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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
------------------------------
LEVEL 8 SYSTEMS, INC.
(Name of Issuer)
COMMON STOCK, PAR VALUE $0.001 PER SHARE 52729M102
(Title of class of securities) (CUSIP number)
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
4 WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10080
(Name, address and telephone number of person authorized
to receive notices and communications)
WITH A COPY TO:
HOWARD CHATZINOFF, ESQ.
S. WADE ANGUS, ESQ.
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153-0119
(212) 310-8000
AUGUST 23, 2000
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box
[ ].
Note: Schedules filed in paper format shall include a signed original
and five copies of the schedule, including all exhibits. See Rule
13d-7 for other parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 8 Pages)
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NY2:\959641\07\KKGP07!.DOC\63080.0055
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CUSIP No. 52729M102 13D Page 2 of 8
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1 NAME OF REPORTING PERSON Merrill Lynch, Pierce, Fenner & Smith Incorporated
S.S. OR I.R.S. IDENTIFICATION NO. 13-5674085
OF ABOVE PERSON
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS: 00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e): [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware
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7 SOLE VOTING POWER: 1,000,000
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH
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8 SHARED VOTING POWER: 6,699,254*
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9 SOLE DISPOSITIVE POWER: 1,000,000
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10 SHARED DISPOSITIVE POWER: 0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: 6,699,254*
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES:
[ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 45.1%
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14 TYPE OF REPORTING PERSON: BD, IA, CO
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* See Item 5 of this Schedule 13D
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CUSIP No. 52729M102 13D Page 3 of 8
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1 NAME OF REPORTING PERSON Merrill Lynch & Co., INC.
S.S. OR I.R.S. IDENTIFICATION NO.
OF ABOVE PERSON 13-2740599
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS: Not applicable
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e): [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware
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7 SOLE VOTING POWER: Disclaimed (See 11 below)
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH
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8 SHARED VOTING POWER: Disclaimed (See 11 below)
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9 SOLE DISPOSITIVE POWER: Disclaimed (See 11 below)
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10 SHARED DISPOSITIVE POWER: 0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: Beneficial ownership of all shares
disclaimed by Merrill Lynch & Co., Inc.
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES:
[ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): Not applicable
(See 11 above)
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14 TYPE OF REPORTING PERSON: CO, HC
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ITEM 1. SECURITY AND ISSUER
This statement of beneficial ownership on Schedule 13D
("Schedule 13D") relates to common stock, par value $0.001 per share ("Common
Stock"), of Level 8 Systems, Inc., a Delaware corporation (the "Company"). The
address of the principal executive office of the Company is 8000 Regency
Parkway, Cary, North Carolina 27511.
The summary descriptions contained in this Schedule 13D of
certain agreements and documents are qualified in their entirety by reference to
the complete texts of such agreements and documents, filed as exhibits hereto
and incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND
The name of the person filing this Schedule 13D is Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPFS"), a registered broker-dealer and registered
investment advisor, for and on behalf of itself and Merrill Lynch & Co., Inc., a
holding company that, through its subsidiaries and affiliates, provides
investment, financing, advisory, insurance and related products and services on
a global basis ("Merrill Lynch"). MLPFS is a wholly-owned subsidiary of Merrill
Lynch. MLPFS and Merrill Lynch are collectively referred to herein as the
"Reporting Persons." An agreement among the Reporting Persons with respect to
the filing of this statement is attached hereto as Exhibit 4.
MLPFS's state of incorporation is Delaware. The address of
its principal business and its principal office is 4 World Financial Center, New
York, New York 10080.
Merrill Lynch's state of incorporation is Delaware. The
address of its principal business and its principal office is 4 World Financial
Center, New York, New York 10080.
The name, business address, present principal occupation or
employment, and citizenship of each director and executive officer of MLPFS and
Merrill Lynch are set forth on Schedule A and Schedule B attached hereto,
respectively.
Except as set forth on Schedule C attached hereto, during
the last five years, none of the Reporting Persons, nor to the best of their
knowledge, any of the their directors and executive officers have (i) been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which such person
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding a violation with respect to such laws.
