Share
Ownership of Directors and Executive Officers of Datawatch
As
of July 15, 2013, our directors and executive officers and their affiliates owned and were entitled to vote approximately 34.2%
of the shares of our common stock outstanding on that date. Each of such persons has agreed with the Sellers to vote their Datawatch
shares in favor of the Share Purchase. The Form of Voting Agreement entered into by such persons is set forth in Annex A to this
proxy statement as Exhibit B to the Stock Purchase Agreement.
Regulatory
Approvals
We
are not aware of any governmental or regulatory approval required for the completion of the Share Purchase, other than compliance
with applicable corporate laws of Delaware and Sweden and the filing with The NASDAQ Capital Market of a Notification Form for
Listing Additional Shares and a Notification Form for Change in the Number of Shares Outstanding, with respect to the shares of
our common stock to be issued to the Panopticon shareholders pursuant to the Stock Purchase Agreement.
If
any other governmental approvals or actions are required, we intend to try to obtain them. We cannot assure you, however, that
we will be able to obtain any such approvals or actions.
Appraisal
Rights
Appraisal
rights are not available under Delaware General Corporation Law with respect to the Share Purchase.
RISK
FACTORS
In
addition to the other information included in this proxy statement, including the matters addressed under “Special Note
Regarding Forward-Looking Statements,” you should carefully consider the following risks before deciding whether to vote
for the issuance of the Consideration Shares in connection with the Share Purchase. You should also consider the other information
in this proxy statement and the other documents and information incorporated by reference into this proxy statement, especially
the other risk factors about us. See “Incorporation of Certain Documents by Reference” beginning on page 64 and
“Where You Can Find More Information” beginning on page 64. Risks relating to the Share Purchase are described under
“Risks Related to Datawatch.” Risks relating to the Panopticon business are described under “Risks Related to
the Combined Business Following the Share Purchase.”
Risks
Related to the Share Purchase
We
will issue a large number of shares of common stock in connection with the Share Purchase, which will result in substantial dilution
to our existing stockholders. Our stockholders may not realize a benefit from the Share Purchase commensurate with the ownership
dilution they will experience.
Based
on our outstanding capital stock at June 14, 2013, at the closing, we anticipate that we may issue up to a maximum of 2,149,157
shares of our common stock in connection with the Share Purchase, which will represent 23.6% of the outstanding shares of Datawatch
common stock, on an adjusted basis, following the closing. Although the actual number of Consideration Shares to be issued will
be subject to reduction due to a number of adjustments described under “The Share Purchase — Share Purchase Consideration”
on page 34, our issuance of the Consideration Shares will result in substantial dilution of our existing stockholders’ ownership
interests. Our issuance of the Consideration Shares may also have an adverse impact on our net income per share in fiscal periods
that include (or follow) the closing.
13
If
we are unable to realize the strategic and financial benefits currently anticipated from the Share Purchase, our stockholders
will have experienced substantial dilution of their ownership interest without receiving commensurate benefit.
The
actual value of the consideration we will pay to the Panopticon shareholders may exceed the value allocated to such consideration
at the time we entered into the Stock Purchase Agreement.
Under
the Stock Purchase Agreement, the number of shares of common stock we will issue as Consideration Shares at the Closing is fixed,
and there will be no adjustment in the terms of the Share Purchase for changes in the market price of our common stock. Neither
we nor the Panopticon shareholders are permitted to “walk away” from the Share Purchase solely because of changes
in the market price of our common stock between the signing of the Stock Purchase Agreement and the Closing. Our common stock
has historically experienced significant volatility. Stock price changes may result from a variety of factors that are beyond
our control, including changes in our business, operations and prospects, regulatory considerations and general market and economic
conditions. The price of our common stock on The NASDAQ Capital Market on June 13, 2013, which was the day before we entered into
the Stock Purchase Agreement, was $14.48; and on July __, 2013, the market price of our common stock was $[____]. The value of
the Consideration Shares we issue to acquire Panopticon may be significantly higher at the closing than when we entered into the
Stock Purchase Agreement.
If
the conditions to the closing of the Share Purchase are not met, the Share Purchase will not occur, which could adversely impact
the market price of our common stock as well as our business, financial condition and results of operations.
Specified
conditions must be satisfied or waived before the Share Purchase can be completed, including, without limitation, obtaining the
requisite approval of our stockholders with respect to our proposed issuance of the Consideration Shares. These conditions are
summarized in the section in this proxy statement entitled “The Stock Purchase Agreement — Conditions to the Completion
of the Share Purchase” beginning on page 38 and are set forth in the Stock Purchase Agreement attached to this proxy statement
at Annex A. We cannot assure you that each of the conditions will be satisfied.
If
the conditions are not satisfied or waived in a timely manner and the Share Purchase is delayed, we may lose some or all of the
intended or perceived benefits of the transaction which could cause our stock price to decline and harm our business. If the transaction
is not completed for any reason, our stock price may decline to the extent that the current market price reflects a market assumption
that the Share Purchase will be completed.
In
addition, we will be required to pay our costs related to the transaction even if the Share Purchase is not completed, such as
amounts payable to legal, accounting and financial advisors and independent accountants, and such costs are significant. All of
these costs will be incurred whether or not the Share Purchase is completed.
Although
we expect that the Share Purchase will result in benefits to us, we may not realize those benefits because of integration difficulties.
Integrating
the operations of Panopticon successfully or otherwise realizing any of the anticipated benefits of the acquisition of Panopticon,
including additional revenue opportunities, involves a number of challenges. The failure to meet these integration challenges
could seriously harm our results of operations and the market price of our common stock may decline as a result.
14
Realizing
the benefits of the transaction will depend in part on the integration of technology, operations, personnel and sales activity
of the two companies. These integration activities are complex and time
-
consuming, and we may encounter unexpected difficulties
or incur unexpected costs, including:
|
—
|
challenges
in combining product offerings, including integration of the underlying technology, and sales and marketing activities;
|
|
—
|
our
inability to achieve the cost savings and operating synergies anticipated in the transaction, which would prevent us from
achieving the positive earnings gains expected as a result of the transaction;
|
|
—
|
diversion
of management attention from ongoing business concerns to integration matters;
|
|
—
|
difficulties
in consolidating and rationalizing information technology platforms and administrative infrastructures;
|
|
—
|
complexities
in managing a larger and more geographically dispersed company than before the completion of transaction;
|
|
—
|
difficulties
in the assimilation of Panopticon personnel and the integration of two business cultures;
|
|
—
|
challenges
in demonstrating to our customers and to customers of Panopticon that the transaction will not result in adverse changes in
product and technology offerings, customer service standards or business focus; and
|
|
—
|
possible
cash flow interruption or loss of revenue as a result of change of ownership transitional matters.
|
We
may not successfully integrate the operations of Panopticon in a timely manner, and we may not realize the anticipated net reductions
in costs and expenses and other benefits and synergies of the acquisition of Panopticon to the extent, or in the timeframe, anticipated.
In addition to the integration risks discussed above, our ability to realize the benefits and synergies of the Share Purchase
could be adversely impacted by practical or legal constraints on our ability to combine operations. As a privately-held,
non-U.S. company, Panopticon has not had to comply with the requirements of the Sarbanes-Oxley Act of 2002 for internal control
and other procedures. Bringing Panopticon’s systems into compliance with those requirements may cause us to incur substantial
additional expense. In addition, the integration process may cause an interruption of, or loss of momentum in, the activities
of our business after completion of the transaction. If our management is not able to effectively manage the integration process,
or if any significant business activities are interrupted as a result of the integration process, our business could suffer and
our results of operations and financial condition may be harmed.
The
Share Purchase may be completed even though material adverse changes may result from the announcement of the Share Purchase, industry-wide
changes and other causes.
In
general, either party can refuse to complete the Share Purchase if there is a material adverse change affecting the other party
between June 14, 2013, the date of the Stock Purchase Agreement, and the closing. However, certain types of changes do not permit
either party to refuse to complete the Share Purchase, even if such change would have a material adverse effect on us or Panopticon,
including:
|
—
|
Changes
in national or international political or social conditions occurring after the date of the Stock Purchase Agreement, including
the engagement of either party’s respective government in hostilities, whether or not pursuant to the declaration of
a national emergency or war, or the occurrence of any military or terrorist attack upon either party’s jurisdiction;
|
|
—
|
Changes
in law, rules, regulations, orders or other binding directives used by any governmental authority; or
|
15
|
—
|
any
change in accounting principles generally accepted in the United States.
|
If
adverse changes occur but we and the Panopticon shareholders still complete the Share Purchase, our stock price may suffer.
The
market price of our common stock may decline as a result of the Share Purchase.
The
market price of our common stock may decline as a result of the Share Purchase for a number of reasons, including if:
|
—
|
we
do not achieve the perceived benefits of the Share Purchase as rapidly or to the extent anticipated by financial or industry
analysts;
|
|
—
|
the
effect of the Share Purchase on our business and prospects is not consistent with the expectations of financial or industry
analysts; or
|
|
—
|
investors
react negatively to the effect on our business and prospects from the Share Purchase.
|
Subject
to certain limitations, the Sellers may sell our common stock beginning six months following the Closing of the Share Purchase,
which could cause our stock price to decline.
The
Sellers will be subject to certain restrictions on their ability to transfer the Consideration Shares (other than transfers with
our consent) for a period of six months following the closing. We have agreed to file a registration statement on Form S-3 covering
the resale of the Consideration Shares under the Securities Act not later than 60 days following the Closing. The sale of a substantial
number of our shares by the Sellers or our other stockholders within a short period of time following the expiration of the six-month
restricted transfer period could cause our stock price to decline, make it more difficult for us to raise funds through future
offerings of our common stock or acquire other businesses using our common stock as consideration.
The
fairness opinion we obtained from our financial advisor will not reflect changes in circumstances between signing the Stock Purchase
Agreement and the completion of the Share Purchase.
We
have not obtained, and will not obtain, an updated opinion regarding the fairness of the consideration to be paid by us pursuant
to the Share Purchase from Canaccord Genuity, our financial advisor. Canaccord Genuity’s opinion speaks only as of the date
of the Stock Purchase Agreement and does not address the fairness of the consideration to be paid by us pursuant to the Share
Purchase, from a financial point of view, at the time the Share Purchase is completed. Changes in the operations and prospects
of Datawatch or Panopticon, general market and economic conditions and other factors that may be beyond the control of Datawatch
and Panopticon, and on which the fairness opinion was based, may alter the value of Datawatch or Panopticon or the prices of shares
of our common stock by the time the Share Purchase is completed. For a description of the opinion that we received from our financial
advisor, please see the section titled “The Share Purchase – Opinion of the Financial Advisor Regarding the Fairness
of the Share Purchase from a Financial Point of View.”
Risks
Related to Datawatch
Risks
relating to our business are described in our Annual Report on Form 10-K for the year ended September 30, 2012 and our other SEC
filings which are incorporated by reference into this proxy statement. See “Incorporation of Certain Documents by Reference”
beginning on page 64 and “Where You Can Find More Information” beginning on page 64.
16
Risks
Related to the Combined Business Following the Share Purchase
The
future profitability, growth and success of our combined business will depend on our ability to integrate our product offerings
and marketing and sales efforts with those of Panopticon.
The
future profitability and growth of our combined business depends upon our ability to combine our product offerings and those of
Panopticon, including integration of the underlying technology, and to leverage the combined sales and marketing resources and
distribution channels of the two companies. If we are unable to accomplish this on a timely basis, the future growth and profitability
of our combined business will be delayed and may not be achieved.
The
announcement and pendency of the Share Purchase may cause disruptions in the business of Panopticon, which could have an adverse
effect on its business, financial condition or results of operations and, post-closing, our business, financial condition or results
of operations.
The
announcement and pendency of the Share Purchase could cause disruptions in the business of Panopticon. Such disruptions may include
the delay or failure of potential customers of Panopticon to complete transactions with Panopticon. These disruptions could be
exacerbated by a delay in the completion of the Share Purchase or termination of the Stock Purchase Agreement and could have a
material adverse effect on the business, financial condition or results of operations of Panopticon prior to the completion of
the transaction and on us if the transaction is completed.
Significant
costs are expected to be associated with the Share Purchase.
We
estimate that Datawatch will incur direct transaction costs of approximately $900,000 in connection with the proposed Share Purchase.
In addition, we may incur charges to operations that we cannot currently reasonably estimate in the quarter in which the Share
Purchase is completed or the following quarters to reflect costs associated with integrating the two businesses. There can be
no assurance that we will not incur additional charges relating to the transaction in subsequent periods, which could have a material
adverse effect on our cash flows, results of operations and financial position.
The
success of the combined business will depend on the services of our senior executives as well as certain key research and development
and sales and marketing personnel, the loss of whom could negatively affect the combined business.
Our
success has depended, and will continue to depend, upon the skills, experience and efforts of our senior executives and other
key personnel, including our executive, research and development and sales and marketing personnel. Following the completion of
the Share Purchase, this will be even more important as we work to integrate our businesses. For both us and Panopticon, much
of our expertise is concentrated in relatively few employees, the loss of whom for any reason could negatively affect our business.
The failure of key personnel to remain with the combined business, including Willem de Geer, the managing director of Panopticon,
could be harmful to the success of the combined business. Because Panopticon has operated as an independent privately-held company
since its inception, its acquisition by Datawatch, a publicly-traded U.S. company, may result in cultural differences that might
cause Panopticon personnel to consider other employment opportunities. Competition for our highly skilled employees is intense
and we cannot prevent the future resignation of any employee. Most of the combined business’s employees have agreements
which impose obligations that may prevent a former employee from working for a competitor for a period of time; however, these
clauses may not be enforceable, or may be enforceable only in part.
17
The
combined business may require additional capital to build the business, and financing may not be available to us on reasonable
terms, if at all.
The
combined business may require additional working capital for operations, sales and marketing and research and development activities
as well as the expansion and integration of our operations. If our existing resources are insufficient to satisfy our liquidity
requirements, we may need to borrow funds or sell equity securities to generate additional working capital. Any sale of additional
equity securities may result in additional dilution to our stockholders, and we cannot be certain that we will be able to obtain
additional public or private financing in amounts, or on terms, acceptable to us, or at all.
Panopticon
conducts a significant amount of its sales activity outside of the United States, which subjects it to additional business risks
and may adversely affect the combined business’s results of operations and financial condition due to increased costs.
The
combined business intends to continue to pursue growth opportunities in sales internationally, which could expose it to additional
risks associated with international sales and operations that we do not currently face. Panopticon’s international operations
are, and the combined business’s international operations will continue to be, subject to a number of risks and potential
costs, including:
|
—
|
unexpected
changes in foreign regulatory requirements;
|
|
—
|
differing
local product preferences and product requirements;
|
|
—
|
diminished
protection of intellectual property in some countries outside of the United States;
|
|
—
|
differing
payment cycles;
|
|
—
|
trade
protection measures and import or export licensing requirements;
|
|
—
|
difficulty
in staffing, training and managing foreign operations;
|
|
—
|
differing
legal regulations and labor relations;
|
|
—
|
potentially
negative consequences from changes in tax laws (including potentially taxes payable on earnings of foreign subsidiaries upon
repatriation); and
|
|
—
|
political
and economic instability.
|
In
addition, Panopticon is subject to risks arising from currency exchange rate fluctuations, which could increase the combined business’s
costs and may adversely affect its results of operations. The U.S. dollar value of Panopticon’s foreign-generated revenues
varies with currency exchange rate fluctuations. The majority of Panopticon’s foreign-generated revenues were generated
in Europe. Significant increases in the value of the U.S. dollar relative to foreign currencies could have a material adverse
effect on the combined business’s results of operations.
Any
of these factors may, individually or as a group, have a material adverse effect on the combined business’s business, financial
condition, results of operations and cash flows.
The
failure of indirect distribution channels could have a material adverse effect on our operating results.
We
expect to sell a significant portion of the products of the combined business through distributors, value-added resellers, OEMs
and other business partners, none of which are under our direct control. The loss of major distributors or resellers of the combined
business’s products, or a significant decline in their sales, could have a material adverse effect on the combined business’s
operating results. There can be no assurance that the combined business will be able to attract or retain qualified distributors
or resellers or that such
18
distributors or resellers will be able to effectively sell our products. In particular, there can be
no assurance that business partners of Panopticon will continue to conduct business with Datawatch following completion of the
Share Purchase. We seek to select and retain distributors and resellers on the basis of their business credentials and their ability
to add value through expertise in specific vertical markets or application programming expertise. In addition, we may rely on
resellers to provide post-sales service and support, and any deficiencies in such service and support could adversely affect the
combined business.
The
combined business may face increased competition, which
could
have a material adverse effect on our
ability to increase market share and grow our revenues and
which
could have a material adverse effect on our operating results.
Our
acquisition of Panopticon, and the integration of its visual data discovery capabilities with our
Information
Optimization Platform
, may bring us in closer competition with other companies in the
Big
Data
and business analytics market.
This market is highly competitive and includes companies
such as Tableau Software, TIBCO Spotfire (a subsidiary of TIBCO Software Inc.) and QlikTech, as well as larger technology companies
such as IBM, SAP, SAS and Oracle.
Many of the competitors in this market have longer operating
histories, greater name recognition and substantially greater financial, marketing and technological resources than we do. No
assurance can be given that the combined business will have the resources required to compete successfully in the future. In addition,
many of these competitors have strong relationships with current and potential customers and extensive knowledge of the business
analytics industry. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer
requirements.
If we are unable to compete successfully against current and future competitors, the business, results of
operations and financial condition of the combined business would be harmed.
Delays
in the integration of Panopticon and
Datawatch
products,
or defects resulting from their integration,
could have a material adverse effect on the combined business
.
Growth
in the combined business will depend in substantial part on the successful integration of products and technologies of the two
companies, in particular the integration of Panopticon’s visualization and real time capabilities with our
Information
Optimization Platform
. If we encounter any significant delays in developing or introducing integrated
products or additional functionality in the integrated products, there
could have a material adverse effect on our business
.
In addition, our competitors may introduce products with more features and lower prices than our integrated products. Such an
increase in competition could adversely affect the life cycles of our products, which in turn
could have a material adverse
effect on the combined business
.
Our
integrated products may contain undetected errors or failures when first introduced or as new versions are released. There can
be no assurance that, despite testing by us and by current and potential end-users, errors will not be found in integrated products
after commencement of commercial shipments, resulting in loss of or delay in market acceptance. Any significant delays in development
or introduction of integrated products
could have a material
adverse effect on the combined business
.
The
success of the combined business will be dependent on proprietary software technology.
The
success of the combined business will be dependent upon proprietary software technology. Neither
Datawatch
nor Panopticon owns patents on any such technology, and each relies principally on a combination
of trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect
their respective rights to such proprietary technology. Despite such precautions, there can be no assurance that such steps will
be adequate to deter misappropriation of such technology, and any such misappropriation
could have a material adverse effect
on the combined business
.
19
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Any
statements contained in this proxy statement or any annex or exhibit attached hereto that do not describe historical facts may
constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any such
statements, including but not limited to those relating to results of operations, contained herein are based on current expectations,
but are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. The
factors that could cause actual future results to differ materially from current expectations include the following: risks associated
with the continuing weak global economy; risks associated with fluctuations in quarterly operating results due, among other factors,
to the size and timing of large customer orders; risks associated with acquisitions, including the acquisition of Panopticon;
the volatility of our stock price; limitations on the effectiveness of internal controls; rapid technological change; Datawatch’s
dependence on the introduction of new products and possible delays in those introductions; competition in the software industry
generally, and in the markets for information optimization in particular; our dependence on our principal products, proprietary
software technology and software licensed from third parties; risks associated with international sales and operations; risks
associated with indirect distribution channels; the adequacy of our sales returns reserve; risks associated with a subscription
sales model; our dependence on our ability to hire and retain skilled personnel; disruption or failure of our technology systems
that may result from a natural disaster, cyber-attack or other catastrophic event; and uncertainty and additional costs that may
result from evolving regulation of corporate governance and public disclosure. Further information on factors that could cause
actual results to differ from those anticipated is detailed in the section entitled “Risk Factors” beginning on page
13 of this proxy statement and in various publicly-available documents, which include, but are not limited to, filings made by
Datawatch from time to time with the Securities and Exchange Commission (the “SEC”), including but not limited to,
those appearing in Datawatch's Annual Report on Form 10-K for the year ended September 30, 2012 and Form 10-Q for the quarters
ended December 31, 2012 and March 31, 2013. Any forward-looking statements should be considered in light of those factors.
20
PROPOSAL
I
APPROVAL
OF THE ISSUANCE OF THE CONSIDERATION SHARES
At
the Special Meeting and any adjournment or postponement thereof, our stockholders will be asked to consider and vote upon a proposal
to approve the issuance of up to approximately 2,149,157 shares of our common stock as consideration for the purchase of 100%
of the outstanding shares of Panopticon pursuant to the Stock Purchase Agreement.
Further
information with respect to Share Purchase, the Stock Purchase Agreement and Panopticon is contained elsewhere in this proxy statement,
including the sections “The Share Purchase” beginning on this page and “The Stock Purchase Agreement”
beginning on page 37.
Vote
Required to Approve the Issuance of the Consideration Shares
Pursuant
to applicable NASDAQ Marketplace Rules, the affirmative vote of a majority of the total votes cast at a meeting where a quorum
is present is required to approve the issuance of the Consideration Shares. Abstentions will have the same effect as a vote “AGAINST”
this proposal, and if you fail to vote, it will have no effect on the outcome of the proposal unless the shares are counted as
present at the Special Meeting. Broker non-votes will not affect the outcome of the vote on this proposal.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE “FOR” THE approval of the ISSUANCE OF THE CONSIDERATION SHARES
PROXIES
SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED IN FAVOR OF THIS PROPOSAL UNLESS A STOCKHOLDER INDICATES OTHERWISE ON THE PROXY.
THE
SHARE PURCHASE
The
following is a description of the material aspects of the Share Purchase, including the Stock Purchase Agreement. While we believe
that the following description covers the material terms of the Share Purchase, the description may not contain all of the information
that is important to you. We encourage you to carefully read this entire proxy statement, including the Stock Purchase Agreement
attached to this proxy statement at Annex A, for a more complete understanding of the Share Purchase.
Background
of the Share Purchase
Our
Board of Directors regularly reviews and assesses our business strategies and objectives, together with the various trends and
conditions affecting our business and the markets in which we operate, with the goal of enhancing stockholder value. In connection
with these reviews and assessments, we have periodically considered a range of strategic approaches, including acquiring other
companies, technologies or lines of business. For example, in March 2012, we acquired the intellectual property of, and hired
a number of research and development personnel from, Math Strategies, a former independent software developer for Datawatch.
On
April 26, 2013, Datawatch’s President and Chief Executive Officer, Michael Morrison had a meeting with Jereme LeBlanc,
President of GrowthBridge LLC, to discuss Datawatch’s business and strategic alliance partners and strategy. During the
course of this meeting, Mr. Morrison noted that it was becoming more important for Datawatch to be able to offer a complete solution
to the market, which includes end user visualization and analysis capabilities. In response to a query from Mr. Morrison, Mr.
LeBlanc mentioned Panopticon as a possible complementary technology fit as a front end visualization solution to Datawatch’s
21
Information Optimization Platform. (GrowthBridge LLC has served as a corporate business development consultant to both Datawatch
and Panopticon). Mr. Morrison was familiar with Panopticon from his tenure as chief operating officer of Applix, Inc. in
the mid 2000’s. Mr. Morrison and Mr. LeBlanc proceeded to have a phone discussion with Panopticon’s Managing
Director Willem De Geer later that evening in which they determined that each party was interested in further discussions
regarding a possible combination of Datawatch and Panopticon. They also determined that a mutual confidentiality agreement would
be appropriate to protect each party’s proprietary information in connection with these discussions.
On
May 2, 2013, Datawatch and Panopticon entered into a mutual confidentiality agreement relating to information to be exchanged
by the two companies.
From
May 2 through May 7, Mr. Morrison and Mr. De Geer continued to have multiple communications on the merits
of a proposed combination of Panopticon with Datawatch, focusing on the potential synergies between the two businesses and the
markets that each company was pursuing. They also discussed the general parameters of a potential business combination, including
the form of consideration to be offered to Panopticon. During the same time period, other members of the Datawatch management
team commenced discussions with other members of Panopticon, specifically Ben Plummer (Datawatch Chief Marketing Officer), Jon
Pilkington (Datawatch Vice President of Products), Mike Carroll (Datawatch Vice President of Services), Joe Puztai (Datawatch
Vice President of Solutions) and Peter Simpson (Panopticon Chief Technology Officer). The parties’ discussions revolved
primarily around potential synergies related to markets, customers, technology and sales channels.
On
May 8, 2013, certain members of the Datawatch management team (Mr. Morrison, Mr. Plummer, Mr. Pilkington and
James Eliason, Datawatch CFO) met with David Mahoney (Datawatch Vice Chairman), to present an overview of the proposed transaction
including potential synergies around technology, markets, and sales channels, as well as preliminary thoughts about transaction
structure and consideration.
On
various days throughout the month of May and early June (May 1, 3, 9 and 23 and June 6 and 11), several members of Datawatch
and Panopticon’s technical teams met to review various aspects of each company’s technology including; general overviews,
product demos, detailed product due diligence, as well as sample tests of the Panopticon product on top of the Datawatch platform.
On
May 16, 2013, Mr. Morrison had a phone conversation with Richard de J. Osborne (Datawatch Chairman) to provide a high-level
summary of the proposed transaction. It was agreed at the end of the conversation that Mr. Osborne would come to the Datawatch
offices in Chelmsford, MA the following week for a full briefing on the potential transaction.
On
May 21, 2013, Mr. Morrison and Mr. Eliason met with Mr. Osborne and Mr. Mahoney to give a full presentation
of the proposed transaction. Major areas of focus included discussions around synergies related to technology, markets, and sales
channels. In addition, Mr. Eliason presented preliminary pro forma projections reflecting revenue growth, expenses and operating
profit margins. Finally, Mr. Morrison led an overview on how the proposed transaction could accelerate the Datawatch product
roadmap and the resulting impact to the timing of releases and new features to the Datawatch product suite. It was agreed that
Mr. Morrison would travel to Panopticon’s offices in Stockholm, Sweden to meet with the major Panopticon investors
and to finalize a preliminary deal structure with Mr. De Geer.
On
May 23, 2013, Mr. Morrison met with Mr. De Geer and several of the major Panopticon investors, including Mikael
Lovgren of Bridgepoint, Magnus Wikner of Valbay International and Olof Nilsson of the 6AP Fund. In each of the individual meetings,
both Mr. Morrison and Mr. De Geer reviewed the potential synergies that the combination of the two companies would
provide, and Mr. Morrison gave a further overview of Datawatch which included company background, technology, markets and
financial history.
22
On
May 24, 2013, various members of the Datawatch team were given access to a Panopticon virtual data room to commence a due
diligence review of Panopticon.
On
May 31, 2013, the Datawatch Board of Directors met in New York to discuss in detail the proposed transaction. All members
of the Board were present at the meeting (Mr. Wood participating by phone). In addition, representatives from Choate, Hall &
Stewart, LLP (Datawatch external counsel, or Choate) joined the meeting by phone as well. Mr. Morrison and Mr. Eliason
presented a presentation on the potential combination, which included the following agenda topics:
|
—
|
An
overview
of
Panopticon,
including
its
corporate
history
and
management
team
|
|
—
|
Potential
synergies
of
the
proposed
combination
of
the
two
businesses,
including
market
presence,
partner
channels
and
technology
|
|
—
|
Preliminary
pro
forma
financial
projections
for
the
combined
businesses
for
Datawatch’s
fiscal
2013,
2014
and
2015
years
|
|
—
|
Estimated
transaction
costs
|
|
—
|
Review
of
a
draft
offer
letter
to
Panopticon
|
At
the conclusion of the meeting, the Board of Directors gave Mr. Morrison the authority to present an offer letter to Panopticon
and to negotiate and finalize a transaction consistent with the offer letter, subject to the final approval from the Board of
Directors. In addition, both Mr. Morrison and Mr. Eliason were also given the authority to procure the appropriate resources
to facilitate the due diligence process, including to engage an independent audit firm to assist in the conduct of financial due
diligence and an investment banking firm to render a fairness opinion.
On
June 3, 2013, Mr. Morrison sent an offer letter to Mr. De Geer that was executed by both parties later in the day.
Later that evening, the initial draft of the Stock Purchase Agreement was sent by Choate to Panopticon’s external corporate
counsel for review.
On
June 3, 2013, Datawatch signed an engagement letter with Canaccord Genuity to provide a fairness opinion with respect to
the transaction.
From
June 4 through June 13, 2013 there were multiple drafts of the Stock Purchase Agreement exchanged between each company’s
counsel teams, as well as numerous phone conversations between both firms and conversations between each firm and their respective
clients in order to negotiate and finalize a mutually agreed upon Stock Purchase Agreement.
From
June 5 through June 7, 2013, Mr. De Geer and Panopticon’s Chief Financial Officer Emmeli Hogland were
present at Datawatch’s Chelmsford office to facilitate the due diligence on the transaction. Multiple meetings were held
during this period covering all facets of the Panopticon business.
On
June 7, 2013, Mr. Morrison, Mr. Eliason, Mr. De Geer and Ms. Hogland met with representatives from
Canaccord Genuity. Mr. De Geer and Ms. Hogland gave a thorough overview of Panopticon to the Canaccord representatives
focused primarily on historical financial performance of the company, as well as projections for calendar year 2013 and 2014.
On
June 14, 2013, the Datawatch Board of Directors held a telephonic meeting to discuss the proposed Stock Purchase Agreement
and to consider whether to approve it and recommend that Datawatch’s stockholders approve the Share Purchase. Representatives
of Choate provided a detailed summary of the terms and conditions of the proposed Stock Purchase Agreement. Representatives from
Canaccord Genuity reviewed the analysis it had conducted and delivered their opinion that, based on certain assumptions, qualifications
and limitations described in the opinion, the consideration to be issued in the transaction by Datawatch was fair, from a financial
point of view, to Datawatch and its stockholders.
23
After
considerable discussion, the Datawatch Board of Directors, by a unanimous vote, (i) determined that the terms of the Share Purchase
are advisable, fair to and in the best interests of Datawatch and its stockholders, (ii) approved the Share Purchase and related
transactions, and authorized us to enter into the Stock Purchase Agreement, and (iii) recommended that our stockholders approve
the issuance of the Consideration Shares.
The
Stock Purchase Agreement was signed by the parties on June 14, 2013, and the transaction was announced on June 17, 2013.
The
following discussion summarizes the material information and factors considered by our Board of Directors in its consideration
of the proposed transaction. Our Board of Directors collectively reached the unanimous decision to approve the Stock Purchase
Agreement and the transactions related to the Share Purchase in light of the factors described below and other factors that each
member of our Board of Directors felt was appropriate. In view of the variety of factors and the quality and amount of information
considered, our Board of Directors did not find it practicable to, and did not, make specific assessments of, quantify or otherwise
assign relative weights to the specific factors considered in reaching its determination. Individual members of our Board of Directors
may have given different weight to different factors.
Our
Reasons for the Share Purchase
In
the course of reaching its unanimous decision to approve the Stock Purchase Agreement and to recommend that our stockholders vote
to approve the Share Purchase, our Board of Directors consulted with our Chief Executive Officer, Michael Morrison, and other
members of senior management and with the board’s financial advisor and legal counsel, and considered a number of factors
in its deliberations that it believed weighed in favor of the transaction, including, but not limited to, the following:
|
—
|
historical
information concerning Panopticon’s business, financial performance and condition, technology, operations, management
and competitive position, including Panopticon’s ability to grow, generate revenue and generate a profit;
|
|
—
|
the
financial condition, results of operations, and businesses of Datawatch and Panopticon before and after giving effect to the
Share Purchase, and the prospective contributions of each entity to the combined company on a pro forma basis;
|
|
—
|
the
opportunity to compete more effectively in the increasingly competitive Big Data market through a wider range of sophisticated
product and service offerings;
|
|
—
|
the
belief that we will be able to successfully and rapidly integrate the Panopticon management team, including Panopticon’s
Managing Director, Willem De Geer, into our business;
|
|
—
|
the
Panopticon product and service portfolio, which contains key technologies, including real-time visual discovery solutions,
that are differentiated and highly complementary to our existing product portfolio and which provide targeted solutions for
what we believe are the fastest growing market segments in the Big Data and business analytics market spaces;
|
|
—
|
the
belief that the transaction with Panopticon will further our strategic objective to be a leader in the Big Data and business
analytics markets by, among other things, strengthening our product and service offerings internationally and providing access
to new and existing customers through Panopticon’s partner channel;
|
|
—
|
the
strong European network of Panopticon customers and business partners that we believe will complement our existing international
strengths, compared to the cost to us of developing an
|
24
|
|
equivalent international network independently;
|
|
—
|
the
potential to enhance stockholder value through operating efficiencies following the Share Purchase;
|
|
—
|
the
fact that, having considered our strategic alternatives, including other companies in the visual discovery market that we
might acquire, our Board of Directors believed that the transaction with Panopticon offered a favorable near-term opportunity
to enhance stockholder value;
|
|
—
|
the
belief of our Board of Directors, shared by our senior management, that the prospects of the combined entity were more favorable
than our prospects as a separate entity, due to, among other things:
|
|
o
|
the
benefits associated with expanding our product line and introducing Panopticon’s products and services to our existing
customers;
|
|
o
|
the
benefits associated with expanding our market positioning by introducing Panopticon’s real-time visual data discovery
capabilities as an entry point to our Information Optimization solutions;
|
|
o
|
the
complementary nature of Panopticon’s products and sources of revenues compared to those of Datawatch;
|
|
o
|
the
belief that the transaction has the potential to increase our market share and profitability; and
|
|
o
|
the
belief that the transaction may enable us to accelerate the development of additional products;
|
|
—
|
the
opinion of Canaccord Genuity presented to our Board of Directors as of June 14, 2013 that the consideration to be paid
by us pursuant to the Share Purchase is fair to us, from a financial point of view, as of the date of the opinion. The
full text of the written opinion setting forth the assumptions made, procedures followed, matters considered and limitations
in connection with the opinion is attached to this proxy statement as Annex C, which stockholders are urged to read in its
entirety;
|
|
—
|
the
other terms of the Stock Purchase Agreement, including the respective parties’ representations, warranties, covenants,
and indemnities, and the conditions to their respective obligations;
|
|
—
|
the
fact that the Share Purchase would be subject to the approval of our stockholders;
|
|
—
|
current
financial market conditions and historical market prices, volatility and trading information with respect to our common stock;
|
|
—
|
reports
from management, tax advisors, independent auditors, outside legal experts and others as to the results of the due diligence
investigation of Panopticon; and
|
|
—
|
the
prices paid in comparable transactions involving other data visualization companies, as well as the trading performance for
comparable companies in the big data market.
|
25
In
the course of its deliberations, the Board of Directors also identified and considered a variety of risks and other potentially
countervailing factors relating to the Share Purchase, including:
|
—
|
the
need to obtain stockholder approval for the share issuance, and whether such approval could be obtained in a timely fashion;
|
|
—
|
the
risk that we may not successfully integrate the Panopticon business with our own;
|
|
—
|
the
risk that we may have difficulty managing the growth of the combined company;
|
|
—
|
the
risk of our dependence upon certain key personnel of Panopticon;
|
|
—
|
the
dilution of our existing stockholders due to the issuance of the Consideration Shares and the potential negative effect on
our common stock price if growth expectations for Panopticon are not met;
|
|
—
|
the
risk that the Panopticon business will not perform as expected;
|
|
—
|
the
risk that the transaction will not result in the anticipated operating efficiencies and cost savings;
|
|
—
|
the
risk that the Share Purchase may not be completed in a timely manner, if at all;
|
|
—
|
the
risk that we will be unable to retain and recruit employees critical to the ongoing success of the combined company’s
operations;
|
|
—
|
the
risk of adverse reactions of Datawatch’s and Panopticon’s customers and vendors to the transaction;
|
|
—
|
the
risk that the integration of the Panopticon business could be more costly and time consuming than anticipated, which could
adversely affect our operating results and delay or preclude the achievement of benefits anticipated from the Share Purchase;
|
|
—
|
the
risk that our management’s attention will be diverted from other strategic and operational priorities to implement the
transaction; and
|
|
—
|
the
other risks and uncertainties discussed above under “Risk Factors” beginning on page 13.
|
The
foregoing discussion of the matters that our Board of Directors considered is not intended to be exhaustive, but includes all
items that it believes to be material. In view of the complexity and wide variety of factors, both positive and negative, that
our Board of Directors considered, our Board of Directors did not find it practical to quantify, rank or otherwise weight the
factors considered. In considering the various factors, individual members of our Board of Directors considered all of these factors
as a whole and concluded that, on balance, the risks and countervailing factors relevant to the Share Purchase were outweighed
by the potential benefits that it expected Datawatch and our stockholders to achieve as a result of the Share Purchase.
Recommendation
of Our Board of Directors
For
reasons including those described above under the heading “The Share Purchase – Our Reasons for the Share Purchase,”
on June 14, 2013, our Board of Directors unanimously approved the Share Purchase and the related transactions, including
the issuance of the Consideration Shares, and recommends such matter
26
to our stockholders for approval, subject to the Board of
Directors’ right to withdraw, modify or amend such recommendation. In particular, the Board of Directors unanimously:
|
—
|
determined
that the terms of the Share Purchase are advisable, fair to and in the best interests of our stockholders;
|
|
—
|
approved
the Share Purchase and related transactions, and authorized us to enter into the Stock Purchase Agreement; and
|
|
—
|
recommended
that our stockholders approve the issuance of the Consideration Shares.
|
OUR
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ISSUANCE OF THE CONSIDERATION SHARES, AND PROXIES SOLICITED BY THE
BOARD WILL BE VOTED IN FAVOR OF SUCH APPROVAL UNLESS A STOCKHOLDER INDICATES OTHERWISE ON THE PROXY.
Opinion
of Datawatch’s Financial Advisor
Canaccord
Genuity
is acting as financial advisor to
Datawatch
in connection with the
Share Purchase
. As part of that engagement, our board of directors
requested that
Canaccord Genuity
evaluate the fairness, from a financial point of view, to
Datawatch
of the issuance of the
Consideration Shares
pursuant to the Stock Purchase Agreement.
For purposes of the opinion, “
Consideration Shares
” was defined as 2,149,157
shares of
Datawatch common stock
, which represented 23.6% of the sum of (1) the number of
shares of our
common stock
issued and outstanding as of the date of the opinion, (2) the number
of shares of our
common stock
underlying stock options and restricted stock units vested and
scheduled to vest as of the anticipated closing date of the
Share Purchase
, (3) the number of
shares of our
common stock
underlying all warrants exercisable as of the date of the opinion,
and (4) the
Consideration Shares
, prior to any purchase price adjustments pursuant to the Stock
Purchase Agreement. At a meeting of our board of directors held on June 14, 2013 to evaluate the
Share
Purchase
,
Canaccord Genuity
delivered to our board of directors an oral opinion, which
opinion was confirmed by delivery of a written opinion dated June 14, 2013, to the effect that, as of that date and based upon
and subject to certain assumptions, factors and qualifications set forth in the written opinion, the issuance of the
Consideration
Shares
pursuant to the Stock Purchase Agreement was fair, from a financial point of view, to
Datawatch
.
The
full text of Canaccord Genuity’s opinion is attached to this proxy statement as Annex C and is incorporated into this
proxy statement by reference. The description of Canaccord Genuity’s opinion set forth in this proxy statement is qualified
in its entirety by reference to the full text of such opinion. Holders of our common stock are encouraged to read Canaccord Genuity’s
opinion carefully and in its entirety for a description of the procedures followed, assumptions made, matters considered and qualifications
and limitations on the review undertaken by Canaccord Genuity in connection with its opinion. Canaccord Genuity’s opinion
was addressed to our board of directors, was only one of many factors considered by our board of directors in its evaluation of
the Share Purchase and only addresses the fairness, from a financial point of view and as of the date of the opinion, to Datawatch
of the issuance of the Consideration Shares pursuant to the Stock Purchase Agreement. Canaccord Genuity’s opinion does not
address the relative merits of the Share Purchase as compared to other business strategies or transactions that might be available
to us or our underlying business decision to proceed with the Share Purchase and is not intended to, and does not, constitute
a recommendation to any Datawatch stockholder as to how you should vote or otherwise act with respect to the Share Purchase or
related transactions. Canaccord Genuity’s opinion was necessarily based on economic, monetary, market and other conditions
as in effect on, and the information made available to Canaccord Genuity as of, June 14, 2013, the date of its opinion. Subsequent
developments may affect the conclusions expressed in Canaccord Genuity’s opinion if such opinion were rendered as of a later
27
date.
Canaccord Genuity assumes no responsibility for updating, revising or reaffirming its opinion based on circumstances or events
occurring after the date of the opinion.
In
connection with rendering the opinion described above and performing its related financial analyses,
Canaccord
Genuity
, among other things:
—
|
reviewed
an execution version of the Stock Purchase Agreement, as presented to the Datawatch board of directors at a meeting held on
June 14, 2013, including the exhibits to such Stock Purchase Agreement;
|
—
|
analyzed
certain internal financial statements and other business and financial information of Panopticon prepared by Panopticon management,
and certain adjusted financial information concerning Panopticon prepared by Panopticon management;
|
—
|
analyzed
certain publicly-available business and financial information concerning Datawatch;
|
—
|
conducted
limited discussions with members of senior management of Datawatch regarding the past and current operations and financial
condition and prospects of Datawatch;
|
—
|
reviewed
certain financial and stock market data of selected publicly-held
software
companies in the business intelligence and analytics software and enterprise applications markets
;
|
—
|
reviewed
the financial terms, to the extent publicly available, of certain business combinations and other transactions which have
been effected or announced, to the extent Canaccord Genuity deemed relevant; and
|
—
|
reviewed
such other financial studies and analyses, performed such other investigations, and took into account such other matters as
Canaccord Genuity deemed necessary, including an assessment of general economic, market and monetary conditions.
|
For
purposes of rendering the opinion described above,
Canaccord Genuity
relied upon and assumed,
without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal,
regulatory, tax, accounting and other information provided to, discussed with or reviewed by,
Canaccord
Genuity
and has relied on assurances of management that they are not aware of any facts that would make such information
misleading. With respect to the adjusted financial information and other forward-looking financial information reviewed,
Canaccord
Genuity
assumed that such information was reasonably prepared on bases reflecting the best currently available estimates
and judgments of management. In addition,
Canaccord Genuity
did not make an independent valuation
or appraisal of the assets and liabilities (including any contingent, known or unknown liabilities) of
Datawatch
or Panopticon or any of their respective subsidiaries and
Canaccord Genuity
was not furnished
with any such valuation or appraisal.
Canaccord Genuity
also assumed, with the consent of our
board of directors, that (1) the final form of the Stock Purchase Agreement would be identical in all material respects to the
draft reviewed by
Canaccord Genuity
, (2) the
Share Purchase
would
be consummated in accordance with the terms and conditions of the Stock Purchase Agreement, without any material amendment and
without waiver by any party of any of the conditions included in the Stock Purchase Agreement, (3) in all respects material to
its analysis, the representations and warranties contained in the Stock Purchase Agreement were true and correct and that each
party would perform all of the material covenants and agreements required to be performed by it under the Stock Purchase Agreement,
and (4) all material corporate, governmental, regulatory or other consents and approvals required to consummate the transactions
contemplated by the Stock Purchase Agreement have been, or will be, obtained without the need for any material changes to the
Consideration Shares
or other material financial terms or conditions of the
Share
Purchase
or that would otherwise materially affect its analysis. In addition,
Canaccord Genuity
did not consider any potential adjustments to the number of
Consideration Shares
to be
issued under the Stock Purchase Agreement as part of its analysis.
