Registration No. 333-
As filed with the Securities and Exchange Commission
on March 7, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LEVEL 8 SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
____________________________________
New York 11-2920559
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Penn Plaza
New York, New York 10119-0002
(212) 244-1234
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Robert R. MacDonald
Chairman of the Board
One Penn Plaza
New York, New York 10119-0002
(212) 244-1234
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
____________________________________
Copies to:
Edward W. Kerson, Esq.
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036-8299
(212) 969-3000
____________________________________
Approximate date of commencement of proposed sale
to the public:
As soon as practicable after the effective date
of this Registration Statement.
If any of the securities being registered on this form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, check the following
box. / /
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) of the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
=================================================================
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount
Title of to be Offering Price Offering Registration
Securities Registered Per Share Price(1) Fee
_________________________________________________________________
Common 140,000 12 1/8 $1,697,500 $515.00
Stock,
$.01 par
value(2)
=================================================================
(1) Estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457 under the
Securities Act of 1933.
(2) Pursuant to Rule 416, this Registration Statement also
registers such indeterminate number of shares as may become
issuable pursuant to the antidilution provisions of the
underlying warrants.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
=================================================================
SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
March , 1997
140,000 Shares
LEVEL 8 SYSTEMS, INC.
Common Stock
This Prospectus relates to the offer and sale from time to
time by Hampshire Securities Corporation (the "Selling
Stockholder") of up to a total of 140,000 shares (the "Shares")
of common stock, par value $.01 per share (the "Common Stock"),
of Level 8 Systems, Inc., a New York corporation (the "Company").
Such Shares may be offered in amounts, at prices and on terms to
be determined at the time of sale. See "Selling Stockholder and
Plan of Distribution."
The Company's Common Stock is quoted on the Nasdaq National
Market under the trading symbol "LVEL." On March 5, 1997, the
closing sale price of the Common Stock was $12 1/8 per share.
The Shares to which this Prospectus relates may be offered
and sold from time to time by the Selling Stockholders to or
through one or more brokers, dealers or agents or directly to
purchasers. See "Selling Stockholder and Plan of Distribution."
The Company will not receive any part of the proceeds from
sales of the Shares. All expenses of registration incurred in
connection herewith are being borne by the Company, but all
selling and other expenses incurred by the Selling Stockholder
will be borne by the Selling Stockholder.
Liraz Systems Ltd. and its wholly-owned subsidiaries
(together with its wholly-owned subsidiaries, "Liraz") own
approximately 53% of the outstanding Common Stock.
See "Risk Factors" beginning on page 4 for a discussion of
certain factors that should be considered by prospective
purchasers.
_________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_________________________________________________
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the caption "Risk Factors" herein
as well as under the captions "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business" which are incorporated herein by reference constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or
achievements of the Company, or industry results, to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following
general economic and business conditions: the loss of, or the
failure to replace, any significant customers; changes in
business strategy or development plans; the timing and success of
new product introductions; the quality of management; the
availability, terms and deployment of capital; the business
abilities and judgments of personnel; the availability of
qualified personnel; and other factors referenced in this
Prospectus or in the materials incorporated herein by reference.
These forward-looking statements speak only as of the date of
this Prospectus. The Company expressly disclaims any obligation
or undertaking to release publicly any updates or revisions to
any forward-looking statement contained herein or incorporated by
reference to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form
S-3 (collectively with all amendments, exhibits, schedules and
supplements thereto, the "Registration Statement") under the
Securities Act of 1933 (the "Securities Act") with respect to the
Shares offered hereby. This Prospectus, which forms a part of
the Registration Statement, does not contain all the information
set forth in the Registration Statement, as permitted by the
rules and regulations of the Commission. For further information
with respect to the Company and the Shares offered hereby,
reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract
or other document that has been filed as an exhibit to the
Registration Statement are qualified in their entirety by
reference to such exhibits for a complete statement of their
terms and conditions. The Company also files periodic reports
and other information required to be filed pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act"). The
Registration Statement and such periodic reports and other
information may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth
Street N.W., Washington, D.C. 20549 or at certain of the regional
offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, upon payment of the fees
prescribed by the Commission. Copies of such material may be
obtained from the Public Reference Section of the Commission at
450 Fifth Street N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a Web site
(http://www.sec.gov) through which the Registration Statement and
the Company's periodic reports and other information can be
retrieved.
The Common Stock is quoted on the Nasdaq National Market
under the trading symbol "LVEL." Reports and other information
concerning the Company may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street
N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by
the Company with the Commission are incorporated by reference in
this Prospectus:
(a) The Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 (the "1995 10-K") (file no. 0-26392)
which contains consolidated financial statements of the Company
and certain other information regarding the Company.
