SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or
Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
Level 8 Systems, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which
transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Level 8 Systems, Inc.
One Penn Plaza, Suite 3401
New York, New York 10119-0002
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders of LEVEL 8 SYSTEMS,
INC. (the "Corporation") will be held at the offices of Proskauer
Rose LLP, 1585 Broadway, 26th Floor, New York, New York on
Monday, May 11, 1998 at 10:00 a.m. local time for the following
purposes:
1. to elect seven directors;
2. to approve an amendment to the Corporation's 1997 Stock
Option Plan to increase from 600,000 to 1,400,000 the number of
shares of Common Stock subject to that plan, as described in the
accompanying Proxy Statement; and
3. to transact such other business as may come before the
meeting or any adjournment or adjournments of the meeting.
The board of directors has fixed the close of business
on March 31, 1998 as the record date for determining shareholders
entitled to notice of and to vote at the meeting.
A proxy and return envelope are enclosed for your
convenience.
By Order of the Board of Directors,
/s/ Arie Kilman
Arie Kilman
Chairman of the Board of Directors
April 15, 1998
YOUR VOTE IS IMPORTANT
Please mark, sign and date the enclosed proxy
card and return it promptly in the enclosed, self-
addressed, stamped envelope
Level 8 Systems, Inc.
One Penn Plaza, Suite 3401
New York, New York 10119-0002
____________________
This proxy statement is furnished to the shareholders
of Level 8 Systems, Inc., a New York corporation (the
"Corporation"), in connection with the solicitation of proxies by
the board of directors for use at the annual meeting of
shareholders of the Corporation to be held on May 11, 1998 and
any adjournment or adjournments of the meeting. A copy of the
notice of meeting accompanies this proxy statement. The mailing
of this proxy statement will commence on or about April 15, 1998.
Only shareholders of record at the close of business on
March 31, 1998, the record date for the meeting, will be entitled
to notice of and to vote at the meeting. On the record date, the
Corporation had issued and outstanding 7,624,192 shares of common
stock, par value $.01 per share (the "Common Stock"), which are
the only securities of the Corporation entitled to notice of and
to vote at the meeting. Each share is entitled to one vote.
Shareholders who execute proxies may revoke them by
giving written notice to the secretary of the Corporation at any
time before such proxies are voted. Attendance at the meeting
will not have the effect of revoking a proxy, unless the
shareholder so attending shall, in writing, so notify the
secretary of the meeting at any time prior to the voting of the
proxy.
The board of directors does not know of any matter that
is expected to be presented for consideration at the meeting,
other than the election of directors and the approval of the
amendment to the Corporation's 1997 Stock Option Plan to increase
from 600,000 to 1,400,000 the number of shares of Common Stock
subject to that plan. However, if other matters properly come
before the meeting, the persons named in the accompanying proxy
intend to vote on such matters in accordance with their judgment.
The Corporation will bear the cost of the meeting and
the cost of soliciting proxies, including the cost of mailing the
proxy material. In addition to solicitation by mail, directors,
officers and regular employees of the Corporation (who will not
be specifically compensated for such services) may solicit
proxies by telephone or otherwise. Arrangements will be made
with brokerage houses and other custodians, nominees and
fiduciaries to forward proxies and proxy material to their
principals, and the Corporation will reimburse them for their
expenses.
All proxies received pursuant to this solicitation will
be voted, except as to matters where authority to vote is
specifically withheld, and, where a choice is specified as to the
proposal, proxies will be voted in accordance with such
specification. If no instructions are given, the persons named
in the proxy solicited by the board of directors of the
Corporation intend to vote (i) FOR the nominees for election as
directors of the Corporation listed in this proxy statement, and
(ii) FOR the approval of the amendment to the Corporation's 1997
Stock Option Plan to increase from 600,000 to 1,400,000 the
number of shares of Common Stock subject to that plan. Directors
will be elected by a plurality of the votes cast at the meeting.
The amendment to the Corporation's 1997 Stock Option Plan will be
approved by a majority of the votes cast at the meeting. With
regard to the election of directors, votes may be cast in favor
of or withheld from each nominee; votes that are withheld will be
excluded entirely from the vote and will have no effect. A
shareholder voting through a proxy who abstains with respect to
the election of directors is considered to be present and
entitled to vote on the election of directors and is, in effect,
casting a negative vote, but a shareholder (including a broker)
who does not give authority to a proxy to vote, or withholds
authority to vote, on the election of directors will not be
considered present and entitled to vote on the election of
directors. A shareholder voting through a proxy who abstains
with respect to any other matter to come before the meeting is
considered to be present and entitled to vote on such matter and
is, in effect, casting a negative vote, but a shareholder
(including a broker) who does not give authority to a proxy to
vote, or withholds authority to vote, on any such matter will not
be considered present and entitled to vote on such matter.
Liraz Systems Ltd. ("Liraz"), which beneficially owns
56.6% of the outstanding shares of Common Stock, has indicated
that it intends to vote all its shares for the nominees listed in
this proxy statement and for the approval of the amendment to the
Corporation's 1997 Stock Option Plan to increase from 600,000 to
1,400,000 the number of shares of Common Stock subject to that
plan.
PRINCIPAL SHAREHOLDERS
To the best of the knowledge of the board of directors,
the only beneficial owners of more than five percent of the
outstanding shares of Common Stock are those indicated in the
table set forth below.
Number of Shares
Owned and Nature Percent
of Beneficial of
Name Ownership Class
- ---- ----------------- ---------
Liraz Systems Ltd. 4,429,002 (1) 56.6%
5 Hatzoref Street
Holon 58856
Israel
Momentum Liquidating Trust 775,000 (2) 9.9%
Dr. Robert M. Brill, Trustee
Newlight Management, L.L.C.
500 North Broadway, Suite 144
Jericho, New York 11793
_______________
(1) Includes 575,000 outstanding shares of Common
Stock, and 200,000 additional shares of Common Stock issuable
upon exercise of warrants, held by Momentum Liquidating Trust, in
respect of which Liraz may be deemed to share voting and
dispositive power. See "Certain Relationships and Related Party
Transactions -- Momentum Acquisition". Mr. Arie Kilman is the
chief executive officer and chairman of the board of the
Corporation and the president and chairman of the board of
directors of Liraz. The Corporation has been advised that, as of
December 31, 1997, Mr. Kilman owned 1,170,668 ordinary shares of
Liraz, which is approximately 22.4% of the ordinary shares of
Liraz. Mr. Kilman may, by reason of his ownership in and
relationship with Liraz, be deemed to share voting power and
dispositive power with respect to the 4,429,002 shares of Common
Stock beneficially owned by Liraz and therefore may be deemed to
be the beneficial owner of such shares.
Mr. Kilman is a party to a shareholders agreement (the
"Shareholders Agreement") with PEC Israel Economic Corporation
("PEC") and Discount Investment Corporation Ltd. ("DIC"),
pursuant to which Mr. Kilman, PEC and DIC have agreed to act
together to elect directors of Liraz and for certain other
purposes. The Corporation has been advised that each of PEC and
DIC beneficially owned approximately 15.8% of the ordinary shares
of Liraz as of December 31, 1997. By virtue of the Shareholders
Agreement, each party to the Shareholders Agreement may be deemed
to own beneficially the ordinary shares of Liraz owned by the
other parties. Each party to the Shareholders Agreement
disclaims beneficial ownership of the ordinary shares of Liraz
owned by the other parties.
IDB Holding Corporation Ltd. ("IDB Holding") owns
approximately 71.48% of the outstanding shares of IDB Development
Corporation Ltd. ("IDB Development"). IDB Development, in turn,
owns approximately 81% of the outstanding PEC common stock and
approximately 54% of the outstanding DIC common stock. By reason
of IDB Holding's ownership of IDB Development voting securities,
IDB Holding may be deemed the beneficial owner of the PEC common
stock and DIC common stock held by IDB Development. By reason of
their positions with, and control of voting securities of, IDB
Holding, Mr. Raphael Recanati, of New York, New York, and Mrs.
Elaine Recanati, of Haifa, Israel, who are brother-in-law and
sister-in-law, and Leon Recanati, of Tel Aviv, Israel, and Judith
Yovel Recanati, of Herzliya, Israel, who are brother and sister,
may each be deemed to share the power to direct the voting and
disposition of the outstanding shares of PEC common stock and DIC
common stock owned by IDB Development and may each, under
existing regulations of the Securities and Exchange Commission,
therefore be deemed a beneficial owner of these shares. Leon
Recanati and Judith Yovel Recanati are the nephew and niece of
Raphael Recanati and Elaine Recanati. Companies the Recanati
family controls hold approximately 52.6% of the outstanding
ordinary shares of IDB Holding.
(2) Includes 200,000 shares of Common Stock issuable
upon exercise of warrants. The Momentum Liquidating Trust and
each of its trustees, Dr. Robert M. Brill, Bruns Grayson and
Hubertus Vandervoort, may be deemed to share voting and
dispositive power with respect to the 575,000 outstanding shares
of Common Stock held by the Momentum Liquidating Trust, and the
200,000 shares of Common Stock issuable upon exercise of warrants
held by the Momentum Liquidating Trust. In addition, Dr. Brill
beneficially owns an interest in a partnership that is a
beneficiary of the Momentum Liquidating Trust. See "Certain
Relationships and Related Transactions -- Momentum Acquisition".
ELECTION OF DIRECTORS
At the meeting, seven directors are to be elected, each
to hold office (subject to the Corporation's by-laws) until the
next annual meeting of shareholders and until his successor has
been duly elected and qualified. If any nominee listed in the
table below should become unavailable for any reason, which
management does not presently anticipate, the proxy will be voted
for any substitute nominee or nominees who may be selected by
management prior to or at the meeting or for a motion to reduce
the membership of the board to the number of nominees available.
Directors will be elected by a plurality of the votes cast. The
information concerning the nominees and their security holdings
has been furnished by them to the Corporation. All nominees are
currently members of the board of directors.
Nominees for Director
Name and Age Occupation and Certain Other Directorships
- ------------ ------------------------------------------
Arie Kilman
Age: 45 Mr. Kilman has served as chairman of the
board of directors of the Corporation since
July 1997, chief executive officer of the
Corporation since July 1996, president of the
Corporation from July 1996 to October 1996,
and chairman of the board of directors of the
Corporation from December 1994 to July 1996.
Mr. Kilman has served as chairman and chief
executive officer of Level 8 Technologies,
Inc. ("Level 8 Technologies"), a wholly-owned
subsidiary of the Corporation, since July
1996, and chairman of the board and
president of Liraz since 1983.