Canaccord
Genuity
’s opinion did not address the relative merits of the
Share Purchase
as compared to other business strategies or transactions that might be available
to
Datawatch
, nor did it address our
28
underlying business decision to proceed with the
Share
Purchase
.
Canaccord Genuity
’s opinion addresses only the fairness from a financial
point of view, as of the date of the opinion, to
Datawatch
of the issuance of the
Consideration
Shares
pursuant to the Stock Purchase Agreement.
Canaccord Genuity
did not express any
view on, and its opinion did not address, any other financial or non-financial term or aspect of the Stock Purchase Agreement
or the
Share Purchase
or any term or aspect of any other agreement or instrument contemplated
by the Stock Purchase Agreement or entered into in connection with the
Share Purchase
, including,
without limitation, the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors
or employees of any party to the Stock Purchase Agreement, or class of such persons, whether relative to the consideration to
be received by
Datawatch
pursuant to the Stock Purchase Agreement or otherwise.
Canaccord
Genuity
’s opinion was provided for the information and assistance of our board of directors in connection with its
consideration of the
Share Purchase
and such opinion does not constitute a recommendation as
to how any holder of
Datawatch common stock
should vote with respect to the
Share
Purchase
or any other matter.
Canaccord Genuity
’s opinion was approved by a fairness
committee of
Canaccord Genuity
.
The
following is a summary of the material financial analyses performed by
Canaccord Genuity
in
connection with rendering its opinion dated June 14, 2013 described above. The following summary, however, does not purport to
be a complete description of the factors considered or financial analyses performed by
Canaccord Genuity
,
nor does the order of analyses described represent relative importance or weight given to those analyses by
Canaccord
Genuity
. Some of these summaries of the financial analyses include information presented in tabular format. The tables
must be read together with the full text of each summary and are alone not a complete description of
Canaccord
Genuity
’s financial analyses. All financial information regarding Panopticon provided by Panopticon management and
utilized by
Canaccord Genuity
in its financial analyses is unaudited and has been converted
into U.S. dollars based on average quarterly spot rates. Except as otherwise noted, the following quantitative information, to
the extent that it is based on market data, is based on market data as it existed on or before June 13, 2013, the last trading
day before
Canaccord Genuity
delivered its opinion to the
Datawatch
board of directors, and is not necessarily indicative of current market conditions.
Sector
Relevant Peer Group Analysis
.
Canaccord Genuity
performed an analysis
using a selected peer group, which analysis attempts to provide an implied value of a
company
by
comparing it to companies in the same industry sector that are publicly traded. For purposes of this analysis,
Canaccord
Genuity
identified the following group of five publicly
-held
companies in the business
intelligence and analytics software market, which are referred to as the “
selected sector relevant
peer companies
.” The
selected sector relevant peer companies
were comprised of:
|
—
|
Teradata
Corporation
(NYSE:
TDC)
|
|
—
|
Splunk,
Inc.
(NASDAQ:
SPLK)
|
|
—
|
Informatica
Corporation
(NASDAQ:
INFA)
|
|
—
|
Qlik
Technologies,
Inc.
(NASDAQ:
QLIK)
|
|
—
|
Tableau
Software,
Inc.
(NASDAQ:
DATA)
|
The
market capitalizations of the
selected sector relevant peer companies
ranged from approximately
$2.7 billion to $9.5 billion as of June 13, 2013.
Based
on its review of the applicable metrics for each of the
selected sector relevant peer companies
,
Canaccord Genuity
calculated multiples of enterprise value (
i.e
., market capitalization
plus debt and less cash) to calendar year 2012 revenue and last twelve months (LTM) revenue. For purposes of this analysis,
Canaccord
Genuity
utilized information regarding the
selected sector relevant peer companies
obtained
from filings with the
SEC
and other public sources. Based on this information,
Canaccord
Genuity
calculated multiples for the
selected sector relevant peer companies
as follows:
29
|
Enterprise
Value /
Revenue
|
|
2012A
|
LTM
|
Mean
|
13.69x
|
12.53x
|
Median
|
6.37x
|
6.10x
|
High
|
29.76x
|
26.56x
|
Low
|
3.34x
|
3.37x
|
Canaccord
Genuity
selected representative ranges of multiples derived from
the mean and median data points for the selected relevant sector peer companies based upon the application of its professional
judgment.
Canaccord Genuity
then applied these multiples to the relevant financial statistic
for Panopticon. For purposes of this analysis,
Canaccord Genuity
utilized
revenue
for Panopticon for calendar year 2012 of $
4.9 million and LTM revenue of $4.4 million as provided by Panopticon management.
The following summarizes the results of this analysis
:
|
Multiple
Range Derived from Selected Relevant Sector Peer Companies
|
|
Implied
Enterprise Value Range ($mm)
|
Panopticon
Financial Statistic
|
Low
|
High
|
|
Low
|
High
|
Calendar
Year 2012 Revenue
|
6.37x
|
13.69x
|
|
$31.2
|
$67.1
|
LTM
Revenue
|
6.10x
|
12.53x
|
Mean:
|
$27.1
$29.1
|
$55.7
$61.4
|
Canaccord
Genuity
noted that the transaction value of Panopticon in the
Share
Purchase
was $31.1 million, as calculated by multiplying the 2,149,157
Consideration
Shares
by $14.48, the closing price of
Datawatch common stock
on June 13, 2013.
Small
Cap Peer Group Analysis
.
Canaccord Genuity
also performed a similar peer
group analysis using a selected group of smaller publicly-traded companies in the broader enterprise applications market. For
purposes of this analysis,
Canaccord Genuity
identified the following group of seven publicly
-held
companies, which are referred to as the “
selected small cap peer companies
.”
The
selected small cap peer companies
were comprised of:
|
—
|
PROS
Holdings,
Inc.
(NYSE:
PRO)
|
|
—
|
Cornerstone
OnDemand,
Inc.
(NASDAQ:
CSOD)
|
|
—
|
Demandware,
Inc.
(NASDAQ:
DWRE)
|
|
—
|
SPS
Commerce,
Inc.
(NASDAQ:
SPSC)
|
|
—
|
Marin
Software
Incorporated
(NASDAQ:
MRIN)
|
|
—
|
Halogen
Software
Inc.
(NYSE:
HGN)
|
|
—
|
Marketo,
Inc.
(NASDAQ:
MKTO)
|
The
market capitalizations of the
selected small cap peer companies
ranged from approximately $310.7
million to $2.4 billion as of June 13, 2013.
Based
on its review of the applicable metrics for each of the
selected small cap peer companies
,
Canaccord
Genuity
calculated multiples of enterprise value to calendar year 2012 revenue and LTM revenue. For purposes of this analysis,
Canaccord Genuity
utilized information regarding the
selected small
cap peer
30
companies
obtained from filings with the
SEC
and other public sources. Based
on this information,
Canaccord Genuity
calculated multiples for the
selected
small cap peer companies
as follows:
|
Enterprise
Value /
Revenue
|
|
2012A
|
LTM
|
Mean
|
10.57x
|
9.67x
|
Median
|
10.02x
|
9.16x
|
High
|
19.49x
|
17.46x
|
Low
|
4.39x
|
4.11x
|
Canaccord
Genuity
selected representative ranges of multiples derived from
the mean and median data points for the
selected small cap peer companies
based upon the application
of its professional judgment.
Canaccord Genuity
then applied these multiples to the relevant
financial statistic for Panopticon. For purposes of this analysis,
Canaccord Genuity
utilized
revenue for Panopticon for calendar year 2012 of $
4.9 million and LTM revenue of $4.4 million
as provided by Panopticon management.
The following summarizes the results of this analysis
:
|
Multiple
Range Derived from Selected Small Cap Peer Companies
|
|
Implied
Enterprise Value Range ($mm)
|
Panopticon
Financial Statistic
|
Low
|
High
|
|
Low
|
High
|
Calendar
Year 2012 Revenue
|
10.02x
|
10.57x
|
|
$49.1
|
$51.8
|
LTM
Revenue
|
9.16x
|
9.67x
|
Mean:
|
$40.7
$44.9
|
$43.0
$47.4
|
Canaccord
Genuity
noted that the transaction value of Panopticon in the
Share
Purchase
was $31.1 million, as calculated by multiplying the 2,149,157
Consideration
Shares
by $14.48, the closing price of
Datawatch common stock
on June 13, 2013.
Selected
Precedent Transactions Analysis
.
Canaccord Genuity
performed a precedent transactions
analysis, which is designed to imply a value of a
company
based on publicly-available financial
terms of selected transactions.
Canaccord Genuity
selected acquisitions of target companies
with innovative software technologies and/or enterprise end markets served. Each of these transactions was publicly announced
after March 1, 2011.
Based
on its review of the relevant metrics for each of the precedent transactions,
Canaccord Genuity
calculated
the multiples of transaction enterprise value to LTM revenue for each of the target companies in the precedent transactions. For
purposes of this analysis,
Canaccord Genuity
utilized information regarding the precedent transactions
obtained from filings with the
SEC
and other public sources. Transaction enterprise value equals
the equity value of the transaction (excluding any potential earn-out payments) plus debt and less cash, and was assumed to be
equal to the transaction equity value in cases where cash and debt information was not publicly available. The selected precedent
transactions were:
Announcement
Date
|
Acquiror
|
Target
|
Transaction
Enterprise Value /
LTM Revenue
|
6/4/13
|
salesforce.com
|
ExactTarget,
Inc.
|
7.57x
|
5/29/13
|
Dassault
Systèmes S.A.
|
Apriso
Corporation
|
4.10x
|
5/8/13
|
Trulia,
Inc.
|
Market
Leader, Inc.
|
6.98x
|
31
Announcement
Date
|
Acquiror
|
Target
|
Transaction
Enterprise Value /
LTM Revenue
|
4/29/13
|
QIAGEN
N.V.
|
Ingenuity
Systems, Inc.
|
5.25x
|
12/20/12
|
Oracle
Corporation
|
Eloqua,
Inc.
|
9.66x
|
6/4/12
|
salesforce.com
|
Buddy
Media, Inc.
|
20.02x
|
5/22/12
|
SAP
AG
|
Ariba,
Inc.
|
8.40x
|
2/9/12
|
Oracle
Corporation
|
Taleo
Corporation
|
6.15x
|
12/8/11
|
International
Business Machines Corporation
|
DemandTec,
Inc.
|
4.96x
|
12/3/11
|
Oracle
Corporation
|
RightNow
Technologies, Inc.
|
6.94x
|
10/24/11
|
SAP
AG
|
SuccessFactors,
Inc.
|
11.65x
|
3/24/11
|
Davis
+ Henderson Corporation
|
Mortgagebot
LLC
|
6.30x
|
This
analysis produced a mean transaction enterprise value to LTM revenue for the precedent transactions of 8.16x, and a median transaction
enterprise value to LTM revenue for the precedent transactions of 6.96x.
Canaccord
Genuity
selected a representative range of multiples derived from
the mean and median data points for the precedent transactions based upon the application of its professional judgment.
Canaccord
Genuity
then applied these multiples to Panopticon’s LTM revenue of $4.4 million.
The
following summarizes the results of this analysis
:
|
Multiple
Range Derived from Precedent Transactions Analysis
|
|
Implied
Enterprise Value of Panopticon ($mm)
|
Panopticon
Financial Statistic
|
Low
|
High
|
|
Low
|
High
|
LTM
Revenue
|
6.96x
|
8.16x
|
|
$30.9
|
$36.3
|
Canaccord
Genuity
noted that the transaction value of Panopticon in the
Share
Purchase
was $31.1 million, as calculated by multiplying the 2,149,157
Consideration
Shares
by $14.48, the closing price of
Datawatch common stock
on June 13, 2013.
Contribution
Analysis
.
Canaccord Genuity
compared
Datawatch
’s
and Panopticon’s stockholders’ respective percentage ownership of the combined
company
to
Datawatch
’s and Panopticon’s respective percentage contribution (and the
implied ownership based on such contribution) to the combined
company
using calendar year 2012
revenue and LTM revenue. For purposes of this analysis,
Canaccord Genuity
utilized (1) the
revenue
for Panopticon for calendar year 2012 of $
4.9 million and LTM revenue of $4.4 million as provided by Panopticon management
and (2) adjusted
revenue for Panopticon for calendar year 2012 of $
3.3 million and adjusted
LTM revenue of $3.6 million as estimated by Panopticon management to reflect such management’s expectations of the impact
of
Datawatch
’s revenue recognition policies on Panopticon’s results. Based on
Canaccord
Genuity
’s professional judgment, a control premium of 42.4% was applied to the Panopticon revenue contribution for
each category based on the median one-day premiums paid in 46 selected public-to-public technology mergers and acquisitions since
2011.
The
following summarizes the results of this analysis
:
32
|
Implied
Percentage
Ownership
of the
Combined Company
|
Financial
Statistic
|
Datawatch
|
Panopticon
|
Revenue:
|
|
|
Calendar
Year 2012
|
84.4%
|
15.6%
|
LTM
|
85.8%
|
14.2%
|
Control
Premium Applied to Panopticon Revenue Contribution:
|
|
|
Calendar
Year 2012
|
77.8%
|
22.2%
|
LTM
|
79.8%
|
20.2%
|
Adjusted
Revenue:
|
|
|
Calendar
Year 2012
|
88.8%
|
11.2%
|
LTM
|
88.1%
|
11.9%
|
Control
Premium Applied to Panopticon Adjusted Revenue Contribution:
|
|
|
Calendar
Year 2012
|
84.1%
|
15.9%
|
LTM
|
83.1%
|
16.9%
|
Canaccord
Genuity
noted that the implied pro forma ownership of the combined
company
was 76.4% by the current
Datawatch
stockholders and
23.6% by the Panopticon stockholders prior to any purchase price adjustments under the Stock Purchase Agreement.
The
preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description.
Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create
an incomplete view of the processes underlying
Canaccord Genuity
’s opinion. In arriving
at its fairness determination,
Canaccord Genuity
considered the results of all of its analyses
and did not attribute any particular weight to any factor or analysis considered by it. Rather,
Canaccord
Genuity
made its determination as to fairness on the basis of its experience and professional judgment after considering
the results of all of its analyses. No
company
or transaction used in the above analyses as
a comparison is directly comparable to
Datawatch
, Panopticon or the
Share
Purchase
.
Canaccord
Genuity
prepared these analyses for purposes of providing its opinion
to the
Datawatch
board of directors as to the fairness, from a financial point of view and as
of the date of the opinion, to
Datawatch
of the issuance of the
Consideration
Shares
pursuant to the Stock Purchase Agreement. These analyses do not purport to be appraisals, nor do they necessarily
reflect the prices at which businesses or securities actually may be sold. Because these analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of
Datawatch
,
Panopticon,
Canaccord Genuity
or any other person assumes responsibility if future results are
materially different from those forecast.
The
consideration was determined through negotiations between
Datawatch
and Panopticon and was approved
by our
Board of Directors
.
Canaccord Genuity
did not participate
in the determination of the terms of the
Share Purchase
and did not recommend any specific amount
of consideration to us or our
Board of Directors
or that any specific amount of consideration
constituted the only appropriate consideration for the
Share Purchase
.
As
described above,
Canaccord Genuity
’s opinion to our
Board of
Directors
was one of many factors taken into consideration by our
Board of Directors
in
making its determination to approve the Stock Purchase Agreement and the
Share Purchase
. The
foregoing summary does not purport to be a complete description of
33
the factors considered or financial analyses performed by
Canaccord
Genuity
in connection with its opinion and is qualified in its entirety by reference to the full text of the written opinion
of
Canaccord Genuity
attached to this proxy statement as Annex
C
.
Canaccord
Genuity
and its affiliates are engaged in investment banking and
financial advisory services, commercial banking, securities trading, investment management, brokerage activities and other financial
and non-financial activities and services for various persons and entities. In the ordinary course of these activities and services,
Canaccord Genuity
and its affiliates may at any time make or hold long or short positions and
investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative
securities) and financial instruments of
Datawatch
, Panopticon, any of their respective affiliates
or third parties that may be involved in the transaction contemplated by the Stock Purchase Agreement for their own account and
for the accounts of their customers.
Canaccord
Genuity
acted as financial advisor to
Datawatch
solely in connection with the delivery of a fairness opinion with respect to the
Share Purchase
.
In the prior two years,
Canaccord Genuity
has not received compensation for investment banking
or financial advisory services from either
Datawatch
or Panopticon.
Canaccord
Genuity
may provide investment banking services to
Datawatch
and its affiliates in the
future for which
Canaccord Genuity
may receive compensation.
Our
Board of Directors
selected
Canaccord Genuity
as our financial
advisor because it is a nationally recognized investment banking firm that has substantial experience in transactions similar
to the
Share Purchase
. Pursuant to a letter agreement, dated as of June 3, 2013,
Datawatch
engaged
Canaccord Genuity
to act as its financial advisor in connection with the delivery
of a fairness opinion with respect to the
Share Purchase
as described above. Pursuant to the
terms of the engagement letter,
Datawatch
agreed to pay
Canaccord
Genuity
a fee of $225,000, which was payable upon the rendering of
Canaccord Genuity
’s
opinion.
Canaccord Genuity
will not receive any other payment or compensation contingent upon
the successful completion of the
Share Purchase
. In addition,
Datawatch
has agreed to reimburse
Canaccord Genuity
for certain of its expenses and to indemnify
Canaccord Genuity
and related persons against various liabilities, including certain liabilities
under the federal securities laws.
Voting
Agreements
Concurrently
with the execution of the Stock Purchase Agreement, each of our directors and executive officers and their affiliates entered
into a voting agreement with Datawatch and Willem De Geer, as representative of the Panopticon shareholders and whom we refer
to as the Sellers’ Representative. Our stockholders who are subject to the voting agreements have, among other things, agreed
to vote the shares of our common stock held by each such stockholder (1) in favor of the Share Purchase, the approval of the Stock
Purchase Agreement and the approval of the transactions contemplated by the Stock Purchase Agreement and (2) against the approval
or adoption of any proposal made in opposition to, or in competition with, the Share Purchase. Based on our common stock outstanding
on July [__], 2013, [___]% of the outstanding shares of our common stock are subject to the voting agreements.
The
foregoing description of the voting agreements does not purport to be complete and is qualified in its entirety by reference to
the form of Voting Agreement, a copy of which is attached hereto in Annex A as Exhibit B to the Stock Purchase Agreement and incorporated
herein by reference.
Share
Purchase Consideration
We
have agreed with the Sellers that the maximum total number of shares of our common stock that we will issue in connection with
the Share Purchase, which shares we refer to as the Consideration Shares, will equal 23.6% of the sum of the Consideration Shares
plus:
34
-
our
issued and outstanding common stock on the closing date;
-
shares
of our common stock reserved for issuance under outstanding stock options that are vested as of the closing date; and
-
185,000
shares of our common stock that are reserved for issuance under our outstanding common stock purchase warrant.
Based
on our 6,526,506 outstanding shares of common stock at June 14, 2013, which was the date of the Stock Purchase Agreement, and
our estimate of the number of shares of common stock reserved for issuance under our outstanding stock options that will be vested
as of the closing date, the maximum number of Consideration Shares as of the closing date will be 2,149,147 shares of our common
stock. However, not all of the Consideration Shares will be issued to the Sellers at the closing. Under the Stock Purchase Agreement:
-
10%
of the Consideration Shares will be held back at the closing and retained by us for fifteen months as security for the indemnification
obligations of the Sellers under the Stock Purchase Agreement;
-
a
number of Consideration Shares will be reserved for issuance pursuant to stock options to be issued by us to employees, contractors
and board advisors of Panopticon in substitution for outstanding options for Panopticon stock which they hold as of the closing:
and
-
a
number of Consideration Shares will be paid to certain management personnel of Panopticon in satisfaction of change of control
bonuses to which they will be entitled upon the closing of the Share Purchase.
In
addition, the number of Consideration Shares will be reduced, and we will instead make cash payments equal to the value as of
the closing of those shares, for:
-
any tax or social security contributions payable in connection with the change of control bonuses payable to certain management of Panopticon; and
-
Sellers' expenses in connection with the Share Purchase.
Further,
the Consideration Shares will also be reduced to the extent that Panopticon’s working capital at the closing date is less
than $500,000 or if Panopticon has any indebtedness for borrowed money at the time of closing. The number of shares to be issued
at the Closing shall not be subject to change based upon any change in the trading price of our common stock at the time of issuance
of such shares at the Closing or any other time.
The
Consideration Shares consist of our securities, so their value fluctuates with changes in the trading price of our common stock
on NASDAQ based on the respective closing market prices of our common stock as of the respective dates. As of June 13, 2013 (the
trading day before the date of the Stock Purchase Agreement), the total value of the Consideration Shares, was $31.4 million,
based on the closing market price of our common stock of $14.48 as of such date. The value of the Consideration Shares actually
received by the Sellers in the Share Purchase will not be determined until the Share Purchase closes, and further depends upon
the adjustments to the number of Consideration Shares described in the preceding paragraphs.
Effective
Time of the Share Purchase
We
currently expect the Closing to occur by the end of our fiscal 2013 on September 30, 2013. The Closing shall occur, and the Share
Purchase shall be effective, no later than the third business day after the satisfaction or waiver of all the conditions and the
obligations of Datawatch and the Panopticon shareholders to the transactions contemplated by the Stock Purchase Agreement, including
approval of the issuance of the
35
Consideration Shares by our stockholders. However, because the Share Purchase is subject
to a number of conditions, we cannot predict exactly when the Closing will occur or if it will occur at all.
Board
of Directors of Datawatch
Prior
to the execution of the Stock Purchase Agreement, the Sellers indicated to Datawatch that they had interest in having a representative
of the Sellers serve as a director of Datawatch following the closing of the Share Purchase. In connection with the execution
of the Stock Purchase Agreement, Datawatch delivered a letter to the Panopticon board of directors advising that our board was
favorably disposed to adding such a representative to our board and would be willing to consider such an appointment, subject
to the practices and procedures employed by the Corporate Governance and Nominating Committee in considering director candidates.
As of the date of this Proxy Statement, no further action has been taken with respect to the possible addition of a representative
of the Sellers to the Datawatch board.
Role
of Strategic Advisor
Panopticon
received financial and strategic advice in connection with the proposed acquisition from GrowthBridge, LLC, a strategic business
development firm that works with growth stage software companies. As payment of fees due from Panopticon in connection with the
Share Purchase, GrowthBridge will be issued shares of Datawatch common stock equal to 1.5% of the Consideration Shares, reducing
the Consideration Shares issuable to the Sellers under the Stock Purchase Agreement. GrowthBridge also provides strategic advice
to Datawatch, although it did not do so in connection with the Share Purchase.
Regulatory
Approvals
We
are not aware of any governmental or regulatory approval required for completion of the Share Purchase, other than compliance
with applicable corporate laws of Delaware and Sweden, and the filing with The NASDAQ Capital Market of a Notification Form for
Listing Additional Shares and a Notification Form for Change in the Number of Shares Outstanding, with respect to the shares of
our common stock to be issued to the Panopticon shareholders pursuant to the Stock Purchase Agreement.
If
any other governmental approvals or actions are required, we intend to try to obtain them. We cannot assure you, however, that
we will be able to obtain any such approvals or actions.
U.S.
Federal Income Tax Consequences of the Share Purchase
No
gain or loss will be recognized by us or by holders of shares of our common stock as a result of the Share Purchase.
Restrictions
on the Resale of the Consideration Shares
The
issuance of shares of our common stock to the Panopticon shareholders will not be registered under the Securities Act in reliance
upon the exemptions set forth in Regulation S promulgated under the Securities Act and upon the exemption provided under Section
4(a)(2) of the Securities Act. The shares held by Panopticon shareholders may not be sold until the date that is six months following
the Closing.
Registration
Rights
We
have agreed that, no later than 60 days following the Closing, we will prepare and file with the SEC a registration statement
on Form S-3 covering the resale of all of the Consideration Shares.
36
THE
STOCK PURCHASE AGREEMENT
The
following is a summary of the material terms of the Stock Purchase Agreement, which is attached at Annex A to this proxy statement
and incorporated herein by reference. The Stock Purchase Agreement has been attached to this document to provide you with information
regarding its terms. The Stock Purchase Agreement is not intended to provide any other factual information about us or Panopticon.
The following description does not purport to be complete and is qualified in its entirety by reference to the Stock Purchase
Agreement included at Annex A. You should refer to the full text of the Stock Purchase Agreement for details of the Share Purchase
and the terms and conditions of the Stock Purchase Agreement.
General
Pursuant
to the Stock Purchase Agreement, we have agreed to acquire from the Panopticon shareholders all of the issued and outstanding
shares of Panopticon, whom we refer to as the Sellers. Following the Share Purchase, Panopticon will be an owned subsidiary
of Datawatch. We have additionally agreed to issue at the time of the Share Purchase the Consideration Options in substitution
for outstanding options to purchase Panopticon stock.
The
closing of the Share Purchase will occur on the date that is three business days after the last of the conditions to the Share
Purchase have been satisfied or waived, or at another time as the parties mutually agree. We currently expect the closing of the
Share Purchase, or the closing, to occur by the close of our fiscal year ending September 30, 2013. However, because the Share
Purchase is subject to a number of conditions, we cannot predict exactly when the closing will occur or if it will occur at all.
Share
Purchase Consideration
We
have agreed with the Sellers that the maximum total number of shares of our common stock that we will issue in connection with
the Share Purchase, which shares we refer to as the Consideration Shares, will equal 23.6% of our outstanding common stock (determined
on an adjusted basis, as described below) immediately following completion of the Share Purchase. Specifically, the Consideration
Shares will equal 23.6% of the sum of::
-
our
issued and outstanding common stock on the closing date;
-
shares
of our common stock reserved for issuance under outstanding stock options that are vested as of the closing date;
-
185,000
shares of our common stock that are reserved for issuance under our outstanding common stock purchase warrant; and
-
the
Consideration Shares.
Based
on our 6,526,506 outstanding shares of common stock at June 14, 2013, which was the date of the Stock Purchase Agreement, and
our estimate of the number of shares of common stock reserved for issuance under our outstanding stock options that will be vested
as of the closing date, the maximum number of Consideration Shares will be 2,149,147 shares of our common stock. However, not
all of the Consideration Shares will be issued to the Sellers at the closing. Under the Stock Purchase Agreement:
-
10%
of the Consideration Shares will be held back at the closing and retained by us for fifteen months as security for the indemnification
obligations of the Sellers under the Stock Purchase Agreement;
-
a
number of Consideration Shares will be reserved for issuance pursuant to stock options to be issued by us to employees, contractors
and board advisors of Panopticon in substitution for outstanding options for Panopticon stock which they hold as of the closing;
and
37
-
a
number of Consideration Shares will be paid to certain management personnel of Panopticon in satisfaction of change of control
bonuses to which they will be entitled to receive from Panopticon upon the closing of the Share Purchase.
In
addition, the number of Consideration Shares will be reduced, and we will instead make cash payments equal to the value of those
shares, for:
|
—
|
any
tax
or
social
security
contributions
payable
in
connection
with
the
change
of
control
bonuses
payable
to
certain
management
of
Panopticon;
and
|
|
—
|
Sellers’
expenses
in
connection
with
the
Share
Purchase.
|
Further,
the Consideration Shares will also be reduced to the extent that Panopticon’s working capital at the closing date is less
than $500,000 or if Panopticon has any indebtedness for borrowed money at the time of closing. The number of shares to be issued
at the Closing shall not be subject to change based upon any change in the trading price of our common stock at the time of issuance
of the Consideration Shares at the closing or any other time.
The
Consideration Shares consist of our common stock, and, as a result, their value fluctuates with changes in the trading price of
our common stock on The NASDAQ Capital Market. As of June 13, 2013 (the trading day before the date of the Stock Purchase Agreement),
the total value of the Consideration Shares was $31.1 million, based on the closing market price of our common stock of $14.48
as of such date. The value of the Consideration Shares actually received by the Sellers in the Share Purchase will not be determined
until the Share Purchase closes, and further depends upon the adjustments to the number of Consideration Shares described in the
preceding paragraphs.
Conditions
to the Completion of the Share Purchase
Each
party’s obligation to complete the Share Purchase is subject to the satisfaction or waiver by each of the parties, at or
prior to the closing, of various conditions, which include the following:
|
—
|
no
order
or
other
legal
or
regulatory
restraint
or
prohibition
preventing
the
consummation
of
the
Share
Purchase
will
be
in
effect
and
no
action
will
have
been
brought
by
a
governmental
authority
seeking
any
of
the
foregoing
will
be
pending
or
threatened;
|
|
—
|
no
action
taken
by
any
governmental
authority,
and
no
statute,
rule,
regulation
or
order
will
have
been
enacted,
entered,
enforced
or
deemed
applicable
to
the
Share
Purchase
,
which
makes
the
consummation
of
the
Share
Purchase
illegal;
and
|
|
—
|
the
parties
will
have
timely
obtained
all
approvals,
waivers
and
consents
of
any
governmental
authorities,
if
any,
necessary
for
consummation
of,
or
in
connection
with,
the
Share
Purchase
.
|
Our
obligation to complete the Share Purchase is subject to the satisfaction or waiver, at or prior to the closing, of various additional
conditions, any of which may be waived by us, which include the following:
|
—
|
the
representations
and
warranties
concerning
Panopticon
in
the
Stock
Purchase
Agreement
will
be
true
and
correct
in
all
material
respects,
except
to
the
extent
such
representations
and
warranties
are
specifically
made
as
of
a
particular
date
(in
which
case
such
representations
and
warranties
will
be
true
and
correct
as
of
such
date);
|
|
—
|
Panopticon
and
the
Sellers
will
have
performed
or
complied
in
all
material
respects
with
the
agreements
and
covenants
required
to
be
performed
or
complied
with
in
the
Stock
Purchase
Agreement
as
of
or
prior
to
the
closing;
|
38
|
—
|
Sellers
owning
not
less
than
90%
of
the
outstanding
Panopticon
shares
and
all
holders
of
options
for
Panopticon
shares
shall
have
entered
into
the
Stock
Purchase
Agreement
and
performed
their
respective
obligations
relating
the
closing;
|
|
—
|
no
order
or
other
legal
or
regulatory
provision
limiting
or
restricting
our
ownership,
conduct
or
operation
of
the
Panopticon
business
following
the
closing
will
be
in
effect,
nor
will
any
action
or
request
for
additional
information
before
any
governmental
authority
seeking
any
of
the
foregoing,
seeking
to
obtain
from
Datawatch
or
Panopticon
or
their
respective
affiliates
in
connection
with
the
Share
Purchase
any
damages,
or
seeking
any
other
relief
that,
following
the
closing,
could
reasonably
be
expected
to
materially
limit
or
restrict
the
ability
of
Panopticon
or
any
of
its
subsidiaries
to
own
and
conduct
the
assets
and
businesses
owned
and
conducted
by
Panopticon
or
any
of
its
subsidiaries
before
the
closing,
be
pending
or
threatened;
|
|
—
|
no
event
or
condition
of
any
character
that
has
had
or
is
reasonably
likely
to
have
a
material
adverse
effect
on
Panopticon
shall
have
occurred
since
the
date
of
the
Stock
Purchase
Agreement;
|
|
—
|
Datawatch
or
a
subsidiary
of
Datawatch
shall
have
entered
into
employment/consultancy
arrangements
with
certain
key
personnel
of
Panopticon
(specifically,
Willem
De
Geer,
Peter
Simpson
and
Ludvig
Karlsson
Sandman)
to
continue
to
provide
services
to
Datawatch
or
a
subsidiary
of
Datawatch
for
a
period
of
at
least
two
years
after
the
closing
or
as
otherwise
agreed
by
the
parties,
and
not
to
compete
with
the
business
of
Datawatch
or
any
subsidiary
of
Datawatch
,
and
not
to
hire
or
solicit
the
employees
of
Panopticon
retained
by
Datawatch
or
any
subsidiary
of
Datawatch
,
for
a
period
of
two
years
after
termination
of
employment/consultancy;
|
|
—
|
the
Share
Purchase
shall
have
been
approved
by
the
holders
of
at
least
a
majority
of
the
outstanding
shares
of
our
common
stock
that
are
voted
on
the
Share
Purchase
;
and
|
|
—
|
we
shall
have
acquired
immediately
prior
to
closing,
in
a
separate
transaction
for
United
States
tax
purposes,
the
U.S.
subsidiary
of
Panopticon.
|
The
obligation of Panopticon and the Sellers to complete the Share Purchase is subject to the satisfaction or waiver, at or prior
to the closing, of various additional conditions, any of which may be waived by Panopticon and the Sellers’ Representative,
which include the following:
|
—
|
the
representations
and
warranties
by
us
and
our
subsidiaries
in
the
Stock
Purchase
Agreement
will
be
true
and
correct
in
all
material
respects,
except
to
the
extent
such
representations
and
warranties
are
specifically
made
as
of
a
particular
date
(in
which
case
such
representations
and
warranties
will
be
true
and
correct
as
of
such
date);
|
|
—
|
we
and
our
subsidiaries
shall
have
performed
and
complied
in
all
material
respects
with
all
covenants,
obligations
and
conditions
of
the
Stock
Purchase
Agreement
required
to
be
performed
or
complied
with
as
of
the
Closing;
and
|
|
—
|
all
of
the
Sellers
and
the
holders
of
options
for
Panopticon
shares
shall
have
entered
into
the
Stock
Purchase
Agreement,
except
to
the
extent
waived
by
the
Sellers’
Representative.
|
Meeting
of Stockholders
We
are obligated under the Stock Purchase Agreement, subject to certain conditions, to hold and convene a special meeting of our
stockholders for purposes of approving the issuance of the Consideration Shares. We are required to prepare and file this proxy
statement with the SEC and distribute it to our
39
stockholders for the purpose of convening the Special Meeting and obtaining stockholder
approval of the Share Purchase.
Covenants
Regarding Conduct of Business Pending the Share Purchase
Pending
the closing of the Share Purchase, Panopticon has agreed to (i) carry on its businesses in the usual, regular and ordinary course
in substantially the same manner as conducted prior to the execution of the Stock Purchase Agreement; (ii) pay its debts and taxes
when due subject to good faith disputes over such debts or taxes; (iii) pay or perform other obligations when due; and (iv) use
all reasonable efforts to preserve intact its present business organizations, keep available the services of its present officers
and key personnel, and preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, to the end that its goodwill and ongoing business will be unimpaired at the closing. Panopticon
has agreed to promptly us of any event that could reasonably be expected to have a material adverse effect and any event that
could reasonably be expected to prevent, materially alter or materially delay, the Share Purchase.
Prior
to the closing, Panopticon has agreed to not do any of the following without our written consent:
|
—
|
amend
its
organizational
documents;
|
|
—
|
declare
or
pay
any
dividend
or
other
distribution
(whether
in
cash,
stock
or
property)
in
respect
of
any
of
its
capital
stock
or
common
stock,
as
applicable;
|
|
—
|
split,
combine
or
reclassify
any
shares
of
its
capital
stock
or
issue
any
other
securities
in
respect
of,
in
lieu
of
or
in
substitution
for
shares
of
its
capital
stock;
|
|
—
|
repurchase
or
otherwise
acquire,
directly
or
indirectly,
any
shares
of
its
capital
stock,
except
from
former
employees,
non-employee
directors
and
consultants
in
accordance
with
agreements
providing
for
the
repurchase
of
shares
in
connection
with
any
termination
of
service
to
Panopticon;
|
|
—
|
terminate
any
contract
with
any
reseller,
distributor,
original
equipment
manufacturer
or
agent,
where
such
termination
(1) would
reasonably
be
expected
to
trigger
any
payment
by
Panopticon
to
such
reseller,
distributor,
original
equipment
manufacturer
or
agent
pursuant
to
the
express
terms
of
such
contract
or
(2) could
trigger
any
payment
by
Panopticon
to
such
reseller,
distributor,
original
equipment
manufacturer
or
agent
pursuant
to
such
contract
or
under
applicable
law;
|
|
—
|
except
in
the
ordinary
course
of
business,
hire
or
terminate
the
employment
or
engagement
of
any
employees,
consultants
or
independent
contractors;
enter
into,
or
extend
the
term
of,
any
employment
or
consulting
contract
with
any
person;
or
increase
the
salaries,
wage
rates,
fees,
benefits
or
other
remuneration
of
any
employees,
consultants
or
independent
contractors;
|
|
—
|
make
any
loans
or
advances
to,
or
any
investments
in
or
capital
contributions
to,
any
person,
or
forgive
or
discharge
in
whole
or
in
part
any
outstanding
loans
or
advances,
other
than
advances
to
employees
and
consultants
for
travel
and
other
expenses
in
the
ordinary
course
of
business;
|
|
—
|
transfer
or
license
to
any
person
(including
through
a
reseller
agreement)
any
rights
to
Panopticon
intellectual
property
or
sell,
lease,
license
or
otherwise
dispose
of
or
create,
extend,
grant
or
issue
any
encumbrance
over
any
of
its
properties
or
assets
(in
each
case
other
than
in
the
ordinary
course
of
business
in
connection
with
the
license
or
sale
of
products
to
customers,
as
long
as,
notwithstanding
past
practice,
Panopticon
does
not
disclose,
provide
or
license
any
of
its
source
code
to
any
third
party
or
include
in
any
permitted
transfer
or
license
any
obligation,
right
or
option
to
deposit
any
of
its
source
code
in
escrow);
|
40
|
—
|
enter
into,
participate
in,
establish
or
join
any
new
standards-setting
organization,
collaborative
effort
with
a
university
or
industry
body
or
consortium,
or
other
multi-party
special
interest
group
or
activity;
|
|
—
|
reduce
the
amount
of
any
insurance
coverage
provided
by
existing
insurance
policies;
|
|
—
|
terminate
or
waive
any
right
or
claim
of
substantial
value;
|
|
—
|
adopt
or
amend
any
employee
or
compensation
benefit
plan,
including
any
share
purchase,
share
issuance
or
stock
option
plan,
or
amend
any
compensation,
benefit,
entitlement,
grant
or
award
provided
or
made
under
any
such
plan,
except
in
each
case
as
required
by
applicable
law;
|
|
—
|
grant
any
severance
or
termination
pay
to
any
person
or
amend
or
modify
any
existing
severance
or
termination
agreement
with
any
person;
|
|
—
|
commence
an
action
other
than
(1) for
the
routine
collection
of
bills
or
(2) in
such
cases
where
it
in
good
faith
determines
that
failure
to
commence
an
action
would
result
in
the
material
impairment
of
a
valuable
aspect
of
its
business,
as
long
as
Panopticon
consults
us
before
the
filing
of
such
action;
|
|
—
|
acquire
or
agree
to
acquire
by
merging
or
consolidating
with,
or
by
purchasing
the
assets
of,
or
by
any
other
manner,
any
business
or
any
company
,
partnership,
association
or
other
business
organization
or
division
thereof,
or
otherwise
acquire
or
agree
to
acquire
any
assets
which
are
material,
individually
or
in
the
aggregate,
to
its
business;
|
|
—
|
make
any
change
in
accounting
or
tax
principles,
practices
or
policies
from
those
utilized
in
the
preparation
of
its
financial
statements,
write-off,
write-down
or
make
any
determination
to
write-off
or
write-down
any
of
its
assets
and
properties,
or
make
any
material
change
in
its
general
pricing
practices
or
policies
or
any
material
change
in
its
credit
or
allowance
practices
or
policies;
|
|
—
|
except
as
contemplated
by
the
Stock
Purchase
Agreement,
alter,
or
enter
into
any
commitment
to
alter,
its
interest
in
any
subsidiaries,
corporation,
association,
joint
venture,
partnership
or
other
business
entity
in
which
it
or
any
of
its
subsidiaries
holds
any
interest;
or
|
|
—
|
commit
to
do
any
of
the
foregoing.
|
Additional
Agreements
Panopticon
and the Sellers have agreed to:
|
—
|
afford
us
and
our
accountants,
counsel
and
other
representatives,
reasonable
access
during
business
hours
during
the
period
prior
to
closing
to
(i)
all
properties,
personnel,
books,
contracts,
and
records
of
Panopticon
and
its
subsidiaries
and
(ii)
all
other
information
concerning
the
business,
intellectual
property,
properties
and
personnel
of
Panopticon
and
its
subsidiaries
as
the
other
party
may
reasonably
request;
|
|
—
|
provide
to
us
and
our
accountants,
counsel
and
other
representatives
true,
correct
and
complete
copies
of
internal
financial
statements
promptly
upon
request;
|
|
—
|
cause
the
officers,
counsel
or
other
representatives
of
Panopticon
and
its
subsidiaries
to
promptly
notify
us
of
and
to
discuss
any
material
changes
or
developments
in
the
operational
matters
of
|
41
|
|
Panopticon
and
its
subsidiaries
and
the
general
status
of
the
ongoing
business
and
operations
of
Panopticon
and
its
subsidiaries;
|
|
—
|
notify
us
promptly
regarding
any
litigation
claim
initiated
or
threatened
against
Panopticon
or
its
subsidiaries,
notify
us
of
any
material
developments
in
any
such
claim
and
consult
in
good
faith
with
us
regarding
the
conduct
of
the
defense
of
any
such
claim;
|
|
—
|
except
as
otherwise
required
by
applicable
law,
not
issue
or
cause
the
publication
of
any
press
release
or
other
public
announcement
with
respect
to
the
Share
Purchase
without
our
consent;
|
|
—
|
subject
to
customary
exceptions,
maintain
the
confidentiality
after
the
closing
of
proprietary
information
regarding
Panopticon,
its
subsidiaries
and
Datawatch;
and
|
|
—
|
not
(i) solicit,
initiate,
facilitate,
seek,
entertain,
encourage
or
support
any
inquiry,
proposal
or
offer
from
any
person
(other
than
Datawatch
)
in
respect
of
an
acquisition
transaction;
(ii) participate
in
any
discussions
or
negotiations
or
enter
into
any
agreement
with,
or
provide
any
non-public
information
to,
any
person
(other
than
Datawatch
)
in
respect
of
an
acquisition
transaction;
or
(c) accept
any
proposal
or
offer
from
any
person
(other
than
Datawatch
)
in
respect
of
an
acquisition
transaction.
|
Each
Seller has further agreed to release Panopticon, its subsidiaries and Datawatch from any claims arising prior to closing other
than those arising from or relating to compensation earned for services performed prior to closing.
One
Seller, Willem De Geer, Panopticon’s managing director, has additionally agreed to noncompetition and nonsolicitation restrictions
in the Stock Purchase Agreement covering the two-year period following the closing.
We
have agreed to:
|
—
|
prepare
and
file
with
the
SEC,
no
later
than
60
days
following
the
closing,
a
registration
statement
on
Form
S-3
(or
such
other
form
appropriate
for
such
purpose
and
which
we
are
then
eligible
to
use)
covering
the
resale
of
all
of
our
common
stock
acquired
by
the
Sellers
(or
their
permitted
transferees)
in
the
Share
Purchase;
and
|
|
—
|
use
our
commercially
reasonable
efforts
to
keep
such
registration
statement
effective
for
a
period
of
up
to
two
(2)
years
thereafter
or,
if
earlier,
until
the
distribution
contemplated
in
such
registration
statement
has
been
completed
.
|
Termination
of the Stock Purchase Agreement Under Specified Circumstances
The
Stock Purchase Agreement may be terminated at any time prior to the closing (unless indicated otherwise below):
|
—
|
by
mutual
written
consent
of
us
and
the
Sellers’
Representative;
|
|
—
|
by
either
us,
Panopticon
or
the
Sellers’
Representative
if
the
Share
Purchase
shall
not
have
been
consummated
on
or
before
October
31,
2013,
provided
that
the
right
to
terminate
shall
not
be
available
to
any
party
whose
breach
under
the
Stock
Purchase
Agreement
has
been
the
cause
of
the
failure
of
the
Share
Purchase
to
be
consummated
before
such
date;
|
|
—
|
by
either
us
or
the
Sellers’
Representative
if
a
court
or
other
governmental
authority
shall
have
issued
|
42
|
|
a
non-appealable
final
order,
decree
or
ruling
or
taken
any
other
action,
in
each
case
having
the
effect
of
making
consummation
of
the
Transactions
illegal;
|
|
—
|
by
us,
if
at
any
time
the
Sellers
or
holders
of
Panopticon
options
have
breached
any
of
their
representations,
warranties
or
covenants
in
the
Stock
Purchase
Agreement
and
such
breach
(if
curable)
has
not
been
cured
within
30
days
after
written
notice
thereof
to
the
Sellers’
Representative;
|
|
—
|
by
the
Sellers’
Representative,
if
at
any
time
we
have
breached
any
of
our
representations,
warranties
or
covenants
in
the
Stock
Purchase
Agreement
and
such
breach
(if
curable)
has
not
been
cured
within
30
days
after
written
notice
thereof
to
us;
and
|
|
—
|
by
us,
if
approval
of
our
stockholders
of
the
Share
Purchase
is
not
obtained
at
the
Special
Meeting.
|
No
party has the right to terminate the Stock Purchase Agreement by reason of a change in control of Datawatch which occurs, or is
announced, prior to Closing.
