers.

 

(v) any Proceeding initiated by or against the Company; or

 

(w) any agreement or commitment of the Company, to take any of the actions referred to in clauses (a) through (u).

 

Section 3.10 No Undisclosed Liabilities .

 

(a) The Company has no Liabilities of any kind, whether or not required to be reflected or reserved in financial statements in accordance with Accounting Principles, other than:

 

(1) Liabilities reflected in the “liabilities” column of the Company’s Financial Statements or in the notes thereto;

 

(2) accounts payable and accrued salaries that have been incurred by the Company since the Balance Sheet Date in the ordinary course of business and consistent with past practice; and

 

(3) Liabilities identified in ‎Section 3.10(a) of the Company Disclosure Schedule.

 

(b) ‎Section 3.10(b) of the Company Disclosure Schedule provides an accurate and complete breakdown and aging of: (i) all accounts payable of the Company as of the date of this Agreement; and (ii) all notes payable of the Company and all other Company Debt as of the date of this Agreement. Except as set forth in ‎Section 3.10(b) of the Company Disclosure Schedule there is no outstanding Company Debt.

 

(c) Other than as set forth in ‎Section 3.10(c) of the Company Disclosure Schedule, the Company has never effected or otherwise been involved in any “off-balance sheet arrangements”.

 

Section 3.11 Material Contracts .

 

(a) ‎Section 3.11 of the Company Disclosure Schedule sets forth each material Contract to which the Company is a party to or by which it is bound (and not terminated or expired in accordance with its terms with no further rights and/or liabilities to either of the parties thereof) as well as any material Contract entered into by any shareholder of the Company or any Affiliate thereof relevant to or necessary for the business, operations or assets of the Company, including without limitation (a Contract responsive to any of the following categories, or which is listed in ‎Section 3.13(a) and ‎Section 3.16(e) of the Company Disclosure Schedule being hereinafter referred to as a “ Material Contract ”):

 

(1) any lease of tangible personal or real property;

 

(2) any Contract relating to the acquisition, transfer, use, development, sharing or license of any technology, or Intellectual Property rights (including any joint development agreement, technical collaboration agreement or similar agreement), to or from the Company other than any end user license agreements for non-exclusive “off the shelf” Software;

 

(3) any Contract imposing any restriction on the right or ability of the Company, (A) to compete with any other Person (including granting exclusive rights or rights of first refusal to license, market, sell or deliver any of the products or services offered by the Company), (B) to acquire any product or other asset or any services from any other Person, to sell any product or other asset to or perform any services for any other Person or to transact business or deal in any other manner with any other Person (including granting any rights of first refusal), or (C) to develop, distribute, license, sale or transfer any Intellectual Property rights;

 

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(4) any Contract for the purchase of materials, supplies, goods, services, equipment or other assets;

 

(5) any Contract (including purchaser orders or a series of purchase orders) for the provision of the products or services of the Company;

 

(6) any references to user, customer, agents or suppliers inquiries or leads (actual or potential) relating to the Company, its business and the Company Products, and any potential fees, cost and expenses due to any Person in connection with each references, inquiries or leads, including any Contract with such Person governing such matter;

 

(7) any partnership, joint venture or any sharing of revenues, profits, losses, costs or liabilities Contract;

 

(8) any Contract relating to the consolidation, reorganization, acquisition or disposition of any business (whether by merger, sale of shares, sale of assets or otherwise) or any similar transaction to which the Company is party;

 

(9) any Contract relating to borrowed money;

 

(10) any Contract relating to the acquisition, issuance or transfer of any securities and the voting and any other rights or obligations of a shareholder of the Company;

 

(11) any Contract under which (A) any Person has directly or indirectly guaranteed any liabilities or obligations of the Company and (B) the Company has directly or indirectly guaranteed liabilities or obligations of any other Person;

 

(12) any Contract relating to the creation of any Lien with respect to any asset, property or right of the Company or its share capital (registered or issued);

 

(13) any Contract which contains any provisions requiring the Company to indemnify any Person;

 

(14) any Contract of the Company with any Related Person (as defined below);

 

(15) any employment, severance, retention, bonus, consulting, advisory or other agreement with any current employee, officer, director, manager, advisor or consultant of the Company pursuant to which the Company has any current or future rights or obligations;

 

(16) any Contract that contemplates or involves: (A) the payment or delivery of cash or other consideration by the Company; or (B) the performance of services by, on behalf of or for the benefit of the Company;

 

(17) any Contract with finders, sales agents, reseller and distributors or any other Contract providing for the sale, marketing or distribution of Company Products by any Person.

 

(18) any Contract with a Governmental Authority;

 

(19) any Contract not terminable by the Company upon written notice given by the Company to the other party to such Contract; and

 

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(20) any other Contract to which the Company is a party or pursuant to which the Company has any rights or obligations or which otherwise affects the Company or its assets or properties, not listed under subsections 1 through 16 of ‎Section 3.11(a) to the Company Disclosure Schedule.

 

(b) The Company has delivered to the Purchaser accurate and complete copies of all written Material Contracts required to be identified in ‎Section 3.11(a) of the Company Disclosure Schedule, including all amendments thereto. ‎Section 3.11(a) of the Company Disclosure Schedule provides an accurate description of the material terms of each Material Contract identified in ‎Section 3.11(a) of the Company Disclosure Schedule that is not in written form.

 

(c) Each Material Contract is a valid and binding agreement of the party thereto, is in full force and effect, is enforceable by the Company in accordance with its terms, and the Company is not and, to the Knowledge of the Company, no other party thereto is in default under or breach of, any such Material Contract, and no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or would reasonably be expected to, (i) result in a violation or breach of any provisions of any Material Contract by any party thereto, (ii) give any Person the right to declare a default or exercise any remedy under any Material Contract, (iii) give any Person the right to accelerate the maturity or performance of any Material Contract, or (iv) give any Person the right to cancel, terminate or modify any Material Contract. The Company has never waived any of its rights under any Contract.

 

(d) Except as set forth in ‎Section 3.11(d) of the Company Disclosure Schedule, the Company has never received any written notice or any other communication regarding any material violation or breach of, or default under, any Material Contract.

 

(e) No Person is renegotiating any amount paid by or payable to the Company under any Material Contract or renegotiating any other term or provision of any Material Contract.

 

(f) Other than as are set forth in ‎ Section 3.11(f) of the Company Disclosure, all Contracts concerning the sale, marketing or distribution by any Third Party of any Company Product or services related thereto (including, without limitation, agent or agency agreement, sales representative, or Contract of similar nature, however called), and any power of attorney, proxy or similar instrument in each case, with respect to the Company, are terminable by the Company, at any time and for any reason, upon prior notice to the other party or holder thereof (it being acknowledged that certain non operative provisions of such Contracts may survive the termination thereof, including confidentiality, governing law, venue and indemnification) without payment by the Company of any amounts or consideration of any kind, and in any event following the Closing shall not limit or restrict the Purchaser in any way in conducting the business of the Company or impose any Liability on the Purchaser.

 

Section 3.12 Litigation .

 

(a) Except as set forth in ‎‎ ‎Section 3.12(a) of the Company Disclosure Schedule there is no pending Proceeding and to the Knowledge of the Company no Person has threatened to commence any Proceeding: (i) that involves the Company or its business, any of the assets or properties owned or used by the Company, any Company Product or any Person whose liability the Company has or may have retained or assumed, either contractually or by operation of law; (ii) that challenges, or that may be reasonably expected to have the effect of preventing, delaying or making illegal the Transactions; or (iii) that relates to the ownership of any share capital of the Company, or any Options, or any right to receive consideration as a result of this Agreement. No event has occurred, and no claim, dispute or other condition or circumstance exists, that can reasonably be expected to give rise to or serve as a basis for the commencement of any such Proceeding.

 

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(b) There is no Order issued by any Governmental Authority by which the Company or any of the assets owned or used by the Company, is subject or which restricts in any respect the ability of the Company to conduct its business as now being conducted, and as currently proposed to be conducted (as evidenced by a written instrument or was discussed in any board or management meeting). To the Knowledge of the Company, no officer, director, manager, shareholder or employee of the Company (in each case, in his or her capacity as such) is subject to any Order that prohibits such person from engaging in or continuing any conduct, activity or practice relating to the business of the Company.

 

Section 3.13 Properties, Assets and Inventory .

 

(a) The Company does not own any real property. The Company has a good and valid leasehold interest in each parcel of real property leased by the Company or used or required for the conduct of its business (the “ Company Leased Real Property ”). ‎Section 3.13(a) of the Company Disclosure Schedule lists each lease, subleases, license or other occupancy agreement or arrangement relating to the Company Leased Real Property (each, a “ Real Property Lease ”). The Company has the right to use and occupy the Company Leased Real Property for the full term of the Real Property Lease relating thereto, subject to its respective terms. 1

 

(b) Other than as set forth in ‎Section 3.13(b) of the Company Disclosure Schedule, the Company owns and has good and marketable title to, or a valid license or leasehold interest in, all tangible personal property and assets used by the Company or required for the conduct of its business (the “ Assets ”). None of the Assets is subject to any Lien, except for mechanic’s, carrier’s, worker’s, material man’s, warehouse man’s, supplier’s, vendor’s or similar Liens arising or incurred in the ordinary course of business with respect to Liabilities that are not yet due and payable.

 

(c) ‎Section 3.13‎(c) of the Company Disclosure Schedule identifies all material Assets of the Company, including those Assets that are being licensed or leased to the Company or used or required for the conduct of their business (the “ Leased Assets ”). All Leased Assets are leased pursuant to valid, binding and enforceable Contracts in accordance with their respective terms. The Company is not in default under any such Contract.

 

(d) The Assets that are material to the conduct of the business as now being conducted, and as currently proposed to be conducted (as evidenced by a written instrument or was discussed in any board or management meeting), have no material defects, are in good operating condition and repair, ordinary wear and tear excepted, and have been reasonably maintained consistent with standards generally followed in the industry (giving due account to the age and length of use of same, ordinary wear and tear excepted), and are adequate and suitable for their present uses.

 

(e) Except as set forth in ‎Section 3.13(e) of the Company Disclosure Schedule, the Assets constitute all of the tangible personal property and assets used or held for use in connection with the businesses of the Company and represent all of the tangible personal property and assets necessary for the conduct of the business of the Company as currently conducted and as proposed to be conducted, and the Assets in the aggregate are in such operating condition and repair (subject to normal wear and tear) as is necessary for the conduct of the businesses of the Company as currently conducted and as proposed to be conducted.

 

(f) All inventory of the Company, whether or not reflected on the balance sheets delivered as part of the Financial Statement pursuant to Section 3.08 (the “ Balance Sheets ”), consists of a quality and quantity usable and salable in the ordinary course of the Company’s business, except for obsolete items and items of below-standard quality, all of which have been written off or written down to net realizable value in the Balance Sheets or on the accounting records of the Company as of the Closing Date, as the case may be. 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.

 

 

1 Subject to due diligence 

 

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Section 3.14 Warranty Obligations .

 

(a) ‎Section 3.14(a) of the Company Disclosure Schedule sets forth (i) a list of all warranties, guarantees and written warranty policies of the Company in respect of any of the Company Products and services, which are currently in effect (the “ Warranty Obligations ”), and the duration of each such Warranty Obligation, (ii) each of the Warranty Obligations which is subject to any dispute or, to the Knowledge of the Company, threatened dispute, and (iii) the experience of the Company with respect to warranties, guarantees and warranty policies of or relating to the Company’s Products and services. True and correct copies of the Warranty Obligations have been delivered to the Purchaser prior to the execution of this Agreement. There has not been any material deviation from the Warranty Obligations, and no salesperson, employee or agent of or on behalf of the Company is authorized to undertake any obligation to any customer or other Person in excess of such Warranty Obligations and the balance sheet included in the Financial Statements reflects adequate reserves for Warranty Obligations.

 

(b) ‎Section 3.14(b) of the Company Disclosure Schedule lists all pending warranty or indemnity claims made by any Person related to the Company Products and services and the general nature of such claims. There is no pending or, to the Knowledge of the Company, threatened Proceeding for any other product liability, backcharge, additional work, field repair or other claims by any Person (whether based on Contract or tort and whether relating to personal injury, including death, property damage or economic loss) arising from (i) services rendered by the Company, (ii) the sale, distribution, or installation of Software or other products by the Company, or (iii) the operation of the businesses of the Company during the period through and including the Closing Date.

 

Section 3.15 Customers and Suppliers .

 

(a) ‎Section 3.15 of the Company Disclosure Schedule sets forth a list of (a) each customer of the Company, during the period commencing as of January 1, 2013 and ending on September 30, 2015, and the amount of revenues accounted for by such customer during each such period, and (b) each supplier of any product or service to the Company. No such customer or supplier has indicated his dissatisfaction regarding Company’s Products or materially reduced or changed the pricing or other terms of its business with the Company, nor has indicated within the past year that it will stop purchasing or supplying products or services from or to the Company, or materially reduce its general volume of purchases or supplies (without regard to normal short-term fluctuations) from or to the Company. No unfilled customer order or commitment obligating the Company to process, manufacture or deliver products or perform services will result in a loss to the Company upon completion of performance. No purchase order or commitment of the Company is in excess of normal requirements, nor are prices provided therein in excess of current market prices for the products or services to be provided thereunder.

 

(b) Since January 1, 2013: (i) no customer has required any refund or other financial benefits due to failure of the Company Products to meet specifications or service standards; and (ii) no Company Product was returned by a purchaser thereof or replaced by the Company nor has the Company received any notice claiming that any Company Product is not in material conformity with applicable contractual commitments or warranties.

 

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Section 3.16 Intellectual Property .

 

(a) Products . ‎Section 3.16(a) of the Company Disclosure Schedule contains a complete and accurate list (by name and version number) of all products and service offerings, including all Software, of the Company that have been or are currently sold, licensed, distributed or otherwise made available to customers, as applicable, or that the Company intends to sell, license, distribute or otherwise make available to customers in the future, including any products or services offerings currently under development, including all works-in-progress and in development (collectively, together with any and all milestones and any developments, deliverables and inventions, work product and inventions embodied in or resulting therefrom, the “ Company Products ”), and identifies, for each such Company Product, whether the Company provides support or maintenance for such Company Product.

 

(b) Company Intellectual Property . ‎Section 3.16(b) of the Company Disclosure Schedule sets forth a complete and accurate list of (i) all Registered Intellectual Property and Internet Resources owned or controlled by the Company (the “ Company Registered Intellectual Property ”), and (ii) all material unregistered Trademarks that are Company-Owned Intellectual Property. For each listed item, ‎Section 3.16(b) of the Company Disclosure Schedule indicates, as applicable, the owner of such Intellectual Property, the countries in which such Intellectual Property is registered or patented or in which an application for same has been filed, the Patent, registration or application number, and the filing and expiration dates thereof; and sets forth a list of all actions that are required to be taken by the Company (including the payment of any registration, maintenance or renewal fees) within 120 days of the date hereof with respect to any such items of Intellectual Property in order to avoid prejudice to, impairment or abandonment thereof. All necessary registration, maintenance and renewal fees in connection with all Company Registered Intellectual Property have been paid and all necessary documents and articles in connection therewith have been filed with the relevant patent, copyright, trademark or other Governmental Authority for the purposes of maintaining such Company Registered Intellectual Property as of the date hereof. Except as set forth on ‎Section 3.16(b) of the Company Disclosure Schedule, no Intellectual Property is owned by any Subsidiary of the Company.

 

(c) No Restrictions on Company-Owned IP . All of the Company-Owned Intellectual Property is valid and subsisting and is wholly and exclusively owned by the Company free and clear of all Liens and the Company has the right to use the Company-Owned Intellectual Property without payment to any other Person. There are no facts or circumstances that would render any Company-Owned Intellectual Property invalid or unenforceable. The Company is not bound by, and none of the Company-Owned Intellectual Property is subject to, any Contract that in any way limits or restricts the ability of the Company to use, exploit, assert or enforce any such Company-Owned Intellectual Property anywhere in the world. The Company has provided to the Purchaser any opinions of its patent or other Intellectual Property counsel rendered or otherwise provided to the Company or otherwise relating to the business of the Company, including any opinion relating to freedom to operate of the business of the Company as currently conducted and as currently proposed to be conducted and any patent infringement analyses. Other than as set forth on ‎Section 3.16(c) of the Company Disclosure Schedule, there is no Company-Owned Intellectual Property of which the Company is a joint owner or co-owner with another Person. Other than as set forth on ‎Section 3.16(c) of the Company Disclosure Schedule, for any jointly owned or co-owned Company-Owned Intellectual Property, there are no restrictions (by agreement between the Company and any third party joint owner or co-owner of the Company-Owned Intellectual Property or otherwise) on the Company’s exercise of the full scope of rights afforded a joint owner or co-owner of that type of Intellectual Property right under the Laws of the jurisdiction in which the Intellectual Property right exists.

 

(d) No Restrictions on Company Products . The Company solely and exclusively owns all right, title and interest in and to the Company Products (other than the portions of the Company Products that are licensed and disclosed under ‎Section 3.16(d) of the Company Disclosure Schedule), including all the Company Source Code, free and clear of all Liens and the Company Products are fully transferable, alienable, licensable and otherwise distributable by the Company without restriction and without payment to any Person or Governmental Authority and the Company has the right to use them without payment to any other Person. The Company has not sold, transferred, assigned or otherwise disposed of any rights or interests therein or thereto.

 

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(e) Licensed Intellectual Property . (1) ‎Section 3.16(e) of the Company Disclosure Schedule lists all Contracts to which the Company is a party relating to (i) the license in of any third-party Intellectual Property by the Company (other than off-the-shelf software) that is used in the Company Products or is material to the operation of the Company or the Company Products, and (ii) the license out of any Company Intellectual Property to any Person. (2) No Person who has licensed Intellectual Property to the Company has ownership rights or license rights to improvements and other amendments made by the Company in such Intellectual Property. Other than as set forth on ‎Section 3.16(e) of the Company Disclosure Schedule, the Company is not required, obligated, or under any Liability, to make any payments by way of royalties, fees or otherwise to any owner, licensor of, or other claimant to any third-party Intellectual Property, or to any other Person, with respect to the, ownership, use, possession, license-in, license-out, sale, marketing, advertising or disposition, thereof or in connection with the conduct of the business of the Company as conducted and as proposed to be conducted.

 

(f) Open Source . (1) Except as set forth on ‎Section 3.16(f) of the Company Disclosure Schedule, no Company Product or Company-Owned Intellectual Property is subject to the terms of any license governing Open Source Materials. ‎Section 3.16(f) of the Company Disclosure Schedule lists all Open Source Materials used in the development of the Company Products, incorporated in or distributed with the Company Products in any way, and briefly describes the general manner in which such Open Source Materials were or are used. (2) The Company Owned Intellectual Property or Company Products: (i) do not incorporate Open Source Materials, and are not combined with Open Source Materials; (ii) are not distributed in conjunction with any Open Source Materials; or (iii) do not use Open Source Materials, in such a way that, with respect to (i), (ii) or (iii), creates, or purports to create obligations for the Company with respect to any Company Owned Intellectual Property or Company Products or grant, or purport to grant, to any Person, any rights or immunities under any Company Owned Intellectual Property or Company Products (including using any Open Source Materials that require, as a condition of use, modification and/or distribution of such Open Source Materials, that other Software incorporated into, derived from or distributed with such Open Source Materials be (A) disclosed or distributed in source code form, (B) licensed for the purpose of making derivative works, or (C) redistributable at no charge). The Company’s use and distribution of each component of Open Source Materials complies with all the applicable license terms of agreement, and in no case does the use, modification or distribution of any Open Source Material gives rise, creates, or purports to create obligations under such license terms or agreement to any rights or immunities to any third parties under any Company Product or Company-Owned Intellectual Property, including without limitation, any obligation to disclose or distribute any Company Product or Company-Owned Intellectual Property in Source Code form, to license any such Company Product or Company-Owned Intellectual Property for the purpose of making derivative works, to distribute any such Company Product or Company-Owned Intellectual Property without charge or grant any license to any of the Intellectual Property embedded therein.

 

(g) Created Intellectual Property Properly Transferred to the Company . Except for the Intellectual Property licensed pursuant to the written Contracts set forth in ‎Section 3.16(g) of the Company Disclosure Schedule, all Intellectual Property used in or necessary for the conduct of the business of the Company as presently conducted was in the public domain or created solely by either (i) employees of the Company acting within the scope of their employment who have validly and irrevocably assigned all of their rights therein, including Intellectual Property rights, to the Company, or (ii) other Persons who have validly and irrevocably assigned all of their rights therein, including Intellectual Property rights, to the Company, and no other Person owns or has any rights to any portion of such Intellectual Property (other than non-exclusive end user licenses granted to the customers of the Company). In addition, all such employees and other Persons specified in ‎Section 3.16(g) of the Company Disclosure Schedule have waived or transferred, as the case may be, the right to exercise or assert moral rights against the Company. No current or former employee or other person has the right to receive any compensation in connection with “Service Inventions” under Section 134 of the Israeli Patent Law-1967.

 

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(h) Basic Non-Infringement and Sufficiency . The operation of the business of the Company (including, without limitation, the design, development, use, operation, import, export, manufacture, licensing, sale or other disposition of the Company Products or any other exercise of rights in the Company Intellectual Property) does not, has not and will not breach, infringe or misappropriate the Intellectual Property rights of any Person or violate (A) the rights of any Person (including rights to privacy or publicity) or (B) any Contract (including terms of use). The Company has not (i) received any notice from any Person directly or indirectly, whether in written or oral form, claiming that such operation, exercise of rights or any Company Product infringes, breaches or misappropriates the Intellectual Property rights of any Person, constitutes unfair competition or trade practices under the Applicable Laws of any jurisdiction or violates the rights of any Person (including rights to privacy or publicity) (nor, to the Knowledge of the Company, does there exist any basis therefor) and (ii) received any offer for a license of Intellectual Property, including but not limited to Patent rights, implying that the operation of or exercise of rights by the Company or any Company Product infringes, breaches or misappropriates the Intellectual Property rights of a third party. The use of Company Products by the Company did not and does not currently copy any data or information from Internet Resources in a form other than plain text. The use or operation of Company Products does not require a license of any third-party Intellectual Property and is not in violation of the terms of any license of any third-party Intellectual Property. The Company Intellectual Property together with intellectual property in the public domain includes all of the Intellectual Property necessary and sufficient to enable the Company to conduct and operate the business of the Company in the ordinary course of business, consistent with past practices, following the Closing. The Company has not received any opinion of counsel that any Company Product or the operation of the business of the Company, as previously or currently conducted, or as currently proposed to be conducted, infringes, breaches or misappropriates any Intellectual Property rights of any Person.

 

(i) Company Registered IP . The Company has not knowingly misrepresented or failed to disclosure any facts or circumstances for which it has a duty to disclose in any application for any Company Registered Intellectual Property that would constitute fraud or a misrepresentation with respect to such application or that would otherwise effect the validity or enforceability of any such Company Registered Intellectual Property.

 

(j) No Challenges to Company Intellectual Property . To the Knowledge of the Company, no Person is engaging, or has engaged in the past, in any activity that infringes or misappropriates the Company Intellectual Property or violates the rights of the Company (including rights to privacy or publicity). There is no Proceeding pending, asserted or, to the Knowledge of the Company, threatened by, or against any other Person concerning any of the foregoing (nor, to the Knowledge of the Company, does there exist any basis therefor). There is and has been no Proceeding pending, asserted or to the Knowledge of the Company, threatened by or against the Company concerning, contesting or challenging the ownership, validity, registerability, enforceability or use of, or licensed right to use, any Intellectual Property (nor, to the Knowledge of the Company, does there exist any basis therefor). No Company Intellectual Property is subject to any outstanding Order or other disposition of any Proceeding.

 

(k) Source Code Protection . Except as set forth on ‎‎ ‎Section 3.16(k) of the Company Disclosure Schedule, none of the Company or any other Person acting on behalf of the Company has disclosed or delivered to any third party, or permitted the disclosure or delivery by any escrow agent or other party of, any Company Source Code. No event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time, or both) will, or would reasonably be expected to, require the disclosure, license or delivery by the Company or any other Person acting on behalf of the Company to any Person of any Company Source Code. ‎Section 3.16(k) of the Company Disclosure Schedule identifies each Contract under which the Company has delivered, licensed, made available, deposited, or is or may be required to deposit, with an escrow agent or other third party, any Company Source Code. Neither the execution of the Transaction Documents nor the consummation of any of the Transactions, in and of itself, would reasonably be expected to result in the release of any Company Source Code from escrow.

 

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(l) No Adverse Consequences of Transaction . Neither this Agreement nor the Transactions (other than as a result of prior obligations of the Purchaser or its Affiliates prior to the date hereof) will result in (i) the Purchaser or its Affiliates or the Company granting to any Person any right to or with respect to any Intellectual Property owned by, or licensed to, any of them, (ii) the Purchaser or its Affiliates or the Company being bound by, or subject to, any non-competition or other material restriction on the operation or scope of their respective businesses, or (iii) the Purchaser or its Affiliates or the Company being obligated to pay any royalties or other material amounts to any Person in excess of those payable by any of them, respectively, in the absence of this Agreement or the Transactions.