Samuel Somech
Age: 44 Mr. Somech has served as president of the
Corporation since October 1996, a director of
the Corporation since April 1995, vice
president of the Corporation from April 1995
to October 1996, president and chief
operating officer of Level 8 Technologies
since April 1995, technical director,
messaging group of Apertus Technologies, Inc.
from January 1994 to March 1994 and technical
director, messaging group of NYNEX from
September 1990 to December 1993. Mr. Somech
co-founded Level 8 Technologies with Mr. Fine
in February 1994.
Theodore Fine
Age: 61 Mr. Fine has served as a director of the
Corporation since April 1995. Mr. Fine
co-founded Level 8 Technologies with Mr.
Somech in February 1994. Since January 1993,
Mr. Fine has been a management information
systems consultant to the financial community
and, from April 1995 to July 1996, served as a
marketing and sales consultant to the
Corporation. From March 1974 to December
1992, Mr. Fine was vice president of
technology for the retail international
operations of Citibank, N.A.
Frank J. Klein
Age: 55 Mr. Klein has served as a director of the
Corporation since December 1994. Since
January 1, 1995, Mr. Klein has been the
president of PEC, a corporation that holds
equity interests in companies located in
Israel or are Israel related. Prior to Mr.
Klein's appointment as president of PEC, he
served as executive vice president of Israel
Discount Bank of New York from 1985. Mr.
Klein served as executive vice president of
PEC from November 1977 to November 1991 and as
treasurer of PEC from May 1980 to November
1991. He is a director of PEC, as well as a
number of companies affiliated with PEC,
including Elron Electronics Industries Ltd.
and Scitex Corporation Ltd.
Lenny Recanati
Age: 44 Mr. Recanati has served as a director of the
Corporation since December 1994. During the
last 12 years, Mr. Recanati has been a senior
manager and director of DIC. He is chairman
of the board of directors of Ilanot-Discount's
Mutual Fund Management Company and is a member
of the boards of directors of a number of
Israeli industrial and other enterprises
affiliated with DIC, including Liraz, Klil
Industries Ltd., Caniel-Israel Can Company
Ltd., Elron Electronics Industries Ltd.,
Super-Sol Ltd., Bayside Land Corporation Ltd.,
Tefron Ltd. and Tambour Ltd.
Michel Berty
Age: 59 Mr. Berty has served as a director of the
Corporation since July 1997. Since April
1997, Mr. Berty has been the owner of MBY
Consultant, Inc. Mr. Berty served as the
chairman of the board and chief executive
officer of Cap Gemini America (an
international information technology
consulting firm) from 1993 to April 1997.
From 1986 to 1992, he served as the general
secretary of the Cap Gemini Sogeti Group (the
parent corporation of Cap Gemini America).
Robert M. Brill, Ph.D.
Age: 51 Dr. Brill has served as a director of the
Corporation since March 1998. Dr. Brill
also is a general partner of Newlight
Management, L.L.C., Poly Ventures, L.P.
and Poly Ventures II, L.P., venture capital
funds specializing in investments in high
technology companies. He also is a director
of Standard Microsystems. Prior to 1989, Dr.
Brill had been the chief executive officer of
several high technology companies, and has
held executive and technical positions with
Harris Corporation and IBM. Dr. Brill
received degrees in engineering physics
and physics from Lehigh University and a Ph.D.
in physics from Brown University.
Beneficial Ownership of Directors and Management
The table below sets forth certain information known to
the Corporation regarding the beneficial ownership of Common
Stock as of March 31, 1998 (i) by each director, (ii) by each
executive officer named in the table under "Executive
Compensation and Other Information -- Cash and Other
Compensation" and (iii) by all directors and executive officers
of the Corporation as a group.
Beneficial Ownership
of Common Stock
---------------------
Number of Percent of
Name Position Shares Common Stock
- ---- -------- -------- ------------
Arie Kilman Chief executive officer 16,667(1) 0.2%
Chairman of the board
Samuel Somech President and director 323,059(2) 4.1%
Joseph J. Chief financial officer, 19,523(3) 0.2%
Di Zazzo treasurer,
and secretary
Theodore Fine Director 114,153(4) 1.5%
Frank J. Klein Director 0(5) 0.0%
Lenny Recanati Director 0(6) 0.0%
Michel Berty Director 4,000(7) 0.1%
Robert M. Brill Director 775,000(8) 9.9%
All directors and executive 1,252,402(1)-(8) 16.0%
officers of the Corporation
as a group (8 persons)
___________________
(1) Includes 16,667 shares subject to stock options exercisable
within 60 days; excludes 33,333 shares subject to stock options
not exercisable within 60 days. Excludes 4,429,002 shares owned
by Liraz, which may be deemed beneficially owned by Mr. Kilman as
a result of his position as president and chairman of the board
of Liraz and owner of approximately 22.4% of Liraz. See
"Principal Shareholders" and "Certain Relationships and Related
Party Transactions -- Momentum Acquisition."
(2) Includes 286,139 shares subject to stock options exercisable
within 60 days; excludes 191,666 shares subject to stock options
not exercisable within 60 days.
(3) Includes 17,167 shares subject to stock options exercisable
within 60 days; excludes 14,561 shares subject to stock options
not exercisable within 60 days.
(4) Includes 83,068 shares subject to stock options exercisable
within 60 days; excludes 27,834 shares subject to stock options
not exercisable within 60 days.
(5) Excludes 3,654,002 shares owned by Liraz, which may be
deemed beneficially owned by Mr. Klein as a result of his
position as an executive officer of PEC, which owns approximately
15.8% of Liraz. See "Principal Shareholder."
(6) Excludes 3,654,002 shares owned by Liraz, which may be
deemed beneficially owned by Mr. Recanati as a result of his
position as an executive officer of DIC, which owns approximately
15.8% of Liraz. See "Principal Shareholder."
(7) Includes 4,000 shares subject to stock options exercisable
within 60 days; excludes 8,000 shares subject to stock options
not exercisable within 60 days.
(8) Includes 575,000 shares of Common Stock and 200,000 shares
of Common Stock issuable upon exercise of warrants that are held
by Momentum Liquidating Trust, which may be deemed beneficially
owned by Dr. Brill as a result of his position as a Trustee of
the Momentum Liquidating Trust. See "Principal Shareholders" and
"Certain Relationships and Related Party Transactions -- Momentum
Acquisition."
Board Committees and Membership
The board of directors held four meetings during 1997.
During 1997, each incumbent director attended more than 75% of
the meetings of the board.
The compensation committee, which is comprised of
Messrs. Kilman, Klein and Recanati, held one meeting during 1997.
The compensation committee has (i) full power and authority to
interpret the provisions of and supervise the administration of
the Corporation's 1995 Stock Incentive Plan and (ii) the
authority to review all compensation matters relating to the
Corporation, except that a separate committee of the board of
directors will supervise the administration of the Corporation's
1997 Stock Option Plan. See "Approval of an Amendment to Level 8
Systems, Inc. 1997 Stock Option Plan -- Administration."
The audit committee, which is comprised of Messrs.
Kilman, Klein and Recanati, held one meeting during 1997. The
audit committee has the following duties: reviewing with the
independent auditors the plans and results of the audit
engagement; reviewing the adequacy, scope and results of the
internal accounting controls and procedures; reviewing the degree
of independence of the auditors; reviewing the auditors' fees;
and recommending the engagement of auditors to the full board of
directors.
The board of directors does not have a nominating
committee.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Under the Securities Exchange Act of 1934 (the
"Exchange Act"), the Corporation's directors, officers and any
persons holding more than 10% of any class of equity securities
registered pursuant to section 12 of the Exchange Act are
required to report their ownership of such equity securities and
any changes in that ownership, on a timely basis, to the
Securities and Exchange Commission. The Corporation believes
that all such reports required to be filed during 1997 were filed
on a timely basis. The Corporation's belief is based solely on
its review of Forms 3, 4, and 5 and amendments to such forms
furnished to the Corporation during, and with respect to, 1997 by
persons known to be subject to section 16 of the Exchange Act.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Cash and Other Compensation
The following table sets forth all the cash
compensation paid or to be paid by the Corporation, as well as
certain other compensation paid or accrued, during 1997, 1996 and
1995 to the chief executive officer and chairman of the board and
two other executive officers whose salary and bonus exceeded
$100,000 in 1997.
<TABLE>
Long-Term
Compensation
Awards
------------
Securities
Annual Compensation Underlying
Name and ------------------- Options/ All Other
Principal Position Year Salary($) Bonus($) SAYS(#) Compensation($)
- ------------------ ---- --------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Arie Kilman,
Chief executive 1997 $112,500 $ - 50,000 $ -
officer and 1996 $ 95,000 $ - - $ -
Chairman of the 1995 $ - $ - - $ -
board
Samuel Somech, 1997 $150,000 $ - 50,000 $ -
President 1996 $129,165 $ - 250,000 $ -
1995 $ 97,670 $ - - $ -
Joseph J. Di Zazzo 1997 $ 98,500 $14,750 20,000 $ -
Chief financial 1996 $ 61,250 $15,000 9,500 $ -
officer 1995 $ 56,444 $ - 6,003 $ -
</TABLE>
Stock Options Granted In Last Fiscal Year
The following table sets forth information about
individual grants of stock options made to the chief executive
officer and chairman of the board and two other executive
officers during 1997.
<TABLE>
Potential
Realizable
Value at
Assumed
Annual Rates
of Stock
Price
Appreciation or
Individual Grants Option Term(2)
------------------------------ ---------------
% of Total
Number of Options
Securities Granted to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Name Granted(1) Year ($/Sh) Date 5%($) 10%($)
- ---- --------- --------- -------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Arie Kilman 50,000 10.2% $15.50 11/18/07 $487,400 $1,235,150
Samuel
Somech 50,000 10.2% $15.50 11/18/07 $487,400 $1,235,150
Joseph J. 15,000 3.1% $12.88 05/06/07 $121,500 $307,905
Di Zazzo 5,000 1.0% $12.38 11/13/07 $38,930 $98,655
</TABLE>
(1) The exercisability of these options is dependent upon
continued employment with the Corporation. Options were granted
at fair market value on the date of grant and expire 10 years
from the date of grant. The option exercise price may be paid
(i) in shares of Common Stock owned by the executive officer,
(ii) by delivery of a promissory note of the executive officer on
terms determined by the compensation committee, (iii) by delivery
of an irrevocable undertaking by a broker to deliver promptly to
the Corporation sufficient funds to pay the exercise price, (iv)
by delivery of irrevocable instructions to a broker to deliver
promptly to the Corporation cash or a check to pay the exercise
price, (v) in cash or (vi) in any combination of the foregoing.
