<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
TEMPLATE SOFTWARE, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Virginia 000-21921 52-1042793
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(State of incorporation (Commission File No.) (IRS employer
or organization) identification no.)
45365 Vintage Park Plaza
Dulles, Virginia 20166
(Address of principal executive offices)
(703) 318-1000
(Registrant's telephone number, including area code)
October 17, 1999
Date of Report (Date of earliest event reported):
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<PAGE>
TEMPLATE SOFTWARE, INC.
INDEX
Information to be Included in the Report Page
- ---------------------------------------- ----
Item 5. Other Events. 1
Item 7. Exhibits. 2
Signatures. 3
<PAGE>
Item 5. Other Events.
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On October 20, 1999, Template Software, Inc., a Virginia corporation (the
"Company"), announced that it had entered into an Agreement and Plan of Merger
- --------
dated as of October 19, 1999 (the "Merger Agreement") with Level 8 Systems,
----------------
Inc., a Delaware corporation ("Level 8") and Level 8's wholly-owned subsidiary,
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TSAC, Inc., a Delaware corporation (the "Subsidiary"). The Merger Agreement
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provides for Level 8's acquisition of the Company by the Company's merger with
and into the Subsidiary (the "Merger").
------
Under the Merger Agreement, each share of Company common stock will be
exchanged for $4.00 in cash plus $3.90 worth of Level 8 common stock, subject to
adjustment. The actual number of shares of Level 8 common stock to be exchanged
for each Company share will be based on the average trading price of Level 8
stock for the 10 trading days prior to the third trading day before Level 8's
shareholder approval, but will not be less than 0.2838 Level 8 shares per
Company share (if Level 8's average trading price exceeds $13.74) or more than
0.3672 Level 8 shares per Company share (if Level 8's average trading price is
less than $10.62). The Merger is intended to qualify as a tax-free
reorganization, which means that Company shareholders would generally be
permitted to defer taxes on the Level 8 stock portion of the merger
consideration.
In connection with the Merger, on October 17, 1999 the Company's Board of
Directors approved an amendment to the Rights Agreement by and between the
Company and First Union National Bank dated as of July 3, 1998 (the "Rights
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Agreement"). The amendment provides that neither Level 8 nor the Subsidiary
- ---------
will be considered an "Acquiring Person" (as that term is defined in the Rights
Agreement), and that the execution, delivery and consummation of the Merger
Agreement will not cause the occurrence of a "Distribution Date" or a "Stock
Acquisition Date" (as these terms are defined in the Rights Agreement). The
amendment thus ensures that the Merger will not trigger the distribution of
rights to the Company's shareholders under the Rights Agreement. In addition,
in connection with the Merger Agreement, the Company has agreed not to further
amend the Rights Agreement without the consent of Level 8.
The Merger is subject to certain conditions to closing, including
shareholder approval, regulatory approval, and necessary consents and filings.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(c) Exhibits
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2.1 Agreement and Plan of Merger, dated as of October 19, 1999, by and
among Level 8 Systems, Inc., TSAC, Inc., and Template Software, Inc.
(exhibits and schedules omitted).
10.1 Stockholders Agreement by and among Level 8 Systems, Inc., Template
Software, Inc., and various stockholders of Level 8 and Template
(schedules omitted).
10.2 Rights Agreement, dated as of July 3, 1998, by and between Template
Software, Inc. and First Union National Bank, as Rights Agent./1/
10.3 Amendment to Rights Agreement, dated as of October 19, 1999, by and
between Template Software, Inc. and First Union National Bank, as
Rights Agent.
99.1 Press Release of Template Software, Inc. and Level 8 Systems, Inc.
dated October 20, 1999, announcing the execution of the definitive
Merger Agreement.
- ----------------
/1/ Incorporated by reference to the Company's Report on Form 8-K, dated
September 30, 1998 and filed October 15, 1998 (File No. 0-21921).
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
TEMPLATE SOFTWARE, INC.
(Registrant)
By: /s/ Peter J. Russo
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Peter J. Russo
Chief Financial Officer
Dated: November 2, 1999
<PAGE>
Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER
by and among
LEVEL 8 SYSTEMS, INC.,
TSAC, INC.
and
TEMPLATE SOFTWARE, INC.
dated as of October 19, 1999
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I THE MERGER................................................................... 2
Section 1.1 The Merger................................................................... 2
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Section 1.2 Closing...................................................................... 2
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Section 1.3 Effective Time............................................................... 2
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Section 1.4 Effects of the Merger........................................................ 2
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Section 1.5 Articles of Incorporation; Bylaws............................................ 2
---------------------------------
Section 1.6 Directors; Officers.......................................................... 3
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Section 1.7 Tax Consequences............................................................. 3
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ARTICLE II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS.... 3
Section 2.1 Effect on Capital Stock...................................................... 3
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Section 2.2 Stock Options................................................................ 4
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ARTICLE III. EXCHANGE OF CERTIFICATES..................................................... 4
Section 3.1 Exchange of Certificates..................................................... 4
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES............................................... 8
Section 4.1 Representations and Warranties of Company.................................... 8
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Section 4.2 Representations and Warranties of Parent and Merger Sub...................... 29
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ARTICLE V. CONDUCT OF BUSINESS OF COMPANY............................................... 35
Section 5.1 Conduct of Business of Company............................................... 35
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ARTICLE VI. ADDITIONAL COVENANTS......................................................... 37
Section 6.1 Preparation of the Joint Proxy Statement/Prospectus and Form S-4............. 37
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Section 6.2 Accountants' Letters......................................................... 38
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Section 6.3 Stockholders Meeting; Board Recommendation................................... 39
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Section 6.4 Access to Information, Confidentiality....................................... 41
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Section 6.5 Reasonable Best Efforts...................................................... 42
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Section 6.6 Public Announcements......................................................... 42
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Section 6.7 No Solicitation; Acquisition Proposals....................................... 42
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Section 6.8 Consents, Approvals and Filings.............................................. 44
-------------------------------
Section 6.9 Company Options.............................................................. 44
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Section 6.10 Employee Benefit Matters..................................................... 46
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Section 6.11 Affiliates and Certain Stockholders.......................................... 46
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Section 6.12 Nasdaq Listing............................................................... 47
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Section 6.13 Rights Agreement............................................................. 47
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Section 6.14 Indemnification and Insurance................................................ 47
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Section 6.15 Tax Treatment................................................................ 47
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Section 6.16 Subsidiaries' Directors and Officers......................................... 48
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Section 6.17 Stockholders Agreement....................................................... 48
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Section 6.18 Financing.................................................................... 48
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</TABLE>
i
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<TABLE>
<S> <C>
Section 6.19 Employment Agreements and Noncompetition Agreements.......................... 48
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Section 6.20 Tax Matters.................................................................. 48
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ARTICLE VII. CONDITIONS PRECEDENT......................................................... 48
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger................... 48
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Section 7.2 Conditions to Obligations of Parent and Merger Sub........................... 49
--------------------------------------------------
Section 7.3 Conditions to Obligation of Company.......................................... 51
-----------------------------------
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER............................................ 52
Section 8.1 Termination.................................................................. 52
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Section 8.2 Effect of Termination........................................................ 55
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Section 8.3 Amendment.................................................................... 55
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Section 8.4 Extension; Waiver............................................................ 55
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Section 8.5 Procedure for Termination, Amendment, Extension or Waiver.................... 55
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ARTICLE IX. GENERAL PROVISIONS........................................................... 56
Section 9.1 Nonsurvival of Representations and Warranties................................ 56
---------------------------------------------
Section 9.2 Fees and Expenses............................................................ 56
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Section 9.3 Definitions.................................................................. 56
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Section 9.4 Notices...................................................................... 58
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Section 9.5 Interpretation............................................................... 59
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Section 9.6 Entire Agreement; Third-Party Beneficiaries.................................. 59
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Section 9.7 Governing Law................................................................ 59
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Section 9.8 Assignment................................................................... 59
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Section 9.9 Enforcement.................................................................. 59
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Section 9.10 Severability................................................................. 60
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Section 9.11 Counterparts................................................................. 60
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</TABLE>
EXHIBIT A Plan of Merger
EXHIBIT B Affiliate Letter
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of October 19, 1999 (this
"Agreement"), is made and entered into by and among Level 8 Systems, Inc., a
Delaware corporation ("Parent"), TSAC, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and Template Software, Inc., a
Virginia corporation ("Company"). Parent, Merger Sub and Company are sometimes
hereinafter collectively referred to as the "Parties."
RECITALS:
WHEREAS, the respective Boards of Directors of the Parties have determined
that it would be advisable and in the best interests of their respective
corporations and their respective stockholders for Parent to acquire Company, by
means of a merger of Company with and into Merger Sub (the "Merger"), on the
terms and subject to the conditions set forth in this Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition to each of the Parties' willingness to enter into this Agreement,
Parent and Company have entered into a Stockholders Agreement, dated as of the
date hereof (the "Stockholders Agreement"), with each of the stockholders named
on the signature pages thereof, pursuant to which each such stockholder has
agreed, among other things, to vote all shares of capital stock of Company and
Parent owned by such stockholder in favor of the adoption of this Agreement and
the transactions contemplated by this Agreement;
WHEREAS, the Parties desire to make certain representations, warranties and
covenants in connection with the Merger and to prescribe various conditions to
the consummation of the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained in this Agreement, the Parties hereto hereby agree as
follows:
<PAGE>
ARTICLE I
THE MERGER
Section 1.1 The Merger. On the terms and subject to the conditions set
----------
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL") and the Virginia Stock Corporation Act (the "VSCA"), the Merger
shall be effected and Company shall be merged with and into Merger Sub at the
Effective Time (as defined in Section 1.3). At the Effective Time, the separate
existence of Company shall cease and Merger Sub shall continue as the surviving
corporation (sometimes hereinafter referred to as the "Surviving Corporation").
Section 1.2 Closing. Unless this Agreement shall have been terminated and
-------
the transactions herein contemplated shall have been abandoned pursuant to
Article VIII, and subject to the satisfaction or waiver of all of the conditions
set forth in Article VII, the closing of the Merger (the "Closing") will take
place at 10:00 a.m. on the second business day (the "Closing Date") following
satisfaction or waiver of all of the conditions set forth in Article VII, other
than those conditions that by their nature are to be satisfied at the Closing,
but subject to the fulfillment or waiver of those conditions, at the offices of
Powell, Goldstein, Frazer & Murphy LLP, 191 Peachtree Street, N.E., Suite 1600,
Atlanta, Georgia 30303, unless another date, time or place is agreed to in
writing by the Parties hereto.
Section 1.3 Effective Time. The Parties hereto shall file with the
--------------
Secretary of State of the State of Delaware (the "Delaware Secretary of State")
and the State Corporation Commission of Virginia (the "Virginia Commission") on
the Closing Date (or on such other date as Parent and Company may agree) a
certificate and/or articles of merger and any other appropriate documents,
including a plan of merger, in the form attached hereto as Exhibit A (the "Plan
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of Merger"), executed in accordance with the relevant provisions of the DGCL and
VSCA, and make all other filings or recordings required under the DGCL and VSCA
in connection with the Merger. The Merger shall become effective upon the filing
of the certificate and/or articles of merger with the Delaware Secretary of
State and the Virginia Commission, or at such later time as is specified in the
certificate and/or articles of merger (the "Effective Time").
Section 1.4 Effects of the Merger. The Merger shall have the effects set
---------------------
forth in the applicable provisions of the DGCL, the VSCA and the Plan of Merger.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all property of Company and Merger Sub shall vest in the
Surviving Corporation, and all liabilities of Company and Merger Sub shall
become the liabilities of the Surviving Corporation.
Section 1.5 Certificate of Incorporation; Bylaws. At the Effective Time,
------------------------------------
(a) the certificate of incorporation of Merger Sub as in effect at the Effective
Time shall, from and after the Effective Time, be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
in accordance with the provisions thereof and applicable law, and (b) the bylaws
of Merger Sub as in effect at the Effective Time shall, from and after the
Effective Time, be the bylaws of the Surviving Corporation until thereafter
changed or amended in accordance with the provisions thereof and applicable law.
2
<PAGE>
Section 1.6 Directors; Officers. From and after the Effective Time, the
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directors and officers of Merger Sub shall be the directors and officers of the
Surviving Corporation, until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
Section 1.7 Tax Consequences. For federal income tax purposes, the Merger
----------------
is intended to constitute a reorganization within the meaning of Section 368 of
the Code. The parties to this Agreement hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Treasury Regulations.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
Section 2.1 Effect on Capital Stock. At the Effective Time, by virtue of
-----------------------
the Merger and without any action on the part of any holder of shares of
Company's common stock, par value $0.01 per share ("Shares"), or any shares of
capital stock of Merger Sub:
(a) Common Stock of Merger Sub. Each share of common stock, par
--------------------------
value $0.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into and become one validly
issued, fully paid and nonassessable share of common stock, par value $0.01
per share, of the Surviving Corporation.
(b) Cancellation of Treasury Shares and Parent-Owned Shares. Each
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Share issued and outstanding immediately prior to the Effective Time that
is owned by Company or any Subsidiary (as defined in Section 9.3(k)) of
Company or by Parent, Merger Sub or any other Subsidiary of Parent (other
than shares in trust accounts, managed accounts, custodial accounts and the
like that are beneficially owned by third parties) shall automatically be
canceled and retired and shall cease to exist, and no cash or other
consideration shall be delivered or deliverable in exchange therefor.
(c) Conversion of Shares. Each Share issued and outstanding
--------------------
immediately prior to the Effective Time (other than Dissenting Shares (as
defined in Section 3.1(j) and Shares to be canceled and retired in
accordance with Section 2.1(b)) shall be converted into the right to
receive (i) U.S. $4.00 in cash (the "Cash Consideration"), and (ii) that
number of shares of common stock, par value $0.001 per share ("Common
Stock"), of Parent equal to the Exchange Ratio (the "Stock Consideration,"
and together with the Cash Consideration, the "Merger Consideration"). The
"Exchange Ratio" shall be a fraction, the numerator of which is U.S. $3.90
and the denominator of which is the Average Trading Price of Parent's
Common Stock. The term "Average Trading Price" shall mean the average of
the closing sales prices of a share of Parent Common Stock on The Nasdaq
Stock Market for the ten consecutive trading days immediately preceding the
third trading day immediately preceding the date on which a meeting of
Parent's stockholders called for the purpose of voting on the Merger
("Parent Stockholders Meeting") shall have been held and a final vote of
Parent's stockholders adopting and
3
<PAGE>
approving this Agreement and the transactions contemplated hereby shall
have been taken. Notwithstanding anything to the contrary contained herein,
(A) in the event the Average Trading Price is less than $10.62 (the "Base
Price"), then the Exchange Ratio shall be 0.3672, and (B) in the event the
Average Trading Price is more than $13.74, then the Exchange Ratio shall be
0.2838. In the event there is no such closing sales price on a day within
the ten day periods referenced in this Section 2.1 (c), the closing sales
price on the day nearest preceding such day shall be utilized.
(d) Anti-Dilution. In the event of any stock dividend, stock
-------------
split, reclassification, recapitalization, combination or exchange of
shares with respect to, or rights issued in respect of, Parent Common Stock
on or after the date hereof and prior to the Effective Time, the Exchange
Ratio shall be adjusted accordingly.
Section 2.2 Stock Options. At and as of the Effective Time, all Company
-------------
Options (as defined in Section 4.1(d)), which have not otherwise been exercised
or cancelled as provided in Section 6.9, shall be assumed by Parent in
accordance with Section 6.9.
ARTICLE III
EXCHANGE OF CERTIFICATES
Section 3.1 Exchange of Certificates.
------------------------
(a) Exchange Agent. Prior to or concurrently with the Effective
--------------
Time, Parent shall enter into an agreement with such bank or trust company
as may be designated by Parent (the "Exchange Agent"), which shall provide
that Parent shall deposit with the Exchange Agent as of the Effective Time,
for the benefit of the holders of Shares, for exchange in accordance with
this Article III, through the Exchange Agent, the aggregate Cash
Consideration, sufficient cash payable in lieu of any fractional shares of
Common Stock and certificates representing the shares of Common Stock (such
Cash Consideration and shares of Common Stock, together with any dividends
or distributions with respect thereto with a record date after the
Effective Time, and any cash payable in lieu of any fractional shares of
Common Stock, being hereinafter referred to as the "Exchange Fund")
issuable pursuant to Section 2.1 in exchange for outstanding Shares.
(b) Letters of Transmittal; Surrender of Certificates. As soon as
-------------------------------------------------
reasonably practicable after the Effective Time, Parent shall instruct the
Exchange Agent to mail to each holder of record (other than Company or any
of its Subsidiaries or Parent, Merger Sub or any other Subsidiary of
Parent) holding a certificate or certificates that, immediately prior to
the Effective Time, evidenced outstanding Shares (the "Certificates"), (i)
a form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon proper delivery of the Certificates to the Exchange Agent, and shall
be in such form and have such other provisions as Parent may reasonably
specify), and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with
4
<PAGE>
such letter of transmittal, duly executed, and such other customary
documents as may be required pursuant to such instructions, the holder of
such Certificate shall be entitled to receive in exchange therefor the
applicable amount of Cash Consideration and a certificate representing the
number of whole shares of Common Stock (and cash in lieu of fractional
shares of Common Stock as contemplated by this Section 3.1) that the
aggregate number of Shares previously represented by such Certificate shall
have been converted into the right to receive pursuant to Section 2.1(c),
and the Certificate so surrendered shall forthwith be canceled. No interest
shall be paid or accrued on any cash payable upon the surrender of any
Certificate. If payment is to be made to a person other than the person in
whose name the surrendered Certificate is registered, it shall be a
condition of payment that the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by
reason of the payment to a person other than the registered holder of the
surrendered Certificate or established to the satisfaction of Parent and
the Surviving Corporation that such taxes have been paid or are not
applicable.
(c) Distributions with Respect to Unexchanged Shares. No Cash
------------------------------------------------
Consideration and no dividends or other distributions with respect to
Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of
Common Stock issuable upon the surrender of such Certificate pursuant to
Section 3.1(b), and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 3.1(e), and all such Cash
Consideration, dividends, other distributions and cash in lieu of
fractional shares of Common Stock shall be paid by Parent to the Exchange
Agent and shall be included in the Exchange Fund, in each case until the
surrender of such Certificate pursuant to Section 3.1(b). Subject to the
effect of applicable escheat or similar laws, following the surrender of
any such Certificate pursuant to Section 3.1(b) there shall be paid to the
holder of the certificate representing the whole shares of Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the applicable amount of Cash Consideration and the amount of
dividends or other distributions with respect to such whole shares of
Common Stock with a record date after the Effective Time theretofore paid
with respect to such whole shares of Common Stock, and the amount of any
cash payable in lieu of a fractional share of Common Stock to which such
holder is entitled pursuant to Section 3.1(e), and (ii) at the appropriate
payment date, the amount of dividends or other distributions with respect
to such whole shares of Common Stock with a record date after the Effective
Time but prior to such surrender and with a payment date subsequent to such
surrender payable with respect to such whole shares of Common Stock.
(d) Cancellation and Retirement of Shares, No Further Rights. As
--------------------------------------------------------
of the Effective Time, all Shares (other than Dissenting Shares and Shares
to be canceled in accordance with Section 2.1(b)) issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding and
shall automatically be canceled and retired and shall cease to exist, and
each holder of a Certificate theretofore representing any such Shares shall
cease to have any rights with respect thereto (including without limitation
the right to vote), except the right to receive the Merger Consideration,
without interest,
5
<PAGE>
upon surrender of such Certificate in accordance with Section 3.1(b), and
until so surrendered, each such Certificate shall represent for all
purposes only the right to receive the Merger Consideration, without
interest. The Merger Consideration paid upon the surrender for exchange of
Certificates in accordance with the terms of this Article III shall be
deemed to have been paid in full satisfaction of all rights pertaining to
the Shares theretofore represented by such Certificates.
(e) No Fractional Shares.
--------------------
(i) No certificates or scrip representing fractional shares
of Common Stock shall be issued upon the surrender for exchange of
Certificates which have been converted pursuant to Section 2.1(c),
and such fractional share interests shall not entitle the owner
thereof to vote or to any rights of a stockholder of Parent.
(ii) In lieu of any such fractional shares, each holder of
Shares who would otherwise have been entitled to a fraction of a share
of Common Stock upon surrender of Certificates for exchange pursuant
to this Section 3.1 (after taking into account all Certificates
delivered by such holders) will be paid an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying (A)
the per share closing sales price of Parent's Common Stock (as
reported on The Nasdaq Stock Market) on the trading day immediately
prior to the date on which the Effective Time occurs, by (B) the
fractional interest to which such holder otherwise would be entitled.
Such amount in cash shall be deemed to be substituted for any such
fractional share and constitute a portion of the Merger Consideration
with respect to the related Shares. The fractional share interest of
each holder of Shares will be aggregated, and no holder of Shares will
receive cash in an amount equal to or greater than the value of one
full share of Parent's Common Stock.
(f) Investment of Exchange Fund. The Exchange Agent shall invest any
---------------------------
cash included in the Exchange Fund, as directed by Parent, in (i) direct
obligations of the United States of America with maturities of 90 days or
less, (ii) obligations for which the full faith and credit of the United
States of America is pledged to provide for the payment of principal and
interest, or (iii) interest bearing accounts of commercial banks with
capital exceeding $500 million. Any net earnings with respect to the
Exchange Fund shall be the property of and paid over to Parent 180 days
after the Effective Time, and Parent shall include any income earned by the
Exchange Fund on its applicable Tax Returns (as defined in Section
4.1(o)(i)) and pay any Taxes (as defined in the last paragraph of Section
4.1(o)) with respect thereto.
(g) Termination of Exchange Fund. Any portion of the Exchange Fund
----------------------------
which remains undistributed to the holders of Certificates for 180 days
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of Certificates that have not theretofore complied with this
Article III shall thereafter look only to Parent, and only as general
creditors thereof, for payment of their claim for any Merger Consideration,
any cash in lieu of fractional shares of Common Stock and any dividends or
distributions with respect to Common Stock provided for in Section 3.1(c).
6
<PAGE>
(h) No Liability. None of Parent, Merger Sub, the Surviving
------------
Corporation or the Exchange Agent shall be liable to any person in respect
of any payments or distributions payable from the Exchange Fund delivered
to a public official pursuant to any applicable abandoned property, escheat
or similar law. If any Certificates shall not have been surrendered prior
to five years after the Effective Time (or immediately prior to such
earlier date on which any Merger Consideration in respect of such
Certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 4.1(c)), any amounts payable in
respect of such Certificate shall, to the extent permitted by applicable
law, become the property of the Surviving Corporation, free and clear of
all claims or interest of any person previously entitled thereto.
(i) Withholding Rights. Parent shall be entitled to deduct and
------------------
withhold, or cause to be deducted or withheld, from the consideration
otherwise payable pursuant to this Agreement to any holder of Shares,
Company Options or Certificates such amounts as are required to be deducted
and withheld with respect to the making of such payment under the Code, or
any provision of applicable state, local or foreign tax law. To the extent
that amounts are so deducted and withheld, such deducted and withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to such holders in respect of which such deduction and withholding was
made.
(j) Dissenting Shares. Notwithstanding anything in this Agreement to
-----------------
the contrary, Shares that are issued and outstanding immediately prior to
the Effective Time and that are held by stockholders who have complied with
the procedures for appraisal set forth in the VSCA (the "Dissenting
Shares") shall not be converted into or be exchangeable for the right to
receive the Merger Consideration, unless and until such holder shall have
failed to perfect or shall have effectively withdrawn or lost his, her or
its right to appraisal and payment under the VSCA. If such holder shall
have so failed to perfect or shall have effectively withdrawn or lost such
right, his, her or its Shares shall thereupon be deemed to have been
converted into and to have become exchangeable for, as of the Effective
Time, the right to receive the Merger Consideration, without any interest
thereon. Company shall not settle, compromise or pay any amount with
respect to any claim for appraisal in connection with the Merger without
the prior written consent of Parent. Holders of Dissenting Shares shall be
entitled only to such rights as may be granted to such holder under the
VSCA, and from and after the Effective Time, a holder of Dissenting Shares
shall not be entitled to exercise any of the voting rights or other rights
of a stockholder of Surviving Corporation.
