-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HVB3FCR3x08EHK4zdAJqWzA0dwLkaF9BXYfXBdfrK79ETapsf58Ls/BauDYTdh9F PuOHI8GsSjvzO1N6mUR2Og== 0000930413-04-001929.txt : 20040419 0000930413-04-001929.hdr.sgml : 20040419 20040419164043 ACCESSION NUMBER: 0000930413-04-001929 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040409 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040419 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA SYSTEMS & SOFTWARE INC CENTRAL INDEX KEY: 0000880984 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 222786081 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19771 FILM NUMBER: 04740959 BUSINESS ADDRESS: STREET 1: 200 RTE 17 CITY: MAHWAH STATE: NJ ZIP: 07430 BUSINESS PHONE: 2015292026 MAIL ADDRESS: STREET 1: 200 ROUTE 17 CITY: MAHWAH STATE: NJ ZIP: 07430 FORMER COMPANY: FORMER CONFORMED NAME: DEFENSE SOFTWARE & SYSTEMS INC DATE OF NAME CHANGE: 19930328 8-K 1 c32031_8k.txt - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (Date of Earliest Event Reported): April 9, 2004 DATA SYSTEMS & SOFTWARE INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 0-19771 22-2786081 - --------------------------- ---------------------- ------------------- (State or Other Jurisdiction (Commission file Number) (IRS Employer of Incorporation) Identification No.) 200 ROUTE 17, MAHWAH, NEW JERSEY 07430 - -------------------------------------------- ------------ (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (201) 529-2026 - -------------------------------------------------------------------------------- Item 5. OTHER EVENTS AND REGULATION FD DISCLOSURE. On April 9, 2004, the Registrant announced that the symbol for the Registrant's Common Stock will revert to "DSSI" effective with the open of business on April 12, 2004 pursuant to a determination of the Nasdaq Listing Qualifications Panel. The press release relating to such announcement is filed as Exhibit 99.1 hereto. On April 19, 2004, the Registrant announced that it had entered into an agreement in principle to acquire certain interests in a portfolio of companies owned by Kardan Communications Ltd., a subsidiary of Kardan N.V., in exchange for the issuance of common stock of the Registrant. The press release relating to such announcement is filed as Exhibit 99.2 hereto. The letter agreement to which the press release relates is filed as Exhibit 99.3 hereto. Item 7. FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibit 99.1 Press Release dated April 9, 2004 Exhibit 99.2 Press Release dated April 19, 2004 Exhibit 99.3 Letter Agreement dated April 19, 2004 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized, in the Township of Mahwah, State of New Jersey, on April 19, 2004. DATA SYSTEMS & SOFTWARE INC. BY: /s/ Yacov Kaufman --------------------------------------- Yacov Kaufman Vice President and Chief Financial Officer EX-99.1 3 c32031_ex99-1.txt EXHIBIT 99.1 DATA SYSTEMS & SOFTWARE INC. ANNOUNCES RETURN TO NASDAQ SYMBOL 'DSSI' Friday April 9, 3:29 pm ET MAHWAH, N.J., April 9 /PRNewswire-FirstCall/ -- Data Systems & Software Inc. (Nasdaq: DSSCE - NEWS) today announced that pursuant to a decision of the Nasdaq Listing Qualifications Panel on April 7, 2004, the Nasdaq symbol for the Company's Common Stock will return to its original symbol, "DSSI", effective with the open of business on Monday, April 12, 2004. In its April 7 decision, the Listing Panel acknowledged the Company's substantial compliance with the terms of its February 25, 2004 determination, which compliance included the filing by the Company of an amended Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 that included financial statements that had been reviewed by the Company's new independent auditors, as required by SEC Rule 10-01(d) of Regulation S-X. The Listing Panel also noted the Company's filing, on April 1, 2004, of its Annual Report on Form 10-K for the fiscal year ended December 31, 2003. The Listing Panel also noted in its April 7 decision that all other terms and conditions of its February 25 determination remain in effect. In accordance with the February 25 determination, the Company's Common Stock will continue to be listed on The Nasdaq SmallCap Market under a continuing exception to the Nasdaq Marketplace Rules, which conditions the Company's continued listing upon the