<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
LEVEL 8 SYSTEMS INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LEVEL 8 LOGO]
8000 REGENCY PARKWAY
CARY, NORTH CAROLINA 27511
April , 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of Level 8 Systems, Inc. (the "Company") to be held at , New York on
May , 1999 at 10:00 a.m., local time. I sincerely hope that you will be able
to attend the meeting, and I look forward to seeing you.
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the meeting. We also will report on the
operations of the Company during the past year as well as on our plans for the
future.
We are including with this Proxy Statement a copy of the Company's Annual
Report. It contains information on the Company's operations, markets, products
and services as well as the Company's audited financial statements.
Please take this opportunity to become involved in the affairs of the
Company. The Proxy Statement is lengthy, and each of the issues covered is
important to position the Company for growth. We hope you will take time to
carefully consider each matter.
Whether or not you expect to be present at the meeting, please complete,
date, sign and mail the enclosed proxy in the envelope provided. Returning the
proxy does NOT deprive you of your right to attend the meeting and vote your
shares in person. If you attend the meeting, you may withdraw your proxy and
vote your own shares.
Sincerely,
Arie Kilman
Chairman of the Board
<PAGE>
LEVEL 8 SYSTEMS, INC.
8000 REGENCY PARKWAY
CARY, NORTH CAROLINA 27511
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1999
TO THE STOCKHOLDERS OF LEVEL 8 SYSTEMS, INC.:
Notice is hereby given that the Annual Meeting of Stockholders of Level 8
Systems, Inc. (the "Company") will be held at , New York on May ,
1999, at 10:00 a.m., local time, for the following purposes:
1. To elect seven (7) directors to the Board of Directors to serve for the
ensuing year and until their successors are duly elected and qualified.
2. To consider and vote upon a proposal to issue up to 500,000 shares of
the Company's common stock ("Common Stock") through a private placement
transaction.
3. To consider and vote upon a plan of merger to reincorporate the Company
under the laws of the State of Delaware.
4. To consider and vote upon a proposal to amend the Company's Certificate
of Incorporation to increase the number of authorized and issuable shares of
Common Stock from 15,000,000 to 40,000,000 shares and the number of authorized
and issuable preferred stock, par value $.01 per share (the "Preferred Shares"),
from 1,000,000 to 10,000,000 shares.
5. To consider and vote upon an amendment to the Company's 1997 Stock
Option Plan increasing the number of shares of Common Stock subject to awards
under the plan from 1,400,000 to 2,600,000.
6. To consider and vote upon a proposal to adopt the Company's Employee
Stock Purchase Plan (U.S.).
7. To consider and vote upon a proposal to adopt the Company's
International Stock Purchase Plan
8. To consider and vote upon a proposal to adopt the Company's Outside
Directors Stock Incentive Plan.
9. To ratify the appointment of PricewaterhouseCoopers L.L.P. as the
Company's independent public accountants.
10. To transact such other business as may properly come before the meeting
and any adjournment(s) thereof. The Board of Directors is not aware of any other
business to be presented to a vote of the stockholders at the Annual Meeting.
The close of business on April , 1999 has been fixed as the record
date for determination of stockholders entitled to notice of and to vote at the
meeting.
By Order of the Board of Directors,
Dennis McKinnie
Senior Vice President
Chief Legal and Administrative Officer
and Corporate Secretary
Cary, North Carolina
April , 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER THAT
YOUR SHARES MAY BE REPRESENTED AT THE MEETING. NO POSTAGE IS NEEDED IF MAILED IN
THE UNITED STATES.
<PAGE>
LEVEL 8 SYSTEMS, INC.
8000 REGENCY PARKWAY
CARY, NORTH CAROLINA 27511
PROXY STATEMENT
This Proxy Statement is furnished to stockholders in connection with the
solicitation by the Board of Directors of Level 8 Systems, Inc., a New York
corporation (the "Company"), of proxies in the accompanying form for use at the
Annual Meeting of Stockholders of the Company to be held at , New
York at 10:00 a.m., local time, on May , 1999, and at any adjournment thereof
(the "Annual Meeting"). This Proxy Statement and the accompanying Notice of
Annual Meeting and Form of Proxy are being mailed to the Company's stockholders
on April , 1999.
VOTING
If a proxy in the accompanying form is duly executed and returned, the
shares represented thereby will be voted at the Annual Meeting and, where a
choice is specified, will be voted in accordance with the specification made.
Any stockholder who gives a proxy may revoke it at any time before it is
exercised by giving a later proxy, by attending the meeting and voting in person
or by giving notice of revocation to the Company's Secretary. Executed but
unmarked proxies will be voted "FOR" each of the proposals described in this
Proxy Statement and in accordance with the best judgment of the proxy holders on
any other matter that may properly come before the meeting.
The presence, in person or by proxy, of at least a majority of the total
number of outstanding shares of the Common Stock entitled to vote at the Annual
Meeting is necessary to constitute a quorum at the Annual Meeting. Directors are
elected by a plurality of votes cast. The amendment of the Company's Certificate
of Incorporation requires the favorable vote of the holders of a majority of all
outstanding shares of Common Stock of the Company, pursuant to the requirements
of the New York Business Corporation Law (the "BCL"). With respect to the
proposal to approve a plan of merger to reincorporate the Company under the laws
of the State of Delaware, the BCL requires the affirmative vote of two-thirds of
the votes of all outstanding shares entitled to vote thereon to approve such
proposal. A majority of the votes cast is required to approve each of the other
proposals described in this Proxy Statement. Abstentions, broker non-votes, and
withheld votes will not be considered "votes cast" based on current state law
requirements and the Company's Certificate of Incorporation and By-laws.
Stockholder votes will be tabulated by persons appointed by the Board of
Directors to act as inspectors of election for the Annual Meeting. All
stockholder meeting proxies, ballots, and tabulations that identify individual
stockholders are kept secret, and no such document shall be available for
examination, nor shall the identity or the vote of any stockholder be disclosed
except as may be necessary to meet legal requirements under the laws of New
York, the Company's state of incorporation.
The close of business on April , 1999 has been fixed by the Board of
Directors as the record date for the determination of stockholders of the
Company entitled to vote at the Annual Meeting. As of that date, the Company had
[8,720,994] shares of Common Stock outstanding, with each share being entitled
to one vote. Liraz Systems Ltd., a company incorporated under the laws of Israel
("Liraz") has the right to vote approximately 57% of the outstanding shares of
Common Stock. It is anticipated that Liraz will vote such shares in favor of
each of the proposals listed herein. Accordingly, Liraz has sufficient voting
power to assure the approval of each of the proposals to be submitted to
stockholders at the annual meeting other than the proposed plan of merger to
incorporate under Delaware law, which requires a two-thirds shareholder vote.
The expense of the solicitation of proxies will be borne by the Company.
Following the original mailing of the proxy material, solicitation of proxies
may be made by mail, telephone, telegraph, courier service, or personal
interview by certain of the regular employees of the Company, who will receive
no additional compensation for their services. In addition, the Company will
reimburse brokers and other nominees for their reasonable expenses incurred in
forwarding soliciting material to beneficial owners.
<PAGE>
BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain information as of March 31, 1999 with
respect to beneficial ownership of shares by (i) each person known to the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each of the Company's directors and director nominees, (iii) the
executive officers of the Company named in the Summary Compensation Table (the
"named executives") and (iv) all directors and executive officers of the Company
as a group.
Stock ownership information has been furnished to the Company by the named
person. Beneficial ownership as reported in this section was determined in
accordance with Securities and Exchange Commission regulations and includes
shares as to which a person possesses sole or shared voting and/or investment
power and shares that may be acquired on or before May 31, 1999 upon the
exercise of stock options. Except as otherwise stated in the footnotes below,
the named persons have sole voting and investment power with regard to the
shares shown as beneficially owned by such persons.
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------
NO. OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS
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<S> <C> <C>
Liraz Systems Ltd. ("Liraz")(1)................................... 4,933,120(2) 57%
Welsh, Carson, Anderson & Stowe ("WCAS")(3)....................... 1,250,000(4) 14%
Arie Kilman(5).................................................... 0 *
Samuel Somech(6).................................................. 461,138 5%
Theodore Fine(7).................................................. 114,153 1%
Frank J. Klein(8)................................................. 0 *
Lenny Recanati(9)................................................. 0 *
Michel Berty(10).................................................. 8,000 *
Robert M. Brill(11)............................................... 81,557 *
All current directors and executive officers as a group (7
persons)........................................................ 664,848 8%
</TABLE>
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* Represents less than one percent of the outstanding shares.
(1) The address of Liraz is 5 Hazoref Street, Holon 58856 Israel.
(2) Includes 2,071,257 shares that Liraz may be deemed to share voting power
and dispositive power of Common Stock with Liraz Export (1990) Ltd., an
Israeli corporation and a wholly-owned subsidiary of Liraz. Mr. Arie Kilman
is the Chief Executive Officer and Chairman of the Board of Directors of
the Company and the President and Chairman of the Board of Directors of
Liraz. The Company has 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 dispositive power with respect to the 4,933,120 shares of Common Stock
beneficially owned by Liraz and therefore may be deemed to be the
beneficial owner of such shares.
Mr. Kilman is a party to a shareholders' agreement (the "Shareholders'
Agreement") with PEC Israel Economic Corporation ("PEC") and Discount
Investment Corporation Ltd. ("DIC"), pursuant to which Mr. Kilman, PEC and
DIC have agreed to act together to elect directors of Liraz and for certain
other purposes. The Company has been advised that each of PEC and DIC
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. ("IDB Holding") owns approximately 71.48% of
the outstanding shares of IDB Development Corporation Ltd. ("IDB
Development"). IDB Development, in turn,
2
<PAGE>
owns approximately 81% of the outstanding PEC common stock and approximately
54% of the outstanding DIC common stock. By reason of the IDB Holdings
ownership of IDB Development voting securities, IDB Holding may be deemed to
be the beneficial owner of PEC common stock and DIC common stock held by IDB
Development. By reason of their positions with, and control of voting
securities of, IDB Holding, 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 Herzlya, 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 DIC
common stock owned by IDB Development and may each, under existing
regulations of the Securities and Exchange Commission therefore be deemed a
beneficial owner of 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.
Excludes 1,250,000 shares of Common Stock held by Welsh, Carson, Anderson
and Stowe VI, L.P. ("WCAS VI") and certain parties affiliated or associated
with WCAS VI (collectively, the "WCAS Parties"), which Liraz and the Company
may be deemed to share voting power and/or investment power pursuant to an
agreement between the Company and the WCAS Parties dated November 23, 1998.
(3) The address of WCAS is 320 Park Avenue, Suite 2500, New York, New York
10022.
(4) Includes 944,844 shares of Common Stock, and 250,000 additional shares of
Common Stock issuable upon the exercise of warrants held by WCAS VI; 11,290
shares held by WCAS Information Partners II, L.P. ("WCAS Information
Partners"); 806 shares held by Trust U/A dated November 26, 1984 for the
Benefit of Eric Welsh; 806 shares by Trust U/A dated November 26, 1984 for
the benefit of Randall Welsh; 806 shares held by Trust U/A dated November
26, 1984 for the benefit of Jennifer Welsh; 1,613 shares held by Reboul,
MacMurray, Hewitt, Maynard and Kristol; and 35,803 shares held by general
partners of WCAS. WCAS is general partner of each of the foregoing limited
partnerships. The principals of WCAS are Bruce K. Anderson, Russell L.
Carson, Anthony J. de Nicola, James B. Hoover, Thomas E. McInerney, Robert
A. Minicucci, Andrew M. Paul, Richard A. Stowe, Laura Van Buren and Patrick
J. Welsh.
(5) Excludes 4,933,120 shares owned by Liraz, which may be deemed beneficially
owned by Mr. Kilman as a result of his position as President and Chairman
of the Board of Liraz and owner of approximately 22.4% of Liraz.
(6) Includes 461,138 shares subject to stock options exercisable within sixty
(60) days; excludes 16,667 shares subject to stock options not exercisable
within sixty (60) days.
(7) Includes 83,068 shares subject to stock options exercisable within sixty
(60) days; excludes 27,834 shares subject to stock options not exercisable
within sixty (60) days.
(8) Excludes 4,933,120 shares owned by Liraz, which may be deemed beneficially
owned by Mr. Klein as a result of his position as an executive officer of
PEC Israel Economic Corporation ("PEC"), which owns approximately 20.75% of
Liraz.
(9) Excludes 4,933,120 shares owned by Liraz, which may be deemed beneficially
owned by Mr. Recanati as a result of his position as an executive officer
of Discount Investment Corporation Ltd. ("DIC"), which owns approximately
20.75% of Liraz.
(10) Includes 8,000 shares subject to stock options exercisable within sixty
(60) days; excludes 4,000 shares subject to stock options not exercisable
within sixty (60) days.
(11) Includes 77,557 shares of Common Stock that are held by Poly Ventures II,
L.P., which may be deemed beneficially owned by Dr. Brill as a result of
his position as a General Partner of Poly Ventures II, L.P. and 4,000
shares subject to stock options exercisable within sixty (60) days;
excludes 8,000 shares subject to stock options not exercisable within sixty
(60) days.
3
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors has nominated Arie Kilman, Michel Berty, Robert
Brill, Theodore Fine, Frank Klein, Lenny Recanati, and Samuel Somech for
election as directors at the 1999 Annual Meeting of Stockholders. All nominees
currently are members of the Board of Directors and have consented to serve as
directors if elected. Each of the directors elected at the 1999 Annual Meeting
of Stockholders (and any director subsequently appointed to fill the existing
vacancy) will serve until the 2000 Annual Meeting of Stockholders and until the
election and qualification of his successor or until his earlier death,
resignation or removal.
It is the intention of the persons named as proxies to vote the proxies FOR
the election to the Board of Directors of the seven nominees named above, unless
a stockholder directs otherwise. In the event that a vacancy (which is not
anticipated) arises among the nominees prior to the Annual Meeting, the proxy
will be voted for the remaining nominees and may be voted for a substitute
nominee designated by the Board of Directors. The affirmative vote of a
plurality of the votes cast by the holders of Common Stock, voting together as a
single class, will be required to elect each of the nominees as a director of
the Company for the ensuing year.
VOTE TO ELECT DIRECTORS
Directors are elected by a plurality of the votes cast. As of the record
date for the Annual Meeting, Liraz, has the right to vote 4,933,120 shares,
representing 57% of the outstanding Common Stock and has advised the Company
that it intends to vote for the election of the nominees named in this proposal.
Proxies solicited by the Board of Directors will be voted FOR this proposal,
unless stockholders specify otherwise.
THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS ACTION OF THE DIRECTORS,
RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES NAMED IN THIS PROPOSAL.
ADDITIONAL INFORMATION CONCERNING THE BOARD OF DIRECTORS AND DIRECTOR NOMINEES
Set forth below with respect to each nominee is his name, age, principal
occupation and business experience for the past five years and length of service
as a director of the Company.
ARIE KILMAN
Director since July 1997. Age: 45
Mr. Kilman has served as Chairman of the Board of Directors of the Company
since July 1997. Mr. Kilman has also been Chief Executive Officer of the Company
since July 1996. He was President of the Company from July 1996 to October 1996.
He previously served as Chairman of the Board of Directors of the Company from
December 1994 to July 1996. Mr. Kilman has served as a Chairman of the Board and
President of Liraz since 1983. He is a citizen of Israel.
MICHEL BERTY
Director since July 1997. Age: 59
Mr. Berty has served as a Director of the Company since July 1997. Since
April 1997, Mr. Berty has been the owner of MBY Consultant, Inc. Mr. Berty
currently serves as a director of Sapiens, Mastech, Merant, Elligent and Ascent
Logic. Mr. Berty served as the Chairman of the Board and Chief Executive Officer
of Cap Gemini America (an international information technology consulting firm)
from 1993 to April 1997. From 1986 to 1992, he served as the General Secretary
of the Gemini Sogeti Group (the parent corporation of Cap Gemini America).
4
<PAGE>
ROBERT M. BRILL, PHD.
Director since March 1998. Age: 52
Dr. Brill has served as a Director of the Company since March 1998. Dr.
Brill was recently elected to the Audit Committee of the Board of Directors. Dr.
Brill also is a General Partner of the New Light Management, L.P., Newlight
Associates (BVI), L.P., Poly Ventures I, LP and Poly Ventures II, LP, venture
capital funds specializing in investments in high technology companies. He is
also a Director of Standard MicroSystems Corporation. Prior to 1989, Dr. Brill
had been the Chief Executive Officer of several high technology companies and
has held executive and technical positions with Harris Corporation and IBM. Dr.
Brill received degrees in engineering physics and physics from Lehigh University
and a PhD. in physics from Brown University.
THEODORE FINE
Director since April 1995. Age: 62
Mr. Fine has served as a Director of the Company since April 1995. Mr. Fine
co-founded Level 8 Technologies with Mr. Somech in February 1994. Mr. Fine is
also a director and the Chief Executive Officer of Buysmart Enterprises, Inc.
Mr. Fine is also a member of the board of directors of ZMAX Corporation. Since
January 1993, Mr. Fine has been a management information systems consultant to
the financial community and, from April 1995 to July 1996, served as a marketing
and sales consultant to the Company. From March 1974 to December 1992, Mr. Fine
was Vice President of Technology for Retail International Operations of
CitiBank, N.A.
FRANK J. KLEIN
Director since December 1994. Age: 55
Mr. Klein has served as a Director of the Company since December 1994. Since
January 1, 1995, Mr. Klein has been the President of PEC Israel Economic
Corporation ("PEC"), a corporation that holds equity interests in companies
located in Israel or are Israel related. Prior to Mr. Klein's appointment as
President of PEC, he served as Executive Vice President of Israel Discount Bank
of New York from 1985. Mr. Klein has served as Executive Vice President of PEC
from November 1977 to November 1991 and as Treasurer of PEC from May 1990 to
November 1991. He is a Director of PEC, as well as a number of companies
affiliated with PEC, including Elron Electronics Industries Limited and Scitex
Corporation Limited. He also is a director of Super-Sol Ltd. and Tefron Ltd.
LENNY RECANATI
Director since December 1994. Age: 44
Mr. Recanati has served as a Director of the Company since December 1994.
During the last twelve years, Mr. Recanati has been a Senior Manager and
Director of Discount Investment Corporation ("DIC"). He is Chairman of the Board
of Directors of Ilanot-Discounts Mutual Fund Management Company and is a member
of the Board of Directors of a number of Israeli industrial and other
enterprises affiliated with DIC, including Liraz, Klil Industries Ltd., Elron
Electronics Industries Ltd., Super-Sol Ltd., Bayside Land Corporation Ltd.,
Tefron Ltd. and Tambour Ltd. Mr. Recanati is a citizen of Israel.
SAMUEL SOMECH
Director since April 1995. Age: 44
Mr. Somech has served as President and Chief Technology Officer of the
Company since October 1996, a Director of the Company since April 1995, Vice
President of the Company from April 1995 to
5
<PAGE>
October 1996, President and Chief Operating Officer of Level 8 Technologies,
Inc. ("Level 8 Technologies") since April 1995, Technical Director, Messaging
Group, of Apertus Technologies, Inc. from January 1994 to March 1994 and
Technical Director, Messaging Group, of NYNEX from September 1990 to December
1993. Mr. Somech co-founded Level 8 Technologies with Theodore Fine in February
1994. Mr. Somech is a citizen of Israel.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors is responsible for the overall affairs of the
Company. The Board of Directors held six meetings in 1998. Each director
attended over 75% of the meetings of the Board and of any committees on which he
served in fiscal 1998. To assist the Board of Directors in carrying out this
responsibility, the Board has delegated certain authority to several committees.
Information concerning those committees follows.
Messrs. Kilman, Klein and Recanati serve on the Compensation Committee of
the Board of Directors. The Compensation Committee has (i) full power and
authority to interpret the provisions of and supervise the administration of the
Company's 1995 Stock Incentive Plan, the 1997 Stock Option Plan, the Company's
Employee Stock Purchase Plan (U.S.), the Company's International Stock Purchase
Plan and the Company's Outside Directors Stock Incentive Plan, and (ii) the
authority to review all compensation matters relating to the Company. The
Compensation Committee met five times during fiscal 1998.
Messrs. Brill, Klein and Recanati presently serve on the Audit Committee of
the Board of Directors. The Audit Committee recommends to the Board of Directors
the independent public accountants to be selected to audit the Company's annual
financial statements and approves any special assignments given to such
accountants. The Audit Committee also reviews the planned scope of the annual
audit, any changes in accounting principles and the effectiveness and efficiency
of the Company's internal accounting staff. The Audit Committee met three times
during fiscal 1998.
The Board of Directors does not have a nominating committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Messrs. Kilman, Klein and
Recanati. Mr. Kilman is the Chairman of the Board of Directors and Chief
Executive Officer of the Company. Except for Mr. Kilman, none of the other
members of the Compensation Committee has served as an executive officer of the
Company and no executive officer of the Company has served as a member of the
Compensation Committee of any other entity of which Messrs. Kilman, Klein or
Recanati have served as executive officers. There were no interlocking
relationships between the Company and other entities that might affect the
determination of the compensation of the directors and executive officers of the
Company.
DIRECTOR COMPENSATION
Michel Berty is entitled to receive each year, for serving as a director,
$12,000 and has received options to purchase 12,000 shares of Common Stock at an
exercise price of $12.75 per share. None of the Company's other directors is
entitled to additional compensation for serving on the Board of Directors of the
Company in 1998, other than reimbursement of reasonable expenses incurred in
attending meetings. As more fully described in Proposal number 8 herein, the
Board of Directors recently approved, subject to stockholder approval, the
Outside Directors Stock incentive Plan which grants to each outside director
options to purchase 12,000 shares of Common Stock and provides for partial
payment of director fees in shares of Common Stock.
6
<PAGE>
ADDITIONAL INFORMATION
For additional information that should be considered with regard to the
election of directors, see "Executive Compensation," "Stock Performance Graph"
and "Compliance With Section 16(a) of the Securities Exchange Act of 1934"
below.
EXECUTIVE OFFICERS
The Company's current executive officers are listed below, together with
their age, position with the Company and business experience for the past five
years.
ARIE KILMAN Age: 45
Mr. Kilman currently serves as the Chairman of the Board and Chief Executive
Officer of the Company. Please refer to the section of this Proxy Statement
entitled "Additional Information Concerning the Board of Directors and Director
Nominees" for additional information regarding Mr. Kilman's experience.
STEVEN DMISZEWICKI Age: 37
Mr. Dmiszewicki has served as the Chief Operating Officer of the Company
since January 1999. Mr. Dmiszewicki has served as Co-President and Chief
Financial Officer of Seer Technologies, Inc. ("Seer") since May 1998. From
October 1996 to May 1998, he served as Senior Vice President and Chief Financial
Officer of Seer. From July 1996 to October 1996, he was employed by Healthpoint
G.P. as Vice President, Chief Financial and Administrative Officer. From
February 1996 to July 1996, Mr. Dmiszewicki served Seer as Vice President and
Chief Financial Officer. From February 1993 until February 1996, Mr. Dmiszewicki
served as Seer's Vice President--Finance. Mr. Dmiszewicki, a Certified Public
Accountant, obtained his B.S. in Business Administration from Bucknell
University.
SAMUEL SOMECH Age: 44
Mr. Somech currently serves as the President of the Company. Please refer to
the section of this Proxy Statement entitled "Additional Information Concerning
the Board of Directors and Director Nominees" for additional information
regarding Mr. Somech's experience.
DENNIS MCKINNIE Age: 42
Mr. McKinnie has served as Senior Vice President, Chief Legal and
Administrative Officer and Corporate Secretary of the Company since January
1999. Prior to that, Mr. McKinnie served as Vice President, Chief Legal and
Administrative Officer and Corporate Secretary of Seer since April, 1998. Prior
to that, Mr. McKinnie was Vice President and General Counsel of Seer. He has
also served as Corporate Secretary of Seer since February 1996 and as Assistant
Secretary prior thereto. From September 1989 to October 1994, he was associated
with the Atlanta, Georgia law firm of Powell, Goldstein, Frazer & Murphy, where
he was a member of that firm's Technology Litigation Group. Prior to becoming
associated with Powell Goldstein, he was Staff Counsel to the Supreme Court of
the United States. During his 16 years of law practice, he also clerked for the
Alabama Supreme Court and the United States Court of Appeals for the Eleventh
Circuit. Mr. McKinnie holds a B.A. from Union University and a J.D. from the
Cumberland School of Law of Samford University.
RENEE FULK Age: 30
Ms. Fulk is currently serving as Vice President, Finance for the Company.
She is also the Director of Corporate Finance for Seer. Prior to this position,
she served as Seer's Director of Finance for the Americas Operating Division.
From March 1996 to November 1996, she was employed as Seer's Manager of
Financial Reporting. Prior to joining Seer, Ms. Fulk was with Deloitte & Touche,
LLP from August 1990 to March 1996. Ms. Fulk, a Certified Public Accountant,
obtained her B.S. in Accounting from East Carolina University.
7
<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation earned
by the Company's current Chief Executive Officer and the four other executive
officers serving or having served at the end of fiscal 1998 whose salary and
bonus exceeded $100,000 for services rendered to the Company during fiscal 1998.
The table reflects compensation earned for each of the last three years or for
such shorter period of service as an executive officer as is reflected below.
Steven Dmiszewicki was not an executive officer of the Company until January 27,
1999 and, therefore, is not reflected in the table below. For information
regarding Mr. Dmiszewicki's compensation, see "--Employment Agreements,
Termination of Employment and Change-In-Control Arrangements." For the principal
terms of the options granted during 1998, see "--Option Grants in Fiscal 1998."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
- --------------------------------------------------------------------------------------------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(1) OPTIONS COMPENSATION
- --------------------------------- ----------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Arie Kilman,..................... 1998 $ 115,000(2) $ 96,350(3) 0 $ 0
Chief Executive Officer, 1997 $ 112,500 $ 0 50,0000 $ 0
Chairman of the Board and 1996 $ 95,000 $ 0 0 $ 0
Director
Samuel Somech,................... 1998 $ 150,000 $ 7,200 0 $ 0
President, Chief Technology 1997 $ 150,000 $ 0 50,000 $ 0
Officer and Director 1996 $ 129,165 $ 0 250,000 $ 0
Gonen Ziv,....................... 1998 $ 148,246 $ 1,181 80,000 $ 0
Senior Vice President, General
Manager-Americas
Joseph Schwartz,................. 1998 $ 145,833 $ 0 150,000 $ 0
Vice President, Group Product
Manager
Robert Lord,..................... 1998 $ 183,647 $ 0 0 $ 17,500(4)
Executive Vice President
</TABLE>
- ------------------------
(1) The indicated amounts do not reflect non-cash compensation in the form of
personal benefits provided by the Company that may have value to the
recipient. Although such compensation cannot be determined precisely, the
Company has concluded that the aggregate value of such benefits awarded to
any named executive officer did not exceed the lesser of $50,000 or 10% of
his salary and bonus for any fiscal year to which such benefits pertain.