(2) The potential realizable value represents the estimated
future gain in the value of the options over their exercise price
immediately prior to the scheduled expiration date of the
options. The calculation assumes the specified compounded rates
of appreciation in the per share price of the Common Stock
starting on the date of grant and further assumes that the
options will be exercised on their expiration date. The actual
value, if any, that may be realized will depend upon the market
price of the Common Stock on the date the option is exercised.
There is no assurance that the actual value, if any, that may be
realized will be at or near the values estimated by the
calculations in the table. The market price of the Common Stock
at December 31, 1997 was $13.625 per share.
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
The following table sets forth information about
exercised and unexercised stock options of the chief executive
officer and chairman of the board and two other executive
officers of the Corporation during 1997.
Value
Number Unexercised
of Unexercised In-the-Money
Options at Options at
Share Value Year End(#) Year End(#)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise(#) ("$") Unexercisable Unexercisable
- --------- ----------- -------- -------------- -------------
Arie Kilman - - 16,667/33,333 $-31,250/$-62,499
Samuel Somech- - 286,139/191,666 $1,642,943/$590,625
Joseph J.
Di Zazzo 819 $10,082 13,270/21,414 $46,243/$67,365
_______________
(1) The market price of the Common Stock at December 31, 1997
was $13.625 per share.
Director Compensation
Michel Berty is entitled to receive each year, for
serving as a director, $12,000 and has received options to
purchase 12,000 shares of Common Stock valued at $12.75 per
share. None of the Corporation's other directors is entitled to
additional compensation for serving on the board of directors,
other than reimbursement of reasonable expenses incurred in
attending meetings.
Employment Contracts, Termination of Employment and
Change-In-Control Arrangements
Under the employment agreement between the Corporation
and Mr. Kilman, Mr. Kilman will serve as chief executive officer
of the Corporation until May 1, 1998, subject to earlier
termination under certain circumstances. The agreement also
provides that Mr. Kilman will devote substantially all his
business time to the affairs of the Corporation. Mr. Kilman's
annual Base salary is $60,000. If Mr. Kilman's employment by the
Corporation is terminated for any reason, Mr. Kilman has agreed
that, for one year after such termination and except for his
services for Liraz, he will not engage in any business that
competes with the Corporation's business at the time of the
termination.
Under the employment agreement between the Corporation
and Robert R. MacDonald, Mr. MacDonald served as chairman of the
board of directors of the Corporation until July 27, 1997. Mr.
MacDonald's annual Base salary was $50,000, and he was entitled
to $1,200 for each day of service over eight days each quarter.
Mr. MacDonald also was entitled to a performance bonus determined
by the board. Upon Mr. MacDonald's termination of employment by
the Corporation, Mr. MacDonald agreed that, for one year after
such termination, he would not engage in any business that
competes with the Corporation's business.
Under the employment agreement between the Corporation
and Mr. Di Zazzo, Mr. Di Zazzo serves as chief financial officer
of the Corporation until May 1, 1998, subject to earlier
termination under certain circumstances. Mr. Di Zazzo's annual
salary is $100,000, subject to performance bonuses to be
determined by the board. If Mr. Di Zazzo's employment is
terminated for any reason, Mr. Di Zazzo has agreed that, for one
year after such termination, he will not engage in any business
that competes with the Corporation's business at the time of the
termination.
Under the employment agreement between the Corporation
and Mr. Somech, Mr. Somech will serve as president of the
Corporation until November 8, 1999, subject to earlier
termination under certain circumstances. The Corporation pays
Mr. Somech (a) an annual Base salary of $150,000, (b) an annual
increase in Base salary as determined by the board, in its
discretion, (c) a performance bonus determined by the board and
(d) a car and telephone allowance of $2,000 a month. In the
event that Mr. Somech's employment is terminated prior to
November 8, 1999, Level 8 Technologies will pay Mr. Somech a
termination fee equal to 50% of the salary Mr. Somech would have
received from the date of termination until November 8, 1999. If
Mr. Somech's employment is terminated for any reason (other than
by the Corporation without cause), Mr. Somech has agreed that,
for one year after such termination, he will not directly or
indirectly (i) compete with Level 8 Technologies' consulting
services in the United States regarding middleware, messaging or
fault-tolerant transaction processing, (ii) engage or participate
in any business that provides consulting services within the
United States with respect to middleware, messaging or
fault-tolerant transaction processing, (iii) solicit or divert
business form Level 8 Technologies or assist any business in
attempting to do so, (iv) cause any business to refrain from
doing business with Level 8 Technologies or (v) solicit or hire
any person who was an employee of Level 8 Technologies during the
term of his employment agreement or assist any business in
attempting to do so.
In addition to the indemnification provided under the
Corporation's restated certificate of incorporation and by-laws,
the Corporation has agreed to indemnify each of Messrs. Kilman,
Somech, MacDonald and Di Zazzo for all reasonable expenses
incurred in connection with the defense or settlement of any
action or suit involving that individual in his capacity as a
director and/or officer of the Corporation, as long as he acted
in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Corporation. Such indemnification will
not be available, however, if the particular individual is judged
to be liable for negligence or misconduct in performing his
duties for the Corporation.
Compensation Committee Interlocks and Insider Participation
The board of directors has established a compensation
committee composed of a majority of the outside directors. The
current members of the compensation committee are Messrs. Kilman,
Klein and Recanati. There were no interlocking relationships
between the Corporation and other entities that might affect the
determination of the compensation of the directors and executive
officers of the Corporation.
Compensation Committee Report
Compensation Policies. The principal goal of the
Corporation's compensation program as administered by the
compensation committee is to help the Corporation attract,
motivate and retain the executive talent required to develop and
achieve the Corporation's strategic and operating goals with a
view to maximizing shareholder value. The key elements of this
program and the objective of each element are as follows:
Base Salary. Base salaries paid in 1997 to the
Corporation's executive officers are competitive with those
payable to executives holding corresponding positions at
corporations within the Corporation's industry that are of
comparable size. Individual experience and performance is
considered when setting salaries within the range for each
position. Annual reviews are held and adjustments are made based
on attainment of individual goals and in a manner consistent with
the Corporation's overall operating and financial performance.
Annual Bonuses. Annual bonuses are intended to
motivate individual and team performance by creating potential to
earn awards that are contingent upon the performance of the
Corporation and that are comparable to those payable to
executives holding corresponding positions at corporations within
the Corporation's industry that are of comparable size. Bonuses
for 1997 were determined by evaluations of individual performance
and by the success of the Corporation.
Long-Term Incentives. The Corporation provides its
executives with long-term incentive compensation through grants
of stock options under the Corporation's stock option plans. The
grant of stock options aligns the executive's interests with
those of the Corporation's stockholders by providing the
executive with an opportunity to purchase and maintain an equity
interest in the Corporation and to share in the appreciation of
the value of the Common Stock. The size of option grants is
comparable to grants by other corporations within the
Corporation's industry that are of comparable size.
Chief Executive Officer Compensation. Mr. Kilman has
served as the chief executive officer of the Corporation since
July 1996 and has been compensated substantially in accordance
with his employment agreement with the Corporation. See
"Employment Contracts, Termination of Employment and
Change-In-Control Arrangements." During 1997, Mr. Kilman was
granted options under the 1997 Stock Option Plan to purchase
50,000 shares of Common Stock.
The Compensation Committee
Arie Kilman
Frank J. Klein
Lenny Recanati
Performance Graph
The following chart shows changes from July 27, 1995
(the effective date of the Corporation's registration statement
relating to its initial public offering) to December 31, 1997 in
the value of $100 invested in: (1) the Common Stock; (2) the
NASDAQ Market Index; and (3) the MG Industry Group 072-Computer
Software, Data Processing Index.
[GRAPHIC CHART]
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Liraz
Borrowings from Liraz
At December 31, 1997, the Corporation was indebted to
Liraz in the principal amount of $329,752. This indebtedness
bears interest at the rate of 4% a year, with principal and
interest payable in equal quarterly installments through June
2000. In 1997, the Corporation paid Liraz $122,954 in respect of
such indebtedness.
Agreement with Level 8 Technologies
In December 1995, Level 8 Technologies and Liraz
entered into a custom computer programming agreement under which
Liraz agreed to provide development services and to share up to
50% of the development costs related to the development of
certain Falcon External Gateways, which Level 8 Technologies is
developing pursuant to an agreement between Level 8 Technologies
and Microsoft Corporation. In exchange, Liraz will receive
royalties from sales of the resulting products at the rate of 30%
for the first $2,000,000 of revenues, 20% for the next $1,000,000
of revenues, and 8% for all revenues in excess of $3,000,000. In
connection with this agreement, Level 8 Technologies and Liraz
applied for and received an Israel - U.S. Binational Industrial
Research and Development Foundation grant of $432,000 to offset
up to 50% of the development costs incurred by Level 8
Technologies and Liraz on the project.
Ongoing Relationship
The Corporation's chief executive officer, Arie
Kilman, also is president and chairman of the board of Liraz.
Liraz has agreed to reimburse the Corporation at a rate of $3,000
per month for Mr. Kilman's travel expenses. See "Executive
Compensation and Other Information -- Employment Contracts,
Termination of Employment and Change-In-Control Arrangements."
Liraz and the Corporation may from time to time compete
for the same business opportunity or engage in transactions with
each other. In that connection, Liraz and the Corporation have
agreed that, in the case of any business opportunity primarily
involving North America, the parties will use their best efforts
to make the opportunity available to the Corporation; in the case
of any business opportunity primarily involving the Middle East,
the parties will use their best efforts to make the opportunity
available to Liraz; and, in each other case, the parties will
participate equally in the opportunity. This agreement will
terminate on the earlier of (a) May 1998, subject to renewal
thereafter, unless either party wishes to terminate the
agreement, and (b) the date Liraz ceases to own at least 35% of
the outstanding shares of Common Stock.
See "Principal Shareholders" for a description of the
relationships among Liraz and Arie Kilman, Frank J. Klein and
Lenny Recanati, directors of the Corporation.