Company's filing on a timely basis all periodic reports for all fiscal 2004 reporting periods. Under the Listing Panel's decision, should the Company fail to make any required filing in accordance with the Listing Panel's conditions, the Common Stock would be subject to delisting from The Nasdaq SmallCap Market without additional hearing. ABOUT DATA SYSTEMS & SOFTWARE INC. Data Systems & Software Inc. is a provider of software consulting and development services and is an authorized direct seller and value added reseller of computer hardware. Through its Comverge Inc. affiliate, the Company provides energy intelligence solutions to utilities. For more information, contact: George Morgenstern, CEO, (201) 529-2026, IR@DSSIINC.COM. This press release includes forward-looking statements, which are subject to risks and uncertainties, including risks associated with compliance by the Company with all of the continuing conditions set forth in the Listing Panel's February 25 decision. Actual results may vary from those projected or implied by such forward-looking statements. There is no assurance that the Company will be able to maintain compliance with the listing maintenance standards of The Nasdaq Stock Market. A discussion of risks and uncertainties which may affect the Company's business generally is included in "Business Factors Which May Affect Future Results" in the Company's most recent Annual Report on Form 10-K as filed by the Company with the Securities and Exchange Commission. EX-99.2 4 c32031_ex99-2.txt EXHIBIT 99.2 DATA SYSTEMS & SOFTWARE INC. ANNOUNCESAGREEMENT IN PRINCIPLE FOR STRATEGIC TRANSACTION WITH KARDAN MAHWAH, N.J., April 19 /PRNewswire-FirstCall/ -- Data Systems & Software Inc. (Nasdaq: DSSI - NEWS) today announced that it has signed an agreement in principle with Kardan Communications Ltd. ("Kardan"), a subsidiary of Kardan N.V., for a strategic transaction with Kardan or an affiliate thereof. The transaction contemplates the purchase by the Company of certain interests in a portfolio of communication and technologies companies owned by Kardan in exchange for the issuance by the Company of approximately 3.7 million shares of its common stock. The agreement in principle also contemplates the issuance by the Company of an additional approximately 881,000 shares of its common stock to Kardan and another minority shareholder of the Company's dsIT Technologies Ltd. subsidiary ("dsIT") in exchange for the approximately 32% of dsIT not currently owned by the Company. It is contemplated that upon consummation of the transaction, a majority of the current members of the Company's Board of Directors will resign and be replaced by nominees of Kardan. As part of the transaction, Kardan would invest $2 million in the Company in exchange for approximately 631,000 shares of common stock of the Company and warrants, exercisable for two years from the closing of the transaction, to purchase an additional 500,000 shares of common stock at 120% of the purchase price of the common stock purchased at closing. Kardan would also be obligated to invest up to an additional $1 million in exchange for additional shares of common stock in the event that the Company's cash on hand falls below a certain level. George Morgenstern, Chairman and Chief Executive Officer of DSSI, commented: "The Company's management and the members of the Board of Directors, aided by market analysis and valuation data provided to us by Foresight, have devoted significant time and resources to the detailed consideration of the strategic issues which the Company faces and the evaluation of opportunities to enhance long-term shareholder value. We are excited about the contemplated transaction with Kardan and believe it to be the best possible alternative to achieve this goal." The transaction is subject to, among other things, the negotiation of definitive documentation, approval of the board of directors of the Company and Kardan, the approval of the Company's shareholders, consents and approvals of applicable governmental entities, and the satisfactory completion of due diligence by both the Company and Kardan. The full terms of the agreement in principle are included in a Current Report on Form 8-K which the Company filed today with the Securities and Exchange Commission. DSSI is a