Expenses
and Reimbursement
Generally,
all external transaction costs and expenses invoiced to the parties in connection with the Stock Purchase Agreement are the responsibility
of the relevant party incurring such fees and expenses, whether or not the Share Purchase is consummated, provided that we are
authorized to reduce the number of Consideration Shares by an amount equivalent to the value of such transaction costs and expenses,
any related taxes and to pay such amounts directly to the recipients, either in shares of our common stock or in cash.
Representations
and Warranties
The
Stock Purchase Agreement contains customary representations and warranties regarding Panopticon relating to, among other things:
|
—
|
organization
and
corporate
power;
|
|
—
|
authority
to enter into the Stock Purchase Agreement and perform its obligations thereunder;
|
|
—
|
noncontravention
of agreements;
|
|
—
|
absence
of certain changes;
|
|
—
|
absence
of undisclosed liabilities;
|
|
—
|
restrictions
on business activities;
|
|
—
|
interested
person transactions;
|
43
|
—
|
employee
matters and benefit plans;
|
|
—
|
banks
and
brokerage
accounts;
|
|
—
|
the
absence of brokerage or finders’ fees or agents’ commissions;
|
|
—
|
environmental
matters;
and
|
|
—
|
the
absence of foreign corrupt practices.
|
The
Stock Purchase Agreement contains certain customary representations and warranties of Panopticon’s shareholders relating
to, among other things:
|
—
|
power
and authorization for execution and delivery of the Stock Purchase Agreement;
|
|
—
|
noncontravention
of agreements;
|
|
—
|
title
to the Panopticon shares;
|
|
—
|
absence
of
litigation;
and
|
|
—
|
U.S.
securities
law
matters.
|
The
Stock Purchase Agreement contains certain customary representations and warranties of us relating to, among other things:
44
|
—
|
corporate
organization and authority;
|
|
—
|
Noncontravention
of agreements and laws;
|
|
—
|
title
to Datawatch shares;
|
The
representations and warranties of the parties to the Stock Purchase Agreement are subject to materiality and knowledge qualifiers
in many respects, as well as exceptions contained in disclosure schedules to the Stock Purchase Agreement.
This
description of the representations and warranties is included to provide investors with information regarding the terms of the
Stock Purchase Agreement. It is not intended to provide any other factual information about us, Panopticon, Panopticon’s
shareholders or our subsidiaries. The assertions embodied in the representations and warranties are subject to qualifications
and exceptions and are for the benefit of the parties to the Stock Purchase Agreement only. Accordingly, you should not rely on
the representations and warranties as characterizations of the actual state of facts at the time they were made or otherwise.
Sellers’
Indemnification Obligations and Holdback Shares
The
Sellers have made certain covenants to indemnify Datawatch for breaches of representations and warranties regarding Panopticon
and the Sellers as well as covenants made by Panopticon and the Sellers, subject to the limitations and other terms and conditions
set forth in the Stock Purchase Agreement. To provide security for these obligations, we will hold back 10% of the Consideration
Shares at Closing, to be issued to the Sellers once a holdback period of fifteen months from Closing has expired, except to the
extent of outstanding indemnity claims.
PANOPTICON
BUSINESS
Overview
Panopticon
Software AB and its subsidiaries (collectively referred to in this section as Panopticon) provide visual data discovery software
products and related services that are optimized for monitoring and analysis of real-time streaming data. Panopticon’s clients
use its visual data discovery software to speed up business processes, reduce operational and investment risks, and identify patterns
to increase sales and profits. Panopticon was founded in 2002.
Panopticon
is headquartered in Stockholm, Sweden and has offices and subsidiaries in the U.S. and the U.K., as well as global resellers and
business partners.
Strategy
Panopticon´s
main strategic objective is to be at the forefront of technology development in the rapidly changing area of business intelligence
and analytics by offering visual data discovery software products and related services that are optimized for monitoring and analysis
of real-time data. Panopticon has identified a number of key market trends upon which its strategic direction is based, including
the following:
|
—
|
“More
and more data”, which is the phenomenon referred to as “Big Data”;
|
45
|
—
|
“Fast
and faster data”, which businesses require to make real time decisions;
|
|
—
|
End-users’
need to fully understand their data in order to put the business insights in the appropriate context to be actionable; and
|
|
—
|
Data is often
available in information silos and has different formats, but users want one holistic view of all data.
|
As
Big Data and business intelligence have evolved over the past several years, two trends have continued to emerge: big data variety
and big data velocity. With its ability to deliver real-time velocity to big data applications, Panopticon has focused its marketing
and sales efforts on companies in financial services and capital markets, which have an essential need for real-time data and
decision-making. These organizations have the requirement of seeing intra-day transactions to evaluate the opportunity and risk
involved in doing business in today’s financial markets. This strategy has allowed Panopticon to minimize their competition
and focus on hiring domain experts in capital markets to help them distinguish themselves in client situations.
Panopticon’s
longer term strategy, which is accelerated by the proposed acquisition by Datawatch, is to take the Panopticon solution to the
broader visual data discovery market. Datawatch can leverage the real-time capabilities of Panopticon and the difference between
visual data discovery and simple visualization to pursue a competitive strategy against more general purpose visualization vendors
and to change the buying decision of customers from simple visualization to real-time, visual data discovery. Further, by emphasizing
data velocity and data variety, two key aspects of Big Data solutions, Datawatch can expand the Panopticon product offering beyond
capital markets into all other vertical markets.
To
build a world leading product portfolio and product roadmap, Panopticon invests significant resources in research and development.
See “—Research and Development” below for additional information. In order to achieve a high return
on investment on its research and development activities, Panopticon intends to continue to expand internationally by entering
new markets and verticals to increase its client base.
Products
Panopticon
allows business users to design and publish sophisticated
real-time
dashboards
for visual data analysis and discovery in minutes. Built for fast deployment throughout the enterprise, at the workgroup level
or even on public websites, Panopticon is a complete
visual data discovery
platform,
which has the following primary components:
-
Panopticon
Designer: Installed onto a Windows desktop and used to design and analyze interactive visual workbooks that can be saved
to the filing system or published to Panopticon Server for enterprise delivery to users.
-
Panopticon
Server: Installed on a Windows or Java server for enterprise delivery of interactive Panopticon dashboards. Panopticon
Server also provides secure workbook and data access and can act as a caching data conduit.
-
Panopticon
Viewer: Renders Panopticon dashboards as Java applets for devices that support Java and as HTML5-based versions for devices
without Java support, including Apple iPads, Android tablets and most smartphones. The Java applet and HTML5 versions
of the Panopticon Viewer offer the same analytical capabilities as the desktop-installed Panopticon Designer component.
46
-
Panopticon
Embed: Allows users to embed complete Panopticon dashboards, including the interactive dashboard itself, data connectivity
and the StreamCube in-memory OLAP data model, into applications. Panopticon Embed requires minimal coding and provides users with
a seamless user experience for third party ISV and proprietary corporate applications.
Panopticon
minimizes the total latency for informed decision-making through:
-
Real-time
streaming data retrieval
: Data is retrieved as it changes
with no need to wait for a one-time static report.
-
In-memory
OLAP cubes
supporting multidimensional analysis: Users
can aggregate, dissect, filter and screen their data as required.
-
Time
series data analysis
: Users can load historical data and
analyze it across adjustable time windows and time periods or perform simple delta analysis.
-
Pre-attentive
visual data analysis techniques
: Panopticon utilizes high-density
visualizations specifically designed to identify trends, outliers, and clustering in order to ensure fast comprehension. Users
can screen their data interactively; the data visualizations update instantly to reflect changes in filter criteria or changes
in the source data. "Chart junk" such as shadows, beveling and 3D effects, is not included since it creates cognitive
delays that slow down effective understanding of data.
Panopticon
believes that it is unique in its ability to handle true real-time streaming data feeds from
message
queues
,
CEP engines
,
OData sources
, and
tick
databases
. The platform also federates data from real-time sources with other real-time streams or reference data stored
in
relational databases
and
flat files.
This
differentiation enables Panopticon to offer unique real-time visualization solutions to markets including capital markets, logistics,
energy, oil and gas, telecommunications and machine data analytics.
Sales
and Marketing
Panopticon
distributes its products both directly and through business partners such as value-added resellers, OEMs and system integrators.
Panopticon’s value-added resellers include SAP, Thomson Reuters and OneMarketData. Panopticon’s OEM partners include
Callidus Software, Deltek, StreamBase Systems and Portware. While the majority of Panopticon’s sales have come from the
financial services market, Panopticon’s real-time visual discovery software addresses a broad range of industries, including
retail, pharmaceuticals, energy, telecommunications, government and technology. Most of Panopticon’s business originates
in the United States and Europe. Panopticon has a direct sales team with offices in New York City and London.
Panopticon
also promotes its real-time visual discovery software through email campaigns, e-newsletters, its website, webinars and social
media marketing venues such as Facebook, Twitter and YouTube.
Research
and Development
Panopticon
invests in research and development of current and emerging technologies that it deems critical to maintaining its competitive
position in the data visualization market. Many factors are involved in determining the strategic direction of Panopticon’s
research and development focus, including the key market trends identified above in the section titled “—Strategy”.
The
ability to handle very large quantities of multivariate time series data is an essential element in a complete visual analysis
system. Panopticon has developed a range of specialized data visualizations, including
horizon graphs
,
stack
graphs
and
line graphs
, designed specifically to make analyzing historical
data easier and more efficient.
47
Panopticon’s
ability to connect to
columnar tick databases
like Kx and OneTick, as well as standard
relational
databases
and
OData sources
, is key to supporting fast, responsive multi-dimensional
analysis of time series data. Panopticon’s time series capabilities are especially important for users in
capital
markets applications
assessing risk, performance, trading activity, and other very large time-stamped data sets.
Panopticon’s
StreamCube™
in-memory data model
is designed for speed. This helps the dashboards do more than simply display information. A user
can interact with the data on-the-fly and analyze extremely large data sets in a real-time environment. The system responds almost
instantly to new filter selections and changes in the data hierarchy. For example, in a
capital
markets
application, a user can build a dashboard designed to analyze performance and risk for a portfolio of equities
that allows the user to instantly change from a hierarchy based on geography to one based on industry sector. This helps the user
spot underlying patterns and outliers that might be hidden in a one dimensional view of the data.
Panopticon’s
primary research and development is performed in Stockholm, Sweden.
Proprietary
Rights and Licenses
Panopticon
relies on a combination of copyright and trade secret laws, confidentiality procedures and contractual provisions to protect its
proprietary technology. Panopticon enters into confidentiality or license agreements with its employees, consultants and customers,
and controls access to and distribution of its software, documentation and other proprietary information. Panopticon does not
own any patents.
Competition
The
visual data discovery software market is highly competitive and includes Tableau Software, Spotfire (part of Tibco) and QlikTech,
as well as larger technology companies such as IBM, SAP, SAS and Oracle. Panopticon differentiates its visual data discovery software
predominantly on its unique real-time capabilities, which makes in-house development the primary alternative to Panopticon’s
visual discovery software.
Legal
Proceedings
Panopticon
is subject to legal proceedings, claims and liabilities, which arise in the ordinary course of business and are generally covered
by insurance or are not material.
Facilities
Panopticon’s
operations are headquartered in Stockholm, Sweden. Panopticon does not own any real property. The business conducts
its operations in leased properties pursuant to lease agreements with customary terms and conditions. The leased property in Stockholm
is approximately 150 square meters and the lease expires in September 2016. Panopticon additionally uses office space pursuant
to office services agreements for shared facilities in New York and London.
Employees
As
of December 31, 2012, Panopticon employed 15 employees based primarily in Sweden, as well as in the United Kingdom and the United
States. In addition to the full-time employees, Panopticon has contracts with seven full-time independent contractors.
48
STOCKHOLDER
PROPOSALS
Proposals
of stockholders intended for inclusion in the proxy statement to be furnished to all stockholders entitled to vote at the next
annual meeting of stockholders of Datawatch must be received at the
63
our principal executive offices not later than close of business
on September 30, 2013. The deadline for providing timely notice to Datawatch of matters that stockholders otherwise desire to
introduce at the next annual meeting of stockholders of Datawatch is December 14, 2013. For any proposal that is not submitted
for inclusion in the proxy statement for the fiscal year ended September 30, 2013 but is instead sought to be presented directly
at the next annual meeting, SEC rules permit management to vote proxies in its discretion if Datawatch: (1) receives notice of
the proposal before the close of business on December 14, 2013, and advises stockholders in the next proxy statement about the
nature of the matter and how management intends to vote on such matter; or (2) does not receive notice of the proposal prior to
the close of business on December 14, 2013. Notices of intention to present proposals at the next annual meeting should be addressed
to: Chief Executive Officer, Datawatch Corporation, 271 Mill Road, Quorum Office Park, Chelmsford, MA 01824. In order to curtail
controversy as to the date on which a proposal was received by Datawatch, it is suggested that proponents submit their proposals
by Certified Mail - Return Receipt Requested.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The
SEC allows us to “incorporate by reference” the information in certain documents that we file with it, which means
that we can disclose important information to you by referring you to those documents. The information incorporated by reference
is considered to be part of this proxy statement, and information that we subsequently file with the SEC prior to the Special
Meeting will automatically update and supersede this information. This proxy statement incorporates by reference the documents
listed below and any future filings we make with the SEC prior to the Special Meeting under Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act:
(a)
The Annual Report of Datawatch on Form 10-K for the fiscal year ended September 30, 2012, which contains audited financial statements
of Datawatch for the fiscal year ended September 30, 2012 (File No. 000-19960); and
(b)
The Quarterly Reports of Datawatch on Form 10-Q for the fiscal quarters ended December 30, 2012 and March 31, 2013 and the Current
Reports of Datawatch on Form 8-K filed on November 27, 2012, January 22, 2013, January 24, 2013, April 25, 2013, June 17, 2013
and June 20, 2013 (except, with respect to each of the foregoing, for portions of such reports which were deemed to be furnished
and not filed)
(File No. 000-19960).
You
may obtain copies of these documents, other than exhibits, free of charge on our website, www.datawatch.com, as soon as reasonably
practicable after they have been filed with the SEC and through the SEC’s website, www.sec.gov.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports,
proxy statements or other information filed by us at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. You may also obtain copies
of these reports, proxy statements and other documents at the SEC’s website, the address of which is http://www.sec.gov.
OTHER
MATTERS ARISING AT THE SPECIAL MEETING
The
matters referred to in the Notice of Special Meeting and described in this proxy statement are, to the knowledge of our Board
of Directors, the only matters that will be presented for consideration at the Special Meeting. If any other matters should properly
come before the Special Meeting, the persons appointed by the accompanying proxy will vote on such matters in accordance with
their best judgment pursuant to the discretionary authority granted to them in the proxy.
64
EXPENSES
AND SOLICITATION
The
cost of solicitation of proxies will be borne by Datawatch, and in addition to soliciting stockholders by mail through its regular
employees, we may request banks, brokers and other custodians, nominees and fiduciaries to solicit their customers who have Datawatch
stock registered in the names of a nominee and, if so, will reimburse such banks, brokers and other custodians, nominees and fiduciaries
for their reasonable out-of-pocket costs. Solicitation by officers and employees of Datawatch or by certain outside proxy solicitation
services may also be made of some stockholders in person or by mail, telephone or telegraph following the original solicitation.
DELIVERY
OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS
In
some cases, only one copy of the proxy statement and the annual report is being delivered to multiple stockholders sharing an
address. However, this delivery method, called “householding,” is not being used if we have received contrary instructions
from one or more of the stockholders. We will deliver promptly, upon written or oral request, a separate copy of this proxy statement
and the annual report to a stockholder at a shared address to which a single copy of the documents were delivered. To request
a separate delivery of these materials now or in the future, a stockholder may submit a written request either to Investor Relations,
Datawatch Corporation, 271 Mill Road, Quorum Office Park, Chelmsford, MA 01824 or to investor@datawatch.com or an oral request
by calling the Company’s Investor Relations group at (978) 441-2200, ext. 8323. Additionally, any stockholders who are presently
sharing an address and receiving multiple copies of the proxy statement and annual report and who would prefer to receive a single
copy of such materials may instruct us accordingly by directing that request to Datawatch in the manner provided above.
OTHER
BUSINESS
Our
Board of Directors knows of no business that will be presented for consideration at the Special Meeting other than those items
stated above. If any other business should come before the Special Meeting, votes may be cast pursuant to proxies in respect to
any such business in the best judgment of the person or persons acting under the proxies.
65
ANNEX A
STOCK PURCHASE
AGREEMENT
STOCK
PURCHASE AGREEMENT
dated
as of June 14, 2013
by
and among
Datawatch
Corporation, as Parent and Purchaser,
The
Shareholders set out herein,
The
Optionholders set out herein,
Panopticon
Software AB, solely for the purposes specified herein,
and
Willem
De Geer, as the Representative
TABLE OF CONTENTS
|
|
|
|
|
Page
|
|
|
|
Article 1
|
Purchase and Sale
|
3
|
Section 1.1
|
Sale and Transfer of Shares and Cancellation of Options
|
3
|
Section 1.2
|
Closing
|
4
|
Section 1.3
|
Obligations of Purchaser and Parent
|
5
|
Section 1.4
|
Adjustments
|
5
|
Section 1.5
|
Options and Warrants.
|
6
|
Section 1.6
|
Anti-Dilution Adjustments
|
6
|
Section 1.7
|
Holdback Shares
|
6
|
Section 1.8
|
Tax Consequences
|
6
|
|
|
|
Article 2
|
Representations and Warranties of the Shareholders
|
6
|
Section 2.1
|
Organization and Power
|
6
|
Section 2.2
|
Capitalization; Subsidiaries
|
6
|
Section 2.3
|
Authorization
|
9
|
Section 2.4
|
Noncontravention
|
9
|
Section 2.5
|
Financial Statements
|
10
|
Section 2.6
|
Absence of Certain Changes
|
11
|
Section 2.7
|
Absence of Litigation
|
11
|
Section 2.8
|
Restrictions on Business Activities
|
11
|
Section 2.9
|
Intellectual Property
|
12
|
Section 2.10
|
Taxes
|
17
|
Section 2.11
|
Employee Benefit Plans
|
18
|
Section 2.12
|
Labor and Employment Matters
|
19
|
Section 2.13
|
Related Party Transactions
|
21
|
Section 2.14
|
Company Authorizations
|
22
|
Section 2.15
|
Banks and Brokerage Accounts
|
22
|
Section 2.16
|
Insurance
|
22
|
Section 2.17
|
Compliance with Laws
|
22
|
Section 2.18
|
Minute Books
|
23
|
Section 2.19
|
Customers
|
23
|
Section 2.20
|
Material Contracts
|
23
|
Section 2.21
|
Property
|
24
|
Section 2.22
|
Brokers and Finders
|
25
|
Section 2.23
|
Board Approval
|
25
|
Section 2.24
|
Accounts Receivable
|
25
|
Section 2.25
|
Environmental Matters
|
26
|
Section 2.26
|
Absence of Material Undisclosed Liabilities
|
26
|
Section 2.27
|
Representations
|
26
|
Section 2.28
|
Information
|
26
|
|
|
|
Article 3
|
Individual Representations and Warranties of the Shareholders
|
27
|
Section 3.1
|
Organization and Power
|
27
|
TABLE OF CONTENTS
(continued)
|
|
|
|
|
Page
|
|
|
|
Section 3.2
|
Authorization; Enforceability
|
27
|
Section 3.3
|
Noncontravention
|
27
|
Section 3.4
|
Ownership of Shares
|
28
|
Section 3.5
|
Tax and Legal Matters
|
28
|
Section 3.6
|
Absence of Litigation
|
28
|
Section 3.7
|
U.S. Securities Law Matters
|
28
|
Section 3.8
|
Authority of Representative
|
30
|
|
|
|
Article 4
|
Representations and Warranties of Purchaser and Parent
|
30
|
Section 4.1
|
Organization and Power
|
30
|
Section 4.2
|
Authorization; Enforceability
|
30
|
Section 4.3
|
Noncontravention
|
31
|
Section 4.4
|
Parent SEC Reports; Compliance
|
31
|
Section 4.5
|
Parent Common Stock
|
31
|
|
|
|
Article 5
|
Additional Agreements
|
31
|
Section 5.1
|
Conduct of Business of the Company
|
31
|
Section 5.2
|
Restrictions on Conduct of Business of the Company
|
32
|
Section 5.3
|
Access to Information
|
34
|
Section 5.4
|
Confidentiality; Public Announcements
|
35
|
Section 5.5
|
Regulatory Consents; Cooperation
|
36
|
Section 5.6
|
No Solicitation
|
37
|
Section 5.7
|
Notification
|
37
|
Section 5.8
|
Spreadsheet
|
38
|
Section 5.9
|
Expenses
|
38
|
Section 5.10
|
Tax Matters
|
39
|
Section 5.11
|
Certain Taxes and Fees
|
39
|
Section 5.12
|
Release of Claims
|
39
|
Section 5.13
|
Further Assurances
|
40
|
Section 5.14
|
Discharge of Liability
|
40
|
Section 5.15
|
Registration on Form S-3
|
40
|
Section 5.16
|
Additional Parent Common Stock Matters
|
41
|
Section 5.17
|
Proxy Statement
|
41
|
Section 5.18
|
Financial Statements
|
41
|
Section 5.19
|
Noncompetition and Remedies for Breach of Restrictive Covenants
|
42
|
Section 5.20
|
Remedies for Breach of Restrictive Covenants
|
42
|
Section 5.21
|
Company Intellectual Property
|
43
|
Section 5.22
|
Designation of Purchaser
|
43
|
Section 5.23
|
Permitted Transfers
|
44
|
Section 5.24
|
Waiver of Certain Rights
|
44
|
TABLE OF CONTENTS
(continued)
|
|
|
|
|
Page
|
|
|
|
Article 6
|
Closing Conditions
|
44
|
Section 6.1
|
Conditions to Obligations of Each Party
|
44
|
Section 6.2
|
Additional Conditions to Obligations of the Shareholders
|
44
|
Section 6.3
|
Additional Conditions to the Obligations of Purchaser
|
45
|
|
|
|
Article 7
|
Termination, Amendment and Waiver
|
46
|
Section 7.1
|
Termination
|
46
|
Section 7.2
|
Effect of Termination
|
47
|
Section 7.3
|
Amendment
|
47
|
Section 7.4
|
Extension; Waiver
|
48
|
|
|
|
Article 8
|
Survival and Indemnification
|
48
|
Section 8.1
|
Survival
|
48
|
Section 8.2
|
[Reserved]
|
48
|
Section 8.3
|
Indemnification
|
48
|
Section 8.4
|
Limitations on Indemnification
|
51
|
Section 8.5
|
[Reserved]
|
52
|
Section 8.6
|
Claims for Indemnification
|
53
|
Section 8.7
|
Objections to and Payment of Claims
|
53
|
Section 8.8
|
Resolution of Objections to Claims
|
53
|
Section 8.9
|
Third-Party Claims
|
53
|
Section 8.10
|
Representative
|
55
|
|
|
|
Article 9
|
General Provisions
|
57
|
Section 9.1
|
Certain Defined Terms
|
57
|
Section 9.2
|
Terms Generally; Interpretation
|
66
|
Section 9.3
|
Notices
|
68
|
Section 9.4
|
Severability
|
69
|
Section 9.5
|
Entire Agreement
|
69
|
Section 9.6
|
Assignment
|
69
|
Section 9.7
|
No Third-Party Beneficiaries
|
69
|
Section 9.8
|
Governing Law and Arbitration
|
69
|
Section 9.9
|
Counterparts
|
70
|
STOCK
PURCHASE AGREEMENT
This
STOCK PURCHASE AGREEMENT, dated as of June 14, 2013 (this “
Agreement
”), is by and among Datawatch Corporation,
a Delaware corporation (“
Parent
” and, subject to Section 5.2, “
Purchaser
”), the shareholders
of Panopticon Software AB, a Swedish company limited by shares (the “
Company
”) who are parties to this Agreement
and whose names are set forth in
Exhibit A
under the headline “Shareholders” (the “
Shareholders
”),
certain optionsholders set forth in
Exhibit A
under the headline “Optionholders” (the “Optionholders”),
the Representative and, solely for the purpose of acceding to the covenants of the Company set forth in Articles 5 and 9, the
Company. Certain capitalized terms used herein have the meanings assigned to them in Section 9.1.
BACKGROUND
The
board of directors of each of Parent and the Company has determined that the execution, delivery and performance of this Agreement
and the consummation of the Transactions would be advisable and in the best interests of their respective shareholders and, subject
to the terms and conditions set forth herein, have approved this Agreement, the Related Agreement and the Transactions.
The
Company’s outstanding share capital consists of Company Common Shares.
The
Shareholders are the legal owners of the series and numbers of Shares set forth next to their names in Section 2.2(b) of the Company
Disclosure Letter (collectively, the “
Shares
”).
Each
Shareholder has approved, and deems it advisable and in the best interests of the Shareholder to consummate, the acquisition of
the Shares by Purchaser (the “
Acquisition
”), and Purchaser desires to purchase the Shares from the Shareholders,
in each case pursuant and subject hereto.
The
Optionholders are the legal owners of the series and numbers of Options set forth next to their names in Section 2.2(b) of the
Company Disclosure Letter (collectively, the “
Options
”).
Each
Optionholder has approved, and deems it advisable and in the best interests of the Optionholder to consummate, the transactions
described herein and thus to irrevocably waive, subject only to Closing, and to the issuance of options to purchase shares of
common stock of Parent as provided herein, any and all rights under the Options.
As
a condition and inducement to the Shareholders to enter into this Agreement, each of the directors and executive officers of Parent
has entered into a voting agreement with the Representative dated as of the date hereof (a “
Voting Agreement
”),
substantially in the form attached hereto as
Exhibit B
pursuant to which each such director or executive officer has agreed,
among other things, to vote all shares of Parent Common Stock (as defined herein) owned by such person and his Affiliates in favor
of the approval of this Agreement and the Transactions.
2
As
a condition and inducement to Purchaser’s entering into this Agreement, the Shareholders are agreeing hereunder to indemnify
Purchaser for certain matters relating to the Company and the Shares, and the right of the Shareholders to receive the Purchase
Price payable with respect to their Shares hereunder shall be subject to the indemnification obligations of the Shareholders set
forth herein.
Willem
De Geer has been appointed as the initial Representative as of the date hereof pursuant to Section 8.10 for the purposes set forth
herein.
NOW,
THEREFORE, in consideration of the foregoing premises and the respective representations, warranties, covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties, intending to be legally bound, hereby agree as follows:
Article
1
Purchase and Sale
Section
1.1
Sale and Transfer of Shares and Cancellation
of Options
.
(a)
Subject to the terms and conditions hereof, at the Closing, each Shareholder will sell, convey, assign, transfer and deliver,
or will cause to be sold, conveyed, assigned, transferred and delivered, to Purchaser, and Purchaser will purchase, acquire, assume
and accept, all right, title and interest in and to all of the Shares owned beneficially and of record by such Shareholder as
set forth opposite such holder’s name in the Spreadsheet, free and clear of all Encumbrances and with the benefit of all
rights of whatsoever nature attaching or accruing to the Shares, including all rights to any dividends and distributions declared,
paid or made in respect of the Shares on or after the date of this Agreement.
(b)
Subject to the terms and conditions hereof, and subject to Closing, each Optionholder hereby irrevocably waives any and all right,
title and interest in and to all of the Options owned by such Optionholder as set forth opposite such holder’s name in the
Spreadsheet in consideration for the issuance to such Optionholder of options to purchase shares of Parent Common Stock under
Parent’s Amended and Restated 2011 Equity Incentive and Compensation Plan, in such number and exercisable at such price
and within such times as is set forth opposite such holder’s name in the Spreadsheet (or such other equity equity instruments
(including restricted stock units) to acquire shares of Parent Common Stock under Parent’s Amended and Restated 2011 Equity
Incentive and Compensation Plan as may be agreed) (the “
Consideration Options
”).
(c)
Subject to the terms and conditions hereof, in exchange for the Shares sold and Options cancelled hereunder by the Shareholders
and Optionholders, the Shareholders will have a right to receive consideration in the form the Consideration Shares (such Consideration
Shares also referred to herein as the “
Purchase Price
”) in accordance with Section 1.2(d) Section 1.7 and Section
1.9, which will be allocated among them based on the Exchange Ratio as set out in the Spreadsheet, and the Optionholders will
have a right to receive the Consideration Options, in accordance with Section 1.2(d) and Section 1.5, which will be allocated
among them as set out
3
in
the Spreadsheet. The receipt by each Shareholder of the Consideration Shares described in the preceding sentence shall be subject
to the obligation of the Shareholder to return to Parent the Consideration Shares to the extent the Shareholder has, at any time
and from time to time, any unsatisfied indemnification obligations to Purchaser pursuant to Article 8. For the avoidance of doubt,
the Exchange Ratio, the Consideration Shares and the Consideration Options shall not be subject to adjustment based upon any change
in the trading price of the shares of Parent Common Stock at the time of the issuance of the Consideration Shares or Consideration
Options at the Closing or any other time. The Spreadsheet shall provide that to the extent an individual Shareholder would be
entitled to a fractional share of Parent Common Stock as a result of the application of the Exchange Ratio, such fractional share
shall be rounded up to a whole share of Parent Common Stock. The shares of Parent Common Stock issued pursuant to this Agreement
may bear such legends as Parent may consider necessary or advisable to facilitate compliance with the Securities Act or the securities
laws of any state or other jurisdiction.
Section
1.2
Closing
.
(a)
The closing of the Transactions (the “
Closing
”) shall take place at 10 a.m. local time on the date that is
three Business Days after the satisfaction or waiver of each of the conditions set forth in Article 6 (except for such conditions
that by their nature will be satisfied at Closing) or at such other time and date as Purchaser and the Representative agree in
writing, but not later than October 31, 2013. The Closing shall take place at the offices of Choate, Hall & Stewart, LLP,
Two International Place, Boston, Massachusetts 02110 or at such other location as Purchaser and the Representative agree. The
date on which the Closing actually occurs is herein referred to as the “
Closing Date
.” All acts and proceedings
to be taken and all documents to be executed and delivered by the parties at the Closing will be deemed to have been taken and
executed simultaneously, and, except as permitted hereunder, no acts or proceedings will be deemed taken nor any documents executed
or delivered until all have been taken, executed and delivered.
(b)
At least three (3) business days prior to the Closing, the Representative will furnish to Parent a certificate signed by the Representative
setting forth (i) a good faith estimate of Closing Working Capital, including an itemization of the components of Closing Working
Capital, (ii) the amount of the Indebtedness, if any, existing as of the Closing, and (iii) a final bill and wire transfer instructions
from each payee of any portion of the Seller Expenses.
(c)
At the Closing the Shareholders shall:
(1)
deliver to Purchaser the share certificates (if issued in certificate form) representing the Shares, duly endorsed in the name
of Purchaser;
(2)
procure that Purchaser is duly entered into the share ledger of the Company as holder of the Shares and deliver that share ledger
to Purchaser;
(3)
deliver to Purchaser letters of resignation signed by each member of the board of directors of the Company and each of its Subsidiaries,
pursuant to which each of them resign on the Closing Date without any claim for remuneration or other compensation;
4
(4)
deliver to Purchaser general powers of attorney in the form of
Exhibit C
attached hereto executed by the required number
of the Company’s board of directors pursuant to which the Company’s affairs shall be directed until such time as a
superseding board of directors is elected or appointed and such election or appointment shall have been registered in the Company
register;
(d)
At the Closing, upon fulfilment by each Shareholder of the obligations set forth in Section 1.2(b), Parent will deliver (or cause
Parent’s transfer agent to deliver) the Closing Consideration Shares to the Shareholders, allocated among them as set out
on the Spreadsheet.
(e)
At the Closing, Parent will deliver the Transaction Payment Shares to the recipients and in the amounts corresponding to the value
of the Transaction Payments specified on Section 2.2(g) of the Company Disclosure Letter and will pay the Seller Expenses to the
recipients and in the amounts specified on the certificate of the Representative delivered pursuant to Section 1.2(b).
(f)
At the Closing, Parent will deliver the Consideration Options to the Optionholders, allocated among them in such number and exercisable
at such price and within such times as set out on the Spreadsheet.
(g)
At the Closing, Purchaser will hold an extraordinary general meeting of the Company’s shareholders and a meeting of the
Company’s board of directors to be held for the purpose of appointing new members of the Company’s board of directors
and new company signatories for the Company to replace those appointed by the Shareholders, who shall resign upon the Closing
and
shall cause
the Company
to file with the Swedish Companies Register
all corporate changes of the Company contemplated by this Section 1.2 which are required to be so filed, including without limitation
the deregistration of the Options.
Section
1.3
Obligations of Purchaser and Parent
. Purchaser shall
not be obliged to complete the purchase of any of the Shares and Parent shall not be obligated to issue and Consideration Shares
or Consideration Options unless the purchase of all the Shares is completed simultaneously in accordance with the provisions of
this Agreement.
Section
1.4
Adjustments
. If there is a stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities convertible into capital stock), reorganization, reclassification,
combination, recapitalization or other like change with respect to Shares or Consideration Shares occurring after the date of
this Agreement and before the Closing Date, all references in this Agreement to specified numbers of shares of any class or series
of Shares, Consideration Shares or Consideration Options affected thereby, and all calculations provided for that are based upon
numbers of shares of any such class or series (or trading prices therefor) affected thereby, shall be equitably adjusted to the
extent necessary to provide the parties the same economic effect as contemplated by this Agreement before such stock split, reverse
stock split, stock dividend, reorganization, reclassification, combination, recapitalization or other like change.
5
Section
1.5
Options and Warrants
. Effective as of the Closing,
each outstanding Option will be cancelled in consideration of Parent’s issuance to the holder thereof of a Consideration
Option, and no Optionholder shall have any right to acquire any equity securities of Purchaser or the Company as a result of Options
or Warrants (irrespective of the terms of the Options or Warrants).
Section
1.6
Anti-Dilution Adjustments
.
In
the event any shares of Parent Common Stock, including for purposes of this Section 1.6 (i) any shares of a class of stock of
Parent convertible into Parent Common Stock and (ii) any vested options or warrants to acquire shares of Parent Common Stock,
are issued during the period from the date hereof until the Closing Date (together, the “
Pre-Closing Additional Shares
”),
the Exchange Ratio shall be adjusted proportionately so that the Consideration Shares in the aggregate represent 23.6% of the
Parent Common Stock Equivalents
after giving effect to the issuance of the Consideration Shares.
Section
1.7
Holdback Shares
. Upon conclusion of the Holdback
Period, Parent will deliver (or cause Parent’s transfer agent to deliver) to the Shareholders the number of Holdback Shares
equal to the total Holdback Shares minus Holdback Shares with an aggregate Deemed Share Value equal to the value of duly made
claims by Purchaser for indemnification under Article 8 that have either been finally resolved in favor of Purchaser or remain
unresolved at the end of the Holdback Period. Such Holdback Shares shall be allocated among the Shareholders as set out in the
Spreadsheet. Following the conclusion of the Holdback Period, in the event a claim by Purchaser for indemnification under Article
8 is finally resolved in favor of the relevant Shareholder(s), Parent shall promptly following such resolution deliver (or cause
Parent’s transfer agent to deliver) Holdback Shares with an aggregate Deemed Share Value equal to the value of such claim
so resolved.
Section
1.8
Tax Consequences
.
No party
hereto makes any representation or warranties to any other party hereto regarding the Tax treatment of any transactions contemplated
by this Agreement. All parties hereto shall rely solely on their own respective Tax and legal advisors in connection
with this Agreement and the other transactions or agreements contemplated by this Agreement.
Section
1.9
Working Capital; Indebtedness
. In the event the Closing
Working Capital is less than the Minumum Working Capital Amount (a “Working Capital Shortfall”) or Indebtedness exists
as of the Closing, Parent shall have the right in its sole discretion to reduce the Consideration Shares paid to the Shareholders
hereunder by an aggregate Deemed Share Value equal to the amount of such Working Capital Shortfall and/or the amount of such Indebtedness,
as applicable.
Article
2
Representations and Warranties of the Shareholders
Subject
to the disclosures and other responses set forth in the Company Disclosure Letter each Shareholder represents and warrants to
Purchaser as of the date hereof and as of the Closing Date, as if such representations and warranties were made as of the Closing
Date, as follows:
6
Section
2.1
Organization and Power
. The Company (a) is duly
organized, validly existing and in good standing under the Laws of Sweden, (b) has all requisite power and authority to own
its property and assets and to carry on its business as now conducted and (c) is qualified to do business and in good standing
in every jurisdiction where it conducts business and such qualification is required, except where the failure so to qualify could
not reasonably be expected to result in a Material Adverse Effect on the Company. The Company is not in violation of any of the
provisions of its organizational documents, and no changes thereto are pending. Section 2.1 of the Company Disclosure Letter lists
(x) the officers and directors of the Company and each of its Subsidiaries, and (y) the jurisdictions in which the Company
or any of its Subsidiaries has or has had an office or facility, employed employees or conducted business. The Company has Made
Available a true and correct copy of its registration certificate as amended to date (the “
Charter
”) and
articles of association, as amended to date, each as in full force and effect on the date hereof (collectively, the “
Charter
Documents
”), to Purchaser. Neither the Shareholders nor the Board of Directors of the Company has approved any amendment
to any of the Charter Documents.
Section
2.2
Capitalization; Subsidiaries
.
(a)
The authorized capital stock of the Company consists of a maximum of 2,000,000 Company Common Shares, of which 825,534 shares
are outstanding. There are no declared or accrued but unpaid dividends with respect to any Company Common Shares.
(b)
Section 2.2(b) of the Company Disclosure Letter, other than the columns labeled “As of Closing,” sets forth, as of
the date hereof, a true, correct and complete list of all of the Company’s securityholders and the number of shares, options,
warrants or other rights to acquire Shares owned by each of them, including (1) all holders of Options and (2) all holders
of Warrants. All issued and outstanding Shares are duly authorized, validly issued, fully paid and non-assessable and are free
of any Encumbrance, preemptive rights and put or call rights created by Law, the Charter Documents or any Contract to which the
Company is a party or by which it is bound or otherwise to the Knowledge of the Shareholders. The Shareholders that are parties
to this Agreement as of the date hereof hold in the aggregate at least 90% of the outstanding Shares; and the Representative has
made available to Purchaser copies of all powers of attorney granted by the Shareholders to the Repreentative authorizing and
empowering him to act on behalf of such Shareholders in connection with this Agreement.
(c)
There are no Shares or securities of any Subsidiary issued and outstanding immediately prior to the Closing Date that are not
vested or are subject to a repurchase right of the Company or any Subsidiary, risk of forfeiture or other condition under any
applicable stock restriction agreement or other agreement with the Company or the applicable Subsidiary.
(d)
Except for the Options cancelled by this Agreement and the Warrants held by the Swedish Subsidiary there are no options, warrants
or Contracts to which the Company or any Subsidiary is a party, or by which it is bound, obligating the Company or any Subsidiary
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any Shares, Options
or Warrants or obligating the Company or any Subsidiary to grant, extend, accelerate the vesting and/or waive any repurchase rights
of, change the price of or otherwise amend or enter into any such option, warrant, call, right, commitment or agreement.
7
Other
than rights under the Shareholders’ Agreement there are no Contracts relating to the future purchase or sale of any Shares
or securities of any Subsidiary (1) between or among the Company or any Subsidiairy and any of its shareholders, written
contracts granting the Company or any Subsidiary the right to purchase unvested shares upon termination of employment or service,
or (2) between or among any of the Company’s or any Subsidiary’s shareholders. All Options, Warrants and outstanding
Shares and all securities of any Subsidiary were issued in compliance with all applicable Laws, and all Warrants repurchased by
the Company or any Subsidiary were repurchased in compliance with all applicable Laws and all applicable rights of first refusal
and other similar rights and limitations that were not waived.
(e)
Except for the Shareholders’ Agreements listed on Section 2.2(e) of the Company Disclosure Letter, there are no shareholder
agreements, voting trusts or other agreements or understandings relating to the voting of any Shares or any securities of any
Subsidiary, and there are no agreements between the Company or any of its Subsidiaries and any security holder or others, or among
any Shareholders, relating to the registration, sale or transfer (including agreements relating to rights of first refusal, co-sale
rights or “drag-along” rights) of any Shares or securities of any Subsidiary.
(f)
Except for the Company Stock Plans, neither the Company nor any of its Subsidiaries has ever adopted or maintained any stock option
plan or other plan providing for equity compensation of any Person. All Warrants issued by the Company are held by the Swedish
Subsidiary. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or other similar rights
with respect to the Company or any of its Subsidiaries.
(g)
The Company has not granted Options except to Persons who were employees, officers, directors or service providers of the Company
at the time of grant and in compensation for their service as such. In the one-year period preceding the date hereof, the service
to the Company of no holder of Options has been terminated as a result of the holder’s death or disability.
(h)
All awards of Option have been documented with the grant forms Made Available to Purchaser without deviation from the form, except
for terms relating to the acceleration of vesting or the extension of exercise periods that are not currently extended. True and
complete copies of all agreements and instruments relating to or issued under the Company Stock Plans have been Made Available,
and such agreements and instruments have not been amended, modified or supplemented, and there are no agreements to amend, modify
or supplement such agreements or instruments from the forms thereof Made Available.
(i)
No bonds, debentures, notes or other indebtedness of the Company or its Subsidiaries (1) having the right to vote on any
matters on which shareholders may vote (or which is convertible into, or exchangeable for, securities having such right) or (2) the
value of which is in any way based upon or derived from capital or voting stock of the Company, are issued or outstanding as of
the date hereof.
(j)
The information contained in the Spreadsheet will be complete and correct as of the Closing Date.
8
(k)
Neither the Company nor any Subsidiary owns or control any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any Person except as disclosed in Section 2.2(k) of the Company
Disclosure Letter, or has any commitment or obligation to invest in, purchase any securities or obligations of, fund, guarantee,
contribute or maintain the capital of or otherwise financially support any corporation, partnership, joint venture or other business
association or entity. Section 2.2(k) of the Company Disclosure Letter sets forth a true, correct and complete list of each Subsidiary
of the Company indicating its officers and directors, the record and beneficial owner of all of its issued and outstanding shares
of capital stock or other equity interests and its jurisdiction of formation. Each Subsidiary of the Company (1) is duly
organized, validly existing and in good standing under the Laws of the jurisdiction of its organization, (2) has all requisite
power and authority to own its property and assets and to carry on its business as now conducted and (3) is qualified to
do business and in good standing in every jurisdiction where it conducts business and such qualification is required, except where
the failure so to qualify could not reasonably be expected to result in a Material Adverse Effect on the Company. Each Subsidiary
of the Company is not in violation of any of the provisions of its organizational documents, and no changes thereto are pending.
