SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
(AMENDMENT NO.__)
SEER TECHNOLOGIES, INC.
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(Name of Issuer)
LEVEL 8 SYSTEMS, INC.
LIRAZ SYSTEMS LTD.
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(Name of Person(s) Filing Statement)
COMMON SHARES, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
815780 10 1
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(CUSIP Number of Class of Securities)
ARIE KILLMAN
LEVEL 8 SYSTEMS, INC.
1250 BROADWAY, 35TH FLOOR
NEW YORK, NY 10001
(212) 244-1234
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(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
COPY TO:
EDWARD W. KERSON, ESQ.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
(212) 969-3000
- --------------------------------------------------------------------------------
This statement is filed in connection with (check the appropriate
box):
a. |_| The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. |_| The filing of a registration statement under the Securities Act of
1933.
c. |X| A tender offer.
d. |_| None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: |_|
<PAGE>
<TABLE>
<CAPTION>
Calculation of Filing Fee
<S> <C>
Transaction valuation Amount of filing fee
$1,697,409 (1) $339.48 (2)
- ---------------------------------------- --------------------------------------
</TABLE>
(1) Calculated by multiplying $0.35, the per share tender offer price, by
4,849,739, the number of shares of common stock being sought in the
tender offer.
(2) Calculated as 1/50 of 1% of the transaction value.
|X| Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $339.48
Form or Registration No.: 14D-1
Filing Party: Level 8 Systems, Inc.
Date Filed: February 1, 1999
Page 1 of 10 Pages
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INTRODUCTION
This Rule 13e-3 Transaction Statement (the "Statement") is being filed
by Level 8 Systems, Inc., a New York corporation ("Level 8" or the "Purchaser"),
and Liraz Systems Ltd., an Israeli company ("Liraz"), in connection with the
tender offer by Level 8 and Liraz to purchase for $0.35 per share, net to the
seller in cash, all the issued and outstanding common shares, par value $0.01
per share, (the "Shares") of Seer Technologies, Inc., a Delaware corporation
("Seer" or the "Company"), not already owned by Level 8 and Liraz, upon the
terms and subject to the conditions set forth in the Offer to Purchase dated
February 1, 1999 (the "Offer to Purchase") and in the related Letter of
Transmittal (which together with the Offer to Purchase constitute the "Offer"),
copies of which are filed as Exhibits (d)(1) and (d)(2) hereto, respectively.
The following cross reference sheet is being supplied pursuant to
General Instruction F to Schedule 13E-3 and shows the location, in the Schedule
14D-1 (the "Schedule 14D-1") filed by Level 8 with the Securities and Exchange
Commission on the date hereof, of the information required to be included in
response to items of this Statement. The information in the Schedule 14D-1,
including all exhibits thereto, is hereby expressly incorporated herein by
reference and the responses to each item are qualified in their entirety by the
provisions of the Schedule 14D-1.
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<PAGE>
CROSS REFERENCE SHEET
Item in Where located
Schedule 13E-3 Schedule 14D-1
Item 1(a)..............................................................Item 1(a)
Item 1(b)..............................................................Item 1(b)
Item 1(c)..............................................................Item 1(c)
Item 1(d)......................................................................*
Item 1(e)......................................................................*
Item 1(f)......................................................................*
Item 2(a)..............................................................Item 2(a)
Item 2(b)..............................................................Item 2(b)
Item 2(c)..............................................................Item 2(c)
Item 2(d)..............................................................Item 2(d)
Item 2(e)..............................................................Item 2(e)
Item 2(f)..............................................................Item 2(f)
Item 2(g)..............................................................Item 2(g)
Item 3(a)(1)...........................................................Item 3(a)
Item 3(a)(2)...........................................................Item 3(b)
Item 3(b)......................................................................*
Item 4.........................................................................*
Item 5(a)..............................................................Item 5(a)
Item 5(b)..............................................................Item 5(b)
Item 5(c)..............................................................Item 5(c)
Item 5(d)..............................................................Item 5(d)
Item 5(e)..............................................................Item 5(e)
Item 5(f)..............................................................Item 5(g)
Item 5(g)......................................................................*
Item 6(a)..............................................................Item 4(a)
Item 6(b)......................................................................*
Item 6(c)..............................................................Item 4(b)
Item 6(d)......................................................................*
Item 7(a).................................................................Item 5
Item 7(b)......................................................................*
Item 7(c)......................................................................*
Item 7(d)......................................................................*
Item 8 ........................................................................*
Item 9 ........................................................................*
Item 10(a).............................................................Item 6(a)
Item 10(b).............................................................Item 6(b)
Item 11...................................................................Item 7
Item 12(a) ....................................................................*
Item 12(b) ....................................................................*
Item 13........................................................................*
Item 14........................................................................*
Item 15(a) ....................................................................*
Item 15(b)................................................................Item 8
Item 16...............................................................Item 10(f)
Item 17..................................................................Item 11
* = The Item is Inapplicable
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<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The name of the issuer of the class of equity security is Seer
Technologies, Inc. and its principal executive offices are located at 8000
Regency Parkway, Cary, North Carolina 27511.
(b) The class of equity securities and the amount of such outstanding
securities being sought are 4,849,739 shares of common stock, par value $0.01
per share, of the Company. There were 11,980,633 shares of common stock
outstanding as of December 24, 1998. As of January 20, 1999, there were 295
holders of record of shares of common stock.
(c) The information concerning the principal market in which the Shares are
traded and certain high and low sales prices for the Shares in such principal
market is set forth in "Price Range of Shares; Dividends" in the Offer to
Purchase and is incorporated herein by reference.
(d) The information set forth in "Price Range of Shares; Dividends" of the
Offer to Purchase is incorporated herein by reference.
(e) Not applicable.
(f) Not applicable.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This Statement is being filed by the Purchaser and Liraz.
The response to Item 2 of the Schedule 14D-1 is incorporated herein by reference
as to the Purchaser and Liraz.
(e) and (f) The response to Item 2 of the Schedule 14D-1 is incorporated
herein by reference with respect to the Purchaser and Liraz.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) and (b) The information set forth in "Introduction"; "Special Factors -
Background of the Transaction"; "Special Factors - Position of the Company's
Board of Directors"; "Special Factors - Fairness of the Offer and the Merger";
"Special Factors - Purpose and Structure of the Transaction; Plans for the
Company"; "Special Factors - Interests of Certain Persons in the Offer and the
Merger"; "Special Factors - The Acquisition Agreement"; "The Tender Offer -
Certain Information Concerning the Purchaser" and "The Tender Offer - Certain
Information Concerning the Company" of the Offer to Purchase is incorporated
herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in "Introduction"; "Special Factors - Purpose
and Structure of the Transaction; Plans for the Company"; "The Tender Offer -
Terms of the Offer"; "The Tender Offer - Acceptance for Payment and Payment";
"The Tender Offer - Procedures for Tendering Shares"; "The Tender
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<PAGE>
Offer - Withdrawal Rights"; and "The Tender Offer - Conditions to the Offer" of
the Offer to Purchase is incorporated herein by reference.
(b) The information set forth in "Introduction"; "Special Factors - Purpose
and Structure of the Transaction; Plans for the Company"; and "Special Factors -
Interests of Certain Persons in the Offer and the Merger" of the Offer to
Purchase is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(e) The information set forth in the "Introduction"; "Special Factors -
Interests of Certain Persons in the Offer and the Merger," "Special Factors -
The Acquisition Agreement" and "Special Factors - Purpose and Structure of the
Transaction; Plans for the Company" of the Offer to Purchase is incorporated
herein by reference.
(f)-(g) The information set forth in "The Tender Offer - Effect of the
Offer on the Market for the Shares; Exchange Act Registration" of the Offer to
Purchase is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in "Introduction" and "Special Factors -
Financing of the Offer and the Merger" of the Offer to Purchase is incorporated
herein by reference.
(b) The information set forth in "Introduction"; "Special Factors - The
Acquisition Agreement" and "The Tender Offer - Fees and Expenses" of the Offer
to Purchase is incorporated herein by reference.
(c) Not applicable.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The information set forth in "Introduction"; "Special Factors -
Fairness of the Offer and the Merger" and "Special Factors - Purpose and
Structure of the Transaction; Plans for the Company" of the Offer to Purchase is
incorporated herein by reference.
(b) The information set forth in "Introduction" and "Special Factors -
Background of the Transaction" of the Offer to Purchase is incorporated herein
by reference.
(c) The information set forth in "Introduction"; "Special Factors -
Background of the Transaction"; "Special Factors - Fairness of the Offer and the
Merger"; and "Special Factors - Purpose and Structure of the Transaction; Plans
for the Company" of the Offer to Purchase is incorporated herein by reference.
(d) The information set forth in "Introduction"; "Special Factors - Purpose
and Structure of he Transaction; Plans for the Company"; "Special Factors -
Interests of Certain Persons in the Offer and the Merger"; Special Factors - The
Acquisition Agreement"; "Special Factors - Appraisal Rights"; "The Tender
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Offer - Effect of the Offer on the Market for the Shares; Exchange Act
Registration" and "Special Factors - Certain Tax Consequences" of the Offer to
Purchase is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(e) The information set forth in "Introduction"; "Special Factors -
Background of the Transaction" and "Special Factors - Position of the Company's
Board of Directors"; "Special Factors - Fairness of the Offer and the Merger" of
the Offer to Purchase is incorporated herein by reference.
(f) The information set forth in "Introduction" of the Offer to Purchase is
incorporated herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) None.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a)-(b) The information set forth in the "Introduction"; "Special Factors -
The Acquisition Agreement"; "The Tender Offer - Certain Information Concerning
the Purchaser"; "Schedule I" and "Schedule II" of the Offer to Purchase is
incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The information set forth in "Introduction"; "Special Factors - Background
of the Transaction"; "Special Factors - The Acquisition Agreement"; "The Tender
Offer - Certain Information Concerning the Purchaser" of the Offer to Purchase
is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) The information set forth in "Introduction" of the Offer to Purchase is
incorporated herein by reference.
(b) The information set forth in "Introduction" and "Special Factors -
Position of the Company's Board of Directors" of the Offer to Purchase is
incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "Special Factors - Appraisal Rights" of
the Offer to Purchase is incorporated herein by reference.
(b) Not applicable.
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(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in "The Tender Offer - Certain Information
Concerning the Company" and "Exhibit 2" of the Offer to Purchase is incorporated
herein by reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in "Special Factors - Interests of Certain
Persons in the Offer and the Merger" of the Offer to Purchase is incorporated
herein by reference.
(b) The information set forth in "Introduction"; and "The Tender Offer -
Fees and Expenses" of the Offer to Purchase is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
Additional information is set forth in the Offer to Purchase and the Letter
of Transmittal which are attached hereto as exhibits (d)(1) and (d)(2),
respectively, and incorporated herein by reference in their entirety.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) None
(b) None
(c)(1) Agreement dated as of November 23, 1998 among Level 8 Systems,
Inc., Welsh Carson Anderson & Stowe VI, L.P. ("WCAS") and certain
parties affiliated or associated with WCAS is incorporated by
reference to Exhibit 2.1 of Level 8 Systems, Inc.'s Report on
Form 8-K filed with the Securities and Exchange Commission on
January 15, 1999.
(d)(1) Offer to Purchase dated February 1, 1999
(d)(2) Letter of Transmittal
(d)(3) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees
(d)(4) Letter To Our Clients
(d)(5) Notice of Guaranteed Delivery
(d)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9
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<PAGE>
(d)(7) Press Release dated February 1, 1999
(e) None
(f) None
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<PAGE>
SIGNATURE
After reasonable inquiry and to the best of the undersigned's
knowledge and belief, the undersigned certifies that the information set forth
in this statement is true, complete and correct.
Dated: February 1, 1999 LEVEL 8 SYSTEMS, INC.
By: /s/ Arie Kilman
Name: Arie Kilman
Title: Chairman of the Board and
Chief Executive Officer
LIRAZ SYSTEMS LTD.
By: /s/ Arie Kilman
Name: Arie Kilman
Title: Chairman of the Board and
President
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<PAGE>
13E-3 EXHIBIT INDEX
Exhibit Description
(a) None
(b) None
(c)(1)
Agreement dated as of November 23, 1998 among Level 8
Systems, Inc., Welsh Carson Anderson & Stowe VI, L.P.
("WCAS") and certain parties affiliated or associated with
WCAS is incorporated by reference to Exhibit 2.1 of Level 8
Systems, Inc.'s Report on Form 8-K filed with the Securities
and Exchange Commission on January 15, 1999.
(d)(1) Offer to Purchase dated February 1, 1999
(d)(2) Letter of Transmittal
(d)(3) Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
(d)(4) Letter To Our Clients
(d)(5) Notice of Guaranteed Delivery
(d)(6) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
(d)(7) Press Release dated February 1, 1999
(e) None
(f) None
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
Seer Technologies, Inc.
at
$0.35 Net Per Share
by
Level 8 Systems, Inc.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON TUESDAY, MARCH 2, 1999, UNLESS EXTENDED.
IMPORTANT
Any stockholder wishing to tender all or any portion of his shares of
common stock, $.01 par value ("Shares") of Seer Technologies, Inc., should
either (a) complete and sign the Letter of Transmittal or a facsimile thereof in
accordance with the instructions in the Letter of Transmittal and mail or
deliver it and any other required documents to the Depositary and either deliver
the certificates for the Shares to the Depositary along with the Letter of
Transmittal or tender the Shares pursuant to the procedure for book-entry
transfer set forth in "The Tender Offer -- Procedures for Tendering Shares," or
(b) request his broker, dealer, commercial bank, trust company or other nominee
to effect the transaction for him. A stockholder who has Shares registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
must contact the broker, dealer, commercial bank, trust company or other
nominee, if he wishes to tender those Shares.
Any stockholder wishing to tender Shares and whose certificates for
those Shares are not immediately available, or who cannot comply with the
procedures for book-entry transfer on a timely basis, may tender those Shares by
following the procedure for guaranteed delivery set forth in "The Tender Offer
- -- Procedures for Tendering Shares."
Questions and requests for assistance or for additional copies of this
Offer to Purchase and the Letter of Transmittal may be directed to Beacon Hill
Partners, Inc., the Information Agent, at the address and telephone number set
forth on the back cover of this Offer to Purchase. Stockholders may also contact
brokers, dealers, commercial banks or trust companies for assistance concerning
the Offer.
--------------------------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT, ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
--------------------------------------------
February 1, 1999
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION...................................................................1
SPECIAL FACTORS................................................................2
Background of the Transaction.............................................2
Position of the Company's Board of Directors..............................4
Fairness of the Offer and the Merger......................................4
Purpose and Structure of the Transaction; Plans for the Company...........5
Interests of Certain Persons in the Offer and the Merger..................5
The Acquisition Agreement.................................................6
Financing of the Offer and the Merger.....................................8
Appraisal Rights..........................................................8
Certain Tax Consequences..................................................8
THE TENDER OFFER...............................................................9
Terms of the Offer........................................................9
Acceptance for Payment and Payment.......................................10
Procedures for Tendering Shares..........................................11
Withdrawal Rights........................................................13
Price Range of Shares; Dividends.........................................13
Effect of the Offer on the Market for the Shares;
Exchange Act Registration...........................................14
Certain Information Concerning the Company...............................15
Certain Information Concerning the Purchaser.............................19
Conditions to the Offer..................................................20
Certain Legal Matters....................................................21
Fees and Expenses........................................................22
Miscellaneous............................................................23
SCHEDULE 1 -- Certain Information Regarding Seer Technologies, Inc.
SCHEDULE 2 -- Certain Information Regarding Level 8 Systems, Inc.
and Liraz Systems Ltd.
EXHIBIT 1 -- Agreement dated November 23, 1998 between Level 8 Systems, Inc.,
on the one hand, and Welsh Carson Anderson & Stowe VI, L.P.
("WCAS VI") and certain parties affiliated or associated with
WCAS VI
EXHIBIT 2 -- Consolidated Financial Statements of Seer Technologies, Inc.
i
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To the Holders of Common Stock of
Seer Technologies, Inc.
INTRODUCTION
Level 8 Systems, Inc. (the "Purchaser"), a New York corporation,
hereby offers to purchase all outstanding shares of common stock, $.01 par value
("Shares"), of Seer Technologies, Inc. (the "Company"), a Delaware corporation,
at $0.35 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which together constitute the "Offer"). Tendering stockholders will
not be obligated to pay brokerage commissions or, except as set forth in
Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of
Shares by the Purchaser pursuant to the Offer. The Purchaser will pay all
charges and expenses of Beacon Hill Partners, Inc., which is acting as the
Information Agent (the "Information Agent"), and American Stock Transfer and
Trust Company, which is acting as the Depositary (the "Depositary"), in
connection with the Offer. See "The Tender Offer--Fees and Expenses."
The Offer is being made pursuant to an agreement dated November 23,
1998 (the "Acquisition Agreement") between the Purchaser, on the one hand, and
Welsh Carson Anderson & Stowe VI, L.P. ("WCAS VI") and certain parties
affiliated or associated with WCAS VI (collectively, the "WCAS Parties").
Pursuant to the Acquisition Agreement, on December 31, 1998, the Purchaser
issued to the WCAS Parties an aggregate of 1,000,000 shares of the Purchaser's
common stock (the "Purchaser Shares") and warrants to purchase an additional
250,000 Purchaser Shares for $12.00 a share (the "Purchaser Warrants"), and the
WCAS Parties (a) transferred to the Purchaser an aggregate of 7,130,894 Shares
and all the outstanding shares of preferred stock of the Company, which are
convertible into an aggregate of 3,856,258 Shares, and (b) contributed an
aggregate of $16.9 million of additional capital to the Company. As a
consequence, the Purchaser currently owns approximately 69% of the outstanding
voting stock of the Company. The aggregate market value of the Purchaser Shares
issued to the WCAS Parties was $6,625,000 on November 20, 1998, the last trading
day before the execution of the Acquisition Agreement, and $9,687,500 on
December 31, 1998, the date of the closing of the acquisition under the
Acquisition Agreement, in each case based on the closing sale price of the
Purchaser Shares on the Nasdaq National Market. (The closing sale price of the
Purchaser Shares on the Nasdaq National Market was $6.625 a share on November
20, 1998 (the last trading day before the execution of the Acquisition
Agreement), and $9.6875 a share on December 31, 1998, compared with the $12.00 a
share exercise price under the Purchaser Warrants.)
In accordance with the Acquisition Agreement, as soon as practicable
after the completion of the Offer, the Purchaser will cause each outstanding
Share, other than Shares held in the Company's treasury or by the Purchaser and
other than Shares ("Dissenting Shares") held by stockholders who properly
exercise appraisal rights under the Delaware General Corporation Law (the
"DGCL"), to be converted into the right to receive $0.35 per Share, in cash,
through a merger of a wholly-owned subsidiary of the Purchaser into the Company
(the "Merger"). As a result, the Purchaser, directly or through one or more
subsidiaries, will own all the outstanding Shares. See "Special Factors--The
Acquisition Agreement" for a description of the Acquisition Agreement.
The Company's Board of Directors has expressed no opinion and has made
no recommendation as to whether stockholders should tender their Shares in the
Offer because of certain actual and potential conflicts of interest. To the best
of the knowledge of the Purchaser, however, each of the Company's executive
officers, directors and affiliates (other than the Purchaser) intends to tender
the Shares he or she owns.
<PAGE>
Regardless of how many Shares are purchased in the Offer, the Purchaser
has sufficient voting power to approve the Merger contemplated by the
Acquisition Agreement, without the approval of any other stockholders of the
Company. A separate affirmative vote of a majority of unaffiliated stockholders
of the Company is not required for approval of the Merger.
The Company has furnished the Purchaser with the information in this
Offer to Purchase concerning the deliberations of the Company's Board of
Directors in connection with the Offer and the Merger. The Purchaser takes no
responsibility for the accuracy or completeness of that information.
Stockholders are urged to read this Offer to Purchase carefully before
deciding whether to tender their Shares.
SPECIAL FACTORS
Background of the Transaction
The Company is one of the software industry's earliest pioneers and a
long-time leader in software application development tools. In recent periods,
however, the Company's revenue began to decline; from fiscal year 1997 to fiscal
year 1998, revenue decreased 38%, primarily as a result of an 80% decrease in
software products revenue. The Company has financed its net cash outflows in
recent years (i.e., $40.5 million in fiscal year 1996, $15.2 million in fiscal
year 1997 and $24.3 million in fiscal year 1998), in part, through borrowings,
which were guaranteed in part by the WCAS Parties, and issuances of shares of
the Company's preferred stock to the WCAS Parties for $17.5 million.
In response to the Company's declining revenue and increasing need for
capital, the Company and WCAS VI began to explore strategic alternatives,
including strategic alternatives involving equity investments or business
combinations involving the Company.
In December 1997, the Company engaged BT Alex. Brown Incorporated ("BT
Alex. Brown") to assist in exploring strategic alternatives for the Company,
and, in particular, to seek a potential merger partner or buyer for the Company.
BT Alex. Brown identified and contacted approximately a dozen companies, three
of which expressed preliminary interest in pursuing a transaction. These parties
commenced a due diligence review of the Company and its operations in early
1998. Only one of these parties, however, ultimately expressed an interest in
making an offer to the Company. This party indicated that the only offer it
would consider making would be conditioned on WCAS VI and its affiliates
providing the Company additional equity and other financial support. In late
March 1998, WCAS VI indicated it was not prepared to provide such equity and
support, and no transaction with this party was further pursued.
In early May 1998, senior management of the Purchaser first learned
about the Company, and the possibility of acquiring the Company, through
discussions with an employee of the Purchaser who formerly had been an employee
of the Company. Thereafter, Arie Kilman, the chief executive officer and
chairman of the board of the Purchaser, met with Steven Dmiszewicki, the
Company's co-president and chief financial officer. At the meeting, Mr. Kilman
received basic information about the Company.
On May 26, 1998, personnel of the Purchaser and Ted Venema, the
Company's co-president and chief technology officer, exchanged information
concerning the Company's and the Purchaser's technologies. On June 16, 1998, the
Purchaser's technology personnel and Messrs. Dmiszewicki and Venema had
additional discussions about technology issues.
2
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On July 13, 1998, representatives of the Purchaser and WCAS VI, which
at the time owned a majority of the outstanding and issuable Shares, met to
discuss the Purchaser's possible acquisition of the Company. At that meeting,
the Purchaser expressed interest in acquiring the Company. Robert A. Minicucci,
a principal of WCAS VI and Chairman of the Board of Directors of the Company,
suggested the Purchaser perform a due diligence examination of the Company and
submit an offer for consideration. Later in the day, Mr. Kilman and Lenny
Recanati, a director of the Purchaser, met with Mr. Dmiszewicki to discuss the
possible acquisition and the due diligence process. From late July through early
August 1998, representatives of the Purchaser, including an outside technology
consultant, reviewed the business and operations of the Company.
On August 10, 1998, Mr. Kilman submitted an acquisition proposal. The
proposal contemplated that the WCAS Parties acquire the outstanding Shares they
did not already own, and, upon a contribution of $10 million to the Company's
capital by the WCAS Parties and a contribution of $30 million to the Company's
capital by the Purchaser, the Purchaser and the WCAS Parties would own 60% and
40%, respectively, of the equity in the Company. The proposal was rejected.
In September 1998, Mr. Kilman, who believed the Purchaser's discussions
with the Company had ended, introduced Messrs. Dmiszewicki and Minicucci to
another unaffiliated party, whom Mr. Kilman believed might have an interest in
pursuing a transaction with the Company. After two introductory meetings,
neither Mr. Kilman nor any other representative of the Purchaser or its
affiliates participated in discussions among that unaffiliated party, the
Company and WCAS VI. From late October through early November 1998, the Company
explored a potential transaction with that party, who engaged in a due diligence
review of the Company's business and operations. Over the course of its due
diligence review, that party progressively lowered the price that it indicated
it would offer and indicated that any proposal would be conditioned on
substantial concessions by the Company's lenders. In early November, that party
proposed a transaction that did not provide for any payments to holders of the
Company's common stock. Based on the foregoing, the Company's Board of Directors
believed it was unlikely that a transaction could be completed with that party
and discussions were discontinued.
Following Mr. Kilman's introduction of Messrs. Dmiszewicki and
Minicucci to the unaffiliated party referred to above, Mr. Kilman and Mr.
Dmiszewicki renewed their discussions regarding the Purchaser's possible
acquisition of the Company, and, on November 2, 1998, Mr. Kilman met with a
representative of Greyrock Capital, the Company's principal lender, to discuss
the Company's financing. Later that day, Messrs. Kilman and Recanati had further
discussions with Mr. Minicucci concerning the possible acquisition.
From late October through early November 1998, the Company also
explored a potential transaction with another unaffiliated party, who also
engaged in a due diligence review of the Company's business and operations. In
early November, that party proposed a transaction that did not provide for any
payments to holders of the Company's common stock, and discussions with that
party were abandoned.
On November 4, 1998, Mr. Kilman and the Purchaser's chief financial
officer held further discussions with a representative of Greyrock Capital to
discuss the Company's financing.
After a number of discussions between representatives of the Purchaser
and representatives of the WCAS Parties, in mid-November 1998 the parties agreed
on the basic terms reflected in the Acquisition Agreement. Discussions over the
detailed terms of the Acquisition Agreement continued, until the final
Acquisition Agreement was approved and signed on or about November 23, 1998.
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Position of the Company's Board of Directors
The Company's Board of Directors has neither approved nor disapproved
the Acquisition Agreement, the Offer or the Merger. The Company is not a party
to the Acquisition Agreement and, therefore, Board approval of the Acquisition
Agreement was neither required nor appropriate. Three of the six members of the
Company's Board of Directors are general partners of WCAS VI: Mr. Minicucci,
Chairman of the Board of Directors, Bruce K. Anderson and Anthony J. de Nicola.
In addition, the WCAS Parties effectively had the power to direct the election
of the entire Board of Directors as a result of their beneficial ownership of
approximately 69% of the outstanding voting stock of the Company. As discussed
under "Interest of Certain Persons in the Offer and the Merger" below, the WCAS
Parties and their designees on the Company's Board of Directors have certain
actual and potential conflicts of interest with respect to the Offer and the
Merger. Because of such conflicts of interest, the Company's Board of Directors
believes that any recommendation by the Company's Board of Directors may not be
meaningful to stockholders. For this reason, the Company's Board of Directors
has expressed no opinion and has made no recommendation as to whether
stockholders should tender their Shares in the Offer. Stockholders should
exercise their own judgment, based on the advice of their own financial and
legal advisors, in evaluating the Offer. The Purchaser has sufficient voting
power to approve the Merger, whether or not any Shares are purchased in the
Offer.
Fairness of the Offer and the Merger
The Purchaser regards the acquisition of the Company as an attractive
investment opportunity because it believes the Company's future business
prospects may be favorable, and the anticipated combination will afford each of
the parties additional technological resources and products, will afford the
Purchaser additional sales and marketing and administrative resources and will
afford the Company additional financial resources.