 

(m) Protection of Trade Secrets and Execution of Confidentiality and Invention Assignment Agreement . The Company has taken commercially reasonable steps necessary to protect the confidentiality and value of all Trade Secrets, Company Source Code, confidential Company Intellectual Property and all other Confidential Information. Without limiting the foregoing, (i) the Company has, and enforces, a policy requiring each employee, consultant and contractor to execute proprietary information, confidentiality and assignment agreements in the form set forth on ‎Section 3.16(m) of the Company Disclosure Schedule, and all current and former employees, consultants and contractors of the Company have properly executed such an agreement in such form, and (ii) no Trade Secrets, Company Source Code or material Confidential Information has been disclosed by the Company to any Person except pursuant to valid and appropriately protective non-disclosure, assignment and/or license agreements that have not been breached. All use, disclosure or appropriation of Confidential Information by the Company not owned by the Company has been pursuant to the terms of a written agreement between the Company and the owner of such Confidential Information, or is otherwise lawful. All current and former employees and consultants of the Company having access to Confidential Information or proprietary information of any of its customers or business partners have executed and delivered to the Company an agreement regarding the protection of such Confidential Information or proprietary information (in the case of proprietary information of the customers and business partners of the Company, to the extent required by such customers and business partners).

 

(n) No Government or University Funding or Involvement . Except as set forth in ‎Section 3.16(n) of the Company Disclosure Schedule, none of the Company Intellectual Property was, directly or indirectly, in whole or in part: (i) developed by, or on behalf of, or using funding, grants, or subsidies or any resources of, any Governmental Authority or any university, educational institution, research center, foundation or any entity affiliated with such university, educational institution, foundation or research center, (ii) developed utilizing any facilities of any Governmental Authority or any university, educational institution, research center, foundation or any entity affiliated with such university, educational institution, foundation or research center, (iii) developed by any employee, faculty or students of a Governmental Authority, university, college, other educational institution, foundation or research center, or (iv) developed by any independent contractor who was concurrently working for a Governmental Authority, university, college, other educational institution, foundation or research center. In the event that any such funds, grants, subsidies, facilities, employees, faculty or students were used, such use will not preclude or restrict the sale, transfer, alienation and/or license of any such Company Intellectual Property to the Purchaser free and clear of all Liens.

 

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(o) No Material Product Defects . The Company has disclosed to the Purchaser all information relating to any performance or functionality problem or issue with respect to any Company Product which does, or may reasonably be expected to, materially adversely affect the value, functionality or fitness for the intended purposes of the same. The current versions of each of the commercially released Company Products perform the functions described in all applicable published specifications or end user documentation, free of defects, bugs or programming errors that materially and adversely affect the functionality of such Company Products. None of the Company Products contain any code or feature that: (i) intentionally disrupts the operation of any Software, firmware, hardware, computer system or network, (ii) permits any Person to access Software or data in an unauthorized manner, or (iii) deletes, damages or corrupts any personal information, data, or communications.

 

(p) Compliance with Privacy Laws . The Company has (i) complied in all material respects with its published privacy policies, internal privacy policies and guidelines and all Applicable Laws relating to data privacy, data protection and data security, including with respect to the collection, storage, transmission, transfer (including cross-border transfers), disclosure and use of personally identifiable information, and (ii) taken commercially reasonable measures, including operational, managerial, physical and technical measures, to ensure that personally identifiable information is protected against loss, damage and unauthorized and unlawful access, use, modification or other misuse. There has been no loss, damage or unauthorized or unlawful access, use, modification or other misuse of personally identifiable information by the Company and, to the Knowledge of the Company, their contractors. No Person (including any Governmental Authority) has made any claim or commenced any written action with respect to loss, damage or unauthorized access, use, modification or other misuse of any information or data by the Company, or any of its employees or contractors and, to the Knowledge of the Company, there is no reasonable basis for any such claim or action. The execution, delivery and performance of this Agreement and the transaction contemplated hereby comply with the applicable privacy policies of the Company. The Company has at all times made all disclosures to, and obtained any necessary Consents from, users, customers, employees, contractors and other applicable Persons required by Applicable Laws related to data privacy, data protection and data security.

 

(q) Compliance with Internet Resource Terms . The Company and the Company Products comply with the applicable terms of use, and other applicable terms and conditions governing the use, of Internet Resources that are utilized by the Company in the ordinary course of business or utilized by the Company to market the Company Products.

 

(r) Compliance with Third Party Licenses . The Company has a valid and enforceable license or other right to use, practice and exploit all licensed Company Intellectual Property and all in the manner in which the foregoing Intellectual Property has been used, practiced and exploited, is being used, practiced or exploited or is currently intended to be used, practiced or exploited and the Company is in compliance with all licenses governing third party Intellectual Property utilized in or in connection with any Company Intellectual Property, including the Company Products, including (i) complying with all flow-through provisions of third party licenses (e.g., a requirement to include a specific Copyright notice or disclaimer), (ii) providing adequate attribution as required by any Open Source Materials license, and (iii) any limitations on the scope of license or covenants included in such licenses.

 

(s) Information Systems . ‎Section 3.16(s) of the Company Disclosure Schedule lists all the Software, equipment and information systems (“ Information Systems ”) owned, licensed, leased or controlled by the Company that are material to the operation of the business of the Company or the business of the customers of the Company. If such Information Systems are operated or hosted by an outsourcer or other third-party provider, the identity and contact information for such third-party provider is disclosed on ‎Section 3.16(s) of the Company Disclosure Schedule. None of the Information Systems depend upon any technology or information of any third party (other than the Internet). Such Information Systems are sufficient for the conduct of the business of the Company as currently conducted and as anticipated to be conducted by the Purchaser. The Company uses reasonable means, consistent with state of the art generally available to the public, to protect the security and integrity of all such Information Systems and the data stored thereon. The use by the Company of any Software or Information Systems does not exceed the scope of the rights granted to the Company with respect thereto, including any applicable limitation upon the usage, type or number of licenses, users, hardware, time, services or systems.

 

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(t) Industry Bodies . The Company is not and has never been a member or promoter of, or a contributor to, any industry standards body or any similar organization that could reasonably be expected to require or obligate any of the Company to grant or offer to any other Person any license or right to any Company-Owned Intellectual Property Rights.

 

(u) Research and Development Projects . ‎Section 3.16(u) of the Company Disclosure Schedule contains a list of all material research and development projects currently in progress which are conducted or proposed to be conducted by the Company.

 

(v) Marketing Materials . All products or services produced, marketed, licensed, sold, distributed or performed by or on behalf of the Company and all products or services currently under development by the Company to customers and all services provided by or through the Company to customers on or prior to the Closing conform in all material respects to (i) indications for use approved by Regulatory Authorities and do not include any statements regarding any “off-label” uses, (ii) applicable contractual commitments, express and implied warranties (to the extent not subject to legally effective express exclusions thereof), and (iii) to any representations provided to customers and conform in all material respects to packaging, advertising and marketing materials and to applicable product or service specifications or documentation. The Company has not received any written, or, to its Knowledge, oral, notice alleging liability (and, to the Knowledge of the Company, there is no legitimate basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against the Company giving rise to any material liability relating to the foregoing Contracts) for replacement or repair thereof or other damages in connection therewith.

 

(w) General . Any Liabilities of the Company arising in connection with, or resulting from, (i) the sale or license of any Company Intellectual Property, including any Company Products, prior to the Closing Date, or (ii) the provision of any services by the Company prior to the Closing Date to any Third Parties, shall be deemed to constitute a breach by the Company of the representations and warranties set forth in ‎Section 3.16.

 

Section 3.17 Insurance Coverage .

 

‎Section 3.17 of the Company Disclosure Schedule identifies each insurance policy maintained by, at the expense of or for the benefit of the Company or its business or assets and identifies any material claims made thereunder. The Company has delivered to the Purchaser accurate and complete copies of all insurance policies listed on ‎Section 3.17 of the Company Disclosure Schedule, each of which is in full force and effect. Such insurance policies provide insurance coverage for the properties, assets and operations of the Company of the kinds, in the amounts and against the risks required to comply with Applicable Law and the Contracts to which the Company or its Subsidiaries is a party and the risks of the sort normally insured by similar businesses. There is no claim by the Company pending under any of such policies as to which coverage has been questioned, denied or disputed by the underwriters of such policies or in respect of which such underwriters have reserved their rights. All premiums payable under all such policies have been timely paid and the Company has otherwise complied with all material terms and conditions of all such policies. The Company has not received any notice or other communication regarding any actual or possible: (i) cancellation or invalidation of any insurance policy; (ii) refusal of any coverage or rejection of any claim under any insurance policy; or (iii) material adjustment in the amount of the premiums payable with respect to any insurance policy. Neither: (A) the execution, delivery or performance of this Agreement or any of the Transaction Documents; nor (B) the consummation of the Transactions, will (with or without notice or lapse of time): (1) result in the cancellation, invalidation or termination, or give any Person the right to cancel, invalidate or terminate, any of the insurance policies of the Company; (2) result in the reduction of coverage, or give any Person the right to reduce the coverage, under any such insurance policies; or (3) have any impact on the right or ability of the Company to make a claim under any such insurance policies in respect of or relating to events or circumstances that have occurred prior to the Closing.

 

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Section 3.18 Tax Matters .

 

(a) The Company has timely filed in a proper manner or caused to be filed with the appropriate Taxing Authorities all Tax Returns required to be filed by the Company and has timely paid or caused to be paid all Taxes shown as due on any Tax Return. All such Tax Returns are complete and accurate. All Taxes due and owing by the Company whether or not required to be shown on a Tax Return have been fully paid, other than paid or accrued taxes as indicated in ‎Section 3.18‎(a) of the Company Disclosure Schedule. With respect to any Taxes where payment is not yet due or owing, the Company has established in accordance with Accounting Principles an adequate accrual for all such Taxes through the end of the last period for which the Company ordinarily records items on its respective books and records. All required estimated Tax payments sufficient to avoid any underpayment penalties have been made by or on behalf of the Company. The Company has no Liability for Taxes other than as set forth in ‎Section 3.18‎(a) of the Company Disclosure Schedule. No written claim has ever been made by a Taxing authority or other Governmental Authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by that jurisdiction. The Company has not had or does not have any nexus with any jurisdiction where it does not file a Tax Return, which nexus has subjected it to Tax in such jurisdiction.

 

(b) The unpaid Taxes of the Company did not, as of the last date of the Financial Statements, exceed the reserve for Tax liability set forth on the face of the balance sheet included in the Financial Statements (rather than in any notes thereto), and (ii) will not, as of the Closing Date, exceed such reserve. Since the last date of the Financial Statements, the Company has incurred no liability for Taxes (i) from extraordinary gains or losses within the meaning of Accounting Principles, (ii) outside the ordinary course of business, or (iii) otherwise inconsistent with past custom and practice.

 

(c) Except as set forth on ‎‎ ‎Section 3.18(c) of the Company Disclosure Schedule, there is no dispute or matters under discussion with any Taxing Authority in relation to the affairs of the Company. No deficiencies for Taxes with respect to the Company have been claimed, proposed or assessed by any Taxing Authority or other Governmental Authority. There are no Proceedings, investigations, assessments, audits, claims or other actions for or relating to any Liability in respect of Taxes pending or to the Company’s knowledge threatened against the Company in respect of any Taxes and there are no matters under discussion, audit or appeal with any Governmental Authority relating to Taxes. There are no circumstances which will or is likely to, whether by lapse of time or the issue of any notice of assessment or otherwise, give rise to any dispute with any relevant Taxing Authority in relation to the liability of the Company or accountability for Taxes, any claim made by it, any relief, deduction, or allowance afforded to it, or in relation to the status or character of the Company under or for the purpose of any provision of any legislation relating to Taxes.

 

(d) The Company has made available to the Purchaser (i) complete and accurate copies of all Tax Returns of the Company (and any predecessor thereof) for all taxable years since the last tax year that is closed for tax purposes (either by a final assessment from the Taxing Authority or due to the lapse of the statute of limitations with respect thereto); (ii) complete and accurate copies of all audit or examination reports and statements of deficiencies assessed against or agreed to by the Company (or any predecessor thereof or issued with respect to or relating to any Taxes due from or with respect to the Company); (iii) any closing or settlement agreements entered into by or with respect to the Company with any Governmental Authority, (iv) all Tax opinions, memoranda and similar documents addressing Tax matters or positions, and (v) all material written communications to, or received by the Company from, any Governmental Authority including Tax rulings and Tax decisions.

 

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(e) Neither the Company (nor any predecessor thereof) has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, nor has any request been made in writing for any such extension or waiver.

 

(f) The Company has not requested, offered to enter into or entered into any agreement or other arrangement, or executed any waiver, providing for any extension of time within which (i) to file any Tax Return covering any Taxes for which the Company is or may be liable; (ii) to file any elections, designations or similar filings relating to Taxes for which the Company is or may be liable; (iii) the Company is required to pay or remit any Taxes or amounts on account of Taxes; or (iv) any Governmental Authority may assess or collect Taxes for which the Company is or may be liable. The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date, including by virtue of (i) any change in method of accounting for a taxable period ending on or prior to the Closing Date, (ii) any Tax related agreement or settlement concluded with any Taxing Authority, or (iii) any prepaid amount received on or prior to the Closing Date.

 

(g) Neither the Company nor any Subsidiary has made, prepared or filed any elections, designations or similar filings relating to Taxes or entered into any agreement or other arrangement in respect of Taxes or Tax Returns that has effect for any period ending after the Closing Date.

 

(h) Except as set forth in ‎ Section 3.18(h) of the Company Disclosure Schedule, the Company has never been assessed by any Taxing Authority and notices of assessment have not been issued to the Company by any Taxing Authority.

 

(i) No power of attorney (other than powers of attorney authorizing employees or representative of the Company to act on behalf of the Company) with respect to any Taxes has been executed or filed with any Taxing Authority, and each employee or representative of the Company who is authorized to act on behalf of the Company with respect to any Taxes is identified on ‎‎ ‎Section 3.18(i) of the Company Disclosure Schedule.

 

(j) There are no Liens for Taxes on any assets of the Company. Appropriate reserves have been established in accordance with Accounting Principles with respect to all statutory Liens for Taxes that are being contested.

 

(k) Except as set forth on ‎Section 3.18(k) of the Company Disclosure Schedule, since its incorporation, no closing agreements, private letter rulings, technical advice memoranda, “taxation ruling or decision” ( Hachlatat Misui) or similar agreements or rulings relating to Taxes have been received from, or entered into or issued by any Governmental Authority with or in respect of the Company or the holding in the Company. The Company has not requested or received a ruling from any Taxing Authority.

 

(l) ‎Section 3.18(l) of the Company Disclosure Schedule sets forth all Tax exemptions, material Tax holidays or other Tax reduction agreements or arrangements or Orders applicable to the Company and any entity that is or was controlled by the Company (“ Tax Incentives ”). The Company has made available to the Purchaser all material documentation relating to any Tax Incentives. The Company and any entity that is or was controlled by the Company were, and are, in compliance with the requirements for any Tax Incentives. The consummation of the actions contemplated in this Agreement will not have any adverse affect on: (i) the validity and effectiveness of any Tax Incentives; and (ii) the continued qualification for the Tax Incentives or the terms or duration thereof or require any recapture of any previously claimed incentive under such Tax Incentives.

 

(m) All retained earning distributed under Section (d) of Chapter Seven of the Encouragement Law (Amendment 69 and Temporary Order), 5772-2012 (the “ Temporary Order ”), as applicable to the Company and any entity that is or was controlled by the Company, were in full compliance with the conditions of the Temporary Order and the Tax due under the Temporary Order was correctly and accurately calculated, reported and paid.

 

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(n) Except as set forth on ‎‎ ‎Section 3.18(n) of the Company Disclosure Schedule, the Company is duly registered for the purposes of Israeli value added tax and has complied in all respects with all requirements concerning value added Taxes (“ VAT ”). The Company (i) has not made any exempt transactions (as defined in the Israel Value Added Tax Law of 1975) and there are no circumstances by reason of which there might not be an entitlement to full credit of all VAT chargeable or paid on inputs, supplies, and other transactions and imports made by it, (ii) have collected and timely remitted to the relevant Taxing Authority all output VAT which it is required to collect and remit under any applicable law; and (iii) has not received a refund for input VAT for which it is not entitled under any applicable Law.

 

(o) The Company duly and timely withheld and paid all Taxes and other amounts required by law to be withheld by it (including Taxes and other amounts required to be withheld by it in respect of any amount paid or credited or deemed to be paid or credited by it to or for the account or benefit of any Person, including any employees, officers, directors, independent contractor, creditor, shareholders of the Company or other Person, whether or not an Israeli tax resident), other than such delays in payments and withholding as would not reasonably likely to trigger any additional taxes, interest, fines or any other Loss in respect thereof.

 

(p) The Company has duly and timely collected all amounts on account of any sales or transfer taxes, including goods and services, harmonized sales and provincial or territorial sales taxes, required by law to be collected by it and has duly and timely remitted to the appropriate Governmental Authority any such amounts required by law to be remitted by it.

 

(q) All records which the Company are required under Applicable Law to keep for tax purposes (including all documents and records likely to be needed to defend any challenge by any Governmental Authority to the transfer pricing of any transaction) have been duly kept in all material aspects in accordance with all applicable requirements and are available for inspection at the premises of the Company.

 

(r) The Company has at all times been resident for Tax purposes of its country of incorporation. Since its incorporation, the Company has not paid and has no liability for Taxes in any jurisdiction other than its respective country of incorporation; no claim has been made in writing by any Taxing Authority in any jurisdiction where the Company does not file Tax Returns that it is or may be subject to Tax by such jurisdiction.

 

(s) The Company is not subject to any restrictions or limitations pursuant to Part E2 of the Israeli Income Tax Ordinance or pursuant to any tax ruling made with reference to the provisions of Part E2.

 

(t) Any related party transactions subject to Section 85A of the Israeli Tax Ordinance or any similar Applicable Law in foreign jurisdictions conducted by the Company has been conducted on an arms-length basis in accordance with Section 85A of the Israeli Tax Ordinance or Applicable Law in such foreign jurisdictions and in compliance with the requirements of Section 85A of the Israeli Tax Ordinance and the regulations promulgated thereunder.

 

(u) The Company has not undertaken or participating or engaged in any transaction which is listed on, or requires or will require special reporting in accordance with, Section 131(g) of the Israeli Tax Ordinance and the Income Tax Regulations (Reportable Tax Planning), 5767-2006 promulgated thereunder.

 

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(v) Neither the Company nor its Subsidiary has ever been a real property corporation (Igud Mekarke’in) within the meaning of this term under Section 1 of the Israeli Land Taxation Law (Appreciation and Acquisition), 5723-1963.

 

(w) Except as set forth in ‎ Section 3.18(w) of the Company Disclosure Schedule, the Company has not filed or maintained any share incentive or option plan that is intended to qualify under Section 102 of the Israeli Tax Ordinance.

 

Section 3.19 Employees; Contractors and Benefit Plans .

 

(a) ‎Section 3.19(a) of the Company Disclosure Schedule sets forth a list of the following with respect to each employee, manager, independent contractor, consultant, agent, manager and director of the Company, including each employee on leave of absence, disability or workers’ compensation leave, military or family leave or layoff status: name; job title; date of commencement of employment or engagement; location of work; actual scope of employment ( e.g. , full, part-time or temporary), overtime classification ( e.g. , exempt or non-exempt), prior notice entitlement, current annual compensation and all social benefits paid or payable maintained or contributed to or with respect to which any potential liability is borne by the Company (whether now or in the future) to each employee, manager, independent contractor, consultant, agent, manager and director of the Company and including but not limited to the following entitlements: bonus (including type of bonus, calculation method and amounts received in the past two years), deferred compensation, commissions (including calculation method and amounts received in the past two years), overtime payment, vacation entitlement and accrued vacation, travel entitlement (e.g. travel pay, car, leased car arrangement and car maintenance payments), pension arrangement and/or any other provident fund (including managers’ insurance and education fund), their respective contribution rates (by percentage) and the salary basis for such contributions, whether such employee is subject to Section 14 Arrangement (and, to the extent such employee is subject to the Section 14 Arrangement, an indication of whether such arrangement has been applied to such person from the commencement date of his employment and on the basis of his entire salary) and any change in compensation and such social benefits since January 1, 2011; sick and vacation leave that is accrued but unused; and service credited for purposes of vesting and eligibility to participate under any Benefit Plan. The Company has provided to the Purchaser complete copies of all Contracts with such Persons.

 

(b) ‎Section 3.19(b) of the Company Disclosure Schedule sets forth an accurate and complete list identifying each employment, consulting, severance, termination, retirement, profit sharing, bonus, incentive or deferred compensation, retention or transaction bonus or change in control agreement, pension, stock option, restricted stock or other equity-based benefit, profit sharing, savings, retirement, life, health, long term care, perquisite, fringe benefit, death benefit or other material compensation or benefit plan, program, arrangement, agreement, fund or commitment (i) for the benefit or welfare of any current or former director, manager, officer, shareholder, service provider or employee of any of the Company, or any shareholder or Affiliate thereof employing such person for the benefit of the Company, or (ii) with respect to which the Company has any Liability. Such plans are referred to collectively herein as the “ Benefit Plans ”. With respect to the Benefit Plans, except as set forth in ‎Section 3.19(b) of the Company Disclosure Schedule: (i) all employer and employee contributions to each Benefit Plan required by applicable Legal Requirements or by the terms of such Benefit Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices; (ii) the fair market value of the assets of each funded Benefit Plan, the liability of each insurer for any Benefit Plan funded through insurance or the book reserve established for any Benefit Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the Closing Date, with respect to all current and former participants in such Benefit Plan according to the actuarial assumptions and valuations most recently used to determine employer contributions to such Benefit Plan and no transaction contemplated by this Agreement shall cause such assets or insurance obligations to be less than such benefit obligations; (iii) each Benefit Plan required to be registered with a Governmental Authority has been registered with a Governmental Authority and has been maintained in good standing with applicable Governmental Authority; and (iv) there are no pending, or, to the Knowledge of the Company, threatened or anticipated Actions in connection with any Benefits Plan and there has been no act or omission which has given or may give rise to fines, penalties, taxes or related charges under any applicable Legal Requirement. The Company has delivered to the Purchaser (i) accurate and complete copies of each Benefit Plan to the extent currently effective, including all amendments thereto and copies of applicable resolutions adopting each such amendment, (ii) all written Contracts relating to each Benefit Plan to the extent currently effective, (iii) correspondence to or from any Governmental Authority relating to any Benefit Plan and (iv) all employee manuals and handbooks, employment policy statements, employment customs, internal regulations, collective labor agreements and employment agreements with respect to Employees, including written summaries of any of the foregoing to the extent not available in written form. The Company has performed all obligations required to be performed by the Company thereunder, is not in default or violation of, and has no Knowledge of any default or violation by any other party to, any Benefit Plan. Each Benefit Plan has been established and maintained in accordance with its terms and in compliance in all material respects with Applicable Law.

 

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(c) Other than as set forth in ‎Section 3.19(c) of the Company Disclosure Schedule, the consummation of the Transactions will not (either alone or together with any other event, including a subsequent termination of employment or service), and other than in the event that the Transaction shall be deemed as a change of control by a competent court decision, entitle any employee, service provider or independent contractor of the Company or any employee of such independent contractor to severance pay (including increased severance payment), retention, bonus or other similar payment or accelerate the time of payment or vesting or trigger any payment of funding (through a grantor trust or otherwise) of compensation or benefits under.

 

(d) There is no Proceeding pending against or involving or threatened or anticipated against or involving any Benefit Plan (other than routine claims for benefits).

 

(e) Except as set forth in ‎Section 3.19(e) of the Company Disclosure Schedule, each person providing services to the Company that has been characterized as a consultant or independent contractor and not an employee has been properly characterized as such, and neither the Company, nor the Purchaser (or its Affiliates) has or will have any Liability, including under or on account of any Benefit Plan, arising out of the hiring or retention of persons to provide services to the Company, treating such persons as consultants or independent contractors and not as employees, or otherwise with respect to the period pre-Closing.

 

(f) Except as set forth in ‎Section 3.19(f) of the Company Disclosure Schedule, the Company is not a party to any collective bargaining Contract, collective labor agreement or other Contract or arrangement with a labor union, workers committee, trade union or other organization or body involving any of its employees, or is not otherwise required (under any Applicable Law, under any Contract or otherwise) to provide benefits or working conditions beyond the benefits and working conditions required by Applicable Law or pursuant to applicable extension orders. The Company has not and is not subject to, and, except as set forth in ‎Section 3.19(f) of the Company Disclosure Schedule, no employee of the Company benefits from, any extension order (tzavei harchava) except for extension orders applicable to all employees in Israel.

 

(g) The Company is not subject to any Proceeding asserting that it has committed an unfair labor practice or seeking to compel it to bargain with any labor union or labor organization nor is there pending or, to the Company’s Knowledge, threatened, nor has there been, any labor strike, dispute, walk-out, work stoppage, slow-down or lockout involving the Company. The consummation of this transaction will not entitle any third party (including any labor union or labor organization) to any payments under any labor and collective bargaining agreements.