(b) The Company's Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1996, June 30, 1996 and September
30, 1996; and
(c) The Company's Current Report on Form 8-K dated
September 9, 1996; and
(d) The information in "Pro Forma Selected Consolidated
Statements of Operations," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the
Financial Statements in the Prospectus that is a part of the
Company's Registration Statement on Form S-1 (File No. 333-15455)
as declared effective on December 17, 1996.
Each document filed subsequent to the date of this
Prospectus by the Company pursuant to Sections 13(a), 14 or 15(d)
of the Exchange Act, prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have
been sold or which deregisters all securities remaining unsold,
shall be deemed to be incorporated by reference herein and to be
a part hereof from the date of the filing of such reports and
documents.
Any statement contained in a document, all or a portion of
which is incorporated by reference herein, shall be deemed to be
modified or superseded for purposes of this Prospectus to the
extent that a statement contained or incorporated by reference
herein modified or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to
each person to whom a copy of this Prospectus has been delivered,
upon the written or oral request of any such person, a copy of
any or all such documents which are incorporated herein by
reference (other than exhibits to such documents unless such
exhibits are specifically incorporated by reference into the
documents that this Prospectus incorporates). Written or oral
requests for copies should be directed to: Joseph J. DiZazzo,
Level 8 Systems, Inc., 382 Main Street, Salem, New Hampshire,
03079, telephone number: (212) 244-1234.
THE COMPANY
The Company began operations in 1988 as a wholly-owned
subsidiary of Liraz, an Israeli public company that is a systems
integrator. Since 1988, the Company, through its ASU consulting
division ("ASU"), has provided systems integration consulting
services primarily to manufacturing businesses in the State of
California. In October 1994, the Company acquired ProfitKey
International, Inc. ("ProfitKey") and Bizware Computer Systems
(Canada) Inc. ("Bizware") and, in April 1995, the Company
acquired Level 8 Systems, Inc. ("Level 8"). In July 1996, the
Company decided to focus on the middleware activities of Level 8,
and, in that connection, on September 9, 1996, sold substantially
all the assets of Bizware for $230,000 and subsequently changed
the Company's name from Across Data Systems, Inc. to Level 8
Systems, Inc. Middleware is computer software that facilitates
communication among otherwise incompatible computer hardware and
software.
The Company believes that it has established itself as a
technology leader in the rapidly growing middleware marketplace.
The Company's middleware products and services, some of which
have been developed pursuant to contracts with International
Business Machines Corporation ("IBM") and Microsoft Corporation
("Microsoft"), utilize messaging and object technology to solve
enterprise- wide integration problems associated with linking
legacy environments, the desktop and the internet. The Company
recently entered into agreements with Candle Corporation
("Candle"), pursuant to which Candle purchased 246,800 shares of
Common Stock for $11 per share and acquired certain rights to
technology developed by the Company and will acquire certain
non-exclusive distribution rights to the Company's products,
including Falcon External Gateways (which is referred to below).
In addition, the Company, through its wholly-owned subsidiary,
ProfitKey International, Inc. ("ProfitKey"), offers MRP II and
shop-floor scheduling packages and related services.
The Company has experienced substantial growth on a
quarter-to-quarter basis in its middleware products and services
operations since last year, as the Company's focus and operating
strategy have evolved from that of an industry specific
("vertical") software developer to a provider of middleware
products and services. Industry sources have estimated that the
messaging middleware market exceeded $100 million in 1995 and
that such market is expected to grow to approximately $1.7
billion by the year 2000.
The Company, through its wholly-owned subsidiary, Level 8
Technologies, Inc. ("Level 8"), formerly Level 8 Systems, Inc.,
has been designated as an IBM Premier Partner for IBM MQSeries.
Pursuant to a contract with IBM, Level 8 has ported version 2 of
MQSeries to the DEC VMS platform and will be entitled to
royalties, if any, from sales of the ported product and has
ported IBM's distributed object product, DSOM. In addition, the
Company provides installation, education, integration and
help-desk services in support of IBM and Level 8 sales of IBM
MQSeries licenses. Samuel Somech, a co-founder of Level 8, was
the original designer of the transactional messaging product that
became version 1 of the MQSeries.
