SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
April 21, 1998 0-26392
Date of Report (Date of Earliest Commission File Number
Event Reported)
LEVEL 8 SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
New York 11-2920559
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
One Penn Plaza
Suite 3401
New York, New York 10119-0002
(Address of Principal Executive Offices) (Zip Code)
(212) 244-1234
(Registrant's telephone number, including area code)
Item 2. Acquisition or Disposition of Assets
On April 6, 1998, Level 8 Systems, Inc.("Level 8") sold its
wholly owned subsidiary, ProfitKey International,
Inc.("ProfitKey"), a Delaware corporation to ProfitKey
Acquisition, LLC (the "Buyer"), a Delaware limited liability
company which is a wholly owned subsidiary of Platinum Equity
Holdings. Under the terms of the Asset Purchase Agreement (the
"Agreement"), Level 8 received a cash payment of $463,615 at the
Closing and a $2,000,000 promissory note of the Buyer, secured by
the assets of the Buyer. Under the Agreement, the Buyer will
take possession of all cash and cash equivalents, all
inventories, all accounts and notes receivable, all equipment,
furniture, fixtures and leasehold improvements and other tangible
personal property of ProfitKey as of the closing date, all
intellectual property including trademarks, trade names and all
rights in and to the source code for the software programs "Rapid
Response Manufacturing" and "Rapid Response Manufacturing Client
Server" and all other tangible and intangible personal property
and prepaid expenses of ProfitKey. The Buyer shall assume the
liabilities and obligations of ProfitKey relating to the business
to the extent that the same are accrued or reserved for on the
balance sheet on the closing date with the exception of any
inter-company obligations between ProfitKey and Level 8 or any
other Level 8 subsidiary.
ProfitKey is a provider of Enterprise Resource Planning
software for the make-to-order manufacturing marketplace.
As a result of the sale of Profitkey, Level 8 will incur a
one-time charge to earnings of approximately $1.3 million.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a)-(b) Financial Statements, Pro Forma Financial
Information
The financial statements and pro forma financial information
required by this item are not included herewith; they are
expected to be filed by amendment on or before June 19, 1998.
(c) Exhibits
1. Asset Purchase Agreement, dated March 31, 1998, between
ProfitKey International, Inc.,Level 8 Systems, Inc.,and
ProfitKey Acquisition, LLC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
LEVEL 8 SYSTEMS, INC.
(Registrant)
Dated: April 21, 1998 By: /s/ Joseph J. Di Zazzo
Name: Joseph J. Di Zazzo
Title: Chief Financial Officer
Exhibit 1.
ASSET PURCHASE AGREEMENT
dated as of March 31, 1998
among
ProfitKey International, Inc.,
Level 8 Systems, Inc.,
and
ProfitKey Acquisition, LLC
TABLE OF CONTENTS
Page
ARTICLE I THE PURCHASE AND SALE OF ASSETS
AND ASSUMPTION OF LIABILITIES.........................1
1.1 Purchase and Sale of Assets......................1
1.2 Consideration....................................3
1.3 Liabilities Assumed and Not Assumed..............3
1.4 Tax Allocation...................................5
1.5 Working Capital..................................5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER........6
2.1 Due Authorization and Execution..................6
2.2 Organization of the Seller.......................6
2.3 Financial Statements.............................6
2.4 No Undisclosed Liabilities.......................7
2.5 Absence of Certain Changes.......................7
2.6 Taxes............................................8
2.7 Litigation.......................................8
2.8 Consents, Violations and Authorizations..........8
2.9 Agreements, Contracts, Commitments and Leases....9
2.10 Assets..........................................10
2.11 Inventory.......................................11
2.12 Accounts Receivable.............................11
2.13 Intellectual Property...........................12
2.14 Insurance.......................................15
2.15 Compliance with Law.............................15
2.16 Employee Benefit Plans..........................15
2.17 Employees and Labor Contracts...................16
2.18 Fees, Commissions and Expenses..................16
2.19 Environmental Laws and Regulations..............16
2.20 Owned Real Property.............................18
2.21 Product Warranties..............................18
2.22 Transactions with Affiliates....................18
2.23 Conditions Affecting Seller.....................18
2.24 Full Disclosure.................................18
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER.....19
3.1 Due Authorization and Execution.................19
3.2 Organization of the Buyer.......................19
3.3 Consents, Violations and Authorizations.........19
3.4 Fees, Commissions and Expenses..................20
3.5 Full Disclosure.................................20
ARTICLE IV CONDUCT OF BUSINESS PENDING CLOSING.............20
4.1 Ordinary Course.................................20
4.2 No Acquisitions.................................20
4.3 No Dispositions.................................20
4.4 Employees.......................................20
4.5 Mortgages, Liens and Other Encumbrances.........20
4.6 Waiver of Rights................................20
4.7 Material Agreements.............................21
4.8 Capital Expenditures............................21
4.9 Agreements......................................21
ARTICLE V CONDITIONS TO THE OBLIGATIONS OF THE BUYER...........21
5.1 Representations and Warranties of the Seller....21
5.2 Absence of Litigation or Investigation..........21
5.3 Requisite Approvals.............................21
5.4 Delivery of Documents...........................21
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE SELLER.........22
6.1 Representations and Warranties of the Buyer.....22
6.2 Absence of Litigation or Investigation..........22
6.3 Requisite Approvals.............................22
6.4 Delivery of Documents...........................22
ARTICLE VII SURVIVAL; INDEMNIFICATION.........................22
7.1 Survival of Representations and Warranties and
Related Agreements..............................22
7.2 General Indemnification.........................23
ARTICLE VIII ADDITIONAL COVENANTS OF THE PARTIES..............24
8.1 Noncompetition..................................24
8.2 Access by Buyer and Agents......................24
8.3 Availability of Records to the Seller...........24
8.4 Post-Closing Employee Matters...................25
8.5 Use of Name.....................................25
ARTICLE IX CLOSING.........................................25
9.1 Closing.........................................25
9.2 Deliveries at Closing...........................25
ARTICLE X TERMINATION 26
10.1 Termination 26
10.2 Procedure Upon Termination 26
ARTICLE XI GENERAL PROVISIONS 27
11.1 Expenses 27
11.2 Certain Filings and Consents 27
11.3 Further Assurances 27
11.4 Notices 27
11.5 Successors 28
11.6 Entire Agreement 28
11.7 Amendment and Modification 29
11.8 Waiver of Compliance 29
11.9 Gender; Number 29
11.10 Severability 29
11.11 Governing Law 29
11.12 Interpretation 29
11.13 Bulk Sales Compliance 29
11.14 Endorsement Authorization 29
11.15 Counterparts 30
Exhibit A Form of Promissory Note
Exhibit B Form of Security Agreement
Exhibit C Form of Master Assignment, Bill of Sale and Assumption
Exhibit D Form of Guarantee<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of
March 31, 1998, is entered into among ProfitKey International,
Inc., a Delaware corporation (the "Seller"), Level 8 Systems,
Inc., a New York corporation ("Level 8") and ProfitKey
Acquisition, LLC, a Delaware limited liability company (the
"Buyer").
This Agreement sets forth the terms and conditions upon
which the Seller will sell to the Buyer, and the Buyer will
purchase from the Seller, all of the business, property, assets
and goodwill of the Seller except those assets specifically
excluded. All of such business operations of Seller to be
purchased by the Buyer hereunder are referred to herein as the
"Business," and references to the "Business" are not intended to
include any other assets of the Seller.