(2) Mr. Kilman's salary for 1998 includes an aggregate of $60,000 paid by the
Company and $55,000 paid by Liraz.
(3) The indicated amounts reflect compensation paid to Mr. Kilman to pay for
travel expenses to and from New York and living expenses in New York,
including rent for an apartment, an automobile lease and miscellaneous
expenditures related thereto. Liaz has agreed to reimburse the Company at a
rate of $3,000 per month for Mr. Kilman's travel expenses.
(4) The indicated amount reflects a severance payment made to Mr. Lord upon his
termination of employment on December 15, 1998.
The following table sets forth information regarding each grant of stock
options to each of the named executives during fiscal 1998. The Company is
required to withhold from the shares issued upon exercise a
8
<PAGE>
number of shares sufficient to satisfy applicable withholding tax obligations.
The Company did not award any stock appreciation rights ("SARs") during fiscal
1998.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
-------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS OF APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---------------------------------------------- ----------- ----------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Arie Kilman................................... 0 0% $ 0 0 $ 0 $ 0
Samuel Somech................................. 0 0% $ 0 0 $ 0 $ 0
Gonen Ziv..................................... 30,000 2.2% $ 9.00 6/26/08 $ 169,802 $ 430,310
50,000 2.6% $ 7.88 12/15/08 $ 247,784 $ 627,935
Joe Schwartz.................................. 75,000 5.5% $ 9.00 6/26/08 $ 424,504 $ 1,075,776
75,000 5.5% $ 7.88 12/15/08 $ 371,677 $ 941,902
Robert Lord................................... 0 0 0 0 0 0
</TABLE>
The following table sets forth information concerning the options exercised
during fiscal 1998 and held at December 31, 1998 by the named executives.
FISCAL 1998 YEAR-END OPTION HOLDINGS AND VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT DECEMBER 31, OPTIONS AT DECEMBER 31,
1998 1998(1)
------------------------ ------------------------
SHARES
ACQUIRED
ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Arie Kilman..................... 0 $ 0 33,000(2) 16,667(2) $ 0 $ 0
Samuel Somech................... 0 $ 0 461,138 16,667 $ 783,461 $ 0
Gonen Ziv....................... 0 $ 0 26,667 53,333 $ 37,001 $ 73,999
Joe Schwartz.................... 0 $ 0 50,000 100,000 $ 62,375 $ 124,750
Robert Lord..................... 0 $ 0 23,167 16,333 $ 20,963 $ 0
</TABLE>
- ------------------------
(1) Calculated by subtracting the exercise price from $9.6875 per share, the
closing price of the Company's Common Stock as reported by the Nasdaq Stock
Market on December 31, 1998, and multiplying the difference by the number of
shares underlying each option.
(2) On March 30, 1999, Mr. Kilman voluntarily terminated all of his outstanding
options to purchase 200,000 shares of Common Stock. As a result, Mr. Kilman
no longer holds any options to purchase shares of Common Stock.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Under the employment agreement between the Company and Mr. Kilman, Mr.
Kilman will serve as Chief Executive Officer of the Company until May 1, 1999,
subject to earlier termination under certain circumstances. The agreement also
provides that Mr. Kilman will devote substantially all his business time
9
<PAGE>
to the affairs of the Company. In February 1999, Mr. Kilman's annual base salary
was set at $120,000. Mr. Kilman is eligible for an incentive bonus up to $75,000
based upon the Company achieving certain performance goals. In February 1999,
Mr. Kilman was granted an option to purchase 150,000 shares of Common Stock.
Twenty-five (25%) of these stock options vested on February 26, 1999, and the
remainder vests in three increments of twenty-five (25%) percent each over the
next three years. If Mr. Kilman's employment by the Company is terminated for
any reason, Mr. Kilman has agreed that, for one year after such termination and
except for his services for Liraz, he will not engage in any business that
competes with the Company's business at the time of the termination. On March
30, 1999, Mr. Kilman voluntarily terminated all of his outstanding options to
purchase 200,000 shares of Common Stock. As a result, Mr. Kilman no longer holds
any options to purchase shares of Common Stock.
Under the employment agreement between the Company and Mr. Somech, Mr.
Somech will serve as President of the Company until November 8, 1999, subject to
earlier termination under certain circumstances. The Company pays Mr. Somech (a)
an annual base salary of $150,000, (b) an annual increase in base salary as
determined by the Board of Directors of the Company, in its discretion, (c) a
performance bonus determined by the Board of Directors of the Company and (d) a
car and telephone allowance of $2,000 a month. In the event that Mr. Somech's
employment is terminated prior to November 8, 1999, Level 8 Technologies will
pay Mr. Somech a termination fee equal to 50% of the salary Mr. Somech would
have received from the date of termination until November 8, 1999. If Mr.
Somech's employment is terminated for any reason (other than by the Company
without cause), Mr. Somech has agreed that, for one year after such termination,
he will not directly or indirectly (i) compete with Level 8 Technologies'
consulting services in the United States regarding middleware, messaging or
fault-tolerant transaction processing, (ii) engage or participate in any
business that provides consulting services within the United States with respect
to middleware, messaging or fault-tolerant transaction processing, (iii) solicit
or divert business from Level 8 Technologies or assist any business in
attempting to do so, (iv) cause any business to refrain from doing business with
Level 8 Technologies or (v) solicit or hire any person who was an employee of
Level 8 Technologies during the term of his employment agreement or assist any
business in attempting to do so. On February 26, 1999, Mr. Somech and the
Company entered into an amendment to his employment agreement that permits Mr.
Somech to retire from the Company at any time during his employment upon
three-months notice to the Company. Upon his retirement, Mr. Somech will receive
retirement benefits of $20,000 per month for a period of two years and his
health care benefits will continue during this time or until he obtains
alternative health care coverage, whichever is sooner. During his first year of
retirement, Mr. Somech has agreed to make himself available to assist the
Company and its employees on transition matters.
Mr. Dmiszewicki was elected to serve as the Chief Operating Officer of the
Company on January 27, 1999. Under the employment arrangement between the
Company and Steven Dmiszewicki effective December 4, 1998, the Company will pay
to Mr. Dmiszewicki an annual base salary of $200,000. In addition, he will be
eligible to participate in an incentive bonus program based upon the Company's
attainment of certain performance goals. During the first year of his
employment, Mr. Dmiszewicki will have a bonus potential of up to $200,000. In
the event of termination of Mr. Dmiszewicki's employment, other than voluntarily
or for cause, his base salary will be continued for twelve (12) months. Mr.
Dmiszewicki has also received a stock option to purchase 200,000 shares of
Common Stock. Twenty-five (25%) of this stock option vested on December 4, 1998
and the remainder vests in increments of twenty-five (25%) percent over the next
three years. In addition, he is eligible, at the discretion of the Compensation
Committee of the Board of Directors, to receive additional options from time to
time.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report by the Compensation Committee of the Board of Directors
discusses the Committee's compensation objectives and policies applicable to the
Company's executive officers. The report reviews the Committee's policy
generally with respect to the compensation of all executive officers as a group
for
10
<PAGE>
fiscal 1998 and specifically reviews the compensation established for the
Company's Chief Executive Officer as reported in the Summary Compensation Table.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Compensation Committee of the Board of Directors approves all policies
under which compensation is paid or awarded to the Company's executive officers.
The Committee is composed of Messrs. Kilman, Klein and Recanati. Mr. Kilman is
the Chairman of the Board of Directors and Chief Executive Officer of the
Company. Messrs. Klein and Recanati are not employees of the Company.
COMPENSATION PHILOSOPHY
The Company's executive compensation program has three objectives: (1) to
align the interests of the executive officers with the interests of the
Company's stockholders by basing a significant portion of an executive's
compensation on the Company's performance, (2) to attract and retain highly
talented and productive executives, and (3) to provide incentives for superior
performance by the Company's executives. To achieve these objectives, the
Committee has crafted a program that consists of base salary, short-term
incentive compensation in the form of a bonus, and long-term incentive
compensation in the form of stock options. These compensation elements are in
addition to the general benefit programs that are offered to all of the
Company's employees.
Each year, the Committee reviews the Company's executive compensation
program. In its review, the Committee studies the compensation packages for
executives of a peer group of the Company's most direct publicly held
competitors for executive talent, assesses the competitiveness of the Company's
executive compensation program and reviews the Company's financial performance
for the previous fiscal year. The Committee also gauges the success of the
compensation program in achieving its objectives in the previous year and
considers the Company's overall performance objectives.
Each element of the Company's executive compensation program is discussed
below.
BASE SALARIES
The Committee annually reviews the base salaries of the Company's executive
officers. The base salaries for the Company's executive officers for fiscal 1998
are reflected in the Summary Compensation Table and were established by the
Committee at the beginning of that fiscal year. In addition to considering the
factors listed in the foregoing section that support the Company's executive
compensation program generally, the Committee reviews the responsibilities of
the specific executive position and the experience and knowledge of the
individual in that position. The Committee also measures individual performance
based upon a number of factors, including a measurement of the Company's
historic and recent financial performance and the individual's contribution to
that performance, the individual's performance on non-financial goals and other
contributions of the individual to the Company's success, and gives each of
these factors relatively equal weight without confining its analysis to a
rigorous formula. As is typical of most corporations, the actual payment of base
salary is not conditioned upon the achievement of any predetermined performance
targets.
INCENTIVE COMPENSATION
Bonuses established for executive officers are intended to motivate the
individual to work hard to achieve the Company's financial and operational
performance goals or to otherwise motivate the individual to aim for a high
level of achievement on behalf of the Company in the coming year. The Committee
does not have a formula for determining bonus payments, but establishes general
target bonus levels for executive officers at the beginning of the fiscal year
based on relatively equal measures upon the Committee's subjective assessment of
the Company's projected revenues and other operational and
11
<PAGE>
individual performance factors and may adjust these targets during the year.
Bonuses for 1998 were determined by evaluations of individual performance and by
the success of the Company.
LONG-TERM INCENTIVE COMPENSATION
The Company provides its executive officers with long-term incentive
compensation through grants of stock options under the Company's stock option
plans. The Committee believes that placing a portion of executives' total
compensation in the form of stock options achieves three objectives. It aligns
the interest of the Company's executives directly with those of the Company's
stockholders, gives executives a significant long-term interest in the Company's
success and helps the Company retain key executives. In determining the number
and terms of options to grant an executive, the Committee primarily considers
subjectively the executive's past performance and the degree to which an
incentive for long-term performance would benefit the Company. The size of
option grants is comparable to grants by other corporations within the Company's
industry that are comparable in size to the Company.
BENEFITS
The Committee believes the Company must offer a competitive benefits program
to attract and retain key executives. The Company provides the same medical and
other benefits to its executive officers that are generally available to its
other employees.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Kilman has served as the Chief Executive Officer of the Company since
July 1996 and has been compensated in accordance with the terms of his
employment agreement with the Company. See "Executive Compensation--Employment
Agreements, Termination of Employment and Change-In-Control Arrangements."
Submitted by: THE COMPENSATION COMMITTEE
Arie Kilman
Frank J. Klein
Lenny Recanati
SECTION 162(M) OF THE INTERNAL REVENUE CODE
It is the responsibility of the Committee to address the issues raised by
Section 162(m) of the Internal Revenue Code, as amended (the "Code"). The
revisions to this Code section made certain non-performance based compensation
in excess of $1,000,000 to executives of public companies non-deductible to the
companies beginning in 1994. The Committee has reviewed these issues and has
determined that no portion of compensation payable to any executive officer for
fiscal 1998 is non-deductible. The Company's 1995 Stock Incentive Plan and 1997
Stock Option Plan limit to 200,000 and 200,000, respectively the number of
options or shares that may be awarded to any individual in a single year under
these plans.
12
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph indicates the Company's cumulative total return to
stockholders from July 27, 1995 (the effective date of the Company's
registration statement relating to its initial public offering) through December
31, 1998, as compared to cumulative total returns for the Nasdaq Stock Market
(U.S.) index and the MG Group Index.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
<S> <C> <C> <C> <C> <C>
AMONG LEVEL 8 SYSYSTEMS, INC.,
NASDAQ MARKET INDEX AND MG GROUP INDEX
DOLLARS
07/27/95 12/31/95 12/31/96 12/31/97 12/31/98
LEVEL 8 SYSTEMS, INC. 100 85.71 221.43 194.64 138.39
MG GROUP INDEX 100 110.72 126.54 140.83 168.09
NASDAQ MARKET INDEX 100 102.74 127.67 156.17 220.26
ASSUMES $100 INVESTED ON JULY 27, 1995
ASSUMES DIVIDEND REINVESTED
</TABLE>
13
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and regulations of the Securities and Exchange Commission
thereunder require the Company's directors and executive officers and persons
who own more than 10% of the Company's Common Stock, as well as certain
affiliates of such persons, to file initial reports of their ownership of the
Company's Common Stock and subsequent reports of changes in such ownership with
the Securities and Exchange Commission. Directors, executive officers and
persons owning more than 10% of the Company's Common Stock are required by
Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) reports they file. Based solely on its review of the
copies of such reports received by it and written representations that no other
reports were required for those persons, management believes that the Company's
directors, executive officers and owners of more than 10% of the its Common
Stock complied with all filing requirements in a timely manner during 1998,
except that a Form 4--Statement of Changes in Beneficial Ownership for March
1998 for Samuel Somech has not yet been filed and a Form 4--Statement of Changes
in Beneficial Ownership for December 1998 was not filed until April 1999.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
BORROWINGS AND COMMITMENTS FROM LIRAZ
At December 31, 1998, the Company's total indebtedness to Liraz was
$12,329,752. Approximately $319,752 of this indebtedness bears interest at the
rate of 4% a year, with principal and interest payable in equal quarterly
installments through June 2000. In 1998, the Company paid Liraz $122,954 in
respect of such indebtedness. Under an agreement between Liraz and the Company
dated December 31, 1998 (the "Liraz Agreement"), Liraz made a $12 million loan
to the Company, which bears simple interest at a rate of 12% a year and matures
on June 30, 2000. Liraz has committed to provide the Company up to $7.5 million
of working capital on an as needed basis, upon thirty days notice. Advances, if
any, made under the commitment would become due and payable upon the earlier of
March 31, 2000 or the successful completion of an equity financing which
provides more than $7.5 million in proceeds to the Company. The advancement of
funds under the commitment is subject to the Company's acceptance of certain
terms including possible conversion of the outstanding balance, if any, to
common stock of the Company and the execution of appropriate documentation.
COMPANY LOAN TO SEER
In connection with the Company's purchase of 69% of the outstanding capital
stock of Seer from Welsh Carson Anderson & Stowe VI L.P. ("WCAS") and certain
other parties affiliated or associated with WCAS ("WCAS Parties") on December
31, 1998, the Company provided a $12 million subordinated note to Seer to pay
down Seer's bank debt. The funds used by the Company for the subordinated loan
to Seer were obtained from Liraz pursuant to the Liraz Agreement described
above. In addition, the Company also agreed to guarantee debt under Seer's
revolving credit facility (i) exceeding $20 million through December 31, 1999,
(ii) exceeding $10 million from January 1, 2000 through December 31, 2000, and
(iii) without limit thereafter.
JOINT DEVELOPMENT ARRANGEMENT WITH LIRAZ
The Company and Liraz previously had an agreement for the joint development
of certain software for a Microsoft contract. Under the agreement, Liraz and the
Company were each to pay 50% of the total project development costs. In exchange
for providing 50% of such costs, Liraz was previously entitled to receive
royalties of 30% of the first $2 million in contract revenue, 20% of the next $1
million, and 8% thereafter. On April 1, 1998, the agreement was amended to
provide that the Company would reimburse Liraz's costs of development of $1.5
million and would pay Liraz royalties of 3% of program revenues generated from
January 1, 1998 until December 31, 2000. The $1.5 million reimbursement is being
14
<PAGE>
amortized over the term of the revised royalty agreement and was paid to Liraz
by the delivery of an 8% note payable in three installments in 1998, 1999 and
2000. Additional royalties of $.13 million are payable to Liraz for 1998 sales.
ONGOING RELATIONSHIP WITH LIRAZ
Liraz beneficially owns 4,933,120 shares (57%) of Common Stock of the
Company. The Company's chief executive officer, Arie Kilman, also is president
and chairman of the board of Liraz. Liraz has agreed to reimburse the Company at
a rate of $3,000 per month for Mr. Kilman's travel expenses. See "Executive
Compensation and Other Information--Employment Contracts, Termination of
Employment and Change-In-Control Arrangements." Messrs. Kilman, Klein and
Recanati may be deemed to be affiliates of the Company based upon their
relationships with Liraz.
Liraz and the Company may from time to time compete for the same business
opportunity or engage in transactions with each other. In that connection, Liraz
and the Company have agreed that, in the case of any business competing
opportunity primarily involving North America, the parties will use their best
efforts to make the opportunity available to the Company; in the case of any
business competing opportunity primarily involving the Middle East, the parties
will use their best efforts to make the opportunity available to Liraz; and, in
each other case, the parties will participate equally in the opportunity. This
agreement will terminate on the earlier of (a) May 1998, subject to renewal
thereafter, unless either party wishes to terminate the agreement, and (b) the
date Liraz ceases to own at least 35% of the outstanding shares of Common Stock.
See "Beneficial Ownership of Shares" for a description of the relationships
among Liraz and Arie Kilman, Frank J. Klein and Lenny Recanati, directors of the
Company.
MOMENTUM ACQUISITION
In March 1998, the Company acquired Momentum Software Corporation
("Momentum") in consideration for 575,000 shares of Common Stock, warrants to
purchase an additional 200,000 shares of Common Stock for $13.108 per share at
any time on or before March 26, 2003 (the "Warrants") and contingent
consideration, if the average closing price of the Common Stock on the 30
trading days immediately preceding the earlier of December 1, 1998 and the
effective date of the filing by the Company of a certain registration statement
(the "Calculation Date") was less than $21.00. If the average price was $15.00
or more and less than $21.00, the contingent consideration was a number of
shares of Common Stock equal to the product of (a) 416.666 and (b) the number of
cents by which $21.00 exceeded such average price; and, if the average price was
below $15.00, the contingent consideration was, at the option of the Momentum
Liquidating Trust (the "Trust"), either of the following: (a) 250,000 shares of
Common Stock, or (b) an installment promissory note with a principal amount of
$3,000,000 payable in four equal annual installments of principal and bearing
interest at the rate of 10% a year. The Trust has opted to take the promissory
note.
15
<PAGE>
PROPOSAL 2: APPROVAL OF A PROPOSAL TO ISSUE SHARES OF COMMON STOCK THROUGH A
PRIVATE PLACEMENT
The Company is currently considering, among other financing alternatives,
raising additional capital through a private placement of Common Stock. The
Company's stockholders are requested to approve the issuance of up to a maximum
of 5,000,000 shares of Common Stock to be issued in connection with a proposed
private placement (the "Private Placement"). The issuance of the maximum number
of shares of the Company's Common Stock contemplated by the Private Placement is
subject to stockholder approval pursuant to the Nasdaq Marketplace Rules. Rule
4460(i)(1)(D) of the Nasdaq Marketplace Rules requires companies that are listed
on the Nasdaq National Market to obtain stockholder approval prior to, among
other things, issuing common stock in a private financing at a price less than
the greater of book or market value of the common stock, where the amount of
common stock to be issued equals or exceeds 20% of the common stock or voting
power of the company outstanding prior to the issuance. The terms and conditions
of the Private Placement or any alternative financing, including the offering
price per share of Common Stock and the number of shares to be issued, will be
approved by the Board of Directors in accordance with applicable law prior to
the issuance of any shares in the Private Placement. It is anticipated that the
issuance of shares in the Private Placement would not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and accordingly such
shares could not be offered or sold in the United States absent registration or
an applicable exemption from the registration requirements under the Securities
Act. As a result of the restrictions on transfer under the Securities Act on
shares to be issued in the Private Placement, it is expected that shares would
be offered at some discount to the market price for the Common Stock customary
for private placements of this nature. The actual offering price for the Private
Placement will be based on market conditions and will be approved by the
Company's Board of Directors. In order to minimize the discount to market price
necessary in the Private Placement, the Company expects to agree to file a
registration statement under the Securities Act with respect to the resale of
the shares of Common Stock sold in the Private Placement, and to use its best
efforts to have such registration statement declared effective as soon
thereafter as possible.
The Company anticipates that the net proceeds of the Private Placement or
alternative financing would primarily be used to reduce the Company's
outstanding debt (including a $12 million promissory note to Liraz due June 30,
2001), as well as for general working capital, potential acquisitions, and other
purposes as determined by the Board of Directors. Liraz has advised the Company
that it intends to purchase additional shares of Common Stock in the Private
Placement. Liraz currently beneficially owns 57% of the outstanding Common Stock
of the Company (excluding an additional 14% held by the WCAS Parties which Mr.
Kilman has the right to vote pursuant to the Seer Acquisition Agreement). The
number of shares to be purchased by Liraz will depend on the offering price in
the Private Placement. The Company anticipates that Liraz will purchase a
substantially smaller percentage of the total number of shares to be offered in
the Private Placement than Liraz's current percentage beneficial ownership of
the Company. Accordingly, it is anticipated that Liraz's percentage beneficial
ownership of the Company will decrease upon completion of the Private Placement,
notwithstanding Liraz's purchase of additional shares in the Private Placement.
In the event Liraz purchases shares in the Private Placement, the terms and
conditions of the Private Placement will be submitted for the approval of
directors who are not affiliates or associates of Liraz. Messrs. Kilman, Klein
and Recanati may be deemed to be affiliates or associates of Liraz.
The issuance of the shares of Common Stock in the Private Placement will
have no effect on the rights or privileges of existing shareholders except that
the economic interests and voting rights of each stockholder will be
proportionately diluted as a result of such issuances.
If Proposal 2 is approved, no further authorization from shareholders will
be required or solicited prior to the issuance of shares in the Private
Placement. The affirmative vote of a majority of the total votes cast on
Proposal 2 in person or by proxy at the Meeting is required to approve Proposal
2.
16
<PAGE>
VOTES REQUIRED FOR APPROVAL OF THE PROPOSAL
Approval of this proposal will require the affirmative vote of a majority of
the votes cast. As of the record date for the Annual Meeting, Liraz has the
right to vote 4,933,120 shares, representing 57% of the outstanding Common
Stock, and has advised the Company that it intends to vote in favor of this
proposal. Proxies solicited by the Board of Directors will be voted FOR this
proposal, unless stockholders specify otherwise.
THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS ACTION OF THE DIRECTORS,
RECOMMENDS A VOTE FOR THE PROPOSAL TO ISSUE SHARES OF COMMON STOCK THROUGH A
PRIVATE PLACEMENT. UNLESS AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S) NAMED IN
EACH PROXY WILL VOTE THE SHARES REPRESENTED THEREBY FOR THE APPROVAL OF THIS
PROPOSAL.
17
<PAGE>
PROPOSAL 3: APPROVAL OF MERGER TO REINCORPORATE THE COMPANY UNDER THE LAWS OF
THE STATE OF DELAWARE
REINCORPORATION OF THE CORPORATION IN DELAWARE
On February 26, 1999, the Board of Directors of the Company adopted a plan,
subject to approval by the stockholders, to reincorporate the Company under the
laws of the State of Delaware (the "Reincorporation"). The Company was
incorporated under the laws of the State of New York in 1988 under the name
Advanced Systems U.S.A. (L.S.U.), Inc. The Board strongly believes Delaware
corporate law will better serve the stockholders' interests and provide the
Company with advantages not available under New York corporate law. Therefore,
the Board of Directors recommends the stockholders approve the form of Merger
Agreement which appears as APPENDIX A at the end of this Proxy Statement to
effect a transaction commonly called a "reincorporation."
The Company will continue to be called "Level 8 Systems, Inc." after the
reincorporation. To explain the proposal, however, this Proxy Statement will
call the Company that exists today as a New York corporation either the Company
or "Level 8 New York," and "Level 8 Delaware" will refer to the new Delaware
corporation that will be organized as a wholly-owned subsidiary of Level 8 New
York. If the holders of at least two-thirds of all outstanding shares of the
Common Stock approve the Merger Agreement (in effect the "Reincorporation"),
Level 8 New York will be merged into Level 8 Delaware to accomplish the
reincorporation. The effective date will be when the necessary documents have
been filed in both New York and Delaware. Level 8 Delaware will be the surviving
corporation, and the certificate of incorporation and by-laws of the new
corporation will be drafted to conform with relevant provisions of Delaware law
as discussed below.
If the stockholders approve this Proposal number 3, the Company will be
governed by a new certificate of incorporation and by-laws as well as the
Delaware General Corporation Law (the "DGCL"). Although many aspects of
corporate governance and stockholder rights under the DGCL are similar to those
under New York law, certain differences do exist and should be considered as you
review this Proposal number 3.
REASONS FOR THE CHANGE
For many years, Delaware has encouraged incorporation in that state by
adopting modern, comprehensive and flexible corporate laws, and it periodically
updates and revises them to meet changing business needs. The Delaware General
Corporation Law (the "DGCL") is considered a sophisticated statute, highly
conducive to business. That is why many corporations choose Delaware initially
as their place of incorporation, and why many others have reincorporated in
Delaware by means of transactions like the one now proposed. Because of
Delaware's policy of encouraging incorporation and its preeminence as the most
popular state of incorporation for major corporations, the courts of Delaware
have developed considerable expertise in dealing with corporate issues. As a
result, Delaware's case law interpreting its corporate laws is more developed
than that of any other state. This gives Delaware corporate law an extra measure
of predictability that is useful and often crucial in our precedent-based
judicial system.
For the board and the management of a Delaware corporation, these features
of Delaware law allow greater certainty in managing the corporation. The state's
court system also provides for relatively prompt resolution of most corporate
disputes. For example, Delaware has a specialized Court of Chancery which hears
cases involving corporate law. The Court of Chancery has no jurisdiction over
most other kinds of cases, and therefore its dockets are not as backlogged as
many other states. In addition, the Supreme Court of Delaware hears and decides
important corporate appeals rapidly.
The Board of Directors of the Company considered the predictability and
flexibility of Delaware law and the efficiency of its judicial process when it
recommended the present proposal. The Board also
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recognized the possibility that choosing to be governed by the corporate law of
Delaware, as so many other corporations have done, may further enhance the
reputation of the Company
CONTINUITY OF BUSINESS AND OTHER FACTORS
Level 8 Delaware will have its principal corporate offices at 8000 Regency
Parkway, Cary, North Carolina 27511, and will appoint a registered agent to
represent it in Delaware. Reincorporation in Delaware will not change the
business plan, management, assets, liabilities, net worth, capitalization or
employee benefit plans of the Company. Each of Level 8 New York's common shares
will automatically become one share of the common stock of Level 8 Delaware.
Furthermore, each stock option or warrant that would be, or later becomes,
exercisable for shares of the Company's common shares will automatically be, or
later becomes, exercisable for the same number of shares of the common stock of
Level 8 Delaware on the same terms and conditions.
CONVERSION OF SHARES
As soon as the reincorporation becomes effective, Level 8 Delaware will
issue a press release announcing that the transaction has occurred. At the
effective time, the holders of the old shares of Level 8 New York will become
holders of the new shares of Level 8 Delaware. Shares of Level 8 New York will
automatically convert into shares of Level 8 Delaware, on these terms:
The conversion will be on a one-for-one basis.