Microsoft has selected the Company to develop messaging
gateways (currently called "Falcon External Gateways") to
facilitate communications between computer running Microsoft's
messaging product (currently called "Falcon") and various
non-Microsoft environments. Microsoft developed Falcon as a
transactional messaging system for use within Microsoft Windows
NT and Windows 95. Level 8's Falcon External Gateways are being
developed and are owned by Level 8 and facilitate communications
of Falcon with IBM MQSeries, mainframes and UNIX-based systems.
Microsoft's Falcon and Level 8's Falcon External Gateways are
currently being Beta tested and are expected to be available for
shipment in mid-1997. Microsoft has indicated an intent to
promote Level 8's Falcon External Gateways.
The Company is developing DOT/XM, a product that uses
third-party transactional messaging and distributed object
products in a Level 8 designed tool that facilitates integration
of larger, centralized computer systems (so called "legacy
systems") into modern open system architectures by representing
the legacy system as a collection of objects. Consulting services
associated with DOT/XM technology have generated approximately
$700,000 of revenue during the nine months ended September 30,
1996. The first large commercial installation of DOT/XM is
currently taking place at ABN/AMRO Bank.
The Company's expansion plan is to grow primarily on the
basis of Level 8 middleware products, such as messaging gateways,
DOT/XM and other software tools that permit access to legacy
information from any computing environment. Other products under
development by the Company, and with respect to which the Company
currently is offering consulting services, are (a) a
publish/subscribe product which sends designated data ("publish")
to interested users ("subscribers") using transactional messaging
as the delivery mechanism, and (b) an internet-application
integration product which uses portions of the DOT/XM framework
to integrate commercial transactions on the internet with the
legacy systems of the selling corporation.
Through ProfitKey, the Company offers MRP II and shop-floor
scheduling software packages, as well as related installation,
training and support services. Historically, ProfitKey has
directed its software packages to job shops and custom
manufactures, which use ProfitKey's software package to
facilitate "just-in-time" deliveries and efficient scheduling of
expensive shop-floor equipment.
The Company was incorporated in the State of New York in
1988. Its executive offices are located at One Penn Plaza, Suite
3401, New York, New York 10119-0002, and its telephone number at
that address is (212) 244-1234.
RISK FACTORS
An investment in the Shares involves a high degree of risk.
Prospective investors, prior to making an investment decision,
should carefully consider the following risk factors, together
with the other matters incorporated by reference herein. This
section contains forward-looking statements. See "Special Note
Regarding Forward-Looking Statements."
Losses from Recent Operations. The Company has incurred net
losses for each of the three months ended September 30, 1995,
December 31, 1995, March 31, 1996, June 30, 1996 and September
30, 1996 of $42,064, $89,413, $266,971, $557,985 and $187,626
(which does not include the $1,484,061 loss attributable to the
sale of Bizware in the three months ended September 30, 1996),
respectively. In addition, the Company's future plans are
subject to known and unknown risks and uncertainties that may
cause the Company's actual results in future periods to be
materially different from any anticipated results. There can be
no assurance that the Company's operations will be profitable.
Risks Associated with Growth. The Company intends to expand
primarily by increasing sales personnel and marketing activities
and by increasing software development activities. The Company
expects that the expenses related to the planned expansion
generally will precede the Company's realization of the benefits,
if any, of any such expansion. Accordingly, the Company expects
that the incurrence of these expenses will adversely affect the
Company's earnings and working capital in the periods prior to
the Company's realization of the benefits, if any, of such
expansion.
Additionally, the Company's results of operations may be
affected by any acquisition consummated by the Company or a
reorganization or disposition by the Company of its existing
assets. The Company has considered a reorganization or sale or
disposition of businesses that are not essential to its
operations in the middleware market. In that connection, the
Company discussed with certain unaffiliated third parties the
sale of ProfitKey. Such talks have been terminated, and the
Company presently has no arrangement, commitment or understanding
to sell ProfitKey. If the Company were to expand in the future by
acquisitions of software companies and licenses, there can be no
assurance that it would be successful in locating or acquiring
suitable companies and licenses on acceptable terms, or that any
acquired companies could be effectively integrated into, and
profitably managed by, the Company.
Dependence on Developing Market for Middleware. The market
for middleware in software applications is continuing to develop.
The Company's major products are transactional messaging and
distributed object middleware. There can be no assurance that the
Company's transactional messaging and distributed object
middleware will achieve broad market acceptance or that the
market for middleware will continue to grow. Even if
transactional messaging and distributed object middleware achieve
broad market acceptance and the market grows, there can be no
assurance that the Company will ever have a significant share of
that market. See "-Consequences of Rapid Technological Change."