In consideration of the mutual agreements contained herein,
intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
THE PURCHASE AND SALE OF ASSETS
AND ASSUMPTION OF LIABILITIES
1.1 Purchase and Sale of Assets. Subject to the terms and
conditions of this Agreement, at the Closing (as defined in
Section 9.1), the Seller shall sell, transfer, convey, assign and
deliver to the Buyer and the Buyer shall purchase, acquire and
accept from the Seller all of the assets of the Seller (except
only those assets specifically excluded by this Agreement)
including without limitation the following:
(a) All cash and cash equivalents;
(b) All inventories (including raw materials, work in
process, finished products, parts and supplies) either on hand at
the facilities of the Seller, in transit thereto or wherever
located as of the Closing Date (as defined in Section 9.1) and
owned by the Seller as of the Closing;
(c) All of the accounts and notes receivable
outstanding as of the Closing Date (excluding, however, all notes
and other inter-company receivables from Level 8 or any affiliate
of Level 8 to the Seller) and all rights of the Seller in, to and
under all invoices and billings;
(d) The equipment, machinery, motor vehicles, and
other tangible personal property of the Seller as of the Closing
Date;
(e) The furniture, fixtures and leasehold improvements
of the Seller as of the Closing Date;
(f) All rights of the Seller in, to and under all
contracts, commitments, personal property leases, prepaid
third-party licenses and other written agreements (including that
certain Lease Agreement dated September 17, 1996 in respect of
384 Main Street, Salem, New Hampshire (the "New Hampshire Lease")
and those leases listed on Schedule 1.1(f) hereto (together with
the New Hampshire Lease, the "Assumed Leases") but excluding the
Excluded Real Property Leases as defined in Section 1.1(z) below)
and all purchase and sales orders outstanding as of the Closing
Date;
(g) All rights of the Seller in and to all licenses,
permits and other authorizations necessary or useful in the
operation of the Business, to the extent that such are legally
assignable;
(h) All business and accounting records, data,
supplier, dealer and customer lists and other proprietary
information of the Seller;
(i) All Intellectual Property (as defined in Section
2.13), including without limitation all rights in and to the
trademarks, service marks and trade names "ProfitKey," "Profit
Key International" and "Rapid Response Manufacturing" and all
derivatives thereof and all rights in and to the source code for
the software programs "Rapid Response Manufacturing" and "Rapid
Response Manufacturing Client Server" and all derivatives
thereof;
(j) That certain promissory note of Joseph J. DiZazzo
to Level 8 dated November 3, 1997 (in place of the promissory
note excluded pursuant to Section 1.1(y)); and
(k) All other tangible and intangible personal
property and prepaid expenses of the Seller.
For purposes of this Agreement, the assets described above in
this Section 1.1 shall be referred to collectively as the
"Assets."
Notwithstanding the foregoing, the Buyer shall not purchase
or acquire the following assets, all of which shall be excluded
from the defined term "Assets" as used herein and are herein
referred to as the "Excluded Assets":
(y) That certain promissory note of Robert Lord to the
Seller dated January 6, 1997; and
(z) Those leases under which the Seller is the lessee
of real property listed on Schedule 1.1(z) hereto (the "Excluded
Real Property Leases").
1.2 Consideration. The consideration for the sale,
assignment, transfer and delivery of the Assets and the
noncompetition covenant of the Seller in Section 8.1 (the
"Purchase Price") shall be:
(a) A $463,615 cash payment in immediately available
funds at the Closing; and
(b) A $2,000,000 promissory note of the Buyer
substantially in the form of Exhibit A (the "Note") secured by
the assets of the Buyer pursuant to a security agreement
substantially in the form of Exhibit B (the "Security
Agreement").
1.3 Liabilities Assumed and Not Assumed.
(a) Subject to paragraph (b) below, at the Closing the
Buyer shall assume, pursuant to the execution and delivery to the
Seller of the form of Master Assignment, Bill of Sale and
Assumption (the "Bill of Sale") in the form of Exhibit C hereto:
(i) all liabilities and obligations of the Seller
relating to the Business to the extent that the same are accrued
or reserved for on the Balance Sheet (as defined in Section 2.3)
and remain unpaid and discharged on the Closing Date;
(ii) all liabilities and obligations of the Seller
arising in the regular and ordinary course of the Business
between the Balance Sheet Date (as defined in Section 2.3) and
the Closing Date, to the extent that the same remain unpaid and
discharged on the Closing Date and are accrued or reserved for on
the Closing Balance Sheet (as defined in Section 1.5), except any
liability or obligation of the Seller to Level 8 or any affiliate
of Level 8; and
(iii) all liabilities and obligations of the
Seller in, to and under all contracts, commitments and other
written agreements referred to in Section 1.1(f) and either
listed in Schedule 2.9 or not required to be so listed because of
the dollar amount thereof (subject to Section 1.3(b)(vi)).
All such liabilities and obligations described above in
this Section 1.3(a), but excluding those liabilities referred to
in the following paragraph, are collectively referred to herein
as the "Assumed Liabilities".
(b) Except for the Assumed Liabilities, Buyer
expressly does not, and shall not, assume or be deemed to assume,
under this Agreement or otherwise by reason of the transactions
contemplated hereby, any liabilities, obligations or commitments
of the Seller of any nature whatsoever. Buyer expressly does not
and shall not assume any liability or obligation of the Seller:
(i) in the nature of product liabilities (or similar
claims for injury to person or property) with respect to products
sold by the Seller or its predecessors prior to the Closing
whether arising from express or implied agreement or
representation or imposed by law, and regardless of when any such
claim therefor is made or asserted (provided, however, that this
clause shall not exclude obligations relating to the Software, as
defined in Section 2.13, such as maintenance and technical
support, relating to any period after the Closing);
(ii) owed (a) to any employees, agents or independent
contractors for salaries, wages or other pay, or amounts deducted
or withheld in respect thereof, with respect to any date on or
before the Closing, provided that the Buyer shall assume the
liability of the Seller for vacation pay that is owed as of the
Closing Date to those Continuing Employees employed by the Buyer
pursuant to Section 8.4, below, or (b) to any employees, agents
or independent contractors of the Seller not identified by the
Buyer pursuant to Section 8.4 for salaries, wages, pay, vacation,
severance (except as provided in Section 8.4) or any other
employee benefit plan or arrangement of any nature whatsoever
(including without limitation any COBRA or other obligations
imposed by law), or (c) under or otherwise in connection with any
collective bargaining agreement;
(iii) arising in, to or under any of the Excluded
Real Property Leases;
(iv) arising by reason of any storage, use, generation,
manufacture, emission, release, treatment, discharge, removal,
transportation or disposal by Seller of any Hazardous Materials
(as defined in Section 2.19);
(v) for any federal, state, or local income,
withholding, property, payroll, or other taxes payable with
respect to the Business, assets, properties or operations of the
Seller for any period prior to the Closing, provided that the
Buyer shall be responsible for sales and use taxes to the extent
that the Seller has accrued for such taxes as of the Closing
Date;
(vi) which is a note or inter-company liability or
obligation of the Seller to Level 8 or any affiliate of Level 8;
or
(vii) arising in to or under that certain
employment agreement dated August 1, 1996 between Level 8 and
Robert Lord.
The excluded liabilities described above in this
Section 1.3(b) are specifically excluded from the defined term
"Assumed Liabilities" and are sometimes herein referred to as the
"Excluded Liabilities."
1.4 Tax Allocation. For all federal, state and local tax
purposes, the Purchase Price shall be allocated among the various
items in the manner indicated in Schedule 1.4 hereto. None of
the parties shall file any tax return or report or take any
position with any taxing agency or authority which is
inconsistent with the foregoing allocation, except to the extent
mandated by a court of law or the appropriate taxing agency or
authority in a determination binding upon one of the parties
hereto provided that such party has given written notice and
reasonable opportunity to the other party, at its expense, to
contest and appeal such determination on behalf of both of the
parties hereto and such determination has nevertheless become
final. Each of the parties shall execute and deliver to the
other at or within 30 days after the Closing, for filing by the
other with the Internal Revenue Service, a Form 8594 in
accordance with the foregoing allocation.
1.5 Working Capital.
The Purchase Price shall be increased or decreased by,
and the Buyer shall pay to the Seller or the Seller shall pay to
the Buyer, as the case may be, the amount by which the current
assets of the Seller minus the current liabilities of the Seller
(the "Working Capital") as of the Closing Date exceeds or is less
than $<1,024,523>. As promptly as practicable, but in any event
within 60 business days following the Closing Date, the Seller
shall deliver to the Buyer a balance sheet (the "Closing Balance
Sheet") prepared by the Seller setting forth the current assets
and the current liabilities of the Seller immediately prior to
the Closing, which Closing Balance Sheet shall fairly present the
consolidated financial position of the Seller at the Closing in
conformity with GAAP applied on a basis consistent with the
significant accounting policies identified on Schedule 2.3. The
Buyer may dispute any amounts reflected in assets or liabilities
appearing on the Closing Balance Sheet, but only on the basis
that the amounts reflected on the Closing Balance Sheet were not
arrived at in accordance with GAAP applied on a basis consistent
with the significant accounting policies identified on Schedule
2.3(b); provided, however, that the Buyer shall have notified the
Seller in writing of each disputed item, specifying the amount
thereof in dispute and setting forth, in reasonable detail, the
basis for such dispute, within sixty (60) days of the Seller's
delivery of the Closing Balance Sheet to the Buyer. In the event
of such a dispute, the Seller and the Buyer shall negotiate in
good faith to reconcile their differences, and any resolution by
them as to any disputed amounts shall be final, binding and
conclusive on the parties hereto. If the Seller and the Buyer
are unable to reach a resolution with such effect within thirty
Business Days after receipt by the Seller of the Buyer's written
notice of dispute, the Buyer's and the Seller's independent
auditors shall select an independent accounting firm of national
reputation that has not rendered services to the Buyer or the
Seller within the two years prior to the Closing Date (the
"Independent Accounting Firm"), and the Seller and the Buyer
shall submit the items remaining in dispute for resolution to the
Independent Accounting Firm which shall, within 30 Business Days
after such submission, determine and report to the Buyer and the
Seller upon such remaining disputed items, and such report shall
be final, binding and conclusive on the Seller and the Buyer.
