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EXHIBIT 10.1
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PURCHASE AGREEMENT
dated as of July 31, 2000
by and between
LEVEL 8 SYSTEMS, INC.,
and
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
PURCHASE AGREEMENT
PAGE
<S> <C> <C>
I. DEFINITIONS....................................................................................1
II. THE PURCHASE OF COMMON STOCK...................................................................6
2.1. Authorization of Issue................................................................6
2.2. Purchase of Common Stock..............................................................6
2.3. Closing...............................................................................6
III. PURCHASER'S REPRESENTATIONS....................................................................7
3.1. Investment Intention..................................................................7
3.2. Accredited Investor...................................................................7
3.3. Corporate Existence...................................................................7
3.4. Corporate Power; Authorization; Enforceable Obligations...............................7
3.5. Reliance on Exemptions................................................................7
3.6. Information...........................................................................8
3.7. Transfer or Resale....................................................................8
3.8. Legends...............................................................................8
IV. COMPANY'S REPRESENTATIONS AND WARRANTIES.......................................................9
4.1. Authorized and Outstanding Shares of Capital Stock....................................9
4.2. Authorization and Issuance of Common Stock...........................................10
4.3. Corporate Existence; Compliance with Law.............................................10
4.4. Subsidiaries.........................................................................10
4.5. Corporate Power; Authorization; Enforceable Obligations..............................10
4.6. Financial Statements.................................................................11
4.7. SEC Filings..........................................................................12
4.8. Absence of Certain Changes...........................................................12
4.9. No Undisclosed Material Liabilities..................................................13
4.10. Environmental Matters................................................................14
4.11. Employee Relations...................................................................14
4.12. Taxes................................................................................14
4.13. No Litigation........................................................................15
4.14. Brokers..............................................................................15
4.15. Employment Agreements................................................................15
4.16. Patents, Trademarks, Copyrights and Licenses.........................................15
4.17. ERISA................................................................................16
</TABLE>
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<TABLE>
<CAPTION> TABLE OF CONTENTS
(CONTINUED)
PAGE
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4.18. Minute Books.........................................................................18
4.19. Private Offering.....................................................................18
4.20. Listing Maintenance Requirements Compliance..........................................18
4.21. Internal Accounting Controls.........................................................18
4.22. Transactions with Affiliates.........................................................18
4.23. Master License Agreement.............................................................19
V. COVENANTS.....................................................................................19
5.1. Covenants of Company.................................................................19
5.2. Reasonable Best Efforts..............................................................22
VI. CLOSING CONDITIONS............................................................................23
6.1. Conditions Precedent to Obligations of Purchaser.....................................23
6.2. Additional Conditions of Purchaser...................................................25
6.3. Conditions Precedent to Obligations of Company.......................................25
6.4. Conditions Precedent to Obligations of Purchaser and Company.........................26
VII. INDEMNIFICATION...............................................................................26
VIII. EXPENSES......................................................................................26
IX. MISCELLANEOUS.................................................................................27
9.1. Notices..............................................................................27
9.2. Binding Effect; Benefits.............................................................28
9.3. Complete Agreement; Amendment........................................................28
9.4. Successors and Assigns; Assignability................................................28
9.5. Remedies.............................................................................29
9.6. Section and Other Headings...........................................................29
9.7. Severability.........................................................................29
9.8. Counterparts.........................................................................29
9.9. Publicity............................................................................29
9.10. Governing Law; Waiver of Jury Trial..................................................29
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<TABLE>
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Schedules
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Schedule 4.1 - Stock and Warrants
Schedule 4.4 - Subsidiaries
Schedule 4.6 - Financial Statements; Other Obligations
Schedule 4.8 - Absence of Certain Changes
Schedule 4.10 - Environmental Matters
Schedule 4.12 - Taxes
Schedule 4.13 - Litigation
Schedule 4.14 - Brokers
Schedule 4.15 - Employment Contracts
Schedule 4.16 - Patents, Trademarks, Etc.
Schedule 4.17 - ERISA
Schedule 4.23 - Affiliate Transactions
</TABLE>
<TABLE>
<CAPTION>
Exhibits
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<S> <C>
Exhibit A Form of Stockholders Agreement
Exhibit B Form of PCA Shell License Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Opinion of Company Counsel
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PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), dated as of July 31,
2000, by and between Level 8 Systems, Inc., a Delaware corporation having an
office at 8000 Regency Parkway, Cary, North Carolina 27511 ("Company") and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
having an office at 4 World Financial Center, New York, New York 10080
("Purchaser").
WITNESSETH:
WHEREAS, Company has agreed to issue and sell to Purchaser,
and Purchaser has agreed to purchase from Company, upon the terms and
conditions hereinafter provided 1,000,000 shares of Company's common stock,
$0.001 par value per share (the "Common Stock");
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, it is agreed as follows:
I. DEFINITIONS
"Affiliate" shall mean, with respect to any Person, (i) each
Person that, directly or indirectly, owns or controls, whether beneficially, or
as a trustee, guardian or other fiduciary, 5% or more of the Stock having
ordinary voting power in the election of directors of such Person, (ii) each
Person that controls, is controlled by or is under common control with such
Person or any Affiliate of such Person, (iii) each of such Person's officers,
directors, joint venturers and partners, (iv) any trust or beneficiary of a
trust of which such Person is the sole trustee or (v) any lineal descendants,
ancestors, spouse or former spouses (as part of a marital dissolution) of such
Person (or any trust for the benefit of such Person). For the purpose of this
definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise. An "Affiliate" for purposes of Purchaser shall include Merrill Lynch
& Co. Foundation, Inc.
"Balance Sheet" shall have the meaning set forth in Section
4.6(a) hereof.
"Business Day" shall mean any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Capital Expenditures" shall mean all payments for any fixed
assets or improvements or for replacements, substitutions or additions thereto,
that have a useful life of more than one year and which are required to be
capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any
lease of any property (whether real, personal or mixed) by such Person as
lessee that, in accordance with GAAP, either would be required to be classified
and accounted for as a capital lease
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on a balance sheet of such Person or otherwise be disclosed as a capital lease
in a note to such balance sheet, other than, in the case of Company or a
Subsidiary of Company, any such lease under which Company or such Subsidiary is
the lessor.
"Capital Lease Obligation" shall mean, with respect to any
Capital Lease, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease or otherwise be disclosed in a note to such balance
sheet.
"Charges" shall mean all federal, state, county, city,
municipal, local, foreign or other governmental (including, without limitation,
PBGC) taxes at the time due and payable, levies, assessments, charges, liens,
claims or encumbrances upon or relating to (i) Company's or any of its
Subsidiaries' employees, payroll, income or gross receipts, (ii) Company's or
any of its Subsidiaries' ownership or use of any of its assets, or (iii) any
other aspect of Company's or any of the Subsidiaries' business.
"Closing" shall have the meaning set forth in Section 2.3
hereof.
"Closing Date" shall have the meaning set forth in Section
2.3 hereof.
"COBRA" shall have the meaning set forth in Section 4.17(m)
hereof.
"Common Stock" shall have the meaning set forth in the
recitals hereto.
"EBITDA" shall mean the consolidated operating income (before
extraordinary items, interest, taxes, depreciation and amortization) of such
Person and its consolidated Subsidiaries determined in accordance with GAAP.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974 (or any successor legislation thereto), as amended from time to
time and any regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to Company, any
trade or business (whether or not incorporated) under common control with
Company and which, together with Company, are treated as a single employer
within the meaning of Sections 414(b), (c), (m) or (o) of the IRC, excluding
Purchaser and each other person which would not be an ERISA Affiliate if
Purchaser did not own any issued and outstanding shares of Stock of Company.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and all rules and regulations promulgated thereunder.
"Financials" shall mean the financial statements (including
the notes thereto) referred to in Section 4.6(a) hereof.
"Fiscal Year" shall mean the twelve month period ending
December 31.
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"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any
obligation of such Person guaranteeing any Indebtedness, lease, dividend, or
other obligation ("primary obligations") of any other Person (the "primary
obligor") in any manner including, without limitation, any obligation or
arrangement of such Person (a) to purchase or repurchase any such primary
obligation, (b) to advance or supply funds (i) for the purchase or payment of
any such primary obligation or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet condition of the primary obligor, (c) to purchase
property, securities or services primarily for the purpose of assuring the
owner of any such primary obligation of the ability of the primary obligor to
make payment of such primary obligation, or (d) to indemnify the owner of such
primary obligation against loss in respect thereof.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indebtedness" of any Person shall mean (i) all indebtedness
of such Person for borrowed money or for the deferred purchase price of
property or services (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured, but not including obligations to trade
creditors incurred in the ordinary course of business), (ii) all obligations
evidenced by notes, bonds, debentures or similar instruments, (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreements with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property),
(iv) all Capital Lease Obligations, (v) all Guaranteed Indebtedness, (vi) all
Indebtedness referred to in clause (i), (ii), (iii), (iv) or (v) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness and (vii) all liabilities under Title IV of ERISA.
"IRC" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any
successor thereto.
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"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing,
and the filing of, or agreement to give, any financing statement perfecting a
security interest as to assets owned by the relevant Person under the Uniform
Commercial Code or comparable law of any jurisdiction).
"Master License Agreement" shall mean that certain Master
License Agreement, dated October 24, 1996, between Purchaser and Seer
Technologies, Inc., a Delaware corporation and predecessor-in-interest to
Company.
"Material Adverse Effect" shall mean material adverse effect
on the business, assets, operations, prospects (insofar as can reasonably be
foreseen) or financial or other condition of Company and its Subsidiaries, if
any, taken as a whole.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA, and to which Company, any of its
Subsidiaries or any ERISA Affiliate is making, is obligated to make, has made
or been obligated to make, contributions on behalf of participants who are or
were employed by any of them.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor thereto.
"PCA Shell License Agreement" shall mean that License
Agreement between Purchaser and Company, substantially in the form attached
hereto as Exhibit B, whereby Purchaser shall grant a license to Company under
Purchaser's copyrights and patents to incorporate the so-called PCA Shell user
interface/infrastructure technology into Company's products.
"Pension Plan" shall have the meaning set forth in Section
4.17(a) hereof.
"Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
"Plan" shall have the meaning set forth in Section 4.17(a)
hereof.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement by and between Company and Purchaser, substantially in the
form attached hereto as Exhibit C, as such agreement may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
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"Rule 144" shall have the meaning set forth in Section 3.7.
"SEC" shall mean the U.S. Securities and Exchange Commission,
or any successor thereto.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and all rules and regulations promulgated thereunder.
"Stock" shall mean all shares, options, warrants, general or
limited partnership interests, limited liability company membership interest,
participations or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity
whether voting or nonvoting, including, without limitation, common stock,
preferred stock, or any other "equity security" (as such term is defined in
Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under
the Exchange Act).
"Stockholders Agreement" shall mean that certain Stockholders
Agreement by and among Company, Purchaser and each of the other stockholders
party thereto, substantially in the form attached hereto as Exhibit A, as such
agreement may be amended, supplemented or otherwise modified from time to time.
"Subsidiary" shall mean, with respect to any Person, (a) any
corporation of which an aggregate of more than fifty (50%) percent of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors of such corporation (irrespective of whether, at the time, Stock
of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned legally or beneficially by such Person and/or one
or more Subsidiaries of such Person, and (b) any partnership or other entity in
which such Person and/or one or more Subsidiaries of such Person shall have an
interest (whether in the form of voting or participation in profits or capital
contribution) of more than fifty (50%) percent.
"Transaction Documents" shall mean this Agreement, the
Stockholders Agreement, the Registration Rights Agreement, the PCA Shell
License Agreement and any other certificates or additional documents to be
delivered in connection with the transactions contemplated hereunder.
"Welfare Plan" shall mean any welfare plan, as defined in
Section 3(1) of ERISA, which is maintained or contributed to by Company, any of
its Subsidiaries or any ERISA Affiliate.
References to this "Agreement" shall mean this Purchase
Agreement, including all amendments, modifications and supplements and any
exhibits or schedules to any of the foregoing, and shall refer to the Agreement
as the same may be in effect at the time such reference becomes operative.
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Any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given such term
in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with
GAAP consistently applied. That certain terms or computations are explicitly
modified by the phrase "in accordance with GAAP" shall in no way be construed
to limit the foregoing. The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole, including the
Exhibits and Schedules hereto, as the same may from time to time be amended,
modified or supplemented, and not to any particular section, subsection or
clause contained in this Agreement. Wherever from the context it appears
appropriate, each term stated in either the singular or plural shall include
the singular and the plural, and pronouns stated in the masculine, feminine or
neuter gender shall include the masculine, the feminine and the neuter.
II. THE PURCHASE OF COMMON STOCK
2.1. Authorization of Issue. Prior to the Closing,
Company shall have duly authorized the issuance and sale to Purchaser of the
number of shares of Common Stock set forth in Section 2.2 below.
2.2. Purchase of Common Stock. Subject to the terms and
conditions set forth in this Agreement, Purchaser agrees to subscribe for and
purchase from Company, and Company agrees to issue and sell to Purchaser, on
the Closing Date an aggregate of 1,000,000 shares of Common Stock. The
consideration for the aggregate number of shares of Common Stock subscribed for
by Purchaser shall consist of Purchaser's grant of a license to Company, with
certain rights to sublicense thereunder, pursuant to the PCA Shell License
Agreement.
2.3. Closing. (a) The closing of the purchase and sale of
the Common Stock (the "Closing") shall take place within five (5) Business Days
after the satisfaction or waiver of the conditions set forth in Article VI
hereof or such date and time as shall be mutually agreed to by the parties
hereto (the "Closing Date") at the offices of Weil, Gotshal & Manges LLP, 767
Fifth Avenue, New York, New York, or such other place as shall be mutually
agreed to by the parties hereto.
(b) Subject to the satisfaction (or waiver) of the
conditions set forth in Article VI hereof, on the Closing Date, Company will
deliver to Purchaser certificate(s) representing the Common Stock to be
purchased by Purchaser, registered in such names and in such denominations as
Purchaser requests, provided, however, that any Person designated by Purchaser
to receive such Common Stock shall be an Affiliate of Purchaser, against
delivery by Purchaser of the PCA Shell License Agreement, duly executed by the
parties thereto.
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III. PURCHASER'S REPRESENTATIONS
Purchaser makes the following representations and warranties
to Company, each and all of which shall survive the execution and delivery of
this Agreement and the Closing hereunder:
3.1. Investment Intention. Purchaser is purchasing the
Common Stock for its own account, for investment purposes and not with a view
to the distribution thereof. Purchaser will not, directly or indirectly, offer,
transfer, sell, assign, pledge, hypothecate or otherwise dispose of any of the
Common Stock (or solicit any offers to buy, purchase, or otherwise acquire any
of the Common Stock), except in compliance with the Securities Act.
3.2. Accredited Investor. Purchaser is an "accredited
investor" (as that term is defined in Rule 501 of Regulation D under the
Securities Act) and by reason of its business and financial experience, it has
such knowledge, sophistication and experience in business and financial matters
as to be capable of evaluating the merits and risks of the prospective
investment, is able to bear the economic risk of such investment and is able to
afford a complete loss of such investment.
3.3. Corporate Existence. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation.
3.4. Corporate Power; Authorization; Enforceable
Obligations. The execution, delivery and performance by Purchaser of this
Agreement and the other Transaction Documents to be executed by it: (i) are
within Purchaser's corporate power; (ii) have been duly authorized by all
necessary corporate action; (iii) are not in contravention of any provision of
Purchaser's certificate of incorporation or by-laws; and (iv) will not violate
any law or regulation, or any order or decree of any court or governmental
instrumentality binding on Purchaser. This Agreement and the other Transaction
Documents to which Purchaser is a party have each been duly executed and
delivered by Purchaser and constitute the legal, valid and binding obligations
of Purchaser, enforceable against it in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
3.5. Reliance on Exemptions. Purchaser understands that
the shares of Common Stock are being offered and sold to it in reliance on
specific exemptions from the registration requirements of Securities Act and
applicable state securities laws and that Company is relying in part upon the
truth and accuracy of the representations and warranties of Purchaser set forth
in this Article III in order to determine the availability of such exemptions
and the eligibility of Purchaser to acquire the Common Stock.
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3.6. Information. Purchaser and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of Company and materials relating to the offer and sale of the
securities which have been requested by Purchaser. Purchaser and its advisors,
if any, have been afforded the opportunity to ask questions of Company. Neither
such inquiries nor any other due diligence investigations conducted by
Purchaser or its advisors, if any, or its representatives shall modify, amend
or affect in any way Purchaser's right to rely on Company's representations and
warranties contained in this Agreement.
3.7. Transfer or Resale. Purchaser acknowledges that
except as provided in this Agreement or the Registration Rights Agreement: (i)
the Common Stock has not been registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, (B) Purchaser shall have
delivered to Company an opinion (which shall be satisfied by delivery of an
opinion from in-house counsel) in form reasonably satisfactory to Company, to
the effect that the Common Stock can be sold, assigned or transferred pursuant
to an available exemption under the Securities Act or (C) Purchaser provides
Company with reasonable assurances that such Common Stock can be sold, assigned
of transferred pursuant to Rule 144 promulgated under the Securities Act (or
any successor thereto)("Rule 144"); (ii) any sale of the Common Stock made in
reliance on Rule 144 may be made only in accordance with the provisions of Rule
144; and (iii) neither Company nor any other Person is under any obligation to
register the Common Stock under the Securities Act or any state securities laws
or to comply with the terms and conditions of any exemption thereunder.