Consequences of Rapid Technological Change. The software
industry is characterized by rapid technological change, frequent
introductions of new products and systems, changes in customer
demands and evolving industry standards. The introduction of
products embodying new technology or adapting products to the
computing market and the emergence of new industry standards
often render existing products obsolete and unmarketable. The
Company's success will depend upon its ability to enhance its
existing products and to develop, introduce or otherwise acquire
on a timely basis new products that keep pace with technological
developments and emerging industry standards in order to meet the
changing needs of the Company's customers. There can be no
assurance that the Company will be successful in developing and
marketing product enhancements or new products that respond to
technological change or evolving industry standards, that the
Company will not experience difficulties that could delay or
prevent the successful development, introduction or sale of these
products or that the Company's new products and product
enhancements (if any) will adequately meet the requirements of
the marketplace and achieve market acceptance. In addition, there
can be no assurance that technological changes or evolving
industry standards will not render the Company's products and
technologies obsolete.
Competition. The Company competes in the application
software and systems integration services markets, as well as in
the developing market for transactional messaging and distributed
object middleware. Such markets are highly competitive, and the
Company believes competition will intensify in such markets. The
Company competes with developers of middleware, such as Digital
Equipment Corporation, International Business Machines
Corporation ("IBM"), Candle Corporation ("Candle") and Microsoft
Corporation; with providers of systems integration services, such
as Anderson Consulting, Logica PLC and numerous local and
regional providers; and with providers of software packages for
particular markets, such as Fourth Shift Corporation and Symix
Systems, Inc. The Company's competitors generally have
substantially larger operations, have broader product lines with
greater name recognition and market acceptance and have
significantly greater financial, marketing, personnel and
operating resources than the Company. There can be no assurance
the Company will successfully compete in any market in which it
conducts, or may conduct, its operations.
Possible Need for Additional Financing. Based on the
Company's operating plan, the Company believes that its existing
cash, together with anticipated funds from operations, will be
sufficient to satisfy its capital requirements and planned
software development activities through June 1998, although there
can be no assurance that additional capital will not be required
before such time. In that connection, the Company is developing
four new products for introduction in 1997, which will require
additional investments in development and marketing. In addition,
as yet unplanned acquisition and development opportunities and
other contingencies may arise, which also could require the
Company to obtain additional capital. The Company anticipates
that it could require additional capital in order to finance its
current plans for expansion and its development activities.
Sources of funds may include the issuance of common or preferred
stock sold in a public offering or in private placements, debt
securities or bank financing. There can be no assurance that the
Company would be able to obtain capital on a timely basis, on
favorable terms, or at all. If the Company is unable to obtain
such financing, or generate funds from operations sufficient to
meet its needs, the Company may be unable to implement its
current plans for expansion and software development.
Absence of Patent Protection. The Company does not have any
patents and has not filed any patent applications. The Company
relies on a combination of trade secret laws, nondisclosure and
other contractual agreements with its employees and consultants
and technical measures to protect its rights in its know-how and
proprietary products. The foregoing may not afford the Company
sufficient protection for its know-how and products, and other
parties may develop similar know-how and products, duplicate the
Company's know-how and products or be granted patents that would
materially and adversely affect the Company's business.
The Company believes that its products and services do not
infringe the rights of third parties; however, while the Company
has not received notice of any infringement claims, third parties
may assert such claims against the Company, and such claims could
require the Company to enter into licensing agreements for the
technology in question or royalty arrangements or result in
litigation, which could materially and adversely affect the
Company's business. There can be no assurance that the Company
could acquire any such license on terms acceptable to the Company
or at all. Any failure of the Company to acquire such licenses
could materially and adversely affect the Company's business and
prospects.
Dependence Upon Key Personnel. The Company depends upon the
continued efforts and abilities of its senior management
personnel, including Arie Kilman, the Company's Chief Executive
Officer, and Samuel Somech, the President of the Company. Mr.
Kilman and Mr. Somech have entered into employment agreements
with the Company. These agreements terminate in the second
quarter and fourth quarter, respectively, of 1998. The loss or
unavailability of the services of either of these individuals for
any significant period could have a material adverse effect on
the Company's business and prospects. The Company is the sole
beneficiary of key-man life insurance in the amount of $1,000,000
on the life of Mr. Somech. There can be no assurance that such
insurance will continue to be available on reasonable terms, or
at all.
Dependence on Major Customers; Fluctuations of Operating
Results. A significant portion of the Company's business is
attributable to a limited number of changing customers. For the
nine months ended September 30, 1996, the Company's five largest
customers accounted for an aggregate of approximately 30% of the
Company's revenue. Such customers and the approximate percentage
of such revenue accounted for by each such customer are
TransQuest, Inc. (a wholly-owned subsidiary of Delta Airlines)
(13%), Nelcor Incorporated (5%), Ascend Communications, Inc.