7
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Company. Company represents
-----------------------------------------
and warrants to Parent and Merger Sub, as of the date hereof and as of the
Closing Date (unless specifically made as of another date), as follows:
(a) Organization and Standing. Each of Company and each Subsidiary
-------------------------
of Company is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and
has the requisite corporate power and authority to carry on its business as
now being conducted. Each of Company and each Subsidiary of Company is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect (as defined in Section 9.3(h)) on
Company. Company has furnished to Parent true, complete and correct copies
of the articles of incorporation and bylaws or comparable governing
documents of Company and each Subsidiary of Company, in each case as
amended to the date of this Agreement. A true, correct and complete list of
all Subsidiaries of Company, together with the jurisdiction of
incorporation of each such Subsidiary and the percentage of each such
Subsidiary's capital stock owned by Company or another Subsidiary, is set
forth in Section 4.1(a) of the Disclosure Schedule (as defined in Section
9.3(c)).
(b) Authority; Noncontravention; and Corporate Power. Company has
------------------------------------------------
the requisite corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by Company and the consummation by Company of
the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Company, subject, in the case of
the Merger, to the adoption of this Agreement by its stockholders as
contemplated by Section 6.3. This Agreement has been duly executed and
delivered by Company and, assuming that this Agreement constitutes a valid
and binding obligation of Parent and Merger Sub, constitutes a valid and
binding obligation of Company, enforceable against Company in accordance
with its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and to general principles of
equity. None of Company or its Subsidiaries is in violation of its articles
of incorporation (or the comparable governing documents) or bylaws. Except
as specified in Section 4.1(b) of the Disclosure Schedule, the execution
and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof
will not, (i) conflict with any of the provisions of the articles of
incorporation or bylaws of Company or the comparable governing documents of
any Subsidiary of Company, in each case as amended to the date of this
Agreement, (ii) subject to the governmental filings and other matters
referred to in the next following sentence, conflict with, result in a
breach of or default (with or without notice or lapse of time, or both)
under, or give rise to a material obligation, a right of
8
<PAGE>
termination, cancellation or acceleration of any obligation or a loss of a
material benefit under, or require the consent of any person under, any
indenture or other agreement, permit, concession, franchise, license or
similar instrument or undertaking to which Company or any of its
Subsidiaries is a party or by which Company or any of its Subsidiaries or
any of their respective assets is bound or affected, or (iii) subject to
the governmental filings and other matters referred to in Section 4.1(c),
contravene any domestic or foreign law, rule or regulation or any order,
writ, judgment, injunction, decree, determination or award currently in
effect, which, in the case of clauses (ii) and (iii) above could reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on Company.
(c) Consents and Approvals. No consent, approval or authorization
----------------------
of, or declaration or filing with, or notice to, any domestic or foreign
court, governmental agency or regulatory authority (a "Governmental
Entity") or any other third party which has not been received or made (or
has been received or made but is not otherwise in full force and effect) is
required by or with respect to Company or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Company or
the consummation by Company of the transactions contemplated hereby, except
for (i) the filing with the Securities and Exchange Commission (the "SEC")
of (A) the Joint Proxy Statement/Prospectus (as hereinafter defined), and
(B) such reports under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as may be required in connection with this Agreement and
the transactions contemplated hereby, (ii) the approval of the Merger by
Company's stockholders, (iii) the filing of the certificate and/or articles
of merger with the Virginia Commission and the Delaware Secretary of State
and appropriate documents with the relevant authorities of other states in
which Company is qualified to do business, (iv) such other consents,
approvals, authorizations, filings or notices as are specified in Section
4.1(c) of the Disclosure Schedule, and (v) any other consents, approvals,
authorizations, filings or notices the failure to make or obtain which
could not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on Company.
(d) Capital Structure. The authorized capital stock of Company
-----------------
consists solely of (i) 17,000,000 Shares and 3,000,000 shares of preferred
stock, par value $0.01 per share, of Company ("Preferred Shares"). At the
close of business on October 15, 1999, (i) 4,922,830 Shares were issued and
outstanding, (ii) no Preferred Shares were issued and outstanding, (iii)
3,306,702 Shares were subject to issuance pursuant to outstanding options
to purchase Shares pursuant to Company's 1986 Incentive Stock Option Plan,
1992 Incentive Stock Option Plan, 1992 Incentive Stock Option Plan-Class B,
1992 Non-Statutory Stock Option Plan, and the 1996 Equity Incentive Plan
(collectively, the "Option Plans"). There are no outstanding options under
the Company's 1984 Incentive Stock Option Plan. Stock options granted by
Company pursuant to the Option Plans that are currently in effect or that
have been in effect and otherwise are referred to in this Agreement are
referred to herein as "Company Options." There are no Company Options
other than Company Options outstanding under the Option Plans. Section
4.1(d) of the Disclosure Schedule sets forth the following information with
respect to each Company Option outstanding as of the date of this
Agreement: (i) the particular plan (if any) pursuant to which such Company
Option was
9
<PAGE>
granted; (ii) the name of the optionee; (iii) the number of Shares subject
to such Company Option; (iv) the exercise price of such Company Option; (v)
the date on which such Company Option was granted; and (vi) the extent to
which such Company Option is vested and exercisable as of October 15, 1999.
All Company Options vest as set forth in Section 4.1(d) of the Disclosure
Schedule. The Company has delivered to Parent accurate and complete copies
of all Option Plans pursuant to which Company has ever granted stock
options, and the forms of all stock option agreements evidencing such
options. Except as set forth in Section 4.1(d) of the Disclosure Schedule
and as otherwise contemplated in this Agreement, there are no commitments
or agreements of any nature to which Company is bound obligating Company to
accelerate the vesting of any Company Option. Except as set forth in this
Section 4.1(d), at the close of business on October 19, 1999, no shares of
capital stock or other equity securities of Company were issued, reserved
for issuance or outstanding. All outstanding shares of capital stock of
Company are duly authorized, validly issued, fully paid and nonassessable
and are not subject to preemptive rights. Except as specified above or in
Section 4.1(d) of the Disclosure Schedule or as contemplated by the
Stockholders Agreement, neither Company nor any Subsidiary of Company has
or, at or after the Effective Time will have, any outstanding option,
warrant, call, subscription or other right, agreement or commitment which
(A) obligates Company or any Subsidiary of Company to issue, sell or
transfer, or repurchase, redeem or otherwise acquire, any shares of the
capital stock of Company or any Subsidiary of Company, (B) restricts the
transfer of any shares of capital stock of Company or any of its
Subsidiaries, or (C) relates to the voting of any shares of capital stock
of Company or any of its Subsidiaries. No bonds, debentures, notes or other
indebtedness of Company or any Subsidiary of Company having the right to
vote (or convertible into, or exchangeable for, securities having the right
to vote) on any matters on which the stockholders of Company or any
Subsidiary of Company may vote are issued or outstanding. Except as
specified in Section 4.1(d) of the Disclosure Schedule, all the outstanding
shares of capital stock of each Subsidiary of Company have been duly
authorized and are validly issued, fully paid and nonassessable and are
owned by Company, by one or more Subsidiaries of Company or by Company and
one or more of such Subsidiaries, free and clear of all Liens (as defined
in Section 9.3(g)). Except as set forth in Section 4.1(d) of the Disclosure
Schedule, neither Company nor any of its Subsidiaries has any contract,
commitment or other obligation to repurchase, redeem or otherwise acquire
any Shares or any capital stock of any of Company's Subsidiaries, or make
any investment (whether by loan, capital contribution or otherwise) in any
person. Except as set forth in Section 4.1(d) of the Disclosure Schedule,
neither Company nor any of its Subsidiaries owns, or has any contract,
commitment or other obligation to acquire, any other securities of any
person or any direct or indirect equity or ownership interest in any other
business.
(e) SEC Documents. Company has filed all required reports,
-------------
schedules, forms, statements and other documents with the SEC since January
28, 1997 (such reports, schedules, forms, statements and other documents
are hereinafter referred to as the "SEC Documents"). As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and none of the
10
<PAGE>
SEC Documents as of such dates contained any untrue statements of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The
consolidated financial statements of Company included in the SEC Documents
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited consolidated
quarterly statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may otherwise be
indicated in the notes thereto) and fairly present the consolidated
financial position of Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
quarterly statements, to normal year-end audit adjustments).
(f) Absence of Certain Changes or Events; No Undisclosed Material
-------------------------------------------------------------
Liabilities.
-----------
(i) Except as disclosed in the SEC Documents filed by Company
and publicly available prior to the date of this Agreement (the "Filed
SEC Documents") or specified in Section 4.1(f) of the Disclosure
Schedule, since the date of the most recent audited financial
statements included in the Filed SEC Documents, Company and its
Subsidiaries have conducted their businesses only in the ordinary
course, and there has not been: (A) any change, event or occurrence
which has had or could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Company; (B) any
declaration, setting aside or payment of any dividend or other
distribution in respect of shares of Company's capital stock, or any
redemption or other acquisition by Company of any shares of its
capital stock; (C) any increase in the rate or terms of compensation
payable or to become payable by Company or its Subsidiaries to their
directors, officers or key employees, except increases occurring in
the ordinary course of business consistent with past practices; (D)
any entry into, or increase in the rate or terms of, any bonus,
insurance, severance, pension or other employee or retiree benefit
plan, payment or arrangement made to, for or with any such directors,
officers or key employees, except increases occurring in the ordinary
course of business consistent with past practices or as required by
applicable law; (E) any entry into any agreement, commitment or
transaction by Company or any of its Subsidiaries which is material to
Company and its Subsidiaries taken as a whole, except for agreements,
commitments or transactions entered into in the ordinary course of
business consistent with past practice; (F) any change by Company in
accounting methods, principles or practices, except as required or
permitted by generally accepted accounting principles; (G) any write-
off or write-down of, or any determination to write-off or write-down,
any asset of Company or any of its Subsidiaries or any portion thereof
which write-off, write-down or determination exceeds $50,000
individually or $100,000 in the aggregate; (H) any announcement or
implementation of any reduction in force, lay-off, early retirement
program,
11
<PAGE>
severance program or other program or effort concerning the
termination of employment of employees of Company or its Subsidiaries;
or (I) any announcement of or entry into any agreement, commitment or
transaction by Company or any of its Subsidiaries to do any of the
things described in the preceding clauses (A) through (H) otherwise
than as expressly provided for herein.
(ii) Except as disclosed in the Filed SEC Documents or
specified in Section 4.1(f) of the Disclosure Schedule and liabilities
incurred in the ordinary course of business consistent with past
practice since the date of the most recent financial statements
included in the Filed SEC Documents, there are no liabilities of
Company or its Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, due, to become due, determined, determinable or
otherwise required by generally accepted accounting principles
("GAAP") to be reflected on a consolidated balance sheet of Company
and its consolidated Subsidiaries or in the notes, exhibits or
schedules thereto, having, or which could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on
Company.
(g) Real Property; Other Assets.
---------------------------
(i) Section 4.1(g)(i) of the Disclosure Schedule sets forth all
of the real property owned in fee by Company and its Subsidiaries (the
"Owned Real Property").
(ii) Company or one of its Subsidiaries has good and marketable
fee simple title to each parcel of Owned Real Property and good and
marketable title to each other asset reflected in the latest balance
sheet of Company included in the Filed SEC Documents (other than any
such other asset disposed of or consumed in the ordinary course of
business or as specified on Section 4.1(g)(ii) of the Disclosure
Schedule) free and clear of all Liens except (A) those reflected or
reserved against in the latest balance sheet of Company included in
the Filed SEC Documents, (B) taxes and general and special assessments
not in default and payable without penalty and interest, (C) those
Liens set forth on Section 4.1(g)(ii) of the Disclosure Schedule, and
(D) such other Liens and other imperfections of title, if any, as do
not detract from the value or materially interfere with the present
use of the property affected thereby.
(iii) Section 4.1(g)(iii) of the Disclosure Schedule sets forth a
true and complete list, and Company has heretofore made available to
Parent true, correct and complete copies of all leases, subleases and
other agreements (the "Real Property Leases") under which Company or
any of its Subsidiaries uses or occupies or has the right to use or
occupy, now or in the future, real property or facility (the "Leased
Real Property"), including all modifications, amendments and
supplements thereto. Except as set forth in Section 4.1(h)(iii) of the
Disclosure Schedule or in each case where the failure could not
reasonably be expected to have, individually, a Material Adverse
Effect on Company:
12
<PAGE>
(A) Company or one of its Subsidiaries has a valid and subsisting
leasehold interest in each parcel of Leased Real Property free and
clear of all Liens and each Real Property Lease is in full force and
effect; (B) all rent and other sums and charges payable by Company or
its Subsidiaries as tenants thereunder are current in all respects;
(C) no termination event or condition or uncured default on the part
of Company or any such Subsidiary or, to Company's knowledge, the
landlord, exists under any Real Property Lease; (D) to Company's
knowledge, Company or one of its Subsidiaries is the sole undisputed
lessee of each Leased Real Property, is in actual possession thereof
and is entitled to quiet enjoyment thereof in accordance with the
terms of the applicable Real Property Lease; and (E) no consent or
approval from the lessor under the Real Property Leases is required
for the consummation by Company of the transactions contemplated
hereby.
(iv) To Company's knowledge, each parcel of the Owned Real
Property has (A) full and unencumbered legal access to a publicly
dedicated street, (B) adequate water supply, storm and sanitary sewage
or septic facilities, telephone, gas, and electrical facilities, and
all other required public utilities, and (C) no easements are required
or necessary for the full access and use of each parcel of Owned Real
Property.
(v) To Company's knowledge, Company's, or any of its
Subsidiaries', current use of the Owned Real Property and the Leased
Real Property and the improvements and buildings located thereon and
the presently anticipated future use of the Owned Real Property and
the Leased Real Property in connection with the operation of
Company's, or any of its Subsidiaries', business is in compliance in
all material respects and substantially conforms with all applicable
zoning and building regulation requirements.
(h) Software.
--------
(i) Section 4.1(h)(i) of the Disclosure Schedule sets forth
under the caption "Owned Software" a true, correct and complete list
of all material computer programs (source code or object code) which
were developed for or on behalf of, or have been purchased by, Company
or any Subsidiary of Company and which are currently used internally
by Company or which have been distributed by Company or any of its
Subsidiaries and all material computer programs under development by
Company or its Subsidiaries but not currently distributed
(collectively, the "Owned Software"), and Section 4.1(h)(i) of the
Disclosure Schedule sets forth under the caption "Licensed Software" a
true, correct and complete list of all material computer programs
(source code or object code) licensed to Company or any Subsidiary of
Company by another person which are currently used internally by
Company or which have been distributed by Company or any of its
Subsidiaries, whether as integrated or bundled with any of Company's
or its Subsidiaries' computer programs or as a separate stand-alone
product (specifically excluding any off-the-shelf computer program
that is validly
13
<PAGE>
and properly licensed under a shrink-wrap license) (collectively, the
"Licensed Software" and, together with the Owned Software, the
"Software").
(ii) Except as specified in Section 4.1(h)(ii) of the
Disclosure Schedule, Company, directly or through its Subsidiaries,
has good, marketable and exclusive title to, and the valid and
enforceable power and unqualified right to sell, license, lease,
transfer, use, create derivative works of, or otherwise exploit, all
versions and releases of the Owned Software and all copyrights
thereof, free and clear of all Liens. Company, directly or through its
Subsidiaries, is in actual possession of the source code and object
code for each computer program included in the Owned Software, and
Company, directly or through its Subsidiaries, is in possession of all
other documentation, including without limitation all related
engineering specifications, program flow charts, installation and user
manuals and know-how necessary for the effective use of the Software
as currently used in Company's business or as offered or represented
to Company's customers or potential customers. Company, directly or
through its Subsidiaries, is in actual possession of the object code
and user manuals for each computer program included in the Licensed
Software. The Software constitutes all of the computer programs
necessary to conduct Company's business as now conducted, and includes
all of the computer programs licensed or offered for license to
Company's customers and potential customers or otherwise used in the
development, marketing, licensing, sale or support of the products and
the services presently offered by Company. Except as specified in
Section 4.1(h)(ii) of the Disclosure Schedule, no person other than
Company and its Subsidiaries has any right or interest of any kind or
nature in or with respect to the Owned Software or any portion thereof
or any rights to sell, license, lease, transfer, use or otherwise
exploit the Owned Software or any portion thereof.
(iii) Section 4.1(h)(iii) of the Disclosure Schedule sets forth
a true, correct and complete list, by computer program, of (A) all
persons other than Company and its Subsidiaries that have been
provided with the source code or have a right to be provided with the
source code (including any such right that may arise after the
occurrence of any specified event or circumstance, either with or
without the giving of notice or passage of time or both) for any of
the Owned Software, and (B) all source code escrow agreements relating
to any of the Owned Software (setting forth as to any such escrow
agreement the source code subject thereto and the names of the escrow
agent and all other persons who are actual or potential beneficiaries
of such escrow agreement), and identifies with specificity all
agreements and arrangements pursuant to which the execution, delivery
and performance of this Agreement or the consummation of the
transactions contemplated hereby would entitle any third party or
parties to receive possession of the source code for any of the Owned
Software or any related technical documentation. Except as specified
in Section 4.1(h)(iii) of the Disclosure Schedule, no person (other
than Company and its Subsidiaries and any person that is a party to a
contract referred to in clause (F) of Section 4.1(k) that restricts
such person from disclosing any information concerning such source
code) is in
14
<PAGE>
possession of, or has or has had access to, any source code for any
computer program included in the Owned Software.
(iv) There are no defects in any computer program included in
the Software that would materially adversely affect the functioning
thereof in accordance with any published specifications therefor or in
accordance with any warranties given with respect thereto. Without
limiting the generality of the foregoing, all of the Software has the
following properties and capabilities: (A) the capability to correctly
recognize and accurately process dates expressed as a four-digit
number (or the binary equivalent or other machine readable iteration
thereof) (collectively, "Four-Digit Dates"); (B) the capability to
accurately execute calculations using Four-Digit Dates; (C) the
functionality (both on-line and batch), including entry, inquiry,
maintenance and update, to support processing involving Four-Digit
Dates; (D) the capability to generate interfaces and reports that
support processing involving Four-Digit Dates; (E) the capability to
generate and successfully transition, without human intervention, into
the year 2000 using the correct system date and to thereafter continue
processing with Four-Digit Dates; (F) the capability to provide
correct results in forward and backward data calculations spanning
century boundaries, including the conversion of pre-2000 dates
currently stored as two-digit dates; and (G) the capability to
correctly recognize leap years, including the year 2000, and to
properly process date calculations involving or spanning leap years.
Each computer program included in the Software is in machine readable
form and contains all current revisions. Section 4.1(h)(iv) of the
Disclosure Schedule sets forth a true, correct and complete list of
current claims of defects by customers of Company or any of its
Subsidiaries under warranties or support and maintenance agreements.
(v) Except as specified in Section 4.1(h)(v) of the Disclosure
Schedule, none of the sale, license, lease, transfer, use,
reproduction, distribution, modification or other exploitation by
Company or any Subsidiary of Company of any version or release of any
computer program included in the Software obligates or will obligate
Company or any Subsidiary of Company to pay any royalty, fee or other
compensation to any other person.
(vi) Neither Company nor any of its Subsidiaries markets, or
has marketed, and none of them have supported or is obligated to
support, any Licensed Software separate from the Owned Software.
(vii) Except as specified in Section 4.1(h)(vii) of the
Disclosure Schedule: (A) no material agreement, license or other
arrangement pertaining to any of the Software (including, without
limitation, any development, distribution, marketing, user or
maintenance agreement, license or arrangement) to which Company or any
Subsidiary of Company is a party will terminate or become terminable
by any party thereto as a result of the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby; and (B) all licenses covering Licensed Software
are of perpetual duration (subject to provisions allowing Company to
terminate and
15
<PAGE>
provisions allowing the respective licensors to terminate in the event
of a breach by Company).
(i) Intellectual Property.
---------------------
(i) Section 4.1(i)(i) of the Disclosure Schedule sets forth a
true, correct and complete list (including, to the extent applicable,
registration, application or file numbers) of all patents, and all
material copyrights, trade dress, trademarks, trade names, service
marks, domain names and other material intellectual property rights,
including, without limitation, trade secrets, processes, formulae,
designs and know-how used by Company or any Subsidiary of Company in
connection with the conduct of Company's business, and all
registrations of or applications for registration of any of the
foregoing, including any additions thereto or extensions,
continuations, renewals or divisions thereof (setting forth the
registration, issue or serial number and a description of the same)
(collectively, the "Intellectual Property"). Parent has heretofore
been furnished with true, correct and complete copies of each
registration or application for registration covering any of the
Intellectual Property or Software which is registered with, or in
respect of which any application for registration has been filed with,
any Governmental Entity.
(ii) The Intellectual Property includes all of the material
intellectual property rights owned by or licensed by or to Company and
its Subsidiaries that are necessary to conduct Company's business as
it is now conducted, and includes all of the material intellectual
property rights owned by or licensed by or to Company and its
Subsidiaries that are used in the development, marketing, licensing or
support of the Software or are licensed by Company to, or offered for
license to, Company's customers or potential customers. Except as
specified in Section 4.1(i)(ii) of the Disclosure Schedule, (A)
Company, directly or through its Subsidiaries, has good, marketable
and exclusive title to, and the valid and enforceable power and
unqualified right to use, the Intellectual Property free and clear of
all Liens, and (B) no person or entity other than Company and its
Subsidiaries has any right or interest of any kind or nature in or
with respect to the Intellectual Property or any portion thereof or
any rights to use, market or exploit the Intellectual Property or any
portion thereof.
(iii) For purposes of this Section 4.1(i), the term "Intellectual
Property" shall not be deemed to include the Software, which is
treated in Section 4.1(h).
(j) No Infringement. Except as specified in Section 4.1(j) of the
---------------
Disclosure Schedule, neither the existence nor the sale, license, lease,
transfer, use, reproduction, distribution, modification or other
exploitation by Company, any Subsidiary of Company or any of their
respective successors or assigns of any Owned Software or Intellectual
Property (and, to Company's knowledge, the Licensed Software), as such
Software or Intellectual Property, as the case may be, is or was, or is
currently contemplated to be sold, licensed, leased, transferred, used or
otherwise exploited by such persons, does, did or will (A) infringe on any
patent, trademark, copyright or other right of any other person,
16
<PAGE>
(B) constitute a misuse or misappropriation of any trade secret, know-how,
process, proprietary information or other right of any other person or a
violation of any relevant agreement governing the license of the Licensed
Software to Company or its Subsidiaries, or (C) entitle any other person to
any interest therein, or right to compensation from Company, any Subsidiary
of Company or any of their respective successors or assigns, by reason
thereof, in each case, except as could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Company.
Except as specified in Section 4.1(j) of the Disclosure Schedule, neither
Company nor any of its Subsidiaries has received any complaint, assertion,
threat or allegation or otherwise has notice of any lawsuit, claim, demand,
proceeding or investigation involving matters of the type contemplated by
the immediately preceding sentence or has knowledge of any facts or
circumstances that could reasonably be expected to give rise to any such
lawsuit, claim, demand, proceeding or investigation. Except as specified in
Section 4.1(j) of the Disclosure Schedule, and except as provided in the
relevant agreements governing the license of the Licensed Software to
Company or its Subsidiaries, there are no restrictions on the ability of
Company, any Subsidiary of Company or any of their respective successors or
assigns to sell, license, lease, transfer, use, reproduce, distribute,
modify or otherwise exploit any Software or Intellectual Property.
(k) Material Contracts. There have been made available to Parent and
------------------
its representatives true, correct and complete copies of all of the
following contracts to which Company or any of its Subsidiaries is a party
or by which any of them is bound (collectively, the "Material Contracts"):
(A) contracts with any current officer, director or employee of Company or
any of its Subsidiaries; (B) contracts pursuant to which Company or any of
its Subsidiaries licenses other persons to use any of the Software or has
agreed to support, maintain, upgrade, enhance, modify, port, or consult
with respect to any of the Software, or pursuant to which other persons
license Company or any of its Subsidiaries to use the Licensed Software;
(C) contracts (1) for the sale of any of the assets of Company or any of
its Subsidiaries, other than contracts entered into in the ordinary course
of business, or (2) for the grant to any person of any preferential rights
to purchase any of its assets; (D) contracts by which Company has agreed to
design, develop, author or create any new custom, or customized software
for any third party; (E) contracts which restrict Company or any of its
Subsidiaries from competing in any line of business or with any person in
any geographical area or which restrict any other person from competing
with Company or any of its Subsidiaries in any line of business or in any
geographical area; (F) contracts which restrict Company or any of its
Subsidiaries from disclosing any information concerning or obtained from
any other person or which restrict any other person from disclosing any
information concerning or obtained from Company or any of its Subsidiaries;
(G) indentures, credit agreements, security agreements, mortgages,
guarantees, promissory notes and other contracts relating to the borrowing
of money; and (H) all other agreements, contracts or instruments entered
into outside of the ordinary course of business or which are material to
Company. Except as specified in Section 4.1(k) of the Disclosure Schedule
or as could not reasonably be expected to have a Material Adverse Effect on
Company, all of the Material Contracts are in full force and effect and are
the legal, valid and binding obligation of Company and/or its Subsidiaries,
enforceable against them in accordance with their respective terms,
17
<PAGE>
subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and
subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity).
