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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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LEVEL 8 SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 11-2920559
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
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8000 REGENCY PARKWAY, CARY, NORTH CAROLINA 27511
(919) 380-5000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
DENNIS MCKINNIE, ESQ.
SENIOR VICE PRESIDENT, CHIEF LEGAL AND ADMINISTRATIVE OFFICER; CORPORATE
SECRETARY
LEVEL 8 SYSTEMS, INC.
8000 REGENCY PARKWAY, CARY, NORTH CAROLINA 27511
(919) 380-5000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
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Copy to:
SCOTT D. SMITH, ESQ.
ELIOT W. ROBINSON, ESQ.
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
SIXTEENTH FLOOR
191 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303
(404) 572-6600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time or at one time after the effective date of this registration statement
as determined by the selling stockholders.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TITLE OF SHARES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
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Common Stock, $.001 par value..................... 4,200,000(2) $9.6875 $40,687,500 $11,312
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended, based on
the average high and low sales prices of the registrant's common stock on
August 4, 1999 as reported by The Nasdaq National Market.
(2) Includes: (a) up to 2,100,000 shares of common stock which may be issued
upon conversion of registrant's Series A 4% Convertible Redeemable Preferred
Stock; and (b) 2,100,000 shares of common stock which may be issued upon
exercise of warrants. Pursuant to Rule 416 promulgated under the Securities
Act of 1933, as amended, this registration statement also covers such
indeterminable number of additional shares of common stock as may become
issuable to prevent dilution resulting from stock splits, stock dividends or
similar transactions.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON A DATE THAT THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECRUITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER AND SALE IS NOT PERMITTED.
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SUBJECT TO COMPLETION, DATED AUGUST 6, 1999
PROSPECTUS
LEVEL 8 SYSTEMS, INC.
4,200,000 SHARES OF COMMON STOCK
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This prospectus relates to an aggregate of up to 4,200,000 shares of common
stock, $.001 par value, which are being offered by the stockholders of our
company named in the section entitled "Selling Stockholders" on page 17. These
shares include:
- Up to 2,100,000 shares of our common stock which the selling stockholders
may acquire upon conversion of our Series A 4% Convertible Redeemable
Preferred Stock which were sold to the selling stockholders in a private
transaction; and
- Up to 2,100,000 shares of our common stock which are issuable upon the
exercise of warrants. We issued the warrants to purchase 2,100,000 shares
of our common stock to the selling stockholders in connection with the
selling stockholders' purchase of our Series A 4% Convertible Redeemable
Preferred Stock pursuant to a Securities Purchase Agreement dated June 28,
1999, among our company and the selling stockholders.
The selling stockholders may also offer additional shares of common stock
acquired upon conversion of the Series A 4% Convertible Redeemable Preferred
Stock or exercise of the warrants as a result of anti-dilution provisions, stock
splits, stock dividends or similar transactions.
We will not receive any of the proceeds from any future sale of the shares
of common stock issued to the selling stockholders upon conversion of the Series
A 4% Convertible Redeemable Preferred Stock or the exercise of the warrants. Our
company will, however, receive the proceeds from the exercise of the warrants
issued to the selling stockholders. The per share exercise price of the warrants
is $10.00, subject to adjustment.
The selling stockholders may sell the shares of common stock from time to
time in various types of transactions, including on The Nasdaq National Market,
in the over-the-counter market, and in privately negotiated transactions.
For additional information on methods of sale, you should refer to the
section entitled "Plan of Distribution" on page 21. The selling stockholders
will determine the price of the shares of common stock independent of our
company. On August 4, 1999, the last sales price of the common stock on The
Nasdaq National Market was $9.6875 per share.
Our company's common stock is quoted on The Nasdaq National Market under the
symbol "LVEL."
Investing in these securities involves a high degree of risk. See the "Risk
Factors" section beginning on page 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
The date of this prospectus is August , 1999.
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TABLE OF CONTENTS
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YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY UNCERTAIN.................... 3
WHERE CAN YOU FIND MORE INFORMATION........................................................................ 3
THE COMPANY................................................................................................ 4
RISK FACTORS............................................................................................... 6
USE OF PROCEEDS............................................................................................ 15
SELLING STOCKHOLDERS....................................................................................... 16
DESCRIPTION OF CAPITAL STOCK............................................................................... 18
PLAN OF DISTRIBUTION....................................................................................... 19
EXPERTS.................................................................................................... 20
LEGAL MATTERS.............................................................................................. 21
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We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You should
not rely on any unauthorized information. This prospectus does not offer to sell
or buy any shares in any jurisdiction in which it is unlawful. The information
in this prospectus is current as of the date on the cover.
Level 8, Level 8 Systems, Geneva, Geneva Integrator and Falcon MQ are
trademarks of Level 8 Systems, Inc. Seer and Seer*HPS are registered trademarks
of Seer Technologies, Inc. All other product and company names are for
identification purposes only and are the property of, and may be the trademarks
of, their respective owners.
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YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE
INHERENTLY UNCERTAIN
This prospectus contains forward-looking statements that involve risks and
uncertainties. You should not rely on these forward-looking statements. We use
words such as "anticipates," "believes," "plans," "expects," "future," "intends"
and similar expressions to identify forward-looking statements. These statements
appear throughout the prospectus and are statements regarding our intent,
belief, or current expectations, primarily with respect to our operations and
related industry developments. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described below and elsewhere in this prospectus.
WHERE CAN YOU FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission. Some information in the
registration statement has been omitted from this prospectus in accordance with
SEC rules. We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You can read and copy the registration statement
as well as reports, proxy statements and other information we have filed with
the SEC at the public reference room maintained by the SEC at 450 Fifth Street,
NW, Washington, D.C. 20549, and at the following Regional Offices of the SEC: 7
World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Chicago, Illinois 60661. You can call the SEC at
1-800-732-0330 for further information about the public reference room. We are
also required to file electronic versions of these documents with the SEC, which
may be accessed through the SEC's World Wide Web site at http://www.sec.gov. Our
common stock is quoted on The Nasdaq National Market under the symbol "LVEL."
Reports, proxy and information statements and other information concerning our
company may be inspected at The Nasdaq Stock Market at 1735 K Street, NW,
Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" the information we have
previously filed with it, which means that we can disclose important information
to you by referring you to those documents. All information that we have
incorporated by reference is available to you in accordance with the above
paragraph. The information incorporated by reference is considered to be a part
of this prospectus, and information that we file with the SEC subsequent to the
date of this prospectus will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, until the selling stockholders have
sold all the shares.
The following documents filed with the SEC are incorporated by reference in
this prospectus:
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1998;
2. Our Current Report on Form 8-K/A filed with the SEC on January 11, 1999;
3. Our Current Report on Form 8-K/A filed with the SEC on January 15, 1999;
4. Our Current Report on Form 8-K filed with the SEC on January 15, 1999;
5. Our Current Report on Form 8-K filed with the SEC on January 21, 1999;
6. Our Current Report on Form 8-K/A filed with the SEC on March 16, 1999;
7. Our Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1998
and filed with the SEC on April 22, 1999;
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8. Our Quarterly Report on Form 10-Q/A for the quarter ended June 30, 1998
and filed with the SEC on April 22, 1999;
9. Our Quarterly Report on Form 10-Q/A for the quarter ended September 30,
1998 and filed with the SEC on April 22, 1999;
10. Our Current Report on Form 8-K filed with the SEC on April 30, 1999;
11. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
12. Our definitive Proxy Statement for our 1999 Annual Meeting of
Stockholders held on May 26, 1999;
13. Our Current Report on Form 8-K/A filed with the SEC on June 29, 1999;
14. Our Current Report on Form 8-K/A filed with the SEC on July 12, 1999;
15. Our Current Report on Form 8-K filed with the SEC on July 23, 1999; and
16. The description of our common stock set forth in our registration
statement on Form 8-A filed with the SEC on July 11, 1995 (as modified by
the "Description of Capital Stock" contained in this prospectus).
We will furnish without charge to you, on written or oral request, a copy of
any or all of the documents incorporated by reference, including exhibits to
these documents. You should direct any requests for documents to Dennis
McKinnie, Esq., Senior Vice President, Chief Legal and Administrative Officer;
Corporate Secretary, Level 8 Systems, Inc., 8000 Regency Parkway, Cary, North
Carolina 27511, telephone: (919) 380-5000.