 

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(h) Except as set forth in ‎Section 3.19(h) of the Company Disclosure Schedule, all Contracts between the Company and any of its employees can be terminated by the Company upon not more than thirty (30) days notice. No Employee’s or Service Provider’s employment by the Company requires the Company to obtain any special license, permit or other authorization of a Governmental Authority.

 

(i) The Company has complied with all Applicable Laws relating to its employees and their terms and conditions of employment, including, without limitation, any Applicable Law related to workplace health and safety; all amounts that the Company is legally or contractually required either (i) to deduct from its employees’ salaries or to transfer to such employees’ pension or provident, life insurance, incapacity insurance, continuing education fund or other similar funds, or (ii) to withhold from its employees’ salaries and benefits and to pay to any Governmental Authority as required by the Applicable Law have been duly deducted, transferred, withheld and paid, and the Company has no outstanding obligation to make any such deduction, transfer, withholding or payment; and except as set forth in ‎Section 3.19(i) of the Company Disclosure Schedule, the Company is in compliance with all Applicable Laws and/or Contracts and/or customs recognized as such by the Company relating to employment, employment practices, wages, bonuses, pension benefits and other compensation matters and terms and conditions of employment related to its Employees or Service Providers, including but not limited to, the Israeli Prior Notice to the Employee Law, 2002, the Israeli Notice to Employee (Terms of Employment) Law, 2002, the Israeli Prevention of Sexual Harassment Law, 1998, the Hours of Work and Rest Law, 1951, the Annual Leave Law, 1951, the Salary Protection Law, 1958, the Increased Enforcement of Labor Laws, 2011, and the Israeli Employment by Human Resource Contractors Law, 1996. There are no claims from or on behalf of any Employee or Service Providers pending or, to the Company’s Knowledge, threatened against the Company.

 

(j) Except as set forth in ‎Section 3.19(j) of the Company Disclosure Schedule, all obligations of the Company with respect to statutorily required severance payments to current employees have been fully satisfied or have been fully funded by contributions to appropriate insurance funds pursuant to Applicable Law, including the Israeli Severance Pay Law, 1963 and/or to the extent required has been reserved for in the Financial Statements. There are no unwritten policies, practices or customs of the Company that, by extension, could reasonably be expected to entitle any Employee or Service Provider to benefits in addition to what such Employee or Service Provider is entitled to by applicable Legal Requirements or under the terms of such Employee’s or Service Provider’s employment Contract (including unwritten customs or practices concerning bonuses, the payment of statutory severance pay when it is not required under applicable Legal Requirements).

 

(k) Except as set forth in ‎‎ ‎Section 3.19(k) of the Company Disclosure Schedule, to the Knowledge of the Company, no Key Person: (i) intends to terminate his or her employment or engagement for the benefit of the Company; (ii) has received an offer to join a business that is competitive with the business of Company; or (iii) is a party to or is bound by any confidentiality agreement, non-competition agreement or other Contract (with any Person) that may have a material adverse effect on: (A) the performance by such individual’s duties or responsibilities as an employee or consultant (as applicable) of the Company or its service providers or (B) the businesses or operations of the Company.

 

Section 3.20 Environmental Matters .

 

The Company is, and has at all times been, in compliance with all Environmental Laws and all Environmental Permits, and there are no liabilities of the Company under any such Applicable Law or any Hazardous Substance and there is no condition, situation or set of circumstances that could reasonably be expected to result in or be the basis for any such liability. The Company has not entered into any agreement that may require it to guarantee, reimburse, pledge, defend, hold harmless or indemnify any other party with respect to liabilities arising out of Environmental Laws or any activities of the Company related to Hazardous Substance.

 

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Section 3.21 Affiliate Transactions .

 

Except as set forth in ‎Section 3.21 of the Company Disclosure Schedule, no shareholder, director, manager, officer or employee of the Company or members of any of their immediate family or any Affiliate thereof (each of the foregoing, a “ Related Person ”), other than in its capacity as a shareholder, director, manager, officer or employee of the Company, (i) has been involved, directly or indirectly, in any business arrangement or other material relationship with the Company (whether written or oral), (ii) directly or indirectly owns, or otherwise has any right, title, interest in, to or under, any property or right, tangible or intangible, that is used by the Company or (iii) is engaged, directly or indirectly, in the conduct of the businesses of the Company. In addition, to the Knowledge of the Company, no such Related Person has an interest in any Person that competes with the businesses of the Company in any market presently served by the Company, in each case, except as explicitly set forth in ‎Section 3.21 of the Company Disclosure Schedule. For purpose of this Agreement, “immediate family” of any individual shall mean spouse, parents, children and brothers and sisters of such Person.

 

Section 3.22 Finders’ Fees .

 

Except as set forth in ‎Section 3.22 of the Company Disclosure Schedule, which is provided for informational purposes only and, notwithstanding anything to the contrary in this Agreement or the Disclosure Schedules, shall not be regarded as an exception of this representation, no broker, investment banker, financial advisor or other Person acting for or on behalf of the Company is entitled to any broker’s, finder’s, financial advisor’s or similar fee or commission in connection with the Transactions contemplated by this Agreement or any other Transaction Document.

 

Section 3.23 Bank Accounts .

 

Except as provided in ‎Section 3.23 of the Company Disclosure Schedule, the Company has no outstanding credit facility, overdraft, loan, loan stock, debenture, letter of credit, acceptance credit or other financial facility.

 

Section 3.24 Company Transaction Expense .

 

‎Section 3.24 of the Company Disclosure Schedule sets forth the Company’s current reasonable estimate of the total amount of Transaction Expenses and Change of Control payments that are payable or have been paid by the Company.

 

Section 3.25 Company Assets .

 

Any and all tangible and intangible assets, properties and rights, including any Intellectual Property, in which any Seller or its Affiliates has or has had at any time any interest, right or claim and which are necessary with respect to physical assets or necessary or desirable with respect to intellectual property, in connection with the business, operations, activities or technologies of the Company as currently conducted and as proposed to be conducted, have been duly assigned and transferred by such Seller or its Affiliates to the Company, as applicable, and such Seller or its Affiliates has no remaining right or interest in such assets, properties and rights. In the event that, notwithstanding the foregoing, it transpires that any Seller or its Affiliates has any right or interest in any such assets, properties and rights, then such Seller shall or shall cause his Affiliates to be deemed to hold such rights or interests in trust for the sole benefit of the Company, as applicable, and the Seller shall and shall cause its Affiliates to take any and all actions and execute any and all documents, as necessary or as otherwise deemed by the Purchaser to be desirable in order to transfer and assign such rights and interests to the Company and vest full and unrestricted title thereof in the Company.

 

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Section 3.26 Full Disclosure .

 

This Agreement (including its Schedules) does not, and the Transaction Documents do not: (i) contain any representation, warranty or information that is false or misleading with respect to any material fact; or (ii) omit to state any material fact necessary in order to make the representations, warranties and information contained and to be contained herein and therein (in the light of the circumstances under which such representations, warranties and information were or will be made or provided) not false or misleading. Neither the Company nor any of its Representatives is aware of any facts pertaining to the Company or its business which have had or would reasonably be expected to have a Material Adverse Effect and which have not been disclosed in the Company Disclosure Schedule.

 

Section 3.27 Express Disclaimer of Other Representations and Warranties .

 

Purchaser acknowledges and agrees that no representations or warranties are or have been made by the Company except for the representations and warranties expressly set forth in this Agreement and in any other Transaction Document.

 

Article IV

Representations and Warranties of the Sellers

 

Subject to the disclosures set forth in the Sellers Disclosure Schedule (each of which disclosures, in order to be effective, shall clearly indicate the Section and, if applicable, the Subsection of this ‎Article IV to which it relates (unless and only to the extent the relevance to other representations and warranties is readily apparent from the actual text of the disclosures), and each of which disclosures shall also be deemed to be representations and warranties made by the Sellers, severally and not jointly, to the Purchaser under this ‎Article IV ), each Seller, severally and not jointly, represents and warrants to the Purchaser that the statements contained in this ‎Article IV are true and correct as of the date of this Agreement and will be true and correct as of the Closing Date:

 

Section 4.01 Title to Company Shares; Pro Rata Portion .

 

Except as set forth in ‎Section 4.01 of the Sellers Disclosure Schedule, such Seller has good and valid title to, and is the sole lawful owner, free and clear of any and all Liens, beneficially and of record, of all of the Company Shares set forth opposite the name of such Seller on ‎Section 3.07(c) of the Company Disclosure Schedule. The Seller has sole voting power and sole power to issue instructions with respect to the matters set forth in this Agreement, sole power of disposition and sole power to agree to all of the matters set forth in this Agreement, in each case with respect to the foregoing Company Shares. At the Closing, Seller shall convey to the Purchaser, and the Purchaser shall acquire, good and marketable title to the respective Company Shares referred to above, free and clear of any Liens and from any agreement, obligation or commitments to create, grant, give or permit to maintain any Liens. Except as set forth in ‎Section 4.01 of the Sellers Disclosure Schedule, the Seller has not sold, pledged or otherwise transferred (whether by operation of law or otherwise, including, without limitation, transfers pursuant to any decree of divorce or separate maintenance, any property settlement, any separation agreement or any other agreement with a spouse) any interests in the respective Company Shares to any person. All of such Company Shares set forth opposite the name of such Seller on ‎Section 3.07(c) of the Company Disclosure Schedule (a) have been duly authorized and validly issued, (b) are fully paid and non-assessable, and (c) have been issued in full compliance with (i) all applicable securities laws and any other Applicable Laws and (ii) all requirements set forth in applicable Contracts. Except as set forth in ‎Section 4.01 of the Sellers Disclosure Schedule, the respective Company Shares are not subject to any shareholders agreements, voting agreements, proxies, trusts, information rights, management rights, registration rights, first refusal, tag along, pre-emptive or first offer rights, financial statement requirements or other provisions, agreements or understandings relating to the voting, disposition or transfer of Company Shares thereof, which would continue to be binding upon the Purchaser after the Closing. Any proxies heretofore given in respect of the respective Company Shares are not irrevocable, and any such proxies are or shall be revoked by the Closing. The Pro Rata Portion appearing opposite the name of each Seller in Exhibit A , and the details set forth in each Signing Seller Exercise, Sale and Waiver Letter and in each Non-Signing Seller Exercise, Sale and Waiver Letter, is true and correct as of the date hereof and as of the Closing and may be relied upon by the Purchaser and is binding and enforceable against such Seller’s respective successors, heirs, executors, and administrators.

 

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Section 4.02 Authority; Binding Effect .

 

Such Seller has full right, power and authority to enter into and to perform such Seller’s obligations under each of the Transaction Documents to which such Seller is or may become a party. Such Seller has all requisite power and authority to execute, deliver and perform his obligations under this Agreement and the other Transaction Documents to which such Seller is a party and to consummate the transactions contemplated hereunder and thereunder. The execution, delivery and performance of this Agreement and the other Transaction Documents to which such Seller is a party have been duly authorized by such Seller. All organizational actions and proceedings required to be taken by or on the part of such Seller to authorize and permit the execution, delivery and performance by such Seller of this Agreement and the other Transaction Documents to which such Seller is a party, have been duly and properly taken. This Agreement has been, and each other Transaction Document to which such Seller is a party has been or will be, duly executed and delivered by such Seller. This Agreement constitutes the legal, valid and binding obligation of such Seller, and, assuming the due authorization, execution and delivery by the Purchaser (if party thereto), enforceable against such Seller in accordance with its terms, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, and upon the execution of each of the other Transaction Documents, each of such other Transaction Documents will constitute the legal, valid and binding obligation of such Seller who is a party thereto, and will be, assuming the due authorization, execution and delivery by the Purchaser (if party thereto), enforceable against such Seller in accordance with its terms, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.

 

Section 4.03 Non-Contravention; Consents .

 

Neither (1) the execution, delivery or performance of this Agreement and any other Transaction Document by such Seller, nor (2) the consummation of the Transactions by such Seller, will (with or without notice or lapse of time):

 

(a) contravene, conflict with or result in a violation or breach of any provisions of any Applicable Law, or give any Governmental Authority or other Person the right to challenge the Transactions or to exercise any remedy or obtain any relief under any Order to which such Seller is bound;

 

(b) contravene, conflict with or result in a violation or breach of or a default under any provision of, or require any consent under, Seller’s organizational documents, if applicable, or any Contract to which such Seller is a party or by which such Seller is bound, or result in the creation of a Lien on any property or asset of such Seller or any of his Affiliates;

 

(c) except as set forth on ‎ Section 4.03(c) of the Sellers Disclosure Schedule and as provided in this Agreement, require to make any filing with or give any notice to, or to obtain any Consent from, any Person; or

 

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(d) other than as expressly provided in this Agreement, cause any Option or right of pre-emption to become exercisable, expect to the extent it has been waived on the date hereof.

 

Section 4.04 Capacity of Seller .

 

(a) Such Seller:

 

(1) is not bankrupt or insolvent has not, at any time, (A) made or proposed a general assignment, arrangement or composition for the benefit of creditors, (B) filed, or had filed against such Seller, any bankruptcy petition or similar filing, (C) suffered the attachment or other judicial seizure of all or a substantially all of such Seller’s assets, (D) admitted in writing such Seller’s inability to pay such Seller’s debts as they become due, or (E) taken or been the subject of any action that will have an adverse effect on such Seller’s ability to comply with or perform any of such Seller’s covenants or obligations under any of the Transaction Documents; or

 

(2) is not subject to any Applicable Law that may have an adverse effect on such Seller’s ability to comply with or perform any of such Seller’s covenants or obligations under any of the Transaction Documents.

 

(b) There is no Proceeding pending and, to such Seller’s Knowledge, no Person has threatened to commence any Proceeding that may have an adverse effect on the ability of such Seller to comply with or perform any of such Seller’s covenants or obligations under any of the Transaction Documents. To the Knowledge of the Sellers, no event has occurred, and no claim, dispute or other condition or circumstance exists, that will or might give rise to or serve as the basis for any such Proceeding or the threat of any such Proceeding.

 

(c) The consummation of the Transactions shall not constitute a fraudulent transfer by such Seller under applicable bankruptcy and other similar laws relating to bankruptcy and insolvency of such Seller.

 

Section 4.05 Share Capital .

 

In the case of a Seller that is a company, Exhibit A sets forth a complete and accurate list, by name, of such Seller’s ultimate beneficial holder(s), their addresses, the number of shares owned by each of them identified by class and series and their Pro Rata Portion, other than with respect to publicly traded companies regarding their securities which are held by the public.

 

Section 4.06 Tax Matters .

 

Such Seller (with respect to its holdings in the Company) is not subject to any restrictions or limitations pursuant to Part E2 of the Israeli Income Tax Ordinance or pursuant to any tax ruling made with reference to the provisions of Part E2.

 

Section 4.07 Disclosure .

 

This Agreement and any other Transaction Document executed by the Seller do not and will not (a) contain any representation, warranty or information made by or relating to such Seller that is false or misleading with respect to any material fact, or (b) omit to state any material fact necessary in order to make the representations, warranties and information made by or relating to such Seller contained herein and therein (in the light of the circumstances under which such representations, warranties and information were or will be made or provided) not false or misleading with respect to such Seller. The Seller is not aware of any facts pertaining to the Company which have had or would reasonably be expected to have a Material Adverse Effect and which have not been disclosed in the Company Disclosure Schedule.

 

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Section 4.08 Finder’s Fees .

 

Except as set forth on ‎Section 4.08 of the Sellers Disclosure Schedule, which is provided for informational purposes only and, notwithstanding anything to the contrary in this Agreement or the Disclosure Schedules, shall not be regarded as an exception of this representation, no broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or similar fee or commission in connection with the Transactions contemplated by this Agreement or any other Transaction Document to which such Seller is a party based on any Contract to which such Seller is a party or that is otherwise binding upon such Seller.

 

Section 4.09 Company Assets .

 

Any and all tangible and intangible assets, properties and rights, including any Intellectual Property, in which any Seller or its Affiliates has or has had at any time any interest, right or claim and which are necessary with respect to physical assets or necessary or desirable with respect to intellectual property in connection with the business, operations, activities or technologies of the Company as currently conducted and as proposed to be conducted, have been duly assigned and transferred by such Seller or its Affiliates to the Company, as applicable, and such Seller or its Affiliates has no remaining right or interest in such assets, properties and rights. In the event that, notwithstanding the foregoing, it transpires that any Seller or its Affiliates has any right or interest in any such assets, properties and rights, then such Seller shall or shall cause his Affiliates to be deemed to hold such rights or interests in trust for the sole benefit of the Company, as applicable, and the Seller shall and shall cause its Affiliates to take any and all actions and execute any and all documents, as necessary or as otherwise deemed by the Purchaser to be desirable in order to transfer and assign such rights and interests to the Company and vest full and unrestricted title thereof in the Company.

 

Section 4.10 Express Disclaimer of Other Representations and Warranties .

 

Purchaser acknowledges and agrees that no representations or warranties are or have been made by the Sellers except for the representations and warranties expressly set forth in this Agreement and in any other Transaction Document.

 

Article V

Representations and Warranties of the Purchaser

 

The Purchaser represents and warrants to the Company and the Sellers that the statements contained in this Article V are true and correct as of the date of this Agreement and will be true and correct as of the Closing:

 

Section 5.01 Corporate Authorization .

 

The Purchaser is a limited liability company duly incorporated and validly existing under the laws of Israel. The Purchaser has all necessary corporate power and authority to enter into and to perform its obligations under this Agreement and the other Transaction Documents to which it is a party, and the execution, delivery and performance by the Purchaser of this Agreement and the other Transaction Documents to which it is a party have been duly authorized by all necessary corporate action on the part of the Purchaser. This Agreement constitutes and any other Transaction Document to which the Purchaser is or will be a party constitutes or will constitute the legal, valid and binding obligation of the Purchaser, and assuming the due authorization and execution thereof by the other parties thereto, enforceable against the Purchaser in accordance with its terms, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.

 

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Section 5.02 Non Contravention .

 

Neither the execution, delivery or performance of this Agreement or any of the Transaction Documents by the Purchaser nor the consummation of the Transactions by the Purchaser, subject to the terms of this Agreement, will (with or without notice or lapse of time):

 

(a) contravene, conflict with or result in a violation of any of (i) the provisions of the articles of association or any other charter documents of the Purchaser or (ii) any Applicable Law;

 

(b) contravene, conflict with or result in a violation of, or give any Governmental Authority or other Person the right to challenge any of the Transactions or to exercise any remedy or obtain any relief under, any Applicable Law or any Order to which the Purchaser or any of the assets owned or used by the Purchaser is subject; or

 

(c) contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of any material Contract by which the Purchaser is bound,

 

except, in the case of clauses (a) through (c) above, for such violations, breaches or defaults as would not, individually or in the aggregate, have a material adverse effect on the ability of the Purchaser to consummate the transactions contemplated by this Agreement or any other Transaction Document.

 

The Purchaser is not and will not be required to make, subject to the terms of this Agreement, any filing with or give any notice to, or to obtain any Consent from, any Person in connection with: (x) the execution, delivery or performance by the Purchaser of this Agreement or any of the other Transaction Documents; or (y) the consummation by the Purchaser of the Transactions contemplated by this Agreement (except as required by Applicable Law and stock exchange rules).

 

Section 5.03 Finders’ Fees .

 

No broker, investment banker, financial advisor or other Person acting for or on behalf of the Purchaser is entitled to any broker’s, finder’s, financial advisor’s or similar fee or commission in connection with the Transactions contemplated by this Agreement or any other Transaction Document.

 

Article VI
Pre Closing Covenants

 

Section 6.01 Conduct of Business .

 

From the date of this Agreement until the Closing Date, or the earlier termination of this Agreement in accordance with its terms, the Company shall, and the Sellers shall cause the Company to, conduct its businesses in the ordinary course consistent with past practice and use commercially reasonable efforts to (i) preserve intact its respective present business organizations, (ii) maintain in effect Governmental Authorizations necessary for the conduct of the Company’s business, (iii) keep available the services of all officers, employees and service providers of the Company, and (iv) maintain satisfactory relationships with the customers, lenders and suppliers of the Company and others having a business relationship with the Company. Without limiting the generality of the foregoing, except as expressly contemplated by this Agreement or pursuant to the prior written consent of the Purchaser, the Company shall not, and the Sellers shall ensure that the Company and each of its Subsidiaries shall not:

 

(a) amend its articles of association or other similar organizational documents (whether by merger, consolidation or otherwise);

 

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(b) declare, set aside or pay any dividend or other distribution (whether in cash, share or property or any combination thereof) in respect of any Company Shares or any other securities, or redeem, repurchase or otherwise acquire or offer to redeem, repurchase, or otherwise acquire any Company Shares or any other securities;

 

(c) affect any stock split (including issuance of bonus shares), consolidation, reorganization, reclassification, combination, recapitalization or other like change with respect to the Company Shares or Options or any other securities;

 

(d) (i) issue, deliver or sell, or authorize the issuance, delivery or sale of, any Company Shares or Options or any other securities; or (ii) amend any term of any Company Share or Options or any other securities (whether by merger, consolidation or otherwise), other than as is contemplated herein with respect to the exercise of certain existing options to purchase the Shares as are outstanding as of the date hereof and the sale of the underlying Shares of such Options as part of this Transaction;

 

(e) Except as set forth in Section 6.01(e) of the Company Disclosure Schedule, and other than in the ordinary course of business and consistent with past practice in which the Company may incur any Liabilities not in excess of US$50,000 individually, the Company shall not incur any capital expenditures or any obligations or Liabilities in excess of US$100,000 in the aggregate;

 

(f) acquire (by merger, consolidation, acquisition of share or assets or otherwise), directly or indirectly, any securities or all or substantially all of the assets, properties or businesses of any third party;

 

(g) sell or otherwise transfer, or create or incur any Lien on, any of the Company share capital (registered or issued);

 

(h) sell, lease or otherwise transfer, or create or incur any Lien on, any tangible or intangible assets, properties or rights of the Company not in the ordinary course consistent with past practice;

 

(i) make any loans, advances or capital contributions to, or investments in, any other Person in excess of US$50,000 in the aggregate;

 

(j) create, incur, assume, suffer to exist or otherwise be liable with respect to any Company Debt in excess of US$100,000 in the aggregate, except as set forth in Schedule 6.01(j) of the Company’s Disclosure Schedule;

 

(k) enter into, amend or modify in any respect or terminate any Contract or otherwise waive, release or assign any material rights, claims or benefits of the Company not in the ordinary course consistent with past practice;

 

(l) (i) grant or increase any severance or termination pay to (or amend any existing arrangement with) any director, manager, officer, or senior employee of the Company, (ii) other than in accordance to agreements entered into prior to the date hereof and disclosed in the Company Disclosure Schedule, increase benefits payable under any existing severance or termination pay policies or employment agreements or any other benefits payable to any director, manager, officer or senior employee of the Company, (iii) enter into any employment, deferred compensation or other agreement or offer (or amend any such existing agreement or offer) with any director, manager, officer, or senior employee of the Company, or (v) terminate any Key Person;

 

(m) change the Company’s methods of accounting or accounting practices, except as required by concurrent changes in Accounting Principles and as agreed to by its independent public accountants;

 

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(n) commence, settle or offer or propose to settle (i) any Proceeding involving or against the Company not in the ordinary course consistent with past practice, (ii) any Proceeding against any of the Company’s officers directors or managers, or (iii) any Proceeding that relates to the Transactions;

 

(o) other than as may be required under Applicable Law or with the prior review, comment and written approval of Purchaser, make or change any Tax election; settle or compromise any claim, notice, audit report or assessment in respect of Taxes; file any Tax Return or prepare any financial statements; enter into any Tax allocation agreement, Tax sharing agreement, Tax indemnity agreement, pre-filing agreement, advance pricing agreement, cost sharing agreement or closing agreement relating to any Tax; change or adopt any annual Tax accounting period or method of Tax accounting; surrender or forfeit any right to claim a Tax refund; file any Tax petition, Tax complaint or administrative Tax appeal; or consent to any extension or waiver of the statute of limitations period applicable to any Tax claim or assessment or request, negotiate, apply for or receive a Tax ruling on its own behalf or on behalf of any of the Sellers;

 

(p) enter into Contracts that contemplate the Company engaging in a new line of business;

 

(q) form or acquire any Subsidiaries;

 

(r) apply for or accept any Grant, except as set forth in Schedule 6.01(r) of the Company’s Disclosure Schedule;

 

(s) take any action which would adversely affect the ability of the parties to consummate the transactions contemplated by this Agreement; or

 

(t) agree, resolve or commit to do any of the foregoing.

 

Section 6.02 No Solicitation; Other Offers .