Except as specified in Section 4.1(k) of the Disclosure Schedule, neither
Company nor any of its Subsidiaries is in breach or default (with or
without notice or lapse of time, or both) in any material respect under any
Material Contract nor, to the knowledge of Company, is any other party to
any Material Contract in breach or default (with or without notice or lapse
of time, or both) thereunder in any material respect. Except as described
or listed in Section 4.1(k) of the Disclosure Schedule, neither Company nor
any of its Subsidiaries is a party to any existing contract, obligation or
commitment of any type in any of the following categories: (1) any sales
contract, including any open bid or quotation, which is of an open-end or
blanket nature; (2) contracts for the purchase of materials, supplies or
equipment which have not been entered into in the ordinary course of
business and consistent with past practice or for capital expenditures in
excess of $75,000; (3) contracts with distributors, manufacturers'
representatives or sales agents, except those which are terminable at the
option of Company or any of its Subsidiaries on 60 days' notice or less
without incurring any liability in excess of $50,000; (4) contracts under
which Company or any of its Subsidiaries has, except by way of endorsement
of negotiable instruments for collection in the ordinary course of business
and consistent with past practice, become absolutely or contingently or
otherwise liable for (aa) the performance of any other person, firm or
corporation under a contract, or (bb) the whole or any part of the
indebtedness or liabilities of any other person, firm or corporation; (5)
powers of attorney outstanding from Company or any of it Subsidiaries other
than as issued in the ordinary course of business and consistent with past
practice with respect to customs, insurance, patent, trademark or tax
matters, or to agents for service of process; (6) contracts under which any
amount payable by Company or any of its Subsidiaries is dependent upon the
revenues or profits of Company or any of its Subsidiaries (other than
employment contracts containing bonus payment provisions dependent on
Company's or any of its Subsidiaries' financial performance which are
contained in Section 4.1(k) of the Disclosure Schedule); (7) contracts with
any party for the loan of money or availability of credit to or from
Company or any of its Subsidiaries (except trade credit extended by Company
or any of its Subsidiaries to its or their customers or travel advances to
its or their employees in the ordinary course of business and consistent
with past practice); or (8) any hedging, option, derivative or other
similar transaction.
(l) Litigation, etc. Except as disclosed in the Filed SEC Documents
---------------
or as specified in Section 4.1(l) of the Disclosure Schedule, (i) there is
no suit, claim, action or proceeding (at law or in equity) pending or, to
the knowledge of Company, threatened against Company or any of its
Subsidiaries, and to the knowledge of Company, there is no investigation
pending or threatened against Company or any of its Subsidiaries, in each
case, before any court or other Governmental Entity, (ii) neither Company
nor any of its Subsidiaries is subject to any outstanding order, writ,
judgement, injunction, decree or arbitration order or award, and (iii) to
the knowledge of Company, no event, fact or circumstance which could
reasonably be expected to give rise to a suit, claim, action, or proceeding
(at law or in equity) against Company or any of its Subsidiaries exist
that, in any such case described in clauses (i), (ii) and (iii), could
reasonably be expected to have,
18
<PAGE>
individually or in the aggregate, a Material Adverse Effect on Company. As
of the date hereof, there are no suits, claims, actions, proceedings or
investigations pending or, to the knowledge of Company, threatened, seeking
to prevent, hinder, modify or challenge the transactions contemplated by
this Agreement.
(m) Compliance with Applicable Laws. All federal, state, local and
-------------------------------
foreign governmental approvals, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights (collectively, "Permits")
necessary for each of Company and its Subsidiaries to own, lease or operate
its properties and assets and to carry on its business as now conducted
have been obtained or made, and there has occurred no default (with or
without notice or lapse of time or both) under any such Permit, except for
the lack of Permits and for defaults under Permits which lack or default
could not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on Company. Except as disclosed in the Filed SEC
Documents or in Section 4.1 (m) of the Disclosure Schedule, Company and its
Subsidiaries are in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any Governmental Entity,
except for non-compliance which could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Company.
(n) Environmental Laws. Except as specified in Section 4.1(n) of the
------------------
Disclosure Schedule, to Company's knowledge: (i) neither Company nor any of
its Subsidiaries has violated or is in violation of any Environmental Law
(as defined in Section 9.3(d)); (ii) none of the Owned Real Property or
Leased Real Property (including without limitation soils and surface and
ground waters) has been or are contaminated with any Hazardous Substance
(as defined in Section 9.3(e)); (iii) neither Company nor any of its
Subsidiaries is potentially liable or liable for any off-site
contamination; (iv) neither Company nor any of its Subsidiaries has any
notice of an actual liability, remediation obligation or reporting duty
under any Environmental Law; (v) no assets of Company or any of its
Subsidiaries are subject to pending or threatened Liens under any
Environmental Law; (vi) Company and its Subsidiaries have all Permits
required under any Environmental Law ("Environmental Permits"); and (vii)
Company and its Subsidiaries are in compliance with their respective
Environmental Permits.
(o) Taxes. Except as specified in Section 4.1(o) of the Disclosure
-----
Schedule:
(i) Except where the failure to do so could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect on Company, each of Company and each Subsidiary of Company (and
any affiliated or unitary group of which any such person was a member)
has (A) timely filed all federal, state, local and foreign returns,
declarations, reports, estimates, information returns and other
statements of any kind ("Returns") required to be filed by or for it
in respect of any Taxes (as defined in the last paragraph of this
Section 4.1(o)) and has caused such Returns as so filed to be true,
correct and complete, (B) established reserves that are reflected in
Company's most recent financial statements included in the Filed SEC
Documents and that as so reflected are adequate for the payment of all
Taxes with respect to the results of operations of Company and its
Subsidiaries through the date of such financial statements, and
19
<PAGE>
(C) timely withheld and paid over to the proper taxing authorities all
Taxes required to be so withheld and paid over through the date
hereof. Each of Company and each Subsidiary of Company (and any
affiliated or unitary group of which any such person was a member) has
timely paid all Taxes with respect to any Returns referred to in the
immediately preceding sentence and that became due and payable on or
before the date hereof.
(ii) (A) There has been no taxable period since 1991 for which
a Return of Company or any of its Subsidiaries has been examined on
audit by the Internal Revenue Service (the "IRS") or an applicable
state, local or foreign taxing authority that remains open as of the
date hereof, and (B) except for alleged deficiencies which have been
finally and irrevocably resolved, Company has not received formal or
informal notification that any deficiency for any Taxes, the amount of
which could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Company, has been or will be
proposed, asserted or assessed against Company or any of its
Subsidiaries by any federal, state, local or foreign taxing authority
or court with respect to any period.
(iii) Neither Company nor any of its Subsidiaries has (A)
executed or entered into with the IRS or any other taxing authority
any agreement or other document that continues in force and effect
beyond the Effective Time and that extends or has the effect of
extending the period for assessments or collection of any Taxes, (B)
executed or entered into with the IRS or any other taxing authority
any closing agreement or other similar agreement (nor has Company or
any of its Subsidiaries received any ruling, technical advice
memorandum or similar determination) affecting the determination of
Taxes required to be shown on any Return not yet filed, or (C)
requested any extension of time to be granted to file after the
Effective Date any Return required by applicable law to be filed by
it.
(iv) Neither Company nor any of its Subsidiaries has made an
election under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as such term is defined in Section 341(f)(4) of the Code) owned
by Company or any of its Subsidiaries. None of the assets of Company
or any of its Subsidiaries is required to be treated as being owned by
any other person pursuant to the "safe harbor" leasing provisions of
Section 168(f)(8) of the Internal Revenue Code of 1954 as formerly in
effect.
(v) Neither Company nor any of its Subsidiaries is a party to,
is bound by or has any obligation under any tax sharing agreement or
similar agreement or arrangement.
(vi) Company has no pending application with the IRS under
Section 481(a) of the Code requesting a change in accounting method or
otherwise.
(vii) Neither Company nor any of its Subsidiaries is, or has
been, a United States Real Property Holding Corporation within the
meaning of Section
20
<PAGE>
897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.
(viii) Except for the group of which Company is presently the
common parent, Company has never been a member of an affiliated group
of corporations, within the meaning of Section 1504 of the Code, and
each of Company's Subsidiaries has never been a member of an
affiliated group of corporations, within the meaning of Section 1504
of the Code, except where Company was the common parent of such
affiliated group.
For purposes of this Agreement, "Taxes" shall mean all federal, state,
local, foreign or other jurisdiction taxes including, but without
limitation, income, property, sales, excise, employment, payroll,
franchise, withholding and other taxes, tariffs, charges, fees, levies,
imposts, duties, licenses or other assessments of every kind and
description, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority.
(p) Benefit Plans. Section 4.1(p) of the Disclosure Schedule sets
-------------
forth a true, correct and complete list of all the employee benefit plans
(as that phrase is defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) maintained or
contributed to for the benefit of any current or former employee, officer
or director of Company or any of its Subsidiaries ("Company ERISA Plans")
and any other benefit or compensation plan, program or arrangement
maintained or contributed to for the benefit of any current or former
employee, officer or director of Company or any of its Subsidiaries
(Company ERISA Plans and such other plans being referred to as "Company
Plans"). Company has furnished to Parent and its representatives a true,
correct and complete copy of every document pursuant to which each Company
Plan is established or operated (including any summary plan descriptions),
a written description of any Company Plan for which there is no written
document, and the three most recent annual reports, financial statements
and actuarial valuations with respect to each Company Plan, if required.
Except as specified in Section 4.1(p) of the Disclosure Schedule:
(i) No member of Company Group (as defined below) maintains, or
has at any time established or maintained, or has at any time
obligated to make, or made, contributions to or under any
multiemployer plan (as defined in Section 3(37) and Section 4001(a)(3)
of ERISA).
(ii) None of Company Plans promises or provides retiree health
or life insurance benefits to any person (other than continuation
health coverage benefits under the Consolidated Omnibus Budget
Reconciliation Act).
(iii) None of Company Plans provides for payment of a benefit,
the increase of a benefit amount, the payment of a contingent benefit
or the acceleration of the payment or vesting of a benefit by reason
of the execution of this Agreement or the consummation of the
transactions contemplated by this Agreement.
21
<PAGE>
(iv) Neither Company nor any of its Subsidiaries has an
obligation to adopt, or is considering the adoption of, any new
Company Plan or, except as required by law, the amendment of an
existing Company Plan.
(v) The IRS has issued favorable determination letters to the
effect that each Company ERISA Plan intended to be qualified under
Section 401(a) of the Code qualifies under Code Section 401(a) and
that any related trust is exempt from taxation under Code Section
501(a), and such determination letters remain in effect and have not
been revoked. Copies of the most recent determination letters and any
outstanding requests for a determination letter with respect to each
Company ERISA Plan have been delivered to Parent. Except as disclosed
in Section 4.1(p) of the Disclosure Schedule, no Company ERISA Plan
has been amended since the issuance of each respective determination
letter. The Company ERISA Plans currently comply in form with the
requirements under Code Section 401(a), other than changes required by
statutes, regulations and rulings for which amendments are not yet
required.
No issue concerning the qualification of Company ERISA Plans is
pending before or, to the knowledge of Company, is threatened by the
IRS. The Company ERISA Plans have been administered in all material
respects according to their terms (except for those terms which are
inconsistent with the changes required by statutes, regulations, and
rulings for which changes are not yet required to be made, in which
case Company ERISA Plans have been administered in accordance with the
provisions of those statutes, regulations and rulings) and in all
material respects in accordance with the requirements of Code Section
401(a), in each case, except as could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Company. Neither Company nor any of its Subsidiaries or any other
entities which now or in the past constitute a single employer within
the meaning of Code Section 414 (the "Company Group") or any fiduciary
of any Company ERISA Plan has done anything that would adversely
affect the qualified status of Company ERISA Plans or the related
trusts.
Any Company ERISA Plan which is required to satisfy Code Section
401(k)(3) and 401(m)(2) has been tested for compliance with, and has
satisfied the requirements of, Code Section 401(k)(3) and 401(m)(2)
for each plan year ending prior to the Closing Date.
(vi) Each Company Plan has been operated in accordance with its
terms and the requirements of all applicable law, in each case, except
as could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on Company.
(vii) No member of Company Group nor any other "disqualified
person" or "party in interest" (as defined in Code Section 4975 and
ERISA Section 3(14), respectively) with respect to Company Plans, has
engaged in any "prohibited transaction" (as defined in Code Section
4975 or ERISA Section 406).
22
<PAGE>
All members of Company Group and all "fiduciaries" (as defined in
ERISA Section 3(21)) with respect to Company Plans, including any
members of Company Group which are fiduciaries as to a Company ERISA
Plan, have complied in all respects with the requirements of ERISA
Section 404. No member of Company Group and no party in interest or
disqualified person with respect to Company Plans has taken or omitted
any action which could lead to the imposition of an excise tax under
the Code or a fine under ERISA. Except as disclosed in the Disclosure
Schedule, no member of Company Group is subject to any material
liability, tax or penalty whatsoever to any person whomsoever as a
result of any member of Company Group engaging in a prohibited
transaction under ERISA or the Code, and Company Group has no
knowledge of any circumstances which reasonably might result in any
such material liability, tax or penalty as a result of a breach of
fiduciary duty under ERISA.
(viii) No member of Company Group maintains or has maintained an
"employee benefit pension plan" within the meaning of ERISA Section
3(2) that is or was subject to Title IV of ERISA or has incurred any
direct or indirect liability under, arising out of or by operation of
Title IV of ERISA in connection with the termination of, or withdrawal
from, any Company ERISA Plan or other retirement plan or arrangement,
and no fact or event exists that could reasonably be expected to give
rise to any such liability.
(ix) Each member of Company Group has made full and timely
payment of, or has accrued pending full and timely payment, all
amounts which are required under the terms of each of Company Plans
and in accordance with applicable laws to be paid as a contribution to
each Company Plan and no excise taxes are assessable as a result of
any nondeductible or other contributions made or not made to a Company
Plan. The assets of all Company Plans which are required under
applicable laws to be held in trust are in fact held in trust, and the
assets of each such Company Plan equal or exceed the liabilities of
each such plan. The liabilities of each other plan are properly and
accurately reported on the financial statements and records of
Company. The assets of each Company Plan are reported at their fair
market value on the books and records of each plan.
(x) There are no claims relating to Company Plans, other than
routine claims for benefits.
(xi) Each member of Company Group has complied with the
continuation coverage requirements of Section 1001 of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, and ERISA
Sections 601 through 608. Each member of Company Group has also
complied with the portability, access, and renewability provisions of
Section K, Chapter 100 of the Code and Section 701 et. seq. of ERISA.
(xii) Except as set forth in Section 4.1(p)(xii) of the
Disclosure Schedule, no member of Company Group is obligated,
contingently or otherwise,
23
<PAGE>
under any agreement to pay any amount which would be treated as a
"parachute payment," as defined in Code Section 280G(b) (determined
without regard to Code Section 280G(b)(2)(A)(ii)).
(xiii) None of Company Plans provide for benefits or other
participation therein, and Company has received no claims or demands
for participation in or benefits under any Company Plan, by any
individual classified or treated by Company as an independent
contractor.
The representations and warranties set forth in this Section 4.1(p)
shall be true and correct as if made with respect to the equivalent rules
and regulations governing employee benefits and related matters in the
United Kingdom and Germany.
(q) Absence of Changes in Benefit Plans. Except as disclosed in the
-----------------------------------
Filed SEC Documents or in Section 4.1(q) of the Disclosure Schedule, since the
date of the most recent audited financial statements included in the Filed SEC
Documents, neither Company nor any of its Subsidiaries has adopted or agreed to
adopt any collective bargaining agreement or any Company Plan.
(r) Labor Matters.
-------------
(i) Except as disclosed in the Filed SEC Documents or
specified in Section 4.1(r)(i) of the Disclosure Schedule, neither
Company nor any of its Subsidiaries is a party to any employment,
labor or collective bargaining agreement, and there are no employment,
labor or collective bargaining agreements which pertain to employees
of Company or any of its Subsidiaries. Company has heretofore
delivered to Parent true, complete and correct copies of the
agreements referred to in the previous sentence, together with all
amendments, modifications, supplements or side letters affecting the
duties, rights and obligations of any party thereunder.
(ii) No employees of Company or any of its Subsidiaries are
represented by any labor organization and, to the knowledge of
Company, no labor organization or group of employees of Company or any
of its Subsidiaries has made a pending demand for recognition or
certification. There are no representation or certification
proceedings or petitions seeking a representation proceeding presently
pending or threatened in writing to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal
or authority and, to the knowledge of Company, there are no organizing
activities involving Company or any of its Subsidiaries pending with
any labor organization or group of employees of Company or any of its
Subsidiaries.
(iii) Except as specified in Section 4.1(r)(iii) of the
Disclosure Schedule, there are no (A) unfair labor practice charges,
grievances or complaints pending or threatened in writing by or on
behalf of any employee or group of employees of Company or any of its
Subsidiaries, or (B) complaints, charges or claims against Company or
any of its Subsidiaries pending, or threatened in
24
<PAGE>
writing to be brought or filed, with any Governmental Entity or
arbitrator based on, arising out of, in connection with, or otherwise
relating to the employment or termination of employment of any
individual by Company or any of its Subsidiaries.
(s) State Takeover Statutes; Company Rights Plan. As of the date
--------------------------------------------
hereof and at all times on or prior to the Effective Time, the restrictions
applicable to business combinations contained in affiliated transactions
and control share acquisitions contained in the VSCA or any other
applicable state takeover statute, are, and will be, inapplicable to the
execution, delivery and performance of this Agreement and to the
consummation of the Merger and the other transactions contemplated by this
Agreement. Prior to the execution of the Stockholders Agreement, the Board
of Directors of Company approved the Stockholders Agreement and the
transactions contemplated thereby. The Board of Directors of Company has
taken all actions so that the Rights Agreement, dated as of July 3, 1998,
between Company and First Union National Bank, as rights agent (the
"Company Rights Plan") has been amended to (i) render Company Rights Plan
inapplicable to Parent, the Merger and the other transactions contemplated
by this Agreement, (ii) ensure that (A) none of Parent or its Subsidiaries
is an Acquiring Person (as defined in Company Rights Plan) pursuant to
Company Rights Plan by virtue of the execution of this Agreement or the
Stockholders Agreement or the consummation of the Merger or the other
transactions contemplated hereby, and (B) a Distribution Date (as such term
is defined in Company Rights Plan) does not occur, and the Rights (as such
term is defined in Company Rights Plan) will not become distributable,
nonredeemable or exercisable, by reason of the execution of this Agreement,
the Stockholders Agreement the consummation of the Merger, or the
consummation of the transactions contemplated hereby.
(t) Brokers. No broker, investment banker, financial advisor or other
-------
person, other than U.S. Bancorp Piper Jaffray, the fees and expenses of
which will be paid by Company, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated hereby based upon arrangements made by or on
behalf of Company.
(u) Written Opinion of Financial Advisor. Company has received the
------------------------------------
written opinion of U.S. Bancorp Piper Jaffray, dated October 19, 1999 (a
true and complete copy of which has been delivered to Parent by Company),
to the effect that, based upon and subject to the matters set forth therein
and as of the date thereof, the Merger Consideration is fair to the holders
of Shares from a financial point of view.
(v) Voting Requirements. The affirmative vote of the holders of at
-------------------
least two-thirds of the outstanding Shares entitled to vote at Company
Stockholders Meeting (as defined in Section 6.3(a)) with respect to the
adoption of this Agreement, voting together as a single class, is the only
vote of the holders of any class or series of Company's capital stock or
other securities required in connection with the consummation by Company of
the Merger and the other transactions contemplated hereby to be consummated
by Company.
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<PAGE>
(w) Government Contracts. Section 4.1(w) of the Disclosure Schedule
--------------------
lists all contracts, leases, agreements, licenses, commitments or
understandings, subcontracts, written or oral, between Company, or any of
its Subsidiaries, and a Governmental Entity ("Government Contracts"), which
have not been administratively closed out, including all labor task orders
and level of effort with the United States Government of Company or any of
its Subsidiaries. The representations and warranties in this Section
4.1(w) with respect to Government Contracts shall take precedence over any
inconsistent representations or warranties in any other Section of Article
IV of this Agreement, and the representations and warranties of this
Section 4.1(w) apply and relate only to Government Contracts to which
Company or any of its Subsidiaries is a party. Except as set forth in
Section 4.1(w) of the Disclosure Schedule:
(i) Company and each of its Subsidiaries is not nor have their
predecessors been a party to any contractual obligation or subject to
any applicable law requirement involving organizational or
institutional conflicts of interest such that would result in the
termination of any Government Contract, that would impose any material
limitation on Company's or its Subsidiaries' ability to perform such
Government Contract or to continue their business as presently
conducted, or that would impose any material limitation upon Parent's
submission of a proposal in response to any resolicitation of any
Government Contracts.
(ii) No payment has been made by Company or its Subsidiaries or
their predecessors, or to their knowledge, by any person authorized to
act on their behalf, to any person in connection with any Government
Contract of Company or its Subsidiaries or their predecessors, in
violation of applicable United States or foreign procurement laws or
regulations, United States criminal or civil laws relating to bribes
or gratuities, or in violation of the Foreign Corrupt Practices Act or
other requirements of law.
(iii) With respect to each Government Contract to which Company
or any of its Subsidiaries is, or any of their predecessors was, a
party: (A) representations and certifications executed, acknowledged
or set forth in or pertaining to such Government Contract were
complete and correct in all material respects as to their effective
date, and each of Company, its Subsidiaries and their predecessors has
complied in all material respects with all such representations and
certifications; (B) neither the United States Government nor any prime
contractor, subcontractor or other person has notified Company, its
Subsidiaries or their predecessors, either orally (to Company's
knowledge) or in writing, that Company, its Subsidiaries or their
predecessors have breached or violated any applicable law, or, for any
Government Contract, any certificate, representation, clause,
provision or requirement pertaining thereto; and (C) no termination
for convenience or termination for default has occurred within the
last five years and no cure notice or show cause notice is currently
in effect pertaining to such Government Contract.
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<PAGE>
(iv) To Company's knowledge, (A) neither Company, its
Subsidiaries, their predecessors nor any of their respective
directors, officers or employees is (or during the last five years has
been) under administrative, civil, or criminal investigation or
indictment by any Governmental Entity, with respect to any alleged
irregularity, misstatement or omission arising under or relating to
any Government Contract, and (B) during the last five years, Company,
its Subsidiaries and their predecessors have not conducted or
initiated any internal investigation or made a voluntary disclosure to
the United States Government in connection with Government Contracts.
(v) To Company's knowledge, there exists (A) no outstanding
claims against Company, its Subsidiaries or their predecessors, either
by the United States Government or by any prime contractor,
subcontractor, vendor or other third party, arising under or relating
to any Government Contract, and (B) except as disclosed in Section
4.1(l) of the Disclosure Schedule, no disputes between Company, its
Subsidiaries or their predecessors and the United States Government
under the Contracts Disputes Act or any other federal statute or
between Company, or its Subsidiaries or their predecessors and any
prime contractor, subcontractor or vendor arising under or relating to
any such Government Contract.
(vi) To Company's knowledge, neither Company, any of its
Subsidiaries, any of their predecessors nor any person while serving
as director, officer or employee of Company, any of its Subsidiaries
or any of their predecessors during the last five years has been (A)
suspended or debarred from doing business with the United States
Government, or (B) the subject of a finding of nonresponsibility or
ineligibility for United States Government contracting.
(vii) Neither Company, any of its Subsidiaries, nor any of their
predecessors is, and to Company's knowledge, no other party is, in
material breach of or in default under any Government Contract.