THE COMPANY
Our company is a leading provider of business integration solutions.
Business integration solutions address the emerging need for a company's
information systems to deliver enterprise-wide views of the company's business
information processes. As new computer technologies have proliferated in
enterprise computing environments, the integration and management of the
applications which rely on them has become increasingly complex. Our products
and services are designed to enable organizations to address information systems
integration and management problems in a simple and cost effective way. We
provide customers with solutions to meet their enterprise application
integration (EAI) and development needs. Our products allow companies to link
their critical business applications internally across the enterprise and
externally with strategic business partners. Our products and services also
enable organizations to engage in electronic commerce. Electronic commerce or
"E-commerce" refers to business conducted over the Internet. Currently, our
products and services are sold worldwide through a network of regional sales
offices. To date, our products and services have been utilized by companies in a
wide variety of industries, including banking and financial services, insurance,
retail, manufacturing, data processing, public utilities and transportation.
Specifically, our customer base includes major corporations around the world
such as ABN AMRO, Information Technology Services Company, Credit Suisse First
Boston, Italia Telecom, Prudential Insurance Company of America, Sikorsky
Aircraft, TeleDenmark A/S, Telenor A/S, Drugstore.com and Montgomery Ward & Co.,
Incorporated.
Our company was incorporated under New York law in 1988 under the name
Advanced Systems U.S.A. (LSU) Inc., and was initially a wholly owned subsidiary
of Liraz Systems Ltd., an Israeli public company in the systems integration
business. In June 1999, we reincorporated under Delaware law. Our principal
executive offices are located at 8000 Regency Parkway, Cary, North Carolina
27511. Our company's telephone number is (919) 380-5000.
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RECENT FINANCING
On June 29, 1999, we completed a $21 million private placement of 21,000
shares of our Series A 4% Convertible Redeemable Preferred Stock, convertible
into an aggregate of 2.1 million shares of our common stock. Holders of the
Series A Preferred Stock are entitled to receive 4% annual cash dividends
payable quarterly and will have one vote per share of Series A Preferred Stock,
voting together with the common stock and not as a separate class except on
certain matters adversely affecting the rights of holders of the Series A
Preferred Stock. The Series A Preferred Stock may be redeemed at our option at a
redemption price equal to the original purchase price at any time after June 29,
2000 if the closing price of our common stock over 20 consecutive trading days
is greater than $20.00 per share. The conversion price of the Series A Preferred
Stock is subject to certain anti-dilution provisions, including adjustments in
the event of certain sales of common stock at a price of less than $10.00 per
share. In the event we breach our obligations to pay dividends when due or issue
common stock upon conversion, or our common stock is delisted, the dividend rate
on the Series A Preferred Stock would increase to 18% per annum (partially
payable in shares of common stock at our option during the first 60 days of such
increased dividend rate). As part of the $21 million financing, we also issued
to the investors warrants to purchase 2.1 million shares of common stock at an
exercise price of $10.00 per share. We have agreed to register the common stock
issuable upon conversion of the Series A Preferred Stock and exercise of the
warrants for resale under the Securities Act of 1933, as amended. We are
required to make certain payments in the event we are unable to meet our
obligations in connection with the Series A Preferred Stock and warrants, such
as registration under the Securities Act or issuance of shares of common stock
upon conversion or exercise. The aggregate amount of all such payments, together
with dividends on the Series A Preferred Stock, is limited to 19% of the
liquidation value of the Series A Preferred Stock. Investors in the Series A
Preferred Stock and warrants include Advanced Systems Europe B.V. and investment
funds affiliated with Brown Simpson Asset Management and Seneca Capital
Management. Advanced Systems Europe B.V. purchased $10 million of Series A
Preferred Stock and warrants in the transaction and is a subsidiary of Liraz
Systems, Ltd., our controlling stockholder.
The foregoing summary description is qualified in its entirety by reference
to the definitive transaction documents, which are attached to our Current
Report on Form 8-K filed with the SEC on July 23, 1999 and incorporated herein
by reference.
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RISK FACTORS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below. You should carefully consider
these risk factors, together with all of the other information included in this
prospectus, before you decide whether to purchase shares of our common stock.
OUR FUTURE SUCCESS DEPENDS ON THE MARKET ACCEPTANCE OF OUR NEW GENEVA INTEGRATOR
In April 1999, we introduced our new Geneva Integrator software product
which we expect will generate a substantial portion of our revenues within the
next year. Moreover, we are re-focusing much of our business efforts from the
middleware to the enterprise application integration, or EAI, market. Geneva
Integrator will be essential to this effort. While a small number of our
customers have used Geneva Integrator products for limited applications, Geneva
Integrator may not achieve or maintain significant market acceptance. The market
acceptance of Geneva Integrator will depend on a number of factors, including:
- the success of the initial Geneva Integrator implementations and
customers' willingness to provide favorable references to prospective
customers;
- the rate of market share growth for Microsoft Corporation's Windows
operating system in enterprise information technology environments;
- the accuracy of industry analyst predictions that the focus of information
technology departments will shift to application integration, development
and electronic commerce enablement as Year 2000 problem remediation
efforts begin to wind down in 2000;
- the possible introduction of functionally superior competitive offerings;
- Microsoft's development and provision of equivalent technology as part of
its Windows operating system; and
- our ability to accurately anticipate evolving market requirements and
deliver enhancements to Geneva Integrator's functionality to meet those
needs within competitive windows of opportunity.
If, because of the comparative attractiveness of competing products, our
inability to ship Geneva Integrator in a timely way, or for any other reason, we
cannot achieve a rapid and significant level of market acceptance for the
product, then we may not be able to fulfill our business plan or successfully
transition our company to the EAI market. Accordingly, failure of Geneva
Integrator to achieve or maintain significant market acceptance would have a
material adverse effect on our business, operating results and financial
condition.
WE HAVE A HISTORY OF LOSSES
Although we reported operating income and net income in 1997, we have
experienced since 1996 operating losses and net losses on a pro forma basis
(reflecting our acquisition of Seer Technologies, Inc.). We incurred net losses
of $25.1 million for 1998 ($88.1 million on a pro forma basis reflecting our
acquisition of Seer) and $8.1 million for the six months ended June 30, 1999. At
June 30, 1999, we had working capital of $5.2 million and an accumulated deficit
of $33.3 million. In addition, our recently acquired Seer subsidiary reported a
net loss of $62.4 million for its fiscal year ended September 30, 1998, and a
net loss of $4.9 million for its quarter ended December 31, 1998. Although we
have raised $21 million of equity financing from the sale of the Series A
Preferred Stock and warrants, our ability to generate positive cash flow is
dependent upon our achieving and sustaining certain cost reductions and
generating sufficient revenues for the year. Part of our strategy is to grow our
business rapidly through a series of carefully selected, synergistic
acquisitions. Accounting for these
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acquisitions in accordance with generally accepted accounting principles and SEC
rules and regulations may require our company to amortize intangible assets for
several years after an acquisition or record significant charges for in-process
research and development at the time of acquisition. These charges are typically
non-cash in nature. Therefore, due to these and other factors, we expect that we
will continue to experience net losses for at least the next 12 months. We
cannot predict with accuracy our future results of operations and believe that
any period-to-period comparisons of our results of operations are not
meaningful. We expect to increase our operating expenses significantly, expand
our sales and marketing operations and continue to develop and enhance our
products. In the future, we may not generate sufficient revenues to pay for all
of these operating costs or other expenses. In addition, dividends of $210,000
per quarter accrue on the outstanding Series A Preferred Stock and are required
to be declared and paid in cash to the extent funds are legally available for
the payment of dividends. If we fail to generate sufficient cash to pay these
expenses and dividends, we will need to identify other sources of financing. We
may not be able to borrow money or issue more shares of common stock or other
securities to meet our cash needs, and even if we can complete such
transactions, the terms may not be favorable. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the documents
incorporated by reference for a more complete description of our historical
financial condition, results of operations and liquidity.