Momentum Acquisition
In March 1998, the Corporation acquired Momentum
Software Corporation ("Momentum") in consideration for 575,000
shares of Common Stock, warrants to purchase an additional
200,000 shares of Common Stock for $13.108 per share at any time
on or before March 26, 2003 (the "Warrants") and contingent
consideration, if the average closing price of the Common Stock
on the 30 trading days immediately preceding the earlier of
December 1, 1998 and the effective date of the filing by the
Company of a certain registration statement (the "Calculation
Date") is less than $21.00. If the average price is $15.00 or
more and less than $21.00, the contingent consideration is a
number of shares of Common Stock equal to the product of (a)
416.666 and (b) the number of cents by which $21.00 exceeds such
average price; and, if the average price is below $15.00, the
contingent consideration is, at the option of the Momentum
Liquidating Trust, either of the following: (a) 250,000 shares of
Common Stock, or (b) an installment promissory note with a
principal amount of $3,000,000 payable in four equal annual
installments of principal and bearing interest at the rate of 10%
a year.
The 575,000 shares of Common Stock and the Warrants are
being held by the Momentum Liquidating Trust, the trustees of
which are Dr. Robert M. Brill (who now serves as a director of
the Corporation, is a partner of a beneficiary of the Momentum
Liquidating Trust and is entitled to be nominated as a director
for two years after the Calculation Date), Hubertus Vandervoort
and Bruns Grayson. The Momentum Liquidating Trust will
distribute the shares of Common Stock and the Warrants to the
Momentum shareholders on the Calculation Date.
In connection with this transaction, the Momentum
Liquidating Trust has agreed to vote its shares of Common Stock
under certain circumstances in accordance with the instructions
of Liraz, and to afford Liraz the opportunity to purchase such
shares in certain circumstances.
APPROVAL OF AN AMENDMENT TO LEVEL 8 SYSTEMS, INC.
1997 STOCK OPTION PLAN
Background
On March 4, 1998, the board of directors of the Corporation
adopted (subject to shareholder approval) an amendment to the
Level 8 Systems, Inc. 1997 Stock Option Plan, as amended and
restated (the "Plan"), which increases the total number of shares
of Common Stock issuable pursuant to the Plan from 600,000 to
1,400,000. The following description of the Plan is intended only
as a summary and is qualified in its entirety by reference to the
Plan, which is an exhibit to this proxy statement.
Purpose
The purpose of the Plan is to enhance the profitability and
value of the Corporation for the benefit of its shareholders
principally by enabling the Corporation to offer employees and
consultants of the Corporation and its subsidiaries and
non-employee directors of the Corporation stock-based incentives
in the Corporation in order to attract, retain and reward such
individuals and strengthen the mutuality of interest between such
individuals and the Corporation's shareholders.
Eligibility
All employees and consultants of the Corporation and its
subsidiaries and all non-employee directors of the Corporation
designated by the board of directors to participate in the Plan
are eligible to receive options under the Plan.
Available Shares
Options covering a maximum of 1,400,000 shares of Common
Stock (assuming the amendment to the Plan is approved) may be
issued under the Plan. Options covering a maximum of 200,000
shares may be granted to a single individual in any one fiscal
year. These amounts are subject to adjustment to reflect changes
in the capital structure of the Corporation, stock splits,
recapitalizations, mergers and reorganizations. If an option
expires, terminates or is canceled, the unissued shares of Common
Stock subject to the option will again be available under the
Plan.
Terms of Stock Options
Under the Plan, options granted to employees may be in the
form of incentive stock options or non-qualified stock options.
Options granted to consultants or non-employee directors may only
be non- qualified stock options. The committee that administers
the plan (see "Administration" below) (the "Committee") will
determine the number of shares subject to each option, the term
of each option (which may not exceed ten years or, in the case of
an incentive stock option granted to a ten percent shareholder,
five years), the exercise price per share of stock subject to
each option, the vesting schedule (if any) and the other material
terms of the option. No incentive stock option may have an
exercise price less than 100% of the fair market value of the
Common Stock at the time of grant (or, in the case of an
incentive stock option granted to a ten percent shareholder, 110%
of fair market value). The exercise price of a non-qualified
stock option will be determined by the Committee.
The option price upon exercise may be paid in cash, or, if
so determined by the Committee, in shares of Common Stock, by a
reduction in the number of shares of Common Stock issuable upon
exercise of the option or by such other method as the Committee
determines. Options may be made exercisable in installments, and
the exercisability of options may be accelerated by the
Committee. The Committee may at any time offer to buy an option
previously granted on such terms and conditions as the Committee
establishes. At the discretion of the Committee, options may
provide for "reloads" (i.e., a new option is granted for the same
number of shares as the number used by the holder to pay the
option price upon exercise).
Subject to limited exceptions, options are forfeited upon
termination of employment or service. Options are not assignable
(except by will or the laws of descent and distribution).
Options may not be granted after the tenth anniversary of
the Plan's adoption, but options granted prior to that date may
extend beyond that date.
Change in Control
Unless otherwise determined by the Committee at the time of
grant, upon a Change in Control (as defined in the Plan), all
options automatically will become fully exercisable. However,
unless otherwise determined by the Committee at the time of
grant, no acceleration of exercisability of an option will occur,
if the Committee determines prior to a Change in Control that the
option will be honored or assumed or new rights substituted
immediately following the Change in Control.
Amendments
The Plan may be amended by the board of directors, except
that shareholder approval of amendments will be required, among
other things, (a) to the extent shareholder approval is required
by Rule 16b-3 under the Exchange Act and (b) to (i) increase the
maximum number of shares subject to options granted in any fiscal
year, (ii) change the classification of employees eligible to
receive awards, (iii) extend the maximum option period under the
Plan or (iv) increase the number of shares that may be issued
under the Plan.
Administration
The Plan will be administered by a committee of the board
(the "Committee"), which will include two or more "non-employee"
and "outside" directors. However, with respect to option grants
to non-employee directors and any action under the Plan relating
to options held by non-employee directors, the Committee will
consist of the entire board of directors. The Committee will
determine the individuals who will receive options and the terms
of the options, which will be reflected in written agreements
with the holders.
Certain U.S. Federal Income Tax Consequences
Under current federal income tax laws, the grant of an
incentive stock option can be made solely to employees and
generally has no income tax consequences for the optionee or the
Corporation. In general, no taxable income results to the
optionee upon the grant or exercise of an incentive stock option.
However, the amount by which the fair market value of the stock
acquired pursuant to the incentive stock option exceeds the
exercise price is an adjustment item for purposes of alternative
minimum tax. If no disposition of the shares is made within
either two years from the date the incentive stock option was
granted or one year from the date of exercise of the incentive
stock option, any gain or loss realized upon disposition of the
shares will be treated as a long-term capital gain or loss to the
optionee. The Corporation will not be entitled to a tax
deduction upon the exercise of an incentive stock option, nor
upon a subsequent disposition of the shares, unless the
disposition occurs prior to the expiration of the holding period
described above. In general, if the optionee does not satisfy
these holding period requirements, any gain equal to the
difference between the exercise price and the fair market value
of the stock at exercise (or, if a lesser amount, the amount
realized on disposition over the exercise price) will constitute
ordinary income. In the event of such a disposition before the
expiration of that holding period, the Corporation is entitled to
a deduction at that time equal to the amount of ordinary income
recognized by the optionee. Any gain in excess of the amount
recognized by the optionee as ordinary income would be taxed to
the optionee as short-term or long-term capital gain (depending
on the applicable holding period).
In general, an optionee will realize no taxable income upon
the grant of a non-qualified option, and the Corporation
generally will not receive a deduction at the time of grant.
Upon exercise of a non-qualified option, an optionee generally
will recognize ordinary income in an amount equal to the excess
of the fair market value of the stock on the date of exercise
over the exercise price. Upon a subsequent sale of the stock by
the optionee, the optionee will recognize short-term or long-term
capital gain or loss, depending upon his holding period for the
stock. Subject to the possible application of section 162(m) of
the Internal Revenue Code, the Corporation will generally be
allowed a deduction equal to the amount recognized by the
optionee as ordinary income.
Any entitlement to a tax deduction on the part of the
Corporation is subject to applicable federal tax rules, including
section 162(m) of the Internal Revenue Code regarding a $1
million limitation on deductible compensation. In addition, if
the exercisability of an option is accelerated because of a
change in control, payments relating to the options, either alone
or together with certain other payments, may constitute parachute
payments under section 280G of the Internal Revenue Code, which
may be subject to excise tax.
INDEPENDENT AUDITORS
A representative of Grant Thornton LLP, which currently
serves as the Corporation's independent accountants, is expected
to be available at the meeting of shareholders to respond to
appropriate questions, and will be given the opportunity to make
a statement, if he wishes to do so.
On January 28, 1998, the Corporation replaced Lurie,
Besikof, Lapidus & Co., LLP as its independent accountants and
appointed Grant Thornton LLP. The decision to change independent
accountants was recommended by the Audit Committee of the Board
of Directors and approved by the Board of Directors. The
decision was based on advice the Company received from Hampshire
Securities Corporation, the investment banking firm that provides
financial guidance to the Company and has underwritten the
Company's two public offerings.
Lurie, Besikof, Lapidus & Co., LLP served as
independent accountants to the Corporation (and its predecessors)
for ten years. During those ten years, there have been no
disagreements with Lurie, Besikof, Lapidus & Co., LLP regarding
any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
SHAREHOLDER PROPOSALS
Shareholders of the Corporation wishing to include
proposals in the proxy material for the annual meeting of the
Corporation to be held in 1999 must submit the proposals in
writing so that they are received at the executive offices of the
Corporation on or before December 15, 1998. Such proposals also
must meet the other requirements of the rules of the Securities
and Exchange Commission relating to shareholder proposals.
By Order of the Board of Directors,
/s/ Arie Kilman
Arie Kilman
Chairman of the Board of Directors
April 15, 1998
Exhibit 1.
LEVEL 8 SYSTEMS, INC.
1997 Stock Option Plan, as Amended and Restated
ARTICLE I.
PURPOSE
The purpose of this Level 8 Systems, Inc. 1997 Stock Option
Plan, as Amended and Restated (the "Plan"), is to enhance the
profitability and value of Level 8 Systems, Inc. (the "Company")
for the benefit of its shareholders by enabling the Company to
offer certain employees and Consultants (as defined herein) of
the Company and its Subsidiaries (as defined herein) and non-
employee directors of the Company stock based incentives in the
Company, thereby creating a means to raise the level of stock
ownership by employees, Consultants and non-employee directors in
order to attract, retain and reward such individuals and
strengthen the mutuality of interests between such individuals
and the Company's shareholders.
ARTICLE II.
DEFINITIONS
For purposes of this Plan, the following terms shall have
the following meanings:
2.1. "Board" shall mean the Board of Directors of the
Company.