 

From the date of this Agreement until the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, (a) each Seller shall not, and shall cause each of its Representatives not to, and (b) the Company shall not, and shall cause each of its Representatives not to, directly or indirectly: (i) solicit, initiate, facilitate, support, seek, respond, induce, entertain or encourage, or take any action to solicit, initiate, facilitate, support, seek, respond, induce, or encourage any inquiries, announcements or communications relating to, or the making of any submission, proposal or offer that constitutes, or that would reasonably be expected to lead to, an Acquisition Proposal that may involve the Purchased Shares; (ii) enter into, participate in, maintain or continue any discussions or negotiations relating to any Acquisition Proposal that may involve the Purchased Shares with any Person other than the Purchaser; (iii) furnish to any Person other than the Purchaser any information that the Company or such Seller believes or should reasonably know would be used for the purposes of formulating any inquiry, expression of interest, proposal or offer relating to an Acquisition Proposal that may involve the Purchased Shares or take any other action regarding any inquiry, expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal that may involve the Purchased Shares; (iv) accept any Acquisition Proposal or enter into any agreement, arrangement or understanding (whether written or oral) providing for the consummation of any transaction contemplated by any Acquisition Proposal or otherwise relating to any Acquisition Proposal; or (v) submit any Acquisition Proposal or any matter related thereto to the vote of the shareholders of the Company. Each Seller shall, and shall cause each of its Representatives to, and the Company shall, and shall cause each of its Representatives to, immediately cease and cause to be terminated any and all existing activities, discussions or negotiations with any Persons conducted prior to or on the date of this Agreement with respect to any Acquisition Proposal that may involve the Purchased Shares, and shall promptly (and in any event within 24 hours) provide the Purchaser with: (x) a written description of any expression of interest, inquiry, proposal or offer relating to a possible Acquisition Transaction that is received by the Company or such Seller or by any Representative of the Company or such Seller from any Person (other than the Purchaser), including in such description the identity of the Person from which such expression of interest, inquiry, proposal or offer was received (the “ Other Interested Party ”); and (y) a copy of each written communication and a complete summary of each other communication transmitted on behalf of the Other Interested Party or any of the Other Interested Party’s Representatives to the Company or any Seller or any Representative of the Company or Seller or transmitted on behalf of the Company or Seller or any Representative of the Company or Seller to the Other Interested Party or any of the Other Interested Party’s Representatives. Furthermore, the parties agree that each of the Sellers shall be obligated, and subject to, Sections 3 (Right of First Offer), 7 (Effect of Failure to Comply), 11 (Miscellaneous) all of the provisions of the Shareholders Agreement, and the Purchaser shall have all the rights provided to it under the Shareholder Agreement, in each case, as if such Shareholder Agreement was executed and in full force and effect, as of the date hereof, and Purchaser shall be deemed to own, for the purpose of such obligations and rights, all of the Purchased Shares.

 

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Section 6.03 Access to Information .

 

From the date of this Agreement until the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, the Company shall (a) give the Purchaser and its Representatives during normal business hours, reasonable access to the offices, properties, books and records, customers, suppliers, agents and partners of the Company, so long as such access does not unreasonably interfere with the conduct of the Company’s business (b) furnish to the Purchaser and its Representatives such financial and operating data and other information relating to the Company as such Persons may request, and (c) instruct its respective employees, counsel, accountants and financial and tax advisors to cooperate with the Purchaser in its due diligence investigation of the Company; provided , however , that no investigation pursuant to this ‎Section 6.03 shall affect or be deemed to modify any representation or warranty made by the Company or the Sellers herein.

 

Section 6.04 Notices of Certain Events .

 

(a) From the date of this Agreement until the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, the Company and each Seller shall promptly notify the Purchaser of:

 

(1) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the Transactions;

 

(2) any notice or other communication from any Governmental Authority (i) delivered in connection with the Transactions, or (ii) indicating that a Governmental Authorization is revoked or about to be revoked or that a Governmental Authorization is required in any jurisdiction in which such Governmental Authorization has not been obtained;

 

(3) any actions, suits, claims, investigations or proceedings commenced or, to their respective Knowledge, threatened against, relating to or involving or otherwise affecting the Company, that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to ‎Article III or ‎Article IV , as the case may be, or that relate to the consummation of the Transactions;

 

(4) any inaccuracy in or breach of any of their respective representations, warranties or covenants contained in this Agreement; and

 

(5) any event, condition, fact or circumstance that would make (or is reasonably expected to make) the timely satisfaction of any of the conditions set forth in ‎Article VIII impossible or unlikely, or cause it to be delayed.

 

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(b) If any event, condition, fact or circumstance that is required to be disclosed pursuant to ‎Section 6.04(a) requires any change in the Company Disclosure Schedule or the Sellers Disclosure Schedule, as applicable, or if any such event, condition, fact or circumstance would require such a change assuming the Company Disclosure Schedule or the Sellers Disclosure Schedule, as applicable, were dated as of the date of the occurrence, existence or discovery of such event, condition, fact or circumstance, then the Company or such Seller, as applicable, shall promptly deliver to the Purchaser an update to the Company Disclosure Schedule or the Sellers Disclosure Schedule, as applicable, specifying such change. No such notice or update shall be deemed to supplement or amend the Company Disclosure Schedule or Sellers Disclosure Schedule, as applicable, for the purpose of (i) determining the accuracy of any of the representations and warranties made by the Company or any Seller in this Agreement and any indemnification obligation hereunder, or (ii) determining whether any of the conditions set forth in ‎Article VIII has been satisfied (the “ Disclosure Schedules Updates for Informational Purposes ”); provided that with respect to any update of any representation of the Company that is not a Fundamental Representation resulting from events that occurred following the date hereof, the Company may elect that such update shall be deemed to supplement or amend the Company Disclosure Schedule (such updates, the “ Disclosure Schedules Updates for Exception Purposes ”).

 

Section 6.05 Restriction on Transfer .

 

Each Seller agrees that, prior to the Closing, such Seller shall not directly or indirectly sell or otherwise transfer or dispose of, or pledge or otherwise permit to be subject to any Lien, any Purchased Shares, or any direct or indirect beneficial interest therein.

 

Section 6.06 Filings.

 

(a) Each of the parties shall, and shall cause their respective Representatives to, promptly and no later than ten (10) Business Days after the date hereof, execute and file, or join in the execution and filing of, any application, notification (including any notification or provision of information, if any, that may be required under the Antitrust Laws) or other document that may be required to be delivered by such party to, or filed by such party with, in order to obtain the Consent of any Governmental Authority or Third Party, which may be reasonably required, or which Purchaser may reasonably request, in connection with the consummation of the transactions contemplated by this Agreement and the Transaction Documents.

 

(b) Regarding filings to, or any communication with, any Governmental Authority other than the Israel Antitrust Authority - Any such filings or notification by any Seller or the Company shall be subject to the prior review and approval of the Purchaser. The Company and each Seller shall, upon request of the Purchaser, promptly deliver to the Purchaser a copy of each such filing made, each such notice given and each such Consent obtained by it. Each of the parties shall use commercially reasonable efforts to obtain, and to cooperate with the other to promptly obtain, all such Consents and shall pay any associated filing fees payable by it with respect to such Consents. The Company and the Sellers shall not amend or modify or otherwise waive, release or assign any material rights, claims or benefits of the Company or pay any fee or other compensation to any Person (other than associated filing fees payable by it with respect to such Consents) in order to obtain any Consent by such party in connection with the Transactions. If such Consents are subject to conditions that are implemented on the Purchaser, the Company or its Affiliates, the Company shall receive Purchaser’s approval of such conditions. Each of the parties shall promptly inform the other of any material communication between it (and its Representatives) and any Governmental Authority regarding any of the transactions contemplated by the Transaction Documents or the required Consents. Each of the parties shall cause all documents that it is responsible for filing with any Governmental Authority or Third Party to comply as to form and substance in all material respects with the Applicable Laws, shall keep each other apprised of the status of any communications with, and any inquiries or requests for additional information from, any Governmental Authority or Third Party and shall comply promptly with any such inquiry or request. If any of the parties or any of their Representatives receives any formal or informal request for supplemental information or documentary material from any Governmental Authority or Third Party with respect to the transactions contemplated by the Transaction Documents or the required Consents, then it shall make, or cause to be made, as soon as reasonably practicable, a response in compliance with such request, in consultation with and while considering in good faith the views of the other party.

 

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(c) Regarding filings to, and communications with, the Israel Antitrust Authority – subject to any applicable law, the Company, the Purchaser and the Shareholders Representative shall, upon request of the other Party, promptly deliver to the requestor a copy of each such filing made, each such notice given and each such Consent obtained by it. Each of the Company, the Purchaser and the Sellers, shall use commercially reasonable efforts to obtain, and to cooperate with the other to promptly obtain, the Consent required under Antitrust Laws and shall pay any associated filing fees payable by it with respect to such Consents. Each of the parties shall promptly inform the other (and in the case of informing the Sellers, shall inform the Shareholders Representative) of any material communication between it (and its Representatives) and the Israel Antitrust Authority regarding any of the transactions contemplated by the Transaction Documents or the required or suggested Consents. Each of the parties shall cause all documents that it is responsible for filing with the Israel Antitrust Authority to comply as to form and substance in all material respects with the Applicable Laws, shall keep each other (and in the case of the Sellers, shall keep the Shareholders Representative) apprised of the status of any communications with, and any inquiries or requests for additional information from the Israel Antitrust Authority and shall comply promptly with any such inquiry or request. If any of the parties or any of their Representatives receives any formal or informal request for supplemental information or documentary material from the Israel Antitrust Authority with respect to the transactions contemplated by the Transaction Documents or the required Consents, then it shall make, or cause to be made, as soon as reasonably practicable, a response in compliance with such request, while considering in good faith the views of the other party (and in the case of the Sellers, with the Shareholders Representative).

 

(d) Notwithstanding anything in this Agreement to the contrary, if any administrative, judicial action or other Proceeding is instituted or threatened to be instituted challenging any transaction contemplated by the Transaction Documents as violative of any Antitrust Laws, it is expressly understood and agreed that: (i) Purchaser shall not have any obligation to litigate or contest any administrative, judicial action or other Proceeding or any Order, whether temporary, preliminary or permanent; and (ii) Purchaser shall be under no obligation to make proposals, execute or carry out agreements or submit to Orders providing for (A) the sale, license or other disposition or holding separate (through the establishment of a trust or otherwise) of any assets or categories of assets of any of the Purchaser or any of its affiliates or the Company or any of its assets, properties or rights, (B) the imposition of any limitation or regulation on the ability of Purchaser or any of their affiliates to freely conduct their business or the business of the Company or own any assets, or (C) the holding separate of the Company or any of its assets, properties or rights or any limitation or regulation on the ability of Purchaser or any of their affiliates to exercise full rights of ownership thereon or to conduct their business or the Company’s business; (any of the foregoing, an “ Antitrust Restraint ”). Subject to the foregoing, the parties shall each instruct their respective counsels to cooperate with each other and use reasonable efforts to facilitate and expedite the identification and resolution of any antitrust issues and shall use reasonable efforts to assure that the respective waiting periods required by the Antitrust Laws have expired or been terminated at the earliest practicable dates. Nothing in this Section ‎Section 6.06 shall limit a party’s right to terminate this Agreement pursuant to ‎Article IX.

 

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(e) In the event that under this Agreement, any Consents are not a condition to the Closing or their satisfaction was waived, then each of the parties shall continue to be bound by this ‎Section 6.06 after the Closing in order to obtain the foregoing as soon as reasonably possible after the Closing.

 

Section 6.07 Third Party Consents and Notices.

 

(a) Each of the Company and the Sellers shall use its commercially reasonable efforts to obtain prior to the Closing, and deliver to Purchasers at or prior to the Closing, all Consents under each Contract listed or described on ‎Section 3.06 of the Company Disclosure Schedule (and any Contract entered into after the date hereof that would have been required to be listed or described thereon if entered into prior to the date hereof).

 

(b) Each of the Company and the Sellers shall use its commercially reasonable efforts to notify, file or register with any Governmental Authority or Third Party at or prior to the Closing, all notification, filings or registrations listed or described on ‎Section 3.06 of the Company Disclosure Schedule (and any such notification, filings or registrations that would have been required to be listed or described thereon if entered into prior to the date hereof).

 

(c) The Company and the Sellers hereby agree to terminate all indemnification rights provided by the Company to any of the shareholders of the Company in their status as shareholders of the Company, but excluding any indemnity rights granted by the Company to directors, officers, employees and consultants of the Company. In addition, within no more than 3 Business Days after the date hereof, the Company shall give notice of termination or non-renewal under, and take any further actions in order to terminate, all Contracts set forth on ‎Section 6.07 of the Company Disclosure Schedule, in form and content approved in advance by the Purchaser. In connection with the termination of the foregoing Contracts, the Company shall request that any proprietary and/or confidential information relating to the Company and disclosed or delivered under such Contracts, be either returned to the Company or destroyed. The Company covenants that neither these Contracts, nor the termination thereof, will give rise or result in any Liability to the Purchaser or the Company or any restriction on its business or assets.

 

Section 6.08 Payment Spreadsheet.

 

(a) At the date hereof, and at least three (3) Business Days prior to the scheduled date of the Closing, the Company shall deliver a payment spreadsheet (the “ Payment Spreadsheet ”) in a form reasonably acceptable to the Purchaser and the Paying Agent, certified as complete and accurate by the Chief Executive Officer and the Chief Financial Officer of the Company, setting forth the following information:

 

(1) the calculation of the Purchase Price payable at the Closing, including a separate line item for each deduction thereof in accordance with the term of this Agreement; and

 

(2) with respect to each Seller, (i) such Sellers’s address as appearing in the shareholder register of the Company, (ii) the number of Purchased Shares to be sold to the Purchaser at the Closing, (iii) the portion of the Purchase Price to be paid to such Seller at such Closing, (iv) such Seller’s Pro Rata Portion, (v) such Seller’s respective portion of the payments at the Closing into the Escrow Fund, and (vi) such other relevant information that the Purchaser or the Paying Agent may reasonably require in order to enable distribution of any amount hereunder to such Seller.

 

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(3) With respect to each Non-Signing Seller, the name of such Non-Signing Seller, the number of Purchased Shares to be sold to the Purchaser at the Closing by such Non-Signing Seller and the consideration payable for such Shares.

 

(4) With respect to each Signing Seller, the name of such Signing Seller, the number of Purchased Shares to be sold to the Purchaser at the Closing by such Signing Seller and the consideration payable for such Shares.

 

(b) In the event that any information set forth in the Payment Spreadsheet becomes inaccurate at any time prior to the Closing, the Company shall deliver a revised Payment Spreadsheet, together with a new certification consistent with Section 6.08 (a), whereupon such revised Payment Spreadsheet shall be deemed to be the “Payment Spreadsheet” for all purposes of and under this Agreement.

 

Article VII

Additional Agreements

 

Section 7.01 Confidentiality; Public Disclosure .

 

(a) The Purchaser and/or the Company and/or the Sellers may not issue any public statements (“ Public Disclosure ”) regarding this Agreement and the other Transaction Documents or the transactions contemplated hereby and thereby, including their content, existence, negotiations and termination thereof, or any Confidential Information, without the prior written approval of both Purchaser and the Company; except, in each case, (i) to the extent required pursuant to Applicable Law, including any securities exchange regulations. A copy of the required disclosure shall be provided to the Purchaser at least 2 days prior to the disclosure and the Sellers may release such disclosure, unless the Purchaser objects within such period. In the event the Purchaser will object to the requirement to disclose pursuant to Applicable Law, and there will be a dispute between the parties as for the requirement to disclosure under Applicable Law, the Sellers shall provide a written opinion of its counsel to such effect and the disclosure shall contain only the part of the Confidential Information that is required by law to be disclosed, and (ii) as reasonably necessary for each of the Purchaser, the Company or the Sellers to obtain the Consents contemplated by this Agreement. This section shall survive the consummation, termination or expiration of this Agreement, the Closing and the transactions contemplated hereby.

 

(b) The parties acknowledge that the Purchaser and the Company have previously executed a Mutual Non-Disclosure/Confidentiality Agreement, dated as of October 25, 2015 (the “ Nondisclosure Agreement ”), the provisions of which are incorporated by reference and shall apply to all parties hereto with respect to all information furnished to the Purchaser and its Representatives until the Closing (whereupon such provisions shall lapse and no longer be in force or effect) and to all information furnished to the Company or the Sellers by or on behalf of the Purchaser and its Representatives. As an amendment to the Non-Disclosure Agreement, from the Closing, Purchaser and its Affiliates are hereby released from any obligation thereunder. In case of any contradiction between the Nondisclosure Agreement and this Agreement, this Agreement shall prevail.

 

Section 7.02 Litigation Support

 

After the Closing, in the event that, and for so long as, the Purchaser is actively contesting or defending against any Proceeding or demand in connection with (a) any transaction contemplated by the Transaction Documents or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction involving the Company, the Shareholders Representative and each Seller will reasonably cooperate with such contesting or defending party and its counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be reasonably necessary in connection with the contest or defense.

 

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Section 7.03 Reasonable Efforts

 

Each of the parties hereto agrees to use its commercially reasonable efforts, and to cooperate with each other party hereto, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, appropriate or desirable to consummate and make effective, in the most expeditious manner practicable, the Closing and the other Transactions contemplated hereby, including the satisfaction of the respective conditions set forth in ‎Article VIII and the execution and delivery of such other instruments and performance of such other acts and things as may be necessary or reasonably desirable for effecting completely the consummation of the Transactions contemplated hereby. Without limiting the generality of the foregoing, each of the Company and the Sellers shall use reasonable commercial efforts to secure each of the Consents listed on ‎Section 3.06 of the Company Disclosure Schedule prior to the Closing, in form and substance satisfactory to the Purchaser.

 

Section 7.04 Non-solicitation .

 

(a) In further consideration for the payment of the Purchase Price and in order to protect the value of the Company (including, without limitation, the goodwill inherent in the Company as of the Closing and that the Purchaser may have and enjoy the full benefit of the Company, and its business and the assets), each Seller agrees that during the period beginning at the Closing date and ending on the third (3)-year anniversary of the Closing date, each Seller shall not, and shall cause its respective Affiliates, not to, directly or indirectly (including, without limitation, through its respective Affiliates and any director, officer, Employee, agent or consultant thereof or of its respective Affiliates) (1) other than those employees listed in ‎Section 7.04(a) of the Company Disclosure Schedule, encourage, induce, solicit or attempt to encourage, induce or solicit any officer, director, manager, consultant or employee of the Company or any of its Subsidiaries (collectively, the “ Company Group ”) to leave the employ of or stop providing services to the Company Group; (2) other than those employees listed in ‎Section 7.04(a) of the Company Disclosure Schedule, hire or employ any Person (or any company owned by any such Person) who is or was during the immediately preceding six (6) month period an officer, director, manager, consultant or employee of the Company Group; (3) call on, solicit, or service any customer, supplier, distributor, reseller, licensee, licensor or other business relation of the Company Group with respect to products or services that have been provided by the Company Group, are currently being provided by the Company Group, or which the Company Group is currently in the process of developing or negotiating; or (4) encourage, induce or solicit, or attempt to encourage, induce or solicit, any customer, supplier, distributor, reseller, licensee, licensor or other business relation of the Company Group to cease doing business with or reducing its business activity with the Company Group.

 

(b) Each Seller acknowledges and represents that: (1) sufficient consideration has been given as it relates to such party’s obligations under ‎Section 7.04 ; (2) such Seller has consulted with legal counsel of such Seller’s choosing regarding his or her rights and obligations under this ‎Section 7.04 ; (3) such Seller fully understands the terms and conditions contained herein; (4) the restrictions and agreements in this ‎Section 7.04 are reasonable in all respects and necessary for the protection of the Company and the other members of the Company Group and that, without such protection, the Company Group customer and client relationship and competitive advantage would be materially adversely affected; and (5) the agreements in this ‎Section 7.04 are an essential inducement to the Purchaser to enter into this Agreement and they are in addition to, rather than in lieu of, any similar or related covenants to which such party is party to or by which such party is bound (whether under Contract or by Applicable Law). Each Seller that is an individual further acknowledges that the restrictions contained in this ‎Section 7.04 do not impose an undue hardship on him.

 

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(c) The covenants and undertakings contained in this ‎Section 7.04 relate to matters which are of a special, unique and extraordinary character and a violation of any of the terms of this ‎Section 7.04 may cause irreparable injury to the Company Group (and their successors, assigns and any third-party beneficiary), the amount of which will be impossible to estimate or determine and which cannot be adequately compensated. Therefore, the Purchaser and the Company Group (and their its successors, assigns and any third-party beneficiary) may be entitled to seek, in addition to other rights and remedies existing in their favor under Applicable Law or in equity, an injunction, restraining order or other equitable relief from any court of competent jurisdiction in the event of any breach or threatened breach of any provisions of this ‎Section 7.04 .

 

(d) If at any time a court of competent jurisdiction or arbitrator’s award holds that the restrictions in this ‎Section 7.04 are unreasonable under circumstances then existing, or that a specified time period, a specified geographical area, a specified business limitation or any other relevant feature of this ‎Section 7.04 is unreasonable, arbitrary or against public policy, the parties hereto agree that the maximum period, not arbitrary, and not against public policy under such circumstances shall be substituted for the stated period or any other relevant feature and may then be enforced against the applicable party.

 

Section 7.05 Waiver of Claims .

 

(a) As a material inducement to the Purchaser’s willingness to enter into and perform this Agreement and to purchase the Company Shares for the consideration to be paid or provided to the Sellers in connection with such purchase, each Seller, on behalf of himself, herself or itself, and on behalf of each of such Seller’s Affiliates and Representatives, hereby releases and forever discharges the Company and each of its individual, joint or mutual, past, present and future Representatives, Affiliates, shareholders, controlling persons, Subsidiaries, successors and assigns (individually, a “ Releasee ” and collectively, “ Releasees ”) from any and all Proceedings, Contracts and Liabilities relating in any way whatsoever to the Company, any action or omission of any such Person relating to the Company, whether known or unknown, suspected or unsuspected, both at law and in equity, which each Seller or any of their respective Representatives now has, has ever had or may hereafter have against the respective Releasees arising contemporaneously with or prior to the Closing Date or on account of or arising out of any matter, cause or event occurring contemporaneously with or prior to the Closing Date, including, but not limited to, any rights to indemnification or reimbursement from any Releasee, whether pursuant to their respective Current Articles, Amended Articles Contract or otherwise and whether or not relating to claims pending on, or asserted after, the Closing Date; provided , however , that nothing contained herein shall operate to release (i) any obligation of the Purchaser arising under this Agreement, and (ii) any obligation of the Company arising, following the date hereof, under the agreements listed on Section 7.05(a) of the Company Disclosure Schedule. 2 Each Seller hereby irrevocably covenants to refrain from, directly or indirectly, asserting any claim or demand, or commencing, instituting or causing to be commenced, any Proceeding of any kind against any Releasee, based upon any matter purported to be released hereby.

 

(b) Without limitation of the foregoing, each Seller and the Company hereby agrees, effective as of the Closing, to terminate any and all Contracts by and between the Company and any such Seller without any remaining liability to the Company, if any, other than the agreements listed on Section 7.05(b) of the Company Disclosure Schedule.

 

(c) The Sellers hereby waive any and all first refusal, first offer, notification, veto or other rights under the Current Articles, Amended Articles or any Contract to which any of them are a party with respect to the execution of this Agreement, the Transaction Documents and the consummation of the Transactions.

 

 

2 The Schedule shall include the specific agreements betweenthe Sellers and the Company that shall stay in effect .

 

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Section 7.06 Adjustments of Bank Undertakings.

 

Following the Closing, the Purchaser and Acorn shall take the necessary actions to be equally responsible to the shareholders undertaking towards the banks listed in Section 7.06 of the Company Disclosure Schedule, as such undertaking shall be negotiated and agreed with such banks following the Closing.

 

Section 7.07 Exercise of Options.

 

(a) The Company shall use its best efforts to deliver to the Purchaser, as soon as practicably reasonable following the execution of this Agreement, but not later than 5 Business days prior to the Closing, the Non-Signing Sellers Exercise, Sale and Waiver Letter executed by all the Non-Signing Sellers. Notwithstanding anything to the contrary in this Agreement, in the event that one or more Non-Signing Sellers have not executed the Non-Signing Sellers Exercise, Sale and Waiver Letter, the Purchaser, at its sole discretion, shall have the right to inform the other parties to this Agreement that the Agreement shall terminate in accordance with Article IX.

 

(b) The Company shall deliver to the Purchaser, not later than 5 Business Days following the execution of this Agreement, resolutions of the Board of Directors of the Company, (i) clarifying that the term “Corporate Transaction” under the amendment to the 2006 Key Employee Share Option Plan of the Company (the “ Option Plan ”), shall also include the transactions contemplated under this Agreement, (ii) approving and confirming the treatment of the unexercised Options at Closing as provided below. All Options shall be terminated and cancelled at Closing for all purposes, without the requirement of any further action on behalf of the Option Holders.

 

(c) At Closing, each unexercised Options, whether vested or unvested, shall expire and be cancelled in exchange for, in accordance with Section 13(d)(ii) of the Option Plan, a cash payment in the amount detailed in Exhibit A-3 in the column titled “Option Consideration” with respect to each Non-Signing Seller, respectively.

 

(d) Withholding Tax. Each of the Purchaser, the Paying Agent and the Escrow Agent and any other person acting on their behalf shall be entitled to deduct and withhold (and timely remit to the applicable Taxing Authority) from the consideration payable to any Non-Signing Seller such amounts reflecting the maximum rate applicable for withholding, as determined by the Purchaser in its sole discretion.

