SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) June 29, 1999
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Level 8 Systems,Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware
(New York prior to June 23, 1999) 0-26392 11-2920559
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(State or Other Jurisdiction (Commission File Number) I.R.S. Employer
of Incorporation) Identification No.)
8000 Regency Parkway
Cary, NC 27511
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code (919) 380-5000
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ITEM 5. OTHER EVENTS
On June 29, 1999, Level 8 Systems, Inc. completed a $21 million private
placement of 21,000 shares of Series A 4% Convertible Redeemable Preferred Stock
("Series A Preferred Stock"), convertible into an aggregate of 2.1 million
shares of common stock of Level 8. Holders of the Series A Preferred Stock are
entitled to receive 4% annual cash dividends payable quarterly and will have one
vote per share of Series A Preferred Stock, voting together with the common
stock and not as a separate class except on certain matters adversely affecting
the rights of holders of the Series A Preferred Stock. The Series A Preferred
Stock may be redeemed at the option of Level 8 at a redemption price equal to
the original purchase price at any time after June 29, 2000 if the closing price
of Level 8's common stock over 20 consecutive trading days is greater than $20
per share. The conversion price of the Series A Preferred Stock is subject to
certain anti-dilution provisions, including adjustments in the event of certain
sales of common stock at a price of less than $10 per share. In the event Level
8 breaches its obligations to pay dividends when due or issue common stock upon
conversion, or Level 8's common stock is delisted, the dividend rate on the
Series A Preferred Stock would increase to 18% per annum (partially payable in
shares of common stock at the option of Level 8 during the first 60 days of such
increased dividend rate). As part of the $21 million financing, Level 8 also
issued the investors warrants to purchase 2.1 million shares of common stock at
an exercise price of $10 per share. Level 8 has agreed to register the common
stock issuable upon conversion of the Series A Preferred Stock and exercise of
the warrants for resale under the Securities Act of 1933. Level 8 is required
to make certain payments in the event it is unable to meet its obligations in
connection with the Series A Preferred Stock and warrants, such as registration
under the Securities Act or issuance of shares of common stock upon conversion
or exercise. The aggregate amount of all such payments, together with dividends
on the Series A Preferred Stock, is limited to 19% of the liquidation value of
the Series A Preferred Stock. Investors in the Series A Preferred Stock and
warrants include Advanced Systems Europe B.V. and investment funds affiliated
with Brown Simpson Asset Management and Seneca Capital Management. Advanced
Systems Europe purchased $10 million of Series A Preferred Stock and warrants in
the transaction and is a subsidiary of Liraz Systems, Ltd., Level 8's
controlling stockholder.
The foregoing summary description is qualified in its entirety by reference
to the definitive transaction documents, copies of which are attached as
exhibits to this Current Report on Form 8-K.
Effective June 23, 1999, Level 8 Systems, Inc. completed its
reincorporation under Delaware law.
ITEM 7. EXHIBITS
2.1 Agreement and Plan of Merger providing for the reincorporation of Level
8 Systems under Delaware Law (incorporated by reference to Appendix A to the
Company's definitive proxy statement for its 1999 annual meeting filed on
Schedule 14A (the "1999 Proxy Statement").
2
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3.1 Certificate of Incorporation of Level 8 Systems, Inc., a Delaware
corporation (incorporated by reference to Annex B to the 1999 Proxy Statement).
3.2 Bylaws of Level 8 Systems, Inc., a Delaware corporation (incorporated by
reference to Annex C to the 1999 Proxy Statement).
3.3 Certificate of Designation relating to Series A 4% Convertible
Redeemable Preferred Stock.
10.1 Securities Purchase Agreement dated June 29, 1999 among Level 8
Systems, Inc. and the investors named on the signature pages thereof.
10.2 Form of Warrants issued June 29, 1999 in connection with the sale of
Series A 4% Convertible Redeemable Preferred Stock.