Notwithstanding the foregoing, the Common Stock may be (i) pledged in
connection with a bona fide margin account or other loan secured by the Common
Stock and (ii) transferred, in whole or in part, to any Affiliate of Purchaser.
3.8. Legends. Purchaser understands that the certificates
or other instruments representing the Common Stock and, until such time as the
sale of such Common Stock has been registered under the Securities Act or may
be sold pursuant to an available exemption under the Securities Act, the stock
certificates representing such Common Stock, except as set forth below, shall
bear a restrictive legend in the following form (and a stop-transfer order may
be placed against transfer of such stock certificates):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"), OR APPLICABLE STATE SECURITIES LAWS. SUCH
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE 1933 ACT, OR APPLICABLE STATE SECURITIES
LAWS, AN
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OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER,
THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT, OR
APPLICABLE STATE SECURITIES LAW OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER THE 1933 ACT. NOTWITHSTANDING THE FOREGOING,
SUCH SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES."
The legend set forth above shall be removed and Company shall
issue a certificate without such legend to the holder of the Common Stock if
(i) such Common Stock is registered for sale under the Securities Act, (ii)
such holder provides Company with an opinion of counsel (which shall be
satisfied by delivery of an opinion from in-house counsel), in a form
reasonably satisfactory to Company, to the effect that a public sale,
assignment or transfer of the Common Stock may be made without registration
under the Securities Act or (iii) such holder provides Company with reasonable
assurances that the Common Stock can be sold pursuant to Rule 144.
IV. COMPANY'S REPRESENTATIONS AND WARRANTIES
Company makes the following representations and warranties to
Purchaser, each and all of which shall survive the execution and delivery of
this Agreement and the Closing hereunder:
4.1. Authorized and Outstanding Shares of Capital Stock.
After giving effect to the Closing, the authorized capital stock of Company as
of July 28, 2000 consists of 40,000,000 shares of Common Stock, $0.001 par
value per share, of which 14,919,843 shares are issued and outstanding, and
10,000,000 shares of Preferred Stock, $0.001 par value per share, of which
11,729 shares of Series A 4% Convertible Redeemable Preferred Stock are issued
and outstanding and 30,000 shares of Series B 4% Convertible Redeemable
Preferred Stock are issued and outstanding. All of such issued and outstanding
shares are validly issued, fully paid and non-assessable. Except as set forth
on Schedule 4.1, (i) there is no existing option, warrant, call, commitment or
other agreement to which Company is a party requiring, and there are no
convertible securities of Company outstanding which upon conversion would
require, the issuance of any additional shares of Stock of Company or other
securities convertible into shares of equity securities of Company, other than
the Common Stock, and (ii) there are no agreements to which Company is a party
or, to the knowledge of Company, to which any stockholder or warrant holder of
Company is a party, with respect to the voting or transfer of the Stock of
Company or with respect to any other aspect of Company's affairs, other than
the Stockholders Agreement. Except as set forth on Schedule 4.1, there are no
stockholders' preemptive rights or rights of first refusal or other similar
rights with respect to the issuance of Stock by Company, other than pursuant to
the
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Transaction Documents. True and correct copies of the certificate of
incorporation and by-laws of Company on effect on the date hereof have been
delivered to Purchaser.
4.2. Authorization and Issuance of Common Stock. The
issuance of the Common Stock has been duly authorized by all necessary
corporate action on the part of Company and, upon delivery to Purchaser of
certificate(s) therefor against payment in accordance with the terms hereof,
the Common Stock (i) will have been validly issued and fully paid and
non-assessable, (ii) will be free and clear of all pledges, liens, encumbrances
and preemptive rights and (iii) assuming that the representations of Purchaser
in Article III are true and correct, will have been issued in compliance with
all applicable federal and state securities laws, as presently in effect.
4.3. Corporate Existence; Compliance with Law. Company
and each of its Subsidiaries, if any, (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
in the case of Company and as set forth on Schedule 4.4 in the case of its
Subsidiaries; (ii) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification (except for
jurisdictions in which such failure to so qualify or to be in good standing
would not have a Material Adverse Effect); (iii) has the requisite corporate
power and authority and the legal right to own, pledge, mortgage or otherwise
encumber and operate its properties, to lease the property it operates under
lease, and to conduct its business as now being conducted; (iv) has, or has
applied for, all material licenses, permits, consents or approvals from or by,
and has made all material filings with, and has given all material notices to,
all Governmental Authorities having jurisdiction, to the extent required for
such ownership, operation and conduct; (v) is in compliance with its
certificate or articles of incorporation and by-laws; and (vi) is in compliance
with all applicable provisions of law, except for such non-compliance which
would not have a Material Adverse Effect.
4.4. Subsidiaries. There currently exist no Subsidiaries
of Company other than as set forth on Schedule 4.4 hereto, which sets forth
such Subsidiaries, together with their respective jurisdictions of
organization, and the authorized and outstanding capital Stock of each such
Subsidiary, by class and number and percentage of each class owned by Company
or a Subsidiary of Company or any other Person. There are no options, warrants,
rights to purchase or similar rights covering capital Stock for any such
Subsidiary.
4.5. Corporate Power; Authorization; Enforceable
Obligations. The execution, delivery and performance by Company of this
Agreement, the other Transaction Documents to which it is a party and all
instruments and documents to be delivered by Company, the issuance and sale of
the Common Stock and the consummation of the other transactions contemplated by
any of the foregoing: (i) are within Company's corporate power and authority;
(ii) have been duly authorized by all necessary or proper corporate action;
(iii) are not in contravention of any provision of Company's certificate of
incorporation or by-laws; (iv) will not violate any law or regulation, or any
order or decree of any court or governmental instrumentality; (v) will
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not conflict with or result in the breach or termination of, constitute a
default under or accelerate any performance required by, any indenture,
mortgage, deed of trust, lease, agreement or other instrument to which Company
or any of its Subsidiaries is a party or by which Company, any of its
Subsidiaries or any of their property is bound; (vi) will not result in the
creation or imposition of any Lien upon any of the property of Company or any
of its Subsidiaries; and (vii) do not require the consent or approval of, or
any filing with, any Governmental Authority or any other Person (except (A) for
those filings required by the Registration Rights Agreement, (B) the Form D
(referred to in Section 5.1(k) below), (C) consents and approvals required
under the HSR Act and (D) to the extent previously obtained or made). At or
prior to the Closing Date, each of this Agreement and the other Transaction
Documents shall have been duly executed and delivered by Company and each shall
then constitute a legal, valid and binding obligation of Company, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
4.6. Financial Statements. (a) The audited consolidated
balance sheet of Company as at December 31, 1999, and the related consolidated
statements of income and cash flows for the year then ended, with the opinion
thereon of PricewaterhouseCoopers LLP ("PWC"), and the unaudited consolidated
balance sheet of Company as at March 31, 2000 (the "Balance Sheet") and the
related unaudited consolidated statements of income and cash flows for the
three months then ended, copies of which have previously been delivered to
Purchaser, have been, except as noted therein, prepared in conformity with GAAP
consistently applied throughout the periods involved and present fairly in all
material respects the consolidated financial position of Company as at the
dates thereof, and the consolidated results of its operations and cash flows
for the periods then ended, subject, in the case of the interim financial
statements, to normal year-end audit adjustments.
(b) Except as set forth on Schedule 4.6, neither Company
nor any of its Subsidiaries has any material obligations, contingent or
otherwise, including, without limitation, liabilities for Charges, long-term
leases or unusual forward or long-term commitments which are not reflected in
the Financials, other than those incurred since December 31, 1999, in the
ordinary course of business.
(c) Except as set forth on Schedule 4.6, no dividends or
other distributions have been declared, paid or made upon any shares of capital
Stock of Company, nor have any shares of capital Stock of Company been
redeemed, retired, purchased or otherwise acquired for value by Company since
December 31, 1999.
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4.7. SEC Filings. (a) Company has filed all required
reports, schedules, forms, statements and other documents with the Securities
and Exchange Commission (the "SEC") since December 31, 1998 (the "Company SEC
Documents").
(b) As of its filing date, except as expressly set forth
on Schedule 4.7, each Company SEC Document filed pursuant to the Exchange Act
(i) did not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
to the extent that such statements have been modified or superseded by a later
filed Company SEC Document, (ii) complied in all material respects with the
Exchange Act and (iii) was filed with the SEC in a timely manner.
(c) Each Company SEC Document that is a registration
statement, as amended or supplemented, if applicable, filed pursuant to the
Securities Act as of the date such registration statement or amendment became
effective (i) did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, except to the extent that such
statements have been modified or superseded by a later filed Company SEC
Document and (ii) complied in all material respects with the Securities Act.
4.8. Absence of Certain Changes. Except as disclosed in
Company SEC Documents filed prior to the date of this Agreement or as disclosed
on Schedule 4.8, since December 31, 1999, Company and its Subsidiaries have
conducted their business in the ordinary course consistent with past practice
and there has not been:
(a) any event, occurrence, development change or
circumstance which has had, or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Company;
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
Company, or any repurchase, redemption or other acquisition by Company or any
of its Subsidiaries of any amount of outstanding shares of capital stock or
other equity securities of, or other ownership interests in, Company or any of
its Subsidiaries;
(c) any amendment of any term of any outstanding
security of Company or any of its Subsidiaries that would materially increase
the obligations of Company or such Subsidiary under such security;
(d) (x) any incurrence or assumption by Company or any
of its Subsidiaries of any indebtedness for borrowed money other than under
existing credit facilities (or any renewals, replacements or extensions that do
not increase the aggregate commitments thereunder) (A) in the ordinary course
of business consistent with past practice (it being understood that any
indebtedness incurred prior to the date hereof in respect of Capital
Expenditures shall be considered to have been in the ordinary course of
business consistent with past practice) or (B) in connection with any
acquisition or capital
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expenditure or (y) any guarantee, endorsement or other incurrence or assumption
of liability (whether directly, contingently or otherwise) by Company or any of
its Subsidiaries for the obligations of any other person (other than any wholly
owned Subsidiary of Company), other than in the ordinary course of business
consistent with past practice;
(e) any creation or assumption by Company or any of its
Subsidiaries of any consensual Lien on any material asset of Company or any of
its Subsidiaries other than in the ordinary course of business consistent with
past practice;
(f) any making of any loan, advance or capital
contribution to or investment in any person by Company or any of its
Subsidiaries other than (i) loans, advances or capital contributions to or
investments in wholly-owned Subsidiaries of Company or (ii) loans or advances
to employees of Company or any of its Subsidiaries made in the ordinary course
of business consistent with past practice;
(g) any material change in any method of accounting or
accounting principles or practice by Company or any of its Subsidiaries, except
for any such change required by reason of a change in GAAP; or
(h) any (i) grant of any severance or termination pay to
any director, officer or employee of Company or any of its Subsidiaries, (ii)
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of Company or any of its Subsidiaries, (iii) increase in
benefits payable under any existing severance or termination pay policies or
employment agreements or (iv) increase in compensation, bonus or other benefits
payable to directors, officers or employees of Company or any of its
Subsidiaries other than, in the case of clause (iv) only, increases prior to
the date hereof in compensation, bonus or other benefits payable to employees
of Company or any of its Subsidiaries in the ordinary course of business
consistent with past practice or merit increases in salaries of employees at
regularly scheduled times in customary amounts consistent with past practices.
4.9. No Undisclosed Material Liabilities. There have been
no liabilities or obligations (whether pursuant to contracts or otherwise) of
any kind whatsoever incurred by Company or any of its Subsidiaries since
December 31, 1998, whether accrued, contingent, absolute, determined,
determinable or otherwise, other than:
(a) liabilities or obligations disclosed or provided for
in Company's Financials or in Company SEC Documents filed prior to the date
hereof;
(b) liabilities or obligations which, individually and
in the aggregate, have not had and would not have a Material Adverse Effect on
Company; or
(c) liabilities or obligations under this Agreement.
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4.10. Environmental Matters. Except as set forth on
Schedule 4.10, Company and its Subsidiaries (i) are in compliance in all
material respects with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses as now conducted, except where the failure
to receive such permits, licenses or approvals would not, individually or in
the aggregate, have a Material Adverse Effect and (iii) are in compliance with
all terms and conditions of any such permit, license or approval, except where
the failure to be in compliance would not, individually or in the aggregate,
have a Material Adverse Effect.
4.11. Employee Relations. Neither Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of
Company or any of its Subsidiaries, is any such dispute threatened. Except as
disclosed in Schedule 4.11, none of Company's or its Subsidiaries' employees is
a member of a union, neither Company nor any of its Subsidiaries is a party to
a collective bargaining agreement, and Company and its Subsidiaries believe
that their relations with their employees are good. Except as disclosed in
Schedule 4.11, no executive officer (as defined in Rule 501(f) of the
Securities Act) has notified Company's Board of Directors that such officer
intends to leave Company or otherwise terminate such officer's employment with
Company and Company does not have any plans or otherwise expect to terminate
any such officer during the six months following the date of this Agreement.
4.12. Taxes. Except as set forth on Schedule 4.12, all
federal, state, local and foreign tax returns, reports and statements required
to be filed by Company and its Subsidiaries have been timely filed with the
appropriate Governmental Authority and all such returns, reports and statements
are true, correct and complete in all material respects. All Charges and other
impositions shown or determined to be due for the periods covered by such
returns, reports and statements have been paid prior to the date on which any
fine, penalty, interest or late charge may be added thereto for nonpayment
thereof, or any such fine, penalty, interest, late charge or loss has been
paid. Proper and accurate amounts have been withheld by Company and its
Subsidiaries from its employees for all periods in compliance in all material
respects with the tax, social security and unemployment withholding provisions
of applicable federal, state, local and foreign law and such withholdings have
been timely paid to the respective governmental agencies. Neither Company nor
any of its Subsidiaries has executed or filed with the IRS or any other
Governmental Authority any agreement or other document extending, or having the
effect of extending, the period for assessment or collection of any Charges. No
tax audits or other administrative or judicial proceedings are pending or to
the knowledge of Company threatened with regard to any Charges for which
Company or any Subsidiary may be liable and, to the knowledge of Company, no
assessment of Charges is proposed against Company or any Subsidiary. Neither
Company nor any of its Subsidiaries has filed a consent pursuant to IRC Section
341(f) or agreed to have IRC Section 341(f)(2) apply to an dispositions of
subsection (f) assets (as such term is defined
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in IRC Section 341(f)(4)). None of the property owned by Company or any of its
Subsidiaries is property which such company is required to treat as being owned
by any other Person pursuant to the provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended, and in effect immediately prior to
the enactment of the Tax Reform Act of 1986 or is "tax-exempt use property"
within the meaning of IRC Section 168(h). Neither Company nor any of its
Subsidiaries has agreed or has been requested to make any adjustment under IRC
Section 481(a) by reason of a change in accounting method or otherwise. Neither
Company nor any of its Subsidiaries has any obligation under any written tax
sharing agreement.
4.13. No Litigation. Except as disclosed on Schedule 4.13,
no action, claim or proceeding is now pending or, to the knowledge of Company
or its Subsidiaries, threatened against Company or any of its Subsidiaries, at
law, in equity or otherwise, before any court, board, commission, agency or
instrumentality of any federal, state, or local government or of any agency or
subdivision thereof, or before any arbitrator or panel of arbitrators.
4.14. Brokers. Except as set forth on Schedule 4.14, no
broker or finder acting on behalf of Company or any of its Subsidiaries brought
about the consummation of the transactions contemplated pursuant to this
Agreement and neither Company nor any of its Subsidiaries has any obligation to
any Person in respect of any finder's or brokerage fees (or any similar
obligation) in connection with the transactions contemplated by this Agreement.
Company is solely responsible for the payment of all such finder's or brokerage
fees.
4.15. Employment Agreements. Except as set forth on
Schedule 4.15, there are no employment, consulting or management agreements
covering management of Company or any of its Subsidiaries.
4.16. Patents, Trademarks, Copyrights and Licenses.
Company and each of its Subsidiaries owns (or, with respect to the patents
listed on Schedule 4.16(a), possesses all necessary rights to such patents or
valid licenses covering such patents) all licenses, patent applications,
copyrights, service marks, trademarks and registrations and applications for
registration thereof, and trade names necessary to continue to conduct its
business as heretofore conducted by it and now being conducted by it, each of
which is listed, together with Patent and Trademark Office or Copyright Office
application or registration numbers, where applicable, on Schedule 4.16(b)
hereto. To Company's knowledge, Company and each of its Subsidiaries conducts
its businesses without infringement or claim of infringement of any license,
patent, copyright, service mark, trademark, trade name, trade secret or other
intellectual property right of others, except as set forth on Schedule 4.16(c)
hereto. To Company's knowledge, there is no infringement by others of any
license, patent, copyright, service mark, trademark, trade name, trade secret
or other intellectual property right of Company or any of its Subsidiaries,
except as set forth on Schedule 4.16(d) hereto.