 

(e) In the event that following the termination of the Options, if any, as set forth above the number of issued and outstanding Company Shares on a Fully Diluted Basis shall be odd, than the Company shall issue to Acorn one Company Share at par value in order to ensure that following the Closing Rafael shall hold exactly 50% of Company’s issued and outstanding shares on a Fully Diluted Basis.

 

Section 7.08 Further Actions

 

In case at any time after the Closing any further actions are necessary to carry out the purposes of this Agreement, each party hereto will take such further actions (including the execution and delivery of such further instruments and documents) as any other such party may reasonably request.

 

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Article VIII

Conditions to the Transactions

 

Section 8.01 Conditions to the Obligations of Each Party .

 

The obligations of the Company, the Purchaser and the Sellers to consummate the Transactions are subject to the satisfaction of the following conditions:

 

(a) No Injunction . No temporary restraining Order, preliminary or permanent injunction or other Order issued by any Governmental Authority of competent jurisdiction shall be in effect and no Applicable Law shall have been enacted or be deemed applicable to the Transactions which could reasonably be expected to impair, prevent or prohibit the consummation of the Transactions.

 

(b) Governmental Consents . All Consents of Governmental Authorities legally required for the entry into the Transaction Documents and the consummation of the Transactions shall have been obtained, including, without limitations, the approval of the Ministry of Defense, and Consent under the Antitrust Laws, without Antitrust Restraint that adversely affects the Company or the Purchaser in a material manner (provided that with respect to such Antitrust Restraint that adversely affects the Purchaser in a material manner, such condition may be waived solely by the Purchaser).

 

Section 8.02 Conditions to the Obligations of the Purchaser

 

The obligations of the Purchaser to consummate the Transactions are subject to the satisfaction or waiver by the Purchaser in its sole discretion, at or prior to the Closing, of the following further conditions:

 

(a) Representations and Warranties . The representations and warranties of the Company and the Sellers set forth in this Agreement and any Transaction Document shall be true and correct in all material respects (except for such representations and warranties that are qualified by their terms by a reference to materiality, which representations and warranties as so qualified shall be true and correct in all respects) on and as of the date of this Agreement and on and as of the Closing as though made at and as of the Closing, except (i) for the Fundamental Representations (as defined below) which shall be true and accurate in all respects on and as of the date of this Agreement and on and as of the Closing Date; and (ii) to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct as aforesaid on and as of such earlier date.

 

(b) Covenants . Each of the Company and the Sellers shall have performed and complied, in all material respects, with all covenants required to be performed or complied with by each such party prior to the Closing.

 

(c) Consents and Approvals . Each of the Consents listed on ‎Section 3.06 of the Company Disclosure Schedule, as well as any Consents required under any Grant, shall have been obtained in form and substance satisfactory to the Purchaser and shall be in full force and effect.

 

(d) Receipt of Closing Deliveries . The Purchaser shall have received each of the documents and deliverables listed in ‎Section 2.04(b)(1) in form and substance reasonably acceptable to the Purchaser.

 

(e) Employees . (i) all employees employed by the Company have executed the New Employment Agreements and such New Employment Agreements are in full force and effect, [3] (ii) none of the Key Persons shall have indicated his or her intention to terminate its New Employment Agreements, and each such Key Person dedicates his full time and attention to the affairs of the Company (except for Mr. Michael Barth who shall continue to provide services to Acorn); and (iii) at least 80% of all employees employed by the Company on the date hereof shall remain employed by the Company, and shall not have indicated his or her intention to terminate such employment.

 

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(f) Related Party Transactions . All Contracts between the Company, on the one hand, and any Related Person, on the other hand, other than the agreements listed on Section 8.02(f) of the Company Disclosure Schedule, shall have been terminated with no remaining Liability of the Company.

 

(g) Termination of Certain Contracts . All Contracts listed on Section 8.02‎(g) of the Company Disclosure Schedule shall have been terminated with no remaining Liability to the Company.

 

(h) Conversion of Preferred Shares . All Preferred Shares shall be converted into Ordinary Shares.

 

(i) Litigation . There shall not be: (i) pending by or before any Governmental Authority any Proceeding that (A) seeks to frustrate, prevent or restrict the consummation of the Transactions on their terms, and the conferring upon the Purchaser and the Company all of their respective rights and benefits, contemplated by this Agreement, or which has or could have the effect of limiting or restricting Purchaser’s ownership or the conduct or operation of the business by the Company following the Closing, (B) Other than as is set forth in Section 3.12 of the Company Disclosure Schedule , seeks the award of Losses in an amount which is reasonably determined by the Purchaser to be material and payable by, or any other remedy against, the Company if the Transactions are consummated, or (C) seeks remedy to the effect that any of the Company Products, its technologies or Intellectual Property, or otherwise the business of the Company, infringes, misappropriates or otherwise violates the Intellectual Property rights of any other Person; or (ii) any Proceeding threatened in writing by any Person that if successful would have any of the effects described in clause (i) above.

 

(j) Options . All the Company’s Options have been exercised or terminated and there are no outstanding Company’s Options or condition or circumstance that may give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to any Company’s Options, or to acquire or receive any Company Shares, other than as provided in Section 3.07(c)(ii) of the Company Disclosure Schedule.

 

(k) Company’s Pledge . The Company has removed its pledge over all the Purchased Shares that shall be excluded from the Pledged Shares (as this term is defined in the Loan Agreement dated June 1, 2015 between the Company and Acorn).

 

(l) BIRD Approval . The BIRD Foundation has provided the Company its written approval of the transaction contemplated in this Agreement.

 

(m) OCS . The Company has provided the OCS with the required notice regarding the transaction contemplated in this Agreement.

 

(n) Bank’s and other Approvals . Bank Leumi and Bank Mizrahi-Tefahot have provided the Company their written approval of the transaction contemplated in this Agreement. All Liens of Bank Bein-Leumi (FIBI), Bank Mizrahi-Tefahot, Leap Tide and any other Liens, if any, have been released, and the Purchased Shares are free and clear.

 

(o) Intellectual Property Assignment . The Purchaser has received sufficient comfort that any and all Intellectual Property developed by Company’s employees, advisors or consultants in connection with the License and Research Funding Agreement by and between the Company and Ramot at Tel Aviv University Ltd. (“ Ramot ”) dated January 2, 2014, and the Research and License Agreement by and between the Company and Ramot dated May 5, 2015, was assigned to Ramot or the Company, as applicable, and shall be available for filing, registration, licensing and any other use set forth in Research an License Agreements mentioned above, all in accordance with the terms of such agreements.

 

(p) Material Adverse Effect . Since the date of this Agreement, there shall have been no Material Adverse Effect.

 

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Section 8.03 Conditions to the Obligations of the Sellers .

 

The obligations of the Sellers to consummate the Transactions are subject to the satisfaction, or waiver by the Shareholders Representative, of the following further conditions:

 

(a) Representations and Warranties . The representations and warranties of the Purchaser set forth in this Agreement shall be true and correct in all material respects (except for such representations and warranties that are qualified by their terms by a reference to materiality, which representations and warranties as so qualified shall be true and correct in all respects) on and as of the date of this Agreement and on and as of the Closing as though made at and as of the Closing.

 

(b) Covenants . The Purchaser shall have performed and complied, in all material respects, with all covenants required to be performed or complied with by the Purchaser prior to the Closing.

 

(c) Receipt of Closing Deliveries . The Seller Representative shall have received each of the documents and deliverables listed in ‎Section 2.04(b)(1) .

 

(d) Closing Payment; Escrow Amount Payment . The Purchaser shall have delivered the Closing Payment to the Paying Agent and the Escrow Amount to the Escrow Agent.

 

Article IX

Termination

 

Section 9.01 Termination .

 

This Agreement may be terminated and the Transactions may be abandoned at any time prior to the Closing:

 

(a) by mutual written agreement of the Shareholder’s Representative and the Purchaser;

 

(b) by either the Shareholder’s Representative or the Purchaser, if the Closing has not been consummated on or before April 30, 2016 (the “ End Date ”), except that the End Date may be extended by the Purchaser for an additional sixty (60) days in the event that in the Purchaser’s reasonable judgment the Closing may occur prior to the End Date (as so extended); provided that the right to terminate this Agreement pursuant to this ‎Section 9.01(b) shall not be available to any party whose breach of or failure to comply with any provision of this Agreement results in the failure of the Transactions to be consummated by such time;

 

(c) by either the Company or the Purchaser, if a Governmental Authority shall have issued any Order or taken any other action, in each case, which has become final and non-appealable and which restrains, enjoins or otherwise prohibits the Transactions or there shall be any statute, rule, regulation or Order enacted, promulgated or issued or deemed applicable to the Transactions by any Governmental Entity that would make consummation of the Transactions illegal;

 

(d) by the Purchaser, if (i) any representation, warranty, covenant or obligation of the Company or a Seller contained in this Agreement shall be (or is reasonably expected to be) inaccurate or breached, resulting in failure by the Company and/or the Seller to satisfy any of the conditions set forth in ‎Section 8.01 or ‎Section 8.02 had the Closing occurred on such date, provided that such inaccuracy(ies) or breach(es) are not capable of cure, or, if capable of cure, are not cured within fifteen (15) days of delivery of written notice thereof from the Purchaser, or (ii) any of the conditions in ‎ Section 8.02 (c) shall have or is reasonably expected to fail or to be satisfied;

 

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(e) by the Purchaser, if the Company shall update any of its representations as “ Disclosure Schedules Updates for Exception Purposes ” pursuant to Section 6.04(b); or

 

(f) by the Company, if any representation, warranty, covenant or obligation of the Purchaser contained in this Agreement shall be (or is reasonably expected to be) inaccurate or breached, resulting in failure by the Purchaser to satisfy the condition set forth in ‎ Section 8.01 or ‎Section 8.03 had the Closing occurred on such date, provided such inaccuracy(ies) or breach(es) are not capable of cure, or, if capable of cure, are not cured within fifteen (15) days of delivery of written notice thereof from the Company or the Shareholders Representative to the Purchaser.

 

The party desiring to terminate this Agreement pursuant to this Section (other than pursuant to ‎Section 9.01(a) ) shall give a notice of such termination to the other parties setting forth a brief description of the basis on which such party is terminating this Agreement.

 

Section 9.02 Procedure Upon Termination .

 

In the event of termination by Purchaser or the Company, or both, pursuant to ‎Article IX hereof, written notice thereof shall forthwith be given to the other party, and this Agreement shall terminate, except for this ‎Section 9.02 and ‎Section 7.01, ‎Section 9.03 and ‎ Article XII of this Agreement, which shall remain in full force and effect.

 

Section 9.03 Effect of Termination .

 

If this Agreement is terminated pursuant to this Article IX, this Agreement shall become void and of no effect and there shall be no liability or obligation on the part of any party or any of its or their Affiliates to any other Person by virtue of, arising out of or otherwise in connection with this Agreement or any other Transaction Document; provided that none of the Sellers, the Company, the Shareholders Representative or the Purchaser shall be relieved of any obligation or liability arising from any willful or material breach of this Agreement or any other Transaction Document prior to the effective date of such termination or for any breach that gave rise, caused or resulted in such termination.

 

Article X

Indemnification

 

Section 10.01 Survival of Representations .

 

(a) Subject to ‎Section 10.01‎(b) and ‎Section 10.01‎(c) , all representations, warranties, covenants and agreements of the Purchaser, the Company and the Sellers contained herein or in any Transaction Documents shall survive the execution and delivery of this Agreement or such Transaction Documents and the consummation of the transactions contemplated hereby and thereby, regardless of any investigation made by or on behalf of any party hereto or its Affiliates or the knowledge of any such party’s (or its Affiliates’) officers, directors, shareholders, managers, members, partners, employees, representatives or agents.

 

(b) The representations and warranties of the parties contained in ‎Article III, ‎Article IV and ‎Article V of this Agreement shall survive the Closing through and including 24 months following the Closing Date, other than (A) (i) claims for a Fraud Event and the representations and warranties set forth in ‎Article IV (the “ Seller Fundamental Representations ”) which shall survive the Closing Date indefinitely, or (ii) the representations and warranties set forth in ‎Section 3.01 (Corporate Existence and Power), ‎Section 3.02 (Corporate Authorization . ), ‎Section 3.06 (Non-Contravention . ), ‎Section 3.07 (Capitalization . ), ‎Section 3.18 (Tax Matters . ) and ‎Section 3.22 (Finders’ Fees . ) (together with the Seller Fundamental Representations, collectively the “ Fundamental Representations ”); all of which shall survive the Closing until the date that is 60 days after the expiration of the applicable statute of limitations (including all periods of extension and revisiting whether automatic or permissive) with respect to any theretofore unasserted claims arising out of or otherwise in respect thereof; and (B) the representations and warranties set forth in ‎Section 3.04 (Regulatory Matters, Trade Compliance and Encryption . ) and ‎Section 3.16 (Intellectual Property . ) (the “ Specified Representations ”) which shall survive the Closing through and until 48 months following the Closing Date with respect to any theretofore unasserted claims arising out of or otherwise in respect thereof (each such period specified in clauses (A)(i) and (ii) and (B), as the case may, be shall be referred to as the “ Survival Period ”); provided, however, that the representations and warranties as to which notice to the Indemnifying Party is delivered in accordance with this ‎Article X on or prior to the termination of the applicable Survival Period shall continue to survive until such matter is finally resolved. The parties hereby agree that this Section shall constitute a separate agreement for the requirements of Section 19 of the Israeli Limitation Law, 1958.

 

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(c) Notwithstanding anything to the contrary contained herein, no limitation set forth herein shall apply in the case of claims involving or alleging fraud, intentional misrepresentation, willful misconduct or intentional breach (collectively, “ Fraud Events ”), whether by the Company, any Seller or any of their respective officers, directors, managers, employees, consultants, agents, representatives or shareholders.

 

Section 10.02 Indemnification by Sellers .

 

(a) Indemnification .

 

(1) The Company and the Sellers hereby agree, severally and jointly in respect to its or his representations (provided that the Sellers solely among themselves shall be liable severally and not jointly), but subject to the limitation set forth in Section 10.02(c) below, to indemnify the Purchaser and its Affiliates (including the Company after the Closing) and each of their respective officers, directors, shareholders, managers, members, partners, employees, consultants, agents, representatives, successors and assigns (collectively, the “ Purchaser Indemnified Parties ”) and hold each of them harmless from and against and pay on behalf of or reimburse any such Purchaser Indemnified Party in respect of such Seller’s Pro Rata Portion of the entirety of any Loss which such Purchaser Indemnified Party may suffer, sustain or become subject to, as a result of, arising out of, relating to or in connection with the following, or any claim by any Third Party alleging, constituting or involving any of the following:

 

(i) any failure of any representation or warranty made by the Company in this Agreement or in any Transaction Document (including, the Company Disclosure Schedule, and any exhibit or schedule thereto) to be true and correct as of the date of this Agreement and as of the Closing Date as though such representation or warranty were made as of the Closing Date, except in the case of representations and warranties which specifically relate to an earlier date, which representations and warranties shall be true and correct as of such date, in each case without giving effect to any limitation or qualification as to “materiality,” “material,” “Material Adverse Effect” or similar qualifiers set forth in such representation or warranty for purposes of determining whether there is such a failure or breach;

 

(ii) any breach, default or violation of any covenant or obligation of, or agreement by, the Company or the Shareholders Representative contained in this Agreement or in any other Transaction Document;

 

(iii) any claim, demand or Proceeding against the Company by any Seller, director, shareholder or Option holder (in respect to their options) of the Company or any Affiliate of such Person in connection with any Losses arising out of or pertaining to matters or facts existing or occurring at or prior to the Closing;

 

(iv) any claim, demand, Proceeding or Order relating to the allocation of any payment paid, deemed paid or due to the Sellers pursuant to the provisions of this Agreement (to the extent made in accordance with the terms of this Agreement and the other Transaction Documents) and the Transaction Documents, other than the Shareholders Agreement for events following the Closing, and any other claim, demand or Proceeding against the Company or any Purchaser Indemnified Parties by any Seller or other security holder of the Company related to the Transactions, other than the Shareholders Agreement for events following the Closing;

 

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(v) any Earnout Payments that are received by the Sellers in excess of their entitlement pursuant to the Earnout Schedule;

 

(vi) any costs, fees and expenses of an arbitrator payable hereunder or in connection with the Earnout Schedule by the Shareholders Representative to the extent not paid by the Shareholders Representative or the Sellers;

 

(vii) any claim, demand, Proceeding, Order, Losses or any Tax Liability with respect to, or of, the Purchaser, the Company and/or any of its Affiliates, in connection with the transactions and/or classifications and/or the matters listed in Section 10.02(a)(1)(vii) of the Company Disclosure Schedule;

 

(viii) any claim, demand, Proceeding, Order or Losses against, or of, the Company or any of its Affiliates by any Governmental Authority and/or any employee, consultant or contractor, with respect to services rendered to the Company on or prior to the Closing Date, related to the right of such Person to receive any employment related benefits, consideration or rights related to: (1) Section 14 Arrangements; (2) Compensation for overtime hours; (3) The classification of salesperson bonuses as part of the determining wage; (4) the reclassification of any consultant or contractors as employees, each in connection with the period prior to the Closing Date; or (5) any benefits (employments, social, etc.) regarding sales commissions or similar fees.

 

(ix) any Losses incurred in connection with any event, condition, fact or circumstance that result in an amendment to the Company Disclosure Schedule or Sellers Disclosure Schedule, as applicable, in accordance with Section 6.04(b) above, which are “ Disclosure Schedules Updates for Informational Purposes ”;

 

(x) any breach of the Amended and Restated Loan Agreement, provided that any such breach in this Section 10.02(a)(1)(x) shall only be indemnified by Acorn and the Company; and

 

(xi) any payments made by the Company (or any of its Affiliates) in connection with Grants received in connection with the Cooperation and Project Funding Agreement, dated October 28, 2012, by and between DSIT Solutions Ltd., US Seismic Systems Inc. and the BIRD Foundation, other than payments pursuant to Section B.3 thereto.

 

(xii) any payments made, or that are reasonably expected to be required to be made, by the Sellers, the Company, or any of their respective Affiliates, in connection with any broker’s, finder’s, financial advisor’s or similar fee or commission in connection with this Agreement, any transaction documents, or any of the Transactions contemplated by this Agreement or the transaction documents.

 

(xiii) any Losses (including, without limitation, regarding warranty or warranty expenses) incurred in connection with the following disputes regarding the Company Products (that are in excess of warranty provisions already recorded on the Financial Statement of the Company) with respect to (i) the dispute with NSTL regarding the MAR system, and (ii) the dispute with the State Border Service of the Republic of Azerbaijan regarding the damaged cable.

 

(xiv) any Losses (including, without limitations, any Losses connection to Taxes and any Tax obligations) incurred in connection with the matters and adjustments described in certain waiver letters dated January, 2016 attached hereto as Schedule 10.02(a)(xiv).

 

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(xv) Any failure of the statements made under this sub-section to be true and correct as of the date of this Agreement: the net liabilities of the Company to banks and any other third party are between US$10.7 million and US$12.7 million. In addition, the working capital of the Company is between US$5.0 million and US$7.0 million, and it is consistent with the normative working capital of the Company. In this section, working capital includes all restricted cash and current deferred taxes, and does not include any write-off of current deferred taxes. Such write-off of current deferred taxes if recorded will not be taken into account in determining whether the Company is within the range of $1,000,000 of $6.0 million as provided above.

 

(2) Each Seller, severally, shall indemnify the Purchaser Indemnified Parties and hold each of them harmless from and against and pay on behalf of or reimburse any such Purchaser Indemnified Party in respect of the entirety of any Loss which such Purchaser Indemnified Party may suffer, sustain or become subject to, as a result of, arising out of, relating to or in connection with the following, or any claim by any Third Party alleging, constituting or involving any of the following:

 

(i) any failure of any representation or warranty made by such Seller in this Agreement or in any Transaction Document (including, the Seller Disclosure Schedule, and any exhibit or schedule thereto) to be true and correct as of the date of this Agreement and as of the Closing Date as though such representation or warranty were made as of the Closing Date, except in the case of representations and warranties which specifically relate to an earlier date, which representations and warranties shall be true and correct as of such date; and

 

(ii) any breach, default or violation of any covenant or obligation of, or agreement by, such Seller contained in this Agreement or in any other Transaction Document.

 

(b) Indemnification and Liability Cap . The maximum aggregate Losses payable by the Sellers shall be as follows: (i) indemnification obligations for failure of any of any Fundamental Representation to be true and correct as aforesaid in ‎Section 10.02‎(a)(1)(i) or ‎Section 10.02‎(a)(2)(i) (other than Fraud Events) shall not exceed one hundred percent (100%) of the Purchase Price paid to the Sellers (including the amounts paid into the Escrow Fund and the amounts earned or as earned in future payments of the Earnout Payments) (the “ Cap ”), (ii) indemnification obligations for failure of the Specified Representations to be true and correct as aforesaid in ‎Section 10.02‎(a)(1)(i) (other than Fraud Events) shall not exceed 50% of the Cap, (iii) indemnification obligations involving ‎Section 10.02‎(a)(1)(ii) through (a)(1)(xv) and ‎Section 10.02‎(a)(2)(ii) or a Fraud Event shall not be limited in amount (provided that other than for ‎Section 10.02‎(a)(2)(ii) , with respect to the Sellers listed on Schedule 10.02(b) 4 that have not perpetrated such Fraud Event, their indemnification obligations shall not exceed one hundred percent (100%) of the Purchase Price paid to the Sellers (including the amounts paid into the Escrow Fund and the amounts earned or as earned in future payments of the Earnout Payments)), and (v) any indemnification obligations pursuant to ‎Section 10.02‎(a)(1)(i) (but which does not fall into any of the above clauses) shall be limited to twenty percent (20%) of the Purchase Price paid to the Sellers (including the amounts paid into the Escrow Fund and the amounts earned or as earned in future payments of the Earnout Payments). Nothing herein shall prevent a Purchaser Indemnified Party from seeking: (i) injunctive or other equitable relief to enjoin the breach, or threatened breach, of any provision of this Agreement or any Transaction Document, (ii) specific performance of the provisions of this Agreement or any Transaction Document, and (iii) declaratory relief with respect to this Agreement and any Transaction Documentsprovided, however that the indemnification provided by the Company and the Sellers hereunder and the enforcement of such indemnification shall be the sole and exclusive monetary remedies available to the Purchaser against the Company and the Sellers in connection with any inaccuracy in or breach of any representation or warranty contained herein (but shall not limit the Purchaser, in any way, from any remedy available by any applicable law for any claim that is not based on the inaccuracy in or breach of any representation or warranty contained herein).

 

 

4 Schedule 10.02(b) shall include all Sellers who are natural persons.

 

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(c) Order of Indemnification . The Purchaser shall be indemnified by the Company only after, and immediately after, (i) making a claim for indemnity against the Sellers in accordance with this ‎Article X, and (ii) the Sellers’ failed to fulfill their indemnification obligations hereunder in full (not later than a 30 day period following the date in which they are required to do so in accordance with the terms of this Agreement), in each case (i) and (ii), unless the Purchaser reasonably determines that Acorn shall not be able to indemnify in full the Purchaser. In the event that Purchaser shall seek indemnification from the Company, the Purchaser’s ownership stake in the Company shall be taken into account when determining the amount of indemnification required to indemnify the Purchaser for its Losses. Furthermore, Purchaser may, in its sole discretion, determine the method of indemnification by the Company, whether by immediate payment to Purchaser, by liquidation and dividend preference in the amount required to indemnify the Purchaser, or otherwise.

 

(d) Allocation of Losses . Any claim for Losses arising as a result of inaccuracies in, or breaches of, any Seller Fundamental Representations provided by any Seller may be claimed only from such Seller. Any indemnification by the Sellers under this Agreement, other than pursuant to ‎Section 10.02‎(a)(2), shall be allocated among the Sellers in accordance with each such Seller’s Pro Rata Portion of the entirety of any Loss, it being clarified that a Purchaser Indemnified Party may bring the claim against the Shareholders Representative only. The liability of a Seller that is a shareholder of the Company, together with any Person that is listed on Exhibit A as the record or beneficial holder of such shareholder, shall be limited to the Pro Rata Portion of the shareholder-Seller, and shall be joint and several among them.

 

(e) Basket . Except in connection with (i) a Fraud Event and (ii) inaccuracies in or breaches of any of the Fundamental Representations, the Sellers shall not be liable for any Losses arising under ‎Section 10.02(a)(1)(i) until the aggregate amount of Losses exceeds US$130,000 (the “ Basket ”); provided , however , that if such aggregate amount exceeds the Basket, then the Purchaser Indemnified Parties shall be entitled to indemnification for all such Losses, disregarding the Basket. For the avoidance of doubt, the above limitations shall not apply with respect to any other basis for indemnification hereunder, whether or not it also constitutes a basis for indemnification under ‎Section 10.02‎(a)(1)(i) .

 

Section 10.03 Claims and Procedures .