This statement is being filed while the Reporting Persons
are still in the process of verifying all information required herein from their
respective directors and executive officers, including, without limitation, the
information required by this Item 2 and Item 5 of this Schedule 13D. If the
Reporting Persons obtain information concerning such individuals which would
cause a material change in the disclosure contained in this Schedule 13D, an
amendment to this statement will be filed that will disclose any such change.
4
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ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
MLPFS entered into a Purchase Agreement with the Company,
dated as of July 31, 2000 (the "Purchase Agreement"), whereby MLPFS agreed to
purchase, subject to certain conditions, 1,000,000 shares of Common Stock. A
copy of the Purchase Agreement is attached hereto as Exhibit 1. The
consideration paid by MLPFS to the Company for the 1,000,000 shares of Common
Stock consisted of MLPFS's grant of a software license to the Company. The
purchase and sale of the Common Stock to MLPFS pursuant to the Purchase
Agreement was consummated on August 23, 2000.
ITEM 4. PURPOSE OF TRANSACTION
MLPFS acquired the shares of Common Stock of the Company as
an investment and holds the shares of Common Stock in the ordinary course of
business and, except as set forth herein, not with the purpose or effect of
changing the control of the Company.
MLPFS intends to review its investment in the Company on a
regular basis and as a result of such review may at any time or from time to
time acquire additional securities of the Company in open market transactions or
otherwise. Any such acquisition or disposition of securities of the Company
would be made in compliance with all applicable laws and regulations.
In connection with the Purchase Agreement, Merrill Lynch
entered into a Stockholders Agreement (the "Stockholders Agreement"), dated
August 23, 2000, between the Company and MLPFS, Liraz Systems Ltd., Liraz Export
(1990) Ltd., Advanced Systems Europe B.V., Welsh, Carson, Anderson & Stowe VI,
L.P., WCAS Information Partners, L.P. and WCAS Capital Partners II, L.P. (each a
"Company Stockholder" and collectively, the "Company Stockholders"). Pursuant to
the Stockholders Agreement, each of the Company Stockholders agreed to vote, in
person or by proxy, all shares of Common Stock owned by such Company Stockholder
in favor of the election or removal of a person designated by MLPFS (the
"Merrill Designee") to the board of directors (the "Board") of the Company for
so long as MLPFS continues to own 200,000 shares of Common Stock. Additionally,
for so long as MLPFS has the right to designate a director of the Company, each
of the Company Stockholders further agreed to take all action, including the
voting, in person or by proxy, of shares of Common Stock owned or controlled by
such Company Stockholder, as may be necessary to cause the Company to have a
Board of at least 8 directors.
In addition, each of the Company Stockholders agreed that
the Common Stock of each Company Stockholder shall not be transferable until
such time as any transferee agrees in writing to be bound by the terms of the
Stockholders Agreement, subject to certain limited exceptions.
The foregoing description of the Stockholders Agreement is
a summary thereof and does not purport to be complete. A copy of the
Stockholders Agreement is attached hereto as Exhibit 2.
Except as set forth above, none of the Reporting Persons
has any present plans or intentions relating to or that would result in any of
the actions described in subparagraphs (a) through (j) of Item 4 of Schedule
13D.
5
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ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) As of the close of business on August 23, 2000, MLPFS
owned an aggregate of 1,000,000 shares of Common Stock of the Company,
representing approximately 6.7% of the Common Stock outstanding on August 25,
2000 as reported in the Company's most recent Form S-1 filed with the SEC.
The responses of the Reporting Persons to Rows (11) through
(13) of the cover pages of this Schedule 13D are incorporated herein by
reference.
Except as disclosed in this Item 5(a) of this Schedule 13D,
none of the Reporting Persons, nor to the best knowledge of the Reporting
Persons, any of the directors or executive officers of the Reporting Persons
beneficially owns any shares of Common Stock of the Company.
(b) MLPFS has the sole power to vote, direct the voting of,
dispose of and direct the disposition of 1,000,000 shares of the Common Stock of
the Company.
Merrill Lynch disclaims beneficial ownership of shares of
Common Stock beneficially owned by MLPFS, which shares may be deemed to be
beneficially owned, for purposes of Section 13(d) of the Exchange Act, by
Merrill Lynch by virtue of Merrill Lynch being the parent company of MLPFS. The
filing of this Schedule 13D shall not be construed as an admission by Merrill
Lynch that it is, for purposes of Section 13(d) of the Exchange Act, the
beneficial owner of shares of the Common Stock held by MLPFS.