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4.17. ERISA. (a) Schedule 4.17 sets forth: (i) all
"employee benefit plans", as defined in Section 3(3) of ERISA, and any other
employee benefit arrangements or payroll practices, including, without
limitation, severance pay, sick leave, vacation pay, salary continuation for
disability, consulting or other compensation agreements, retirement, deferred
compensation, bonus, stock purchase, hospitalization, medical insurance, life
insurance and scholarship programs (the "Plans") maintained by Company and any
of its Subsidiaries or to which Company or and of its Subsidiaries contributed
or is obligated to contribute thereunder, and (ii) all "employee pension
plans", as defined in Section 3(2) of ERISA (the "Pension Plans"), maintained
by Company, any of its Subsidiaries or any of its ERISA Affiliates to which
Company, any of its Subsidiaries or any of its ERISA Affiliates contributed or
is obligated to contribute thereunder.
(b) Purchaser will not have (i) any obligation to make
any contribution to any Multiemployer Plan or (ii) any withdrawal liability
from any such Multiemployer Plan under Section 4201 of ERISA which it would not
have had if it had not purchased the Common Stock from Company at the Closing
in accordance with the terms of this Agreement.
(c) The Pension Plans intended to be qualified under
Section 401 of the IRC are so qualified and the trusts maintained pursuant
thereto are exempt from federal income taxation under Section 501 of the IRC,
and nothing has occurred with respect to the operation of the Pension Plans
which could cause the loss of such qualification or exemption or the imposition
of any liability, penalty, or tax under ERISA or the IRC.
(d) All contributions required by law or pursuant to the
terms of the Plans (without regard to any waivers granted under Section 412 of
the IRC) to any funds or trusts established thereunder or in connection
therewith have been made by the due date thereof (including any valid
extension) and no accumulated funding deficiencies exist in any of the Pension
Plans.
(e) There is no "amount of unfunded benefit liabilities"
as defined in Section 4001(a)(18) of ERISA in any of the respective Pension
Plans. Each of the respective Pension Plans are fully funded in accordance with
the actuarial assumptions used by the PBGC to determine the level of funding
required in the event of the termination of the Pension Plan and all benefit
liabilities do not exceed the assets of such Pension Plans.
(f) There has been no "reportable event" as that term is
defined in Section 4043 of ERISA and the regulations thereunder with respect to
the Pension Plans which would require the giving of notice, or any event
requiring disclosure under Sections 4041(c)(3)(C), 4063(a) or 4068(f) of ERISA.
(g) There is no material violation of ERISA with respect
to the filing of applicable reports, documents, and notices regarding the Plans
with the Secretary of
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Labor and the Secretary of the Treasury or the furnishing of such documents to
the participants or beneficiaries of the Plans.
(h) True, correct and complete copies of the following
documents, with respect to each of the Plans, have been made available or
delivered to Purchaser by Company: (A) any plans and related trust documents,
and amendments thereto, (B) the most recent Forms 5500 (including any schedules
thereto) and the most recent actuarial valuation report, if any, (C) the last
IRS determination letter, (D) summary plan descriptions and (E) written
communications to employees relating to the Plans.
(i) There are no pending actions, claims or lawsuits
which have been asserted or instituted or, to the knowledge of Company,
asserted against the Plans, the assets of any of the trusts under such Plans or
the Plan sponsor or the Plan administrator, or against any fiduciary of the
Plans with respect to the operation of such Plans (other than routine benefit
claims), nor does Company or any of its Subsidiaries have knowledge of facts
which could form the basis for any such claim or lawsuit.
(j) All amendments and actions required to bring the
Plans into conformity in all material respects with all of the applicable
provisions of ERISA and other applicable laws have been made or taken except to
the extent that such amendments or actions are not required by law to be made
or taken until a date after the Closing Date.
(k) The Plans have been maintained, in all material
respects, in accordance with their terms and with all provisions of ERISA
(including rules and regulations thereunder) and other applicable Federal and
state law, and neither Company nor any of its Subsidiaries or to the knowledge
of Company, any other "party in interest" or "disqualified person" with respect
to the Plans has engaged in a "prohibited transaction" within the meaning of
Section 4975 of the IRC or Section 406 of ERISA.
(l) None of Company, any of its Subsidiaries or any
ERISA Affiliate has terminated any Pension Plan, or incurred any outstanding
liability under Section 4062 of ERISA to the PBGC, or to a trustee appointed
under Section 4042 of ERISA.
(m) None of Company, any of its Subsidiaries or any
ERISA Affiliate maintains retired life and retired health insurance plans which
are Welfare Plans and which provide for continuing benefits or coverage for any
participant or any beneficiary of a participant except as may be required under
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA") and at the expense of the participant or the participant's
beneficiary. Company, all of its Subsidiaries and all ERISA Affiliates which
maintains a Welfare Plan has complied with the notice and continuation
requirements of COBRA and the regulations thereunder.
(n) None of Company, any of its Subsidiaries or any
ERISA Affiliate has contributed or been obligated to contribute to a
Multiemployer Plan as of the Closing.
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(o) None of Company, any of its Subsidiaries or any
ERISA Affiliate has withdrawn in a complete or partial withdrawal from any
Multiemployer Plan prior to the Closing Date, nor has any of them incurred any
liability due to the termination or reorganization of a Multiemployer Plan.
(p) None of Company, any of its Subsidiaries, any ERISA
Affiliate or any organization to which Company is a successor or parent
corporation, within the meaning of Section 4069(b) of ERISA, has engaged in any
transaction, within the meaning of Section 4069 of ERISA.
4.18. Minute Books. The minute books of Company, as
previously made available to Purchaser, accurately reflect all formal corporate
action of the stockholders and Board of Directors of Company.
4.19. Private Offering. Company and all Persons acting on
its behalf have not made, directly or indirectly, and will not make, offers or
sales of any securities or solicited any offers to buy and security under
circumstances that would require registration of the Common Stock or the
issuance of such securities under the Securities Act. Subject to the accuracy
and completeness of the representations and warranties of Purchaser contained
in section 3.1, the offer, sale and issuance by Company to Purchaser of the
Common Stock are exempt from the registration requirements of the Securities
Act.
4.20. Listing Maintenance Requirements Compliance. The
principal market on which the Common Stock is currently traded is the NASDAQ
National Market System ("NASDAQ"). Except as disclosed on Schedule 4.20,
Company has not since December 31, 1999 received notice (written or oral) from
NASDAQ (or any stock exchange, market or trading facility on which the Common
Stock is or has been listed (or on which it has been quoted)) to the effect
that Company is not in compliance with the listing or maintenance requirements
of such market or exchange. After giving effect to the transactions
contemplated by this Agreement and the Transaction Documents, Company is and
will be in compliance with all such maintenance requirements.
4.21. Internal Accounting Controls. Company and its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with United States generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
difference.
4.22. Transactions with Affiliates. Except as set forth on
Schedule 4.22 or the SEC Documents and other than the grant or exercise of
stock options disclosed on Schedule 4.1, none of the executive officers or
directors of Company is presently a party
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to any transaction with Company or any of its Subsidiaries (other than for
services as executive officers and directors) involving an amount in excess of
$60,000, including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of Company, any corporation,
partnership, trust or entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
4.23. Master License Agreement. With respect to the Master
License Agreement, (i) such agreement is legal, valid, binding, enforceable and
in full force and effect as of the date hereof, (ii) neither Company nor any of
its Subsidiaries is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default by, or permit
termination, modification, or acceleration, under such agreement; and (iii)
Company has not repudiated any provision of such agreement.
V. COVENANTS
5.1. Covenants of Company. Company covenants and agrees
that from and after the date hereof (except as otherwise provided herein):
(a) Books and Records. Company shall, and shall cause
its Subsidiaries to, keep adequate records and books of account with respect to
their business activities, in which proper entries, reflecting all of their
financial transactions, are made in accordance with GAAP.
(b) Financial and Business Information
(i) Company will deliver to Purchaser as soon
as practicable after the end of each of the first three quarterly fiscal
periods in each fiscal year of Company, but in any event within forty five (45)
days thereafter, (A) an unaudited consolidated balance sheet of Company and its
Subsidiaries, if any, as at the end of such quarter, and (B) unaudited
consolidated statements of income and cash flows of Company and its
Subsidiaries, if any, for such quarter and (in the case of the second and third
quarters) for the portion of the fiscal year ending with such quarter, setting
forth in comparative form in each case the projected consolidated figures for
such period and the actual consolidated figures for the comparable period of
the prior fiscal year. Such statements shall be (1) prepared in accordance with
GAAP consistently applied, (2) in reasonable detail and (3) certified by the
principal financial or accounting officer of Company.
(ii) Company will deliver to Purchaser as soon
as practicable after the end of each Fiscal Year of Company, but in any event
within ninety (90) days thereafter, (A) an audited consolidated balance sheet
of Company and its Subsidiaries, if any, as at the end of such year, and (B)
audited consolidated statements of income and cash flows of Company and its
Subsidiaries, if any, for such year; setting forth in each case in comparative
form the figures for the previous year. Such statements shall be
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(1) prepared in accordance with GAAP consistently applied, (2) in reasonable
detail and (3) certified by PWC or Company's current auditors or such other
firm of independent certified public accountants of recognized national
standing selected by Company and reasonably acceptable to Purchaser.
(iii) In lieu of its obligations under Sections
5.1(b)(i) and (ii) above and so long as Company has a class of equity
securities registered pursuant to Section 12 of the Exchange Act, Company will
file on or before the required date all regular or periodic reports (pursuant
to the Exchange Act) required to be filed with the SEC pursuant to the Exchange
Act and will deliver to Purchaser promptly upon their becoming available
(unless such reports are available through the SEC's EDGAR system) one copy of
each report, notice or proxy statement sent by Company to its stockholders
generally, and of each regular or periodic report (pursuant to the Exchange
Act) and any registration statement, prospectus or written communication (other
than transmittal letters) (pursuant to the Securities Act), filed by Company
with (i) the SEC or (ii) any securities exchange on which shares of Common
Stock of Company are listed.
(c) Reporting. Company will, so long as the shares of
Common Stock are outstanding and are "restricted securities" within the meaning
of Rule 144(a)(3) under the Securities Act, file reports and other information
with the Commission under Section 13 or 15(d) of the Exchange Act.
(d) Access to Information. Company covenants that it
will permit Purchaser and Purchaser's Affiliates, for so long as they own any
shares of Common Stock that, in the aggregate, represent at least twenty (20%)
percent of the shares purchased hereunder (the "Minimum Threshold"), and any
Person acting in a representative capacity on behalf of Purchaser and who is
designated in writing by Purchaser, to reasonably request and be furnished with
such data, books and records as will enable Purchaser to confirm Company's
compliance with its obligations set forth in Section 5.1(e) hereof; provided,
however, Purchaser shall be limited to one (1) such request in any ninety (90)
day period. Purchaser shall, and shall cause any Person designated by them
pursuant to the first sentence of this Section 5.1(d) to, keep confidential all
information furnished to, or made available to, them pursuant to this Section
5.1(d), nor shall any of them use, or permit any such Person to use, any such
information for any purpose other than to evaluate their investment in the
shares of Common Stock; except that Purchaser and such other holders shall have
no obligation to keep confidential information which is or becomes generally
available to the public other than as a result of a disclosure by Purchaser or
any such other holders or their representatives.
(e) Transactions with Stockholders and Affiliates.
Except as to any agreements contemplated by this Agreement, for so long as
Purchaser and any Purchaser Affiliates own shares of Common Stock that, in the
aggregate, represent at least the Minimum Threshold, Company will not, and will
not permit any of its subsidiaries to, directly or indirectly, make loans,
advances or payments to, or sell, transfer or lease any assets or property to,
any Person who beneficially owns in the aggregate 5% or more of
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the voting securities of Company or any Affiliate or Associate (as such terms
are defined in the rules and regulations under the Exchange Act).
(f) Lost, Stolen, Destroyed or Mutilated Stock
Certificates. Upon receipt of evidence reasonably satisfactory to Company of
the loss, theft, destruction or mutilation of any certificate for shares of
Common Stock and, in the case of loss, theft or destruction, upon delivery of
an indemnity reasonably satisfactory to Company (which may be an undertaking by
a Purchaser to so indemnify Company), or, in the case of mutilation, upon
surrender and cancellation thereof, Company will issue a new certificate of
like tenor for a number of shares of Common Stock equal to the number of shares
of such stock represented by the certificate lost, stolen, destroyed or
mutilated.
(g) Stop Transfer Instruction. Company may not make any
notation on its records or give instructions to any transfer agent of Company
which enlarge the restrictions on transfer set forth in Section 3.7.
(h) Furnishing of Information. As long as Purchaser owns
the Common Stock, Company will cause the Common Stock to continue at all times
to be registered under Section 12 of the Exchange Act or subject to Section
15(d) of the Exchange Act, will timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports required to be
filed by Company after the date hereof pursuant to Section 13, 14 or 15(d) of
the Exchange Act and will not take any action or file any document (whether or
not permitted by the Exchange Act or the rules thereunder) to terminate or
suspend such reporting and filing obligations. As long as any Purchaser owns
the Common Stock, if Company is not required to file reports pursuant to
section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to
Purchaser and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act annual and quarterly financial statements,
together with a discussion and analysis of such financial statements in form
and substance substantially similar to those that would otherwise be required
to be included in reports required by Section 13(a) or 15(d) of the Exchange
Act. Company further covenants that it will take such further action as the
holders of a majority of the Common Stock may reasonably request, all to the
extent required from time to time to enable such Person to sell the Common
Stock without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including the legal opinion referenced above in Section 3.1(b). Upon the
request of any such Person, Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
(i) Integration. Company shall not sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Common Stock in a manner that would require the
registration under the Securities Act of the sale of the Common Stock to any
Purchaser, or to issue securities in such circumstances that is likely to
result in such offering being integrated with the sale of the Common Stock in
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<PAGE> 26
such manner that stockholder approval would be required pursuant to any
stockholder approval provision applicable to Company or its securities.
(j) Form D. Company agrees to file in a timely manner
with the SEC a Form D with respect to the Common Stock as required by Rule 506
of the rules promulgated under the Securities Act and to provide a copy thereof
to each Purchaser promptly after such filing.
(k) Press Release; Filing of Form 8-K. Subject to the
provisions of Section 9.9 hereof, Company shall issue a press release in form
and substance acceptable to Purchaser promptly following the Closing.
(l) Best Efforts. Company shall use its best efforts to
satisfy each of the conditions to be satisfied by it as provided in Sections
6.1 and 6.2 of this Agreement.
5.2. Reasonable Best Efforts.
(a) Subject to the terms and conditions of this
Agreement, each party will use its reasonable best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement. In furtherance and not in
limitation of the foregoing, each party hereto agrees to (i) make an
appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transactions contemplated hereby as promptly as practicable
and in any event within ten (10) Business Days of the date hereof and to supply
as promptly as practicable any additional information and documentary material
that may be requested pursuant to the HSR Act and to take all other actions
reasonably necessary to cause the expiration or termination of the applicable
waiting periods under the HSR Act as soon as practicable and (ii) make
appropriate filings required under any other applicable Antitrust Laws (as
defined below) as promptly as practicable and in any event within fifteen (15)
Business Days of the date hereof.
(b) Each of Purchaser and the Company shall, in
connection with the efforts referenced in Section 5.2(a) to obtain all
requisite approvals and authorizations for the transactions contemplated by
this Agreement under the HSR Act or any other Antitrust Law, use its reasonable
best efforts to (i) cooperate in all respects with each other in connection
with any filing or submission and in connection with any investigation or other
inquiry, including any proceeding initiated by a private party; (ii) keep the
other party informed in all material respects of any material communication
received by such party from, or given by such party to, the Federal Trade
Commission (the "FTC"), the Antitrust Division of the Department of Justice
(the "DOJ") or any other Governmental Authority and of any material
communication received or given in connection with any proceeding by a private
party, in each case regarding any of the transactions contemplated hereby; and
(iii) permit the other party to review any material communication given by it
to, and consult with each other in advance of any meeting or conference with,
the FTC, the DOJ or any such other governmental authority or, in
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<PAGE> 27
connection with any proceeding by a private party, with any other person, and
to the extent permitted by the FTC, the DOJ or such other applicable
governmental authority or other person, give the other party the opportunity to
attend and participate in such meetings and conferences. For purposes of this
Agreement, "Antitrust Law" means the Sherman Act, as amended, the Clayton Act,
as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all
other federal, state and foreign, if any, statutes, rules, regulations, orders,
decrees, administrative and judicial doctrines and other laws that are designed
or intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade or lessening of competition
through merger or acquisition.
(c) In furtherance and not in limitation of the
covenants of the parties contained in Sections 5.2(a) and (b), each of
Purchaser and the Company shall use its reasonable best efforts to resolve such
objections if any, as may be asserted with respect to the transactions
contemplated hereby under any Antitrust Law. In connection with the foregoing,
if any administrative or judicial action or proceeding, including any
proceeding by a private party, is instituted (or threatened to be instituted)
challenging any transaction contemplated by this Agreement as violative of any
Antitrust Law, each of Purchaser and the Company shall cooperate in all
respects with each other and use its respective reasonable best efforts to
contest and resist any such action or proceeding and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent, that is in effect and that prohibits,
prevents or restricts consummation of the transactions contemplated by this
Agreement. Notwithstanding the foregoing or any other provision of this
Agreement, nothing in this Section 5.2 shall limit a party's right to terminate
this Agreement pursuant to Section 6.2(d) so long as such party has up to then
complied in all material respects with its obligations under this Section 5.2.