provider of software consulting and development services, and is an authorized direct seller and value added reseller of computer hardware. In addition, its Comverge Inc. affiliate provides energy intelligence solutions to utilities. For more information, contact: George Morgenstern, CEO, (201) 529-2026, IR@DSSIINC.COM. Kardan Communications Ltd., a subsidiary of Kardan N.V., holds a portfolio of small to medium investments in the fields of communications, satellite services, computer systems, and other high technology fields. Kardan N.V., which is listed on Euronext Amsterdam under the symbol "KRNV," is an entrepreneurial investment group which invests in high-growth businesses in order to create value for its shareholders. The group is active in five sectors: real estate, financial services, infrastructure, automotive, and high tech/telecom. For more information, contact: Israel Frieder, President and CEO, Kardan Communications Ltd., info@kardan.com. THIS PRESS RELEASE INCLUDES FORWARD-LOOKING STATEMENTS, WHICH ARE SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING RISKS ASSOCIATED WITH (I) NEGOTIATION AND COMPLETION OF DEFINITIVE DOCUMENTATION RELATED TO THE CONTEMPLATED TRANSACTION WITH KARDAN, (II) THE RESULTS OF THE DUE DILIGENCE INVESTIGATION TO BE CONDUCTED BY THE COMPANY AND KARDAN AND (III) OBTAINING SHAREHOLDER APPROVAL OF THE CONTEMPLATED TRANSACTION FROM THE SHAREHOLDERS OF THE COMPANY. THERE IS NO ASSURANCE THAT THE COMPANY WILL BE SUCCESSFUL IN COMPLETING THE CONTEMPLATED TRANSACTION WITH KARDAN. EVEN IF SUCH TRANSACTION IS CONSUMMATED, THERE IS NO ASSURANCE THAT ANY IMPROVEMENTS IN OPERATING RESULTS AND/OR IN THE TRADING PRICE FOR THE COMPANY'S SHARES WILL RESULT THEREFROM. ACTUAL RESULTS MAY VARY FROM THOSE PROJECTED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. A MORE COMPLETE DISCUSSION OF RISKS AND UNCERTAINTIES WHICH MAY AFFECT THE ACCURACY OF THESE STATEMENTS AND THE COMPANY'S BUSINESS GENERALLY IS INCLUDED IN "BUSINESS--FACTORS WHICH MAY AFFECT FUTURE RESULTS" IN THE COMPANY'S MOST RECENT ANNUAL REPORT ON FORM 10-K AS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. 2 EX-99.3 5 c32031_ex99-3.txt EXHIBIT 99.3 [Letterhead of Data Systems & Software Inc.] April 19, 2004 Kardan Communications Ltd. 154 Petach Tikva Rd. Tel Aviv, Israel Neuwirth Investments Ltd. 250 Ben Gurion Rd. Givatayim, Israel Re: Data Systems & Software Inc. - Transaction with Kardan Communications Ltd. ------------------------------------------------------ Gentlemen: This Letter confirms our agreement concerning the basic structure and underlying terms in connection with a contemplated transaction or transactions (collectively, the "TRANSACTION") by and among Data Systems & Software Inc., a Delaware corporation ("DSSI"), Kardan Communications Ltd., an Israeli company ("KARDAN"), or another affiliate of Kardan N.V. and Neuwirth Investments Ltd., an Israeli company ("NEUWIRTH"). Each of DSSI, Kardan and Neuwirth are sometimes collectively referred to herein as the "PARTIES". Upon acceptance by Kardan and Neuwirth, it is intended that this Letter will provide a framework for a Definitive Agreement (as defined below) and ensure that the willingness of the Parties to proceed in discussions with respect thereto is based on a mutual understanding of the basic economic and other terms of the Transaction. Any obligation to proceed with the Transaction as outlined herein is expressly subject, among other things, to the execution and delivery of a written Definitive Agreement(s) acceptable in form and substance to the Parties, as well as completion of due diligence satisfactory to Kardan and DSSI as set forth in Sections 4 and 13 hereof, PROVIDED THAT, the provisions contained in Sections 9, 10, 11, 14 and 15 hereof shall be binding upon the Parties in accordance with their respective terms notwithstanding the termination of this Letter for any reason (the "SURVIVING PROVISIONS"). 