2.2. "Cause" shall mean, with respect to a
Participant's Termination of Relationship, unless otherwise
determined by the Committee at grant, willful misconduct in
connection with the Participant's employment or consultancy
or willful failure to perform his or her employment or
consultancy responsibilities in the best interests of the
Company (including, without limitation, breach by the
Participant of any provision of any employment,
nondisclosure, non-competition or other similar agreement
between the Participant and the Company), as determined by
the Committee, which determination shall be final,
conclusive and binding. With respect to a Participant's
Termination of Directorship, Cause shall mean an act or
failure to act that constitutes "cause" for removal of a
director under applicable New York law.
2.3. "Change in Control" shall have the meaning set
forth in Article VIII.
2.4. "Code" shall mean the Internal Revenue Code of
1986, as amended. Any reference to any section of the Code
shall also be a reference to any successor provision.
2.5. "Committee" shall mean a committee or sub-
committee of the Board appointed from time to time by the
Board or such committee, as the case may be, which Committee
shall include two or more directors who are non-employee
directors as defined in Rule 16b-3 (as defined herein) and
outside directors as defined under Section 162(m) of the
Code (as defined herein). If for any reason the appointed
Committee does not meet the requirements of Rule 16b-3 or
Section 162(m) of the Code, such noncompliance with the
requirements of Rule 16b-3 or Section 162(m) of the Code
shall not affect the validity of the awards, grants,
interpretations or other actions of the Committee.
Notwithstanding the foregoing, with respect to grants of
Options to non-employee directors and any action hereunder
relating to Options held by non-employee directors, the
Committee shall mean the Board. If and to the extent that
no Committee exists which has the authority to administer
the Plan, the functions of the Committee shall be exercised
by the Board.
2.6. "Common Stock" means the Common Stock, no par
value per share, of the Company.
2.7. "Consultant" means any advisor or consultant to
the Company or its Subsidiaries who is eligible pursuant to
Article V to be granted Options under this Plan.
2.8. "Disability" shall mean total and permanent
disability, as defined in Section 22(e)(3) of the Code.
2.9. "Effective Date" shall mean the effective date of
the Plan as defined in Article XII.
2.10. "Eligible Employee" shall mean the employees of
the Company and its Subsidiaries who are eligible pursuant
to Article V to be granted Options under this Plan.
2.11. "Exchange Act" shall mean the Securities
Exchange Act of 1934.
2.12. "Fair Market Value" for purposes of this Plan,
unless otherwise required by any applicable provision of the
Code or any regulations issued thereunder, shall mean, as of
any date, the last sales price reported for the Common Stock
on the applicable date (i) as reported by the principal
national securities exchange in the United States on which
it is then traded, or (ii) if not traded on any such
national securities exchange, as quoted on an automated
quotation system sponsored by the National Association of
Securities Dealers. If the Common Stock is not readily
tradable on a national securities exchange or any system
sponsored by the National Association of Securities Dealers,
its Fair Market Value shall be set in good faith by the
Committee. For purposes of the grant of any Option, the
applicable date shall be the date for which the last sales
price is available at the time of grant.
2.13. "Good Reason" shall mean, with respect to a
Participant's Termination of Relationship, (i) if there is
an employment agreement between the Company or a Subsidiary
and the Participant in effect at the time of grant that
defines "good reason" (or words of like import) a
termination that is or would be deemed for "good reason" (or
words of like import) as defined under such employment
agreement at the time of grant, (ii) if there is an
employment agreement between the Company or a Subsidiary and
the Participant in effect at the time of grant that does not
define "good reason" (or words of like import), a voluntary
termination which is permitted under the terms of such
employment agreement and which is at least ninety (90) days
after the occurrence of an event which would be grounds for
a termination by the Company that is or would be deemed for
"cause" (or words of like import) as defined under such
employment agreement at the time of grant, or (iii) if there
is no employment agreement between the Company or a
Subsidiary and the Participant in effect at the time of
grant, a voluntary termination for any reason upon two (2)
weeks' prior written notice to the Company, which is at
least ninety (90) days after the occurrence of an event
which would be grounds for a Termination of Relationship by
the Company for Cause (without regard to any notice or cure
period requirement).
2.14. "Incentive Stock Option" shall mean any Stock
Option awarded under this Plan intended to be, and
designated as, an "Incentive Stock Option" within the
meaning of Section 422 of the Code.
2.15. "Non-Qualified Stock Option" shall mean any
Stock Option awarded under this Plan that is not an
Incentive Stock Option.
2.16. "Participant" shall mean the following persons
to whom an Option has been granted pursuant to this Plan:
Eligible Employees and Consultants of the Company or its
Subsidiaries and non-employee directors of the Company.
2.17. "Retirement" with respect to a Participant's
Termination of Relationship shall mean a Termination of
Relationship without Cause from the Company and/or a
Subsidiary by a Participant who has attained (i) at least
age sixty-five (65); or (ii) such earlier date after age
fifty-five (55) as approved by the Committee with regard to
such Participant. With respect to a Participant's
Termination of Directorship, Retirement shall mean the
failure to stand for reelection or the failure to be
reelected after a Participant has attained age sixty-five
(65).
2.18. "Rule 16b-3" shall mean Rule 16b-3 under Section
16(b) of the Exchange Act as then in effect or any successor
provisions.
2.19. "Section 162(m) of the Code" shall mean the
exception for performance-based compensation under Section
162(m) of the Code and any Treasury regulations thereunder.
2.20. "Stock Option" or "Option" shall mean any option
to purchase shares of Common Stock granted to Eligible
Employees, Consultants or non-employee directors pursuant to
Article VI.
2.21. "Subsidiary" shall mean any corporation that is
defined as a subsidiary corporation in Section 424(f) of the
Code.
2.22. "Ten Percent Shareholder" shall mean a person
owning Common Stock of the Company possessing more than ten
percent (10%) of the total combined voting power of all
classes of stock of the Company as defined in Section 422 of
the Code.
2.23 "Termination of Consultancy" shall mean (i) an
individual is no longer acting as a Consultant to the
Company or a Subsidiary; or (ii) when an entity which is
retaining a Participant as a Consultant ceases to be a
Subsidiary, unless the Participant thereupon is retained as
a Consultant by the Company or another Subsidiary.
2.24. "Termination of Directorship" shall mean, with
respect to a non-employee director, that the non-employee
director has ceased to be a director of the Company for any
reason.
2.25. "Termination of Employment" shall mean (i) a
termination of service (for reasons other than a military or
personal leave of absence granted by the Company) of a
Participant from the Company and its Subsidiaries; or
(ii) when an entity which is employing a Participant ceases
to be a Subsidiary, unless the Participant thereupon becomes
employed by the Company or another Subsidiary.
2.26. "Termination of Relationship" shall mean a
Termination of Employment or a Termination of Consultancy,
as applicable.
2.27. "Transfer" or "Transferred" shall mean
anticipate, alienate, attach, sell, assign, pledge,
encumber, charge or otherwise transfer.
2.28. "Withholding Election" shall have the meaning
set forth in Section 11.4.
ARTICLE III.
ADMINISTRATION
3.1. The Committee. The Plan shall be administered and
interpreted by the Committee.
3.2. Awards. The Committee shall have full authority to
grant Stock Options, pursuant to the terms of this Plan. In
particular, the Committee shall have the authority:
(a) to select the Eligible Employees, Consultants and
non-employee directors to whom Stock Options may from time
to time be granted hereunder;
(b) to determine whether and to what extent Stock
Options are to be granted hereunder to one or more Eligible
Employees, Consultants or non-employee directors;
(c) to determine, in accordance with the terms of this
Plan, the number of shares of Common Stock to be covered by
each Stock Option granted to an Eligible Employee,
Consultant or non-employee director;
(d) to determine the terms and conditions, not
inconsistent with the terms of this Plan, of any Stock
Option granted hereunder to an Eligible Employee, Consultant
or non-employee director (including, but not limited to, the
share price, any restriction or limitation, any vesting
schedule or acceleration thereof, or any forfeiture
restrictions or waiver thereof, and the shares of Common
Stock relating thereto, based on such factors, if any, as
the Committee shall determine, in its sole discretion);
(e) to determine whether and under what circumstances
a Stock Option may be settled in cash and/or Common Stock
under Subsection 6.3(d);
(f) to determine whether, to what extent and under
what circumstances to provide loans (which shall be on a
recourse basis and shall bear a reasonable rate of interest)
to Eligible Employees, Consultants or non-employee directors
in order to exercise Options under the Plan; and
(g) to determine whether to require Eligible
Employees, Consultants or non-employee directors, as a
condition of the granting of any Option, to not sell or
otherwise dispose of shares acquired pursuant to the
exercise of an Option for a period of time as determined by
the Committee, in its sole discretion, following the date of
the acquisition of such Option.
3.3. Guidelines. Subject to Article IX hereof, the
Committee shall have the authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing
this Plan and perform all acts, including the delegation of its
administrative responsibilities, as it shall, from time to time,
deem advisable; to construe and interpret the terms and
provisions of this Plan and any Option granted under this Plan
(and any agreements relating thereto); and to otherwise supervise
the administration of this Plan. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in
this Plan or in any agreement relating thereto in the manner and
to the extent it shall deem necessary to carry this Plan into
effect, but only to the extent any such action would be permitted
under the applicable provisions of Rule 16b-3 (if any) and the
applicable provisions of Section 162(m) of the Code (if any).
The Committee may adopt special guidelines and provisions for
persons who are residing in, or subject to, the taxes of,
countries other than the United States to comply with applicable
tax and securities laws. If and solely to the extent applicable,
this Plan is intended to comply with Rule 16b-3 and Section
162(m) of the Code and shall be limited, construed and
interpreted in a manner so as to comply therewith.
3.4. Decisions Final. Any decision, interpretation or
other action made or taken in good faith by or at the direction
of the Company, the Board, or the Committee (or any of its
members) arising out of or in connection with the Plan shall be
within the absolute discretion of all and each of them, as the
case may be, and shall be final, conclusive and binding on the
Company and all employees, directors, consultants and
Participants and their respective heirs, executors,
administrators, successors and assigns.
3.5. Reliance on Counsel. The Company, the Board or the
Committee may consult with legal counsel, who may be counsel for
the Company or other counsel, with respect to its obligations or
duties hereunder, or with respect to any action or proceeding or
any question of law, and shall not be liable with respect to any
action taken or omitted by it in good faith pursuant to the
advice of such counsel.
3.6. Procedures. If the Committee is appointed, the Board
shall designate one of the members of the Committee as chairman
and the Committee shall hold meetings, subject to the By-Laws of
the Company, at such times and places as it shall deem advisable.
A majority of the Committee members shall constitute a quorum.