The fees and disbursements of the Independent Accounting Firm
shall be allocated between the Seller on the one hand and the
Buyer on the other hand in the same proportion that the aggregate
amount of such remaining disputed items so submitted to the
Independent Accounting Firm that is unsuccessfully disputed by
each such party (as finally determined by the Independent
Accounting Firm) bears to the total amount of such remaining
disputed items so submitted. The Closing Balance Sheet shall be
deemed final for the purposes of this Section 1.5 upon the
earliest of (A) the failure of the Buyer to notify the Seller of
a dispute within sixty (60) days of the Seller's delivery of the
Closing Balance Sheet to the Buyer, (B) the resolution of all
disputes by the Buyer and the Seller and (C) the resolution of
all disputes by the Independent Accounting Firm. The payment
pursuant to Clause (ii) above shall be made in immediately
available funds on the day following the date on which the
Closing Balance Sheet is final.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller and Level 8 jointly and severally represent and
warrant to and agree with the Buyer that:
2.1 Due Authorization and Execution. The Seller has the
necessary corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby.
The Board of Directors and shareholders of the Seller have duly
authorized and approved the execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby. No other corporate proceedings or actions on the part of
the Seller are necessary to authorize this Agreement and the
consummation of such transactions. This Agreement has been duly
and validly executed and delivered by the Seller and, assuming
due execution and delivery by the Buyer, constitutes a valid and
binding obligation of the Seller enforceable against it in
accordance with its terms.
2.2 Organization of the Seller. The Seller is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware.
2.3 Financial Statements.
(a) The unaudited balance sheet of the Business (the
"Balance Sheet") as of December 31, 1997 (the "Balance Sheet
Date"), and the related unaudited statements of operations,
stockholders' equity and cash flows for the 12-month period ended
on the Balance Sheet Date are attached hereto as Schedule 2.3(a).
(b) To the knowledge of Seller and Level 8, the
financial statements referred to in subparagraph (a) above
present fairly the financial position of the Business as of the
dates indicated and the results of operations for the periods
indicated and have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent with
the significant accounting policies identified on Schedule
2.3(b). The Balance Sheet contains all adjustments, which are
solely of a normal recurring nature, necessary to present fairly
the financial position of the Business at the Balance Sheet Date.
The Balance Sheet identifies the assets and liabilities which, if
the Closing had been held on the Balance Sheet Date, would have
been transferred to or assumed by the Buyer in accordance
herewith.
2.4 No Undisclosed Liabilities. [Intentionally Omitted.]
2.5 Absence of Certain Changes. Except as contemplated by
this Agreement, since the Balance Sheet Date there has not
occurred: (i) any material adverse change in the Business or its
financial condition, results of operations, properties or assets;
(ii) any damage, destruction or loss, which is not adequately
covered by insurance, which could materially and adversely affect
the Business or its assets or properties; (iii) any adoption or
material modification of any Employee Benefit Plan (as defined in
Section 2.16(a)) made to, for or with any employees of the
Business; (iv) any increase in compensation payable or to become
payable by the Seller to employees of the Business, or increase
in benefits under any Employee Benefit Plan, in each case other
than increases made in the ordinary course of business and
consistent with prior practice; (v) any sale or other disposition
of any assets of the Business, other than sales or dispositions
made in the ordinary course of business and consistent with prior
practice; (vi) any creation of a mortgage, pledge, security
interest, encumbrance, lien or charge of any kind upon any
properties or assets of the Business except in the ordinary
course of business and consistent with prior practice; (vii) any
material change in the method of allocation of expenses,
liabilities or income between the Business and any other
subsidiaries, divisions or business units of the Seller or any
other material change in the method of accounting or accounting
practices of the Business; (viii) any material amendment,
termination, waiver or cancellation of any substantial right
relating to the Business; (ix) any capital expenditures or
commitments relating to the Business for any addition to
property, plant or equipment exceeding $10,000; (x) any material
cancellation or waiver of any debts or any claims relating to the
Business except in the ordinary course of business and in
accordance with prior practice, or (xi) any agreement to take any
action described in this Section 2.5. Except as contemplated by
this Agreement, since the Balance Sheet Date, the Business has
been conducted in the ordinary course.
2.6 Taxes. There are no tax liens upon any property or
assets of the Seller except for inchoate liens for taxes not yet
due and payable.
2.7 Litigation. Except as set forth in Schedule 2.7, there
is no action, suit, proceeding or investigation pending or, to
the Seller's knowledge, threatened against the Seller, at law or
in equity, before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, which relates to the Business or the
transactions contemplated by this Agreement; nor does the Seller
know of any reasonably likely basis for any such action, suit,
proceedings or investigation, the result of which could
materially and adversely affect the Business or the transactions
contemplated hereby; nor is there any judgment, decree,
injunction, rule or order of any public body or governmental
authority outstanding against the Seller relating to the
Business.
2.8 Consents, Violations and Authorizations.
(a) Except as set forth in Schedule 2.8(a), the Seller
is not a party to or bound by any mortgage, indenture, lien, deed
of trust, lease, contract, agreement, permit, concession,
franchise, license, instrument, order, judgment or decree, in
each case, relating to the Business and material to its
operations, which would require the consent of another to the
execution of this Agreement or the transactions contemplated
hereby.
(b) Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby will (i) violate any provision of the Certificate of
Incorporation or Bylaws of the Seller, or (ii) conflict with, or
result (immediately or upon the giving of notice or the passage
of time or both) in any violation of or default under, or give
rise to a right of modification, termination, cancellation or
acceleration of any obligation or to a loss of a benefit under,
any mortgage, indenture, lease, instrument, permit, concession,
franchise, license or other agreement which the Seller or the
properties or assets of the Business are parties to,
beneficiaries of, or bound by, or violate any judgment, order,
decree, statue, law, ordinance, rule or regulation applicable to
the Seller or the properties or assets of the Business, other
than such conflicts, violations or defaults or possible
modifications, terminations, cancellations or accelerations which
individually or in the aggregate would not have a material
adverse effect on the Business or the ability of the Seller to
consummate the transactions contemplated by this Agreement.
2.9 Agreements, Contracts, Commitments and Leases. Except
as set forth in Schedule 2.9 (which indicates the applicable
paragraph below to which the disclosed agreement, contract,
commitment or lease relates), the Seller is not a party to any
written or oral:
(a) agreement, contract or commitment with any present
or former employee or consultant or for the employment of any
person, including any consultant, who is engaged in the conduct
of the Business;
(b) agreement, contract or commitment for the future
purchase of, or payment for, supplies, products or services used
in the conduct of the Business, involving in any one case $10,000
or more;
(c) agreement, contract or commitment to sell or
supply products or to perform services in connection with the
Business involving in any one case $10,000 or more;
(d) agreement, contract or commitment relating to the
Business not otherwise required to be listed on Schedule 2.9 and
continuing over a period of more than six months from the date
hereof or exceeding $10,000 in value;
(e) distribution, dealer, representative or sales
agency agreement, contract or commitment relating to the
Business;
(f) lease under which the Seller is either lessor or
lessee of real or personal property used in or relating to the
Business;
(g) note, debenture, bond, equipment trust agreement,
letter of credit agreement, loan agreement or other contract or
commitment for the borrowing or lending of money relating to the
Business or agreement or arrangement for a line of credit or
guarantee, pledge or undertaking of the indebtedness of any other
person relating to the Business;
(h) agreement, contract or commitment for any capital
expenditure or leasehold improvement in excess of $10,000
relating to the Business;
(i) agreement, contract or commitment limiting or
restraining the Seller, the Business or any successor thereto
from engaging or competing in any manner or in any business, nor,
to the Seller's knowledge, is any employee of the Seller engaged
in the conduct of the Business subject to any such agreement,
contract or commitment;
(j) material agreement, contract or commitment
relating to the Business not made in the ordinary course of
business.
The Seller has delivered to the Buyer true and complete
copies of all agreements, contracts or commitments identified on
Schedule 2.9.