1. PRINCIPAL TERMS OF THE TRANSACTION. The Transaction will be structured as follows: a. EXCHANGE OF SHARES OF DSIT TECHNOLOGIES FOR SHARES OF DSSI. DSSI will purchase all of the issued and outstanding shares of dsIT Technologies Ltd., an Israeli company ("DSIT"), owned by Kardan and Neuwirth, in exchange for the issuance of approximately 389,022 shares of common stock of DSSI to Kardan and approximately 492,178 shares of common stock of DSSI to Neuwirth (the "SHARE EXCHANGE"). b. ASSET PURCHASE BY DSSI. DSSI will purchase from Kardan a portfolio of companies (the "ASSETS"), one of which will be consolidated with DSSI (the "CONSOLIDATED ENTITY"), in exchange for the issuance by DSSI of approximately 3,705,941 shares of its common stock (the "ASSET PURCHASE"). In the event that Kardan makes any acquisitions in the portfolio companies comprising the Assets prior to signing the Definitive Agreement, the parties will negotiate in good faith to adjust the terms of the Asset Purchase accordingly. With respect to the Consolidated Entity, upon the closing of the Transaction (the "CLOSING"), Kardan will transfer to DSSI 49% of an entity ("NEWCO") that holds Kardan's interest in the Consolidated Entity and grant to DSSI the right to appoint all the directors of the Consolidated Entity. Until the second anniversary of the Closing, Kardan will have the option to sell to DSSI the remaining 51% of Newco owned by Kardan at an exercise price of 630,915 shares of common stock of DSSI. If Kardan does not exercise such option, then, for 60 days following the second anniversary of the Closing, DSSI will have the option to purchase from Kardan said 51% of Newco at the same exercise price. c. CASH INVESTMENT BY KARDAN. Kardan will make a cash investment of $2 million in the equity of DSSI. In addition, through March 31, 2005, if at the end of any calendar quarter, DSSI has less than $1.25 million in cash and cash equivalents on hand, Kardan will, within 15 business days of the end of any such calendar quarter, make an additional investment in the equity of DSSI in the amount of such deficiency (or, if smaller, the amount of the deficiency as of the date of such investment) (the "CAPITAL CALL"), PROVIDED THAT, the aggregate total amount invested pursuant to all Capital Calls shall not exceed $1 million. d. VALUATION OF SHARES OF COMMON STOCK OF DSSI. For purposes of the Cash Investment, the valuation of one share of common stock of DSSI shall be equal to $3.17; and for purposes of the Capital Call, the valuation of one share of common stock of DSSI shall be equal to the average closing price on Nasdaq of DSSI's common stock during the 30 trading days immediately preceding the date of the issuance of the relevant shares. 2 e. KARDAN WARRANT. At the Closing, DSSI will issue a warrant to Kardan, exercisable for 24 months, to purchase up to 500,000 additional shares of DSSI common stock, at a price per share equal to 120% of the price per share of the Cash Investment. Upon any exercise of the Capital Call, DSSI will issue an additional warrant to Kardan, exercisable for 24 months from the date thereof, to purchase additional shares of DSSI common stock, in a number up to the amount invested in such exercise divided by four (4), and at a price per share equal to 120% of the price per share of such exercise. 2. REGISTRATION RIGHTS. DSSI will use its best efforts to file a registration statement or statements, as the case may be, with the Securities and Exchange Commission (the "SEC") with respect to the (i) shares issued in the Share Exchange, the Asset Purchase and the Cash Investment within 60 days following the Closing and (ii) shares issuable upon exercise of any warrants issued pursuant to a Capital Call within 60 days of the exercise of any such warrants, and shall use reasonable efforts to have such registration statement(s) declared effective by the SEC, in the case of (i) above, within 120 days after the Closing, and in the case of (ii) above, within 120 days after the date of exercise of the relevant warrants. 3. GUARANTEES OF CONSOLIDATED ENTITY. Through and including February 2006, Kardan or an affiliate thereof will remain as a guarantor for certain liabilities of the Consolidated Entity in connection with that certain Share Purchase Agreement dated December 18, 2003 by and among Kardan, the Consolidated Entity and certain other parties thereto. Through February 2006, or such earlier date as DSSI, at its election, procures the release of Kardan and its affiliates from such guarantees, DSSI will ensure that all of the directors of the Consolidated Entity appointed or nominated by DSSI shall be approved by Kardan. 