(4%), IBM (4%) and American Express Corporation (4%). The loss of
any such customer and the failure to attract new customers could
have a material adverse effect upon the Company. As a result of
the Company's reliance on a limited number of changing customers,
the Company's results of operations have fluctuated, and will
continue to fluctuate, materially from period to period.
Accordingly, the results of operations in any one period may not
be indicative of the results of operations for any succeeding
period.
Certain Non-Cash Charges to Earnings. The acquisitions of
ProfitKey and Level 8 have been accounted for as purchases.
Accordingly, in late 1994, the Company recorded, in connection
with the ProfitKey acquisition, approximately $2,702,600 for
service contracts acquired; and in April 1995, the Company
recorded, in connection with the Level 8 acquisition,
approximately $2,960,400, representing the excess of cost over
net assets acquired. As a consequence of the amortization of
these intangible assets, the Company will record amortization
expense of approximately $526,400 each year through 2001, and a
reduced amount each year for 13 years thereafter. In September
1996, the Company recorded a loss of approximately $1,484,000 in
connection with the sale of Bizware.
Fluctuations in Personnel Needs; Dependence Upon
Consultants. Although the Company has a small number of
employees, the Company believes its existing staff is sufficient
in number and expertise to meet its existing requirements.
However, the Company's required staffing levels are likely to
change materially from period to period, depending upon customer
requirements. The Company's ability successfully to service
significant projects depends, in large part, on the Company's
ability to attract and retain highly qualified technical and
managerial personnel during specific periods. There can be no
assurance that the Company will be able to continue to attract
and retain such personnel when needed, on terms acceptable to the
Company, or at all; the failure to do so would materially and
adversely affect the Company.
The Company depends upon the continued services of
approximately 14 non-employee consultants involved in a variety
of tasks, including developing software, training and on-site
programming. The computer industry is characterized by a high
level of employee mobility and aggressive recruiting of skilled
personnel. There can be no assurance that the consultants the
Company currently engages will continue to render services to the
Company, or that the Company will continue to be able to attract
and retain consultants when needed, on reasonable terms, or at
all.
Control by Liraz; Potential Conflicts of Interest. Liraz
owns approximately 50% of the outstanding shares of Common Stock.
Therefore, Liraz will have the ability to control the election of
directors of the Company and the outcome of all issues (except
with respect to certain extraordinary matters requiring the
affirmative vote of holders of two-thirds of the outstanding
shares) submitted to a vote of shareholders of the Company. Such
control could adversely affect the market price of the Common
Stock or delay or prevent a change in control of the Company.
The Company has entered into various agreements with Liraz,
which the Company believes are on terms no less favorable than
those between unaffiliated parties.
Substantial Options and Warrants Reserved. The Company has
reserved 900,000 shares of Common Stock for issuance pursuant to
its 1995 Stock Incentive Plan (the "Plan") and expects to reserve
additional shares of Common Stock upon adoption of a new plan
within the next year. To date, options to purchase an aggregate
of 873,196 shares of Common Stock have been granted pursuant to
the Plan and warrants to purchase an additional 256,188 shares of
Common Stock are outstanding. The exercise of such options and
warrants and subsequent sale of the underlying Common Stock in
the public market could adversely affect the market price of the
Company's securities. See "__Possible Need for Additional
Financing."
Shares Eligible for Future Sale. Future sales of
substantial numbers of shares of Common Stock (including shares
issued upon the exercise of stock options and warrants) by the
Company, Liraz or the executive officers or other affiliates of
the Company, or the perception that such sales could occur, could
adversely affect the market price for the Common Stock. In that
regard, holders of approximately 56% of the 6,953,575 shares of
Common Stock, including the officers and directors of the
Company, have agreed not to sell publicly or otherwise dispose of
any shares of Common Stock until June 17, 1997 (the "Lock-Up
Period"), without the prior written consent of the Hampshire
Securities Corporation. Beginning immediately or shortly after
the Lock-Up Period, all the shares of Common Stock currently
owned by the Company's affiliates will be eligible for resale in
the public market pursuant to Rule 144 under the Securities Act.
In addition, the Company has granted certain parties, including
Candle (which owns 246,800 shares of Common Stock) and Liraz,
registration rights with respect to an aggregate of 4,120,802
shares of Common Stock (or approximately 50% of the Company's
outstanding shares), which rights may be exercised after March 1,
1999 and June 17, 1997 respectively.