BECAUSE OUR EXPENSES ARE LARGELY FIXED, AN UNEXPECTED REVENUE SHORTFALL MAY
ADVERSELY AFFECT OUR BUSINESS
Our expense levels are based primarily on our estimates of future revenues
and are largely fixed. A large portion of our expense relates to headcount that
cannot be easily reduced without adversely affecting our business. We also
intend to hire additional personnel to support the growth of our business. This
expansion will substantially increase our operating expenses. We may be unable
to adjust spending rapidly enough to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues in relation to our
planned expenditures would reduce, and possibly eliminate, any operating income
and could materially adversely affect our business, operating results and
financial condition.
BECAUSE WE CANNOT ACCURATELY PREDICT THE AMOUNT AND TIMING OF INDIVIDUAL SALES,
OUR QUARTERLY OPERATING RESULTS MAY VARY SIGNIFICANTLY, WHICH MAY ADVERSELY
IMPACT OUR STOCK PRICE
Our quarterly operating results have varied significantly in the past, and
we expect they will continue to do so in the future. We have derived, and expect
to continue to derive in the near term, a significant portion of our revenue
from relatively large customer contracts or arrangements. The timing of revenue
recognition from those contracts and arrangements has caused and may continue to
cause fluctuations in our operating results, particularly on a quarterly basis.
Our quarterly revenues and operating results typically depend upon the volume
and timing of customer contracts received during a given quarter and the
percentage of each contract which we are able to recognize as revenue during the
quarter. Each of these factors is difficult to forecast. As is common in the
software industry, the largest portion of software license revenues are
typically recognized in the last month of each fiscal quarter and the third and
fourth quarters of each fiscal year. We believe these patterns are partly
attributable to budgeting and purchasing cycles of our customers and our sales
commission policies, which compensate sales personnel for meeting or exceeding
periodic quotas.
Furthermore, because the size of individual sales of the Seer*HPS and Geneva
Integrator products are large and such sales can account for a large percentage
of our revenue, a single sale may have a significant impact on the results of a
quarter. In addition, the substantial commitment of executive time and financial
resources that have historically been required in connection with a customer's
decision to purchase certain of our products increases the risk of
quarter-to-quarter fluctuations. Typically, the purchase of our products
involves a significant technical evaluation by the customer and the delays
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frequently associated with customers' internal procedures to approve large
capital expenditures and to test, implement and accept new technologies that
affect key operations. This evaluation process frequently results in a lengthy
sales process of several months. It also subjects the sales cycle for our
products to a number of significant risks, including our customers' budgetary
constraints and internal acceptance reviews. The length of our sales cycle may
vary substantially from customer to customer. We typically do not have any
material backlog of unfilled software orders, and product revenue may fluctuate
from quarter-to-quarter due to the completion or commencement of significant
assignments, the number of working days in a quarter and the utilization rate of
services personnel. As a result of these factors, we believe that a
period-to-period comparison of our historical results of operations is not
necessarily meaningful and should not be relied upon as indications of future
performance. In particular, our revenues in the third and fourth quarters of our
fiscal years may not be indicative of the revenues for the first and second
quarters. Fluctuations in operating results may have a material adverse effect
on our business, operating results and financial condition, and could result in
volatility of the trading price of our common stock. Moreover, if our quarterly
results do not meet the expectations of our securities analysts and investors,
the trading price of our common stock would likely decline.
GENERAL ECONOMIC CONDITIONS MAY AFFECT INVESTORS EXPECTATIONS REGARDING OUR
FINANCIAL PERFORMANCE AND ADVERSELY AFFECT OUR STOCK PRICE
Certain industries to which we sell our products, such as the financial
services industry, are highly cyclical. In addition, we market our products and
services internationally, and historically a substantial portion of our revenue
has been derived from markets outside the United States. In the future, our
results may be subject to substantial period-to-period fluctuations as a
consequence of the industry patterns of our customers, general or regional
economic conditions and other factors. These factors may also have a material
adverse effect on our business, operating results and financial condition.
BECAUSE A SUBSTANTIAL AMOUNT OF OUR PRO FORMA REVENUES HAVE BEEN DERIVED FROM
OUR SEER*HPS PRODUCT, DECREASED DEMAND FOR THIS PRODUCT COULD ADVERSELY AFFECT
OUR BUSINESS
On a pro forma basis, a substantial amount of our revenues has been derived
from the Seer*HPS products and services. Over 84% of our revenues for 1998 on a
pro forma basis were derived from the Seer*HPS products and services. Although
we intend to focus much of our future business efforts on the EAI market, we
intend to continue to support and enhance the Seer*HPS product. We anticipate
that the Seer*HPS product and related services over the near term will account
for a substantial portion of our revenues. If our current or future competitors
release new products that provide, or are perceived as providing, more advanced
features, greater functionality, better performance, better compatibility with
other systems or lower prices than our product line, demand for our Seer*HPS
product or our other products and related services will likely decline. A
decline in demand for, or market acceptance of, the Seer product line as a
result of competition, technological change or other factors could have a
material adverse effect on our business, operating results and financial
condition.
LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS
Our success depends to a significant extent on the performance of a number
of key management and technical personnel, loss of one or more of whom could
have a material adverse effect on our business. Our success will also depend in
part on our ability to attract and retain qualified professional, technical,
managerial and marketing personnel. In particular, we intend to expand our
consulting force and our sales and marketing teams. Competition for such
personnel in the software industry is intense. We may not be successful in
attracting and retaining the personnel required to develop new and technical
products to conduct our operations successfully.
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WE MAY LOSE MARKET SHARE AND BE REQUIRED TO REDUCE PRICES AS A RESULT OF
COMPETITION FROM OUR EXISTING COMPETITORS, OTHER VENDORS AND INFORMATION
SYSTEMS DEPARTMENTS OF CUSTOMERS
We compete in markets that are intensely competitive and feature rapidly
changing technology and evolving standards. To maintain or improve our position
within these markets, or to compete in new markets, we must continue to enhance
our current products and develop new products in a timely fashion. We expect to
experience increased competition from current and potential competitors, many of
which have longer operating histories, greater resources, greater name
recognition, more extensive distribution and sales networks, and a larger, more
established customer base. Accordingly, we may not be able to provide products
and services that compare favorably with the products and services of our
competitors. These competitive pressures could reduce our market share or
require us to reduce the price of our products, either of which could have a
material adverse effect on our business, operating results and financial
condition.
WE MAY NOT HAVE THE RESOURCES TO SUCCESSFULLY MANAGE THE INTEGRATION OF SEER
Our recent acquisition of Seer has placed significant demands on management
as well as on our administrative, operational and financial resources. Our
inability to successfully integrate Seer in order to realize the efficiencies
and cost reductions expected as a result of this acquisition, or to generate
sufficient revenues from the acquisition to offset associated acquisition costs,
could have a material adverse effect on our business, operating results and
financial condition. In addition, the integration of Seer will require
substantial attention from management. None of our prior acquisitions has been
of a magnitude that is comparable to the acquisition of Seer. The diversion of
management's attention, as well as other difficulties which may be encountered
in the transition and integration process, could have a material adverse impact
on our revenues and operating results.
ACQUISITIONS MAY AFFECT FUTURE RESULTS OR FAIL TO BE INTEGRATED SUCCESSFULLY
Part of our strategy is to grow our business rapidly through acquisitions,
although there can be no guarantee that suitable companies, divisions or
products will be available for acquisitions. Future acquisitions will also
entail numerous risks, including our inability to successfully assimilate
acquired operations and products, our inability to retain key employees of
acquired operations and products, the diversion of management's attention, and
the difficulties and uncertainties in transitioning to us key business
relationships from the acquired entities. In addition to paying cash for future
acquisitions, we may issue additional securities which would be dilutive to our
existing stockholders. Alternatively, we may assume or incur debt obligations or
large one-time expenses. These factors could have a material adverse effect on
our business, operating results and financial condition.
We may also evaluate, on a case-by-case basis, joint venture relationships
with complementary businesses. Any joint venture investment would involve many
of the same risks posed by an acquisition, particularly those risks associated
with the diversion of our resources, our inability to generate sufficient
revenues, the management of relationships with third parties and potential
expenses. Any of these risks could have a material adverse effect on our
business, operating results and financial condition.