10.3 Registration Rights Agreement dated June 29, 1999 among Level 8
Systems, Inc. and the investors named on the signature pages thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LEVEL 8 SYSTEMS, INC.
Dated: July 22, 1999 By: /s/ Steven Dmiszewicki
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Steven Dmiszewicki
President
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<PAGE>
EXHIBIT 3.3
LEVEL 8 SYSTEMS, INC.
CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES
AND LIMITATIONS OF PREFERRED STOCK
ARTICLE I
DESIGNATION, AMOUNT, PAR VALUE, LIQUIDATION VALUE AND RANK
1.1 The series of preferred stock shall be designated as Series A 4%
Convertible Redeemable Preferred Stock, ("Series A Preferred Stock" or
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"Preferred Stock"), and the number of shares so designated shall be up to 21,000
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(which shall not be subject to increase without the consent of the Required
Holders of the Series A Preferred Stock). Each share of Preferred Stock, $.001
par value per share, shall have a liquidation value of $1,000 per share (the
"Liquidation Value"). The Board of Directors of the Company created the Series
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A Preferred Stock pursuant to the Authority conferred upon the Board of
Directors of the company by the Certificate of Incorporation of the company
pursuant to 151(g) of the General Corporation Law of the state of Delaware.
1.2 The Series A Preferred Stock shall rank senior to the Junior Securities
as to dividends, distributions and upon liquidation, dissolution or winding up.
ARTICLE II
DIVIDENDS
2.1 Holders of the Series A Preferred Stock ("Holders") shall be entitled
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to receive, out of funds legally available therefor, and the Company shall pay,
cumulative cash dividends at the rate per share (as a percentage of the
Liquidation Value per share) equal to 4% per annum, payable quarterly, on
January 15, April 15, July 15 and October 15 (if any such day is not a Business
Day, then the next Business Day) of each year (each a "Dividend Payment Date")
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commencing on October 15, 1999, in cash. The "Record Date" for any dividend
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payment is the close of business on January 1, April 1, July 1 or October 1, as
the case may be, whether or not a Business Day, immediately preceding the
Dividend Payment Date on which such dividend is payable. Dividends on the
Series A Preferred Stock shall be calculated on the basis of a 365-day year (or
366-day year for any leap year), shall accrue daily commencing on the Issuance
Date, and shall be deemed to accrue from such date and be cumulative whether or
not earned or declared and whether or not there are profits, surplus or other
funds of the Company legally available for the payment of dividends. No
interest, or sum of money in lieu of interest shall be payable in respect of any
dividend payment on shares of Preferred Stock which may be in arrears.
Accrued and unpaid dividends of the Preferred Stock for any shares which are
being converted shall be paid to the extent of the funds legally available
therefor on the date on which such Preferred Stock is converted. Except as
otherwise provided herein, if at any time the Company pays less than the total
amount of dividends then accrued on account of the Preferred Stock, such payment
shall be distributed ratably among the Holders based upon the number of shares
held by each Holder.
exhibit 3.3, page 1
<PAGE>
2.2 So long as any Preferred Stock shall remain outstanding or unconverted,
except pursuant to existing agreements of the Company on the date hereof,
neither the Company nor any Subsidiary thereof shall, without the prior written
consent of the Required Holders, redeem, purchase or otherwise acquire directly
or indirectly any Junior Securities, nor shall the Company directly or
indirectly pay or declare any dividend or make any distribution (other than a
dividend or distribution described herein) upon, nor shall any distribution be
made in respect of, any Junior Securities, nor shall any monies be set aside for
or applied to the purchase or redemption (through a sinking fund or otherwise)
of any Junior Securities. The provisions of this Section 2.2 shall not,
however, apply to (a) the acquisition of shares of any Junior Stock in exchange
for shares of other Junior Stock, (b) the payment of cash dividends on the
Common Stock to the extent that equivalent dividends are paid on the Preferred
Stock as provided above, or (c) any repurchase from former employees, directors
or consultants in connection with the termination of employment or services as
an employee, director or consultant that is approved by the Company's Board of
Directors.