Based, in part, on the following factors, the Purchaser concluded that
the consideration to be paid to the Company's stockholders in the Offer and the
Merger is fair to the Company's stockholders. The Purchaser did not find it
practicable to quantify or otherwise attach relative weights to the specific
factors.
(a) The $0.35 per Share Offer represented approximately 117% of the
average of the closing bid prices of the Shares quoted on the over-the-counter
bulletin board (the "OTC Bulletin Board") during the five trading-day period
ended on November 23, 1998, the day before the public announcement of the
transaction.
(b) During approximately the five weeks between the time the proposed
acquisition was first publicly announced and the completion of the acquisition
of the WCAS Parties' securities on December 31, 1998, no inquiries or proposals
regarding the Company were received from third parties.
(c) The aggregate market value of the Purchaser Shares issued to the
WCAS Parties was $6,625,000 on November 20, 1998, the last trading day before
the execution of the Acquisition Agreement, and $9,687,500 on December 31, 1998,
the date of the closing of the acquisition under the Acquisition Agreement, in
each case based on the closing sale price of the Purchaser Shares on the Nasdaq
National Market. (The closing sale price of the Purchaser Shares on the Nasdaq
National Market was $6.625 a share on November 20, 1998 (the last trading day
before the execution of the Acquisition agreement) and $9.6875 a share on
December 31, 1998, compared with the $12.00 a share exercise price under the
Purchaser Warrants.) Such amounts are materially less than the additional $16.9
million capital contribution the WCAS Parties made to the Company pursuant to
the Acquisition Agreement and the $17.5 million liquidation preference of the
Company's preferred stock owned by the WCAS Parties. Accordingly, the
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Purchaser believes the value of the securities issued to the WCAS Parties that
should properly be allocated to the WCAS Parties' Shares is nominal and, in any
event, less than the $0.35 a Share being offered in the Offer.
(d) The Acquisition Agreement did not preclude the Company's Board of
Directors, in the exercise of its fiduciary obligations under applicable law,
from furnishing information to or participating in negotiations with persons
making proposals to acquire the Company.
(e) In the absence of the transactions contemplated by the Acquisition
Agreement, including the Offer, the Company could be required to reorganize or
pursue an alternative financing transaction or business combination that would
substantially reduce or eliminate the value of the Shares.
Purpose and Structure of the Transaction; Plans for the Company
The purpose of the Offer and the Merger is for the Purchaser to acquire
all the capital stock of the Company. As a consequence of the Offer and the
Merger, the Purchaser's beneficial ownership of the Shares will increase from
69% to 100%.
Following the completion of the Offer, the Purchaser intends to acquire
any remaining capital stock of the Company not then owned by it or its
subsidiaries by consummating the Merger. The acquisition of all the capital
stock of the Company has been structured as a cash tender offer followed by a
cash merger in order to provide a prompt and orderly transfer of ownership of
the Company from the public stockholders to the Purchaser and to provide
stockholders with cash for all their Shares.
Following the Offer and the Merger, the Purchaser intends that the
Company's current management, under the direction of the Purchaser's Board of
Directors, continue to manage the Company as an ongoing business in the same
general manner as it is now being conducted. Except as otherwise described in
this Offer to Purchase, the Purchaser does not have any present plans or
proposals that relate to or would result in an extraordinary corporate
transaction, such as a merger, reorganization, liquidation, relocation of any
operations of the Company, or a sale or transfer of a material amount of assets
involving the Company or any of its subsidiaries, or any changes in the
Company's present capitalization or any other change in the Company's corporate
structure or business or the composition of its management. However, the
Purchaser will be reviewing additional information about the Company and, upon
completion of such review, may propose or develop additional or new plans or
proposals or may propose the acquisition or disposition of assets or other
changes in the Company's business, corporate structure, capitalization,
management or dividend policy it considers to be in the best interests of the
Company and its stockholders.
Interests of Certain Persons in the Offer and the Merger
The negotiation of the Acquisition Agreement may have presented the
WCAS Parties with conflicts of interest between themselves and the other
stockholders of the Company, who had no role in the negotiation of the terms of
this Offer. In considering the Offer and the Merger, stockholders should be
aware that, in exchange for 7,130,894 Shares, shares of preferred stock of the
Company having a $17.5 million liquidation preference and an agreement to
contribute to the Company's capital up to $17.0 million, the WCAS Parties have
received consideration different from the consideration other stockholders will
receive in the Offer and the Merger. The aggregate market value of the Purchaser
Shares issued to the WCAS Parties was $6,625,000 on November 20, 1998, the last
trading day before the execution of the Acquisition Agreement, and $9,687,500 on
December 31, 1998, the date of the closing of the acquisition under the
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Acquisition Agreement, in each case based on the closing sale price of the
Purchaser Shares on the Nasdaq National Market. Such amounts are materially less
than the additional $16.9 million capital contribution the WCAS Parties made to
the Company pursuant to the Acquisition Agreement and the $17.5 million
liquidation preference of the Company's preferred stock then owned by the WCAS
Parties and the value of the right of subrogation the WCAS Parties would have
against the Company by virtue of the $16.9 million payment the WCAS Parties made
pursuant to their guarantee of the Company's indebtedness. The WCAS Parties also
have received a general release of all liabilities they had for any obligations
to the Company's principal bank lender in respect of the Company's indebtedness.
Since the voting stock of the Company held by the WCAS Parties was
exchanged for Purchaser Shares and Purchaser Warrants, the WCAS Parties have the
opportunity to participate in the continued growth of the combined company.
Other stockholders of the Company will receive $0.35 per Share in cash in the
Offer or the Merger, but will not participate in the future growth of the
combined company.
Through December 31, 1998, the WCAS Parties had guaranteed the
Company's obligations under a $17.0 million bank credit facility and a $0.5
million foreign exchange line of credit. In connection with the transactions
under the Acquisition Agreement, on December 31, 1998, the WCAS Parties made a
$16.9 million capital contribution to the Company, which was used to pay off and
terminate the Company's guaranteed credit facility and the WCAS Parties were
released from all liabilities and obligations to the lender in connection with
the credit facility.
Steven Dmiszewicki, the co-president and chief financial officer of the
Company, has become the chief operating officer of the Purchaser. Mr.
Dmiszewicki will receive a base salary at the rate of $200,000 a year, and will
be eligible to receive a bonus of up to 100% of base salary in 1999. The
Purchaser also has granted Mr. Dmiszewicki options to purchase 200,000 Purchaser
Shares.
In connection with the transactions contemplated by the Acquisition
Agreement, Ted Venema resigned as the Company's co-president and chief
technology officer effective January 1, 1999. The Company has agreed to pay Mr.
Venema $13,750 a month as severance for one year. In addition, Mr. Venema has
agreed to consult with the Company to assist in the transition for up to six
months for a $12,000 a month consulting fee.
The Board of Directors of the Purchaser will consider a payment of a
$90,000 bonus to Mr. Kilman upon completion of the Offer and the Merger.
In connection with the acquisition of the Company, the Purchaser is
reviewing its compensation and benefits programs and anticipates implementing
revised equity incentive compensation and employee benefits programs.
For a description of rights of indemnification in favor of the
directors, officers, employees, fiduciaries or agents of the Company and its
subsidiaries, see "The Acquisition Agreement" below
The Acquisition Agreement
The following is a summary of all the material provisions of the
Acquisition Agreement, a copy of which (excluding exhibits and schedules, which
are included in the Purchaser's Report on Form 8-K dated January 15, 1999 filed
with the Securities and Exchange Commission) is attached as exhibit 1. This
summary is subject to, and qualified in its entirety by reference to, the
provisions of the Acquisition Agreement.
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The Exchange. Pursuant to the Acquisition Agreement, on December 31,
1998, the Purchaser issued to the WCAS Parties an aggregate of 1,000,000
Purchaser Shares and 250,000 Purchaser Warrants in exchange for (a) 7,130,894
Shares, (b) all the outstanding shares of preferred stock of the Company, which
are convertible into an aggregate of 3,856,258 Shares, and (c) the contribution
by the WCAS Parties to the Company's capital of approximately $16.9 million. As
a consequence, the Purchaser currently owns approximately 69% of the outstanding
voting stock of the Company.
The Offer. The Acquisition Agreement provides for the Offer. Subject to
the terms of the Offer, the Purchaser will accept for payment all Shares that
have been validly tendered and not withdrawn pursuant to the Offer at the
earliest time that all the conditions to the Offer shall have been satisfied or
waived by the Purchaser. The obligations of the Purchaser to commence the Offer
and accept for payment (and purchase) any Shares are subject to the satisfaction
or waiver of certain conditions listed in "The Tender Offer--Conditions to the
Offer." The conditions cannot be amended without the consent of the WCAS
Parties.
The Merger. The Acquisition Agreement provides that, as promptly as
practicable after the completion of the Offer, the Purchaser will acquire
through the Merger all the outstanding Shares (other than Shares previously
acquired) for $0.35 a Share, in cash.
Because the Purchaser holds a majority of the outstanding Shares, the
Purchaser will be permitted under the DGCL to approve the Merger without the
approval of any other stockholders of the Company.
Other Agreements of the WCAS Parties and the Purchaser. The WCAS
Parties agreed that, prior to the closing of the acquisition of their securities
by the Purchaser or, if earlier, the termination of the Acquisition Agreement,
they would not, and would use their reasonable efforts not to permit their
officers, directors or other agents, directly or indirectly, to (a) solicit,
initiate, encourage, accept or agree to any Acquisition Proposal (as defined
below), or (b) engage in negotiations with any person or entity that may be
considering making, or has made, an Acquisition Proposal, or (c) disclose any
non-public information relating to the Company or afford access to the assets,
books or records of the Company to any person or entity that may be considering
making, or has made, an Acquisition Proposal. The term "Acquisition Proposal"
means any offer or proposal for, or any indication of interest in, any merger or
other business combination involving the Company, or the acquisition of any
equity interest in, or any material portion of the assets of, the Company, other
than the transactions contemplated in the Acquisition Agreement.
The WCAS Parties further agreed that, prior to January 1, 2001: (a) at
any meeting of stockholders of the Purchaser, each WCAS Party will grant a proxy
to an individual named by the Purchaser from time to time to vote all that WCAS
Party's Purchaser Shares acquired through the Acquisition Agreement as the
Purchaser may request; and (b) subject to limited exceptions, no WCAS Party may
transfer any Purchaser Shares acquired through the Acquisition Agreement without
the prior written consent of the Purchaser.
Pursuant to the Acquisition Agreement, the Purchaser provided the
Company with $12.0 million in the form of a long-term loan, and has agreed to
guarantee certain of the Company's indebtedness. The proceeds of the $12.0
million loan and the WCAS Parties' contribution to the Company's capital of
$16.9 million have been used to reduce the Company's bank indebtedness. The
Purchaser has agreed to fund the Company's operations through January 15, 2000.
The Purchaser also has agreed that, for a period of up to two years, it
will not engage in any transactions with its parent company or any of its parent
company's affiliates on terms less favorable to the Purchaser than the terms on
which an unaffiliated third party would engage in such transactions.
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Fees and Expenses. The WCAS Parties and the Purchaser have agreed to
bear their own respective expenses in connection with the Acquisition Agreement
and all obligations to be performed under the Acquisition Agreement, including
all sales, stock transfer and other similar taxes and fees in respect of the
transfer of securities by each of them, except that the Company will bear up to
$75,000 of the expenses of the WCAS Parties in connection with their obligations
to be performed under the Acquisition Agreement.
Indemnification. The Purchaser has agreed that all rights to
indemnification and exculpation existing in favor of the directors, officers,
employees and agents of the Company provided in its charter or by-laws or
otherwise in effect as of the closing of the acquisition from the WCAS Parties
under the Acquisition Agreement will continue for six years. The Acquisition
Agreement also provides that, for six years, the Purchaser will cause to be
maintained directors' and officers' liability insurance for directors, officers,
employees and agents of the Company providing coverage no less favorable than
the coverage in effect at the closing under the Acquisition Agreement for the
Purchaser's own directors and officers.
Financing of the Offer and the Merger
Approximately $1.7 million will be required to fund the purchase price
to be paid in the Offer and the Merger. The Purchaser expects to obtain these
funds from its currently available cash and cash equivalents. See "The
Acquisition Agreement" above.
Appraisal Rights
No appraisal rights are available to stockholders in connection with
the Offer. However, if the Merger is consummated, a stockholder will have
certain rights under section 262 of the DGCL to dissent and demand appraisal of,
and payment in cash of the fair value of, that stockholder's Shares. Those
rights, if the statutory procedures are complied with, could lead to a judicial
determination of the fair value (excluding any value arising from the Merger)
required to be paid in cash to dissenting stockholders for their Shares. Any
judicial determination of the fair value of Shares could be based upon
considerations other than or in addition to the Offer price and the market value
of the Shares, including asset values and the investment value of the Shares.
The value so determined could be more or less than the Offer.
If a stockholder who demands appraisal under section 262 of the DGCL
fails to perfect, or effectively withdraws or loses, his right to appraisal, as
provided in the DGCL, the Shares of that stockholder will be converted into the
Merger consideration. A stockholder may withdraw his demand for appraisal by
delivering to the Purchaser a written withdrawal of such demand for appraisal
and acceptance of the Merger.
Failure to follow the steps required by section 262 of the DGCL for
perfecting appraisal rights may result in the loss of those rights.
Certain Tax Consequences
Federal Income Taxes. The receipt of cash for Shares in the Offer (or
the Merger) will be a taxable transaction for federal income tax purposes under
the Internal Revenue Code of 1986 (the "Code"), and also will likely be a
taxable transaction under applicable state, local and other tax laws.
In general, a stockholder will recognize gain or loss equal to the
difference between the tax basis of the Shares he sold and the amount of cash
received in exchange therefor. The gain or loss will be capital gain
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or loss, if the Shares are capital assets in the hands of the stockholder. If a
stockholder owns more than one block of Shares (with differing bases or holding
periods), then, for purposes of determining gain or loss, the consideration
received must be allocated ratably among the blocks of Shares in the proportion
that the number of Shares in a particular block bears to the total number of
Shares held by the stockholder.
The federal income tax discussion set forth above is included for
general information only. The foregoing discussion may not apply to stockholders
who are not citizens or residents of the United States or who are otherwise
subject to special tax treatment under the Code. Due to the individual nature of
tax consequences, each stockholder is urged to consult a tax advisor with
respect to the tax consequences of the Offer, including the effects of
applicable state, local or other tax laws.
THE TENDER OFFER
Terms of the Offer
Upon the terms and subject to the conditions of the Offer, the
Purchaser will accept for payment and pay for all Shares that are validly
tendered on or prior to the Expiration Date (as defined below) and not withdrawn
in accordance with "Withdrawal Rights" below. The term "Expiration Date" means
5:00 P.M., New York City time, on Tuesday, March 2, 1999, unless and until the
Purchaser shall have extended the period of time for which the Offer is open, in
which event the term "Expiration Date" shall mean the latest time and date on
which the Offer, as so extended by the Purchaser, shall expire. The Purchaser
will accept for payment Shares that have been validly tendered and not withdrawn
pursuant to the Offer at the time that all conditions to the Offer shall have
been satisfied or waived by the Purchaser.
The Purchaser will not decrease the amount or change the form of
consideration payable in the Offer or decrease the number of shares sought
pursuant to the Offer, change the conditions of the Offer or impose any
additional conditions of the Offer, without the prior written consent of the
WCAS Parties. See "Conditions to the Offer" below.
If the Purchaser (whether before or after its acceptance for payment of
Shares) is delayed in its payment for Shares or is unable to pay for Shares
pursuant to the Offer for any reason, then, without prejudice to the Purchaser's
rights under the Offer, the Depositary may retain tendered Shares on behalf of
the Purchaser, and those Shares may not be withdrawn, except to the extent
tendering stockholders are entitled to withdrawal rights as described in
"Withdrawal Rights" below. However, the ability of the Purchaser to delay the
payment for Shares that the Purchaser has accepted for payment is limited by
Rule 14e-1 under the Securities Exchange Act of 1934 (the "Exchange Act"), which
requires that a bidder pay the consideration offered or return the securities
deposited by or on behalf of holders of securities promptly after the
termination or withdrawal of the Offer.
If the Purchaser makes a material change in the terms of the Offer or
the information concerning the Offer or waives a material condition of the
Offer, the Purchaser will disseminate additional tender offer materials to the
extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange Act. The
minimum period during which an offer must remain open following material changes
in the terms of the offer or information concerning the offer, other than a
change in price or a change in percentage of securities sought, will depend upon
the facts and circumstances, including the relative materiality of the terms or
information changed. With respect to a change in price or a change in percentage
of securities sought, a minimum ten business day period is generally required to
allow for adequate dissemination to stockholders and investor response. As used
in this Offer to Purchase, the term "business day" has the meaning set forth in
Rule 14d-1 under the Exchange Act.
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The Company has provided to the Purchaser its list of stockholders and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the Letter of Transmittal and other
relevant materials will be mailed to record holders of Shares and furnished to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the Company's stockholder list
or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Shares.
Acceptance for Payment and Payment
Upon the terms and subject to the conditions of the Offer (including,
if the Offer is amended, the terms and conditions of any amendment), the
Purchaser will purchase, by accepting for payment, and will pay for all Shares
validly tendered prior to the Expiration Date (and not properly withdrawn in
accordance with "Withdrawal Rights" below) promptly after the Expiration Date.
The Purchaser reserves the right to delay acceptance for payment of, or payment
for, Shares in order to comply in whole or in part with any applicable law. See
"Conditions to the Offer" below. In all cases, payment for Shares purchased
pursuant to the Offer will be made only after timely receipt by the Depositary
of certificates for the Shares, or timely confirmation of a book-entry transfer
(a "Book-Entry Confirmation") of the Shares into the Depositary's account at The
Depository Trust Company, the Midwest Securities Trust Company or the
Philadelphia Depository Trust Company (collectively, the "Book-Entry Transfer
Facilities") pursuant to the procedures set forth in "Procedures for Tendering
Shares" below, a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by the Letter of
Transmittal.
For purposes of the Offer, the Purchaser will be deemed to have
accepted for payment (and thereby purchased) tendered Shares, if, as and when
the Purchaser gives oral or written notice to the Depositary of the Purchaser's
acceptance of the Shares for payment pursuant to the Offer. In all cases,
payment for Shares purchased pursuant to the Offer will be made by deposit of
the purchase price with the Depositary, which will act as agent for tendering
stockholders for the purpose of receiving payment from the Purchaser and
transmitting payment to tendering stockholders. Under no circumstances will
interest on the purchase price of Shares be paid by the Purchaser by reason of
any delay in making payment.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, or if certificates submitted represent more Shares than are tendered,
certificates for Shares not purchased or tendered will be returned, without
expense to the tendering stockholder (or, in the case of Shares tendered by
book-entry transfer into the Depositary's account at a Book-Entry Transfer
Facility pursuant to the procedures set forth in "Procedures for Tendering
Shares" below, such Shares will be credited to an account maintained at the
Book-Entry Transfer Facility), as promptly as practicable after the expiration
or termination of the Offer. If, prior to the Expiration Date, the Purchaser
increases the consideration offered to stockholders pursuant to the Offer, the
increased consideration shall be paid to all stockholders whose Shares are
purchased pursuant to the Offer.
The Purchaser reserves the right to transfer or assign, in whole at any
time or in part from time to time, to one or more direct or indirect
wholly-owned subsidiaries of the Purchaser, the right to purchase Shares
tendered pursuant to the Offer, but any such transfer or assignment will not
relieve the Purchaser of its obligations under the Offer or prejudice the rights
of tendering stockholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
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Procedures for Tendering Shares
For Shares to be validly tendered pursuant to the Offer, a properly
completed and duly executed Letter of Transmittal or facsimile thereof with any
required signature guarantees and any other required documents, must be received
by the Depositary at one of its addresses set forth on the back cover of this
Offer to Purchase on or prior to the Expiration Date. In addition, either (a)
the certificates for Shares must be received by the Depositary along with the
Letter of Transmittal or Shares must be tendered pursuant to the procedures for
book-entry transfer described below and a Book-Entry Confirmation must be
received by the Depositary, in each case prior to the Expiration Date, or (b)
the tendering stockholder must comply with the guaranteed delivery procedures
described below.
The Depositary will make a request to establish an account with respect
to the Shares at each Book- Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in any of the Book-Entry Transfer
Facilities' system may make book-entry delivery of Shares by causing a
Book-Entry Transfer Facility to transfer the Shares into the Depositary's
account at a Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of
Shares may be effected through book-entry transfer at a Book-Entry Transfer
Facility, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must in any case be
transmitted to and received by the Depositary at one of its addresses set forth
on the back cover of this Offer to Purchase prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with. Delivery
of documents to a Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedure does not constitute delivery to the Depositary.
Signatures on all Letters of Transmittal must be guaranteed by a member
firm of a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc. (the "NASD") or a commercial bank or
trust company having an office or correspondent in the United States (each of
the foregoing being referred to as an "Eligible Institution"), unless the Shares
tendered thereby are tendered (a) by a registered holder of Shares who has not
completed either the box entitled "Special Delivery Instructions" or the box
entitled "Special Payment Instructions" on the Letter of Transmittal or (b) for
the account of an Eligible Institution. See Instruction 1 of the Letter of
Transmittal. If the certificates are registered in the name of a person other
than the signer of the Letter of Transmittal or if payment is to be made or
certificates for unpurchased Shares are to be issued to a person other than the
registered holder, then the tendered certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered owner or owners appear on the certificates, with
the signatures on the certificates or stock powers guaranteed as described
above. See Instructions 1 and 5 of the Letter of Transmittal.
The method of delivery of Shares, the Letter of Transmittal and any
other required documents is at the option and risk of the tendering stockholder.
If delivery is by mail, registered mail with return receipt requested, properly
insured, is recommended. In all cases, sufficient time should be allowed to
assure timely delivery.
If a stockholder wishes to tender Shares pursuant to the Offer and the
stockholder's certificates for Shares are not immediately available or time will
not permit all required documents to reach the Depositary on or prior to the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, the Shares may nevertheless be tendered, if all the following
are satisfied:
(a) the tender is made by or through an Eligible Institution;
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(b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser with
this Offer to Purchase, is received by the Depositary as provided
below on or prior to the Expiration Date; and
(c) the certificates for all tendered Shares, in proper form for
transfer (or Book-Entry Confirmation), together with a properly
completed and duly executed Letter of Transmittal or facsimile thereof
and any other documents required by the Letter of Transmittal, are
received by the Depositary within three NASD trading days after the
date of execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by telegram, telex, facsimile transmission or mail to the Depositary
and must include a guarantee by an Eligible Institution in the form set forth in
the Notice of Guaranteed Delivery.
Notwithstanding any other provision of this Offer to Purchase, payment
for Shares purchased pursuant to the Offer will in all cases by made only after
timely receipt by the Depositary of certificates for the Shares (or a Book-Entry
Confirmation), a properly completed and duly executed Letter of Transmittal or a
facsimile thereof and any other documents required by the Letter of Transmittal.
To prevent backup federal income tax withholding with respect to
payment of the purchase price of Shares purchased pursuant to the Offer, a
tendering stockholder must provide the Depositary with his correct taxpayer
identification number or certify that he is not subject to backup federal income
tax withholding by completing the Substitute Form W-9 included in the Letter of
Transmittal. See Instruction 10 of the Letter of Transmittal.
By executing a Letter of Transmittal as set forth above, a tendering
stockholder irrevocably appoints designees of the Purchaser as the stockholder's
attorneys-in-fact and proxies, in the manner set forth in the Letter of
Transmittal, each with full power of substitution, to the full extent of the
stockholder's rights with respect to the Shares tendered by the stockholder and
accepted for payment by the Purchaser (and any and all other Shares or other
securities issued or issuable in respect of the Shares on or after the date of
this Offer to Purchase). All such proxies shall be considered coupled with an
interest in the tendered Shares. The appointment will be effective when, and
only to the extent that, the Purchaser accepts Shares for payment. Upon
acceptance for payment, all prior proxies given by the stockholder with respect
to the Shares or other securities will, without further action, be revoked, and
no subsequent proxies may be given (and, if given, will not be deemed effective)
by the stockholder. The designees of the Purchaser will, with respect to the
Shares and other securities, be empowered to exercise all voting and other
rights of the stockholder as they in their sole discretion may deem proper at
any annual, special or adjourned meeting of the Company's stockholders, by
written consent or otherwise. The Purchaser reserves the right to require that,
in order for Shares to be deemed validly tendered, immediately upon the
Purchaser's acceptance for payment of the Shares, the Purchaser is able to
exercise full voting rights with respect to the Shares.
All questions as to the form, validity (including time of receipt),
eligibility and acceptance for payment of any tendered Shares pursuant to any of
the procedures described above will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. The Purchaser
reserves the absolute right to reject any or all tenders of any Shares
determined by it not to be in proper form or if the acceptance for payment of,
or payment for, the Shares may in the opinion of the Purchaser's counsel be
unlawful. The Purchaser also reserves the absolute right to waive any of the
conditions of the Offer or any defect or irregularity in any tender with respect
to Shares of any particular stockholder, and the Purchaser's interpretation of
the terms and conditions of the Offer (including the Letter of Transmittal and
the Instructions thereto) will be final and binding. None of the Purchaser, the
Company, the Depositary, the
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<PAGE>
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or will incur any
liability for failure to give any such notification.
A tender of Shares pursuant to any one of the procedures described
above will constitute the tendering stockholder's acceptance of the terms and
conditions of the Offer, as well as the tendering stockholder's representation
and warranty that (a) the stockholder owns the Shares being tendered (within the
meaning of Rule 10b-4 under the Exchange Act) and (b) the tender of the Shares
complies with Rule 10b-4. The Purchaser's acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering stockholder and the Purchaser upon the terms and subject to the
conditions of the Offer.
Withdrawal Rights
Except as otherwise provided in this section, tenders of Shares made
pursuant to the Offer are irrevocable, provided that Shares tendered pursuant to
the Offer may be withdrawn at any time prior to the Expiration Date, and, unless
theretofore accepted for payment by the Purchaser pursuant to the Offer, may
also be withdrawn at any time on or after April 1, 1999.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase. Any such notice of withdrawal must specify the name of the persons who
tendered the Shares to be withdrawn, the number of Shares to be withdrawn and
the name of the registered holder, if different from that of the person who
tendered the Shares. If certificates for Shares have been delivered or otherwise
identified to the Depositary, then, prior to the release of the certificates,
the serial numbers of the particular certificates evidencing the Shares to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution, except in the case of Shares tendered for the account of
an Eligible Institution, must also be furnished to the Depositary as described
above. If Shares have been tendered pursuant to the procedures for book-entry
transfer as set forth in "Procedures for Tendering Shares" above, any notice of
withdrawal must also specify the name and number of the account at the
appropriate Book-Entry Transfer Facility to be credited with the withdrawn
Shares.