All the outstanding capital stock or other equity interest of each Subsidiary of the Company is, to the extent applicable, duly
authorized, validly issued, fully paid and nonassessable. There are no Contracts to which any Subsidiary of the Company is a party
or by which it is bound obligating any Subsidiary of the Company to issue, deliver, sell, repurchase or redeem, or cause to be
issued, sold, repurchased or redeemed, any shares of the capital stock or equity interest of such Subsidiary or obligating such
Subsidiary to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such Contract.
There are no outstanding or authorized stock appreciation, phantom stock, profit participation or other similar rights with respect
to any Subsidiary of the Company.
Section
2.3
Authorization
. The execution and delivery by the
Company of this Agreement and the performance of the covenants of the Company under this Agreement have been duly authorized by
all requisite corporate or comparable organizational action on the part of the Company, and no other proceedings or actions are
required on the part of the Company to authorize the execution, delivery and performance of this Agreement and the consummation
of the Transactions. This Agreement has been duly executed and delivered by the Company and, assuming due authorization, execution
and delivery by the other parties hereto and thereto, the covenants of the Company under this Agreement represent the legal, valid
and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject to
the effect of (a) applicable bankruptcy, insolvency, reorganization, moratorium and other similar Laws now and hereafter
in effect relating to the rights of creditors generally and (b) rules of law and equity governing specific performance, injunctive
relief and other equitable remedies.
Section
2.4
Noncontravention
.
(a)
The execution, delivery and performance of this Agreement and the consummation of the Transactions do not and will not (1) conflict
with, result in or constitute any violation of any provision of the organizational documents of the Company or any of its Subsidiaries
or (2) result in the creation of an Encumbrance on any properties or assets of the Company or any of its Subsidiaries.
9
(b)
No Permit or Order of, or registration or filing with or declaration or notification to, any Swedish Governmental Authority is
required by or with respect to the Company or any of its Subsidiaries in connection with the execution, delivery and performance
of this Agreement or the consummation of the Transactions.
Section
2.5
Financial Statements
.
(a)
Section 2.5(a) of the Company Disclosure Letter sets forth (i) the Company’s audited balance sheets as of and statements
of operations, statements of equity and statements of cash flows for the years ended December 31, 2012, 2011 and 2010, and its
unaudited balance sheet as of and statements of operations and statements of cash flow as of and for the quarter ended March 31,
2013 and its unaudited balance sheet as of and statements of operations and statements of cash flow as of and for the month ended
April 30, 2013 (collectively, the “
Parent Financial Statements
”), (ii) Panopticon Development AB’s (the
“
Swedish Subsidiary
”)’s audited balance sheets as of and statements of operations, statements of equity
and statements of cash flows for the years ended December 31, 2012, 2011 and 2010 and its unaudited balance sheet as of and statements
of operations and statements of cash flow as of and for the quarter ended March 31, 2013 and its unaudited balance sheet as of
and statements of operations and statements of cash flow as of and for the month ended April 30, 2013 (the “
Swedish Subsidiary
Financial Statements
”) and (iii), the U.S. Subsidiary’s audited balance sheets as of and statements of operations,
statements of equity and statements of cash flows for the years ended December 31, 2012, 2011 and 2010 and its unaudited balance
sheet as of and statements of operations and statements of cash flow as of and for the quarter ended March 31, 2013 and its unaudited
balance sheet as of and statements of operations and statements of cash flow as of and for the month ended April 30, 2013 (the
“
U.S. Subsidiary Financial Statements
” and, together with the Parent Financial Statements and the Swedish Subsidiary
Financial Statements, the “
Financial Statements
”). The Parent Financial Statements and the Swedish Subsidiary
Financial Statements have been prepared in accordance with generally accepted accounting principles in Sweden (“
GAAP
”)
(except that the interim period financial statements do not have notes thereto) applied on a consistent basis throughout and between
the periods indicated. The U.S. Subsidiary Financial Statements have been prepared in accordance with generally accepted accounting
principles in the United States of America (“
U.S. GAAP
”) (except that the interim period financial statements
do not have notes thereto) applied on a consistent basis throughout and between the periods indicated. The Financial Statements
present a true, complete and fair view of the financial condition and results of operations and cash flows of the Company and
its Subsidiaries as of the dates and for the periods indicated therein (subject, in the case of interim period financial statements,
to normally recurring year-end adjustments, none of which individually or in the aggregate are material). There has been no change
in the Company’s accounting policies since December 31, 2012 (the “
Company Balance Sheet Date
”), except
as described in the Financial Statements.
(b)
The Company has in place systems and processes (including the maintenance of proper books and records) that are customary for
a company at the same stage of development as the Company designed to (1) provide reasonable assurances regarding the reliability
of the Financial Statements and (2) in a timely manner accumulate and communicate to the Company’s principal executive
officer and principal financial officer the type of information that would be required to be disclosed in the Financial Statements
(such systems and
10
processes
being herein referred to as the “
Financial Controls
”). The Company and Swedish Subsidiary has in place a revenue
recognition policy consistent with GAAP, and the U.S. Subsidiary has in place a revenue recognition policy consistent with U.S.
GAAP. None of the Company, its Subsidiaries, their respective officers nor the Company’s independent auditors has identified
or been made aware of any complaint, allegation, deficiency, assertion or claim, whether written or oral, regarding the Financial
Controls or the Financial Statements that has not been resolved. To the Knowledge of the Shareholders, there have been no instances
of fraud by any officer or employee of the Company, whether or not material, that occurred during any period covered by the Financial
Statements.
Section
2.6
Absence of Certain Changes
. Since the Company Balance
Sheet Date, (i) the Company and its Subsidiaries have conducted their business only in the ordinary course of business, (ii) there
has not occurred any change, event or condition (whether or not covered by insurance) that, individually or in the aggregate with
any other changes, events or conditions, has resulted in, or could reasonably be expected to result in, a Material Adverse Effect
on the Company, and (iii) the Shareholders have complied with the covenants set forth in Sections 5.1 and 5.2 of this Agreement
as if this Agreement had been executed as of such date.
Section
2.7
Absence of Litigation
. There has been and is no Action
pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries or any of their respective
assets or properties, including any Company Intellectual Property, or any of their respective officers or directors in their capacities
as such. There has been and is no Order against the Company or any of its Subsidiaries or any of their respective assets or properties,
or any of the Company’s directors or officers in their respective capacities as such. There is no Action pending or, to
the Knowledge of the Shareholders, threatened, against any Person who has a contractual right or a right pursuant to the Charter,
Swedish Companies Act or other applicable Law to indemnification from the Company related to any Basis existing prior to the Closing
Date, nor is there any Basis therefor. There is no Action pending or, to the Knowledge of the Shareholders, threatened based on
a claim of breach of fiduciary duty by the Company’s directors or officers arising out of actions taken by the Company’s
directors or officers prior to the Closing Date, nor is there any Basis therefor. There is no Action by the Company or any of
its Subsidiaries pending, threatened or contemplated against any other Person. The Company has notified all Shareholders of corporate
actions of the Company taken by the Shareholders, in accordance with and to the extent required by the Swedish Companies Act,
the Charter Documents and applicable Law.
Section
2.8
Restrictions on Business Activities
. There is no
Contract (including covenants not to compete) or Order binding upon the Company or any of its Subsidiaries that has or could reasonably
be expected to have, whether before or after consummation of the Transactions, the effect of prohibiting or impairing any current
or future business practice of the Company or any of its Subsidiaries, any acquisition of property (tangible or intangible) by
the Company or any of its Subsidiaries or the conduct of business by the Company or any of its Subsidiaries, in each case, as
currently conducted. Without limiting the generality of the foregoing, neither the Company nor any of its Subsidiaries has entered
into any customer or other similar Contract that limits the freedom of the Company or any of its Subsidiaries or their Affiliates
to engage or participate, or compete with any other person, in any line of business, market or geographic area, or to make use
of any Company Intellectual Property.
11
Section
2.9
Intellectual Property
.
(a)
Section 2.9(a) of the Company Disclosure Letter (1) contains a complete and accurate list (by name and version number) of
all products and service offerings, including all Software, of the Company or any of its Subsidiaries that have been sold, licensed,
distributed or otherwise disposed of, or used in connection with service offerings, as applicable, or that the Company or any
of its Subsidiaries intends to sell, license, distribute or otherwise dispose of, or use in connection with service offerings,
in the future, including any products or services offerings under development (collectively, the “
Company Products
”),
and (2) identifies, for each such Company Product, whether the Company or any of its Subsidiaries provides support or maintenance
for such Company Product.
(b)
Section 2.9(b) of the Company Disclosure Letter sets forth a complete and accurate list of (1) all Registered Intellectual
Property included among the Company-Owned Intellectual Property (the “
Company Registered Intellectual Property
”) and
(2) all unregistered Trademarks included among the Company-Owned Intellectual Property. For each listed item, Section 2.9(b)
of the Company Disclosure Letter indicates, as applicable, the owner of such Intellectual Property, the countries in which such
Intellectual Property is patented or registered, the patent, registration or serial number, and the filing and expiration dates
thereof.
(c)
All of the Company-Owned Intellectual Property is wholly and exclusively owned by the Company or one of its Subsidiaries free
and clear of any options, rights, licenses, restrictions and Encumbrances (other than Customer License Agreements). Except as
expressly stated in Section 2.9(c) of the Company Disclosure Letter, with respect to any Company-Owned Intellectual Property of
which the Company or one of its Subsidiaries is a joint owner or co-owner, there are no restrictions (by agreement with any third
party joint owner or co-owner of Company-Owned Intellectual Property or otherwise) on the Company’s or its Subsidiary’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)
The Company or one of its Subsidiaries solely and exclusively owns all right, title and interest in and to the Company Products
and the Company Source Code, free and clear of all options, rights, licenses, restrictions or Encumbrances (other than Customer
License Agreements), and neither the Company nor any of its Subsidiaries has sold, transferred, assigned or otherwise disposed
of any rights or interests therein or thereto (other than Customer License Agreements).
(e)
Section 2.9(e) of the Company Disclosure Letter lists all Contracts (other than licenses for COTS Software) to which the
Company or any of its Subsidiaries is a party under which the Company or any of its Subsidiaries is licensed or otherwise granted
rights to or in any Intellectual Property or Software from a third party.
(f)
Section 2.9(f) of the Company Disclosure Letter lists all Contracts (other than licenses for COTS Software) between the Company
or any of its Subsidiaries, on the one hand, and any other Person, on the other hand, wherein or whereby the Company or any of
its Subsidiaries has agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse,
12
hold
harmless, guaranty or otherwise assume or incur any obligation or liability or provide a right of rescission with respect to the
infringement or misappropriation by the Company, any of its Subsidiaries or such other Person of the Intellectual Property rights
of any third party.
(g)
Except as set forth in Section 2.9(g) of the Company Disclosure Letter, neither the Company Products nor the Company Source Code
contains any Open Source Materials. Section 2.9(g) of the Company Disclosure Letter lists all Open Source Materials used by the
Company or any of its Subsidiaries in the development of Company Products. Except as set forth in Section 2.9(g) of the Company
Disclosure Letter, no Company Product or Company Source Code is or has been subject to the terms of license of any such Open Source
Materials, and neither the Company nor any of its Subsidiaries is in breach of any of the material terms of any license to any
such Open Source Materials. Company Products that link with, use or include works distributed under the LGPL link to such works
using a shared library mechanism as described in the LGPL. “
Open Source Materials
” refers to any Software or
other material that is distributed as “
free software
”, “
open source software
” or under similar
licensing or distribution terms (including but not limited to the GNU General Public License (“
GPL
”), GNU Lesser
General Public License (“
LGPL
”), Mozilla Public License (“
MPL
”), BSD licenses, the Artistic
License, the Netscape Public License, the Sun Community Source License (“
SCSL
”), the Sun Industry Standards
License (“
SISL
”), the Apache License, and any license identified as an open source license by the Open Source
Initiative (www.opensource.org)).
(h)
Except for COTS Software and the Intellectual Property and Software licensed pursuant to the licenses set forth in Section 2.9(e)
of the Company Disclosure Letter, all Intellectual Property and Software used in or necessary to the conduct of the business of
the Company as presently conducted by the Company or its Subsidiaries was created solely by either (1) employees of the Company
or one of its Subsidiaries acting within the scope of their employment who have validly and irrevocably assigned all of their
rights, including Intellectual Property rights therein, to the Company or one of its Subsidiaries and who have irrevocably waived
any unassignable rights such as moral rights that they may possess in the Intellectual Property and Software, or (2) other
Persons who have validly and irrevocably assigned all of their rights therein, including Intellectual Property rights, to the
Company or one of its Subsidiaries and who have irrevocably waived any unassignable rights such as moral rights that they may
possess in the Intellectual Property and Software, and except as set forth in Section 2.9(e) of the Company Disclosure Letter,
no other Person owns or has any rights to any portion of such Intellectual Property or Software (other than pursuant to Customer
License Agreements).
(i)
Neither the Company nor any of its Subsidiaries has transferred ownership of, or granted any exclusive license of or exclusive
right to use, or authorized the retention of any exclusive rights in or to joint ownership of, any Intellectual Property or Software
to any other Person.
(j)
All Company-Owned Intellectual Property and Company Products will be fully transferable, alienable and licensable by the Company
or its Affiliates without restriction and without payment to any Person, subject to Customer License Agreements.
(k)
The operation of the business of the Company as it currently is conducted, and as has been conducted in the last six years including
the design, development, use, import,
13
export,
manufacture, licensing, sale or other disposition of Company Products (including the provision of service offerings), (1) has
not and does not infringe or misappropriate the Intellectual Property rights of any Person, violate the rights of any Person (including
rights to privacy or publicity), or constitute unfair competition or trade practices under the Laws of any jurisdiction, and (2) will
not infringe or misappropriate the Intellectual Property rights of any Person, violate the rights of any Person (including rights
to privacy or publicity), or constitute unfair competition or trade practices under the Laws of any jurisdiction. Neither the
Company nor any of its Subsidiaries has received any notice from any Person claiming that such operation or any Company Product
or the provision of any service offerings infringes or misappropriates the Intellectual Property rights of any Person or constitutes
unfair competition or trade practices under the Laws of any jurisdiction (nor, to the Knowledge of the Shareholders, does there
exist any Basis therefor).
(l)
Each item of Company Registered Intellectual Property is valid and subsisting, and all necessary registration, maintenance and
renewal fees in connection with such Company Registered Intellectual Property have been paid.
(m)
Neither the Company nor any of its Subsidiaries is infringing or otherwise violating, or has infringed or otherwise violated,
any Intellectual Property right of any Person or any Law relating to Intellectual Property. There is, and has been, no pending,
decided or settled opposition, interference, reexamination, injunction, lawsuit, proceeding, hearing, investigation, complaint,
arbitration, mediation, demand, decree, or any other dispute, disagreement, or claim related to Company-Owned Intellectual Property
and/or any Company Product, including the provision of any service offerings (“
Dispute
”), nor, to the Knowledge
of the Shareholders, has any Dispute been threatened, challenging the legality, validity, enforceability or ownership of any Company-Owned
Intellectual Property. To the Knowledge of the Shareholders, there exists no Basis that would give rise to such a Dispute. Neither
the Company nor any of its Subsidiaries has sent any notice of any Dispute, and there exists no Basis upon which the Company or
any of its Subsidiaries intends to assert any Dispute. No Company-Owned Intellectual Property or Company Product is subject to
any outstanding Order or other disposition of any Dispute.
(n)
To the Knowledge of the Shareholders, there are no facts or circumstances that would render any Company-Owned Intellectual Property
invalid or unenforceable. Without limiting the foregoing, to the Knowledge of the Shareholders, there is no information, material,
fact, or circumstance, including any information or fact that would constitute prior art, that would render any Company Registered
Intellectual Property invalid or unenforceable, or would adversely affect any pending application for any Company Registered Intellectual
Property, and neither the Company nor any of its Subsidiaries has knowingly misrepresented, or knowingly failed to disclose, and,
to the Knowledge of the Shareholders, there is no misrepresentation or failure to disclose, any fact or circumstance 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.
(o)
There are no measures reasonably necessary to protect Company-Owned Intellectual Property or any Company Product that have not
been taken and that the failure to take would be reasonably likely to be material. In each case in which the Company or one of
its
14
Subsidiaries
has acquired any Intellectual Property from any Person, the Company or such Subsidiary has obtained a valid and enforceable assignment
sufficient to irrevocably transfer all rights in such Intellectual Property (including the right to seek future damages with respect
thereto) to the Company or such Subsidiary.
(p)
No Intellectual Property that is or was Company-Owned Intellectual Property has been permitted to lapse or enter the public domain.
(q)
There is no Contract between the Company or any of its Subsidiaries, on the one hand, and any other Person, on the other hand,
with respect to any Intellectual Property or Company Products under which there is currently any dispute regarding the scope of
such Contract, or performance under such Contract, including with respect to any payments to be made or received by the Company
or any of its Subsidiaries thereunder, nor, to the Knowledge of the Shareholders, does there exist any Basis therefor.
(r)
None of the Company, any of its Subsidiaries or any other party acting on behalf of the Company or any of its Subsidiaries has
disclosed or delivered to any third party, or permitted the disclosure or delivery to any escrow agent or other party of, any
Company Source Code (as defined below). No event has occurred, and no circumstance or condition exists, that (with or without
notice, lapse of time or both) will, or would reasonably be expected to, require the disclosure or delivery by the Company,
any of its Subsidiaries or any Person acting on behalf of the Company or any of its Subsidiaries to any third party of any Company
Source Code. Section 2.9(r) of the Company Disclosure Letter identifies each Contract under which the Company or any of its Subsidiaries
has 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 this Agreement 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. “
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 or any Software owned by Company or any of its Subsidiaries.
(s)
Neither this Agreement nor the Transactions will result in (1) Purchaser or the Company granting to any Person any right
to or with respect to any Intellectual Property or Software owned by, or licensed to, any of them, (2) Purchaser 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 (3) Purchaser 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.
(t)
The Company and its Subsidiaries have taken all customary and commercially reasonable steps that are required to protect the Company’s
and its Subsidiaries’ rights in Trade Secrets of the Company, or as provided by any other Person to the Company or any of
its Subsidiaries. Without limiting the foregoing, the Company and its Subsidiaries have, and enforce, a policy requiring each
employee, consultant and contractor to execute proprietary information, confidentiality and assignment agreements. All current
and former employees, consultants and contractors of the Company or its Subsidiaries have executed such an agreement and all former
employees,
15
consultants
and contractors of the Company or its Subsidiaries who were involved in, or who contributed to, the creation or development of
any Company-Owned Intellectual Property have executed such an agreement. No employee, officer, director, consultant or advisor
of the Company or any of its Subsidiaries is in violation of any term of any employment contract or any other contract or agreement,
or any restrictive covenant, relating to the right to use Trade Secrets or proprietary information of others, and the employment
of any such Person by the Company or any of its Subsidiaries does not subject the Company or its Subsidiaries to any liability
to any third party.
(u)
No (1) product, technology, service or publication of the Company or any of its Subsidiaries, (2) material published
or distributed by the Company or any of its Subsidiaries, or (3) conduct or statement of the Company or any of its Subsidiaries
constitutes obscene material, a defamatory statement or material, false advertising or otherwise violates any Law. The definition
of false advertising excludes normal errors and omissions for which the Company maintains review processes for correction.
(v)
None of the Company-Owned Intellectual Property was developed by or on behalf of, or using grants or any other subsidies of, any
Governmental Authority or any university, and no government funding, facilities, faculty or students of a university, college,
other educational institution or research center or funding from third parties was used in the development of Company-Owned Intellectual
Property or any Company Product. No current or former employee, consultant or independent contractor of the Company or any of
its Subsidiaries, who was involved in, or who contributed to, the creation or development of any Company-Owned Intellectual Property
or Software contained in any Company Product, has performed services for a government, university, college, or other educational
institution or research center during a period of time during which such employee, consultant or independent contractor was also
performing services for the Company or any of its Subsidiaries.
(w)
There are no material defects in any Company Product and there are no material errors in any published technical documentation,
specifications, manuals, user guides, promotional material, benchmark test results, and other written materials related to, associated
with or used or produced in the development of any Company Product. The Company has disclosed to Purchaser all information known
to the Company relating to any performance or functionality problem or issue with respect to any Company Product which adversely
affects, or may reasonably be expected to adversely affect, the value, functionality or fitness for the intended purposes of the
Company Product.
(x)
Except for the warranties and indemnities contained in those Contracts set forth in Section 2.9(x) of the Company Disclosure Letter
and warranties implied by Law, neither the Company nor any of its Subsidiaries has given any warranties or indemnities relating
to products or technology sold or services rendered by the Company or any of its Subsidiaries.
(y)
There are no pending or, to the Knowledge of the Shareholders, threatened claims for any product liability, backcharge, additional
work, field repair or other claims by any third party (whether based on contract or tort and whether relating to personal injury,
including death, property damage or economic loss) arising from (1) services rendered by the Company or
16
any
of its Subsidiaries, (2) the sale, distribution, or installation of any Company Products, or (3) the operation
of the Company’s businesses during the period through and including the Closing Date. The operation and use of Company Products
for their intended purposes complies with all applicable Laws, including any Law applicable to the users of any Company Product.
(z)
The Company and its Subsidiaries have (a) complied in all respects with its published privacy policies and internal privacy
policies and guidelines, related contractual obligations with Customers 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 (including personally identifiable information of employees,
contractors, and third parties who have provided information to the Company or its Subsidiaries) and (b) taken commercially
reasonable measures to ensure that personally identifiable information is protected against loss, damage, and unauthorized access,
use, modification, or other misuse. To the Knowledge of the Shareholders, there has been no loss, damage, or unauthorized access,
use, modification, or other misuse of any such information by the Company, its Subsidiaries or any of their employees or contractors.
No Person (including any Governmental Authority) has made any claim or commenced any Action with respect to loss, damage,
or unauthorized access, use, modification, or other misuse of any such personally identifiable information by the Company, its
Subsidiaries or any of their employees or contractors and, to the Knowledge of the Shareholders, there is no reasonable basis
for any such claim or Action. The execution, delivery and performance of this Agreement and the consummation of the Transactions
complies with the Company’s applicable privacy policies and with all applicable Laws relating to privacy and data security
(including any such Laws in the jurisdictions where the applicable information is collected). The Company and its Subsidiaries
have at all times made all required disclosures to, and obtained any necessary consents from, users, customers, employees, contractors
and other applicable Persons required by Laws related to privacy and data security and has filed any required registrations with
the applicable data protection authority.
Section
2.10
Taxes
.
(a)
“
Tax
” means (1) any net income, corporate, capital gains, capital acquisitions, inheritance, deposit interest
retention, gift, relevant contracts, alternative minimum, add-on minimum, gross income, gross receipts, sales, value added tax
(VAT), use, harmonized, retail, ad valorem, transfer, franchise, profits, license, withholding, estimated, payroll, employment,
excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom duty or other tax, governmental
fee or other like assessment or charge whatsoever, together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Authority responsible for the imposition of any such item (domestic or foreign) (each, a “
Tax
Authority
”), (2) any liability for the payment of any amounts of the type described in clause (1) of this
sentence as a result of being a member of an affiliated, consolidated, combined, unitary or aggregate group for any taxable period,
and (3) any liability for the payment of any amounts of the type described in clause (1) or (2) of this sentence as
a result of being a transferee of or successor to any Person or as a result of any obligation to indemnify any other Person. “
Tax
Return
” means any return, election, designation, declaration, notice, statement, report or form (including information
returns and reports) required to be filed with respect to Taxes.
17
(b)
Tax Returns
. The Company and each of its Subsidiaries have duly and timely filed all Tax Returns required to be filed under
applicable Law in any jurisdiction in which the Company or any of its Subsidiaries is or has been subject to Tax or is required
to file a Tax Return, and such Tax Returns are complete and correct in all respects, were prepared in compliance with applicable
Law, and correctly reflect the liability for Taxes and other information required to be reported thereon. No position reflected
in a Tax Return of or with respect to the Company or any of its Subsidiaries could subject the Company or any of its Subsidiaries
to penalties. All records required by applicable Law to be maintained in connection with any Tax Return of the Company or any
of its Subsidiaries the period of assessments for which has not yet expired are being properly maintained in accordance with applicable
Law.
(c)
Extensions
. Neither the Company nor any of its Subsidiaries has requested or received an extension of time to file any
Tax Return and has not waived any statute of limitations period in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(d)
Payment
. The Company and each of its Subsidiaries have timely paid all Taxes that have become due and payable (whether
or not shown to be due on any Tax Return), and the Company and each of its Subsidiaries have adequately provided in the Financial
Statements (on the face thereof without regard to any footnotes) for all Taxes accrued through the date of such Financial Statements
that were not yet due and payable as of the date thereof. The Company and each of its Subsidiaries have made adequate and timely
installments of Taxes required to be made. All Taxes of the Company and each of its Subsidiaries accrued following the end of
the most recent period covered by the Financial Statements have been accrued in the ordinary course of business and do not exceed
comparable amounts incurred in similar periods (or partial periods, as applicable) in prior years (taking into account any changes
in the Company’s operating results). The Company and each of its Subsidiaries have withheld and paid all Taxes required
to be withheld and paid in connection with any amounts paid or owing to any Person.
(e)
Sales Tax
. All Taxes that were required to be collected or self-assessed by the Company or its Subsidiaries have been duly
collected or self-assessed, and all such amounts that were required to be remitted to any taxing authority have been duly remitted,
and the Company and its Subsidiaries have timely complied with all reporting requirements with respect thereto. The amount of
Taxes collected or self-assessed but not remitted by the Company or its Subsidiaries has been retained in the appropriate accounts.
(f)
Tax Assessment
. The liability for Taxes of the Company and its Subsidiaries has been assessed by all relevant Tax Authorities
for all periods up to and including December 31, 2012.
(g)
Tax Agreements
. The Company is not a party to or bound by any obligation under any Tax sharing, Tax allocation, Tax indemnity,
or similar agreement or arrangement.
18
Section
2.11
Employee Benefit Plans
.
(a)
Section 2.11(a) of the Company Disclosure Letter lists and describes all Employee Plans and Employment Arrangements. The Company
has furnished to Purchaser true, correct and complete copies of all Employee Plans and Employment Arrangements, in each case,
as amended, together with all related documentation.
(b)
All Employee Plans have been established, registered, administered, maintained, communicated and invested in accordance with all
applicable Laws. No fact or circumstance exists which could adversely affect the registered status of any such Employee Plan.
Neither the Company nor any of its Subsidiaries, nor any of its agents or delegates, has breached any fiduciary obligation with
respect to the administration or investment of any Employee Plan.
(c)
The Company and its Subsidiaries have made all contributions and paid all premiums in respect of each Employee Plan in a timely
fashion in accordance with the terms of each Employee Plan and applicable Laws.
(d)
Other than routine claims for benefits, no Employee Plan, no administrator of any Employee Plan, and no member of any body which
administers an Employee Plan, nor the Company, nor any of its Subsidiaries is subject to any pending Action, investigation, examination,
claim (including claims for Taxes) or any other proceeding initiated by any Person that involves, or otherwise could result in
any material liability to, the Company or any of its Subsidiaries, and there exists no state of facts which could reasonably be
expected to give rise to any such Action, investigation, examination, claim or other proceeding.
(e)
No insurance policy or any other agreement affecting any Employee Plan requires or permits a retroactive increase in contributions,
premiums or other payments due under such insurance policy or agreement. The level of reserves under each Employee Plan which
provides group benefits and contemplates the holding of such reserves is reasonable and sufficient to provide for all incurred
but unreported claims.
(f)
None of the Employee Plans (other than pension plans) provide for retiree benefits or for benefits to retired employees or to
the beneficiaries or dependents of retired employees.
(g)
None of the Employee Plans enjoy any special tax status under any Laws, nor have any advance tax rulings been sought or received
in respect of any Employee Plan.
(h)
All employee data necessary to administer each Employee Plan in accordance with its terms and conditions and all Laws is in possession
of the Company and such data is complete, correct, and in a form which is sufficient for the proper administration of each Employee
Plan.
(i)
Neither the execution of this Agreement and the other agreements contemplated hereby nor the consummation of the Transactions
(either together with or upon the occurrence of any additional or subsequent events) will constitute an event under any Employee
Plan, Employment Arrangement or other Contract of the Company or any of its Subsidiaries that
19
will
or may reasonably be expected to result in any payment (including severance or termination pay) or any acceleration, vesting,
increase, funding (including the segregation of assets to fund) or provision of benefits thereunder, in each case, to any current
or former employee, director or consultant of the Company or any of its Subsidiaries excluding in each case such severance or
termination pay or other benefit that is required to be provided under applicable Laws.
Section
2.12
Labor and Employment Matters
.
(a)
Except as disclosed in Section 2.12(a) of the Company Disclosure Letter, all amounts due and owing or accrued due but not yet
owing for all salary, wages, fees, bonuses, incentives, commissions, premiums, overtime pay, deferred compensation, profit sharing,
vacation pay or other paid time off, variable remuneration, employee benefits, termination and severance pay have been paid by
the Company or its Subsidiaries or are accurately reflected in the books and records of the Company or the Subsidiaries.
(b)
The Company and each of its Subsidiaries have complied, and are in compliance with all terms and conditions of employment and
all applicable Laws relating to employment and labor matters, including provisions thereof relating to wages, hours, vacation
pay, pay equity, overtime pay, privacy, human rights, occupational health and safety, unemployment compensation, conditions of
employment and the payment of Taxes, there are no outstanding claims, complaints, investigations or orders outstanding under any
such Laws and, to the Knowledge of the Shareholders, there is no basis for such claims, complaints or investigations.
(c)
There is no collective bargaining agreement or other contract with a labor union, bargaining agent or employee association contracts
with respect to employees of the Company or the Subsidiaries, and no such agreement is currently being negotiated.
(d)
The Company and its Subsidiaries have not engaged in any unfair labor practice and no unfair labor practice complaints are currently
outstanding, pending or threatened. There is no labor slow down, work stoppage, strike or lockout in effect or threatened against
the Company or any of the Subsidiaries, nor has there ever been any such event.
(e)
There are no outstanding loans to any current or former officer, directors, employee, and independent contractor/consultant of
the Company or any of its Subsidiaries other than those listed in Section 2.12(a) of the Company Disclosure Letter (for greater
certainty, travel advances are not considered loans for the purposes of this subsection).
(f)
Section 2.12(f) of the Company Disclosure Letter contains a correct and complete list of all officers, directors, employees and
independent contractors/consultants of the Company and any of its Subsidiaries, whether actively at work or not, with their salaries,
wage rates, bonus arrangements, profit sharing and variable remuneration and benefits.
(g)
No officer, director, employee, independent contractor/consultant or agent of the Company or any of its Subsidiaries has any agreement
triggered by a change of control, except as disclosed in Section 2.12(g) of the Company Disclosure Letter. Section 2.12(g) of
the Company Disclosure Letter sets forth all by recipient the dollar amount of all Transaction Payments.
20
(h)
There are no orders or charges against the Company or any of its Subsidiaries outstanding under applicable occupational health
and safety and no such orders or charges are pending, threatened or anticipated. The Company and each of its Subsidiaries have
complied with any orders and inspection reports issued under applicable occupational health and safety legislation and there are
no appeals of any orders under applicable occupational health and safety legislation currently outstanding.
(i)
All employees that are required under Law to hold work permits to enable them to work for the Company or any of its Subsidiaries
in the jurisdiction in which they are employed do hold all required permits which, in each case, (i) have been validly issued
to the employees and (ii) are in full force and effect. All employees of the Company or its Subsidiaries are employed in
Sweden, except as disclosed in Section 2.12(i) of the Company Disclosure Letter.
(j)
No employee is in any material respect in violation of any term of any employment contract, non-disclosure, confidentiality agreement,
or consulting agreement with the Company or any of its Subsidiaries or non-competition agreement, non-solicitation agreement or
any restrictive covenant with a former employer relating to the right of any such employee to be employed by or provide services
to the Company or any of its Subsidiaries because of the nature of the business conducted or presently proposed to be conducted
by it or to the use of trade secrets or proprietary information of others.
(k)
There are no claims pending against the Company or any of its Subsidiaries under any workers’ compensation plan or policy,
for unemployment compensation benefits or for long term disability. No person currently or previously employed by the Company
or any of its Subsidiaries or subcontracted by one of them has been involved in an accident in the course of such employment or
subcontracting that would have caused other than minor injury nor has any such person been exposed to occupational health hazards
in the service of the Company or such Subsidiary. There have been no claims (settled or unsettled) for injury or occupational
health hazard against the Company or any of its Subsidiaries by any employee.
(l)
No consultant or independent contractor that is, or previously has been, engaged by the Company or any of the Subsidiaries is
or will be required to be qualified as an employee of the Company or any of the Subsidiaries under applicable Tax laws.
Section
2.13
Related Party Transactions
. No officer or director of the Company or any
of its Subsidiaries and no shareholder of the Company (nor any immediate family member of any of such Persons or any trust, partnership
or company in which any of such Persons has or has had an interest) (each a “
Related Party
”) has or has had,
directly or indirectly, (a) any interest in any third party that purchases from or sells or furnishes to the Company or any
of its Subsidiaries any goods or services other than on arm’s length terms and in the ordinary course of business or (b) any
interest in any Contract to which the Company or any of its Subsidiaries is a party, except that ownership of no more than one
percent of the outstanding voting stock of a publicly traded company shall not be deemed to be an “interest in any third
party” for purposes of this Section 2.12(a).
21
Section
2.14
Company Authorizations
. Each material Permit (a) pursuant to which
the Company or any of its Subsidiaries currently operates or holds any interest in any of its Assets and Properties, or (b) that
is required for the operation of the Company’s business as presently conducted or the holding of any such interest (collectively,
the “
Company Authorizations
”) has been issued or granted to the Company or any of its Subsidiaries. The Company
Authorizations are in full force and effect and constitute all Company Authorizations required to permit the Company and each
of its Subsidiaries to lawfully operate or conduct its business or hold any interest in its Assets and Properties.
Section
2.15
Banks and Brokerage Accounts
. Section 2.15 of the Company Disclosure Letter
sets forth (a) a true and complete list of the names and locations of all banks and other financial institutions at which
the Company or any of its Subsidiaries have an account or a safe deposit box or maintains a banking, custodial, trading or other
similar relationship; (b) a true and complete list and description of each such account, box and relationship, indicating
in each case the account number and the names of the respective officers, employees, agents or other similar representatives of
the Company or any of its Subsidiaries having signatory power with respect thereto; and (c) a list of each investment asset,
the name of the record and beneficial owner thereof, the location of the certificates, if any, therefor, the maturity date, if
any, and any stock or bond powers or other authority for transfer granted with respect thereto.
Section
2.16
Insurance
. Section 2.16 of the Company Disclosure Letter sets forth a true,
correct and complete list of all policies of insurance and indemnity bonds issued at the request or for the benefit of the Company
or any of its Subsidiaries and includes the type of policy, insurer, form of coverage, policy number, coverage dates, annual premiums,
named insured and limit of liability. All such policies and bonds are in full force and effect. True and complete copies of each
listed policy have been Made Available to Purchaser. There is no material claim pending under any of such policies or bonds. The
Company and each of its Subsidiaries benefiting therefrom is in material compliance with the terms of such policies and bonds.
To the Knowledge of the Shareholders, there is no threatened termination of, or material premium increase with respect to, any
of such policies or bonds, nor is there any Basis for any termination or material premium increase. Section 2.16 of the Company
Disclosure Letter sets forth an accurate and complete list of all open claims filed by the Company or any of its Subsidiaries
under any such policies or bonds.
Section
2.17
Compliance with Laws
.
(a)
The Company and each of its Subsidiaries has complied in all material respects with, is not in material violation of, and has
not received, nor to the Knowledge of the Shareholders is there any Basis for, any notices of material violation with respect
to, any Laws or Permits with respect to the conduct of its business, or the ownership or operation of its business, including
any consumer protection, equal opportunity, customs, export control, foreign trade, or foreign corrupt practices Law (including
the Foreign Corrupt Practices Act of 1977, as amended).
(b)
In the past five (5) years, neither the Company nor its Subsidiaries has, and no employee, agent or Affiliate of the Company or
its Subsidiaries (in their capacity as such as purporting to act in such capacity or on behalf of or in connection with the business
or affairs
22
of
the Company or its Subsidiaries) has, directly or indirectly (i) used any funds of the Company or any of its Subsidiaries for
unlawful contributions, gifts, entertainment or other unlawful expenses, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign
Corrupt Practices Act or similar Law, (iii) made any payment in the nature of criminal bribery, or (iv) made any payment of funds
to any Person or received or retained any funds in violation of any applicable Law.
Section
2.18
Minute Books
. The minute books of the Company and its Subsidiaries have
been Made Available to Purchaser and contain a complete and accurate summary of all meetings of directors and shareholders or
actions by written consent of the Company’s and its Subsidiaries’ directors or shareholders and the share registers
and share ledgers of the Company and its Subsidiaries since their time of incorporation and reflect all transactions referred
to in such minutes, registers and ledgers accurately in all material respects.
Section
2.19
Customers
. Section 2.19 of the Company Disclosure Letter sets forth a list
of the customers of the Company or its Subsidiaries (the “
Customers
”). No Customer has canceled or otherwise
terminated its relationship with the Company or any of its Subsidiaries or has materially decreased its usage of the Company’s
or its Subsidiaries’ products and services, and, to the Knowledge of the Shareholders, no Customer intends to cancel or
otherwise terminate its relationship with the Company or any of its Subsidiaries or to decrease materially its usage of products
or services of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has (a) received any
notice or other communication from any Customer that such customer will not continue as a customer of the Company, its Subsidiaries
or Purchaser after the Closing or that such customer intends to terminate or materially modify existing Contracts with the Company,
its Subsidiaries or Purchaser or (b) received any written complaint regarding the Company’s or its Subsidiaries’
products or services.
Section
2.20
Material Contracts
. Section 2.20 of the Company Disclosure Letter sets forth
a true and complete list of each Contract of the Company or its Subsidiaries under which the Company or any of its Subsidiaries
has ongoing executory obligations or the ability to enforce rights thereunder and that is included within any of the following
categories:
(a)
any distributor, sales, reseller, advertising, agency, original equipment manufacturing, sales representative, joint marketing,
joint development or joint venture Contract;
(b)
each Contract between the Company or any of its Subsidiaries and any Customer (each a “
Customer Contract
”);
(c)
any continuing Contract for the purchase of materials, supplies, equipment or services that involves the payment by the Company
or any of its Subsidiaries of more than $50,000 over the life of the Contract;
(d)
any hedging, futures, options or other derivative Contract;
(e)
any agreement of guarantee, support, indemnification, assumption or endorsement of, or any similar commitment with respect to,
the Liabilities of any other Person;
23
(f)
any Contract for any capital expenditure in excess of $50,000 individually;
(g)
any Contract providing a third party with rights to, or based upon, any Company Intellectual Property, except for Customer Contracts;
(h)
any Contract with any Related Party or any Person with whom the Company or any of its Subsidiaries does not deal at arms’
length;
(i)
any Contract relating to the disposition or acquisition of assets or any interest in any business enterprise, except for the sale
of products or services in the ordinary course of business;
(j)
any Contract with any Governmental Authority, other than any Customer Contract;
(k)
any Contract in accordance with which the Company or any of its Subsidiaries is a lessor or lessee of any real property.
Each
Contract disclosed in Section 2.9, this Section 2.20 or Section 2.21 of the Company Disclosure Letter, or required to be disclosed
pursuant to Section 2.9, this Section 2.20 or Section 2.21 is referred to herein as a “
Company Material Contract.
”
A true and complete copy of each Company Material Contract has been Made Available to Purchaser. All Company Material Contracts
are in executed written form, and the Company or one of its Subsidiaries has performed all of the material obligations required
to be performed by it and is entitled to all benefits under, and neither the Company nor one of its Subsidiaries is in default
of any material provision in respect of, any Company Material Contract. Each of the Company Material Contracts is a valid and
binding agreement of the Company or one of its Subsidiaries and, to the Knowledge of the Shareholders, the other parties thereto,
subject to the effect, if any, of applicable bankruptcy and other similar Laws affecting the rights of creditors generally and
rules of law governing specific performance, injunctive relief and other equitable remedies, and there exists no default or event
of default or event, occurrence, condition or act, which could reasonably be expected to result in the Company not enjoying all
economic benefits that the Company or such Subsidiary enjoyed before the Closing and to which it is entitled post-Closing under
any Company Material Contract. Immediately following the Closing Date, the Company or one of its Subsidiaries will maintain its
rights under the Company Material Contracts without the payment of any additional amounts of consideration (other than ongoing
fees, royalties or payments that the Company or such Subsidiary would otherwise be required to pay in accordance with the terms
of such Company Material Contracts had the Transactions not occurred).
Section
2.21
Property
.
(a)
Neither the Company nor its Subsidiaries owns or has ever owned or is the lessor or lessee of any real property, and neither the
Company nor its Subsidiaries is a party or subject to any Contract to purchase or be the lessor or lessee of any real property
or any interest in any real property, except as set forth in Section 2.21(a) of the Company Disclosure Letter.
24
(b)
Neither the Company nor any of its Subsidiaries owns or has sub-leased or sub-licensed, or otherwise granted to any Person, the
right to use or occupy any real property, except as set forth in Section 2.21(b) of the Company Disclosure Letter.
(c)
Each Lease and Sub-lease is in good standing, creates a good and valid leasehold estate in the leased real property thereby demised
and is in full force and effect without amendment. With respect to each Lease and Sub-lease: (1) all rents and additional rents
that have fallen due have been paid, (2) no waiver, indulgence or postponement of the lessee’s obligations has been granted
by the lessor; (3) there exists no event of default or event, occurrence, condition or act (including the transaction contemplated
hereby) which, with the giving of notice, the lapse of time or the happening of any other event or condition, would become a default
under the Lease, and (4) to the Knowledge of the Shareholders, all of the covenants to be performed by any other party under the
Lease or Sub-lease, as applicable, have been fully performed.
(d)
The Company or one of its Subsidiaries has good and marketable title to, or, in the case of leased or licensed properties and
assets, marketable leasehold or license interests in, all of its tangible properties and assets, real, personal and mixed, used
or held for use in its business, free and clear of any Encumbrances, and such properties and assets have been maintained in accordance
with the ordinary course of business save for normal tear and wear, except (1) as reflected in the Financial Statements,
(2) liens for Taxes not yet due and payable, and (3) such imperfections of title and Encumbrances that do not detract
materially from the value or interfere materially with the present use of the property subject thereto or affected thereby. Section
2.21 of the Company Disclosure Letter lists, and the Company has Made Available to Parent a true, correct and complete copy of,
each real property lease to which the Company or any of its Subsidiaries is a party.
(e)
The tangible assets and properties owned, leased or licensed by the Company and each of its Subsidiaries are in good condition
and repair in all material respects (subject to normal wear and tear) and constitute all of the material properties necessary
to conduct the business of the Company and its Subsidiaries as currently conducted.
Section
2.22
Brokers and Finders
. Except as detailed on Section 2.22 of the Disclosure
Letter, no Person has acted as a broker, finder or financial advisor for the Company or its Affiliates in connection with the
negotiations relating to the Transactions, so that such Person would be entitled to any fee or commission or similar payment in
respect thereof from the Company, Purchaser or any of their respective Affiliates based in any way on any agreement, arrangement
or understanding made by or on behalf of the Company or its Affiliates.