ARTICLE III
VOTING RIGHTS
3.1 Except as expressly otherwise provided herein and as otherwise required
by law, the Holders of Preferred Stock shall be entitled to one vote per share
and shall vote together with the holders of Common Stock as a single class on
all matters on which holders of Common Stock are entitled to vote. Furthermore,
so long as not less than 85% of the shares of Preferred Stock issued
pursuant to the Purchase Agreement are outstanding, the Company shall not and
shall cause its subsidiaries not to, without the affirmative vote or consent of
the Holders of more than 85% of the shares of the Preferred Stock then
outstanding (the "Required Holders"), (a) alter or change adversely the absolute
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or relative powers, preferences or rights given to the Preferred Stock, (b)
alter or amend this Certificate of Designation, (c) amend its, or their,
Certificate of Incorporation, bylaws or other charter documents so as to affect
adversely any rights of any Holders; provided, however, that amendment of other
provisions of the Certificate of Incorporation so as to authorize or create, or
to increase the authorized amount of, any Junior Stock or any shares of any
class or series ranking pari passu with the Preferred Stock shall not be deemed
to affect adversely any rights of any Holder, (d) increase the authorized number
of shares of Preferred Stock, (e) create a new class of securities pari passu
with or senior to the Preferred Stock, or (f) enter into any agreement with
respect to the foregoing.
ARTICLE IV
LIQUIDATION
4.1 Upon any liquidation, dissolution or winding-up of the Company, whether
voluntary or involuntary (a "Liquidation"), the Holders shall be entitled to
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receive out of the assets of the Company legally available therefor, whether
such assets are capital or surplus, for each share of Preferred Stock an amount
equal to the Liquidation Value, plus all accrued but unpaid dividends per share,
whether declared or not, before any distribution or payment shall be made
to the Holders of any Junior Securities. If the assets of the Company shall be
exhibit 3.3, page 2
<PAGE>
insufficient to pay in full all amounts due to the Holders then the entire
assets shall be distributed ratably to the Holders and the Holders of all
securities ranking pari passu to the Preferred Stock in accordance with the
respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full. The Company shall mail written notice of any such
Liquidation, not less than 45 days prior to the payment date stated therein, to
each Holder. A sale, conveyance, lease, transfer or disposition of all or
substantially all of the assets of the Company or the consummation by the
Company of a transaction or series of related transactions in which more than
40% of the voting power of the Company (excluding the Preferred Stock) is
disposed of, or a consolidation or merger of the Company with or into any other
company or companies shall not be treated as a Liquidation, but instead shall be
subject to the provisions of Article VII.
ARTICLE V
CONVERSION
5.1 RIGHT OF HOLDERS TO CONVERT PREFERRED STOCK INTO COMMON STOCK.
(a) Conversion Price. Subject to and upon compliance with the provisions of
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this Section 5.1, each share of Preferred Stock at a price per share equal
to the purchase price per share as set forth in the Purchase Agreement plus any
and all accrued but unpaid dividends thereon may, at any time, be converted into
duly authorized, validly issued, fully-paid and nonassessable shares of Common
Stock at a conversion price of $10.00 per share to be adjusted as set forth in
Section 5.1(b), and subject to the provisions of this Article V (the "Conversion
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Price").
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(b) Notice of Conversion. If an adjustment in the Conversion Price and, if
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applicable, a change in the securities or other property issuable upon
conversion has taken place pursuant to Articles V or VII, then the conversion
described in Section 5.1(a) shall be at the applicable Conversion Price and in
such securities or other property as so adjusted. The Holder desiring to make a
conversion shall deliver to the Company, during usual business hours of the
Company's office, or, at the Holder's option, to the Company's transfer agent
during its usual business hours (with a copy to the Company), a written notice
of election to convert, as provided in the form attached hereto as Exhibit A (a
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"Notice of Conversion"), accompanied, if required, by the stock certificate(s)
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evidencing the shares of Preferred Stock which are to be converted.