- Each share of the old common shares of Level 8 New York which is
outstanding at the effective date will become one share of the new common
stock, par value $.01 per share, of Level 8 Delaware.
- Each share of the old Common Shares held in the treasury of Level 8 New
York will become a share held in the treasury of Level 8 Delaware.
This means that, beginning on the effective date, each Level 8 New York
stock certificate which was outstanding just before the reincorporation will
automatically represent the same number of Level 8 Delaware shares. THEREFORE,
STOCKHOLDERS OF LEVEL 8 NEW YORK NEED NOT EXCHANGE THEIR STOCK CERTIFICATES FOR
NEW LEVEL 8 DELAWARE STOCK CERTIFICATES. LIKEWISE, STOCKHOLDERS SHOULD NOT
DESTROY THEIR OLD CERTIFICATES AND SHOULD NOT SEND THEIR OLD CERTIFICATES TO THE
COMPANY, EITHER BEFORE OR AFTER THE EFFECTIVE DATE OF REINCORPORATION. YOU CAN
KEEP YOUR LEVEL 8 NEW YORK STOCK CERTIFICATES.
TRADING OF THE STOCK
After reincorporation, those who were formerly stockholders of Level 8 New
York may continue to make sales or transfers using their Level 8 New York stock
certificates. Level 8 Delaware will issue new certificates representing shares
of Level 8 Delaware common stock for transfers occurring after the effective
date. If you simply want a new certificate reflecting Level 8 Delaware, on
request, Level 8 Delaware will issue new certificates to anyone who holds Level
8 New York stock certificates. Any request for new certificates will be subject
to normal requirements including proper endorsement, signature guarantee, if
required, and payment of applicable taxes.
Stockholders whose shares of Level 8 New York were freely tradable before
the reincorporation will own shares of Level 8 Delaware which are freely
tradable after reincorporation. Similarly, any stockholders holding securities
with transfer restrictions before reincorporation will hold shares of Level 8
Delaware which have the same transfer restrictions after reincorporation. For
purposes of computing the holding period under Rule 144 of the Securities Act of
1933, as amended, those who hold Level 8 Delaware stock certificates will be
deemed to have acquired their shares on the date they originally acquired their
shares in Level 8 New York.
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After the reincorporation, Level 8 Delaware will continue to be a publicly
held company. It will also file with the Securities and Exchange Commission and
provide to its stockholders the same types of information that Level 8 New York
has previously filed and provided.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences of reincorporation under current law to holders of the Company's
common shares. This summary is for general information only. It does not address
potential legislative changes that may affect these consequences, and it does
not address any state, local or foreign tax consequences of reincorporation. The
Company has not obtained, and does not intend to obtain, a ruling from the
Internal Revenue Service to the effect that the reincorporation is nontaxable.
STOCKHOLDERS SHOULD CONSULT THEIR PERSONAL TAX ADVISERS TO DISCUSS THEIR OWN
TAX SITUATIONS AND ANY POTENTIAL CHANGES IN FEDERAL, STATE AND LOCAL LAWS AND
OTHER APPLICABLE TAX MATTERS RELATING TO THE REINCORPORATION.
NEITHER THE COMPANY NOR ITS STOCKHOLDERS WILL RECOGNIZE ANY GAIN OR LOSS BY
REASON OF THE REINCORPORATION. The tax basis of the shares of Level 8 Delaware
common stock received by a stockholder of Level 8 New York through the
reincorporation will be the same as the tax basis of Level 8 New York Common
Shares prior to reincorporation. A stockholder of Level 8 New York who holds the
stock as a capital asset should include the period he or she has held those
common shares in determining the holding period for his or her Level 8 Delaware
shares.
The materials that follow provide a comparison of stockholder's rights under
New York and Delaware law and discuss the similarities and differences of Level
8 New York and Level 8 Delaware with respect to:
- The amount and class of authorized common and preferred stock
- The procedures to amend the certificate of incorporation
- The procedures to amend the by-laws
- The authorization to call a special meeting of stockholders
- The requirements and procedures to take corporate action without a
stockholders' meeting
- The procedures for stockholder inspection of the list of stockholders
- The vote required to approve certain transactions
- The requirements to maintain a classified board of directors
- The number of directors constituting the board of directors
- The requirements and procedures to remove directors
- The limitation of a director's liability
- The degree to which the Company can indemnify directors and officers
- The provision of insurance coverage for directors and officers
- The procedures to authorize loans and guarantees of obligations for
directors
- The procedures to authorize transactions between interested directors and
the Company
- The approval of issuance of rights and options to directors, officers and
employees
- The form of payment for shares
- The procedures to pay dividends and to redeem stock
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- The appraisal rights of stockholders
- Any restrictions on business combinations with interested stockholders.
ABANDONMENT
The Board of Directors will have the right to abandon the Merger Agreement
and take no further action towards reincorporating the Company in Delaware at
any time before the reincorporation becomes effective, even after stockholder
approval, if for any reason the Board determines that it is not advisable to
proceed with the reincorporation, including considering the number of shares for
which appraisal rights have been exercised and the cost to the Company thereof.
COMPARISON OF STOCKHOLDER RIGHTS
If Proposal number 3 is approved by the holders of at least two-thirds of
the Company's outstanding common shares, and if the Company reincorporates in
Delaware as outlined above, then the stockholders of the Company will become
stockholders of the new Delaware corporation, Level 8 Delaware, and their rights
as stockholders will be governed by the General Corporation Law of Delaware (the
"DGCL") and the certificate of incorporation and by-laws of Level 8 Delaware.
There are differences between the BCL and the DGCL which will affect the rights
of stockholders in certain respects. In addition, the newly created Level 8
Delaware certificate of incorporation and by-laws (in the forms attached as
APPENDICES B and C, respectively, to this Proxy Statement), while substantially
similar to the Level 8 New York certificate of incorporation and by-laws, do
contain provisions which will affect the rights of stockholders. Except for the
provisions relating to indemnification and limitation of liability, the ability
to call special meetings of stockholders, certain provisions related to
officers, transactions with officers and directors, and amending the by-laws,
the differences between the two are primarily as a result of differences between
the BCL and the DGCL as discussed herein.
Set forth below is a summary of the material differences between the BCL and
the DGCL with respect to stockholders' rights, and a comparison of the material
differences in the Level 8 Delaware certificate of incorporation and by-laws
from the current Level 8 New York certificate of incorporation and by-laws. The
following summary does not purport to be a complete statement of such
differences or of the Level 8 Delaware certificate of incorporation and by-laws,
and is qualified in its entirety by reference to such statutes, certificate of
incorporation and by-law documents. Copies of the Certificate of incorporation
and by-laws of Level 8 New York are available for inspection at the principal
office of Level 8 New York and copies will be sent to stockholders upon request.
STOCKHOLDERS SHOULD CONSULT THEIR PERSONAL LEGAL COUNSEL TO DISCUSS ANY
MATTERS RELATING TO THEIR RIGHTS AS STOCKHOLDERS IN CONNECTION WITH THE
REINCORPORATION.
AUTHORIZED CAPITAL STOCK. The Level 8 New York certificate of incorporation
authorizes the Company to issue sixteen million (16,000,000) shares, consisting
of fifteen million (15,000,000) shares of common stock, having a par value of
$.01 per share, and one million (1,000,000) shares of preferred stock, having a
par value of $.01 per share.
If this Proposal number 3 and Proposal number 4 (Proposal to Amend the
Company's Certificate of Incorporation to Increase the Number of Authorized
Shares of Common Stock and Preferred Stock) are both approved by the Company's
stockholders, the Level 8 Delaware certificate of incorporation will authorize
Level 8 Delaware to issue fifty million (50,000,000) shares of stock, of which
forty million (40,000,000) shares will be designated common stock, par value
$.001 per share, and ten million (10,000,000) will be designated preferred
stock, par value $.001. If this Proposal number 3 is approved and Proposal
number 4 is not approved by the Company's stockholders, the Level 8 Delaware
certificate of incorporation will authorize Level 8 Delaware to issue sixteen
million (16,000,000) shares, consisting of
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fifteen million (15,000,000) shares of common stock, having a par value of $.001
per share, and one million (1,000,000) shares of preferred stock, having a par
value of $.001 per share.
Level 8 Delaware's common and preferred shares will be similar to Level 8
New York's common and preferred shares, respectively, with respect to voting
rights, liquidation rights and dividend rights.
For both Level 8 Delaware and Level 8 New York, the holders of common stock
are entitled to one vote for each share on all matters submitted to a vote of
stockholders, and, except as described below, a majority vote is required for
all action to be taken by 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 therefor, subject to the dividend and liquidation
rights of any preferred stock that may be issued, and subject to the dividend
restrictions in certain credit facilities and various other note agreements. In
the event of the liquidation, dissolution or winding-up of Level 8 Delaware or
Level 8 New York, as the case may be, the holders of common stock are entitled
to share equally and ratably in the assets of such entity, if any, remaining
after provision for payment of all debts and liabilities of Level 8 Delaware or
Level 8 New York, as the case may be, 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.
For both Level 8 Delaware and Level 8 New York, the board of directors 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 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 Level 8 Delaware or Level 8 New York, as
the case may be. There are no present plans for any issuance of preferred stock.
AMENDMENT OF CERTIFICATE OF INCORPORATION. Both the BCL and the DGCL allow
a board of directors to recommend a certificate of incorporation amendment for
approval by stockholders, and a majority of the shares entitled to vote at a
stockholders' meeting are normally enough to approve that amendment. Both laws
require that a majority of the holders of any particular class of stock must
approve the amendment if it would have an adverse effect on the holders of that
class. In addition, both laws allow a corporation to require a vote larger than
a majority on special types of issues.
AMENDMENT OF BY-LAWS. The by-laws of Level 8 New York provide, as permitted
by the BCL, that the Board of Directors may amend, adopt or repeal the Company's
by-laws, subject to the rights of stockholders to alter, amend, or repeal those
by-laws made by the board of directors. Under the DGCL, however, the board may
amend, adopt or repeal by-laws only if permitted by the certificate of
incorporation. The certificate of incorporation of Level 8 Delaware will
specifically permit amendment of the by-laws by the board. Additionally, both
the BCL and the DGCL allow stockholders to further amend or repeal by-laws
adopted or amended by the board.
SPECIAL MEETINGS OF STOCKHOLDERS. Under both the BCL and the DGCL, the
board of directors or anyone authorized in the certificate of incorporation or
by-laws may call a special meeting of stockholders. Currently, the by-laws of
Level 8 New York allow the President or the Board of Directors to call a special
meeting. The by-laws further provide that upon written request to the Company by
stockholders who hold a majority of the outstanding shares, the Company shall
call a special meeting. The provision in the by-laws of Level 8 Delaware will be
comparable.
CORPORATE ACTION WITHOUT STOCKHOLDERS' MEETING. The BCL and DGCL differ
about whether corporate action can be taken by written consent and without a
stockholders' meeting. Under the BCL, the holders of at least the minimum number
of votes required to authorize such an action may take the action if the
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corporation's certificate of incorporation allows this, but otherwise the
consent must be unanimous. The certificate of incorporation of Level 8 New York
does not permit stockholder action by less than unanimous written consent. The
DGCL, on the other hand, lets stockholders take action by the written consent of
at least the minimum number of votes required to act at a stockholders' meeting,
unless the certificate of incorporation forbids it. Since Liraz currently has
the right to vote a majority of the outstanding Common Stock, Liraz would have
the ability to take stockholder action on behalf of Level 8 Delaware without a
stockholders' meeting or the consent of any other stockholder. Level 8 is not
aware of any current intention to take stockholder action by written consent in
lieu of a meeting. The Company believes that the ability to act by written
consent without a meeting enhances the ability to act quickly when required. The
regulations of the Securities and Exchange Commission require that stockholders
be provided with an information statement describing any corporate action taken
by written consent at least 20 days before the effective date of such action.
INSPECTION OF STOCKHOLDERS' LIST. The BCL requires five days' written
notice from a stockholder of record to inspect the list of record stockholders
for any purpose reasonably related to the person's interest as a stockholder.
Under the DGCL, any stockholder may inspect the stockholders list for any
purpose reasonably related to the person's interest as a stockholder. In
addition, for at least ten days prior to each stockholders meeting, a Delaware
corporation must make available for examination a list of stockholders entitled
to vote at the meeting.
VOTE REQUIRED FOR CERTAIN TRANSACTIONS. Until February 1998, the BCL
required the holders of two-thirds of the outstanding stock of a New York
corporation to approve certain mergers, consolidations or sales of all or
substantially all the corporation's assets that may occur outside the ordinary
course of business. Since February 1998, however, a New York corporation may
provide in its certificate of incorporation that the holders of a majority of
the outstanding stock may approve such transactions. The Company has not adopted
such a certificate of incorporation provision. Under the DGCL, holders of a
majority of the outstanding stock entitled to vote on such transactions have the
power to approve a merger, consolidation or sale of all or substantially all the
assets without a special provision in the certificate of incorporation, unless
the certificate of incorporation provides otherwise. Furthermore, in the case of
a merger under the DGCL, stockholders of the surviving corporation do not have
to approve a merger at all, unless the certificate of incorporation provides
otherwise, if these three conditions are met:
- No amendment of the surviving corporation's certificate of incorporation
is made by the merger agreement;
- Each share of the surviving corporation's stock outstanding or in the
treasury immediately prior to the effective date of the merger is to be an
identical outstanding or treasury share of the surviving corporation after
the effective date; and
- The merger results in no more than a 20% increase in its outstanding
common stock.
Special vote requirements may apply to certain business combinations with
interested stockholders. See the discussion of these below under the heading
"Business Combinations with Interested Stockholders."
CLASSIFICATION OF DIRECTORS. Both laws permit "classified" boards of
directors, which means the directors have staggered terms that do not all expire
at once. The BCL permits as many as four classes, the DGCL only three. The
Company currently has one class of directors and Level 8 Delaware will also have
only one class of directors, with all directors elected annually for a one-year
term.
NUMBER OF DIRECTORS. Under the BCL, the number of directors may be one or
more, and any number may be fixed by the by-laws or by the action of the
stockholders or of the board of directors under the specific provisions of the
by-laws adopted by the stockholders, and if not so fixed the number of directors
shall be one. The number of directors may be increased or decreased by amendment
of the by-laws or by
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action of the stockholders or of the board of directors under the specific
provisions of a by-law adopted by the stockholders, subject to certain
limitations. Under the DGCL, a corporation may have as few as one director, and
there is no statutory upper limit on the number of directors. The specific
number may be fixed in the by-laws or the certificate of incorporation, but if
fixed in the certificate of incorporation, may be changed only by amendment of
the certificate of incorporation. If the certificate of incorporation is silent
as to the number of directors, the board of directors may fix or change the
authorized number of directors pursuant to a provision of the by-laws. The
number of directors of Level 8 New York is currently fixed by the Board of
Directors at seven (7). The by-laws of Level 8 Delaware will initially fix the
number of directors at five (5), but will provide that the number of directors
may be increased at any time by a vote of 80% of the Board of Directors or the
stockholders. While the Board of Directors has no current plans to change the
number of directors, it may decide to do so in the future.
REMOVAL OF DIRECTORS. Under the BCL, directors may be removed by the
stockholders for cause, or by either the stockholders or the directors if the
certificate of incorporation so provides. Furthermore, if the certificate of
incorporation or by-laws so provide, directors may be removed without cause by a
vote of the stockholders. Level 8 New York's by-laws provide that directors may
be removed with or without cause by a majority vote of the stockholders at a
special meeting of the stockholders called for such purpose. Directors under the
DGCL would generally be subject to removal with or without cause by a majority
of the stockholders, unless the certificate of incorporation provides otherwise.
The by-laws of Level 8 Delaware will substantially conform to the current
provisions governing removal of Level 8 New York directors.
LIMITATION OF DIRECTORS' LIABILITY. Both states permit the limitation of a
director's personal liability while acting in his or her official capacity.
Under the BCL, a director is not liable to the corporation or to its
stockholders for monetary damages if the director has acted in good faith and
with the same degree of care that an ordinarily prudent person would exercise in
similar circumstances. The Company's current certificate of incorporation limits
liability of directors for any breach of duty to the extent permitted by the
Section 402(b) of the BCL, and the certificate of incorporation of Level 8
Delaware will likewise limit such liability to the fullest extent permitted by
the DGCL. This provision in the Level 8 Delaware certificate of incorporation is
intended to afford directors additional protection and limit their potential
liability from suits alleging a breach of the duty of care by a director. In
general, the purpose of the provision in the Level 8 Delaware certificate of
incorporation is to provide indemnification and exculpation provisions that are
customary in modern certificate of incorporation documents of Delaware
corporations (particularly in certificate of incorporation documents of major,
public corporations that have incorporated in Delaware). As a result of the
inclusion of such a provision, stockholders may be unable to recover monetary
damages against directors for actions taken by them that constitute negligence
or that are otherwise in violation of their duty of care, although it may be
possible to obtain injunctive or other equitable relief with respect to such
actions. If equitable remedies are found not to be available to stockholders in
any particular situation, stockholders may not have an effective remedy against
a director in connection with such conduct.
In some cases directors may be liable despite these limitations. Under the
BCL, for example, a director is not immune from liability if he or she violates
applicable statutes which expressly make directors liable. The DGCL forbids any
limitation of liability if the director breached his or her duty of loyalty to
the corporation or its stockholders, or if he or she failed to act in good
faith, received an improper personal benefit from the corporation, or authorized
a dividend or stock repurchase that was forbidden by the DGCL.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND INSURANCE. With some
variations, both the BCL and the DGCL allow a corporation to "indemnify," that
is, to make whole, any person who is or was a director, officer, employee or
agent of the corporation if that person is held liable for liabilities and costs
incurred as a result of service to the corporation. Besides covering court
judgments, out-of-court settlements, fines and penalties, both laws also allow
the corporation to advance certain reasonable expenses the person will
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incur or to reimburse the person's expenses after he or she incurs them, even if
liability is not actually proven. The right to indemnification under both laws
does not normally exclude other rights of recovery the indemnified person may
have.
Additionally, each of the two laws permits a corporation to purchase
insurance for its directors, officers, employees and agents against some or all
of the costs of such indemnification or against liabilities arising from actions
and omissions of the insured person, even though the corporation may not have
power to indemnify the person against such liabilities. The BCL, however,
restricts the kinds of claims that may be made under insurance purchased by the
corporation against these liabilities. For example, there would be no insurance
coverage if the person to be indemnified was guilty of deliberate dishonesty and
that dishonesty was material to the event that produced the claim, or if the
person gained some financial profit or other advantage to which he or she was
not entitled.
However, neither the BCL nor the DGCL permits indemnification of a director,
officer, employee or agent if a court finds the person liable to the corporation
itself, unless the court determines otherwise. Furthermore, the DGCL generally
requires that the person to be indemnified must have acted in good faith and in
a manner he or she reasonably believed was consistent with the best interests of
the corporation.
The Level 8 Delaware certificate of incorporation provides for
indemnification of directors and officers to the fullest extent permitted by the
DGCL. Level 8 New York's by-laws provide for indemnification of directors and
officers to the fullest extent permitted by the BCL.
Whether or not Proposal number 3 is approved by the Company's stockholders,
the BCL indemnification provisions, and not the DGCL, will apply to acts and
omissions that occurred before the effective date of the reincorporation.
LOANS AND GUARANTEES OF OBLIGATIONS FOR DIRECTORS. Under the BCL, the
holders of a majority of the shares entitled to vote, excluding any shares of
the director who is the proposed borrower, are required to approve any loans to,
or guarantees of obligations of, a director. Under the DGCL, a board of
directors may authorize loans or guarantees of indebtedness to employees and
officers, including any employee or officer who is a director.
TRANSACTION WITH INTERESTED DIRECTORS. The by-laws of Level 8 Delaware
provide that no contract or transaction between Level 8 Delaware and one or more
of the directors or officers of Level 8 Delaware, or entities controlled by any
of the directors or officers of Level 8 will be void or voidable solely for that
reason, or solely because the director or officer is present at or participates
in the meeting of the board of directors (or committee) which authorizes the
contract or transaction or solely because his, her or their votes are counted
for such purpose, if:
- The material facts as to his or her relationship or interest and as to the
contract or transaction are disclosed or are known to the board of
directors (or committee), and the board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors may be less than a quorum;
- The material facts as to his or her relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
- The contract or transaction is fair as to Level 8 Delaware as of the time
it is authorized, approved or ratified, by the board of directors,
committee, or the stockholders.
There is no comparable provision in the by-laws of Level 8 New York.
ISSUANCE OF RIGHTS AND OPTIONS TO DIRECTORS, OFFICERS AND EMPLOYEES. Under
the BCL, the issuance of any stock rights or stock options, as well as plans to
issue rights or options, to directors, officers or employees
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must be approved by a majority of votes cast at a stockholders' meeting. The
DGCL does not require stockholder approval of such transactions.
CONSIDERATION FOR SHARES. Under the BCL, stock certificates cannot be
issued until full payment has been made, except for shares purchased under a
stock option plan permitting installment payments. Under the DGCL, however, a
corporation can receive cash, services, personal or real property, leases of
real property or any combination of these as payment in full or in part for the
shares. A purchaser of shares under the DGCL may pay an amount equal to or
greater than the par value of such shares if the corporation receives a binding
obligation of the purchaser to pay the balance of the purchase price.
DIVIDENDS AND REDEMPTION OF STOCK. Subject to its certificate of
incorporation provisions, a New York corporation may generally pay dividends,
redeem shares of its stock or make other distributions to stockholders if the
corporation is solvent and would not become insolvent because of the dividend,
redemption or distribution. The assets applied to such a distribution may not be
greater than the corporations "surplus." The BCL defines surplus as the excess
of net assets over stated capital, and allows the board to adjust stated
capital. The DGCL, on the other hand, defines surplus as the excess of net
assets over capital, and allows the board to adjust capital (for shares with par
value, the capital need only equal the aggregate par value of such shares). If
there is no surplus, the DGCL allows the corporation to apply net profits from
the current or preceding fiscal year, or both, unless the corporation's net
assets are less than the capital represented by issued and outstanding stock
which has a preference on any distribution of assets.
Both the BCL and the DGCL permit redemptions only when the corporation has
outstanding shares of at least one class of voting stock which is not subject to
the redemption.
APPRAISAL RIGHTS. Generally, "appraisal rights" entitle dissenting
stockholders to receive the fair value of their shares in the merger or
consolidation of a corporation or in the sale of all or substantially all its
assets. The BCL also extends appraisal rights to an exchange of a corporation's
shares.
The BCL provides that dissenting stockholders have no appraisal rights if
their shares are listed on a national securities exchange. But in the case of
shares not listed on an exchange, appraisal rights under the BCL allow any
stockholder of a New York corporation, with various exceptions, to receive fair
value for his or her shares in such transactions. Regardless of listing on an
exchange, appraisal rights are available under the BCL in a merger between a
parent corporation and its subsidiary where only one of them is a New York
corporation, or in a merger between a parent and subsidiary where both are New
York corporations and the parent owns at least 90% of the subsidiary. Also,
appraisal rights are available to stockholders who are not allowed to vote on a
merger or consolidation and whose shares will be canceled or exchanged for cash
or something else of value other than shares of the surviving corporation or
another corporation. When appraisal rights are available, the stockholder may
have to request the appraisal and follow other required procedures. See the
discussion of appraisal rights under the section heading "Rights of Dissenting
Stockholders."
Similarly, under the DGCL, appraisal rights are not available to a
stockholder if the corporation's shares are listed on a national securities
exchange or held by more than 2,000 stockholders of record, or if the
corporation will be the surviving corporation in a merger which does not require
the approval of the surviving corporation's stockholders. But, regardless of
listing on an exchange, a dissenting stockholder in a merger or consolidation
has appraisal rights under the DGCL if the transaction requires him or her to
exchange shares for anything of value other than one or more of the following:
- Shares of stock of the surviving corporation or of a new corporation which
results from the merger or consolidation.
- Shares of another corporation which will be listed on a national
securities exchange or held by more than 2,000 stockholders of record
after the merger or consolidation occurs.
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- Cash instead of fractional shares of the surviving corporation or another
corporation.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS. Provisions in both laws
may help to prevent or delay changes of corporate control. In particular, both
the BCL and the DGCL restrict or prohibit an interested stockholder from
entering into certain types of business combinations unless the board of
directors approves the transaction in advance.
Under the BCL, an interested stockholder is generally prohibited from
entering into certain types of business combinations with a New York corporation
for a period of five years after becoming an interested stockholder, unless the
board of directors approved either the business combination or the acquisition
of stock by the interested stockholder before the interested stockholder
acquired his or her shares. An "interested stockholder" under the BCL is
generally a beneficial owner of at least 20% of the corporation's outstanding
voting stock. "Business combinations" under the BCL include mergers and
consolidations between corporations or with an interested stockholder; sales,
leases, mortgages or other dispositions to an interested stockholder of assets
with an aggregate market value which either (1) equals 10% or more of the
corporation's consolidated assets or outstanding stock, or (2) represents 10% or
more of the consolidated earning power or net income of the corporation; issues
and transfers of stock with an aggregate market value of at least 5% in relation
to the outstanding stock of the corporation; liquidation or dissolution of the
corporation proposed by or in connection with an interested stockholder;
reclassification or recapitalization of stock that would increase the
proportionate stock ownership of an interested stockholder; and the receipt by
an interested stockholder of benefit from loans, guarantees, pledges or other
financial assistance or tax benefits provided by the corporation.
After the five-year period referred to in the BCL, the BCL allows such
business combinations if either the board of directors or a majority of the
outstanding voting stock not owned by the interested stockholder have approved
the business combination or the purchase of stock by the interested stockholder
before the interested stockholder acquired his or her shares. Business
combinations are also permitted when certain statutory "fair price" requirements
are met.
Section 203 of the DGCL 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 DGCL is any person other than the corporation and its
majority-owned subsidiaries who owns 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.
- 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.
- 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 DGCL apply.
The Company has chosen, however, to accept the protections of Section 203, and
therefore the certificate of incorporation of
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<PAGE>
Level 8 Delaware will not waive those protections. 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.
- 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 20% of the outstanding voting stock of the Company for longer than the
five-year restricted period, the restrictions under the BCL on business
combinations generally do not apply to Liraz and its affiliates. In approving
the reincorporation, the Board of Directors has approved the acquisition of more
than 15% of Level 8 Delaware by Liraz and its current affiliates. Accordingly,
the restrictions of Section 203 under the DGCL will also not apply to Liraz and
such affiliates.
RIGHTS OF DISSENTING STOCKHOLDERS
Section 910 of the BCL sets forth the rights of stockholders of the Company
who object to the Merger which will take place if this Proposal number 3 is
approved. Any stockholder of the Company who does not vote in favor of this
Proposal or who duly revokes his or her vote in favor of the transaction may, if
the Merger is consummated, have the right to seek to obtain payment in cash of
the fair value of his or her shares by strictly complying with the requirements
of Section 623 of the BCL ("Section 623").
