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EXHIBIT 10.3
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of August 23, 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
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(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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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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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
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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
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
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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.
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[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: /s/ Dennis McKinnie
----------------------------------------
Name: Dennis McKinnie
Title: Senior Vice President, Chief Legal and
Administrative Officer and Corporate
Secretary
PURCHASER:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By: /s/ E. Stanley O'Neal
----------------------------------------
Name: E. Stanley O'Neal
Title: Executive Vice President
EXISTING STOCKHOLDERS:
LIRAZ SYSTEMS LTD.
By: /s/ Arie Kilman
----------------------------------------
Name:
Title:
LIRAZ EXPORT (1990) LTD.
By: /s/ Arie Kilman
----------------------------------------
Name:
Title:
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[STOCKHOLDERS AGREEMENT SIGNATURE PAGE]
ADVANCED SYSTEMS EUROPE B.V.
By: /s/ Arie Kilman
----------------------------------------
Name:
Title:
WELSH, CARSON, ANDERSON
& STOWE VI, L.P.
By: WCAS VI PARTNERS, L.P., General Partner
By: /s/ Robert A. Minicucci
----------------------------------------
Name: Robert A. Minicucci
Title: General Partner
WCAS INFORMATION PARTNERS, L.P.
By: WCAS INFO Partners, General Partner
By: /s/ Thomas E. McInerney
----------------------------------------
Name: Thomas E. McInerney
Title: General Partner
WCAS CAPITAL PARTNERS II, L.P.
By: /s/ Robert A. Minicucci
----------------------------------------
Name: Robert A. Minicucci
Title: General Partner
<PAGE> 9
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. 972 3 559 9073
Liraz Export (1990) Ltd. Common Stock 821,257
5 Hatzoref Street
Holon, 58856
Israel
Telecopy No. 972 3 559 9073
Advanced Systems Europe B.V. Common Stock 1,000,000
5 Hatzoref Street
Holon, 58856 Preferred Stock 10,000
Israel
Telecopy No. 972 3 559 9073
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> 10
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
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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."
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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
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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.