Any Shares withdrawn will be deemed to be not validly tendered for
purposes of the Offer. However, withdrawn Shares may be returned by again
following one of the procedures described in "Procedures for Tendering Shares"
above at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt)
of notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. None of the
Purchaser, the Company, the Depositary, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or will incur any liability for
failure to give any such notification.
Price Range of Shares; Dividends
Trading in the Shares commenced June 30, 1995. Until October 31, 1998,
the Shares traded on the Nasdaq National Market under the symbol "SEER". On
October 31, 1998, the Shares were delisted from the Nasdaq National Market, and
are now quoted on the OTC Bulletin Board. The following table sets forth, for
the calendar quarters indicated, the high and low closing sale prices per Share
as reported on the Nasdaq National Market (through October 31, 1998) or the high
and low closing bid prices per Share as reported on
13
<PAGE>
the OTC Bulletin Board (after October 31, 1998). These prices reflect
interdealer prices, without adjustments for retail mark-ups, mark-downs or
commissions.
Fiscal Year High Low
1997
Fiscal Quarter ended December 31, 1996............. $6.500 $3.000
Fiscal Quarter ended March 31, 1997................ 7.000 3.000
Fiscal Quarter ended June 30, 1997................. 5.875 3.875
Fiscal Quarter ended September 30, 1997............ 8.000 4.250
1998
Fiscal Quarter ended December 31, 1997............. 9.375 3.875
Fiscal Quarter ended March 31, 1998................ 5.500 2.625
Fiscal Quarter ended June 30, 1998................. 4.125 1.500
Fiscal Quarter ended September 30, 1998............ 2.500 0.500
1999
Fiscal Quarter ended December 31, 1998............. 0.875 0.125
Fiscal Quarter ended March 31, 1999 (through
January 29, 1999)............................... 0.313 0.250
The closing bid price per Share as reported on the OTC Bulletin Board
on November 23, 1998, the last full trading day prior to the announcement of the
Acquisition Agreement, was $0.28. On January 29, 1999, the closing bid price per
Share on the OTC Bulletin Board was $0.28. Holders of Shares are urged to obtain
current quotations for the Shares. As of January 20, 1999, there were 295
holders of record of Shares.
The Company has paid no cash dividends since its inception. The terms
of the Company's currently outstanding bank indebtedness restrict the Company's
ability to declare dividends.
Since its inception, the Company has made one underwritten public
offering of securities for cash. In June 1995, the Company sold 2,953,487
Shares, at $18.00 a Share, in a public offering (the "Initial Public Offering")
registered under the Securities Act of 1933. The aggregate proceeds to the
Company, after expenses, of the Initial Public Offering were approximately
$49,441,000.
For certain information concerning the beneficial ownership of Shares
and the executive officers and directors of the Company, see schedule 1 to this
Offer to Purchase.
Effect of the Offer on the Market for the Shares; Exchange Act Registration
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and the number of holders of Shares
and could adversely affect the liquidity and market value of the remaining
Shares held by the public.
Registration of the Shares under the Exchange Act may be terminated
upon application of the Company to the Securities and Exchange Commission (the
"Commission"), if the Shares are not listed on a national securities exchange
and there are fewer than 300 record holders of the Shares. Termination of
registration of the Shares under the Exchange Act would substantially reduce the
information required to be
14
<PAGE>
furnished by the Company to its stockholders and to the Commission and would
make certain provisions of the Exchange Act, such as the short-swing profit
recovery provisions of section 16(b) of the Exchange Act and the requirement of
furnishing a proxy statement in connection with stockholders' meetings pursuant
to section 14(a) of the Exchange Act, no longer applicable to the Company.
Furthermore, if the Purchaser acquires a substantial number of Shares, the
ability of "affiliates" of the Company and persons holding "restricted
securities" of the Company to dispose of those securities pursuant to Rule 144
under the Securities Act may be impaired or eliminated. It is the present
intention of the Purchaser to seek to cause the Company to make an application
for termination of registration of the Shares as soon as possible following the
Offer, if the requirements for termination of registration are met.
Certain Information Concerning the Company
The Company is a Delaware corporation with its principal executive
offices at 8000 Regency Parkway, Cary, North Carolina 27511.
The Company is one of the software industry's earliest pioneers and a
long-time leader in software application development tools. During fiscal year
1998, the Company updated its strategic direction to capitalize on emerging
market demand for extending the life cycle of enterprise applications. When
fully implemented, the updated strategy is intended to change the Company from a
distributor of application development tools to a provider of complete solutions
for enterprise application renewal.
Enterprise application renewal entails extending the life cycle of
enterprise applications through reengineering, modernizing through web and
e-commence enablement, functionally integrating legacy and new applications and
the incorporation of re-usable application assets and components. The Company's
enterprise application renewal solutions leverage its suite of software products
and its professional consulting services to help Global 5000-sized companies
extend the functionality and increase the return on investment in the
mission-critical enterprise applications needed to run their businesses
efficiently and maintain a crucial competitive edge.
Set forth below is certain summary financial information relating to
the Company and its subsidiaries that has been taken or derived from the
financial statements in the Company's Annual Report on Form 10-K for the Fiscal
Year Ended September 30, 1998 (the "Company's 1998 10-K"). More comprehensive
financial information and other information is included in the Company's 1998
10-K and the other documents filed by the Company with the Commission, and the
following summary financial information is qualified in its entirety by
reference to those reports and other documents, including the financial
statements and related notes. The Company's consolidated financial statements
contained in the Company's 1998 10-K are included in exhibit 2.
15
<PAGE>
SEER TECHNOLOGIES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except per Share Amounts)
<TABLE>
<CAPTION>
Fiscal Years Ended September 30,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Total revenue................ $ 63,964 $ 103,153 $ 91,657 $ 111,485 $ 78,278
Gross profit................. 16,186 51,312 38,537 72,542 44,901
Income (loss) from operations (39,319) (7,071) (45,112) 9,254 3,451
Net income (loss)............ (62,440) (9,966) (31,582) 5,152 2,361
Net (loss) per common share.. $ (5.23) (0.85) $ (2.76) 0.45 $ 0.21
Weighted averaged common
shares outstanding......... 11,941 11,707 11,445 -- --
Pro forma net income per
common share............... -- -- -- 0.45 0.21
Pro forma weighted average
common shares outstanding.. -- -- -- 11,507 10,986
Balance sheet data:
Working capital (deficiency). $ (39,666) $ (5,961) $ 3,963 $ 34,087 $ 4,777
Total assets................. 23,195 66,535 78,804 76,444 37,363
Total debt................... 38,148 22,052 14,379 -- 2,700
Senior redeemable preferred
stock...................... -- -- -- -- 13,195
Series A and B Preferred
Stock...................... 17,271 12,302 12,302 -- --
Total stockholders' equity
(deficiency)............... (36,525) 20,843 30,053 48,438 (2,096)
</TABLE>
On December 31, 1998, the WCAS Parties contributed $16.9 million to the
Company and the Company borrowed $12.0 million from the Purchaser and applied
the proceeds of both to reduce the Company's outstanding bank debt. The
following unaudited pro forma condensed consolidated balance sheet of the
Company and its subsidiaries gives effect to these transactions, as if they had
occurred on September 30, 1998. This information is not necessarily an
indication of the Company's financial condition, if such transactions had
occurred as of September 30, 1998, nor is it necessarily an indication of future
results or financial condition. The accompanying unaudited pro forma condensed
consolidated balance sheet does not give pro forma effect to the Offer or the
Merger. This information should be read in conjunction with the Company's
consolidated financial statements included in exhibit 2.
16
<PAGE>
SEER TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET1
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, Pro-Forma
1998 Adjustments Pro-Forma
---------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents......................... $ 1,040 $ - $ 1,040
Trade accounts receivable, net.................... 17,285 - 17,285
Prepaid expenses and other current assets......... 1,476 - 1,476
---------------- ------------ -------------
Total current assets......................... 19,801 $ - 19,801
Other noncurrent assets, net...................... 3,394 - 3,394
---------------- ------------ -------------
Total assets................................. $ 23,195 $ - $ 23,195
================ ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable, due on demand...................... $ 38,148 $ (28,900) 2(a),(b) $ 9,248
Accounts payable.................................. 2,897 - 2,897
Accrued expenses:
Restructuring................................ 4,064 - 4,064
Other........................................ 5,359 - 5,359
Loan from majority stockholder.................... - 12,000 2(b) 12,000
Deferred revenue.................................. 7,355 - 7,355
Income taxes payable.............................. 1,644 - 1,644
---------------- ------------ -------------
Total current liabilities.................... 59,467 (16,900) 42,567
Deferred revenue.................................. 253 - 253
Stockholders' equity (deficiency):
Preferred Stock.............................. 39 - 39
Common Stock................................. 120 - 120
Additional paid-in capital................... 76,023 16,900 2(a) 92,923
Cumulative translation adjustments........... (847) - (847)
Accumulated deficit.......................... (111,860) - (111,860)
---------------- ------------ -------------
Total stockholders' equity (deficiency).... (36,525) 16,900 (19,625)
---------------- ------------ -------------
Total liabilities and stockholders' equity. $ 23,195 $ - $ 23,195
================ ============ =============
</TABLE>
- ------------------------------------
[FN]
1. Basis of Presentation:
The unaudited pro forma condensed consolidated balance sheet reflects
the fact that the first step in the Merger between the Purchaser and the
Company, the acquisition of a controlling interest in the Company through the
purchase of securities under the Acquisition Agreement, took place December 31,
1998.
2. Pro Forma Adjustments:
The pro forma adjustments are as of September 30, 1998.
(a) Adjustment to record the additional $16.9 million investment in
the Company by the WCAS Parties, which was used to pay the
Company's bank debt.
(b) Adjustment to record the $12.0 million loan from the Purchaser to
the Company, which was used to pay the Company's bank debt.
</FN>
Prior to entering into the Acquisition Agreement, the Purchaser
conducted a due diligence review of the Company and, in connection with such
review, received certain non-public information relating to the
17
<PAGE>
Company. The non-public information included, among other things, two
alternative financial models (the "Financial Models") for the fiscal year ending
September 30, 1999. The Financial Models were prepared by the Company's
management based on numerous and varying assumptions, including, among others,
assumptions relating to additional capital funding, the current business base
and, prospects of the Company's operations, operating costs and the general
business climate for the Company's operations. The Financial Models do not give
effect to the Offer, the Merger or the Acquisition Agreement or the potential
combined operations of the Purchaser and the Company.
The Company does not as a matter of policy disclose projections of
revenues or earnings. The projections in the Financial Models were not intended
to forecast likely or anticipated operating results, but instead represent
alternative internal goals and illustrate capital and other requirements to
achieve such goals. The projections in the Financial Models were not prepared
with a view to public disclosure or compliance with published guidelines for
projections of the Commission or the American Institute of Certified Public
Accountants. The projections are included in this Offer to Purchase solely
because they were furnished to the Purchaser. Accordingly, the inclusion of the
projections in this Offer to Purchase should not be regarded as an indication
that the Purchaser, the Company or their respective officers and directors
consider such information accurate or reliable, and none of them assumes any
responsibility for their accuracy. The Financial Models were prepared for
internal use, are subjective in many respects, are susceptible to various
interpretations and will require periodic revision based upon actual experience
and business developments. Projected information of this type is based on
estimates and assumptions that reflect future facts, events and circumstances
and are subject to significant financial, market, economic and competitive
uncertainties and contingencies, which are difficult to predict and beyond the
control of the Company or the Purchaser. In addition, because (a) the estimates
and assumptions underlying the Financial Models are subject to significant
economic and competitive uncertainties and contingencies, which are difficult to
predict and beyond the control of the Company or the Purchaser, and (b) a number
of decisions have subsequently been made that vary from or are inconsistent with
assumptions made in connection with the Financial Models, it is expected that
actual results may vary materially from those set forth below. No independent
accountants have examined, reviewed or compiled these projections or expressed
an opinion or any other form of assurance with respect to them.
In late September and early October 1998, the management of the Company
prepared a Base Case Model representing internal goals and illustrating the
additional capital and other elements necessary to achieve such goals. The Base
Case Model was based on a variety of assumptions, including, among others: (a)
the infusion of an additional $29.0 million of equity capital funding to finance
the Company's continuing operations, although no commitments, agreements or
understandings were then in place to provide such funding, (b) levels of pricing
for the Company's products and services and shifts in sales to higher margin
services, (c) obtaining a number of major contracts for which proposals were
then outstanding and (d) the ability to support revenue growth without increased
staffing, other than personnel providing consulting services.
In early October 1998, the Company's Board of Directors reviewed the
Base Case Model and directed management to analyze the effect of implementing
further restructuring of the Company's operations and cost reductions on the
financial model for 1999. In mid-October, management of the Company prepared the
Restructuring Model based on a variety of assumptions, including, among others:
(a) further reductions in the Company's sales and marketing force and in the
Company's general and administrative expenses, (b) obtaining outside funding for
30% of the Company's research and development budget, (c) the infusion of an
additional $29.0 million of equity capital funding to finance the Company's
continuing operations, although no commitments, agreements or understandings
were then in place to provide such funding, (d) levels of pricing for the
Company's products and services and shifts in sales to higher margin services,
(e)
18
<PAGE>
obtaining a number of major contracts for which proposals were then outstanding
and (f) the ability to support revenue growth without increased staffing, other
than personnel providing consulting services.
SEER TECHNOLOGIES, INC.
1999 Financial Models
<TABLE>
<CAPTION>
Year Ending September 30, 1999
(In Thousands)
---------------------------------------
Base Case Model Restructuring Model
<S> <C> <C>
Total revenue..................... $ 67,258 $ 57,500
Gross profit...................... 32,670 21,029
Income from operations............ 4,228 4,620
Net income (loss)................. (392) 0
</TABLE>
The Company is subject to the informational requirements of the
Exchange Act and in accordance therewith files periodic reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. The Company is required to disclose in
such proxy statements certain information, as of particular dates, concerning
the Company's directors and officers, their remuneration, stock options granted
to them, the principal holders of the Company's securities and any material
interest of such persons in transactions with the Company. Such reports, proxy
statements and other information may be inspected at the Commission's office at
450 Fifth Street, N.W., Washington, D.C. 20549, and also should be available for
inspection and copying at the regional offices of the Commission located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies may be obtained upon payment of the Commission's prescribed fees
by writing to its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549. Such materials can also be obtained at the office of The National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006-1506. The Commission maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission with a web site address of
http://www.sec.gov.
Except as otherwise stated in this Offer to Purchase, the information
concerning the Company contained in this Offer to Purchase has been taken from
or based upon publicly available documents on file with the Commission and other
publicly available information. Although the Purchaser does not have any
knowledge that any such information is untrue, the Purchaser takes no
responsibility for the accuracy or completeness of such information or for any
failure by the Company to disclose events that may have occurred and may affect
the significance or accuracy of any such information.
Certain Information Concerning the Purchaser
The Purchaser. The Purchaser is a New York corporation with its
principal executive offices at 1250 Broadway, 35th Floor, New York, New York
10001.
19
<PAGE>
The Purchaser began operations in 1988 as a wholly-owned subsidiary of
Liraz Systems Ltd. ("Liraz"), an Israeli public company that is a systems
integrator. The Purchaser believes it has established itself as a technology
leader in the middleware marketplace. The Company had its initial public
offering in July 1995.
During the last five years, neither the Purchaser nor, to the best
knowledge of the Purchaser, any of the persons listed in schedule 2, (a) has
been convicted in a criminal proceeding (excluding traffic violations and
similar misdemeanors) or (b) was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violations of such laws. The name, business address, present
principal occupation or employment, five-year employment history and citizenship
of each director and executive officer of the Purchaser and Liraz are set forth
in schedule 2.
Except as described in this Offer to Purchase, (a) neither the
Purchaser, nor, to the best knowledge of the Purchaser, any of the persons
listed in schedule 2 or any associate or majority-owned subsidiary of any such
person, beneficially owns or has a right to acquire any equity security of the
Company and (b) neither the Purchaser nor, to the best knowledge of the
Purchaser, any of the other persons referred to above, or any of the respective
directors, executive officers or subsidiaries of any of the foregoing, has
effected any transaction in any equity security of the Company during the past
60 days.
Except as described in this Offer to Purchase, (a) neither the
Purchaser nor, to the best knowledge of the Purchaser, any of the persons listed
in schedule 2 has any contract, arrangement, understanding or relationship
(whether or not legally enforceable) with any other person with respect to any
securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer of the voting
of any such securities, joint ventures, loan or option arrangements, puts or
calls, guarantees of the loans, guarantees against loss or the giving or
withholding of proxies, and (b) there have been no contacts, negotiations or
transactions between the Purchaser or any of its subsidiaries or, to the best
knowledge of the Purchaser, any of the persons listed in schedule 2, on the one
hand, and the Company or any of its directors, officers or affiliates, on the
other hand, that are required to be disclosed pursuant to the rules and
regulations of the Commission.
Conditions to the Offer
Notwithstanding any other provisions of the Offer, and in addition to
(and not in limitation of) the Purchaser's right to amend the Offer at any time
in its sole discretion, but subject to the provisions of the Acquisition
Agreement, the Purchaser shall not be required to accept for payment, or pay
for, and may delay the acceptance for payment, or the payment, of, any tendered
Shares, if, at or before the time of payment for any Shares (whether or not any
such Shares have theretofore been accepted for payment or paid for pursuant to
the Offer), there shall have been any action or position taken or threatened, or
any statute, rule, regulation, judgment, order or injunction promulgated,
enacted, entered or enforced, by any state, federal or foreign government or
governmental authority or by any court, domestic or foreign, that may reasonably
be expected to:
(a) make the acceptance for payment of, or the payment for,
some or all of the Shares illegal or otherwise prohibited, or restrict
or delay consummation of the Offer,
20
<PAGE>
(b) impose limitations on the ability of the Purchaser to
acquire or hold or to exercise effectively all rights of ownership of
the Shares, including, without limitation, the right to vote any Shares
purchased by it on all matters properly presented to the stockholders
of the Company or
(c) prohibit or impose any material limitation on the
Purchaser's ownership or operation of all or a material portion of the
assets or business of the Company or any of its subsidiaries or
affiliates;
that, in the reasonable judgment of the Purchaser, in any case, and regardless
of the circumstances (including any action or inaction by the Purchaser), giving
rise to any such condition, makes it inadvisable to proceed with such acceptance
for payment or payment.
The foregoing conditions are for the sole benefit of the Purchaser and
may be asserted by the Purchaser regardless of the circumstance giving rise to
such condition and may be waived by the Purchaser, in whole or in part at any
time and from time to time, in its sole discretion. The failure by the Purchaser
at any time to exercise any of the foregoing rights will not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right, which
may be asserted at any time and from time to time.
Certain Legal Matters
General. Except as set forth in this section, based upon an examination
of publicly available information filed by the Company with the Commission and
other publicly available information with respect to the Company, the Purchaser
is not aware of any license or regulatory permit that appears to be material to
the business of the Company and its subsidiaries, taken as a whole, that might
be adversely affected by the Purchaser's purchase of Shares pursuant to the
Offer, or, except as disclosed below, of any approval or other action by any
state, federal or foreign governmental, administrative or regulatory agency that
would be required for the purchase or ownership of Shares pursuant to the Offer.
Should any such approval or other action be required, the Purchaser currently
contemplates that such approval or other action will be sought, except as
described below under "State Takeover Statutes." While the Purchaser does not
currently intend to delay the acceptance for payment of, or payment for, Shares
tendered pursuant to the Offer pending the outcome of any such matter, there can
be no assurance that any such approval or other action might not result in
consequences adverse to the Company's business or that certain parts of the
Company's business might not have to be disposed of in the event that such
approvals were not obtained or such other actions were not taken or in order to
obtain any such approval or other action. If certain types of adverse actions
are taken with respect to the matters discussed below, the Purchaser could
decline to accept for payment any Shares tendered. See "Conditions to the Offer"
above.
State Takeover Statutes. A number of states have adopted state
"takeover" statutes and regulations, which purport, to varying degrees, to be
applicable to attempts to acquire securities of corporations that are
incorporated or have substantial assets, stockholders, principal executive
offices or a principal place of business in such states. The Purchaser does not
know whether any or all of these statutes will by their terms apply to the
Offer, and the Purchaser may not have complied with certain of these statutes.
The Purchaser reserves the right to challenge the applicability of any state law
purporting to apply to the Offer and neither anything in this Offer or any
action taken in connection herewith is intended as a waiver of such right. To
the extent that certain provisions of these statutes or regulations purport to
apply to the Offer, the Purchaser believes that there are reasonable bases for
contesting such statutes or regulations. In the event that it were to assert
that one or more state takeover statutes or regulations are applicable to the
Offer, and an appropriate court does not determine that they are inapplicable or
invalid as applied to the Offer, the Purchaser might be required to file certain
information with, or to receive approvals from, the relevant state authorities,
and
21
<PAGE>
the Purchaser might be unable to accept for payment or pay for Shares tendered
pursuant to the Offer, or be delayed in continuing or consummating the Offer. In
that case, the Purchaser may not be obligated to accept for payment or pay for
any tendered Shares.
Section 203 of the DGCL. Section 203 of the DGCL entitled "Business
Combinations with Interested Stockholders," which is intended to regulate
certain business combinations involving Delaware corporations, such as the
Company, will not apply to the Offer and the Merger because the Company has
expressly elected not to be governed by section 203 pursuant to a provision in
the Company's certificate of incorporation.
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act") and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), certain acquisition transactions may not be consummated
unless certain information has been furnished to the Antitrust Division of the
Department of Justice and the FTC and certain waiting period requirements have
been satisfied. The Purchaser and WCAS VI made all required filings under the
HSR Act and satisfied the waiting period requirements prior to the Offer.
Fees and Expenses
Estimated costs and fees in connection with the Offer and the Merger
and the related transactions, which will be paid by the Company or the
Purchaser, are as follows:
Legal fees...................................... $ 190,000
Accounting fees................................. 225,000
Printing and mailing fees....................... 30,000
Filing fees..................................... 339
Miscellaneous (third party costs
required to be reimbursed)............... 125,000
----------
Total................................. $ 570,339
==========
The Purchaser has retained Beacon Hill Partners, Inc. to act as the
Information Agent and American Stock Transfer and Trust Company to act as the
Depositary in connection with the Offer. The Information Agent may contact
holders of Shares by mail, telephone, telex, telegraph and personal interview
and may request brokers, dealers, commercial banks, trust companies and other
nominees to forward the Offer material to beneficial owners. The Information
Agent will receive $7,500 as compensation for its services, and the Depositary
will receive an estimated $7,500 fee; the Information Agent and the Depositary
also will be reimbursed for certain reasonable out-of-pocket expenses and will
be indemnified against certain liabilities and expenses, including certain
liabilities under the federal securities laws.
The Purchaser will not pay any fees or commissions to any broker or
dealer or other person for soliciting tenders of Shares pursuant to the Offer.
Brokers, dealers, commercial banks and trust companies will be reimbursed by the
Purchaser for reasonable expenses incurred by them in forwarding material to
their customers.
22
<PAGE>
Miscellaneous
In those jurisdictions whose securities or blue sky laws require the
Offer to be made by a licensed broker or dealer, the Offer is being made on
behalf of the Purchaser by one or more registered brokers or dealers, which are
licensed under the laws of those jurisdictions.
No person has been authorized to give any information or make any
representation on behalf of the Purchaser not contained in this Offer to
Purchase or in the Letter of Transmittal and, if given or made, such information
or representation must not be relied upon as having been authorized.
The Purchaser and Liraz have filed with the Commission a Schedule 13E-3
and a Schedule 14D-1, in each case together with exhibits, pursuant to Rule
13e-3 and Rule 14d-3, respectively, under the Exchange Act, furnishing certain
additional information with respect to the Offer, and may file amendments
thereto. The Company has filed a Solicitation/Recommendation Statement on
Schedule 14D-9, a copy of which accompanies this Offer to Purchase. Such
Schedules and any amendments thereto, including exhibits, may be inspected and
copies may be obtained from the Commission at the same places and in the same
manner as set forth in "Certain Information Concerning the Company" above
(except that they will not be available at the regional offices of the
Commission).
23
<PAGE>
SCHEDULE 1
CERTAIN INFORMATION REGARDING
SEER TECHNOLOGIES, INC.
Set forth below are the name, business address, position with the
Company, present principal occupation or employment and five-year employment
history of each director and executive officer of the Company. Each person
listed below is a citizen of the United States, unless otherwise stated. Also
set forth below are the aggregate number and percentage of Shares beneficially
owned by each such person as of the date of the Offer (excluding options to
purchase Shares because the exercise price of such options significantly exceeds
the current market price of such Shares and it has been agreed that such options
will not be exercised). The address of the corporation or other organization in
which each director and executive officer conducts his principal occupation or
employment is 8000 Regency Parkway, Cary, North Carolina 27511.
Aggregate number of Percentage of
Shares beneficially outstanding Shares
Name owned beneficially owned
--------------------- -------------------- --------------------
Bruce K. Anderson 0 0%
Frank T. Cary 2,000 *
Anthony J. de Nicola 0 0%
George L. McTavish 0 0%
Thomas A. Wilson 0 0%
Robert A. Minicucci 0 0%
Steven Dmiszewicki 8,432 *
Ted Venema 25,000 0.2%
Dennis McKinnie 3,750 *
- -----------------------
* Less than 0.1%.
Bruce K. Anderson has served as a director of the Company since July
1994. He has been a general partner of Welsh Carson Anderson & Stowe VI, L.P.
("WCAS") since its formation in 1979. Prior to 1979, Mr. Anderson served as
executive vice president and a director of Automatic Data Processing, Inc. Mr.
Anderson also is a director of several privately held companies.
Frank T. Cary has served as a director of the Company since March 1995.
He is the retired chairman of the board of IBM. He also had served as IBM's
chief executive officer from 1973 to 1981 and as a member of IBM's board of
directors and executive committee until April 1991. Mr. Cary is also a director
of Celgene Corporation, Cygnus Therapeutic Systems, ICOS Corporation, Lexmark
International, Inc., SPS Transaction Services, Inc., Vion Pharmaceuticals, Inc.,
Lincare Holdings, Inc. and several other private companies.
<PAGE>
Anthony J. de Nicola has served as a director of the Company since July
1994. From 1990 to 1994, he was employed by William Blair & Company specializing
in financing middle market buyouts. From 1986 to 1988, Mr. de Nicola was
employed in the Mergers and Acquisitions Department of Goldman Sachs & Co. From
1988 to 1990, Mr. deNicola attended Harvard University, Graduate School of
Business Administration, where he earned an M.B.A. with distinction. He serves
on the board of directors of a number of private companies.
George L. McTavish has served as a director of the Company since
October 1995. He currently serves as president and chief executive officer of
BenView Capital. From March 1992 to November 1997, he served as chairman and
chief executive officer of Comdata Holdings Corporation ("Comdata"). Prior to
that, Mr. McTavish served as chairman and chief executive officer of Hogan
Systems, Inc. and as executive vice president and chief operating officer of SEE
Corporation. Mr. McTavish also serves as a member of the board of directors of
Broadway & Seymour, Inc. and two charitable organizations.