WE MAY NOT HAVE THE RESOURCES TO SUCCESSFULLY MANAGE ADDITIONAL GROWTH
Our recent growth has placed, and will continue to place, significant
demands on management as well as on our administrative, operational, sales and
financial resources. Our inability to sustain or manage any additional growth
could have a material adverse effect on our business, operating results and
financial condition. To manage additional growth, we must expand our sales,
marketing and customer support organizations, further develop our technical
expertise so that we can influence and respond to emerging industry standards,
and improve our operational processes and management controls.
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RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR PRODUCTS OBSOLETE
Our markets are characterized by rapid technological change, frequent new
product introductions and enhancements, uncertain product life cycles, changes
in customer requirements and evolving industry standards. The introduction of
new products embodying new technologies and the emergence of shifting customer
demands or changing industry standards could render our existing products
obsolete and unmarketable which would have a material adverse effect on our
business, operating results and financial condition. Our future success will
depend upon our ability to continue to develop and introduce a variety of new
products and product enhancements to address the increasingly sophisticated
needs of our customers. This will require us to continue to make substantial
product development investments. We may experience delays in releasing new
products and product enhancements in the future. Material delays in introducing
new products or product enhancements may cause customers to forego purchases of
our products and purchase those of our competitors.
LOSS OF OUR RELATIONSHIP WITH MICROSOFT COULD ADVERSELY AFFECT OUR BUSINESS
We have a key strategic relationship with Microsoft. Microsoft has purchased
from us software originally developed by us that enables its Windows NT server
platforms to integrate with IBM's MQ Series message-oriented middleware, which
currently represents a significant share of the worldwide message-oriented
middleware market. Microsoft has stated that it intends to ship a complementary
software product developed by us as part of its Windows 2000 operating system
and to make it available to its Windows NT server platform customers through its
website. Microsoft currently recommends our FalconMQ product as its preferred
implementation of the MSMQ functionality on operating systems other than
Microsoft Windows. Sales of our FalconMQ product would be significantly affected
if Microsoft ceases to recommend it or does not include our complementary
software product as part of its Windows 2000 operating system.
LOSS OF ANY ONE OF OUR MAJOR CUSTOMERS COULD ADVERSELY AFFECT OUR BUSINESS IN
1999
A significant portion of our business is attributable to a limited number of
changing customers. On a pro forma basis after giving effect to the acquisition
of Seer, our top five customers accounted for 22% of our 1998 revenue. There can
be no assurance that these customers or other of our current customers will
continue to purchase our products in the future. The loss of any one of our
major customers and/or the failure to attract new customers could have a
material adverse effect upon our business. In addition, as a result of our
reliance on a limited number of changing customers, our results of operations
have fluctuated in the past and may continue to fluctuate materially from period
to period.
THERE ARE A NUMBER OF RISKS ASSOCIATED WITH DOING BUSINESS ABROAD
International sales represented approximately 61% of our 1998 revenues on a
pro forma basis after giving effect to the acquisition of Seer. We expect that
such sales will continue to generate a significant portion of our total revenue.
Our revenues from international sales could be subject to large currency
exchange fluctuations, which in some circumstances could reduce our overall
revenue. International sales also expose us to a risk of loss due to an increase
in the value of the U.S. dollar relative to foreign currencies which would make
our products more expensive to potential foreign customers. Additional risks
inherent in our international business activities include:
- unexpected changes in regulatory requirements;
- tariffs and other trade barriers;
- cost and risks of customizing products for foreign markets;
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- longer accounts receivable payment cycles and greater difficulty in
accounts receivable collections;
- difficulties in staffing and managing international operations;
- potentially adverse tax consequences;
- repatriation of earnings;
- the burden of complying with a variety of foreign, legal and regulatory
restrictions;
- political instability;
- possible recessionary environments in economies outside the United States;
and
- reduced protection for intellectual property rights in some countries.
There can be no assurance that these factors, among others, will not have a
material adverse effect on our future international revenue and, consequently,
on our business, operating results and financial condition.
OUR PRODUCTS MAY HAVE UNKNOWN DEFECTS WHICH COULD HARM OUR REPUTATION OR
DECREASE MARKET ACCEPTANCE OF OUR PRODUCTS
Because our customers depend on our products for their critical systems and
business functions, any interruptions caused by unknown defects in our products
could damage our reputation, cause our customers to initiate product liability
suits against us, increase our product development costs, divert our product
development resources, cause us to lose revenue or delay market acceptance of
our products, any of which could cause our business to suffer. Our product
offerings consist of complex software and services, both internally developed
and licensed from third parties. Complex software may contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. Although we conduct extensive testing, we may not discover software
defects that affect our current or new products or enhancements until after they
are sold. Such defects could cause our customers to experience severe system
failures.
THE COMPLEX TECHNOLOGY OF OUR PRODUCTS SUBJECTS US TO LIABILITY CLAIMS
Because our products provide critical database access, integration and
management functions, we may be subject to significant liability claims if our
customers believe that our products have failed to perform their intended
functions. Our agreements with customers typically contain provisions intended
to limit our exposure to liability claims. However, these contract provisions
may not preclude all potential claims. Liability claims could require us to
spend significant time and money in litigation or to pay significant damages. As
a result, any such claims, whether or not successful, could have a material
adverse effect on our reputation and business, operating results and financial
condition.
YEAR 2000 ISSUES MAY CAUSE PROBLEMS WITH OUR SYSTEMS AND EXPOSE US TO LIABILITY
Many currently installed computer systems and software are unable to
distinguish 21(st) century dates from 20(th) century dates. This problem arises
because some computers, software and other equipment include programming code in
which calendar year data is abbreviated to only two digits. As a result, such
equipment and systems could fail to operate or fail to produce correct results
if "00" is interpreted to mean 1900, rather than 2000. This "Year 2000 Problem"
is widely expected to increase in frequency and severity as the Year 2000
approaches.
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The Year 2000 Problem presents us with several potential risks including,
but not limited to, the following:
- SOFTWARE SOLD TO CUSTOMERS. Once licensed, our products interact with
other products that are not developed by us and operate on computer
systems that are not under our control. These factors could affect the
performance of our products if a Year 2000 Problem existed in a different
facet of a customer's information technology infrastructure.
- INTERNAL INFRASTRUCTURE. The Year 2000 Problem could affect computers,
software and other equipment that we use internally as well as divert
management's attention from ordinary business activities. In addition to
computers and related systems, the operation of our office and facilities
equipment, such as fax machines, photocopiers, telephone switches,
security systems, elevators and other common devices may be affected by
the Year 2000 Problem.
- SUPPLIERS/THIRD-PARTY RELATIONSHIPS. There can be no assurance that our
suppliers or other third parties that we rely upon will resolve any or all
Year 2000 Problems with their systems on a timely basis.
- STRAIN ON INFORMATION TECHNOLOGY RESOURCES. The Year 2000 Problem is
currently placing a strain on organizations' information technology
budgets and resources. Some organizations may lack sufficient resources to
undertake the type of integration projects that our product line enables
at the same time that they are addressing the Year 2000 Problem.
We are in the process of resolving all Year 2000 Problems that could materially
adversely affect our business, financial condition or results of operations. We
are currently developing contingency plans to be implemented as part of our
efforts to identify and correct Year 2000 Problems affecting our internal
systems. However, we believe that it is not possible to determine with complete
certainty that all Year 2000 Problems affecting us will be identified or
corrected in a timely manner. If we fail to identify and correct all Year 2000
Problems affecting our internal systems, or if we are forced to implement our
contingency plans, our business, financial condition or results of operations
could be materially adversely affected. In addition, regardless of whether we
experience Year 2000 Problems, enterprises may reduce their spending on software
and systems during the latter part of 1999 and into 2000 in connection with the
potential effects of the Year 2000 Problem or to concentrate their resources on
remediation. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000" in the documents incorporated by reference
for more complete information on the Year 2000 Problem.
FAILURE TO MEET PRODUCT DELIVERY DATES COULD ADVERSELY AFFECT OUR BUSINESS
Because of the complexity of software products and the possibility of
unforeseen technological problems arising late in the development process, it
has not been uncommon for software companies to miss announced delivery dates
for new products and/or upgrades and modifications to existing products.
Unforeseen technical problems may delay the availability of these products and
services or cause us to release such products without support for the range of
platforms currently anticipated. Any substantial delays in the availability of
these products and services could have a material adverse effect on our
business.