Each of the Reporting Persons disclaims beneficial
ownership of 5,699,254 shares of Common Stock beneficially owned by Liraz
Systems Ltd., Liraz Export (1990) Ltd., Advanced Systems Europe B.V., Welsh,
Carson, Anderson & Stowe VI, L.P., WCAS Information Partners, L.P. and WCAS
Capital Partners II, L.P. , which shares may be deemed to be beneficially owned,
for purposes of Section 13(d) of the Exchange Act, by the Reporting Persons by
virtue of MLPFS and these stockholders of the Company being party to the
Stockholders Agreement. The filing of this Schedule 13D shall not be construed
as an admission by any Reporting Person that it is, for purposes of Section
13(d) of the Exchange Act, the beneficial owner of shares of the Common Stock
held by such other parties to the Stockholders Agreement.
Except as disclosed in this Item 5(b) of this Schedule 13D,
none of the Reporting Persons, nor to the best knowledge of the Reporting
Persons, any of the directors or executive officers of the Reporting Persons has
the power to vote, direct the voting of, dispose of or direct the disposition of
any shares of Common Stock of the Company which they may be deemed to
beneficially own.
Neither the filing of this Schedule 13D or any amendment
thereto, nor anything contained herein is intended as, or should be construed
as, an admission that Merrill Lynch is the "beneficial owner" of any shares of
Common Stock of the Company.
Neither the filing of this Schedule 13D or any amendment
thereto, nor anything contained herein is intended as, or should be construed
as, an admission that any Reporting Person is the "beneficial owner" of any
shares of Common Stock of the Company of any other person referenced in this
Schedule 13D or any amendment thereto.
6
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(c) The information set forth in Item 3 of this Schedule
13D is hereby incorporated by reference herein.
Except as disclosed in Item 3 of the Schedule 13D, none of
the Reporting Persons, nor, to the best knowledge of the Reporting Persons, any
of the directors or executive officers of the Reporting Persons has effected any
transaction in the Common Stock in the past 60 days, other than (1) brokerage
transactions by MLPFS and its affiliates on behalf of their customers, and (2)
market making transactions by MLPFS and its affiliates occurring prior to July
31, 2000.
(d) Not applicable.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO SECURITIES OF THE ISSUER
In addition to the Purchase Agreement and the Stockholders
Agreement, the Company and MLPFS entered into a Registration Rights Agreement
(the "Registration Rights Agreement"), dated August 23, 2000, pursuant to which
the Company granted MLPFS certain rights to demand that the Company register
under the Securities Act the Common Stock purchased by MLPFS, and to allow MLPFS
to include such Common Stock in any registration statement filed by the Company
(other than on Form S-4 or S-8, or any successor form thereto, for securities to
be offered in a transaction of the type referred to in Rule 145 of the
Securities Act or to employees of the Company pursuant to any employee benefit
plan, respectively). A copy of the Registration Rights Agreement is attached
hereto as Exhibit 3.
The information set forth in Items 3 and 4 of this Schedule
13D is hereby incorporated by reference herein.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
1. Stockholders Agreement, dated as of August 23, 2000,
between Merrill Lynch, Pierce, Fenner & Smith Incorporated, Merrill Lynch & Co.,
Inc., Liraz Systems Ltd., Liraz Export (1990) Ltd., Advanced Systems Europe
B.V., Welsh, Carson, Anderson & Stowe VI, L.P., WCAS Information Partners, L.P.
and WCAS Capital Partners II, L.P. (filed as an exhibit to the Form 8-K filed by
the Company with the SEC on August 11, 2000 and is hereby incorporated by
reference herein).
2. Purchase Agreement, dated July 31, 2000, between Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch & Co., Inc. (filed
as an exhibit to the Form 8-K filed by the Company with the SEC on August 11,
2000 and is hereby incorporated by reference herein).
3. Registration Rights Agreement, dated August 23, 2000,
between Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch &
Co., Inc. (filed as an exhibit to the Form 8-K filed by the Company with the SEC
on August 11, 2000 and is hereby incorporated by reference herein).