5.2 ADJUSTMENT FOR DIVIDENDS; INTEREST PAYMENT AFTER CONVERSION. No payment
or adjustment will be made for dividends on any Common Stock except as
provided herein. On conversion of shares of Preferred Stock, any declared but
unpaid dividends thereon attributable to the period from the Original Issuance
Date to the Conversion Date with respect to the converted shares of Preferred
Stock shall not be canceled, extinguished or forfeited, but rather to the extent
of the funds legally available therefor shall be paid in full to the Holder
thereof by the payment of an amount of shares of Common Stock valued at the
Average Price equal thereto; provided, however, that the Company shall pay such
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amount in cash if the Holder provides the Company with ten (10) days prior
written notice of its intention to be paid in cash, to the extent of the funds
legally available therefor.
exhibit 3.3, page 3
<PAGE>
5.3 ISSUANCE OF SHARES UPON CONVERSION.
(a) As promptly as practicable, but in any event no later than three (3)
Trading Days after delivery of a Notice of Conversion and, if required, the
surrender, as herein provided, of any certificates for shares of Preferred Stock
for conversion, the Company shall deliver or cause to be delivered to the
Holder of the Preferred Stock delivering such Notice of Conversion, or such
Holder's designee, a certificate or certificates representing the number of duly
authorized, validly issued, fully-paid and nonassessable shares of Common Stock,
into which such shares of Preferred Stock may be converted in accordance with
the provisions of this Article V. Such conversion shall be deemed to have been
made at the time and on the date the Notice of Conversion is delivered to the
Company and the shares of Preferred Stock being converted are promptly delivered
to the Company (the "Conversion Date"), and the rights of the Holder of such
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Preferred Stock as a Holder (subject to the Company's satisfaction of its
obligations hereunder with respect to such conversion) shall cease at such time
with respect to the shares of Preferred Stock that such Holder would have held
had the shares of Preferred Stock converted into Underlying Shares not been so
converted (the "Converted Preferred Stock"), the Person or Persons entitled to
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receive the shares of Common Stock, upon conversion of such Preferred Stock,
shall be treated for all purposes as having become the record holder or holders
of such shares of Common Stock at such time, and such conversion shall be at the
Conversion Price in effect on the Conversion Date. Subject to paragraph 5.3(b),
if any certificated shares of Preferred Stock are converted in part only, upon
such conversion the Company shall execute and deliver to the Holder thereof, as
requested by such Holder, a new Preferred Stock certificate for the number of
shares of Preferred Stock equal to the unconverted portion of such Preferred
Stock certificate. Without in any way limiting the Holder's right to pursue
other remedies, including actual damages and/or equitable relief, the parties
hereto agree that if the Company fails to deliver the shares of Common Stock
required to be issued upon the conversion of such shares of Preferred Stock
under this Section 5.3 within the three (3) Trading Day period referred above
for any reason other than the failure to have a sufficient number of shares
authorized and reserved (in which case the Conversion Default Payment
provisions in Section 6.2 hereof shall apply), the Company shall pay to the
Holder upon demand an amount of cash (at the Holder's option) equal to the
product of (w) the number of shares of Common Stock required to be issued upon
the conversion of the Preferred Stock, (x) the Per Share Market Value of such
shares on the Conversion Date, (y) the number of days after such three (3)
Trading Day period that such shares are not delivered to the Holder, and (z)
0.005; provided, however, that the Company shall not be obligated to make any
payments to a Holder pursuant to this sentence if the Company makes a payment to
such in accordance with Section 5.3(d) hereof and provided further that any
payment otherwise required by this sentence need not be made to a Holder until
the end of business on the fifth Trading Day after which shares of Common Stock
are required to be delivered to the Holder and that such payment is not required
to be made if the Company delivers to the Holder the total number of shares of
Common Stock required to be issued upon the conversion of such shares of
Preferred Stock.