Furthermore, (A) Company and each of its Subsidiaries is and has been,
and their predecessors were, in compliance with all applicable law
requirements pertaining to the award and performance of Government
Contracts, (B) Company, its Subsidiaries and their predecessors have
had at all times all authorizations required in connection with the
award and performance of their Government Contracts, (C) all of the
Government Contracts were competitively awarded, and (D) neither
Company, any of its Subsidiaries nor any of their predecessors has
received any written notice of violation of any applicable law
requirement or authorization which could result in the loss of any
security clearance, the inability to continue to perform Government
Contracts or to obtain future Government Contracts or the suspension
or debarment from government contracting. Neither Company, any of its
Subsidiaries nor any of their predecessors is subject to any judgment,
writ, decree or injunction of any Governmental Entity relating to the
award and performance of Government Contracts or any transaction or
activities incidental thereto.
27
<PAGE>
(viii) With respect to each Government Contract to which Company
or any of its Subsidiaries is or any of their predecessors was a
party: (A) all contract reporting required to be submitted to the
applicable Governmental Entity is up-to-date, and each of Company, its
Subsidiaries and their predecessors has complied in all material
respects with all such contract reporting obligations pursuant to the
applicable laws; (B) the internal accounting system used to track
costs of operations and contract performance of Company and each of
its Subsidiaries is in full compliance with the Cost Accounting
Standards as set forth in 49 Code of Federal Regulations, Chapter 99,
and as otherwise required by applicable laws, if required; (C) the
Cost and Pricing Data (as defined in the Federal Acquisition
Regulation, 48 Code of Federal Regulations, Chapter) previously
supplied to the applicable Governmental Entity is accurate, complete
and current; and (iv) the internal cost accounting and labor
accounting system of Company and each of its Subsidiaries is adequate
to properly allocate employee time.
(ix) With respect to each Government Contract, there are
currently no domestic civil, criminal or administrative actions,
suits, written claims, written allegations of defective pricing,
defective products and services, cost mischarging or violations of the
cost accounting standards under any applicable law, hearings or
proceedings pending (including but not limited to those which are
likely to result in the suspension or debarment of Company or any of
its Subsidiaries from contracting with the United States Government)
or, to the knowledge of Company, threatened against Company or any of
its Subsidiaries.
(x) Company has not granted "unlimited rights" or "Government
Purpose License Rights," or any unlimited-quantity, agency-wide, or
site licenses in any of the Software to any Governmental Entity; no
Governmental Entity has claimed such rights and none is entitled
thereto.
(x) Insurance. Company has insurance policies and fidelity bonds
---------
covering its and its Subsidiaries' assets, business, equipment, properties,
operations, employees, officers and directors of the type and in amounts
customarily carried by persons conducting business similar to that of
Company. All premiums due and payable under all such policies and bonds
have been paid, and Company is otherwise in full compliance with the terms
and conditions of all such policies and bonds, except where the failure to
have made payment or to be in full compliance could not reasonably be
expected to have a Material Adverse Effect. The reserves established by
Company in respect of all matters as to which Company self-insures,
including for workers' compensation and workers' medical coverage, are
adequate and appropriate. Section 4.1(x) of the Disclosure Schedule sets
forth a true and complete list of all insurance policies, fidelity bonds
and self-insurance provisions of Company.
(y) Business Relationships. The relationships of Company and its
----------------------
Subsidiaries with their significant customers, distributors, licensors,
designers and suppliers are satisfactory in all material respects to the
Company and, to Company's knowledge, the execution of this Agreement and
the consummation of the Merger and the other transactions contemplated
hereby will not materially adversely affect the
28
<PAGE>
relationships of Company and its Subsidiaries with such customers,
distributors, licensors, designers and suppliers.
(z) HSR Compliance. The Company is not a person (nor is it included
--------------
in a person), that has total assets of $100 million or more or annual net
sales of $100 million or more, within the meaning of, and all as determined
in accordance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
Section 4.2 Representations and Warranties of Parent and Merger Sub.
-------------------------------------------------------
Parent and Merger Sub represent and warrant to Company, as of the date hereof
and as of the Closing Date (unless specifically made as of another date), as
follows:
(a) Organization and Standing. Each of Parent and Merger Sub is a
-------------------------
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated. Except as disclosed
in Section 4.2(a) of the Disclosure Schedule, each of Parent and Merger Sub
is duly qualified or licensed to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent. Parent has furnished to
Company true, complete and correct copies of the certificates of
incorporation and bylaws of Parent and Merger Sub, in each case, as amended
to the date of this Agreement.
(b) Authority; Noncontravention; and Corporate Power. Parent and
------------------------------------------------
Merger Sub have the requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Parent and Merger Sub and the
consummation by Parent and Merger Sub of the transactions contemplated
hereby have been duly authorized by the respective Boards of Directors of
Parent and Merger Sub and have been duly approved by Parent as sole
stockholder of Merger Sub and, except for the approval by the affirmative
vote of holders of the requisite number of shares of Parent Common Stock
with respect to the issuance of Parent Common Stock in the Merger pursuant
to this Agreement and the adoption of a proposal to increase the number of
Parent Common Stock under Parent's 1997 Stock Option Plan, no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of
Parent and Merger Sub and, assuming this Agreement constitutes a valid and
binding obligation of Company, constitutes a valid and binding obligation
of each of Parent and Merger Sub, enforceable against each such party in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general
principals of equity. None of Parent or its Subsidiaries is in violation
of its certificate of incorporation or bylaws. Except as specified in
Section 4.2(b) of the Disclosure Schedule, the execution and delivery of
this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions of this Agreement
will not (i) conflict with any of the provisions of the certificate of
29
<PAGE>
incorporation or bylaws of Parent or the certificate of incorporation or
bylaws of Merger Sub, in each case as amended to the date of this
Agreement, (ii) subject to the governmental filings and other matters
referred to in the following sentence, conflict with, result in a breach of
or default (with or without notice or lapse of time, or both) under, or
give rise to a material obligation, a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or
require the consent of any person under, any indenture, or other agreement,
permit, concession, franchise, license or similar instrument or undertaking
to which Parent or Merger Sub is a party or by which Parent or Merger Sub
or any of their respective assets is bound or affected, or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, contravene any law, rule or regulation, or any order, writ,
judgment, injunction, decree, determination or award currently in effect,
which, in the case of clauses (ii) and (iii) above, could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect on Parent. Except as disclosed in Section 4.2(b) of the Disclosure
Schedule, no consent, approval or authorization of, or declaration or
filing with, or notice to, any Governmental Entity or third party which has
not been received or made is required by or with respect to Parent or
Merger Sub in connection with the execution and delivery of this Agreement
by Parent or Merger Sub or the consummation by Parent or Merger Sub, as the
case may be, of any of the transactions contemplated hereby, except for (A)
the filing with the SEC of the Form S-4 (as defined in Section 6.1(c)) and
the declaration of effectiveness of the Form S-4 and such reports under the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby, (B) the filing of the certificate and/or
articles of merger with the Virginia Commission and the Delaware Secretary
of State and appropriate documents with the relevant authorities of other
states in which Company is qualified to do business, (C) such other
consents, approvals, authorizations, filings or notices as are specified in
Section 4.2(b) of the Disclosure Schedule, and (D) any other consents,
approvals, authorizations, filings or notices the failure to make or obtain
which could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent.
(c) Capital Structures. The authorized capital stock of Parent
------------------
consists of (i) 40,000,000 shares of Common Stock, and (ii) 10,000,000
shares of preferred stock, par value $0.001 per share, of which 21,000
shares have been designated Series A 4.0% Convertible Redeemable Preferred
Stock ("Series A Preferred Stock"). At the close of business on October
13, 1999, (A) 8,873,791 shares of Common Stock were issued and outstanding,
(B) 21,000 shares of Series A Preferred Stock were issued and outstanding,
(C) 3,620,000 shares of Common Stock were reserved for issuance pursuant to
Parent's employee and director benefit plans, of which options to purchase
2,570,554 shares were outstanding, (D) 2,780,632 shares of Common Stock
were reserved for issuance pursuant to outstanding warrants, and (E)
2,100,000 shares of Common Stock were reserved for issuance upon conversion
of the Series A Preferred Stock. Except as set forth in the immediately
preceding sentence, at the close of business on October 13, 1999, no shares
of capital stock or other equity securities of Parent were issued, reserved
for issuance or outstanding. All outstanding shares of capital stock of
Parent are, and all shares of Common Stock which may be issued pursuant to
this Agreement will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to
30
<PAGE>
preemptive rights. The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, $0.01 par value per share, 1,000 of which
have been validly issued, are fully paid, and nonassessable, and are owned
by Parent. No bonds, debentures, notes or other indebtedness of Parent
having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which the
stockholders of Parent may vote are issued or outstanding. Except as set
forth above, Parent does not have any outstanding option, warrant, call,
subscription or other right, agreement or commitment which obligates Parent
to issue, sell or transfer, repurchase, redeem or otherwise acquire any
shares of the capital stock of Parent.
(d) SEC Documents. Parent has filed all required reports,
-------------
schedules, forms, statements and other documents with the SEC since January
1, 1997 (such reports, schedules, forms, statements and other documents are
hereinafter referred to as the "Parent SEC Documents"). As of their
respective dates, or if amended, as of the date of such amendment, the
Parent SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable
to such Parent SEC Documents, and none of the Parent SEC Documents as of
such dates contained any untrue statements of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The consolidated financial statements of
Parent included in the Parent SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared
in accordance with generally accepted accounting principles (except, in the
case of unaudited consolidated quarterly statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may otherwise be indicated in the notes thereto) and fairly
present the consolidated financial position of Parent and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited quarterly statements, to normal year-end audit adjustments).
(e) Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
the Parent SEC Documents filed by Parent and publicly available prior to
the date of this Agreement (the "Filed Parent SEC Documents") or specified
in Section 4.2(e) of the Disclosure Schedule, since the date of the most
recent audited financial statements included in the Filed Parent SEC
Documents, Parent and its Subsidiaries have conducted their business only
in the ordinary course consistent with past practice, and there has not
been: (i) any change, event or occurrence which has had or could reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect on Parent; (ii) any declaration, setting aside or payment of any
dividend or other distribution in respect of shares of Parent's capital
stock other than regular quarterly dividends on Parent's outstanding Series
A Preferred Stock, or any redemption or other acquisition by Parent of any
shares of its capital stock; (iii) any change by Parent in accounting
methods, principles or practices, except as required or permitted by
generally accepted accounting principles; or (iv) any announcement of or
entry into any agreement, commitment or transaction by
31
<PAGE>
Parent or any of its Subsidiaries to do any of the things described in the
preceding clauses (i) through (iii) otherwise than as expressly provided
for herein.
(f) Brokers. No broker, investment banker, financial advisor or
-------
other person, other than Advest Financial Advisors and except as disclosed
in Section 4.2(f) of the Disclosure Schedule, the fees and expenses of
which will be paid by Parent, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated hereby based upon arrangements made by or on
behalf of Parent or Merger Sub.
(g) Interim Operations of Merger Sub. Merger Sub was formed
---------------------------------
solely for the purpose of engaging in the transactions contemplated hereby,
has engaged in no other business activities and has conducted its
operations only as contemplated hereby.
(h) Financing. In order the finance the Merger, Parent has
---------
obtained a commitment letter (the "Commitment Letter") from Bank Hapoalim
(the "Bank"), pursuant to which the Bank has committed, subject to the
terms and conditions thereof, to provide Parent and Merger Sub with
financing in an aggregate amount of up to $35 million (the "Financing"), a
true, complete and correct copy of which has previously been provided to
Company. Subject to the terms and conditions of the Commitment Letter
(including the conditions to funding specified therein) and this Agreement,
the Financing is sufficient to consummate the Merger.
(i) No Undisclosed Material Liabilities. Except as disclosed in
-----------------------------------
the Parent SEC Documents and liabilities incurred in the ordinary course of
business consistent with past practice since the date of the most recent
financial statements included in the Filed Parent SEC Documents, there are
no liabilities of Parent or its Subsidiaries of any kind whatsoever,
whether accrued, contingent, absolute, due, to become due, determined,
determinable or otherwise, required by GAAP to be reflected on a
consolidated balance sheet of Parent and its Subsidiaries or in the notes,
schedules or exhibits thereto, having, or which could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect on Parent.
(j) No Undisclosed Defaults. Except as disclosed in the Parent
-----------------------
SEC Documents, Parent and its Subsidiaries are not in default in any
material obligation or covenant on its part to be performed under any lease
or contract that is material to the business of Parent and its
Subsidiaries.
(k) Title to Properties. Parent or one of its Subsidiaries has
-------------------
good and marketable title to each material asset reflected in the latest
balance sheet of Parent included in the Parent SEC Documents (other than
any such asset disposed of or consumed in the ordinary course of business
and any asset, the lack of good and marketable title could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent), free and clear of all Liens except those Liens
that are reflected in the financial statements included in the Parent SEC
Documents and those Liens that could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on
Parent.
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<PAGE>
(l) Software.
--------
(i) Parent, directly or through its Subsidiaries, has good,
marketable and exclusive title to, and the valid and enforceable power
and unqualified right to sell, license, lease, transfer, use, create
derivative works of, or otherwise exploit, all versions and releases
of all material computer programs (source code or object code) which
were developed for or on behalf of, or have been purchased by, Parent
or any of its Subsidiaries and which are currently used internally by
Parent or which have been distributed by Parent or any of its
Subsidiaries and all material computer programs under development by
Parent or its Subsidiaries but not currently distributed ("Parent
Owned Software") and all copyrights thereof, except in such cases
which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on Parent.
(ii) Except as disclosed in Parent SEC Documents, there are
no known defects in any computer program included in the Parent Owned
Software or any material computer programs licensed to Parent or any
of its Subsidiaries ("Parent Licensed Software" and, together with
Parent Owned Software, "Parent Software") that would adversely affect
the functioning thereof in accordance with any published
specifications therefor or in accordance with any warranties given
with respect thereto or that would cause the Parent Software to fail
to have the properties and capabilities set forth in Section
4.1(h)(iv).
(m) Intellectual Property. Except as disclosed in the Parent SEC
---------------------
Documents, Parent and/or one of its Subsidiaries has all material
intellectual property rights (by ownership, valid license or otherwise)
that are necessary to conduct their business as it is now conducted.
(n) No Infringement. Except as disclosed in the Parent SEC
---------------
Documents, neither the existence nor the sale, license, lease, transfer,
use, reproduction, distribution, modification or other exploitation by
Parent or any Subsidiary of Parent of any material Parent Owned Software or
material intellectual property, as such Parent Owned Software or
intellectual property, as the case may be, is sold, licensed, leased,
transferred, used or otherwise exploited by such persons, does (i) infringe
on any patent, trademark, copyright or other right of any other person,
(ii) constitute a misuse or misappropriation of any trade secret, know-how,
process, proprietary information or other right of any other person, or
(iii) entitle any other person to any interest therein, or right to
compensation from Parent or any Subsidiary of Parent by reason thereof, in
each case, except as could not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on Parent.
(o) Litigation. Except as disclosed in the Filed SEC Documents
----------
or as specified in Section 4.2(o) of the Disclosure Schedule, (i) there is
no suit, claim, action or proceeding (at law or in equity) pending or, to
the knowledge of Parent, threatened against Parent or any of its
Subsidiaries, and to the knowledge of Parent, there is no
33
<PAGE>
investigation pending or threatened against Parent or any of its
Subsidiaries, in each case, before any court or other Governmental Entity,
(ii) neither Parent nor any of its Subsidiaries is subject to any
outstanding order, writ, judgement, injunction, decree or arbitration order
or award, and (iii) to the knowledge of Parent, no event, fact or
circumstance which could reasonably be expected to give rise to a suit,
claim, action or proceeding (at law or in equity) against Parent or any of
its Subsidiaries exist that, in any such case described in clauses (i),
(ii) and (iii) could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent. As of the date hereof,
there are no suits, claims, actions or proceedings pending or, to the
knowledge of Parent, threatened, seeking to prevent, hinder, modify or
challenge the transactions contemplated by this Agreement.
(p) Compliance with Applicable Laws. Except as disclosed in the
-------------------------------
Parent SEC Documents, all Permits necessary for each of Parent and its
Subsidiaries to own, lease or operate its properties and assets and to
carry on its business as now conducted have been obtained or made, and
there has occurred no default (with or without notice or lapse of time or
both) under any such Permit, except for the lack of Permits and for
defaults under Permits which lack or default could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect on Parent. Except as disclosed in the Parent SEC Documents, Parent
and its Subsidiaries are in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any Governmental Entity,
except for non-compliance which could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent.
(q) Taxes. Except as set forth in the Parent SEC Documents, as of
-----
the date of this Agreement, Parent and each of its Subsidiaries has filed
all Tax returns and reports required to be filed by it and has paid all
Taxes with respect to such Returns (as defined in Section 4.1(o)), and the
most recent financial statements contained in the Filed SEC Documents
reflect an adequate reserve for all Taxes of the Parent and its
Subsidiaries for all taxable periods and portions thereof through the date
of such financial statements. As of the date of this Agreement, no material
deficiencies for any Taxes have been proposed, asserted or assessed against
the Parent or its Subsidiaries, nor is there, to the knowledge of the
Parent after reasonable inquiry, any reasonable basis for the assertion of
any such deficiency. No requests for waivers of the time to assess any such
Taxes are pending as of the date of this Agreement. Proper amounts have
been withheld by the Parent and its Subsidiaries from employee compensation
payments for all periods in compliance with the Tax withholding provisions
of applicable laws, except where the failure to withhold proper amounts
could not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect on the Parent or its Subsidiaries. As of the date
of this Agreement, none of the federal income tax Returns of Parent or its
Subsidiaries have been examined by the IRS for the fiscal years through
December 31, 1998. Parent has not taken any action nor does it have any
knowledge of any fact or circumstance that is reasonably likely to prevent
the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
34
<PAGE>
(r) Benefit Plans. Except as disclosed in the Parent SEC
-------------
Documents, with respect to all material employee benefit plans (as defined
in ERISA) maintained or contributed to for the benefit of any current or
former employee, officer or director of Parent or any of its Subsidiaries
("Parent ERISA Plans") and any other material benefit or compensation plan,
program or arrangement maintained or contributed to for the benefit of any
current or former employee, officer or director of the Parent or any of its
Subsidiaries (Parent ERISA Plans and such other plans being referred to as
"Parent Plans") are in material compliance with ERISA and the Code, if
applicable, and such Parent Plans have been operated in material compliance
with ERISA and the Code and any Parent Plan intended to be so qualified
under Section 401(a) of the Code has been determined by the IRS to be so
qualified and, to the Company's knowledge, nothing has occurred to cause
the loss of such qualified status.
(s) HSR Compliance. The Parent is not a person (nor is it
--------------
included in a person), that has total assets of $100 million or more or
annual net sales of $100 million or more, within the meaning of, and all as
determined in accordance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
ARTICLE V
CONDUCT OF BUSINESS OF COMPANY
Section 5.1 Conduct of Business of Company. Except as expressly provided
------------------------------
for herein (including, without limitation, Section 6.9 hereof relating to
Company Options), during the period from the date of this Agreement to the
Effective Time, Company shall, and shall cause each of its Subsidiaries to, act
and carry on its business only in the ordinary course of business consistent
with past practice and, to the extent consistent therewith, use reasonable best
efforts to preserve intact its current business organizations, keep available
the services of its current key officers and employees and preserve the goodwill
of those engaged in material business relationships with Company, and to that
end, without limiting the generality of the foregoing, Company shall not, and
shall not permit any of its Subsidiaries to, without the prior written consent
of Parent:
(a) (i) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, securities or other property) in
respect of, any of its outstanding capital stock (other than, with respect
to a Subsidiary of Company, to its corporate Parent), (ii) split, combine
or reclassify any of its outstanding 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 outstanding capital stock, or (iii)
purchase, redeem or otherwise acquire any shares of its outstanding capital
stock or any rights, warrants or options to acquire any such shares,
except, in the case of this clause (iii), for the acquisition of Shares
from holders of Company Options in full or partial payment of the exercise
price payable by such holder upon exercise of Company Options;
(b) issue, sell, grant, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into or exchangeable for, or any rights, warrants or options to
acquire, any such shares, voting securities or
35
<PAGE>
convertible or exchangeable securities, other than upon the exercise of
Company Options outstanding on the date of this Agreement;
(c) amend its articles of incorporation, bylaws or other
comparable charter or organizational documents;
(d) directly or indirectly acquire, make any investment in, or
make any capital contributions to, any person other than in the ordinary
course of business consistent with past practice;
(e) directly or indirectly sell, pledge or otherwise dispose of or
encumber any of its properties or assets that are material to its business,
except for sales, pledges or other dispositions or encumbrances in the
ordinary course of business consistent with past practice;
(f) (i) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, other than indebtedness owing to or
guarantees of indebtedness owing to Company or any direct or indirect
wholly owned Subsidiary of Company, or (ii) make any loans or advances to
any other person, other than to Company or to any direct or indirect wholly
owned Subsidiary of Company and other than routine travel advances to
employees or customer trade credit consistent with past practice, except,
in the case of clause (i), for borrowings under existing credit facilities
described in the Filed SEC Documents in the ordinary course of business
consistent with past practice;
(g) grant or agree to grant to any officer, employee or consultant
any increase in wages or bonus, severance, profit sharing, retirement,
deferred compensation, insurance or other compensation or benefits, or
establish any new compensation or benefit plans or arrangements, or amend
or agree to amend any existing Company Plans, except as may be required
under existing agreements or by law and normal, regularly scheduled
increases in respect of non-officer employees consistent with past
practices;
(h) enter into or amend any employment, consulting, severance or
similar agreement with any individual, except with respect to new hires of
nonofficer employees in the ordinary course of business consistent with
past practice;
(i) adopt or enter into a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other material reorganization or any agreement relating to an Acquisition
Proposal (as defined in Section 6.3);
(j) make any tax election or settle or compromise any income tax
liability of Company or of any of its Subsidiaries involving on an
individual basis more than $50,000;
(k) make any change in any method of accounting or accounting
practice or policy, except as required by any changes in generally accepted
accounting principles;
36
<PAGE>
(l) enter into any agreement, understanding or commitment that
restrains, limits or impedes Company's ability to compete with or conduct
any business or line of business, except for any such agreement,
understanding or commitment entered into in the ordinary course of business
consistent with past practice;
(m) plan, announce, implement or effect any reduction in force,
lay-off, early retirement program, severance program or other program or
effort concerning the termination of employment of employees of Company or
its Subsidiaries;
(n) except as previously approved by the Board of Directors of
Company prior to the date hereof and as identified to Parent prior to the
date hereof, authorize or commit to make capital expenditures in excess of
$75,000;
(o) amend the Company Rights Plan except as required by this
Agreement; or
(p) authorize any of, or commit or agree to take any of, the
foregoing actions in respect of which it is restricted by the provisions of this
Section 5.1.
ARTICLE VI
ADDITIONAL COVENANTS
Section 6.1 Preparation of the Joint Proxy Statement/Prospectus and Form
------------------------------------------------------------
S-4. As soon as practicable following the date hereof:
- ---
(a) Company and Parent shall jointly prepare for inclusion in the
Form S-4 a joint proxy statement/prospectus (the "Joint Proxy
Statement/Prospectus") relating to the Merger in accordance with the
Securities Act and the Exchange Act and the rules and regulations under the
Securities Act and the Exchange Act, with respect to the transactions
contemplated hereby. Company, Parent and Merger Sub shall cooperate with
each other in the preparation of the Joint Proxy Statement/Prospectus.
Company and Parent shall use all reasonable efforts to respond promptly to
any comments made by the SEC with respect to the Joint Proxy
Statement/Prospectus, to cause the Form S-4 to be declared effective under
the Securities Act as promptly as practicable after the filing thereof with
the SEC and to cause the Joint Proxy Statement/Prospectus to be mailed to
the stockholders of Parent and Company at the earliest practicable date
after the Form S-4 is declared effective by the SEC.
(b) Parent shall prepare and file with the SEC the Form S-4. Each
of Company and Parent shall use all reasonable efforts to have the Form S-4
declared effective under the Securities Act as promptly as practicable
after such filing. Parent shall also take any action (other than qualifying
to do business in any jurisdiction in which it is not now so qualified)
required to be taken under any applicable state securities laws in
connection with the issuance of Common Stock in the Merger, and Company
shall furnish all information concerning Company and the holders of the
Shares as may be reasonably requested in connection with any such action.