4. DUE DILIGENCE. The Parties acknowledge that, prior to executing a Definitive Agreement, they must complete their respective due diligence examinations as well as negotiations with respect to matters beyond the scope of this Letter. Accordingly, the Parties acknowledge and agree that execution of a Definitive Agreement is subject to completion of due diligence satisfactory to each of DSSI and Kardan in their sole discretion. 5. TERMS OF DEFINITIVE AGREEMENT. The Definitive Agreement shall contain terms customary and appropriate to similar agreements, including representations and warranties of, and indemnification by, the Parties (it being understood that Kardan and Neuwirth will not make substantive representations or indemnities concerning the business of dsIT and Kardan will not make substantive representations or indemnities concerning any minority-owned companies comprising the Assets, but Kardan explicitly agrees to provide full representations and warranties and indemnities concerning the Consolidated Entity, which representations, warranties and indemnities will terminate as of the Closing, and a covenant of DSSI to call a 3 meeting of its shareholders for the purpose of approving the Transaction and, if permissible in accordance with applicable law, electing to the DSSI board (to be effective following the Closing) a slate of between seven and eleven members nominated by Kardan, which will include Jacob Neuwirth and Shlomie Morgenstern. Consummation of the Transaction shall be subject, among other things, to: a. receipt of all necessary consents and approvals of governmental entities and any other third parties; b. absence of any material adverse change in the business, financial condition, assets, prospects or operations of either DSSI or the companies comprising the Assets since the date of this Letter; c. absence of pending or threatened material litigation regarding DSSI or the companies comprising the Assets, or any litigation challenging the Definitive Agreement, or the transactions contemplated thereby; d. delivery of customary legal opinions, closing certificates and other appropriate documentation requested by DSSI, Kardan and their respective counsel; e. delivery by Kardan of fiscal year-end and interim financial statements of the Consolidated Entity in the form required by DSSI for filing with the SEC in connection with the Transaction (including without limitation, audited balance sheets, statements of income and statements of cash flows for the current fiscal year and the preceding two fiscal years); f. compliance with all applicable laws; g. resignation of all of the members of the board of directors of DSSI upon the Closing (as a condition of Kardan's obligations under the Definitive Agreement); and h. the approval of the shareholders of DSSI and/or Kardan, if applicable. 6. ADDITIONAL AGREEMENTS. The following agreements will be executed in a manner satisfactory to all the Parties: a. Consulting Agreement between DSSI and George Morgenstern; b. Employment Agreement between DSSI and Israel Frieder, who will serve as president and manager of communications activities; c. Employment Agreement between DSSI and Jacob Neuwirth, who will serve as president and manager of IT activities; and 4 d. Employment Agreement between DSSI and/or its subsidiary Databit and Shlomie Morgenstern, upon terms and conditions to be agreed to by the Parties and Shlomie Morgenstern. 7. GOOD FAITH NEGOTIATION AND COOPERATION; SEC FILINGS. Each of the Parties shall, and shall cause each of their respective Representatives to, (i) negotiate the terms of the Definitive Agreement in good faith in order to proceed with the Transaction, (ii) subject to the provisions contained in Sections 4, 5 and 6 hereof, use their respective best efforts to finalize, execute and deliver the Definitive Agreement, and (iii) cooperate with the other Parties and their respective Representatives in connection with this Letter, the proposed Transaction and the transactions contemplated thereby, including without limitation, providing information or disclosure to any other Party necessary or appropriate (in the discretion of such Party or its counsel) to be included in any filing with the SEC, whether on Form S-4 or otherwise, required to be filed as a result of this Letter, the Transaction or the transactions contemplated thereby. 