(b) In lieu of delivering physical certificates representing the Conversion
Shares, provided the Company's transfer agent is participating in the Depositary
Trust Company Fast Automated Securities Transfer ("FAST") program, upon request
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of the Holder and in compliance with the provisions of Sections 5.1 and 5.3,
exhibit 3.3, page 4
<PAGE>
the Company shall use its best efforts to cause its transfer agent to
electronically transmit the shares of Common Stock issuable upon conversion of
the Preferred Stock to the Holder by crediting the account of the Holder's Prime
Broker with DTC through its Deposit Withdrawal Agent Commission system. The
time period for delivery described in the immediately preceding paragraph shall
apply to the electronic transmittals described herein. The Company and its
transfer agent shall be entitled to rely in good faith on delivery instructions
which reasonably appear on their face to be issued on behalf of a Holder, and
will have no liability with respect to any misdeliveries of shares of Common
Stock if such instructions are followed.
(c) In addition to any other rights available to the Holder, if the Company
fails to deliver to the Holder such certificate or certificates for shares of
Common Stock pursuant to Section 5.3(a), including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of any
declared but unpaid dividends hereunder, by the third (3rd) Trading Day after
the Conversion Date, and if after such third (3rd) Trading Day the Holder
purchases (in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale (in accordance with the Securities Act of 1933) by
such Holder of the Underlying Shares which the Holder was entitled to receive
upon such conversion (a "Buy-In"), then the Company shall (A) pay in cash to the
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Holder the amount by which (x) the Holder's total purchase price (including
reasonable brokerage commissions actually incurred, if any) for the Common Stock
so purchased exceeds (y) the product of (1) the aggregate number of shares of
Common Stock that such Holder was entitled to receive from the conversion at
issue multiplied by (2) the market price of the Common Stock at the time of the
sale giving rise to such purchase obligation and (B) at the option of the
Holder, either return the Preferred Stock for which such conversion was not
honored or deliver to such Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its conversion and
delivery obligations under Section 5.3(a). For example, if the Holder purchases
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to an attempted conversion of Preferred Stock with respect to which the
market price of the Underlying Shares on the date of conversion totaled $10,000,
under clause (A) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In.
ARTICLE VI
REGISTRATION REQUIREMENTS
6.1 RESERVATION OF SHARES. The Company covenants that it will at all times
reserve and keep available out of its authorized shares of Common Stock, free
from preemptive rights, solely for the purpose of issue upon conversion of the
Preferred Stock as herein provided, such number of shares of the Common Stock as
shall then be issuable upon the conversion of all outstanding shares of
Preferred Stock into Common Stock (the "Reserved Amount"). The Company
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covenants that all shares of the Common Stock issued upon conversion of the
Preferred Stock which shall be so issuable shall, when issued, be duly and
validly issued and fully paid and non-assessable.