WE MAY BE UNABLE TO ENFORCE OR DEFEND OUR OWNERSHIP AND USE OF PROPRIETARY
TECHNOLOGY
Our success depends to a significant degree upon our proprietary technology.
We rely on a combination of patent, trademark, trade secret and copyright law,
and contractual restrictions and passwords to protect our proprietary
technology. However, these measures provide only limited protection, and there
is no guarantee that our protection of our proprietary rights will be adequate.
Furthermore, the laws of some jurisdictions outside the United States do not
protect proprietary rights
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as fully as in the United States. In addition, our competitors may independently
develop similar technology, duplicate our products or design around our patents
or our other intellectual property rights. We may not be able to detect or
police the unauthorized use of our products or technology, and litigation may be
required in the future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of our proprietary
rights. Any litigation to enforce our intellectual property rights would be
expensive and time-consuming, would divert management resources and may not be
adequate to protect our business.
We do not believe that any of our products infringe the proprietary rights
of third parties. However, companies in the software industry have experienced
substantial litigation regarding intellectual property and third parties could
assert claims that we have infringed their intellectual property rights. In
addition, we may be required to indemnify our distribution partners and
end-users for similar claims made against them. Any claims against us would
divert management resources, and could require us to spend significant time and
money in litigation, pay damages, develop new intellectual property or acquire
licenses to intellectual property that is the subject of the infringement
claims. These licenses, if required, may not be available on acceptable terms.
As a result, intellectual property claims against us could have a material
adverse effect on our business, operating results and financial condition.
AS A TECHNOLOGY COMPANY, OUR COMMON STOCK MAY BE SUBJECT TO ERRATIC PRICE
FLUCTUATIONS
The market price of our common stock has fluctuated in the past and may in
the future be subject to significant fluctuations in response to numerous
factors, including: variations in our annual or quarterly financial results or
those of our competitors; changes by financial research analysts in their
estimates of our earnings or our failure to meet such estimates; conditions in
the software and other technology industries; announcements of key developments
by competitors; unfavorable developments with respect to our proprietary rights;
unfavorable publicity affecting our industry or us; adverse legal events
affecting us; and sales of our common stock by existing stockholders. In
addition, from time to time, the stock market experiences significant price and
volume fluctuations, which may affect the market price of our common stock for
reasons which may or may not be related to our performance. Recently, such
volatility has particularly impacted the stock prices of publicly traded
technology companies. In the past, securities class action litigation has been
instituted against a company following periods of volatility in the market price
of a company's securities. If similar litigation were instituted against us, it
could result in substantial costs and a diversion of our management's attention
and resources, which could have an adverse effect on our business.
WE HAVE NOT PAID ANY DIVIDENDS ON OUR COMMON STOCK AND IT IS LIKELY THAT NO
DIVIDENDS WILL BE PAID IN THE FUTURE
We have never declared or paid cash dividends on our common stock and we do
not anticipate paying any cash dividends on our common stock in the foreseeable
future.
LIRAZ COULD CONTROL MATTERS SUBMITTED TO OUR STOCKHOLDERS
Liraz Systems, Ltd., an Israeli public company, has voting control over
approximately 57% of our outstanding common stock. As a result, Liraz currently
has the power to control all matters submitted to our stockholders for a vote,
including the election of directors and the approval of mergers and other
business combination transactions for which a majority vote is required,
regardless of the approval of other stockholders. Such control could adversely
affect the market price of our common stock or delay or prevent a change of
control. In addition, a wholly owned subsidiary of Liraz has the right to
acquire an additional 2,000,000 shares of common stock upon the conversion of
our Series A Preferred Stock and exercise of warrants.
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SOME OF OUR DIRECTORS HAVE CONFLICTS OF INTEREST INVOLVING LIRAZ
Liraz, as a controlling stockholder of our company, and Messrs. Arie Kilman,
Frank J. Klein and Lenny Recanati, who are directors of our company, are in
positions involving the possibility of conflicts of interest with respect to
transactions concerning Liraz and our company. Mr. Kilman, our Chairman of the
Board and Chief Executive Officer, is also Chairman of the Board, President and
a significant stockholder of Liraz. Messrs. Klein and Recanati are executive
officers and significant stockholders of Liraz. Some decisions concerning our
operations or financial structure may present conflicts of interest between us
and Liraz and/or its affiliates. For example, if we are required to raise
additional capital from public or private sources to finance our anticipated
growth and contemplated capital expenditures, our interests might conflict with
those of Liraz and/or its affiliates with respect to the particular type of
financing sought. In addition, we may have an interest in pursuing acquisitions,
divestitures, financings or other transactions that, in our judgment, could be
beneficial to us, even though the transactions might conflict with the interests
of Liraz and/or its affiliates. If these conflicts do occur, Liraz and its
affiliates may exercise their influence in their own best interests. We have in
the past engaged in transactions and joint development projects with Liraz.
PROVISIONS OF OUR CHARTER AND BYLAWS AND DELAWARE LAW COULD DETER TAKEOVER
ATTEMPTS
Section 203 of the Delaware General Corporation Law, which prohibits certain
persons from engaging in business combinations with us, may have anti-takeover
effects and may delay, defer or prevent a takeover attempt that a stockholder
may consider to be in the holder's best interests. These provisions of Delaware
law also may adversely affect the market price of our common stock. Our
certificate of incorporation authorizes the issuance, without stockholder
approval, of preferred stock, with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Such
designations, rights and preferences established by the Board may adversely
affect our stockholders. In the event of issuance, the preferred stock could be
used, under certain circumstances, as a means of discouraging, delaying or
preventing a change of control of our company. Although we have no present
intention to issue any shares of preferred stock, we may issue preferred stock
in the future. See "Certain Relationships and Related Party Transactions" in our
Proxy Statement for our 1999 Annual Meeting of Stockholders.
COMMON STOCK INVESTORS MAY BE DILUTED BY THE EXERCISE OF OPTIONS AND WARRANTS
AND CONVERSION OF PREFERRED STOCK
We have reserved 3,845,000 shares of common stock for issuance under our
employee and director benefit plans. As of the date of this prospectus, options
to purchase an aggregate of 1,808,273 shares of common stock are outstanding
pursuant to our employee and director benefit plans. In addition to the
2,100,000 shares of common stock offered hereby, which are issuable upon the
exercise of the warrants issued in June 1999, warrants to purchase an additional
700,000 shares of common stock are outstanding. We have also reserved 2,100,000
shares of common stock for issuance upon conversion of the outstanding Series A
Preferred Stock. The exercise of such options and warrants or conversion of
preferred stock, and subsequent sale of the underlying common stock in the
public market could adversely affect the market price of our common stock. Our
Series A Preferred Stock and our outstanding warrants include anti-dilution
provisions, including in some cases adjustments to the applicable conversion
price or exercise price in the event we issue common stock at a price less than
the conversion price or exercise price then in effect. This would increase the
dilutive impact of future equity offerings at prices less than the conversion
price or exercise price of the outstanding warrants.
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FUTURE SALES OF OUR COMMON STOCK BY EXISTING INVESTORS COULD ADVERSELY AFFECT
THE MARKET PRICE OF OUR COMMON STOCK
Future sales of substantial numbers of shares of common stock (including
shares issued upon the exercise of stock options or warrants or conversion of
preferred stock) by Liraz, our company or our executive officers or principal
stockholders, or the perception that such sales could occur, could adversely
affect the market price of our common stock. Currently, all shares of common
stock owned by our affiliates are eligible for resale in the public market
pursuant to Rule 144 under the Securities Act, except for 1,250,000 shares
beneficially owned by Welsh, Carson, Anderson & Stowe and its affiliates
(including 250,000 shares issuable upon warrant exercise), which shares may be
resold under Rule 144 after December 31, 1999. We have granted registration
rights to certain investors, principally including Liraz (which owns 4,933,120
shares of common stock), stockholders of Momentum Software Corporation (covering
up to 594,866 shares of common stock and warrants to purchase an additional
200,000 shares of common stock), Candle Corporation (covering up to 246,800
shares of common stock) and Hampshire Securities Corporation, the underwriter
for prior offerings of our common stock (covering warrants to purchase up to
250,000 shares of common stock). These registration rights enable those
investors to require that we register resales of their securities. We have
already filed a registration statement, which remains in effect, covering
140,000 of the shares issuable upon exercise of the warrants held by Hampshire
Securities that expire in July 2000. In addition, we have granted Welsh, Carson,
Anderson & Stowe and related parties (which together own 1,000,000 shares of
common stock and warrants to purchase an additional 250,000 shares) "piggyback"
registration rights which allows them to include their shares in any
registration statement we file in connection with an underwritten public
offering before January 1, 2001. If these investors sell a large portion of
their securities on the open market at or about the same time, the market price
of our common stock may decline.