All determinations of the Committee shall be made by a majority
of its members. Any decision or determination reduced to writing
and signed by all Committee members in accordance with the
By-Laws of the Company shall be fully effective as if it had been
made by a vote at a meeting duly called and held. The Committee
shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it shall deem
advisable.
3.7. Designation of Advisors -- Liability.
(a) The Committee may designate employees of the
Company and professional advisors to assist the Committee in
the administration of the Plan and may grant authority to
employees to execute agreements or other documents on behalf
of the Committee.
(b) The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the
administration of the Plan and may rely upon any opinion
received from any such counsel or consultant and any
computation received from any such consultant or agent.
Expenses incurred by the Committee or Board in the
engagement of any such counsel, consultant or agent shall be
paid by the Company. The Committee, its members and any
person designated pursuant to paragraph (a) above shall not
be liable for any action or determination made in good faith
with respect to the Plan. To the maximum extent permitted
by applicable law, no officer or former officer of the
Company or member or former member of the Committee or of
the Board shall be liable for any action or determination
made in good faith with respect to the Plan or any Stock
Option granted under it. To the maximum extent permitted by
applicable law and the Certificate of Incorporation and
By-Laws of the Company and to the extent not covered by
insurance, each officer or former officer and member or
former member of the Committee or of the Board shall be
indemnified and held harmless by the Company against any
cost or expense (including reasonable fees of counsel
reasonably acceptable to the Company) or liability
(including any sum paid in settlement of a claim with the
approval of the Company), and advanced amounts necessary to
pay the foregoing at the earliest time and to the fullest
extent permitted, arising out of any act or omission to act
in connection with the Plan, except to the extent arising
out of such officer's or former officer's, member's or
former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of
indemnification the officers, directors or members or former
officers, directors or members may have under applicable law
or under the Certificate of Incorporation or By-Laws of the
Company or Subsidiary. Notwithstanding anything else
herein, this indemnification will not apply to the actions
or determinations made by an individual with regard to Stock
Options granted to him or her under this Plan.
ARTICLE IV.
SHARE AND OTHER LIMITATIONS
4.1. Shares.
(a) General Limitation. The aggregate number of
shares of Common Stock which may be issued under this Plan
with respect to which Stock Options may be granted shall not
exceed 1,400,000 shares (subject to any increase or decrease
pursuant to Section 4.2) which may be either authorized and
unissued Common Stock or Common Stock held in or acquired
for the treasury of the Company. If any Stock Option
granted under this Plan expires, terminates or is cancelled
for any reason without having been exercised in full or the
Company repurchases any Stock Option pursuant to Section
6.3(f), the number of shares of Common Stock underlying the
repurchased Option, and/or the number of shares of Common
Stock underlying any unexercised Option shall again be
available for the purposes of Options under the Plan.
(b) Individual Participant Limitations. The maximum
number of shares of Common Stock subject to any Option which
may be granted under this Plan to each Participant shall not
exceed 200,000 shares (subject to any increase or decrease
pursuant to Section 4.2) during each fiscal year of the
Company.
4.2. Changes.
(a) The existence of the Plan and the Options granted
hereunder shall not affect in any way the right or power of
the Board or the shareholders of the Company to make or
authorize any adjustment, recapitalization, reorganization
or other change in the Company's capital structure or its
business, any merger or consolidation of the Company or
Subsidiary, any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting Common Stock,
the dissolution or liquidation of the Company or Subsidiary,
any sale or transfer of all or part of its assets or
business or any other corporate act or proceeding.
(b) In the event of any such change in the capital
structure or business of the Company by reason of any stock
dividend or distribution, stock split or reverse stock
split, recapitalization, reorganization, merger,
consolidation, split-up, combination or exchange of shares,
distribution with respect to its outstanding Common Stock or
capital stock other than Common Stock, sale or transfer of
all or part of its assets or business, reclassification of
its capital stock, or any similar change affecting the
Company's capital structure or business and the Committee
determines an adjustment is appropriate under the Plan, the
number and kind of shares or other property (including cash)
to be issued upon exercise of an outstanding Option and the
purchase price thereof shall be appropriately adjusted
consistent with such change in such manner as the Committee
may deem equitable to prevent substantial dilution or
enlargement of the rights granted to, or available for,
Participants under this Plan or as otherwise necessary to
reflect the change, and any such adjustment determined by
the Committee shall be final, conclusive and binding on the
Company and all Participants and employees and their
respective heirs, executors, administrators, successors and
assigns.
(c) Fractional shares of Common Stock resulting from
any adjustment in Options pursuant to this Section 4 shall
be aggregated until, and eliminated at, the time of exercise
by rounding-down for fractions less than one-half (1/2) and
rounding-up for fractions equal to or greater than one-half
(1/2). No cash settlements shall be made with respect to
fractional shares eliminated by rounding. Notice of any
adjustment shall be given by the Committee to each
Participant whose Option has been adjusted and such
adjustment (whether or not such notice is given) shall be
effective and binding for all purposes of the Plan.
(d) In the event of a merger or consolidation in which
the Company is not the surviving entity or in the event of
any transaction that results in the acquisition of all or
substantially all of the Company's outstanding Common Stock
by a single person or entity or by a group of persons and/or
entities acting in concert, or in the event of the sale or
transfer of all or substantially all of the Company's assets
(all of the foregoing being referred to as "Acquisition
Events"), then the Committee may, in its sole discretion,
terminate all outstanding Options of Eligible Employees,
Consultants and non-employee directors, effective as of the
date of the Acquisition Event, by delivering notice of
termination to each such Participant at least twenty (20)
days prior to the date of consummation of the Acquisition
Event; provided, that during the period from the date on
which such notice of termination is delivered to the
consummation of the Acquisition Event, each such Participant
shall have the right to exercise in full all of his or her
Options that are then outstanding (without regard to any
limitations on exercisability otherwise contained in the
Option Agreement) but contingent on occurrence of the
Acquisition Event, and, provided that, if the Acquisition
Event does not take place within a specified period after
giving such notice for any reason whatsoever, the notice and
exercise shall be null and void.
If an Acquisition Event occurs, to the extent the
Committee does not terminate the outstanding Options
pursuant to this Section 4.2(d), then the provisions of
Section 4.2(b) shall apply.
ARTICLE V.
ELIGIBILITY
All employees and Consultants of the Company and its
Subsidiaries and all non-employee directors of the Company are
eligible to be granted Stock Options under this Plan.
Eligibility under this Plan shall be determined by the Committee
in its sole discretion.
ARTICLE VI.
STOCK OPTION GRANTS
6.1. Options. Each Stock Option granted hereunder shall be
one of two types: (i) an Incentive Stock Option intended to
satisfy the requirements of Section 422 of the Code or (ii) a
Non-Qualified Stock Option.
6.2. Grants. The Committee shall have the authority to
grant to any Eligible Employee one or more Incentive Stock
Options, Non-Qualified Stock Options, or both types of Stock
Options. The Committee shall have the authority to grant to any
Consultant one or more Non-Qualified Stock Options. The Board
shall have the authority to grant to any non-employee director
one or more Non-Qualified Stock Options. To the extent that any
Stock Option does not qualify as an Incentive Stock Option
(whether because of its provisions or the time or manner of its
exercise or otherwise), such Stock Option or the portion thereof
which does not qualify, shall constitute a separate Non-Qualified
Stock Option.
6.3. Terms of Options. Options granted under this Plan
shall be subject to the following terms and conditions, and shall
be in such form and contain such additional terms and conditions,
not inconsistent with the terms of this Plan, as the Committee
shall deem desirable:
(a) Option Price. The option price per share of
Common Stock purchasable under an Incentive Stock Option
shall be determined by the Committee at the time of grant
but shall not be less than 100% of the Fair Market Value of
the share of Common Stock at the time of grant; provided,
however, if an Incentive Stock Option is granted to a Ten
Percent Shareholder, the purchase price shall be no less
than 110% of the Fair Market Value of the Common Stock. The
purchase price of shares of Common Stock subject to a
Non-Qualified Stock Option shall be determined by the
Committee.
(b) Option Term. The term of each Stock Option shall
be fixed by the Committee, but no Stock Option shall be
exercisable more than ten (10) years after the date the
Option is granted, provided, however, the term of an
Incentive Stock Option granted to a Ten Percent Shareholder
may not exceed five (5) years.
(c) Exercisability. Stock Options shall be
exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Committee at
grant. If the Committee provides, in its discretion, that
any Stock Option is exercisable subject to certain
limitations (including, without limitation, that it is
exercisable only in installments or within certain time
periods), the Committee may waive such limitations on the
exercisability at any time at or after grant in whole or in
part (including, without limitation, that the Committee may
waive the installment exercise provisions or accelerate the
time at which Options may be exercised), based on such
factors, if any, as the Committee shall determine, in its
sole discretion.
(d) Method of Exercise. Subject to whatever
installment exercise and waiting period provisions apply
under subsection (c) above, Stock Options may be exercised
in whole or in part at any time during the Option term, by
giving written notice of exercise to the Company specifying
the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase price in such
form, or such other arrangement for the satisfaction of the
purchase price, as the Committee may accept. If and to the
extent determined by the Committee in its sole discretion at
or after grant, payment in full or in part may also be made
in the form of Common Stock withheld from the shares to be
received on the exercise of a Stock Option hereunder or
Common Stock owned by the Participant (and for which the
Participant has good title free and clear of any liens and
encumbrances) based on the Fair Market Value of the Common
Stock on the payment date as determined by the Committee.
No shares of Common Stock shall be issued until payment, as
provided herein, therefor has been made or provided for and
the Participant shall have none of the rights of a holder of
shares of Common Stock until such shares of Common Stock
have been issued.
(e) Incentive Stock Option Limitations. To the extent
that the aggregate Fair Market Value (determined as of the
time of grant) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time
by an Eligible Employee during any calendar year under the
Plan and/or any other stock option plan of the Company or
any Subsidiary or parent corporation (within the meaning of
Section 424(e) of the Code) exceeds $100,000, such Options
shall be treated as Options which are not Incentive Stock
Options.
Should the foregoing provision not be necessary in
order for the Stock Options to qualify as Incentive Stock
Options, or should any additional provisions be required,
the Committee may amend the Plan accordingly, without the
necessity of obtaining the approval of the shareholders of
the Company.
(f) Buy Out and Settlement Provisions. The Committee
may at any time on behalf of the Company offer to buy out an
Option previously granted, based on such terms and
conditions as the Committee shall establish and communicate
to the Participant at the time that such offer is made.