Thomas A. Wilson has served as a director of the Company since August
1996 and as president and chief executive officer of the Company from August
1996 to April 1998. From 1993 to August 1996, he has served as president and
chief operating officer of Liveworks, a video conferencing company. From 1992 to
1993, Mr. Wilson served as president and chief operating officer of Viewstar
Corporation, a client/server software company. From 1989 to 1992, he was
employed by Oracle Corporation, a relational database company, as vice president
and general manager, Federal Division and as group vice president, OEM Sales.
Robert A. Minicucci has served as chairman of the board of directors of
the Company since July 1994. Mr. Minicucci has been a general partner of WCAS
since 1993. From 1992 to 1993, he served as senior vice president and chief
financial officer of First Data Corporation and from 1991 to 1992 as senior vice
president and treasurer of the American Express Company. From 1988 to 1991, he
served as a managing director of Lehman Brothers, where he began his career in
1979. Mr. Minicucci is a member of the board of directors of Alliance Data
Systems, a private label credit card processor; Attachmate Corporation, a
company that produces software for enterprise/connectivity and remote access;
and Global Knowledge Network, an information technology education and training
company.
Steven Dmiszewicki has served as co-president and chief financial
officer of the Company since May 1998. Mr. Dmiszewicki also currently serves as
the chief operating officer of Level 8 Systems, Inc. From October 1996 to May
1998, he has served as senior vice president and chief financial officer of the
Company. From July 1996 to October 1996, he was employed by Healthpoint G.P. as
vice president, chief financial and administrative officer. From February 1996
to July 1996, Mr. Dmiszewicki served as vice president and chief financial
officer of the Company and from February 1993 to February 1996, he was vice
president finance of the Company. Mr. Dmiszewicki received a degree in business
administration from Bucknell University and he is a certified public accountant.
Ted Venema has served as the Company's co-president and chief technical
officer since May 1998 and as senior vice president and chief technical officer
from May 1997 to May 1998. In connection with the transactions contemplated in
the Acquisition Agreement, Mr. Venema resigned as the Company's co- president
and chief technology officer effective January 1, 1999. From 1994 to May 1997,
Mr. Venema served as chief technological officer for the Antares Alliance Group,
a software company. Prior to that, he served as director of development for
Software AG for a period of nine years. Mr. Venema is a citizen of Canada.
Dennis McKinnie has served as vice president; chief legal and
administrative officer of the Company since April 1998 and was vice president
and general counsel of the Company since November 1994. He also has served as
corporate secretary of the Company since February 1996 and as assistant
secretary prior
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<PAGE>
thereto. From September 1989 to October 1994, he was associated with the
Atlanta, Georgia law firm of Powell, Goldstein, Frazer & Murphy, where he was a
member of that firm's Technology Litigation Group. Prior to that, he was staff
counsel to the Supreme Court of the United States. During his 16 years of law
practice, he also clerked for the Alabama Supreme Court and the United States
Court of Appeals for the Eleventh Circuit. Mr. McKinnie received his B.A. from
Union University and a J.D. from the Cumberland School of Law of Samford
University.
3
<PAGE>
SCHEDULE 2
CERTAIN INFORMATION REGARDING
LEVEL 8 SYSTEMS, INC. AND LIRAZ SYSTEMS LTD.
Set forth below are the name, present principal occupation or
employment and five-year employment history of the directors and executive
officers of Level 8 Systems, Inc. ("Level 8") and Liraz Systems Ltd. ("Liraz").
Each person listed below is a citizen of the United States, unless otherwise
stated. Except as a result of transactions contemplated by the Acquisition
Agreement and unless otherwise stated, none of the persons listed below
beneficially owns any Shares or is an executive officer or director of or holds
any position with the Company. The address of Level 8 and the address in which
Messrs. Kilman, Somech, Fine and Baruch conduct their principal occupation or
employment is 1250 Broadway, 35th Floor, New York, New York 10001. The address
of Liraz in which each person listed below conducts his principal occupation or
employment is 5 Hazoref Street, Holon, 58856 Israel.
Level 8 Systems, Inc.
Name Present principal occupation or employment and material
positions held during the past five years
- -------------- ------------------------------------------------------------
Arie Kilman Mr. Kilman has served as chairman of the board of directors
of Level 8 since July 1997, chief executive officer of Level
8 since July 1996, president of the Level 8 from July 1996
to October 1996, and chairman of the board of directors of
Level 8 from December 1994 to July 1996. Mr. Kilman has
served as chairman of the board and president of Liraz since
1983. Mr. Kilman is a citizen of Israel.
Steven Mr. Dmiszewicki currently serves as the chief operating
Dmiszewicki officer of Level 8. Mr. Dmiszewicki also has served as
co-president and chief financial officer of the Company
since May 1998. From October 1996 to May 1998, he has served
as senior vice president and chief financial officer of the
Company. From July 1996 to October 1996, he was employed by
Healthpoint G.P. as vice president, chief financial and
administrative officer. From February 1996 to July 1996, Mr.
Dmiszewicki served as vice president and chief financial
officer of the Company and from February 1993 to February
1996, he was vice president - finance of the Company. Mr.
Dmiszewicki received a degree in business administration
from Bucknell University and he is a certified public
accountant. The address in which Mr. Dmiszewicki conducts
his principal occupation or employment is 8000 Regency
Parkway, Cary, North Carolina 27511. See schedule 1 above
for the aggregate number and percentage of Shares
beneficially owned by Mr. Dmiszewicki.
Samuel Somech Mr. Somech has served as president of Level 8 since October
1996, a director of Level 8 since April 1995, vice president
of Level 8 from April 1995 to October 1996, president and
chief operating officer of Level 8 Technologies, Inc.
("Level 8 Technologies") since April 1995, technical
director, messaging group, of Apertus Technologies, Inc.
from January 1994 to March 1994 and technical director,
messaging group, of NYNEX from September 1990 to December
1993. Mr. Somech co-founded Level 8 Technologies with Mr.
Fine in February 1994. Mr. Somech is a citizen of Israel.
<PAGE>
Theodore Fine Mr. Fine has served as a director of Level 8 since April
1995. Mr. Fine co- founded Level 8 Technologies with Mr.
Somech in February 1994. Since January 1993, Mr. Fine has
been a management information systems consultant to the
financial community and, from April 1995 to July 1996,
served as a marketing and sales consultant to Level 8. From
March 1974 to December 1992, Mr. Fine was vice president of
technology for the retail international operations of
Citibank, N.A.
Frank Klein Mr. Klein has served as a director of Level 8 since December
1994. Since January 1, 1995, Mr. Klein has been the
president of PEC Israel Economic Corporation ("PEC"), a
corporation that holds equity interests in companies located
in Israel or are Israel related. Prior to Mr. Klein's
appointment as president of PEC, he served as executive vice
president of Israel Discount Bank of New York from 1985. Mr.
Klein served as executive vice president of PEC from
November 1977 to November 1991 and as treasurer of PEC from
May 1980 to November 1991. He is a director of PEC, as well
as a number of companies affiliated with PEC, including
Elron Electronics Industries Ltd. and Scitex Corporation
Ltd. The address in which Mr. Klein conducts his principal
occupation or employment is PEC Israel Economic Corporation,
511 Fifth Avenue, New York, New York 10017.
Lenny Recanati Mr. Recanati has served as a director of Level 8 since
December 1994. During the last 12 years, Mr. Recanati has
been a senior manager and director of Discount Investment
Corporation ("DIC"). He is chairman of the board of
directors of Ilanot-Discount's Mutual Fund Management
Company and is a member of the boards of directors of a
number of Israeli industrial and other enterprises
affiliated with DIC, including Liraz, Klil Industries Ltd.,
Caniel- Israel Can Company Ltd., Elron Electronics
Industries Ltd., Super-Sol Ltd., Bayside Land Corporation
Ltd., Tefron Ltd. and Tambour Ltd. Mr. Recanati is a citizen
of Israel. The address in which Mr. Recanati conducts his
principal occupation or employment is 5 Hazoref Street,
Holon, 58856 Israel.
Michel Berty Mr. Berty has served as a director of Level 8 since July
1997. Since April 1997, Mr. Berty has been the owner of MBY
Consultant, Inc. Mr. Berty served as the chairman of the
board and chief executive officer of Cap Gemini America (an
international information technology consulting firm) from
1993 to April 1997. From 1986 to 1992, he served as the
general secretary of the Cap Gemini Sogeti Group (the parent
corporation of Cap Gemini America). The address in which Mr.
Berty conducts his principal occupation or employment is MBY
Consultant, Inc., P.O. Box 466, Wainscott, New York 11975.
2
<PAGE>
Robert Brill Dr. Brill has served as a director of Level 8 since March
1998. Dr. Brill also is a general partner of Newlight
Management, L.L.C., Poly Ventures, L.P. and Poly Ventures
II, L.P., venture capital funds specializing in investments
in high technology companies. He also is a director of
Standard Microsystems. Prior to 1989, Dr. Brill had been the
chief executive officer of several high technology
companies, and has held executive and technical positions
with Harris Corporation and IBM. Dr. Brill received degrees
in engineering physics and physics from Lehigh University
and a Ph.D. in physics from Brown University. The address in
which Dr. Brill conducts his principal occupation or
employment is Newlight Management LLC, 500 North Broadway,
Suite 144, Jericho, New York 11793.
Yigal Baruch Mr. Baruch has served as a vice president, chief financial
officer of Level 8 since September 1998. Beginning on
February 1, 1999, Mr. Baruch will cease to be an officer of
Level 8. From March 1990 to September 1998, Mr. Baruch
served as vice president of finance, administration and
information technology for Sharplan Lasers, Inc. From June
1986 to February 1990, he served as a manager and small
business consultant for Laventhol & Horwath. From February
1984 to June 1986, he served as a corporate accounting
manager for Sony of America. From October 1981 to February
1984, he served as an audit manager for Ernst & Whinney in
New York. From July 1978 to October 1981, he was a senior
auditor for Haft & Haft in Israel and New York. Mr. Baruch
received a degree in accounting and economics from Tel-Aviv
University in 1978. Mr. Baruch is a certified public
accountant.
Liraz Systems Ltd.
Name Present principal occupation or employment and material
positions held during the past five years
- -------------- ------------------------------------------------------------
Arie Kilman Mr. Kilman has served as chairman of the board and president
of Liraz since 1983. Mr. Kilman has served as chairman of
the board of directors of Level 8 since July 1997, chief
executive officer of Level 8 since July 1996, president of
the Level 8 from July 1996 to October 1996, and chairman of
the board of directors of Level 8 from December 1994 to July
1996. Mr. Kilman is a citizen of Israel.
Yoram Brik Mr. Brik has served as a director of Liraz since 1991. Until
recently, Mr. Brik served as the chief executive officer of
Kargal, Ltd. Mr. Brik is a citizen of Israel.
Asher Herman Mr. Herman has served as a director of Liraz since 1994. Mr.
Herman also has been self-employed as an engineer and a
real-estate actuary. Mr. Herman is a citizen of Israel.
Mordechai Mr. Gutman has served as a director of Liraz since 1992 and
Gutman is the chief executive officer of Liraz. Mr. Gutman also has
served as vice president and manager of special projects for
Liraz. Mr. Gutman is a citizen of Israel.
3
<PAGE>
Gideon Erhard Mr. Erhard has served as a director of Liraz since 1994. He
also has served as senior executive and board member of
Discount Investment, Ltd. and other affiliates of IDB and
Discount Investment, Ltd. Mr. Erhard is a citizen of Israel.
Lenny Recanati Mr. Recanati has served as a director for Liraz since 1994.
He also has served as a director of Level 8 since December
1994. During the last 12 years, Mr. Recanati has been a
senior manager and director of Discount Investment
Corporation ("DIC"). He is chairman of the board of
directors of Ilanot-Discount's Mutual Fund Management
Company and is a member of the boards of directors of a
number of Israeli industrial and other enterprises
affiliated with DIC, including Liraz, Klil Industries Ltd.,
Caniel-Israel Can Company Ltd., Elron Electronics Industries
Ltd., Super-Sol Ltd., Bayside Land Corporation Ltd., Tefron
Ltd. and Tambour Ltd. Mr. Recanati is a citizen of Israel.
Yaacov Ben-Gur Mr. Ben-Gur has served as a director of Liraz since November
1997. Until 1998, he was a practicing accountant in an
accounting firm. Mr. Ben-Gur also has served as a director
for Bezek, Israel's Communication, Ltd., New Central
Station, Ltd., Yofta, Ltd., Oil Foundation, Ltd. and as a
chairman of Pelefone Communication, Ltd. Mr. Ben-Gur is a
citizen of Israel.
Zamir Bar-Zion Mr. Bar-Zion has served as a director of Liraz since April
1997. He also has served as vice president, investor advisor
and portfolio manager of Nesua Zanex and as a director of
Nexus, Ltd. Mr. Bar-Zion is a citizen of Israel.
Yossi Shemesh Mr. Shemesh has served as the chief financial officer of
Liraz since 1994. He also has served as chairman of Yaana, a
subsidiary of Liraz. Mr. Shemesh is a citizen of Israel.
4
<PAGE>
EXHIBIT 1
AGREEMENT
Dated November 23, 1998
The parties to this agreement are Level 8 Systems, Inc., a New York
corporation ("Level 8"), and the parties listed under "WCAS Parties" at the end
of this agreement (each, a "WCAS Party" and, collectively, the "WCAS Parties").
The parties wish to provide for the acquisition by Level 8 of all the
shares of capital stock of Seer Technologies, Inc., a Delaware corporation (the
"Company"), the WCAS Parties own, and all the rights the WCAS Parties have to
acquire shares of capital stock of the Company (collectively, the "WCAS
Securities") on the terms set forth in this agreement.
Accordingly, the parties agree as follows:
1. Exchange. At the Closing (as defined in section 2), (a) each
WCAS Party shall (i) assign and transfer to Level 8 or a subsidiary of Level 8
all the WCAS Securities now owned or acquired by it prior to the Closing, free
and clear of any adverse claim, and (ii) contribute to the capital of the
Company, or cause to be contributed to the capital of the Company, the
percentage of the amount referred to in section 7.1(d) set forth beside its name
on schedule 7.1(g), and, in consideration therefor, (b) Level 8 shall issue to
the WCAS Parties an aggregate of 1,000,000 shares of common stock of Level 8
(the "Level 8 Shares") and warrants (the "Level 8 Warrants") to purchase an
aggregate of up to 250,000 Level 8 Shares for $12.00 a share (which may be paid
in cash or by reducing the number of Level 8 Warrants as provided in clause
(ii)(B) of the first sentence of paragraph 1(b) of exhibit 8.2(a)) at any time
before 5:00 p.m., New York time, on the fourth anniversary of the Closing, free
and clear of any adverse claim.
2. Closing. The closing of the transactions contemplated by
section 1 (the "Closing") shall take place at 10:00 a.m., New York time, at the
offices of Proskauer Rose LLP, 1585 Broadway, New York, New York 10036, on the
third business day following the fulfillment of all the conditions specified in
sections 7.1(h) and (k) and 7.2(d) and (f). At the Closing, the parties shall
execute and deliver, or use all reasonable efforts to cause to be executed and
delivered, the documents and other items referred to in section 8.
3. Termination. If the Closing shall not have occurred on or
before January 31, 1999, Level 8 or the WCAS Parties may terminate this
agreement by notice given to the others. However, the termination of this
agreement pursuant to the preceding sentence shall not relieve a party of
liability for any breach of warranty or agreement, or misrepresentation, prior
to such termination.
4. Representation and Warranties of the WCAS Parties. Each WCAS
Party, severally and not jointly, represents and warrants to Level 8 with
respect to itself as follows:
4.1. Authority. Each WCAS Party has the full authority to execute,
deliver and perform this agreement, and this agreement constitutes the valid and
binding obligation of that WCAS Party, enforceable against it in accordance with
its terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of
1
<PAGE>
creditors' rights in general and subject to general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
4.2. Consents of Third Parties. The execution, delivery and
performance of this agreement by each WCAS Party will not: (a) violate or
conflict with that WCAS Party's partnership agreement; (b) conflict with, or
result in the breach of, or constitute a default under, any lease, agreement,
commitment or other instrument to which that WCAS Party is a party or by which
that WCAS Party or its properties are bound; or (c) constitute a violation of
any law, regulation, order, writ, judgment, injunction or decree applicable to
that WCAS Party or any of that WCAS Party's properties or require any
governmental consent or approval.
4.3. WCAS Securities. Each WCAS Party owns all the WCAS Securities
to be assigned and transferred by it to Level 8 under section 1. The shares of
capital stock of the Company included in the WCAS Securities to be assigned and
transferred to Level 8 under section 1 are duly authorized, validly issued,
fully paid and non-assessable, and free and clear of any adverse claim.
4.4. Litigation. To the best of the knowledge of each WCAS Party,
there is no judicial or administrative action, proceeding or investigation
pending or threatened against it or the Company that questions the validity of
this agreement or any action taken or to be taken by it in connection with this
agreement.
4.5. Investment. Each WCAS Party will be acquiring the Level 8
Shares and Level 8 Warrants, and any Level 8 Share issuable upon exercise of the
Level 8 Warrants, for investment purposes and not with a view to resale or
distribution in violation of applicable securities laws.
4.6. Related Party Transactions. Except as set forth in the
Company's proxy statement for the Company's last annual meeting or in the
Company's reports filed with the Securities and Exchange Commission (the "SEC")
pursuant to section 13(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") and except as provided in section 6.6, neither the Company nor any of its
subsidiaries has engaged in any transaction with any WCAS Party or any affiliate
of any WCAS Party since September 30, 1995.
5. Representations and Warranties of Level 8. Level 8 represents
and warrants to the WCAS Parties as follows:
5.1. Authorization. The execution, delivery and performance of this
agreement and the Level 8 Warrants by Level 8 have been duly authorized by all
necessary corporate action of Level 8, and this agreement constitutes, and, upon
execution and delivery of the Level 8 Warrants, the Level 8 Warrants will
constitute, the valid and binding obligations of Level 8, enforceable against it
in accordance with their respective terms, except to the extent enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights in general and
subject to general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
5.2. Consents of Third Parties. The execution, delivery and
performance of this agreement and the Level 8 Warrants by Level 8 will not: (a)
violate or conflict with the certificate of incorporation or by-laws of Level 8;
(b) conflict with, or result in the breach of, or constitute a default under,
any lease, agreement, commitment or other instrument to which Level 8 or any of
its subsidiaries is a party or by which Level 8's or such subsidiaries'
properties are bound; or (c) constitute a violation of any law,
2
<PAGE>
regulation, order, writ, judgment, injunction or decree applicable to Level 8 or
any of its subsidiaries or Level 8's or such subsidiaries' properties or require
any governmental consent or approval.
5.3. Litigation. To the best of the knowledge of Level 8, there is
no judicial or administrative action, proceeding or investigation pending or
threatened that questions the validity of this agreement or the Level 8 Warrants
or any action taken or to be taken by Level 8 in connection with this agreement
or the Level 8 Warrants.
5.4. Investment. Level 8 will be acquiring the WCAS Securities for
investment purposes and not with a view to resale or distribution in violation
of applicable securities laws.
6. Certain Agreements.
6.1. Access to Information. Prior to the Closing, each WCAS Party
shall use reasonable efforts to enable Level 8 to make such additional
investigation of the business and properties of the Company and its subsidiaries
as Level 8 may wish, and, upon reasonable notice, to cause the Company to give
Level 8 and its counsel, accountants and other representatives reasonable
access, during normal business hours throughout the period prior to the Closing,
to the property, books, agreements, records, files and personnel of the Company
and its subsidiaries and to cause the Company to furnish Level 8 during that
period copies of documents and information concerning the Company and its
subsidiaries as Level 8 may reasonably request. Level 8 shall, and shall cause
its counsel, accountants and other agents and representatives to, hold all such
information and documents in accordance with and subject to the terms of the
confidentiality agreement previously executed by Level 8 with respect to this
transaction.
6.2. Conduct of the Business Pending the Closing. Prior to the
Closing, each WCAS Party shall use reasonable efforts to cause the Company and
its subsidiaries to comply with the following provisions:
6.2.1. The Company and its subsidiaries shall operate their businesses
in the ordinary course consistent with past practice, and shall not take any
extraordinary action or make any extraordinary commitment (including the
adoption of any material employee benefit plan or benefit arrangement or the
acquisition, disposition or winding-up of a business) without the prior approval
of Level 8.
6.2.2. The Company shall promptly notify Level 8 of, and furnish Level
8 any information Level 8 may reasonably request with respect to the occurrence
of, any event or the existence of any facts that would result in the information
in the Company's filings with the SEC since September 30, 1997, taken as a whole
(the "SEC Information"), containing any misstatement of a material fact, or
omitting to state a material fact, about the Company and its subsidiaries, as if
the filings were made at any time on or after the date of this agreement.
6.2.3. The Company shall not declare, set aside or pay any dividends
or other distributions in respect of its shares of capital stock, redeem,
purchase or otherwise acquire any shares of its capital stock or issue, sell or
encumber any shares of its capital stock or forgive any of its indebtedness.
6.2.4. The Company shall not amend its certificate of incorporation or
by-laws or enter into any merger or consolidation agreement.
6.2.5. Except as contemplated by this agreement, neither the Company
nor its subsidiaries shall amend any of their loan agreements or incur any
indebtedness for borrowed money (other than under their existing loan
agreements).
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<PAGE>
6.3. Governmental Filings. Prior to the Closing, as promptly as
practicable, each party shall make, or cause to be made, and shall cooperate
with each other party in making, all required governmental filings, including,
without limitation, all appropriate filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), in order to carry out this
agreement, and shall take, or cause to be taken, such further action as may
reasonably be required in connection therewith.
6.4. Acquisition of Minority.
6.4.1. Immediately after the Closing, Level 8 shall, or shall cause a
subsidiary (the "Sub") to, commence (within the meaning of Rule 14d-2 under the
Exchange Act) an offer to purchase all the outstanding shares of common stock of
the Company (other than the WCAS Securities) at a price of $0.35 a share, net to
the seller in cash (the "Offer"), and, subject to the conditions of the Offer,
shall use all reasonable efforts to make and consummate the Offer as promptly as
permitted by law. The obligation of Level 8 or the Sub to consummate the Offer
and accept for payment and pay for any shares tendered pursuant to the Offer
shall be subject to the conditions set forth in schedule 6.4.1.
6.4.2. Neither Level 8 nor the Sub shall, without the prior written
consent of the WCAS Parties, decrease the amount or change the form of
consideration payable in the Offer or decrease the number of shares sought
pursuant to the Offer, change the conditions of the Offer or impose any
additional conditions of the Offer. The conditions of the Offer are for the sole
benefit of Level 8 or the Sub and may be asserted by Level 8 or the Sub
regardless of the circumstances giving rise to the non- fulfillment of any such
conditions or may be waived by Level 8 or the Sub in whole or in part.
6.4.3. As soon as practicable on the date of commencement of the
Offer, Level 8 or the Sub shall file with the SEC (i) a Tender Offer Statement
on Schedule 14D-1 with respect to the Offer, which will contain the offer to
purchase and form of the related letter of transmittal (which, together with any
supplements or amendments to those documents, are collectively referred to as
the "Offer Documents"), and (ii) Rule 13E-3 Transaction Statement on Schedule
13E-3 (which, as amended or supplemented, is referred to as the "Schedule
13E-3") with respect to the Offer. Level 8 or the Sub shall cause the Offer
Documents and the Schedule 13E-3 to comply in all material respects with the
provisions of applicable federal securities laws and, on the date filed with the
SEC and on the date first published, sent or given to the Company's
shareholders, not to 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, in light of the circumstances under which they are
made, not misleading (except that neither shall be responsible with respect to
information supplied by the Company or any WCAS Party in writing specifically
for inclusion in the Offer Documents). Level 8 shall promptly correct any
information provided by it for use in the Offer Documents and the Schedule
13E-3, if and to the extent such information shall have become false or
misleading in any material respect, and Level 8 or the Sub shall take all steps
necessary to cause the Offer Documents and the Schedule 13E-3 as so corrected to
be filed with the SEC and to be disseminated to holders of shares, in each case
as and to the extent required by applicable federal securities laws.
6.4.4. Level 8 shall, or shall cause the Sub to, use its best efforts
to acquire as promptly as practicable after the completion of the Offer, through
a merger, all the outstanding shares of common stock of the Company it shall not
have acquired at the Closing or in the Offer for $0.35 a share, in cash.
6.4.5. The Company and its shareholders are intended beneficiaries of
this section 6.4.
4
<PAGE>
6.5. Other Pre-Closing Action. Each party shall use reasonable
efforts to cause the fulfillment as soon as practicable of all the conditions to
its obligation to consummate the transactions under section 1.
6.6 Expenses. Each party shall bear its own expenses in connection
with this agreement and all obligations to be performed by it under this
agreement, except that it is understood and agreed that the Company shall bear
up to $75,000 of the expenses of the WCAS Parties in connection with this
agreement and their obligations to be performed under this agreement.
6.7. Publicity. Without otherwise limiting any party's rights under
this agreement or otherwise, prior to the Closing (or, if earlier, the
termination of this agreement), each party shall consult with and obtain the
consent of the other parties before issuing any press release or making any
similar public disclosure concerning this agreement or the transactions referred
to in this agreement, unless, in the reasonable judgment of the party issuing
the release or making the disclosure, the release or disclosure is required as a
matter of law (in which case it shall consult as set forth above before issuing
the release or making the disclosure).
6.8. Transfer Taxes. Each party shall pay all sales, stock transfer
and other similar taxes and fees in respect of the transfer of securities by it
under this agreement.
6.9. Other Transactions. Each WCAS Party agrees that, prior to the
Closing (or, if earlier, the termination of this agreement), it shall not, and
shall use reasonable efforts not to permit its officers, directors or other
agents (collectively, the "Agents"), directly or indirectly, to (a) take any
action to solicit, initiate, encourage, accept or agree to any Acquisition
Proposal (as defined below), (b) engage in negotiations with any person or
entity that, to the best of its, his or her knowledge, may be considering
making, or has made, an Acquisition Proposal or (c) except in accordance with
section 6.7, disclose any non-public information relating to the Company or
afford access to the assets, books or records of the Company to any person or
entity that, to the best of its, his or her knowledge, may be considering
making, or has made, an Acquisition Proposal. As used in this section 6.9, the
term "Acquisition Proposal" means any offer or proposal for, or any indication
of interest in, any merger or other business combination involving the Company,
or the acquisition of any equity interest in, or any material portion of the
assets of, the Company, other than the transactions contemplated by this
agreement.