Dividend Policy. The Company has never declared or paid
cash dividends on the Common Stock and does not anticipate paying
any cash dividends in the foreseeable future.
Anti-Takeover Effects of Provisions of New York Law and the
Restated Certificate of Incorporation. Certain provisions of
section 912 of the New York Business Corporation Law (the "BCL"),
which prohibit certain persons from engaging in business
combinations with the Company, may be considered to have
anti-takeover effects and may delay, defer or prevent a takeover
attempt that a shareholder may consider to be in the
shareholder's best interests. These provisions of the BCL also
may adversely affect the market price for the Common Stock. The
Company's certificate of incorporation authorizes the issuance,
without shareholder approval, of preferred stock with such
designations, rights and preferences as may be determined from
time to time by the Board of Directors. Such designations, rights
and preferences established by the Board may adversely affect the
relative voting power or other rights of, and may have a dilutive
effect on, holders of the Common Stock. In the event of issuance,
the preferred stock could be used, under certain circumstances,
as a method of discouraging, delaying or preventing a change of
control of the Company. Although the Company has no present
intention to issue any shares of preferred stock, there can be no
assurance that the Company will not do so in the future.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of
Shares.
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
All of the 140,000 Shares offered hereby represent all of
the shares of Common Stock underlying certain warrants (the
"Warrants") issued by the Company to the Selling Stockholder and
are issuable by the Company upon the exercise of the Warrants.
The Selling Stockholder purchased the Warrants from the Company
in connection with the Company's initial public offering in July,
1995. In addition to Warrants, the Selling Stockholder
beneficially owns additional warrants to purchase 110,000 shares
of Common Stock, the additional warrants being purchased in
connection with the Company's public offering in December 1996.
All shares or rights to these shares are beneficially owned and
sole voting and investment power is held by the Selling
Stockholder. To the knowledge of the Company, the Selling
Stockholder does not have any other material relationship with
the Company.
The Company has agreed that, until December 17, 1999,
Hampshire Securities Corporation may appoint an observer to
attend all meetings of the Company's Board of Directors. The
Observer has the right to receive notice of all meetings of the
Board of Directors and to attend such meetings. However, the
Board of Directors may exclude the observer from any meeting at
which, in the opinion of the Board, confidential or sensitive
matters are to be discussed. The observer will be entitled to
reimbursement for up to $500 of out-of-pocket expenses for
attendance at those meetings. In addition, the observer will be
entitled to indemnification, to the same extent as the Company's
directors. Hampshire Securities Corporation has advised the
Company that its initial designee is an officer of Hampshire
Securities Corporation.
The Selling Stockholder is offering the Shares for its own
account, and not for the account of the Company. The Company
will not receive any of the net proceeds of the offering.
The Shares to be offered by the Selling Stockholder may be
sold, from time to time, on the Nasdaq National Market System, in
regular brokerage transactions, in transactions directly with
market makers or in privately negotiated transactions at market
prices prevailing at the time of sale, at prices related to such
prevailing prices or at negotiated prices. The Selling
Stockholder also may pledge the shares as collateral, and such
shares could be sold pursuant to the terms of such pledges.
Agents through whom the Shares may be offered may receive
compensation in the form of discounts, concessions or commissions
from the Selling Stockholder and/or the purchasers of such Shares
for whom they may act as agent. The Selling Stockholder and any
such agents that participate in the distribution of the Shares
may be deemed to be underwriters, and any profits on the sale of
the Shares by them and any discounts, commissions or concessions
received by any such agents might be deemed to be underwriting
discounts and commissions under the Securities Act. To the
extent the Selling Stockholder may be deemed to be an
underwriter, the Selling Stockholder may be subject to certain
statutory liabilities of the Securities Act, including but not
limited to Sections 11 and 12 under the Securities Act and Rule
10b-5 under the Exchange Act.
Under the Exchange Act and the regulations thereunder,
during any period when it is engaged in a distribution of the
Shares offered by this Prospectus, the Selling Stockholder may
not simultaneously engage in market making activities with
respect to the Common Stock during any applicable "cooling off"
periods prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling
Stockholder will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder including,
without limitation, Rules 10b-6 and 10b-7, which may limit the
timing of purchases and sales of Common Stock by the Selling
Stockholder.
The Registration Statement that includes this Prospectus is
filed pursuant to registration rights granted by the Company in
connection with the issuance of the underlying warrants. The
Company has agreed to indemnify the Selling Stockholder and its
directors, officers and affiliates for certain losses, claims and
liabilities in connection with the sale of Shares pursuant to the
Registration Statement of which this Prospectus forms a part.