4. Joint Filing Agreement by and between Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Merrill Lynch & Co., Inc., dated
September 5, 2000.
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SIGNATURES
After reasonable inquiry and to the best of their knowledge
and belief, the undersigned certify that the information set forth in this
statement is true, complete and correct.
Dated: September 8, 2000
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By: /s/ Andrea Dulberg
------------------------------------------------
Name: Andrea Dulberg
Title: Secretary
Merrill Lynch & Co., Inc.
By: /s/ Andrea Dulberg
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Name: Andrea Dulberg
Title: Secretary
8
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SCHEDULE A TO SCHEDULE 13D
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NAMES OF DIRECTORS AND EXECUTIVE
OFFICERS OFFICE NATIONALITY BUSINESS ADDRESS
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John L. Steffens Chairman of the Board, Chief United States of 4 World Financial Center, 32nd Fl.
Executive Officer and Director America New York, NY 10080
George A. Schieren Senior Vice President, General United States of 222 Broadway, 14th Fl..
Counsel and Director America New York, NY 10038
E. Stanley O'Neal Executive Vice President and United States of 4 World Financial Center, 32nd Fl.
Director America New York, NY 10080
Thomas H. Patrick Executive Vice President and United States of 4 World Financial Center, 32nd Fl.
Director America New York, NY 10080
Thomas W. Davis Executive Vice President United States of 4 World Financial Center, 8th Fl.
America New York, NY 10080
Barry S. Friedberg Executive Vice President United States of 4 World Financial Center, 32nd Fl.
America New York, NY 10080
Edward L. Goldberg Executive Vice President United States of 4 World Financial Center, 32nd Fl.
America New York, NY 10080
Jerome P. Kenney Executive Vice President United States of 4 World Financial Center, 32nd Fl.
America New York, NY 10080
Winthrop H. Smith, Jr. Executive Vice President United States of 4 World Financial Center, 34th Fl.
America New York, NY 10080
Roger M. Vasey Executive Vice President United States of 4 World Financial Center, 32nd Fl.
America New York, NY 10080
Ahmass L. Fakahany Senior Vice President and Chief United States of 4 World Financial Center, 31st Fl.
Financial Officer America New York, NY 10080
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A-1
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SCHEDULE B TO SCHEDULE 13D
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NAMES OF DIRECTORS AND EXECUTIVE
OFFICERS OFFICE NATIONALITY BUSINESS ADDRESS
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David H. Komansky Chairman of the Board, Chief United States of 4 World Financial Center, 32nd Fl.
Executive Officer and Director America New York, NY 10080
Stephen L. Hammerman Vice Chairman of the Board, United States of 4 World Financial Center, 32nd Fl.
General Counsel and Director America New York, NY 10080
John L. Steffens Vice Chairman of the Board and United States of 4 World Financial Center, 32nd Fl.
Director America New York, NY 10080
W. H. Clark Director United States of c/o Corporate Secretary's Office
America 222 Broadway, 17th Fl.
New York, N.Y. 10038
Jill K. Conway Director United States of c/o Corporate Secretary's Office
America 222 Broadway, 17th Fl.
New York, N.Y. 10038
George B. Harvey Director United States of c/o Corporate Secretary's Office
America 222 Broadway, 17th Fl.
New York, N.Y. 10038
William R. Hoover Director United States of c/o Corporate Secretary's Office
America 222 Broadway, 17th Fl.
New York, N.Y. 10038
Robert P. Luciano Director United States of c/o Corporate Secretary's Office
America 222 Broadway, 17th Fl.
New York, N.Y. 10038
David K. Newbigging Director United Kingdom c/o Corporate Secretary's Office
222 Broadway, 17th Fl.
New York, N.Y. 10038
Aulana L. Peters Director United States of c/o Corporate Secretary's Office
America 222 Broadway, 17th Fl.
New York, N.Y. 10038
John J. Phelan, Jr. Director United States of c/o Corporate Secretary's Office
America 222 Broadway, 17th Fl.
New York, N.Y. 10038
Thomas W. Davis Executive Vice President United States of 4 World Financial Center, 8th Fl.
America New York, NY 10080
Barry S. Friedberg Executive Vice President United States of 4 World Financial Center, 32nd Fl.