exhibit 3.3, page 5
<PAGE>
6.2 If, at any time a Holder of Preferred Stock submits a Notice of
Conversion, and the Company does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article VI (a "Conversion Default"), subject to Section
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7.9, the Company shall issue to the Holder all of the shares of Common Stock
which are then available to effect such conversion. The portion of Preferred
Stock which the Holder included in its Conversion Notice and which exceeds the
amount which is then convertible into available shares of Common Stock (the
"Excess Amount") shall, notwithstanding anything to the contrary contained
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herein, not be convertible into Common Stock in accordance with the terms hereof
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until (and at the Holder's option at any time after) the date additional shares
of Common Stock are authorized by the Company to permit such conversion at which
time the Conversion Price in respect thereof shall be the lesser of (i) the Per
Share Market Value on the Conversion Default Date (as defined below) and (ii)
the Per Share Market Value on the Conversion Date thereafter elected by the
Holder in respect thereof. In addition, the Company shall pay to the Holder
payments ("Conversion Default Payments") for a Conversion Default in the amount
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of (x) the sum of (1) the number of the Holder's Excess Amount Preferred Stock
plus (2) any declared and unpaid dividends on such shares of Preferred Stock
through the Authorization Date (as defined below) multiplied by (y) .24,
multiplied by (z) (N/365), where N equals the number of days from the Fourth
(4th) Trading Day following the date of which the Holder submits a Notice of
Conversion giving rise to a Conversion Default (the "Conversion Default Date")
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to the date (the "Authorization Date") that the Company authorizes a sufficient
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number of shares of Common Stock to effect conversion of the full number of
outstanding shares of Preferred Stock. The Company shall use its best efforts
to authorize a sufficient number of shares of Common Stock as soon as
practicable following the earlier of (i) such time that the Holder notifies the
Company or that the Company otherwise becomes aware that there are or likely
will be insufficient authorized and unissued shares to allow full conversion
thereof and (ii) a Conversion Default. The Company shall send notice to the
Holder of the authorization of additional shares of Common Stock, the
Authorization Date and the amount of Holder's accrued Conversion Default
Payments. The accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at such time as there
are sufficient authorized shares of Common Stock following the Authorization
Date) at the applicable Conversion Price, at the Holder's option, as follows:
(a) In the event Holder elects to take such payment in cash, cash payment
shall be made to Holder by the fifth (5th) Business Day of the month following
the month in which it has accrued; and
(b) In the event Holder elects to take such payment in Common Stock, the
Holder may convert such payment amount into Common Stock at the lesser of the
Conversion Price (as in effect at the time of conversion) and the Per Share
Market Value (on the fifth day of the month referred to below) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article VI (so long as there is then a
sufficient number of authorized shares of Common Stock).
6.3 The Holder's election shall be made in writing to the Company at any
time prior to 9:00 p.m., New York City Time, on the third day of the month
exhibit 3.3, page 6
<PAGE>
following the month in which Conversion Default payments have accrued. If no
election is made, the Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the Holder's right to pursue actual damages (to the
extent in excess of the conversion Default Payments) for the Company's failure
to maintain a sufficient number of authorized shares of Common Stock, and each
Holder shall have the right to pursue all remedies available at law or in equity
(including degree of specific performance and/or injunctive relief).
6.4 Notwithstanding the foregoing, the provisions of Section 2(d) of the
Registration Rights Agreement are incorporated herein by reference.
ARTICLE VII
ADJUSTMENT OF CONVERSION PRICE
7.1 ADJUSTMENT OF CONVERSION PRICE. In addition to any adjustment to the
Conversion Price provided elsewhere in this Certificate of Designation, the
Conversion Price in effect at any time shall be subject to adjustment from time
to time upon the happening of certain events, as follows:
(a) Common Stock Dividends; Common Stock Splits; Reverse Common Stock
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Splits. If the Company, at any time while the Preferred Stock is outstanding,
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(a) shall pay a stock dividend on its Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine outstanding
shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of capital stock of the
Company, the Conversion Price shall be multiplied by a fraction the numerator of
which shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and the denominator of which shall
be the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 7.1(a) shall become effective on the
effective date of any dividend, distribution, subdivision, combination or
re-classification.
(b) Rights; Warrants. If the Company, at any time while the Preferred Stock
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is outstanding, shall issue rights or warrants to all of the holders of Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Conversion Price and similar rights are not
concurrently distributed to the Holders, the Conversion Price shall be
multiplied by a fraction, the denominator of which shall be the number of shares
of Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and the numerator of which
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at the Conversion Price. Such adjustment shall
be made whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of shareholders entitled
to receive such rights or warrants.