7. Conditions to Closing.
7.1. Conditions to Obligation of Level 8. The obligation of Level 8
to consummate the transactions under section 1 is subject to the fulfillment,
prior to or at the Closing, of each of the following conditions (any or all of
which may be waived by Level 8):
(a) the representations and warranties of each WCAS Party
to Level 8 shall be true and correct in all material respects at and as of the
time of the Closing with the same effect as though made again at and as of that
time;
(b) the agreements to be performed or complied with by each
WCAS Party and the Company prior to or at the Closing shall have been performed
and complied with by them;
(c) each WCAS Party shall have furnished Level 8 with a
certificate (dated the date of the Closing) with respect to itself to the effect
set forth in clauses (a) and (b) above;
5
<PAGE>
(d) the WCAS Parties shall have contributed to the capital
of the Company, or caused to be contributed to the capital of the Company, an
aggregate amount equal to the lesser of $17,000,000 or the amount of the
Company's outstanding liabilities and obligations to NationsBank, N.A. (the
"Bank") at the Closing (which amount shall not be less than the amount
outstanding at the close of business on November 18, 1998), which the Company
shall use at the Closing to pay all such liabilities and obligations to the
Bank;
(e) each WCAS Party shall have executed and delivered to
the Company a release of all claims arising out of the contributions and payment
referred to in clause (d) above in form and substance satisfactory to Level 8;
(f) the Company and Greyrock Capital shall have executed
and delivered documents and instruments that reflect the terms set forth in
schedule 7.1(f) in form and substance satisfactory to Level 8;
(g) the Company's authorized capital stock shall be
comprised of 30,000,000 shares of common stock, 11,980,633 of which shall be
outstanding, and 10,000,000 shares of preferred stock, of which 2,094,143 shares
of Series A Preferred Stock and 1,762,115 shares of Series B Preferred Stock
shall be outstanding. The WCAS Parties shall own the numbers of each class and
series of capital stock of the Company set forth on schedule 7.1(g). There shall
be no other outstanding shares or options or rights of any kind to acquire any
shares of any class of securities or any securities convertible into any shares
of any class of securities of the Company, nor shall there be any obligations to
issue any such options, rights or securities;
(h) Level 8 shall have received not less than $12,000,000
from Liraz Systems Ltd. ("Liraz") to fund the obligations under section 9.1;
(i) there shall not be in effect any injunction or
restraining order issued by a court of competent jurisdiction in any action or
proceeding against the consummation of the transactions under this agreement;
(j) the SEC Information shall not contain any misstatement
of a material fact, or omit to state a material fact, about the Company and its
subsidiaries, as if the SEC Information were stated again as of the Closing, and
there shall have been no material adverse change in the business of the Company
and its subsidiaries taken as a whole since September 30, 1998; and
(k) the waiting period under the HSR Act shall have expired
or terminated.
7.2. Conditions to Obligations of the WCAS Parties. The obligations
of the WCAS Parties to consummate the transactions under section 1 are subject
to the fulfillment, prior to or at the Closing, of each of the following
conditions (any or all of which may be waived by the WCAS Parties):
(a) the representations and warranties of Level 8 to the
WCAS Parties shall be true and correct in all material respects at and as of the
time of the Closing with the same effect as though made again at and as of that
time;
(b) the agreements to be performed or complied with by
Level 8 prior to or at the Closing shall have been performed and complied with
by Level 8;
6
<PAGE>
(c) Level 8 shall have furnished each WCAS Party with a
certificate (dated the date of the Closing) to the effect set forth in clauses
(a) and (b) above;
(d) Level 8 shall have received not less than $12,000,000
from Liraz to fund the obligations under section 9.1;
(e) there shall not be in effect any injunction or
restraining order issued by a court of competent jurisdiction in any action or
proceeding against the consummation of the transactions under this agreement;
(f) the waiting period under the HSR Act shall have expired
or terminated; and
(g) the WCAS Parties shall have received a release from the
Bank from all liabilities and obligations to the Bank in respect of the
Company's and its subsidiaries' liabilities and obligations to the Bank, which
release shall be in form and substance reasonably satisfactory to the WCAS
Parties.
8. Documents and Items to be Delivered at the Closing.
8.1. Documents and Items to be Delivered by the WCAS Parties. At the
Closing, the respective WCAS Parties shall deliver, or cause to be delivered, to
Level 8 the following:
(a) stock certificates evidencing all their respective WCAS
Securities, duly endorsed in blank or accompanied by stock transfer powers, and
with all required stock transfer tax stamps attached;
(b) the respective certificates referred to in section
7.1(c);
(c) the respective releases referred to in section 7.1(e);
and
(d) evidence of the payment referred to in section 7.1(d).
8.2. Documents and Items to be Delivered by Level 8. At the Closing,
Level 8 shall deliver, or cause to be delivered, to the WCAS Parties, the
following:
(a) stock certificates representing the Level 8 Shares and
the Level 8 Warrants (in the form of exhibit 8.2(a)) referred to in section 1 in
the names and denominations set forth in schedule 8.2(a);
(b) the certificate referred to in section 7.2(c); and
(c) evidence of its receipt of the funds referred to in
section 7.2(d).
9. Post-Closing Agreements.
9.1. Funding of the Company. Immediately after the Closing, Level 8
shall provide the Company with $12,000,000 in the form of a capital contribution
or a long-term loan.
9.2. Transactions with the Company. Prior to the consummation of the
merger referred to in section 6.4.4, Level 8 shall not engage in any transaction
with the Company on terms less favorable to the Company than the terms on which
an unaffiliated third party would engage in such transaction.
7
<PAGE>
9.3. Voting and Transfer Restrictions.
9.3.1. Prior to January 1, 2001 (the "Outside Date"), at any meeting
of shareholders of Level 8, each WCAS Party shall grant a proxy to one or more
individuals named by Level 8 from time to time to vote all that WCAS Party's
Level 8 Shares as Level 8 may from time to time request by notice given to that
WCAS Party not fewer than three business days before a particular meeting.
9.3.2. Prior to the Outside Date, no WCAS Party may sell, exchange or
otherwise assign or transfer any Level 8 Shares without the prior written
consent of Level 8. Nothing in the preceding sentence, however, shall be deemed
to prohibit any transfer of any Level 8 Shares to a partner or affiliate of a
WCAS Party, as long as that partner or affiliate agrees to be bound by the
provisions of this section 9.3.
9.3.3. All certificates evidencing Level 8 Shares issued under this
agreement or upon exercise of the Level 8 Warrants shall bear the following
legends:
"The shares evidenced by this certificate were
issued in a transaction exempt from the
registration requirements of the Securities Act of
1933, and such shares may not be transferred in
the absence of an opinion of counsel satisfactory
to the Company that such transfer may be effected
without registration under the Securities Act of
1933."
"The voting and transfer of the shares evidenced
by this certificate are subject to the provisions
of an agreement dated November 23, 1998, a copy of
which is on file at the office of the Company."
9.3.4. If, at any time before the Outside Date, Level 8 determines to
file a registration statement under the Securities Act of 1933 for an
underwritten sale to the public of shares of its common stock in whole or in
part by any of Level 8's shareholders, Level 8 shall, each such time, promptly
give each WCAS Party written notice of its intent to file a registration
statement and shall include all shares held by any WCAS Party with respect to
which Level 8 has received a written request within 15 days after Level 8 has
given notice to the WCAS Party as set forth above specifying the number of
shares to be included. Notwithstanding the foregoing, however, in connection
with any such offering, Level 8 shall not be required to include a WCAS Party's
shares in the offering, unless the WCAS Party shall have accepted the terms of
the underwriting and then only in such quantity as will not, in the written
opinion of the underwriter, exceed the maximum number of shares that can be
marketed without materially and adversely affecting the offering. If, as a
consequence of the provisions of the preceding sentence, the number of a WCAS
Party's shares included in the offering is reduced, such reduction shall be made
pro rata among the shareholders to be included in the offering on the basis of
the percentage of shares of the shareholders to be included, and the percentage
of the reduction shall not be more than the percentage of reduction applicable
to any other selling shareholder in the offering. The rights with respect to
such offering by any WCAS Party whose shares are included shall not be less, and
the obligations with respect to such offering by any such WCAS Party shall not
be greater, than those of any other shareholder whose shares are included in
such offering.
9.4. Related Party Transactions. Until the earlier of the Outside
Date or the first date on which the WCAS Parties no longer beneficially own (as
defined in the rules under the Exchange Act) at least 50% of the shares of
common stock of Level 8 represented by the Level 8 Shares and the Level 8 Shares
issuable upon exercise of the Level 8 Warrants issued pursuant to section 1,
Level 8 shall not, and shall not permit any of its subsidiaries to, engage in
any transaction with Liraz or any affiliate of Liraz on
8
<PAGE>
terms less favorable to Level 8 or any such subsidiary than the terms on which
an unaffiliated third party would engage in such transaction.
9.5. Further Assurances. From time to time after the Closing, each
party shall take such action and execute and deliver such documents as the
others may reasonably request to carry out the transactions contemplated by this
agreement.
9.6. D&O Matters.
9.6.1. Level 8 agrees that, for a period of six years after the
Closing and except to the extent otherwise required by law, it shall cause the
certificate of incorporation and by-laws of the Company to contain provisions
with respect to indemnification and exculpation from liability no less favorable
to the individuals who, on or prior to the Closing, were directors, officers,
employees or agents of the Company (collectively, the "Indemnified Parties")
than those set forth in the Company's certificate of incorporation and by-laws
in effect immediately before the Closing.
9.6.2. For a period of six years after the Closing, Level 8 shall use
all reasonable efforts to cause the Company to maintain directors' and officers'
liability insurance covering those Indemnified Parties who are currently covered
by the Company's directors' and officers' liability insurance policy on terms no
less favorable to those Indemnified Parties than the terms of the insurance
coverage in effect on the date of the Closing for Level 8's own directors and
officers.
9.6.3. The Indemnified Parties and the Company are intended
beneficiaries of this section 9.6.
10. Indemnification.
10.1. General.
10.1.1. Subject to the provisions of this section 10, each WCAS Party
shall indemnify and hold Level 8 harmless from and against all losses,
liabilities, damages and expenses (including reasonable attorneys' fees)
resulting from any breach of warranty or agreement, or any misrepresentation, by
it under this agreement.
10.1.2. Subject to the provisions of this section 10, Level 8 shall
indemnify and hold each WCAS Party harmless from and against all losses,
liabilities, damages and expenses (including reasonable attorneys' fees)
resulting from any breach of warranty or agreement, or any misrepresentation, by
it under this agreement.
10.2. Exclusivity. Except as specifically set forth in this
agreement, no party to this agreement has made, or shall have liability for, any
representation, warranty or agreement, express or implied, in connection with
the transactions contemplated by this agreement, including any representation or
warranty, express or implied, as to the accuracy or completeness of any
information regarding the Company or Level 8.
10.3. Survival; Manner of Claims. The representations and warranties
in this agreement shall survive the Closing. However, a party shall have no
liability under this agreement for breach of warranty or misrepresentation,
unless a claim therefor is asserted by another party in a written notice setting
forth the representations and warranties with respect to which the claim is
made, the facts giving rise to and the alleged basis for the claim and the
amount of liability asserted by reason of the claim.
9
<PAGE>
10.4. Defense of Claims by Third Parties. If any claim is made
against a party that, if sustained, would give rise to a liability of another
party under this agreement, the party against whom the claim is made shall
promptly cause notice of the claim to be delivered to the other party or parties
and shall afford the other party or parties and its or their counsel, at its or
their sole expense, the opportunity to defend or settle the claim. The failure
to provide the notice referred to above shall not relieve the indemnifying party
of liability under this agreement, except to the extent the indemnifying party
has actually been prejudiced by such failure. If any claim is compromised or
settled without the consent of the indemnifying party, no liability shall be
imposed upon the indemnifying party by reason of the claim.
11. Miscellaneous.
11.1. Finders. Each party represents and warrants to the others that
it has not employed or utilized the services of any broker or finder in
connection with this agreement or the transactions contemplated by this
agreement.
11.2. Governing Law. This agreement shall be governed by and
construed in accordance with the law of the state of New York, without giving
effect to its conflicts of law principles.
11.3. Headings. The section headings of this agreement are for
reference purposes only, and are to be given no effect in the construction or
interpretation of this agreement.
11.4. Notices. All notices and other communications under this
agreement shall be in writing and may be given by any of the following methods:
(a) personal delivery; (b) facsimile transmission; (c) registered or certified
mail, postage prepaid, return receipt requested; or (d) overnight delivery
service. Notices shall be sent to the appropriate party at its address or
facsimile number given below (or at such other address or facsimile number for
such party as shall be specified by notice given under this section 11.4):
(a) if to a WCAS Party, to:
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue
New York, New York 10022-6815
Fax no.: (212) 893-9563
Attention: Robert A. Minicucci
with a copy to:
Reboul, MacMurray, Hewitt, Maynard &
Kristol
45 Rockefeller Plaza
New York, New York 10011
Fax no.: (212) 841-5725
Attention: Robert A. Schwed, Esq.
(b) if to Level 8, to:
Level 8 Systems, Inc.
1250 Broadway, 35th Floor
10
<PAGE>
New York, New York 10001
Fax no.: (212) 760-2327
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Fax no.: (212) 969-2900
Attention: Edward W. Kerson, Esq.
All such notices and communications shall be deemed received upon (a) actual
receipt by the addressee, (b) actual delivery to the appropriate address or (c)
in the case of a facsimile transmission, upon transmission by the sender and
issuance by the transmitting machine of a confirmation slip confirming that the
number of pages constituting the notice have been transmitted without error. In
the case of noticed sent by facsimile transmission, the sender shall
contemporaneously mail a copy of the notice to the addressee at the address
provided for above. However, such mailing shall in no way alter the time at
which the facsimile notice is deemed received.
11.5. Separability. The invalidity or unenforceability of any
provision of this agreement shall not affect the validity or enforceability of
any other provision of this agreement, which shall remain in full force and
effect.
11.6. Waiver. Any party may waive compliance by any other party with
any provision of this agreement. No waiver of any provision shall be construed
as a waiver of any other provision. Any waiver must be in writing and signed by
the waiving party.
11.7. Counterparts. This agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
11
<PAGE>
11.8. Entire Agreement. This agreement (with its schedules and
exhibits) contains, and is intended as, a complete statement of all the terms of
the arrangements among the parties with respect to the matters provided for,
supersedes all previous agreements and understandings among the parties with
respect to those matters, cannot be changed or terminated orally and any
amendment or modification must be in writing and signed by the parties to be
charged.
LEVEL 8 SYSTEMS, INC.
By: /s/ Arie Kilman
-------------------------
WCAS PARTIES:
WELSH, CARSON, ANDERSON
& STOWE VI, L.P.
By: WCAS VI Partners, L.P., General
Partner
By: /s/ Laura Van Buren
-------------------------
General Partner
WCAS INFORMATION PARTNERS, L.P.
By: WCAS INFO Partners,
General Partner
By: /s/ Laura Van Buren *
-------------------------
General Partner
WCAS CAPITAL PARTNERS II
By: /s/ Laura Van Buren
-------------------------
General Partner
/s/ Laura Van Buren *
-------------------------
Patrick J. Welsh
/s/ Laura Van Buren *
-------------------------
Russell L. Carson
- ------------------------
* As Attorney-in-Fact
12
<PAGE>
/s/ Laura Van Buren *
-------------------------
Bruce K. Anderson
/s/ Laura Van Buren *
-------------------------
Richard H. Stowe
/s/ Laura Van Buren *
-------------------------
Andrew M. Paul
/s/ Laura Van Buren *
-------------------------
Thomas E. McInerney
/s/ Laura Van Buren
-------------------------
Laura Van Buren
/s/ James B. Hoover
-------------------------
James B. Hoover
Richard H. Stowe, as
Trustee for the Benefit of the IRA of
Richard H. Stowe
By: /s/ Richard H. Stowe
-------------------------
/s/ Laura Van Buren *
-------------------------
Anthony J. de Nicola
DELAWARE CHARTER TRUST CO., as
Trustee for the Benefit of the
IRA Rollover of James B. Hoover
By: /s/ James B. Hoover
-------------------------
/s/ Laura Van Buren *
-------------------------
Robert A. Minicucci
- ------------------------
* As Attorney-in-Fact
13
<PAGE>
TRUST U/A DATED 11/26/84 for the
Benefit of Eric Welsh (Carol
Ann Welsh, Trustee)
By: /s / Carol Ann Welsh
-------------------------
TRUST U/A DATED 11/26/84 for the
Benefit of Randall Welsh (Carol
Ann Welsh, Trustee)
By: /s/ Carol Ann Welsh
-------------------------
TRUST U/A DATED 11/26/84 for the
Benefit of Jennifer Welsh (Carol
Ann Welsh, Trustee)
By: /s/ Carol Ann Welsh
-------------------------
/s/ David F. Bellet
-------------------------
David F. Bellet
REBOUL, MACMURRAY, HEWITT,
MAYNARD & KRISTOL
By: /s/ Robert A. Schwed
---------------------------
14
<PAGE>
EXHIBIT 2
SEER TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Accountants................................................. F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets....................................................... F-3
Consolidated Statements of Operations............................................. F-4
Consolidated Statements of Changes in Stockholders' Equity (Capital Deficiency)... F-5
Consolidated Statements of Cash Flows............................................. F-6
Notes to Consolidated Financial Statements........................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
_________________
To the Stockholders of Seer
Technologies, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and retained earnings and of cash
flows present fairly, in all material respects, the financial position of Seer
Technologies, Inc. and its subsidiaries at September 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide reasonable
basis for the opinion expressed above.
As discussed in Note 18, Level 8 Systems, Inc. has acquired a controlling
interest in the Company.
/s/ PricewaterhouseCoopers LLP
Washington, D.C.
December 31, 1998
F-2
<PAGE>
SEER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
--------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,040 $ 4,268
Trade accounts receivable, less allowance for doubtful accounts 17,285 31,383
Prepaid expenses and other current assets 1,476 1,947
Deferred income taxes - 1,152
--------- -------
Total current assets 19,801 38,750
Trade accounts receivable, net - 2,041
Property and equipment, net 1,867 4,528
Capitalized software costs, net 1,140 3,206
Deferred income taxes, net of valuation allowance - 17,599
Other assets 387 411
--------- -------
Total assets $ 23,195 $66,535
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable, due on demand $ 38,148 $ 22,052
Accounts payable 2,897 4,279
Accrued expenses:
Compensation 744 1,964
Commissions 1,156 1,536
Restructuring 4,064 -
Other 3,459 5,241
Deferred revenue 7,355 7,813
Income taxes payable 1,644 1,826
--------- --------
59,467 44,711
Deferred revenue 253 981
Commitments and contingencies (Notes 15 and 16)
Stockholders' equity (deficiency):
Convertible preferred stock, $0.01 par value, 10,000,000 shares
authorized in 1998 and 1997, respectively:
Series A - 2,094,143 shares issued and outstanding at September 30,
1998 and 1997, respectively; $5.969 per share liquidation preference
(aggregate liquidation value of $12,500,000) 21 21
Series B - 1,732,115 shares issued and outstanding at September 30,
1998; $2.874 per share liquidation preference (aggregate liquidation
value of $5,000,000) 18 -
Common stock $0.01 par value, 30,000,000 shares authorized in 1998
and 1997, respectively; 11,980,216 and 11,865,167 shares
issued and outstanding at September 30, 1998 and 1997, respectively. 120 119
Additional paid-in-capital - preferred 17,232 12,281
Additional paid-in-capital - common 58,791 58,486
Cumulative translation adjustments (847) (644)
Accumulated deficit (111,860) (49,420)
--------- --------
Total stockholder's equity (deficiency) (36,525) 20,843
--------- --------
Total liabilities and stockholders' equity $ 23,195 $ 66,535
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
SEER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended
September 30,
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Operating revenue:
Software products $ 6,986 $ 34,244 $ 28,795
Maintenance 13,557 14,598 13,182
Services 43,421 54,311 49,680
-------- ------- --------
Total operating revenue 63,964 103,153 91,657
Cost of revenue:
Software products 1,786 1,545 1,562
Maintenance 6,480 8,436 9,157
Services 39,512 41,860 42,401
-------- ------- --------
Total cost of revenue 47,778 51,841 53,120
Gross profit 16,186 51,312 38,537
Operating expenses:
Sales and marketing 19,312 30,693 43,982
Research and product development 12,894 12,485 16,789
General and administrative 9,999 14,705 19,878
Restructuring charges 13,200 500 3,000
-------- ------- --------
Total operating expenses 55,405 58,383 83,649
-------- ------- --------
Loss from operations (39,219) (7,071) (45,112)
Other income (expense):
Interest income 477 514 648
Interest expense (3,488) (2,181) (802)
-------- ------- --------
Other income (expense), net (3,011) (1,667) (154)
-------- ------- --------
Loss before provision for income taxes (42,230) (8,738) (45,266)
Income tax provision (benefit) 20,210 1,228 (13,684)
-------- ------- --------
Net loss $(62,440) $(9,966) $(31,582)
======== ======= ========
Loss per share - basic and diluted $ (5.23) $ (0.85) $ (2.76)
======== ======= ========
Weighted average common shares outstanding - basic and diluted 11,941 11,707 11,445
======== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
SEER TECHNOLOGIES , INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Series A Series B Additional
Preferred Stock Preferred Stock Common Stock Paid-in Capital
Shares Amount Shares Amount Shares Amount Preferred
---------- -------- ---------- -------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 - $ - - $ - 11,351,948 $ 114 $ -
Issuance of convertible preferred shares 2,094,143 21 12,281
Issuance of common shares 260,159 2
Cumulative translation adjustment
Net loss
--------- -------- ---------- --------- ----------- -------- --------------
Balance at September 30, 1996 2,094,143 21 - - 11,612,107 116 12,281
Issuance of stock 263,060 3
Repurchase of common shares (10,000)
Cumulative translation adjustment
Net loss
--------- -------- ---------- --------- ----------- -------- --------------
Balance at September 30, 1997 2,094,143 21 - - 11,865,167 119 12,281
Issuance of convertible preferred shares 1,762,115 18 115,049 4,951
Issuance of common shares 1
Cumulative translation adjustment
Net loss
--------- -------- ---------- --------- ----------- -------- --------------
Balance at September 30, 1998 2,094,143 $ 21 1,762,115 $ 18 11,980,216 $ 120 $ 17,232
========= ======== ========== ========= =========== ======== ==============
<CAPTION>
Total
Stockholders'
Additional Cumulative Equity/
Paid-in Capital Translation Accumulated (Capital
Common Adjustment Deficit Deficiency)
--------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Balance at September 30, 1995 $ 56,541 $ (395) $ (7,822) $ 48,438
Issuance of convertible preferred shares 12,302
Issuance of common shares 1,003 1,005
Cumulative translation adjustment (110) (110)
Net loss (31,582) (31,582)
------- ------- --------- --------
Balance at September 30, 1996 57,544 (505) (39,404) 30,053
Issuance of stock 992 995
Repurchase of common shares (50) (50) (100)
Cumulative translation adjustment (139) (139)
Net loss (9,966) (9,966)
------- ------- --------- --------
Balance at September 30, 1997 58,486 (644) (49,420) 20,843
Issuance of convertible preferred shares 4,969
Issuance of common shares 305 306
Cumulative translation adjustment (203) (203)
Net loss (62,440) (62,440)
------- ------- --------- --------
Balance at September 30, 1998 $58,791 $ (847) $(111,860) $(36,525)
======= ======= ========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
SEER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended
September 30,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(62,440) $ (9,966) $(31,582)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 3,716 4,328 4,408
Deferred income taxes 18,751 (1,159) (16,577)
Provision for uncollectible accounts 1,027 4,338 10,158
Write -down of assets 4,792 - -
Non-cash cost of credit guaranty 98 336 67
Non-cash compensation cost - 86 -
Changes in assets and liabilities:
Trade accounts receivable 11,929 8,863 (9,043)
Prepaid expenses and other assets 340 1,882 28
Accounts payable, accrued expenses,
and income taxes payable (882) (7,899) 2,444
Deferred revenue (1,186) (2,721) 3,922
------- -------- --------
Net cash used in operating activities (23,855) (1,912) (36,175)
Cash flows from investing activities:
Purchases of property and equipment (358) (1,031) (2,768)
Capitalization of software development costs (128) (1,373) (1,600)
-------- -------- ------------
Net cash used in investing activities (486) (2,404) (4,368)
Cash flows from financing activities:
Issuance of common shares 208 797 602
Repurchase of common shares - (100) -
Issuance of preferred shares 5,000 - 12,500
Preferred stock issuance costs (31) - (198)
Debt issuance costs - (280) -
Net borrowings under lines of credit 15,956 7,813 14,379
-------- -------- ------------
Net cash provided by financing activities 21,133 8,230 27,283
Effect of exchange rate changes on cash (20) (23) (13)
-------- -------- ------------
Net increase (decrease) in cash and cash equivalents (3,228) 3,891 (13,273)
Cash and cash equivalents:
Beginning of period 4,268 377 13,650
-------- -------- ------------
End of period $ 1,040 $ 4,268 $ 377
======== ======== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income Taxes $ 1,326 $ 2,400 $ 1,596
======== ======== ============
Interest $ 3,006 $ 2,040 $ 846
======== ======== ============
</TABLE>
During fiscal years 1998 and 1996, the Company issued 30,000 and 75,000 shares
of its common stock, respectively, to Welsh, Carson, Anderson, & Stowe IV
("WCAS") in exchange for WCAS's guaranty of one of the Company's lines of
credit. See Note 5. The Company recorded expense of $98 and $403 related to
these transactions based on the fair market value of the stock on the date of
issuance.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
SEER TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Operations
Seer Technologies, Inc. ("Seer" or the "Company") is one of the software
industry's earliest pioneers and a long-time leader in component-based software
application development. Seer helps Global 5000 companies leverage information
technology as a competitive weapon by enabling the deployment and on going
renewal of large-scale, business-critical systems. Seer provides solutions for
the business problems of delivering application functionality, extending the
return on information technology investment and managing enterprise application
life cycles in complex development environments through a combination of
consulting services, best practices methodologies, application assets and
enabling technologies.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions are eliminated in consolidation.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries are translated to U.S.
dollars at the current exchange rate as of the balance sheet date. The
resulting translation adjustment is recorded as a separate component of
stockholders' equity. Statements of operations items are translated at average
rates of exchange during each reporting period. Transaction gains and losses
are included in current operations. Realized and unrealized net losses (gains)
for transactions denominated in foreign currencies were $10, $136, and $556,
respectively, for the fiscal years ended September 30, 1998, 1997, and 1996.
Revenue Recognition
Revenue from the non-exclusive licensing of existing software products is
recognized when the software is accepted and delivered or installed by the
customer in accordance with the terms of the contract and only if no significant
vendor obligations remain and collection of the resulting receivables is deemed
probable. For license agreements where maintenance is bundled with the software
license for a time period greater than three months, an appropriate portion of
the license fees is deferred and amortized over the initial maintenance period.