The Company also has agreed to pay the expenses in connection
with the Registration Statement that includes this Prospectus,
including filing fees. The Selling Stockholder will pay any
brokerage or other fees or commissions, as well as Selling
Stockholder's incidental expenses, in connection with the
offering.
To the extent required, the Company will use its best
efforts to file, during any period in which offers or sales are
being made, one or more supplements to this Prospectus to
describe any material information with respect to the plan of
distribution not previously disclosed in this Prospectus or any
material change to such information in this Prospectus.
EXPERTS
The audited financial statements, incorporated herein by
reference from the Company's Registration Statement on Form S-1
(File No. 333-15455) as declared effective on December 17, 1996,
have been audited by Lurie, Besikof, Lapidus & Co., LLP,
independent public accountants, as indicated in their reports
with respect to those financial statements, and are incorporated
by reference in this Prospectus in reliance upon the authority of
that firm as experts in giving such reports.
============================== =========================
No dealer, salesman or
any other person has been
authorized to give any 140,000 Shares
information or to make any
representation not contained
in this prospectus in connection
with the offering made hereby,
and if given or made, such
information or representation
by the Company or the Selling LEVEL 8 SYSTEMS, INC.
Stockholder. This prospectus
does not constitute an offer to
sell, or a solicitation of an
offer to buy, any of the securities
offered hereby in any jurisdiction
to any person to whom it is unlawful
to make such an offer or solicitation
in such jurisdiction. Neither the
delivery of this prospectus nor any
sale made hereunder shall under any
circumstances create any implication
that there has been no change in the
affairs of the Company since the
date hereof or that the information
contained herein is correct as of any
time subsequent to the dates as of
which such information is furnished.
_______________________
TABLE OF CONTENTS Common Stock
Page
Special Note Regarding
Forward-Looking Statements. . .2 ______________
Available Information . . . . . .2 PROSPECTUS
Incorporation of Certain ______________
Documents by Reference. . . . .3
The Company . . . . . . . . . . .3
Risk Factors. . . . . . . . . . .5
Use of Proceeds . . . . . . . . .7
Selling Stockholder and Plan
of Distribution. . . . . . . . 7
Experts . . . . . . . . . . . . .8
_______________________ March , 1997
============================== =========================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth all expenses in connection
with the registration of the securities in described in this
Registration Statement, all of which are payable by the Company.
All amounts shown are estimates except the Securities and
Exchange Commission registration fee. No portion of these
expenses will be borne by the Selling Stockholder.
Securities and Exchange Commission
registration fee . . . . . . . . . . . $ 515.00
Accounting Fees and Expenses . . . . . . . 5,000.00
Legal fees and expenses. . . . . . . . . . 5,000.00
Blue Sky fees and expenses . . . . . . . . 2,500.00
Miscellaneous . . . . . . . . . . . . . . 2,500.00
_____________
Total . . . . . . . . . . . . . . . . $15,515.00
______________
Item 15. Indemnification of Directors and Officers
The Amended Certificate of Incorporation provides that a
director of the Company shall not be liable to the Company or its
shareholders for damages for any breach of duty in such capacity
except for: (i) liability if a judgment or other final
adjudication adverse to a director establishes that his or her
acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law or that the director
personally gained in fact a financial profit or other advantage
to which he or she was not legally entitled or that the
director's acts violated Section 719 of New York Business
Corporation law, or (ii) liability for any act or omission prior
to the adoption of the indemnification provision in the
Certificate of Incorporation.
The Company's Bylaws further provide for indemnification of
directors and officers of the Company to the fullest extent
permitted by New York law. Section 722 of the New York Business
Corporation Law provides, in substance, that New York
corporations may indemnify their directors and officers in
connection with actions or proceedings (other than one by or in
the right of the corporation to procure a judgment in its favor)
brought against such directors or officers, including actions
brought against such directors or officers by or in the right of
any other corporation, by reason of the fact that they are or
were such directors or officers, against judgments, fines,
amounts paid in settlement and reasonable expenses.
Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions,
the Registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the 1933 Act and is
therefore unenforceable.
Item 16. Exhibits
Exhibit No. Description of Exhibit
2.1 Agreement of Sale of Asset, effective September 9,
1996, between Bizware and 3203174 Canada, Inc.