(c) Subscription Rights. If the Company, at any time while the Preferred
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Stock is outstanding, shall distribute to all of the holders of Common Stock
exhibit 3.3, page 7
<PAGE>
evidence of its indebtedness or assets or rights or warrants to subscribe for or
purchase any security (excluding those referred to in Sections 7.1(a) and (b)
above) and similar rights are not concurrently distributed to the Holders, then
in each such case the Conversion Price at which the Preferred Stock shall
thereafter be exercisable shall be determined by multiplying the Conversion
Price in effect immediately prior to the record date fixed for determination of
shareholders entitled to receive such distribution by a fraction, the
denominator of which shall be the Per Share Market Value of Common Stock
determined as of the record date mentioned above, and the numerator of which
shall be such Per Share Market Value of the Common Stock on such record date
less the then fair market value at such record date of the portion of such
assets or evidence of indebtedness so distributed applicable to one outstanding
share of Common Stock as determined by the Board of Directors in good faith;
provided, however, that in the event of a distribution exceeding ten percent
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(10%) of the net assets of the Company, such fair market value shall be
determined by one Appraiser selected in good faith by the Holder; and provided,
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further, that the Company, after receipt of the determination by such Appraiser
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shall have the right to select an additional Appraiser meeting similar
qualifications, in good faith, in which case the fair market value shall be
equal to the average of the determinations by each such Appraiser. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(d) Rounding. All calculations under Section 7.1 shall be made to the
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nearest cent or the nearest l/l00th of a share, as the case may be.
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(e) Notice of Adjustment. Whenever the Conversion Price is adjusted
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pursuant to paragraphs 7.1(a), (b) or (c), the Company shall promptly deliver to
the Holder a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(f) Events Triggering Dividend Adjustment. The following are "Triggering
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Events" under this Section 7.1(f): (A) any reclassification of the Common Stock
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which would have a material adverse affect on the rights of holders of the
securities into which the Preferred Stock is convertible, (B) any suspension
from listing or delisting of the Common Stock such that the Common Stock is not
listed on Nasdaq or any Subsequent Market for a period of ten consecutive
Trading Days, or (C) a breach by the Company of its obligations to pay dividends
when due pursuant to Article II of this Certificate of Designation or to issue
Common Stock upon conversion of the Preferred Stock pursuant to Article V of
this Certificate of Designation, but only if such breach continues for a period
of at least 10 Trading Days after the Company is notified by any Holder of such
breach.
Following the occurrence of any Triggering Event (a "Dividend Adjustment
Event"), dividends on the Preferred Stock shall accrue on the Preferred Stock
from the date of such Triggering Event at a rate per share equal to 18% per
annum (as a percentage of the Liquidation Value per share) until such date as
such Triggering Event has been cured. In the event Holders of the Preferred
exhibit 3.3, page 8
<PAGE>
Stock would otherwise also be entitled to any other payments or an adjustment to
the Conversion Price as a result of the Dividend Adjustment Event, Holders of
the Preferred Stock shall be entitled to receive the dividend adjustment
described in this paragraph or such other payment or Conversion Price
adjustment, whichever shall provide the greater economic benefit to the Holders,
but not both. In the event that it cannot be readily determined which
adjustment would provide the greater economic benefit to the Holders, the
Holders of a majority of the outstanding Preferred Stock shall determine which
adjustment the Holders of the Preferred Stock shall receive, which determination
shall be binding on Holders of the Preferred Stock. In the case of a Dividend
Adjustment Event, up to one-third of the aggregate amount of the dividends
(representing up to 6% per annum as a percentage of Liquidation Value per share)
that accrue during the 60-day period commencing on the Triggering Event may be
payable by, at the option of the Company, in shares of Common Stock valued at
the Average Price on the Record Date; all other amounts of dividends shall be
paid in cash from funds legally available therefor.
(g) Adjustment to Conversion Price.