(d) If any objections are asserted with respect to the
transactions contemplated hereby under any Antitrust Law or if any suit is
instituted by any Governmental Authority or any private party challenging any
of the transactions contemplated hereby as violative of any Antitrust Law, each
of Purchaser and the Company shall use its reasonable best efforts to resolve
any such objections or challenge as such Governmental Authority or private
party may have to such transactions under such Antitrust Law so as to permit
consummation of the transactions contemplated by this Agreement; provided,
however, that in no event shall Purchaser or Company be required to hold
separate (including by establishing a trust or otherwise) or to sell or
otherwise dispose of any of its respective assets or operations.
VI. CLOSING CONDITIONS
6.1. Conditions Precedent to Obligations of Purchaser.
The obligations of Purchaser to purchase the Common Stock pursuant to Section
2.2 hereof is subject to the condition that Purchaser shall have received, on
the Closing Date, the following, each dated as of the Closing Date unless
otherwise indicated, in form and substance satisfactory to Purchaser:
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<PAGE> 28
(a) Favorable opinions of Powell, Goldstein, Frazer &
Murphy LLP, counsel to Company, substantially in the form attached hereto as
Exhibit D, it being understood that to the extent that such opinion of counsel
to Company shall rely upon any other opinion of counsel, each such other
opinion shall be in form and substance reasonably satisfactory to Purchaser and
shall provide that Purchaser may rely thereon.
(b) Resolutions of the board of directors of Company,
certified by the Secretary or Assistant Secretary of Company, as of the Closing
Date, to be duly adopted and in full force and effect on such date, authorizing
(i) the consummation of each of the transactions contemplated by this Agreement
and (ii) specific officers to execute and deliver this Agreement and each other
Transaction Document to which it is a party.
(c) Governmental certificates, dated the most recent
practicable date prior to the Closing Date, with telegram updates where
available, showing that Company is organized and in good standing in the
jurisdiction of its organization and is qualified as a foreign corporation and
in good standing in all other jurisdictions in which it is qualified to
transact business.
(d) A copy of the organizational charter and all
amendments thereto of Company, certified as of a recent date by the Secretary
of State of the State of Delaware, and copies of Company's by-laws, certified
by the Secretary or Assistant Secretary of Company as true and correct as of
the Closing Date.
(e) The Registration Rights Agreement, the Stockholders
Agreement, the PCA Shell License Agreement and such other Transaction Documents
to be delivered on or prior to the Closing Date, duly executed by the parties
thereto.
(f) Certificates of the Secretary or an Assistant
Secretary of Company, dated the Closing Date, as to the incumbency and
signatures of the officers of Company executing this Agreement, the Common
Stock, each other Transaction Document to which it is a party and any other
certificate or other document to be delivered pursuant hereto or thereto,
together with evidence of the incumbency of such Secretary or Assistant
Secretary;
(g) Certificate of the President of Company, dated the
Closing Date, stating that all of the representations and warranties of Company
contained herein or in the other Transaction Documents are true and correct on
and as of the Closing Date as if made on such date and that no breach of any
covenant contained in Section V has occurred or would result from the Closing
hereunder;
(h) The Common Stock shall have been at all times since
the date of this Agreement and on the Closing Date listed for trading on the
NASDAQ;
(i) Resolutions of the board of directors of Company,
certified by the Secretary or Assistant Secretary of Company, as of the Closing
Date, to be duly adopted and in full force and effect on such date, authorizing
an increase in the number of
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<PAGE> 29
members constituting the board of directors of Company from its current seven
(7) to eight (8) and appointing Anthony C. Pizi (the "Purchaser Designee") to
serve as director; and
(j) Evidence reasonably satisfactory to Purchaser that
Purchaser Designee has been included in the current policies of directors' and
officers' liability insurance maintained by Company on the date hereof.
6.2. Additional Conditions of Purchaser. The obligation
of Purchaser to purchase the Common Stock pursuant to Section 2.2 is subject to
the additional conditions precedent that:
(a) Except as disclosed pursuant to Section IV hereof,
there shall not have occurred any event or condition since December 31, 1999
which could have a Material Adverse Effect.
(b) All of the representations and warranties of Company
contained herein or in the other Transaction Documents shall be true and
correct on and as of the Closing Date as if made on such date and no breach of
any covenant contained herein shall have occurred or would result from the
Closing hereunder.
(c) Company shall have delivered to Purchaser a letter
from Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five (5) days of the Closing Date.
(d) The Closing shall have occurred no later than
September 15, 2000.
6.3. Conditions Precedent to Obligations of Company. The
obligations of Company to sell the Common Stock pursuant to Section 2.2 hereof
is subject to the condition that Company shall have received, on the Closing
Date, the following, each dated as of the Closing Date unless otherwise
indicated, in form and substance satisfactory to Company:
(a) The Registration Rights Agreement, the Stockholders
Agreement, the PCA Shell License Agreement and such other Transaction Documents
to be delivered on or prior to the Closing Date, duly executed by the parties
thereto.
(b) Certificates of the Secretary or an Assistant
Secretary of Purchaser, dated as of the Closing Date, as to the incumbency and
signatures of the officers of Purchaser executing this Agreement and each other
Transaction Document to which it is a party and any other certificate or other
document to be delivered pursuant hereto or thereto, together with evidence of
the incumbency of such Secretary or Assistant Secretary.
(c) Certificate of an Executive Vice President or Senior
Vice President of Purchaser, dated as of the Closing Date, stating that all of
the representations and
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<PAGE> 30
warranties of Purchaser contained herein or in the other Transaction Documents
are true and correct on and as of the Closing Date as if made on such date.
6.4. Conditions Precedent to Obligations of Purchaser and
Company. The respective obligations of Purchaser and Company to consummate the
transactions contemplated by this Agreement are subject to the additional
conditions precedent that any applicable waiting period under the HSR Act
relating to the transactions contemplated by this Agreement shall have expired,
and all consents, waivers, approvals and authorizations required to be
obtained, and all filings or notices required to be, made by the Purchaser,
Company or any of their Subsidiaries under any other applicable Antitrust Law
in connection with the transactions contemplated in this Agreement shall have
been obtained from or made with all required governmental authorities, except
for such consents, waivers, approvals or authorizations which the failure to
obtain, or such filings or notices which the failure to make, would not have a
Material Adverse Effect on Purchaser or Company.
VII. INDEMNIFICATION
Company agrees to indemnify and hold harmless Purchaser and
its Affiliates and their respective officers, directors and employees from and
against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of
any kind ("Losses") which may be imposed upon, incurred by or asserted against
Purchaser or such other indemnified Persons in any manner relating to or
arising out of any untrue representation, breach of warranty or failure to
perform any covenants or agreement by Company contained herein or in any
certificate or document delivered pursuant hereto or otherwise relating to or
arising out of the transactions contemplated hereby. Notwithstanding the
foregoing, Company shall not be required to indemnify any Purchaser under the
terms of this Article VII with respect to any claim or violation for which
indemnification is expressly excluded under the Registration Rights Agreement.
VIII. EXPENSES
(a) Each of Purchaser and Company shall bear its own
expenses in connection with any amendment, modification or waiver, or consent
with respect to, any of the Transaction Documents.
(b) Company shall pay all reasonable out-of-pocket
expenses of Purchaser in connection with any attempt to enforce any rights of
Purchaser against Company, any Subsidiary of Company or any other Person, that
may be obligated to any Purchaser by virtue of any of the Transaction Documents
(including the reasonable fees and expenses of all of its counsel and
consultants retained in connection with the Transaction Documents and the
transactions contemplated thereby).
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IX. MISCELLANEOUS
9.1. Notices. Whenever it is provided herein that any
notice, demand, request, consent, approval, declaration or other communication
shall or may be given to or served upon any of the parties by another, or
whenever any of the parties desires to give or serve upon another any such
communication with respect to this Agreement, each such notice, demand,
request, consent, approval, declaration or other communication shall be in
writing and either shall be delivered in person with receipt acknowledged or by
registered or certified mail, return receipt requested, postage prepaid, or by
telecopy and confirmed by telecopy answerback addressed as follows:
If to Company:
Level 8 Systems, Inc.
8000 Regency Parkway
Cary, North Carolina 27511
Attn: Dennis McKinnie
Telecopy Number: (919) 461-2690
with a copy to:
Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street N.E., 16th Floor
Atlanta, Georgia 30303
Attn: Scott D. Smith, Esq.
Telecopy Number: (404) 572-6999
If to Purchaser:
Merrill Lynch, Pierce, Fenner & Smith Incorporated
4 World Financial Center
New York, New York 10080
Attn: John A. McKinley
Telecopy Number: (212) 449-8687
with copies to:
Mark B. Goldfus, Esq.
Merrill Lynch Corporate Law
222 Broadway, 17th Floor
New York, New York 10038
Telecopy Number: (212) 670-4518
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with copies to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Howard Chatzinoff, Esq.
S. Wade Angus, Esq.
Telecopy Number: (212) 310-8007
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback, or
three (3) Business Days after the same shall have been deposited with the
United States mail.
9.2. Binding Effect; Benefits. Except as otherwise
provided herein, this Agreement shall be binding upon and inure to the benefit
of the parties to this Agreement and their respective successors and permitted
assigns. Nothing in this Agreement, express or implied, is intended or shall be
construed to give any person other than the parties to this Agreement or their
respective successors or assigns any legal or equitable right, remedy or claim
under or in respect of any agreement or any provision contained herein.
9.3. Complete Agreement; Amendment. This Agreement,
together with the other Transaction Documents, constitutes the complete
agreement and understanding of the parties with respect to the subject matter
hereof and thereof and supersedes any previous agreement or understanding
between them relating thereto. No amendment or waiver of any provision of this
Agreement or any other Transaction Document nor consent to any departure by
Company therefrom, shall in any event be effective unless the same shall be in
writing and signed by Company and Purchaser, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given. No action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action, of compliance with any
representations, warranties, covenants or agreements contained herein. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any preceding or succeeding breach
and no failure by either party to exercise any right or privilege hereunder
shall be deemed a waiver of such party's rights or privileges hereunder or
shall be deemed a waiver of such party's rights to exercise the same at any
subsequent time or times hereunder.
9.4. Successors and Assigns; Assignability. Neither this
Agreement nor any right, remedy, obligation or liability arising hereunder or
by reason hereof shall be assignable by Company without the prior written
consent of Purchaser. Any right,
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<PAGE> 33
remedy, obligation or liability arising hereunder or by reason hereof shall be
assignable by Purchaser to (i) Merrill Lynch & Co. Foundation, Inc. or (ii) any
Affiliate of Purchaser without the prior written consent of Company, except the
obligation of Purchaser to purchase the Common Stock at Closing. All covenants
contained herein shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns.
9.5. Remedies. Purchaser, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific performance that
a remedy at law would be adequate. In any action or proceeding brought to
enforce any provision of this Agreement or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to any other available remedy.
9.6. Section and Other Headings. The section and other
headings contained in this Agreement are for reference purposes only and shall
not affect the meaning or interpretation of this Agreement.
9.7. Severability. In the event that any one or more of
the provisions contained in this Agreement shall be determined to be invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision or provisions in every other respect
and the remaining provisions of this Agreement shall not be in any way
impaired.
9.8. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be one and the same instrument.
9.9. Publicity. Neither Purchaser nor Company shall issue
any press release or make any public disclosure regarding the transactions
contemplated hereby unless such press release or public disclosure is approved
by the other party in advance. Notwithstanding the foregoing, each of the
parties hereto may, in documents required to be filed by it with the SEC or
other regulatory bodies, make such statements with respect to the transactions
contemplated hereby as each may be advised by counsel is legally necessary or
advisable, and may make such disclosure as it is advised by its counsel is
required by law.
9.10. Governing Law; Waiver of Jury Trial. This Agreement
shall be governed by, construed and enforced in accordance with, the laws of
the State of New York without regard to the principles thereof relating to
conflict of laws. Each of the parties hereby submits to personal jurisdiction
and waives any objection as to venue in the federal or state courts located in
the County of New York, State of New York. Service of process on the parties in
any action arising out of or relating to this Agreement shall be effective if
mailed to the parties in accordance with Section 9.1 hereof. The
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parties hereto waive all right to trial by jury in any action or proceeding to
enforce or defend any rights under this Agreement.
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[PURCHASE AGREEMENT SIGNATURE PAGE]
IN WITNESS WHEREOF, Company and Purchaser have executed this
Agreement as of the day and year first above written.
LEVEL 8 SYSTEMS, INC.
By: /s/ Dennis McKinnie
---------------------------------------
Name: Dennis McKinnie
Title: SVP
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:/s/ E. Stanley O'neal
----------------------------------------
Name: E. Stanley O'neal
Title: Executive Vice President
<PAGE> 36
EXHIBIT A to Purchase Agreement
FORM OF STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of ___________, 2000 (this
"Agreement"), by and among Level 8 Systems, Inc., a Delaware corporation having
an office at 8000 Regency Parkway, Cary, North Carolina 27511 ("Company"), and
those stockholders of Company set forth on Annex I hereto (individually, a
"Stockholder" and collectively, the "Stockholders").
W I T N E S S E T H :
WHEREAS, Company and Merrill Lynch, Pierce Fenner & Smith
Incorporated, a Delaware Corporation ("Purchaser"), have entered into that
certain Purchase Agreement, dated as of July 31, 2000 (the "Purchase
Agreement"), pursuant to which Company has agreed to sell, and Purchaser has
agreed to purchase, on the terms and subject to the conditions set forth
therein, 1,000,000 shares (the "Purchased Shares") of common stock of Company,
$0.001 par value per share ("Common Stock");
WHEREAS, each of the Stockholders party hereto (other than
Purchaser) are on the date hereof holders of the number of shares of Common
Stock as is set forth on Annex I hereto (such Stockholders, other than Purchaser
and its respective successors and assigns, the "Existing Stockholders"); and
WHEREAS, certain capitalized terms used in this Agreement and
not otherwise defined herein are used as such terms are defined in the Purchase
Agreement;
NOW, THEREFORE, in consideration of the agreements, premises
and mutual covenants contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Board of Directors.
(a) On the date hereof, and at each annual meeting of
stockholders or any special meeting called for the purpose of electing members
to the board of directors of Company (the "Board") (or by consent of
stockholders in lieu of any such meeting) or at such other time or times as the
stockholders pursuant to Company's certificate of incorporation and by-laws may
agree, so long as Purchaser owns shares of Common Stock equal to at least twenty
percent (20%) of the Purchased Shares, the Purchaser shall have the right to
nominate one (1) director (such nominee is hereinafter referred to as the
"Purchaser Designee") to the Board. Each of the Existing Stockholders shall vote
any and all of its shares of Common Stock entitled to vote in favor of the
election of the Purchaser Designee.
(b) No Existing Stockholder shall vote any shares of
Common Stock in favor of the removal of a director nominated by Purchaser
hereunder unless (i) the right of Purchaser so to nominate such director shall
no longer exist pursuant to Section 1(a) or
<PAGE> 37
(ii) Purchaser has terminated this Agreement in accordance with Section 5
hereof; provided, however, that upon the request of Purchaser to remove a
director previously designated for nomination by Purchaser, the Existing
Stockholders shall vote all of their shares of Common Stock in favor of (A) the
removal of such director and (B) the election of any replacement director as may
be designated by Purchaser, subject to the provisions of Section 1(a); and,
provided, further, that any such director may be removed by the Existing
Stockholders for cause in accordance with applicable law, provided that the
Purchaser shall be entitled to designate a successor to such director and the
Existing Stockholders shall vote all of their shares of Common Stock in favor of
the election of such replacement director, subject to the provisions of Section
1(a).
(c) So long as (i) Purchaser has the right to nominate a
director pursuant to Section 1(a) and (ii) Purchaser has not terminated this
Agreement in accordance with Section 5 hereof, each of the Stockholders agrees
to take such action in accordance with the terms of this Agreement, including
the voting of shares of Common Stock owned or controlled by such Stockholder, as
may be necessary to cause Company to have a Board consisting of eight (8)
directors. In no event shall there be more than eleven (11) directors
constituting the Board.
(d) If any vacancy occurs on the Board because of death,
incapacity, resignation, retirement or removal of the Purchaser Designee in
accordance with this Agreement, the Purchaser shall designate a successor to
such Purchaser Designee, and each Existing Stockholder shall vote its shares of
Common Stock in favor of the election of such successor to the Board, subject to
the provisions of Section 1(a).
(e) Neither Company nor any Existing Stockholder shall
give any proxy or power of attorney to any Person that permits the holder
thereof to vote in his discretion on any matter that may be submitted to
Company's stockholders for their consideration and approval, unless such proxy
or power of attorney is made subject to and is exercised in conformity with the
provisions of this Agreement.
(f) In the event Purchaser determines not to exercise its
rights under Section 1(a) to designate a member of the Board, Purchaser may
designate one individual (the "Observer") to attend any and all meetings of the
Board (and any committees thereof) in a non-voting observer capacity. The
Observer shall be entitled to receive all reports, presentations and materials
as if the Observer were a director on the Board.