WE ARE REQUIRED TO PAY ADDITIONAL AMOUNTS OR ISSUE MORE EQUITY SECURITIES IF WE
DO NOT FULFILL OUR OBLIGATIONS TO THE HOLDERS OF SERIES A 4% CONVERTIBLE
REDEEMABLE PREFERRED STOCK AND WARRANTS
If we fail to pay dividends on the Series A Preferred Stock when due, or our
common stock is delisted from The Nasdaq Stock Market and is not traded on the
New York Stock Exchange or American Stock Exchange, or the rights of holders of
Series A Preferred Stock are adversely affected by a reclassification of our
common stock, the dividend rate on our Series A Preferred Stock would increase
to 18% annually, with one-third of such dividend payable in shares of our common
stock for the first 60 days that dividends accrue at 18% annually. In addition,
we are also required to make additional payments to holders of the Series A
Preferred Stock and warrants in the event that we do not fulfill other
obligations to the holders, including keeping the registration statement and
prospectus for the underlying common stock in effect and current and issuing
common stock promptly upon conversion of the Series A Preferred Stock or
exercise of warrants. The total amount of cash payments in respect of the Series
A Preferred Stock, including dividends and any additional amounts required to be
paid, is limited to 19% annually of the liquidation value of the Series A
Preferred Stock.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock by the selling stockholders. We will, however, receive the proceeds
from the exercise of the warrants by the selling stockholders. We anticipate
that the net proceeds received by us from the exercise of the warrants will be
used for general corporate purposes.
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SELLING STOCKHOLDERS
The table below sets forth information with respect to the selling
stockholders, including:
- the name of each selling stockholder;
- the number of shares of common stock owned by each selling stockholder as
of August 6, 1999;
- the number of shares which may be offered and are being offered by this
prospectus for the account of each selling stockholder; and
- the amount of the class and percentage to be owned by each selling
stockholder assuming all of the shares offered by this prospectus are
sold.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK TO BE
NUMBER OF SHARES OF NUMBER OF SHARES OF OWNED AFTER OFFERING
COMMON STOCK COMMON STOCK WHICH -------------------------
NAME AND ADDRESS OWNED(1) MAY BE OFFERED(1) NUMBER PERCENT
- ------------------------------------------------- ------------------- ------------------- ---------- -------------
<S> <C> <C> <C> <C>
Brown Simpson Strategic Growth Fund, Ltd......... 910,000(2) 910,000(2) * *
Brown Simpson Strategic Growth Fund, L.P......... 490,000(2) 490,000(2) * *
Advanced Systems Europe B.V. (a subsidiary of
Liraz Systems, Ltd.)........................... 6,933,120(3) 2,000,000(2) 4,933,120 57%
Seneca Capital L.P............................... 389,040(2) 389,040(2) * *
Seneca Capital International, Ltd................ 410,960(2) 410,960(2) * *
</TABLE>
- ------------------------
* Less than one percent (1%)
(1) The number of shares of common stock owned by each selling stockholder
includes the aggregate number of shares of common stock which may be
obtained by such stockholder upon conversion of all of the shares of Series
A Preferred Stock and exercise of the warrants owned by the stockholder.
However, the selling stockholders are not currently the beneficial owners of
all of such shares of common stock.
(2) One-half of the shares of common stock owned and offered by each selling
stockholder are shares of common stock issuable upon the conversion of
Series A Preferred Stock and the other one-half of the shares offered by
that selling stockholder are shares issuable upon the exercise of warrants.
The exercise price of these warrants is $10.00 per share of common stock
subject to adjustment.
(3) Includes 2,000,000 shares of common stock, one-half of which are shares of
common stock issuable upon the conversion of Series A Preferred Stock and
the other one-half of which are shares issuable upon the exercise of
warrants. Also includes 4,933,120 shares of common stock as described in
"Advanced Systems Europe and Liraz" below.
ADVANCED SYSTEMS EUROPE AND LIRAZ
Advanced Systems Europe B.V. is a wholly owned subsidiary of Liraz Systems,
Ltd., which beneficially owns an additional 4,933,120 shares of our common
stock. The address of Liraz is 5 Hazoref Street, Holon 58856 Israel. The
4,933,120 shares owned by Liraz include 2,071,257 shares that Liraz may be
deemed to share voting power and dispositive power with Liraz Export (1990)
Ltd., an Israeli corporation and a wholly owned subsidiary of Liraz. Mr. Arie
Kilman is our Chief Executive Officer and Chairman of the Board of Directors and
the President and Chairman of the Board of Directors of Liraz. We have been
advised that, as of December 31, 1998, Mr. Kilman owned 1,170,670 ordinary
shares of Liraz, which was approximately 19.4% 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
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dispositive power with respect to the 4,933,120 shares of our 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 with PEC Israel Economic
Corporation and Discount Investment Corporation Ltd., pursuant to which Mr.
Kilman, PEC and Discount Investment have agreed to act together to elect
directors of Liraz and for certain other purposes. We have been advised that
each of PEC and Discount Investment beneficially own approximately 20.75% of the
ordinary shares of Liraz as of December 31, 1998. 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 any beneficial ownership of the
ordinary shares of Liraz owned by the other parties.
IDB Holding Corporation Ltd. owns approximately 71.48% of the outstanding
shares of IDB Development Corporation Ltd. IDB Development, in turn, owns
approximately 81% of the outstanding PEC common stock and approximately 54% of
the outstanding Discount Investment common stock. By reason of the IDB Holding's
ownership of IDB Development voting securities, IDB Holding may be deemed to be
the beneficial owner of PEC common stock and Discount Investment common stock
held by IDB Development. By reason of their positions with, and control of
voting securities of, IDB Holding, Messrs. Ralphael Recanati of Tel Aviv,
Israel, and Jacob Recanati of Haifa, Israel, who are brothers, and Leon Recanati
of Tel Aviv, Israel and Judith Yovel Recanati of Herzliya, Israel, who are
brother and sister, may be each deemed to share the power to direct the voting
and disposition of the outstanding shares of PEC common stock and Discount
Investment common stock owned by IDB Development and may each, under existing
regulations of the SEC, therefore be deemed a beneficial owner of the shares.
Leon Recanati and Judith Yovel Recanati are the nephew and niece of Raphael and
Jacob Recanati. Companies that the Recanati family control hold approximately
53.2% of the outstanding shares of IDB Holding.
The 4,933,120 shares owned by Liraz excludes 1,250,000 shares of our common
stock beneficially owned (including 250,000 shares issuable upon warrant
exercise) by Welsh, Carson, Anderson & Stowe VI, L.P. and certain affiliated or
associated parties, which Liraz and our company may be deemed to share voting
power and/or investment power pursuant to an agreement between our company and
these entities dated November 23, 1998.
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DESCRIPTION OF CAPITAL STOCK
The following descriptions of certain provisions of the certificate of
incorporation and bylaws of our company are necessarily general and do not
purport to be complete and are qualified in their entirety by reference to the
certificate of incorporation and bylaws of our company which have been
incorporated by reference herein.
COMMON STOCK
The authorized capital stock of our company consists of 50 million shares,
of which 40 million shares have been designated common stock, par value $.001
per share. As of August 4, 1999, there were 8,795,297 shares of common stock
issued and outstanding, held by approximately 104 holders of record. The holders
of common stock are entitled to one vote for each share on all matters submitted
to a vote of stockholders. Holders of common stock are entitled to such
dividends as may be declared from time to time by the Board of Directors out of
funds legally available therefore, subject to the dividend and liquidation
rights of any preferred stock (as described below) that may be issued, and
subject to the dividend restrictions in certain credit facilities and various
other agreements. In the event of the liquidation, dissolution or winding-up of
our company, the holders of common stock are entitled to share equally and
ratably in our assets, if any, remaining after provision for payment of all
debts and liabilities of the company and satisfaction of the liquidation
preference of any shares of preferred stock that may be outstanding. The holders
of common stock have no preemptive, subscription, redemptive or conversion
rights. The outstanding shares of common stock are fully paid and nonassessable.