37
<PAGE>
(c) The Company agrees that none of the information supplied or to
be supplied by Company specifically for inclusion or incorporation by
reference in, or which may be deemed to be incorporated by reference in,
(i) the registration statement on Form S-4 to be filed with the SEC by
Parent in connection with the issuance by Parent of shares of Common Stock
in the Merger (the "Form S-4") will, at the time the Form S-4 becomes
effective under the Securities Act and at any time thereafter it is amended
or supplemented, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, or (ii) the Joint Proxy
Statement/Prospectus will, at the time it is mailed to the stockholders of
each of Company and Parent, and at any time thereafter it is amended or
supplemented, and at the time of the Company Stockholders Meeting and
Parent Stockholders Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, at the time and in light
of the circumstances under which they are made, not misleading. The Company
agrees that the Joint Proxy Statement/Prospectus will comply as to form in
all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations thereunder, except with respect
to statements made or incorporated by reference therein based on
information supplied by Parent or Merger Sub specifically for inclusion or
incorporation by reference therein, or which may be deemed to be
incorporated by reference therein.
(d) Parent and Merger Sub each agrees that none of the information
supplied or to be supplied by Parent or Merger Sub for inclusion or
incorporation by reference in, or which may be deemed to be incorporated by
reference in, (i) the Form S-4 will, at the time the Form S-4 becomes
effective under the Securities Act and at anytime thereafter it is amended
or supplemented, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, or (ii) the Joint Proxy
Statement/Prospectus will, at the time it is mailed to the stockholders of
each of Parent and Company and at any time thereafter it is amended or
supplemented, and at the time of the Company Stockholders Meeting and
Parent Stockholder Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, at the time and in light
of the circumstances under which they are made, not misleading. Parent and
Merger Sub each agrees that the Form S-4 and the Joint Proxy
Statement/Prospectus will comply as to form in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules
and regulations thereunder, except with respect to statements made or
incorporated by reference therein based on information supplied by Company
specifically for inclusion or incorporation by reference therein, or which
may be deemed to be incorporated by reference therein.
Section 6.2 Accountants' Letters.
--------------------
(a) Company shall use its best efforts to cause to be delivered to
Parent a "comfort" letter of PricewaterhouseCoopers LLP, Company's
independent public accountants, dated a date within two business days
before the date on which the Form S-4
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shall become effective, and a "comfort" letter of PricewaterhouseCoopers
LLP, dated a date within two business days before the Closing Date, each
addressed to Company and Parent, related to the performance by
PricewaterhouseCoopers LLP of its procedures with respect to the financial
statements and other financial information contained in or incorporated by
reference in the Form S-4, in form and substance reasonably satisfactory to
Parent and customary in scope and substance for letters delivered by
independent accountants in connection with registration statements similar
to the Form S-4.
(b) Parent shall use its best efforts to cause to be delivered to
Company a "comfort" letter of PricewaterhouseCoopers LLP, Parent's
independent public accountants, dated a date within two business days
before the date on which the Form S-4 shall become effective, and a
"comfort" letter of PricewaterhouseCoopers LLP, dated a date within two
business days before the Closing Date, each addressed to Company and
Parent, relating to the performance by PricewaterhouseCoopers LLP of its
procedures with respect to the financial statements and other financial
information of Parent contained in or incorporated by reference in the Form
S-4, in form and substance reasonably satisfactory to Company and customary
in scope and substance for letters delivered by independent accountants in
connection with registration statements similar to the Form S-4.
Section 6.3 Stockholders Meeting; Board Recommendation.
------------------------------------------
(a) Company shall take all action necessary, in accordance with
the VSCA, the Exchange Act and other applicable law and its articles of
incorporation and bylaws, to convene and hold a special meeting of the
stockholders of Company (the "Company Stockholders Meeting") as promptly as
practicable after the date hereof for the purpose of considering and voting
upon this Agreement and to solicit proxies pursuant to the Joint Proxy
Statement/Prospectus in connection therewith. Company shall ensure that the
Company Stockholders Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited in connection with the Company
Stockholders Meeting are solicited, in compliance with all applicable legal
requirements. Notwithstanding Section 6.3(c), Company's obligation to call,
give notice of, convene and hold the Company Stockholders Meeting in
accordance with this Section 6.3(a) shall not be limited or otherwise
affected by the commencement, disclosure, announcement or submission of any
Superior Offer (as defined below) or other Acquisition Proposal (as defined
below), or by any withdrawal, amendment or modification of the
recommendation of the Board of Directors of Company with respect to the
Merger.
(b) Subject only to Section 6.3(c) hereof: (i) the Board of
Directors of Company shall unanimously recommend that Company's
stockholders vote in favor of and adopt and approve this Agreement and
approve the Merger at the Company Stockholders Meeting; (ii) the Joint
Proxy Statement/Prospectus shall include a statement to the effect that the
Board of Directors of Company has unanimously recommended that Company's
stockholders vote in favor of and adopt and approve this Agreement and
approve the Merger at the Company Stockholders Meeting; and (iii) neither
the Board of Directors of Company nor any committee thereof shall withdraw,
amend or modify, or
39
<PAGE>
propose or resolve to withdraw, amend or modify, in a manner adverse to
Parent, the unanimous recommendation of the Board of Directors of Company
that Company's stockholders vote in favor of and adopt and approve this
Agreement and approve the Merger. For purposes of this Agreement, said
recommendation of the Board of Directors of Company shall be deemed to have
been modified in a manner adverse to Parent if said recommendation shall no
longer be unanimous.
(c) Nothing in Section 6.3(b) shall prevent the Board of Directors
of Company from withdrawing, amending or modifying its unanimous
recommendation in favor of the Merger at any time prior to the adoption and
approval of this Agreement by Company's stockholders if (i) a Superior
Offer is made to Company and is not withdrawn, (ii) neither Company nor any
of its directors, officers, affiliates, or legal or financial advisors
("Representatives") shall have violated any of the covenants set forth in
this Section 6.7, (iii) the Board of Directors of Company concludes in good
faith, after and based upon consultation with its outside counsel, that, in
light of such Superior Offer, the withdrawal, amendment or modification of
such recommendation is required in order for the Board of Directors of
Company to comply with its fiduciary obligations to Company's stockholders
under applicable law, and (iv) Company provides Parent with at least five
business days prior written notice of any meeting or written consent of
Company's Board of Directors at which such Board of Directors is expected
to consider or act upon such Superior Offer, which notice shall include a
copy of such Superior Offer with the name of the person making such
Superior Offer.
(d) For purposes of this Agreement, "Acquisition Proposal" means
an inquiry, offer or proposal regarding any of the following (other than
the transactions contemplated by this Agreement) involving Company or its
Subsidiaries: (i) any merger, reorganization, consolidation, share
exchange, recapitalization, business combination, liquidation, dissolution,
or other similar transaction involving, or, any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of, all or any significant
portion of the assets or 20% or more of the equity securities of, Company
or any of its Subsidiaries, in a single transaction or series of related
transactions which could reasonably be expected to interfere with the
completion of the Merger; (ii) any tender offer or exchange offer for 20%
or more of the outstanding shares of capital stock of Company or the filing
of a registration statement under the Securities Act in connection
therewith; or (iii) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of
the foregoing.
(e) For purposes of this Agreement, a "Superior Offer" means an
unsolicited, bona fide written offer with respect to an Acquisition
Proposal made by a third person that the Board of Directors of Company
determines in its good faith judgment (based upon the written advice of its
financial advisor and a copy of which shall have been provided to Parent)
to be more favorable generally to Company's stockholders than the Merger,
taking into account all financial and strategic considerations, including
relevant legal, financial, regulatory and other aspects of such proposal,
and the conditions to and prospects for completion of such proposal than
the Merger; provided, however, that any such offer shall not be deemed to
be a "Superior Offer" if any financing required to
40
<PAGE>
complete the transaction contemplated by such offer is not fully committed
unless, in the good faith determination of the Board of Directors of
Company, such financing is likely to be obtained by such party on a timely
basis.
(f) Nothing contained in this Section 6.3 shall prohibit Company
from taking and disclosing to its stockholders a position contemplated by
Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act or from making
any disclosure to Company's stockholders which, in the good faith judgment
of the Board of Directors of Company after consultation with outside
counsel, is required under applicable law; provided that Company does not
--------
withdraw or modify, or propose to withdraw or modify, its position with
respect to the Merger or approve or recommend, or propose to approve or
recommend, an Acquisition Proposal unless Company and its Board of
Directors have complied with all the provisions of this Article VI.
Section 6.4 Access to Information, Confidentiality.
--------------------------------------
(a) Upon reasonable notice, Company shall, and shall cause each of
its Subsidiaries to, afford to Parent and to Parent's officers, employees,
counsel, financial advisors and other representatives access during the
period prior to the Effective Time to all its properties, books, contracts,
commitments, Returns, personnel and records and, during such period,
Company shall, and shall cause each of its Subsidiaries to, furnish as
promptly as practicable to Parent such information concerning its business,
properties, financial condition, operations and personnel as Parent may
from time to time reasonably request. Any such investigation by Parent
shall not affect the representations or warranties contained in this
Agreement. Except as required by law, Parent will hold, and will cause its
directors, officers, employees, accountants, counsel, financial advisors
and other representatives and affiliates to hold, any non-public
information obtained from Company in confidence to the extent required by,
and in accordance with the provisions of, the letter agreement dated August
17, 1999, between Parent and Company with respect to confidentiality and
other matters, and Parent agrees that, prior to the Effective Time, it will
not use any such non-public information to, directly or indirectly, divert
or attempt to divert any business, customer or employee of Company or any
of its Subsidiaries.
(b) Upon reasonable notice, Parent shall, and shall cause each of
its Subsidiaries to, afford to Company and to Company's officers,
employees, counsel, financial advisors and other representatives access
during the period prior to the Effective Time to all its properties, books,
contracts, commitments, Returns, personnel and records and, during such
period, Parent shall, and shall cause each of its Subsidiaries to, furnish
as promptly as practicable to Company such information concerning its
business, properties, financial condition, operations and personnel as
Company may from time to time reasonably request. Any such investigation by
Company shall not affect the representations or warranties contained in
this Agreement. Except as required by law, Company will hold, and will
cause its directors, officers, employees, accountants, counsel, financial
advisors and other representatives and affiliates to hold, any non-public
information obtained from Parent in confidence to the extent required by,
and in
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accordance with the provisions of, the letter agreement, dated August 17,
1999, between Parent and Company with respect to confidentiality and other
matters, and Company agrees that, prior to the Effective Time, it will not
use any such non-public information to, directly or indirectly, divert or
attempt to divert any business, customer or employee of Parent or any of
its Subsidiaries.
Section 6.5 Reasonable Best Efforts. On the terms and subject to the
-----------------------
conditions set forth in this Agreement, each of the Parties shall use its
reasonable best efforts to take, or cause to be taken, all actions, and do, or
cause to be done, and assist and cooperate with the other Parties in doing, all
things necessary, proper or advisable (a) to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated hereby, including the satisfaction of the respective conditions set
forth in Article VII, (b) to facilitate the ability of Parent and the Surviving
Corporation to obtain facility security clearances from the appropriate
Government Entities for each of Company's facilities currently having such
facility security clearances and appropriate security clearances for personnel
of the Surviving Corporation, (c) to avoid the termination for convenience by
any Governmental Entity or non-renewal of any Government Contract, and (d) to
maintain Company's current customer relationships.
Section 6.6 Public Announcements. Parent and Merger Sub, on the one hand,
--------------------
and Company, on the other hand, shall consult with each other before issuing,
and provide each other the opportunity to review and comment upon, any press
release, SEC filing (including without limitation the Form S-4 and the Joint
Proxy Statement/Prospectus) or other public statements with respect to the
transactions contemplated hereby, including the Merger, and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by applicable law, by court process or by obligations
pursuant to the rules of The Nasdaq Stock Market.
Section 6.7 No Solicitation; Acquisition Proposals.
--------------------------------------
(a) From the date of this Agreement until the earlier of the
Effective Time or termination of this Agreement pursuant to Article VIII
and subject only to Section 6.7(b) of this Agreement, Company shall not
directly or indirectly, and shall not authorize or permit any
Representative of Company directly or indirectly to:
(i) solicit, initiate, knowingly encourage or knowingly
induce the making, submission or announcement of any Acquisition
Proposal or take any action that could reasonably be expected to lead
to an Acquisition Proposal;
(ii) furnish any non-public information regarding Company to
any person in connection with or in response to an Acquisition
Proposal;
(iii) engage in discussions or negotiations with any person
with respect to any Acquisition Proposal;
(iv) approve, endorse or recommend any Acquisition Proposal;
or
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(v) enter into any letter of intent or similar document or
any contract, agreement, commitment or understanding, written or oral,
contemplating or otherwise relating to any Acquisition Proposal.
Without limiting the generality of the foregoing, Company acknowledges
and agrees that any violation of any of the restrictions set forth in this
Section by any Representative of Company, whether or not such
Representative is purporting to act on behalf of Company, shall be deemed
to constitute a breach of this Section 6.7 by Company. In addition to the
foregoing, Company shall provide Parent with at least five business days
prior written notice of any meeting of Company's Board of Directors at
which Company's Board of Directors is reasonably expected to consider a
Superior Offer.
Nothing in this Section 6.7(a) shall prevent the Company from filing
with the SEC a report on Form 8-K with respect to this Agreement.
(b) Nothing in Section 6.7(a) shall prevent Company, prior to the
adoption and approval of this Agreement by Company's stockholders, from
furnishing non-public information regarding Company to, or entering into
discussions with, any person in response to a Superior Offer that is
submitted by such person and not withdrawn if, in either case:
(i) neither Company nor any Representative of Company shall
have breached any of the covenants set forth in this Section 6.7;
(ii) the Board of Directors of Company concludes in good
faith, after and based upon consultation with its outside legal
counsel, that such action is required in order for the Board of
Directors of Company to comply with its fiduciary obligations to
Company's stockholders under applicable law;
(iii) at least five business days prior to furnishing any
such non-public information to, or entering into discussions with,
such person, Company gives Parent written notice of the discussions
with such person;
(iv) Company receives from such person an executed
confidentiality agreement containing customary limitations on the use
and disclosure of all non-public written and oral information
furnished to such person by or on behalf of Company, including
standstill provisions no less favorable to Company then such
agreements between Company and Parent; and
(v) five business days prior to furnishing any such non-
public information to such person, Company furnishes such non-public
information to Parent or, if such non-public information has
previously been provided to Parent, specifically identifies the non-
public information to be furnished to such third party.
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<PAGE>
(c) Company shall promptly (and in any event, within 24 hours)
advise Parent orally and in writing of any request for information or of
any Acquisition Proposal, or any inquiry with respect to or which could
reasonably be expected to lead to any Acquisition Proposal, the material
terms and conditions of such request, Acquisition Proposal or inquiry, and
the identity of the person making any such Acquisition Proposal or inquiry.
Company shall keep Parent fully informed of the status and details of any
such request, Acquisition Proposal or inquiry.
Section 6.8 Consents, Approvals and Filings. Upon the terms and subject
-------------------------------
to the conditions hereof, each of the parties hereto shall (a) make promptly its
respective filings, and thereafter make any other required submissions under the
Securities Act and the Exchange Act, with respect to the Merger and the other
transactions contemplated hereby, and (b) use its reasonable best efforts to
take, or cause to be taken, all appropriate action, and to do, or cause to be
done, and assist and cooperate with the other Parties in doing, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Merger and the other transactions contemplated
hereby, including without limitation using its reasonable best efforts to obtain
all licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Entities and parties to contracts with Company and its
Subsidiaries as are necessary for the consummation of the Merger and the other
transactions contemplated hereby and to fulfill the conditions to the Merger;
provided, however, that in no event shall Parent or any of its Subsidiaries be
- -------- -------
required to agree or commit to divest, hold separate, offer for sale, abandon,
limit its operation or similar action with respect to any material assets
(tangible or intangible) or any business interest of it or any of its
Subsidiaries (including, without limitation, the Surviving Corporation after
consummation of the Merger) in connection with or as a condition to receiving
the consent or approval of any Governmental Entity (including, without
limitation, under the HSR Act). In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall use their reasonable best efforts to take all such action.
Section 6.9 Company Options.
---------------
(a) Company shall use its best efforts (without the expenditure of
funds) to encourage all holders of Company Options to exercise their vested
Company Options prior to the Effective Time. To the extent that Parent in
its discretion deems it appropriate to grant options to purchase Parent
Common Stock ("Parent Options") as of the Effective Time to a person
holding Company Options prior to the Effective Time, Company shall use its
best efforts (without the expenditure of funds) to encourage such holder of
Company Options to accept the Parent Options on the terms and conditions
proposed by Parent and agree to forfeit and cancel all unexercised Company
Options held by such holder as of the Effective Time. Parent agrees to
identify to Company the holders of Company Options to be granted Parent
Options contingent upon the cancellation of Company Options as of the
Effective Time, and the material terms of the Parent Options to be granted,
sufficiently prior to the Effective Time to communicate this information to
the holders of such Company Options.
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(b) Subject to the terms of this Agreement, at the Effective Time,
all remaining rights with respect to Shares of Company under each Company
Option then outstanding, whether vested or unvested, shall be converted
into and become rights with respect to Parent Common Stock, and Parent
shall assume each such Company Option in accordance with the terms (as in
effect as of the date of this Agreement) of the stock option plan under
which it was issued and the stock option agreement by which it is
evidenced. From and after the Effective Time, (i) each Company Option
assumed by Parent may be exercised solely for shares of Parent Common
Stock, (ii) the number of shares of Parent Common Stock subject to each
such Company Option shall be equal to the number of Shares subject to such
Company Option immediately prior to the Effective Time multiplied by the
Option Exchange Ratio (as defined below), rounded down to the nearest whole
share, (iii) the per share exercise price under each such Company Option
shall be adjusted by dividing the per share exercise price under such
Company Option by the Option Exchange Ratio and rounded up to the nearest
cent and (iv) any restriction on the exercise of any such Company Option
shall continue in full force and effect and the term, exercisability,
vesting schedule and other provisions of such Company Option shall
otherwise remain unchanged; provided, however, that each Company Option
-------- -------
assumed by Parent in accordance with this Section 6.9(b) shall, in
accordance with its terms, be subject to further adjustment as appropriate
to reflect any stock split, division or subdivision of shares, stock
dividend, reverse stock split, consolidation of shares, reclassification,
recapitalization or other similar transaction subsequent to the Effective
Time. For purposes of this Section, "Option Exchange Ratio" means the
ratio of (x) the sum of $4.00, plus the product of the Exchange Ratio
multiplied by the Average Trading Price, divided by (y) the Average Trading
Price.
(c) Company shall take all action that may be necessary (under the
plans pursuant to which Company Options are outstanding and otherwise) to
effectuate the provisions of this Section 6.9 and to ensure that, from and
after the Effective Time, holders of Company Options have no rights with
respect thereto other than those specifically provided in this Section 6.9.
Following the Closing Date, Parent will send to each holder of an assumed
Company Option a written notice setting forth (i) the number of shares of
Parent Common Stock subject to each assumed Company Option and (ii) the
exercise price per share of Parent Common Stock issuable upon exercise of
the assumed Company Option. It is the intention of the Parties that the
Company Options assumed by Parent qualify following the Effective Time as
incentive stock options (as defined in Section 422 of the Code) to the
extent that such Company Options qualified as incentive stock options
immediately prior to the Effective Time. Parent shall take all necessary
corporate action to reserve for issuance a sufficient number of shares of
Parent Common Stock for delivery upon exercise of Company Options assumed
in accordance with this Section 6.9. Within 60 days following the
Effective Time, Parent shall file with the SEC a registration statement on
Form S-8 relating to the shares of Parent Common Stock issuable with
respect to Company Options assumed by Parent in accordance with this
Section 6.9.
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Section 6.10 Employee Benefit Matters.
------------------------
(a) Participants in any Company Plans that have been disclosed in
Section 4.1(p) of the Disclosure Schedule and are in effect at the
Effective Time will continue to be sponsored by and maintained without
material change (except as required by law) by the Parent and Surviving
Corporation until such time as those Company Plans are merged into Parent's
benefit plans or the participants in the Company Plan otherwise become
covered under the Parent's benefit plans. Parent shall, and shall cause
its Subsidiaries following the Effective Time (including the Surviving
Corporation) to, honor and provide for prompt payment of all accrued
obligations and benefits under all Company Plans and employment or
severance agreements between Company and persons who are or had been
employees of Company or any of its Subsidiaries at or prior to the
Effective Time ("Covered Employees") that are specifically identified in
the Disclosure Schedule, all in accordance with their respective terms.
(b) If Covered Employees are included in any benefit plan of
Parent or its Subsidiaries, Parent agrees that the Covered Employees shall
receive credit under such plan (other than any such plan providing for
sabbaticals) for service prior to the Effective Time with Company and its
Subsidiaries to the same extent such service was counted under similar
Company Plans for purposes of eligibility, vesting, eligibility for
retirement (but not for benefit accrual) and, with respect to vacation,
disability and severance, benefit accrual. If Covered Employees are
included in any medical, dental or health plan other than the plan or plans
they participated in at the Effective Time, Parent agrees that any such
plans shall not include pre-existing condition exclusions, except to the
extent such exclusions were applicable under the similar Company Plan at
the Effective Time, and shall provide credit for any deductibles and co-
payments applied or made with respect to each Covered Employee in the
calendar year of the change.
(c) Notwithstanding anything in this Agreement to the contrary,
from and after the Effective Time, the Surviving Corporation will have sole
discretion over the hiring, promotion, retention, firing and other terms
and conditions of the employment of employees of the Surviving Corporation.
Except as otherwise provided in this Section 6.10, nothing herein shall
prevent Parent or the Surviving Corporation from amending or terminating
any Company Plan in accordance with its terms.
Section 6.11 Affiliates and Certain Stockholders. Prior to the Closing
-----------------------------------
Date, Company shall deliver to Parent a letter identifying all persons who are,
at the time the Merger is submitted for approval to the stockholders of Company,
"affiliates" of Company for purposes of Rule 145 under the Securities Act.
Company shall use its best efforts to cause each such person to deliver to
Parent on or prior to the Closing Date a written agreement substantially in the
form attached as Exhibit A hereto. Parent shall not be required to maintain the
effectiveness of the Form S-4 or any other registration statement under the
Securities Act for the purposes of resale of Common Stock by such affiliates,
and the certificates representing Common Stock received by such affiliates in
the Merger shall bear a customary legend regarding applicable Securities Act
restrictions.
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Section 6.12 Nasdaq Listing. Parent shall use its best efforts to cause
--------------
the shares of Common Stock to be issued in the Merger to be approved for listing
on The Nasdaq Stock Market, subject to official notice of issuance, prior to the
Closing Date.
Section 6.13 Rights Agreement. The Board of Directors of Company shall
----------------
take all further action (in addition to that referred to in Section 4.1(s))
requested in writing by Parent in order to render the Rights inapplicable to (a)
the Merger and the other transactions contemplated by this Agreement and the
Stockholders Agreement, and (b) Company following the Effective Time. Except as
provided above with respect to the Merger and the other transactions
contemplated by this Agreement and the Stockholders Agreement, the Board of
Directors of Company shall not, without the consent of Parent (i) amend the
Rights Agreement, or (ii) take any action with respect to, or make any
determination under, the Rights Agreement, including a redemption of the rights
or any action to facilitate an Acquisition Proposal.
Section 6.14 Indemnification and Insurance.
-----------------------------
(a) From and after the Effective Time, Parent will cause the
Surviving Corporation to fulfill and honor in all respects the obligations
of Company pursuant to (i) each indemnification agreement currently in
effect between Company and each person who is or was a director or officer
of Company at or prior to the Effective Time and (ii) any indemnification
provision under Company's articles of incorporation or bylaws as each is in
effect on the date hereof (the persons to be indemnified pursuant to the
agreements or provisions referred to in clauses (i) and (ii) of this
Section 6.14 shall be referred to as, collectively, the "Indemnified
Parties"). The certificate of incorporation and bylaws of Merger Sub will
provide for indemnification to the fullest extent permitted by law.