Revenue from recurring maintenance contracts is recognized ratably over the
maintenance contract period, which is typically twelve months. Maintenance
revenue that is not yet earned is included in deferred revenue.
Revenue from consulting and training services is recognized as services are
performed.
Proceeds from product development contracts are recorded as deferred revenue
when collected and the revenue is recognized as the development work is
performed.
The Company typically does not grant to its customers a contractual right to
return software products. Accordingly, no provision for estimated returns is
recorded at the time of sale. When approved by management, however, the Company
will accept returns of certain software products and will provide an allowance
for those specific transactions.
Cost of Revenue
The primary components of the Company's cost of revenue for its software
products are packaging and distribution costs, software amortization and
royalties. The primary components of the Company's cost of revenue for
maintenance are payments under various distribution and marketing agreements
with IBM and customer support. A portion of the costs related to customer
support are deferred and recognized as the service is provided. The primary
component of the Company's cost of revenue for services is compensation expense.
F-7
<PAGE>
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments with a maturity of three months or less from the date of purchase.
For these instruments, the carrying amount is a reasonable estimate of fair
value. The Company places substantially all cash and cash equivalents with
various financial institutions in both the United States and several foreign
countries. At times, such cash and cash equivalents may be in excess of FDIC
insurance limits.
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful lives of the related assets as follows:
<TABLE>
<S> <C>
Leasehold improvements The lesser of the lease term
or estimated useful life
Furniture and fixtures 3 to 5 years
Office equipment 3 years
Computer equipment 4 years
</TABLE>
Expenditures for repairs and maintenance are charged to expense as incurred.
The cost and related accumulated depreciation of property and equipment are
removed from the accounts upon retirement or other disposition and any resulting
gain or loss is reflected in operations.
Software Costs
The Company capitalizes certain software costs after technological feasibility
of the product has been established. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs requires considerable judgment by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenue, estimated economic life and
changes in software and hardware technologies.
All capitalized software costs are amortized over related sales on a product-by-
product basis at the greater of the amount computed using (a) the ratio of
current gross revenues for a product to the total of current and anticipated
future gross revenues or (b) the straight-line method over the remaining
estimated economic life of the product. Generally, an original estimated
economic life of three years is assigned to capitalized software costs, once the
product is available for general release to customers. Costs incurred prior to
the establishment of technological feasibility is charged to research and
development expense. Each quarter, the Company evaluates the value of its
capitalized software costs based on the estimated discounted future cash flows.
Research and Product Development
Research and product development costs are expensed as incurred.
Forward Exchange Contracts
The Company conducts its business in various foreign currencies. As a result,
it is subject to the transaction exposures that arise from foreign exchange rate
movements between the dates that foreign currency transactions are recorded and
the date they are consummated. The Company enters into foreign exchange forward
contracts to hedge the effect of fluctuating foreign currencies on its results
of operations (see Note 11). Gains and losses associated with exchange rate
fluctuations on forward contracts are recorded currently as income or loss as
they offset corresponding gains and losses on the foreign currency denominated
assets or liabilities being hedged. The gains and losses are computed by
multiplying the foreign currency amounts of the forward contracts by the
difference between the quoted market spot rate at the balance sheet date and the
spot rate at the date of inception of the forward contracts. The costs of the
forward contracts are recorded as expense over the lives of the contracts. Cash
flows related to forward exchange contracts are classified in the Consolidated
Statement of Cash Flows in the same categories as the hedged assets or
liabilities.
Income Taxes
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes" to account for income taxes. This statement
requires an asset and liability approach that recognizes deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. In estimating
future tax consequences, all expected future events other than enactments of
changes in the tax law or rates are generally considered.
F-8
<PAGE>
Earnings/(Loss) Per Share
During fiscal year 1998, the Company adopted the provisions of SFAS No. 128,
"Earnings per Share", which specifies the computation, presentation, and
disclosure requirements for earnings per share. All prior period earnings per
share data has been restated, as applicable, to conform with the provisions of
the statement.
Basic earnings (loss) per share is computed based upon the weighted average
number of common shares outstanding. Diluted earnings (loss) per share is
computed based upon the weighted average number of common shares outstanding and
any potentially dilutive securities. Basic earnings (loss) per share equals
diluted earnings (loss) per share for all periods presented since the inclusion
of potentially dilutive securities would be anti-dilutive to the diluted
earnings (loss) per share calculations. Potentially dilutive securities
outstanding during fiscal years 1996, 1997 and 1998 include stock options,
nonvested stock, and Series A convertible preferred stock. Series B convertible
preferred stock were also potentially dilutive securities outstanding since the
third quarter of fiscal year 1998.
Stock-Based Compensation
The Company has adopted the disclosure provisions of SFAS 123 and has applied
Accounting Principles Board Opinion No. 25 and related Interpretations in
accounting for its stock-based compensation plans. Accordingly, no compensation
cost has been recognized in the Consolidated Statement of Operations for its
stock option plans. See Note 7.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual amounts could differ from these estimates.
Reclassifications
Certain prior year amounts in the accompanying financial statements have been
reclassified to conform to the 1998 presentation. Such reclassifications had no
effect on previously reported net income or stockholders' equity.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Computer equipment $ 3,532 $ 12,961
Leasehold improvements 1,675 2,122
Office equipment 1,194 1,286
Furniture and fixtures 1,884 2,354
------- --------
8,285 18,723
Less accumulated depreciation and amortization (6,418) (14,195)
------- --------
$ 1,867 $ 4,528
======= ========
</TABLE>
Depreciation and amortization expense was $2,027, $2,962, and $3,137 for the
fiscal years ended September 30, 1998, 1997, and 1996, respectively.
During the second quarter of fiscal year 1998, property and equipment was
written down for obsolescence and retirement of assets based on the Company's
revised business plan. The write down totaled $901 and is included in
restructuring charges in the Consolidated Statement of Operations. See Note 12.
NOTE 3. CAPITALIZED SOFTWARE COSTS
For the fiscal years ended September 30, 1998, 1997 and 1996, the Company
capitalized $128, $1,372, and $1,600, respectively, of internal costs related to
developing software for sale. During the fiscal years ended September 30, 1998,
1997 and 1996, the Company recognized $1,544, $1,223, and $968, respectively, of
expense related to the amortization of these costs, which is recorded in cost of
revenue, software products, in the Consolidated Statements of Operations.
During the second quarter of fiscal year 1998, capitalized software cost was
written down to its fair value based on the Company's revised business plan.
The write down totaled $650 and is included in the restructuring charges in the
Consolidated Statement of Operations. Accumulated amortization of capitalized
software costs is $4,096 and $2,814 at September 30, 1998 and 1997,
respectively.
F-9
<PAGE>
NOTE 4. ACCOUNTS RECEIVABLE
Trade accounts receivable consists of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current trade accounts receivable $19,585 $33,355
Less: Allowance for doubtful accounts (2,124) (1,360)
Unamortized discount (176) (612)
------- -------
$17,285 $31,383
======= =======
Noncurrent trade accounts receivable $ - $ 2,414
Less: Unamortized discount - (373)
------- -------
$ - $ 2,041
======= =======
</TABLE>
Approximately $4,118 and $8,942 of current trade receivables were unbilled at
September 30, 1998 and 1997, respectively. All noncurrent receivables were
unbilled at September 30, 1997. Discounts on receivables with payment terms in
excess of one year were calculated based on an imputed interest rate of 12% for
the fiscal year ended September 30, 1997. There were no receivables with
payment terms in excess of one year recorded during the fiscal year ended
September 30, 1998.
The provision for uncollectible amounts was $1,027, $4,338 and $10,158 for the
years ended September 30, 1998, 1997, and 1996, respectively. During the second
and third quarters of fiscal year 1998, accounts receivable was written down due
to a deterioration in specific client relationships as a result of the Company's
revised business plan. The write down totaled $3,000 and is included in
restructuring charges in the Consolidated Statement of Operations. Write-offs
of accounts receivable were $3,263, $12,329, and $1,457 for the years ended
September 30, 1998, 1997, and 1996, respectively.
NOTE 5. CREDIT FACILITIES
At September 30, 1998, the Company maintained two credit facilities (the
"Revolving Facility" and the "Guaranteed Facility") which provided for combined
borrowings of up to $42 million for working capital purposes based on the
Company's eligible accounts receivable, as defined in the loan agreements. The
Revolving Facility allows for borrowings of up to $25 million, bears interest at
the London Interbank Offered Rate ("LIBOR") plus 5.0% and is collateralized by
the Company's accounts receivable, equipment and intangibles. The Guaranteed
Facility allows for borrowings of up to $17 million and bears interest at the
higher of LIBOR plus 1.25% or .5% plus the prime rate quoted by the Federal
Reserve. Until December 31, 1998, the Guaranteed Facility was guaranteed by the
Company's principal stockholder, Welsh, Carson, Anderson, & Stowe VI, L.P.
("WCAS"), pursuant to an agreement with the Company. Borrowings under the
Revolving Facility must always exceed borrowings under the Guaranteed Facility.
There are no other financial covenants for either credit facility. As of
September 30, 1998, the Company had outstanding borrowings of $21,223 under the
Revolving Facility and $16,925 under the Guaranteed Facility. The interest
rates for the Revolving Facility and the Guaranteed Facility were 10.6% and
8.5%, respectively, at September 30, 1998.
During fiscal year 1997, the Company incurred approximately $280 in connection
with the renegotiation of its revolving credit facility. The loan costs were
amortized over the initial term of the facility and were fully amortized at
September 30, 1998. The unamortized loan costs of $140 at September 30, 1997
are included in the Consolidated Balance Sheet as a deduction from notes
payable.
In exchange for WCAS' guarantee of its credit facility, the Company issued
30,000 and 75,000 shares of its common stock to WCAS in fiscal years 1998 and
1996, respectively. The Company recorded expense of $98 and $403 related to
these transactions based on the fair market value of the stock on the date of
issuance.
F-10
<PAGE>
Additionally, at September 30, 1998, the Company had a line of credit of $500
available to enter foreign exchange contracts which was also guaranteed by WCAS.
At September 30, 1998 the aggregate notional amount of foreign exchange
contracts outstanding was $6,308.
Subsequent to September 30, 1998, the Company and its lender completed several
amendments to the Revolving Facility and the Guaranteed Facility and foreign
exchange line of credit were terminated. See Note 18.
NOTE 6. CONVERTIBLE PREFERRED STOCK
During April, 1998, the Company completed its agreement to sell 1,762,115 shares
of its Series B Convertible Preferred Stock (the "Preferred Stock") to WCAS and
certain WCAS affiliates, resulting in gross proceeds to the Company of $5
million.
During August 1996, the Company sold 2,094,143 shares of its newly authorized
Series A Convertible Preferred Stock (the "Preferred Stock") to WCAS and certain
WCAS affiliates, resulting in gross proceeds to the Company of $12,500.
Approximately $198 of expenses was incurred in connection with the stock
issuance and has been recorded in the Consolidated Statement of Stockholders'
Equity (Capital Deficiency) as an offset to the Preferred Stock proceeds.
Each share of Preferred Stock may be converted at any time at the option of the
holder into shares of Common Stock at a conversion rate of one common share for
each share of Preferred Stock, subject to adjustment upon the occurrence of
certain events. The Preferred Stock is not entitled to receive dividends in any
fixed amount but will receive dividends on an as converted basis in the event
that a dividend is paid on the Common Stock. The Preferred Stock will rank
senior in right of payment to the Common Stock. In the event of any
liquidation, dissolution or winding up of the Company, holders of Series A and
Series B Preferred Stock will be entitled to receive a liquidation preference of
$5.969 and $2.8375 per share, respectively, before payment is made or assets are
distributed to holders of the Common Stock. In addition, the holders of
Preferred Stock are entitled to vote together with the holders of Common Stock
on all matters to be voted on by the stockholders of the Company.
The Company is subject to certain restrictions while shares of Preferred Stock
remain outstanding, including restrictions on the Company's ability to declare
dividends, purchase or redeem any outstanding shares of its Common Stock, create
or authorize the creation of additional classes of capital stock of the Company,
increase the authorized amount of Preferred Stock, create or authorize the
creation of any securities convertible into shares of Preferred Stock or any
other class of capital stock of the Company.
NOTE 7. STOCK-BASED COMPENSATION PLANS
The Company has a Stock Option and Restricted Stock Purchase Plan pursuant to
which certain employees and officers of the Company have been or will be granted
nonvested stock or stock options to acquire up to a maximum of 2,900,000 shares
of the Company's common stock. Option exercise prices are no less than 100% of
the fair market value at the date of grant, and vested options may be exercised
for a period of up to ten years from the date of grant. During the fiscal year
ended September 30, 1996, the Company exchanged all options with exercise prices
of $7.50 or more per share for options with an exercise price of $6.38 per
share, which was the fair market value of the Company's common stock on the date
of exchange. During the fiscal year ended September 30, 1998, the Company
exchanged all options held by employees with exercise prices of $4.75 or more
per share for options with an exercise price of $4.59. Effective October 1,
1996, the vesting provisions of the plan were amended so that the nonvested
stock and stock options issued after that date vest over a specified period of
time as determined by the Company's compensation committee when the options are
granted. Vesting provisions for options issued prior to October 1, 1996 were
amended so that any options existing at October 1, 1996 vested over a four year
period.
The Company also has a Stock Option Plan for Non-Employee Directors, pursuant to
which non-employee directors can be granted options to acquire up to 200,000
shares of the Company's common stock, with a maximum of 10,000 options available
per non-employee director. The options vest in one-third increments on each of
the first through third anniversaries of the grant date.
F-11
<PAGE>
Activity for stock options issued under these plans for the fiscal years ending
September 30, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Plan Option Price Exercise
Activity per Share Price
---------- -------------- ----------
<S> <C> <C> <C>
Balance at September 30, 1995 2,147,650 $3.25 - $18.00 $3.38
Granted 735,450 5.50 - 18.00 9.91
Exercised (185,159) 3.25 - 10.00 3.26
Forfeited (581,696) 3.25 - 14.50 3.64
----------
Balance at September 30, 1996 2,116,245 3.25 - 18.00 4.74
Granted 808,625 3.25 - 6.50 4.37
Exercised (243,696) 3.25 - 6.38 3.26
Forfeited (907,805) 3.25 - 6.38 3.64
----------
Balance at September 30, 1997 1,773,369 3.25 - 18.00 5.31
Granted 2,240,600 2.84 - 7.88 3.64
Exercised (63,716) 3.25 - 6.38 3.36
Forfeited (1,550,827) 2.84 - 8.25 4.76
----------
Balance at September 30, 1998 2,399,426 3.25 - 14.50 3.32
==========
</TABLE>
The weighted average grant date fair value of options issued during the years
ended September 30, 1998, 1997 and 1996 was equal to $1.82, $2.72 and $3.87 per
share, respectively. The fair value of options granted during the fiscal years
ended September 30, 1998, 1997 and 1996 was equal to $4,413, $2,159 and $2,813,
respectively. There were no option grants issued below fair market value during
fiscal years 1998, 1997 or 1996.
The fair value of the Company's stock-based awards to employees was estimated as
of the date of the grant using the Black-Scholes option-pricing model, using the
following weighted-average assumptions:
<TABLE>
<S> <C>
Expected life (in years) 3
Expected volatility 77%
Risk free interest rate 5.53%
Expected dividend yield 0%
</TABLE>
For disclosure purposes, the adjusted estimated fair value of the Company's
stock-based awards to employees is amortized over the vesting period. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates as calculated in
accordance with SFAS 123, the Company's net loss and loss per share for the
fiscal years September 30, 1998, 1997, and 1996 would have been increased to the
pro forma amounts indicated below. The Company's adjusted information follows
(in thousands, except for per share information):
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- -----------
<S> <C> <C> <C>
Net loss, as reported $(62,440) $ (9,966) $(31,582)
Net loss, as adjusted (63,348) (10,591) (31,703)
Pro forma net loss per share, as reported $ (5.23) $ (0.85) $ (2.76)
Pro forma net loss per share, as adjusted $ (5.31) $ (0.90) $ (2.77)
</TABLE>
F-12
<PAGE>
At September 30, 1998, 1997 and 1996 options to purchase approximately 382,067,
284,015 and 184,348 shares of common stock were exercisable, respectively,
pursuant to the plans at prices ranging from $3.25 to $18.00. The following
table summarizes information about stock options outstanding at September 30,
1998:
<TABLE>
<CAPTION>
Remaining
Contractual Life
Number for Options Number
Exercise Price Outstanding Outstanding Exercisable
-------------- ----------- ----------------- -----------
<S> <C> <C> <C>
$2.50 50,000 9.50 50,000
$2.84 1,528,150 9.61 -
$3.25 234,086 6.12 202,622
$3.75 89,375 8.14 23,750
$4.59 397,582 9.61 72,130
$4.75 20,002 8.33 13,334
$5.00 40,000 7.91 10,000
$6.38 233 8.79 233
$7.00 30,000 8.95 -
$10.00 3,333 6.42 3,333
$14.50 6,665 7.00 6,665
--------- -------
2,399,426 382,067
========= =======
</TABLE>
During the fiscal year ended September 30, 1997, the Company issued 38,500
shares of nonvested stock to employees. The Company recognized compensation
expense with respect to nonvested stock awards equal to the difference between
the market price and the par value of the stock on the grant date. Compensation
expense recognized during fiscal year 1997 for nonvested stock was $172. Of the
total shares issued, 21,750 shares vested during fiscal year 1988, and the
remaining shares were forfeited.
NOTE 8. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan for all U.S. employees. Effective January 1,
1997, the Company amended the plan to provide a 25% matching contribution for an
employee's contribution up to 4% of an employee's salary. Participants must be
employed at December 31 of each calendar year to be eligible for employer
matching contributions. During fiscal year 1998, the Company recorded expense
of $257 related to the matching contribution. Prior to this amendment, matching
contributions were made at the discretion of the Board of Directors. For the
year ended September 30, 1996, the Board of Directors did not authorize any
contributions to the 401(k) plan.
The Company also has employee benefit plans for each of its foreign
subsidiaries, as mandated by each country's laws and regulations. Expense
recognized under these plans for the years-ended September 30, 1998, 1997, and
1996 was $669, $684, and $629, respectively.
The Company has an Employee Stock Purchase Plan for its employees. The plan
allows employees to purchase shares of the Company's common stock for 85% of
fair market value. The Company is responsible for the differential in market
value, as well as, all administrative costs of the plan. For fiscal years 1998,
1997, 1996, the Company incurred expenses of $26, $48, and $31, respectively,
for the plan.
NOTE 9. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
No one customer accounted for more than 10% of operating revenue for the fiscal
years ended September 30, 1998, 1997, and 1996.
The Company has entered into several marketing and distribution agreements with
IBM throughout the world. Transactions resulting from these agreements are as
follows for the fiscal years ended September 30:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Expenses incurred $ 2,128 $ 1,720 $ 4,907
Revenues generated $24,456 $55,029 $59,493
Percentage of revenues 38% 53% 65%
Percentage of outstanding
receivables 37% 46% 70%
</TABLE>
F-13
<PAGE>
As of September 30, 1998 and 1997, the Company had outstanding trade accounts
receivable primarily from 86 and 97 customers, respectively. It is the policy
of the Company to closely monitor all accounts receivable and to record a
provision for uncollectible accounts when the uncollectible amounts are
estimable. Generally, no collateral is required.
NOTE 10. SEGMENT INFORMATION
In 1998, the Company adopted SFAS 131, "Enterprise and Related Information."
SFAS 131 supercedes SFAS 14, "Financial Reporting for Segments of a Business
Enterprise," replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's relating segment. The prior year's segment
information has been restated to present the Company's four reportable segments
- - (1) Software, (2) Maintenance, (3) Services, and (4) Research and Development.
The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies." Segment data includes a charge
allocating all corporate-headquarters costs to each of its operating segments
based on each segment's proportionate share of expenses. The Company evaluates
the performance of its segments and allocates resources to them based on
earnings (loss) before interest, taxes, and restructuring charges (EBITR).
The table below presents information about reported segments for the years
ending September 30:
<TABLE>
<CAPTION>
FY 1998
- -----------------------------------------------------------------------------------------
Research and
(in thousands) Software Maintenance Services Development Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenue $ 6,986 $13,557 $43,421 $ - $ 63,964
Total EBITR $(16,962) $ 6,267 $(1,031) $(14,293) $(26,019)
- -----------------------------------------------------------------------------------------
<CAPTION>
FY 1997
- -----------------------------------------------------------------------------------------
Research and
(in thousands) Software Maintenance Services Development Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenue $ 34,244 $14,598 $54,311 $ - $103,153
Total EBITR $ (3,203) $ 4,860 $ 5,971 $(14,199) $ (6,571)
- -----------------------------------------------------------------------------------------
<CAPTION>
FY 1996
- -----------------------------------------------------------------------------------------
Research and
(in thousands) Software Maintenance Services Development Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Revenue $ 28,795 $13,182 $49,680 $ - $ 91,657
Total EBITR $(24,698) $ 2,426 $ (122) $(19,719) $(42,113)
- -----------------------------------------------------------------------------------------
</TABLE>
A reconciliation of total segment revenue to total consolidated revenues and of
total segment EBITR to total consolidated income before taxes, for the years
ended September 30, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Total EBITR $(26,019) $(6,571) $(42,113)
Restructuring charges (13,200) (500) (3,000)
Interest expense (3,011) (1,667) (154)
-------- ------- --------
Total loss before income taxes $(42,230) $(8,738) $(45,267)
======== ======= ========
</TABLE>
F-14
<PAGE>
The following table presents a summary of revenue by geographic region for the
fiscal years ended September 30:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
United States $17,544 $ 32,864 $28,974
United Kingdom 8,935 15,899 3,951
Denmark 6,226 4,420 5,157
Italy 5,395 12,738 14,770
Switzerland 3,687 2,965 1,850
Norway 3,130 3,561 2,120
Australia 2,858 4,726 3,167
Germany 2,780 6,233 9,588
Other 13,140 19,747 22,080
------- -------- -------
Total revenue $63,965 $103,153 $91,657
======= ======== =======
</TABLE>
Foreign revenue is based on the country in which the customer is domiciled.
The following table represents a summary of long-lived assets by geographic
region as of September 30:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States $2,383 $6,208 $7,431
United Kingdom 487 979 1,438
Other 137 547 647
------ ------ ------
Total assets $3,007 $7,734 $9,516
====== ====== ======
</TABLE>
The Company's foreign operations are reimbursed by the Company for their costs
plus an appropriate mark-up for profit. Intercompany profits and losses are
eliminated in consolidation.
NOTE 11. FOREIGN CURRENCIES AND FORWARD EXCHANGE CONTRACTS
At September 30, 1998, the Company had approximately $628 and $8,754 U.S. dollar
equivalent cash and trade receivable balances, respectively, denominated in
foreign currencies. At September 30, 1997, the Company had approximately $1,378
and $15,618 U.S. dollar equivalent cash and trade receivable balances,
respectively, denominated in foreign currencies.
The more significant trade accounts receivable denominated in foreign currencies
as a percentage of total trade accounts receivable were as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Pound Sterling 10.9% 9.2%
Australian Dollar 1.2% 7.2%
Deutsche Mark 3.5% 2.0%
Brazilian Real 3.1% 4.2%
Italian Lira 8.1% 12.4%
Danish Krona 4.9% 3.1%
</TABLE>
F-15
<PAGE>
The Company enters into forward exchange contracts to hedge the exposures that
arise from foreign exchange movements between dates that foreign currency
denominated receivables and payables are recorded and the date they are paid.
The Company does not engage in foreign currency speculation. The forward
contracts are generally 60 to 90 day forward window contracts having maturities
of less than one year. The table below summarizes, by currency, the contractual
amounts of the Company's forward contracts for the years ended September 30:
<TABLE>
<CAPTION>
1998
- ----
Outbound transactions
As of September 30, 1998
--------------------------------
Original Contract Contract Fair Unrealized
Currency Contracts Drawdowns Balance Value Gain/(Loss)
- -------- --------- ---------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Australian Dollars $ 140 $ (140) $ - $ - $ -
Pound Sterling 16,030 (16,030) - - -
Deutsche Mark 1,322 (1,322) - - -
Irish Punt 1,760 (640) 1,120 1,196 76
------- -------- ------ ------ ---
Total $19,252 $(18,132) $1,120 $1,196 $76
======= ======== ====== ====== ===
<CAPTION>
Inbound Transactions
As of September 30, 1998
--------------------------------
Original Contract Contract Fair Unrealized
Currency Contracts Drawdowns Balance Value Gain/(Loss)
- -------- --------- ---------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Australian Dollars $ 1,427 $ (1,427) $ - $ - $ -
Pound Sterling 10,590 (8,742) 1,848 1,887 (39)
Canadian Dollars 520 (520) - - -
Danish Krona 6,230 (5,870) 360 380 (20)
Deutsche Mark 2,723 (2,177) 546 563 (17)
Dutch Guilder 1,976 (1,739) 237 241 (4)
French Franc 567 (479) 88 93 (5)
Italian Lira 9,860 (8,948) 912 943 (31)
Norwegian Krone 4,450 (4,128) 322 335 (13)
South African Rand 1,760 (1,430) 330 348 (18)
Spanish Peseta 899 (602) 297 299 (2)
Swedish Krone 2,139 (1,891) 248 257 (9)
------- -------- ------ ------ -----
Total $43,141 $(37,953) $5,188 $5,346 $(158)
======= ======== ====== ====== =====
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
1997
----
Outbound transactions
As of September 30, 1997
--------------------------------
Original Contract Contract Fair Unrealized
Currency Contracts Drawdowns Balance Value Gain/(Loss)
- -------- --------- ---------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Australian Dollars $ 389 $ (389) $ - $ - $ -
Pound Sterling 13,264 (7,865) 5,399 5,496 97
Deutsche Mark 3,405 (3,405) - - -
------- -------- ------ ------ ---
Total $17,058 $(11,659) $5,399 $5,496 $97
======= ======== ====== ====== ===
<CAPTION>
Inbound Transactions
As of September 30, 1997
--------------------------------
Original Contract Contract Fair Unrealized
Currency Contracts Drawdowns Balance Value Gain/(Loss)
- -------- --------- ---------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Australian Dollars $ 2,629 $ (2,629) $ - $ - $ -
Pound Sterling 24,430 (22,882) 1,548 1,570 (22)
Canadian Dollars 926 (628) 298 299 (1)
Danish Krona 4,371 (3,880) 491 494 (3)
Deutsche Mark 9,156 (8,719) 437 458 (21)
Dutch Guilder 865 (865) - - -
Italian Lira 21,058 (19,526) 1,532 1,589 (57)
Norwegian Krone 4,456 (4,182) 274 291 (17)
Spanish Peseta 1,303 (1,156) 147 154 (7)
Swedish Krone 5,826 (5,645) 181 185 (4)
Other 1,005 (989) 16 17 (1)
------- -------- ------ ------ -----
Total $76,025 $(71,101) $4,924 $5,057 $(133)
======= ======== ====== ====== =====
</TABLE>
Unrealized gains and losses on forward contracts reflect changes in exchange
rates and are recorded directly in income, as they offset corresponding
unrealized gains and losses on the foreign currency denominated assets being
hedged (see Note 1). Forward contract liabilities related to unrealized losses
are recorded as other accrued expenses in the Consolidated Balance Sheet.