Each of the agreements, contracts, commitments and
other instruments listed in Schedule 2.9, or not required to be
listed because of the amount thereof, under which the Buyer is to
acquire rights or obligations hereunder is valid and enforceable
in accordance with its terms, subject to bankruptcy, insolvency
and other, similar laws affecting the rights of creditors
generally and the availability of equitable remedies; Seller is,
and to Seller's knowledge all other parties thereto are, in
compliance with the provisions thereof in all material respects;
the Seller is not, and to the Seller's knowledge no other party
thereto is, in default in the performance, observance or
fulfillment of any material obligation, covenant or condition
contained therein; and no event has occurred which with or
without the giving of notice or lapse of time, or both, would
constitute a default thereunder.
2.10 Assets.
(a) The Assets include all of the Seller's rights,
properties, assets, claims, contracts and businesses of every
kind, character and description, whether tangible or intangible,
whether real, personal or mixed, whether accrued, contingent or
otherwise, and wherever located, which are used in or are
necessary for the conduct of the Business as it is being
conducted, except the Excluded Real Property Leases.
(b) All buildings, structures, facilities, equipment
and other material items of tangible property and assets which
would be included in the Assets if the Closing took place on the
date hereof are in good operating condition and repair, subject
to normal wear and maintenance, are useable in the regular and
ordinary course of business and conform to all applicable laws,
ordinances, codes, rules, regulations and authorization relating
to their construction, use and operation. No person other than
the Seller owns any equipment or other tangible assets or
property situated on the premises of the Business or necessary to
the operation of the Business, except for leased items disclosed
in Schedule 2.9 and for items of immaterial value.
(c) The Seller owns and has good and marketable title
to, or has valid leasehold interests in, all of the Assets and
except (i) as disclosed on the Balance Sheet or in Schedule
2.8(a), and (ii) for liens for the payment of federal, state and
local taxes not yet due or payable, all such Assets (including
without limitation all leasehold interests included in the
Assets) are free and clear of any conditions or restrictions on
transfer or assignment and of any liens, pledges, charges,
encumbrances, claims, security interests, easements, covenants or
restrictions which could to any material extent interfere with
the present use of such properties or assets or impair the
operations of the Business.
(d) Upon consummation of the transactions contemplated
by this Agreement, Buyer will acquire good, valid and marketable
title to the Assets to be transferred to Buyer hereunder, free
and clear of all mortgages, pledges, liens, security interests,
conditional sales agreements, encumbrances or charges of any
kind, except those referred to in the preceding paragraph.
(e) The Seller does not own any capital stock or other
equity interest in any other person.
2.11 Inventory. [Intentionally Omitted.]
2.12 Accounts Receivable. All of the accounts receivable of
the Business which are reflected on the Balance Sheet and all
accounts receivable of the Business which have arisen since the
Balance Sheet Date (except such accounts receivable as have been
collected since the Balance Sheet Date) are valid and enforceable
claims, subject to bankruptcy, insolvency and other similar laws
affecting the rights of creditors generally and the availability
of equitable remedies; to the knowledge of the Seller, there are
no rights of set-off or claims against such accounts receivable
possessed by the account debtors of the Seller; and, except as
set forth in Schedule 2.12, such accounts receivable are
collectible within 90 days after billing at the full recorded
amount thereof less the recorded allowance for collection losses.
The allowance for collection losses on the Balance Sheet has been
determined in accordance with generally accepted accounting
principles consistent with past practices.
2.13 Intellectual Property.
(a) Identification of Intellectual Property. Schedule
2.13(a) contains a complete and accurate list (sufficient to
identify them) of all software-related and other patents and
copyrights relating to the Business, and of the Seller's software
(the "Software" and, collectively with such patents and
copyrights and all trade secrets and know-how relating to the
Business, the "Intellectual Property"), including, without
limitation, programs and systems and related documentation,
research projects, computer software under development, software
concepts owned and proprietary intellectual property, processes,
formulae and algorithms. Schedule 2.13(a)identifies certain
third-party software which has been incorporated into the
Software (the "Incorporated Software"), but excludes certain
other standard third party software which is readily available to
the general public (including the Buyer) at a standard price.
Except as specified on Schedule 2.13(a), the Seller has taken no
measures to register, patent, copyright or otherwise protect the
Intellectual Property other than customary and reasonable efforts
to protect the confidentiality of the source code for the
Software.
(b) Sources of Ownership of Intellectual Property.
The Seller acquired all its rights to the Intellectual Property
either through the efforts of its own employees and agents and
independent contractors, or pursuant to the license agreements
listed on Schedule 2.13(b), complete copies of which have been
delivered to the Buyer (the "Intellectual Property Rights
Agreements"). As to Incorporated Software, the Seller has the
rights granted to it in the related Intellectual Property Rights
Agreements.
(c) Agreements; No Infringement. All of the
Incorporated Software is properly licensed to the Seller, as
specified on Schedule 2.13(a), under a user license or a software
development agreement. The Software does not incorporate any
software not listed on Schedule 2.13(a). Except as described in
Schedule 2.13(a), to the knowledge of the Seller, the
Intellectual Property does not infringe on any patents or
copyrights of any Person and neither the Software (and related
Intellectual Property) as licensed, sublicensed or sold by the
Seller, nor any patents, formulae, processes, knowledge, trade
secrets, trademarks, trade names, assumed names, copyrights, or
designations used by the Seller or the Software, infringe on any
trademark or other intellectual property rights of any Person, or
violate the terms of any agreements listed on Schedule 2.13(b),
or on any other Schedule attached hereto. Except as set forth in
Schedule 2.13(c), the Seller has no knowledge of any asserted
claims of third parties to the ownership of any of the
Intellectual Property, or a reasonable basis therefor nor is
there any pending or, to the Seller's knowledge, threatened claim
against the Seller contesting the validity of or its right to use
any of the Intellectual Property. Except as set forth in
Schedule 2.13(c), in developing the Software the Seller has not
incorporated any software programs or features copyrighted to any
other Person.
(d) Completeness of Schedules. Schedule 2.13(d)
contains an accurate and complete list of all material
Intellectual Property license agreements and Software maintenance
agreements, if any, granted by the Seller to the extent that such
are not already listed on Schedule 2.13(b), including for each
such license the names of the licensee or other customer and
dates of commencement and expiration (or other termination).
Complete copies of each such agreement have been delivered to the
Buyer by the Seller.
(e) No Undisclosed Restrictions on Intellectual
Property. Except as set forth on Schedule 2.13(e), or
specifically described elsewhere herein or in any schedule
hereto, the Intellectual Property (A) is owned solely and
exclusively by the Seller, and (B) is and at the Closing will be,
subject to no restriction on the Seller's (or after the Closing,
the Buyer's) use, disclosure or marketing, nor to any claim, lien
or encumbrance whatsoever. Except as so disclosed, no other
party other than the Seller and its Subsidiaries has any rights
to market any Software. To the knowledge of the Seller, no party
to any of the license, service, maintenance and other agreements
with customers (the "Customer Agreements") nor any consultant to
a customer, is in possession of Software, or has made use of
Software, except as permitted pursuant to agreements disclosed
pursuant to this Agreement. To the knowledge of the Seller, no
party to any of the agreements described on Schedule 2.13(b) nor
any party (if any) who has received source code under a Customer
Agreement or under any related source code agreement is in
possession of Software, or to the Seller's or any Subsidiary's
knowledge has made use of such source code, except as permitted
pursuant to such agreements.
(f) Third-Party Software Products Required to Utilize
the Software. For each item of Software, Schedule 2.13(g) lists
the third-party software required to be licensed by customers of
the Seller or its Subsidiaries in order to utilize that item of
Software, including both applications and operating systems, and
third-party software, excluding Incorporated Software, required
for the Buyer to develop, maintain and deliver the Software.
(g) Compliance of Software and Intellectual Property
with Performance Standards. All of the Software and the
Intellectual Property which is licensed by the Seller under
Customer Agreements complies in all material respects with the
performance representations with respect thereto contained in the
Seller's user and technical manuals in effect at the time of the
Customer Agreements, and, when used in accordance with such user
and technical manuals, performs in accordance with the Customer
Agreements in all material respects. Except as set forth on
Schedule 2.13(h), such Software as is currently made available
for licensing to or access by customers is ready for installation
and/or use in substantial conformance with the capability and
performance standards set forth in the user or instruction manual
associated with such Software. Each marketed Software system is
documented and the documentation supplied to each licensee or
user of each such system is sufficient in all material respects
to enable a user reasonably competent in such matters to operate,
access and/or use such system as intended. Nothing has come to
the attention of the Seller to indicate that the license
agreements entered into by the Seller for use of Intellectual
Property products by customers do not contain provisions for
protection of the Seller's confidential information, trade
secrets and proprietary rights which the Seller reasonably
believes have been and will be sufficient to preserve its
proprietary rights therein.
(i) Except as disclosed on Schedule 2.13(a), all of
the Seller's personnel, including (without limitation) employees,
agents, consultants, and contractors, who have contributed to or
participated in the conception and/or development or enhancement
of the Software or the Intellectual Property have executed an
assignment in favor of the Seller.