8. ACCESS TO INFORMATION. From the date hereof until this Letter is terminated, as provided below, Kardan, with respect to the companies comprising the Assets, and DSSI, with respect to itself and its subsidiaries, shall make and cause to be made available to the other Party such books, records and members of management as the other Party may reasonably request in connection with any such Party's evaluation of the relevant business, assets and properties in connection with any such Party's efforts to consummate the Transaction. In connection with such evaluation, Kardan and DSSI shall coordinate mutually agreeable times at which representatives can visit the relevant companies' facilities, examine their properties and assets, contracts, liabilities, operations, records, financial information and other aspects of their businesses and interview their senior executives and stockholders. Each of Kardan and DSSI authorizes members of the management of the relevant companies to freely communicate with the other Party to disclose matters concerning their businesses without limitation. 9. CONFIDENTIALITY. Each of the Parties shall, and shall cause their respective directors, officers, shareholders, employees, agents, brokers or other representatives ("REPRESENTATIVES") to, maintain the confidentiality of any confidential or proprietary information furnished to it by the other Party (including, with respect to Kardan and its Representatives, the existence of this Letter, the contemplated Transaction and any negotiations in connection therewith), except to the extent such information is (i) otherwise disclosed by a party not bound by an agreement of confidentiality with respect thereto, (ii) independently developed by another Party, (iii) required to be disclosed in accordance with applicable law, rule, regulation or court order or decree 5 applicable to a Party or its direct or indirect shareholders or (iv) disclosed to accountants, auditors, counsel, bankers, investors and others who have a need to know such information in connection with their evaluation thereof as determined in the reasonable discretion of the relevant Party. 10. EXCLUSIVITY. Each of DSSI and Kardan acknowledges that the Parties will devote substantial time and resources and incur substantial expenses in connection with the investigation and documentation of the proposed Transaction contemplated by this Letter. To induce the Parties to devote such time and resources and to incur such expenses, each of DSSI and Kardan agrees that at no time during the period from the date hereof to and including the 60th day after such date (the "TERMINATION DATE") shall either DSSI or Kardan, directly or indirectly through any of their respective Representatives, solicit, initiate, furnish information or otherwise engage in any discussions concerning the sale of their respective assets involved in the Transaction or stock or any recapitalization or restructuring or sale of either DSSI or the companies comprising the Assets, as the case may be ("DISCUSSIONS"), PROVIDED THAT, DSSI shall be permitted to engage in (but not solicit or initiate) Discussions at any time with any person or entity in the event that the Board of Directors of DSSI or its counsel, in their sole discretion, determine that Discussions are necessary, appropriate or advisable in order to satisfy any of the Board's fiduciary duties or obligations under any applicable law. In the event that either DSSI or Kardan or any of their respective Representatives receives any proposal from any person or entity with respect to any such matters, then DSSI, Kardan or their respective Representatives, as the case may be, shall immediately notify the other Party thereof in writing. 11. NONDISCLOSURE. None of the Parties shall, and shall cause each of their respective Representatives not to, directly or indirectly make any public comment, statement or communication with respect to, or otherwise disclose or permit the disclosure or existence of discussions regarding, a possible Transaction among them or any of the terms, conditions or other aspects of the Transaction proposed in this Letter, including the existence thereof, PROVIDED THAT, DSSI or Kardan may disclose information concerning this Letter or the Transaction if, in the opinion of its counsel (in its sole discretion), it is necessary, appropriate or advisable to comply with applicable laws, rules or regulations of the SEC, Nasdaq or other regulatory agency or stock exchange applicable to them or their direct or indirect parent companies. 