The dissenting stockholder must file with the Company before the taking of
the vote on this Proposal a written objection including statement of election to
dissent, such stockholder's name and residence address, the number and classes
of shares of stock as to which dissent is made (which number may not be less
than all of the shares as to which such stockholder has a right to dissent) and
a demand for payment of the fair value of such shares if the Merger is
consummated. Any such written objection should be addressed to: Level 8 Systems,
Inc., 8000 Regency Parkway, Cary, North Carolina 27511, Attention: Secretary.
Within ten days after the vote of stockholders authorizing the Proposal, the
Company must give written notice of such authorization to each such dissenting
stockholder. Within twenty days after the giving of such notice, any stockholder
to whom the Company failed to give notice of the Meeting who elects to dissent
from the Merger must file with the Company a written notice of such election,
stating such stockholder's name and residence address, the number and classes of
shares of stock as to which dissent is made (which number may not be less than
all of the shares as to which such stockholder has a right to dissent) and a
demand for payment of the fair value of such shares if the Merger is
consummated.
At the time of filing the notice of election to dissent or within one month
thereafter, dissenting stockholders must submit certificates representing the
applicable shares to the Company or its transfer agent, American Stock Transfer
& Trust Company, for notation thereon of the election to dissent, after which
such certificates will be returned to the stockholder. Any stockholder who fails
to submit his or her share certificates for such notation shall, at the option
of the Company exercised by written notice to the stockholder within 45 days
from the date of filing of the notice of election to dissent, lose such
stockholder's appraisal rights unless a court, for good cause shown, shall
otherwise direct.
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<PAGE>
Within 15 days after the expiration of the period within which stockholders
may file their notices of election to dissent, or within 15 days after
consummation of the Merger, whichever is later (but not later than ninety days
after the stockholders' vote authorizing the Merger), the Company must make a
written offer (which, if the Merger has not been consummated, may be conditioned
upon such consummation) to each stockholder who has filed such notice of
election to pay for the shares at a specified price which the Company considers
to be their fair value. If the Company and the dissenting stockholder are unable
to agree as to such value, Section 623 provides for judicial determination of
fair value. In the event of such a disagreement, a proceeding shall be commenced
by the Company in the Supreme Court of the State of New York, County of New
York, or by the dissenting stockholder if the Company fails to commence the
proceeding within the time period required by Section 623 of the BCL. The
Company intends to commence such a proceeding in the event of such a
disagreement.
A negative vote on this Proposal does not constitute a "written objection"
filed by an objecting stockholder. Failure by a stockholder to vote against this
Proposal will not, however, constitute a waiver of rights under Section 623
provided that a written objection has been properly filed and such stockholder
has not voted in favor of this Proposal.
The foregoing does not purport to be a complete statement of the provisions
of Section 623 and is qualified in its entirety by reference to said Section, a
copy of which is attached in full as APPENDIX D. Each stockholder intending to
exercise dissenter's rights should review APPENDIX D carefully and consult such
stockholder's counsel for a more complete and definitive statement of the rights
of a dissenting stockholder and the proper procedure to follow to exercise such
rights.
Because the Proposal does not involve any change in the nature of the
Company's business but only involves technical corporate matters such as the
Reincorporation, the Merger and the certificate of incorporation amendments
described herein, management hopes that no stockholder will exercise a
dissenter's right. Under the Merger Agreement, the Board of Directors may
abandon the Merger, even after stockholder approval, if for any reason the Board
determines that it is inadvisable to proceed with the Merger, including
considering the number of shares for which appraisal rights have been exercised
and the cost to the Company thereof.
VOTE REQUIRED FOR APPROVAL OF THE PROPOSAL
Approval of the Proposal will require the affirmative vote of two-thirds of
the outstanding shares of Level 8 New York Common Stock entitled to vote thereon
at the Meeting. As of the record date for the Meeting, Liraz has the right to
vote 4,933,120 shares, representing 57% of the outstanding Common Stock, and has
advised the Company that it intends to vote in favor of the proposal to
reincorporate in Delaware. Proxies solicited by the Board of Directors will be
voted FOR the Proposal, unless stockholders specify otherwise.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NUMBER 3 TO BE IN THE BEST INTERESTS
OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE FOR APPROVAL THEREOF.
UNLESS AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S) NAMED IN EACH PROXY WILL
VOTE THE SHARES REPRESENTED THEREBY FOR THE APPROVAL OF THE MERGER AGREEMENT TO
EFFECT THE REINCORPORATION IN DELAWARE.
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<PAGE>
PROPOSAL 4: PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK AND PREFERRED STOCK
The Board of Directors of the Company has adopted, by unanimous action of
the Directors present at the meeting, a resolution approving and recommending to
the Company's stockholders the approval of an amendment to the Company's
Certificate of Incorporation increasing the number of authorized shares of
Common Stock from 15,000,000 to 40,000,000 and the number of authorized shares
of preferred stock, par value $.01 per share, of the Company ("Preferred Stock")
from 1,000,000 to 10,000,000 (the "Proposed Stock Amendment"). The Proposed
Stock Amendment does not change any other aspect of the Company's Certificate of
Incorporation.
As of the record date, approximately [8,720,994] shares of Common Stock were
issued and outstanding and options to purchase [1,922,094] shares of Common
Stock had been granted under the Company's stock option plans. In addition, as
of the record date, approximately Warrants to purchase [680,633] shares of
Common Stock were issued and outstanding. The Board of Directors of the Company
has approved an amendment increasing the number of shares of Common Stock
available for issuance under the Company's 1997 Stock Option Plan from 1,400,000
shares to 2,600,000 shares, subject to stockholder approval pursuant to Proposal
number 5 herein. If the stockholders approve the amendment, 2,600,000 shares of
Common Stock will be reserved for issuance thereunder. The Board of Directors of
the Company has also approved the Employee Stock Purchase Plan (U.S.), subject
to stockholder approval pursuant to Proposal number 6 herein, the International
Stock Purchase Plan, subject to stockholder approval pursuant to Proposal number
7 herein, and the Outside Directors Stock Incentive Plan, subject to stockholder
approval pursuant to Proposal number 8 herein. If the stockholders approve the
Employee Stock Purchase Plan (U.S.), the International Stock Purchase Plan, and
the Outside Directors Stock Incentive Plan, 185,000, 65,000 and 120,000,
respectively, shares of Common Stock have been reserved for issuance thereunder.
The Board of Directors of the Company recommends the increase in the number
of shares of authorized Common Stock to enable the Company to have: (i)
additional shares of Common Stock available in light of the Company's current
obligations to issue shares; (ii) shares available to reserve for issuance
pursuant the Company stock option plans (including the increased number of
shares available pursuant to the amendment to the 1997 Stock Option Plan
assuming such amendment is approved by the Company stockholders), the Employee
Stock Purchase Plan (U.S.), the International Stock Purchase Plan and the
Outside Directors Stock Incentive Plan; and (iii) additional shares available
for issuance in connection with future acquisitions, public or private
financings involving the sale of Common Stock or securities convertible into
Common Stock, employee benefit plans and other purposes. The Board of Directors
recommends the increase in the number of shares of authorized Preferred Stock to
enable the Company to have: (i) additional shares of Preferred Stock available
in light of the Company's current obligations to issue such shares and (ii)
additional shares available for issuance in connection with future acquisitions,
public or private financings and other purposes. If the Proposed Stock Amendment
is approved, the Board of Directors of the Company will have greater flexibility
to issue additional shares of Common Stock and Preferred Stock without the
expense and delay of a stockholders' meeting, unless stockholder approval is
otherwise is otherwise required.
The Board of Directors of the Company has the authority to authorize the
issuance of additional authorized but unissued shares of Common Stock and
Preferred Stock without stockholder approval unless such approval is otherwise
required by applicable law or Nasdaq Stock Market rules. The issuance of
additional shares of Common Stock and Preferred Stock could, under certain
circumstances, render more difficult or discourage an attempt by a third party
to obtain control of the Company making it potentially less likely that
stockholders of the Company will realize the change of control premium sometimes
realized in connection with the change of control transactions. For example, the
issuance of shares of Common Stock or Preferred Stock in a public or private
sale, merger or similar transaction would increase the
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<PAGE>
number of outstanding shares of the Company, thereby diluting the interest of a
party seeking to acquire control of the Company and increase the cost of such
transaction.
In addition, the Company's Certificate of Incorporation as currently in
effect allows the Company to issue one or more series of Preferred Stock having
such voting rights, conversion features and other characteristics as the Board
of Directors deems appropriate. Consequently, the Company could issue a series
of Preferred Stock that could be converted into Common Stock and have a further
diluted effect on the interest of a party seeking to acquire control of the
Company or that has rights and characteristics that may otherwise defeat or
discourage an attempt by a third party to obtain control of the Company.
Management is not aware of any intent or plan on the part of any person or
entity to gain control of the Company.
Issuances of additional shares of Common Stock and Preferred Stock of the
Company, depending upon the timing and circumstances, could dilute earnings per
share and decrease the book value per share of such shares therefor outstanding
and each stockholders' percentage ownership of the Company may be
proportionately reduced.
If this Proposal 4 (Proposal to Amend the Company's Certificate of
Incorporation to Increase the Number of Authorized Shares of Common Stock and
Preferred Stock) is adopted by the Company's stockholders, it will become
effective on either (i) the date the Merger contemplated by Proposal 3 (Approval
of Merger to Reincorporate the Company under the Laws of the State of Delaware)
is effected if Proposal 3 is approved by the Company's stockholders, or (ii) on
the date a certificate of amendment is filed to amend the Company's Certificate
of Incorporation in New York, if Proposal 3 is not approved by the Company's
stockholders.
VOTES REQUIRED FOR APPROVAL OF THE PROPOSAL
Approval of this proposal will require the affirmative vote of a majority of
all outstanding shares of Common Stock of the Company. As of the record date for
the Annual Meeting, Liraz has the right to vote 4,933,120 shares, representing
57% of the outstanding Common Stock, and has advised the Company that it intends
to vote in favor of this proposal. Proxies solicited by the Board of Directors
will be voted FOR this proposal, unless stockholders specify otherwise.
THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS ACTION OF THE DIRECTORS,
RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION OF
THE COMPANY TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND
PREFERRED STOCK. UNLESS AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S) NAMED IN
EACH PROXY WILL VOTE THE SHARES REPRESENTED THEREBY FOR THE APPROVAL OF THIS
PROPOSAL.
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PROPOSAL 5: AMENDMENT OF THE LEVEL 8 SYSTEMS, INC. 1997
STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES
OF COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER
BACKGROUND
On February 26, 1999, the Board of Directors of the Company approved
(subject to stockholder approval) an amendment to the Level 8 Systems, Inc. 1997
Stock Option Plan, as amended and restated (the "1997 Plan"), which increases
the total number of shares of Common Stock issuable pursuant to the 1997 Plan
from 1,400,000 to 2,600,000. The following description of the 1997 Plan is
intended only as a summary and is qualified in its entirety by reference to the
1997 Plan, which is attached as APPENDIX E to this Proxy Statement.
PURPOSE
The purpose of the 1997 Plan is to enhance the profitability and value of
the Company for the benefit of its stockholders principally by enabling the
Company to offer employees and consultants of the Company and its subsidiaries
and non-employee directors of the Company stock-based incentives in the Company
in order to attract, retain and reward such individuals and strengthen the
mutuality of interest between such individuals and the Company stockholders.
ELIGIBILITY
All employees and consultants of the Company and its subsidiaries and
non-employee directors of the Company designated by the Board of Directors of
the Company to participate in the 1997 Plan are eligible to receive options
under the 1997 Plan.
AVAILABLE SHARES
Options covering a maximum of 2,600,000 shares of Common Stock (assuming the
amendment to the 1997 Plan is approved) may be issued under the 1997 Plan.
Options covering the maximum of 200,000 shares may be granted to any single
individual in any one fiscal year. If an option expires, terminates or is
cancelled, the unissued shares of Common Stock subject to the option will again
be available under the 1997 Plan.
TERMS OF STOCK OPTIONS
Under the 1997 Plan, options granted to employees may be in the form of
incentive stock options or nonqualified stock options. Options granted to
consultants or nonemployee directors may only be nonqualified stock options. The
committee that administers the 1997 Plan (see "Administration" below) (the
"Committee") will determine the number of shares subject to each option, the
term of each option (which may not exceed ten years or, in the case of an
incentive stock option granted to a 10% stockholder, five years), the exercise
price per share of stock subject to each option, the vesting schedule (if any)
and the other material terms of the option. No incentive stock option may have
an exercise price less than 100% of the fair market value of the Common Stock at
the time of the grant (or, in the case of an incentive stock option granted to a
10% stockholder, 110% of the fair market value). The exercise price of a
nonqualified stock option will be determined by the Committee.
The option price upon exercise may be paid in cash or, if so determined by
the Committee, in shares of Common Stock by a reduction in the number of shares
of Common Stock issuable upon the exercise of the option or by such other method
as the Committee determines. Options may be made exercisable in installments,
and the exercisability of options may be accelerated by the Committee. The
Committee may at any time offer to buy an option previously granted on such
terms and conditions as the Committee establishes. At the discretion of the
Committee, options may provide for "reloads" (I.E., a new option is
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granted for the same number of shares as the number used by the holder to pay
the option price upon exercise).
Subject to limited exceptions, options are forfeited upon termination of
employment or service. Options are not assignable (except by will or the laws of
descent and distribution).
Options may not be granted after the tenth anniversary of the 1997 Plan's
adoption, but options granted prior to that date may be extended beyond that
date.
CHANGE IN CONTROL
Unless otherwise determined by the Committee at the time of the grant, upon
a change in control (as defined in the 1997 Plan), all of the options
automatically will become fully exercisable. However unless otherwise determined
by the Committee at the time of the grant, no acceleration or exercisability of
an option will occur, if the Committee determines prior to a change in control
that the option will be honored or assumed or new rights substituted immediately
following the change in control; provided that, the new rights or alternative
option is based on stock which is or will be traded on an established securities
market, contains at least substantially equivalent terms and conditions as the
option being assumed, and has substantially equal earnings value.
CERTAIN REORGANIZATIONS
The 1997 Plan provides for appropriate adjustments of the number and kind of
shares to be issued upon exercise of an option and of the exercise price to
reflect changes in the capital structure of the corporation, stock splits,
recapitalizations, mergers and reorganizations.
AMENDMENT OR TERMINATION OF THE 1997 PLAN
The 1997 Plan may be amended by the Board of Directors of the Company,
except that stockholder approval of amendments will be required among other
things (a) to the extent stockholder approval is required by 16b-3 under the
Exchange Act and (b) to (i) increase the maximum number of shares subject to
options granted in a fiscal year, (ii) change the classification of employees
eligible to receive awards, (iii) extend the maximum option period under the
1997 Plan or (iv) increase the number of shares that may be issued under the
1997 Plan. The 1997 Plan is effective for 10 years from the date the 1997 Plan
was adopted during which time options may be granted.
ADMINISTRATION
The 1997 Plan will be administered by a committee of the Board of Directors
of the Company (the "Committee"), which will include two or more "non-employee"
and "outside" directors. However, with respect to option grants to non-employee
directors and any action under the 1997 Plan relating to options held by
non-employee directors, the Committee will consist of the entire Board of
Directors. The Committee will determine the individuals who will receive options
and the terms of options, which will be reflected in written agreements with the
holders. Decisions by the Board of Directors or the Committee with respect to
the 1997 Plan are final and binding.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
As of December 31, 1998, stock options had been granted to the persons and
groups shown in the table below. The Committee has not yet made any
determination as to which eligible participants will be granted options under
the 1997 Plan in the future. Consequently, it is not presently determinable with
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<PAGE>
respect to the persons and groups shown in the table below, the benefits and or
amounts that will be received in the future by such persons or groups pursuant
to the 1997 Stock Plan.
<TABLE>
<CAPTION>
LEVEL 8 SYSTEMS, INC.
1997 STOCK OPTION
PLAN
NAME AND POSITION NUMBER OF OPTIONS
- ------------------------------------------------------------------------------------------- ---------------------
<S> <C>
EXECUTIVE OFFICERS:
Arie Kilman, Chief Executive Officer and Chairman of the Board............................. 0
Samuel Somech, President................................................................... 50,000
Gonen Ziv, Vice President Technical Services............................................... 30,000
Joseph Schwartz, Vice President, Group Product Manager..................................... 150,000
Robert Lord, Executive Vice President...................................................... 112,000
All Executive Officers as a Group.......................................................... 542,000
All Non-Executive Directors as a Group..................................................... 44,000
All Persons Receiving 5% of Options........................................................ 0
All Non-Executive Officer Employees as a Group............................................. 1,299,993
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
INCENTIVE STOCK OPTIONS. An optionee will not recognize income upon the
grant or exercise of an incentive stock option. Instead, the optionee will be
taxed at the time he or she sells the stock purchased pursuant to the option.
The optionee will be taxed on the difference between the price he or she paid
for the stock and the amount for which he or she sells the stock. If the
optionee does not sell the stock within two years from the date of grant of the
option and one year from the date the stock is transferred to the optionee, the
gain will be a long-term capital gain, and the Company will not be entitled to a
deduction. If the optionee sells the stock at a gain prior to that time, the
difference between the amount the optionee paid for the stock and the lesser of
the fair market value on the date of exercise or the amount for which the stock
is sold will be taxed as ordinary income and the Company will be entitled to a
corresponding deduction; if the stock is sold for an amount in excess of the
fair market value on the date of exercise, the excess amount will be taxed as
capital gain. If the optionee sells the stock for less than the amount he or she
paid for it prior to the expiration of the one- or two-year periods indicated,
no amount will be taxed as ordinary income and the loss will be taxed as a
capital loss. Exercise of an incentive stock option may subject an optionee to,
or increase an optionee's liability for, the alternative minimum tax.
NON-QUALIFIED STOCK OPTIONS. An optionee will not recognize income upon the
grant of a non-qualified stock option under the 1997 Plan or at any time prior
to the exercise of the option or a portion thereof. Generally, at the time the
optionee exercises a non-qualified option or portion thereof, the optionee will
recognize compensation taxable as ordinary income in an amount equal to the
excess of the fair market value of the underlying stock on the date the option
is exercised over the option price of the stock and the Company will then be
entitled to a corresponding deduction. At that time, the Company will be subject
to income tax withholding requirements and will have the right to require an
optionee who is or was an employee of the Company to remit in cash to the
Company an amount sufficient to satisfy any federal, state and local tax
requirements prior to the delivery of any certificate or certificates for such
shares of stock.
A subsequent taxable disposition of the stock acquired upon exercise of an
option and held as a capital asset will result in a capital gain or loss
measured by the difference between the fair market value of the stock on the
date of the option exercise and the amount realized on later disposition.
THE FOREGOING IS A SUMMARY DISCUSSION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO OPTIONEES UNDER THE CODE AND SHOULD NOT BE CONSTRUED AS LEGAL,
TAX OR INVESTMENT ADVICE. ALL 1997 PLAN PARTICIPANTS SHOULD CONSULT THEIR OWN
TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES APPLICABLE TO THEM, INCLUDING
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
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STOCKHOLDER APPROVAL
The Board of Directors seeks stockholder approval because such approval is
required under the Internal Revenue Code as a condition to incentive stock
option treatment and will maximize the potential for deductions associated with
any non-qualified options granted under the 1997 Plan.
Approval of the amendment to increase shares reserved under the 1997 Plan
requires the affirmative vote of the holders of at least a majority of the
outstanding shares of Common Stock present, or represented and entitled to vote
at the Annual Meeting.
VOTES REQUIRED FOR APPROVAL OF THE PROPOSAL
Approval of this proposal will require the affirmative vote of a majority of
the votes cast. As of the record date for the Annual Meeting, Liraz has the
right to vote 4,933,120 shares, representing 57% of the outstanding Common
Stock, and has advised the Company that it intends to vote in favor of this
proposal. Proxies solicited by the Board of Directors will be voted FOR this
proposal, unless stockholders specify otherwise.
THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS ACTION OF THE DIRECTORS,
RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT TO THE 1997 PLAN.
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PROPOSAL 6: APPROVAL OF THE ADOPTION OF THE
LEVEL 8 SYSTEMS, INC. EMPLOYEE STOCK PURCHASE PLAN (U.S.)
BACKGROUND
The Board of Directors of the Company has authorized the issuance of up to
185,000 shares of Common Stock of the Company under the Level 8 Systems, Inc.
Employee Stock Purchase Plan (U.S.) (the "U.S. Stock Purchase Plan"). The U.S.
Stock Purchase Plan is intended to qualify as an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. The following
summary of the U.S. Stock Purchase Plan is qualified in its entirety by
reference to the U.S. Stock Purchase Plan, which is attached as APPENDIX F to
this Proxy Statement.
PURPOSE
The purpose of the U.S. Stock Purchase Plan is to encourage the employees of
the Company to acquire a proprietary interest, or increase their existing
proprietary interest, in the Company.
ELIGIBILITY
Generally, all U.S. based employees of the Company are eligible to
participate in the U.S. Stock Purchase Plan, except for certain employees who
are customarily employed by the Company for 20 hours per week or less or for
five months or less or who are deemed to own more than 5% of the Common Stock of
the Company or an affiliate. Approximately 243 employees currently are eligible
to participate in the U.S. Stock Purchase Plan.
AVAILABLE SHARES
The Company has reserved 185,000 shares for issuance under the U.S. Stock
Purchase Plan.
TERMS OF THE U.S. STOCK PURCHASE PLAN
Eligible employees who elect to participate in the U.S. Stock Purchase Plan
have payroll deductions made during three-month offering periods. The amount of
payroll deductions may not exceed 10% of the employee's base compensation or be
less than 1% of the employee's base compensation for any payroll period. At the
end of each three-month offering period, the accumulated payroll deductions are
used to purchase stock at a price that is equal to 85% of the lesser of the fair
market value of the Common Stock on the first business day of the offering
period or the fair market value on the last business day of the offering period.
The closing price of the Common Stock on the Nasdaq Stock Market on April ,
1999, was $ per share.
Under the terms of the U.S. Stock Purchase Plan, no employee may be granted
an option that permits that employee to purchase stock under the U.S. Stock
Purchase Plan and any other Section 423 plans of the Company or an affiliate at
a rate that exceeds $25,000 of the fair market value of stock (determined at the
time the option is granted) for each calendar year in which the option is
outstanding at any time. Under the U.S. Stock Purchase Plan, the amount of
options granted to an employee is not readily determinable because the number of
such options is directly related to the level of payroll deductions elected by
the employee. Consequently, because the number of options is not readily
determinable, a table detailing future option grants under the U.S. Stock
Purchase Plan has not been included herein.
CERTAIN REORGANIZATIONS
The U.S. Stock Purchase Plan provides for an appropriate adjustment by the
Committee of the number and kind of shares available for options, the number and
kind of shares for which outstanding options shall be exercisable and for
adjustment of the exercise price to reflect a change in the Company's
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capital structure due to a recapitalization, reclassification, stock split,
combination of shares or distribution of stock dividends.
The Committee may, in its discretion, substitute, terminate, adjust or
accelerate options in the case of a reorganization of the Company or a tender
offer for shares of the Company's Common Stock.
AMENDMENT OR TERMINATION
The Board of Directors has the authority to amend or terminate the U.S.
Stock Purchase Plan without shareholder approval. However, the Board of
Directors may condition any amendment or termination on shareholder approval if
it determines that shareholder approval is necessary under tax, securities or
other laws. The Board's action may not adversely affect the rights of an
employer with respect to Common Stock previously acquired under the U.S. Stock
Purchase Plan.
FEDERAL TAX CONSEQUENCES
If a participant does not sell or otherwise dispose of shares of Common
Stock purchased under the U.S. Stock Purchase Plan until at least two years
after the day on which such shares were purchased, the participant will not
realize taxable income upon the granting of the option to purchase shares or
upon the actual purchase of the shares. Upon a disposition after this two-year
period, or upon the participant's death at any time (even within the two-year
period) while owning the shares, the gain or loss on the shares will be treated
as capital gain or loss, provided that the participant will realize ordinary
income equal to the lesser of (i) 15% of the fair market value of the shares on
the date the shares were granted, or (ii) the excess of the fair market value of
the shares at the time the shares were sold (or at the time of the participant's
death) over the purchase price of the shares. The Company will not be entitled
to a deduction for federal income tax purposes with respect to the purchase of
the shares or the subsequent disposition of the shares.
If a participant sells or otherwise disposes of shares prior to the
expiration of the two-year period described above, the participant will realize
ordinary income in the year of the sale in an amount equal to the excess of the
fair market value at the time the shares were purchased over the purchase price.
This amount generally will be deductible by the Company in the year in which the
disposition occurs. The excess, if any, of the amount realized by the
participant upon the sale of the shares over the fair market value of the shares
on the date of purchase will be treated as a capital gain. If the amount
realized is less than the fair market value of the shares on the date of
purchase, the difference will be treated as a capital loss.
THE FOREGOING IS A SUMMARY DISCUSSION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO PARTICIPANTS UNDER THE CODE AND SHOULD NOT BE CONSTRUED AS
LEGAL, TAX OR INVESTMENT ADVICE. ALL U.S. STOCK PURCHASE PLAN PARTICIPANTS
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES
APPLICABLE TO THEM, INCLUDING FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
It is not possible to determine the number of shares or the value of shares
that may be purchased by any person under the U.S. Stock Purchase Plan because
the decision to participate in the plan is solely the employee's, and the prices
at which Common Stock will be purchased will be determined in the future.
STOCKHOLDER APPROVAL
The Board of Directors seeks stockholder approval because such approval is
required under the Internal Revenue Code as a condition to favorable tax
treatment for options granted pursuant to the U.S. Stock Purchase Plan.
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Approval of the U.S. Stock Purchase Plan requires the affirmative vote of
the holders of at least a majority of the outstanding shares of Common Stock
present, or represented and entitled to vote at the Annual Meeting.
VOTES REQUIRED FOR APPROVAL OF THE PROPOSAL
Approval of this proposal will require the affirmative vote of a majority of
the votes cast. As of the record date for the Annual Meeting, Liraz has the
right to vote 4,933,120 shares, representing 57% of the outstanding Common
Stock, and has advised the Company that it intends to vote in favor of this
proposal. Proxies solicited by the Board of Directors will be voted FOR this
proposal, unless stockholders specify otherwise.
THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS ACTION OF THE DIRECTORS,
RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE U.S. STOCK PURCHASE PLAN.
UNLESS AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S) NAMED IN EACH PROXY WILL
VOTE THE SHARES REPRESENTED THEREBY FOR THE APPROVAL OF THIS PROPOSAL.
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PROPOSAL 7: APPROVAL OF THE ADOPTION OF THE LEVEL 8 SYSTEMS, INC.
INTERNATIONAL STOCK PURCHASE PLAN
BACKGROUND
The Board of Directors of the Company has authorized the issuance of up to
65,000 shares of Common Stock of the Company under the Level 8 Systems, Inc.