America New York, NY 10080
Edward L. Goldberg Executive Vice President United States of 4 World Financial Center, 32nd Fl.
America New York, NY 10080
James P. Gorman Executive Vice President Australia 4 World Financial Center, 32nd Fl.
New York, NY 10080
Jerome P. Kenney Executive Vice President United States of 4 World Financial Center, 32nd Fl.
America New York, NY 10080
John A. McKinley, Jr. Executive Vice President (and United States of 4 World Financial Center, 32nd Fl.
Chief Technology Officer) America New York, NY 10080
B-1
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E. Stanley O'Neal Executive Vice President United States of 4 World Financial Center, 32nd Fl.
America New York, NY 10080
Thomas H. Patrick Executive Vice President (and United States of 4 World Financial Center, 32nd Fl.
Chief Financial Officer) America New York, NY 10080
Jeffrey M. Peek Executive Vice President United States of 4 World Financial Center, 32nd Fl.
America New York, NY 10080
Winthrop H. Smith, Jr. Executive Vice President United States of 4 World Financial Center, 34th Fl.
America New York, NY 10080
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SCHEDULE C TO SCHEDULE 13D
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On April 6, 2000, MLPFS consented to an SEC order directing
it to "cease and desist from committing or causing any violations and any future
violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act." The order
grew out of an industry-wide investigation of so-called "yield burning"
(charging excessive prices for Treasury securities sold to municipalities in
connection with refundings of municipal bonds). Without admitting or denying the
findings in the orders, virtually all of the major participants in the industry,
including MLPFS, consented to fines and cease and desist orders.
On January 11, 1999, MLPFS consented to an SEC order
directing it to "cease and desist from committing or causing any violation of,
and committing or causing any future violation of Sections 15(c)(1) and (2), and
17(a) of the Exchange Act, and Rules 15c1-2, 15c2-7, and 17a-3 thereunder." The
order grew out of an industry-wide investigation of quotation practices of
Nasdaq market makers. Without admitting or denying the findings in the orders,
virtually all of the major participants in the industry, including MLPFS,
consented to fines and cease and desist orders.
On August 24, 1998, MLPFS consented to an SEC order
directing it to "cease and desist from committing or causing any violation and
any future violation of Sections 17(a)(2) and (3) of the Securities Act, Section
15B(c)(1) of the Exchange Act, and MSRB Rule G-17." Without admitting or denying
the findings in the order, MLPFS consented to an order finding that MLPFS failed
to make accurate and complete disclosure in connection with underwriting or
co-managing certain note offerings for Orange County, California.
On October 26, 1995, MLPFS, without admitting or denying
violations, consented to an SEC order directing it to "cease and desist from
committing or causing any violation or future violation of MSRB Rule G-17."
Without admitting or denying the findings in the order, MLPFS consented to an
order finding that MLPFS failed to take adequate steps to insure that full
disclosure of certain facts were made to the Massachusetts Water Resources
Authority and the District of Columbia in connection with services provided to
those entities.
C-1
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EXHIBIT INDEX
Exhibit No.
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Exhibit 1 Stockholders Agreement, dated as of August 23, 2000, between
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Merrill
Lynch & Co., Inc., Liraz Systems Ltd., Liraz Export (1990)
Ltd., Advanced Systems Europe B.V., Welsh, Carson, Anderson &
Stowe VI, L.P., WCAS Information Partners, L.P. and WCAS
Capital Partners II, L.P. (filed as an exhibit to the Form 8-K
filed by the Company with the SEC on August 11, 2000 and is
hereby incorporated by reference herein).
Exhibit 2 Purchase Agreement, dated July 31, 2000, between Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch &
Co., Inc. (filed as an exhibit to the Form 8-K filed by the
Company with the SEC on August 11, 2000 and is hereby
incorporated by reference herein).
Exhibit 3 Registration Rights Agreement, dated August 23, 2000, between
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill
Lynch & Co., Inc. (filed as an exhibit to the Form 8-K filed
by the Company with the SEC on August 11, 2000 and is hereby
incorporated by reference herein).
Exhibit 4 Joint Filing Agreement by and between Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Merrill Lynch & Co., Inc.,
dated September 5, 2000.