The Company is exposed to exchange related losses on forward contracts should a
transaction with a related forward exchange contract not be consummated by the
forward contract expiration date. In such instances, the Company extends or
repurchases the contract at the then prevailing market rates. Net realized
(gains) losses on the extension or repurchase of contracts totaled ($15), $156,
and $88 for the fiscal years ended September 30, 1998 and 1997, and 1996,
respectively.
NOTE 12. RESTRUCTURING CHARGES
During the second quarter of fiscal year 1998, the Company began work on a
revised business plan, necessitated by a decline in demand for the Company's
software products. As a result of this effort, at the end of the second quarter
of fiscal year 1998, the Company announced its plans to streamline its sales and
marketing organizations, as well as reorganize its technical operations into one
cohesive unit, providing improved product support and more focused development
of new products. The general and administrative organization within the Company
was also streamlined to support the newly-restructured operating divisions. The
restructuring included a staff reduction of approximately 5% (31 employees), the
abandonment of leased facilities in the US, Brazil, and Singapore, and the
write-down to fair value of certain assets or accrual of costs related to
products, distribution channels, and vendor-provided product support contracts
which were being discontinued. The Company recorded a restructuring charge of
$9,000 during the second quarter of fiscal year 1998, which consisted of
approximately $1,400 in personnel-related charges, approximately $1,100 of costs
associated with carrying vacated space until the lease expiration date,
approximately $2,700 in write-down of assets, approximately $3,000 for
contractually obligated product support services, and approximately $700 in
professional fees related to the restructuring.
The Company completed its restructuring in the third quarter of fiscal year 1998
and recorded an additional charge of $4,200. An additional staff reduction of
approximately 8% (37 employees) was made. This restructuring charge consisted
of approximately $1,100 in personnel related-charges, approximately $2,000 in
the write-down of assets for discontinued distribution channels, and
approximately $1,100 in professional fees related to the restructuring.
F-17
<PAGE>
The Company's efforts to settle these restructuring liabilities resulted in a
change in the Company's estimates in regard to the specific categories of
expense, however, the amount of the overall charge has not changed. The revised
estimated reflects a total restructuring charge of $2,500 for personnel related
charges, approximately $500 of premises related costs, approximately $4,700 in
write-down of assets, and approximately $1,100 for contractually obligated
product support services, and approximately $4,400 in professional fees and
legal settlement. See Note 16. To date, the Company has paid approximately
$4,400 in cash related to the restructuring. The Company believes the accrued
restructuring cost of $4,100 at September 30, 1998 represents its remaining cash
obligations.
During the third quarter of the fiscal year ended September 30, 1996, the
Company developed and implemented a reorganizational plan which included, among
other things, a 9% staff reduction (75 employees) and the abandonment of certain
leased facilities. The Company recorded a restructuring charge of $3,000, which
consisted of approximately $1,400 in personnel-related charges and approximately
$1,600 of costs associated with carrying vacated space until the lease
expiration date. In the first quarter of 1997, the Company recorded an
additional restructuring charge of $500 for severance and lease costs related to
its reorganizational plan. To date, the Company has paid approximately $3,500
in cash related to the restructuring. The Company believes there are no
remaining obligations related to this restructuring at September 30, 1998.
NOTE 13. INCOME TAXES
The provision for income taxes consists of the following for the years ended
September 30:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
Federal - current $ - $ - $ -
State and local - current - - -
-------------- --------------- ---------------
- - -
Foreign taxes and withholdings 1,459 2,176 2,501
------- ------ --------
Current taxes 1,459 2,176 2,501
------- ------ --------
Federal - deferred - (757) (12,832)
State and local - deferred - (191) (3,353)
------- ------ --------
Deferred taxes - (948) (16,185)
------- ------ --------
Change in beginning of year
valuation allowance 18,751 - -
------- ------ --------
Total income tax expense (benefit) $20,210 $1,228 $(13,684)
======= ====== ========
</TABLE>
Seer Technologies, Inc. and its U.S. subsidiary file a consolidated Federal
income tax return. Foreign subsidiaries file income tax returns in their
respective countries. Foreign tax credit carryforwards of approximately $2,268
exist at September 30, 1998. These carryforwards expire from 1999 to 2001 if
not utilized. Federal alternative minimum tax credit carryforwards of $184,
which have no expiration period, also exist at September 30, 1998. The
Company's federal net operating loss carryovers of approximately $89,471 expire
in 2011, 2012 and 2018 if not utilized.
Income before provision for income taxes as shown in the Consolidated Statements
of Operations consists of the following for the years ended September 30:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Domestic $(43,747) $(11,214) $(47,868)
Foreign 1,517 2,476 2,602
-------- -------- --------
$(42,230) $ (8,738) $(45,266)
======== ======== ========
</TABLE>
F-18
<PAGE>
A reconciliation of expected income tax at the statutory Federal rate with the
actual income tax expense (benefit) is as follows for the fiscal years ended
September 30:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Expected income tax benefit at
statutory rate (34%) $(14,351) $(2,971) $(15,391)
Increase (decrease) in income tax
expense resulting from:
Non deductible expenses 87 213 197
State income taxes (2,957) (1,693) (2,915)
Effect of foreign operations including
withholding taxes 1,236 2,177 2,505
Other - 92 (92)
Effect of change in valuation allowance 36,195 3,410 2,012
-------- ------- --------
$ 20,210 $ 1,228 $(13,684)
======== ======= ========
</TABLE>
The components of net deferred tax assets are as follows for the years ended
September 30:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Current assets:
Deferred revenue $ 122 $ 303
Accrued liabilities 1,307 504
Bad debt expense 786 503
Other (36) (158)
-------- -------
Net current deferred tax asset 2,179 1,152
Noncurrent assets:
Depreciation 536 465
Deferred revenue - 49
Foreign tax credits 2,268 3,212
Minimum tax credits 184 184
Research and development tax credit 3,000 2,282
Net operating loss carryforward 33,104 21,446
-------- -------
Net noncurrent deferred tax asset 39,092 27,638
Valuation allowance (40,850) (8,853)
Noncurrent liabilities:
Capitalized software costs (421) (1,186)
-------- -------
Net deferred tax asset $ - $18,751
======== =======
</TABLE>
Due to a decline in the Company's software revenues, the Company determined
during the fourth quarter of fiscal year 1998 that certain previously available
tax planning strategies were no longer deemed to be prudent or feasible. This
caused the Company to record a full valuation allowance equaling the entire
deferred tax asset balances at September 30, 1998 and accordingly, resulted in
an increase in income tax expense for the fiscal year ended September 30, 1998.
NOTE 14. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair market
value. The statement also requires that changes in the derivative's fair market
value be recognized currently in earnings unless specific hedge accounting
criteria are met. SFAS No. 133 is effective for fiscal years beginning June 15,
1999, with earlier adoption permitted. The Company is currently assessing the
impact of this new statement on its consolidated financial position, liquidity,
and results of operations.
F-19
<PAGE>
In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income.
SFAS No. 130 is required to be adopted for fiscal years beginning after December
15, 1997. Upon the effective date of the new statement, the Company will make
the necessary changes to comply with the provisions of the statement and restate
all prior periods presented. The Company does not expect the adoption of the
statement to have a material impact on the Company's financial condition or
results of operations.
The American Institute of Certified Public Accountants has issued Statement of
Position 97-2, "Software Revenue Recognition". SOP 97-2 is effective for
transactions entered into in fiscal years beginning after December 15, 1997 and
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. The Company does not expect the
application of the SOP to have a material impact on the Company's financial
condition or results of operations.
NOTE 15. LEASE COMMITMENTS
The Company leases certain facilities and equipment under various operating
leases. Future minimum lease commitments on operating leases that have initial
or remaining non-cancelable lease terms in excess of one year as of September
30, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 2,870
2000 2,092
2001 1,392
2002 1,242
2003 1,242
Thereafter 1,541
-------
$10,379
=======
</TABLE>
Rent expense for the fiscal years ended September 30, 1998, 1997 and 1996 was
$3,894, $3,655, and $3,370, respectively.
NOTE 16. CONTINGENCIES
Various lawsuits and claims have been brought against the Company in the normal
course of business. Management is of the opinion that the liability, if any,
resulting from these claims would not have a material effect on the financial
position or results of operations of the Company.
In December 1997, the Company filed a lawsuit against Saadi Abbas and Cambridge
Business Solutions (UK) Limited ("CBS") alleging that Mr. Abbas and CBS had
injured the Company by interfering with the Company's ability to market and
sublicense the LightSpeed Financial Model. The Company obtained a preliminary
injunction against Mr. Abbas and CBS halting their actions. Mr. Abbas and CBS
filed counterclaims against the Company claiming wrongful dismissal of Abbas and
breach of the license agreement. Due to the erosion of the market for the
LightSpeed Financial Model, the Company voluntarily dismissed its claims against
Mr. Abbas and CBS in the summer of 1998. Mr. Abbas and CBS are continuing to
pursue their claims against the Company. At the present point in the
litigation, it is impossible to calculate the chances of success in this
litigation. However, the Company intends to continue to vigorously defend
against the counterclaim. The Company has made provision for its estimated
costs to resolve this matter. Management does not believe at this point in the
litigation that any additional amounts required to ultimately resolve this
matter will have a material effect on the financial position, cash flows, or
results of operations of the Company.
NOTE 17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(Unaudited)
First Second Third Fourth
(In thousands, except per share data) Quarter Quarter Quarter Quarter
------- -------- -------- --------
<S> <C> <C> <C> <C>
1998:
Net revenues $18,356 $ 15,960 $ 15,631 $ 14,017
Gross profit 4,715 2,426 4,286 4,760
Net loss (9,906) (21,275) (10,646) (20,612)
Net loss per share ($0.83) ($1.78) ($0.89) ($1.72)
1997:
Net revenues $23,125 $ 24,112 $ 26,929 $ 28,987
Gross profit 9,930 11,882 14,417 15,083
Net income (loss) (8,270) (2,436) 89 651
Net income (loss) per share ($0.71) ($0.21) $ 0.01 $ 0.05
</TABLE>
F-20
<PAGE>
Due to a decline in the Company's software revenues, the Company determined
during the fourth quarter of fiscal year 1998 that certain previously available
tax planning strategies were no longer deemed to be prudent or feasible. This
caused the Company to record a full valuation allowance equaling the entire
deferred tax asset balances at September 30, 1998 and accordingly, resulted in
an increase in income tax expense for the fiscal year ended September 30, 1998.
NOTE 18. SUBSEQUENT EVENTS
On October 13, 1998, the Company was delisted from the Nasdaq Stock Market. The
Common Stock of the Company is currently quoted on the Over-the-Counter Bulletin
Board.
On November 24, 1998, the Company and Level 8 Systems, Inc. ("Level 8")
announced the pending strategic merger of the Company with Level 8. Level 8 is a
leading provider of message queuing and enterprise application integration
technologies that allow end-to-end connectivity between heterogeneous platforms
across the enterprise. As the first step in this transaction, on December 31,
1998, Level 8 acquired approximately 69% of the outstanding voting stock of the
Company from WCAS and its affiliates in exchange for 1,000,000 shares of Level 8
common stock and warrants to purchase an additional 250,000 shares of Level 8 at
an exercise price of $12 per Level 8 share. On December 31, 1998, Level 8
acquired 7,130,894 shares of the Company's Common Stock, 2,094,143 shares of the
Company's Series A Convertible Preferred Stock, and 1,762,115 shares of the
Company's Series B Convertible Preferred Stock (representing approximately 69%
of the outstanding voting stock of the Company) and therefore may be deemed to
control the Company. In connection with Level 8's purchase of the Company's
voting stock from WCAS, WCAS contributed $17 million to the Company and Level 8
provided the Company a $12 million subordinated loan to help pay down the
Company's bank debt. Level 8 has also agreed to acquire all of remaining shares
of the Company's Common Stock for $0.35 per share in cash as soon as practicable
upon completion of required filings and approvals. In addition, Level 8 has
agreed to fund the Company's operations, as necessary, through January 15, 2000.
On December 22, 1998, the Company's Revolving Facility was amended. The
Revolving Facility now bears interest at the prime rate and terminates on
December 31, 2001. The Revolving Facility is automatically renewed for
successive additional terms of one year each, unless terminated by either
party.
F-21
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and
duly signed, will be accepted. The Letter of Transmittal, certificates for
Shares and any other required documents should be sent or delivered by each
stockholder of the Company or his broker, dealer, commercial bank, trust company
or other nominee to the Depository, at one of the addresses set forth below:
The Depository is:
American Stock Transfer and Trust Company
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission By Hand:
American Stock Transfer and (for Eligible Institutions Only): American Stock Transfer and
Trust Company (718) 236-2641 Trust Company
40 Wall Street, 46th Floor 40 Wall Street, 46th Floor
New York, NY 10005 New York, NY 10005
Confirm by Telephone:
(718) 921-8200
By Overnight Delivery:
American Stock Transfer and
Trust Company
40 Wall Street, 46th Floor
New York, NY 10005
</TABLE>
Questions and requests for assistance may be directed to the
Information Agent at the address and telephone number listed below. Additional
copies of this Offer to Purchase, the Letter of Transmittal and other tender
offer materials may be obtained from the Information Agent as set forth below
and will be furnished promptly at the Purchaser's expense. You may also contact
you broker, dealer, commercial bank, trust company or other nominee for
assistance concerning this Offer.
The Information Agent for the Offer is:
Beacon Hill Partners, Inc.
90 Broad Street
New York, NY 10004
(212) 843-8500 (Collect)
or
(800) 792-2829 (Toll Free)
LETTER OF TRANSMITTAL
To Tender Shares of Common Stock
of
SEER TECHNOLOGIES, INC.
at
$0.35 NET PER SHARE
Pursuant to the Offer to Purchase
Dated February 1, 1999
by
LEVEL 8 SYSTEMS, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON TUESDAY, MARCH 2, 1999, UNLESS EXTENDED.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER AND TRUST COMPANY
40 Wall Street, 46th Floor
New York, NY 10005
Facsimile Transmission:
(718) 236-2641
(For Eligible Institutions Only)
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER OTHER THAN THE
ONES LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THE LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders either if
certificates are to be forwarded herewith or if delivery of Shares (as defined
below) is to be made by book-entry transfer to the account maintained by the
Depositary at The Depository Trust Company, the Midwest Securities Trust Company
and the Philadelphia Depository Trust Company (each a "Book-Entry Transfer
Facility" and collectively, the "Book-Entry Transfer Facilities") pursuant to
the procedures set forth in "The Tender Offer -- Procedures for Tendering
Shares" of the Offer to Purchase (as defined below). Stockholders who deliver
Shares by book-entry transfer are referred to herein as "Book-Entry
Stockholders" and other stockholders are referred to herein as "Certificate
Stockholders." Stockholders whose certificates are not immediately available, or
who are unable to deliver all documents required by this Letter of Transmittal
to the Depositary prior to the Expiration Date (as defined in "The Tender Offer
- -- Term of the Offer" of the Offer to Purchase), or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Shares
according to the guaranteed delivery procedure set forth in "The Tender Offer --
Procedures for Tendering Shares" of the Offer to Purchase. See Instruction 2.
Delivery of documents to a Book-Entry Transfer Facility does not constitute
delivery to the Depositary.
<PAGE>
(THE BOXES BELOW ARE FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
|_| CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution..............................................
Check Box of Applicable Book-Entry Transfer Facility:
|_| The Depository Trust Company
|_| Midwest Securities Trust Company
|_| Philadelphia Depository Trust Company
Account Number ................... Transaction Code Number...............
|_| CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY
AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s).........................................
Window Ticket Number (if any) .........................................
Date of Execution of Notice of Guaranteed Delivery ....................
Name of Institution Which Guaranteed Delivery .........................
IF DELIVERED BY BOOK-ENTRY TRANSFER CHECK BOX OF APPLICABLE BOOK- ENTRY
TRANSFER FACILITY:
|_| The Depository Trust Company
|_| Midwest Securities Trust Company
|_| Philadelphia Depository Trust Company
Account Number ........................................................
DESCRIPTION OF SHARES TENDERED
Name(s) and Address(es) Certificate(s) Tendered
of Registered Owner(s) (Attach additional list if necessary)
(Please fill in, if blank) Certificate Total Number Number of
Number(s)* of Shares Shares
Represented by Tendered**
Certificate(s)*
Total Shares
* Need not be completed by Book-Entry Stockholders.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by
any certificates delivered to the Depositary are being tendered. See
Instruction 4.
<PAGE>
The undersigned hereby tenders to Level 8 Systems, Inc., a New York
corporation (the "Purchaser"), the shares of common stock, par value $.01 (the
"Shares"), of Seer Technologies, Inc., a Delaware corporation (the "Company"),
pursuant to the Purchaser's offer to purchase all outstanding Shares at $0.35
per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated February 1, 1999 (the "Offer
to Purchase"), receipt of which is hereby acknowledged, and in the related
Letter of Transmittal (which, together with the Offer to Purchase, constitute
the "Offer").
Subject to, and effective upon, acceptance for payment of and payment
for the Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer, the undersigned hereby sells, assigns and transfers to,
or upon the order of, the Purchaser all right, title and interest in and to all
the Shares that are being tendered hereby (and any and all other Shares or other
securities or rights issued or issuable in respect thereof on or after February
1, 1999) and irrevocably constitutes and appoints the Depositary the true and
lawful agent and attorney-in-fact of the undersigned with respect to such
Shares, (and any and all such other shares or securities) with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (i) deliver certificates for such Shares (and any
and all such other shares or securities), or transfer ownership of such Shares
on the account books maintained by a Book-Entry Transfer Facility, together in
either such case with all accompanying evidence of transfer and authenticity, to
or upon the order of the Purchaser upon receipt by the Depositary, as the
undersigned's agent, of the purchase price, (ii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares (and any
and all such other Shares or securities), all in accordance with the terms of
the Offer. The Purchaser expressly reserves the right to transfer or assign to
the Purchaser or one or more of the Purchaser's subsidiaries or affiliates the
right to purchase all or any portion of the Shares tendered hereby (and any and
all such other Shares and other securities and property) but no transfer or
assignment will relieve the Purchaser of its obligations hereunder or prejudice
the rights of the undersigned to receive payment for Shares validly tendered
hereby and accepted for payment pursuant to the Offer.
The undersigned hereby irrevocably appoints Arie Kilman and Steven
Dmiszewicki and each of them, and any other designees of the Purchaser, as the
attorneys and proxies of the undersigned, each will full power of substitution,
to vote in such manner as each such attorney and proxy or the substitute for any
such attorney and proxy shall in the sole discretion of each such attorney and
proxy deem proper, and otherwise act (including pursuant to written consent)
with respect to all of the Shares tendered by the stockholder (and any and all
such other Shares or other securities) which have been accepted for payment by
the Purchaser prior to the time of such vote or other action, which the
undersigned is entitled to vote at any meeting of stockholders (whether annual
or special and whether or not an adjourned meeting) of the Company, or consent
in lieu of any such meeting, or otherwise. This Proxy shall be considered
coupled with an interest in the tendered Shares. This proxy is irrevocable and
is granted in consideration of, and is effective upon, the Purchaser's oral or
written notice to the Depositary of its acceptance for payment of such Shares in
accordance with the terms of the Offer. Upon acceptance for payment, all proxies
given by the stockholder with respect to Shares and other securities will,
without further action, be revoked, and no subsequent proxies may be given (and
if given will not be effective). The designees of the Purchaser will, with
respect to the Shares and other securities, be empowered to exercise all voting
and other rights of the stockholder as they in their sole discretion may deem
proper at any annual, special or adjourned meeting of the Company's
stockholders, by written consent or otherwise.
The undersigned hereby represents and warrants that: (i) the
undersigned has full power and authority to tender, sell, assign and transfer
the Shares tendered (and any and all other Shares or other securities issued or
issuable in respect of such shares on or after February 1, 1999), and (ii) when
the same are accepted for payment by the Purchaser, the Purchaser will acquire
good and unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and the same will not be subject to any adverse claim.
The undersigned, upon request, will execute and deliver any additional documents
deemed
<PAGE>
by the Depositary or the Purchaser to be necessary or desirable to complete the
sale, assignment and transfer of the Shares tendered hereby (and any and all
such other shares or other securities).
All authority herein conferred or agreed to be conferred in this Letter
of Transmittal shall not be affected by, and shall survive, the death or
incapacity of the undersigned and any obligation of the undersigned hereunder
shall be binding upon the successors, assigns, heirs, executors, administrators
and legal representatives of the undersigned. Except as stated in the Offer to
Purchase, this tender is irrevocable. The undersigned understands that the
tender of Shares and acceptance for payment by the Purchaser of Shares pursuant
to any of the procedures described in the Offer to Purchase under the caption
"The Tender Offer -- Procedure for Tendering Shares" and in the Instructions
hereto will constitute a binding agreement between the undersigned and the
Purchaser upon the terms and subject to the conditions of the Offer, including
the tendering undersigned's representation and warranty that such undersigned
owns the Shares being tendered.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any certificates for
Shares not tendered or accepted for payment to the registered holder(s)
appearing under "Description of Shares Tendered." Similarly, unless otherwise
indicated under "Special Delivery Instructions," please mail the check for the
purchase price and/or return any certificates for Shares not tendered or
accepted for payment (and accompanying documents, as appropriate) to the
address(es) of the registered holder(s) appearing under "Description of Shares
Tendered." In the event that both the Special Delivery Instructions and the
Special Payment Instructions are completed, please mail the check for the
purchase price and/or return any certificates for Shares not tendered or
accepted for payment in the name of, and deliver said check and/or return such
certificates for Shares not tendered or accepted for payment in the name of, and
deliver said check and/or return such certificates to, the person or persons so
indicated. Book-Entry Stockholders delivering Shares by book-entry transfer may
request that any Shares not accepted for payment be returned by appropriate
entry under "Special Payment Instructions." The undersigned recognizes that the
Purchaser has no obligation pursuant to the Special Payment Instructions to
transfer any Shares from the name(s) of the registered holder(s) thereof if the
Purchaser does not accept for payment any of the Shares so tendered.
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificates for Shares not tendered or not
purchased and/or the check for the purchase price of Shares purchased are to be
issued in the name of someone other than the undersigned, or if Shares delivered
by book-entry transfer that are not purchased are to be returned by credit to an
account maintained at a Book-Entry Transfer Facility other than the account
indicated above.
Issue |_| Check |_| Certificates to:
Name ...........................................................................
(Please Type or Print)
Address ........................................................................
................................................................................
................................................................................
(Include Zip Code)
(See Form W-9 on reverse side)
................................................................................
(Tax Identification or Social Security No.)
(See Substitute Form W-9 on reverse side)
|_| Credit unpurchased Shares delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below:
Check appropriate box:
|_| The Depository Trust Company
|_| Midwest Securities Trust Company
|_| Philadelphia Depository Trust Company
................................................................................
Account Number
<PAGE>
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificates for Shares not tendered or not
purchased and/or the check for the purchase price of Shares accepted for payment
are to be sent to someone other than the undersigned, or to the undersigned at
an address other than that shown above.
Mail |_| Check |_|Certificates to:
Name ...........................................................................
(Please Type or Print)
Address ........................................................................
................................................................................
................................................................................
(Include Zip Code)
(Tax Identification or Social Security No.)
(See Substitute Form W-9 on reverse side)
<PAGE>
IMPORTANT SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
...............................................................................
...............................................................................
(Signature(s) of Stockholder(s))
Dated ..................................................................., 1999
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, please set forth full title and see
Instruction 5.)
Name(s) ........................................................................
(Please Type or Print)
Capacity (Full Title) ..........................................................
Address ........................................................................
................................................................................
(Include Zip Code)
Area Code and Telephone No. ....................................................
Tax Identification or Social Security No........................................
GUARANTEE OF SIGNATURE(S)
(SEE IF REQUIRED -- INSTRUCTIONS 1 AND 5)
Authorized Signature ...........................................................
Name ...........................................................................
(Please Type or Print)
Name of Firm ...................................................................
Address ........................................................................
................................................................................
(Include Zip Code)
Area Code and Telephone No. ....................................................
Dated ...................................................................., 1999
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal
must be guaranteed by a member firm of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the United
States (each of the foregoing being referred to as an "Eligible Institution")
unless the Shares tendered hereby are tendered (i) by a registered holder of the
Shares (which term, for purposes of this document, shall include any participant
in a Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of Shares) tendered herewith who has not completed either
the box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on the reverse hereof or (ii) for the account of an
Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of
Transmittal is to be completed by stockholders either if certificates are to be
forwarded herewith or if tenders are to be made pursuant to the procedures for
delivery by book-entry transfer set forth in "The Tender Offer -- Procedures for
Tendering Shares" of the Offer to Purchase. Certificates for all physically
tendered Shares or any Book- Entry Confirmation (as defined in the Offer to
Purchase), as the case may be, as well as a properly completed and duly executed
Letter of Transmittal for facsimile thereof) and any other documents required by
this Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth herein prior to the Expiration Date (as defined in "The
Tender Offer -- Terms of the Offer" of the Offer to Purchase). Stockholders
whose certificates are not immediately available or who cannot deliver their
certificates and all other required documents to the Depositary prior to the
Expiration Date or who cannot complete the procedures for book-entry transfer on
a timely basis may tender their Shares by properly completing and duly executing
the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure
set forth in "The Tender Offer -- Procedures for Tendering Shares" of the Offer
to Purchase. Pursuant to such procedure, (i) such tender must be made by or
through an Eligible Institution, (ii) a properly competed and duly executed
Notice of Guaranteed Delivery, substantially in the form provided by the
Purchaser must be received by the Depositary prior to the Expiration Date, and
(iii) the certificates for all physically tendered Shares or Book- Entry
Confirmation, as the case may be, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) and any other documents
required by this Letter of Transmittal, must be received by the Depositary
within five New York Stock Exchange trading days after the date of execution of
such Notice of Guaranteed Delivery, all as provided in "The Tender Offer --
Procedures for Tendering Shares" of the Offer to Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE CERTIFICATES
FOR SHARES AND ANY OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH A
BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING
STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and
no fractional Shares will be purchased. All tendering stockholders, by execution
of this Letter of Transmittal (or facsimile thereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
<PAGE>
4. PARTIAL TENDERS (NOT APPLICABLE TO BOOK-ENTRY STOCKHOLDERS). If
fewer than all the Shares evidenced by any certificate submitted are to be
tendered, fill in the number of Shares which are to be tendered in the box
entitled "Number of Shares Tendered." In such case, new certificate(s) for the
remainder of the Shares that were evidenced by the tendering stockholder's old
certificate(s) will be sent to such tendering stockholder, unless otherwise
provided in the appropriate box on this Letter of Transmittal, as soon as
practicable after the Expiration Date. All Shares represented by certificates
delivered to the Depositary will be deemed to have been tendered unless
otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, the signature(s) must correspond exactly with the name
as written on the face of the certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any certificates of stock powers are
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Purchaser of such person's authority so to act must be
submitted.