(g) Company shall reimburse the Purchaser Designee or the
Observer, as the case may be, for any reasonable out-of-pocket expenses incurred
in connection with Purchaser Designee's or Observer's service on the Board and
committees thereof, which shall include travel expenses for attending Board
meetings and other travel expenses related to Company or the activities of the
Board.
(h) Company shall furnish to Purchaser Designee or the
Observer, as the case may be, the same information (in form and substance) that
it furnishes from time to time to the directors comprising its existing Board as
of the date hereof, including, but
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<PAGE> 38
not limited to: (i) all management letters of accountants relating to Company or
any of its subsidiaries; (ii) budget information; and (iii) any notices relating
to:
(1) the occurrence of any default or breach under any
material agreement to which Company or any of its subsidiaries is a party;
(2) the commencement of any material legal or regulatory
proceeding, action or investigation to which Company or any of its subsidiaries
is a party; and
(3) copies of any material regulatory requests,
documentation relating to governmental investigations, and governmental or
regulatory orders, decisions and rulings and any filings with the SEC.
2. Stockholders' Representations and Warranties. Each Stockholder
represents and warrants to each of the other Stockholders that there are no
agreements to which such Stockholder is a party with respect to the voting or
transfer of the capital stock of Company or with respect to any other aspect of
Company's affairs, other than (i) this Agreement and (ii) the agreements set
forth on Annex II attached hereto.
3. Stop Order; Transfer Agent Instructions. Except for any shares
of Common Stock (i) sold to the public as part of a registered public offering
in accordance with the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), including any applicable rules and regulations
promulgated thereunder, (ii) sold to the public in accordance with the
applicable provisions of Rule 144 promulgated under the Securities Act, or (iii)
distributed by any of Welsh, Carson, Anderson & Stowe VI, L.P., WCAS Information
Partners, L.P. and WCAS Capital Partners II, L.P. (each, a "Welsh Carson Party")
to any of such Welsh Carson Party's limited partners or any general partner
thereof not involved in the management of such Welsh Carson Party (such limited
or general partners, "Passive Investors") as part of an in-kind distribution of
the shares of Common Stock to all of such Welsh Carson Party's Passive
Investors, the Stockholders agree that their shares of Common Stock shall not be
transferable during the term of this Agreement until such time as any transferee
thereof executes and delivers to Company a counterpart signature page agreeing
to be bound by the terms of this Agreement. Company shall provide its transfer
agent with stop transfer orders in the form attached hereto as Exhibit A.
4. Equitable Relief. It is hereby acknowledged that irreparable
harm would occur in the event that any of the provisions of this Agreement were
not performed fully by the parties hereto in accordance with the terms specified
herein, and that monetary damages are an inadequate remedy for breach of this
Agreement because of the difficulty of ascertaining and quantifying the amount
of damage that will be suffered by the parties relying hereon in the event that
the undertakings and provisions contained in this Agreement were breached or
violated. Accordingly, each party hereto hereby agrees that each other party
hereto shall be entitled to an injunction or injunctions to restrain, enjoin and
prevent breaches of the undertakings and provisions hereof and to enforce
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<PAGE> 39
specifically the undertakings and provisions hereof in any court of the United
States or any state having jurisdiction over the matter; it being understood
that such remedies shall be in addition to, and not in lieu of, any other rights
and remedies available at law or in equity.
5. Termination by Purchaser. Purchaser may, in its sole
discretion, terminate this Agreement at any time by delivery of written notice
to Company (which termination shall be effective as of the date specified in
such written notice), whereupon all rights and obligations of Purchaser, the
Existing Stockholders and any other party that may become a Stockholder under
this Agreement shall terminate and be of no further force and effect.
6. Miscellaneous.
(a) Notices. Whenever it is provided herein that any notice,
demand, request, consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by another, or whenever any of
the parties desires to give or serve upon another any such communication with
respect to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged or by registered or certified
mail, return receipt requested, postage prepaid, or by telecopy and confirmed by
telecopy answerback addressed as follows:
If to Company:
Level 8 Systems, Inc.
8000 Regency Parkway
Cary, North Carolina 27511
Attn: Dennis McKinnie
Telecopy Number: (919) 461-2690
with a copy to:
Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street N.E., 16th Floor
Atlanta, Georgia 30303
Attn: Scott D. Smith, Esq.
Telecopy Number: (404) 572-6999
If to Purchaser:
Merrill Lynch, Pierce, Fenner & Smith Incorporated
4 World Financial Center
New York, New York 10080
Attn: John A. McKinley
Telecopy Number: (212) 449-8687
4
<PAGE> 40
with copies to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Howard Chatzinoff, Esq.
S. Wade Angus, Esq.
Telecopy Number: (212) 310-8007
If to any Existing Stockholder
To the address of such party appearing
under its or his name on Annex I hereto
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback, or
three (3) business days after the same shall have been deposited with the United
States mail.
(b) Complete Agreement; Amendment. This Agreement constitutes the
complete understanding of the parties with respect to its subject matter and
supersedes any other agreement or understanding relating thereto. No amendment,
change or modification of this Agreement shall be valid, binding or enforceable,
unless the same shall be in writing and signed by Purchaser and the Company and
the Existing Stockholders to the extent their rights and obligations under this
Agreement would be affected thereby.
(c) Waiver. No failure or delay on the part of the Stockholders or
Company or any of them in exercising any right, power or privilege hereunder,
and no course of dealing between the Stockholders or Company, shall operate as a
waiver thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude the simultaneous or later exercise of any other
right, power or privilege. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights and remedies which the Stockholders
or Company would otherwise have.
(d) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute but one and the same instrument.
(e) Governing Law; Jurisdiction; Waivers. This Agreement shall be
governed by, construed and enforced in accordance with the laws of the State of
Delaware without giving effect to the conflict of laws provisions thereof. Each
of the parties hereby submits to personal jurisdiction and waives any objection
as to venue in
5
<PAGE> 41
the County of New York, State of New York. Service of process on the parties in
any action arising out of or relating to this Agreement shall be effective if
mailed to the parties in accordance with Section 6(a) hereof. The parties hereto
waive all right to trial by jury in any action or proceeding to enforce or
defend any rights hereunder.
(f) Benefit and Binding Effect. All of the terms and provisions of
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns, including any permitted
transferee of their Common Stock (other than as part of (i) a registered
offering under the Securities Act, (ii) a sale to the public pursuant to Rule
144 promulgated under the Securities Act, or (iii) in the case of any Welsh
Carson Party, a distribution by such Welsh Carson Party to any of its Passive
Investors as an in-kind distribution of the shares of Common Stock to all of
such Welsh Carson Party's Passive Investors). References herein to Purchaser
shall include Purchaser and any of its successors and assigns.
(g) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(h) After-Acquired Shares. All of the provisions of this Agreement
shall apply to all of the shares of capital stock of Company now owned or which
may be issued to or acquired by a Stockholder in consequence of any additional
issuance (including, without limitation, by exercise of an option or any
warrant), purchase, exchange, conversion or reclassification of stock, corporate
reorganization, or any other form of recapitalization, consolidation, merger,
stock split or stock dividend, or which are acquired by a Stockholder in any
other manner.
(i) Approvals and Consents. The Stockholders hereby agree, for
themselves, their successors, heirs and legal representatives, to vote at
stockholders' and directors' meetings of Company, to prepare, execute and
deliver or cause to be prepared, executed and delivered such further instruments
and documents, to take such other actions and to adopt such by-laws and
provisions of the certificate of incorporation as may be reasonably required to
more effectively carry out the intent and purposes of this Agreement and the
transactions contemplated hereby. They further agree to cause Company to do the
same.
6
<PAGE> 42
[STOCKHOLDERS AGREEMENT SIGNATURE PAGE]
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
COMPANY:
LEVEL 8 SYSTEMS, INC.
By:
----------------------------------------
Name:
Title:
PURCHASER:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By:
----------------------------------------
Name:
Title:
EXISTING STOCKHOLDERS:
LIRAZ SYSTEMS LTD.
By:
----------------------------------------
Name:
Title:
LIRAZ EXPORT (1990) LTD.
By:
----------------------------------------
Name:
Title:
<PAGE> 43
[STOCKHOLDERS AGREEMENT SIGNATURE PAGE]
ADVANCED SYSTEMS EUROPE B.V.
By:
----------------------------------------
Name:
Title:
WELSH, CARSON, ANDERSON
& STOWE VI, L.P.
By: WCAS VI PARTNERS, L.P., General Partner
By:
----------------------------------------
Laura Van Buren
General Partner
WCAS INFORMATION PARTNERS, L.P.
By: WCAS INFO Partners, General Partner
By:
----------------------------------------
Laura Van Buren
General Partner
WCAS CAPITAL PARTNERS II, L.P.
By:
----------------------------------------
Laura Van Buren
General Partner
<PAGE> 44
ANNEX I
<TABLE>
<CAPTION>
Stockholders/Purchasers Class of Securities of Shares
----------------------- ------------------- ---------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith Common Stock 1,000,000
Incorporated
Merrill Lynch World Headquarters North Tower
World Financial Center
250 Vesey Street
New York, New York 10281
Liraz Systems Ltd. Common Stock 2,921,863
5 Hatzoref Street
Holon, 58856
Israel
Telecopy No. ____________
Liraz Export (1990) Ltd. Common Stock 821,257
5 Hatzoref Street
Holon, 58856
Israel
Telecopy No. ____________
Advanced Systems Europe B.V. Common Stock 1,000,000
5 Hatzoref Street
Holon, 58856 Preferred Stock 10,000
Israel
Telecopy No. ____________
WCAS PARTIES:
Welsh, Carson, Anderson & Stowe Common Stock 944,844
VI, L.P.
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue
New York, New York 10022
Telecopy No. 212-893-9536
WCAS Information Partners, L.P. Common Stock 11,290
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue
New York, New York 10022
Telecopy No. 212-893-9536
WCAS Capital Partners II, L.P. Common Stock ________
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue
New York, New York 10022
Telecopy No. 212-893-9536
</TABLE>
<PAGE> 45
ANNEX II
AGREEMENT WITH WELSH, CARSON, ANDERSON & STOWE RELATED TO THE PURCHASE
OF SEER
Level 8 purchased a majority interest in Seer Technologies, Inc.
pursuant to an "Agreement" dated November 23, 1998. The Agreement is
filed as Exhibit 2.1 to Seer Technologies, Inc.'s Annual Report on Form
10-K405, filed January 12, 1999. The agreement was among Level 8 and
twenty parties, all of whom were related to the Welsh, Carson, Anderson
& Stowe investment firm (the "WCAS Parties"). The agreement obligates
the WCAS Parties to grant proxies to Level 8 for all votes prior to
January 1, 2001. (Agreement Section 9.3.1).
AGREEMENTS RELATED TO LEVEL 8'S PURCHASE OF MOMENTUM SOFTWARE
CORPORATION
Level 8 purchased Momentum Software Corporation in February of 1998,
pursuant to an Agreement and Plan of Reorganization by and Among Level
8 Systems, Inc., Middleware Acquisition Corporation, Momentum Software
Corporation and Robert Brill, Bruns Grayson and Hubertus Vandervoort,
as Trustees of the Momentum Liquidating Trust, on Behalf of the
Securityholders of Momentum Software Corporation (the "Momentum
Purchase Agreement"), filed as Exhibit 10.42 to Level 8's Annual Report
on Form 10-K, filed March 31, 1998.
Section 5.14 of the Momentum Purchase Agreement provides that the Board
of Directors of Level 8 will take all actions necessary to maintain
Robert Brill on the Board until December 1, 2000.
The Momentum Purchase Agreement also provides for a voting agreement in
favor of Liraz. The form of that agreement shows that the Momentum
Liquidating Trust (the "Trust") was to enter into a Voting and Rights
Agreement with Liraz Systems, Ltd. as of March 26, 1998. The form
requires the Trust to vote all of its shares in accordance with Liraz'
instructions "to the extent necessary, pursuant to generally accepted
accounting principles in Israel, to permit Liraz to file consolidated
financial statements with Level 8."
LIRAZ - SOMECH VOTING COORDINATION AGREEMENT
In June of 1997 Liraz Systems, Inc. and Samuel Somech entered into a
Voting Coordination Agreement which provided for voting to elect Mr.
Somech and the candidates designated by Liraz to the Board, and
otherwise provided for
<PAGE> 46
coordinated voting to prevent any change in the structure of the
Company without the consent of both parties.
AGREEMENT RELATED TO INVESTMENT BY CANDLE CORPORATION
The Investment Agreement dated July 26, 1996, among Across Data
Systems, Inc. (predecessor to Level 8), Liraz Systems Ltd., and Candle
Corporation, filed as Exhibit 10.41 to the Company's Registration
Statement on Form S-1 filed November 4, 1996, allows Candle to
designate to Liraz and Level 8 an individual nominee to the Board of
Directors of Level 8 until the later of July 26, 1999 (three years from
the date of the agreement), or the date on which, in the good faith
judgment of Level 8's board, Candle and Level 8 cease to have
substantial, ongoing business relationships, including but not limited
to, the renewal or extension of:
1. The agency agreement for certain Candle products;
2. Candle's distribution rights and license of the
Falcon External Gateway; or
3. Candle's license to incorporate Level 8's DOT/XM.
Level 8 and Liraz are obligated to use all reasonable efforts to cause
the Candle designee to be elected to the Board. Despite the three year
minimum on Candle's right to designate a director nominee, the
agreement also provides that "[a]ny director so designated may be
removed from the board of directors with or without cause at any time
after the second anniversary of this agreement."
<PAGE> 47
EXHIBIT A
_____________ __, 2000
VIA FACSIMILE AND CERTIFIED MAIL
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Attention: Isaac Kagen or Rosie Rosenbloom
Re: Level 8 Systems, Inc.
Transfer Restriction Related to Voting Agreement
Ladies and Gentlemen:
I am Senior Vice President, Chief Legal and Administrative Officer and
Corporate Secretary of Level 8 Systems, Inc. (the "Company"). I am writing to
you in such capacity to advise you that each of the stockholders listed on
Schedule A attached hereto have entered into a stockholders agreement, dated as
of __________ ___, 2000, with the Company (the "Stockholders Agreement"). The
Stockholders Agreement applies to all of the shares of Level 8 Common Stock
owned by each of the listed stockholders, whether the shares are currently owned
or hereafter acquired, in accordance with the terms and conditions of the
Stockholders Agreement.
You are hereby authorized and directed to stop the transfer of any
shares of the Company's Common Stock held by any of the listed stockholders
unless and until the Company confirms to you in writing that it has received
from any transferee with respect to such shares a signed counterpart signature
page to the Stockholders Agreement.
Very truly yours,
Dennis McKinnie
Senior Vice President, Chief Legal and
Administrative Officer and Corporate Secretary
Enclosures
PGF&M 388088
<PAGE> 48
SCHEDULE A
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Liraz Systems Ltd.
Liraz Export (1990) Ltd.
Advanced Systems Europe B.V.
Welsh, Carson, Anderson & Stowe VI, L.P.
WCAS Information Partners, L.P.
WCAS Capital Partners II, L.P.
<PAGE> 49
EXHIBIT B to Purchase Agreement
FORM OF PCA SHELL LICENSE AGREEMENT
dated as of _______ __ 2000
by and between
LEVEL 8 SYSTEMS, INC.,
and
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
1
<PAGE> 50
FORM OF PCA SHELL LICENSE AGREEMENT
This agreement ("Agreement"), dated as of _________ __, 2000
("Effective Date"), is by and between Merrill, Lynch, Pierce, Fenner & Smith
Incorporated, a Delaware corporation having an office at Merrill Lynch World
Headquarters North Tower, World Financial Center, 250 Vesey Street, New York,
New York 10281 ("Merrill Lynch"), and Level 8 Systems, Inc., a Delaware
corporation having an office at 8000 Regency Parkway, Cary, North Carolina 27511
("Level 8").
WITNESSETH
WHEREAS, Merrill Lynch has developed and owns a software
product comprising a Seamless Application Interface Manager ("PCA Shell");
WHEREAS, Level 8 desires to license from Merrill Lynch and
Merrill Lynch desires to license to Level 8 upon the terms set out herein, the
PCA Shell; and
WHEREAS, Merrill Lynch and Level 8 are entering into a
Purchase Agreement of the same Effective Date as this Agreement relating to
their overall relationship;
NOW, THEREFORE, in consideration of the premises and mutual
covenants, agreements, representations and warranties contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is agreed as follows:
ARTICLE 1 - DEFINITIONS
When used in this Agreement, the capitalized terms listed in
this Article 1 shall have the following meanings:
1.1 "Affiliates" means, with respect to Merrill Lynch, (i) each
company that controls, is controlled by or is under common control with Merrill
Lynch or any Affiliate of Merrill Lynch, (ii) each company that Merrill Lynch,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, 30% or more of the equity having ordinary voting
power either in the election of directors of such company or otherwise in the
selection of the management of such company, or (iii) any trust or beneficiary
of a trust of which Merrill Lynch is the sole trustee. For the purpose of this
definition, "control" of a company shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise.