 

(a) Officer’s Claim Certificate . If any Purchaser Indemnified Party has or claims to have incurred or suffered Losses for which it is or may be entitled to indemnification, compensation or reimbursement pursuant to this ‎Article X , the Purchaser may deliver to the Shareholders Representative a certificate signed by any officer of the Purchaser, provided however that failure of the Purchaser or any Purchaser Indemnified Party to give any such certificate will not affect the indemnification provided hereunder (any certificate delivered in accordance with the provisions of this ‎Section 10.03(a) , an “ Officer’s Claim Certificate ”). Such Officer’s Claim Certificate shall:

 

(1) state that a Purchaser Indemnified Party believes that there is or may have been a breach of a representation, warranty or covenant contained in this Agreement or that such Purchaser Indemnified Party is or may otherwise be entitled to indemnification under ‎Article X of this Agreement;

 

(2) to the extent possible, contain a good faith non-binding, preliminary estimate of the amount to which such Purchaser Indemnified Parties claim to be entitled to receive, which shall be the amount of Losses such Purchaser Indemnified Party claims to have so incurred or suffered or could reasonably be expected to incur or suffer (the aggregate amount of such estimate, as it may be modified by each Purchaser Indemnified Party in good faith from time to time, being referred to as the “ Claimed Amount ”); and

 

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(3) contain a brief description (based upon the information then possessed by Purchaser Indemnified Party) of the material facts known to the Purchaser Indemnified Party giving rise to such claim.

 

(b) Notwithstanding the foregoing, if a Purchaser Indemnified Party seeks indemnification for Losses (or any other amount due to Purchaser) pursuant to this Agreement prior to the termination of the Escrow Agreement, the Purchaser Indemnified Party shall first, to the extent the Escrow Fund is sufficient to recover such Losses, recover such Losses from the Escrow Fund in accordance with the terms of the Escrow Agreement. Such portion of the Escrow Fund at the conclusion of the Escrow Period as may be necessary to satisfy any unresolved or unsatisfied claims for Losses specified in any Officer’s Claim Certificate delivered to the Indemnifying Party and the Escrow Agent prior to expiration of the Escrow Period shall remain in the Escrow Fund until such claims for Losses have been resolved or satisfied. The remainder of the Escrow Fund, if any, shall be released and paid to the Sellers promptly after the expiration of the Escrow Period.

 

(c) Dispute Procedure . During the twenty (20) day period commencing upon the date that notice is deemed duly given pursuant to ‎Section 12.06 to the Shareholders Representative of an Officer’s Claim Certificate (the “ Dispute Period ”), the Shareholders Representative may deliver to the Purchaser a written response (the “ Response Notice ”) in which the Shareholders Representative: (i) agrees that the full Claimed Amount is owed to the Purchaser Indemnified Party; (ii) agrees that part, but not all, of the Claimed Amount (the “ Agreed Amount ”) is owed to the Purchaser Indemnified Party; or (iii) indicates that no part of the Claimed Amount is owing to the Purchaser Indemnified Party. Any part of the Claimed Amount that is not agreed to be owing to the Purchaser Indemnified Party pursuant to the Response Notice shall be the “ Contested Amount ”. If a Response Notice is not duly given to the Purchaser prior to the expiration of the Dispute Period, then the Shareholders Representative shall be conclusively deemed to have agreed that the full Claimed Amount is owed to the Purchaser Indemnified Party.

 

(d) Payment of Claimed Amount . If (a) the Shareholders Representative delivers a Response Notice agreeing that the full Claimed Amount or the Agreed Amount is owed to the Purchaser Indemnified Parties; or (b) the Shareholders Representative does not deliver a Response Notice during the Dispute Period, then, each Seller shall, severally, within ten (10) calendar days following the earlier of the delivery of such Response Notice or the expiration of the Dispute Period, pay such Seller’s Pro Rata Portion of the Claimed Amount or the Agreed Amount, as the case may be, to the Purchaser Indemnified Parties.

 

(e) Resolution between the Parties . If the Shareholders Representative delivers a Response Notice indicating that there is a Contested Amount, the Shareholders Representative and the Purchaser shall attempt in good faith to resolve the dispute related to the Contested Amount. If the Purchaser and the Shareholders Representative resolve such dispute, such resolution shall be binding on the Shareholders Representative, the Sellers and the Purchaser and a settlement agreement stipulating the amount owed to the Purchaser Indemnified Parties (the “ Stipulated Amount ”) shall be signed by Purchaser and the Shareholders Representative, and, unless the Purchaser Indemnified Parties shall recover such Stipulated Amount from the Escrow Fund and then the Sellers shall within ten (10) calendar days following the execution of such settlement agreement, pay the Stipulated Amount to the Purchaser Indemnified Parties.

 

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(f) Dispute Resolution . If the Shareholders Representative and the Purchaser are unable to resolve the dispute relating to any Contested Amount within thirty (30) calendar days after the date that the Response Notice is deemed duly given pursuant to ‎Section 12.06 to the Purchaser, then either the Purchaser or the Shareholders Representative may submit the claim described in the Officer’s Claim Certificate to arbitration to be conducted by a sole arbitrator and in accordance with the rules provisions of the Israeli Arbitration Law-1968 (the “ Arbitration Law ”), except as otherwise provided herein. The arbitration shall be conducted in Hebrew and in Tel-Aviv, Israel or such other place mutually acceptable to the Purchaser and Shareholders Representative. The arbitrator shall have the necessary expertise required in order to review materials provided by the Purchaser (the “ Arbitrator ”) to be appointed by the Shareholders Representative and the Purchaser, and if no agreement is reached on the identity of the Arbitrator within ten (10) days following the submission of such dispute to arbitration, the identity of the Arbitrator will be determined by the President of the Israeli Bar Association. The parties agree to use all reasonable efforts to cause the arbitration hearing to be conducted within 60 (sixty) days after the appointment of the Arbitrator and to use all reasonable efforts to cause the decision of the Arbitrator to be furnished within fifteen (15) days after the conclusion of the arbitration hearing. The Arbitrator’s authority shall be confined to: (i) deciding whether the Purchaser Indemnified Party is entitled to recover the Contested Amount (or a portion thereof), and the portion of the Contested Amount the Purchaser Indemnified Party is entitled to recover; and (ii) awarding expenses of the arbitration proceedings pursuant to this Section. The Arbitrator shall not be bound by procedural law or rules of evidence and shall have no authority to issue any injunctions, Orders or other interlocutory remedies, but will rule on a basis consistent with the substantive law of the State of Israel, disregarding its conflict of law rules. Pending the Arbitrator’s award the cost of the Arbitrator shall be borne equally by the Purchaser and the Sellers. The award of the Arbitrator shall be in writing, state the reasons upon which it is based, and shall be final and binding upon the parties. If the Purchaser is requested or required in connection with this arbitration to provide any documents or information (whether or not in writing or by testimony), and the Purchaser considers such document or information under the circumstance to be confidential, proprietary or otherwise sensitive, then such document or information shall only be presented or provided to the Arbitrator (and not to any other Person). Any arbitration proceeding hereunder and the content of any discussions or communications with the Arbitrator shall be conducted on a confidential basis, shall be subject to such disclosure restrictions imposed on the parties under any Applicable Law and the Arbitrator shall be required to execute, prior to the commencement of its service, the Purchaser’s standard confidentiality agreement. The Sellers shall, within ten (10) calendar days following the delivery of the final decision of the Arbitrator, pay the Purchaser Indemnified Parties in accordance with the written decision of the Arbitrator, unless the Purchaser Indemnified Parties can recover such amount from the Escrow Fund. Any ruling or decision of the Arbitrator may be enforced in any court of competent jurisdiction. The award of the Arbitrator may be appealed to a second single arbitrator within twenty (21) days from the first Arbitrator’s award in which case the arbitration principals described above shall apply with respect to the appeal as well, except that the second arbitrator’s award shall be final. This Section constitutes an Arbitration Agreement in accordance with the Arbitration Law. In the event of any contradiction between the provisions hereof and the Arbitration Law, the provisions of this Agreement shall prevail.

 

Section 10.04 Defense of Third-Party Claims .

 

In the event of the assertion or commencement by any Person of any claim or Proceeding with respect to which any Seller may become obligated to hold harmless, indemnify, compensate or reimburse any Purchaser Indemnified Party pursuant to ‎Article X , the Purchaser shall have the right, at its election, to proceed with the defense of such claim or Proceeding on its own. If the Purchaser so proceeds with the defense of any such claim or Proceeding:

 

(a) each Seller and the Shareholders Representative shall make available to the Purchaser any documents, materials and other information in his possession or control that may be necessary to the defense of such claim or Proceeding; and

 

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(b) the Purchaser shall have the right to settle, adjust or compromise such claim or Proceeding; provided, however, that if the Purchaser settles, adjusts or compromises any such claim or Proceeding without the consent of the Shareholders Representative, (i) such settlement, adjustment or compromise shall not be conclusive evidence of the amount of Losses incurred by the Purchaser Indemnified Party in connection with such claim or Proceeding (it being understood that if the Purchaser requests that the Shareholders Representative consent to a settlement, adjustment or compromise, the Shareholders Representative shall not unreasonably withhold or delay such consent) and (ii) any amount of such settlement in excess of amounts consented to by the Shareholders Representative shall be deemed Contested Amounts.

 

The Purchaser shall give the Shareholders Representative, as promptly as practicable, notice of the commencement of any such Proceeding against any Purchaser Indemnified Party and provide information reasonably requested by the Shareholders Representative and not subject to attorney-client privilege of the Purchaser or Purchaser’s Indemnified Parties relating to such claim; provided, however, that any failure to so notify the Shareholders Representative and provide such information shall not limit any of the obligations of the Sellers under ‎Article X (except to the extent such failure materially prejudices the defense of such Proceeding). If the Purchaser does not elect to proceed with the defense of any such Proceeding, the Shareholders Representative or the Sellers may proceed with the defense of such claim or Proceeding with counsel reasonably satisfactory to the Purchaser; provided, however, that the Shareholders Representative or the Sellers may not settle, adjust or compromise any such Proceeding without the prior written consent of the Purchaser (which consent may not be unreasonably withheld or delayed).

 

Section 10.05 No Contribution .

 

No Seller shall have, or be entitled to exercise or assert (or attempt to exercise or assert), any right of contribution, right of indemnity or other right or remedy against the Company in connection with any indemnification obligation or any other liability to which it may become subject under or in connection with this Agreement.

 

Section 10.06 Adjustment to Purchase Price .

 

The parties hereto agree to treat any indemnity payment made pursuant to this ‎Article X or as an adjustment to the Purchase Price.

 

Section 10.07 Additional Provisions .

 

(a) The representations, warranties, covenants and obligations of the Company and the Sellers, and the rights and remedies that may be exercised by the Purchaser Indemnified Parties, shall not be limited or otherwise affected by or as a result of any information furnished to, or any investigation made by or knowledge of, any of the Purchaser Indemnified Parties or any of their Representatives.

 

(b) The Sellers’ liability for Losses shall be reduced, if and to the extent relevant by: (A) insurance proceeds, if any, actually received by the Purchaser Indemnified Party(ies) with respect thereto; and (B) the proceeds and/or indemnification (net of Taxes) actually received by the Purchaser Indemnified Party(ies) from any third party with respect thereto, provided, however, that no Purchaser Indemnified Party shall be obligated to pursue any such insurance proceeds or other recovery. In such cases, the Losses shall include the costs and expenses incurred by the Purchaser Indemnified Party(ies) in recovery of such proceeds (including any future increase of premiums on such account, and any deductibles payable). The Sellers’ liability for Losses shall be increased to take account of any Tax incurred (grossed up for such increase) by the Purchaser Indemnified Party(ies) arising from the receipt of indemnity hereunder, insurance proceeds or proceeds from any other Person.

 

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Article XI

Shareholders Representative

 

Section 11.01 Appointment of Shareholders Representative; Power and Authority .

 

(a) By virtue of the execution of this Agreement, each Seller hereby irrevocably agrees, constitutes and appoints the Shareholders Representative, and by the execution of this Agreement as Shareholders Representative, the Shareholders Representative as of the date hereof hereby accepts his appointment, as the true, exclusive and lawful agent and attorney-in-fact of each of the Sellers: (i) to act as a Shareholders Representative under this Agreement and to have the right, power and authority to perform all actions (or refrain from taking any actions) the Shareholders Representative shall deem necessary, appropriate or advisable in connection with, or related to, this Agreement and the Transactions, (ii) to act in the name, place and stead of each Seller in connection with the Transactions, in accordance with the terms and provisions of this Agreement, and in any Proceeding involving this Agreement, and (iii) to do or refrain from doing all such further acts and things, and to execute all such documents as the Shareholders Representative shall deem necessary or appropriate in connection with the Transactions (including any Transaction Document). This power of attorney is coupled with an interest and is irrevocable. All actions, decisions and instructions of the Shareholders Representative shall be conclusive and binding upon all of the Sellers. Each of the Sellers acknowledges and agrees that upon execution of this Agreement, upon any delivery by the Shareholders Representative of any waiver, amendment, agreement, opinion, certificate or other document executed by the Shareholders Representative, such Seller shall be bound by such documents as fully as if such Seller had executed and delivered such documents.

 

(b) Without derogating from the generality of the foregoing, as of the date hereof the Shareholders Representative shall have the right, power and authority to:

 

(1) act for the Sellers with regard to all matters set forth in this Agreement and the other Transaction Documents;

 

(2) execute and deliver all amendments, waivers, ancillary agreements, share powers, certificates and documents that the Shareholders Representative deems necessary or appropriate in connection with the consummation of the Transactions;

 

(3) do or refrain from doing any further act or deed on behalf of the Sellers that the Shareholders Representative deems necessary or appropriate in his sole discretion relating to the subject matter of this Agreement and the other Transaction Documents as fully and completely as the Sellers could do if personally present;

 

(4) deliver and receive all notices or other communications or documents given or to be given to or from the Shareholders Representative by the Purchaser pursuant to this Agreement and the other Transaction Documents;

 

(5) receive service of process on behalf of any Seller in connection with any claims under this Agreement and the other Transaction Documents;

 

(6) negotiate, undertake, compromise, settle, consent, defend, object, resolve and settle any suit, Proceeding, claim or dispute under this Agreement and the other Transaction Documents on behalf of the Sellers, including authorize deliveries or set off to the Indemnified Parties of payment in satisfaction of claims asserted by the Indemnified Parties (including by not objecting to such claims) and comply with Orders with respect thereto;

 

(7) agree to any modification or amendment of, or supplements to, or waiver relating to this Agreement and the other Transaction Documents in accordance with ‎Section 12.02 and execute and deliver an agreement of such modification, amendment, supplement or waiver; and

 

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(8) take all such other actions as the Shareholders Representative may deem necessary, appropriate or advisable to carry out the intents and purposes of this ‎Section 11.01 , in each case without having to seek or obtain the consent of any Seller under any circumstance.

 

(c) The Shareholders Representative may be removed or replaced from time to time by the Sellers holding at least a majority of Purchased Shares as of immediately prior to the Closing, subject to Purchaser’s prior written consent (which consent shall not be unreasonably withheld). The Shareholders Representative shall be replaced as agent by the Sellers holding at least a majority of Purchased Shares as of immediately prior to the Closing, subject to Purchaser’s prior written consent (which consent shall not be unreasonably withheld), immediately if (a) the then presiding Shareholders Representative is unable to reasonably perform his duties as a Shareholders Representative hereunder, (b) any proceeding, whether voluntary or involuntary, is instituted by or against the then presiding Shareholders Representative seeking to adjudicate it (as applicable) bankrupt or insolvent or dissolved, or seeking liquidation, winding up, arrangement with creditors, protection, or relief of it or its debts under any law or statute of any jurisdiction, or seeking the entry of an Order for relief or the appointment of a temporary or permanent receiver, liquidator, custodian trustee, or other similar official for it or for a material portion of its assets; (c) if the Shareholders Representative is a natural person - upon his death or incapacity; (d) if the Shareholders Representative is an entity - the Shareholders Representative makes an assignment of all or a material portion of its assets; (e) the Shareholders Representative admits its inability to pay its debts generally; (f) if the Shareholders Representative is an entity - the transaction of the business of the Shareholders Representative is suspended, substantially curtailed or ceased for a period longer than 30 days; or (g) if the appointment is terminated or withdrawn in accordance with Applicable Law or an Order. Any new or successor Shareholders Representative appointed as aforesaid shall be deemed for all purposes as an agent under this Agreement having the powers and authorities set forth herein.

 

(d) The Shareholders Representative may resign at any time only upon thirty (30) days’ prior written notice of such decision to resign and the appointment of a successor Shareholders Representative as described above.

 

(e) No bond shall be required of the Shareholders Representative and the Shareholders Representative shall not receive compensation for service in such capacity.

 

(f) Any notice or communication given or received by, and any decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of, the Shareholders Representative shall constitute a notice or communication to or by, or a decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of the Sellers and shall be final, binding and conclusive upon the Sellers. The Purchaser, the Indemnified Parties, the Company, the Escrow Agent, the Paying Agent and any other Person may conclusively and absolutely rely, without inquiry, upon any notice, communication, decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of the Shareholders Representative in all matters referred to herein and each of the foregoing is hereby relieved from any liability to any Person for any acts done by the Shareholders Representative and any acts done by the any of the foregoing in accordance with any decision, act, consent or instruction of the Shareholders Representative.

 

Section 11.02 Reimbursement .

 

Each Seller shall be responsible for and shall, severally, reimburse the Shareholders Representative upon demand for all such Seller’s Pro Rata Portion of any reasonable expenses, disbursements and advances incurred or made by the Shareholders Representative in accordance with any of the provisions of this Agreement or any other documents executed in connection herewith or therewith, including the costs and expense of receiving advice of counsel according to this Agreement.

 

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Section 11.03 Liability; Indemnification .

 

Each Seller hereby releases the Shareholders Representative and each Seller agrees, severally, to indemnify, defend and hold harmless the Shareholders Representative, in accordance with such Seller’s Pro Rata Portion (including any losses incurred, as such losses are incurred) for, arising out of or in connection with the acceptance or administration of the Shareholders Representative’s duties hereunder or any action taken or not taken by him in his capacity as such agent (including the legal costs and expenses of defending the Shareholders Representative against any claim or liability (and all actions, claims, proceedings and investigations in respect thereof) in connection with, caused by or arising out of, directly or indirectly, the performance of the Shareholders Representative’s duties hereunder), except for the liability of the Shareholders Representative to a Seller for losses which such holder may suffer from gross negligence, willful misconduct or a fraud of the Shareholders Representative in carrying out the Shareholders Representative’s duties hereunder. In all questions arising under this Agreement, the Shareholders Representative may rely on the advice of counsel, and the Shareholders Representative will not be liable to the Seller for anything done, omitted or suffered by the Shareholders Representative based on such advice.

 

Article XII

Miscellaneous

 

Section 12.01 Entire Agreement .

 

This Agreement, the Transaction Documents and the Nondisclosure Agreement (and the respective schedules and exhibits hereto and thereto) constitute and represent the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both written and oral (with no concession being made as to the existence of any such agreements and understandings), between the parties with respect to the subject matter of this Agreement (including without limitation any prior proposal, term sheet, letter of intent, memorandum of terms or expression of interest).

 

Section 12.02 Amendments and Waivers .

 

(a) This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of the Purchaser, on the one hand, and the Company or, following the Closing, the Shareholders Representative, on the other hand. Any amendment executed in accordance with the foregoing shall be binding upon all parties and their respective successors and assigns.

 

(b) No failure on the part of any Person to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any Person in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.

 

(c) No Person shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Person; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.

 

Section 12.03 Assignment; No Third Party Beneficiaries .

 

(a) No party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto, except that the Purchaser may transfer or assign its rights and obligations under this Agreement, in whole or from time to time in part, to one or more of its Affiliates at any time, provided that in case of an assignment prior to the completion of all payment obligations of the Purchaser hereunder, the Purchaser shall remain liable for all of its obligations hereunder.

 

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(b) Subject to sub-Section ‎(a) above, the provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by, the parties hereto and their respective successors, assigns, heirs, executors, and administrators. This Agreement is not intended to confer any rights, benefits, remedies, obligations or liabilities hereunder upon any Person, other than the parties hereto and their respective successors and assigns.

 

Section 12.04 Governing Law .

 

This Agreement shall be governed by and construed in accordance with the laws of the State of Israel, without giving effect to principles of conflicts of laws that would require the application of the laws of any other jurisdiction.

 

Section 12.05 Jurisdiction .

 

Subject to the arbitration proceedings referred to in ‎Section 10.03(f) , the parties hereto agree that any Proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the Transactions shall be brought in the competent courts in the Tel Aviv-Jaffa, and each of the parties hereby irrevocably consents to the exclusive jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such Proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such Proceeding in any such court or that any such Proceeding brought in any such court has been brought in an inconvenient forum. Process in any such Proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided ‎Section 12.06 shall be deemed effective service of process on such party.

 

Section 12.06 Notices .

 

All notices, requests and other communications required or permitted under, or otherwise made in connection with, this Agreement, shall be in writing and shall be deemed to have been duly given (a) when delivered in person, (b) upon receipt after dispatch by registered or certified mail, postage prepaid, confirmation of delivery requested, or (c) on the next Business Day if transmitted by national overnight courier (with confirmation of delivery), in each case, addressed as follows:

 

if to the Purchaser or to the Company following the Closing Date, to:

 

P.O. Box 2250, Haifa 31021, Israel

 

Attention: Avital Rosenberg

E-mail: avitalr@rafael.co.il

 

with a copy (which shall not constitute notice) to:

 

  Tadmor & Co. Yuval Levy & Co.
  Azriely Centre, Square Tower, 34 th floor
  132 Menachem Begin Road, Tel Aviv, Israel
  Attention: Dr. Ophir Nave, Advocate
Oded Levy, Advocate
  Telephone No.: 972-3-6846000+
  Facsimile No.: 972-3-6846001 +
  E-mail: ophir@tadmor-levy.com
    oded@tadmor-levy.com

 

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if to the Company, to:

 

DSIT Solutions Ltd.

Rehavam Zeevi 2,

Givat Shmuel

 

  Telephone: 035313333
  Facsimile: 035313322
  Attention: CEO

 

with a copy (which shall not constitute notice, but may serve as a service of process on behalf of any Seller, if required) to:

 

Joel Stein, Pearl Cohen Zedek Latzer Baratz, Azrieli Center, Round Tower, 18 th Floor, Tel Aviv

 

Telephone: 036073777

Facsimile: 09 972 8001

Attention: Joel Stein

E-mail: Joels@pzclaw.com

 

if to the Shareholders Representative and to any Seller, to:

 

Michael Barth

Rehavam Zeevi 2,

Givat Shmuel

 

  Telephone: 035313333; 0544202878
  Facsimile: 035313322
  Attention: Michael Barth
  E-mail: barthm@dsit.co.il

 

or to such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other parties hereto in accordance with this ‎Section 12.06 .

 

Section 12.07 Severability .

 

If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other Governmental Authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to any party. Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to affect the original intent of the parties as closely as possible in an acceptable manner in order that the Transactions be consummated as originally contemplated to the fullest extent possible.

 

Section 12.08 Remedies

 

All rights and remedies of any party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or re medies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies.

 

Section 12.09 Specific Performance.

 

The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions of this Agreement in addition to any other remedy to which they are entitled at law or in equity, in each case without the requirement of posting any bond or other type of security.

 

  74  
     

 

Section 12.10 Set-off.

 

To the extent that the Purchaser or any other Purchaser Indemnified Party is entitled to any payment from any Seller under this Agreement or any Transaction Document, including, without limitation, payment under the indemnification provisions of ‎Article X or ‎‎Section 2.02 (Consideration), notwithstanding anything to the contrary in this Agreement, the Purchaser shall be entitled to offset such amount from any payment due and payable or that may become due and payable to any of the Sellers in accordance with ‎ ‎Section 2.02 , the Earnout Schedule or otherwise in accordance with any Transaction Document, provided however that no set-offs shall be made against salaries and/or any employment related benefits of any of the Key Employees. If any payment to any Sellers under this Agreement or the Transaction Documents, including any payment of the Purchase Price (which in turn includes any Earnout Payment), becomes due in accordance with this Agreement while a claim for indemnification that would be subject to offset against such payment is pending and not yet finally resolved, then the Purchaser may withhold such portion of such payment that it determines in good faith would be necessary to satisfy such pending claim.

 

Section 12.11 Expenses .

 

Whether or not the Closing occurs, and except as specifically and expressly provided otherwise in this Agreement, all costs and expenses incurred in connection with the negotiation, execution and performance of this Agreement and each other Transaction Document and the consummation of the transactions contemplated hereby and thereby, including all third-party legal, accounting, financial advisory, consulting or other fees and expenses incurred in connection with the Transactions, shall be paid by the party incurring such cost or expense.

 

Section 12.12 Transfer Taxes.