If the certificates are registered in the name of a person other than
the signer of the Letter of Transmittal or payment is to be made or certificates
for unpurchased Shares are to be issued to a person other than the registered
holder, then the tendered certificates must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names of
the registered owner or owners appear on the certificates, Signatures on such
certificates or stock powers must be guaranteed by an Eligible Institution.
6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, the
Purchaser will pay or cause to be paid any stock transfer taxes (including, if
applicable, the New York State Real Properly Gains Tax and the New York City
Real Property Transfer Tax) with respect to the transfer and sale of purchased
Shares to it or its order pursuant to the Offer. If payment of the purchase
price is to be made to, or if certificates for Shares not tendered or purchased
are to be registered in the name of any person other than the registered holder,
or if tendered certificates are registered in the name of any person other than
the person(s) signing this Letter of Transmittal, the amount of any stock
transfer taxes (whether imposed on the registered holder or such person) payable
on account of the transfer to such person will be deducted from the purchase
price unless satisfactory evidence of the payment of such taxes or exemption
therefrom is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF
TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check and/or
certificates for unpurchased Shares are to be issued in the name of a person
other than the signer of this Letter of Transmittal or if a check is to be sent
and/or such certificates are to be returned to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed. Book-Entry
Stockholders may request that Shares not purchased be credited to such
<PAGE>
account maintained at a Book-Entry Transfer Facility as such stockholder may
designate hereon. If no such instructions are given, such Shares not purchased
will be returned by crediting the account of a Book-Entry Transfer Facility
designated above.
8. REQUEST FOR ASSISTANT OR ADDITIONAL COPIES. Requests for assistance
may be directed to or additional copies of the Offer to Purchase, this Letter of
Transmittal, the Notice of Guaranteed Delivery and the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 may be
obtained from the Information Agent at its address set forth below or from the
tendering stockholder's broker, dealer, commercial bank or trust company.
9. WAIVER OF CONDITIONS. The conditions of the Offer may be waived by
the Purchaser, in whole or in part, at any time and from time to time in the
Purchaser's sole discretion, in the case of any Shares tendered.
10. SUBSTITUTE FORM W-9. In order to avoid "backup withholding" of
federal income tax on the cash received upon the purchase of Shares pursuant to
the Offer, a tendering stockholder must, unless an exemption applies, provide
the Depositary with his correct taxpayer identification number ("TIN") on
Substitute Form W-9 on this Letter of Transmittal and certify, under penalties
of perjury, that such number is correct. If the Depositary is not provided with
the correct TIN, a $50 penalty may be imposed by the Internal Revenue Service
and payments made for the Shares may be subject to backup withholding of 20%.
Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of persons subject to backup withholding will be
reduced by the amount of such tax withheld. If backup withholding results in
overpayment of taxes, a refund may be obtained from the Internal Revenue
Service.
The TIN that must be provided on the Substitute Form W-9 is that of the
registered holder of the Shares or of the last transferee appearing on the
transfers attached to or endorsed on the Shares. The TIN for an individual is
his social security number. The box in Part 2 of the Substitute Form W-9 may be
checked if the person tendering the Shares has not been issued a TIN and has
applied for a TIN or intends to apply for a TIN in the near future. If the box
in Part 2 is checked and the Depositary is not provided with a TIN within 60
days, the Depositary will withhold 20% on all subsequent payments, if any, of
the purchase price for the Shares until a TIN is provided to the Depositary.
Exempt persons (including, among others, corporations) are not subject
to backup withholding and should indicate their exempt status on Substitute Form
W-9. A foreign person may qualify as an exempt person by submitting a statement,
signed under penalties of perjury, certifying such person's foreign status. Such
statements can be obtained from the Depositary. A stockholder should consult his
tax advisor as to his qualification for exemption from backup withholding and
the procedure for obtaining such exemption.
The stockholder is required to give the Depositary the social security
number or employer identification number of the record owner of Shares. If
Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF),
TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER
REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, PRIOR TO THE EXPIRATION
DATE.
<PAGE>
11. LOST, MUTILATED OR DESTROYED CERTIFICATES. Any Stockholder whose
certificate(s) for Shares have been lost, mutilated or destroyed should contact
the Depositary at the address above for further information.
<PAGE>
PAYER'S NAME: AMERICAN STOCK TRANSFER AND TRUST COMPANY
<TABLE>
<CAPTION>
SUBSTITUTE Part 1-- PLEASE PROVIDE YOUR TIN IN SOCIAL SECURITY
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY NUMBER OR
SIGNING AND DATING BELOW ____________________
Employer Identification Number
<S> <C> <C>
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
Payer's Request for Taxpayer
Identification Number (TIN)
CERTIFICATION -- UNDER PENALTIES OF PERJURY, PART 2--
I CERTIFY THAT THE INFORMATION PROVIDE ON
THIS FORM IS TRUE, CORRECT AND COMPLETE. AWAITING TIN |_|
SIGNATURE __________________________
DATE _________________________
</TABLE>
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 20%
OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTION FORM W-9" FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within sixty (60) days, 20
percent of all reportable payments made to me thereafter will be withheld until
I provide a number.
................................... ................................
Signature Date
- --------------------------------------------------------------------------------
(DO NOT WRITE IN SPACES BELOW)
Date Received............ Accepted by............. Checked by...........
<TABLE>
<CAPTION>
SHARES SHARES SHARES CHECK AMOUNT SHARES CERTIFICATE
SURRENDERED TENDERED ACCEPTED NO. OF CHECK RETURNED NO.
<S> <C> <C> <C> <C> <C> <C>
Gr _________
Tax __________
Net __________
</TABLE>
Date Received............ Accepted by............. Checked by...........
The Information Agent for the Offer is:
BEACON HILL PARTNERS, INC.
90 Broad Street
New York, New York 10004
(212) 843-8500 (Collect)
or
(800) 792-2829 (Toll Free)
BEACON HILL PARTNERS, INC.
90 Broad Street
New York, New York 10004
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
SEER TECHNOLOGIES, INC.
at
$0.35 Net Per Share
by
LEVEL 8 SYSTEMS, INC.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON TUESDAY, MARCH 2, 1999, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
February 1, 1999
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Level 8 Systems, Inc., a New York corporation
(the "Purchaser"), to act as Information Agent in connection with the
Purchaser's offer to purchase for cash all the outstanding shares of common
stock, $.01 par value (the "Shares"), of Seer Technologies, Inc., a Delaware
corporation (the "Company"), for $0.35 per Share, net to the seller in cash,
upon the terms and subject to the conditions set forth in the Offer to Purchase
dated February 1, 1999 (the "Offer to Purchase") and in the related Letter of
Transmittal (which together constitute the "Offer") enclosed.
Please furnish copies of the enclosed materials to those of your clients
for whose accounts you hold Shares in your name or in the name of your nominee.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. The Offer to Purchase dated February 1, 1999.
2. The Letter of Transmittal to tender Shares for your use and for the
information of your clients. Facsimile copies of the Letter of Transmittal
may be used to tender Shares.
3. A letter to stockholders of the Company from Steven Dmiszewicki,
Co-President and Chief Financial Officer, together with a
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission by the Company and mailed to
stockholders of the Company.
4. The Notice of Guaranteed Delivery for Shares to be used to accept
the Offer, if neither of the two procedures for tendering Shares set forth
in the Offer to Purchase can be completed on a timely basis.
5. A printed form of letter, which may be sent to your clients for
whose accounts you hold Shares registered in your name or in the name of
your nominee, with space provided for obtaining such clients' instructions
with regard to the Offer.
<PAGE>
6. Guidelines for the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
7. A return envelope addressed to American Stock Transfer and Trust
Company, the Depositary.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON TUESDAY, MARCH 2, 1999, UNLESS THE OFFER IS
EXTENDED.
Please note the following:
1. The tender price is $0.35 per Share, net to the seller in cash.
2. The Offer is subject to certain conditions. See "The Tender Offer
-- Conditions to the Offer" in the Offer to Purchase.
3. The Offer is being made for all the outstanding Shares.
4. Tendering stockholders will not be obligated to pay brokerage fees
or commissions or, except as otherwise provided in Instruction 6 of the
Letter of Transmittal, transfer taxes on the purchase of Shares by the
Purchaser pursuant to the Offer. However, federal income tax backup
withholding may be required, unless an exemption is provided or unless the
required tax identification information is provided. See Instruction 10 of
the Letter of Transmittal.
5. The Offer and withdrawal rights will expire at 5:00 P.M., New York
City time, on Tuesday, March 2, 1999, unless the Offer is extended.
6. Notwithstanding any other provision of the Offer, payment for
Shares accepted for payment pursuant to the Offer will in all cases be made
only after timely receipt by the Depositary of (a) Certificates pursuant to
the procedures set forth in "The Tender Offer -- Procedures for Tendering
Shares" in the Offer to Purchase, or a timely Book-Entry Confirmation (as
defined in the Offer to Purchase) with respect to such Shares, (b) the
Letter of Transmittal (or a manually signed facsimile), properly completed
and duly executed, with any required signature guarantees, and (c) any
other documents required by the Letter of Transmittal. Accordingly, payment
may not be made to all tendering stockholders at the same time depending
upon when Certificates are actually received by the Depositary.
In order to take advantage of the Offer, (a) a duly executed and
properly completed Letter of Transmittal (or a manually signed facsimile) and
any required signature guarantees or other required documents should be sent to
the Depositary and (b) Certificates representing the tendered Shares or a timely
Book-Entry Confirmation (as defined in the Offer to Purchase) should be
delivered to the Depositary in accordance with the instructions set forth in the
Letter of Transmittal and the Offer to Purchase.
If holders of Shares wish to tender, but it is impracticable for them
to forward their Certificates or other required documents or complete the
procedures for book-entry transfer prior to the Expiration Date, a tender may be
effected by following the guaranteed delivery procedures specified in "The
Tender Offer -- Procedures for Tendering Shares" in the Offer to Purchase.
The Purchaser will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of Shares pursuant to the Offer
(other than the Depositary and the Information Agent as described in the Offer
to Purchase). The Purchaser will, however, upon request, reimburse you for
customary mailing and handling incurred by you in forwarding any of the enclosed
materials to your clients.
<PAGE>
The Purchaser will pay or cause to be paid any transfer taxes payable on the
transfer of Shares to it, except as otherwise provided in Instruction 6 of the
Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be
addressed to Beacon Hill Partners, Inc., the Information Agent for the Offer, at
90 Broad Street, New York, New York 10004, (212) 843-8500 (Collect) or (800)
792-2829 (Toll Free).
Requests for copies of the enclosed materials may also be directed to the
Information Agent at the above address and telephone numbers.
Very truly yours,
BEACON HILLS PARTNERS, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU OR ANY OTHER PERSON THE AGENT OF THE PURCHASER, THE COMPANY, THE DEPOSITARY,
THE INFORMATION AGENT OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM
IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE
STATEMENTS CONTAINED THEREIN.
<PAGE>
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
Seer Technologies, Inc.
at
$0.35 Net Per Share
by
Level 8 Systems, Inc.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON TUESDAY, MARCH 2, 1999, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
February 1, 1999
To Our Clients:
Enclosed for your consideration are the Offer to Purchase dated February 1,
1999 (the "Offer to Purchase") and the related Letter of Transmittal (which
together constitute the "Offer") relating to the offer by Level 8 Systems, Inc.,
a New York corporation (the "Purchaser"), to purchase all the outstanding shares
of common stock, $.01 par value (the "Shares"), of Seer Technologies, Inc., a
Delaware corporation (the "Company"), at a purchase price of $0.35 per Share,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Offer. Holders of Shares whose certificates for such Shares (the
"Certificates") are not immediately available or who cannot deliver their
Certificates and all other required documents to the depositary (the
"Depositary") or complete the procedures for book-entry transfer prior to the
Expiration Date (as defined in the Offer to Purchase) must tender their Shares
according to the guaranteed delivery procedures set forth in "The Tender Offer
- -- Procedures for Tendering Shares" in the Offer to Purchase.
We are (or our nominee is) the holder of record of Shares held by us for
your account. A tender of such Shares can be made only by us as the holder of
record and pursuant to your instructions. The Letter of Transmittal is furnished
to you for your information only and cannot be used by you to tender Shares held
by us for your account.
Accordingly, we request instruction as to whether you wish to have us
tender on your behalf any or all Shares held by us for your account pursuant to
the terms and conditions set forth in the Offer.
Please note the following:
1. The tender price is $0.35 per Share, net to the seller in cash.
2. The Offer is subject to certain conditions. See "The Tender Offer
-- Conditions to the Offer" in the Offer to Purchase.
3. The Offer is being made for all the outstanding Shares.
4. Tendering stockholders will not be obliged to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter
of Transmittal, transfer taxes on the purchase of Shares by the Purchaser
pursuant to the Offer. However, federal income tax backup withholding may
be required, unless an exemption is provided or unless the required
taxpayer identification information is provided. See Instruction 10 of the
Letter of Transmittal.
<PAGE>
5. The Offer and withdrawal rights will expire at 5:00 P.M., New York
City time, on Tuesday, March 2, 1999, unless the Offer is extended.
6. Notwithstanding any other provision of the Offer, payment for
Shares accepted for payment pursuant to the Offer will in all cases be made
only after timely receipt by the Depositary of (a) Certificates pursuant to
the procedures set forth in "The Tender Offer -- Procedures for Tendering
Shares" in the Offer to Purchase, or a timely Book-Entry Confirmation (as
defined in the Offer to Purchase) with respect to such Shares, (b) the
Letter of Transmittal (or a manually signed facsimile), properly completed
and duly executed, with any required signature guarantees, and (c) any
other documents required by the Letter of Transmittal. Accordingly, payment
may not be made to all tendering stockholders at the same time depending
upon when Certificates are actually received by the Depositary.
If you wish to have us tender any or all of the Shares held by us for your
account, please so instruct us by completing, executing, detaching and returning
to us the instruction form set forth below. If you authorize the tender of your
Shares, all such Shares will be tendered unless otherwise specified below. An
envelope to return your instructions to us is enclosed. Your instructions should
be forwarded to us in ample time to permit us to submit a tender on your behalf
prior to the expiration of the Offer.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares residing in any jurisdiction in which the making of
the Offer or the acceptance thereof would not be in compliance with the
securities, blue sky or other laws of such jurisdiction. However, the Purchaser
may, in its discretion, take such action as it may deem necessary to make the
Offer in any jurisdiction and extend the Offer to holders of Shares in such
jurisdiction.
In any jurisdiction where the securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer will be deemed to
be made on behalf of the Purchaser by one or more registered brokers or dealers
that are licensed under the laws of such jurisdiction.
<PAGE>
Instruction with Respect to the
Offer to Purchase for Cash
All Outstanding Shares of
Common Stock
of
Seer Technologies, Inc.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase dated February 1, 1999 and the related Letter of Transmittal
in connection with the offer by Level 8 Systems, Inc., a New York corporation
(the "Purchaser"), to purchase all the outstanding shares of common stock, par
value $.01 ("Shares"), of Seer Technologies, Inc., a Delaware corporation.
This will instruct you to tender to the Purchaser the number of Shares
indicated below (or if no number is indicated below, all Shares) that are held
by you for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Offer.
- --------------------------------------------------------------------------------
Number of Shares to be Tendered*: ____________________________________________
Date: ________________________________________________________________________
______________________________________________________________________________
SIGN HERE
Signature(s): ________________________________________________________________
(Print Name(s)): _____________________________________________________________
(Print Address(es)): _________________________________________________________
(Area Code and Telephone Number(s)): _________________________________________
(Taxpayer Identification or Social Security Number(s)): ______________________
- --------------------------------------------------------------------------------
* Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered.
<PAGE>
NOTICE OF GUARANTEED DELIVERY
for
Tender of Shares of Common Stock
of
Seer Technologies, Inc.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON TUESDAY, MARCH 2, 1999, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery or one substantially equivalent hereto
must be used to accept the Offer (as defined below), if certificates
representing the common stock, $.01 par value (the "Shares"), of Seer
Technologies, Inc., a Delaware corporation, are not immediately available or the
procedure for book-entry transfer cannot be completed on a timely basis or time
will not permit all required documents to reach American Stock Transfer and
Trust Company (the "Depositary") prior to the Expiration Date (as defined in the
Offer to Purchase). This Notice of Guaranteed Delivery may be delivered by hand
or transmitted by facsimile transmission or mail to the Depositary. See "The
Tender Offer -- Procedures for Tendering Shares" in the Offer to Purchase.
The Depositary for the Offer is:
American Stock Transfer and Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
By Facsimile Transmission:
(718) 236-2641
(For Eligible Institutions Only)
Confirm by Telephone to:
(718) 921-8200
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via a facsimile transmission to
a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions in the Letter of
Transmittal, such signature guarantee must appear in the applicable space
provided in the signature box in the Letter of Transmittal.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary within the time period shown in this
Notice of Guaranteed Delivery. Failure to do so could result in a financial loss
to the Eligible Institution.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Level 8 Systems, Inc., a New York
corporation (the "Purchaser"), upon the terms and subject to the conditions set
forth in the Offer to Purchase dated February 1, 1999 (the "Offer to Purchase")
and in the related Letter of Transmittal (which together constitute the
"Offer"), receipt of each of which is hereby acknowledged, the number of Shares
indicated below pursuant to the guaranteed delivery procedures set forth in "The
Tender Offer -- Procedures for Tendering Shares" in the Offer to Purchase.
- --------------------------------------- -------------------------------------
Number of Shares: ___________________ Names of Record Holder(s):
Certificate Nos.
(if available): _____________________ ___________________________________
_____________________________________ ___________________________________
(Please type or print)
Check ONE box if Shares
will be tendered by
book-entry transfer: Address(es): ______________________
|_| DTC ___________________________________
(Zip Code)
|_| MSTC
|_| PDTC
Account Number: _____________________ Area Code and Tel. No.: ___________
Dated: _______________________ , 1999 Signature(s): _____________________
___________________________________
- --------------------------------------- -------------------------------------
THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, an Eligible Institution (as such term is defined in "The Tender
Offer -- Procedures for Tendering Shares" in the Offer to Purchase), hereby
guarantees to deliver to the Depositary the certificates representing the Shares
tendered hereby, in proper form for transfer, or a Book-Entry Confirmation (as
defined in the Offer to Purchase) with respect to such Shares, in either case
together with a properly completed and duly executed Letter of Transmittal (or
a manually signed facsimile), with any required signature guarantees, and any
other documents required by the Letter of Transmittal, all within three trading
days after the date hereof.
Name of Firm: ________________________ ___________________________________
(Authorized Signature)
Address: _____________________________ Name:______________________________
(Please type or print)
______________________________________ Title: ____________________________
(Zip Code)
Area Code and Tel. No.: ______________ Date: _____________________________
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE OF GUARANTEED DE-
LIVERY. CERTIFICATES FOR SHARES SHOULD BE SENT ONLY TOGETHER WITH YOUR
LETTER OF TRANSMITTAL.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER --
Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by one
hyphen: i.e., 00-0000000. The table below will help determine the number to give
the payor.
<TABLE>
<CAPTION>
Give the SOCIAL Give the EMPLOYER
For this type of account: SECURITY number of-- For this type of account: IDENTIFICATION number of--
- -------------------------------- ----------------------------- ------------------------------ ------------------------------
<S> <C> <C> <C>
1. Individual The individual 6. Sole proprietorship The owner3
2. Two or more The actual owner of the 7. A valid trust, estate or The legal entity4
individuals account, or if combined pension trust
(joint account) funds, the first individual
on the account1 8. Corporate The corporation
3. Custodian account of a The minor2 9. Association, club, The organization
minor (Uniform Gift to religious, charitable,
Minors Act) educational or other
tax-exempt
organization
4. a. The usual revocable The grantor-trustee1 10. Partnership The partnership
savings trust
(grantor is
also trustee)
b. So-called trust account The actual owner1 11. A broker or The broker or nominee
that is not a legal or registered nominee
valid trust under
State law.
5. Sole proprietorship The owner3 12. Account with the The public entity
Department of
Agriculture in the
name of a public
entity (such as a
state or local
government, school
district, or prison)
that receives
agricultural
program payments
<FN>
1 List first and circle the name of the person whose number you furnish.
2 Circle the minor's name and furnish the minor's social security number.
3 Show your individual name. You may also enter your business name. You may
use your SSN or EIN.
4 List first and circle the name of the valid trust, estate or pension
trust. (Do not furnish the identifying number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.) Note: If no name is circled when there is more
than one name, the number will be considered to be that of the first name.
</FN>
</TABLE>
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER (TIN) ON SUBSTITUTE FORM W-9
(Section references are to the Internal Revenue Code)
Page 2
<TABLE>
<CAPTION>
NAME
<S> <C>
(14) A middleman known in the investment community as
If you are an individual, you must generally provide the name shown on a nominee or listed in the most recent publication
your social security card. However, if you have changed your last Society of Corporate Secretaries, Inc., Nominee
name, for instance, due to marriage, without informing the Social List.
Security Administration of the name change, please enter your first
name, last name shown on your social security card, and your new last (15) A trust exempt from tax under section 664 or
name. described in section 4947.
OBTAINING A NUMBER Payments of dividends generally not subject to
If you don't have a taxpayer identification number ("TIN"), apply for backup withholding include the following:
one immediately. To apply, obtain Form SS-5, Application for a Social
Security Card, from your local office of the Social Security Payments to nonresident aliens subject to
Administration, or Form SS-4, Application for Employer Identification withholding under section 1441.
Number, from your local Internal Revenue Service (the "IRS") office.
Payments to partnerships not engaged in a trade or
business in the U.S. and that have at least one
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING resident partner.
The following is a list of payees exempt from backup withholding and
for which no information reporting is required. For interest and Payments made by certain foreign organizations.
dividends, all listed payees are exempt except item (9). For broker
transactions, payees listed in (1) through (13) and a person Payments of interest generally not subject to
registered under the Investment Advisers Act of 1940 who regularly backup withholding include the following:
acts as a broker are exempt. Payments subject to reporting under
sections 6041 and 6041A are generally exempt from backup withholding Payments of interest on obligations issued by
only if made to payees described in items (1) through (7), except that individuals. NOTE: YOU MAY BE SUBJECT TO BACKUP
a corporation that provides medical and health care services or bill WITHHOLDING IF THIS INTEREST IS $600 OR MORE AND IS
and collects payments for such services is not exempt from backup PAID IN THE COURSE OF THE PAYOR'S TRADE OR
withholding or information reporting. BUSINESS AND YOU HAVE NOT PROVIDED YOUR CORRECT TIN
TO THE PAYOR.
Payments of tax-exempt interest (including
exempt-interest dividends under section 852).
(1) A corporation.
Payments described in section 6049(b)(5) to
(2) An organization exempt from tax under section 501(a), nonresident aliens.
or an individual retirement plan ("IRA"), or a custodial
account under section 403(b)(7). Payments on tax-free covenant bonds under
section 1451.
(3) The United States or any of its agencies or instrumentalities.
Payments made by certain foreign organizations.
(4) A state, the District of Columbia, a possession of Unite
States, or any of their political subdivisions or subject Mortgage interest paid by you.
instrumentalities.
(5) A foreign government or any of its political subdivisions, Payments that are not subject to information
agencies or instrumentalities. reporting are also not to backup withholding.
For details, see sections 6041, 6041A(a), 6042, 6044,
(6) An international organization or any of its agencies or 6045, 6049, 6050A, and 6050N, and the regulations
instumentalities. under those sections.
(7) A foreign central bank of issue. PRIVACY ACT NOTICE.-- Section 6109 requires
you to furnish your correct TIN to persons who
(8) A dealer in securities or commodities required to must file information returns with the
register in the U.S. or a possession of the U.S. IRS to report interest, dividends, and certain
other income paid to you, mortgage interest
(9) A futures commission merchant registered with the Commodity you paid, the acquisition or abandonment of
Futures Trading Commission. secured property, or contributions you
made to an IRA. The IRS uses the numbers for
(10) A real estate investment trust. identification purposes and to help verify the
accuracy of your tax return. You must provide
(11) An entity registered at all times during the tax your TIN whether or not you are qualified to
year under the Investment Company Act of 1940. file a tax return. Payors must generally
generally withhold 31% of taxable interest,
(12) A common trust fund operated by a bank under section 584(a). dividend, and certain other payments to payee
who does not furnish a TIN to payor. Certain
(13) A financial institution. penalties may also apply.
PENALTIES
(1) FAILURE TO FURNISH TIN. -- If you fail to
furnish your correct TIN to a requester
(the person asking you to furnish your
TIN), you are subject to a penalty of $50
for each such failure unless your
failure is due to reasonable cause and
not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION
WITH RESPECT TO WITHHOLDING -- If you make
a false statement with no reasonable
basis that results in no backup withholding,
you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING
INFORMATION.-- Willfully falsifying
certifications or affirmations may subject
you to criminal penalties including fines
and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT
YOU TAX CONSULTANT OR THE IRS
</TABLE>
1250 Broadway
35th Floor Contact: Ivan Casanova
New York, New York 10001 Level 8 Systems, Inc.
212-244-1234
212-244-1234 (Phone)
212-760-2327 (Fax)
www.level8.com
LEVEL 8 SYSTEMS, INC. NEWS RELEASE
FOR IMMEDIATE RELEASE
Level 8 Systems, Inc. Commences Tender Offer for Seer Technologies, Inc.
New York, New York. February 1, 1999- Level 8 Systems, Inc. (LVEL:
Nasdaq) today announced that it has commenced a tender offer at $0.35 per share
for all the outstanding shares of common stock of Seer Technologies, Inc. that
it does not already own. Level 8 previously acquired from Welsh, Carson,
Anderson & Stowe 59% of the outstanding common and all of the outstanding
preferred stock of Seer, representing a total of 69% of the outstanding voting
stock of Seer.
The tender offer is being made in accordance with the previously
announced acquisition agreement dated November 23, 1998 between Level 8 Systems
and Welsh Carson Anderson & Stowe VI, L.P. The tender offer is scheduled to
expire at midnight, New York City time, on Tuesday, March 2, 1999.
American Stock Transfer & Trust Company is the depository for the
tender offer. For additional information regarding the tender and delivery
procedures and conditions of the offer, interested parties should refer to the
Offer to Purchase and related transmittal documents, copies of which are being
mailed to shareholders. Beacon Hill Partners, Inc. will serve as the information
agent for the offer and can address questions regarding tender and delivery
procedures at 800/792-2829.
Level 8 Systems is a premiere provider of scalable enterprise
application integration solutions through a combination of technologies and
services that enable organizations to meet their information systems integration
and management needs.