Section
2.23
Board Approval
. The Company’s board of directors, by resolutions duly
adopted (and not thereafter modified or rescinded) by unanimous vote (with no abstentions) at a meeting duly called and held or
by unanimous written consent, has (a) approved this Agreement, and the Transactions and (b) determined that this Agreement
and the Transactions are advisable and in the best interests of the Company and the Shareholders, and (c) recommended that the
Shareholders adopt and approve this Agreement and the Transactions.
Section
2.24
Accounts Receivable
. All of the accounts receivable of the Company and each
Subsidiary are valid and enforceable claims, subject to no set off or counterclaim. All
25
accounts
receivable of the Company and each Subsidiary are determined in accordance with generally accepted accounting principles and arose
out of bona fide transactions in the ordinary course of business.
Section
2.25
Environmental Matters
.
The ownership and use of the Company’s
and each Subsidiary’s premises and assets, the occupancy and operation thereof, and the conduct of the Company’s and
each Subsidiary’s operations and business, are in compliance in all material respects with all applicable Laws relating
to pollution, environmental protection, hazardous substances and related matters. Neither the Company nor any Subsidiary has received
any notice from any governmental authority or any other Person of any alleged violation or noncompliance. There is no liability
attaching to the Company or any Subsidiary or such premises or assets or the ownership or operation thereof as a result of any
hazardous substance that may have been discharged on or released from such premises, or disposed of on-site or off-site, or any
other circumstance occurring prior to the Closing or existing as of the Closing. For purposes of this Section, “hazardous
substance” shall mean oil or any other substance which is included within the definition of a “hazardous substance”,
“pollutant”, “toxic substance”, “toxic waste”, “hazardous waste”, “contaminant”
or other words of similar import in any applicable foreign, federal, state or local environmental law, statute, ordinance, rule
or regulation.
Section
2.26
Absence of Material Undisclosed Liabilities
. Except for (a) accounts payable
and accrued expenses reflected in the Financial Statements and other similar amounts incurred in the ordinary course of business
since the Company Balance Sheet Date, and (b) obligations of future performance under contracts set forth on a Schedule hereto
and under other contracts entered into in the ordinary course in accordance with this Agreement which are not required to be listed
on a Schedule hereto, as of the Closing Date, none of the Company or any of its Subsidiaries will have any material liabilities
or obligations, whether absolute, accrued, contingent or otherwise, and whether due or to become due.
Section
2.27
Representations
. No representation or warranty of any Shareholder in this
Agreement, nor any statement, certificate or other document furnished or to be furnished by the Company to Purchaser pursuant
hereto, nor the exhibits and schedules hereto, contains or, on the Closing Date, will contain any untrue statement of a material
fact, or omits to state or, on the Closing Date, will omit to state, a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they were made, not misleading.
Section
2.28
Information
. The documents provided by the Shareholders in the Data Room
have been complied and structured in good faith and provides, on the day of compilation as well as on the day of signing of this
Agreement, a true, fair and complete picture of the Company and its Subsidiaries, their respective business and financial standing
and no facts or circumstances which would, with an objective view, be of material interest for a purchaser of the Shares have
been omitted, excluded or otherwise disclosed in an unfairly manner.
26
Article
3
INDIViDUAL Representations and Warranties of THE Shareholders
Each
Shareholder severally represents and warrants on behalf of such Shareholder to Purchaser as of the date hereof and the Closing
Date as follows:
Section
3.1
Organization and Power
. If not a natural person,
such Shareholder (a) is duly formed or organized, validly existing and, if applicable, in good standing under the Laws of the
jurisdiction of its organization and (b) has (or its trustee or trustees have) the power and authority to execute, deliver and
perform its obligations under this Agreement.
Section
3.2
Authorization; Enforceability
. If such Shareholder
is not a natural person, the execution, delivery and performance by such Shareholder of this Agreement has been duly authorized
by all requisite corporate or comparable organizational action on the part of such Shareholder, and no other proceedings or actions
on the part of such Shareholder are necessary to authorize the execution, delivery and performance by such Shareholder of this
Agreement and the consummation of the Transactions. This Agreement has been duly executed and delivered by such Shareholder and,
assuming due authorization, execution and delivery by the other parties hereto and thereto, represent the legal, valid and binding
obligation of such Shareholder, enforceable against such Shareholder in accordance with their respective terms, subject to the
effect of (a) applicable bankruptcy, insolvency, reorganization, moratorium and other similar Laws now and hereafter in effect
relating to the rights of creditors generally and (b) rules of law and equity governing specific performance, injunctive
relief and other equitable remedies. No further authorizing action on the part of such Shareholder is or will be required in connection
with the consummation of the Transactions.
Section
3.3
Noncontravention
.
(a)
The execution and delivery by such Shareholder of this Agreement does not, and the performance by such Shareholder of its obligations
hereunder and thereunder and the consummation of the Transactions by such Shareholder will not, (1) if such Shareholder is
not a natural person, conflict with, or result in a violation of or default under (with or without notice, lapse of time, or both),
the memorandum or articles of association or incorporation, bylaws, partnership agreement, shareholders agreement, declaration
of trust or equivalent constitutional or authorizing documents of such Shareholder or any Law applicable to it, (2)(A) conflict
with, (B) result in a violation of or default under (with or without notice, lapse of time or both), (C) give rise to
a right of termination, cancellation, renegotiation or acceleration of any obligation or loss of any benefit under or (D) require
consent, approval or waiver from any Person in accordance with the terms of any Contract to which such Shareholder is a party,
or (3) result in the creation or imposition of any Encumbrance with respect to, or otherwise have an adverse effect upon,
the Shares owned beneficially or of record by such Shareholder or the ability of such Shareholder to consummate the Transactions.
(b)
No consent, approval, license, Permit, Order or authorization of, registration or filing with or declaration or notification to,
any Person is required by such
27
Shareholder
in connection with the execution and delivery of this Agreement or the consummation of the Transactions.
Section
3.4
Ownership of Shares
. As of the date hereof, such
Shareholder is the sole registered legal and beneficial owner of the number of the classes and series of Shares opposite such
Shareholder’s name in Section 2.2(b) of the Company Disclosure Letter, without regard to the columns labeled “As of
Closing.” As of the Closing Date, such Shareholder will be and is the sole registered legal and beneficial owner of the
number of the classes and series of Shares opposite such Shareholder’s name in the columns labeled “As of Closing”
in Section 2.2(b) of the Company Disclosure Letter. Except pursuant hereto, such Shares as are or will be owned by such Shareholder
on the referenced date are not and will not be subject to any Encumbrances, and such Shareholder has not granted any rights to
purchase, and has no obligation to transfer, assign or otherwise dispose of, such Shares to any other Person. Such Shareholder
has the sole right to transfer the full legal and beneficial ownership of such Shares free from all Encumbrances to Purchaser.
Such Shares constitute all of the share capital of the Company owned, beneficially or of record, by such Shareholder, and such
Shareholder has no other rights to acquire shares in the capital of the Company (except pursuant to the Shareholders’ Agreement).
Upon the Closing, Purchaser will own such Shares free and clear of all Encumbrances other than those arising hereunder.
Section
3.5
Tax and Legal Matters
. Such Shareholder acknowledges
and agrees that such Shareholder had the opportunity to seek and was not prevented by Purchaser, the Representative or any other
Shareholder from seeking independent legal and Tax advice before such Shareholder’s execution and delivery of this Agreement
and, if such Shareholder did not avail itself of that opportunity before signing this Agreement that such Shareholder did so voluntarily
without any undue pressure and agrees that such failure to obtain independent legal or Tax advice will not be used by such Shareholder
as a defense to the enforcement of such Shareholder’s obligations under this Agreement. Such Shareholder understands that
it must rely solely on its own advisors and not on any statements or representations by other Shareholders, the Representative,
the Company, its Subsidiaries, Purchaser or any of their agents or attorneys, except for the representations and warranties of
Purchaser in Article 4. Such Shareholder understands that such Shareholder (and not Purchaser, the Representative, the Company
or its Subsidiaries) will be responsible for such Shareholder’s legal or Tax liability that may arise as a result of the
sale of such Shareholder’s Shares hereunder.
Section
3.6
Absence of Litigation
. Such Shareholder is not subject
to any Actions outstanding or pending or, to the knowledge of such Shareholder, threatened against or affecting such Shareholder
that would prevent such Shareholder from (a) executing and delivering this Agreement or (b) performing such Shareholder’s
obligations pursuant to, or observing any of the terms and provisions of, this Agreement.
Section
3.7
U.S. Securities Law Matters
.
(a)
Investment for Own Account
. The Consideration Shares to be acquired by such Shareholder hereunder will be acquired solely
for investment for such Shareholder’s own account, not as a nominee or agent, and not with a view to the public or private
resale or distribution thereof within the meaning of the Securities Act, and such Shareholder has no
28
present
intention of selling, transferring, granting any participation in or otherwise distributing the same.
(b)
Accredited Investor; Regulation S
. Such Shareholder either (i) is an “accredited investor” within the meaning
of Rule 501 of Regulation D promulgated by the United States Securities and Exchange Commission, as presently in effect, or (ii)
certifies that such Shareholder is not a “U.S. person” within the meaning of Rule 902 of Regulation S promulgated
by the United States Securities and Exchange Commission, as presently in effect, that such Shareholder is not located within the
United States at the time of such Shareholder’s execution and delivery of this Agreement and that such Shareholder is not
acquiring the Consideration Shares for the account or benefit of any such U.S. person. Such Shareholder (1) agrees to transfer
or resell the Consideration Shares only in accordance with the provisions of Regulation S, pursuant to registration under the
Securities Act, or pursuant to an available exemption from registration and agrees not to engage in hedging transactions with
regard to such Consideration Shares unless in compliance with the Securities Act, (2) agrees that any certificates for any
Consideration Shares issued to such Shareholder shall contain a legend to the effect that transfer is prohibited except in accordance
with the provisions of Regulation S, pursuant to registration under the Securities Act or pursuant to an available exemption from
registration and that hedging transactions involving such Consideration Shares may not be conducted unless in compliance with
the Securities Act, and (3) agrees that Parent is required to refuse to register any transfer of any Consideration Shares
issued to Shareholder not made in accordance with the provisions of Regulation S, pursuant to registration under the Securities
Act, or pursuant to an available exemption from registration.
(c)
Disclosure of Information
. At no time was such Shareholder presented with or solicited by any publicly issued or circulated
newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale, purchase
or exchange of the Consideration Shares. Such Shareholder has received or has had full access to all the information that such
Shareholder considers necessary or appropriate to make an informed investment decision with respect to the Consideration Shares
to be acquired by such Shareholder under this Agreement. Such Shareholder further has had an opportunity to ask questions and
receive answers from Parent regarding the terms and conditions of the issuance of the Consideration Shares under this Agreement
and to obtain additional information (to the extent Parent possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify any information furnished to such Shareholder or to which such Shareholder had access.
(d)
Investment Experience
. Such Shareholder understands that the acquisition of the Consideration Shares involves substantial
risk. Such Shareholder (i) has experience as a Shareholder in securities of companies with businesses similar to Parent and acknowledges
that such Shareholder is able to fend for himself, can bear the economic risk of such Shareholder’s investment in the Consideration
Shares and has such knowledge and experience in financial or business matters that such Shareholder is capable of evaluating the
merits and risks of an investment in the Consideration Shares and protecting such Shareholder’s own interests in connection
with such investment, and (ii) has a preexisting personal or business relationship with the Company and certain of its officers,
directors or controlling persons of a nature and duration that enables Shareholder to be aware of the character, business acumen
and financial
29
circumstances
of such persons. Shareholder represents that his current permanent residence is as set forth on
Exhibit A
hereto.
(e)
Restricted Securities
. Such Shareholder understands that the Consideration Shares are characterized as “restricted
securities” under the Securities Act inasmuch as they are being acquired from Parent in a transaction not involving a public
offering and that under the Securities Act and applicable regulations thereunder such securities may be resold without registration
under the Securities Act only in certain limited circumstances. In this connection, such Shareholder represents that the Shareholder
is familiar with Rule 144 of the United States Securities and Exchange Commission, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act. Such Shareholder understands that except as otherwise set forth
herein Parent is under no obligation to register any of the securities sold hereunder.
Section
3.8
Authority of the Representative
. Such Shareholder
has delivered a valid and enforceable power of attorney appointing the Representative as the Shareholder’s agent and true
and lawful attorney-in-fact with the powers and authority as set forth in this Agreement, which shall remain in full force and
effect.
Article
4
Representations and Warranties of Purchaser and parent
Each
of Purchaser and Parent represents and warrants to the Company as follows:
Section
4.1
Organization and Power
. Each of Purchaser and Parent
(a) is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization, (b) has
all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed
to be conducted and (c) is qualified to do business and is in good standing in every jurisdiction where such qualification
is required, except where the failure so to qualify could not reasonably be expected to result in a Material Adverse Effect on
Purchaser.
Section
4.2
Authorization; Enforceability
. Each of Purchaser
and Parent has the power and authority to execute, deliver and perform its obligations under this Agreement and to consummate
the Transactions. The execution, delivery and performance of this Agreement and the consummation of the Transactions by each of
Purchaser and Parent have been duly authorized by all requisite corporate or comparable organizational action on the part of it
and its shareholders. This Agreement has been duly executed and delivered by each of Purchaser and Parent, assuming due authorization,
execution and delivery by the other parties hereto, represents the legal, valid and binding obligation of each of Purchaser and
Parent, enforceable against such party in accordance with its terms, subject to the effect of (a) applicable bankruptcy,
insolvency, reorganization, moratorium and other similar Laws now and hereunder in effect relating to the rights of creditors
generally and (b) rules of law and equity governing specific performance, injunctive relief and other equitable remedies.
30
Section
4.3
Noncontravention
.
(a)
The execution, delivery and performance of this Agreement and the consummation of the Transactions by Purchaser and Parent do
not and will not (1) conflict with, result in or constitute a material violation of or default under (with or without notice,
lapse of time or both), give rise to a right of termination, cancellation, renegotiation, modification or acceleration of any
obligation or loss of any benefit under or require consent, approval or waiver from any Person in each case in accordance with
any provision of the organizational documents of Purchaser or Parent, (2) conflict with, result in or constitute a material
violation of or default under (with or without notice, lapse of time or both), give rise to a right of termination, cancellation,
renegotiation, modification or acceleration of any obligation or loss or modification of any benefit under or require consent,
approval or waiver from any Person in accordance with any Contract, Permit or Law applicable to Purchaser or Parent, or (3) otherwise
have an adverse effect upon the ability of Purchaser or Parent to consummate the Transactions.
(b)
No Permit or Order of, or registration or filing with or declaration or notification to, any Governmental Authority is required
by or with respect to Purchaser or Parent in connection with the execution, delivery and performance of this Agreement or the
consummation of the Transactions.
Section
4.4
Parent SEC Reports; Compliance
. Parent has filed
all reports required to be filed with the U.S. Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934,
as amended, since October 1, 2011 (collectively, the “
Parent SEC Reports
”), and has previously furnished or
made available (through EDGAR) to the Sellers true and complete copies of all Buyer SEC Reports and will promptly furnish or make
available (through EDGAR) to the Sellers any Buyer SEC Reports filed between the date hereof and the Closing Date. None of the
Buyer SEC Reports contained any untrue statement of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading (in each case as of the date thereof).
Section
4.5
Parent Common Stock
. The shares of Parent Common
Stock included in the Consideration Shares, when issued to the Shareholders in accordance with the terms and conditions of this
Agreement, will be duly authorized and validly issued, fully paid and nonassessable. Assuming the accuracy of the representations
of each Shareholder in Section 3.7, the Consideration Shares will be issued in compliance with all applicable United States federal
and state securities laws. The shares of Parent Common Stock for which the Consideration Options will be exercisable, when issued
to the Optionholders in accordance with the terms and conditions of the applicable option agreement, will be duly authorized and
validly issued, fully paid and nonassessable. There are no other outstanding share classes in Parent than the Parent Common Stock.
Article
5
Additional Agreements
Section
5.1
Conduct of Business of the Company
. From the date
hereof until the earlier of the termination hereof and the Closing Date:
31
(a)
The Company will, and the Shareholders will cause the Company and each of its Subsidiaries to, conduct its business in the usual,
regular and ordinary course in substantially the same manner as heretofore conducted (except to the extent expressly provided
otherwise in this Agreement or as consented to in writing by Purchaser) in the continuing best interest of the Company and the
Shareholders;
(b)
The Company will, and the Shareholders will cause the Company and each of its Subsidiaries to, (1) pay all of its debts and
Taxes when due, except to the extent such debts or Taxes are being contested in good faith by appropriate proceedings and for
which adequate reserves according to GAAP or U.S. GAAP, as applicable, have been established, (2) pay or perform its other
obligations when due, and (3) use commercially reasonable efforts consistent with past practice to (A) preserve intact
its present business organizations, (B) keep available the services of its present officers and key employees, and (C) preserve
its relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it,
to the end that its goodwill and ongoing businesses will be unimpaired at the Closing Date;
(c)
The Company will, and the Shareholders will cause the Company and each of its Subsidiaries to, promptly notify Purchaser of any
change, occurrence or event not in the ordinary course of business of the Company and its Subsidiaries, and of any change, occurrence
or event which, individually or in the aggregate with any other changes, occurrences and events, could reasonably be expected
to have a Material Adverse Effect on the Company or which is reasonably likely to cause any of the conditions in Article 6 not
to be satisfied; and
(d)
The Company will, and the Shareholders will cause the Company and each of its Subsidiaries to, assure that each of the Contracts
entered into on or after the date hereof by it will not require the procurement of any consent, waiver or novation or provide
for any material change in the obligations of any party in connection with, or terminate as a result of the consummation of, the
Transactions.
(e)
The Company will, and the Shareholders will cause the Company and each of its Subsidiaries to, use commercially reasonable efforts
to (i) preserve its business organization, (ii) retain the services of its present employees and (iii) preserve the goodwill of
its customers and suppliers.
Section
5.2
Restrictions on Conduct of Business of the Company
.
Without limiting the generality or effect of Section 5.1, from the date hereof until the earlier of the termination hereof and
the Closing, the Company will not, and the Shareholders will cause the Company and each of its Subsidiaries not to, cause or permit
any of the following (except to the extent expressly provided otherwise herein or as expressly consented to in writing by Purchaser):
(a)
Cause or permit any amendments to its organizational documents;
(b)
Declare, set aside or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of
any of its issued capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or repurchase, redeem or
32
otherwise
acquire, directly or indirectly, any shares of its capital stock except from former employees, non-employee directors and consultants
in accordance with agreements existing at the date hereof providing for the repurchase of shares in connection with any termination
of service;
(c)
Terminate any Contract with any reseller, distributor, original equipment manufacturer or agent, where such termination (1) would
reasonably be expected to trigger any payment by the Company to such reseller, distributor, original equipment manufacturer or
agent pursuant to the express terms of such Contract or (2) could trigger any payment by the Company to such reseller, distributor,
original equipment manufacturer or agent pursuant to such Contract or under Law;
(d)
Except in the ordinary course of business, hire or terminate the employment or engagement of any employees, consultants or independent
contractors; enter into, or extend the term of, any employment or consulting Contract with any Person; or increase the salaries,
wage rates, fees, benefits or other remuneration of any employees, consultants or independent contractors;
(e)
Make any loans or advances to, or any investments in or capital contributions to, any Person, or forgive or discharge in whole
or in part any outstanding loans or advances, other than advances to employees and consultants for travel and other expenses in
the ordinary course of business;
(f)
Transfer or license to any Person (including through a reseller agreement) any rights to any Company Intellectual Property (other
than in the ordinary course of business in connection with the license or sale of Company Products to customers, as long as, notwithstanding
past practice, the Company does not disclose, provide or license any Company Source Code to any third party or include in any
permitted transfer or license any obligation, right or option to deposit the Company Source Code in escrow);
(g)
Sell, lease, license or otherwise dispose of or create, extend, grant or issue any Encumbrance over any of its properties or assets
(other than in connection with the U.S. Subsidiary Sale or in the ordinary course of business in connection with the license or
sale of Company Products to customers, as long as, notwithstanding past practice, the Company does not disclose, provide or license
any Company Source Code to any third party or include in any permitted transfer or license any obligation, right or option to
deposit the Company Source Code in escrow);
(h)
Enter into, participate in, establish or join any new standards-setting organization, collaborative effort with a university or
industry body or consortium, or other multi-party special interest group or activity;
(i)
Reduce the amount of any insurance coverage provided by existing insurance policies;
(j)
Terminate or waive any right or claim of substantial value;
33
(k)
Adopt or amend any employee or compensation benefit plan, including any share purchase, share issuance or stock option plan, or
amend any compensation, benefit, entitlement, grant or award provided or made under any such plan, except in each case as required
by Law;
(l)
Grant any severance or termination pay to any Person or amend or modify any existing severance or termination agreement with any
Person;
(m)
Commence an Action other than (1) for the routine collection of bills or (2) in such cases where it in good faith determines
that failure to commence an Action would result in the material impairment of a valuable aspect of its business, as long as the
Company consults with Purchaser before the filing of such Action;
(n)
Acquire or agree to acquire by merging or consolidating with, or by purchasing the assets of, or by any other manner, any business
or any company, partnership, association or other business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to its business;
(o)
Make any change in accounting or Tax principles, practices or policies from those utilized in the preparation of the Financial
Statements, write-off, write-down or make any determination to write-off or write-down any of its assets and properties, or make
any material change in its general pricing practices or policies or any material change in its credit or allowance practices or
policies;
(p)
Make or change any election or designation in respect of Taxes, file any amendment to a Tax Return, enter into any closing agreement
in respect of Taxes, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation
period applicable to any claim or assessment in respect of Taxes;
(q)
Except for the U.S. Subsidiary Sale, alter, or enter into any commitment to alter, its interest in any Subsidiaries, corporation,
association, joint venture, partnership or other business entity in which the Company or any of its Subsidiaries holds any interest;
or
(r)
Commit to do any of the foregoing.
Section
5.3
Access to Information
.
(a)
Until the earlier of the termination of this Agreement and the Closing Date, (1) the Company will, and the Shareholders
will cause the Company to, afford Purchaser and its accountants, counsel and other representatives reasonable access during normal
business hours to (A) all of the properties, books, contracts, commitments and records of the Company and its Subsidiaries
and (B) all other information concerning the business, intellectual property, properties and personnel of the Company and
its Subsidiaries as Purchaser may reasonably request, and (2) the Company will, and the Shareholders will cause the Company
to, provide to Purchaser and its accountants, counsel and other representatives true, correct and complete copies of internal
financial statements promptly upon request. At or before Closing, the Shareholders will cause the Company to, and the Company
will, deliver a copy of all documents
34
in
the electronically accessible data room provided in connection with the Transactions (the “
Data Room
”) to Purchaser
on compact disc or DVD.
(b)
Subject to Law, until the earlier of the termination of this Agreement and the Closing Date, the Shareholders will cause the Company
to cause the officers, counsel or other representatives of it and its Subsidiaries to, promptly notify Purchaser of, and to confer
from time to time as requested by Purchaser with one or more representatives of Purchaser during ordinary business hours to discuss,
any material changes or developments in the operational matters of the Company and its Subsidiaries and the general status of
the ongoing business and operations of the Company and its Subsidiaries.
(c)
The Company will, and the Shareholders will cause the Company to: (1) notify Purchaser in writing promptly after learning
of any Action any Governmental Authority initiated by or against the Company or its Subsidiaries, or known by the Company to be
threatened against the Company, its Subsidiaries or any of their respective directors, officers, employees or shareholders in
their capacity as such (a “
New Litigation Claim
”); (2) notify Purchaser of ongoing material developments
in any New Litigation Claim; and (3) consult in good faith with Purchaser regarding the conduct of the defense of any New
Litigation Claim.
Section
5.4
Confidentiality; Public Announcements
.
(a)
The parties acknowledge that Purchaser and the Company executed a non-disclosure agreement dated May 2, 2013 (the “
Confidentiality
Agreement
”), which will continue in full force and effect in accordance with its terms.
(b)
The Company will not, and each Shareholder will not and will cause the Company, its directors, officers, legal counsel, advisors,
employees and any other representatives and his, her or its Shareholder Affiliates not to, issue or cause the publication of any
press release or other public announcement or make any disclosure to any Person regarding: (1) this Agreement, the Company Disclosure
Letter, or the Transactions, or any discussions, memoranda, letters or agreements related hereto or thereto, including any announcement
to employees, customers, suppliers or others having dealings with the Company, without prior approval of Purchaser, (2) the existence
or terms of this Agreement; (3) the existence of discussions and negotiations between or among Purchaser, the Company, and the
holders of any Shares, Options, or Warrants, or any of their respective directors, controlling Persons, officers, employees, agents,
partners and advisors (including attorneys, accountants, consultants, bankers or financial advisors); (4) the consummation of
the Transactions; or (5) information about the business, properties, financial condition or operations of the Company, in each
case without prior approval of Purchaser, except, in the case of the Shareholders, as and to the extent (v) disclosure is
required by such Shareholder to his, her or its Tax, financial, legal or other professional advisors or, if applicable, spouse,
subject to a duty of confidentiality, for purposes of complying with such Shareholder’s Tax obligations or other reporting
obligations under Law arising out of the Transactions, (x) the information disclosed is information which Purchaser previously
disclosed or confirmed to the public, (y) disclosure is made by such Shareholder to his, her or its legal counsel, subject
to a duty of confidentiality (z) disclosure is required to other Shareholders or holders of Options or Warrants and their
respective Tax, financial, legal or other professional
35
advisors,
subject to a duty of confidentiality, for the purposes of implementing arrangements expressly contemplated hereby.
(c)
For purposes hereof, “
Proprietary Information
” shall mean any information related to the Company or its Subsidiaries
or Purchaser, including any information related to their respective business, organization, financial situation, operations, purchasing
and sales activities, intellectual property, source codes, information relating to services, operating processes, procedures,
price lists, customer lists, technology, designs, specifications, or other proprietary information of the business of the Company
or its Subsidiaries or Purchaser or this Agreement.
(d)
After the Closing Date, the Shareholders and Representative shall treat any and all Proprietary Information
as confidential and not disclose or make it available to any Person unless the disclosing party can demonstrate that it is or
has been:
(1)
obtained legally and freely from a third party without restriction as to the disclosure of such information;
(2)
independently developed by the respective Shareholders or Representative at a prior time when the applicable
respective Shareholders or Representative was not an employee, independent contractor, board member or shareholder of any of the
Company or its Subsidiaries and without the benefit of any of the Proprietary Information of any of the Company or its Subsidiaries;
(3)
made public as required by applicable mandatory Laws, final, non-appealable court decisions, or stock
exchange regulations; or
(4)
within the public domain or later becomes part of the public domain as a result of acts by someone other than any Shareholders
or Representative.
(e)
To the extent obliged to treat Proprietary Information as confidential, each Shareholder and Representative
shall use the same degree of care as it uses with regard to its own proprietary information to prevent disclosure, use, or publication
of the Proprietary Information
.
Section
5.5
Regulatory Consents; Cooperation
.
(a)
Purchaser and the Company will, and the Shareholders will cause the Company to, take commercially reasonable actions necessary
to (1) comply promptly with all legal requirements which may be imposed on it with respect to the consummation of the Transactions,
(2) promptly cooperate with and furnish information to any party hereto necessary in connection with any such requirements
imposed upon such other party in connection with the consummation of the Transactions, and (3) obtain or make (and cooperate
with the other parties hereto in obtaining or making) any consent, approval, Order or authorization of, or any registration, declaration
or filing with, any Person required to be obtained or made in connection with the Transactions.
36
(b)
In no event will Purchaser be obligated to (1) divest any of its or any of its Subsidiaries’ businesses, product lines
or assets, or to agree to any divestiture of the Company’s businesses, product lines or assets, or (2) take or agree
to take any other action or agree to any limitation that individually or in the aggregate could reasonably be expected to have
a Material Adverse Effect on the Company after the Closing Date. In no event will the Company or any of its Subsidiaries be required
to (x) divest any of their respective businesses, product lines or assets, or (y) take or agree to take any other action
or agree to any limitation that individually or in the aggregate could reasonably be expected to have a Material Adverse Effect
on the Company.
Section
5.6
No Solicitation
. From the date hereof until the earlier
of the termination of this Agreement pursuant to its terms and the Closing Date, the Company will not, and the Shareholders will
not and will cause the Company not to and will cause their respective officers, directors, employees, financial advisors, representatives,
agents and Affiliates of the Company not to, directly or indirectly, (a) solicit, initiate, facilitate, seek, entertain,
encourage or support any inquiry, proposal or offer from any Person (other than Purchaser) in respect of an Acquisition Transaction;
(b) participate in any discussions or negotiations or enter into any agreement with, or provide any non-public information
to, any Person (other than Purchaser) in respect of an Acquisition Transaction; or (c) accept any proposal or offer from
any Person (other than Purchaser) in respect of an Acquisition Transaction. Upon execution of this Agreement, the Shareholders
will and will cause the Company to cause their respective officers, directors, employees, financial advisors, representatives,
agents and Affiliates of the Company to, immediately cease and cause to be terminated any existing direct or indirect discussions
with any Person (other than Purchaser) that are in respect of an Acquisition Transaction. Except as permitted by Section 5.23,
from the date hereof until the earlier of the termination of this Agreement pursuant to its terms and the Closing Date, each Shareholder
will not sell, convey, assign or transfer, or create, grant, give or permit to subsist any Encumbrances whatsoever on the Company
Securities owned by such Shareholder. “
Acquisition Transaction
” means any transaction involving (1) the
sale, license, disposition or acquisition of all or a substantial portion of the business or assets of the Company or any of its
Subsidiaries; (2) the issuance, disposition or acquisition of (A) any shares or other equity security of the Company
or any of its Subsidiaries (other than shares in the capital of the Company issued to employees of the Company or any of its Subsidiaries
upon exercise of Options in routine transactions in accordance with the Company’s past practices), (B) any option or
other right (whether or not immediately exercisable) to acquire any shares or other equity security of the Company or any of its
Subsidiaries, or (C) any security, instrument or obligation that is or may become convertible into or exchangeable for any
shares or other equity security of the Company or any of its Subsidiaries; or (3) any merger, amalgamation, arrangement,
consolidation, share exchange, business venture, joint venture, reorganization, recapitalization or similar transaction involving
the Company.
Section
5.7
Notification
. From the date of this Agreement until
the earlier of the Closing or the termination of this Agreement pursuant to Section 7.1, (1) the Company will, and the Shareholders
will and will cause the Company and each of its Subsidiaries to, notify Purchaser promptly after becoming aware of any matter
hereafter arising or any information obtained after the date hereof that, if existing, occurring or known at or before the date
of this Agreement, would have been required to be set forth or described in the Company Disclosure
37
Letter
or that is required to be disclosed in order that such schedule be complete and correct, (2) each party hereto will notify
the other parties hereto promptly of the occurrence or non-occurrence of any event whose occurrence or non-occurrence would be
likely to cause either (A) any representation or warranty made by it in this Agreement to be untrue or inaccurate in any
material respect, (B) any condition of the other parties hereto set forth herein to be unsatisfied in any material respect,
or (C) any material failure of such notifying party, any Affiliate of the Company of such notifying party or any of their
respective representatives to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder. No provision of, and no information provided under, this Section 5.7 will, or will be deemed to, limit, modify or
otherwise affect any representation or warranty contained herein, the conditions to the obligations of the parties hereto to consummate
the Transactions or the rights hereunder of any party hereto, including rights under Article 8.
Section
5.8
Spreadsheet
. Attached hereto as
Exhibit A
,
is a spreadsheet (the “
Spreadsheet
”), dated and setting forth as of the Closing the following information relating
to the holders of Company Securities:
(a)
the names and mailing addresses of all holders of Company Securities;
(b)
in the case of Shares, the number of shares and held by such Persons and the certificate numbers of the Certificates representing
the Shares;
(c)
in the case of Options, the number of shares subject to the Options and the exercise price per share and vesting provisions in
effect as of the Closing Date for each Option held by such Persons;
(d)
separately as to each type of security, the number of Consideration Shares to be delivered upon the Closing to such holder for
the purchase of such holder’s Shares or the number of Consideration Options to be issued to such holder in respect of the
cancellation of such holder’s Shares and Options.
Section
5.9
Expenses
.
(a)
Whether or not the Transactions are consummated, each party shall be responsible for its own expenses and costs that it incurs
with respect to the negotiation, execution, delivery and performance of this Agreement. Notwithstanding any provision hereof to
the contrary, the Company shall not be responsible for any Seller Expenses.
(b)
Parent is hereby authorised to reduce the Consideration Shares otherwise deliverable to the Shareholders in an aggregate amount
equal to the sum of (i) the number of shares of Parent Common Stock with an aggregate Deemed Share Value equal to the aggregate
Seller Expenses, (ii) the Transaction Payment Shares and (iii) the number of shares of Parent Common Stock with an aggregate Deemed
Share Value equal to the Transaction Payment Taxes, and to pay, or cause to be paid, any and all Seller Expenses and Transaction
Payment Taxes, as applicable, and to issue the Transaction Payment Shares in accordance with Section 1.2(c).
37
Section
5.10
Tax Matters
.
(a)
Termination of Tax Sharing Agreements
.
All Tax sharing, allocation, indemnity or similar agreements with respect
to or involving the Company and/or its Subsidiaries shall be terminated as of the Closing Date and neither the Company nor its
Subsidiaries shall have any further liability thereunder.
(b)
Termination of Powers of Attorney
. Any power of attorney with respect to Taxes or Tax Returns of the Company shall be terminated
as of the Closing Date.
Section
5.11
Certain Taxes and Fees
. All transfer, documentary, sales, use, stamp, registration
and other such Taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest)
incurred in connection with the consummation of the Transactions, payable by the Shareholders will be paid by the Shareholders
when due, and the Shareholders will, at their own expense, file all necessary Tax Returns and other documentation with respect
to all such Taxes, fees and charges.
Section
5.12
Release of Claims
. Upon and subject to the Closing, each Shareholder undertakes
as follows:
(a)
Such Shareholder, on behalf of himself, herself, or itself, and his, her or its successors, assigns, heirs, executors, legatees,
administrators, beneficiaries, representatives, agents and any Shareholder Affiliates (the “
Releasing Parties
”),
fully, finally and irrevocably releases, acquits and forever discharges the Company, Parent and Purchaser, each of their respective
officers, directors, predecessors, Affiliates, successors and assigns, and the beneficiaries, heirs, executors, personal or legal
representatives, insurers and attorneys of any of them (collectively, the “
Released Parties
”), from any and
all commitments, actions, charges, complaints, promises, agreements, controversies, debts, claims, counterclaims, suits, causes
of action, damages, demands, Liabilities, obligations, costs and expenses of every kind and nature whatsoever, whether arising
from any express, implied, oral, or written contract or agreement or otherwise, known or unknown, past, present or future, at
law or in equity, contingent or otherwise (collectively, a “
Potential Claim
”), that such Releasing Parties,
or any of them, had, has or may have had at any time in the past until and including the Closing, against the Released Parties,
or any of them, for or by reason of any matter, cause or thing whatsoever occurring at any time at or prior to the Closing with
respect to the Company (the “
Released Matters
”), except that the Released Matters do not include, and nothing
in this Agreement shall affect or be construed as a waiver or release by Releasing Parties of, any Potential Claim by such Releasing
Parties arising from or relating to (1) fees, salary, reimbursement for expenses, bonuses, change of control payments, or
other compensation or employment benefits earned or accrued by or for the benefit of such Releasing Parties prior to the Closing
in respect of services performed by such Shareholder as an employee or director of the Company and (2) the payment of the
Purchase Price for the Shares, or the issuance of the Consideration Options in consideration of the cancellation of the Options,
beneficially owned by such Shareholder and disclosed by the Company on the Spreadsheet, in each case on and subject to the terms
and conditions hereof. As used herein, the term “
Shareholder Affiliates
” includes such Shareholder’s
directors, officers, controlling Persons, employees, counsel, advisors and affiliated investment funds, if any, and, for
39
the
avoidance of doubt, shall not include any of such Shareholder’s or Shareholder Affiliates’ portfolio companies or
limited partners.
(b)
No Transfer of Potential Claims
. Such Shareholder represents and warrants to the Released Parties that such Shareholder
has made no assignment or transfer of any of the Potential Claims for any Released Matter.
(c)
Sufficiency of Consideration
. Such Shareholder acknowledges and agrees that the Consideration Shares delivered in respect
of Shares owned beneficially or of record by such Shareholder, or the issuance of the Consideration Options, as the case may be,
and the covenants of Purchaser contained herein provide good and sufficient consideration for every promise, duty, release, obligation,
agreement and right contained in this Section 5.12.
Section
5.13
Further Assurances
. On the terms and subject to the conditions set forth
in this Agreement, each of the parties hereto will use commercially reasonable efforts, and will cooperate with each other parties
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 Transactions, including the satisfaction of
the respective conditions set forth in Article 6. Without limiting the foregoing and subject to the terms of this Agreement, if
an Order preventing the consummation of any of the Transactions will have been issued by a court of competent jurisdiction, each
party hereto will use its commercially reasonable efforts to have such Order lifted. Each party hereto, at the reasonable request
of the other parties hereto, will execute and deliver such documents and do and perform such other acts and things as may be necessary
or reasonably desirable for effecting completely the consummation of the Transactions. Further, without limiting the foregoing,
the Representative will use commercial best efforts to obtain a power of attorney from any holder of Shares who has not entered
into this Agreement as of the date hereof and to execute this Agreement on behalf of such holder or otherwise cause such holder
to become a party to this Agreement.
Section
5.14
Discharge of Liability
. Purchaser shall cause the Company and the Swedish
Subsidiary to discharge each of the board members that resigned or were removed on or before the Closing Date from liability for
the financial years 2012 and 2013 until the Closing Date (or the earlier date of their respective resignation or removal) at the
next annual shareholders’ meeting in the Company and the Subsidiary, provided that no recommendation to the contrary is
made by the auditor of the Company or the relevant Subsidiary. The foregoing discharge shall not release or waive any obligations
of such Persons pursuant to this Agreement, including, without limitation, any indemnification obligations pursuant to Article
8 hereof.
Section
5.15
Registration on Form S-3
. Parent shall, (a) within 60 calendar days following
the Closing Date, file a registration statement on Form S-3 covering the resale of the shares of Parent Common Stock included
in the Consideration Shares and (b) thereafter use its commercially reasonable efforts to cause such registration statement to
become effective under the Securities Act as promptly as possible; provided, however, that Parent shall not be obligated to effect
any such registration if Form S-3 is not available for such offering by the Shareholders. Following such registration statement
becoming effective, Parent shall (i) use commercially reasonable efforts to keep such registration statement effective for a period
of up to two (2) years
40
thereafter
or, if earlier, until the distribution contemplated in such registration statement has been completed, (ii) prepare and file with
the U.S. Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration statement and (iii) furnish to the Shareholders such
numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act,
and such other documents as the Shareholders may reasonably request in order to facilitate the disposition of such shares of Parent
Common Stock owned by the Shareholders. It shall be a condition precedent to the obligations of Parent to take any action pursuant
to this Section 5.15 with respect to such shares of Parent Common Stock owned by any Shareholder that such Shareholder shall furnish
to Parent, within a reasonable period of time prior to the date on which Parent is required to file the registration statement
described in this Section 5.15, such information regarding himself, herself or itself, such shares of Parent Common Stock held
by it, and the intended method of disposition of such securities as shall be required to effect the registration thereof. Parent
shall pay all expenses incurred in connection with the preparation and filing of such registration statement, including all registration
and filing fees and printer, legal and accounting fees related thereto.
Section
5.16
Additional Parent Common Stock Matters
. Shares of Parent Common Stock issued
to a Shareholder hereunder or issued to an Optionholder upon the exercise of a Consideration Option issued hereunder may not be
sold, assigned, transferred or disposed of by such Shareholder or Optionholder prior to the six-month anniversary of the Closing
Date without Parent’s prior written consent in Parent’s sole discretion. Following the six-month anniversary of the
Closing Date, such Shareholder or Optionholder may, subject to compliance with applicable securities Laws, sell, assign, transfer
or dispose of such shares. Each Shareholder and Optionholder acknowledges and agrees that Parent shall issue to its transfer agent
such instructions, directions and stop transfer orders as are necessary to implement the provisions of this Section 5.16.
Section
5.17
Proxy Statement
.
Parent shall prepare and file
with the SEC as promptly as is reasonably practicable following the date hereof a proxy statement for the solicitation of the
approval of its stockholders of the Transactions (the “Parent Proxy Statement”). The Parent Proxy Statement
shall contain the recommendation of the board of directors of Parent that its stockholders approve the Transactions including
the issuance of the Consideration Shares hereunder. Notwithstanding the foregoing, Parent makes no representation, warranty or
covenant with respect to any information supplied by the Company that will be contained in the Parent Proxy Statement. The
information provided by the Company to Parent specifically for inclusion in the Parent Proxy Statement, including without limitation
the Financial Statements and related disclosure provided for inclusion therein, shall not (i) contain any statement that is false
or misleading with respect to any material fact, (ii) omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not false or misleading, or (iii) omit to state any material
fact necessary to correct any statement in any earlier communication that has become false or misleading.
Section
5.18
Financial Statements
. The Company and the Shareholders shall use commercially
reasonable efforts to cause the Company’s independent auditors to furnish their
41
consent
to the inclusion of the audited Financial Statements and the auditor’s reports with respect thereto in any applicable filings
of Parent as required by the Securities Act and the Securities Exchange Act of 1934, as amended, and the rules of the U.S. Securities
and Exchange Commission promulgated thereunder. Parent will bear all costs of the foregoing.
Section
5.19
Noncompetition
.
(a)
During the Noncompetition Period (as hereinafter defined) the Covered Person will not, directly or indirectly, or as a stockholder,
partner, member, manager, employee, consultant or other owner or participant in any Person other than the Company, (i) engage
in or assist any other Person to engage in any Covered Business (as hereinafter defined) anywhere in the Covered Area (as hereinafter
defined), (ii) solicit or endeavor to entice away from the Company, or offer employment or a consulting position to, or otherwise
interfere with the business relationship of the Company with, any Person who is, or was within the one-year period prior thereto,
an employee of or consultant to the Company or (iii) solicit or endeavor to entice away from the Company, endeavor to reduce the
business conducted with the Company by, or otherwise interfere with the business relationship of the Company with, any Person
who is a customer or client of, supplier, vendor or service provider to, or other Person having business relations with, the Company.
(b)
For purposes of this Section 5.19, the following terms shall have the following meanings:
“
Company
”
shall mean the Company, each of its subsidiary, parent and affiliated companies, whether now existing or existing in the future,
and all of their respective successors and assigns.
“
Covered
Area
” means (i) anywhere in Europe and (ii) anywhere else in the world where the Company does business or plans to do
business as of the Closing, including without limitation North America.
“
Covered
Business
” means the front-end data visualisation software business in which the Company is engaged at the Closing Date.
“
Covered
Person
” means Willem de Geer.
“
Noncompetition
Period
” means the period commencing as of the Closing and ending on the two year anniversary of the Closing.
Section
5.20
Remedies for Breach of Restrictive Covenants
.
(a)
If any Shareholder commits a breach of any of Sections 5.4 or 5.6 of this Agreement, and, if such breach is capable of being rectified,
fails to fully rectify such breach within ten Business Days after receipt of notice thereof from the Purchaser, the relevant Shareholder,
shall (without the Purchaser having to prove any Losses) pay a SEK 500 000 contractual penalty (
Sw
. avtalsvite) to the
Purchaser for each such breach, and in case of an on-going breach, in addition thereto pay a SEK 100 000 contractual penalty to
the Purchaser for each start of a new calendar week the breach is on-going. If the Covered Person commits a
42
breach
of Section 5.19 of this Agreement, and, if such breach is capable of being rectified, fails to fully rectify such breach within
ten Business Days after receipt of notice thereof from the Purchaser, the Covered Person, shall (without the Purchaser having
to prove any Losses) pay a SEK 5 000 000 contractual penalty (
Sw
. avtalsvite) to the Purchaser for each such breach, and
in case of an on-going breach, in addition thereto pay a SEK 1 000 000 contractual penalty to the Purchaser for each start of
a new calendar week the breach is on-going. The Purchaser’s right to contractual penalties pursuant to this Section 5.20(a)
is in addition to any other rights or remedies available to the Purchaser and, in particular, the Purchaser shall be entitled
to damages in accordance with applicable law if and to the extent its actual Losses exceeds the contractual penalty.