(j) Except as set forth on Schedule 2.13(b), to the
knowledge of the Seller:
(i) all individuals and entities who have had
access to the Intellectual Property as independent contractors
and have provided installation services for the Seller have
executed agreements containing appropriate and adequate
restrictions on disclosure and use of the Intellectual Property;
(ii) all individuals or entities who have had
access to the Intellectual Property as independent contractors
and have provided conversion or other services (i.e., other than
installation) for the Seller have executed agreements containing
appropriate and adequate restrictions on disclosure and use of
the Intellectual Property;
(iii) all individuals or entities who have had
access to the Intellectual Property as independent contractors
and have provided contract programming services to the Seller
have executed agreements containing appropriate and adequate
restrictions on disclosure and use of the Intellectual Property;
(iv) all agreements restricting disclosure and use
of Software known to the Seller which have been executed by
employees or independent contractors of the Seller have been
provided to the Buyer; and
(v) to the knowledge of Seller and Level 8, no
such agreements have been violated.
(k) Except as specified on Schedule 2.13(c), and to
the knowledge of the Seller, none of the past or present
employees or independent contractors of the Seller is in
possession of Intellectual Property, nor made unauthorized use of
the Intellectual Property, except such as have had and will have
no material adverse effect. To the knowledge of the Seller, no
party other than the Seller, its employees and the Buyer have
access to or possession of source code, except as disclosed in
the Customer Agreements.
2.14 Insurance. Level 8 maintains policies of property,
fire, public liability, worker's compensation and other forms of
insurance covering the assets, operations and employees of the
Business to the extent, and with coverage amounts, customary in
the industry of the Business. All such insurance policies are in
full force and effect and all premiums with respect thereto
covering all periods up to and including the date of the Closing
have been or will be paid. Level 8 has not been refused any
insurance, nor has its coverage been limited, by any insurance
carrier to which it has applied for insurance or with which it
has carried insurance during the past five years, in any case
relating to the Business.
2.15 Compliance with Law. The Seller (i) is not in
violation of any federal, state or local laws, ordinances,
regulations and orders applicable to the Business, including
without limitation any applicable building, zoning, health,
sanitation, safety, labor relations or similar laws, ordinances,
regulations or orders relating to the Business, except for
possible violations which in the aggregate do not have a material
adverse effect on the financial condition or results of
operations of the Business, (ii) has not received any complaint
from any governmental authority relating to the Business and, to
the Seller's knowledge, none is threatened alleging that the
Seller has violated any such law, ordinance, regulation or order,
and (iii) has not received any notice from any governmental
authority of any pending proceeding to take all or any part of
the real properties used in the Business (whether leased or
owned) by condemnation or right of eminent domain and, to
Seller's knowledge, no such proceeding is threatened. Seller
owns and possesses all licenses, permits and other authorizations
required by law in connection with the operation of the Business.
2.16 Employee Benefit Plans.
(a) Schedule 2.16(a) contains a complete list of all
employee benefit plans, whether formal or informal, whether or
not set forth in writing, and whether covering one person or more
than one person, sponsored or maintained by the Seller with
respect to the Business. For the purposes hereof, the term
"Employee Benefit Plans" includes all plans, funds, programs,
policies, arrangements, practices, customs and understandings
providing benefits of economic value to any employee, former
employee, or present or former beneficiary, dependent or assignee
of any such employee or former employee other than regular
salary, wages or commissions paid substantially concurrently with
the performance of the services for which paid. Without
limitation, the term "Employee Benefit Plans" includes all
employee welfare benefit plans within the meaning of Section 3(1)
of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and all employee pension benefit plans within
the meaning of Section 3(2) of ERISA. Each plan providing
benefits which are funded through a policy of insurance is
indicated by the word "insured" placed by the listing of such
plan in Schedule 2.16(a). The Seller has furnished to the Buyer
complete and correct copies of all material Employee Benefit
Plans.
(b) The Seller has timely made all contributions which
it was required to make for each Employee Benefit Plan under the
terms of such plan and applicable law and the provisions of such
plan, and all benefit payments due and payable to plan
participants under each Employee Benefit Plan have been made or
are being appropriately processed. The Seller is in all material
respects in compliance with, and each Employee Benefit Plan
complies in all material respects with, ERISA, and as of the
Balance Sheet Date, the Seller had no material liability under
any such Employee Benefit Plan which was not reflected on the
Balance Sheet or in the notes thereto.
2.17 Employees and Labor Contracts.
(a) Schedule 2.17(a) sets forth the names and titles
of, and current annual base salary or hourly rates for, all
employees of the Seller engaged in the conduct of the Business,
together with a statement of the full amount and nature of any
other remuneration, whether in cash or kind, paid to each such
person during the past or current fiscal year or payable to each
such person in the future, the bonuses accrued for each such
person, and the vacation and severance benefits to which each
such person is entitled.
(b) The Seller is not a party to any collective
bargaining agreement or other labor contract applicable to
employees of the Business nor any pending unfair labor practice
complaints with respect to such employees before the National
Labor Relations Board. The Seller does not know of any activity
or proceedings of any labor union (or representatives thereof) to
organize any employees of the Business, or of any strikes,
slowdowns, work stoppages, lockouts or threats thereof, by or
with respect to any of such employees. During the one-year
period preceding the date hereof, there have been no significant
labor troubles involving employees of the Business nor are there
any current union representation questions involving such
employees.
2.18 Fees, Commissions and Expenses. The Seller is not
liable for or obligated to pay any brokerage commissions,
finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement.
2.19 Environmental Laws and Regulations. Schedule 2.19
discloses all information relating to the following items: (a)
the nature and quantities of any Hazardous Materials (as defined
below) released, used, manufactured, handled, stored, treated,
discharged, buried, generated, transported or disposed of by the
Seller or any of its subsidiaries during the past six years,
together with a description of the location of each such
activity; (b) a summary of the nature and quantities of any
Hazardous Materials that have been released, placed, used,
manufactured, handled, generated, stored, treated, discharged,
buried or disposed on, under or about any site or facility owned
or operated presently or at any previous time by the Seller or
any of its subsidiaries (a "Site"); (c) copies of all
environmental audits or other studies or reports prepared by
third parties to assess Hazardous Material risks at any Site; (d)
all communications and agreements with any governmental authority
or agency (federal, state or local) or any private entity or
individual, including, but not limited to, any prior owners of
any Site, relating in any way to the presence, release, threat of
release, placement on, under or about any Site, or the use,
manufacture, handling, generation, storage, treatment, discharge,
burial or disposal on, under or about any Site, or the
transportation to or from any Site, of any Hazardous Materials.
The Seller and each of its subsidiaries is in compliance with
all, and has no liability under, applicable federal, state and
local laws and regulations relating to product registration,
pollution control and environmental contamination including, but
not limited to, all laws and regulations governing the
generation, use, collection, discharge, or disposal of Hazardous
Materials and all laws and regulations with regard to record
keeping, notification and reporting requirements respecting
Hazardous Materials. Except as disclosed on Schedule 2.19, there
are no underground or other storage tanks containing Hazardous
Materials at any Site. Except as disclosed on Schedule 2.19
hereto, (a) neither the Seller nor any of its subsidiaries has
been alleged to be in violation of, or has been subject to any
administrative or judicial proceeding pursuant to, such laws or
regulations either now or any time during the past three years,
and (b) there are no facts or circumstances which the Seller
reasonably expects could form the basis for the assertion of any
claim (as defined below) against the Seller or any of its
subsidiaries relating to environmental matters including, but not
limited to, any Claim arising from past or present environmental
practices asserted under any Environmental Laws (as defined
below), which may have a Material Adverse Effect.
For purposes of this Section 2.19, the following terms shall
have the following meanings:
(a) "Hazardous Materials" shall mean asbestos, petroleum
products, underground tanks of any type and all other materials
now or hereafter defined as "hazardous substances," "hazardous
wastes," "toxic substances" or "solid wastes," or otherwise now
or hereafter listed or regulated pursuant to (collectively, the
"Environmental Laws"): the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et
seq., and any amendments thereto; the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., and any amendments
thereto; the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801 et seq.; and any other similar federal, state or
local statute, regulation, ordinance, order, decree, or any other
law, common law theory or reported decision of any state or
federal court, as now or at any time hereafter in effect,
relating to, or imposing liability or standards of conduct
concerning, any hazardous, toxic or dangerous waste, substance or
material.
(b) "Claim" shall mean any and all claims, demands, causes
of actions, suits, proceedings, administrative proceedings,
losses, judgments, decrees, debts, damages, liabilities, court
costs, attorneys' fees and any other expense incurred, assessed
or sustained by or against the Seller or any of its subsidiaries.