(g) Form, Modification, Extension and Renewal of
Options. Subject to the terms and conditions and within the
limitations of the Plan, an Option shall be evidenced by
such form of agreement or grant as is approved by the
Committee, and the Committee may modify, extend or renew
outstanding Options granted under the Plan (provided that
the rights of a Participant are not reduced without his
consent), or accept the surrender of outstanding Options (up
to the extent not theretofore exercised) and authorize the
granting of new Options in substitution therefor (to the
extent not theretofore exercised).
(h) Other Terms and Conditions. Options may contain
such other provisions, which shall not be inconsistent with
any of the foregoing terms of the Plan, as the Committee
shall deem appropriate including, without limitation,
permitting "reloads" such that the same number of Options
are granted as the number of Options exercised, shares used
to pay for the exercise price of Options or shares used to
pay withholding taxes ("Reloads"). With respect to Reloads,
the exercise price of the new Stock Option shall be the Fair
Market Value on the date of the Reload and the term of the
Stock Option shall be the same as the remaining term of the
Options that are exercised, if applicable, or such other
exercise price and term as determined by the Committee.
6.4. Termination of Relationship. The following rules
apply with regard to Options upon the Termination of Relationship
of a Participant:
(a) Termination by Reason of Death. If a
Participant's Termination of Relationship is by reason of
death, any Stock Option held by such Participant, unless
otherwise determined by the Committee at grant or, if no
rights of the Participant's estate are reduced, thereafter,
may be exercised, to the extent exercisable at the
Participant's death, by the legal representative of the
estate, at any time within a period of one (1) year from the
date of such death, but in no event beyond the expiration of
the stated term of such Stock Option.
(b) Termination by Reason of Disability. If a
Participant's Termination of Relationship is by reason of
Disability, any Stock Option held by such Participant,
unless otherwise determined by the Committee at grant or, if
no rights of the Participant are reduced, thereafter, may be
exercised, to the extent exercisable at the Participant's
termination, by the Participant (or the legal representative
of the Participant's estate if the Participant dies after
termination) at any time within a period of one (1) year
from the date of such termination, but in no event beyond
the expiration of the stated term of such Stock Option.
(c) Termination by Reason of Retirement. If a
Participant's Termination of Relationship is by reason of
Retirement, any Stock Option held by such Participant,
unless otherwise determined by the Committee at grant, or,
if no rights of the Participant are reduced, thereafter,
shall be fully vested and may thereafter be exercised by the
Participant at any time within a period of one (1) year from
the date of such termination, but in no event beyond the
expiration of the stated term of such Stock Option;
provided, however, that, if the Participant dies within such
exercise period, any unexercised Stock Option held by such
Participant shall thereafter be exercisable, to the extent
to which it was exercisable at the time of death, for a
period of one (1) year (or such other period as the
Committee may specify at grant or, if no rights of the
Participant's estate are reduced, thereafter) from the date
of such death, but in no event beyond the expiration of the
stated term of such Stock Option.
(d) Involuntary Termination Without Cause or
Termination for Good Reason. If a Participant's Termination
of Relationship is by involuntary termination without Cause
or for Good Reason, any Stock Option held by such
Participant, unless otherwise determined by the Committee at
grant or, if no rights of the Participant are reduced,
thereafter, may be exercised, to the extent exercisable at
termination, by the Participant at any time within a period
of ninety (90) days from the date of such termination, but
in no event beyond the expiration of the stated term of such
Stock Option.
(e) Termination Without Good Reason. If a
Participant's Termination of Relationship is voluntary but
without Good Reason and such Termination of Relationship
occurs prior to, or more than ninety (90) days after, the
occurrence of an event which would be grounds for
Termination of Relationship by the Company for Cause
(without regard to any notice or cure period requirements),
any Stock Option held by such Participant, unless otherwise
determined by the Committee at grant or, if no rights of the
Participant are reduced, thereafter, may be exercised, to
the extent exercisable at termination, by the Participant at
any time within a period of thirty (30) days from the date
of such Termination of Relationship, but in no event beyond
the expiration of the stated term of such Stock Option.
(f) Other Termination. Unless otherwise determined by
the Committee at grant or, if no rights of the Participant
are reduced, thereafter, if a Participant's Termination of
Relationship is for any reason other than death, Disability,
Retirement, Good Reason involuntary termination without
Cause or voluntary termination as provided in subsection (e)
above, any Stock Option held by such Participant shall
thereupon terminate and expire as of the date of
termination, provided that (unless the Committee determines
a different period upon grant or, if, no rights of the
Participant are reduced, thereafter) in the event such
termination is for Cause or is a voluntary termination
without Good Reason or voluntary resignation within ninety
(90) days after occurrence of an event which would be
grounds for Termination of Relationship by the Company for
Cause (without regard to any notice or cure period
requirement), any Stock Option held by the Participant at
the time of occurrence of the event which would be grounds
for Termination of Relationship for Cause shall be deemed to
have terminated and expired upon occurrence of the event
which would be grounds for Termination of Relationship by
the Company for Cause.
6.5. Termination of Directorship. The following rules apply
with regard to Options upon the Termination of Directorship:
(a) Death, Disability or Otherwise Ceasing to be a
Director Other than for Cause. Except as otherwise
determined by the Committee at grant or, if no rights of the
Participant are reduced, thereafter, upon the Termination
of Directorship, on account of Disability, death,
Retirement, resignation, failure to stand for reelection or
failure to be reelected or otherwise other than as set forth
in (b) below, all outstanding Options then exercisable and
not exercised by the Participant prior to such Termination
of Directorship shall remain exercisable, to the extent
exercisable at the Termination of Directorship, by the
Participant or, in the case of death, by the Participant's
estate or by the person given authority to exercise such
Options by his or her will or by operation of law, for a one
(1) year period commencing on the date of the Termination of
Directorship, provided that such one (1) year period shall
not extend beyond the stated time of such Options.
(b) Cause. Upon removal, failure to stand for
reelection or failure to be renominated for Cause, or if the
Company obtains or discovers information after Termination
of Directorship that such Participant had engaged in conduct
that would have justified a removal for Cause during such
directorship, all outstanding Options of such Participant
shall immediately terminate and shall be null and void.
(c) Cancellation of Options. No Options that were not
exercisable during the period such person serves as a
director shall thereafter become exercisable upon a
Termination of Directorship for any reason or no reason
whatsoever, and such Options shall terminate and become null
and void upon a Termination of Directorship.
ARTICLE VII.
NON-TRANSFERABILITY
No Stock Option shall be Transferable by the Participant
otherwise than by will or by the laws of descent and
distribution. All Stock Options shall be exercisable, during the
Participant's lifetime, only by the Participant. No Stock
Option shall, except as otherwise specifically provided by law or
herein, be Transferable in any manner, and any attempt to
Transfer any such Option shall be void, and no such Option shall
in any manner be liable for or subject to the debts, contracts,
liabilities, engagements or torts of any person who shall be
entitled to such Option, nor shall it be subject to attachment or
legal process for or against such person.
ARTICLE VIII.
CHANGE IN CONTROL PROVISIONS
8.1. Benefits. In the event of a Change in Control of the
Company (as defined below), except as otherwise provided by the
Committee upon the grant of an Option, the Participant shall be
entitled to the following benefits:
(a) Subject to paragraph (b) below, all outstanding
Options of Participants granted prior to the Change in
Control shall be fully vested and immediately exercisable in
their entirety. The Committee, in its sole discretion, may
provide for the purchase of any such Stock Options by the
Company for an amount of cash equal to the excess of the
Change in Control price (as defined below) of the shares of
Common Stock covered by such Stock Options, over the
aggregate exercise price of such Stock Options. For
purposes of this Section 8.1, Change in Control price shall
mean the higher of (i) the highest price per share of Common
Stock paid in any transaction related to a Change in Control
of the Company, or (ii) the highest Fair Market Value per
share of Common Stock at any time during the sixty (60) day
period preceding a Change in Control.
(b) Notwithstanding anything to the contrary herein,
unless the Committee provides otherwise at the time an
Option is granted to an Eligible Employee or Consultant
hereunder or thereafter, no acceleration of exercisability
shall occur with respect to such Option if the Committee
reasonably determines in good faith, prior to the occurrence
of the Change in Control, that the Options shall be honored
or assumed, or new rights substituted therefor (each such
honored, assumed or substituted option hereinafter called an
"Alternative Option"), by such Participant's employer (or
the parent or a subsidiary of such employer), or in the case
of a Consultant, by the entity (or its parent or subsidiary)
which retains the Consultant, immediately following the
Change in Control, provided that any such Alternative Option
must meet the following criteria:
(i) the Alternative Option must be based on stock
which is traded on an established securities market, or
which will be so traded within thirty (30) days of the
Change in Control;
(ii) the Alternative Option must provide such
Participant with rights and entitlements substantially
equivalent to or better than the rights, terms and
conditions applicable under such Option, including, but not
limited to, an identical or better exercise schedule; and
(iii) the Alternative Option must have economic
value substantially equivalent to the value of such Option
(determined at the time of the Change in Control).
For purposes of Incentive Stock Options, any assumed or
substituted Option shall comply with the requirements of
Treasury regulation Section 1.425-1 (and any amendments thereto).
8.2. Change in Control. A "Change in Control" shall be
deemed to have occurred:
(a) upon any "person" as such term is used in Sections
13(d) and 14(d) of the Exchange Act (other than the Company,
any trustee or other fiduciary holding securities under any
employee benefit plan of the Company, any company owned,
directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of
Common Stock of the Company), becoming the owner (as defined
in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the
Company's then outstanding securities (including, without
limitation, securities owned at the time of any increase in
ownership);
(b) during any period of two consecutive years, a
change in the composition of the Board of Directors of the
Company such that the individuals who, as of the date
hereof, comprise the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board;
provided, however, for purposes of this subsection that any
individual who becomes a member of an Incumbent Board
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved in
advance or contemporaneously with such election by a vote of
at least a majority of those individuals who are members of
the Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were
a member of the Incumbent Board; but, provided further, that
any such individual whose initial assumption of office
occurs as a result of either an actual or threatened elec-
tion contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board of Directors
of the Company or actual or threatened tender offer for
shares of the Company or similar transaction or other
contest for corporate control (other than a tender offer by
the Company) shall not be so considered as a member of the
Incumbent Board;
(c) upon the merger or consolidation of the Company
with any other corporation (other than a parent or
subsidiary corporation within the meaning of Section 424(e)
or 424(f) of the Code, respectively), other than a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity)
more than fifty percent (50%) of the combined voting power
of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or
consolidation; or
(d) upon the shareholders' of the Company approval of
a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets other than the
sale of all or substantially all of the assets of the
Company to a person or persons who beneficially own,
directly or indirectly, at least fifty percent (50%) or more
of the combined voting power of the outstanding voting
securities of the Company at the time of the sale.