International Stock Purchase Plan (the "International Stock Purchase Plan"). The
following summary of the International Stock Purchase Plan is qualified in its
entirety by reference to the International Stock Purchase Plan, which is
attached as APPENDIX G to this Proxy Statement.
PURPOSE
The purpose of the International Stock Purchase Plan is to encourage the
employees of the Company to acquire a proprietary interest, or increase their
existing proprietary interest, in the Company.
ELIGIBILITY
Generally, all U.S. based employees of the Company are eligible to
participate in the International Stock Purchase Plan, except for certain
employees who are customarily employed by the Company for 20 hours per week or
less or for five months or less or who are deemed to own more than 5% of the
Common Stock of the Company or an affiliate. Approximately 105 employees
currently are eligible to participate in the International Stock Purchase Plan.
AVAILABLE SHARES
The Company has reserved 65,000 shares for issuance under the International
Stock Purchase Plan.
TERMS OF THE INTERNATIONAL STOCK PURCHASE PLAN
Eligible employees who elect to participate in the International Stock
Purchase Plan have payroll deductions made during three-month offering periods.
The amount of payroll deductions may not exceed 10% of the employee's base
compensation or be less than 1% of the employee's base compensation for any
payroll period. At the end of each three-month offering period, the accumulated
payroll deductions are used to purchase stock at a price that is equal to 85% of
the lesser of the fair market value of the Common Stock on the first business
day of the offering period or the fair market value on the last business day of
the offering period. The closing price of the Common Stock on the Nasdaq Stock
Market on April , 1999, was $ per share.
Under the terms of the International Stock Purchase Plan, no employee may be
granted an option that permits that employee to purchase stock under the
International Stock Purchase Plan and any other Section 423 plans of the Company
or an affiliate at a rate that exceeds $25,000 of the fair market value of stock
(determined at the time the option is granted) for each calendar year in which
the option is outstanding at any time.
CERTAIN REORGANIZATIONS
The International Stock Purchase Plan provides for an appropriate adjustment
by the Committee of the number and kind of shares available for options, the
number and kind of shares for which outstanding options shall be exercisable and
for adjustment of the exercise price to reflect a change in the Company's
capital structure due to a recapitalization, reclassification, stock split,
combination of shares or distribution of stock dividends.
The Committee may, in its discretion, substitute, terminate, adjust or
accelerate options in the case of a reorganization of the Company or a tender
offer for shares of the Company's Common Stock.
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AMENDMENT OR TERMINATION
The Board of Directors has the authority to amend or terminate the
International Stock Purchase Plan without shareholder approval. However, the
Board of Directors may condition any amendment or termination on shareholder
approval if it determines that shareholder approval is necessary under tax,
securities or other laws. The Board's action may not adversely affect the rights
of an employer with respect to Common Stock previously acquired under the
International Stock Purchase Plan.
FEDERAL TAX CONSIDERATIONS
Participants under the International Stock Purchase Plan who are not U.S.
citizens or residents would not generally be subject to U.S. tax laws as a
result of participation in the International Stock Purchase Plan. Participants
in the International Stock Purchase Plan who are U.S. citizens are subject to
U.S. tax laws on their worldwide income, thus, the following explanation of the
U.S. federal tax consequences may be applicable. However, each participant
should consult with his or her own tax advisor to determine the specific tax
consequences of participation in the International Stock Purchase Plan.
U.S. FEDERAL TAX CONSEQUENCES
If a participant does not sell or otherwise dispose of shares of Common
Stock purchased under the International Stock Purchase Plan until at least two
years after the day on which such shares were purchased, the participant will
not realize taxable income upon the granting of the option to purchase shares or
upon the actual purchase of the shares. Upon a disposition after this two-year
period, or upon the participant's death at any time (even within the two-year
period) while owning the shares, the gain or loss on the shares will be treated
as capital gain or loss, provided that the participant will realize ordinary
income equal to the lesser of (i) 15% of the fair market value of the shares on
the date the shares were granted, or (ii) the excess of the fair market value of
the shares at the time the shares were sold (or at the time of the participant's
death) over the purchase price of the shares. The Company will not be entitled
to a deduction for federal income tax purposes with respect to the purchase of
the shares or the subsequent disposition of the shares.
If a participant sells or otherwise disposes of shares prior to the
expiration of the two-year period described above, the participant will realize
ordinary income in the year of the sale in an amount equal to the excess of the
fair market value at the time the shares were purchased over the purchase price.
This amount generally will be deductible by the Company in the year in which the
disposition occurs. The excess, if any, of the amount realized by the
participant upon the sale of the shares over the fair market value of the shares
on the date of purchase will be treated as a capital gain. If the amount
realized is less than the fair market value of the shares on the date of
purchase, the difference will be treated as a capital loss.
THE FOREGOING IS A SUMMARY discussion OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO PARTICIPANTS UNDER THE CODE AND SHOULD NOT BE CONSTRUED AS
LEGAL, TAX OR INVESTMENT ADVICE. ALL INTERNATIONAL STOCK PURCHASE PLAN
PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES APPLICABLE TO THEM, INCLUDING FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
It is not possible to determine the number of shares or the value of shares
that may be purchased by any person under the International Stock Purchase Plan
because the decision to participate in the plan is solely the employee's, and
the prices at which Common Stock will be purchased will be determined in the
future.
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STOCKHOLDER APPROVAL
The Board of Directors seeks stockholder approval because such approval is
required under the BCL.
Approval of the International Stock Purchase Plan requires the affirmative
vote of the holders of at least a majority of the outstanding shares of Common
Stock present, or represented and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE INTERNATIONAL STOCK PURCHASE PLAN.
VOTES REQUIRED FOR APPROVAL OF THE PROPOSAL
Approval of this proposal will require the affirmative vote of a majority of
the votes cast. As of the record date for the Annual Meeting, Liraz has the
right to vote 4,933,120 shares, representing 57% of the outstanding Common
Stock, and has advised the Company that it intends to vote in favor of this
proposal. Proxies solicited by the Board of Directors will be voted FOR this
proposal, unless stockholders specify otherwise.
THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS ACTION OF THE DIRECTORS,
RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE INTERNATIONAL STOCK PURCHASE
PLAN. UNLESS AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S) NAMED IN EACH PROXY
WILL VOTE THE SHARES REPRESENTED THEREBY FOR THE APPROVAL OF THIS PROPOSAL.
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PROPOSAL 8: APPROVAL OF THE ADOPTION OF THE
LEVEL 8 SYSTEMS, INC. OUTSIDE DIRECTOR STOCK INCENTIVE PLAN
BACKGROUND
The Board of Directors of the Company has adopted the Level 8 Systems, Inc.
Outside Director Stock Incentive Plan (the "Outside Director Plan") and
authorized the issuance of up to 120,000 shares of Common Stock of the Company.
The following summary of the Outside Director Plan is qualified in its entirety
by reference to the Outside Director Plan, which is attached as APPENDIX H TO
THIS PROXY STATEMENT.
PURPOSE
The purpose of the Outside Director Plan is to allow eligible directors to
receive Common Stock in lieu of cash compensation as payment of directors' fees
and to facilitate the continued growth and financial success of the Company. The
Outside Director Plan is also intended to promote personal interest in the
welfare of the Company and provide an incentive to those individuals who are
primarily responsible for the regular operations of and for shaping and carrying
out the-long term plans of the Company.
ELIGIBILITY
All non-employee directors may participate under the Outside Director Plan.
AVAILABLE SHARES
The Company has reserved 120,000 shares for issuance under the Outside
Director Plan.
TERMS OF STOCK AWARDS
The Outside Director Plan provides for eligible directors, subject to
approval of the Board of Directors, to receive partial payment of director fees
in shares of Company Common Stock. The stock award is evidenced by an agreement
describing the material terms of the award.
The number of shares each qualified director will receive is based on 100%
of the fair market value of the Company's Common Stock on the date upon which
payment of director fees would have otherwise been paid.
TERMS OF OPTIONS
The Outside Director Plan provides for the grant of non-qualified stock
options. Each option is evidenced by an agreement describing the material terms
of the option.
The Outside Director Plan provides for a grant of an initial option to
purchase 12,000 shares of the Company's Common Stock to the existing eligible
directors as of the effective date of the Outside Director Plan and to any
future eligible directors upon their election or appointment to the Board of
Directors. In addition to the initial grant of options, the Outside Director
Plan permits the Board of Directors to make grants, in its discretion, to
eligible directors in such amounts and with such terms as the Board of Directors
shall determine.
The exercise price of a non-qualified stock option granted pursuant to the
Outside Director Plan shall be equal to the fair market value of the Common
Stock on the date that the option is granted. The exercise price shall be paid
in such form as the Board of Directors shall determine. Options granted under
the Outside Director Plan will become vested as to one-third of the number of
shares subject to the option on each anniversary of the option grant date
provided that the eligible director continues to be a member of the Board of
Directors. In the event of a change in control of the Company, any outstanding
options will vest immediately.
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Ordinarily, an option will expire ten years from the grant date. If earlier,
an option will terminate three months after the date upon which an eligible
director ceases to serve on the Board of Directors for any reason other than
death or disability. If, however, such eligible director ceases to be a director
due to death or disability, one year will be substituted for the three-month
period.
Options granted under the Outside Director Plan generally are not
transferable or assignable during the holder's lifetime except under the laws of
descent and distribution, by will or as gifts to family members.
CERTAIN REORGANIZATIONS
The Outside Director Plan provides for an appropriate adjustment, as
determined by the Board of Directors, in the number and kind of shares of Common
Stock available under the Outside Director Plan, the number and kind of shares
to be subsequently granted to eligible directors and the number and kind of
shares of Common Stock issuable under the Outside Director Plan by reason of a
change in par value, split-up, stock split, reverse stock split,
reclassification, merger, consolidation, distribution of stock dividends or any
other transaction for which the Board of Directors determines an adjustment is
appropriate.
AMENDMENT AND TERMINATION OF THE OUTSIDE DIRECTOR PLAN
The Board of Directors has the authority to amend or terminate the Outside
Director Plan without shareholder approval. However, the Board of Directors may
condition any amendment or termination on shareholder approval if it determines
that shareholder approval is necessary under tax, securities or other laws. The
Board's action may not adversely affect the rights of a director with respect to
Common Stock previously acquired under the Outside Director Plan. The Outside
Director Plan shall be effective for 10 years during which time options may be
granted.
ADMINISTRATION
The Outside Director Plan is administered by the Board of Directors. The
Board of Directors has the authority to take action, in its sole discretion, to
facilitate the necessary and proper administration of the Outside Director Plan.
The Board's decisions relating to the administration of the Outside Director
Plan will be final and binding.
The Outside Director Plan provides for indemnification of the Board of
Directors by the Company for liabilities, including attorneys' fees, settlement
amounts and judgments, incurred as a result of the defense of any legal action
arising out of any decisions, actions or failures to act by the Board members in
connection with the Outside Director Plan. However, Board members will not be
eligible for indemnification if they are negligent or engaged in any misconduct
in the performance of their duties.
BENEFITS UNDER THE OUTSIDE DIRECTOR PLAN
The Board of Directors has not yet made any determination as to which
eligible participants will be granted options under the Outside Director Plan.
FEDERAL INCOME TAX CONSEQUENCES
Eligible directors who elect to receive a stock award in lieu of cash
compensation will recognize compensation taxable as ordinary income in an amount
equal to the fair market value of the Common Stock subject to the stock award,
less any amount paid for such stock at the time the stock is granted, and the
Company will be entitled to a corresponding deduction.
An director will not recognize income upon the grant of a non-qualified
stock option under the Outside Director Plan or at any time prior to the
exercise of the option or a portion thereof. Generally, at
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the time the director exercises a non-qualified option or portion thereof, the
director will recognize compensation taxable as ordinary income in an amount
equal to the excess of the fair market value of the underlying stock on the date
the option is exercised over the option price of the stock and the Company will
then be entitled to a corresponding deduction.
A subsequent taxable disposition of the stock acquired upon exercise of an
option and held as a capital asset will result in a capital gain or loss
measured by the difference between the fair market value of the stock on the
date of the option exercise and the amount realized on later disposition.
THE FOREGOING IS A SUMMARY DISCUSSION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES TO OPTIONEES UNDER THE CODE AND SHOULD NOT BE CONSTRUED AS LEGAL,
TAX OR INVESTMENT ADVICE. ALL OUTSIDE DIRECTOR PLAN PARTICIPANTS SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES APPLICABLE TO THEM,
INCLUDING FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
VOTES REQUIRED FOR APPROVAL OF THE PROPOSAL
Approval of this proposal will require the affirmative vote of a majority of
the votes cast. As of the record date for the Annual Meeting, has the right to
vote 4,933,120 shares, representing 57% of the outstanding Common Stock, and has
advised the Company that it intends to vote in favor of this proposal. Proxies
solicited by the Board of Directors will be voted FOR this proposal, unless
stockholders specify otherwise.
THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS ACTION OF THE DIRECTORS,
RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE OUTSIDE DIRECTOR PLAN. UNLESS
AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S) NAMED IN EACH PROXY WILL VOTE THE
SHARES REPRESENTED THEREBY FOR THE APPROVAL OF THIS PROPOSAL.
NEW PLAN BENEFITS
OUTSIDE DIRECTORS STOCK INCENTIVE PLAN
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE $ NUMBER OF STOCK AWARDS
- -------------------------------------------------------------------------- --------------------- -----------------------
<S> <C> <C>
Non-Executive Director Group.............................................. 12,000
</TABLE>
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PROPOSAL 9: RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Unless otherwise directed by the stockholders, proxies will be voted for
ratification of the appointment by the Board of Directors, upon the
recommendation of the Audit Committee, of PricewaterhouseCoopers LLP
("PricewaterhouseCoopers") as the Company's independent accountants for fiscal
1999. PricewaterhouseCoopers was appointed as the Company's independent
accountants for fiscal 1998 on January 21, 1999. From January 28, 1998 until
December 15, 1998, Grant Thornton LLP ("Grant Thornton") had been designated as
the Company's independent accountants and had audited the Company's Consolidated
Financial Statements for fiscal 1997. Prior thereto, Lurie, Besikof, Lapidus &
Co., LLP ("Lurie Besikof") had been the Company's auditors. If the appointment
of PricewaterhouseCoopers is not ratified by the stockholders, the Audit
Committee will reconsider its recommendation. The Company has been informed that
no member of PricewaterhouseCoopers has any direct or material indirect
financial interest in the Company or any of its subsidiaries. A representative
of the firm will be present at the Annual Meeting to answer appropriate
questions and to make a statement if he or she desires.
On December 15, 1998, the Company dismissed Grant Thornton as its
independent auditors. The decision to change independent auditors was
recommended by the Audit Committee of the Board of Directors and approved by the
Board of Directors. The decision to dismiss Grant Thornton was made in
conjunction with the recently announced acquisition of Seer by the Company.
Given the size of the Company following the acquisition of Seer, the Company
believed that it required a larger firm with greater resources. Grant Thornton
served as independent auditors of the Company since January 1998, succeeding
Lurie Besikof who served as independent auditors to the Company (and the
Company's predecessor entities) for the ten years preceding its January 28, 1998
replacement by Grant Thornton.
During the most recent fiscal year and any subsequent interim period, none
of Grant Thornton's reports on the Company's financial statements contained an
adverse opinion or a disclaimer of opinion or was qualified or modified as to
uncertainty, audit scope or accounting principles.
Excerpts from the Company's Form 8-K filed January 22, 1999 describing
certain reportable events under Item 304 of Regulation S-K are attached hereto
as APPENDIX I and incorporated herein by reference.
On January 28, 1998, the Company replaced Lurie Besikof as its independent
auditors with Grant Thornton. The decision to change independent auditors was
recommended by the Audit Committee of the Board of Directors and approved by the
Board of Directors. The decision was based on advice the Company received from
the investment banking firm that was providing financial guidance to the Company
at the time.
Lurie Besikof served as independent auditors to the Company (and the
Company's predecessor entities) for the ten years preceding its January 28, 1998
replacement. During these ten years, there have been no disagreements with Lurie
Besikof regarding any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
VOTES REQUIRED FOR APPROVAL OF THE PROPOSAL
Approval of this proposal will require the affirmative vote of a majority of
the votes cast. As of the record date for the Annual Meeting, Liraz has the
right to vote 4,933,120 shares, representing 57% of the outstanding Common
Stock, and has advised the Company that it intends to vote in favor of this
proposal. Proxies solicited by the Board of Directors will be voted FOR this
proposal, unless stockholders specify otherwise.
THE BOARD OF DIRECTORS OF THE COMPANY, BY UNANIMOUS ACTION OF THE DIRECTORS,
RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR FISCAL 1999.
UNLESS AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S) NAMED IN EACH PROXY WILL
VOTE THE SHARES REPRESENTED THEREBY FOR THE APPROVAL OF THIS PROPOSAL.
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STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Stockholders wishing to submit a proposal for action at the Company's 2000
Annual Meeting of Stockholders and desiring the proposal to be considered for
inclusion in the Company's proxy materials relating thereto must provide a
written copy of the proposal to the Secretary of the Company at its principal
executive offices not later than , 1999 and must otherwise comply
with the rules of the Securities and Exchange Commission relating to stockholder
proposals. The Company has the right to request documentary support (as provided
in Rule 14a-8 promulgated by the Commission pursuant to the Exchange Act) of the
proponent's ownership claim within 14 calendar days after receipt of the
proposal, and the proponent shall furnish appropriate documentation within 21
days after receiving such request. Stockholders who submit proposals must, in
all other respects, comply with Rule 14a-8 under the Exchange Act. If a
proponent fails to notify the Company at least forty-five (45) days prior to the
month and day of the prior year's proxy statement, then the management proxies
would be allowed their discretionary voting authority when the proposal is
presented at the Annual Meeting, without any discussion of the matter in the
proxy statement.
ANNUAL REPORT
The Company's 1998 Annual Report to Stockholders is being mailed to the
Company's stockholders with this Proxy Statement. Such materials are not part of
the proxy soliciting materials.
OTHER MATTERS
Management is not aware of any other matters to be considered at the Annual
Meeting other than as set forth in this Proxy Statement. However, if any other
matters properly come before the Annual Meeting, it is the intention of the
persons named in the accompanying form of proxy in their discretion to vote the
proxies in accordance with their judgment of such matters.
By Order of the Board of Directors,
Arie Kilman
Chairman of the Board
THE COMPANY WILL UPON THE WRITTEN REQUEST OF ANY STOCKHOLDER, FURNISH WITHOUT
CHARGE A COPY OF ITS ANNUAL REPORT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998. REQUESTS FOR
COPIES SHOULD BE DIRECTED TO INVESTOR RELATIONS, LEVEL 8 SYSTEMS, INC., 8000
REGENCY PARKWAY, CARY, NORTH CAROLINA 27511
April , 1999
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER adopted on , 1999, by Level 8
Systems, Inc., a business corporation of the State of New York ("Level 8 NY"),
and by its Board of Directors on said date, and adopted on , 1999 by Level
8 Systems, Inc., a business corporation incorporated under the laws of the State
of Delaware ("Level 8 DE"), and by its Board of Directors on said date.
1. The participating corporations, Level 8 NY and Level 8 DE, shall pursuant
to the provisions of the Business Corporation Law of the State of New York, and
the provisions of the laws of the State of Delaware, be merged with and into a
single corporation, Level 8 DE, which shall be the surviving corporation upon
the effective date of the merger (sometimes hereinafter referred to as the
"Surviving Corporation"), and which shall continue to exist as said Surviving
Corporation under its present name pursuant to the provisions of the laws of the
jurisdiction of its incorporation. The separate existence of Level 8 NY, which
is sometimes hereinafter referred to as the "Terminating Corporation", shall
cease upon the effective date of the merger in accordance with the provisions of
the Business Corporation Law of the State of New York.
2. The number of outstanding shares of the Terminating Corporation is
shares, all of which are of one class and are common shares, and all of which
are entitled to vote.
3. The number of outstanding shares of the Surviving Corporation is 100
shares, all of which are of one class and are common shares, and all of which
are entitled to vote.
4. The Certificate of Incorporation and Bylaws of the Surviving Corporation
upon the effective date of the merger will be the Certificate of Incorporation
and Bylaws of the Surviving Corporation and will continue in full force and
effect until changed, altered or amended as therein provided and in the manner
prescribed by the provisions of the laws of the jurisdiction of its
incorporation.
5. The directors and officers in office of the Terminating Corporation upon
the effective date of the merger shall be the members of the first Board of
Directors and the first officers of the Surviving Corporation, all of whom shall
hold their directorships and offices until the election and qualification of
their respective successors or until their tenure is otherwise terminated in
accordance with the by-laws of the Surviving Corporation.
6. Each issued share of the Terminating Corporation shall, upon the
effective date of the merger, be converted into one share of the Surviving
Corporation. Each issued share of the Surviving Corporation shall, upon the
effective date of the merger, be cancelled and retired without any action on the
part of the holder thereof, and no consideration shall be paid or delivered in
exchange therefor.
7. The Plan of Merger herein made and adopted shall be submitted to the
shareholders of the Terminating Corporation for their adoption or rejection in
the manner prescribed by the provisions of the Business Corporation Law of the
State of New York, and the merger of the Terminating Corporation with and into
the Surviving Corporation shall be authorized in the manner prescribed by the
laws of the jurisdiction of incorporation of the Surviving Corporation.
8. In the event that the Plan of Merger shall have been adopted by the
shareholders entitled to vote of the Terminating Corporation in the manner
prescribed by the provisions of the Business Corporation Law of the State of New
York, and in the event that the merger of the Terminating Corporation with and
into the Surviving Corporation shall have been duly authorized in compliance
with the laws of the jurisdiction of incorporation of the Surviving Corporation,
the Terminating Corporation and the Surviving Corporation hereby stipulate that
they will cause to be executed and filed and/or recorded any document or
documents prescribed by the laws of the State of New York and of the State of
Delaware, and that they will cause to be performed all necessary acts therein
and elsewhere to effectuate the merger.
9. The Board of Directors and the proper officers of the Terminating
Corporation and of the Surviving Corporation, respectively, are hereby
authorized, empowered, and directed to do any and all acts and things, and to
make, execute, deliver, file, and/or record any and all instruments, papers, and
documents which shall be or become necessary, proper, or convenient to carry out
or put into effect any of the provisions of this Plan of Merger or of the merger
herein provided for.
<PAGE>
APPENDIX B
CERTIFICATE OF INCORPORATION
OF
LEVEL 8 SYSTEMS, INC.
1. The name of the corporation is Level 8 Systems, Inc. (the "Corporation").
2. The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington 19805, County of New Castle. The name of its registered
agent at such address is Corporation Service Company.
3. The name and mailing address of the sole incorporator are as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Dennis McKinnie Level 8 Systems, Inc.
8000 Regency Parkway
Cary, North Carolina 27511
</TABLE>
4. The name and mailing address of the initial director of the corporation
who shall serve until the first annual meeting of stockholders or until his
successor(s) are elected and qualified, is as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Arie Kilman Level 8 Systems, Inc.
1250 Broadway, 35(th) Floor
New York, New York 1001
</TABLE>
5. The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
6. The total number of shares of capital stock which the Corporation is
authorized to issue is of fifty million (50,000,000), shares, consisting of:
(i) forty million (40,000,000) shares of common stock, par value $.001
per share ("Common Stock"); and
(ii) ten million (10,000,000) shares of preferred stock, par value $.001
per share ("Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. PREFERRED STOCK.
The Board of Directors is authorized to provide, without stockholder
action, for the issuance of shares of Preferred Stock, subject to
limitations prescribed by law and by this Certificate of Incorporation,
without stockholder action in one or more series. The description of shares
of each series of Preferred Stock, including the number of shares to be
included in each such series, any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption shall be as set forth in resolutions
adopted by the Board of Directors and Articles of Amendment to this
Certificate of Incorporation shall be filed with the Delaware Secretary of
State as required by law to be filed with respect to the issuance of such
Preferred Stock prior to such issuance. Unless otherwise required by law,
this Certificate of Incorporation or agreement, no Shareholder action is
required for the authorization and issuance of such shares of Preferred
Stock.
<PAGE>
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, setting or changing
the following:
(a) the number of shares constituting each series and the distinctive
designation of that series;
(b) the annual dividend rate, if any, on shares of such series, the
times of payment, if dividends are to be cumulative and, if so, the date
from which dividends shall be accumulated, and the relative rights of
priority with respect to dividends;
(c) whether the shares of such series shall be redeemable and, if so,
the redemption price and the terms and conditions of such redemption;
(d) the obligation, if any, of the Corporation to redeem shares of
such series pursuant to a sinking fund;
(e) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock or any other class or classes and, if
so, the terms and conditions of such conversion or exchange, including
the price or prices or the rate or rates of conversion or exchange and
the terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the extent of
such voting rights;
(g) the rights of the shares of such series in the event of voluntary
or involuntary liquidation, dissolution or winding-up of the Corporation,
and the relative rights of priority, if any, of payment of shares of that
series; and
(h) any other relative rights, powers, preferences, qualifications,
limitations or restrictions thereof relating to such series.
The shares of Preferred Stock of any one series shall be identical with each
other in all respects except as to the dates from and after which dividends
thereon shall cumulate, if cumulative.
B. COMMON STOCK
(1) GENERAL. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of
the holders of the Preferred Stock, if any.
(2) VOTING. The holders of the Common Stock are entitled to one vote
for each share held at all meetings of stockholders (and written actions in
lieu of meetings). There shall be no cumulative voting.
(3) DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board
of Directors.
(4) LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, and subject to the rights of
the holders of Preferred Stock, if any, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution
to its stockholders.
7. In furtherance of and not in limitation of powers conferred by statute,
it is further provided that the election of directors need not be by written
ballot.
8. Except to the extent that the General Corporation Law of the State of
Delaware prohibits the elimination or limitation or liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions such director
occurring prior to such amendment.
<PAGE>
9. The Corporation shall, to the full extent permitted by Section 145 of the
General Corporation Law of Delaware, as amended from time to time, indemnify
each person who was or is a party 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, or has agreed to become, a director or officer of the Corporation, or is or
was serving, or has agreed to serve, at the request of the Corporation, as a
director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan), or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses (including attorneys'
fees), judgements, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to the indemnification under this Article, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayment.
The Corporation shall not indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person
unless the initiation thereof was approved by the Board of Directors of the
Corporation.
The indemnification rights provided in this Section (i) shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any law, agreement or vote of stockholder or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
form time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.
10. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and the Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
[Remainder of page left intentionally blank.]
<PAGE>
THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the Delaware General Corporation
Law, does make this Certificate, hereby declaring and certifying that this is my
act and deed and the facts herein stated are true, and accordingly has hereunto
set my hand this day of , 1999.
--------------------------------------
Dennis McKinnie, Sole Incorporator
<PAGE>
APPENDIX C
BYLAWS
OF
LEVEL 8 SYSTEMS, INC.
(A DELAWARE CORPORATION)
ARTICLE 1
OFFICES
Level 8 Systems, Inc. (the "Corporation") shall at all times maintain a
registered office in the State of Delaware and a registered agent at that
address but may have other offices located in or outside of the State of
Delaware as the Board of Directors may from time to time determine.