2.20 Owned Real Property. The Seller owns no real property
and has no other interest in real property except as set forth on
Schedule 2.20.
2.21 Product Warranties. There are no product warranty
claims nor express warranties applicable to products sold in the
Business except the express warranties which are set forth in
Schedule 2.21 and warranties imposed by applicable law (including
the Uniform Commercial Code). The Seller has furnished no other
warranties or guarantees in connection with the products produced
or manufactured in the Business and no claims for breach of
product warranty to customers, whether or not attributable to
Seller's form of warranty, relating to the products and services
manufactured or provided by the Business, have been filed against
Seller and remain pending except as set forth on Schedule 2.21.
2.22 Transactions with Affiliates. Except as set forth in
Level 8's documents filed with the Security and Exchange
Commission, no shareholder, director, officer or employee of the
Seller, or any member of his or her immediate family or any other
of its, his or her affiliates, owns or has a five percent or more
ownership interest in any corporation or other entity that is or
was during the last three years a party to, or in any property
which is or was during the last three years the subject of, any
material contract, agreement or understanding, business
arrangement or relationship with the Seller relating to the
Business.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF THE BUYER
The Buyer represents and warrants to and agrees with the
Seller as follows:
3.1 Due Authorization and Execution. The Buyer has the
necessary company power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby.
The manager of the Buyer has duly authorized and approved the
execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. No other such proceedings
on the part of the Buyer are necessary to authorize this
Agreement and the consummation of such transactions. This
Agreement has been duly and validly executed and delivered by the
Buyer and, assuming due execution and delivery by the Seller,
constitutes a valid and binding obligation of the Buyer
enforceable against it in accordance with its terms.
3.2 Organization of the Buyer. The Buyer is a limited
liability company duly organized, validly existing and in good
standing under the laws of Delaware and has all requisite
corporate power and authority to enter into this Agreement and to
perform its obligations hereunder.
3.3 Consents, Violations and Authorizations.
(a) The Buyer is not a party to or bound by any
mortgage, indenture, lien, deed of trust, lease, agreement,
permit, concession, franchise, license, instrument, order,
judgment or decree which would require the consent of another to
the execution of this Agreement or the transactions contemplated
hereby.
(b) Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby will (i) violate any provision of the Certificate of
Formation of the Buyer or (ii) conflict with, or result
(immediately or upon the giving of notice or the passage of time
or both) in any violation of or any default under, or give rise
to a right of modification, termination, cancellation or
acceleration of any obligation or to a loss of a benefit under,
any mortgage, indenture, lease, instrument, permit, concession,
franchise, license or other agreement which the Buyer or its
properties or assets are parties to, beneficiaries of, or bound
by, or violate any judgment, order, decree, statue, law,
ordinance, rule or regulation applicable to the Buyer or its
properties or assets, other than such conflicts, violations or
defaults or possible modifications, terminations, cancellations
or accelerations which individually or in the aggregate do not
and will not have a material adverse effect on the Buyer.
(c) No authorization, consent or approval of, or
filing with, any public body or governmental authority is
necessary for the consummation by the Buyer of the transactions
contemplated by this Agreement.
3.4 Fees, Commissions and Expenses. The Buyer has paid or
shall duly pay any brokerage commissions, finders' fees or
similar compensation in connection with the transactions
contemplated by this Agreement which it has agreed to pay.
ARTICLE IV
CONDUCT OF BUSINESS PENDING CLOSING
From the date of this Agreement until the Closing, the
Seller covenants that, except as otherwise consented to in
writing by the Buyer (which consent shall not be unreasonably
withheld), it shall either satisfy or cause to be satisfied the
following:
4.1 Ordinary Course. The Seller shall carry on the
Business in the ordinary course in substantially the same manner
as heretofore conducted.
4.2 No Acquisitions. The Seller shall not acquire or agree
to acquire for the Business a substantial portion of the assets
of any business or any corporation, partnership, association or
other business organization or division thereof or otherwise
acquire or agree to acquire any assets which are material in the
aggregate to the Business.
4.3 No Dispositions. The Seller shall not sell, lease or
otherwise dispose of any assets of the Business except in the
ordinary course of business consistent with prior practice.
4.4 Employees. The Seller shall not grant any material
increase in the compensation payable to any of the employees of
the Business or any material benefit increase in any Employee
Benefit Plan, except for increases made in the ordinary course of
business consistent with prior practice.
4.5 Mortgages, Liens and Other Encumbrances. The Seller
shall not create, assume or incur any mortgage, lien, pledge or
other encumbrance of any kind in respect of any property used in
or relating to the Business other than immaterial mortgages,
liens, pledges or other encumbrances incurred in the ordinary
course of business consistent with prior practice.
4.6 Waiver of Rights. The Seller shall not amend,
terminate or waive any right of substantial value that is
material to the Business.
4.7 Material Agreements. The Seller shall not enter into
any lease for property or equipment or any agreement that is
material to the Business, except in the ordinary course of
business consistent with prior practice.
4.8 Capital Expenditures. The Seller shall not make or
commit to any capital expenditures or commitments relating to the
Business exceeding $10,000 in the aggregate.
4.9 Agreements. The Seller shall not commit or agree,
whether in writing or otherwise, to take any action prohibited by
this Article IV.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS
OF THE BUYER
The obligations of the Buyer hereunder are subject to
fulfillment or satisfaction at or prior to the Closing of each of
the following conditions (any one or more of which may be waived
by the Buyer but only in writing):
5.1 Representations and Warranties of the Seller. All
representations and warranties of the Seller contained in this
Agreement shall be true and correct as of the date made and,
except insofar as such representations and warranties are
specifically made as of an earlier stated date or period of time,
shall be true and correct in all material respects as of the
Closing with the same effect as though such representations and
warranties were made at and as of the Closing; the Seller shall
have performed and satisfied in all material respects all
covenants, conditions and agreements required or contemplated by
this Agreement; and at the Closing, there shall be delivered to
the Buyer a certificate signed by authorized officers of the
Seller, to such effect.
5.2 Absence of Litigation or Investigation. No preliminary
or permanent injunction or other order of any court or
governmental agency or instrumentality shall have issued or been
entered and remain in effect which prohibits the consummation of
the transactions contemplated by this Agreement.
5.3 Requisite Approvals. Except as provided in Section
11.12, all permits or authorizations as may be required by any
regulatory authority having jurisdiction over the parties, the
subject matter hereof or actions herein proposed to be taken
shall have been obtained and all consents contemplated by
Schedule 2.8(a) shall have been obtained.
5.4 Delivery of Documents. The documents described in
Section 9.2 of this Agreement shall have been delivered.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF
THE SELLER
The obligations of the Seller hereunder are subject to the
fulfillment or satisfaction at or prior to the Closing of each of
the following conditions (any one or more of which may be waived
by the Seller, but only in writing):
6.1 Representations and Warranties of the Buyer. All
representations and warranties of the Buyer contained in this
Agreement shall be true and correct as of the date made and shall
be true and correct in all material respects as of the Closing
with the same effect as though such representations and
warranties were made at and as of the Closing; the Buyer shall
have performed and satisfied in all material respects all
covenants, conditions and agreements required or contemplated by
this Agreement to be performed and satisfied by it at or prior to
the Closing; and at the Closing, the Buyer shall deliver to the
Seller a certificate, dated the date of the Closing and signed by
authorized officers of the Buyer to such effect.
<PAGE>
6.2 Absence of Litigation or Investigation. No preliminary
or permanent injunction or other order of any court or
governmental agency or instrumentality shall have issued or been
entered and remain in effect which prohibits the consummation of
the transactions contemplated by this Agreement.
6.3 Requisite Approvals. All permits or authorizations as
may be required by any regulatory authority having jurisdiction
over the parties, the subject matter hereof or the actions herein
proposed to be taken shall have been obtained.
6.4 Delivery of Documents. The documents described in
Section 9.2 of this Agreement shall have been delivered.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
7.1 Survival of Representations and Warranties and Related
Agreements. The representations and warranties contained in
Articles II and III of this Agreement shall survive the Closing
hereunder and shall continue in effect notwithstanding any
investigation by or on behalf of the Buyer or the Seller until
two (2) years following the Closing Date (the "Cutoff Date"),
except that (a) the representations and warranties set forth in
Sections 2.6 (taxes), 2.10(d) and (e) (title) and 2.19
(environmental) shall be unlimited as to duration, and (b) any
representation or warranty which would otherwise terminate after
the Cutoff Date shall survive until the final adjudication or
settlement of any such matter if notice of any inaccuracy or
breach thereof, including a reasonably detailed description of
such alleged inaccuracy or breach, shall have been given in
writing to Seller or Buyer, as the case may be, on or prior to
the Cutoff Date.