(b)
The Shareholders acknowledge that any breach or threatened breach of the provisions of Sections 5.4, 5.6 or 5.19 of this Agreement
will cause irreparable injury to the Company for which an adequate monetary remedy may not exist. Accordingly, in the event of
any such breach or threatened breach, the Purchaser shall be entitled, in addition to the exercise of other remedies, to seek
and (subject to court approval) obtain injunctive and other equitable relief, without necessity of posting a bond, restraining
the Shareholders, as the case may be, from committing such breach or threatened breach. The right provided under this Section
5.20(b) shall be in addition to, and not in lieu of, any other rights and remedies available to the Purchaser. Notwithstanding
Section 9.6 (Assignment), Sections 5.4, 5.6 and 5.19 are for the benefit of the Purchaser as owner of the Shares and for each
of its successors in title, and may be assigned by the Purchaser, or by and of its successors in title, without the consent of
the Shareholders or the Representative.
(c)
Each Shareholder (1) has carefully read and understands all of the provisions of this Agreement and has had the opportunity for
this Agreement to be reviewed by counsel, (2) acknowledges that the duration, geographical scope and subject matter of Sections
5.4, 5.6 and 5.19 (as applicable) of this Agreement are reasonable and necessary to protect the goodwill, customer relationships,
legitimate business interests, trade secrets and confidential and proprietary information of the business of the Company, (3)
acknowledges that the Purchaser would not have closed the Transactions without the benefits contained in this Agreement, (4) will
be able to earn a satisfactory livelihood without violating this Agreement and (5) understands that this Agreement is assignable
by the Company and the Purchaser and shall inure to the benefit of their respective successors and permitted assigns.
Section
5.21
Company Intellectual Property
. If any Shareholder owns or shall at any time
hereafter acquire any rights in any Company Intellectual Property, such Shareholder shall, and hereby does, transfer all of its
rights, title and interest in such Company Intellectual Property to the Company for no additional consideration. Each Shareholder
shall execute and deliver such additional documents and instruments and take such other actions as the Purchaser shall reasonably
request to give effect to the provisions of this Section 5.21.
Section
5.22
Designation of Purchaser
. Parent shall have the right prior to the Closing
in its sole discretion to designate an existing or newly formed direct or indirect wholly-owned subsidiary of Parent to become
Purchaser for all purposes under this Agreement, provided that such designee shall execute a joinder agreement in a form reasonably
satisfactory to the
43
Representative
under which such designee shall agree to become a party to this Agreement as Purchaser and assume all of the rights and obligations
of Purchaser hereunder.
Section
5.23
Permitted Transfers
. Notwithstanding any contrary provision of this Agreement,
Shareholders shall be permitted prior to the Closing Date to sell or transfer their shares to another Shareholder party to this
Agreement, provided that the Representative shall within five business days following any such transaction give notice of such
transaction to Parent and deliver to Parent a revised Spreadsheet reflecting the transfer of Shares effected by such transaction.
Section
5.24
Waiver of Certain Rights
. Each Shareholder hereby irrevocably waives (a)
the post-sale purchase right clause (
Sw. hembudsförbehall
) under the Company’s Articles of Association as in
effect on the date hereof and (b) all rights of first refusal or similar rights under any Shareholder Agreement.
Article
6
Closing Conditions
Section
6.1
Conditions to Obligations of Each Party
. The respective
obligations of each party to consummate the Transactions will be subject to the satisfaction at or before the Closing of each
of the following conditions, which to the extent permitted by Law may be waived in a written agreement of the Company and Purchaser:
(a)
No Injunctions or Restraints; Illegality
. No Order or other legal or regulatory restraint or prohibition preventing the
consummation of the Transactions will be in effect, and no Action will have been brought by a Governmental Authority seeking any
of the foregoing be pending or threatened. No action taken by any Governmental Authority, and no statute, rule, regulation or
Order will have been enacted, entered, enforced or deemed applicable to the Transactions, which makes the consummation of the
Transactions illegal.
(b)
Governmental Approvals
. The parties will have timely obtained from each Governmental Authority all approvals, waivers and
consents, if any, necessary for consummation of, or in connection with, the Transactions, including European anti-competition
clearance.
Section
6.2
Additional Conditions to Obligations of the Shareholders
.
The obligations of the Shareholders to consummate the Transactions will be subject to the satisfaction, or written waiver by the
Representative, at or before the Closing of each of the following conditions (each such condition being solely for the benefit
of the Shareholders and capable of being waived by the Representative in his sole discretion without notice, liability or obligation
to any Person):
(a)
Representations, Warranties and Covenants of Purchaser
. Each of the representations and warranties made by Purchaser in
this Agreement that is qualified by reference to materiality or Material Adverse Effect, and each of the other representations
and warranties made by Purchaser in this Agreement will be true and correct in all material respects, as of the date of this Agreement
and at and as of the Closing Date as if made on that date (except in any case that representations and warranties that expressly
speak as of a specified date or time
44
need
only be true and correct or true and correct in all material respects, as applicable, as of such specified date or time). Purchaser
will have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required
to be performed and complied with by it at or before the Closing.
(b)
Receipt of Closing Deliveries
. The Representative will have received each of the agreements, instruments and other documents
required to have been delivered at or before the Closing as set forth in
Exhibit D
, and all such agreements, instruments
and other documents will continue to be effective and will not have been revoked by the Persons executing same.
(c)
Shareholder and Optionholder Signatures
. All the Shareholders and Optionholders shall have entered into this Agreement.
Section
6.3
Additional Conditions to the Obligations of Purchaser
and Parent
. The obligation of Purchaser to consummate the Transactions will be subject to the satisfaction, or written waiver
by Purchaser, at or before the Closing of each of the following conditions (each such condition being solely for the benefit of
Purchaser and capable of being waived by Purchaser in its sole discretion without notice, liability or obligation to any Person):
(a)
Representations, Warranties and Covenants of the Shareholders
. Each of the representations and warranties made by the Shareholders
in this Agreement that is qualified by reference to materiality or Material Adverse Effect and the representation and warranty
contained in Section 2.9(g) will be true and correct in all respects, and each of the other representations and warranties made
by the Company in this Agreement will be true and correct in all material respects, in each case as of the date of this Agreement
and at and as of the Closing Date as if made on that date (except in any case that representations and warranties that expressly
speak as of a specified date or time need only be true and correct or true and correct in all material respects, as applicable,
as of such specified date or time), except that such materiality qualifier shall not apply to the representations and warranties
contained in Section 2.3, each of which shall individually have been true and correct in all respects as of the date of this Agreement
and shall be true and correct in all respects on and as of the Closing Date. The Shareholders and the Company will have performed
and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed
and complied with by the Shareholders or the Company at or before the Closing.
(b)
Receipt of Closing Deliveries
. Purchaser will have received the instruments and other documents required to be delivered
to it pursuant to Section 1.2(b) and each of the agreements, instruments and other documents set forth in
Exhibit D
, and
all such agreements, instruments and other documents will continue to be effective and will not have been revoked by the Persons
executing same.
(c)
Shareholder and Optionholder Signatures
. Shareholders owning in the aggregate not less than 90% of the outstanding Shares
and all Optionholders shall have entered into, and performed their respective obligations pursuant to Section 1.1(a) and (b) of,
this Agreement.
45
(d)
Injunctions or Restraints on Conduct of Business
. No Order or other legal or regulatory provision limiting or restricting
Purchaser’s ownership, conduct or operation of the business of the Company following the Closing Date will be in effect,
nor will any Action or request for additional information before any Governmental Authority seeking any of the foregoing, seeking
to obtain from Purchaser or the Company or any of their respective Affiliates in connection with the Transactions any damages,
or seeking any other relief that, following the Closing, could reasonably be expected to materially limit or restrict the ability
of the Company or any of its Subsidiaries to own and conduct the assets and businesses owned and conducted by the Company or any
of its Subsidiaries before the Closing, be pending or threatened.
(e)
No Material Adverse Change
. No event or condition of any character that has had or is reasonably likely to have a Material
Adverse Effect on the Company shall have occurred since the date of this Agreement.
(f)
Employment Arrangements
. Parent or a subsidiary of Parent shall have entered into employment/consultancy arrangements in
a form reasonably satisfactory to Parent and the relevant counter-party with the following key employees of the Company to continue
employment/consultancy with/to Parent or a subsidiary of Parent for a period of at least two years
after the Closing Date
or as otherwise agreed by the parties, and pursuant to which they would each agree not to compete with the business of Parent
or any direct or indirect subsidiary of Parent, and not to hire or solicit the employees of the Company retained by Parent or
any direct or indirect subsidiary of Parent, for a period of two years after termination of employment/consultancy: Willem De
Geer, Peter Simpson and Ludvig Karlsson Sandman.
(g)
Parent Stockholder Approval
. This Agreement and the Transactions shall have been approved by the holders of at least a
majority of the outstanding shares of Parent Common Stock entitled to vote on the Agreement and the Transactions (the “
Requisite
Parent Stockholder Approval
”).
(h)
U.S. Subsidiary Sale
. Immediately prior to the Closing, the U.S. Subsidiary Sale shall have been effected.
Article
7
Termination, Amendment and Waiver
Section
7.1
Termination
. At any time before the Closing Date,
this Agreement may be terminated as follows:
(a)
by mutual written consent duly authorized by the respective boards of directors of Purchaser (or a committee thereof) and the
Representative;
(b)
by either Purchaser or the Representative (on behalf of all of the Shareholders, who hereby empower and authorize the Representative
to act on their behalf), if the Closing Date shall not have occurred on or before October 31, 2013 (the “
Termination
Date
”), except that the right to terminate this Agreement under this Section 7.1(b) shall not be
46
available
to any party that is in material breach of this Agreement and such breach of this Agreement has resulted in the failure of the
Closing to occur on or before the Termination Date;
(c)
by either Purchaser or the Representative (on behalf of all of the Shareholders, who hereby empower and authorize the Representative
to act on their behalf), if (1) there is a final non-appealable Order in effect preventing consummation of the Transactions
or (2) there is any statute, rule, regulation or Order enacted, promulgated or issued or deemed applicable to the Transactions
by any Governmental Authority that would make consummation of the Transactions illegal;
(d)
by Purchaser, if the Shareholders or Optionholders have breached any representation, warranty or covenant contained herein and
such breach has not been cured within 30 days after Purchaser’s notice to the Representative of such breach (
except
that no such cure period will be available or applicable to any such breach which by its nature cannot be cured);
(e)
by Purchaser, if at a meeting of Parent’s stockholders convened for the purpose of obtaining the Requisite Parent Stockholder
Approval such approval is not obtained; or
(f)
by the Representative (on behalf of all of the Shareholders and Optionholders, who hereby empower and authorize the Representative
to act on their behalf), if Purchaser has breached any representation, warranty or covenant contained herein and such breach has
not been cured within 30 days after the Company’s notice to Purchaser of such breach (
except
that no such cure
period will be available or applicable to any such breach which by its nature cannot be cured).
Any
party desiring to terminate this Agreement pursuant to Section 7.1(b) through (f) will give notice of such termination to the
other party. Notwithstanding any provision of this Agreement to the contrary, no party shall have a right to terminate this Agreement
by reason of a change of control of Parent which occurs, or has been announced, prior to the Closing.
Section
7.2
Effect of Termination
. If this Agreement is terminated
in accordance with Section 7.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the
part of Purchaser or the Shareholders, except that each party hereto shall remain liable for any breaches of this Agreement by
the Company or the Shareholders that occurred before its termination and that Section 5.4 (Confidentiality; Public Announcements),
Section 5.9 (Expenses), Section 7.2 (Effect of Termination) and Article 9 (General Provisions) shall remain in full
force and effect and survive any termination of this Agreement.
Section
7.3
Amendment
. Prior to the Closing, this Agreement may
be amended by an instrument in writing signed on behalf of Purchaser, Parent, the Company and either (a) the Representative
on behalf of the Shareholders and the Optionholders pursuant to Section 8.10(a) or (b) all of the Shareholders and the Optionholders.
After the Closing, Purchaser and the Representative (on behalf of all of the Shareholders and Optionholders) may cause this Agreement
to be amended at any time by execution of an instrument in writing signed on behalf of Purchaser and the Representative on behalf
of all of the Shareholders and Optionholders. The Shareholders hereby empower and authorize the Representative prior to or after
the Closing to
47
execute
and deliver such instrument on their behalf. This Agreement shall not be amended without an instrument in writing.
Section
7.4
Extension; Waiver
. Any party hereto may, to the extent
legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive
any inaccuracies in the representations and warranties made to such party herein or in any document delivered pursuant hereto,
and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. In addition,
(x) prior to the Closing, the Representative (on behalf of all of the Shareholders, who hereby empower and authorize the Representative
to act on their behalf) and (y) after the Closing, the Representative (on behalf of all of the Shareholders) and Purchaser may,
to the extent legally allowed, (1) extend the time for the performance of any of the obligations or other acts of the other,
(2) waive any inaccuracies in the representations and warranties made to Purchaser (in the case of a waiver by Purchaser)
or made to the Shareholders (in the case of a waiver by the Representative) herein or in any document delivered pursuant hereto
and (3) waive compliance with any of the agreements or conditions for the benefit of Purchaser (in the case of a waiver by
Purchaser) or made to the Shareholders (in the case of a waiver by the Representative). Any agreement on the part of a party hereto
or the Representative, as applicable, to any such extension or waiver will be valid only if set forth in an instrument in writing
signed on behalf of such party. Without limiting the generality or effect of the preceding sentence, no delay in exercising any
right under this Agreement will constitute a waiver of such right, and no waiver of any breach or default will be deemed a waiver
of any other breach or default of the same or any other provision in this Agreement.
Article
8
Survival and Indemnification
Section
8.1
Survival
. The representations and warranties of the
Shareholders contained in or made pursuant to this Agreement or in any certificate delivered pursuant to this Agreement will survive
in full force and effect until the date that is 15 months following the Closing Date, except that (a) the Fundamental Representations
will survive indefinitely and (b) the representations and warranties set forth in Section 2.10 will survive until the date
three months after the date that the Tax in issue was subject to a final and non-appealable decision by the relevant tax authority
or court. The representations and warranties of Purchaser and Parent contained in or made pursuant to this Agreement or in any
certificate delivered pursuant to this Agreement will survive in full force until the Closing. Except as otherwise expressly provided
in this Agreement, each covenant hereunder will survive the Closing indefinitely or in accordance with its terms.
Section
8.2 [
Reserved
].
Section
8.3
Indemnification
.
(a)
From and after the Closing Date, subject to this Article 8, the holders of Shares listed on the Spreadsheet (the “
Indemnitors
”)
will severally indemnify and hold harmless the Purchaser from and against any and all direct losses, costs and expenses, including
48
reasonable
legal fees and arbitration and court costs (collectively, “
Losses
”), arising out of, related to or resulting
from (1) through (4) below. It is specifically agreed that the Indemnitors’ liability in relation to the sale of the Company
and its Subsidiaries is exclusively governed by this Agreement and that no remedy whatsoever under the Sale of Goods Act (
Sw.
Köplagen (1990:931)
) or under any other statute, law or legal principle, shall be available to the Purchaser. The Purchaser
shall, as its sole and exclusive remedy, be entitled to claim compensation by way of a reduction of the Purchase Price, as set
out in this Article 8, for Losses incurred or suffered by Purchaser arising out of or relating to any of the items listed below.
For all purposes of this Article 8, the “
Purchaser
” shall include the Purchaser and each of its subsidiary,
parent and affiliated companies.
(1)
any failure of any representation, warranty or certification made by the Shareholders in this Agreement (including under Article
2 but excepting representations and warranties made under Article 3) or any certificate or other document required to be delivered
to Purchaser by the Shareholders in accordance with this Agreement to be true and correct on the date hereof and on the Closing
Date as if made on such date;
(2)
any breach of or default by the Company or by the Shareholders collectively of any of its or their covenants or agreements under
this Agreement;
(3)
any claims on behalf of any holder or former holder of Shares or rights to acquire Shares that relate or purport to relate to
the Transactions, claims alleging violations of fiduciary duty or claims alleging oppression;
(4)
any inaccuracy or omission in the Spreadsheet, including any amounts set forth therein that are paid to a Person in excess of
the amounts such Person is entitled to receive pursuant to this Agreement or any amounts a Person was entitled to receive pursuant
to this Agreement that were omitted from the Spreadsheet; and
(5)
fraud, intentional misrepresentation, bad faith or intentional misconduct by the Company or any of its directors or officers or
any Indemnitor.
Notwithstanding
anything to the contrary in this Agreement and notwithstanding the U.S. Subsidiary Sale to be effected immediately prior to the
Closing, the Purchaser shall be entitled to indemnification under this Article 8 for any Losses arising out of, related to or
resulting from a breach of a representation or warranty under Article 2 with respect to the U.S. Subsidiary.
(b)
Each Indemnitor will severally, but not jointly, indemnify and hold harmless the Purchaser from and against all Losses arising
out of, related to or otherwise by virtue of (1) any failure of any representation or warranty made by such Indemnitor contained
in Article 3 to be true and correct as of the date hereof and as of the Closing Date as if made on such date, (2) any
breach of or default in connection with any of the covenants or agreements made by such Indemnitor in his, her or its individual
capacity in this Agreement or any document required to be delivered to Purchaser in accordance with this Agreement or (3) fraud,
intentional misrepresentation, bad faith or intentional misconduct by such Indemnitor.
49
(c)
Notwithstanding anything to the contrary in this Agreement and furthermore notwithstanding the Purchaser’s or Parent’s
(or, for the avoidance of doubt any advisor engaged by any of them) knowledge, the Indemnitors shall indemnify and harmless Purchaser
from any Losses incurred or suffered by the Purchaser on a SEK by SEK basis resulting from or otherwise related to or as a consequence
of the following matters:
(1)
the service arrangements under any consultancy or other agreements entered into by and between the Company and either Hanaskogs
Gods or Profit Way AB being deemed by a Tax Authority to qualify from a tax law perspective as employment relationships;
(2)
any mandatory redemption procedure under chapter 22 of the Swedish Companies Act in the event that Shareholders holding less than
100% of the Shareholders become parties to this Agreement prior the Closing or fail to deliver Shares to Purchaser at Closing,
including without limitation as applicable (A) the excess of the amount required to be paid to redeem any Shares through such
procedure over the aggregate Deemed Share Value of the Consideration Shares that would have been deliverable to the applicable
Shareholders had they been a party to this Agreement and (B) all costs and expenses, including reasonable legal fees and arbitration
and court costs arising out of, related to or resulting from such procedure;
(3)
any breach of Section 2.17(b);
(4)
any failure by the Company or any Subsidiary to timely file any sales or use Tax return in the United States or to timely pay
any Tax payable in connection therewith;
(5)
any failure by the Company or any Subsidiary to timely make any contributions under any benefit plan intended to qualify under
Section 401(k) of the United States Internal Revenue Code and any Taxes, penalties or other Losses arising out of such failure
or any other material noncompliance with respect to such plan;
(6)
any failure to take into account bonus or commission payments when calculating holiday pay in respect of employees based in Sweden
under the Swedish Annual Leave Act (
Sw. semesterlagen
); and
(7)
the lack of proper transfer pricing documentation between or among the Company, the U.S. Subsidiary and the branch of the Company
located in the United Kingdom.
The
Indemnitors shall not be liable in respect of any claim under this Section 8.3(c) to the extent notice of the relevant facts or
circumstances giving rise to such claim, accompanied by reasonable particulars thereof specifying the nature of the claim and,
as far as practicable, the amount of the Loss giving rise to the claim, is not received by the Representative within 60 days after
the Purchaser became aware of the facts or circumstances giving rise to the claim, and in any event not later than 5 years and
60 days after the Closing Date. The Indemnitors shall not be liable in respect of any claim under this Section 8.3(c) to the extent
that the aggregate
50
amount
of the Indemnitor’s liability for all claims duly notified under Section 8.3(c) and 8.3 (a) exceeds an amount equal to the
Purchase Price.
(d)
Any reduction of the Purchase Price shall be made with an amount corresponding to the Loss Dollar by Dollar and no multiples,
including without limitation any multiple based on past and future cash flows, purchase-price-to-earnings, discounted present
values or similar ratios, shall be used when calculating the amount of any Loss.
In the event a Loss is not compensated
for through Parent’s retention of Holdback Shares and an Indemnitor remains liable for such Loss under this Article 8, such
Indemnitor shall be entitled to choose, in its sole discretion, to compensate the Purchaser for Losses by (i) making a cash payment
of the relevant amount or (ii) by returning Consideration Shares to the Purchaser with an aggregate Deemed Share Value equal to
the amount of the relevant Loss being compensated.
Section
8.4
Limitations on Indemnification
.
(a)
Subject to the following sentence, the Purchaser may not recover Losses from the Indemnitors in respect of any claim for indemnification
under Section 8.3(a)(1) unless and until Losses have been incurred, paid or properly accrued in an aggregate amount greater than
$250,000 (the “
Indemnification Threshold
”). Notwithstanding the foregoing sentence, the Purchaser will be entitled
to recover for, and the Indemnification Threshold will not apply to, any Losses with respect to any breach of or inaccuracy in
any representation or warranty made in Section 2.2, Section 2.3, Section 2.8, Section 2.10, Section 2.13, Section 2.22, Section
2.23 or Article 3 (the “
Fundamental Representations
”). Once the Indemnification Threshold has been exceeded,
the Purchaser will be entitled to recover for all Losses without regard to the Indemnification Threshold, but otherwise subject
to this Article 8. For the avpoidance of doubt, any Loss that is due to fraud, intentional misrepresentation, bad faith or intentional
misconduct by the Company or any of its directors or officers or any Indemnitor shall not be subject to the limitations set forth
in this Section 8.4.
(b)
Recovery by the Purchaser of their Losses in aggregate will be subject to the following limitations:
(1)
With respect to Losses claimed under clause (1) of Section 8.3(b), Purchaser shall recover all of its Losses directly from the
Indemnitor making the representation or warranty, up to a maximum of the Purchase Price received by it pursuant to Section 1.2(d)
and Section 1.6.
(2)
With respect to Losses claimed as a result of breaches of or inaccuracies in any representation or warranty of the Shareholders
or Losses claimed under Section 8.3(a)(1), Purchaser may recover its Losses solely through retention of Holdback Shares with an
aggregate Deemed Share Value equal to such Losses and only to the extent a claim for such Losses is made prior to the expiration
of the Holdback Period.
(3)
With respect to Losses claimed under clauses (2) or (3) of Section 8.3(b), Purchaser shall recover all of its Losses directly
from the Shareholder that is in default thereunder, without limitation.
51
(c)
Except as otherwise required by applicable Law, the parties shall treat any indemnification payments made hereunder as an adjustment
to the Purchase Price for accounting and Tax purposes.
(d)
No Indemnitor will have any right of contribution, right of indemnity or other right or remedy against Purchaser in connection
with any indemnification obligation or any other liability to which such Indemnitor may become subject under or in connection
with this Agreement.
(e)
The Shareholders shall not be liable under this Agreement in respect of:
|
(i)
|
Any
individual
claim
(or
a
series
of
claims
arising
from
substantially
identical
facts
or
circumstances)
where
the
liability
agreed
or
determined
in
respect
of
any
such
claim
or
series
of
claims
does
not
exceed
50,000
Dollars;
|
|
(ii)
|
Any
claim
unless
notice
in
writing,
accompanied
by
reasonable
particulars
thereof
specifying
the
nature
of
the
claim
and,
as
far
as
practicable,
the
amount
of
the
claim,
has
been
given
to
the
Representative
without
delay
and
at
the
latest
within
sixty
(60)
days
from
the
date
when
the
Purchaser
became
aware
of
the
circumstances
giving
rise
to
the
claim;
|
|
(iii)
|
A
liability,
which
is
contingent,
unless
and
until
such
contingent
liability
becomes
an
actual
liability
and
is
due
and
payable,
provided
that
the
foregoing
shall
in
no
way
restrict
or
prevent
the
Parent
from
making
a
claim
with
respect
to
a
contingent
liability
or
retaining
Holdback
Shares
in
the
amount
of
any
potential
Loss
associated
with
a
contingent
liability;
|
|
(iv)
|
A
claim
which
occurs
as
a
result
of
the
passing
of
any
legislation
not
in
force
at
the
signing
date
of
this
Agreement,
or
which
takes
effect
retroactively,
or
occurs
as
a
result
of
any
increase
in
the
tax
rate
in
force
on
the
date
of
this
Agreement
or
any
change
in
the
generally
established
practise
of
the
relevant
tax
authorities;
|
|
(v)
|
A
claim
which
is
actually
recovered
under
an
insurance
policy;
or
|
|
(vi)
|
A
claim
which
would
not
have
arisen
but
for
an
act,
omission
or
transaction
carried
out
by
the
Purchaser
or
Parent,
or
persons
deriving
title
from
the
Purchaser
or
Parent
or
any
of
the
Company
or
any
of
the
Subsidiaries
after
the
Closing
Date,
other
than
such
acts,
omissions
or
transactions
as
are
carried
out
in
good
faith
or
on
an
uninformed
basis
with
respect
to
the
likelihood
that
the
claim
would
arise.
|
(f)
Tax Deductible Items.
If any Loss is a tax deductible item, or relates to an untaxed reserve, the recoverable Loss shall
be reduced by an amount equivalent to the tax deductions actually realized with respect to such Loss during the relevant fiscal
year.
Section
8.5
[Reserved]
.
52
Section
8.6
Claims for Indemnification
. At any time that Purchaser
desires to claim a Loss (a “
Liability Claim
”) that it believes is or may be indemnifiable under Section 8.3,
Purchaser will deliver a written notice of such Liability Claim (a “
Claims Notice
”) to the Representative or,
in the case of a Liability Claim under Section 8.3(b) (a “
Direct Shareholder Claim
”), the applicable Indemnitor.
Such Claims Notice shall specify the nature of the Liability Claim in reasonable detail.
Section
8.7
Objections to and Payment of Claims
.
(a)
The Representative or, in the case of a Liability Claim with respect to a Direct Shareholder Claim, the applicable Indemnitor
may object to any Liability Claim set forth in such Claims Notice by delivering written notice to Purchaser of the Representative’s
objection or, in respect of a Direct Shareholder Claim, the applicable Indemnitor’s objection (an “
Objection Notice
”).
Such Objection Notice must describe the grounds for such objection in reasonable detail.
(b)
If an Objection Notice is not delivered by the Representative or, in the case of a Liability Claim with respect to a Direct Shareholder
Claim, the applicable Indemnitor to Purchaser within 60 days after delivery by Purchaser of the Claims Notice, such failure
to so object will be an irrevocable acknowledgment by each party to this Agreement (including the Representative) that the Purchaser
is entitled to indemnification under Section 8.3 for the Losses set forth in such Claims Notice in accordance with this Article
8.
(c)
Notwithstanding anything to the contrary in this Agreement, the Indemnitors do not have any individual right to object to any
claim made in a Claims Notice under this Article 8, and any and all claims made in a Claims Notice on behalf of the Purchaser
may be objected to only by the Representative, except in the case of a Direct Shareholder Claim, to which the Shareholder to whom
such Claims Notice was delivered will have the individual right to object in accordance with this Article 8.
Section
8.8
Resolution of Objections to Claims
.
(a)
If the Representative or, in the case of a Liability Claim with respect to a Direct Shareholder Claim, the applicable Indemnitor
objects in writing to any Liability Claim made in any Claims Notice within 30 days after delivery of such Claims Notice, Purchaser
and the Representative or the Indemnitor, as applicable will attempt in good faith to agree upon the rights of Purchaser and the
Indemnitors with respect to each such claim.
(b)
If no such agreement can be reached after good-faith negotiation and after 30 days after delivery of an Objection Notice, either
Purchaser or the Representative (on behalf of the Indemnitors) or, in the case of a Liability Claim with respect to a Direct
Shareholder Claim, the applicable Indemnitor may bring an Action to resolve the Liability Claim.
Section
8.9
Third-Party Claims
.
(a)
If Purchaser receives written notice of a third-party claim that Purchaser believes may result in a Liability Claim (a “
Third
Party Claim
”), Purchaser will notify the Representative or, in the case of a third-party claim that may result in a
Direct Shareholder
53
Claim,
the applicable Indemnitor of such third-party claim and provide the Representative or, in the case of a third-party claim that
may result in a Direct Shareholder Claim, the applicable Indemnitor the opportunity to, at the Representative or Indemnitor’s,
as applicable own cost direct and conduct, any defense of such claim; provided, however, that Purchaser may also participate in
any proceeding with counsel of its choice at its expense. In such event, (i) the Representative or the Indemnitor, as the case
may be, shall provide written notice to the Purchaser of its election to assume such defense prior to the expiration of the thirty
(30) day response period, (ii) the Representative or the Indemnitor, as the case may be, shall diligently conduct the defense;
and (iii) the Representative or the Indemnitor, as the case may be, shall have the right to settle or resolve any such Third Party
Claim; provided, however, that any such settlement or resolution shall not be concluded without the prior written approval of
the Purchaser unless such approval is unreasonably withheld, delayed or conditioned. For purposes of the preceding sentence, withholding,
delaying or conditioning approval shall not be deemed unreasonable in the following circumstances relating to such settlement
or resolution: (A) a finding or admission of any violation by the Purchaser of any legal requirement or of any rights of any Person;
(B) failure to receive a full release of claims that may be made against the Purchaser and the Company; and (C) granting of any
relief other than monetary Losses that are paid in full by the Indemnitor.
(b)
In the event the Representative or the Indemnitor, as the case may be, does not elect to assume the defense of such Third Party
Claim in the manner and within such thirty (30) day response period, or if the Representative or the Indemnitor, as the case may
be, does not diligently conduct such defense, Purchaser may conduct the defense of such claim at the expense of the Representative
or the Indemnitor, as the case may be, or otherwise resolve such Third Party Claim, and the Representative or the Indemnitor,
as the case may be, shall be bound by any settlement or resolution of such Third Party Claim effected by the Purchaser; provided,
however, that such Third Party Claim is agreed by the Representative or the Indemnitor, as the case may be, or otherwise determined,
to be an indemnifiable Loss pursuant to Section 8.3(b).
(c)
Notwithstanding anything contained herein to the contrary, if Purchaser determines in good faith that a Third Party Claim is reasonably
likely to adversely affect in a material manner Parent or any subsidiary of Parent, other than as a result of monetary damages
for which it would be entitled to indemnification hereunder, the Purchaser may, by notice to the Representative or the Indemnitor,
as the case may be, assume the entire control of the defense, settlement and resolution of such Third Party Claim and be fully
indemnified therefor to the extent of the indemnifiable Loss hereunder, provided that the Purchaser shall deal with such Third
Party Claim in good faith in such a manner, including with respect to the negotiation of any settlement of a Third Party Claim,
as is reasonably necessary to prevent such claim from adversely affecting Parent or any subsidiary of Parent in a material manner
and, to the extent consistent with preventing a Third Party Claim from adversely affecting Parent or any subsidiary of Parent
in a material manner, shall use its commercially reasonable efforts to limit the extent of the Loss indemnifiable hereunder. The
Representative shall be entitled at his expense to participate in the defense of a Third Party Claim assumed pursuant to this
Section 8.9(c).
(d)
Each party shall cooperate fully with the party controlling defense of a Third Party Claim and shall make available to such party
all pertinent information under his, her or its control. Notwithstanding anything contained herein to the contrary, each party
agrees that it
54
shall
use its best efforts, in respect of any Third Party Claim for which it has assumed the defense, to avoid production of Confidential
Information and all information or communications subject to any applicable attorney-client or work-product privileges.
Section
8.10
Representative
.
(a)
Each Indemnitor appoints Willem De Geer as the Representative as the Indemnitor’s agent and true and lawful attorney-in-fact
with the powers and authority as set forth in this Agreement, and the Representative hereby accepts such appointment. The Representative
shall be the exclusive agent for and on behalf of the Indemnitors to (1) give and receive notices and communications to or
from Purchaser relating to this Agreement or any of the other Transactions, other than in connection with Direct Shareholder
Claims; (2) authorize deliveries to Purchaser of cash or Consideration Shares and legally bind each Indemnitor to pay cash
or deliver or Consideration Shares directly to Purchaser in satisfaction of claims asserted by Purchaser by not objecting to such
claims), other than in connection with Direct Shareholder Claims; (3) object to such claims in accordance with Section 8.7,
other than in connection with Direct Shareholder Claims; (4) consent or agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with Orders with respect to, such claims, other than in connection with Direct Shareholder
Claims; (5) take all actions necessary or appropriate in the judgment of the Representative for the accomplishment of the foregoing,
in each case without having to seek or obtain the consent of any Person under any circumstance, other than in connection with
Direct Shareholder Claims, (6) subject to Section 7.3, execute for and on behalf of each Indemnitor any amendment to this
Agreement or any exhibit, annex or schedule hereto (including for the purpose of amending addresses or sharing percentages), and
(7) subject to Section 7.4, execute for and on behalf of each Indemnitor any waiver or extension to this Agreement. The Representative
shall be the sole and exclusive means of asserting or addressing any of the above, and no Indemnitor shall have any right to act
on its own behalf with respect to any such matters, other than any claim or dispute against the Representative. This appointment
of agency and this power of attorney is coupled with an interest and will be irrevocable and will not be terminated by any Indemnitor
or by operation of Law, whether by the death or incapacity of any Indemnitor or the occurrence of any other event, and any action
taken by the Representative will be as valid as if such death, incapacity or other event had not occurred, regardless of whether
or not any Indemnitor or the Representative will have received any notice thereof.
(b)
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 Representative that is within the scope of the Representative’s
authority under Section 8.10(a) 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 all Indemnitors and shall be final,
binding and conclusive upon each of them. Purchaser shall be entitled to rely upon any such notice, communication, decision, action,
failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction as being 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, each and every such Indemnitor. Purchaser is unconditionally and irrevocably relieved from any liability
to any person for any acts done by them in accordance with any such
55
notice,
communication, decision, action, failure to act within a designated period of time, agreement, consent or instruction of the Representative.
(c)
The scope of the powers of the Representative as agent for the Indemnitors may be changed, and the Person serving as the Representative
may be replaced from time to time, by the vote or consent of Indemnitors representing a majority of the Consideration Percentage
of all Indemnitors upon not less than 30 days’ prior written notice to Purchaser. A vacancy in the position of the Representative
may be filled by the vote or consent or Indemnitors representing a majority of the Consideration Percentage of all Indemnitors.
If the Representative refuses or is no longer capable of serving as the Representative hereunder, then the Indemnitors, other
than the Representative, representing a majority of the Consideration Percentage of all Indemnitors, other than the Representative,
will promptly appoint a successor Representative who will thereafter be a successor Representative hereunder, and the Representative
will serve until such successor is duly appointed and qualified to act hereunder. If there is not a Representative at any time,
any obligation to provide notice to the Representative will be deemed satisfied if such notice is delivered to each of the Indemnitors
at their addresses last known to Purchaser, which will be the address set forth in the Spreadsheet unless Representative provides
notice to Purchaser of a different address in the manner described in Section 9.3.
(d)
All expenses, if any, incurred by the Representative in connection with the performance of his duties as the Representative (the
“
Representative Expenses
”) will be borne and paid by the Indemnitors according to their respective Consideration
Percentage. Notices or communications to or from the Representative shall constitute notice to or from each of the Indemnitors.
(e)
The Representative shall not be liable to any Indemnitor for any act done or omitted hereunder as the Representative while acting
in good faith and any act done or omitted in accordance with the advice of counsel or other expert shall be conclusive evidence
of such good faith. The Indemnitors shall severally indemnify the Representative and hold him harmless against any loss, liability,
damage, claim, suit, penalty, cost or expense (including fees and expenses of counsel) incurred without gross negligence or bad
faith on the part of the Representative and arising out of or in connection with the acceptance or administration of his duties
hereunder.
(f)
The Representative shall have reasonable access to information about the Company and the reasonable assistance of the Company’s
former officers and employees for purposes of performing his duties and exercising his rights hereunder. The Representative shall
treat confidentially and not use or disclose the terms of this Agreement, the Company Disclosure Letter or any nonpublic information
from or about the Purchaser or the Company to anyone, except that the Representative may disclose the terms or information to
the Indemnitors or the Representative’s employees, attorneys, accountants, financial advisors, agents or authorized representatives
on a need-to-know basis, as long as the Person agrees to treat such information confidentially. If requested by Purchaser, the
Representative shall enter into a separate confidentiality agreement before being provided access to such information.
(g)
By his signature to this Agreement, the initial Representative hereby accepts the appointment contained in this Agreement, as
confirmed and extended by this
56
Agreement,
and agrees to act as the Representative and to discharge the duties and responsibilities of the Representative pursuant to the
terms of this Agreement.
Article
9
General Provisions
Section
9.1
Certain Defined Terms
. As used in this Agreement,
the following terms have the following meanings:
“
Acquisition
”
has the meaning set forth in the Recitals.
“
Acquisition
Transaction
” has the meaning set forth in Section 5.6.
“
Action
”
means any criminal, judicial, administrative or arbitral action, audit, charge, claim, complaint, demand, grievance, hearing,
inquiry, investigation, litigation, mediation, proceeding, citation, summons, subpoena or suit, whether civil, criminal, administrative,
judicial or investigative, whether formal or informal, whether public or private, commenced, brought, conducted or heard by or
before, or otherwise involving, any Governmental Authority.
“
Affiliate,
”
when used with reference to any Person, means another Person that directly or indirectly, through one or more intermediaries,
Controls, is Controlled by, or is under common Control with such first Person.
“
Agreement
”
has the meaning set forth in the Preamble.
“
Applicable
Jurisdiction
” means (a) Sweden and (b) the United States and the states thereof.
“
Assets
and Properties
” with respect to any Person, shall mean all assets and properties of every kind, nature, character and
description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or
otherwise and wherever situated), including the goodwill related thereto, operated, owned, licensed or leased by such Person,
including cash, cash equivalents, investment assets, accounts and notes receivable, chattel paper, documents, instruments, general
intangibles, real estate, equipment, inventory, goods, and Intellectual Property.
“
Basis
”
means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act or transaction that could form the basis for any specific consequence.
“
Business
Day
” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to
be closed in New York, New York, United States of America or Stockholm, Sweden.
“
Charter
”
has the meaning set forth in Section 2.1.
“
Charter
Documents
” has the meaning set forth in Section 2.1.
57
“
Claim
Period
” has the meaning set forth in Section 8.5.
“
Claim
Period Expiration Date
” has the meaning set forth in Section 8.5.
“
Claims
Notice
” has the meaning set forth in Section 8.6.
“
Closing
”
has the meaning set forth in Section 1.2.
“
Closing
Date
” has the meaning set forth in Section 1.2.
“
Closing
Consideration Shares
” means a number of shares of Parent Common Stock equal to the Consideration Shares minus:
|
(i)
|
the
number
of
shares
of
Parent
Common
Stock
for
which
the
Consideration
Options
are
exercisable,
minus
|
|
(ii)
|
the
Holdback
Shares,
minus
|
|
(iii)
|
the
Transaction
Payment
Shares,
minus
|
|
(iv)
|
the
number
of
shares
of
Parent
Common
Stock
with
an
aggregate
Deemed
Share
Value
equal
to
the
Transaction
Payment
Taxes,
and
minus
|
|
(v)
|
the
number
of
shares
of
Parent
Common
Stock
with
an
aggregate
Deemed
Share
Value
equal
to
the
aggregate
value
of
the
Seller
Expenses.
|
“
Closing
Working Capital
” means (i) the cash and cash equivalents, inventory, accounts receivable, prepaid expenses and other
current assets (excluding deferred tax assets) of the Company and its Subsidiaries as of immediately prior to the Closing (net
of all applicable reserves), minus (ii) the accounts payable, accrued expenses, accrued compensation, accrued Taxes and all other
current liabilities of the Company and its Subsidiaries as of immediately prior to the Closing, excluding for this purpose all
Indebtedness and all Transaction Payments and Seller Expenses paid at the Closing pursuant to Section 1.2(e). The Closing Working
Capital shall be determined on a consolidated basis in accordance with generally accepted accounting principles and, to the extent
consistent with generally accepted accounting principles, the Company’s historical accounting practices as reflected in
the most recent audited Financial Statements described in Section 2.5.
“
Company
Balance Sheet Date
” has the meaning set forth in Section 2.5.
“
Company
”
has the meanings set forth in the Preamble and, solely for purposes of Section 5.19, Section 5.19(a).
“
Company
Authorizations
” has the meaning set forth in Section 2.14.
“
Company
Common Shares
” means the Common Shares of the Company.
58
“
Company
Disclosure Letter
” means the Company Disclosure Letter dated as of the date hereof, executed by an authorized officer
of the Company and delivered by the Company to Purchaser concurrently herewith.
“
Company
Intellectual Property
” means any Intellectual Property owned by or licensed to the Company or any of its Subsidiaries,
or otherwise used or held for use in connection with the operation of the business of the Company or its Subsidiaries, including
Company-Owned Intellectual Property.
“
Company
Material Contract
” has the meaning set forth in Section 2.20.
“
Company-Owned
Intellectual Property
” means any Intellectual Property that is owned by or exclusively licensed to the Company.
“
Company
Products
” has the meaning set forth in Section 2.9(a).
“
Company
Registered Intellectual Property
” has the meaning set forth in Section 2.9(b).
“
Company
Securities
” means Shares and Options.
“
Company
Source Code
” has the meaning set forth in Section 2.9(r).
“
Company
Stock Plans
” means the stock plans which options and entitlements will be cancelled by this Agreement, subject to Closing.
“
Competition
Laws
” means any international, multilateral, multinational, national, federal or state statutes, rules, regulations,
orders or decrees that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade.
“
Confidentiality
Agreement
” has the meaning set forth in Section 5.4.
“
Consideration
Percentage
” means the percentage set out for each holder of Company Securities in the Spreadsheet.
“
Consideration
Shares
” means such number of shares of Parent Common Stock which, if added to the number of shares of Parent Common
Stock Equivalents issued and outstanding as of immediately prior to Closing, would represent 23.6% of the total number shares
of the Parent Common Stock Equivalents. For illustrative purposes only, as of the date of this Agreement, the Consideration Shares
would be 2,149,157 shares of Parent Common Stock, calculated based upon 9,106,598 Parent Common Stock Equivalents as of the date
of this Agreement.
“
Consideration
Options
” has the meaning set forth in Section 1.1(b).
“
Contract
”
means any contract, agreement, indenture, note, bond, loan, instrument, license, lease (including real and personal property leases),
conditional sale contract, purchase or sales orders, mortgage, undertaking, commitment, understanding, undertaking, option, warrant,
calls, rights or other enforceable arrangement or agreement, whether written or oral.
59
“
Control
”
means, as to any Person, the possession of the power to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise. The verb “Control” and the term “Controlled”
have the correlative meanings.
“
COTS
Software
” shall mean commercial off-the-shelf Software that has not been modified or customized by a third party for
the Company and is licensed to the Company pursuant to a Contract that does not require any future payment(s), including any applicable
maintenance and support fees, of more than $3,000.
“
Covered
Area
” has the meaning set forth in Section 5.19(b).
“
Covered
Business
” has the meaning set forth in Section 5.19(b).
“
Covered
Person
” has the meaning set forth in Section 5.19(b).