ARTICLE 2
STOCKHOLDERS' MEETINGS
2.1 PLACES OF MEETINGS. All meetings of stockholders shall be held at such
place or places inside or outside of the State of Delaware as the Board of
Directors may from time to time determine or as may be designated in the notice
of meeting or waiver of notice thereof, subject to any provisions of the laws of
the State of Delaware.
2.2 ANNUAL MEETINGS. The annual meeting of stockholders for the election
of directors and the transaction of such other business as may properly come
before the meeting shall be held on such date and at such time as may be
designated from time to time by the Board of Directors within four months after
the end of each fiscal year of the Corporation. If the annual meeting is not
held on the date designated, it may be held as soon thereafter as convenient and
shall be called the annual meeting. Written notice of the time and place of the
annual meeting shall be given by mail to each stockholder entitled to vote
thereat at his address as it appears on the records of the Corporation, not less
than ten (10) nor more than sixty (60) days prior to the scheduled date thereof,
unless such notice is waived as provided by Article 9 of these Bylaws.
2.3 SPECIAL MEETINGS. Special meetings of stockholders may be called at
any time by the Board of Directors and shall be called by the President or
Secretary or an Assistant Secretary at the written request of the holders of at
least 50% of the total number of shares of stock then outstanding and entitled
to vote stating the specific purpose or purposes thereof. Written notice of the
time, place and specific purposes of such meeting shall be given by mail to each
stockholder entitled to vote thereat at his address as it appears on the records
of the Corporation, not less than ten (10) nor more than sixty (60) days prior
to the scheduled date thereof, unless such notice is waived as provided in
Article 9 of these Bylaws.
2.4 VOTING. At all meetings of stockholders, each stockholder entitled to
vote on the record date, as determined under Section 6.3 of these Bylaws or, if
not so determined, as prescribed under the laws of the State of Delaware, shall
be entitled to one vote for each share of stock standing of record in his name,
subject to any restrictions or qualifications set forth in the Certificate of
Incorporation or any amendment thereto.
2.5 QUORUM. At any meeting of stockholders, a majority of the number of
shares of stock outstanding and entitled to vote thereat, present in person or
by proxy, shall constitute a quorum, but a smaller interest may adjourn any
meeting from time to time, and the meeting may be held as adjourned without
further notice, subject to such limitation as may be imposed under the laws of
the State of Delaware. When a quorum is present at any meeting, a majority of
the number of shares of stock entitled to vote present thereat shall decide any
question brought before such meeting unless the question is one upon which a
different vote is required by express provision of the laws of the State of
Delaware, the Certificate of Incorporation or these Bylaws, in which case such
express provision shall govern.
<PAGE>
2.6 ACTION WITHOUT MEETING. Unless otherwise provided in the Certificate
of Incorporation or any amendment thereto or by the laws of the State of
Delaware, any action required by the laws of the State of Delaware to be taken
at any annual or special meeting of stockholders, or any action which may
otherwise be taken at any annual or special meeting of stockholders, may be
taken without a meeting, without prior notice and without a vote, if: (i) a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted; and (ii) prompt
notice of the taking of such action by less than unanimous written consent is
given to the other stockholders to the extent and in the manner required by the
laws of the State of Delaware.
ARTICLE 3
BOARD OF DIRECTORS
3.1 POWERS. The business and affairs of the Corporation shall be carried
on by or under the direction of the Board of Directors, which shall have all the
powers authorized by the laws of the State of Delaware, subject to such
limitations as may be provided by the Certificate of Incorporation or these
Bylaws.
3.2 NUMBER AND QUALIFICATION. A Board of Directors shall be elected at
each annual meeting of stockholders, each director so elected to serve until the
election and qualifications of his successor or until his earlier resignation or
removal as provided in these Bylaws. The initial number of directors shall be
such as may be determined by the incorporator and thereafter the number of
directors shall be not less than one (1) and not more than nine (9), the exact
number within such minimum and maximum limits to be fixed and determined from
time to time by resolution of a majority of the Board of Directors or by the
affirmative vote of the holders of at least 50% of all outstanding shares of
capital stock entitled to vote in the election of directors, voting together as
a single class, as provided in the Certificate of Incorporation. Each director
shall serve for a term of one (1) year or until the election and qualification
of his successor or until his earlier resignation or removal as provided in the
Certificate of Incorporation or these Bylaws. Any employee of the Corporation or
a subsidiary of the Corporation who serves on the Board of Directors shall be
deemed to have tendered his resignation from the Board of Directors at the time
such employee gives notice of termination of his employment with the Corporation
or any subsidiary, as the case may be, or upon the termination of such
employment for any reason, whichever occurs first; provided, however, that the
Board of Directors, in its sole discretion, may decline to accept the
resignation of the former employee from the Board of Directors if the former
employee agrees to continue to serve on the Board of Directors notwithstanding
the termination of his employment and if the Board of Directors determines that
the continued service of the former employee on the Board of Directors is in the
best interests of the Corporation and its stockholders. In case of an increase
in the number of directors between elections by the stockholders, the additional
directorships shall be considered vacancies and shall be filled in the manner
prescribed in Article 5 of these Bylaws. Directors need not be stockholders, nor
need they be residents of the State of Delaware.
3.3 COMPENSATION. The Board of Directors, or a committee thereof, may from
time to time by resolution authorize the payment of fees or other compensation
to the directors for services as such to the Corporation, including, but not
limited to, fees for attendance at all meetings of the Board of Directors or any
committee thereof, and determine the amount of such fees and compensation.
Directors shall in any event be paid their traveling expenses for attendance at
all meetings of the Board or committee thereof. Nothing herein contained shall
be construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor in amounts authorized or otherwise
approved from time to time by the Board or any committee thereof.
3.4 MEETINGS AND QUORUM. Meetings of the Board of Directors may be held
either inside or outside of the State of Delaware. A quorum shall be one-half
( 1/2) of the then authorized number of directors, but not less than two (2)
directors, provided, however, that if a Board of Directors consisting of one (1)
director is authorized, then one (1) director shall constitute a quorum.
<PAGE>
The Board of Directors shall, at the close of each annual meeting of
stockholders and without further notice other than these Bylaws, if a quorum of
directors is then present or as soon thereafter as may be convenient, hold a
regular meeting for the election of officers and the transaction of any other
business. At such meeting they shall elect a President and a Secretary and such
other officers as they deem proper.
The Board of Directors may from time to time provide for the holding of
regular meetings with or without notice and may fix the times and places at
which such meetings are to be held. Meetings other than regular meetings may be
called at any time by the President and must be called by the President or the
Secretary or an Assistant Secretary upon the request of any director.
Notice of each meeting, other than a regular meeting (unless required by the
Board of Directors), shall be given to each director by mailing the same to each
director at his residence or business address at least two (2) days before the
meeting or by delivering the same to him personally or by telephone or telegraph
at least one (1) day before the meeting unless, in case of exigency, the
President or the Secretary shall prescribe a shorter notice to be given
personally or by telephone, telegraph, cable or wireless to all or any one or
more of the directors at their respective residences or places of business.
Notice of any meeting shall state the time and place of such meeting, but
need not state the purposes thereof unless otherwise required by the laws of the
State of Delaware, the Certificate of Incorporation, the Bylaws or the Board of
Directors.
3.5 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the entire Board of Directors, provide for an Executive Committee of
two or more directors and shall elect the members thereof to serve at the
pleasure of the Board of Directors and may designate one of such members to act
as chairman. The Board of Directors may at any time change the membership of the
Executive Committee, fill vacancies in it, designate alternate members to
replace any absent or disqualified members at any meeting of such committee, or
dissolve it. During the intervals between the meetings of the Board of
Directors, the Executive Committee shall possess and may exercise any or all of
the powers of the Board of Directors in the management or direction of the
business and affairs of the Corporation and under the Bylaws to the extent
authorized by resolution adopted by a majority of the whole Board of Directors
and to such limitations as may be imposed by the laws of the State of Delaware.
The Executive Committee may determine its rules of procedure and the notice
to be given of its meeting, and it may appoint such other committees and
assistants as it shall from time to time deem necessary. A majority of the
members of the Executive Committee shall constitute a quorum.
The Board of Directors may by resolution provide for such other committees
as it deems desirable and may discontinue the same at its pleasure. Each such
committee shall have the powers and perform such duties, not inconsistent with
law, as may be assigned to it by the Board.
3.6 CONFERENCE TELEPHONE MEETINGS. Any one or more members of the Board of
Directors or any committee thereof may participate in a meeting by means of a
conference telephone or similar communication equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at such meeting.
3.7 ACTION WITHOUT MEETING. Any action required or permitted to be taken
at any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board of Directors or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or committee.
ARTICLE 4
OFFICERS
4.1 TITLES AND ELECTION. The officers of the Corporation shall be the
President, the Secretary and the Treasurer, all of whom shall initially be
elected as soon as convenient by the Board of Directors and thereafter, in the
absence of earlier resignations or removals, shall be elected at the first
meeting of the Board of Directors following each annual meeting of stockholders.
Each officer shall hold office at the pleasure of the Board of Directors except
as may otherwise be approved by the Board of Directors, or until
<PAGE>
his earlier resignation, removal under these Bylaws or other termination of his
employment. Any person may hold more than one office if the duties can be
consistently performed by the same person and to the extent permitted by the
laws of the State of Delaware.
The Board of Directors, in its discretion, may also at any time elect or
appoint one or more Vice Presidents, a Chief Operating Officer and one or more
Assistant Secretaries and such other officers as it may deem advisable, each of
whom shall hold office at the pleasure of the Board of Directors, except as may
otherwise be approved by the Board of Directors, or until his earlier
resignation, removal or other termination of employment, and shall have such
authority and shall perform such duties as may be prescribed or determined from
time to time by the Board of Directors or, if not prescribed or determined by
the Board of Directors, the President or the then senior executive officer may
prescribe or determine. The Board of Directors may require any officer or other
employee or agent to give bond for the faithful performance of his duties in
such form and with such sureties as the Board may require.
4.2 DUTIES. Subject to such extension, limitations, and other provisions
as the Board of Directors may from time to time prescribe or determine, the
following officers shall have the following powers and duties:
(a) PRESIDENT. The President shall exercise the powers and authority and
perform all of the duties commonly incident to his office, shall preside at all
meetings of the stockholders and of the Board of Directors if he is a director,
and shall perform such other duties as the Board of Directors shall specify from
time to time. The President or a Vice President, unless some other person is
thereunto specifically authorized by the Board of Directors, shall sign all
certificates for shares, bonds, debentures, promissory notes, deeds and
contracts of the Corporation.
(b) VICE PRESIDENTS. The Vice President or Vice Presidents shall perform
such duties as may be assigned to them from time to time by the Board of
Directors or by the President if the Board of Directors does not do so. In the
absence or disability of the President, the Vice Presidents in order of
seniority may, unless otherwise determined by the Board of Directors, exercise
the powers and perform the duties pertaining to the office of President, except
that if one or more Vice Presidents has been elected or appointed, the person
holding such office in order of seniority shall exercise the powers and perform
the duties of the office of President.
(c) SECRETARY. The Secretary or in his absence an Assistant Secretary
shall keep the minutes of all meetings of stockholders and of the Board of
Directors and any committee thereof, give and serve all notices, attend to such
correspondence as may be assigned to him, keep in safe custody the seal of the
Corporation, and affix such seal to all such instruments properly executed as
may require it, shall perform all of the duties commonly incident to his office
and shall have such other duties and powers as may be prescribed or determined
from time to time by the Board of Directors or by the President if the Board of
Directors does not do so.
(d) TREASURER. The Treasurer or in his absence an Assistant Treasurer,
subject to the order of the Board of Directors, shall have the care and custody
of the monies, funds, securities, valuable papers and documents of the
Corporation (other than his own bond, if any, which shall be in the custody of
the President), and shall have, under the supervision of the Board of Directors,
all the powers and duties commonly incident to his office. He shall deposit all
funds of the Corporation in such bank or banks, trust company or trust
companies, or with such firm or firms doing a banking business as may be
designated by the Board of Directors or by the President if the Board of
Directors does not do so. He may endorse for deposit or collection all checks,
notes, and similar instruments payable to the Corporation or to its order. He
shall keep accurate books of account of the Corporation's transactions, which
shall be the property of the Corporation, and together with all of the property
of the Corporation in his possession, shall be subject at all times to the
inspection and control of the Board of Directors. The Treasurer shall be subject
in every way to the order of the Board of Directors, and shall render to the
Board of Directors and/or the President of the Corporation, whenever they may
require it, an account of all his transactions and of the financial condition of
the Corporation. In addition to the foregoing, the Treasurer shall have such
duties as may be prescribed or determined from time to time by the Board of
Directors or by the President if the Board of Directors does not do so.
<PAGE>
(e) ASSISTANT SECRETARIES AND TREASURERS. Assistants to the Secretaries
and Treasurers may be appointed by the President or elected by the Board of
Directors and shall perform such duties and have such powers as shall be
delegated to them by the President or the Board of Directors.
4.3 DELEGATION OF AUTHORITY. The Board of Directors may at any time
delegate the powers and duties of any officer for the time being to any other
officer, director or employee.
4.4 COMPENSATION. The compensation of the officers of the Corporation
shall be fixed by the Board of Directors or a committee thereof, and the fact
that any officer is a director shall not preclude him from receiving
compensation or from voting upon the resolution providing the same.
ARTICLE 5
RESIGNATIONS, VACANCIES AND REMOVALS
5.1 RESIGNATIONS. Any director or officer may resign at any time by giving
written notice thereof to the Board of Directors, the President or the
Secretary. Any such resignation shall take effect at the time specified therein
or, if the time be not specified, upon receipt thereof; and unless otherwise
specified therein, the acceptance of any resignation shall not be necessary to
make it effective.
5.2 VACANCIES.
(a) DIRECTORS. Any vacancy in the Board of Directors caused by reason of
death, incapacity, resignation, removal, increase in the authorized number of
directors or otherwise, shall be filled by the holders of a majority of the
shares then entitled to vote at an election of directors. Any director so
filling such a vacancy shall serve until the next annual meeting of stockholders
and the election and qualification of his successor or until his earlier
resignation or removal as provided in the Certificate of Incorporation or these
Bylaws.
(b) OFFICERS. The Board of Directors may at any time or from time to time
fill any vacancy among the officers of the Corporation.
5.3 REMOVALS.
(a) DIRECTORS. Except as may otherwise be provided by the General
Corporation Law of Delaware, any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
(b) OFFICERS. Subject to the provisions of any validly existing agreement,
the Board of Directors may at any meeting remove from office any officer, with
or without cause, and may appoint a successor; provided that if action is to be
taken to remove the President, the notice of meeting or waiver of notice thereof
shall state that one of the purposes of the meeting is to consider and take
action on his removal.
ARTICLE 6
CAPITAL STOCK
6.1 CERTIFICATES OF STOCK. Every stockholder shall be entitled to a
certificate or certificates for shares of the capital stock of the Corporation
in such form as may be prescribed or authorized by the Board of Directors, duly
numbered and setting forth the number and kind of shares represented thereby.
Such certificates shall be signed by the President or a Vice President and by
the Treasurer or an Assistant Treasurer or by the Secretary or an Assistant
Secretary. Any or all of such signatures may be in facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate has ceased to be such
officer, transfer agent or registrar before the certificate has been issued,
such certificate may nevertheless be issued and delivered by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue.
6.2 TRANSFER OF STOCK. Shares of the capital stock of the Corporation
shall be transferable only upon the books of the Corporation upon the surrender
of the certificate or certificates properly assigned and
<PAGE>
endorsed for transfer. If the Corporation has a transfer agent or registrar
acting on its behalf, the signature of any officer or representative thereof may
be in facsimile.
The Board of Directors may appoint a transfer agent and one or more
co-transfer agents and a registrar and one or more co-registrars and may make or
authorize such agents to make all such rules and regulations deemed expedient
concerning the issue, transfer and registration of shares of stock.
6.3 RECORD DATES. For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend, or to express consent to
corporate action in writing without a meeting, or in order to make a
determination of stockholders for any other proper purposes, the Corporation's
stock transfer books shall not be closed, but a record date shall be set by the
Board of Directors and, upon that date, the Corporation or its transfer agent
shall take a record of the stockholders without actually closing the stock
transfer books. Such record date shall not be more than sixty (60) days, nor
less than ten (10) days, prior to the date on which the particular action
requiring such determination of stockholders is to be taken.
If no such record date is fixed by the Board, the record date shall be that
prescribed by the laws of the State of Delaware.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
6.4 LOST CERTIFICATES. In case of loss or mutilation or destruction of a
stock certificate, a duplicate certificate may be issued upon such terms as may
be determined or authorized by the Board of Directors or the Executive
Committee, or by the President if the Board of Directors or the Executive
Committee does not do so.
ARTICLE 7
FISCAL YEAR, BANK DEPOSITS, CHECKS, ETC.
7.1 FISCAL YEAR. The fiscal year of the Corporation shall be the calendar
year, unless otherwise fixed by resolution of the Board of Directors.
7.2 BANK DEPOSIT, CHECKS, ETC. The funds of the Corporation shall be
deposited in the name of the Corporation or of any division thereof in such
banks or trust companies in the United States or elsewhere as may be designated
from time to time by the Board of Directors or the Executive Committee, or by
such officer or officers as the Board of Directors or the Executive Committee
may authorize to make such designations.
All checks, drafts or other orders for the withdrawal of funds from any bank
account shall be signed by the President or such other person or persons as may
be designated from time to time by the Board of Directors or the Executive
Committee. The signatures on checks, drafts or other orders for the withdrawal
of funds may be in facsimile if authorized in the designation.
ARTICLE 8
BOOKS AND RECORDS
8.1 PLACE OF KEEPING BOOKS. The books and records of the Corporation may
be kept outside of the State of Delaware.
8.2 EXAMINATION OF BOOKS. Except as may otherwise be provided by the laws
of the State of Delaware, the Certificate of Incorporation or these Bylaws, the
Board of Directors shall have the power to determine from time to time whether
and to what extent and at what times and places and under what conditions any of
the accounts, records and books of the Corporation are to be open to the
inspection of any stockholder. No stockholder shall have any right to inspect
any account or book or document of the Corporation except as prescribed by law
or authorized by express resolution of the stockholders or of the Board of
Directors.
<PAGE>
ARTICLE 9
NOTICES
9.1 REQUIREMENTS OF NOTICE. Whenever notice is required to be given by
statute, the Certificate of Incorporation or these Bylaws, it shall not mean
personal notice unless so specified, but such notice may be given in writing by
depositing the same in a post office, letter box, or mail chute postage prepaid
and addressed to the person to whom such notice is directed at the address of
such person on the records of the Corporation, and such notice shall be deemed
given at the time when the same shall be thus mailed.
9.2 WAIVERS. Any stockholder, director or officer may, in writing or by
telegram or cable, at any time waive any notice or other formality required by
statute, the Certificate of Incorporation or these Bylaws. Such waiver of
notice, whether given before or after any meeting or action, shall be deemed
equivalent to notice. Presence of a stockholder either in person or by proxy at
any meeting of stockholders and presence of any director at any meeting of the
Board of Directors shall constitute a waiver of such notice as may be required
by any statute, the Certificate of Incorporation or these Bylaws.
ARTICLE 10
SEAL
The corporate seal of the Corporation shall be in such form as the Board of
Directors shall determine from time to time and may consist of a facsimile
thereof or the word "SEAL" enclosed in parentheses.
ARTICLE 11
POWERS OF ATTORNEY
The Board of Directors or the Executive Committee may authorize one or more
of the officers of the Corporation to execute powers of attorney delegating to
named representatives or agents power to represent or act on behalf of the
Corporation, with or without power of substitution.
In the absence of any action by the Board of Directors or the Executive
Committee, any officer of the Corporation may execute, for and on behalf of the
Corporation, waivers of notice of meetings of stockholders and proxies, or may
vote shares directly, for such meetings of any company in which the Corporation
may hold voting securities.
ARTICLE 12
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
The Corporation shall indemnify its directors, officers and employees to the
extent provided in the Corporation's Certificate of Incorporation.
ARTICLE 13
AMENDMENTS
Except as provided otherwise by the laws of the State of Delaware, the
Certificate of Incorporation or elsewhere in these Bylaws, these Bylaws may be
amended or repealed either:
(a) at any meeting of stockholders at which a quorum is present by vote of a
majority of the number of shares of stock entitled to vote present in person or
by proxy at such meeting; or
(b) at any meeting of the Board of Directors by a majority vote of the
directors then in office; provided that the notice of such meeting of
stockholders or directors or waiver of notice thereof contains a statement of
the substance of the proposed amendment or repeal.
ARTICLE 14
AGREEMENT AMONG STOCKHOLDERS
If any provision of these Bylaws shall be inconsistent or in conflict with
any written agreement among the stockholders of the Corporation, the applicable
provisions of such agreement shall control and take precedence over the terms of
these Bylaws notwithstanding any provision of these Bylaws.
<PAGE>
APPENDIX D
SECTION 623 OF THE
NEW YORK BUSINESS CORPORATION LAW
PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR SHARES
623 PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR
SHARES.--(a) A shareholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of section 913 (Share exchanges) shall file a written notice of such election to
dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of election
must be accompanied by the return to the corporation of any advance payment made
to the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine that
the shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other
<PAGE>
than in cash has been completed, in lieu thereof, at the election of the
corporation, the fair value thereof in cash as determined by the board as of the
time of such expiration or completion, but without prejudice otherwise to any
corporate proceedings that may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of the transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f) of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount of equal to eighty percent of the amount of such offer will be made by
the corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements to any shareholder to whom such balance
sheet or profit and loss statement or statements were previously furnished, nor
if in connection with obtaining the shareholders' authorization for or consent
to the proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later upon the surrender of the certificates for any such shares
represented by certificates.
<PAGE>
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares.
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a special
proceeding in the supreme court in the judicial district in which the office of
the corporation is located to determine the rights of dissenting shareholders
and to fix the fair value of their shares. If, in the case of merger or
consolidation, the surviving or new corporation is a foreign corporation without
an office in this state such proceeding shall be brought in the county where the
office of the domestic corporation whose shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such period
of twenty days, any dissenting shareholder may institute such proceeding for the
same purpose not later than thirty days after the expiration of such twenty day
period. If such proceeding is not instituted within such thirty day period, all
dissenter's rights shall be lost unless the supreme court, for good cause shown,
shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid for
their shares, shall be made parties to such proceeding, which shall have the
effect of an action quasi in rem against their shares. The corporation shall
serve a copy of the petition in such proceeding upon each dissenting shareholder
who is a resident of this state in the manner provided by law for the service of
a summons and upon each nonresident dissenting shareholder either by registered
mail and publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is entitled
to receive payment for his shares. If the corporation does not request any such
determination or if the court finds that any dissenting shareholder is so
entitled, it shall proceed to fix the value of the shares, which, for the
purposes of this section, shall be the fair value as of the close of business on
the day prior to the shareholders' authorization date. In fixing the fair value
of the shares, the court shall consider the nature of the transaction giving
rise to the shareholder's right to receive payment for shares and its effects on
the corporation and its shareholders, the concepts and methods then customary in
the relevant securities and financial markets for determining fair value of
shares of a corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the fair
value of the shares without a jury and without referral to an appraiser or
referee. Upon application by the corporation or by any shareholder who is a
party to the proceeding, the court may, in its discretion, permit pretrial
disclosure, including, but not limited to, disclosure of any expert's reports
relating to the fair value of the shares whether or not intended for use at the
trial in the proceeding and notwithstanding subdivision (d) of section 3101 of
the civil practice law and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at such rate as
the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept the
corporate offer of payment for his shares was arbitrary, vexatious or otherwise
not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed by
it. Notwithstanding the foregoing, the court may, in its discretion, apportion
and assess all or any part of the costs, expenses and fees incurred by the
corporation against any or all of the dissenting shareholders who are parties to
the proceeding, including any who have withdrawn their notices of election as
provided in paragraph (e), if the court finds that their refusal to accept the
corporate offer was arbitrary, vexatious or otherwise not in good faith. The
court may,
<PAGE>
in its discretion, apportion and assess all or any part of the costs, expenses
and fees incurred by any or all of the dissenting shareholders who are parties
to the proceeding against the corporation if the court finds any of the
following: (A) that the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay; (B) that not offer or
required advance payment was made by the corporation; (C) that the corporation
failed to institute the special proceeding within the period specified therefor;
or (D) that the action of the corporation in complying with its obligations as
provided in this section was arbitrary, vexatious or otherwise not in good
faith. In making any determination as provided in clause (A), the court may
consider the dollar amount or the percentage, or both, by which the fair value
of the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be due
him, upon surrender of the certificate for any such shares represented by
certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation, but
have rights superior to the non-dissenting shareholders, and if it is not
liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this paragraph
do not apply.
(3) The dissenting shareholder shall exercise such option under subparagraph
(1) or (2) by written notice filed with the corporation within thirty days after
the corporation has given him written notice that payment for his shares cannot
be made because of the restrictions of this paragraph. If the dissenting
shareholder fails to exercise such option as provided, the corporation shall
exercise the option by written notice given to him within twenty days after the
expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided shall exclude the enforcement by such shareholder
of any other right to which he might otherwise be entitled by virtue of share
ownership, except as provided in paragraph (e), and except that this section
shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in the
manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations).
<PAGE>
APPENDIX E
SECOND AMENDMENT TO THE
LEVEL 8 SYSTEMS, INC.
STOCK OPTION PLAN
THIS SECOND AMENDMENT is made on the day of March, 1999, by Level 8
Systems, Inc., a corporation organized and existing under the laws of the State
of New York (hereinafter called the "Company").
W I T N E S S E T H:
WHEREAS, the Company maintains the Level 8 Systems Stock Option Plan (the
"Plan").
WHEREAS, the Company wishes to amend the Plan to increase the number of
shares reserved for issuance under the Plan.
NOW, THEREFORE, the Company does hereby amend Section 4.1 of the Plan,
effective as of March , 1999, by replacing the phrase "1,400,000 shares" with
the phrase "2,600,000 shares."
IN WITNESS WHEREOF, the Company has caused this Second Amendment to be
executed as of the day and year first above written.
LEVEL 8 SYSTEMS
By:
--------------------------------------
Title:
--------------------------------------
Attest:
By:
- -----------------------------------------
Title:
- ---------------------------------------
[CORPORATE SEAL]
<PAGE>
APPENDIX F
LEVEL 8 SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN (U.S.)
<PAGE>
TABLE OF CONTENTS
LEVEL 8 SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN (U.S.)