7.2 General Indemnification.
(a) Subject to the provisions of Section 7.1 above,
Level 8 (with respect to the first $1,000,000 of "Claims," as
hereinafter defined, to be paid to the Buyer pursuant to this
Section 7.2) and the Seller (with respect to all Claims in excess
of $1,000,000) shall indemnify and hold harmless the Buyer from
and against, and shall reimburse Buyer on demand for, any claim,
loss, liability, damage or expense, including attorneys' fees and
costs of appeals (a "Claim"), resulting from (i) any breach of
any representation, warranty, agreement or covenant on the part
of the Seller under or pursuant to this Agreement, and (ii) any
Excluded Liabilities; provided that each Claim shall be satisfied
by the reduction of amounts due under the Note, to the extent of
the principal balance of the Note at the time of such Claim.
(b) The Buyer shall indemnify and hold harmless the
Seller from and against, and shall reimburse Seller on demand
for, any Claim resulting from (i) any breach of any
representation, warranty, agreement or covenant on the part of
the Buyer under or pursuant to this Agreement, (ii) any Assumed
Liabilities and (iii) any liabilities and obligations of the
Buyer incurred with respect to its operation of the Business
after the Closing.
(c) No party shall have any obligation to indemnify
the other party against any Claim under Section 7.2(a) or 7.2(b)
above unless (i) the amount of such Claim is equal to or greater
than $25,000 and (ii) the sum of such Claim plus all other Claims
by such party is equal to or greater than $50,000, at which point
such party shall be indemnified against all Claims relating back
to the first dollar. The indemnities set forth in this Article
VII shall be the sole and exclusive remedy of each party for
damages for breach of any covenant, representation or warranty
contained in this Agreement, provided, however, that nothing set
forth herein shall be deemed to limit either party's right to
seek equitable relief or specific performance. EXCEPT AS
PROVIDED IN THIS AGREEMENT, THE BUYER AND THE SELLER MAKE NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
(d) If a third party asserts a claim against any
indemnified party for which indemnification would be available
under this Section 7.2 hereof (a "Claim"), the indemnified party
shall promptly give notice of such Claim, describing such Claim
with reasonable specificity, to the indemnifying party; provided,
however, that the failure to give such notice shall not affect
the right of the indemnified party to indemnification hereunder
except to the extent that such failure prejudices the ability of
the indemnifying party to defend any Claim or take any other
remedial action. The indemnifying party shall be entitled to
assume the defense of such Claim, including the employment of
counsel reasonably satisfactory to the indemnified party;
provided, however, that in the event that the indemnified party
reasonably determines in good faith that its interests with
respect to such Claim cannot appropriately be represented by the
indemnifying party, such indemnified party shall have the right
to assume control of the defense of such Claim and to have its
expenses reimbursed promptly with respect to such Claim. In
addition, in the event that such indemnifying party, within a
reasonable time after notice of any such Claim, fails to defend
any indemnified party, such indemnified party will (upon further
notice to such indemnifying party) have the right to undertake
its defense of such Claim for the account of such indemnifying
party and to have its expenses reimbursed promptly with respect
to such Claim. Regardless of which party is controlling the
defense of any Claim, (i) both the indemnifying party and the
indemnified party shall act in good faith and (ii) no settlement
of such Claim may be agreed to without the written consent of the
indemnifying party, which consent shall not be unreasonably
withheld. The controlling party shall deliver, or cause to be
delivered, to the other party copies of all correspondence,
pleadings, motions, briefs, appeals or other written statements
relating to or submitted in connection with the defense of any
such Claim, and timely notices of any hearing or other court
proceeding relating to such Claim.
ARTICLE VIII
ADDITIONAL COVENANTS OF THE PARTIES
8.1 Noncompetition. The Seller and Level 8 each agrees
that for a period of five years following the Closing Date,
neither it nor any of its affiliates will, directly or
indirectly, own, manage, operate, join, control or participate in
the ownership, management, operation or control of, any business,
whether in corporate, proprietorship or partnership form or
otherwise as more than a five percent owner in such business,
where such business is competitive with the Business, except to
the extent such business is involved with the development,
implementation and client servicing relating to software known in
the industry as message-oriented middleware. The parties hereto
specifically acknowledge and agree that the remedy at law for any
breach of the foregoing will be inadequate and that the Buyer, in
addition to any other relief available to it, shall be entitled
to temporary and permanent injunctive relief without the
necessity of proving actual damage. In the event that the
provisions of this paragraph should ever be deemed to exceed the
limitation provided by applicable law, then the parties hereto
agree that such provisions shall be reformed to set forth the
maximum limitations permitted.
8.2 Access by Buyer and Agents. The Seller agrees that the
Buyer, and its designated representatives, attorneys and auditors
or agents, shall have reasonable access to the books of account,
financial and corporate records, contracts, leases, tax returns,
properties and other assets of the Seller relating to the
Business and to make copies of such corporate records, reports
and other documents as they may request at any reasonable time
during regular business hours prior to the Closing, and the
Seller agrees to use its efforts to cooperate with such persons
in conducting such examination. The Seller will cause its
officers, employees and accountants, as the case may be, to
furnish such additional financial and operating data and other
information as Buyer may from time to time reasonably request.
8.3 Availability of Records to the Seller. The Buyer shall
make available to the Seller such documents, books, records or
information relating to the Business prior to the Closing as the
Seller may reasonably require after the Closing in connection
with any tax determination, defense of any claim against the
Seller relating to the conduct of the Business prior to the
Closing or governmental investigation of the Seller or any of its
Affiliates. The Buyer agrees not to destroy any files or records
which are subject to this Section 8.3 without giving reasonable
notice to the Seller, and within 15 business days of receipt of
such notice, the Buyer may cause to be delivered to Seller the
records intended to be destroyed, at the Seller's expense.
8.4 Post-Closing Employee Matters. At the Closing, the
Buyer shall identify to the Seller in writing those persons
presently engaged in the Business whom the Buyer wishes to employ
after the Closing Date (the "Continuing Employees"). The Seller
shall use its reasonable efforts to assist the Buyer in
employing, as new employees of Buyer, all of the persons so
identified. All such Continuing Employees who are employed by
the Buyer after the Closing Date shall be new employees of the
Buyer, and any prior employment by the Seller of such employees
shall not affect their entitlement to, or the amount of, salary
or other cash compensation, current or deferred, or employee
benefits which the Buyer may make available to such Continuing
Employees, except that the Buyer shall assume the liability of
the Seller for vacation pay that is owed as of the Closing Date
to such Continuing Employees. Until the third anniversary of the
Closing Date, Seller will not directly or indirectly solicit or
offer employment to any Continuing Employee who is then an
employee of the Buyer (or who has terminated such employment
without the consent of the Buyer within 180 days of such
solicitation or offer). With respect to those persons who are
presently engaged in the Business but who are not retained by the
Buyer or the Seller after the Closing Date, the Seller and the
Buyer shall each be responsible for fifty percent (50%) of the
cost of severance as identified on Schedule 2.17(a). If one
party pays more than its 50% share thereof, the other party shall
reimburse the first party for such excess promptly but in any
event within 5 days.
8.5 Use of Name. From and after the Closing Date, the
Seller will sign such consents and take such other action as the
Buyer shall reasonably request in order to permit the Buyer to
use the name "ProfitKey" and all variants thereof. From and
after the Closing Date, the Seller will not itself use such name
or any names similar thereto or any variants thereof, and the
Seller shall promptly after the Closing Date change its corporate
name to another name bearing no similarity to such name.
ARTICLE IX
CLOSING
9.1 Closing. Unless this Agreement shall have been
terminated and the purchase of the Assets herein contemplated
shall have been abandoned pursuant to the provisions of Article X
hereof, the closing (the "Closing") will be held at the offices
of Riordan & McKinzie at 695 Town Center Drive, Suite 1500, Costa
Mesa, California 92626 or at such other location as may be
mutually agreed to by the parties on March 31, 1998 (the
"Scheduled Closing Date"); provided, however, that if any of the
conditions provided for in Articles V and VI shall not have been
met or waived by the Scheduled Closing Date, then the Closing
shall occur within three business days after such condition has
been met or waived. The date on which the Closing shall occur is
sometimes referred to herein as the "Closing Date."