“
Customer
Contract
” has the meaning set forth in Section 2.20(b).
“
Customer
”
has the meaning set forth in Section 2.19.
“
Customer
License Agreements
” means non-exclusive end user licenses to the object code form of the Company Products granted to
customers of the Company.
“
Data
Room
” has the meaning set forth in Section 5.3(a).
“
Deemed
Share Value
” means the closing price per share of Parent Common Stock on the Nasdaq Capital Market on the Closing Date.
“
Direct
Shareholder Claim
” has the meaning set forth in Section 8.6.
“
Dispute
”
has the meaning set forth in Section 2.9(m).
“
Employee
Plan
” means all the employee benefit, fringe benefit, supplemental unemployment benefit, bonus, incentive, profit sharing,
termination, change of control, pension, retirement, stock option, stock purchase, stock appreciation, health, welfare, medical,
dental, disability, life insurance and similar plans, programs, arrangements, policies or practices relating to the current or
former directors consultants, independent contractors,, officers or employees of the Company or its Subsidiaries that is maintained,
sponsored or funded by the Company or its Subsidiaries, whether written or oral, funded or unfunded, insured or self-insured,
registered or unregistered, or under which the Company or its Subsidiaries may have any Liabilities, contingent or otherwise.
“
Employment
Arrangement
” means each employment, offer letter, consulting, relocation, repatriation, expatriation, visa, work permit
or other agreement, contract or understanding between the Company or its
Subsidiaries
and any
current or former employee, intern, director, consultant or independent contractor of
the Company or its Subsidiaries
, or with respect to which the Company or its
Subsidiaries
has or may have any liability.
60
“
Encumbrance
”
means any mortgage, pledge, hypothecation, right of others, adverse claim, security interest, encumbrance, title defect, title
retention agreement, voting trust agreement, third party right or other right or interest, option, lien, charge, any hire purchase,
lease or installment purchase agreement, right of first refusal, right of preemption or right to acquire, or other restriction
or limitation, including any restriction on the right to vote, sell or otherwise dispose of the subject property, other than any
restriction or limitation imposed by this Agreement, but excluding non-exclusive licenses of Intellectual Property granted by
the Company or its Subsidiaries in the ordinary course of business consistent with past practices.
“
Exchange
Ratio
” means the number of shares of Parent Common Stock to be delivered at Closing as consideration for each Share
sold to Purchaser hereunder, such that the aggregate number of shares of Parent Common Stock to be issued to the Shareholders
for the purchase of the Shares shall equal the Consideration Shares, subject to reduction in accordance with the terms and conditions
of this Agreement for (i) the number of shares of Parent Common Stock subject to the Consideration Options, (ii) the Holdback
Shares, (iii) the Seller Expenses, (v) the Transaction Payment Shares and (vi) the Transaction Payment Taxes. For illustrative
purposes only, as of the date of this Agreement, prior to any reductions for items (i) through (vi) above, the Exchange Ratio
would be 2.603353.
“
Financial
Controls
” has the meaning set forth in Section 2.5(b).
“
Financial
Statements
” has the meaning set forth in Section 2.5(a).
“
Fundamental
Representations
” has the meaning set forth in Section 8.4(a).
“
GAAP
”
has the meaning set forth in Section 2.5(a).
“
Governmental
Authority
” means any governmental, regulatory or administrative authority, agency, body, commission or other entity,
whether international, multinational, national, regional, state, provincial or of a political subdivision; any court, judicial
body, arbitration board or arbitrator; any tribunal of a self-regulatory organization; or any instrumentality of any of the foregoing.
“
GPL
”
has the meaning set forth in Section 2.9(g).
“
Holdback
Period
” means the period commencing at Closing and terminating at 11:59 p.m. New York time on the date that is 15 months
following the Closing Date.
“
Holdback
Shares
” means a number of shares of Parent Common Stock representing in the aggregate 10% of the Consideration Shares.
“
Indebtedness
”
means all principal, interest, fees, expenses and other amounts in respect of borrowed money, notes, bonds, debentures and other
debt securities, guarantees, interest rate, currency or other hedging arrangements, capital leases, letters of credit and/or installment
purchases incurred by the Company or any Subsidiary prior to the Closing, or required to be paid in order to discharge fully all
such amounts as of the Closing.
“
Indemnification
Threshold
” has the meaning set forth in Section 8.4(a).
61
“
Intellectual
Property
” means the rights associated with or arising out of any of the following: (1) domestic and foreign patents
and patent applications, together with all reissuances, divisionals, continuations, continuations-in-part, revisions, renewals,
extensions, and reexaminations thereof, and any identified invention disclosures (“
Patents
”); (2) trade
secret rights and corresponding rights in confidential information and other non-public information (whether or not patentable),
including ideas, formulas, compositions, inventor’s notes, discoveries and improvements, know how, manufacturing and production
processes and techniques, testing information, research and development information, inventions, invention disclosures, unpatented
blueprints, drawings, specifications, designs, plans, proposals and technical data, business and marketing plans, market surveys,
market know-how and customer lists and information (“
Trade Secrets
”); (3) all copyrights, copyrightable
works, rights in databases, data collections, “moral” rights, mask works, industrial designs, industrial design registrations
and applications, copyright registrations and applications therefor and corresponding rights in works of authorship (“
Copyrights
”);
(4) all trademarks, service marks, logos, trade dress and trade names indicating the source of goods or services, and other
indicia of commercial source or origin (whether registered, common law, statutory or otherwise), all registrations and applications
to register the foregoing anywhere in the world and all goodwill associated therewith (“
Trademarks
”); (5) all
Internet electronic addresses, uniform resource locators and alphanumeric designations associated therewith and all registrations
for any of the foregoing (“
Domain Names
”); and (6) any similar, corresponding or equivalent rights to
any of the foregoing anywhere in the world.
“
Knowledge
of the Shareholders
” means the
knowledge of the Company’s directors and officers
and
the knowledge that they would have if they had made reasonable and diligent inquiry of those employees, agents, consultants, attorneys,
accountants and other persons who would be expected to have knowledge as to the relevant matter.
“
Law
”
means the law of any jurisdiction, whether international, multilateral, multinational, national, federal, state, provincial, local
or common law, an Order or act, statute, ordinance, regulation, rule, collective bargaining agreement, extension order or code
promulgated by a Governmental Authority.
“
Leases
”
means the Contracts set forth in Section 2.21(a) of the Company Disclosure Letter.
“
Leased
Real Property
” means all real property leased, subleased or licensed to the Company or its Subsidiaries or which the
Company or its Subsidiaries otherwise has a right or option to use or occupy, together with all structures, facilities, fixtures,
systems, improvements and items of property previously or hereafter located thereon, or attached or appurtenant thereto, and all
easements, rights and appurtenances relating to the foregoing.
“
LGPL
”
has the meaning set forth in Section 2.9(g).
“
Liabilities
”
means any and all liabilities, debts, commitments and obligations of any kind, whether accrued or fixed, absolute or contingent,
matured or unmatured, determined or undeterminable, on- or off-balance sheet or required to be recorded on a balance sheet prepared
62
in
accordance with GAAP, including those arising under any Law, Action or Order and those arising under any Contract or otherwise.
“
Liability
Claim
” has the meaning set forth in Section 8.6.
“
Losses
”
has the meaning set forth in Section 8.3(a).
Documents
or other information and materials shall be deemed to have been “
Made Available
” by the Company if and only
if the Company has posted such documents and information and other materials to the Data Room at least 48 hours prior to the execution
and delivery of this Agreement by the parties hereto.
Any
reference to an event, change, condition or effect being “
material
” with respect to any Person means any event,
change, condition or effect that is material in relation to the condition (financial or otherwise), properties, assets (including
intangible assets), liabilities, business, operations or results of operations of such Person and its Subsidiaries, taken as a
whole.
“
Material
Adverse Effect
” with respect to any Person means any effect that either alone or in combination with any other effect
is materially adverse in relation to the condition (financial or otherwise), properties, assets, liabilities, business, operations
or results of operations of such Person and its Subsidiaries, taken as a whole or the ability of such Person to perform its obligations
hereunder or to consummate the Transactions, except that none of the following will be deemed to constitute, and none of the following
will be taken into account in determining whether there has been, a Material Adverse Effect: any adverse change, event, development,
or effect to the extent arising from (1) changes in national or international political or social conditions occurring after
the date of this Agreement, including engagement by the government of any Applicable Jurisdiction in hostilities, whether or not
pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon any of
the Applicable Jurisdictions, (2) changes in GAAP or (3) changes in Law, rules, regulations, Orders, or other binding
directives issued by any Governmental Authority.
“
Minimum
Working Capital Amount
” means US $500,000.
“
New
Litigation Claim
” has the meaning set forth in Section 5.3(c).
“
Noncompetition
Period
” has the meaning set forth in Section 5.19(b).
“
Objection
Notice
” has the meaning set forth in Section 8.7(a).
“
Open
Source Materials
” has the meaning set forth in Section 2.9(g).
“
Options
”
means the 111,241 options to acquire the same number of Warrants, held by the Optionholders as set out in
Exhibit A
.
“
Order
”
means any order, decision, ruling, charge, writ, judgment, injunction, decree, stipulation, determination, award, assessment or
binding agreement issued, promulgated or entered by or with any Governmental Authority.
63
“
Parent
Common Stock
” means the common stock of Parent, par value $.01 per share.
“
Parent
Common Stock Equivalents
” means the sum of (1) all issued and outstanding shares of Parent Common Stock, plus (2) the
number of shares of Parent Common subject to vested stock options to purchase shares of Parent Common Stock, plus (3) the 185,000
shares of Parent Common Stock subject to that certain Stock Purchase Warrant held by Massachusetts Capital Resource Company.
“
Parent
SEC Reports
” has the meaning set forth in Section 4.4.
“
Permit
”
means any approval, authorization, consent, franchise, license, permit or certificate by any Governmental Authority.
“
Person
”
means any natural person, general or limited partnership, corporation, limited liability company, joint venture, trust, firm,
association or other legal or Governmental Authority.
“
Potential
Claim
” has the meaning set forth in Section 5.12(a).
“
Pre-Closing
Additional Shares
” has the meaning set forth in Section 1.6.
“
Purchase
Price
” has the meaning set forth in Section 1.1(c).
“
Purchaser
”
has the meanings set forth in the Preamble and, solely for purposes of Article 8, Section 8.3(a).
“
Registered
Intellectual Property
” means any Intellectual Property that is the subject of an application, certificate, filing, registration
or other document issued, filed with, or recorded by any state, government or other public legal authority, including any of the
following: (1) issued Patents and Patent applications; (2) Trademark registrations, renewals and applications; (3) Copyright
registrations and applications; and (4) Domain Name registrations.
“
Related
Party
” has the meaning set forth in Section 2.12(a).
“
Released
Matters
” has the meaning set forth in Section 5.12(a).
“
Released
Parties
” has the meaning set forth in Section 5.12(a).
“
Releasing
Parties
” has the meaning set forth in Section 5.12(a).
“
Representative
”
means Willem De Geer as of the date hereof and any successor appointed pursuant to Section 8.10(a).
“
Representative
Expenses
” has the meaning set forth in Section 8.10(d).
“
Securities
Act
” means the United States Securities Act of 1933, as amended.
“
Seller
Expenses
” means all legal, accounting, financial advisory, consulting, finders and all other fees and expenses of third
parties incurred by the Company, any subsidiary of the
64
Company,
any Shareholder or any Optionholder in connection with the negotiation and effectuation of the terms and conditions of this Agreement
and the Transactions plus VAT on Transaction Payments.
“
Shareholders
”
has the meaning set forth in the Preamble.
“
Shareholders’
Agreement
” means any and all shareholders’ agreements in place between the Shareholders or any of them.
“
Shares
”
means Company Common Shares.
“
Software
”
means computer software, programs and databases in any form, including Internet web sites, web content and links, source code,
object code, 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, all versions, updates, corrections, enhancements and modifications thereof, and all related documentation, developer
notes, comments and annotations.
“
Spreadsheet
”
has the meaning set forth in Section 5.8.
“
Shareholder
Affiliate
” has the meaning set forth in Section 5.12(a).
“
Sub-leases
”
means the Contracts set forth in Section 2.21(b) of the Company Disclosure Letter.
“
Subsidiary
”
of any Person means any other Person (1) of which the first Person owns directly or indirectly 50 percent or more of the
equity interest in the other Person or (2) of which (or in which) an amount of the voting securities, other voting ownership
or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing
body (or, if there are no such voting interests, more than 50 percent of the equity interests of which) is directly or indirectly
owned or Controlled by the first Person, by such Person with one or more of its Subsidiaries or by one or more of such Person’s
other Subsidiaries or (3) in which the first Person has the contractual or other power to designate a majority of the board
of directors or other governing body.
“
Swedish
Subsidiary
” has the meaning set forth in Section 2.5(a).
“
Tax
”
has the meaning set forth in Section 2.10(a).
“
Tax
Authority
” has the meaning set forth in Section 2.10(a).
“
Tax
Return
” has the meaning set forth in Section 2.10(a).
“
Termination
Date
” has the meaning set forth in Section 7.1(b).
“
Third
Party Claim
” has the meaning set forth in Section 8.9(a).
65
“
Transactions
”
means the transactions to be effected pursuant to this Agreement.
“
Transaction
Payments
” means any transaction, sale and change of control bonuses and similar payments that employees or consultants
are entitled to as a result of the Transactions.
“
Transaction
Payment Shares
” means the shares of Parent Common Stock to be issued at the direction of the Representative prior to
the Closing Date to employees or consultants of the Company in full satisfaction of any Transaction Payments, less the number
of shares of Parent Common Stock equal to the aggregate Deemed Share Value of the Transaction Payment Taxes.
“
Transaction
Payment Taxes
” means the aggregate amount of any Tax withholdings and social security contributions payable in connection
with the Transaction Payments.
“
Trading
Day
” means a day on which the Nasdaq Capital Market is open for trading.
“
U.S.
GAAP
” has the meaning set forth in Section 2.5(a).
“
U.S.
Subsidiary
” means Panopticon Software, Inc.
“
U.S.
Subsidiary Sale
” means the sale by the Company to Parent of all of the outstanding capital stock of the U.S. Subsidiary
for a purchase price of $175,000, payable in the form of a promissory note issued to the Company by the Parent, pursuant to the
terms and conditions of a securities purchase agreement in the form attached hereto as
Exhibit E
and entered into on the
date hereof.
“
Warrants
”
means the 891,765 warrants to subscribe for the same number of shares in the Company, held by the Swedish Subsidiary.
Section
9.2
Terms Generally; Interpretation
. Except to the extent
that the context otherwise requires:
(a)
when a reference is made in this Agreement to an Article, Section, Subsection, Exhibit, Schedule or Recitals, such reference is
to an Article, Section or Subsection of, an Exhibit or Schedule or the Recitals to, this Agreement unless otherwise indicated;
(b)
the table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning
or interpretation of this Agreement;
(c)
the words “include,” “includes” or “including” (or similar terms) are deemed to be followed
by the words “without limitation”;
(d)
the words “hereof,” “herein” and “hereunder” and words of similar import, when used in this
Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement;
(e)
any gender-specific reference in this Agreement include all genders;
66
(f)
the definitions contained in this Agreement are applicable to the other grammatical forms of such terms;
(g)
a reference to any legislation or to any provision of any legislation will include any modification, amendment or re-enactment
thereof, any legislative provision substituted therefore and all rules, regulations and statutory instruments issued or related
to such legislation.
(h)
if any action is to be taken by any party hereto pursuant to this Agreement on a day that is not a Business Day, such action will
be taken on the next Business Day following such day;
(i)
references to a Person are also to its permitted successors and assigns;
(j)
unless indicated otherwise, mathematical calculations contemplated hereby will be made to the maximum number of significant digits
stored and used in calculations by Microsoft Excel, but payments will be rounded to the nearest whole cent, after aggregating
all payments due to or owed by a Person;
(k)
“ordinary course of business” (or similar terms) will be deemed followed by “consistent with past practice”;
(l)
the parties have participated jointly in the negotiation and drafting hereof; if any ambiguity or question of intent or interpretation
arises, this Agreement will be construed as if drafted jointly by the parties, and no presumption or burden of proof will arise
favoring or disfavoring any party by virtue of the authorship of any provision hereof; no prior draft of this Agreement nor any
course of performance or course of dealing will be used in the interpretation or construction hereof;
(m)
the contents of the Company Disclosure Letter and the other Schedules form an integral part of this Agreement and any reference
to “this Agreement” shall be deemed to include the Schedules;
(n)
no parole evidence will be introduced in the construction or interpretation of this Agreement unless the ambiguity or uncertainty
in issue is plainly discernible from a reading of this Agreement without consideration of any extrinsic evidence;
(o)
although the same or similar subject matters may be addressed in different provisions of this Agreement, the parties intend that,
except as reasonably apparent on the face of the Agreement or as expressly provided in this Agreement, each such provision will
be read separately, be given independent significance and not be construed as limiting any other provision of this Agreement (whether
or not more general or more specific in scope, substance or content);
(p)
all references to currency, monetary values, and dollars set forth herein shall mean United States dollars; and
67
(q)
the doctrine of election of remedies will not apply in constructing or interpreting the remedies provisions of this Agreement
or the equitable power of a court considering this Agreement or the Transactions.
Section
9.3
Notices
. All notices, deliveries and other communications
pursuant to this Agreement will be in writing and will be deemed given if delivered personally, telecopied or delivered by globally
recognized express delivery service to the parties at the addresses or facsimile numbers set forth below or to such other address
or facsimile number as the party to whom notice is to be given may have furnished to the other parties hereto in writing in accordance
herewith. Any such notice, delivery or communication will be deemed to have been delivered and received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of telecopy, on the Business Day after the day that the
party giving notice receives electronic confirmation of sending from the sending telecopy machine, and (c) in the case of
a globally recognized express delivery service, on the Business Day that receipt by the addressee is confirmed pursuant to the
service’s systems.
(a)
if to Purchaser and Parent:
Datawatch
Corporation
271
Mill Road
Quorum
Office Park
Chelmsford,
Massachusetts 01824
Attention:
Michael A. Morrison, Chief Executive Officer
Facsimile: 978-458-1115
with
a copy (which will not constitute notice) to:
Choate,
Hall & Stewart, LLP
Two
International Place
Boston,
Massachusetts 02110
Attention:
William B. Asher, Jr.
Facsimile: 617-248-4000
(b)
if to a Shareholder or Optionholder, to the address set forth below such Shareholder’s or Optionholder’s name on the
signature pages attached to this Agreement, with copies (which will not constitute notice) to the Representative:
(c)
if to Representative:
Willem
De Geer
Hövdingevägen 4
18162 Lidingö
Sweden
68
with
a copy (which will not constitute notice) to:
Advokatfirman
Vinge KB
Nordstadstorget 6
Box 11025
40421 Gothenburg
Sweden
Attention: Fredrik Sonander
Facsimile: +46-10-614-1700
Section
9.4
Severability
. If any term or provision of this Agreement
or the application of any such term or provision to any Person or circumstance is held by final judgment of a court of competent
jurisdiction or arbiter to be invalid, illegal or unenforceable in any situation in any jurisdiction, all other conditions and
provisions of this Agreement will nevertheless remain in full force and effect. If the final judgment of such court or arbitrator
declares that any term or provision hereof is invalid, void or unenforceable, the parties agree to, as applicable, (a) reduce
the scope, duration, area or applicability of the term or provision, (b) delete specific words or phrases, or (c) replace
any invalid, illegal or unenforceable term or provision with a term or provision that is valid and enforceable and that comes
closest to expressing the original intention of the invalid, illegal or unenforceable term or provision.
Section
9.5
Entire Agreement
. This Agreement, the Confidentiality
Agreement and the documents, instruments and other agreements specifically referred to herein or therein or delivered pursuant
hereto or thereto, including all exhibits and schedules hereto and thereto, constitute the entire agreement of the parties hereto
with respect to the subject matter hereof and supersede all prior agreements, term sheets, letters of interest, correspondence
(including e-mail) and undertakings, both written and oral, between the Company, Shareholders or Representative on the one hand,
and Purchaser, on the other hand, with respect to the subject matter hereof, except for the Confidentiality Agreement, which will
continue in full force and effect, and will survive any termination of this Agreement, in accordance with its terms. The parties
thereto acknowledge and agree that the Shareholders’ Agreement will terminate on Closing.
Section
9.6
Assignment
. Neither this Agreement nor any right,
interest or obligation under this Agreement may be assigned or delegated by any party to this Agreement by operation of Law or
otherwise without the prior written consent of the other parties to this Agreement and any attempt to do so will be void, except
that the rights and obligations of the Representative may be assigned and delegated pursuant to Section 8.10(a).
Section
9.7
No Third-Party Beneficiaries
. Except as provided
in Article 8, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein, express
or implied, is intended to or will confer upon any other Person any legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
Section
9.8
Governing Law and Arbitration
. This Agreement will
be governed by, and construed in accordance with, the Laws of Sweden without giving effect to any choice or conflict of law provision
or rule that would cause the application of laws of any jurisdiction other than
69
Sweden.
Any dispute, controversy or claim arising out of or in connection with this Agreement shall be settled by arbitration in accordance
with the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce. The arbitral tribunal shall be composed of three
arbitrators. The place of arbitration shall be Stockholm, Sweden. The language to be used in the arbitral proceedings shall be
English. The Parties undertake and agree that all arbitral proceedings conducted with reference to this arbitration clause will
be kept strictly confidential. This confidentiality undertaking shall cover all information disclosed in the course of such arbitral
proceedings, as well as any decision or award that is made or declared during the proceedings. Information covered by this confidentiality
undertaking may not, in any form, be disclosed to a third party without the written consent of the other Party. This notwithstanding,
a Party shall not be prevented from disclosing such information in order to safeguard in the best possible way his rights vis-à-vis
the other Party in connection with the dispute, or if the Party is obliged to so disclose pursuant to statue, regulation, a decision
by an authority, a stock exchange contract or similar.
Section
9.9
Counterparts
. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed will be deemed
to be an original but all of which taken together will constitute one and the same agreement. Delivery of an executed counterpart
of a signature page to this Agreement by telecopy or by electronic delivery in Adobe Portable Document Format or other electronic
format based on common standards will be effective as delivery of a manually executed counterpart of this Agreement.
[Signature
page follows]
70
IN
WITNESS WHEREOF, Parent, the Shareholders, the Optionholders and the Representative have caused this Agreement to be executed
as of the date first written above by them or their respective officers or trustees thereunto duly authorized.
|
DATAWATCH
CORPORATION
By:
/s/
Michael A. Morrison______
Name:
Michael A. Morrison
Title:
Chief Executive Officer
|
71
|
/s/
Willem De Geer
Willem
De Geer, as the Representative
SHAREHOLDERS
Industrial
Equity (I.E.) AB
c/o
Sjätte AP-fonden
Box 11395
404 28 Göteborg, Sweden
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
Dear
Invest AB
Box
7785
103 96 Stockholm, Sweden
By:
/s/
Willem De Geer
Name:
Willem De Geer
Palmstierna
Invest AB
Box
7785
103 96 Stockholm, Sweden
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
Tewina
Company Ltd
Stasikratous
22, Olga Court, Flat/Office 104,
PO
Box 236 64, 1065 Nicosia, Cyprus
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
|
|
Lövgren
& Partners Holding AB
Box
52
182 05 Djursholm, Sweden
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
Chris
Elsmore
Flat
3, 41 st Stephensgardens, London, WW25NA, United Kingdom
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
Atine
Group Oy
Unionsgatan
7 A
FI-15 00130 Helsingsfors, Finland
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
Chuck
Kane
1
cold spring brook road, Hopkinton Massachussets 01248, USA
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
Capmate
AB
Björkvallavägen
2A
194 76 Upplands Väsby, Sweden
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
Investering
i Kunskap Aktiebolag IKAB
Box
5216
102 45 Stockholm, Sweden
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
|
|
Marketech
AB
Hamnplanen
10
263 61 Viken, Sweden
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
Gurtenfry
AB
c/o
Lombach
Sjövägen 4
133 36 Saltsjöbaden, Sweden
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
Fastalente
AB
c/o
Christer Swaretz
Höglandsvägen 34
183 57 Täby, Sweden
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
WAPA
Stockholm AB
Ekebydalsvägen
12
182 65 Djursholm, Sweden
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
Jonas
Arlebäck AB
Olsgårdsvägen
11
429
34 Kullavik, Sweden
By:
/s/
Willem De Geer
Name:
Willem De Geer, by Power of Attorney
|
Exhibit
B
VOTING
AGREEMENT
This
VOTING AGREEMENT
(this “Agreement”) is dated as of June 13, 2013, by and between the undersigned holder (“Stockholder”)
of Common Stock, par value $.01 per share, of Datawatch Corporation, a Delaware corporation (“Parent”), Parent and
Willem De Geer in his capacity as the Representative. All capitalized terms used but not defined herein shall have the meanings
assigned to them in the Stock Purchase Agreement (defined below).
WHEREAS
,
concurrently with the execution of this Agreement, Parent, the shareholders and optionholders of Panopticon Software AB (the “Company”),
the Company and the Representative are entering into a Stock Purchase Agreement (as such agreement may be subsequently amended
or modified, the “Stock Purchase Agreement”), pursuant to which Parent or an affiliate of Parent will acquire all
of the outstanding shares of the Company in exchange for the issuance by Parent of a certain number of shares of Parent Common
Stock and will grant stock options to acquire Parent Common Stock in exchange for and cancellation of outstanding options to acquire
Company shares;
WHEREAS
,
Stockholder beneficially owns and has sole or shared voting power with respect to the number of shares of Parent Common Stock
identified on
Exhibit A
hereto (such shares, together with all shares of Parent Common Stock subsequently acquired by Stockholder
during the term of this Agreement, including through the exercise of any stock option or other equity award, warrant or similar
instrument, being referred to as the “Parent Shares”), and holds stock options or other rights to acquire the number
of shares of Parent Common Stock identified on
Exhibit A
hereto; and
WHEREAS
,
it is a material inducement to the willingness of the shareholders and optionholders of the Company, the Company and the Representative
(the “Company Parties”) to enter into the Stock Purchase Agreement that Stockholder execute and deliver this Agreement.
NOW,
THEREFORE,
in consideration of, and as a material inducement to, the Company Parties entering into the Stock Purchase Agreement
and proceeding with the transactions contemplated thereby, and in consideration of the expenses incurred and to be incurred by
the Company Parties in connection therewith, the parties hereto hereby agree as follows:
Section
1.
Agreement to Vote Parent Shares
. Stockholder agrees that, while this Agreement is in effect, at any meeting of stockholders
of Parent, however called, or at any adjournment thereof, or in any other circumstances in which Stockholder is entitled to vote,
consent or give any other approval, except as otherwise agreed to in writing in advance by the Parent and the Representative,
Stockholder shall:
|
(a)
|
appear
at
each
such
meeting
or
otherwise
cause
the
Parent
Shares
to
be
counted
as
present
thereat
for
purposes
of
calculating
a
quorum;
and
|
|
(b)
|
vote
(or
cause
to
be
voted),
in
person
or
by
proxy,
all
the
Parent
Shares
that
are
beneficially
owned
by
Stockholder
or
as
to
which
Stockholder
has,
directly
or
indirectly,
the
right
to
vote
or
direct
the
voting,
in
favor
of
adoption
and
approval
of
the
Stock
Purchase
Agreement
and
the
Transactions
(including
any
amendments
or
modifications
of
the
terms
thereof
adopted
in
accordance
with
the
terms
thereof)
.
|
Stockholder
further agrees not to vote or execute any written consent to rescind or amend in any manner any prior vote or written consent,
as a stockholder of Parent, to approve or adopt the Stock Purchase Agreement unless the Stock Purchase Agreement is terminated
in accordance with its terms.
Section
2.
Representations and Warranties of Stockholder
. Stockholder represents and warrants to and agrees with Parent and
the Representative as follows:
|
(a)
|
Stockholder
has
all
requisite
capacity
and
authority
to
enter
into
and
perform
his,
her
or
its
obligations
under
this
Agreement.
|
|
(b)
|
This
Agreement
has
been
duly
executed
and
delivered
by
Stockholder,
and
assuming
the
due
authorization,
execution
and
delivery
by
the
Representative,
constitutes
the
valid
and
legally
binding
obligation
of
Stockholder
enforceable
against
Stockholder
in
accordance
with
its
terms,
subject
to
bankruptcy,
insolvency,
fraudulent
transfer,
reorganization,
moratorium
and
similar
laws
of
general
applicability
relating
to
or
affecting
creditors’
rights
and
to
general
equity
principles.
|
|
(c)
|
The
execution
and
delivery
of
this
Agreement
by
Stockholder
does
not,
and
the
performance
by
Stockholder
of
his,
her
or
its
obligations
hereunder
and
the
consummation
by
Stockholder
of
the
transactions
contemplated
hereby
will
not,
violate
or
conflict
with,
or
constitute
a
default
under,
any
agreement,
instrument,
contract
or
other
obligation
or
any
order,
arbitration
award,
judgment
or
decree
to
which
Stockholder
is
a
party
or
by
which
Stockholder
is
bound,
or
any
statute,
rule
or
regulation
to
which
Stockholder
is
subject
or,
in
the
event
that
Stockholder
is
a
corporation,
partnership,
trust
or
other
entity,
any
charter,
bylaw
or
other
organizational
document
of
Stockholder.
|
|
(d)
|
Stockholder
is
the
record
and
beneficial
owner
of,
or
is
the
trustee
that
is
the
record
holder
of,
and
whose
beneficiaries
are
the
beneficial
owners
of,
and
has
good
title
to
all
of
the
Parent
Shares
and
options
set
forth
on
Exhibit
A
hereto.
Stockholder
does
not
own,
of
record
or
beneficially,
any
shares
of
capital
stock
of
Parent
other
than
the
Parent
Shares
(other
than
shares
of
capital
stock
subject
to
stock
options
or
restricted
stock
units
over
which
Stockholder
will
have
no
voting
rights
until
the
exercise
of
such
stock
options
or
vesting
of
such
rectricted
stock
units,
respectively).
The
Parent
Shares
do
not
include
shares
over
which
Stockholder
exercises
control
in
a
fiduciary
capacity
and
no
representation
by
Stockholder
is
made
thereby
pursuant
to
the
terms
hereof.
Stockholder
has
the
right
to
vote
the
Parent
Shares,
and
none
of
the
Parent
Shares
is
subject
to
any
|
|
|
voting
trust
or
other
agreement,
arrangement
or
restriction
with
respect
to
the
voting
of
the
Parent
Shares,
except
as
contemplated
by
this
Agreement.
|
Section
3.
Specific Performance; Remedies
. Stockholder acknowledges that it will be impossible to
measure in money the damage to Parent and/or the Company Parties if Stockholder fails to comply with the obligations imposed by
this Agreement and that, in the event of any such failure, Parent and/or the Company Parties will not have an adequate remedy
at law or in equity. Accordingly, Stockholder agrees that injunctive relief or other equitable remedy is the appropriate remedy
for any such failure and will not oppose the granting of such relief on the basis that Parent or the Representative has an adequate
remedy at law.
Section
4.
Term of Agreement; Termination
. The term of this Agreement shall commence on the date hereof.
This Agreement may be terminated at any time prior to consummation of the transactions contemplated by the Stock Purchase Agreement
by the written consent of the parties hereto, and shall be automatically terminated in the event that the Stock Purchase Agreement
is terminated in accordance with its terms. Upon such termination, no party shall have any further obligations or liabilities
hereunder.
Section
5.
Entire Agreement; Amendments
. This Agreement supersedes all prior agreements, written or
oral, among the parties hereto with respect to the subject matter hereof and contains the entire agreement among the parties with
respect to the subject matter hereof. This Agreement may not be amended, supplemented or modified, and no provisions hereof may
be modified or waived, except by an instrument in writing signed by each party hereto. No waiver of any provisions hereof by either
party shall be deemed a waiver of any other provision hereof by any such party, nor shall any such waiver be deemed a continuing
waiver of any provision hereof by such party.
Section
6.
Severability
. In the event that any one or more provisions of this Agreement shall for
any reason be held invalid, illegal or unenforceable in any respect, by any court of competent jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provisions of this Agreement and the parties shall use their reasonable
efforts to substitute a valid, legal and enforceable provision which, insofar as practical, implements the purposes and intents
of this Agreement.
Section
7.
Capacity as Stockholder
. This Agreement shall apply to Stockholder solely in his or her
capacity as a shareholder of Parent and it shall not apply in any manner to Stockholder in his or her capacity as a director,
officer or employee of Parent or in any other capacity. Nothing contained in this Agreement shall be deemed to apply to, or limit
in any manner, the obligations of Stockholder to comply with his or her fiduciary duties as a director of Parent.
Section
8.
Governing Law
. This Agreement shall be governed by, and interpreted in accordance with,
the laws of the State of Delaware, without regard for conflict of law provisions.
Section
9.
WAIVER OF JURY TRIAL
.
EACH
OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES
to the fullest extent permitted
by applicable Law
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE PARTIES IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT
OF THIS AGREEMENT. EACH OF THE PARTIES HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS
SECTION 9
.
Section
10.
Further Assurances
. From time to time, prior to the termination of this Agreement, at Parent’s or the Representative’s
request and without further consideration, Stockholder shall execute and deliver such additional documents and take all such further
action as may be reasonably necessary or desirable to effect the actions and consummate the transactions contemplated by this
Agreement. Stockholder further agrees not to, prior to the termination of this Agreement, commence or participate in, and to take
all actions necessary to opt out of any class in any class action with respect to, any claim, derivative or otherwise, against
Parent relating to the negotiation, execution or delivery of this Agreement or the Merger Agreement or the consummation of the
Merger.
Section
11.
Disclosure
. Stockholder hereby authorizes Parent to publish and disclose in any announcement or disclosure required
by the Securities and Exchange Commission and in the Proxy Statement such Stockholder’s identity and ownership of the Parent
Shares and the nature of Stockholder’s obligations under this Agreement.
(remainder
of page intentionally left blank)
IN
WITNESS WHEREOF
, the parties hereto have executed and delivered this Agreement as of the date first written above.
DATAWATCH
CORPORATION
By:
Name:
Michael A. Morrison
Title:
President and Chief Executive Officer
REPRESENTATIVE
Name:
Willem De Geer
STOCKHOLDER
Name:
EXHIBIT
A
Stockholder
|
Parent
Shares
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exhibit
D
Closing
Deliveries
The
Purchaser shall deliver or cause to be delivered to the Representative the following items:
|
1.
|
the
written
consent
of
the
board
of
directors
of
the
Purchaser
authorizing
and
approving
the
execution,
delivery
and
performance
of
the
Agreement
and
the
Transactions.
|
The
Shareholders shall deliver or cause to be delivered to Purchaser the following items:
|
1.
|
Executed
signature
pages
to
this
Agreement
for
Shareholders
holding
at
least
90%
of
the
outstanding
Shares
and
each
Optionholder;
|
|
2.
|
the
shareholders’
register
of
the
Company,
with
Purchaser
duly
entered
as
holder
of
the
Shares;
|
|
3.
|
letters
of
resignation,
in
a
form
acceptable
to
Purchaser,
effective
immediately
before
the
Closing,
duly
executed
by
each
of
the
directors
and
officers
of
the
Company
and
each
of
its
Subsidiaries,
pursuant
to
which
each
of
them
resign
on
the
Closing
Date
without
any
claim
for
remuneration
or
other
compensation;
and
|
|
4.
|
each
other
document,
agreement
or
item
required
to
be
delivered
to
Purchaser
or
Parent
under
Section
1.2
or
as
a
condition
to
closing
under
Article
6.
|
ANNEX B
CONSOLIDATED
FINANCIAL STATEMENTS OF PANOPTICON
Independent
Auditor's
Report
To
the Board of Directors and Shareholders of Panopticon Software AB
We
have audited the accompanying consolidated financial statements Panopticon Software AB and its subsidiaries, which comprise the
consolidated balance sheets as of 31 December 2012 and 31 December 2011 and the related consolidated related consolidated statements
of income, comprehensive income, changes in equity, and cash flows for the years then ended.
Management’s
Responsibility for the Consolidated Financial Statements
Management
is responsible for the preparation and fair presentation of the consolidated financial statements in conformity with International
Financial Reporting Standards as issued by the International Accounting Standards Board. This includes the design, implementation,
and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
Auditor’s
Responsibility
Our
responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits
in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An
audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control
relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Opinion
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Panopticon Software AB and its subsidiaries at 31 December 2012 and 31 December 2011, and the results of their operations and
their cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
Accounting
Standards
Board.
Öhrlings
PricewaterhouseCoopers
AB
Stockholm
Sweden
PwC
,
113
97
Stockholm,
Besöksadress:
Torsgatan
21,
Stockholm
V:
oB-55533000,
www.pwc.com/se
Öhrlings
PricewaterhouseCoopers
A
B
,
Sate
Stockholm,
Organisationsnummer
556029-6740
Panopticon
Software AB
Corporate
Identity Number 556614-0686
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE
FINANCIAL YEAR 2012
The annual
report includes
|
|
Page
|
Consolidated
Statement of Comprehensive Income
|
|
1
|
Consolidated
Balance Sheet
|
|
2-3
|
Consolidated
Statement of Changes in Equity
|
|
4
|
Consolidated
Cash Flow Statement
|
|
5
|
Notes to
the Financial Statements
|
|
6-27
|
Panopticon Software AB
|
|
1
|
Corporate Identity Number 556614-0686
|
|
|
CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
Amounts
in TSEK
|
|
Financial
year
|
|
Note
|
2012
|
2011
|
|
|
|
|
Revenue
|
5
|
31
983
|
23
989
|
Other
operating income
|
6
|
0
|
341
|
Total
income
|
|
31
983
|
24
330
|
|
|
|
|
Other
external costs
|
|
-20
280
|
-15
591
|
Employee
benefit expense
|
8
|
-15
797
|
-16
146
|
Depreciation
and amortisation
|
11
|
-2
565
|
-3
334
|
Other
operating expenses
|
7
|
-899
|
0
|
Operating
loss
|
|
-7
558
|
-10
741
|
|
|
|
|
Finance
income
|
|
74
|
34
|
Finance
costs
|
|
0
|
0
|
Profit
from finance items
|
9
|
74
|
34
|
|
|
|
|
Loss
before income tax
|
|
-7
484
|
-10
707
|
|
|
|
|
Income
tax
|
10
|
134
|
-13
|
Loss
for the year
|
|
-7
350
|
-10
720
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
Currency
translation differences
|
|
420
|
-353
|
Total
comprehensive income for the year
|
|
-6
930
|
-11
073
|
|
|
|
|
Total profit
or loss for the year as well as total comprehensive income for the year is in full attributable to equity holders of the parent
company.
The Notes
on pages 6 through 27 comprise an integrated part of these annual accounts and consolidated financial statements.
Panopticon Software AB
|
|
2
|
Corporate Identity Number 556614-0686
|
|
|
CONSOLIDATED
BALANCE SHEET
Amounts
in TSEK
|
Note
|
31
Dec 2012
|
31
Dec 2011
|
|
|
|
|
ASSETS
|
|
|
|
Non-current
assets
|
|
|
|
Capitalized
expenditures
|
11
|
4
150
|
6
704
|
Distribution
rights
|
11
|
0
|
0
|
Furniture
and equipment
|
12
|
21
|
32
|
Long
term portion of deposits
|
|
0
|
162
|
Deferred
income tax assets
|
|
163
|
0
|
Total
non-current assets
|
|
4
334
|
6
898
|
|
|
|
|
Current
assets
|
|
|
|
Trade
receivables
|
14
|
3
985
|
7
087
|
Other
receivables
|
15
|
7
999
|
1
023
|
Cash
and cash equivalents
|
16
|
12
967
|
14
302
|
Total
current assets
|
|
24
951
|
22
412
|
TOTAL
ASSETS
|
|
29
285
|
29
310
|
Panopticon Software AB
|
|
3
|
Corporate Identity Number 556614-0686
|
|
|
CONSOLIDATED
BALANCE SHEET CONTINUED
|
|
|
|
Amounts
in TSEK
|
Note
|
31
Dec 2012
|
31
Dec 2011
|
|
|
|
|
EQUITY
|
|
|
|
Capital
and reserves attributable to equity holders of the Company
|
|
|
|
Ordinary
shares
|
17
|
797
|
725
|
Ongoing
new share issue
|
17
|
28
|
52
|
Share
premium
|
17
|
53
860
|
46
728
|
Other
reserves
|
|
420
|
-353
|
Retained
earnings including net profit or loss for the year
|
|
-40
033
|
-32
329
|
Total
equity
|
|
15
072
|
14
823
|
|
|
|
|
LIABILITIES
|
|
|
|
Non-current
liabilities
|
|
|
|
Long
term portion of deferred revenue
|
21
|
1
020
|
2
284
|
Total
non-current liabilities
|
|
1
020
|
2
284
|
|
|
|
|
Current
liabilities
|
|
|
|
Trade
payables
|
19
|
490
|
472
|
Other
liabilities
|
20
|
5
651
|
3
667
|
Deferred
revenue
|
21
|
7
052
|
8
064
|
Total
current liabilities
|
|
13
193
|
12
203
|
TOTAL
LIABILITIES AND EQUITY
|
|
29
285
|
29
310
|
The
Notes on pages 6 through 27 comprise an integrated part of these annual accounts and consolidated financial statements.
Panopticon Software AB
|
|
4
|
Corporate Identity Number 556614-0686
|
|
|
CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
Amounts
in TSEK
|
Note
|
|
Attributable
to equity holders of the Company
|
|
|
Share
capital
|
Ongoing
new share issue
|
Share
premium
|
Other
reserves
|
Retained
earnings
|
Total
|
|
|
|
|
|
|
|
|
Balance
as at 1 January 2011
|
|
725
|
0
|
35
038
|
0
|
-21
610
|
14
153
|
|
|
|
|
|
|
|
|
Profit
or loss for the year
|
|
0
|
0
|
0
|
0
|
-10
720
|
-10
720
|
Other
comprehensive income for the year
|
|
0
|
0
|
0
|
-353
|
0
|
-353
|
Stock
options
|
|
0
|
0
|
3
737
|
0
|
0
|
0
|
Ongoing
new share issue
|
|
0
|
52
|
7
953
|
0
|
0
|
8
005
|
Equity,
31 December 2011
|
|
725
|
52
|
46
728
|
-353
|
-32
330
|
14
822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity,
1 January 2012
|
|
725
|
52
|
46
728
|
-353
|
-32
330
|
14
822
|
|
|
|
|
|
|
|
|
Profit
or loss for the year
|
|
0
|
0
|
0
|
0
|
-7
350
|
-7
350
|
Other
comprehensive income last year
|
|
0
|
0
|
0
|
353
|
-353
|
0
|
Other
comprehensive income for the year
|
|
0
|
0
|
0
|
420
|
0
|
420
|
Terminated
new share issue 2011
|
|
52
|
-52
|
0
|
0
|
0
|
0
|
New
share issue
|
|
20
|
0
|
2 950
|
0
|
0
|
2
970
|
Ongoing
new share issue 2012
|
|
0
|
28
|
4 288
|
0
|
0
|
4
316
|
Stock
options
|
|
0
|
0
|
-106
|
0
|
0
|
-106
|
Equity,
31 December 2012
|
|
797
|
28
|
53
860
|
420
|
-40
033
|
15
072
|
|
|
|
|
|
|
|
|
|
The
Notes on pages 6 through 27 comprise an integrated part of these annual accounts and consolidated financial statements.