<TABLE>
<S> <C>
1. PURPOSE............................................................................ 1
2. DEFINITIONS........................................................................ 1
3. ELIGIBILITY AND PARTICIPATION...................................................... 2
4. PAYROLL DEDUCTIONS................................................................. 3
5. CASH WITHDRAWALS AND DISTRIBUTIONS UPON TERMINATION OF PARTICIPATION............... 3
6. GRANT OF OPTION AND OPTION EXERCISE PRICE.......................................... 4
7. EXERCISE OF OPTION................................................................. 4
8. STOCK SUBJECT TO ESPP.............................................................. 5
9. ADMINISTRATION..................................................................... 5
10. ADMINISTRATIVE FEES............................................................... 5
11. TRANSFERABILITY................................................................... 5
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION........................................ 5
13. AMENDMENT OR TERMINATION.......................................................... 6
14. NOTICES........................................................................... 6
15. NO CONTRACT....................................................................... 6
16. HEADINGS AND CONSTRUCTION......................................................... 6
17. APPROVAL OF STOCKHOLDERS.......................................................... 7
</TABLE>
<PAGE>
LEVEL 8 SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN (U.S.)
1. PURPOSE. The purpose of the Level 8 Systems, Inc. Employee Stock
Purchase Plan (U.S.) (the "ESPP") is to provide employees of Level 8 Systems,
Inc., a New York corporation (the "Company"), and its U.S. subsidiary companies
with an opportunity to be compensated through the benefits of stock ownership
and to acquire an interest in the Company through the purchase of Common Stock
of the Company ("Common Stock"). The Company intends the ESPP to qualify as an
employee stock purchase plan under Section 423 of the Internal Revenue Code.
Accordingly, the provisions of the ESPP shall be construed so as to extend and
limit participation in a manner consistent with the requirements of Section 423.
This ESPP shall be effective as of May 15, 1999.
2. DEFINITIONS.
(a) "BASE SALARY" means base salary and wages paid to an Eligible
Employee by the Company and a Designated U.S. Subsidiary, excluding
commissions, income attributable to the exercise of stock options, bonuses,
and awards.
(b) "BOARD OF DIRECTORS" means the board of directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "DESIGNATED U.S. SUBSIDIARY" means a United States Subsidiary which
the Board of Directors, or its designee, has designated as eligible to
participate in the ESPP.
(e) "ELIGIBLE EMPLOYEE" means any Employee of the Company or a
Designated U.S. Subsidiary for purposes of the Federal Insurance
Contributions Act, excluding:
(1) any Employee who customarily is employed for twenty (20) hours
per week or less;
(2) any Employee who would own (immediately after the grant of an
option under the ESPP and applying the rules of Code Section 424(d) in
determining stock ownership) shares, and/or hold outstanding options to
purchase shares, possessing five percent (5%) or more of the total
combined voting power or value of all classes of shares of the Company or
of any Parent or Subsidiary; and
(3) any Employee who customarily is employed for five (5) months or
less.
(f) "EMPLOYEE" means any person who is employed by the Company or a
Subsidiary.
(g) "ENTRY DATE" means the first day of each Offering Period
(h) "OFFERING PERIOD" means each three-month period beginning May 15,
August 15, November 15 and February 15.
(i) "PARENT" means a corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if, at the time of the
granting of the option hereunder, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
(j) "PARTICIPANT" means an Employee who participates in the ESPP
pursuant to Paragraph 3.
(k) "SUBSIDIARY" means a corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
the granting of the option hereunder, each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more
of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
1
<PAGE>
3. ELIGIBILITY AND PARTICIPATION.
(a) Any person who is an Eligible Employee on an Entry Date shall be
eligible to become a Participant in the ESPP beginning on that Entry Date
and shall become a Participant as of that Entry Date by completing an
authorization form provided by the Company, in the form and containing the
terms and conditions as the Company from time to time may determine, and
filing it with the Company by the date required by the Company.
(b) Any person who first becomes an Eligible Employee during an Offering
Period shall be eligible to become a Participant in the ESPP as of the first
day of the Offering Period beginning after the date upon which that person
became an Eligible Employee and shall become a Participant as of such date
by completing an authorization form provided by the Company, in the form and
containing the terms and conditions as the Company from time to time may
determine, and filing it with the Company by the date required by the
Company;
(c) A person shall cease to be a Participant upon the earliest to occur
of:
(1) the date of a termination of employment from the Company and all
Subsidiaries, for any reason, before the last day of the Offering Period;
(2) the first day of the Offering Period following a cessation of
payroll deductions for the Participant under the ESPP or
(3) the date of a withdrawal by the Participant under Paragraph 5.
4. PAYROLL DEDUCTIONS. A Participant may contribute to the ESPP through
payroll deductions as follows:
(a) A Participant shall on his authorization form elect to have payroll
deductions made from his Base Salary at a rate which, expressed as a
percentage, shall be at least one percent (1%) and not exceed ten percent
(10%) of his Base Salary.
(b) Payroll deductions for a Participant shall commence for Base Salary
paid during the Offering Period for which the authorization form is
effective and shall continue until the effective date of an Employee's
authorization to change the rate of his payroll deductions or stop payroll
deductions.
(c) A Participant may change the rate of his payroll deductions
effective on the first day of any Offering Period, provided the Employee
files with the Company his authorization form by the date required by the
Company. However, a Participant may elect to stop payroll deductions
effective as of the first day of the payroll period coinciding with or
immediately following the Company's processing the Participant's request.
(d) All payroll deductions made for a Participant shall be credited to
his account under the ESPP. All payroll deductions made from Participants'
Base Salary under the ESPP shall be commingled with the general assets of
the Company and no separate fund shall be established. Participants'
accounts are solely for bookkeeping purposes and the Company shall not be
obligated to pay Participants interest on account balances.
5. CASH WITHDRAWALS AND DISTRIBUTIONS UPON TERMINATION OF PARTICIPATION.
(a) A Participant may elect to withdraw the balance of the cash credited
to his account under the ESPP by giving written notice to the Company prior
to the date specified by the Company before the end of the current Offering
Period.
(b) The Company shall pay the cash balance of a Participant's account to
the Participant as soon as administratively feasible following the date of
processing of the withdrawal request or the date a person ceases to be a
Participant pursuant to Paragraph 3(c), as applicable.
2
<PAGE>
(c) On the date of the Company's receipt and processing of a
Participant's withdrawal request or the date a person ceases to be a
Participant pursuant to Paragraph 3(c), the Participant's outstanding
options under the ESPP shall immediately terminate. A Participant who
receives a withdrawal of the cash balance of his or her account under the
ESPP shall not be entitled to participate in the ESPP until the next Entry
Date.
(d) If a Participant withdraws the cash balance of his account, no
further payroll deductions will be made from the Participant's Compensation.
6. GRANT OF OPTION AND OPTION EXERCISE PRICE.
(a) As of the beginning of each Offering Period, a Participant is
granted an option to purchase a whole number of shares at eighty-five
percent (85%) of the lesser of the fair market value as of the first day of
each Offering Period or the last day of each Offering Period up to an amount
which does not exceed the Participant's payroll deduction for that Offering
Period. The option price of each share of Common Stock to be purchased with
a Participant's account during a Offering Period shall be equal to
eighty-five percent (85%) of the lesser of the fair market value of one
share of Common Stock on the first day of the Offering Period or the fair
market value of one share of Common Stock on the last day of the Offering
Period.
(b) Notwithstanding the preceding subparagraph or any other provisions
of the ESPP no Participant shall be granted an option which permits his
rights to purchase shares under all employee stock purchase plans of the
Company and its Parent and Subsidiaries to accrue at a rate which exceeds
$25,000 of the fair market value of the shares (determined at the time the
option is granted) for each calendar year in which such stock option is
outstanding at any time.
(c) For purposes of the preceding subparagraphs, the fair market value
of a share of Common Stock on the first and last day of each Offering Period
shall be determined as of each such date, or the most immediately preceding
business day with respect to which the information required in the following
clauses is available, as follows:
(1) if the Common Stock is traded on a national securities exchange,
the closing sale price on that date;
(2) if the Common Stock is not traded on any such exchange, the
closing sale price as reported by the NASDAQ Stock Market;
(3) if no such closing sale price information is available, the
average of the closing bid and asked prices as reported by the NASDAQ
Stock Market; or
(4) if there are no such closing bid and asked prices, the average of
the closing bid and asked prices as reported by any other commercial
service.
(d) All options granted during an Offering Period shall expire on the
last day of that Offering Period.
7. EXERCISE OF OPTION. A Participant's option for the purchase of shares
during an Offering Period will be automatically exercised for him on the last
day of each Offering Period for the purchase of the maximum number of whole
shares which the Participant's account on that day can purchase at the option
exercise price; provided, however, the number of shares purchased for a
Participant shall not be less than 10 shares. Any funds remaining after the
exercise of a Participant's option shall be held and will be available for
purchases of shares on the last day of the next succeeding Offering Period.
8. STOCK SUBJECT TO ESPP.
(a) The shares of Common Stock to be sold to Participants under the ESPP
may, at the election of the Company, be either treasury shares, shares
originally issued for such purpose or shares acquired
3
<PAGE>
on the open market. The maximum number of shares made available for sale
under the ESPP shall be one hundred eighty-five thousand (185,000) shares,
subject to adjustment upon changes in capitalization of the Company as
provided in Paragraph 12. If the total number of shares for which options
are to be exercised in accordance with Paragraph 7 exceeds the number of
shares then available under the ESPP, the Company shall make a pro rata
allocation of the shares available in as nearly a uniform manner as shall be
practicable and as it shall determine to be equitable.
(b) A Participant will have no interest in shares covered by his option
until such option has been exercised.
(c) Shares to be delivered to a Participant under the ESPP will be
registered in the name of the Participant, or if so directed by the
Participant and if permissible under applicable law, in the names of the
Participant and one other person designated by the Participant, as joint
tenants with rights of survivorship.
9. ADMINISTRATION. The ESPP shall be administered by the Committee, which
shall be comprised of at least two members of the Board of Directors who are
"non-employee directors," as defined in Rule 16b-3 as promulgated under the
Securities Exchange Act of 1934. Subject to the provisions of the ESPP, the
Committee shall have full and conclusive authority to interpret the ESPP; to
prescribe, amend and rescind rules and regulations relating to the ESPP; and to
make all other determinations necessary or advisable for the proper
administration of the ESPP. The Committee's decisions shall be final and
binding. The Committee may delegate the duty to perform administrative
functions.
10. ADMINISTRATIVE FEES. The Committee may charge Participants' accounts
for reasonable administrative fees to defray the administrative costs of the
Plan, which shall in no event exceed the actual administrative costs of the
Plan.
11. TRANSFERABILITY. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option or
to receive shares under the ESPP may be assigned, transferred, pledged, or
otherwise disposed of in any way by the Participant. Any attempted assignment,
transfer, pledge, or other disposition shall be without effect.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) In the event that the outstanding shares of Common Stock of the
Company are hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company
by reason of a recapitalization, reclassification, stock split, combination
of shares, or dividend payable in shares of Common Stock, an appropriate
adjustment shall be made by the Committee to the number and kind of shares
available for the granting of options, or as to which outstanding options
shall be exercisable, and to the option price. No fractional shares shall be
issued or optioned in making any such adjustments. All adjustments made by
the Committee under this paragraph shall be conclusive.
(b) In the event of or in anticipation of a merger, consolidation or
other reorganization of the Company or tender offer for shares of Common
Stock, the Committee may make such adjustments with respect to options and
take such other action as it deems necessary or appropriate to reflect such
merger, consolidation, reorganization or tender offer, including, without
limitation, the substitution of new options, the termination of outstanding
options for cash, the adjustment of outstanding options, or the acceleration
of options.
(c) The grant of an option pursuant to the ESPP shall not affect in any
way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or any part of its business or assets.
4
<PAGE>
13. AMENDMENT OR TERMINATION. The Board of Directors at any time may amend
or terminate the Plan without shareholder approval; provided, however, that the
Board of Directors may condition any amendment on the approval of the
shareholders of the Company if such approval is necessary or advisable with
respect to tax, securities or other applicable laws to which the Company, this
Plan, or Employees are subject. No amendment or termination of the Plan shall
adversely affect the rights of an Employee without his consent with respect to
Common Stock previously acquired under the Plan.
14. NOTICES. All notices or other communications by a Participant to the
Company under or in connection with the ESPP shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company.
15. NO CONTRACT. The ESPP shall not be deemed to constitute a contract
between the Company or any Subsidiary and any Employee or to be a consideration
or an inducement for the employment of any Employee. Nothing contained in the
ESPP shall be deemed to give any Employee the right to be retained in the
service of the Company or any Subsidiary or to interfere with the right of the
Company or any Subsidiary to discharge any Employee at any time, regardless of
the effect which such discharge shall have upon him or her as a Participant.
16. HEADINGS AND CONSTRUCTION. The headings to Paragraphs in the ESPP have
been included for convenience of reference only. The ESPP shall be interpreted
and construed in accordance with the laws of the State of New York.
17. APPROVAL OF STOCKHOLDERS. The ESPP shall be submitted to the
stockholders of the Company for their approval within twelve (12) months after
the adoption of the ESPP by the Board of Directors. The ESPP is conditioned upon
the approval of the stockholders of the Company, and failure to receive their
approval shall render the ESPP and all outstanding options issued thereunder
void and of no effect.
IN WITNESS WHEREOF, the Company has caused this ESPP to be executed as of
this day of , 1999.
LEVEL 8 SYSTEMS, INC.
By:
--------------------------------------
Title:
--------------------------------------
ATTEST:
Title:
- ---------------------------------------
[CORPORATE SEAL]
5
<PAGE>
APPENDIX G
LEVEL 8 SYSTEMS, INC.
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
TABLE OF CONTENTS
LEVEL 8 SYSTEMS, INC.
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<S> <C>
1. PURPOSE............................................................................ 1
2. DEFINITIONS........................................................................ 1
3. ELIGIBILITY AND PARTICIPATION...................................................... 2
4. PAYROLL DEDUCTIONS................................................................. 3
5. CASH WITHDRAWALS AND DISTRIBUTIONS UPON TERMINATION OF PARTICIPATION............... 3
6. GRANT OF OPTION AND OPTION EXERCISE PRICE.......................................... 4
7. EXERCISE OF OPTION................................................................. 5
8. STOCK SUBJECT TO ESPP.............................................................. 5
9. ADMINISTRATION..................................................................... 5
10. ADMINISTRATIVE FEES............................................................... 6
11. TRANSFERABILITY................................................................... 6
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION........................................ 6
13. AMENDMENT OR TERMINATION.......................................................... 6
14. NOTICES........................................................................... 6
15. NO CONTRACT....................................................................... 7
16. HEADINGS AND CONSTRUCTION......................................................... 7
17. GOVERNMENTAL REGULATION........................................................... 7
18. WITHHOLDING....................................................................... 7
</TABLE>
<PAGE>
LEVEL 8 SYSTEMS, INC.
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of the Level 8 Systems, Inc. International
Employee Stock Purchase Plan (the "ESPP") is to provide employees of the
international subsidiaries of Level 8 Systems, Inc., a New York corporation (the
"Company"), with an opportunity to be compensated through the benefits of stock
ownership and to acquire an interest in the Company through the purchase of
Common Stock of the Company ("Common Stock"). This ESPP shall be effective as of
May 15, 1999.
2. DEFINITIONS.
(a) "BASE SALARY" means the regular base salary and wages paid to an
Eligible Employee by the Designated International Subsidiary, excluding
commissions, income attributable to the exercise of stock options, bonuses,
and awards.
(b)"BOARD OF DIRECTORS" means the board of directors of the Company.
(c)"CODE" means the Internal Revenue Code of 1986, as amended.
(d)"DESIGNATED INTERNATIONAL SUBSIDIARY" means an International
Subsidiary which the Board of Directors, or its designee, has designated as
eligible to participate in the ESPP.
(e)"ELIGIBLE EMPLOYEE" means any Employee of a Designated International
Subsidiary as recognized for employment purposes in the applicable
jurisdiction in which the Employee has a regular place of employment other
than:
(1) any Employee who customarily is employed for twenty (20) hours
per week or less;
(2) any Employee who would own (immediately after the grant of an
option under the ESPP and applying the rules of Code Section 424(d) in
determining stock ownership) shares, and/or hold outstanding options to
purchase shares, possessing five percent (5%) or more of the total
combined voting power or value of all classes of shares of the Company or
of any Parent or Subsidiary; and
(3) any Employee who customarily is employed for five (5) months or
less.
Notwithstanding the foregoing, any Employee of a Designated International
Subsidiary who is not considered an Eligible Employee by operation of
subsections (1), (2) or (3) of this Section 2(e) will be considered an Eligible
Employee if the applicable provisions of the local laws governing such
Employee's employment with the applicable Designated International Subsidiary
prohibits the exclusion of the Employee from participation under the Plan on the
basis by which the Employee is so excluded.
(f)"EMPLOYEE" means any person who is employed by a Subsidiary.
(g)"ENTRY DATE" means each the first day of each Offering Period.
(h)"INTERNATIONAL SUBSIDIARY" means a Subsidiary whose principal place
of business is outside the United States.
(i)"OFFERING PERIOD" means each three-month period beginning May 15,
August 15, November 15 and February 15.
(j)"PARENT" means a corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if, at the time of the
granting of the option hereunder, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
(k)"PARTICIPANT" means an Employee who participates in the ESPP pursuant
to Paragraph 3.
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<PAGE>
(l)"SUBSIDIARY" means a corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
the granting of the option hereunder, each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more
of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
3. ELIGIBILITY AND PARTICIPATION.
(a) Any person who is an Eligible Employee on an Entry Date shall be
eligible to become a Participant in the ESPP beginning on that Entry Date
and shall become a Participant as of that Entry Date by completing an
authorization form provided by the Company, in the form and containing the
terms and conditions as the Company from time to time may determine, and
filing it with the Company by the date required by the Company.
(b) Any person who first becomes an Eligible Employee during an Offering
Period shall be eligible to become a Participant in the ESPP as of the first
day of the Offering Period beginning after the date upon which that person
became an Eligible Employee and shall become a Participant as of such date
by completing an authorization form provided by the Company, in the form and
containing the terms and conditions as the Company from time to time may
determine, and filing it with the Company by the date required by the
Company;
(c) A person shall cease to be a Participant upon the earliest to occur
of:
(1) the date of a termination of employment from the Company and all
Subsidiaries, for any reason, before the last day of the Offering Period;
(2) the first day after the Offering Period following a cessation of
payroll deductions for the Participant under the ESPP or
(3) the date of a withdrawal by the Participant under Paragraph 5.
4. PAYROLL DEDUCTIONS. A Participant may contribute to the ESPP through
payroll deductions as follows:
(a) A Participant shall on his authorization form elect to have payroll
deductions made from his Base Salary at a rate which, expressed as a
percentage, shall be at least one percent (1%) and not exceed ten percent
(10%) of his Base Salary.
(b) Payroll deductions for a Participant shall commence for Base Salary
paid during the Offering Period for which the authorization form is
effective and shall continue until the effective date of an Employee's
authorization to change the rate of his payroll deductions or stop payroll
deductions.
(c) A Participant may change the rate of his payroll deductions
effective on the first day of any Offering Period, provided the Employee
files with the Company his authorization form by the date required by the
Company. However, a Participant may elect to stop payroll deductions
effective as of the first day of the payroll period coinciding with or
immediately following the Company's processing the Participant's request.
(d) All payroll deductions made for a Participant shall be credited to
his account under the ESPP. All payroll deductions made from Participants'
Base Salary under the ESPP shall be commingled with the general assets of
the Company and no separate fund shall be established. Participants'
accounts are solely for bookkeeping purposes and the Company shall not be
obligated to pay Participants interest on account balances.
5. CASH WITHDRAWALS AND DISTRIBUTIONS UPON TERMINATION OF PARTICIPATION.
2
<PAGE>
(a) A Participant may elect to withdraw the balance of the cash credited
to his account under the ESPP by giving written notice to the Company prior
to the date specified by the Company before the end of the current Offering
Period.
(b) The Company shall pay the cash balance of a Participant's account to
the Participant as soon as administratively feasible following the date of
processing of the withdrawal request or the date a person ceases to be a
Participant pursuant to Paragraph 3(c), as applicable.
(c) On the date of the Company's receipt and processing of a
Participant's withdrawal request or the date a person ceases to be a
Participant pursuant to Paragraph 3(c), the Participant's outstanding
options under the ESPP shall immediately terminate. A Participant who
receives a withdrawal of the cash balance of his or her account under the
ESPP shall not be entitled to participate in the ESPP until the next Entry
Date.
(d) If a Participant withdraws the cash balance of his account, no
further payroll deductions will be made from the Participant's Compensation.
6. GRANT OF OPTION AND OPTION EXERCISE PRICE.
(a) As of the beginning of each Offering Period, a Participant is
granted an option to purchase a whole number of shares at eighty-five
percent (85%) of the lesser of the fair market value as of the first day of
each Offering Period or the last day of each Offering Period up to an amount
which does not exceed the Participant's payroll deduction for that Offering
Period. The option price of each share of Common Stock to be purchased with
a Participant's account during a Offering Period shall be eighty-five
percent (85%) of the fair market value of one share of Common Stock on the
first day of the Offering Period or the fair market value on the last day of
the Offering Period.
(b) Notwithstanding the preceding subparagraph or any other provisions
of the ESPP, no Participant shall be granted an option which permits his
rights to purchase shares under all employee stock purchase plans of the
Company and its Parent and Subsidiaries to accrue at a rate which exceeds
$25,000 of the fair market value of the shares (determined at the time the
option is granted) for each calendar year in which such stock option is
outstanding at any time.
(c) For purposes of the preceding subparagraphs, the fair market value
of a share of Common Stock on the last day of each Offering Period shall be
determined as of each such date, or the most immediately preceding business
day with respect to which the information required in the following clauses
is available, as follows:
(1) if the Common Stock is traded on a national securities exchange,
the closing sale price on that date;
(2) if the Common Stock is not traded on any such exchange, the
closing sale price as reported by the NASDAQ Stock Market;
(3) if no such closing sale price information is available, the
average of the closing bid and asked prices as reported by the NASDAQ
Stock Market; or
(4) if there are no such closing bid and asked prices, the average of
the closing bid and asked prices as reported by any other commercial
service.
(d) All options granted during an Offering Period shall expire on the
last day of that Offering Period.
7. EXERCISE OF OPTION. A Participant's option for the purchase of shares
during an Offering Period will be automatically exercised for him on the last
day of each Offering Period for the purchase of the maximum number of whole
shares which the Participant's account on that day can purchase at the option
exercise price; provided, however, the number of shares purchased for a
Participant shall not be less than
3
<PAGE>
10 shares. Any funds remaining after the exercise of a Participant's option
shall be held and will be available for purchases of shares at the last day of
the next succeeding Offering Period.
8. STOCK SUBJECT TO ESPP.
(a) The shares of Common Stock to be sold to Participants under the ESPP
may, at the election of the Company, be either treasury shares, shares
originally issued for such purpose or shares acquired on the open market.
The maximum number of shares made available for sale under the ESPP shall be
sixty-five thousand (65,000) shares, subject to adjustment upon changes in
capitalization of the Company as provided in Paragraph 12. If the total
number of shares for which options are to be exercised in accordance with
Paragraph 7 exceeds the number of shares then available under the ESPP, the
Company shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall determine to
be equitable.
(b) A Participant will have no interest in shares covered by his option
until such option has been exercised.
(c) Shares to be delivered to a Participant under the ESPP will be
registered in the name of the Participant, or if so directed by the
Participant and if permissible under applicable law, in the names of the
Participant and one other person designated by the Participant, as joint
tenants with rights of survivorship.
9. ADMINISTRATION. The ESPP shall be administered by the Committee, which
shall be comprised of at least two members of the Board of Directors who are
"non-employee directors" as defined in Rule 16b-3 as promulgated under the
Securities Exchange Act of 1934. Subject to the provisions of the ESPP the
Committee shall have full and conclusive authority to interpret the ESPP; to
prescribe, amend and rescind rules and regulations relating to the ESPP; and to
make all other determinations necessary or advisable for the proper
administration of the ESPP. The Committee's decisions shall be final and
binding. The Committee may delegate the duty to perform administrative
functions.
10. ADMINISTRATIVE FEES. The Committee may charge Participants' accounts
for reasonable administrative fees to defray the administrative costs of the
Plan, which shall in no event exceed the actual administrative costs of the
Plan.
11. TRANSFERABILITY. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option or
to receive shares under the ESPP may be assigned, transferred, pledged, or
otherwise disposed of in any way by the Participant. Any attempted assignment,
transfer, pledge, or other disposition shall be without effect.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) In the event that the outstanding shares of Common Stock of the
Company are hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company
by reason of a recapitalization, reclassification, stock split, combination
of shares, or dividend payable in shares of Common Stock, an appropriate
adjustment shall be made by the Committee to the number and kind of shares
available for the granting of options, or as to which outstanding options
shall be exercisable, and to the option price. No fractional shares shall be
issued or optioned in making any such adjustments. All adjustments made by
the Committee under this paragraph shall be conclusive.
(b) In the event of or in anticipation of a merger, consolidation or
other reorganization of the Company or tender offer for shares of Common
Stock, the Committee may make such adjustments with respect to options and
take such other action as it deems necessary or appropriate to reflect such
merger, consolidation, reorganization or tender offer, including, without
limitation, the substitution of
4
<PAGE>
new options, the termination of outstanding options for cash, the adjustment
of outstanding options, or the acceleration of options.
(c) The grant of an option pursuant to the ESPP shall not affect in any
way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or any part of its business or assets.
13. AMENDMENT OR TERMINATION. The Board of Directors may at any time amend
or terminate the ESPP without shareholder approval; provided, however, that the
Board of Directors may condition any amendment on the approval of the
shareholders of the Company if such approval is necessary or advisable with
respect to tax, securities or other applicable laws to which the Company, the
Plan or Employees are subject. No termination shall adversely affect the right
of an Employee without his consent with respect to Common Stock previously
acquired under the Plan.
14. NOTICES. All notices or other communications by a Participant to the
Company under or in connection with the ESPP shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company.
15. NO CONTRACT. The ESPP shall not be deemed to constitute a contract
between the Company or any Subsidiary and any Employee or to be a consideration
or an inducement for the employment of any Employee. Nothing contained in the
ESPP shall be deemed to give any Employee the right to be retained in the
service of the Company or any Subsidiary or to interfere with the right of the
Company or any Subsidiary to discharge any Employee at any time, regardless of
the effect which such discharge shall have upon him or her or as a Participant.
16. HEADINGS AND CONSTRUCTION. The headings to Paragraphs in the ESPP have
been included for convenience of reference only. The ESPP shall be interpreted
and construed in accordance with the laws of the State of Delaware.
17. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
shares of the Company's Common Stock under the ESPP is subject to the approval
of any governmental authority required in connection with the authorization,
issuance or sale of such stock.
18. WITHHOLDING. The Company or, if applicable, the Designated
International Subsidiary, will withhold from wages of Participants any amounts
attributable to participation in the ESPP which are required to be withheld from
wages by the applicable governmental authorities.
[SIGNATURES ON FOLLOWING PAGE]
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this ESPP to be executed as of
this day of , 1999.
LEVEL 8 SYSTEMS, INC.
By:
--------------------------------------
ATTEST:
By:
- -----------------------------------------
Title:
- ---------------------------------------
[CORPORATE SEAL]
6
<PAGE>
APPENDIX H
LEVEL 8 SYSTEMS, INC.