 

All transfer, documentary, sales, use, stamp, registration and other Taxes and fees incurred in connection with or arising or resulting from this Agreement (collectively, “Transfer Taxes”) shall be the sole responsibility and liability of, and paid by, the Sellers when due, and the Sellers will, at their own expense, file all necessary Tax Returns and other documentation with respect to all such Transfer Taxes. Each Seller and the Shareholders Representative shall provide the Purchaser with evidence satisfactory to the Purchaser that such Transfer Taxes have been paid by the Sellers.

 

Section 12.13 Interpretation.

 

Each of the parties acknowledges that it had assessed the risk, uncertainties and benefits of the transactions contemplated by this Agreement and each Transaction Document to which it is a party, and that it was represented by legal counsel in the negotiation, execution and delivery of the Transaction Documents. Accordingly, and based on the foregoing facts, among other factors, each party acknowledges and agrees that, for purposes of interpreting this Agreement or any other Transaction Document, no party has had any preference in the design of the provisions of this Agreement (within the meaning of Section 25(b1) of the Contracts Law (General Part), 1973 (as amended)).

 

Section 12.14 Counterparts; Effectiveness .

 

This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. The exchange of a fully executed Agreement (in counterparts or otherwise) by electronic transmission in PDF format (or the like) or by facsimile transmission shall be sufficient to bind the parties to the terms and conditions of this Agreement as an original.

 

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IN WITNESS WHEREOF the Parties have signed this Share Purchase Agreement as of the date first hereinabove set forth.

 

DSIT SOLUTIONS LTD.:  
     
By:    
Name:    
Title:    
     
ACORN ENERGY INC.:  
     
By:    
Name:    
Title:    
     
RAFAEL ADVANCED DEFENSE SYSTEMS LTD.:  
   
By:    
Name:    
Title:    

  

  76  
     

 

 

 

Acorn Energy, Inc.

3844 Kennett Pike

Suite 204-4

Mall Building

Powder Mill Square

Greenville, Delaware 19807

 

January 28, 2016

 

Mr. John A. Moore

403 Marsh Lane

Wilmington, DE 19804

 

Dear John:

 

This letter agreement sets forth our entire agreement regarding your separation as the President and Chief Executive Officer of Acorn Energy, Inc. (the “Company”),). This letter agreement references and, to the extent specified herein, supersedes the terms of your Employment Agreement dated as of March 4, 2008, as amended to date (the “Employment Agreement”), and to the extent there is any inconsistency between the terms of the Employment Agreement and this letter agreement, the terms hereof will govern. We have agreed as follows:

 

1. Resignation . The Company and you each acknowledge that you effectively gave, and the Board accepted, notice of your resignation on January 28, 2016 and that such resignation was for “Good Reason” as such term is defined under the Employment Agreement.

 

2. Severance Payments . Commencing on or about July 28, 2016 and continuing until on or about July 27, 2017, the Company shall make aggregate severance payments to you of $425,000 (the “Severance Payments”). The Company shall make the Severance Payments in accordance with its regular payroll practices.

 

3. Medical Insurance Payments . For the twelve (12) month period commencing as of the date hereof, the Company shall reimburse you up to $1,400 per month for the costs associated with obtaining your medical insurance.

 

4. Board of Directors . From the date hereof through the date of the Company’s next annual meeting of stockholders, you agree to continue to serve as a member of the Company’s Board of Directors. In connection with such service, the Company shall compensate you in accordance with its policies then in effect for compensating non-employee directors.

 

5. Stock Options . Vesting, exercisability and termination of the stock options issued to you by the Company prior to and until the date hereof will be governed by Section 6(e)(iii) of the Employment Agreement.

 

6. No Other Payments or Benefits; Release . Other than the payments specifically set forth in this letter agreement, you agree that, notwithstanding any provisions of the Employment Agreement or any other agreement or understanding written or oral, the Company does not owe you any further payments, compensation, remuneration, bonuses, incentive payments, benefits, stock options, severance, or commissions of any kind whatsoever, including any obligations owed to you under the Employment Agreement. You also hereby release the Company and its subsidiaries, as well as each of their respective stockholders, agents, employees, officers and directors, of and from any and all claims or liabilities that you have or may have, both known and unknown, arising through the date of this letter agreement, including any claims arising out of your employment with the Company or the termination of your employment with the Company, but excluding the obligations of the Company under this letter agreement.

 

   

 

 

7. Return of Property . You will promptly return or make available for pickup any and all files or other property of the Company. 

8. Ongoing Obligations .

 

(a) The Company and you each acknowledge and agree that you are relieved of all duties and responsibilities for the Company and that you do not have the authority to bind the Company.

 

(b) The Company and you each agree that neither party shall at any time engage in any form of conduct, or make any statements or representations, that disparage or otherwise impair the reputation, goodwill or commercial interests of each other, or the Company’s management, stockholders, subsidiaries, parents, and/or other direct or indirect affiliates.

 

9. Confidentiality, Non-Competition and Non-Solicitation . You acknowledge and agree that Section 10 of the Employment Agreement relating to confidentiality and Section 11 of the Employment Agreement relating to non-competition and non-solicitation shall remain in effect in accordance with the terms of the Employment Agreement.

 

10. Approval by the Board of Directors . The Company represents that these arrangements have been approved by the Company’s Board of Directors.

 

[Remainder of page intentionally omitted]

 

  2  

 

 

Please acknowledge your acceptance of the foregoing by signing and returning a copy of this letter agreement to me.

 

  ACORN ENERGY, INC.
   
  By:  
    Jan Loeb
    Chief Executive Officer
     
AGREED AND ACCEPTED:    
     
     
John A. Moore    

 

  3  

 

 

 

3844 Kennett Pike

Suite 204-4, Mall Building, Powder Mill Square

Greenville, Delaware 19807

Phone: (302) 656-1708 Fax: (302) 656-1703

 

March 28, 2016

 

Christopher Clouser

 

 

 

 

 

Dear Mr. Clouser:

 

By our respective signatures below, we confirm that:

 

  1. You have made a loan of $75,000 (the “Initial Loan”) to Acorn Energy, Inc. (“Acorn”) and Acorn has executed and delivered to you a promissory note in the form annexed annexed hereto as Exhibit A (the “Note”) which shall evidence the terms of the Initial Loan.
     
  2. You have agreed to loan up to an additional $75,000 (the “Additional Loans”) to Acorn upon request by Acorn from time to time. In connection with the receipt of any or all of the funds representing the Additional Loans, Acorn shall execute and deliver an additional Note or Notes substantially in the form of Exhibit A which shall evidence the Additional Loans.

 

Kindly acknowledge your agreement with the foregoing, by signing below in the space provided for your name.

 

  Very truly yours,
  ACORN ENERGY, INC.
   
  By:  
    Jan Loeb, Chief Executive Officer

 

AGREED AND ACCEPTED:    
     
     
Christopher Clouser    

 

     
 

 

EXHIBIT A

 

PROMISSORY NOTE

 

Principal Amount: $__________   Funding Date: ______, 2016                  

 

FOR VALUE RECEIVED, Acorn Energy, Inc., a Delaware corporation (the “Borrower”), hereby promises to pay to the order of Christopher Clouser or the holder of this Note (the “Lender”), on the Maturity Date (as defined below) at such place of payment as the holder of this Promissory Note (this “Note”) may specify from time to time in writing, in lawful money of the United States of America, a single payment equal to 115% of the Principal Amount set forth above, which payment shall be in full satisfaction of any and all obligations of the Borrower to Lender under this Note. The Maturity Date shall be the earlier of (i) the third business day following the date of the receipt by the Borrower of proceeds upon the closing of the contemplated sale by the Borrower of a portion of its shares of DSIT Solutions Ltd. (the “DSIT Closing Date”) or (ii) September 1, 2016. .

 

By written notice, the Lender, assuming that he is not at such time in possession of material inside information, may by written notice to the Borrower on or prior to the day preceding Maturity Date, elect to all (but not part) of the amount payable to Lender under this Note into Common Stock of the Borrower at a conversion price equal to the closing price of the Common Stock of the Borrower on the principal market for such Common Stock on the trading day immediately preceding the Maturity Date.

 

This Promissory Note has been negotiated and delivered to Lender and is payable in the State of Delaware. This Note shall be governed by and construed and enforced in accordance with, the laws of the State of Delaware, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction.

 

The obligation to pay the principal of and any interest accrued on this note shall be parri passu with the indebtedness of Acorn under the Loan and Security Agreement with Leap Tide Capital Partners III, LLC.

 

    ACORN ENERGY, INC.
     
       
    By: Jan Loeb
    Title: Chief Executive Officer

 

     
 

 

 

Shareholders Agreement

 

This Shareholders Agreement (the “ Agreement ”) is made and entered into as of April 21, 2016, by and among DSIT Solutions Ltd. , an Israeli limited liability company (the “ Company ”) and the Shareholders of the Company whose names and addresses are listed on Exhibit I attached hereto (each, a “ Shareholder ” and collectively, the “ Shareholders ”). The Company and the Shareholders are referred to collectively herein as the “ Parties ” and separately as a “ Party ”.

 

WHEREAS , the Shareholders hold in the aggregate all of the issued and outstanding capital share of the Company; and
   
WHEREAS , the Shareholders desire to set forth in writing certain agreements as hereinafter described regarding their shareholdings of the Company, and relating to the rights and obligations of the Shareholders;

 

NOW, THEREFORE , in consideration of the mutual promises, covenants, conditions, representations and warranties set forth herein, and intending to be legally bound hereby, the Parties agree as follows:

 

  1. Interpretation; Definitions .
         
    1.1. The Recitals and Exhibits hereto constitute an integral part hereof.
         
    1.2. The headings of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
         
    1.3. In this Agreement, unless the context otherwise requires:
         
      1.3.1. Acorn ” means Acorn Energy, Inc. or a transferee of its Ordinary Shares (which together with its Permitted Transferees) holds no less than 45% of the issued and outstanding Ordinary Shares of the Company.
         
      1.3.2. Additional Shares ” means Ordinary Shares or preferred shares of any kind of the Company, whether now or hereafter authorized, and rights, options, or warrants to purchase said Ordinary Shares or preferred shares, and securities of any type whatsoever that are, or may become, convertible into said Ordinary Shares or preferred shares; provided , however , that “ Additional Shares ” shall not include (a) Ordinary Shares issued or reserved for issuance upon exercise of options under a share option plan or any other share incentive plan approved by the Company’s Board of Directors granted to officers, directors, employees and consultants of the Company; (b) Ordinary Shares issued pursuant to an IPO; (c) shares issued in connection with share splits, stock dividends and similar events; and (d) securities designated as not being Additional Shares by resolution of the Board of Directors.
         
      1.3.3. Major Shareholder ” means a Shareholder who holds no less than 30% of the issued and outstanding Ordinary Shares of the Company.

 

 
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      1.3.4. Ordinary Shares ” means shares of the Company’s ordinary shares, ILS 0.01 par value per share.
         
      1.3.5.  “ Permitted Transferee ” means: (i) in the case of a Shareholder which is an entity, transfers from a Shareholder to any other entity which Controls, is Controlled by or is under common Control with, such Shareholder; and (ii) in the case of transfers from a Shareholder who is a trustee to its beneficiaries or an alternate trustee for the same beneficiaries. For the purpose of this definition, “Control” shall mean: the power to direct the management and policies of the entity in question, whether through the ownership of voting securities or appointment of members to the board of directors.
         
      1.3.6. Rafael ” means Rafael Advanced Defense Systems Ltd or a transferee of its Ordinary Shares (which together with its Permitted Transferees) holds no less than 45% of the issued and outstanding Ordinary Shares of the Company.
         
      1.3.7. Significant Individual Shareholders ” means each of Mr. Benny Sela, Mr. Michael Barth, Mr. Ran Avgar,Mr. Yitshak Peery, Dan Ben-Dov and Meir Hahami in each case, as long as he is a Shareholder of the Company.

 

  2. Voting .
         
    2.1. Agreement to Vote . Each Shareholder hereby agrees to hold all shares of the Company of any class registered in its/his name from time to time, or with respect to which it shall from time to time hold voting power (and any securities of the Company issued with respect to, upon conversion of, or in exchange or substitution for such share) (hereinafter collectively referred to as the “ Shares ”), subject to, and to vote the Shares at all regular or special meetings of Shareholders (or by written consent) in accordance with and in a manner that is consistent with, the provisions of this Agreement.
         
    2.2. Election of Directors . Each Shareholder agrees to vote, or cause to be voted, all of their respective Shares in whatever manner as shall be necessary to ensure that to the Board of Directors of the Company (the “ Board ”) shall be elected and maintained to be elected of:

 

      2.2.1.   For as long as Rafael and/or its Permitted Transferees holds at least 45% of the Company’s issued and outstanding Shares (not on a fully diluted basis) (“ Rafael Threshold ”), Rafael shall be entitled to appoint, dismiss and replace three directors. If Rafael’s holdings shall decrease below such 45% of the Company’s issued and outstanding Shares (not on a fully diluted basis), then it shall appoint one director for each 15% of the issued and outstanding share capital of the Company it holds (not on a fully diluted basis).  
         
      2.2.2. For as long as Acorn and/or its Permitted Transferees holds at least 30% and less than 45% of the Company’s issued and outstanding Shares (not on a fully diluted basis) (“ Acorn Threshold ”), Acorn shall be entitled to appoint, dismiss and replace two directors. If Acorn’s holdings shall decrease below such 30% of the Company’s issued and outstanding Shares (not on a fully diluted basis), then it shall appoint 1 director for so long as it holds at least 15% of the issued and outstanding share capital of the Company (not on a fully diluted basis).

 

 
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      2.2.3. For as long as Acorn and/or its Permitted Transferees holds at least 45% of the Company’s issued and outstanding Shares (not on a fully diluted basis), and the Significant Individual Shareholders are not entitled to appoint, dismiss and replace any directors of the Company, Acorn shall be entitled to appoint, dismiss and replace three directors.
         
      2.2.4. For as long as all Significant Individual Shareholders, hold, in aggregate, at least 6% of the Company’s issued and outstanding Shares (not on a fully diluted basis), and Acorn is not entitled to appoint, dismiss and replace three directors of the Company, the Significant Individual Shareholders shall be entitled to appoint, dismiss and replace one director as determined by the majority of the shares held by the Significant Individual Shareholders.
         
      2.2.5. As long as (i) Acorn holds at least the Acorn Threshold, Acorn shall be eligible to appoint the Chairman of the Board, and (ii) Rafael holds at least the Rafael Threshold, Rafael shall be eligible to appoint the Chairman of the Board. In the event that both Acorn and Rafael are eligible to appoint the Chairman of the Board, then Acorn or Rafael, as the case may be, shall nominate the Chairman for a two-year period (to be replaced by the other Party’s nominee following such two-year period). The Chairman of the Board immediately following the date hereof shall be appointed by [Rafael][Acorn][TBD]. The Chairman of the Board shall have no casting vote.

 

      All Shareholders agree to execute any written consents required to perform the obligations of this Agreement, and the Company agrees at the request of any Shareholder entitled to designate directors to call a special meeting of Shareholders for the purpose of electing directors.
       
    2.3. Vacancies . Any director(s) may only be removed from office (by written notice), other than as required by any applicable law, by the Shareholder(s) that designated such director. In the event that a vacancy is created on the Board by the death, disability, retirement, resignation or removal (with or without cause) of a director or otherwise there shall exist or occur any vacancy on the Board, such vacancy may be filled by (and only by) the Shareholders by virtue of which the director whose office was vacated has been appointed and/or by the Shareholders entitled to decide on such appointment in accordance with the provisions of Section 2.2 above, and each Shareholder hereby agrees to vote or take action by written consent, in each case, to the extent such Shareholder shall be entitled to do so, to cause the vacancy to be filled by a designee of the group of Shareholders which had designated or was entitled to designate the director whose position has become vacant, or by a designee of the Board by unanimous consent, as applicable.

 

 
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    2.4. No Liability for Election of Recommended Directors . No Shareholder, nor any affiliate of any Shareholder, shall have any liability as a result of designating a person for election as a director for any act or omission by such designated person in his or her capacity as a director of the Company, nor shall any Shareholder have any liability as a result of voting for any such designee in accordance with the provisions of this Agreement.
         
    2.5. Specific Performance . Each Party acknowledges and agrees that each Party hereto will be irreparably damaged in the event any of the provisions of this Section 2 are not performed by the Parties in accordance with their specific terms or are otherwise breached. Accordingly, it is agreed that each of the Company and the Shareholders shall be entitled to an injunction to prevent breaches of this Section 2, and to specific enforcement of this Section 2 and its terms and provisions in any action instituted in any court having subject matter jurisdiction.
         
    2.6. No Proxies . Each Shareholder covenants and agrees that, except (i) as a result of transfers permitted by, and pursuant to and in accordance with, this Agreement, and (ii) as otherwise provided in this Section 2, such Shareholder will have sole voting power with respect to such Shareholder’s Shares and will not grant any proxy with respect to such Shares, enter into any voting trust or other voting agreement or arrangement with respect to such Shares or grant any other rights to vote such Shares other than the agreement to vote such Shares as set forth herein.
         
    2.7. Appointment by Delivery of Written Notice . Appointment of a director (including any vacancy created) may be effected by delivery of written notice to the Company by the Shareholder(s) entitled to appoint such director, or by the Shareholder(s) that designated the previous incumbent of such vacancy, as applicable. Any such act shall become effective on the date fixed in such notice, or upon the delivery thereof to the Company, whichever is later.

 

  3. Right of First Offer . Each Major Shareholder shall have a right of first offer with respect to any sale, transfer or other disposal (each, a “ Transfer ”) of all or any Ordinary Shares by any Shareholder (the “ Transferor ”) other than with respect to a Transfer to a Permitted Transferee of the Transferor and from the Permitted Transferee back to the original Transferor or to another Permitted Transferee of the original Transferor (collectively, “ Excluded Transfers ”).
       
    3.1. Any Transferor proposing to Transfer all or any of its securities of the Company (the “ Offered Shares ”), other than in an Excluded Transfer, shall first provide the other Major Shareholder(s) with a written notice stating the identity of the Transferor, the identity of the potential transferee(s) (if known), the number of Shares proposed to be Transferred and an outline of the terms of the proposed Transfer (the “ Offer Notice ”).
       
    3.2. Each other Major Shareholder shall be entitled to submit an offer in respect of all and not less than all of the Offered Shares, by giving the Company and the Transferor a notice to that effect (an “ Acceptance ”) within thirty days from the date of the Offer Notice (the “ Notice Period ”). The Acceptance shall be in price, terms and conditions equal to or more favorable than the price, terms and conditions as described in the Offer Notice.

 

 
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    3.3. If a Major Shareholder provides an Acceptance notice, it shall be required to pay for the Offered Shares by check or wire transfer to a bank account to be designated by the Transferor, against delivery of the Offered Shares to be purchased at a place agreed upon between the parties and at the time of the scheduled closing therefore, which shall be no later than 45 calendar days after the Acceptances.
       
      If the Acceptances, in the aggregate, are in respect of all of, or more than, the Offered Shares, then the Accepting Shareholders shall acquire the Offered Shares, on the terms aforementioned, in proportion to their respective holdings of the Company’s capital share as held by all Accepting Shareholders electing to purchase Offered Shares not purchased by the other Accepting Shareholders, provided , however , that no Accepting Shareholders shall be entitled or shall be forced to acquire under the provisions of this Section ‎3 more than the number of Offered Shares initially accepted by such Accepting Shareholder under the Acceptance. If as a result of the allocation of Offered shares in accordance to this Section 3 Rafael holdings shall increase to over 50% or the Company’s issued and outstanding share capital, Rafael shall be entitled to have any of its rights hereunder (fully or partly) exercised by a third party. After such exercise Rafael shall hold no more than 50% of the issued and outstanding share capital of the Company and the third party shall hold the remaining Offered Shares Rafael was entitled to acquire in according with this Section 3. The exercise of Rafael’s rights by a third party shall not derogate from Rafael’s rights in accordance with this Section 3 in future Transfers.
       
    3.4. If no Major Shareholder provides the Notice of Acceptance within the said 30 day period, then the Transferor shall be entitled to Transfer all (but not less than all) of the Offered Shares not being accepted in the Acceptance to potential transferee(s), provided , however , that in no event shall the Transferor Transfer any of the Offered Shares to any such potential transferee(s) on price, terms and conditions more favorable to the transferee(s) than those stated in the Offer Notice (it is hereby agreed that a price which shall be 20% lower or higher than the price stated in the Offer Notice shall not be deemed to be a price more favorable to the transferee(s) than the price stated in the Offer Notice), and provided , further , that if the Offered Shares are not Transferred within 120 days after the expiration of the Offer Notice, then they shall again be subject to the provisions of this Section ‎3.
       
    3.5. The Transferor shall be bound, upon payment of the offer price, to Transfer to the buying Major Shareholder the Offered Shares. If, after becoming so bound, the Transferor defaults in Transferring the Offered Shares, the Company may receive the purchase price therefor and the Transferor shall be deemed to have appointed any member of the Board as the Transferor’s agent to execute a Transfer of the Offered Shares to the buying Major Shareholder and, upon execution of such Transfer, the Company shall hold the purchase price therefor in trust for the Transferor. A Major Shareholder may assign its right under this Section 3 to any of its Permitted Transferees, provided that the Permitted Transferee first undertakes in writing (providing a copy of such undertaking to the Company) to be bound by all the restrictions contained in this Agreement, as though it were the Shareholder from whom the Company securities were originally Transferred.

 

 
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    3.6. Notwithstanding anything to the contrary under this Agreement, prior to entering into an agreement or understanding to sell any Shares (and also immediately following the initial approach or conversations regarding such potential sale), the Transferor shall inform Rafael regarding the identity of the proposed Transferee. Such Transfer shall be subject to Rafael prior written consent, which shall be at Rafael sole discretion; provided that with respect to, and only with respect to, Transferees that do not derive (and any of their affiliates do not derive) any portion (or only a trivial portion) of their revenue (directly or indirectly) from defense products or services, such consent shall not be unreasonably withheld or delayed. The Rafael’s prior written consent must be obtained by the Transferor prior to any further approach, negotiation or agreements with such potential transferee(s), and in no event, the Transferor shall Transfer (and the Company shall not register) any of its Shares to any Person that was not approved by Rafael pursuant to the terms of this paragraph.

 

  4. Reserved .
       
  5. Rights to Participate in Future Share Issuances .
       
    Subject to the terms and conditions of this Section 5 and applicable securities laws, the Company shall not issue, sell or exchange, agree or obligate itself to issue, sell or exchange, any Additional Shares, unless in each case the Company shall have first offered to sell such securities to each Major Shareholder and each of the Significant Individual Shareholders in accordance with the provisions of this Section 5:
       
    5.1. The Company shall give notice (the “ Issuance Notice ”) to each Major Shareholder and each of the Significant Individual Shareholders, stating (i) its bona fide intention to offer such Additional Shares, (ii) the number of such Additional Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Additional Shares.
       
    5.2. By notification to the Company within thirty days after the Issuance Notice is deemed received, each Major Shareholder and Significant Individual Shareholder may elect to purchase or otherwise acquire, at the price and on the terms specified in the Issuance Notice, up to that portion of such Additional Share which equals the proportion that the total number of Ordinary Shares then outstanding (or issuable upon conversion of any Shares then outstanding) and held, by such Major Shareholder or Significant Individual Shareholder bears to the total number of shares of Ordinary Share then outstanding (or issuable upon conversion of any Shares then outstanding). The closing of any sale pursuant to this Section 5.2 shall occur within the later of 60 days of the date that the Issuance Notice is given and the date of initial sale of Additional Shares pursuant to Section 5.3.
       
    5.3. If all Additional Shares referred to in the Issuance Notice are not elected to be purchased or acquired as provided in Section 5.2, the Company may, during the 120 day period following the expiration of the period provided in Section 5.2, offer and sell the remaining unsubscribed portion of such Additional Shares to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Issuance Notice. If the Company does not enter into an agreement for the sale of the Additional Share within such period the right provided hereunder shall be deemed to be revived and such Additional Share shall not be offered unless first reoffered to the Major Shareholders and Significant Individual Shareholders in accordance with this Section 5.

 

 
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    5.4. A Major Shareholder may assign its right under this Section 5 to any of its Permitted Transferees, provided that the Permitted Transferee first undertakes in writing (providing a copy of such undertaking to the Company) to be bound by all the restrictions contained in this Agreement, as though it were the Shareholder from whom the Company securities were originally Transferred.

 

  6. Bring Along .
       
    6.1. In the event that Shareholders holding 70% or more of the Company’s issued and outstanding share capital, on a fully diluted basis (the “ Selling Shareholders ”), receive a bona fide offer from a potential buyer (that is not a Permitted Transferee) to acquire all shares of the Company (the “ Acquisition Transaction ”) and (i) the Selling Shareholders wish to accept such offer, and (ii) such Acquisition Transaction is conditioned upon the sale of all remaining shares of the Company to such third party, then all Shareholders of the Company shall be required to sell their shares in such Acquisition Transaction, on the same terms as to price per share, payment terms, escrow provisions, indemnification obligations, representations and warranties of shareholders, confidentiality provisions and any other terms relating to their shares or their rights and privileges as shareholders of the Company, provided , however , that the liability of a Shareholder who did not vote in favor of the Acquisition Transaction, with respect to representations and warranties and the indemnification given to the purchaser(s) or acquirer(s), shall in no event exceed the lowest liability incurred by a Shareholder who did vote in favor of the Acquisition Transaction adjusted to reflect the respective holdings proportion of such Shareholders; subject to the consideration payable with respect to each share in each class or series as a result of such transaction is allocated among the holders of share capital of the Company.
       