Panopticon Software AB
|
|
5
|
Corporate Identity Number 556614-0686
|
|
|
CONSOLIDATED
CASH FLOW STATEMENT
Amounts
in TSEK
|
|
Financial
year
|
|
Note
|
2012
|
2011
|
|
|
|
|
Cash
flows from operating activities
|
|
|
|
Operating
profit
|
|
-7
558
|
-10
741
|
Adjustments
of non-cash items, etc.
|
|
|
|
-
Reversal of depreciation and amortisation
|
|
2
565
|
3
334
|
-
Other items, no impact on cash flow
|
|
982
|
4
270
|
Interest
received
|
|
74
|
34
|
Income
tax paid
|
|
-36
|
-13
|
Cash
flows from operating activities before changes in working capital
|
|
-3
973
|
-3
116
|
|
|
|
|
Changes
in working capital
|
|
|
|
Operating
receivables
|
|
-5
106
|
-3
976
|
Operating
liabilities
|
|
458
|
-935
|
Cash
flows from operating activities
|
|
-4
648
|
-4
911
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
Purchases
of intangible assets
|
|
0
|
0
|
Purchases
of tangible assets
|
|
0
|
-12
|
Cash
flows from investing activities
|
|
0
|
-12
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
New
share issue
|
|
7
285
|
8
004
|
Cash
flows from financing activities
|
|
7
285
|
8
004
|
|
|
|
|
Cash
flows for the period
|
|
-1
335
|
-35
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
14
302
|
14
337
|
Cash
and cash equivalents at end of period
|
|
12
967
|
14
302
|
The
Notes on pages 6 through 27 comprise an integrated part of these annual accounts and consolidated financial statements.
Panopticon Software AB
|
|
6
|
Corporate Identity Number 556614-0686
|
|
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note
1
|
General
information
|
Panopticon
Software AB (‘the company') develops and sells data visualization software. The company and its subsidiaries (together,
‘the group') conducts its operations in Sweden, the UK and the US.
The
data visualization software is used to monitor performance, analyse risk, detect fraud and identify anomalies in vast amounts
of real time data. Panopticon's visual data discovery technology supports fast, interactive analysis of large data sets and real-time
data.
The
market for the company’s products is mainly financial services within US and Europe but is also used in other industries
which handle large amounts of data. The company markets and sells its products through direct sales as well as through partners
and resellers around the world.
Panopticon
Software AB is a limited liability company domiciled in Sweden and with its registered offices in Stockholm. The visiting address
of its head office is Eriksbergsgatan 10, 114 30, Stockholm, Sweden.
These
consolidated financial statements were authorised by the Board of Directors on 8 July 2013.
All
amounts are provided in thousands of SEK (TSEK) unless otherwise stated. Information in parentheses refers to the previous year.
Note
2
|
Summary
of significant accounting policies
|
The
principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
The
consolidated financial statements of Panopticon Software AB have been prepared in accordance with International Financial Reporting
Standards applicable to companies reporting under IFRS as issued by the IASB.
These
financial statements are the first consolidated financial statements prepared by Panopticon, and they are prepared in accordance
with IFRS.
The consolidated financial statements have been prepared under the historical cost convention.
The
principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
The
preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
Panopticon Software AB
|
|
7
|
Corporate Identity Number 556614-0686
|
|
|
applying the group's accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial
statements are disclosed in note 4.
In
the preparation of the consolidated financial statements per 31 December 2012, a number of standards and interpretations have
been published that are not yet effective and that will be applicable to Panopticon. Below is a preliminary assessment of the
impact that the introduction of these standards and pronouncements may have on Panopticon's financial statements:
-
Amendment to IAS 1, 'Financial statement presentation' regarding other comprehensive income. The main
change resulting from these amendments is a requirement for entities to group items presented in 'other comprehensive income'
(OCI) on the basis of whether they are potentially reclassifable to profit or loss subsequently (reclassification adjustments).
The amendments do not address which items are presented in OCI.
-
IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and
financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the
classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement
categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition.
The classification depends on the entity's business model for managing its financial instruments and the contractual cash flow
characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change
is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s
own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting
mismatch. The group is yet to assess IFRS 9’s full impact and intends to adopt IFRS 9 no later than the accounting period
beginning on or after 1 January 2015.
The
group will also consider the impact of the remaining phases of IFRS 9 when completed by the Board.
-
IFRS 12, ‘Disclosures of interests in other entities’, includes the disclosure requirements
for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off
balance sheet vehicles. The group is yet to assess IFRS 12’s full impact and intends to adopt IFRS 12 no later than the
accounting period beginning on or after 1 January 2013.
There
are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the
Group.
Subsidiaries
Subsidiaries
are all entities over which the group has the power to govern the financial and operating policies generally accompanying a shareholding
of more than one half of the voting rights. All subsidiaries owned at the time of this financial reports period end is wholly
owned. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated
from the date that control ceases.
The
group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of
a subsidiary is the fair values of the assets transferred, the
Panopticon Software AB
|
|
8
|
Corporate Identity Number 556614-0686
|
|
|
liabilities incurred to the former owners of the acquiree and the
equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting
from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in
a business combination are measured initially at their fair values at the acquisition date. Acquisition-related costs are expensed
as incurred.
Inter-company
transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting
from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the policies adopted by the group.
2.3
|
Foreign
currency translation
|
Functional
and presentation currency
Items
included in the financial statements of each of the group's entities are measured using the currency of the primary economic environment
in which the entity operates (`the functional currency'). The consolidated financial statements are presented in `Swedish krona'
(SEK), which is the group's presentation currency.
Translation
differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised
in other comprehensive income.
Transactions
and balances
Foreign
currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions
or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions
and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the income statement within other operating income/expenses.
Group
companies
The
results and financial position of all the group entities (none of which has the currency of a hyper-inflationary economy) that
have a functional currency different from the presentation currency are translated into the presentation currency as follows:
|
(a)
|
assets
and
liabilities
for
each
balance
sheet
presented
are
translated
at
the
closing
rate
at
the
date
of
that
balance
sheet;
|
|
(b)
|
income
and
expenses
for
each
income
statement
are
translated
at
average
exchange
rates
(unless
this
average
is
not
a
reasonable
approximation
of
the
cumulative
effect
of
the
rates
prevailing
on
the
transaction
dates,
in
which
case
income
and
expenses
are
translated
at
the
rate
on
the
dates
of
the
transactions);
and
|
|
(c)
|
all
resulting
exchange
differences
are
recognised
in
other
comprehensive
income.
|
Panopticon Software AB
|
|
9
|
Corporate Identity Number 556614-0686
|
|
|
Distribution
rights
Distribution
rights have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line
method to allocate the cost of distribution rights over their estimated useful lives of 5 years. The distribution rights were
disposed in 2011.
Capitalized
expenditures
Research
and development costs are capitalised
when the following criteria are met:
|
—
|
it
is
technically
feasible
to
complete
the
software
product
so
that
it
will
be
available
for
use;
|
|
—
|
management
intends
to
complete
the
software
product
and
use
or
sell
it;
|
|
—
|
there
is
an
ability
to
use
or
sell
the
software
product;
|
|
—
|
it
can
be
demonstrated
how
the
software
product
will
generate
probable
future
economic
benefits;
|
|
—
|
adequate
technical,
financial
and
other
resources
to
complete
the
development
and
to
use
or
sell
the
software
product
are
available;
and
|
|
—
|
the
expenditure
attributable
to
the
software
product
during
its
development
can
be
reliably
measured.
|
Directly
attributable costs that are capitalised as part of the software product include the software development employee costs and an
appropriate portion of relevant overheads expenses.
Other
development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously
recognised as an expense are not recognised as an asset in a subsequent period.
On
completion of the development work, capitalised development costs are amortised on a straight line basis over the period of its
expected useful life. The asset is tested for impairment annually, before the start of commercial production or use of the asset.
2.5
|
Furniture
and equipment
|
Furniture
and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable
to the acquisition of the items.
Subsequent
costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably.
The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement
during the financial period in which they are incurred.
Depreciation
of furniture and equipment is calculated using the straight-line method to allocate their cost to their residual values over their
estimated useful lives, as follows:
Furniture
and equipment 5 years
Panopticon Software AB
|
|
10
|
Corporate Identity Number 556614-0686
|
|
|
The
assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Gains
and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within Other operating
income or Other operating expenses in the income statement.
2.6
|
Impairment
of non-financial assets
|
Assets
that have an indefinite useful life – for example intangible assets not ready to use – are not subject to amortisation
and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount
by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value
less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment
are reviewed for possible reversal of the impairment at each reporting date.
2.7
|
Financial
instruments
|
The
Group classifies its financial assets and liabilities in the following categories: loans and receivables and other financial liabilities.
The classification depends on the purpose for which the financial assets or
liabilities
were
acquired.
Loans
and receivables
Loans
and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These
are classified as non-current assets. The group's loans and receivables comprise `trade receivables', `other receivables' and
`cash and cash equivalents' in the balance sheet (notes 14-15).
Other
financial liabilities
Trade
payables and other liabilities are classified as other financial liabilities.
2.8
|
Impairment
of financial assets
|
Assets
carried at amortised cost
The
group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there
is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset
(a `loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group
of financial assets that can be reliably estimated.
Evidence
of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty,
default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation,
and
Panopticon Software AB
|
|
11
|
Corporate Identity Number 556614-0686
|
|
|
where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in
arrears or economic conditions that correlate with defaults.
For
loans and receivables category, the amount of the loss is measured as the difference between the asset's carrying amount and the
present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial
asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised
in the consolidated income statement.
If,
in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring
after the impairment was recognised (such as an improvement in the debtor's credit rating), the reversal of the previously recognised
impairment loss is recognised in the consolidated income statement.
Trade
receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection
is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets.
If not, they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest method, less provision for impairment.
2.10
|
Cash
and cash equivalents
|
Cash
and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with
original maturities of three months or less.
Ordinary
shares are classified as equity. Incremental costs directly attributable to the issue of new
ordinary
shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Trade
payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers.
Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as
non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method.
2.13
|
Current
tax and deferred income tax
|
The
tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement. Deferred income tax
is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the consolidated
Panopticon Software AB
|
|
12
|
Corporate Identity Number 556614-0686
|
|
|
financial statements. Deferred income tax is determined using tax rates (and laws)
that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred
income tax asset is realised or the deferred income tax liability is settled. See also critical accounting estimates and judgements.
Deferred
income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current
tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority
on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
The
group has defined contribution plans. A defined contribution plan is a pension plan under which the group pays fixed contributions.
The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to
pay all employees the benefits relating to employee service in the current and prior periods.
The
contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to
the extent that a cash refund or a reduction in the future payments is available.
2.15
|
Share-based
payments
|
The
Group has granted employees and key persons stock options, without payment of any consideration, whereby the stock options comprise
share-based remuneration under IFRS 2. These programs means that employees and key persons, for a defined period, earn vesting
rights to stock options (equity instruments) for which, when the stock options have vested, the employees will be able to subscribe
for shares at a defined exercise price during the redemption period. The fair value of the allocated stock options, estimated
in line with the Black & Scholes model, is expensed on an ongoing basis during the vesting period and recognized against share
premium. When the stock options are exercised, the company issues new shares. After reduction for any directly attributable transaction
costs, payments received are credited to share capital (quotient value) and share premium.
The
social security contributions arising on the allocation of stock options are deemed an integral part of the allotment and, accordingly,
the cost is treated as cash-settled share-based remuneration.
Revenue
is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods and services
supplied, stated net of discounts, returns and value added taxes. The group recognizes revenue when the amount of revenue can
be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criterias have
been met for each of the group's activities, as described below. The group bases its estimate of return on historical results,
taking into consideration the type of customer, the type of transaction, market practice and the specifics of each arrangement.
Panopticon Software AB
|
|
13
|
Corporate Identity Number 556614-0686
|
|
|
'Agreements
comprising several elements, the different elements are fair valued and pro rata allocated to the different elements.
Licenses
as well as support & maintenance that are sold through partners and resellers are based on a model of revenue sharing and
are recognised in the same manner as in direct sales to customers.
Licenses
Sales
of perpetual licenses are recognized up-front and subscription licenses are recognized on a straight line basis over the time
of the contract, starting when the legal right to the license is transferred to the buyer and the buyer has full discretion over
the license.
Support
& Maintenance
Support
& maintenance revenues are fees that the customers pay to obtain the right to update the software to new versions and fees
for customer support. These revenues are recognized on a
straight
line basis over the time of the contract.
Interest
income is recognised using the effective interest method. When receivable is impaired, the group reduces the carrying amount to
its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument.
Interest income on impaired receivables is recognised using the original effective interest rate.
Leases
in which a significant portion of the risks and rewards of ownership are retained by the lessor
are
classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged
to the income statement on a straight-line basis over the period of the lease. Leases where the group has substantially all of
the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's commencement
at the lower of the fair value of the leased property and the present value of the minimum lease payments. The Group’s leases
consist of rent of premises and data servers and are classified as operating leases.
Note
3
|
Financial
risk management
|
3.1
|
Financial risk factors
|
The
group's activities expose it to a variety of financial risks: market risk (including currency risk), credit risk and liquidity
risk.
Panopticon Software AB
|
|
14
|
Corporate Identity Number 556614-0686
|
|
|
Market
risk
The
group operates globally with the major part of the business origin from customers within financial services industry. Market risk
is regarded as low as the counterparties are large well known banks and financial institutions. Market risk is monitored by the
Managing Director and reported to the Board of Directors regularly.
Foreign
exchange risk
The
group operates internationally and is exposed to foreign exchange risk arising from currency exposures, primarily with respect
to the US dollar, the EURO and the UK pound. Foreign exchange risk arises from future commercial transactions, recognised assets
and liabilities and net investments in foreign operations. Transaction risk arises when future commercial transactions or recognised
assets or liabilities are denominated in a currency that is not the entity's functional currency. Translation risk arises when
net investment in a foreign operation is translated to the group’s functional currency, SEK. The group has certain investments
in foreign operations, whose net assets are exposed to foreign currency translation risk. These investments include a subsidiary
in the USA. Foreign currency risk is monitored by the Chief Financial Officer and reported to the Managing Director regularly.
As
of 31 December 2012, loss/gain on sales, purchases, trade and other receivables, and trade and other payables have been recorded
in the income statement in the amount of TSEK -899 (2011: TSEK 307).
At
31 December 2012, the currency (SEK) had strengthened by 5.89% against the US dollar, 1.74% against the UK pound and 3.67% against
the EURO.
Credit
risk
Credit
risk is the risk that a counterparty in a financial transaction is not fulfilling their commitment on the maturity date of the
transaction. The group’s credit risk arises from cash and cash equivalents, as well as from trade receivables. As of 31
December 2012 credit losses have been recorded in the income statement in the amount of TSEK 26 (2011: TSEK 25).
The
credit quality for financial assets that have not past due or in no need for impairment have been evaluated by counterparty’s
history of payments:
|
Trade
receivables
|
2012-12-31
|
2011-12-31
|
Group 1
|
2
339
|
1
465
|
Group 2
|
1
646
|
5
621
|
Group
3
|
0
|
0
|
Total
trade receivables with no need for impairment
|
3
985
|
7
086
|
—
Group 1 – new customers (the duration of the customer relation is shorter than six months).
|
—
Group 2 – existing customers (the duration of the customer relation is longer than six months) without previous payment
neglect.
|
—
Group 3 – existing customers (the duration of the customer relation is longer than six months) with previous payment
neglect. All outstanding payments have been recovered in full.
|
|
Panopticon Software AB
|
|
15
|
Corporate Identity Number 556614-0686
|
|
|
Liquidity
risk
Liquidity
risk is the risk that the group will lack cash or cash equivalents for payments of commitments regarding financial liabilities.
To secure an ability to pay in the daily operations, the demand for cash flow is analyzed continuously through cash flow forecasts,
both on long term basis and short term basis.
As
per the 31 December 2012, the group has cash and cash equivalents in the amount of TSEK 12 967 (2011: TSEK 14 302).
The
group's objectives when managing capital are to safeguard the group's ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of
capital. In order to maintain or adjust the capital structure, the group may issue new shares, adjust the amount of dividends
paid to shareholders, return capital to shareholders or sell assets to reduce debt.
Note
4
|
Critical
accounting estimates and judgements
|
Estimates
and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
4.1
|
Critical accounting estimates and assumptions
|
The
group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal
the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are addressed below.
Valuation
of tax loss carry-forwards
Deferred
income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through
future taxable profits is probable. The group examines yearly if there is a need for impairment regarding deferred income tax
assets recognised for tax loss carry-forwards. The group also examines the possibility to recognise additional deferred tax assets
regarding tax loss carry-forwards for the year if applicable.
As the parent
company has not yet shown any taxable profit, no deferred tax asset is recognized relating to the parent company. Deferred tax
asset relating to its subsidiaries are recognized to the extent that the realization of future taxable profit is probable. For
more information regarding tax loss carry-forwards, see Note 18.
Panopticon Software AB
|
|
16
|
Corporate Identity Number 556614-0686
|
|
|
Valuation
of share options
The
2010:1, 2010:2, 2011:1 and 2011:2 stock option programs pertains to share-based remuneration that is settled with equity instruments
measured at fair value in line with a generally accepted valuation model. The model used was the Black & Scholes model, which
calculates the fair value of remuneration through making specific assumptions in terms of expected share volatility, expected
dividends and risk-free interest. For these assumptions and further information, see Note 17.
Total
revenue is classified follows:
|
|
|
Group
|
2012
|
2011
|
Sale
of perpetual licenses
|
17
289
|
8
980
|
Sale
of support & maintenance
|
5
519
|
2
055
|
Sale
of subscription licenses
|
7
901
|
10
889
|
Rendering
of services
|
1
274
|
2
065
|
Total
|
31
983
|
23
989
|
Total
revenues classified according to geographical markets as follows:
|
|
|
Group
|
2012
|
2011
|
Sweden
|
434
|
2
085
|
North
America
|
21
721
|
15
888
|
UK
|
7
663
|
5
064
|
Other
|
2
165
|
952
|
Total
|
31
983
|
23
989
|
Note
6
|
Other
operating income
|
Group
|
2012
|
2011
|
Currency
translation differences, net
|
0
|
307
|
Rental
income
|
0
|
34
|
Total
|
0
|
341
|
Note
7
|
Other
operating expenses
|
Group
|
2012
|
2011
|
Currency
translation differences, net
|
899
|
0
|
Total
|
899
|
0
|
Panopticon Software AB
|
|
17
|
Corporate Identity Number 556614-0686
|
|
|
Note
8
|
Employee benefit expense
|
Employee
benefit expense
|
|
|
Group
|
2012
|
2011
|
Wages
and salaries, including restructuring costs and other benefits
|
12
735
|
9
449
|
Social
security costs
|
1
943
|
1
555
|
Share
options granted to directors and employees (notes 17 and 26)
|
-679
|
3
713
|
Pension
costs – defined contribution plans
|
548
|
402
|
Other
|
1
250
|
1
027
|
Total
|
15
797
|
16
146
|
|
|
|
|
Note
9
|
Result from financial items
|
Group
|
2012
|
2011
|
Financial
income
|
|
|
Interest
income
|
74
|
34
|
Total
|
74
|
34
|
|
|
|
Financial
expenses
|
|
|
Interest
expense
|
0
|
0
|
Total
|
0
|
0
|
|
|
|
Result
from financial items
|
74
|
34
|
Group
|
2012
|
2011
|
Deferred
tax revenue referring to tax losses
|
163
|
0
|
|
163
|
0
|
Note
11
|
Capitalized expenditures and distribution rights
|
Cost
|
Capitalized
expenditures
|
Distribution
rights
|
Total
|
At
1 January 2011
|
12
769
|
9
188
|
21
957
|
Disposal
|
0
|
-9
188
|
-9
188
|
As
at 31 December 2011
|
12
769
|
0
|
12
769
|
|
|
|
|
As
at 31 December 2012
|
12
769
|
0
|
12
769
|
|
|
|
|
|
|
|
|
Panopticon Software AB
|
|
18
|
Corporate Identity Number 556614-0686
|
|
|
Accumulated
amortisation and impairment
|
|
|
|
At
1 January 2011
|
-3
511
|
-8
422
|
-11
933
|
Disposal
|
0
|
9
188
|
9
188
|
Amortisation
charge
|
-2
554
|
-766
|
-3
320
|
As
at 31 December 2011
|
-6
065
|
0
|
-6
065
|
Amortisation
charge
|
-2
554
|
0
|
-2
554
|
As
at 31 December 2012
|
-8
619
|
0
|
-8
619
|
|
|
|
|
|
|
|
|
Net
book value
|
|
|
|
Cost
|
12
769
|
9
187
|
21
957
|
Accumulated
amortisation and impairment
|
-6
065
|
-9
187
|
-15
252
|
As
at 31 December 2011
|
6
704
|
0
|
6
704
|
Cost
|
12
769
|
0
|
12
768
|
Accumulated
amortisation and impairment
|
-8
619
|
0
|
-8
618
|
As
at 31 December 2012
|
4
150
|
0
|
4
150
|
|
|
|
|
Amortization
of TSEK 2 554 (2011: TSEK 3 320) has been charged in Depreciation and amortization in the income statement.
Note
12
|
Furniture
and equipment
|
Furniture
and equipment
Group
|
2012
|
2011
|
Opening
cost
|
60
|
124
|
Additions
|
0
|
12
|
Disposals
|
0
|
-76
|
Closing
accumulated cost
|
60
|
60
|
|
|
|
Opening
depreciation
|
-28
|
-90
|
Disposals
|
0
|
77
|
Depreciation
for the year
|
-11
|
-15
|
Closing
accumulated depreciation
|
-39
|
-28
|
|
|
|
Closing
net book amount
|
21
|
32
|
Depreciation
of TSEK 11 (2011: TSEK 15) has been charged in Depreciation and amortization in the income statement.
Panopticon Software AB
|
|
19
|
Corporate Identity Number 556614-0686
|
|
|
Note
13
|
Financial
instruments by category
|
Group
(TSEK)
|
Loans
and receivables
|
31 Dec 2012
|
|
Assets as
per balance sheet
|
|
Trade receivables
|
3
985
|
Other receivables
|
162
|
Cash and cash
equivalents
|
12
967
|
Total
|
17
114
|
|
|
|
Other
financial liabilities
|
31 Dec 2012
|
|
Liabilities
as per balance sheet
|
|
Trade payables
|
490
|
Total
|
490
|
|
|
|
Loans
and receivables
|
31 Dec 2011
|
|
Assets as
per balance sheet
|
|
Trade receivables
|
7
087
|
Other receivables
|
83
|
Cash and cash
equivalents
|
14
302
|
Total
|
21
472
|
|
|
|
Other
financial liabilities
|
31 Dec 2011
|
|
Liabilities
as per balance sheet
|
|
Trade payables
|
472
|
Other liabilities
|
64
|
Total
|
536
|
Note
14
|
Trade
receivables
|
Group
|
2012
|
2011
|
Trade
receivables
|
3
985
|
7
087
|
Less:
provision for impairment of trade receivables
|
0
|
0
|
Trade
receivables – net
|
3
985
|
7
087
|
|
|
|
Panopticon Software AB
|
|
20
|
Corporate Identity Number 556614-0686
|
|
|
The
carrying amounts of the group’s trade receivables are denominated in the following currencies:
|
|
|
Group
|
2012
|
2011
|
SEK
|
0
|
0
|
GBP
|
284
|
534
|
USD
|
3
697
|
6
223
|
EUR
|
4
|
0
|
Other
currencies
|
0
|
330
|
|
3
985
|
7
087
|
The
Group’s trade receivables are short term, and fair value therefore corresponds to the book value. As of reporting date,
trade receivables of TSEK 442 (2011: TSEK 225) were past due, but not impaired. These relate to a number of independent customers
for whom there is no recent history of default. The age analysis of these trade receivables is as follows:
Group
|
2012
|
2011
|
Up to 1 month
|
442
|
160
|
1 to 2 months
|
0
|
65
|
3 to 6 months
|
0
|
0
|
|
442
|
225
|
As of reporting
date, trade receivables of TSEK 0 (2011: TSEK 0) were impaired.
Movements
on the provision for trade receivables
|
|
|
|
2012
|
2011
|
Opening
value
|
|
|
Receivables
written off during the year as uncollectible
|
26
|
25
|
Closing
value
|
26
|
25
|
Amounts
charged to the allowance account are generally written off when there is no expectation of recovering additional cash. The maximum
exposure to credit risk for trade receivables at reporting date consists of the carrying amount.
Note
15
|
Other
receivables
|
Group
|
2012
|
2011
|
Prepaid
costs
|
317
|
603
|
Accrued
income
|
7
289
|
47
|
Deposits
|
162
|
83
|
Other
|
231
|
290
|
|
7
999
|
1023
|
Panopticon Software AB
|
|
21
|
Corporate Identity Number 556614-0686
|
|
|
The
carrying amounts of the group’s other receivables are denominated in the following currencies:
|
|
|
Group
|
2012
|
2011
|
SEK
|
583
|
683
|
GBP
|
94
|
0
|
USD
|
7
322
|
340
|
EUR
|
0
|
0
|
Other
currencies
|
0
|
0
|
|
7
999
|
1
023
|
The
Group’s other receivables are short term, and fair value therefore corresponds to the book value.
Note
16
|
Cash
and cash equivalents
|
Group
|
2012
|
2011
|
Balance
sheet
|
|
|
Cash
at bank and on hand
|
12
967
|
14
302
|
|
|
|
Cash
flow analysis
|
|
|
Cash
at bank and on hand
|
12
967
|
14
302
|
|
|
|
Note
17
|
Share
capital and premium
|
A specification
of changes in equity is found under the section entitled “Changes in equity”, which is presented directly after the
balance sheet.
|
Shares
in share
ledger
|
Share
capital in
share ledger in SEK
|
Number
of granted
stock options
|
At 1 January
2011
|
725
117
|
725
117
|
95
174
|
At 31 December
2011
|
777
764
|
777
764
|
113
303
|
At 31 December
2012
|
825
534
|
825
534
|
108
002
|
Each
share entitles one vote. All registered shares as per the reporting date are fully paid.
Panopticon Software AB
|
|
22
|
Corporate Identity Number 556614-0686
|
|
|
Share-based
payments
The
Group has granted employees and key persons stock options, without payment of any consideration, whereby the stock options comprise
share-based remuneration under IFRS 2.
The
following information applies to all stock options under all stock option programs
The
final exercise date for the stock options is May 31, 2020. Each stock option entitles the holder to subscribe for one share. The
Group has no legal or informal obligation to buy back or settle the stock options through a cash payment.
Employee
stock option program 2011:2
10
414 of the granted stock options under this program have a vesting of 100% from January 1, 2012. 4 165 of the granted stock
options under this program have a vesting of 1/6 every 6 months starting upon registration.
Employee
stock option program 2011:1
The
granted stock options under this program have a vesting of 1/6 every 6 months starting upon registration.
Employee
stock option program 2010:2
7
469 of the granted stock options under this program have a vesting of 50% from December 1, 2010 and the other 50% from December
1, 2011. 2 739 of the granted stock options under this program vested per January 1, 2012.
Employee
stock option program 2010:1
70 718
(2011: 76 019) of the granted stock options under this program have a vesting of 50% from December 1, 2010 and the other
50% from December 1, 2011.
Movements
in the number of share options outstanding and their related weighted average exercise prices are as follows:
|
|
|
2012
|
|
2011
|
|
Average
exercise
price per share
option
|
Options
(thousands)
|
|
Average
exercise
price per share
option
|
Options
(thousands)
|
At
1 January
|
81.41kr
|
113
|
|
62.63kr
|
95
|
Granted
|
-
|
0
|
|
118.53kr
|
30
|
Lapsed
|
53.95kr
|
-5
|
|
72.82kr
|
-11
|
Exercised
|
-
|
0
|
|
127.70kr
|
-1
|
Expired
|
-
|
0
|
|
-
|
0
|
At
31 December
|
82.76kr
|
108
|
|
81.41kr
|
113
|
Panopticon Software AB
|
|
23
|
Corporate Identity Number 556614-0686
|
|
|
Out
of the outstanding options, 99 914 options were exercisable per January 1, 2012 and 99 661 options were exercisable per January
1, 2011.
|
|
|
|
Granted
share options outstanding at the end of the year have the following expiry date and exercise prices:
|
|
Grant-vest
|
Expiry
date
|
Exercise
price in
SEK per share options
|
Share
options (thousands)
|
|
|
|
Dec
31, 2012
|
Dec
31, 2011
|
Jan
1, 2011
|
2010:1
|
2020-05-31
|
53.95
|
71
|
76
|
84
|
2010:2
|
2020-05-31
|
127.70
|
10
|
10
|
11
|
2011:1
|
2020-05-31
|
127.70
|
12
|
12
|
0
|
2011:2
|
2020-05-31
|
152.51
|
15
|
15
|
0
|
|
|
|
|
|
|
|
|
|
108
|
113
|
95
|
The
granted stock options have been valuated according to the Black & Scholes valuation model using a volatility of 30% (2011:30%),
a risk-free interest rate of 2% (2011:2%).
The cost
for stock options is accounted for as follows:
|
2012
|
2011
|
At 1 January
|
10
002
|
5
352
|
Share
option charge for the year
|
-310
|
4
650
|
At
31 December
|
9
692
|
10
002
|
Note
18
|
Deferred
income tax
|
The
company’s deferred income taxes consists of deferred income tax assets relating to loss carry forward. The gross movement
on the deferred income tax asset is as follows:
|
|
|
|
|
|
|
2012
|
2011
|
At
1 January
|
|
|
|
|
|
0
|
0
|
Income
statement charge
|
|
|
|
163
|
0
|
At
31 December
|
|
|
|
|
|
163
|
0
|
|
|
|
|
|
|
|
|
|
The
deferred income tax asset is relating to the US subsidiary and is deemed to be utilized later than 12 month after the reporting
period. As the parent company has not yet shown any taxable profit, no deferred tax asset relating to losses carried forward,
share options and different allocation of revenue have been recognized relating to the parent company.
Estimated
historical tax losses amount in total, to approximately TSEK 70 753 (2011: TSEK
64 028) of which it is deemed that only MSEK 8, in the Swedish entity,
can be utilised that originated during 2011 and 2012. A deferred tax asset has not been recognised on the tax losses for the Swedish
entity, considering the uncertainty of future taxable profits.
Panopticon Software AB
|
|
24
|
Corporate Identity Number 556614-0686
|
|
|
Group
|
2012
|
2011
|
Trade
payable
|
490
|
472
|
|
490
|
472
|
Note
20
|
Other
liabilities
|
Group
|
2012
|
2011
|
Accrued
holiday pay
|
296
|
222
|
Accrued
social security contributions
|
1
895
|
1
983
|
Other
personnel-related items
|
3
390
|
1
122
|
Other
|
70
|
340
|
|
5
651
|
3
667
|
Group
|
2012
|
2011
|
Deferred
income
|
8
072
|
10
348
|
|
|
|
|
8
072
|
10
348
|
|
|
|
|
|
Note
22
|
Cash
generated from operations
|
Adjustments
for non-cash items:
Group
|
2012
|
2011
|
Depreciation,
amortisation and impairment charges
|
2
565
|
3
334
|
|
2
565
|
3
334
|
The group
has no pledged assets for 2012 or 2011.
Note
24
|
Contingent
liabilities
|
The group
has no contingent liabilities for 2012 or 2011.
Operating
lease commitments
The
Group leases office space and servers under cancellable operating lease agreements.
Panopticon Software AB
|
|
25
|
Corporate Identity Number 556614-0686
|
|
|
The
future aggregate minimum lease payments under non-cancellable operating leases are as follows.
Group
|
2012
|
2011
|
No
later than 1 year
|
436
|
548
|
Later
than 1 year and no later than 5 years
|
0
|
397
|
Later
than 5 years
|
0
|
0
|
|
436
|
945
|
Costs for
operating leasing amounted to TSEK 1 277 (2011: TSEK 1 531) during the financial year.
Note
26
|
Related-party
transactions
|
The
group ownership is widely held, and the largest participating interest is held by Industrial Equity (I.E.) AB (incorporated
in Sweden), which owns 31.33% (31.40% in 2011) of the company's shares and Dear Invest AB, which owns 23.54% (24.98% in 2011)
of the company’s shares. The remaining 45.13% (43.62% in 2011) of the shares are widely held.
|
The
Parent Company holds participations
in the following subsidiaries:
|
|
|
Name
|
Corporate
Identity Number
|
Registered
offices
|
Share
of equity
|
Number
of participations
|
|
|
Panopticon
Development AB
|
556726-2919
|
Box
1765, SE11187
Stockholm, Sweden
|
100%
|
100%
|
|
|
|
|
|
|
|
Panopticon
Software Inc
|
|
295
Madison Avenue,
12th Floor, Suite 1215,
New York, NY 10017, USA
|
100%
|
100%
|
|
The
share of voting power is consistent with the share of equity.
The following transactions were carried out with related
parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
of goods and services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods
and services are sold based on the price lists in force and terms that would be available to third parties. Sale of goods
and services to related parties during the period is of an insignificant amount.
|
Panopticon Software AB
|
|
26
|
Corporate Identity Number 556614-0686
|
|
|
|
|
|
|
|
2012
|
2011
|
Purchase
of services:
|
|
|
|
|
-
Entity controlled by key management personnel (accounting services)
|
171
|
260
|
Total
|
|
|
|
|
171
|
260
|
Key
management compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
management includes the Board of Directors including the Managing Director, the Chief Financial Officer, the Senior Vice President
for Research & Development and the Chief Architect. The compensation paid or payable to key management for employee services
is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
2011
|
Salaries
and other short-term employee benefits*
|
|
|
7
676
|
6
537
|
Share-based
payments
|
|
|
|
|
-6
|
1
011
|
Total
|
|
|
|
|
|
|
7
670
|
7
548
|
*Salaries
and other short-term employee benefits include compensation for services rendered for Managing Director and the Chief Financial
Officer that is invoiced from their respective companies. Compensation relates to their position as key management and is
considered according to market conditions.
Note
27
|
Events
after the balance sheet date
|
The
new share issues, decided on in November 2012 were registered at the Swedish Companies Registration Office in January. The share
capital was raised by 48 TSEK.
The
new warrant issue, decided on in November 2012 was registered at the Swedish Companies Registration Office in January. The share
capital can be raised by 10 TSEK.
On
June 14, the company announced that the shareholders of the parent company has signed an agreement to sell all outstanding shares
in the parent company to Datawatch Corporation (NASDAQCM: DWCH) in an all-stock transaction. Completion of the transaction is
subject to the approval of the Datawatch stockholders that is expected to occur during its fourth fiscal quarter ending September
30, 2013.
Panopticon Software AB
|
|
27
|
Corporate Identity Number 556614-0686
|
|
|
Datawatch
Corporation is a leader in providing information optimization products and solutions that allow organizations to deliver the greatest
data variety possible into their big data and analytic applications. Datawatch provides organizations the ability to integrate
structured, unstructured, and semi-structured sources like reports, PDF files, and EDI streams into these applications to provide
a 360 degree perspective of the issues and opportunities that exist in their businesses. More than 40,000 organizations worldwide
use Datawatch products and services, including 99 of the Fortune 100, and businesses of every type can benefit from the power
and flexibility of industry leading Datawatch solutions. Datawatch is headquartered in Chelmsford, Massachusetts with offices
in London, Munich, Singapore, Sydney and Manila, and with partners and customers in more than 100 countries worldwide. For more
information, visit www.datawatch.com.
_________________________________
These
consolidated financial statements were authorised by the Board of Directors on 8 July 2013.
Stockholm,
8 July 2013
/s/ Carl
Palmstierna
Carl Palmstierna
Chairman
of the Board of Directors
/s/ Ulf
Arnetz
Ulf Arnetz
Member
of the Board
/s/ Mikael
Lövgren
Mikael Lövgren
Member
of the Board
/s/
Magnus Wikner
Magnus Wikner
Member of the Board
/s/
Willem De Geer
Willem De Geer
Member of the Board
ANNEX C
OPINION OF
CANACCORD GENUITY INC.
June 14, 2013
The
Board of Directors
Datawatch
Corporation
271
Mill Road
Chelmsford,
MA 01824
Members
of the Board of Directors of Datawatch Corporation:
You
have requested our opinion (the “Fairness Opinion”) as to the fairness, from a financial point of view, to Datawatch
Corporation, a Delaware corporation (“Parent”), of the Parent Shares (as hereinafter defined) that may be issued by
Parent in connection with the acquisition of the outstanding share capital of Panopticon Software AB, a Swedish company limited
by shares (the “Company”), by Parent or a wholly-owned subsidiary of Parent, pursuant to a Stock Purchase Agreement,
dated as of June 14, 2013 (the “Purchase Agreement”), by and among Parent, the shareholders and optionholders of the
Company set forth therein, the Company and Willem De Geer (the “Transaction”). For purposes of our opinion, “Parent
Shares” means 2,149,157 shares of common stock, par value $.01 per share, of Parent (“Parent Common Stock”),
which represent 23.6% of the sum of (i) the number of shares of Parent Common Stock issued and outstanding as of the date hereof,
(ii) the number of shares of Parent Common Stock underlying stock options and restricted stock units vested and scheduled to vest
as of the anticipated closing date, (iii) the number of shares of Parent Common Stock underlying all warrants exercisable as of
the date hereof, and (iv) the Parent Shares, prior to any purchase price adjustments pursuant to the Purchase Agreement. You have
not asked us to express, and we are not expressing, any opinion with respect to any of the other financial or non-financial terms,
conditions, determinations or actions with respect to the transactions contemplated by the Purchase Agreement.
Canaccord
Genuity Inc. (“Canaccord Genuity”), as part of its investment banking activities, is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions
of listed and unlisted securities, private placements and valuations for corporate and other purposes. In the ordinary course
of business, we and our affiliates may acquire, hold or sell, for our and our affiliates’ own accounts and the accounts
of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of Parent,
certain of its affiliates and any other company that may be involved in the Transaction, as well as provide investment banking
and other financial services to such companies. We have been engaged to render this opinion and will receive a fee upon the delivery
of this opinion, which fee is not contingent upon the conclusions of our opinion or the consummation of the Transaction. In addition,
Parent has agreed to indemnify us against certain liabilities that may arise out of our engagement and to reimburse us for certain
out-of-pocket expenses. We will not receive any other payment or compensation contingent upon the successful completion of the
Transaction. We may in the future provide investment banking services to Parent and its affiliates for which our Investment Banking
Division may receive compensation.
In
developing our Fairness Opinion, we have, among other things:
|
(i)
|
analyzed
certain
internal
financial
statements
and
other
business
and
financial
information
of
the
Company
prepared
by
management
of
the
Company,
and
certain
adjusted
financial
information
concerning
the
Company
prepared
by
management
of
the
Company;
|
|
(ii)
|
analyzed
certain
publicly-available
business
and
financial
information
concerning
Parent;
|
|
(iii)
|
conducted
limited
discussions
with
members
of
senior
management
of
Parent
regarding
the
past
and
current
operations
and
financial
condition
and
the
prospects
of
Parent;
|
|
(iv)
|
reviewed
the
terms
of
the
Purchase
Agreement
dated
as
of
June
14,
2013,
as
presented
to
the
Board
of
Directors
of
Parent
at
a
meeting
held
on
the
date
of
this
Fairness
Opinion,
and
the
exhibits
thereto
which,
for
purposes
of
this
Fairness
Opinion,
we
have
assumed,
with
your
permission,
to
be
identical
in
all
material
respects
to
the
agreement
to
be
executed;
|
|
(v)
|
reviewed
certain
financial
and
stock
market
data
of
selected
publicly-held
software
companies
in
the
business
intelligence
and
analytics
software
and
enterprise
applications
markets;
|
|
(vi)
|
reviewed
the
financial
terms,
to
the
extent
publicly
available,
of
certain
business
combinations
and
other
transactions
which
have
been
effected
or
announced,
to
the
extent
we
deemed
relevant;
and
|
|
(vii)
|
reviewed
such
other
financial
studies
and
analyses,
performed
such
other
investigations,
and
took
into
account
such
other
matters
as
we
deemed
necessary,
including
an
assessment
of
general
economic,
market
and
monetary
conditions.
|
In
connection with our review and arriving at our Fairness Opinion, we have not independently verified any of the foregoing information,
have relied on such information, have assumed that all such information is complete and accurate in all material respects, and
have relied on assurances of management that they are not aware of any facts that would make such information misleading. With
respect to the adjusted financial information and other forward-looking financial information reviewed, we have assumed that such
information has been reasonably prepared on bases reflecting the best currently available estimates and judgments of Parent management.
We have also assumed, without independent verification, that (i) the final form of the Purchase Agreement will be identical in
all material respects to the draft reviewed by us; (ii) the Transaction will be consummated in accordance with the terms and conditions
of the Purchase Agreement, without any material amendment thereto and without waiver by any party of any of the conditions thereof;
(iii) in all respects material to our analysis, the representations and warranties contained in the Purchase Agreement are true
and
correct and that each party will perform all of the material covenants and agreements required to be performed by it under
such Purchase Agreement; and (iv) all material corporate, governmental, regulatory or other consents and approvals (contractual
or otherwise) required to consummate the Transaction have been, or will be, obtained without the need for any material changes
to the Parent Shares or other material financial terms or conditions of the Transaction or that would otherwise materially affect
our analysis. We have not considered any potential adjustments to the number of Parent Shares to be issued under the Purchase
Agreement as part of our analysis. In each case above, we have made the assumptions and taken the actions or inactions described
above with your knowledge and consent.
This
Fairness Opinion has been approved by a fairness committee of Canaccord Genuity in accordance with FINRA Rule 5150. Our Fairness
Opinion is rendered on the basis of securities, economic and market conditions prevailing as of the date hereof and on the prospects,
financial and otherwise, of Parent, known to us as of the date hereof. It should be understood that (i) subsequent developments
may affect the conclusions expressed in this Fairness Opinion if this Fairness Opinion were rendered as of a later date, and (ii)
Canaccord Genuity disclaims any obligation to advise any person of any change in any manner affecting this Fairness Opinion that
may come to our attention after the date of this Fairness Opinion. We have not undertaken to reaffirm or revise this Fairness
Opinion or otherwise comment upon any events occurring after the date hereof and do not have any obligation to update, revise
or reaffirm this Fairness Opinion. We have not been requested to conduct and we have not conducted, nor have we received copies
of, any independent valuation or appraisal of any of the assets of Parent or the Company, nor have we been furnished with such
appraisals. We also have not evaluated the solvency of any party to the Purchase Agreement under any state or federal laws, rules
or regulations relating to bankruptcy, insolvency or similar matters. In addition, we have assumed, with your consent, that any
material liabilities (contingent or otherwise, known or unknown) of Parent and the Company are as set forth in the financial statements
of Parent and the Company provided to us.
Our
Fairness Opinion does not address the relative merits of the Transaction as compared to other business strategies or transactions
that might be available to Parent, nor does it address the underlying business decision of Parent to proceed with the Transaction.
We note that we are not legal, accounting, regulatory or tax experts and have relied on the assessments made by Parent and its
advisors with respect to such matters. We have not considered, and we express no opinion as to, the fairness of the amount or
nature of the compensation to any officers, directors or employees of any party to the Transaction, or class of such persons,
relative to the consideration to be received by Parent in the Transaction.
It
is agreed between the Board of Directors of Parent and Canaccord Genuity that this Fairness Opinion, as set forth in this letter
form, is directed to and for the information of the Board of Directors of Parent only and may not be reproduced, summarized, described
or referred to or given to any other
person, or otherwise made public without our prior written consent. Our Fairness Opinion
does not constitute a recommendation as to how any holder of Parent Common Stock should vote with respect to any matter in connection
with the Transaction.
Based
upon and subject to the foregoing, it is our opinion that, as of the date hereof, the issuance by Parent of the Parent Shares
pursuant to the Purchase Agreement is fair, from a financial point of view, to Parent.
Sincerely,
/s/
Canaccord Genuity Inc.