OUTSIDE DIRECTOR STOCK INCENTIVE PLAN
THIS PLAN is made effective as of March , 1999 by Level 8 Systems, Inc., a
New York corporation (hereinafter called the "Company").
INTRODUCTION
The Company is adopting the Level 8 Systems, Inc. Outside Director Stock
Incentive Plan (the "Plan") to provide non-employee directors with the
opportunity to purchase the Common Stock of the Company and to provide such
directors with an election to receive Common Stock of the Company in lieu of
directors fees. The Board of Directors of the Company believes this Plan will
promote personal interest in the welfare of the Company by, and provide
incentive to, the individuals who are primarily responsible both for the regular
operations of and for shaping and carrying out the long term plans of the
Company, thus facilitating the continued growth and financial success of the
Company.
<PAGE>
LEVEL 8 SYSTEMS, INC.
OUTSIDE DIRECTOR STOCK INCENTIVE PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SECTION 1 DEFINITIONS...................................................................................... 1
SECTION 2 ADMINISTRATION................................................................................... 3
SECTION 3 ELIGIBILITY...................................................................................... 3
SECTION 4 SHARES SUBJECT TO PLAN........................................................................... 3
SECTION 5 STOCK AWARDS..................................................................................... 3
SECTION 6 OPTION GRANTS.................................................................................... 4
SECTION 7 TERM OF PLAN..................................................................................... 5
SECTION 8 INDEMNIFICATION OF BOARD......................................................................... 5
SECTION 9 AMENDMENT AND TERMINATION OF THE PLAN............................................................ 5
SECTION 10 ADJUSTMENT IN SHARES OF COMMON STOCK............................................................ 5
SECTION 11 COMPLIANCE WITH APPLICABLE LAW.................................................................. 6
SECTION 12 RIGHT TO REMOVE DIRECTOR........................................................................ 6
SECTION 12 GOVERNING LAW................................................................................... 6
</TABLE>
<PAGE>
SECTION 1 DEFINITIONS
Wherever used herein, the masculine pronoun shall be deemed to include the
feminine, and the singular to include the plural, unless the context clearly
indicates otherwise, and the following words and phrases shall, when used
herein, have the meanings set forth below:
1.1 "AFFILIATE" means (a) an entity that directly or through one or more
intermediaries is controlled by the Company, and (b) any entity in which the
Company has a significant equity interest, as determined by the Company.
1.2 "BOARD OF DIRECTORS" means the Board of Directors of the Company.
1.3 "CHANGE IN CONTROL" means any one of the following events
(a) any person (as defined in Section 3(a)(9) of the Exchange Act and as
used in Sections 13(d) and 14(d) thereof), excluding the Company, any
Subsidiary, any employee benefit plan sponsored or maintained by the Company
or any Subsidiary (including any trustee of such plan acting as trustee) and
any present holder of common stock of the Company (the Company, all
Subsidiaries, such employee benefit plans and trustees acting as trustees
and such holders of common stock being hereafter referred to as the "Company
Group"), but including a "group" as defined in Section 13(d)(3) of the
Exchange Act (a "Person"), becomes the beneficial owner of shares of the
Company having at least thirty percent (30%) of the total number of votes
that may be cast for the election of directors of the Company (the "Voting
Shares"); provided that no Change of Control will occur as a result of an
acquisition of stock by the Company Group which increases, proportionately,
the stock representing the voting power of the Company beneficially owned by
such Person above thirty percent (30%) of the voting power of the Company,
and provided further that if such Person acquires beneficial ownership of
stock representing more than thirty percent (30%) of the voting power of the
Company by reason of share purchases by the Company Group, and after such
share purchases by the Company Group acquires any additional shares
representing voting power of the Company, then a Change of Control shall
occur;
(b) the shareholders of the Company shall approve any merger or other
business combination of the Company, sale of the Company's assets or
combination of the foregoing transactions (a "Transaction") other than a
Transaction involving only the Company and one or more of its Subsidiaries,
or a Transaction immediately following which the shareholders of the Company
immediately prior to the Transaction continue to have a majority of the
voting power in the resulting entity excluding for this purpose any
shareholder owning directly or indirectly more than thirty percent (30%) of
the shares of the other company involved in the merger;
(c) within any 24-month period, the persons who were directors of the
Company immediately before the beginning of such period (the "Incumbent
Directors") shall cease (for any reason other than death) to constitute at
least a majority of the Board of Directors or the board of directors of any
successor to the Company, provided that any director who was not a director
as of the effective date of this Plan shall be deemed to be an Incumbent
Director if such director was elected to the Board of Directors by, or on
the recommendation of or with the approval of, at least two-thirds of the
directors who then qualified as Incumbent Directors either actually or by
prior operation of this clause (c); and provided further that any director
elected to the Board of Directors to avoid or settle a threatened or actual
proxy contest shall in no event be deemed to be an Incumbent Director; or
(d) the dissolution or liquidation of the Company.
1.4 "CODE" means the Internal Revenue Code of 1986, as amended.
1.5 "COMMON STOCK" means the common stock of the Company, $.01 par value.
1.6 "COMPANY" means Level 8 Systems, Inc.
1
<PAGE>
1.7 "DIRECTOR" means a member of the Board of Directors.
1.8 "ELIGIBLE DIRECTOR" means a Director who is not an Employee.
1.9 "EMPLOYEE" means any person who is employed by the Company or an
Affiliate for purposes of the Federal Insurance Contributions Act and any
consultant retained to provide services (other than in the capacity of a
director) to the Company or an Affiliate.
1.10 "FAIR MARKET VALUE" means, with respect to a share of Common Stock,
(a) if the Common Stock is not at the time listed or admitted to trading
on any national securities exchange but is traded on the NASDAQ Stock
Market, the average of the high and low price of the shares on the date in
question, as such price is reported by the National Association of
Securities Dealers through the NASDAQ Stock Market or any successor system.
If there is no reported sale for the Common Stock on the date in question,
then the average of the high and low price of the shares on the last
preceding date for which such quotation exists shall be determinative of
Fair Market Value.
(b) if the Common Stock is at the time listed or admitted to trading on
any national securities exchange, the average of the high and low price per
share on the date in question on the securities exchange determined by the
Board of Directors to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no reported sale of Common Stock on such exchange on
the date in question, the Fair Market Value shall be the average of the high
and low price per share on the exchange on the last preceding date for which
such quotation exists.
(c) if the Common Stock is not publicly traded, the fair market value as
determined by the Board of Directors.
1.11 "OPTION" means a non-qualified stock option granted under the Plan to
buy shares of Common Stock as set forth in Plan Section 6.
1.12 "OPTION EXERCISE PRICE" means the per share purchase price for Common
Stock subject to each Option granted under Section 6 which shall be one-hundred
percent (100%) of the Fair Market Value of the Common Stock as of the date the
Option is granted.
1.13 "PLAN" means the Level 8 Systems, Inc. Outside Director Stock
Incentive Plan.
1.14 "STOCK OPTION AGREEMENT" means an agreement between the Company and
an Eligible Director or other documentation evidencing an Option.
SECTION 2 ADMINISTRATION
The Board of Directors shall have the authority in its sole discretion to
interpret the Plan, to make all other determinations and to take all other
actions it deems necessary or advisable for the implementation and
administration of the Plan. All actions of the Board of Directors shall be
final, conclusive, and binding. No member of the Board of Directors shall be
liable for any action taken or decision made in good faith relating to the Plan.
SECTION 3 ELIGIBILITY
Only Eligible Directors shall be eligible to receive Common Stock pursuant
to Section 5 of the Plan and an Option pursuant to Section 6 of the Plan on the
terms and subject to the restrictions hereinafter set forth.
2
<PAGE>
SECTION 4 SHARES SUBJECT TO PLAN
Subject to adjustment in accordance with Section 10, 120,000 shares of
Common Stock (the Maximum Plan Shares") are hereby reserved exclusively for
issuance pursuant to an election by an Eligible Director to receive Common Stock
pursuant to Section 5 and Options granted pursuant to Section 6. If an Option
expires or terminates for any reason without being exercised in full, the
unpurchased shares subject to such Option shall again be available for purposes
of the Plan.
SECTION 5 STOCK AWARDS
5.1 Each Eligible Director may elect annually, in writing and in such form
and at such time as the Board of Directors may direct, to receive any retainer,
meeting and committee fees to be earned by such Director from the Company in the
succeeding year in the form of Common Stock.
5.2 Any election to receive Common Stock in lieu of fees shall be effective
only if approved by the Board of Directors.
5.3 An Eligible Director electing to receive Common Stock in lieu of fees
will receive a number of shares of Common Stock equal to the result, rounded up
to the nearest whole number, obtained by dividing the amount of the meeting,
retainer and committee fees to which such Director would otherwise be entitled
by 100% of the Fair Market Value of a share of Common Stock as of the date any
such fees would otherwise have been paid. The Common Stock will be issued to any
electing Eligible Director at such time as any retainer, committee or meeting
fees would be payable to such Director had the Director not made an election to
receive Common Stock in lieu of fees. Once made, any election by an Eligible
Director to receive shares of Common Stock in lieu of fees is irrevocable.
SECTION 6 OPTION GRANTS
6.1 Each individual who is an Eligible Director as of the effective date of
the Plan shall be awarded an Option to purchase 12,000 shares of Common Stock as
of that date and each individual who becomes an Eligible Director after the
effective date of the Plan shall be awarded an Option to purchase 12,000 shares
of Common Stock on the date of such Eligible Director's appointment or election
to the Board of Directors (the "Initial Option").
6.2 Subsequent to the grant of the Initial Option, each Eligible Director
shall be granted an Option to purchase shares of Common Stock at such time as
determined by the Board of Directors, in its sole discretion.
6.3 All Options may be exercised to the extent vested; however, such Option
shall not be exercisable after the expiration of ten (10) years from the date of
the grant of the Option. Each Option awarded under the Plan shall become vested
with respect to thirty-three and one-third percent (33 1/3%) of the shares of
Common Stock at each anniversary of the Option grant date, beginning with the
first anniversary thereof; provided, however, such Option will vest only if the
Eligible Director continues to serve as a member of the Board of Directors.
Notwithstanding the foregoing (but subject to the express provisions of any
Stock Option Agreement), in the event of a Change in Control, any outstanding
Options shall fully vest and become exercisable as of the date of such Change in
Control.
6.4 All Options may be exercised only by written notice to the Company
which notice shall specify the number of shares of Common Stock to be purchased
and shall be accompanied by payment of the Option Exercise Price for such shares
in such manner as the Board of Directors may approve; provided, however, an
Option may only be exercised with respect to whole shares of Common Stock. No
shares shall be issued or delivered upon exercise of an Option until full
payment has been made by the Eligible Director. The holder of the Option, as
such, shall have none of the rights of a stockholder.
3
<PAGE>
6.5 Each Option contemplated by this Section 6 shall be evidenced by a
Stock Option Agreement which shall incorporate the applicable terms of the Plan.
The terms of each Stock Option Agreement shall provide: (a) that the per share
purchase price for each share of Common Stock subject to the Option shall be the
Option Exercise Price; (b) that any nonvested Options shall terminate
immediately on the date upon which an Eligible Director ceases to be Director;
and (c) that any vested Options shall be exercisable no later than the earliest
to occur of (i) three months after the date an Eligible Director ceases to be a
Director for any reason; (ii) twelve (12) months after the date an Eligible
Director ceases to be a Director if such cessation is by reason of his becoming
disabled (within the meaning of Section 22(e)(3) of the Code) or his death; or
(iii) the tenth anniversary of the Option grant date.
6.6 An Option shall not be transferable or assignable except by will, under
the laws of descent and distribution, or, in its discretion, the Board of
Directors may authorize all or a portion of the Options to be granted to an
Eligible Director to be on terms which permit transfer by such Eligible Director
to (a) the spouse, children or grandchildren or parents of the Eligible Director
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, or (iii) a partnership or limited liability
company in which such Immediate Family Members are the only partners or members,
provided that there is no consideration paid for any such transfer and
subsequent transfers shall be prohibited except in accordance with the laws of
descent and distribution, or by will. Following transfer, any such options shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to the transfer, including, but not limited to, the vesting
provisions in Section 6.3 and the termination provisions in Section 6.5.
SECTION 7 TERM OF PLAN
The Plan shall be effective on the date hereof and shall continue to be
effective until ten (10) years following the earlier of the effective date of
the Plan, unless sooner terminated by the Board of Directors pursuant to Section
9 hereof.
SECTION 8 INDEMNIFICATION OF BOARD
In addition to such other rights of indemnification that the members of the
Board of Directors may have, each member of the Board of Directors shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees, actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
it may be a party by reason of any action taken or failure to act under or in
connection with the Plan, and against all amounts paid by it in settlement
thereof (provided the settlement has received the prior approval of the Company)
or paid by it in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
the action, suit or proceeding that the Board member is liable for negligence or
misconduct in the performance of his or her duties; provided that promptly after
institution of the action, suit or proceeding the Board member shall in writing
offer the Company the opportunity, at its own expense, to handle and defend such
matter. Upon the delivery to the Board member of written notice of assumption by
the Company of the defense of such matter, the Company will not be responsible
to the Board member for any further fees and disbursements relating to the
defense of such matter, including fees and disbursements of counsel.
SECTION 9 AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors at any time may amend or terminate the Plan without
shareholder approval; provided, however, that the Board of Directors may
condition any amendment on the approval of the shareholders of the Company if
such approval is necessary or advisable with respect to tax, securities or other
applicable laws to which the Company, this Plan, or Directors are subject. No
amendment or termination of the Plan shall adversely affect the rights of a
Director without his consent with respect to Common Stock previously acquired
under the Plan.
4
<PAGE>
SECTION 10 ADJUSTMENT IN SHARES OF COMMON STOCK
10.1 If (a) the number of shares of Common Stock shall be increased or
reduced by a change in par value, split-up, stock split, reverse stock split,
reclassification, merger, consolidation, distribution of stock dividends or
similar capital adjustments, or (b) the Company engages in a transaction for
which the Board of Directors determines an adjustment is appropriate, then the
Board of Directors may make an adjustment in the number and kind of shares of
Common Stock available under the Plan, the number (including any maximum number
of shares) and kind of shares for which grants are to be subsequently made to
each Eligible Director and the number and kind of shares of Common Stock
issuable pursuant to the provisions of the Plan, consistent with the effect of
the change on existing shareholders of the Company.
10.2 If any capital reorganization or reclassification of the capital stock
of the Company or any consolidation or merger of the Company with another
corporation, or the sale of substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, each holder of an Option shall thereafter have
the rights to receive upon the basis and upon the terms and conditions specified
therein and in lieu of the shares of Common Stock of the Company immediately
theretofore receivable upon the exercise of such Option, such shares of stock,
securities or assets (including cash) as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore receivable had
such reorganization, reclassification, consolidation, merger or sale not taken
place.
SECTION 11 COMPLIANCE WITH APPLICABLE LAW
Notwithstanding any other provision of the Plan, the Company shall have no
obligation to issue any shares of Common Stock if such issuance would violate
any applicable law or any applicable regulation or requirement of any securities
or exchange or similar entity. Prior to the issuance of any shares of Common
Stock under the Plan, the Company may require a written statement that the
recipient is acquiring the shares for investment and not for the purpose or with
the intention of distributing the shares and will not dispose of them in
violation of the registration requirements of the Securities Exchange Act of
1933. If at any time the Company, in its sole discretion, determines that the
listing, registration or qualification (or any updating of any such document) of
any type of award, or the shares of Common Stock issuable pursuant thereto, is
necessary on any securities exchange or under any federal or state securities or
blue sky law, or that the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with, any
award or the issuance of shares of Common Stock pursuant to any award, such
award shall not be made and the shares of Common Stock shall not be issued, as
the case may be, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Company.
SECTION 12 RIGHT TO REMOVE DIRECTOR
Nothing in the Plan or in any Stock Option Agreement shall confer upon any
Eligible Director the right to continue as a Member of the Board of Directors or
affect the right of the Company or any Affiliate to terminate an Eligible
Director's directorship at any time.
5
<PAGE>
SECTION 13 GOVERNING LAW
The laws of the State of New York shall govern this Plan.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed as of the
day and year first above written.
LEVEL 8 SYSTEMS, INC.
By:
--------------------------------------
Title:
--------------------------------------
ATTEST:
- ---------------------------------------------
Title:
- ----------------------------------------
[CORPORATE SEAL]
6
<PAGE>
APPENDIX I
EXCERPTS FROM THE COMPANY'S CURRENT REPORT
ON FORM 8-K FILED ON JANUARY 22, 1999
In connection with the preparation of the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998, the Company discussed with
Grant Thornton whether the Company should recognize as revenue in the third
quarter of 1998 $2.96 million the Company had billed Microsoft. The Company
expressed the view that all of that revenue should be reflected in the third
quarter. Grant Thornton expressed the view that none of that revenue should be
reflected in the third quarter. After discussion, the Company deferred the
recognition of all such revenue and indicated in the Form 10-Q that it was in
the process of determining how long generally accepted accounting principles
required the Company to continue to defer recognizing such revenue. Subject to
the foregoing, there have been no disagreements with Grant Thornton regarding
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure.
In planning and performing the audit of the financial statements of the
Company for the year ended December 31, 1997, Grant Thornton noted certain
internal control structure matters that it considered reportable conditions
under standards established by the American Institute of Certified Public
Accountants. Reportable conditions involve matters relating to significant
deficiencies in the design or operation of the internal control structure that
could adversely affect the organization's ability to record, process, summarize,
and report financial data consistent with the assertions of management in the
financial statements.
On or about May 7, 1998, Grant Thornton provided the Company with an audit
communications letter regarding such reportable conditions. These reportable
conditions are discussed below.
SOFTWARE SERVICE TRANSACTIONS. During 1997, the Company began entering into
multi-year contracts that were non-cancelable or included significant
cancellation penalties. To entice customers to sign for this extended period of
time, the Company offered substantial discounts or free service periods. Grant
Thornton recommended that the Company recognize the complexity of these
arrangements and the need to address the effects on revenue recognition. Due to
the unique circumstances surrounding these types of transactions, Grant Thornton
stressed the importance of the Company's Chief Financial Officer reviewing these
contracts on a case-by-case basis, with specific emphasis on ensuring proper
revenue recognition by reviewing cancellation provisions and allocations of
revenue and discounts to products covered by the contract. Grant Thornton
identified that there were no standard agreements--each was separately
negotiated and accordingly the terms of each agreement needed to be assessed for
revenue recognition issues. Grant Thornton suggested that this made it difficult
for the Company personnel to determine revenue recognition under SOP 91-1, and
may become an even greater issue under SOP 97-2. Grant Thornton noted that
accounting personnel of the Company appeared to be unaware of certain key
transactions, or aspects of transactions, which may have been a result of a lack
of adequate communication.
CASH COLLECTIONS AND BILLINGS. Grant Thornton noted that cash collections
had been "poor" throughout 1997 and early 1998. Grant Thornton identified a
number of factors:
- Lack of written documentation and purchase orders from customers to
support sales, before the amount was invoiced.
- Lack of communication between sales and accounting departments of delivery
and payment terms, leading to problems when collection calls were made by
the accounting staff.
- Long lead times between performance of work and the sending of invoices to
customers.
I-1
<PAGE>
Grant Thornton recommended that management of the Company develop formal
credit and collection policies providing for regular follow-up communication
with customers once accounts are 30 days past due. Grant Thornton also
recommended that management of the Company consider using sales personnel to
help with collections, in an appropriate manner. The Company paid commissions
upon recognition of a sale, and Grant Thornton recommended that the Company
consider payment only after the Company is paid. Grant Thornton also recommended
that management develop an objective formula to determine the minimum amount of
the allowance for doubtful accounts.
During its audit of the Company for fiscal 1997, Grant Thornton noted items
that gave rise to concerns encompassing the timeliness and efficiency of the
Company's billing process and the accuracy of information provided to customers.
According to Grant Thornton, lack of an efficient process had led to relatively
large amounts being recorded as "unbilled" receivables. In addition, Grant
Thornton noted that numerous problems were encountered when collecting amounts
recorded as overdue with customers stating they had received invoices only days
prior to the collection call. Grant Thornton suggested that systems should be
implemented to ensure all expense claims and time sheets are received on a
timely basis, and unbilled revenue should be maintained at zero or an
insignificant amount.
SOFTWARE DEVELOPMENT COSTS. FASB 86 requires that costs incurred internally
in creating a computer software product shall be charged to expense when
incurred as research and development until technological feasibility has been
established for the product. Technological feasibility is established upon
completion of a detailed program design or, in its absence, completion of a
working model. Thereafter, all software production costs shall be capitalized
and subsequently reports at the lower of unamortized cost or net realizable
value. Capitalized costs are amortized based on current and future revenue for
each product with an annual minimum equal to the straight-line amortization over
the remaining estimated economic life of the product.
Grant Thornton suggested that sensitive decisions relating to capitalization
and amortization of software development costs should be documented and
supported. All details, such as date of and rationale behind technological
feasibility and the date of general availability for sale to the public, should
be recorded.
INSUFFICIENT ACCOUNTING PERSONNEL. According to Grant Thornton, staffing
levels at the Company did not appear sufficient to deal with the growth in the
Company's sales. In addition, the accounting clerk at the Company resigned
effective December 31, 1997, which Grant Thornton suggested resulted in delays
in performing routine accounting functions such as cash collections and billings
as well as providing schedules required to complete the year-end audit.
The Company's Chief Financial Officer performed or assisted in practically
all of the Company's accounting functions, account reconciliations, general
ledger posting, financial reporting and various others. Grant Thornton believed
that by its involvement in such a myriad of activities, chances of errors were
increased. Grant Thornton believed that priorities should be redirected from
daily mundane bookkeeping chores to more important functions. Grant Thornton
recommended that management perform a review of staffing levels at the Company
and hire additional staff where required.
LACK OF INTERNAL CONTROLS AND ACCOUNTING SYSTEMS--GENERAL. Grant Thornton
reported that the size of the Company's accounting department precluded strict
segregation of accounting functions and a detailed system of internal controls.
Grant Thornton believed there were a number of areas in which controls and
systems could be improved.
I-2
<PAGE>
[LEVEL 8 LOGO]
8000 REGENCY PARKWAY
CARY, NORTH CAROLINA 27511
April , 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of Level 8 Systems, Inc. (the "Company") to be held at , New York on
May , 1999 at 10:00 a.m., local time. I sincerely hope that you will be able
to attend the meeting, and I look forward to seeing you.
The attached Notice of Annual Meeting and Proxy Statement describe the
formal business to be transacted at the meeting. We also will report on the
operations of the Company during the past year as well as on our plans for the
future.
We are including with this Proxy Statement a copy of the Company's Annual
Report. It contains information on the Company's operations, markets, products
and services as well as the Company's audited financial statements.
Please take this opportunity to become involved in the affairs of the
Company. The Proxy Statement is lengthy, and each of the issues covered is
important to position the Company for growth. We hope you will take time to
carefully consider each matter.
Whether or not you expect to be present at the meeting, please complete,
date, sign and mail the enclosed proxy in the envelope provided. Returning the
proxy does NOT deprive you of your right to attend the meeting and vote your
shares in person. If you attend the meeting, you may withdraw your proxy and
vote your own shares.
Sincerely,
Arie Kilman
Chairman of the Board
<PAGE>
PROXY--COMMON STOCK
LEVEL 8 SYSTEMS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING
OF STOCKHOLDERS--MAY , 1999
STEVEN DMISZEWICKI and DENNIS MCKINNIE, or either of them, with full power
of substitution, are hereby appointed proxies to vote all shares (unless a
lesser number is specified on the other side) of Common Stock, par value $.01
per share of Level 8 Systems, Inc. (the "Company") that the undersigned would be
entitled to vote at the Annual Meeting of Stockholders of the Company to be
0held on May , 1999 at , New York at 10:00 a.m., local time, and
any adjournments thereof, with all powers the undersigned would possess if
personally present, for (i) the election of directors, (ii) the approval of the
issuance of shares of Common Stock through a Private Placement, (iii) the
approval of a plan of merger to reincorporate the Company in Delaware, (iv) the
approval of the amendment to the Company's Certificate of Incorporation, (v) the
approval of an amendment to the Company's 1997 Stock Option Plan, (vi) the
adoption of the Company's Employee Stock Purchase Plan (U.S.), (vii) the
adoption of the Company's International Employee Stock Purchase Plan, (viii) the
adoption of the Company's Outside Directors Stock Incentive Plan, and (ix) the
ratification of the Company's independent public accountants as described in the
Proxy Statement and in their discretion with respect to matters incident to the
conduct of the meeting and matters as to which the Board of Directors does not
know, as of a reasonable time before the solicitation of this proxy, are to be
presented at the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED FOR
EACH OF PROPOSALS 1 THROUGH 9 AND IN THE DISCRETION OF THE PROXY HOLDER(S) WITH
RESPECT TO OTHER MATTERS PROPERLY BROUGHT BEFORE THE MEETING, INCLUDING ANY
ADJOURNMENTS THEREOF.
<TABLE>
<S> <C>
No. 1 Proposal to elect Arie Kilman, Michel Berty, Robert M. Brill, Theodore Fine, Frank J. Klein, Lenny Recanati, and Samuel
Somech as directors of the Company.
/ / For / / Withheld (INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's
name in the space provided below.)
No. 2 Proposal to approve the issuance of shares of Common Stock through a Private Placement.
/ / For / / Against / / Abstain
No. 3 Proposal to approve a plan of merger to reincorporate the Company under the laws of the State of Delaware.
/ / For / / Against / / Abstain
</TABLE>
(Continued and to be SIGNED on the Next Page)
<PAGE>
<TABLE>
<S> <C>
No. 4 Proposal to approve the amendment of the Company's Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 15,000,000 to 40,000,000 and the number of shares of preferred stock of the Company from
1,000,000 to 10,000,000.
/ / For / / Against / / Abstain
No. 5 Proposal to approve an amendment to the Company's 1997 Stock Option Plan to increase the number of shares of Common Stock
subject to awards under the plan from 1,400,000 shares to 2,600,00 shares.
/ / For / / Against / / Abstain
No. 6 Proposal to approve the adoption of the Level 8 Systems, Inc. Employee Stock Purchase Plan (U.S.).
/ / For / / Against / / Abstain
No. 7 Proposal to approve the adoption of the Level 8 Systems, Inc. International Stock Purchase Plan.
/ / For / / Against / / Abstain
No. 8 Proposal to approve the adoption of the Level 8 Systems, Inc. Outside Directors Stock Incentive Plan.
/ / For / / Against / / Abstain
No. 9 Proposal to ratify the appointment of PricewaterhouseCoopers L.L.P. as the Company's independent public accountants.
/ / For / / Against / / Abstain
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF PROPOSALS 1 THROUGH 9.
Please mark and date the proxy and
sign your name as it appears
hereon. If executed by a
corporation, a duly authorized
officer must sign by name and
title. Executors, administrators
and trustees must so indicate when
signing. If shares are held
jointly, EACH holder must sign.
Dated _______________________, 1999
___________________________________
___________________________________
Signature(s) of Stockholder(s)