    6.2. All Shareholders shall be given written notice of the Acquisition Transaction and the date designated for the closing thereof (the “ Acquisition Transaction Closing ”). Notice of the occurrence of the Acquisition Transaction and the date designed for the Acquisition Transaction Closing will be given at least three (3) days in advance. Upon receipt of such notice, each Shareholder shall surrender his, her or its certificate or certificates for all such share to the Company at the place designated in such notice, and shall thereafter receive the consideration payable in such Acquisition Transaction for such shareholder’s Shares, if applicable. On the Acquisition Transaction Closing, all Shares shall be deemed to have been sold, transferred or exchanged in connection with the Acquisition Transaction, and all rights of the Shareholders of capital share with respect to the capital share so sold, transferred or exchanged, will terminate, except only the rights of the Shareholders thereof, upon surrender of their certificate or certificates therefor, to receive the consideration payable to such holders for their share in the Company which have been sold, transferred or exchanged, if any. If so required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or by his, her or its attorney duly authorized in writing.

 

 
- 8

 

    6.3. All certificates evidencing Shares which are required to be surrendered for sale, transfer or exchange in accordance with the provisions hereof shall, from and after the Acquisition Transaction Closing, be deemed to have been retired and cancelled and the Shares represented thereby sold, transferred or exchange for the consideration payable thereupon, for all purposes, notwithstanding the failure of the Shareholder or Shareholders thereof to surrender such certificates on or prior to such Acquisition Transaction Closing.
       
    6.4. Each of the Shareholders hereby agrees (a) to execute and deliver all related documentation and take such other action in support of the Acquisition Transaction as shall be reasonably requested by the Company or the Selling Shareholders in order to carry out the terms and provision of this Section 6, including without limitation executing and delivering instruments of conveyance and transfer, and any purchase agreement, merger agreement, indemnity agreement, escrow agreement, consent, waiver, governmental filing, share certificates duly endorsed for transfer (free and clear of impermissible liens, claims and encumbrances) and any similar or related documents; and (b) to refrain from exercising any dissenters’ rights or rights of appraisal or similar rights under applicable law at any time with respect to such Acquisition Transaction.
       
  7. Effect of Failure to Comply .
       
    7.1. Any Transfer not made in compliance with the requirements of this Agreement shall be null and void ab initio , shall not be recorded on the books of the Company or its transfer agent and shall not be recognized by the Company. Each Party hereto acknowledges and agrees that any breach of this Agreement shall result in substantial harm to the other Parties hereto for which monetary damages alone could not adequately compensate. Therefore, the Parties hereto unconditionally and irrevocably agree that any non-breaching Party hereto shall be entitled to seek protective orders, injunctive relief and other remedies available at law or in equity (including, without limitation, seeking specific performance or rescission of purchases, sales and other transfers of Shares not made in strict compliance with this Agreement).
       
    7.2. If any Shareholder becomes obligated to sell any shares under this Agreement and fail to deliver such Shares in accordance with this Agreement, the purchaser may, at its option, in addition to all other remedies it may have, send to such Shareholder the purchase price for such Shares, as is herein specified and the Company shall cancel on its books the certificate or certificates representing the Shares to be sold.
       
    7.3. If any Shareholder purports to sell any Shares in contravention of the terms of this Agreement (a “ Prohibited Transfer ”), the Major Shareholders and the Significant Individual Shareholders, in addition to such remedies as may be available by law, in equity or hereunder, may require such Shareholder to sell to the Major Shareholders and to the Significant Individual Shareholders the number of Shares that the Major Shareholders and the Significant Individual Shareholders would have been entitled to purchase under this Agreement, had the Prohibited Transfer been affected pursuant to, and in compliance with, the terms of this Agreement. In each case, the sale would be made on the same terms, and subject to the same conditions, as would have applied had the Shareholder not made the Prohibited Transfer, expect that the sale (including, without limitation, the delivery of the Shares or the purchase price, as the case may be) must be made within 90 days after the Major Shareholder and the Significant Individual Shareholder learned of the Prohibited Transfer, as opposed to the time frame otherwise provided herein. Such Shareholder shall also reimburse the Major Shareholders and the Significant Individual Shareholders for any and all fees and expenses, including legal fees and expenses, incurred pursuant to the exercise or attempted exercise of the Major Shareholders’ and the Significant Individual Shareholders’ rights hereunder.

 

 
- 9

 

 

  8. No Shareholder Agreement . Except as for that certain Letter Agreement among Acorn and the Significant Individual Shareholders attached hereto as Exhibit A , none of the Significant Individual Shareholders shall enter into any agreements amongst themselves or with any other Shareholder of the Company, whether oral or written, with respect to the Company, without the unanimous written prior approval of the other Parties to this Agreement. Each Significant Individual Shareholder agrees that any such agreement entered into without such written prior approval, will not be valid and will be of no force or effect.
     
  9. Auditors . The Shareholders of the Company and the Board shall take all actions necessary, as soon as reasonably practicable, to appoint as the independent auditor of the Company a firm of Independent Certified Public Accountants in the State of Israel who is affiliated with one of the “big four” U.S. accounting firms.
     
  10. Confidentiality and Publicity . Each of the Shareholders acknowledges that in the course of operation of the Company it may obtain confidential and proprietary information concerning the Company. Each of the Shareholders receiving such information (hereinafter referred to as “ Confidential Information ”) shall (i) maintain the confidentiality of such Confidential Information, and (ii) not disclose it to any person or entity, except to their respective directors, employees, professional advisors and such other representatives who need to know such Confidential Information to perform their work responsibilities. The provisions of this Section ‎10.1 shall not apply to Confidential Information that: (a) have been known by the receiving Shareholder prior to its disclosure to the recipient; (b) is or becomes public knowledge other than through the receiving Shareholder’s breach of this Agreement; (c) was obtained by the receiving Shareholder from a third party having no obligation of confidentiality with respect to such Confidential Information; or (d) is required to be disclosed by any applicable law or order of any competent court or governmental authority, including any securities exchange regulations.

 

  11. Miscellaneous .
       
    11.1. In the event that after the date of this Agreement, the Company enters into an agreement with any person, company, partnership or other entity (a “ Person ”) to issue shares of capital share to such Person, then, the Company shall cause such Person, as a condition precedent to entering into such agreement, to become a Party to this Agreement by executing an Adoption Agreement in the form attached hereto as Exhibit B agreeing to be bound by and subject to the terms of this Agreement as a Shareholder, or, with respect to shares issued upon exercise of options under the Company’s or a subsidiary’s incentive option plans (whether granted prior to or following the date hereof), by executing an agreement to be bound by the terms of this Agreement as a Shareholder, and thereafter such Person shall be deemed a Shareholder for all purposes under this Agreement.

 

 
- 10

 

 

    11.2. Each transferee or assignee of any Shares subject to this Agreement, including any Permitted Transferee, shall be subject to the terms and entitled to the benefits hereof, and, as a condition precedent to the Company’s recognizing such Transfer, each transferee or assignee shall agree in writing to be subject to each of the terms of this Agreement by executing and delivering an Adoption Agreement substantially in the form attached hereto as Exhibit B . Upon the execution and delivery of an Adoption Agreement by any transferee, such transferee shall be deemed to be a Party hereto as if such transferee were the Transferor and such Transferee’s signature appeared on the signature pages of this Agreement and shall be deemed to be a Shareholder hereunder for all intents and purposes. The Company shall not permit the Transfer of the Shares subject to this Agreement on its books or issue a new certificate representing any such Shares unless and until such Transferee shall have complied with the terms of this Section 11.2.
       
    11.3. The Board and the Shareholders shall take all necessary actions to adopt and maintain an Articles of Association which shall include all the terms and conditions of this Agreement.
       
    11.4. For purposes of computing any minimum shareholding required for any purposes under this Agreement, each Shareholder and its Permitted Transferees who hold Shares in the Company shall be entitled to aggregate their holdings in order to be considered one Shareholder and shall be entitled to have any of their rights set forth herein exercised by any of its Permitted Transferees.
       
    11.5. Any term of this Agreement may be amended and the severance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) and this Agreement may be terminated only with the written consent of the Company and the Parties of this agreement holding in aggregate at least 75% of the outstanding Ordinary Shares of the Company, on an as issued basis (provided that any amendment, waiver or termination of the rights with respect to Election of Directors by the Significant Individual Shareholders, stipulated in Section 2.2.3 above, or the rights to participate in future share issuances, stipulated in Section 5 above, shall require the consent of the holders of the majority of the Shares held by the Significant Individual Shareholders if such Significant Individual Shareholders, in aggregate, hold at least 6% of the Company’s issued and outstanding Shares (not on a fully diluted basis), and any amendment, waiver or termination so consented shall be binding upon all of the Parties to this Agreement.
       
    11.6. This Agreement shall be governed by and construed in accordance with the laws of the State of Israel, without giving effect to principles of conflicts of laws that would require the application of the laws of any other jurisdiction and the Parties hereby consent and submit to the exclusive jurisdiction of the competent courts of Tel Aviv over all matters relating to this Agreement. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each Party and delivered to the other Party, it being understood that two Parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof.

 

 
- 11

 

 

    11.7. This Agreement constitutes the full and entire agreement, covenants, promises and understandings between the Parties hereto with respect to the subject matter hereof, and supersede any and all prior agreements, understandings, promises and representations made by all or some of the Parties (or by any Party to another), written or oral, concerning the subject matter hereof and the terms applicable hereto.
       
    11.8. All notices or other communications provided for in this Agreement shall be in writing and shall be given in person, by registered mail (registered air mail if mailed internationally), by an overnight courier service which obtains a receipt to evidence delivery, by facsimile transmission (evidenced by written confirmation of transmission), or electronic mail, addressed as set forth below:

 

      Company

DSIT Solutions Ltd.

Rehavan Zeevi 1

Givat Shmuel

 

Fax: 03 531 3322

Attn: CEO

E-mail: sela@dsit.co.il

         
      Shareholders At the addresses set forth in Exhibit I .

 

      or such other address as any Party may designate to the other in accordance with the aforesaid procedure. All notices and other communications delivered in person, by facsimile transmission or by electronic mail shall be deemed to have been given as of one business day after sending thereof, all notices and other communications delivered by overnight air courier shall be deemed to have been given as of the third business day after posting; and all notices and other communications sent by registered mail shall be deemed given five (5) days after posting.
       
    11.9. If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable under applicable law, then such provision shall be excluded from this Agreement and the remainder of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms; provided, however, that in such event this Agreement shall be interpreted so as to give effect, to the greatest extent consistent with and permitted by applicable law, to the meaning and intention of the excluded provision as determined by such court of competent jurisdiction.

 

[Signature Page to Follow]

 

 
- 12

 

IN WITNESS WHEREOF the Parties have signed this Shareholders Agreement as of the date first hereinabove set forth.

 

COMPANY:    
     
     
  DSIT Solutions Ltd.
  By:  
  Title:  
     
Significant Individual Shareholders    
     
     
  Benny Sela
   
   
  Michael Barth
   
   
  Ran Avgar
   
   
  Yitshak Peery
     
Acorn:    
     
  By:  
  Title:  
     
Rafael:    
     
  By:  
  Title:  

 

 
- 13

 

EXHIBIT A

 

CERTAIN LETTER AGREEMENT

 

 
- 14

 

EXHIBIT B

 

ADOPTION AGREEMENT

 

This Adoption Agreement (“ Adoption Agreement ”) is executed on ___________________, 20__, by the undersigned (the “ Holder ”) pursuant to the terms of that certain Shareholders Agreement dated as of _____ __, 2016 (the “ Agreement ”), by and among DSIT Solutions Ltd. (the “ Company ”) and its Shareholders, as such Agreement may be amended or amended and restated. Capitalized terms used but not defined in this Adoption Agreement shall have the respective meanings ascribed to such terms in the Agreement. By the execution of this Adoption Agreement, the Holder agrees as follows.

 

1.1 Acknowledgement . Holder acknowledges that Holder is acquiring certain shares of the capital share of the Company (the “ Share ”) [or options, warrants or other rights to purchase such Share (the “ Options ”)], and thereafter will be deemed a “Shareholder” for all intents and purposes under the Agreement.

 

1.2 Agreement . Holder hereby (a) agrees that the Share [Options], and any other shares of capital share or securities required by the Agreement to be bound thereby, shall be bound by and subject to the terms of the Agreement and (b) adopts the Agreement with the same force and effect as if Holder were originally a party thereto.

 

1.3 Notice . Any notice required or permitted by the Agreement shall be given to Holder at the address or facsimile number listed below Holder’s signature hereto.

 

HOLDER:     ACCEPTED AND AGREED:

 

By:     DSIT Solutions Ltd.
Name and Title of Signatory    

 

Address:     By:  
         
      Title:  

 

Facsimile Number:      

 

Email:      

 

 
 

 

 

 

 

Acorn Energy, Inc.

3844 Kennett Pike
Greenville, Delaware 19807

 

April 21, 2016

 

To the Individual Shareholders of

DSIT Solutions Ltd.

 

Dear Sirs:

 

Reference is made to that certain Share Purchase Agreement dated as of the date hereof (the “ Share Purchase Agreement ”) by and among DSIT Solutions Ltd., an Israel limited liability company (“ DSIT ”), Rafael Advanced Defense Systems Ltd., an Israel limited liability company (“ Rafae l”), the Shareholders Representative, Acorn Energy Inc., a Delaware corporation (“ Acorn ”) and the individual shareholders of DSIT signatory thereto (the “Individual Shareholders”), pursuant to which Rafael has agreed to purchase from Acorn, the Individual Shareholders, and certain other shareholders of DSIT, and Acorn and the Individual Shareholders have agreed to sell to Rafael (together with certain other shareholders of DSIT), a number of ordinary shares, par value ILS 0.01 per share, of DSIT (“ Ordinary Shares ”), equal in the aggregate to 50% of the presently issued and outstanding Ordinary Shares on a fully diluted basis. As used herein, the term “Ordinary Shares” shall include the Ordinary Shares as presently constituted, as well as any other securities into which the same may hereafter be changed.

 

This Letter Agreement sets forth the agreement between Acorn and the Individual Shareholders regarding the sale, transfer and other disposition of the Ordinary Shares they will continue to own after consummation of the Share Purchase Agreement, and is a material inducement to the parties hereto to enter into and consummate the Share Purchase Agreement and the Shareholders Agreement entered into in connection therewith. Notwithstanding anything to the contrary in this Letter Agreement, this Letter Agreement is subordinate to the terms of the Share Purchase Agreement and the other transaction documents, including without limitations, the Shareholders Agreement, executed or adopted in connection with the Share Purchase Agreement, and in no event, the terms of this Letter shall adversely affect in any manner the rights of Rafael or the obligations of any of the other parties under any of such agreements.

 

     
     

 

1. Drag-Along

 

If, at any time, (i) Acorn desires to offer to sell to any person or persons, other than an affiliate of Acorn, all the Ordinary Shares then held by Acorn and its affiliates for a sale price per Ordinary Share not less than 80% of the price per Ordinary Share under the Share Purchase Agreement with Rafael (a “Divestiture ”) and (ii) the Ordinary Shares then held by Acorn and its affiliates represent at least 30% of the then issued and outstanding Ordinary Shares, then Acorn shall have the right (“Drag Along Right”) to require each Individual Shareholder to participate in such sale of Ordinary Shares by Acorn and to sell all of his Ordinary Shares, and the Individual Shareholders shall have the right (“ Tag Along Right ”) to so participate, in each case on the same terms and conditions (including representations, warranties and indemnities, so long as such representations, warranties, covenants and indemnities are not less favorable to the Individual Shareholders than those in the Share Purchase Agreement with Rafael), as are applicable to Acorn’s sale of its Ordinary Shares in the Divestiture To exercise its Drag Along Right, Acorn shall promptly deliver to each of the Individual Shareholders a written notice (the “Divestiture Notice”) stating Acorn’s intention to sell all its Ordinary Shares and that it is electing thereby to exercise its Drag Along Right pursuant to this Letter Agreement in connection therewith, and setting forth the terms and conditions of the Divestiture, including, without limitation, to the extent known, the identity of the proposed purchaser and the amount and type of consideration to be paid therefor. The Divestiture Notice shall be accompanied or followed, to the extent available, by a copy of any written offer, letter of intent, term sheet or contract of sale pertaining to the Divestiture transaction. At any time prior to the closing of a Divestiture in respect of which Acorn has exercised its Drag Along Right, Acorn may withdraw from the Divestiture and its election to exercise its Drag Along Right upon written notice to the Individual Shareholders.

 

The closing of the purchase and sale of any Ordinary Shares to be sold by the Individual Shareholders to the purchaser pursuant to the Drag Along Right shall occur concurrently with the closing of the sale of the Ordinary Shares by Acorn to the purchaser in the Divestiture. At any such closing, each Individual Shareholder shall deliver to the purchaser a certificate or certificates representing the number of Ordinary Shares owned by such Individual Shareholder, duly endorsed in blank or accompanied by a duly executed stock power in blank, with signatures duly guaranteed and all requisite stock transfer stamps affixed thereto.

 

The individual Shareholders agree to cooperate with Acorn in effecting the Drag Along Right which is intended to allow Acorn to deliver to the purchaser in the Divestiture the 50% of DSIT collectively held by Acorn and the Individual Shareholders.

 

  2  
     

 

2. Co-Sale .

 

If, at any time that it owns at least 20% of the issued and outstanding Ordinary Shares, Acorn proposes to sell to any person or persons, other than an affiliate of Acorn, less than all of the Ordinary Shares then owned by Acorn, Acorn shall before proceeding with such sale shall give to each Individual Shareholder written notice (the “Proposed Sale Notice”) stating Acorn’s intention to sell such shares and setting forth the price and, to the extent then known, the other material terms and conditions of the proposed sale. Each Individual Shareholder shall have the right (the “ Right of Co-Sale ”) to participate on a pro-rata basis in the proposed sale (the “ Proposed Sale ”) on the same terms and conditions specified in the Proposed Sale Notice. Each Individual Shareholder who desires to exercise its Right of Co-Sale, it must give Acorn written notice to that effect within 15 days after delivery to such Individual Shareholder of the Proposed Sale Notice, and upon giving such notice to Acorn, each such Individual Shareholder shall be deemed to have effectively exercised the Right of CoSale.

 

Each Individual Shareholder who timely exercises its Right of Co-Sale may include in the Proposed Sale all or any part of its Ordinary Shares equal to the product obtained by multiplying (i) the aggregate number of Ordinary Shares subject to the Proposed Sale by (ii) a fraction, the numerator of which is the number of Ordinary Shares owned by such Individual Shareholder immediately before consummation of the Proposed Sale and the denominator of which is the total number of Ordinary Shares owned, in the aggregate, by all Individual Shareholders and Acorn, in the aggregate, immediately prior to the consummation of the Proposed Sale. To the extent an Individual Shareholder exercises its Right of Co-Sale in accordance with the terms and conditions set forth herein, the number of Ordinary Shares that Acorn may sell in the Proposed Sale shall be correspondingly reduced, if and to the extent necessary to enable the Individual Shareholders to full participate in the Proposed Sale in accordance with the terms hereof.

 

Each Individual Shareholder shall effect its participation in the Proposed Sale by delivering to Acorn, no later than five days after the Individual Shareholder’s exercise of the Right of Co-Sale, one or more stock certificates, properly endorsed for transfer to the purchaser in the Proposed Sale, representing the number of Ordinary Shares such Individual Shareholder elects to include in the Proposed Sale. The terms and conditions of any such Proposed Sale will be memorialized in, and governed by, a written purchase and sale agreement with the purchaser. Each stock certificate the Individual Shareholder delivers to Acorn pursuant to this Co-Sale provision will be transferred to the purchaser in the Proposed Sale against payment therefor in consummation of the Proposed Sale pursuant to the terms and conditions specified in the Proposed Sale Notice and the purchase and sale agreement, and Acorn shall concurrently therewith remit to the applicable Individual Shareholder the portion of the sale proceeds to which such Individual Shareholder is entitled by reason of its participation in such sale. Each Individual Shareholder exercising its Co-Sale Right shall make such representations, warranties, covenants and indemnities as are required of Acorn in the Proposed Sale. If the purchaser in the Proposed Sale refuses to purchase securities subject to the Right of Co-Sale directly from an Individual Shareholder exercising its Right of Co-Sale hereunder, Acorn may not sell any Ordinary Shares to such purchaser unless and until, simultaneously with such sale, Acorn purchases all securities subject to the Right of Co-Sale from such Individual Shareholder.

 

  3  
     

 

If any Proposed Sale is not consummated within 60 days after receipt of the Proposed Sale Notice, Acorn may at its option withdraw from participation in the Proposed Sale not sell any of its Ordinary Shares unless it first once again complies in full with each provision of this Section 2.

 

3. Successors and Assigns.

 

Each of the Individual Shareholders and Acorn agrees not to directly or indirectly offer, sell, dispose of or otherwise transfer any Ordinary Shares (or securities exercisable for or convertible into Ordinary Shares), or any interest therein, whether now owned or hereafter acquired, other than in accordance with this Letter Agreement, unless the transferee (including for the removal of doubt any affiliate of any party) shall agree in writing to be bound by this Letter Agreement, including, without limitation, the Drag Along Right in favor of Acorn and the Tag Along Right and Right of Co-Sale in favor of the Individual Shareholders The share certificates evidencing the Ordinary Shares held by Acorn and the Individual Shareholders shall bear an appropriate legend with respect to this restriction. This Letter Agreement shall be binding on any legal successors of any party, including any affiliate of Acorn which may become the owner of Acorn’s Ordinary Shares.

 

4. Failure to Comply.

 

Each party hereto acknowledges and agrees that any breach of this Letter Agreement would result in substantial harm to the other parties hereto for which monetary damages alone could not adequately compensate. Therefore, the parties hereto unconditionally and irrevocably agree that any non-breaching party hereto shall be entitled to seek protective orders, injunctive relief and other remedies available at law or in equity, including, without limitation, seeking specific performance or the rescission of purchases, sales and other transfers of Ordinary Shares not made in strict compliance with this Letter Agreement and to compel the parties hereto to comply with any and all terms of this Agreement, including, without limitation to compel Individual Shareholders to deliver their Ordinary Shares in connection with any exercise of the Drag Along Right by Acorn. The breaching party shall also reimburse the other party for any and all fees and expenses, including legal fees and expenses, incurred by the other party as a result of any such breach.

 

  4  
     

 

If any Individual Shareholder party hereto becomes obligated to sell any Ordinary Shares under this Letter Agreement and fails to deliver such Ordinary Shares in accordance with the terms of this Letter Agreement, Acorn may, at its option, in addition to all other legal remedies it may have, send to such party the purchase price for such Ordinary Shares as is herein specified, and such shall be deemed to represent the purchase of such Shares from the transferring Individual Shareholder;

 

This Agreement and the rights and obligations of the parties herein shall expire on the third anniversary hereof. The Parties hereto consent that Rafael Advanced Defense Systems Ltd. and the Company are designated third party beneficiaries of this expiration date in the preceding sentence and the following paragraph.

 

Nothing in this Agreement shall create any obligation on the Company or its other shareholders, and the Company and its other shareholders shall not be liable in any way in connection with this Agreement and the provisions hereto.

 

Please confirm your agreement to the foregoing by executing this letter below in the space indicated.

 

  Very truly yours,
   
Individual Shareholders:  
  Benny Sela
   
   
  Michael Barth
   
   
  Ran Avgar
   
   
  Yitshak Peery

 

  5  
     

 

 

 

 

Exhibit 31.1

 

I, Jan H. Loeb, the Chief Executive Officer of Acorn Energy, Inc., certify that:

 

  1. I have reviewed this report on Form 10-Q of Acorn Energy, Inc.;
     
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: May 16, 2016

 

By: /s/ JAN H. LOEB  
  Jan H. Loeb  
  Chief Executive Officer  

  

     
 

 

 

Exhibit 31.2

 

I, Michael Barth, the Chief Financial Officer of Acorn Energy, Inc., certify that:

 

  1. I have reviewed this report on Form 10-Q of Acorn Energy, Inc.;
     
  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     
  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     
  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: May 16, 2016

 

By: /s/ MICHAEL BARTH  
  Michael Barth  
  Chief Financial Officer  

  

     
 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

 

18 U.S.C. SECTION 1350,

 

AS ADOPTED PURSUANT TO

 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of Acorn Energy, Inc. (the “Company”) for the quarterly period ended March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jan H. Loeb, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

/s/ Jan H. Loeb  
Jan H. Loeb  
Chief Executive Officer  
May 16, 2016  

 

     
 

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

 

18 U.S.C. SECTION 1350,

 

AS ADOPTED PURSUANT TO

 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of Acorn Energy, Inc. (the “Company”) for the quarterly period ended March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Barth, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

/s/ Michael Barth  
Michael Barth  
Chief Financial Officer  
May 16, 2016