(1)
5.1 Opinion of Proskauer Rose Goetz & Mendelsohn LLP
as to the legality of the securities being
registered. (2)
23.1 Consent of Proskauer Rose Goetz & Mendelsohn LLP
(included in Exhibit 5.1) (2)
23.2 Consent of Lurie, Besikof, Lapidus & Co., LLP (2)
24.1 Powers of Attorney (incorporated by reference from
page II-5).
(1) Previously filed and incorporated herein by reference from
the Registrant's Form 8-K dated September 9, 1996 (File No.
0-26392).
(2) Filed herewith.
Item 17. Undertakings
A. Undertaking in Respect of Rule 415 Offering.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement;
(i) To include any Prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information
in the Registration Statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
B. Underwriting Incorporating Subsequent Exchange Act Documents
by Reference
The undersigned registrant hereby undertakes that, for
purposes of determining any likability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
C. Undertaking in Respect of Indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 Act may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the 1933 Act and will be governed by the final adjudication of
such issue.
D. Undertaking in Respect of Warrants and Rights Offerings.
The undersigned registrant hereby undertakes to supplement
the prospectus, after the expiration of the subscription period,
to set forth the results of the subscription offer, the
transactions by the underwriters during the subscription period,
the amount of unsubscribed securities to be purchased by the
underwriters, and terms of any subsequent reoffering thereof. If
any public offering by the underwriters is to be made on terms
differing from those set forth on the cover page of the
prospectus, a post-effective amendment will be filed to set forth
the terms of such offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the
6th day of March, 1997.
LEVEL 8 SYSTEMS, INC.
By: /s/ Robert R. MacDonald
Robert R. MacDonald
Chairman of the Board
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Robert R.
MacDonald and Arie Kilman, or either of them, his true and lawful
attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities to sign any or all amendments (including
post-effective amendments) to this Registration Statement and any
related Registration Statement filed under Rule 462(b), and to
file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and
about the premises, as fully for all intents and purposes as he
might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
Signatures Title Date
/s/ Robert R. MacDonald Chairman of the March 7, 1997
Robert R. MacDonald Board
/s/ Arie Kilman Chief Executive March 7, 1997
Arie Kilman Officer And
Director
(Principal
Executive
Officer)
/s/ Joseph J. Di Zazzo Controller And March 7, 1997
Joseph J. Di Zazzo Chief Accounting
Officer (Principal
Financial and
Accounting Officer)
/s/ Samuel Somech Director March 7, 1997
Samuel Somech
/s/ Theodore Fine Director March 7, 1997
Theodore Fine
/s/ Lenny Recanati Director March 7, 1997
Lenny Recanati
/s/ Frank J. Klein Director March 7, 1997
Frank J. Klein
Exhibit 5.1
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036-8299
(212) 969-3000
March 7, 1997
Level 8 Systems, Inc.
One Penn Plaza, Suite 3401
New York, New York 10119
Ladies and Gentlemen:
We have acted as special counsel to Level 8 Systems,
Inc. (the "Company"), a New York corporation, in connection with
the preparation and filing of the Company's Registration
Statement on Form S-3 (Registration No. 333- ) (the
"Registration Statement") under the Securities Act of 1933
relating to the proposed offering by Hampshire Securities
Corporation ("Hampshire") of 140,000 shares of the Company's
common stock issuable upon exercise of a Warrant dated August 1,
1995 (the "Warrant").
We have made such investigation and examined such
documents and records (including certificates of certain public
officials and certificates furnished by officers of the Company)
as we have deemed necessary, and on that basis we are of the
opinion that the shares of the Company's common stock issuable
upon exercise of the Warrant and to be offered by Hampshire to
the public pursuant to the Registration Statement have been duly
authorized and, when issued and paid for in the manner described
in the Registration Statement, will be validly issued and fully
paid and nonassessable (subject to Section 630 of the New York
Business Corporation Law).
We consent to the use of this opinion for filing as
exhibit 5.1 to the Registration Statement. In giving this
consent, we do not hereby admit that we come within the category
of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
PROSKAUER ROSE GOETZ & MENDELSOHN LLP
Exhibit 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration
Statement of Level 8 Systems, Inc. on Form S-3 of our report
dated January 26, 1996 (except for Note 13, as to which the date
is September 9, 1996 and except for the last sentence of Note 13,
as to which the date is November 8, 1996), appearing in the
Registration Statement on Form S-1 (File No. 333-15455) as
declared effective December 17, 1996, of Level 8 Systems, Inc.
for the year ended December 31, 1995, and to the reference to us
under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
Our audits of the financial statements referred to in our
aforementioned report also included the financial statement
schedule of LEVEL 8 SYSTEMS, INC. listed in Item 16. This
financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
March 7, 1997