PREFERRED STOCK
Our company is authorized to issue 10 million shares of preferred stock, par
value $.001 per share. The Board of Directors of our company has authority,
without stockholder approval, to issue shares of preferred stock in one or more
series and to determine the number of shares, designations, dividend rights,
conversion rights, voting power, redemption rights, liquidation preferences and
other terms of any such series. The issuance of preferred stock, while providing
desired flexibility in connection with possible acquisitions and other corporate
purposes, could adversely affect the voting power of the holders of common stock
and the likelihood that such holders will receive dividend payments and payments
upon liquidation and could have the effect of delaying, deferring, or preventing
a change in control of our company. As of the date of this prospectus, 21,000
shares have been designated as Series A 4% Convertible Redeemable Preferred
Stock and are issued and outstanding. There are no present plans for any further
issuances of preferred stock.
DELAWARE LAW AND ANTI-TAKEOVER PROVISIONS
Section 203 of the Delaware General Corporation Law generally prohibits an
interested stockholder from entering into certain types of business combinations
with a Delaware corporation for three years after becoming an interested
stockholder. An "interested stockholder" under the Delaware General Corporation
Law is any person other than the corporation and its majority-owned subsidiaries
who own at least 15% of the outstanding voting stock, or who owned at least 15%
within the preceding three years, and this definition includes affiliates of the
corporation. Briefly described, the prohibited combinations include:
- mergers or consolidations;
- sales, leases, exchanges or other dispositions of 10% or more of (1) the
aggregate market value of all assets of the corporation, or (2) the
aggregate market value of all the outstanding stock of the corporation;
18
<PAGE>
- issuances or transfers by the corporation of its stock that would increase
the proportionate share of stock owned by the interested stockholder;
- receipt by the interested stockholder of the benefit of loans, advances,
guarantees, pledges or other financial benefits provided by the
corporation; and
- any other transaction, with certain exceptions, that increases the
proportionate share of the stock owned by the interested stockholder.
A Delaware corporation may choose not to have Section 203 of the Delaware
General Corporation Law apply. Our company has chosen in our certificate of
incorporation, however, to accept the protections of Section 203. Nevertheless,
Section 203 will not apply in the following cases:
- if, before the stockholder became an interested stockholder, the board of
directors approved the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
- if, after the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the
transaction commenced, subject to technical calculation rules; or
- if, on or after the time the interested stockholder became an interested
stockholder, the board of directors approved the business combination, and
at least two-thirds of the outstanding voting stock which is not owned by
the interested stockholder also ratified the business combination at a
stockholders' meeting.
Because Liraz and certain of its affiliates have beneficially owned more
than 15% of the outstanding voting stock of our company for longer than the
three-year restricted period, the restrictions under the Delaware General
Corporation Law on business combinations generally do not apply to Liraz and its
affiliates.
PLAN OF DISTRIBUTION
Our company is registering the shares of common stock on behalf of the
selling stockholders. All costs, expenses and fees in connection with the
registration of the shares offered by this prospectus will be borne by us, other
than brokerage commissions and similar selling expenses, if any, attributable to
the sale of shares which will be borne by the selling stockholders. Sales of
shares may be effected by selling stockholders from time to time in one or more
types of transactions (which may include block transactions) on The Nasdaq
National Market, in the over-the-counter market, in negotiated transactions,
through put or call options transactions relating to the shares, through short
sales of shares, or a combination of such methods of sale, at market prices
prevailing at the time of sale, or at negotiated prices. Such transactions may
or may not involve brokers or dealers. The selling stockholders have advised us
that they have not entered into any agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of their securities,
nor is there an underwriter or coordinated broker acting in connection with the
proposed sale of shares by the selling stockholders.
The selling stockholders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of the shares or of securities convertible into or exchangeable for the
shares in the course of hedging positions they assume with selling stockholders.
The selling stockholders may also enter into options or other transactions with
broker-dealers or other financial institutions which require the delivery to
such broker-dealers or other financial institutions of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as amended or supplemented to reflect such
transaction).
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<PAGE>
The selling stockholders may make these transactions by selling shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from selling stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The selling stockholders and any broker-dealers that act in connection with
the sale of shares are "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by such broker-dealers or any
profit on the resale of the shares sold by them while acting as principals might
be deemed to be underwriting discounts or commissions under the Securities Act.
The selling stockholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the shares
against certain liabilities, including liabilities arising under the Securities
Act.
Because selling stockholders are "underwriters" within the meaning of
Section 2(11) of the Securities Act, the selling stockholders will be subject to
the prospectus delivery requirements of the Securities Act. We have informed the
selling stockholders that the anti-manipulative provisions of Regulation M
promulgated under the Exchange Act may apply to their sales in the market.
Selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
they meet the criteria and conform to the requirements of Rule 144.
Upon our being notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing:
- the name of each such selling stockholder and of the participating
broker-dealer(s);
- the number of shares involved;
- the initial price at which such shares were sold;
- the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
- that such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus; and
- other facts material to the transactions.
In addition, upon our being notified by a selling stockholder that a donee or
pledgee intends to sell more than 500 shares, a supplement to this prospectus
will be filed.
EXPERTS
The financial statements for the year ended December 31, 1998 which are
incorporated in this prospectus by reference to our Annual Report on Form 10-K
for the year ended December 31, 1998 have been audited by PricewaterhouseCoopers
LLP, independent accountants, as stated in their report with respect thereto.
The financial statements have been incorporated by reference in this prospectus
in reliance upon their report given on their authority as experts in auditing
and accounting.
The financial statements for the year ended December 31, 1997 which are
incorporated in this prospectus by reference to our Annual Report on Form 10-K
for the year ended December 31, 1998 have been audited by Grant Thornton LLP,
independent auditors, as stated in their report with respect
20
<PAGE>
thereto. The financial statements have been incorporated by reference in this
prospectus in reliance upon their report given on their authority as experts in
auditing and accounting.
The financial statements for the year ended December 31, 1996 which are
incorporated in this prospectus by reference to our Annual Report on Form 10-K
for the year ended December 31, 1998 have been audited by Lurie, Besikof,
Lapidus & Co., LLP, independent auditors, as stated in their report with respect
thereto. The financial statements have been incorporated by reference in this
prospectus in reliance upon their report given on their authority as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the shares of common stock offered in this prospectus will
be passed upon for our company by Powell, Goldstein, Frazer & Murphy LLP,
Atlanta, Georgia.
21
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the registrant in connection with the
issuance and distribution of the securities being registered are as follows:
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 11,312
Accounting Fees and Expenses...................................... $ 40,000*
Legal Fees and Expenses........................................... $ 35,000*
Miscellaneous Expenses............................................ $ 15,000*
---------
Total............................................................. $ 101,312*
---------
---------
</TABLE>
- ------------------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits indemnification
of directors, officers, employees and agents of corporations for liabilities
arising under the Securities Act of 1933, as amended.
The registrant's certificate of incorporation and bylaws provide for
indemnification of the registrant's directors and officers to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law.
STATUTORY PROVISIONS
Section 102(b)(7) of the Delaware General Corporation Law enables a
corporation in its certificate of incorporation to eliminate or limit the
personal liability of members of its board of directors to the corporation or
its stockholders for monetary damages for violations of a director's fiduciary
duty of care. The provision would have no effect on the availability of
equitable remedies, such as an injunction or rescission, for breach of fiduciary
duty. In addition, no provision may eliminate or limit the liability of a
director for breaching his duty of loyalty, failing to act in good faith,
engaging in intentional misconduct or knowingly violating a law, paying an
unlawful dividend or approving an illegal stock repurchase, or obtaining an
improper personal benefit.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify any person who was or is a party to or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for expenses which the court shall deem proper. Additionally, a
corporation is required to indemnify its directors and officers against expenses
to the extent that the
II-1
<PAGE>
directors or officers have been successful on the merits or otherwise in any
action, suit or proceeding or in defense of any claim, issue or matter.