ARTICLE IX.
TERMINATION OR AMENDMENT OF THE PLAN
9.1. Termination or Amendment. Notwithstanding any other
provision of this Plan, the Board may at any time, and from time
to time, amend, in whole or in part, any or all of the provisions
of the Plan, or suspend or terminate it entirely, retroactively
or otherwise; provided, however, that, unless otherwise required
by law or specifically provided herein, the rights of a
Participant with respect to Options granted prior to such
amendment, suspension or termination, may not be impaired without
the consent of such Participant and, provided further, without
the approval of the shareholders of the Company, if and to the
extent required by the applicable provisions of Rule 16b-3 or
under the applicable provisions of Section 162(m) of the Code or,
with regard to Incentive Stock Options, Section 422 of the Code,
no amendment may be made which would (i) increase the maximum
individual Participant limitations under Section 4.1(b);
(ii) change the classification of employees eligible to receive
Options under this Plan; (iii) extend the maximum option period
under Section 6.3; or (iv) require shareholder approval in order
for the Plan to continue to comply with the applicable
provisions, if any, of Section 162(m) of the Code or, with regard
to Incentive Stock Options, Section 422 of the Code. In no event
may the Plan be amended without the approval of the shareholders
of the Company in accordance with the applicable laws or other
requirements to increase the aggregate number of shares of Common
Stock that may be issued under the Plan or to make any other
amendment that would require shareholder approval under the rules
of any exchange or system on which the Company's securities are
listed or traded at the request of the Company.
The Committee may amend the terms of any Option theretofore
granted, prospectively or retroactively, but, subject to Article
IV above or as otherwise specifically provided herein, no such
amendment or other action by the Committee shall impair the
rights of any holder without the holder's consent.
ARTICLE X.
UNFUNDED PLAN
10.1. Unfunded Status of Plan. This Plan is intended to
constitute an "unfunded" plan for incentive compensation. With
respect to any payments as to which a Participant has a fixed and
vested interest but which are not yet made to a Participant by
the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general
creditor of the Company.
ARTICLE XI.
GENERAL PROVISIONS
11.1. Legend. The Committee may require each person
receiving shares of Common Stock pursuant to the exercise of a
Stock Option under the Plan to represent to and agree with the
Company in writing that the Participant is acquiring the shares
without a view to distribution thereof. In addition to any
legend required by this Plan, the certificates for such shares
may include any legend which the Committee deems appropriate to
reflect any restrictions on Transfer.
All certificates for shares of Common Stock delivered under
the Plan shall be subject to such stock transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Common Stock is
then listed or any national securities association system upon
whose system the Common Stock is then quoted, any applicable
Federal or state securities law, and any applicable corporate
law, and the Committee may cause a legend or legends to be put on
any such certificates to make appropriate reference to such
restrictions.
11.2. Other Plans. Nothing contained in this Plan shall
prevent the Board from adopting other or additional compensation
arrangements, subject to shareholder approval if such approval is
required; and such arrangements may be either generally
applicable or applicable only in specific cases.
11.3. No Right to Employment/Consultancy/Directorship.
Neither this Plan nor the grant of any Option hereunder shall
give any Participant or other individual any right with respect
to continuance of employment or consultancy by the Company or any
Subsidiary, nor shall there be a limitation in any way on the
right of the Company or any Subsidiary by which an employee is
employed or if a consultant, retained, to terminate his
employment or consultancy at any time. Neither this Plan nor the
grant of any Option hereunder shall impose any obligation on the
Company to retain any Participant as a director, nor shall it
impose on the part of any Participant any obligation to remain as
a director of the Company.
11.4. Withholding of Taxes. The Company shall have the
right, if necessary or desirable (as determined by the Company),
to deduct from any payment to be made to a Participant, or to
otherwise require, prior to the issuance or delivery of any
shares of Common Stock or the payment of any cash hereunder,
payment by the Participant of, any Federal, state or local taxes
required by law to be withheld.
The Committee may permit any such withholding obligation
with regard to any Participant to be satisfied by reducing the
number of shares of Common Stock otherwise deliverable or by
delivering shares of Common Stock already owned. Any fraction of
a share of Common Stock required to satisfy such tax obligations
shall be disregarded and the amount due shall be paid instead in
cash by the Participant.
11.5. Listing and Other Conditions.
(a) As long as the Common Stock is listed on a
national securities exchange or system sponsored by a
national securities association, the issue of any shares of
Common Stock pursuant to the exercise of an Option shall be
conditioned upon such shares being listed on such exchange
or system. The Company shall have no obligation to issue
such shares unless and until such shares are so listed, and
the right to exercise any Option with respect to such shares
shall be suspended until such listing has been effected.
(b) If at any time counsel to the Company shall be of
the opinion that any sale or delivery of shares of Common
Stock pursuant to the exercise of an Option is or may in the
circumstances be unlawful or result in the imposition of
excise taxes on the Company under the statutes, rules or
regulations of any applicable jurisdiction, the Company
shall have no obligation to make such sale or delivery, or
to make any application or to effect or to maintain any
qualification or registration under the Securities Act of
1933, as amended, or otherwise with respect to shares of
Common Stock, and the right to exercise any Option shall be
suspended until, in the opinion of said counsel, such sale
or delivery shall be lawful or will not result in the
imposition of excise taxes on the Company.
(c) Upon termination of any period of suspension under
this Section 11.5, any Option affected by such suspension
which shall not then have expired or terminated shall be
reinstated as to all shares available before such suspension
and as to shares which would otherwise have become available
during the period of such suspension, but no such suspension
shall extend the term of any Option.
11.6. Governing Law. This Plan shall be governed and
construed in accordance with the laws of the State of New York
(regardless of the law that might otherwise govern under
applicable New York principles of conflict of laws).
11.7. Construction. Wherever any words are used in this
Plan in the masculine gender they shall be construed as though
they were also used in the feminine gender in all cases where
they would so apply, and wherever any words are used herein in
the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so
apply.
11.8. Other Benefits. No Stock Option granted under this
Plan shall be deemed compensation for purposes of computing
benefits under any retirement plan of the Company or its
Subsidiaries nor affect any benefits under any other benefit plan
now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation.
11.9. Costs. The Company shall bear all expenses included
in administering this Plan, including expenses of issuing Common
Stock pursuant to the exercise of any Options hereunder.
11.10. No Right to Same Benefits. The provisions of
Options need not be the same with respect to each Participant,
and such Options to individual Participants need not be the same
in subsequent years.
11.11. Death/Disability. The Committee may in its
discretion require the transferee of a Participant to supply it
with written notice of the Participant's death or Disability and
to supply it with a copy of the will (in the case of the
Participant's death) or such other evidence as the Committee
deems necessary to establish the validity of the transfer of an
Option. The Committee may also require that the agreement of the
transferee to be bound by all of the terms and conditions of the
Plan.
11.12. Section 16(b) of the Exchange Act. All elections
and transactions under the Plan by persons subject to Section 16
of the Exchange Act involving shares of Common Stock are intended
to comply with any applicable exemptive condition under Rule
16b-3. To the extent applicable, the Committee may establish and
adopt written administrative guidelines, designed to facilitate
compliance with Section 16(b) of the Exchange Act, as it may deem
necessary or proper for the administration and operation of the
Plan and the transaction of business thereunder. For purposes of
this paragraph, the Company shall be deemed publicly held when
and if the Company has a class of common equity securities
registered under Section 12 of the Exchange Act.
11.13. Severability of Provisions. If any provision of the
Plan shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof,
and the Plan shall be construed and enforced as if such
provisions had not been included.
11.14. Headings and Captions. The headings and captions
herein are provided for reference and convenience only, shall not
be considered part of the Plan, and shall not be employed in the
construction of the Plan.
ARTICLE XII.
EFFECTIVE DATE OF PLAN
The Plan shall take effect upon adoption by the Board, but
the Plan (and any grants of Options made prior to the shareholder
approval mentioned herein) shall be subject to the requisite
approval of the shareholders of the Company. In the absence of
such approval, such Options shall be null and void.
ARTICLE XIII.
TERM OF PLAN
No Stock Option shall be granted pursuant to the Plan on or
after the tenth anniversary of the earlier of the date the Plan
is adopted or the date of shareholder approval, but Options
granted prior to such tenth anniversary may extend beyond that
date.
ARTICLE XIV.
NAME OF PLAN
This Plan shall be known as the Level 8 Systems, Inc. 1997
Stock Option Plan, as Amended and Restated.
APPENDIX
PROXY
LEVEL 8 SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The undersigned appoints Arie Kilman and Samuel Somech,
and either of them, with power of substitution, to represent and
to vote on behalf of the undersigned all of the shares of Level 8
Systems, Inc. (the "Corporation") which the undersigned is
entitled to vote at the annual meeting of shareholders to be held
at the offices of Proskauer Rose LLP, 1585 Broadway, 26th Floor,
New York, New York on May 11, 1998 at 10:00 A.M. local time, and
at any adjournment or adjournments thereof, hereby revoking all
proxies heretofore given with respect to such shares, upon the
following proposals more fully described in the notice of, and
proxy statement relating to, the meeting (receipt whereof is
hereby acknowledged).
Please return the enclosed postage paid envelope.
(Continued and to be signed on the other side)
A. Please mark your
Votes as in this
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR (1) and (2)
FOR all nominees
listed at right
(except as marked
to the contrary below WITHHELD
1. ELECTION Nominees: Arie Kilman
DIRECTORS Samuel Somech
(INSTRUCTION: To withhold authority Theodore Fine
to vote for any individual nominee, Frank J. Klein
write that nominee's name in the Lenny Recanati
space provided below.) Michel Berty
Robert M. Brill
FOR AGAINST ABSTAIN
2. PROPOSAL TO APPROVE AN AMENDMENT TO
THE CORPORATION'S 1997 STOCK OPTION
PLAN TO INCREASE FROM 600,000 TO
1,400,000 THE NUMBER OF SHARES OF
COMMON STOCK SUBJECT TO THAT PLAN.
3. In their discretion upon such other
matters as may properly come before
the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER, IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
Please return in the enclosed postage paid envelope.
SIGNATURE SIGNATURE DATED , 1998
Note: (Please sign exactly as your name appears on your stock
certificate(s). When shares are held by joint tenants,
both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by President or other authorized
officer. If a partnership, please sign in partnership
name by authorized person.)