12. CONDUCT OF BUSINESS. Each of Kardan, with respect only to the Assets and the business of the Consolidated Entity, and DSSI shall, during the term of this Letter, (i) conduct its business only in the ordinary course, (ii) not engage in any transactions other than in the ordinary course of business without the prior written consent of the other Party, and (iii) use its best efforts to preserve intact its business organization, keep available the services of its employees, and maintain satisfactory relationships with all third parties with which it has business relationships. 6 13. TERMINATION. This Letter and the obligations of the Parties hereunder may be terminated at any time by either Kardan or DSSI on or after the Termination Date if the Parties have failed to reach a Definitive Agreement despite good faith negotiations based on the terms and conditions contained herein, or by either such Party at any time in the event that the results of a Party's due diligence are unsatisfactory in such Party's sole and absolute discretion. If this Letter is terminated in accordance with this Section 13, then no Party shall have any obligation hereunder or with respect to the transactions contemplated hereby, except with respect to the Surviving Provisions. 14. COSTS. Each of the Parties shall be responsible for and bear its respective costs and expenses (including, without limitation, any fees of attorneys, accountants, brokers or finders) incurred in connection with this Letter or the proposed Transaction, PROVIDED THAT, in the event that during the time period subsequent to the execution of this Letter and prior to the termination hereof in accordance with Section 13 hereof, Kardan or DSSI (i) breaches any of the provisions contained in Sections 9 or 10 hereof, (ii) reaches an agreement in principle in respect of a transaction with any third party inconsistent with the Transaction (whether or not Discussions in respect thereof are permitted in accordance with Section 10 hereof), or (iii) fails to enter into a Definitive Agreement other than as permitted pursuant to Section 13 hereof, then DSSI, on the one hand, or Kardan, on the other hand, shall be entitled to terminate this Letter and shall be entitled to liquidated damages in an amount equal to the greater of (i) either such Party's actual legal, accounting and other costs reasonably incurred in connection with the Transaction or (ii) $150,000. The Parties agree that the Definitive Agreement shall contain a provision similar to this Section 14, which shall require the payment of costs by DSSI in the event that the shareholders of DSSI fail to approve the Transaction. 15. MISCELLANEOUS. a. This Letter shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within such State without giving effect to principles of conflicts or choice of law thereof. b. This Letter may be executed by the Parties in separate counterparts, which, when taken together, shall constitute one and the same instrument. c. This Letter constitutes the entire understanding between the Parties with respect to the subject matter hereof and supersedes any and all prior agreements, commitments, understandings, discussions, term sheets, negotiations or arrangements of any nature relating thereto. 7 Kindly indicate your approval and agreement with the foregoing by executing this Letter in the space provided below and returning a copy thereof to the undersigned. Very truly yours, DATA SYSTEMS & SOFTWARE INC. By: /s/ George Morgenstern ------------------------------------ Name: Title: AGREED AND ACCEPTED: KARDAN COMMUNICATIONS LTD. By: /s/ Israel Frieder - ---------------------------------------- Name: Title: NEUWIRTH INVESTMENTS LTD. By: /s/ Jacob Neuwirth - ---------------------------------------- Name: Title: The undersigned, as sole shareholder of Neuwirth Investments Ltd., agrees to be personally bound by the terms and conditions of this Letter applicable to Neuwirth Investments Ltd. /s/ Jacob Neuwirth ----------------------------------- Jacob Neuwirth 8 -----END PRIVACY-ENHANCED MESSAGE-----