(b) For six years after the Effective Time, Parent shall maintain
in effect the current level and scope of directors' and officers' liability
insurance covering those persons who are currently covered by Company's
directors' and officers' liability insurance policy; provided, however,
that in no event shall Parent be required to expend in any one year an
amount in excess of 125% of the annual premium currently paid by Company
for such insurance, and provided, further, that if the annual premiums of
such insurance coverage exceed such amount, Parent shall be obligated to
obtain a policy with the greatest coverage available for a cost not
exceeding such amount.
(c) This Section 6.14 shall survive the consummation of the Merger
and the Effective Time, is intended to benefit and may be enforced by
Company, Parent, the Surviving Corporation and the Indemnified Parties, and
shall be binding on all successors and assigns of Parent and the Surviving
Corporation.
Section 6.15 Tax Treatment. Except as may be required by the terms of this
-------------
Agreement, each of Parent and Company shall not (before or after the Effective
Time) take any action and shall not (before or after the Effective Time) fail to
take any action which action or failure to act would prevent, or would be
reasonably likely to prevent, the Merger from qualifying as a reorganization
within the meaning of Section 368 of the Code. At or prior to the filing of the
Form S-4, Company and Parent shall execute and deliver to Cooley Godward LLP
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and to Powell, Goldstein, Frazer & Murphy LLP tax representation letters in
customary form. Parent, Merger Sub and Company shall each confirm to Cooley
Godward LLP and to Powell, Goldstein, Frazer & Murphy LLP the accuracy and
completeness as of the Effective Time of the tax representation letters
delivered pursuant to the immediately preceding sentence. Following delivery of
such tax representation letters, each of Parent and Company shall use its
reasonable best efforts to cause Cooley Godward LLP and Powell, Goldstein,
Frazer & Murphy LLP to deliver to it a tax opinion satisfying the requirements
of Item 601 of Regulation S-K promulgated under the Securities Act. In rendering
such opinions, each of such counsel shall be entitled to rely on the tax
representation letters referred to in this Section 6.15.
Section 6.16 Subsidiaries' Directors and Officers. To the extent
------------------------------------
requested by Parent, Company shall use its reasonable best efforts to obtain and
deliver to Parent prior to the Closing Date the resignation of each director and
officer of each of Company's Subsidiaries.
Section 6.17 Stockholders Agreement. Company shall use its reasonable best
----------------------
efforts to cause Alcatel, N.V. to execute the Stockholders Agreement promptly.
Section 6.18 Financing. Parent shall use its reasonable best efforts to
---------
obtain, and Company shall use its reasonable best efforts to cooperate with
Parent in obtaining, the Financing described in the Commitment Letter.
Section 6.19 Employment Agreements and Noncompetition Agreements. Company
---------------------------------------------------
shall use its reasonable best efforts to cause the persons listed in Section
6.19 of the Disclosure Schedule to execute and deliver, prior to the Effective
Time, Employment Agreements and Noncompetition Agreements on terms reasonably
satisfactory to Parent and such persons.
Section 6.20 Tax Matters. Parent shall use its reasonable best efforts to
-----------
provide Parent and Merger Sub with the documentation described in Section 7.2(k)
with respect to the full amount of the federal income tax deduction referred to
in Section 7.2(k).
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.
----------------------------------------------------------
The respective obligation of each party to effect the Merger is subject to the
satisfaction or written waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been adopted
--------------------
by the affirmative vote of holders of the requisite number of Shares, and
the issuance of Parent Common Stock in the Merger pursuant to this
Agreement and an increase in the number of shares of Parent Common Stock
subject to awards under Parent's 1997 Stock Option Plan shall have been
approved by the affirmative vote of holders of the requisite number of
shares of Parent Common Stock, each in the manner required pursuant to each
of
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Parent's and Company's respective certificate or articles of incorporation
and the DGCL, the VSCA, the rules of The Nasdaq Stock Market and other
applicable laws.
(b) No Injunctions or Restraints. No temporary restraining order,
----------------------------
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect, and there shall not be
pending or threatened by any Governmental Entities any suit, action or
proceeding seeking to restrain or prohibit the Merger; provided, however,
-------- -------
that the party invoking this condition shall have complied with its
obligations under Section 6.8.
(c) Nasdaq Listing. The shares of Common Stock issuable to
--------------
Company's stockholders pursuant to the Merger shall have been approved for
listing on The Nasdaq Stock Market, subject to official notice of issuance.
(d) Form S-4. The Form S-4 shall have been declared effective
--------
under the Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
Section 7.2 Conditions to Obligations of Parent and Merger Sub. The
--------------------------------------------------
obligation of each of Parent and Merger Sub to effect the Merger is further
subject to satisfaction or written waiver on or prior to the Closing Date of the
following conditions:
(a) Representations and Warranties. Representations and
------------------------------
warranties of Company contained in this Agreement (other than
representations and warranties expressly made only as of a specific date,
which shall be accurate as of such date) shall have been accurate in all
respects as of the date of this Agreement and shall be accurate in all
respects as of the Closing Date as if made on and as of the Closing Date
(it being understood that, for purposes of determining the accuracy of such
representations and warranties, all materiality qualifications contained in
such representations and warranties shall be disregarded), except for any
such failure which, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect on Company, and Parent and
Merger Sub shall have received a certificate signed on behalf of Company by
an authorized officer of Company to such effect.
(b) Performance of Obligations of Company. Company shall have
-------------------------------------
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent and
Merger Sub shall have received a certificate signed on behalf of Company by
an authorized officer of Company to such effect.
(c) No Material Adverse Change. Since the date of this Agreement,
--------------------------
Company and its Subsidiaries, taken as a whole, shall not have experienced
any change, event or occurrence that has had or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect on Company.
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(d) Consents. All consents, authorizations, orders and approvals
--------
of (or filings or registrations with) any Governmental Entity or any other
person required to be obtained or made prior to the Effective Time in
connection with the execution, delivery and performance of this Agreement
shall have been obtained or made, except for the filing of the articles of
merger pursuant to Section 1.3 and except where the failure to have
obtained or made such consents, authorizations, orders, approvals, filings
or registrations could not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Parent or the Surviving
Corporation.
(e) Affiliate Letters. Parent shall have received from each
-----------------
person identified as an "affiliate" of Company pursuant to Section 6.11 an
executed copy of an agreement in the form attached as Exhibit B hereto.
---------
(f) Comfort Letters. Parent shall have received "comfort" letters
---------------
from PricewaterhouseCoopers LLP, Company's independent public accountants,
dated a date within two business days before the date on which the Form S-4
shall become effective, and a date within two business days of the Closing
Date (or such other date reasonably acceptable to Parent) with respect to
certain financial statements and other financial information included in
the Form S-4 in customary form.
(g) Tax Opinion. The opinion of Powell, Goldstein, Frazer &
-----------
Murphy LLP, counsel to Parent, in form and substance reasonably
satisfactory to Parent, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and based
on the letters referred to in Section 6.15, shall have been delivered to
Parent and not have been withdrawn or modified in any material respect;
provided, however, that if Powell, Goldstein, Frazer & Murphy LLP does not
render such opinion or withdraws or modifies such opinion, this condition
shall nonetheless be deemed to be satisfied if counsel to Company or
special tax counsel reasonably acceptable to Parent renders such opinion to
Parent. In rendering such opinion, such firm may rely on such
representations, warranties and certificates as it deems reasonable or
appropriate under the circumstances.
(h) Government Contracts. No authorized representative of a
--------------------
Governmental Entity shall have notified Parent or Company that such
Governmental Entity (i) intends to terminate any of the Government
Contracts or does not intend to renew any Government Contract, or (ii)
anticipates that facility security clearances will not be granted to the
Surviving Corporation following the Effective Time for Company facilities
currently having such clearance, nor shall any Party have a good faith
reason to believe that any existing Government Contract will be terminated
for convenience of the government or not renewed or facility security
clearances withheld from the Surviving Corporation, assuming that in each
case Parent complies with applicable rules and regulations and uses its
reasonable best efforts to maintain the Government Contracts and obtain
facility security clearances. Parent shall have received a certificate
signed on behalf of Company by Joseph M. Fox and Joseph Kelly Brown to such
effect, as it relates to Company.
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(i) Additional Closing Documents. Company shall have furnished to
----------------------------
Parent and Merger Sub such additional certificates, opinions and other
documents as Parent may have reasonably requested as to any of the
conditions set forth in this Section 7.2.
(j) Dissenting Shares. Holders of not more than one percent (1%)
-----------------
of the outstanding Shares shall have perfected dissenters' rights of their
Shares in the manner required by the VSCA.
(k) Tax Matters. The Company shall have provided Parent and
-----------
Merger Sub with evidence establishing that an amount equal to at least 60%
of the total claimed by Company as a federal income tax deduction on the
Company's U.S. corporation income tax return (Form 1120) for its taxable
year ended November 30,1997, for income recognized by employees of the
Company from disqualifying dispositions (within the meaning of Section
422(a) of the Code) of Company stock that was acquired by such employees
upon the exercise of incentive stock options (as defined in Section 422(b)
of the Code) that were granted to the employees by the Company has either
been included (a) on one or more Forms W-2 or W-2c (for the calendar year
1996) issued by the Company to its employees or (b) in one or more
affidavits executed by Company employees, which state, under penalties of
perjury, that the signatory has included the income from the disqualifying
disposition on his or her federal income tax return for the calendar year
1996 and paid the proper amount of tax with respect thereto.
Section 7.3 Conditions to Obligation of Company. The obligation of
------------------------------------
Company to effect the Merger is further subject to satisfaction or written
waiver on or prior to the Closing Date of the following conditions:
(a) The representations and warranties of Parent and Merger Sub
contained in this Agreement (other than representations and warranties
expressly made as of a certain date, which shall be accurate as of such
date) shall have been accurate in all respects as of the date of this
Agreement and shall be accurate in all respects as of the Closing Date as
if made on and as of the Closing Date (it being understood that, for
purposes of determining the accuracy of such representations and
warranties, all materiality qualifications contained in such
representations and warranties shall be disregarded), except for any such
failure which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on Parent, and Company shall
have received a certificate signed on behalf of Parent and Merger Sub by an
authorized officer of Parent to such effect.
(b) Performance of Obligations of Parent and Merger Sub. Each of
---------------------------------------------------
Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
to the Closing Date, and Company shall have received a certificate signed
on behalf of Parent by an authorized officer of Parent to such effect.
(c) No Material Adverse Change. Since the date of this Agreement,
--------------------------
Parent and its Subsidiaries, taken as a whole, shall not have experienced
any change, event or
51
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occurrence that has had or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent.
(d) Tax Opinion. The opinion of Cooley Godward LLP, counsel to
-----------
Company, in form and substance reasonably satisfactory to Company, to the
effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code, and based on the letters referred to in
Section 6.15, shall have been delivered to Company and not have been
withdrawn or modified in any material respect; provided, however, that if
Cooley Godward LLP does not render such opinion or withdraws or modifies
such opinion, this condition shall nonetheless be deemed to be satisfied if
counsel to Parent or special tax counsel reasonably acceptable to Company
renders such opinion to Company. In rendering such opinion, such firm may
rely on such representations, warranties and certificates as it deems
reasonable or appropriate under the circumstances.
(e) Additional Closing Documents. Parent and Merger Sub shall
----------------------------
have furnished to Company such additional certificates and other documents
as Company may have reasonably requested as to any of the conditions set
forth in this Section 7.3.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination.
-----------
(a) This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Effective
Time, notwithstanding adoption thereof by the stockholders of Parent and
Company, in any one of the following circumstances:
(i) By mutual written consent duly authorized by the Boards
of Directors of Parent and Company;
(ii) By Parent or Company, if the Effective Time shall not
have occurred on or before April 19, 2000, otherwise than as a result
of any material breach of any provision of this Agreement by the party
seeking to effect such termination;
(iii) By Parent or Company, if any federal or state court of
competent jurisdiction or other Governmental Entity shall have issued
an order, decree or ruling, or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and non-
appealable, provided that neither party may terminate this Agreement
pursuant to this Section 8.1 (a)(iii) unless such party has used its
reasonable best efforts to remove such order, decree, ruling or
injunction;
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(iv) By Parent, if the Company Stockholders Meeting shall
have been held and this Agreement shall not have been adopted by the
affirmative vote of the holders of the requisite number of Shares;
(v) By Parent or Company, if the Parent Stockholders
Meeting shall have been held and either the issuance of Parent Common
Stock in the Merger pursuant to this Agreement or the proposed
increase in the number of shares of Parent common stock subject to
options under Parent's 1997 Stock Option Plan shall not have been
approved by the affirmative vote of the requisite number of shares of
Parent Common Stock;
(vi) By Parent, if a Triggering Event shall have occurred. A
"Triggering Event" shall be deemed to have occurred if (A) the Board
of Directors of Company or any committee thereof shall for any reason
have withdrawn or shall have amended or modified in a manner adverse
to Parent its unanimous recommendation in favor of the adoption and
approval of the Agreement or the approval of the Merger, (B) Company
shall have failed to include in the Joint Proxy Statement/Prospectus
the unanimous recommendation of the Board of Directors of Company in
favor of the adoption and approval of the Agreement and the approval
of the Merger, (C) the Board of Directors of Company fails to reaffirm
its unanimous recommendation in favor of the adoption and approval of
the Agreement and the approval of the Merger within five (5) business
days after Parent requests in writing that such recommendation be
reaffirmed at any time following the announcement of an Acquisition
Proposal, (D) taken any of the actions described in Section 6.7(a),
whether or not permitted by Section 6.7(b), (E) the Board of Directors
of Company or any committee thereof shall have approved, endorsed or
recommended any Acquisition Proposal or (F) a tender or exchange offer
relating to securities of Company shall have been commenced by a
person unaffiliated with Parent and Company shall not have sent to its
securityholders pursuant to Rule 14d-9 or Rule 14e-2 promulgated under
the Exchange Act within ten (10) business days after such tender or
exchange offer is first published, sent or given, a statement
disclosing that Company recommends rejection of such tender or
exchange offer.
(vii) By Parent if any of Company's representations and
warranties contained in this Agreement shall have been materially
inaccurate as of the date of this Agreement or shall have become
materially inaccurate as of the Closing Date as if made on such date,
or if any of Company's covenants and agreements contained in this
Agreement shall have been breached in any material respect, provided,
however, that Parent may not terminate this Agreement under this
Section 8.1(vii) on account of an inaccuracy in Company's
representations and warranties that is curable by Company or on
account of a breach of covenant or agreement by Company that is
curable by Company unless Company fails to cure such inaccuracy or
breach within twenty (20) days after receiving written notice from
Parent of such inaccuracy or breach;
53
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(viii) By Company if any of the Parent's representations and
warranties contained in this Agreement shall have been materially
inaccurate as of the date of this Agreement or shall have become
materially inaccurate as of the Closing Date as if made on such date,
or if any of the Parent's covenants and agreements contained in this
Agreement shall have been breached in any material respect, provided,
however, that Company may not terminate this Agreement under this
Section 8.1(viii) on account of an inaccuracy in the Parent's
representations and warranties that is curable by the Parent or on
account of a breach of covenant or agreement by the Parent that is
curable by the Parent unless the Parent fails to cure such inaccuracy
or breach within twenty (20) days after receiving written notice from
Company of such inaccuracy or breach.
(ix) By Company, following the determination by Company's
Board of Directors that an Acquisition Proposal constitutes a Superior
Offer and prior to the adoption and approval of this Agreement and the
Merger at Company Stockholders Meeting, if: (A) Company is not in
material breach of its obligations under Section 6.7 of this
Agreement, (B) each of the conditions set forth in Section 6.3(c) have
been satisfied and (C) concurrent with Company's notice of termination
pursuant to this subsection, Company shall pay Parent the termination
fee described in paragraph (b) below. No termination pursuant to this
subsection shall be effective until such termination fee is paid to
Parent.
(x) By Parent or Company if neither of the conditions set
forth in Section 7.2(g) nor Section 7.3(d) relating to the delivery of
tax opinions have been satisfied within 60 days following the date of
the later of the Parent Stockholders Meeting or the Company
Stockholders Meeting, provided that the party seeking to effect such
termination is not in material breach of any provision of this
Agreement.
(b) If this Agreement is terminated pursuant to Section
8.1(a)(vii) or (ix) then, in such event, Company shall pay to Parent a fee
in the amount of $2,000,000 (the "Fee"), payable in immediately available
funds within one business day after termination in the case of termination
pursuant to Section 8.1(a)(vii) or concurrent with termination in the case
of termination by Company pursuant to Section 8.1(a)(ix). If this Agreement
is terminated:
(A) pursuant to Section 8.1(a)(ii) or (iv), and an
Acquisition Proposal has been made after the date hereof and
(unless the party making such Acquisition Proposal or an
affiliate thereof ultimately consummates a transaction or
enters into an agreement that would otherwise require the
payment of the Fee pursuant to this sentence) is not withdrawn
prior to the termination of this Agreement; or
(B) pursuant to Section 8(a)(vi), and
54
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in either the case of (A) or (B), within nine (9) months after such
termination (1) an Acquisition Proposal relating to Company is consummated,
or (2) Company enters into a definitive agreement with respect to an
Acquisition Proposal, then Company shall pay the Fee to Parent in
immediately available funds at or prior to the consummation of such
Acquisition Proposal, or within one business day following the date of
execution of such definitive agreement, whichever is earlier. If this
Agreement is terminated pursuant to Section 8.1(a)(viii) then, in such
event, Parent shall pay to Company the Fee in immediately available funds
within one business day after termination. Both Company and Parent agree
that the payment of the Fee, either by Company or by Parent as appropriate
under this Section 8.1(b), shall be the sole and exclusive remedy upon
termination of this Agreement pursuant to Section 8.1(a)(vii) or (viii),
except in the case of violation of Sections 6.3 or 6.7 of this Agreement or
willful or intentional breach of this Agreement.
Section 8.2 Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 8.1(a) hereof, this Agreement
(except for the provisions of Section 4.1(t), Section 4.2(f), the last sentence
of Section 6.4(a), the last sentence of 6.4(b), Section 6.6, paragraph (b) of
Section 8.1, this Section 8.2 and Article IX) shall forthwith become void and
cease to have any force or effect, without any liability on the part of any
party hereto or any of its affiliates; provided, however, that nothing in this
-------- -------
Section 8.2 shall relieve any party to this Agreement of liability for any
willful or intentional breach of this Agreement.
Section 8.3 Amendment. Subject to applicable provisions of the DGCL and
---------
the VSCA, at any time prior to the Effective Time, the Parties hereto may modify
or amend this Agreement by written agreement executed and delivered by duly
authorized officers of the respective parties; provided, however, that after
-------- -------
adoption of this Agreement by the stockholders of either of Parent or Company,
no amendment shall be made which would reduce the amount or change the type of
consideration into which each Share shall be converted upon consummation of the
Merger. This Agreement may not be modified or amended except by written
agreement executed and delivered by duly authorized officers of each of the
respective parties.
Section 8.4 Extension; Waiver. At any time prior to the Effective Time,
-----------------
the parties may (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 of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement, or (c)
subject to Section 8.3, waive compliance with any of the agreements or
conditions of the other parties contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in a written instrument executed and delivered by a duly authorized
officer on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
Section 8.5 Procedure for Termination, Amendment, Extension or Waiver. A
---------------------------------------------------------
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension or waiver pursuant to Section
8.4 shall, in order to be
55
<PAGE>
effective, require in the case of Parent, Merger Sub or Company, action by its
Board of Directors or the duly authorized designee of its Board of Directors.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Nonsurvival of Representations and Warranties. Except as
---------------------------------------------
contemplated in Section 8.2, none of the representations and warranties in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time. This Section 9.1 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time.
Section 9.2 Fees and Expenses. Each party hereto shall pay its own
-----------------
expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the transactions contemplated hereby, except
that Parent and Company shall share equally all of the costs and expenses (other
than attorneys' and accountants' fees and expenses) incurred in connection with
(a) the preparation, filing, printing and mailing of the Form S-4 and the Joint
Proxy Statement/Prospectus (excluding SEC filing fees, which shall be paid by
Parent).
Section 9.3 Definitions. For purposes of this Agreement:
-----------
(a) an "Affiliate" of 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;
(b) "Business day" means any day other than Saturday, Sunday or
any other day on which banks in the City of New York are required or
permitted to close;
(c) "Disclosure Schedule" means the disclosure schedule delivered
by each party to the other simultaneously with the execution of this
Agreement;
(d) "Environmental Laws" means any federal, state or local law,
rule, regulation or decision relating to: (i) releases or threatened
releases of Hazardous Substances or materials containing Hazardous
Substances; (ii) the manufacture, handling, transport, use, treatment,
storage or disposal of Hazardous Substances or materials containing
Hazardous Substances; or (iii) otherwise relating to pollution of the
environment or the protection of human health;
(e) "Hazardous Substances" means: (i) those substances defined as
"hazardous substances," "pollutants" or "contaminants," "hazardous waste,"
"hazardous chemicals" and the like in or regulated under the following
federal statutes and their state counterparts, as each may be amended from
time to time, and all regulations thereunder: the Hazardous Materials
Transportation Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
56
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Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Federal Insecticide, Fungicide and Rodenticide Act and the Clean Air Act;
(ii) petroleum and petroleum products including crude oil and any fractions
thereof; (iii) natural gas, synthetic gas and any mixtures thereof usable
for fuel, (iv) radon; (v) asbestos; and (vi) any other substance,
regardless of physical form, that is subject to any Environmental Laws;
(f) "Knowledge" means the actual knowledge of any executive
officer of Company or Parent, as the case may be;
(g) "Liens" means, collectively, all pledges, claims, liens,
charges, mortgages, conditional sale or title retention agreements,
hypothecations, collateral assignments, security interests, easements and
other encumbrances of any kind or nature whatsoever;
(h) "Material Adverse Effect" or "Material Adverse Change" means
any event, occurrence, failure of event or occurrence, change, effect,
state of affairs, breach, default, violation, fine, penalty or failure to
comply (each, a "circumstance"), individually or taken together with all
other circumstances contemplated by or in connection with any or all of the
applicable representations and warranties made in this Agreement which
could reasonably be expected to: (i) materially adversely effect the
business, properties, assets, condition (financial or otherwise), or
results of operations of Parent or Company, in each case, including its
respective Subsidiaries together with it taken as a whole, or (ii) impair
Parent or Company, as the case may be, of its ability to perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby. In no event shall any of the following constitute a
Material Adverse Effect or a Material Adverse Change: (i) a change in the
trading prices of either of Parent's or Company's equity securities between
the date of this Agreement and the Effective Time, in and of itself; (ii)
effects, changes, events, circumstances or conditions generally affecting
the business application integration industry in which either Parent or
Company operate or arising from changes in general business or economic
condition, and not specifically relating to such party; (iii) effects,
changes, events, circumstances or conditions directly attributable to (A)
out-of-pocket fees and expenses (including, without limitation, legal,
accounting, investigatory, investment banking, and other fees and expenses)
incurred in connection with the transactions contemplated by the Agreement
or (B) the payment by Parent or Company of all amounts due to any officers
or employees of Company under employment contracts, non-competition
agreements, employee benefit plans or severance arrangements as specified
in the Disclosure Schedule; (iv) any effects, changes, events,
circumstances or conditions resulting from any change in law or generally
accepted accounting principles, which affect generally entities such as
Parent and Company; and (v) any effects, changes, events, circumstances or
conditions resulting from compliance by Parent or Company with the express
terms of this Agreement or action taken with the prior informed written
consent of the other party.
(i) "Person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
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(j) a "Subsidiary" of any person means any other person of which
(i) the first mentioned person or any Subsidiary thereof is a general
partner, (ii) voting power to elect a majority of the board of directors or
others performing similar functions with respect to such other person is
held by the first mentioned person and/or by any one or more of its
Subsidiaries, or (iii) at least 50% of the equity interests of such other
person is, directly or indirectly, owned or controlled by such first
mentioned person and/or by any one or more of its Subsidiaries.
Section 9.4 Notices. All notices, requests, claims, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(i) if to Parent or to Merger Sub, to
Level 8 Systems, Inc.
8000 Regency Parkway
Cary, N.C. 27511
Attention: W. Dennis McKinnie, Esq.
Telecopy: (919) 380-5121
with a copy (which shall not constitute notice) to:
Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street, N.E.
Suite 1600
Atlanta, GA 30303
Attention: Scott D. Smith, Esq.
Eliot W. Robinson, Esq.
Telecopy: (404) 572-6999
(ii) if to Company, to
Template Software, Inc.