An indemnification can be made by the corporation only upon a determination
that indemnification is proper in the circumstances because the party seeking
indemnification has met the applicable standard of conduct as set forth in the
Delaware General Corporation Law. The indemnification provided by the Delaware
General Corporation Law shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. A corporation
also has the power to purchase and maintain insurance on behalf of any person,
whether or not the corporation would have the power to indemnify him against
such liability. The indemnification provided by the Delaware General Corporation
Law shall, unless otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of the person.
THE COMPANY'S CHARTER PROVISIONS
Our company's certificate of incorporation limits a director's liability for
monetary damages to our company and our stockholders for breaches of fiduciary
duty except under the circumstances outlined in the Delaware General Corporation
Law as described above under "Statutory Provisions."
Our company's certificate of incorporation extends indemnification rights to
the fullest extent authorized by the Delaware General Corporation Law to
directors and officers involved in any action, suit or proceeding where the
basis of the involvement is the person's alleged action in an official capacity
or in any other capacity while serving as a director or officer of our company.
ITEM 16. EXHIBITS
A list of exhibits included as part of this registration statement is set
forth in the Exhibit Index which immediately precedes the exhibits and is
incorporated by reference here.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
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<PAGE>
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the such Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cary, State of North Carolina, on August 6, 1999.
<TABLE>
<S> <C> <C>
LEVEL 8 SYSTEMS, INC.
By: /s/ STEVEN DMISZEWICKI
-----------------------------------------
Steven Dmiszewicki
President and Chief Operating Officer
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the persons whose signature
appears below appoints and constitutes Steven Dmiszewicki and Dennis McKinnie,
and each of them, his or her true and lawful attorney-in-fact and agent, each
acting alone, with full power of substitution and resubstitution, for him and
her and in his or her name, place and stead, in any and all capacities, to
execute any and all amendments (including post-effective amendments) to the
within registration statement, and to file the same, together with all exhibits
thereto and all other documents in connection therewith, with the Securities and
Exchange Commission and such other agencies, offices and persons as may be
required by applicable law, granting unto each said attorney-in-fact and agent,
each acting alone, full power and authority to do and perform each and every act
and thing requisite or necessary to be done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that each said attorney-in-fact and agent, each
acting alone may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board and
/s/ ARIE KILMAN Chief Executive Officer
- ------------------------------ (Principal Executive August 6, 1999
Arie Kilman Officer)
/s/ STEVEN DMISZEWICKI
- ------------------------------ President and Chief August 6, 1999
Steven Dmiszewicki Operating Officer
/s/ SAMUEL SOMECH Director, Chairman
- ------------------------------ Emeritus and Chief August 6, 1999
Samuel Somech Technology Officer
/s/ RENEE FULK Vice President of Finance
- ------------------------------ (Principal Financial and August 6, 1999
Renee Fulk Accounting Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ MICHEL BERTY
- ------------------------------ Director August 6, 1999
Michel Berty
/s/ ROBERT M. BRILL
- ------------------------------ Director August 6, 1999
Robert M. Brill
/s/ THEODORE FINE
- ------------------------------ Director August 6, 1999
Theodore Fine
/s/ FRANK J. KLEIN
- ------------------------------ Director August 6, 1999
Frank J. Klein
/s/ LENNY RECANATI
- ------------------------------ Director August 6, 1999
Lenny Recanati
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1* Certificate of Designation relating to Series A 4% Convertible Redeemable Preferred Stock.
5.1 Opinion of Powell, Goldstein, Frazer & Murphy LLP.
10.1* Securities Purchase Agreement dated June 29, 1999 among Level 8 Systems, Inc. and the investors named on
the signature pages thereof.
10.2* Form of Warrants issued June 29, 1999 in connection with the sale of Series A 4% Convertible Redeemable
Preferred Stock.
10.3* Registration Rights Agreement dated June 29, 1999 among Level 8 Systems, Inc. and the investors named on
the signature pages thereof.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Grant Thornton LLP.
23.3 Consent of Lurie, Besikof, Lapidus & Co., LLP.
23.4 Consent of Powell, Goldstein, Frazer & Murphy LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
</TABLE>
- ------------------------
* Incorporated by reference from Level 8 Systems, Inc.'s Current Report on
Form 8-K filed with the Securities and Exchange Commission on July 23, 1999.
II-6
<PAGE>
EXHIBIT 5.1
OPINION LETTER
[POWELL, GOLDSTEIN, FRAZER & MURPHY LLP LETTERHEAD]
August 6, 1999
LEVEL 8 SYSTEMS, INC.
8000 REGENCY PARKWAY
CARY, NORTH CAROLINA 27511
RE: REGISTRATION OF 4,200,000 SHARES OF COMMON STOCK;
REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have acted as counsel to Level 8 Systems, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing of a Registration
Statement on Form S-3 (the "Registration Statement") under the Securities Act of
1933, as amended, relating to the registration of 4,200,000 shares of common
stock, $.001 par value (the "Common Stock"), of the Company which are being
offered by the stockholders identified in the Registration Statement (the
"Selling Stockholders"). The Registration Statement covers (i) up to 2,100,000
shares of the Company's Common Stock which may be issued upon conversion of the
Selling Stockholders' Series A 4% Convertible Redeemable Preferred Stock (the
"Preferred Shares"), and (ii) up to 2,100,000 shares of the Company's Common
Stock which may be issued upon the exercise of certain warrants held by the
Selling Stockholders (the "Warrant Shares") sold pursuant to a Securities
Purchase Agreement dated June 28, 1999 by and among the Company and the Selling
Stockholders. The Preferred Shares and the Warrant Shares are herein referred to
as the "Shares."
In our capacity as Company's counsel, we have examined the Registration
Statement and related Prospectus in the form filed by the Company with the
Securities and Exchange Commission (the "Commission") on August 6, 1999, and
originals or copies, certified or otherwise identified to our satisfaction, of
such corporate records, agreements, documents and other instruments of the
Company relating to the authorization and issuance of the Shares and such other
matters as we have deemed relevant and necessary as a basis for the opinions
hereinafter set forth.
In conducting our examination, we have assumed without independent
investigation or inquiry, the genuineness of all signatures, the legal capacity
of all natural persons, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified, conformed or reproduced copies and the authenticity of the
originals of such documents, and the due execution and delivery of all documents
where due execution and delivery are a prerequisite to the effectiveness
thereof. The opinions set forth herein are limited to the Delaware General
Corporation Law and the federal laws of the United States of America.
Based upon the foregoing, and in reliance thereon, and subject to the
limitations and qualifications set forth herein, we are of the opinion that (i)
the Preferred Shares, when issued upon conversion of the Series A 4% Convertible
Redeemable Preferred Stock in accordance with the terms thereof, and (ii) the
Warrant Shares, when paid for and issued upon the exercise of the warrants in
accordance with the terms thereof, will be legally and validly issued, fully
paid and nonassessable.
<PAGE>
Level 8 Systems, Inc.
August 6, 1999
Page 2
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Prospectus which is a part of the Registration Statement.
Very truly yours,
/s/ POWELL, GOLDSTEIN, FRAZER
& MURPHY LLP
-----------------------------------------------------------------------------
POWELL, GOLDSTEIN, FRAZER
& MURPHY LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated March 31, 1999 which appears in Level
8 Systems, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998. We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
PricewaterhouseCoopers LLP
Washington, D.C.
August 4, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We have issued our report dated February 23, 1998 (except for Note 2, as to
which the date is February 27, 1998 and Note 3, as to which the date is April 6,
1998) accompanying the consolidated financial statements of Level 8 Systems,
Inc. and subsidiaries included in the Annual Report on Form 10-K for the year
ended December 31, 1998 which is incorporated by reference in this Registration
Statement. We consent to the incorporation by reference in the Registration
Statement of the aforementioned report and to the use of our name as it appears
under the caption "Experts."
/s/ Grant Thornton LLP
New York, New York
August 4, 1999
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration Statement
of Level 8 Systems, Inc. on Form S-3 of our report dated January 31, 1997,
except for Note 3, as to which the date is April 6, 1998, relating to the
financial statements included in the Annual Report on Form 10-K of Level 8
Systems, Inc. for the year ended December 31, 1998. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
August 6, 1999