<PAGE> 51
1.2 "DOCUMENTATION" means logic diagrams, flow charts, working
papers, installation, instruction and operating manuals, and other written
materials relating to the PCA Shell and any component thereof, to the extent
reasonably required by each party to enable that party to perform its
obligations hereunder.
1.3 "INTELLECTUAL PROPERTY" means any rights available with
respect to the Technology under patent, copyright or trade secret law or any
other statutory provision or common law doctrine.
1.4 "PCA SHELL" means the so-called "PCA Shell" user
interface/infrastructure software developed by Merrill Lynch which incorporates
the inventions claimed in the Patent (as such term is hereafter defined in
Section 2.3(b)).
1.5 "SOFTWARE" means any computer software, including, but not
limited to, source code, object code, screens, user interfaces, report formats,
templates, menus, buttons and icons, and all user materials and manuals related
thereto.
1.6 "TECHNOLOGY" means, collectively, designs, formulas,
processes, algorithms, methods, techniques, ideas, know-how, research, Software,
programs, subroutines, tools, inventions, trade secrets, creations,
improvements, works of authorship and other similar materials, and all
recordings, graphs, drawings, reports, and other writings in any form whether or
not specifically listed herein, and all related technology, that are used in,
incorporated in, embodied in, or relate to the PCA Shell.
ARTICLE 2 - OWNERSHIP AND LICENSE
2.1 DELIVERY. Promptly after the Effective Date, Merrill Lynch
shall deliver to Level 8 the PCA Shell Software and Documentation.
2.2 OWNERSHIP.
(a) Merrill Lynch shall own all right, title and interest
in and to the Technology and Intellectual Property relating to the PCA Shell in
the form delivered to Level 8, and any improvements, enhancements or
modifications to the foregoing developed by Merrill Lynch. Merrill Lynch shall
also own all right, title and interest in and to the Technology and Intellectual
Property relating to the so-called "Distributed Computing Substrate"
architecture currently under development by Merrill Lynch as described in that
certain document referred to as the "Distributed Computing Substrate"
("Distributed Computing Substrate").
(b) Level 8 shall immediately and fully disclose to
Merrill Lynch any and all Technology discovered or developed by it solely, or
jointly with Merrill Lynch, and any modifications or enhancements made by Level
8 to the PCA Shell. Subject to Merrill
2
<PAGE> 52
Lynch's ownership rights set out in Section 2.2(a), Level 8 shall own all right,
title and interest in and to the Technology and Intellectual Property relating
to the PCA Shell discovered or developed by it solely, and any modifications or
enhancements made by Level 8 to the PCA Shell. Subject to Merrill Lynch's
ownership rights set out in Section 2.2(a), Merrill Lynch and Level 8 shall each
own an undivided one-half interest in and to the Technology and Intellectual
Property relating to the Technology discovered or developed jointly by Level 8
and Merrill Lynch, except that any patent rights relating to the Technology that
are jointly developed by Merrill Lynch and Level 8 shall be solely owned by
Merrill Lynch and Level 8 shall execute any assignments needed to give effect to
such ownership by Merrill Lynch.
2.3 MERRILL LYNCH LICENSES TO LEVEL 8. Merrill Lynch hereby grants
to Level 8, and Level 8 hereby accepts, the following royalty-free, fully paid,
nontransferable, worldwide, licenses, with the right to sublicense:
(a) a license to copy, display, use, modify and reproduce
the PCA Shell, including any improvements, enhancements or modifications thereto
developed during the term of this Agreement that Merrill Lynch, in its sole
discretion, provides to Level 8, and to distribute the PCA Shell to the public
pursuant to license agreements containing terms which are adequate to protect
the rights of Merrill Lynch in the PCA Shell; and
(b) a license to make, use, sell and offer to sell
products incorporating inventions claimed in U.S. Patent No. 5,878,258, entitled
"Seamless Application Interface Manager" (the "Patent"); and
(c) a nonexclusive license to copy, display, use, modify
and reproduce the Distributed Computing Substrate, including any improvements,
enhancements or modifications thereto developed during the term of this
Agreement that Merrill Lynch, in its sole discretion, provides to Level 8, and
to distribute the Distributed Computing Substrate to the public pursuant to
license agreements containing terms which are adequate to protect the rights of
Merrill Lynch in the Distributed Computing Substrate.
2.4 LEVEL 8 LICENSE TO MERRILL LYNCH. Level 8 hereby grants to
Merrill Lynch, and Merrill Lynch hereby accepts, a royalty-free, perpetual,
worldwide license to copy, display, use, modify and reproduce any Technology
developed by Level 8 and any modifications or enhancements made by Level 8 to
the PCA Shell, including any improvements, enhancements or modifications thereto
developed during or after the term of this Agreement, for any and all business
uses of Merrill Lynch and its Affiliates and subsidiaries.
2.5 EXCLUSIVITY PERIOD. The foregoing licenses with respect to the
PCA Shell, and the Patent granted by Merrill Lynch shall be exclusive, subject
to Section 2.7, for two years from the Effective Date (the "Exclusivity
Period"), after which such licenses shall be non-exclusive unless the average,
split-adjusted closing price of the common stock of Level 8 over a period of 60
consecutive trading days during the Exclusivity Period is greater than or equal
to $120 per share (the "Target Price").
3
<PAGE> 53
Notwithstanding the aforementioned provision, if during the Exclusivity Period
(i) the Target Price is not achieved for the requisite time period but (ii) the
average closing price of the Dow Jones Industrial Average over a period of 60
consecutive trading days during the Exclusivity Period is less than 5,000, then
the Exclusivity Period shall be extended for one additional year, for a maximum
total Exclusivity Period of three years subject to further extensions as may be
agreed upon in writing by the parties. If Level 8 common stock achieves the
above mentioned Target Price, the PCA Shell and Patent licenses shall become
exclusive in perpetuity. For avoidance of doubt, the lapse of exclusivity shall
apply only to the PCA Shell as delivered pursuant to Section 2.1.
Notwithstanding the foregoing, Merrill Lynch shall have the rights: (i) to
continue development of the PCA Shell Software independently of Level 8's
development efforts after the Effective Date; (ii) to copy, display, use, modify
and reproduce the modifications and improvements that Merrill Lynch
independently develops; and (iii) subject to the exclusivity with respect to the
PCA Shell and the Patent granted pursuant to this Section 2.5, to distribute
such modifications and improvements to the public.
2.6 ENFORCEMENT DURING THE EXCLUSIVITY PERIOD. During the
Exclusivity Period, Merrill Lynch shall have the initial right, but not the
obligation, for a period of 60 days commencing upon the discovery of an alleged
infringer of the Patent to enforce the Patent against the alleged infringer. The
discovery of an alleged infringer of the Patent shall mean the receipt of a
written legal opinion from counsel of Merrill Lynch's choice, in its sole
discretion, that the Patent has been infringed. If Merrill Lynch decides, in its
sole discretion, not to enforce the Patent against such alleged infringer, the
right to enforce the patent against the alleged infringer shall be transferred
to Level 8, except to the extent that the activities of the alleged infringer
are on behalf of Merrill Lynch in support of its business activities relating to
the PCA Shell.
2.7 RESERVATION OF RIGHTS. Notwithstanding any provision to the
contrary, Merrill Lynch hereby reserves the right (i) to copy, display, use,
modify and reproduce the PCA Shell, and (ii) to make, have made and use products
incorporating inventions claimed in the Patent, for its own business uses and
the business uses of its Affiliates and subsidiaries.
2.8 MARKING. Level 8 shall mark any product containing the PCA
Shell or any inventions covered by the Patent with a notice containing
reasonable text which shall be provided by Merrill Lynch.
ARTICLE 3 - PROPRIETARY INFORMATION
3.1 DURATION. The provisions of this Article 3 shall survive the
termination of this Agreement for a period of five years thereafter.
3.2 APPLICATION OF MUTUAL NON-DISCLOSURE AGREEMENT. Except where
expressly and specifically stated to the contrary in this Agreement or in the
Master
4
<PAGE> 54
License Agreement between Merrill Lynch and Seer Technologies, Inc.,
predecessor in interest to Level 8, dated October 24, 1996, the terms and
conditions set forth in paragraphs 1, 2, 3, 4 (first paragraph only), 5 and 7 of
the Mutual Non-Disclosure Agreement dated July 1, 1999 between Merrill Lynch and
Level 8 shall apply to any and all information disclosed pursuant to the terms
of this Agreement.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES. Each party hereby represents,
warrants and covenants to the other party that it has full corporate power and
authority to enter into this Agreement, and the execution by it of this
Agreement and the consummation by it of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate actions; the
execution and delivery of this Agreement, and the consummation of the
transactions contemplated by this Agreement, do not conflict with or violate:
(i) its charter documents or by-laws; (ii) any contract or agreement to which it
is a party, by which it or any of its affiliates is bound, or to which any of
its assets are subject; or (iii) any applicable law or the order of any court or
governmental authority. Merrill Lynch hereby represents and warrants that it has
sufficient rights in the PCA Shell Software to grant the rights described herein
and has not previously and will not grant any rights in the PCA Shell Software
to any third party that are inconsistent with the rights granted to Level 8
herein. Merrill Lynch further represents and warrants that to its knowledge the
PCA Shell Software does not infringe any patents, copyrights, trade secret
rights, trademarks or other proprietary rights held by any third party.
4.2 LIMITATIONS; DISCLAIMER OF WARRANTIES. EXCEPT AS SET FORTH IN
THE MASTER LICENSE AGREEMENT, THE FOLLOWING LIMITATIONS AND DISCLAIMERS SHALL
APPLY:
(a) IN NO EVENT SHALL MERRILL LYNCH OR ITS AFFILIATES OR SUPPLIERS BE
LIABLE FOR PROSPECTIVE PROFITS, OR ANY SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF (i) THE USE OR DISTRIBUTION OF ANY
PCA SHELL SOFTWARE, THE DISTRIBUTED COMPUTING SUBSTRATE OR
DOCUMENTATION PROVIDED BY MERRILL LYNCH, IN WHOLE OR IN PART, OR ANY
EXECUTABLE SOFTWARE OR LEVEL 8 SOFTWARE, BY LEVEL 8 OR ANY THIRD PARTY,
(ii) THE MANUFACTURING OF PRODUCTS BY LEVEL 8 WHICH INCLUDE THE PCA
SHELL SOFTWARE AND/OR THE DISTRIBUTED COMPUTING SUBSTRATE, IN WHOLE OR
IN PART, OR ANY OF THE INTELLECTUAL PROPERTY RIGHTS LICENSED UNDER THIS
AGREEMENT, OR (iii) THE USE OF SUCH PRODUCTS BY LEVEL 8 OR ANY END
USER, WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE),
INDEMNITY, PRODUCT LIABILITY OR OTHERWISE. IN NO EVENT SHALL MERRILL
LYNCH'S LIABILITY
5
<PAGE> 55
ARISING UNDER THIS AGREEMENT, INCLUDING WITHOUT LIMITATION ANY
LIABILITY FOR DIRECT DAMAGES, EXCEED THE FAIR MARKET VALUE ON THE
EFFECTIVE DATE, OF THE SECURITIES RECEIVED BY MERRILL LYNCH PURSUANT TO
SUCH PURCHASE AGREEMENT.
(b) NEITHER MERRILL LYNCH, NOR ANY AFFILIATE, NOR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, SHALL BEAR ANY RISK, OR HAVE
ANY RESPONSIBILITY OR LIABILITY, OF ANY KIND TO LEVEL 8 OR TO ANY THIRD
PARTIES WITH RESPECT TO (i) THE QUALITY AND/OR PERFORMANCE OF ANY
PORTION OF THE PCA SHELL SOFTWARE, THE DISTRIBUTED COMPUTING SUBSTRATE
AND DOCUMENTATION, (ii) THE INTELLECTUAL PROPERTIES RIGHTS LICENSED BY
MERRILL LYNCH HEREUNDER, OR (iii) ANY PRODUCTS INCORPORATING ANY OF THE
FOREGOING, IN WHOLE OR IN PART, INCLUDING, WITHOUT LIMITATION, THE
OPERATION OR PERFORMANCE OF ANY OF SUCH PRODUCTS.
(c) NEITHER DOES MERRILL LYNCH NOR ITS AFFILIATES AND SUPPLIERS MAKE, NOR
DOES LEVEL 8 RECEIVE, ANY WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED OR
STATUTORY REGARDING THE PCA SHELL SOFTWARE, THE DISTRIBUTED COMPUTING
SUBSTRATE AND/OR THE INTELLECTUAL PROPERTY RIGHTS LICENSED BY MERRILL
LYNCH HEREUNDER EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MERRILL LYNCH AND ITS
AFFILIATES AND SUPPLIERS EXPRESSLY DISCLAIM THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND THEIR
EQUIVALENTS UNDER THE LAWS OF ANY JURISDICTION, REGARDING THE PCA SHELL
SOFTWARE, THE DISTRIBUTED COMPUTING SUBSTRATE AND DOCUMENTATION. ANY
WARRANTY AGAINST INFRINGEMENT THAT MAY BE PROVIDED IN SECTION 2-312(3)
OF THE UNIFORM COMMERCIAL CODE AND/OR IN ANY OTHER COMPARABLE STATE
STATUTE IS EXPRESSLY DISCLAIMED.
ARTICLE 5 - TERMINATION
5.1 TERMINATION BY EITHER PARTY. Either party may terminate this
Agreement, effective immediately upon receipt of notice of termination by the
other party, in the event that the other party defaults on the performance or
observance of any of the material terms or material conditions of this Agreement
(including without limitation, a breach of warranty or of an obligation with
respect to the maintenance of
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<PAGE> 56
confidentiality), which default is not remedied within thirty (30) days after
written notice specifying the nature of the default is received.
ARTICLE 6 - EFFECTS OF TERMINATION
6.1 LICENSES. Upon the termination of this Agreement, (i) all
licenses granted by one party to the other (and permitted sublicenses granted to
third parties) shall survive, but neither party shall have any further rights to
grant sublicenses under the other party's Technology or Intellectual Property to
third parties or to distribute the other party's Software to any third party,
and (ii) notwithstanding any provision of this Agreement to the contrary, any
exclusive licenses granted to Level 8 under this Agreement by Merrill Lynch
shall immediately become non-exclusive.
6.2 SURVIVAL PROVISIONS OF AGREEMENT. In the event of any
termination of this Agreement, the provisions of Articles 2 (OWNERSHIP AND
LICENSE), 3 (PROPRIETARY INFORMATION AND RIGHTS), 4 (REPRESENTATIONS AND
WARRANTIES), 6 (EFFECTS OF TERMINATION), 8 (INDEMNIFICATION BY MERRILL LYNCH)
AND 9 (DISPUTE RESOLUTION) shall survive and continue in effect as set forth
therein and shall inure to the benefit of and be binding upon the parties and
their legal representatives, heirs, successors, and permitted assigns.
ARTICLE 7 - FORCE MAJEURE
7.1 LIMITATION ON LIABILITY. Neither party shall be liable to the
other party for any failure or delay in performance under this Agreement, and
such failure or delay shall not constitute a default under or breach of this
Agreement, for any period and to the extent that the failure or delay is due in
whole or in part to any cause beyond its reasonable control, including but not
limited to, action or inaction of governmental, civil or military authority,
changes in federal, state or local statutes, rules or regulations, delays in
transportation, sources of supply, material shortages, third party labor
difficulties, accidents, acts of God, fire, flood, war, riot, earthquake or any
other force majeure.
ARTICLE 8 - INDEMNIFICATION BY MERRILL LYNCH
8.1 INDEMNIFICATION BY MERRILL LYNCH. Subject to Section 8.3,
Merrill Lynch (the "Indemnifying Party") shall indemnify Level 8 (the
"Indemnified Party") and its affiliates against, and hold them harmless from,
any and all claims, losses, deficiencies, damages, liabilities, costs, and
expenses (including without limitation reasonable attorneys' fees and all
related costs and expenses) ("Losses") incurred by the
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Indemnified Party as a result of any third party claim, judgment or adjudication
against them arising from a breach by Merrill Lynch of its representations and
warranties contained herein.
8.2 LIMITATION. The indemnities in Sections 8.1 shall not apply:
(a) if the Indemnified Party fails to give the Indemnifying Party prompt notice
of any claim it receives and such failure materially prejudices the Indemnifying
Party, (b) if the Indemnified Party fails to provide reasonable information and
cooperation to the Indemnifying Party in connection with the litigation or
settlement of a third party claim; or (c) unless the Indemnifying Party is given
the opportunity to approve any settlement, which approval shall not be
unreasonably withheld; provided, however, that if the Indemnifying Party
unreasonably withholds such approval, it shall, at the option of the Indemnified
Party, be required to assume the defense of such claim at its own expense.
8.3 LIMITATION ON DAMAGES. MERRILL LYNCH SHALL HAVE NO
INDEMNIFICATION OBLIGATIONS RELATING TO THIS AGREEMENT OTHER THAN THOSE SET
FORTH IN SECTION 8.1, AND IN NO EVENT SHALL MERRILL LYNCH BE LIABLE UNDER THIS
AGREEMENT FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING
OUT OF OR IN CONNECTION WITH THIS AGREEMENT.