45365 Vintage Park Plaza
Suite 100
Dulles, VA 20166
Attention: Joseph M. Fox
Telecopy: (703) 318-8325
with a copy (which shall not constitute notice) to:
Cooley Godward LLP
2002 Edmund Halley Drive, Suite 300
Reston, VA 20191-3436
Attention: Joseph W. Conroy, Esq.
Mark D. Spoto, Esq.
Telecopy: (703) 262-8100
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Section 9.5 Interpretation. When a reference is made in this Agreement
--------------
to a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for convenience of reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation".
Section 9.6 Entire Agreement; Third-Party Beneficiaries. This Agreement
-------------------------------------------
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement (except for the Stockholders Agreement and the
letter agreement referenced in the last sentence of Section 6.4(a) and 6.4(b)).
Except for the provisions of Article II and Section 6.14, this Agreement is not
intended to confer upon any person (including without limitation any employees
or former employees of Company), other than the parties hereto, any rights or
remedies.
Section 9.7 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof, except to the extent the internal laws of the Commonwealth of
Virginia expressly apply to the Merger as it relates to Company.
Section 9.8 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, and any such assignment without
such prior written consent shall be null and void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
Section 9.9 Enforcement. Irreparable damage would occur in the event that
-----------
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. Accordingly, the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in the Court of Chancery in and for New Castle County in the State of Delaware
(or, if such court lacks subject matter jurisdiction, any appropriate state or
federal court in New Castle County in the State of Delaware), this being in
addition to any other remedy to which they are entitled at law or in equity.
Each of the parties hereto (a) shall submit itself to the personal jurisdiction
of the Court of Chancery in and for New Castle County in the State of Delaware
(or, if such court lacks subject matter jurisdiction, any appropriate state or
federal court in New Castle County in the State of Delaware) in the event any
dispute arises out of this Agreement or any of the transactions contemplated
hereby, (b) shall not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court, and (c) shall not bring
any action relating to this Agreement or any of the transactions contemplated
hereby in any court other than the Court of Chancery in and for New Castle
County in the State of Delaware (or, if such court lacks subject matter
jurisdiction, any appropriate state or federal court in New Castle County in the
State of Delaware).
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Section 9.10 Severability. Whenever possible, each provision or portion of
------------
any provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Section 9.11 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
[signature page follows]
60
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IN WITNESS WHEREOF, Parent, Merger Sub and Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
LEVEL 8 SYSTEMS, INC.
By: /s/ Steven Dmiszewicki
----------------------------------
Name: Steven Dmiszewicki
--------------------------------
Title: President
-------------------------------
TSAC, INC.
By: /s/ Dennis McKinnie
----------------------------------
Name: Dennis McKinnie
--------------------------------
Title: Director
-------------------------------
TEMPLATE SOFTWARE, INC.
By: /s/ Joseph M. Fox
----------------------------------
Name: Joseph M. Fox
--------------------------------
Title: Chairman
-------------------------------
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Exhibit 10.1
STOCKHOLDERS AGREEMENT
This Stockholders Agreement, dated as of October 19, 1999 (this
"Agreement"), is entered into by and among Level 8 Systems, Inc., a Delaware
corporation (the "Parent"), Template Software, Inc., a Virginia corporation (the
"Company"), the parties listed on the signature pages hereto as "Parent
Stockholders" (each, a "Parent Stockholder") and the parties listed on the
signature pages hereto as "Company Stockholders" (each, a "Company Stockholder")
RECITALS:
WHEREAS, each Company Stockholder is the beneficial owner of shares of
common stock, par value $0.01 per share (the "Company Common Stock"), of the
Company;
WHEREAS, each Parent Stockholder is the beneficial owner of shares of
common stock, par value $0.01 per share (the "Parent Common Stock") and/or
shares of Series A 4% Convertible Redeemable Preferred Stock, par value $0.01
per share (the "Parent Preferred Stock" and, together with the Parent Common
Stock, the "Parent Stock"), of the Parent;
WHEREAS, in conjunction with this Agreement, Parent, Company and Level 8
Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of the
Parent (the "Subsidiary"), intend to enter into an Agreement and Plan of Merger
dated as of the date hereof (as the same may be amended or supplemented, the
"Merger Agreement") with respect to the merger of the Company with and into the
Subsidiary (the "Merger"), with the Subsidiary surviving the Merger;
WHEREAS, each Company Stockholder is executing this Agreement as an
inducement to the Parent and the Subsidiary to enter into, execute and deliver
the Merger Agreement; and
WHEREAS, each of Parent and each Parent Stockholder is executing this
Agreement as an inducement to the Company to enter into, execute and deliver the
Merger Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by the
parties thereto of the Merger Agreement and the mutual covenants, conditions and
agreements contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Voting Agreements of Company Stockholders. In connection with the
-----------------------------------------
efforts of the Company to cause the Merger Agreement and the Merger to receive
the required approval of the stockholders of the Company and to be consummated,
each Company Stockholder, severally and not jointly, agrees with, and covenants
to, the Parent as follows:
<PAGE>
(a) At any meeting of stockholders of the Company called to vote upon
the Merger and the Merger Agreement or in any other circumstance upon which
a vote, consent or other approval of stockholders of the Company is sought
with respect to the Merger and the Merger Agreement, such Company
Stockholder shall (i) appear or otherwise take appropriate action to ensure
that such Company Stockholder's Shares (as defined in the Merger Agreement)
are present at such meeting for the purpose of obtaining a quorum and (ii)
vote (or cause to be voted) or execute a written consent with respect to
such Company Stockholder's Shares in favor of the Merger, the execution and
delivery by the Company of the Merger Agreement and each of the other
transactions contemplated by or in any way related to the Merger Agreement.
(b) At any meeting of stockholders of the Company or in any other
circumstance upon which the vote, consent or other approval of stockholders
of the Company is sought, such Company Stockholder shall vote (or cause to
be voted) or execute a written consent in connection with such Company
Stockholder's Shares against (i) any merger agreement or merger (other than
the Merger Agreement and the Merger), consolidation, combination, sale of
substantial assets, reorganization, recapitalization, dissolution,
liquidation or winding up of or by the Company or (ii) any action or
agreement, including any proposed amendment of the Company's Articles of
Incorporation or Bylaws or other proposal or transaction involving the
Company or any of its subsidiaries which action, agreement, amendment or
other proposal or transaction would in any manner impede, interfere with,
delay, or attempt to frustrate, prevent or nullify the Merger, the Merger
Agreement or any of the other transactions contemplated thereby (each of
the foregoing in clauses (i) or (ii) above, a "Competing Transaction").
2. Voting Agreements of Parent Stockholders and the Parent. In connection
-------------------------------------------------------
with the efforts of the Parent and the Subsidiary to cause the issuance of
Parent Common Stock pursuant to the Merger Agreement to receive the required
approval of the stockholders of the Parent, each Parent Stockholder, severally
and not jointly, agrees with, and covenants to, the Company as follows:
(a) At any meeting of stockholders of the Parent called to vote upon
the Merger and the Merger Agreement or in any other circumstance upon which
a vote, consent or other approval of stockholders of the Parent is sought
with respect to the Merger and the Merger Agreement, each Parent
Stockholder shall (i) appear or otherwise take appropriate action to ensure
that such Parent Stockholder's shares of Parent Stock are present at such
meeting for the purpose of obtaining a quorum and (ii) vote (or cause to be
voted) or execute a written consent with respect to such Parent
Stockholder's shares of Parent Stock in favor of the Merger, the execution
and delivery by the Parent of the Merger Agreement and each of the other
transactions contemplated by or in any way related to the Merger Agreement.
(b) At any meeting of stockholders of the Parent or in any other
circumstance upon which the vote, consent or other approval of stockholders
of the Parent is sought, each Parent Stockholder shall vote (or cause to be
voted) or execute a written consent in connection with such Parent
Stockholder's shares of Parent Stock held by such Parent
2
<PAGE>
Stockholder against any action or agreement, including any proposed
amendment of the Parent's Certificate of Incorporation or Bylaws or other
proposal or transaction involving the Parent or any of its subsidiaries
which action, agreement, amendment or other proposal or transaction would
in any manner impede, interfere with, delay, or attempt to frustrate,
prevent or nullify the Merger, the Merger Agreement or any of the other
transactions contemplated thereby.
3. Parent Voting Agreement.
-----------------------
(a) Parent shall direct each WCAS Party (as defined in the Agreement
dated November 23, 1998 between Parent and Welch, Carson, Anderson & Stowe
VI, L.P. and the other signatories thereto relating to the acquisition of
Seer Technologies, Inc.) to grant a proxy to vote all that WCAS Party's
shares of Parent Common Stock to one or more individuals designated by
Parent, and Parent shall cause such designee to vote all the shares of
Parent Common Stock for which such proxies have been granted as set forth
in Section 2 hereof.
(b) The Parent, in its capacity as the holder of all of the issued
and outstanding shares of capital stock of the Subsidiary, hereby agrees
that during the time that this Agreement is in effect, the Parent will vote
or execute a written consent in connection with such shares of capital
stock in favor of the Merger, the execution and delivery by the Subsidiary
of the Merger Agreement and each of the other transactions contemplated by
or in any way related to the Merger Agreement.
4. Representations and Warranties of Company Stockholders. Each Company
------------------------------------------------------
Stockholder, severally and not jointly, represents and warrants to the Parent as
follows:
(a) As of the date hereof, such Company Stockholder is the record and
beneficial owner of, or is a trustee of a trust that is the record holder
of, the number of Shares set forth opposite such Company Stockholder's name
in Schedule A hereto. Except for such Company Stockholder's Shares, such
Company Stockholder is not the record or beneficial owner of any shares of
Company Common Stock.
(b) This Agreement has been duly executed and delivered by such
Company Stockholder and such Company Stockholder intends for this to be a
valid and binding agreement and will not take any action to contest the
valid and binding nature of this Agreement. If such Company Stockholder is
a natural person, such Company Stockholder (i) has the full power and
capacity necessary to enter into and perform his or her obligations under
this Agreement, (ii) has read all provisions of this Agreement, has
reviewed such provisions with counsel to the extent such Company
Stockholder deemed appropriate, understands each of such provisions and
voluntarily agrees to be bound thereby and (iii) if such Company
Stockholder is married and such Company Stockholder's Shares constitute
community property, this Agreement has been duly executed and delivered by
and constitutes a valid and binding agreement of such Company Stockholder's
spouse and such Company Stockholder's spouse intends for this to be a valid
and binding agreement and will not take any action to contest the valid and
3
<PAGE>
binding nature of this Agreement. If such Company Stockholder is an entity,
such Company Stockholder is duly organized, validly existing and in good
standing under the laws of the state of its organization with full power
and authority necessary to enter into this Agreement and to perform its
obligations hereunder. If such Company Stockholder is a partnership, such
partnership is duly formed, validly existing and in good standing under the
laws of the state of its organization with full partnership power and
authority necessary to enter into this Agreement and to perform its
obligations hereunder.
(c) Neither the execution and delivery of this Agreement nor the
consummation by such Company Stockholder of the transactions contemplated
hereby will result in a violation of, or a default under, or conflict with,
any contract, trust, commitment, agreement, understanding, arrangement or
restriction of any kind to which such Company Stockholder is a party or
bound or to which such Company Stockholder's Shares are subject. Neither
the execution and delivery of this Agreement nor the consummation by such
Company Stockholder of the transactions contemplated hereby will violate,
or require any consent, approval or notice under any provision of any
judgment, order, consent, approval or notice applicable to such Company
Stockholder or such Company Stockholder's Shares, except for any necessary
consent, approval or notice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, or Section 13 of the Securities
Exchange Act of 1934, as amended.
(d) Company Stockholder's Shares and the certificates representing
such Shares are now and at all times during the term hereof will be held by
such Company Stockholder, or by a nominee or custodian for the benefit of
such Company Stockholder, free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising from this Agreement and except with respect
to the rights granted by certain of the Company Stockholders in favor of
Alcatel, N.V. pursuant to the terms of that certain Shareholders Agreement
dated as of November 27, 1996, by and among such parties.
(e) No broker, investment banker, financial advisor or other person
is entitled to any broker's, finder's, financial advisor's or other similar
fee or commission in connection with the transactions contemplated hereby
based upon arrangements made by or on behalf of such Company Stockholder.
(f) Such Company Stockholder understands and acknowledges that the
Parent is entering into the Merger Agreement in reliance upon such Company
Stockholder's execution and delivery of this Agreement.
5. Representations and Warranties of Parent Stockholders. Each Parent
-----------------------------------------------------
Stockholder, severally and not jointly, represents and warrants to the Company
as follows:
(a) As of the date hereof, such Parent Stockholder is the record and
beneficial owner of, or is a trustee of a trust that is the record holder
of, the number and class of shares of Parent Stock set forth opposite such
Parent Stockholder's name in Schedule B
4
<PAGE>
hereto. Except for such Parent Stockholder's shares of Parent Stock set
forth on Schedule B, such Parent Stockholder is not the record or
beneficial owner of any shares of Parent Stock.
(b) This Agreement has been duly executed and delivered by such
Parent Stockholder, and such Parent Stockholder intends for this to be a
valid and binding agreement and will not take any action to contest the
valid and binding nature of this Agreement. If such Parent Stockholder is a
natural person, such Parent Stockholder (i) has the full power and capacity
necessary to enter into and perform his or her obligations under this
Agreement, (ii) has read all provisions of this Agreement, has reviewed
such provisions with counsel to the extent such Parent Stockholder deemed
appropriate, understands each of such provisions and voluntarily agrees to
be bound thereby and (iii) if such Parent Stockholder is married and such
Parent Stockholder's shares of Parent Stock constitute community property,
this Agreement has been duly executed and delivered by and constitutes a
valid and binding agreement of such Parent Stockholder's spouse and such
Parent Stockholder's spouse intends for this to be a valid and binding
agreement and will not take any action to contest the valid and binding
nature of this Agreement. If such Parent Stockholder is an entity, such
Parent Stockholder is duly organized, validly existing and in good standing
under the laws of the state of its organization with full power and
authority necessary to enter into this Agreement and to perform its
obligations hereunder. If such Parent Stockholder is a partnership, such
partnership is duly formed, validly existing and in good standing under the
laws of the state of its organization with full partnership power and
authority necessary to enter into this Agreement and to perform its
obligations hereunder. Parent is duly organized, validly existing and in
good standing under the laws of the state of its organization with full
power and authority necessary to enter into this Agreement and to perform
its obligations hereunder.
(c) Neither the execution and delivery of this Agreement nor the
consummation by such Parent Stockholder of the transactions contemplated
hereby will result in a violation of, or a default under, or conflict with,
any contract, trust, commitment, agreement, understanding, arrangement or
restriction of any kind to which such Parent Stockholder is a party or
bound or to which such Parent Stockholder's shares of Parent Stock are
subject. Neither the execution and delivery of this Agreement nor the
consummation by such Parent Stockholder of the transactions contemplated
hereby will violate, or require any consent, approval or notice under any
provision of any judgment, order, consent, approval or notice applicable to
such Parent Stockholder or such Parent Stockholder's shares of Parent
Stock, except for any necessary consent, approval or notice under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, or Section 13
of the Securities Exchange Act of 1934, as amended.
(d) Parent Stockholder's shares of Parent Stock and the certificates
representing such shares are now and at all times during the term hereof
will be held by such Parent Stockholder, or by a nominee or custodian for
the benefit of such Parent Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or
5
<PAGE>
agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising from this
Agreement.
(e) Parent's shares of capital stock of the Subsidiary and the
certificates representing such shares are now and at all times during the
term hereof will be held by Parent free and clear of all liens, claims,
security interests, proxies, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising from this Agreement.
(f) No broker, investment banker, financial advisor or other person
is entitled to any broker's, finder's, financial advisor's or other similar
fee or commission in connection with the transactions contemplated hereby
based upon arrangements made by or on behalf of such Parent Stockholder.
(g) Such Parent Stockholder understands and acknowledges that the
Company is entering into the Merger Agreement in reliance upon such Parent
Stockholder's execution and delivery of this Agreement.
6. Representations and Warranties of Parent. Parent represents and
----------------------------------------
warrants to the Company as follows:
(a) As of the date hereof, Parent is the record and beneficial owner
of all shares of capital stock of the Subsidiary.
(b) This Agreement has been duly executed and delivered by Parent and
Parent intends for this to be a valid and binding agreement and will not
take any action to contest the valid and binding nature of this Agreement.
Parent is duly organized, validly existing and in good standing under the
laws of the state of its organization with full power and authority
necessary to enter into this Agreement and to perform its obligations
hereunder.
(c) Neither the execution and delivery of this Agreement nor the
consummation by the Parent of the transactions contemplated hereby will
result in a violation of, or a default under, or conflict with, any
contract, trust, commitment, agreement, understanding, arrangement or
restriction of any kind to which Parent is a party or is subject. Neither
the execution and delivery of this Agreement nor the consummation by Parent
of the transactions contemplated hereby will violate, or require any
consent, approval or notice under any provision of any judgment, order,
consent, approval or notice applicable to, except for any necessary
consent, approval or notice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, or Section 13 of the Securities
Exchange Act of 1934, as amended.
(d) Parent's shares of capital stock of the Subsidiary and the
certificates representing such shares are now and at all times during the
term hereof will be held by Parent free and clear of all liens, claims,
security interests, proxies, voting trusts or
6
<PAGE>
agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances or proxies arising from this
Agreement.
(f) Parent understands and acknowledges that the Company is entering
into the Merger Agreement in reliance upon such Parent's execution and
delivery of this Agreement.
7. Covenants of Company Stockholders. Each Company Stockholder, severally
---------------------------------
and not jointly, agrees with, and covenants to, the Parent as follows:
(a) Such Company Stockholder shall not (i) transfer (which terms
shall include, without limitation, for the purposes of this Agreement, any
sale, gift, pledge, alienation, assignment or other disposition, directly
or indirectly, by operation of law, in connection with any merger or
otherwise (collectively, a "Transfer")), or consent to any Transfer of, any
or all of such Company Stockholder's Shares or any interest therein, except
pursuant to the Merger, (ii) enter into any contract, option or other
agreement or understanding with respect to any Transfer of any or all of
such Company Stockholder's Shares or any interest therein, (iii) grant any
proxy, power of attorney or other authorization in or with respect to such
Company Stockholder's Shares, except for this Agreement and any proxy
granted in connection with any meeting of stockholders of the Company
called to vote upon the Merger and the Merger Agreement or at any
adjournment thereof which contains voting instructions consistent with such
Company Stockholder's obligations under this Agreement, or (iv) deposit
such Company Stockholder's Shares into a voting trust or enter into a
voting agreement or any other arrangement with respect to such Shares;
provided, that any such Company Stockholder may, subject to the provisions
of Section 9 hereof, Transfer any of such Company Stockholder's Shares to
any other Company Stockholder who is on the date hereof a party to this
Agreement, or to any family member of a Company Stockholder, charitable
institution or affiliate (as defined in the Securities Act (as defined in
the Merger Agreement)) of such Company Stockholder which prior to such
Transfer becomes a party to this Agreement bound by all obligations of a
"Company Stockholder" hereunder.
(b) If a majority of the holders of Shares approve the Merger and the
Merger Agreement, upon consummation of the Merger such Company
Stockholder's Shares shall, subject to the terms and conditions of the
Merger Agreement, be converted into the right to receive the consideration
provided in the Merger Agreement. Such Company Stockholder hereby waives
any rights of appraisal, or rights to dissent from the Merger, that such
Company Stockholder may have.
(c) Such Company Stockholder shall not, in its, his or her capacity
as a stockholder of the Company, and shall instruct any investment banker,
attorney or other adviser or representative of such Company Stockholder not
to, directly or indirectly, (i) solicit, initiate, facilitate, or encourage
any Competing Transactions or (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to
lead to, a Competing
7
<PAGE>
Transaction. Each Company Stockholder shall immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. Without
limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding sentence by an investment banker,
attorney or other adviser or representative of such Company Stockholder,
whether or not such person is purporting to act on behalf of such Company
Stockholder or otherwise, shall be deemed to be a violation of this Section
7 by such Company Stockholder.
8. Covenants of Parent and Parent Stockholders.
-------------------------------------------
(a) Parent agrees with, and covenants to, the Company that Parent
shall not (i) Transfer or consent to any Transfer of any or all of the
shares of capital stock of Subsidiary held by Parent or any interest
therein, (ii) enter into any contract, option or other agreement or
understanding with respect to any Transfer of any or all of such shares of
capital stock of Subsidiary or any interest therein, (iii) grant any proxy,
power of attorney or other authorization in or with respect to such shares
of capital stock of Subsidiary, except for this Agreement, or (iv) deposit
such shares of capital stock of Subsidiary into a voting trust or enter
into a voting agreement or any other arrangement with respect to such
shares.
(b) Each Parent Stockholder, severally and not jointly, agrees with,
and covenants to, the Company that such Parent Stockholder shall not (i)
Transfer, or consent to any Transfer of, any or all of such Parent
Stockholder's shares of Parent Stock or any interest therein, (ii) enter
into any contract, option or other agreement or understanding with respect
to any Transfer of any or all of such Parent Stockholder's shares of Parent
Stock or any interest therein, (iii) grant any proxy, power of attorney or
other authorization in or with respect to such Parent Stockholder's shares
of Parent Stock, except for this Agreement and any proxy granted in
connection with any meeting of stockholders of the Parent called to vote
upon the Merger and the Merger Agreement or at any adjournment thereof
which contains voting instructions consistent with such Parent
Stockholder's obligations under this Agreement, or (iv) deposit such Parent
Stockholder's shares of Parent Stock into a voting trust or enter into a
voting agreement or any other arrangement with respect to such shares;
provided, that any such Parent Stockholder may, subject to the provisions
of Section 9 hereof, Transfer any of such Parent Stockholder's shares of
Parent Stock to any other Parent Stockholder who is on the date hereof a
party to this Agreement, or to any family member of a Parent Stockholder,
charitable institution or affiliate (as defined in the Securities Act) of
such Parent Stockholder which prior to such Transfer becomes a party to
this Agreement bound by all obligations of a "Parent Stockholder"
hereunder.
9. Certain Events. Each of the Parent, each Company Stockholder and each
--------------
Parent Stockholder agrees that this Agreement and the obligations hereunder
shall attach to the shares of capital stock of the Subsidiary, such Company
Stockholder's Shares or each Parent Stockholder's shares of Parent Stock,
respectively, and shall be binding upon any person or entity to which legal or
beneficial ownership of such shares of capital stock shall pass, whether
8
<PAGE>
by operation of law or otherwise, including without limitation, such
Stockholder's heirs, guardians, administrators or successors. In the event of
any stock split, stock dividend, merger, reorganization, recapitalization or
other change in the capital structure of the Subsidiary, the Company or the
Parent, or the acquisition of additional shares of Company Common Stock or other
voting securities of the Company by any Company Stockholder, or the acquisition
of additional shares of Parent Stock or other voting securities of the Parent by
any Parent Stockholder, Schedule A or Schedule B shall be adjusted appropriately
and this Agreement and the obligations hereunder shall attach to any additional
shares of the Company Common Stock or other voting securities of the Company
issued to or acquired by such Company Stockholder and to any additional shares
of the Parent Stock or other voting securities of the parent issued to or
acquired by such Parent Stockholder. Without limiting the generality of the
foregoing, the term "Such Company Stockholder's Shares" shall include any such
additional shares of Company Common Stock, and the term "Such Parent
Stockholder's shares of Parent Stock" shall include any such additional shares
of Parent Stock.
10. Voidability. If prior to the execution hereof, the Board of Directors
-----------
of the Company shall not have duly and validly authorized and approved by all
necessary corporate action the Merger Agreement and the transactions
contemplated thereby, so that by the execution and delivery hereof the Parent
would become, or could reasonably be expected to become, an "interested
shareholder" with whom the Company would be prevented for any period pursuant to
Section 13.1-725.1 of the Virginia Stock Corporation Act ("VSCA") from engaging
in any "affiliated transaction" (as such terms are defined in Section 13.1-725
of the VSCA), then this Agreement shall be void and unenforceable until such
time as such authorization and approval shall have been duly and validly
obtained.
11. Further Assurances. Each Company Stockholder shall, upon request of
------------------
the Parent, execute and deliver any additional documents and take such further
actions as may reasonably be deemed by the Parent to be necessary or desirable
to carry out the provisions hereof. Each of the Parent and each Parent
Stockholder shall, upon request of the Company, execute and deliver any
additional documents and take such further actions as may reasonably be deemed
by the Company to be necessary or desirable to carry out the provisions hereof.