9.2 Deliveries at Closing. At the Closing, the Seller will
deliver to Buyer (i) the Bill of Sale, duly executed by the
Seller; (ii) assignments of all patents, assumed names and
copyrights and all applications therefor which are referred to in
Section 2.13; (iii) executed copies of the consents referred to
in Section 2.8 hereof; (iv) all such other deeds, endorsements,
assignments and other instruments (in form and substance
reasonably acceptable to the parties hereto) as, in the
reasonable opinion of Buyer's counsel, are necessary to vest in
Buyer good and marketable title to the Assets; and (v) all other
previously undelivered documents required to be delivered by the
Seller to Buyer at or prior to the Closing in connection with the
transactions contemplated by this Agreement. At the Closing,
there will be delivered to the Seller by Buyer, (i) the Bill of
Sale, duly executed by the Buyer; (ii) the cash payment referred
to in Section 1.2 hereof; (iii) the Note; (iv) the Security
Agreement; (v) a guarantee substantially in the form of Exhibit
D, duly executed by Platinum Equity Holdings as parent of the
Buyer; and (vi) all previously undelivered documents required to
be delivered by Buyer to the Seller at or prior to the Closing.
ARTICLE X
TERMINATION
10.1 Termination. This Agreement may be terminated and the
transactions contemplated herein may be abandoned prior to the
Closing Date (a) by the mutual consent of the Seller and the
Buyer; (b) by the Seller if events occur (other than events
caused by the Seller) which render impossible the satisfaction of
one or more of the conditions set forth in Article VI; (c) by the
Buyer if events occur (other than events caused by the Buyer)
which render impossible the satisfaction of one or more of the
conditions set forth in Article V; or (d) by the Seller or the
Buyer, if the Closing has not occurred on or before April 30,
1998.
10.2 Procedure Upon Termination. In the event of the
termination of this Agreement by either party as provided in
clauses (b), (c) or (d) of Section 10.1, written notice thereof
shall forthwith be given to the other party to this Agreement,
this Agreement shall terminate and be abandoned without further
action by the Seller or the Buyer, and there shall be no
liability or obligation on the part of either Seller or Buyer;
provided, however, that if such termination was the result of the
representations and warranties of a party being materially
incorrect when made or the material breach by such party of a
covenant hereunder, then the party whose representations and
warranties were incorrect or who breached such covenant shall be
liable to the other party for all costs and expenses of the other
party in connection with the preparation, negotiation, execution
and performance of this Agreement.
ARTICLE XI
GENERAL PROVISIONS
11.1 Expenses.
(a) Except as otherwise provided in this Agreement,
all expenses incurred pursuant to this Agreement and the
transactions contemplated hereby shall be paid by the party
incurring the expense.
(b) All costs of transferring the Assets in accordance
with this Agreement, including recordation, transfer and
documentary taxes and fees, and any excise, sales or use taxes,
shall be paid by the Seller.
11.2 Certain Filings and Consents. The Seller and the Buyer
will use their respective best efforts to comply with all legal
requirements which may be imposed on them with respect to the
transactions contemplated by this Agreement. The Seller and the
Buyer will use their respective best efforts to obtain (and to
cooperate with any other party in obtaining) any consent,
authorization, order or approval of, or exemption by, any
regulatory authority, or third party, required to be obtained in
connection with the transactions contemplated by this Agreement.
11.3 Further Assurances. Each party hereto agrees to use
such party's best efforts to cause the conditions to such party's
obligations herein set forth to be satisfied at or prior to the
Closing insofar as such matters are within its control. Each of
the parties agrees to execute and deliver any and all further
agreements, documents or instruments necessary to effectuate this
Agreement and the transactions referred to herein or contemplated
hereby or reasonably requested by the other party to perfect or
evidence its rights hereunder. All parties will use their best
efforts to effect an orderly transfer of good and marketable
title to the Assets being transferred hereunder (including in the
collection or reduction to possession of any of such Assets) and
to complete all other transactions contemplated by this Agreement
as promptly as practicable.
11.4 Notices. Any notices hereunder shall be deemed
sufficiently given by one party to another only if in writing and
if and when delivered or tendered by personal delivery or as of
three business days after deposit in the United States mail in a
sealed envelope, registered or certified, with postage prepaid,
addressed as follows:
If to Profit Key International, Inc.
the Seller: c/o Level 8 Systems, Inc.
One Penn Plaza, Suite 3401
New York, New York 10119
Attn: Robert Lord
If to Level 8: Level 8 Systems, Inc.
One Penn Plaza, Suite 3401
New York, New York 10119
Attn: Arik Kilman, Chief Executive Officer
In either case,
with a copy to: Bruno Dov Lerer, Esq.
655 Third Avenue
20th Floor
New York, New York 10017-5617
If to Profit Key Acquisition, LLC
the Buyer: 2049 Century Park East, Suite 2710
Los Angeles, California 90067
Attn: Tom T. Gores, President
With a copy to: Riordan & McKinzie
695 Town Center Drive, Suite 1500
Costa Mesa, California 92626
Attn: James H. Shnell, Esq.
or to such other address as the party addressed shall have
previously designated by written notice to the serving party,
given in accordance with this Section 11.4. A notice not given
as provided above shall, if it is in writing, be deemed given if
and when actually received by the party to whom it is given.
11.5 Successors. This Agreement shall be binding upon and
shall inure to the benefit of each of the parties hereto and
their successors and assigns. Except as expressly provided
herein, this Agreement shall not inure to the benefit of any
persons or entities not a party hereto.
11.6 Entire Agreement. This Agreement, together with the
exhibits and schedules hereto (which are all incorporated herein
by this reference), constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes
all prior agreements and understandings of the parties in
connection herewith; provided, however, that the provisions of
that certain letter agreement dated November 5, 1997 between the
Seller and the Buyer (regarding the confidentiality of
information supplied by the Seller to the Buyer) shall remain in
full force and effect except to the extent inconsistent herewith.
11.7 Amendment and Modification. Subject to applicable law,
this Agreement may be amended, modified and supplemented by
written agreement of the parties hereto, at any time prior to the
Closing Date with respect to any of the terms contained herein.
11.8 Waiver of Compliance. The failure by any party hereto
to comply with any obligation, covenant, agreement or condition
contained herein may be expressly waived in writing by the party
or parties hereto adversely affected by such failure, but such
waiver or failure to insist upon strict compliance shall not
operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
11.9 Gender; Number. Except where the context otherwise
requires, words used in the masculine gender include the feminine
and neuter; the singular number includes the plural, and the
plural the singular; and the word "person" includes a corporation
or other entity or association as well as a natural person.
11.10 Severability. Any provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining
provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction. If any provision is
held to be invalid or unenforceable, such provision shall be
construed by the appropriate judicial body by limiting or
reducing it to the minimum extent necessary to make it legally
enforceable.
11.11 Governing Law. This Agreement shall be construed
and enforced in accordance with, and governed by, the laws of the
State of New York. The parties hereby: (i) in any legal
proceeding brought in connection with this Agreement or the
transactions contemplated hereby, irrevocably submit to the
nonexclusive in personam jurisdiction of (A) any state or Federal
court of competent jurisdiction sitting in the State of New York,
County of New York or (B) in the event that any party is a
defendant in any legal proceeding in which it seeks to join the
other as a third party defendant, then, any state or Federal
court in which such proceeding has properly been brought, and
consents to suit herein; and (ii) waive any objection they may
now or hereafter have to the venue of such proceeding in any such
court or that such proceeding was brought in an inconvenient
court.
11.12 Interpretation. Knowledge of the Company shall
include the knowledge of the officers of the Seller, including
without limitation Robert Lord, Joe DiZazzo and Ken Hayes. All
terms of an accounting or financial nature shall be construed in
accordance with United States generally accepted accounting
principles, as in effect from time to time.
11.13 Bulk Sales Compliance. Buyer and Seller waive
compliance with the provisions of the applicable statutes
relating to bulk transfers or bulk sales. Seller shall indemnify
and hold harmless Buyer from and against any and all loss, costs,
damage, claim or expense (including attorneys' fees), which Buyer
may sustain by reason of Seller's failure to comply with such
bulk transfer or bulk sales provisions.
11.14 Endorsement Authorization. Effective as of the
Closing Date, Seller appoints Buyer its attorney-in-fact to open
all mail of Seller relating to the Business addressed to the
locations of the facilities of the Business. Buyer will promptly
send to Seller all mail not relating to the Assets or the
Business, except personal mail of any employee or former employee
of the Business.
11.15 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
PROFITKEY INTERNATIONAL, INC.
By: /s/ Joseph J. Di Zazzo
Name: Joseph J. Di Zazzo
Title: Chief Financial Officer
LEVEL 8 SYSTEMS, INC.
By: /s/ Arik Kilman
Name: Arik Kilman
Title: Chief Executive Officer
PROFITKEY ACQUISITION CORP.
By: /s/ Thomas Gores
Name: Thomas Gores
Title: Chief Executive Officer