ARTICLE 9 - DISPUTE RESOLUTION
9.1 The parties shall attempt to resolve in good faith any claim,
controversy or other dispute arising out of or relating to this Agreement. Any
such dispute which cannot be resolved informally shall be submitted in writing
to the Merrill Lynch Project Manger (as of the Effective Date, Elizabeth Lerner)
and the Level 8 Project Manager (as of the Effective Date, ___________), who
shall attempt to resolve the dispute within seven calendar days of such
submission. Neither party may take any other action to resolve the dispute
during such seven calendar days.
ARTICLE 10 MISCELLANEOUS
10.1 NOTICES. Whenever it is provided herein that any notice,
demand, request, consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by another, or whenever any of
the parties desires to give or serve upon another any such communication with
respect to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged or by registered or certified
mail, return receipt requested, postage prepaid, or by telecopy and confirmed by
telecopy answerback addressed as follows:
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If to Level 8:
Level 8 Systems, Inc.
8000 Regency Parkway
Cary, North Carolina 27511
Attn: Dennis McKinnie________
Telecopy Number: (919) 380-5005
with a copy to:
Scott Smith
Powell Goldstein Frazer & Murphy
191 Peachtree Street, 16th Floor
Atlanta, Georgia 30303
Telecopy Number: (404) 572-6875
If to Merrill Lynch:
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters North Tower
World Financial Center
250 Vesey Street
New York, New York 10281
Attn:____________________________
Telecopy Number: (212) ___-____
with copies to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Howard Chatzinoff, Esq.
S. Wade Angus, Esq.
Telecopy Number: (212) 310-8007
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback, or
three (3) business days after the same shall have been deposited with the United
States mail.
10.2 Binding Effect; Benefits. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties to
this Agreement and their respective successors and permitted assigns. Nothing in
this Agreement,
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express or implied, is intended or shall be construed to give any person other
than the parties to this Agreement or their respective successors or assigns any
legal or equitable right, remedy or claim under or in respect of any agreement
or any provision contained herein.
10.3 Complete Agreement; Amendment. This Agreement constitutes the
complete agreement and understanding of the parties with respect to the subject
matter hereof and thereof and supersedes any previous agreement or understanding
between them relating thereto. No amendment or waiver of any provision of this
Agreement nor consent to any departure by a party therefrom, shall in any event
be effective unless the same shall be in writing and signed by a party hereto,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action, of compliance with any representations, warranties, covenants or
agreements contained herein. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
preceding or succeeding breach and no failure by either party to exercise any
right or privilege hereunder shall be deemed a waiver of such party's rights or
privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder.
10.4 Assignability. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by Level 8 without Merrill Lynch's prior written approval.
10.5 Section and Other Headings. The section and other headings
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
10.6 Written Approval. All approvals and/or consents required by a
party to this Agreement must be requested by such party in writing to the other
party, and all approvals or consents shall not be effective unless in writing.
10.7 Severability. In the event that any one or more of the
provisions contained in this Agreement shall be determined to be invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision or provisions in every other respect
and the remaining provisions of this Agreement shall not be in any way impaired.
10.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
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10.9 Publicity. Neither party shall issue any press release or make
any public disclosure regarding the transactions contemplated hereby unless such
press release or public disclosure is approved by the other party in advance.
10.10 Governing Law; Waiver of Jury Trial. This Agreement shall be
governed by, construed and enforced in accordance with, the laws of the State of
New York without regard to the principles thereof relating to conflict of laws.
Each of the parties hereby submits to personal jurisdiction and waives any
objection as to venue in the federal or state courts located in the County of
New York, State of New York. Service of process on the parties in any action
arising out of or relating to this Agreement shall be effective if mailed to the
parties in accordance with Section 10.1 hereof. The parties hereto waive all
right to trial by jury in any action or proceeding to enforce or defend any
rights under this Agreement.
10.11 No Partnership or Joint Venture. The relationship between
Merrill Lynch and Level 8 is that of licensor and licensee. Level 8 is an
independent contractor and is not the legal representative, agent, joint
venturer, partner or employee of Merrill Lynch for any purpose whatsoever.
Neither party has any right or authority to assume or create any obligations of
any kind or to make any representation or warranty on behalf of the other party,
whether express or implied, or to bind the other party in any respect
whatsoever.
10.12 Construction. This Agreement shall be fairly interpreted in
accordance with its terms and without any strict construction in favor of or
against either of the parties.
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IN WITNESS WHEREOF, Merrill Lynch and Level 8 have executed this Agreement as of
the day and year first above written.
LEVEL 8 SYSTEMS, INC.
By:
------------------------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
------------------------------------------
Name:
Title:
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EXHIBIT C to Purchase Agreement
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
_______ __, 2000, by and among Level 8 Systems, Inc., a Delaware corporation
("Company"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware
corporation ("Purchaser").
W I T N E S S E T H :
WHEREAS, Company and Purchaser have entered into that certain
Purchase Agreement, dated as of July 31, 2000 (the "Purchase Agreement"),
pursuant to which Company has agreed to issue and sell to Purchaser, and
Purchaser has agreed to purchase from Company, shares of common stock of the
Company, $0.001 par value per share ("Common Stock"); and
WHEREAS, in order to induce Purchaser to (i) enter into the
Purchase Agreement and purchase such shares of Common Stock and (ii) enter into
the other agreements contemplated under the Purchase Agreement in connection
with the issuance of the shares of Common Stock, Company has agreed to provide
registration rights with respect to the shares of Common Stock issued to
Purchaser pursuant to the Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and the
covenants hereinafter contained, it is agreed as follows:
1. Definitions. Unless otherwise defined herein, terms defined
in the Purchase Agreement are used herein as therein defined, and the following
shall have (unless otherwise provided elsewhere in this Agreement) the following
respective meanings (such meanings being equally applicable to both the singular
and plural form of the terms defined):
"Agreement" shall mean this Registration Rights Agreement,
including all amendments, modifications and supplements and any exhibits or
schedules to any of the foregoing, and shall refer to the Agreement as the same
may be in effect at the time such reference becomes operative.
"Business Day" shall mean any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and other
federal securities laws.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
<PAGE> 63
"Holder" shall mean each of Purchaser, any affiliates thereof
or other permitted assigns holding shares of Common Stock issued pursuant to the
Purchase Agreement.
"NASD" shall mean the National Association of Securities
Dealers, Inc., or any successor corporation thereto.
"Registrable Securities" shall mean the shares of Common Stock
acquired by Purchaser pursuant to the terms of the Purchase Agreement.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
2. Required Registration. (a) After receipt of a written
request from the Holders of Registrable Securities requesting that Company
effect a registration under the Securities Act covering at least thirty (30%)
percent of the Registrable Securities outstanding as of the date hereof, and
specifying the intended method or methods of disposition thereof, Company shall
promptly notify all Holders in writing of the receipt of such request and each
such Holder, in lieu of exercising its rights under Section 3 may elect (by
written notice sent to Company within ten (10) Business Days from the date of
such Holder's receipt of the aforementioned Company's notice) to have
Registrable Securities included in such registration thereof pursuant to this
Section 2. Thereupon Company shall, as expeditiously as is possible, use its
best efforts to effect the registration under the Securities Act of all shares
of Registrable Securities which Company has been so requested to register by
such Holders for sale, all to the extent required to permit the disposition (in
accordance with the intended method or methods thereof, as aforesaid) of the
Registrable Securities so registered; provided, however, that, subject to the
provisions of Section 2(b) hereof, Company shall not be required to effect more
than three (3) registrations of any Registrable Securities pursuant to this
Section 2. The rights of the Holders under this Section 2 shall not become
effective until ninety (90) days after the date hereof. Any such registration
effectuated pursuant to the terms of this Section 2 shall hereinafter be
referred to as a "Demand Registration."
(b) In the event a Demand Registration is (i) requested by the
Holders in accordance with the terms of this Section 2 and (ii) any security
holders of Company exercise any incidental registration rights to participate in
such Demand Registration, such that the number of Registrable Securities
included in such registration statement is reduced to less than seventy-five
percent (75%) of the total number of Registrable Securities contained in the
written request submitted by the Holders pursuant to a Demand Registration (the
"Minimum Level"), then the Holders shall receive one (1) additional Demand
Registration pursuant to Section 2(a), exercisable in the same manner as the
other Demand Registration rights granted to the Holders pursuant thereto;
provided, however, that the Holders shall only be entitled to one (1) additional
Demand Registration under this Section 2, notwithstanding that the number of
Registrable Securities of such Holders included in a registration statement
filed pursuant to a Demand
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Registration may be reduced below the Minimum Level in a subsequent Demand
Registration.
3. Incidental Registration. If Company at any time proposes to
file on its behalf and/or on behalf of any of its security holders (the
"demanding security holders") a registration statement under the Securities Act
on any form (other than a registration statement on Form S-4 or S-8 or any
successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act or to employees of Company
pursuant to any employee benefit plan, respectively) for the general
registration of securities (a "Registration Statement"), it will give written
notice to all Holders at least twenty (20) Business Days prior to the initial
filing with the Commission of such Registration Statement, which notice shall
set forth the intended method of disposition of the securities proposed to be
registered by Company. The notice shall offer to include in such filing the
aggregate number of shares of Registrable Securities as such Holders may
request.
Each Holder desiring to have Registrable Securities registered
under this Section 3 shall advise Company in writing within ten (10) Business
Days after the date of receipt of such offer from Company, setting forth the
amount of such Registrable Securities for which registration is requested.
Company shall thereupon include in such filing the number of shares of
Registrable Securities for which registration is so requested, subject to the
next sentence, and shall use its best efforts to effect registration under the
Securities Act of such shares. If the managing underwriter of a proposed public
offering shall advise Company in writing that, in its opinion, the distribution
of the Registrable Securities requested to be included in the registration
concurrently with the securities being registered by Company or such demanding
security holder would materially and adversely affect the distribution of such
securities by Company or such demanding security holder, then all selling
security holders (including the demanding security holder who initially
requested such registration, but not the Company) shall reduce the amount of
securities each intended to be distributed through such offering on a pro rata
basis (which reduced amount may be zero). Except as otherwise provided in
Section 5, all expenses of such registration shall be borne by Company.
4. Registration Procedures. If Company is required by the
provisions of Section 2 or 3 to use its best efforts to effect the registration
of any of its securities under the Securities Act, Company will, as
expeditiously as possible:
(a) prepare and file with the Commission a
Registration Statement with respect to such securities and use its best efforts
to cause such Registration Statement to become and remain effective for a period
of time required for the disposition of such securities by the holders thereof,
but not to exceed one hundred and eighty (180) days;
(b) prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective and to
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comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such Registration Statement until
the earlier of such time as all of such securities have been disposed of in a
public offering or the expiration of one hundred and eighty (180) days;
(c) furnish to such selling security holders such
number of copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents, as such selling security holders may reasonably
request;
(d) use its best efforts to register or qualify the
securities covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions within the United States and Puerto Rico as
each holder of such securities shall reasonably request to the extent such
registration or qualification is required in such jurisdictions (provided,
however, that Company shall not be obligated to qualify as a foreign corporation
to do business under the laws of any jurisdiction in which it is not then
qualified or to file any general consent to service or process), and do such
other reasonable acts and things as may be required of it to enable such holder
to consummate the disposition in such jurisdiction of the securities covered by
such Registration Statement;
(e) furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to Section 2, on the date that
such shares of Registrable Securities are delivered to the underwriters for sale
pursuant to such registration or, if such Registrable Securities are not being
sold through underwriters, on the date that the Registration Statement with
respect to such shares of Registrable Securities becomes effective, (1) an
opinion, dated such date, of the independent counsel representing Company for
the purposes of such registration, addressed to the underwriters, if any, and if
such Registrable Securities are not being sold through underwriters, then to the
Holders making such request, in customary form and covering matters of the type
customarily covered in such legal opinions; and (2) a comfort letter dated such
date, from the independent certified public accountants of Company, addressed to
the underwriters, if any, and if such Registrable Securities are not being sold
through underwriters, then to the Holder making such request and, if such
accountants refuse to deliver such letter to such Holder, then to Company, in a
customary form and covering matters of the type customarily covered by such
comfort letters and as the underwriters or such Holder shall reasonably request;
(f) enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities; and
(g) notify the Holders as promptly as practicable
upon the occurrence of any event as a result of which the prospectus included in
a Registration Statement, as then in effect, contains an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein
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not misleading in light of the circumstances then existing, and as promptly as
possible, prepare, file and furnish to each Holder a reasonable number of copies
of a supplement or an amendment to such prospectus as may be necessary so that
such prospectus does not contain an untrue statement of material fact or omits
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
provided, however, that the Company may delay preparing, filing and distributing
any such supplement or amendment if the Board of Directors of the Company
determines in good faith that such supplement or amendment could, in its
reasonable judgment, (i) interfere with or adversely affect the negotiation or
completion of a transaction that is being contemplated by the Company or (ii)
involve initial or continuing disclosure obligations that are not in the best
interests of the Company's stockholders at the time; provided, further, that (w)
the Company will give notice (a "Standstill Notice") of any such delay prior to
such delay, (x) such delay shall not extend for a period of more than thirty
(30) days without the written consent of the Holders, (y) the Company may
utilize such delay no more than two (2) times or for an aggregate of more than
sixty (60) days in any period of two hundred and seventy (270) consecutive days
and (z) the period of effectiveness of the Registration Statement provided for
herein shall be extended by the number of days from and including the date of
the giving of a Standstill Notice to and including the date when the Company
shall have delivered to the Holders copies of such supplement or amendment
pursuant to this Section 4(g).
(h) provide each Holder and its representatives the
opportunity to conduct reasonable inquiry of the Company's financial and other
records during normal business hours and make available its officers, directors
and employees for questions regarding information which such Holder may
reasonably request in order to conduct any due diligence.
(i) permit counsel for each Holder to review a registration
Statement covering Registrable Securities and all amendments and supplements
thereto a reasonable period of time prior to the filing thereof with the
Commission.
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, but not later than eighteen
(18) months after the effective date of the Registration Statement, an earnings
statement covering the period of at least twelve (12) months beginning with the
first full month after the effective date of such Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
It shall be a condition precedent to the obligation of Company to take
any action pursuant to this Agreement in respect of the securities which are to
be registered at the request of any Holder that such Holder shall furnish to
Company such information regarding the securities held by such Holder and the
intended method of disposition thereof as Company shall reasonably request and
as shall be required in connection with the action taken by Company.
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5. Expenses. All expenses incident to the Company's compliance
with the terms of this Agreement, including, without limitation, all
registration and filing fees (including all expenses incident to filing with the
NASD), printing expenses, fees and disbursements of counsel for Company, the
reasonable fees and expenses of one counsel for the selling security holders
(selected by those holding a majority of the shares being registered), expenses
of any special audits incident to or required by any such registration and
expenses of complying with the securities or blue sky laws of any jurisdiction
pursuant to Section 4(d), shall be paid by Company, except that:
(a) all such expenses in connection with any
amendment or supplement to the Registration Statement or prospectus filed more
than one hundred and eighty (180) days after the effective date of such
Registration Statement because any Holder has not effected the disposition of
the securities requested to be registered shall be paid by such Holder; and
(b) Company shall not be liable for any fees,
discounts or commissions to any underwriter or any fees or disbursements of
counsel for any underwriter in respect of the securities sold by such Holder.
(c) any incremental expenses incurred by Company as a
result of the inclusion of a Holder's Registrable Securities in an underwritten
offering where the Holder or any of its Affiliates is an underwriter of the
Registrable Securities which, inclusion of such Holder's Registrable Securities,
requires a "qualified independent underwriter" under the applicable rules of the
National Association of Securities Dealers, Inc. shall be paid by Holder.
6. Indemnification and Contribution.
(a) In the event of any registration of any Registrable
Securities under the Securities Act pursuant to this Agreement, Company shall
indemnify and hold harmless the holder of such Registrable Securities, such
holder's directors and officers, and each other person (including each
underwriter) who participated in the offering of such Registrable Securities and
each other person, if any, who controls such holder or such participating person
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such holder or any such director or
officer or participating person or controlling person may become subject under
the Securities Act or any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any alleged untrue statement of any material fact
contained, on the effective date thereof, in any Registration Statement under
which such securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or (ii) any alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and shall reimburse such holder or such director, officer or participating
person or controlling person for any legal or any other expenses reasonably
incurred by such holder or such director, officer or participating person or
controlling person in
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connection with investigating or defending any such loss, claim, damage,
liability or action. Notwithstanding anything to the contrary set forth in this
Section 6(a), Company shall not be liable to indemnify any person in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon (1) any actual or alleged untrue statement or actual or alleged
omission either (x) made in such Registration Statement, preliminary prospectus,
prospectus or amendment or supplement in reliance upon and in conformity with
written information furnished to Company by such holder specifically for use
therein or (in the case of any registration pursuant to Section 2) so furnished
for such purposes by any underwriter or (y) that had been corrected in a
preliminary prospectus, prospectus supplement or amendment which had been
furnished to such Holder prior to any distribution of the document alleged to
contain the untrue statement or omission to offerees or purchasers, (2) any
offer or sale of Registrable Securities after receipt by such Holder of a
Standstill Notice under Section 4(g) and prior to the delivery of the prospectus
supplement or amendment contemplated by Section 4(g), or (3) Holder's failure to
comply with the prospectus delivery requirements under the Securities Act or
failure to distribute its Registrable Securities in a manner consistent with the
its intended plan of distribution as provided to Company and disclosed in the
Registration Statement. Notwithstanding the foregoing, Company shall not be
required to indemnify any person for amounts paid in settlement of any claim
without the prior written consent of Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such holder or such
director, officer or participating person or controlling person, and shall
survive the transfer of such securities by such holder.