12. Termination. It is a condition precedent to the effectiveness of this
-----------
Agreement that the Merger Agreement shall have been executed and delivered and
be in full force and effect. In the event the Merger is terminated in accordance
with its terms, this Agreement shall automatically terminate and be of no
further force and effect. This Agreement shall also terminate upon the
occurrence of the Effective Time of the Merger. Upon any such termination,
except for any rights any party may have in respect of any breach by any other
party of its or his obligations hereunder, none of the parties hereto shall have
any further obligation or liability hereunder.
13. Miscellaneous.
-------------
(a) Capitalized terms used and not otherwise defined in this
Agreement shall have the respective meanings assigned to them in the Merger
Agreement.
9
<PAGE>
(b) All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given upon the
same terms as set forth in Section 9.4 of the Merger Agreement, except that
notices to the undersigned Company Stockholders shall be sent to the
address set forth in Schedule A hereto opposite each such Company
Stockholder's name, and notices to the undersigned Parent Stockholders
shall be sent to the address set forth in Schedule B hereto opposite each
such Parent Stockholder's name.
(c) No person executing this Agreement who is, or becomes during the
term hereof, a director or officer of the Company or Parent makes any
agreement or understanding herein in his or her capacity as such director
or officer. Each Company Stockholder and each Parent Stockholder signs
solely in his capacity as the record holder and beneficial holder of shares
of Company Common Stock or Parent Stock, respectively, and nothing
contained herein shall limit or affect any actions taken by such
stockholder in his capacity as an officer or director of Company or Parent
to the extent permitted by the Merger Agreement.
(d) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement.
(e) This Agreement may be executed in two or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective (i) as to any Company Stockholder when one or more counterparts
have been signed by each of Parent and such Company Stockholder and
delivered to Parent and (ii) as to any Parent Stockholder when one or more
counterparts have been signed by each of the Company and such Parent
Stockholder and delivered to Company.
(f) This Agreement (including the documents and instruments referred
to herein) constitutes the entire agreement, and supersedes all prior
agreements and undertakings, both written and oral, among the parties with
respect to the subject matter hereof.
(g) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
(h) Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part,
through any merger, by operation of law or otherwise, by any of the parties
without the prior written consent of the other parties, except by laws of
descent or as expressly contemplated by Sections 5(a), 8(a) or 8(b) hereof.
Any assignment in violation of the foregoing shall be void.
(i) The parties agree that irreparable damage would occur and that
the other parties hereto would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to
10
<PAGE>
an injunction or injunctions to prevent breaches or threatened breaches by
any party of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any court of the United States located in
the State of Delaware or in Delaware state court, this being in addition to
any other remedy to which they may be entitled at law or in equity. In
addition, each of the parties hereto irrevocably and unconditionally (i)
consents to be subject to the personal jurisdiction of any Federal court
located in the State of Delaware or any Delaware state court in the event
any dispute arises out of this Agreement or any of the transactions
contemplated hereby, (ii) agrees that such party will not attempt to deny
or defeat the personal jurisdiction of such courts by motion or other
request for leave from any such court, (iii) agrees that such party will
not bring any action relating to this Agreement or any of the transactions
contemplated hereby in any court other than a Federal court sitting in the
State of Delaware or a Delaware state court and (iv) that service of
process may also be made on such party by prepaid certified mail with a
proof of mailing receipt validated by the United States Postal Service
constituting evidence of, valid service, and that service made pursuant to
this clause (iv) shall have the same legal force and effect as if served
upon such party personally within the State of Delaware.
(j) If any term, provision, covenant or restriction herein, or the
application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and
the application thereof to any other circumstances, shall remain in full
force and effect, shall not in any way be affected, impaired, or
invalidated, and shall be enforced to the fullest extent permitted by law
and the provision found to be invalid, void or unenforceable shall be
immediately revised by the parties hereto so as to be valid, binding and
enforceable to the greatest extent then permitted by applicable law.
(k) No amendment, modification or waiver in respect of this Agreement
shall be effective against any party unless it shall be in writing and
signed by such party.
(l) A facsimile of this Agreement containing signatures of the
parties hereto shall constitute an original document for all purposes.
[BALANCE OF PAGE INTENTIONALLY OMITTED]
11
<PAGE>
IN WITNESS WHEREOF, the Parent, the Company, each Company Stockholder and
each Parent Stockholder have caused this Stockholders Agreement to be duly
executed and delivered on day and year first above written.
LEVEL 8 SYSTEMS, INC.
By: /s/ Steven Dmiszewicki
-------------------------------------------
Name: Steven Dmiszewicki
-------------------------------------------
Title: President
-------------------------------------------
TEMPLATE SOFTWARE, INC.
By: /s/ Joseph M. Fox
-------------------------------------------
Name: Joseph M. Fox
-------------------------------------------
Title: Chairman
-------------------------------------------
COMPANY STOCKHOLDERS:
/s/ J. Kelly Brown
--------------------------------------------------
Name: J. Kelly Brown
Individually
/s/ Andrew B. Ferrentino
--------------------------------------------------
Name: Andrew B.Ferrentino
Individually
/s/ Joseph M. Fox
--------------------------------------------------
Name: Joseph M. Fox
Individually
/s/ David Kiker
--------------------------------------------------
Name: David Kiker
Individually
/s/ E. Linwood Pearce
--------------------------------------------------
Name: E. Linwood Pearce
Individually
12
<PAGE>
PARENT STOCKHOLDERS:
Liraz Systems Ltd.
By: /s/ Arik Kilman
-------------------------------------------
Name: Arik Kilman
-------------------------------------------
Title: Chairman
-------------------------------------------
Liraz Export (1990) Ltd.
By: /s/ Arik Kilman
-------------------------------------------
Name: Arik Kilman
-------------------------------------------
Title: Chairman
-------------------------------------------
Advanced Systems Europe B.V.
By: /s/ Arik Kilman
--------------------------------------------
Name: Arik Kilman
--------------------------------------------
Title: Chairman
------------------------------------------
13
<PAGE>
Exhibit 10.3
AMENDMENT TO RIGHTS AGREEMENT
BETWEEN TEMPLATE SOFTWARE, INC. AND
FIRST UNION NATIONAL BANK
This Amendment To Rights Agreement (this "Amendment") is made this 19th day
of October, 1999, by and between Template Software, Inc., a Virginia corporation
(the "Company"), and First Union National Bank, a national banking corporation
(the "Rights Agent").
Whereas, the Company is entering into an Agreement and Plan of Merger (as
the same may be amended from time to time, the "Merger Agreement"), among the
Company, Level 8 Systems, Inc. (the "Parent"), and TSAC, Inc., a Delaware
corporation and wholly-owned subsidiary of Parent (the "Merger Sub"), pursuant
to which the Company will merge with and into the Merger Sub and the Merger Sub
will survive as a wholly-owned subsidiary of Parent, and the former shareholders
of the Company will receive a combination of cash and shares of common stock of
Parent;
Whereas, the Company and the Rights Agent are parties to that certain
Rights Agreement, dated as of July 3, 1998 (the "Rights Agreement");
Whereas, the Company desires to amend the Rights Agreement in connection
with the execution and delivery of the Merger Agreement; and
Whereas, the Board of Directors of the Company has approved this Amendment
and authorized its appropriate officers to execute and deliver the same to the
Rights Agent.
Now, Therefore, in accordance with the procedures for amendment of the
Rights Agreement set forth in Section 27 thereof, and in consideration of the
foregoing and the mutual agreements herein set forth, the parties hereby agree
as follows:
1. Capitalized terms that are not otherwise defined herein shall have the
meanings ascribed to them in the Rights Agreement.
2. The definition of "Acquiring Person" set forth in Section 1(a) of the
Rights Agreement is amended by adding the following sentence to the end of that
section:
Notwithstanding the foregoing, no Person shall be or become an
Acquiring Person by reason of (i) the execution and delivery of the
Agreement and Plan of Merger, dated as of October 19, 1999, among Level 8
Systems, Inc., a Delaware corporation (the "Parent"), TSAC, Inc., a
Delaware corporation and a wholly owned subsidiary of Parent (the "Merger
Sub") and the Company (the "Merger Agreement") or the execution of any
amendment thereto, (ii) the execution and delivery of the Stockholders
Agreement (as such term is defined in the Merger Agreement) or the
execution of any amendment thereto, (iii) the merger of the Company with
and into Merger Sub or (iv) the
1.
<PAGE>
consummation of any other transaction contemplated by the Merger Agreement,
as it may be amended from time to time.
3. The definition of "Distribution Date" set forth in Section 1(h) of the
Rights Agreement is hereby amended by adding the following sentence to the end
of that section:
Notwithstanding anything else set forth in this Agreement, no
Distribution Date shall be deemed to have occurred by reason of (a) the
execution and delivery or amendment of the Merger Agreement or the
Stockholders Agreement, (b) the merger of the Company with and into Merger
Sub or (c) the consummation of any other transaction contemplated by the
Merger Agreement.
4. The definition of "Expiration Date" set forth in Section 1(l) of the
Rights Agreement is hereby amended to read as follows:
"Expiration Date" shall mean the earliest of (i) the close of business
---------------
on the Final Expiration Date, (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof, (iii) the Exchange Date or (iv)
the moment in time immediately prior to the Effective Time (as such term is
defined in the Merger Agreement).
5. The definition of "Stock Acquisition Date" set forth in Section l(u) of
the Rights Agreement is hereby amended by adding the following sentence to the
end of that section:
Notwithstanding anything else set forth in this Agreement, a Stock
Acquisition Date shall not be deemed to have occurred by reason of (i) the
execution and delivery or amendment of the Merger Agreement or the
Stockholders Agreement, (ii) the merger of the Company with and into Merger
Sub or (iii) the consummation of any other transaction contemplated by the
Merger Agreement.
6. Section 11(a)(ii) is hereby amended by adding the following sentence to
the end of that section:
Notwithstanding anything else set forth in this Agreement, no event
requiring an adjustment under this Section 11(a)(ii) shall be deemed to
have occurred by reason of (i) the execution and delivery or amendment of
the Merger Agreement or the Stockholders Agreement, (ii) the merger of the
Company with and into Merger Sub or (iii) the consummation of any other
transaction contemplated by the Merger Agreement.
7. Sections 13(a)(w), (x), (y) and (z) are amended to read as follows:
(a) In the event that, following the Stock Acquisition Date, directly
or indirectly (w) the Company shall consolidate with, or merge with and
into, any other Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(m) hereof), (y) any Person (other
than a Subsidiary of the Company in a transaction that complies with
Section 11(m) hereof) shall consolidate with, or merge with or into, the
Company, and the Company shall be the continuing or surviving corporation
of such
2.
<PAGE>
merger and, in connection with such consolidation or merger, all or
part of the outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other person or cash or any
other property (other than, in the case of either transaction described in
(w) or (x), the merger of the Company with and into Merger Sub), (y) the
Company shall be a party to a statutory share exchange with any other
Person (other than a Subsidiary of the Company in a transaction that
complies with Section 11(m) hereof) after which the Company is a Subsidiary
of any other Person, or (z) the Company shall sell or otherwise transfer
(or one or more of its Subsidiaries shall sell or otherwise transfer), in
one transaction or a series of related transactions, assets or earning
power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any Person or Persons
(other than (a) the Company or any Subsidiary of the Company in one or more
transactions each of which complies with Section 11(m) hereof and (b) the
merger of the Company with and into Merger Sub), then, and in each such
case, proper provision shall be made so that:
The remaining portion of Section 13(a) shall be unchanged and shall remain in
full force and effect.
8. The first phrase of Section 13(c) of the Rights Agreement is hereby
amended to read as follows:
The Company shall not consummate any such consolidation, merger (other
than the merger of the Company with and into Merger Sub), statutory share
exchange, sale or transfer unless the Principal Party shall have a
sufficient number of authorized shares of its Common Stock that have not
been issued or reserved for issuance to permit the exercise in full of the
Rights in accordance with this Section 13, and unless prior thereto the
Company and each Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing for the terms set forth in
paragraphs (a) and (b) of this Section 13 and further providing that, as
soon as practicable after the date of any consolidation, merger, statutory
share exchange, or sale of assets mentioned in this paragraph (a) of this
Section 13, the Principal Party will: . . .
The remaining portion of Section 13(c) shall be unchanged and shall remain in
full force and effect.
9. Section 25 (a) (iv) of the Rights Agreement is hereby amended to read
as follows:
(iv) to effect any consolidation or merger into or with any other
Person (other than (a) a Subsidiary of the Company in a transaction that
complies with Section 11(m) hereof and (b) the merger of the Company with
and into Merger Sub), or to effect a statutory share exchange with any
Person (other than a Subsidiary of the Company in a transaction that
complies with Section 11(m) hereof), or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale
or other transfer), in one transaction or a series of related transactions,
of more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as whole) to any other Person or Persons (other than
(a) a Subsidiary of the Company in one or more transactions each of which
complies with Section 11(m) hereof and (b) the merger of the Company with
and
3.
<PAGE>
into Merger Sub),
10. Section 27 of the Rights Agreement is hereby amended by adding the
following sentence to the end of that section:
Notwithstanding any other provisions of this Agreement, no further
amendment or supplement to this Agreement shall become effective prior to
the termination of the Merger Agreement without the written consent of
Parent.
11. Section 30 of the Rights Agreement is hereby amended to read as
follows:
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company, the Rights Agent, and the registered
holders of the Rights Certificates and (prior to the Distribution Date) the
Common Stock, any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent, the registered holders of the Rights
Certificates (and, prior to the Distribution Date, the Common Stock), and
(with respect to Section 27 of the Rights Agreement, and prior to
termination of the Merger Agreement) Parent.
12. The Rights Agreement, as amended by this Amendment, shall remain in
full force and effect in accordance with its terms.
13. All the covenants and provisions of this Amendment by or for the
benefit of the Company or the Rights Agent shall bind and inure to the benefit
of their respective successors and assigns hereunder.
14. Nothing in this Amendment shall be construed to give to any person or
corporation other than the Company, the Rights Agent, the registered holders of
the Rights Certificates and (prior to the Distribution Date) the Common Stock,
and (with respect to Section 10 of this Amendment and Section 27 of the Rights
Agreement, and prior to termination of the Merger Agreement) Parent, any legal
or equitable right, remedy or claim under this Amendment; but this Amendment
shall be for the sole and exclusive benefit of the Company, the Rights Agent,
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, the Common Stock) and (with respect to Section 10 hereof and
Section 27 of the Rights Agreement, and prior to termination of the Merger
Agreement) Parent.
15. If any term, provision, covenant or restriction of this Amendment is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Amendment shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
16. This Amendment shall be deemed to be a contract made under the laws of
the Commonwealth of Virginia and for all purposes shall be governed by and
construed in accordance with the laws of such Commonwealth applicable to
contracts to be made and performed entirely within such Commonwealth.
4.
<PAGE>
17. This Amendment may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.
18. The Company hereby certifies to the Rights Agent that this Amendment is
in compliance with Section 27 of the Rights Agreement.
5.
<PAGE>
In Witness Whereof, the parties herein have caused this Amendment to be
duly executed as of the date and year first above written.
Template Software, Inc.
By: /s/ Joseph M. Fox
----------------------------
Joseph M. Fox
Chairman of the Board and
Chief Executive Officer
First Union National Bank, a national
banking corporation
By: /s/ Victor W. LaTessa
-----------------------------
Name: Victor W. LaTessa
Title: Vice President
6.
<PAGE>
Exhibit 99.1
TEMPLATE NEWS RELEASE
- --------
SOFTWARE
For Immediate Release:
Level 8 Takes Lead in EAI Market
By Agreeing to Acquire Template Software
Combined organization will deliver next generation
enterprise application integration solutions for eCommerce and eBusiness
DULLES, VA/ CARY, NC-- October 20, 1999 - Level 8 Systems, Inc. (NASDAQ:LVEL), a
premier provider of rapid business integration solutions that enable eBusiness
and eCommerce, today announced an agreement to acquire Template Software, Inc.
(NASDAQ:TMPL) for approximately $49 million USD in cash and Level 8 common
stock. Template is a leading provider of business process automation and
application integration solutions with a substantial customer base in the
government, telecommunications, and financial services markets.
The acquisition of Template will make Level 8 one of the first to offer next
generation enterprise application integration (EAI) solutions. Level 8's fully
integrated and open next generation solutions will provide the robust enterprise
infrastructure required to enable companies to finally realize the full promise
of eCommerce and eBusiness. By combining Template's ERP integration, component
development, high performance data integration engine, and business workflow and
process management products with Level 8's middleware, EAI, and application
development technologies, Level 8 can deliver the most comprehensive, end-to-end
enterprise solutions available.
"Competitive pressures are driving companies to move as quickly as possible
toward eBusiness models," said Ed Acly, International Data Corporation's
(IDC) director of middleware research. "These new business models require not
only integrating across a wide range of existing applications but also
<PAGE>
2--2--2--2
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effectively automating business processes. Conducting business on the Internet
mandates robust, scalable infrastructure that is capable of supporting the
massive transaction volumes and dynamic response times demanded by the online
business and information consumer. The merger of Level 8 and Template is
significant because the combination of their respective technologies will enable
Level 8 to be among the first to address such a broad spectrum of eBusiness
infrastructure requirements in order to better assist customers competing in the
eEconomy."
"We believe the combination of Level 8's and Template's technologies will allow
us to bring a powerful next generation EAI solution to market very quickly,"
stated Level 8 Chairman and CEO Arik Kilman. "While both of our companies
focused on business integration, we approached different aspects of the problem.
Template created an outstanding set of technologies that are extremely
complementary to Level 8's product suite. Putting our products and expertise
together creates an unparalleled `big picture' solution. What will clearly
differentiate our offering is its flexible, adaptable enterprise infrastructure
capable of effectively handling the high transaction volumes and dynamic demands
of eBusiness and eCommerce. We are setting the bar for next generation EAI
solutions, and we intend to be a major long term player in the global market."
"We're excited about joining forces with Level 8 because we feel that it is not
only an excellent fit, but because it is a merger in which the result will be
far greater than the sum of its parts," said Joseph Fox, chairman of Template
Software. "Integrating Template's business-level software products with Level
8's powerful Geneva family of products should dramatically accelerate the
availability of solutions that offer unprecedented depth and breadth of
functionality to our customers. We look forward to seeing our technology become
a cornerstone of Level 8's cutting edge, next generation solution."
Terms of the Agreement
In the merger, each share of Template common stock will be exchanged for $4.00
in cash plus $3.90 worth of Level 8 common stock. The actual number of shares of
Level 8 common stock to be exchanged for each Template share will be based on
the average trading price of Level 8 stock prior to stockholder approval, but
will not be less than 0.2838 Level 8 shares per Template share (if Level 8's
average trading price exceeds $13.74) or more than 0.3672 Level 8 shares per
Template share (if Level 8's average trading
<PAGE>
3--3--3--3
-more-
price is less than $10.62). The merger is intended to qualify as a tax-free
reorganization, which means that Template stockholders would generally be
permitted to defer taxes on the Level 8 stock portion of the purchase price. In
connection with the merger, Level 8 has received a commitment for additional
financing. The financing will be guaranteed by Liraz Systems, Ltd., Level 8's
controlling stockholder, in return for a number of shares of Level 8 common
stock to be determined by the independent directors of Level 8 based on market
conditions and Level 8's financing needs at the closing.
The transaction is subject to certain conditions to closing, including
stockholder approval, regulatory approval, and necessary consents and
filings. Management stockholders of Template, representing approximately 17.2
percent of the outstanding Template shares, and Liraz and other Level 8
stockholders, representing 52.6 percent of the outstanding Level 8 shares,
have agreed to vote their shares in favor of the transaction.
As a result of this transaction, Level 8 will nearly double in size to a
company with over 500 employees worldwide.
A Strategic and Beneficial Merger
"This is a particularly strategic acquisition for Level 8 for a number of
other reasons, as well," added Kilman. "In addition to the product synergies,
Template's highly skilled consulting force will nicely augment our own. Also,
through this acquisition, Level 8 will add many new high profile customers,
including industry leaders such Bell Atlantic, Siemens, Alcatel, Enron, and
United Health Care to our current blue-chip customer list for a combined base
of more than 700 customers worldwide."
"Our current and future customers will clearly benefit from this merger.
Companies around the world are facing increasing competitive pressure to move
quickly into eBusiness and eCommerce," continued Kilman. "Time to market and
adaptability are critical success factors in eBusiness and eCommerce. By
leveraging the collective strengths of our combined companies, we can deliver
all these benefits to our customers to help them rapidly achieve competitive
advantage."
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<PAGE>
4--4--4--4
"Not only do our customers benefit, however. Employees of the combined
company worldwide will have new opportunities to grow with a dynamic company
and expand their skills working with a very exciting, market-leading, next
generation set of technologies. To ensure that we not only take, but sustain,
a significant market leadership position, we intend to invest substantially
in sales and marketing to grow the top line as well as the bottom line,"
concluded Kilman. "Our goal is to make our stockholders the ultimate
beneficiaries of this merger."
Next Generation EAI Solutions
The integrated solution approach Level 8 is taking is clearly in line with
industry analysts' view of next generation trends. According to analyst Dave
Kelly with the Hurwitz Group, "Second generation EAI solutions will combine
traditional first generation functionality such as messaging, transformation,
rules and adapters with component development for new functionality, business
process, and workflow capabilities to enable business-level changes, a rich
array of communications options for both enterprise and web-based business-
to-business deployment, and an integrated management platform."
More About Template Software
Template Software is a leading provider of software products and solutions
for business integration. Template's object-based integration architecture
and innovative software templates enable organizations to integrate critical
business processes across the enterprise, providing a unified view of key
business assets and reducing the costs and risks of implementing business
solutions. Template Software, headquartered in Dulles, Virginia, has over 300
employees worldwide with offices in North America, the UK, France, Austria,
and Germany. Please visit the company's web site at www.template.com for more
----------------
information on Template's products and services.
More About Level 8
Level 8 Systems is a premier provider of rapid business integration solutions
through a combination of software products and services that enable eBusiness
and eCommerce. Level 8's software product set includes enterprise application
integration (EAI) and eCommerce enablement products, message-oriented
middleware (MOM), and enterprise application development tools. Level 8 has
over 250 employees
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5--5--5--5
worldwide with corporate headquarters in Cary, North Carolina, and offices in
North America, Europe, and Australia. Please visit the company's web site at
www.level8.com for more information on Level 8 and its products and services.
- --------------
Except for any historical information contained herein, this news release
contains forward looking statements on such matters as anticipated financial
performance, business prospects, the development and capabilities of next
generation EAI solutions, new products, research and development activities
and similar matters. The company notes that a variety of factors could cause
its actual results to differ materially from the anticipated results or other
expectations expressed in this release. The company's performance,
development and results of operations may be affected by the risks presented
by market acceptance of the company's strategic direction; continued market
acceptance of the company's existing technology; the integration of
Template's operations; transfer and continuation of customer contracts
including government contracts; compliance with government contracts'
requirements and practices; fluctuations in quarterly operating results and
volatility of the price of the company's common stock; competition; customer
concentration; the potential failure to meet product delivery dates; matters
relating to international operations; intellectual property and proprietary
rights; an inability to attract and retain consultants, development
professionals, and trained qualified sales professionals and the ability of
those sales professionals to perform to quota; the sufficiency of the
company's liquidity and capital resources; and the risks more fully described
in Level 8's form S-3 filed with the Securities and Exchange Commission (File
Number 333-84681)
# # #
Level 8, Level 8 Systems, and Geneva are trademarks of Level 8 Systems, Inc.
Template and Template Software are trademarks of Template Software, Inc. All
other company and product names are for identification purposes only and are
the property of, and may be trademarks of, their respective owners.
Contact:
Template Software
Company Contact Investor Contact
Mary Ann Stoops Joe Zappulla
Template Software, Inc. Wall Street Investor Relations
703-318-1232 301-948-3430
[email protected] [email protected]
--------------------------- ---------------------
Level 8
In North America
Eileen Ibenhard Liz Bazini / Susan Verrecchia
Level 8 Verrecchia Group
919-380-5354 514-733-5529
[email protected] [email protected]/ [email protected]
-------------------- ---------------- ------------------
In Europe:
Lucy Thomas
Brodeur A Plus
44-(0)-1753-790-700
[email protected]
------------------------