(b) Each Holder, by acceptance hereof, agrees to indemnify and
hold harmless Company, its directors and officers and each person who
participated in such offering and each other person, if any, who controls
Company within the meaning of the Securities Act against any losses, claims,
damages or liabilities, joint or several, to which Company or any such director
or officer or any such person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
information in writing provided to Company by such Holder specifically for use
in the following documents and contained, on the effective date thereof, in any
Registration Statement under which securities were registered under the
Securities Act at the request of such holder, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto, (ii)
such Holder's offer or sale of Registrable Securities after receipt by such
Holder of a Standstill Notice under Section 4(g) and prior to the delivery of
the prospectus supplement or amendment contemplated by Section 4(g), (iii) such
Holder's failure to comply with the prospectus delivery requirements under the
Securities Act or failure to distribute its Registrable Securities in a manner
consistent with the its intended plan of distribution as provided to Company and
disclosed in the registration statement, (iv) such Holder's failure to comply
with Regulation M under the Exchange Act, or (v) such Holder's failure to comply
with any rules and regulations applicable because such Holder is, or is an
Affiliate of, a registered broker-dealer. Notwithstanding the provisions of this
paragraph (b) or paragraph (c)
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below, no Holder shall be required to indemnify any person pursuant to this
Section 6 or to contribute pursuant to paragraph (c) below in an amount in
excess of the amount of the aggregate net proceeds received by such Holder in
connection with any such registration under the Securities Act.
(c) If the indemnification provided for in this Section 6 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 6(c) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
7. Certain Limitations on Registration Rights. Notwithstanding
the other provisions of this Agreement:
(a) Company shall not be obligated to register the
Registrable Securities of any Holder if, in the opinion of counsel to Company
reasonably satisfactory to the Holder and its counsel (or, if the Holder has
engaged an investment banking firm, to such investment banking firm and its
counsel), the sale or other disposition of such Holder's Registrable Securities,
in the manner proposed by such Holder (or by such investment banking firm), may
be effected without registering such Registrable Securities under the Securities
Act; and
(b) Company shall not be obligated to register the
Registrable Securities of any Holder pursuant to Section 2 if Company has had a
registration statement, under which such Holder had a right to have its
Registrable Securities included
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pursuant to Section 2 or 3, declared effective within one hundred and eighty
(180) days prior to the date of the request pursuant to Section 2; provided,
however, that if any Holder elected to have shares of its Registrable Securities
included under such registration statement but some or all of such shares were
excluded pursuant to the penultimate sentence of Section 3, then such one
hundred and eighty (180) day period shall be reduced to ninety (90) days.
(c) Company shall have the right to delay the filing
or effectiveness of a registration statement required pursuant to Section 2
hereof during one or more periods aggregating not more than forty five (45) days
in any twelve-month period in the event that (i) Company would, in accordance
with the advice of its counsel, be required to disclose in the prospectus
information not otherwise then required by law to be publicly disclosed and (ii)
in the judgment of Company's Board of Directors, there is a reasonable
likelihood that such disclosure, or any other action to be taken in connection
with the prospectus, would materially and adversely affect any existing or
prospective material business situation, transaction or negotiation or otherwise
materially and adversely affect Company.
8. Selection of Managing Underwriters. The managing
underwriter or underwriters for any offering of Registrable Securities to be
registered pursuant to Section 2 shall be selected by the Holders of a majority
of the shares being so registered and shall be reasonably acceptable to Company.
9. Holder Agreements
(a) No Holder may participate in an underwritten
offering provided for hereunder unless such Holder (i) agrees to sell such
Holder's Registrable Securities on the basis provided in the underwriting
arrangements contemplated for such offering as reasonably requested by the
managing underwriter, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements as reasonably
requested by the managing underwriter, and (c) agrees to bear such Holder's pro
rata portion of all underwriting discounts and commissions.
(b) Each Holder of Registrable Securities eligible
for inclusion in a Registration Statement that is notified in writing pursuant
to Section 3 hereof of a proposed registration of an underwritten public
offering shall not effect any public sale or distribution (including sales under
Rule 144) of any Registrable Securities that are similar to (or exchangeable or
exercisable for or convertible into securities that are similar to) the
securities proposed to be offered in such underwritten public offering, during
the 10-day period prior to, and during the 90-day beginning on, the effective
date of the applicable registration statement, except for offers and sales
pursuant to such registration statement, and hereby agrees to execute a
"lock-up" letter covering such 90-day period in form and substance customary for
such transactions if so requested by the managing underwriter for such
underwritten offering.
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(c) Each Holder agrees to comply with Regulation M
under the Exchange Act in connection with its offer and sale of Registrable
Securities.
(d) Each Holder agrees that it will not sell any
Registrable Securities registered under the Securities Act pursuant to the terms
of this Agreement until it has been notified in accordance with the terms hereof
that a Registration Statement (and any associated post-effective amendment)
relating thereto has been declared effective and such Holder has been provided
copies of the related prospectus, as amended or supplemented to date.
(e) Each Holder agrees to comply with the prospectus
delivery requirements of the Securities Act as applicable in connection with the
sale of Registrable Securities registered under the Securities Act pursuant to a
Registration Statement.
(f) Each Holder agrees that upon receipt of a
Standstill Notice pursuant to Section 4(g), such Holder shall immediately
discontinue offers and sales of Registrable Securities registered under the
Securities Act pursuant to any Registration Statements covering such Registrable
Securities until such Holder receives copies of the supplemented or amended
prospectus contemplated by Section 4(g) or notice from the Company that no such
supplement or amendment is required.
10. Miscellaneous.
(a) No Inconsistent Agreements. Company will not
hereafter enter into any agreement with respect to its securities which
conflicts with the rights granted to the Holders in this Agreement. Except as
set forth on Schedule A hereto, Company has not previously entered into any
agreement with respect to any of its securities granting any registration rights
to any person.
(b) Remedies. The Purchaser, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate. In any action or proceeding brought to
enforce any provision of this Agreement or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
(c) Amendments and Waivers. Except as otherwise
provided herein, the provisions of this Agreement may not be amended, modified
or supplemented, and waivers or consents to departure from the provisions hereof
may not be given unless Company has obtained the written consent of the
Purchaser.
(d) Notice Generally. Any notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder to be
made pursuant to
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the provisions of this Agreement shall be sufficiently given or made if in
writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid, or by
telecopy and confirmed by telecopy answerback, addressed as follows:
(i) If to the Purchaser, at the last known address
appearing on the books of Company maintained for such purpose.
(ii) If to Company, at
Level 8 Systems, Inc.
8000 Regency Parkway
Cary, North Carolina 27511
Attention: Dennis McKinnie
Telecopy Number: (919) 461-2690
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback or three (3) Business Days after the same shall have been deposited
in the United States mail.
(e) Rule 144. With a view to making available to the
Purchaser the benefits of Rule 144 under the Securities Act ("Rule 144") and any
other rule or regulation of the Commission that may at any time permit the
Purchaser to sell securities of the Company to the public without registration,
the Company agrees that it will:
(i) make and keep public information
available, as those terms are understood and defined in Rule 144;
(ii) file with the Commission in a
timely manner all reports and other documents required of the Company under the
Exchange Act; and
(iii) furnish to each Holder, so long as
such Holder owns any Registrable Securities, forthwith upon request (i) a
written statement by the Company, if true, that it has complied with the
reporting requirements of Rule 144, the Securities Act and the Exchange Act,
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing the Holder of any rule or
regulation of the Commission which permits the selling of any such securities
without registration.
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(f) Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto including any person to whom Registrable Securities are
transferred.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law; Jurisdiction. This Agreement shall
be governed by, construed and enforced in accordance with the laws of the State
of New York without giving effect to the conflict of laws provisions thereof.
Each of the parties hereby submits to personal jurisdiction and waives any
objection as to venue in the County of New York, State of New York. Service of
process on the parties in any action arising out of or relating to this
Agreement shall be effective if mailed to the parties in accordance with Section
10(d) hereof. The parties hereto waive all right to trial by jury in any action
or proceeding to enforce or defend any rights hereunder.
(i) Severability. Wherever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
(j) Entire Agreement. This Agreement, together with
the Purchase Agreement and the other Transaction Documents, represents the
complete agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to the subject
matter hereof.
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[REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE]
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
LEVEL 8 SYSTEMS, INC.
By:
-------------------------------
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By:
-------------------------------
Name:
Title:
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<PAGE> 75
EXHIBIT D to Purchase Agreement
August ____, 2000
Merrill Lynch, Pierce, Fenner & Smith Incorporated
4 World Financial Center
New York, New York 10281
Ladies and Gentlemen:
We have represented Level 8 Systems, Inc., a Delaware corporation (the
"Company"), in connection with the Purchase Agreement, dated as of July ___,
2000 (the "Purchase Agreement"), by and between the Company and Merrill Lynch,
Pierce, Fenner & Smith, Incorporated ("Merrill Lynch"). We have also represented
the Company in connection with the Registration Rights Agreement and
Stockholders Agreement, both dated as of the date hereof and associated with the
Purchase Agreement (together with the Purchase Agreement, the "Transaction
Documents"). We have also represented the Company in connection with the PCA
Shell License Agreement dated as of even date herewith (the "License
Agreement"). This opinion is delivered pursuant to Section 6.1(a) of the
Purchase Agreement. Except as otherwise indicated, capitalized terms used herein
are defined as set forth in the Purchase Agreement.
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the genuineness
of all signatures other than those of the Company, the authenticity of the
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed or reproduced
copies. We have further assumed that:
A. Each entity which is a party to the Transactions, other than
the Company, has been duly organized and is validly existing
and in good standing under its jurisdiction of organization,
with the corporate or other organizational power to perform
its obligations under the Transaction Documents and the
License Agreement, that each of such entities has all
requisite power and authority to enter into and perform under
the Transaction Documents and the License Agreement, and that
each party to the Transactions other than the Company
(collectively, the
<PAGE> 76
Merrill Lynch, Pierce, Fenner & Smith Incorporated
August ____, 2000
Page 2
"Other Parties") has duly authorized, executed and delivered
each document to which they are a party.
B. Each Other Party has satisfied all legal requirements that are
applicable to it to the extent necessary to make the
Transaction Documents to which it is a party to be enforceable
against it in accordance with their respective terms.
C. The conduct of the parties to the Transactions complies with
any applicable requirement of good faith, fair dealing and
conscionability.
D. There has not been any mutual mistake of fact or
misunderstanding, fraud, duress or undue influence.
E. All statutes, judicial and administrative decisions, and rules
and regulations of governmental agencies, applicable to this
opinion are generally available to lawyers practicing in the
State of Georgia and are in a format that makes legal research
reasonably feasible.
In connection with this opinion, we have examined such corporate
records and other documents and have made such examinations of law as we have
deemed necessary. In rendering this opinion, as to questions of fact material to
this opinion, we have relied to the extent we have deemed such reliance
appropriate, without investigation, on certificates and other communications
from public officials and certificates from officers of the Company, and on the
representations and warranties of the Company and the Other Parties set forth in
the Transaction Documents, the License Agreement and the schedules and
certificates delivered pursuant thereto.
Wherever we indicate that our opinion with respect to the existence or
absence of facts is based on our knowledge, our opinion is based solely on the
current actual knowledge of factual matters known by the attorneys in this firm
who are representing the Company in connection with the Transactions, and we
have conducted no independent investigation of factual matters in connection
with this opinion.
The opinions set forth below are subject to the following limitations
and qualifications:
(1) the effects of bankruptcy, insolvency, reorganization,
receivership, moratorium and other similar laws affecting the
rights and remedies of creditors generally;
(2) the effects of general principles of equity, whether applied
by a court of law or equity, with respect to the performance
and enforcement of the Transaction Documents;
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Merrill Lynch, Pierce, Fenner & Smith Incorporated
August ____, 2000
Page 3
(3) the effect and possible unenforceability of contractual
provisions providing for choice of governing laws;
(4) we express no opinion as to the effect of any federal (except
to the extent provided herein) or state securities laws or
blue sky laws;
(5) we express no opinion as to the enforceability of any
non-competition, non-solicitation or confidentiality covenant
in any of the Transaction Documents;
(6) we express no opinion as to patent, copyright, trademark and
other intellectual property law;
(7) we express no opinion as to the possible unenforceability of
provisions providing for the modification of an agreement
without the consent of all of the parties to such agreement;
(8) we express no opinion as to the possible unenforceability of
provisions providing for the waiver of any party's rights to a
trial by jury;
(9) we express no opinion as to fraudulent conveyance laws or
taxation laws; and
(10) we express no opinion as to the possible unenforceability of
provisions providing for indemnification and contribution for
liabilities arising under federal or state securities laws.
Based upon and subject to the foregoing, and to the further
qualifications and limitations set forth below, it is our opinion that:
1. The Company is duly organized as a corporation and is validly
existing and in good standing under the laws of the State of
Delaware.
2. The Company has all requisite corporate power and authority to
(a) own and use its properties, (b) conduct its business as
presently conducted, (c) execute and deliver the Transaction
Documents and the License Agreement, to perform its
obligations thereunder and to consummate the Transactions, and
(d) to issue, sell and deliver the Common Stock described in
the Purchase Agreement.
3. The execution, delivery and performance by the Company of the
Transaction Documents and the License Agreement have been duly
authorized by all requisite corporate action and the Company
has duly executed and delivered each of the Transaction
Documents and the License Agreement.
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Merrill Lynch, Pierce, Fenner & Smith Incorporated
August ____, 2000
Page 4
4. Assuming that, contrary to their terms, the Transaction
Documents are governed by the laws of the State of Georgia,
each of the Transaction Documents is a valid and binding
agreement of the Company, enforceable against the Company in
accordance with its terms.
5. The execution and delivery by the Company of the Transaction
Documents, the performance by the Company of its obligations
thereunder, and the consummation of the Transactions (i) do
not and will not conflict with or violate any provisions of
the Certificate of Incorporation or Bylaws of the Company or
the General Corporation Law of the State of Delaware, and (ii)
do not and will not conflict or constitute a default under or
result in a violation of, any other law, statute, rule or
regulation, or any order, judgment or decree, known to us to
which the Company is subject or by which any of its assets are
bound.
6. Other than the filings identified in the Registration Rights
Agreement and the Purchase Agreement (including the schedules
thereto), no consent, approval, order or authorization of, or
registration, declaration or filing with, any federal or State
of Delaware governmental authority is required for the
execution and delivery by the Company of the Transaction
Documents and for the issuance, sale and delivery of the
Common Stock.
7. When issued in compliance with the terms and conditions of the
Purchase Agreement, the one million (1,000,000) shares of
Common Stock to be issued pursuant to the Purchase Agreement
will be validly issued, fully paid and non-assessable.
8. Based in part upon the continuing accuracy of the
representations of the Company and of Merrill Lynch contained
in the Purchase Agreement, the offer and sale of the Common
Stock to Merrill Lynch are exempt from the registration
requirements of the Securities Act of 1933, as amended to
date.
9. Except as disclosed by the Company on Schedule 4.7 (SEC
Filings) to the Purchase Agreement, to our knowledge, the
Company has filed all reports required to be filed by it
pursuant to Section 13(a), 14(a) or 15(d) of the Exchange Act,
since December 31, 1999 (the "SEC Documents") on a timely
basis.
10. We hereby confirm to you that, to our knowledge, except as
identified in the SEC Documents and the Purchase Agreement
(including the schedules thereto), there are no actions,
suits, proceedings, orders, investigations or claims pending
or threatened against the Company, at law or in equity, or
before or by any court,
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Merrill Lynch, Pierce, Fenner & Smith Incorporated
August ____, 2000
Page 5
governmental department, commission, board, bureau, agency,
arbitrator or other instrumentality.
11. Except as set forth in the Purchase Agreement (including the
schedules thereto), there are no preemptive rights exercisable
in connection with the transactions contemplated by the
Purchase Agreement.
Our opinions expressed above are limited to the laws of the State of
Georgia, the corporate laws of the State of Delaware, and, subject to the
limitations set forth herein, the federal laws of the United States of America,
and we do not express any opinion herein concerning any other law. In addition,
we express no opinion herein concerning any statues, ordinances, administrative
decisions, rules or regulations of any county, town, municipality or special
political subdivision (whether created or enabled through legislative action at
the federal, state or regional level). This opinion is given as of the date
hereof and we assume no obligation to advise you of changes that may hereafter
be brought to our attention. This opinion is provided solely for Merrill Lynch,
and is not to be quoted in whole or in part or otherwise referred to, nor is it
to be filed with any governmental agency or any other person without our prior
written consent. This opinion is rendered solely for the benefit of Merrill
Lynch and solely for the purposes of the Transactions and should not be relied
upon for any other purpose.
Very truly yours,
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
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