---------------------------------
(i) If the Company, at any time while the Preferred Stock is outstanding,
takes any of the actions described in this Section 7.1(g), then, in order to
prevent dilution of the rights granted under this Certificate of Designation,
the Conversion Price will be subject to adjustment from time to time as provided
in this Section 7.1(g).
(ii) Adjustment of Conversion Price upon Issuance of Common Stock. If at
---------------------------------------------------------------
any time while the Preferred Stock is outstanding the Company issues or sells,
or is deemed to have issued or sold, any shares of Common Stock (other than the
shares of Common Stock underlying the Warrants or the Preferred Stock or shares
issued upon exercise of the Warrants or conversion of the Preferred Stock
(collectively, the "Underlying Shares") or other shares of Common Stock issued
-----------------
to any Holder or shares of Common Stock deemed to have been issued by the
Company in connection with a Stock Option Plan, or shares of Common Stock
issuable upon the exercise of any options or warrants outstanding on the date
hereof and listed in Schedule 2.1(c) of the Purchase Agreement or the securities
to be issued in the transactions set forth on such Schedule 2.1(c) or any
securities to be issued in an Underwritten Offering (as defined in the
Registration Rights Agreement) before December 31, 2000 or shares of Common
Stock issued or deemed to have been issued as consideration for an acquisition
by the Company of a division, assets or business (or stock constituting any
portion thereof) from another Person), for a consideration per share less than
the Conversion Price in effect immediately prior to such issuance or sale, then
immediately after such issuance or sale the Conversion Price then in effect
shall be reduced to an amount equal to the lesser of: (A) the Adjusted Price in
such issuance or sale, or (B) the Average Price on the date of such issuance or
sale. For the purpose of determining the adjusted Conversion Price under this
Section 7.1(g), the following shall be applicable:
(A) Issuance of Options. If at any time while the Preferred Stock is
---------------------
outstanding the Company in any manner grants any rights or options to subscribe
for or to purchase Common Stock or any stock or other securities convertible
into or exchangeable for Common Stock (other than the Underlying Shares or
shares of Common Stock deemed to have been issued by the Company in connection
with a Stock Option Plan, or shares of Common Stock issuable upon the exercise
of any options or warrants outstanding on the date hereof and listed in Schedule
2.1(c) of the Purchase Agreement, or the securities to be issued in the
transactions set forth on such Schedule 2.1(c), or any securities to be issued
exhibit 3.3, page 9
<PAGE>
in an Underwritten Offering (as defined in the Registration Rights Agreement)
before December 31, 2000, or shares of Common Stock issued or deemed to have
been issued as consideration for an acquisition by the Company of a division,
assets or business (or stock constituting any portion thereof) from another
Person) (such rights or options being herein called "Options" and such
-------
convertible or exchangeable stock or securities being herein called "Convertible
-----------
Securities") and the price per share for which Common Stock is issuable upon the
- ----------
exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Conversion Price in effect immediately prior to such
grant, then the Conversion Price then in effect shall be reduced to equal the
lesser of: (A) the Adjusted Price upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities, or (B) the Average Price
on the date of such grant. No adjustment of the Conversion Price shall be made
upon the actual issuance of such Common Stock upon conversion or exchange of
such Options.
(B) Issuance of Convertible Securities. If at any time while the Preferred
-----------------------------------
Stock is outstanding the Company in any manner issues or sells any Convertible
Securities and the price per share for which Common Stock is issuable upon such
conversion or exchange (other than the Underlying Shares or shares of Common
Stock deemed to have been issued by the Company in connection with a Stock
Option Plan, shares of Common Stock issuable upon the exercise of any options or
warrants outstanding on the date hereof and listed in Schedule 2.1(c) of the
Purchase Agreement, shares of Common Stock issued or deemed to have been issued
as consideration for an acquisition by the Company of a division, assets or
business (or stock constituting any portion thereof) from another Person) is
less than the Conversion Price in effect immediately prior to issuance or sale,
then the Conversion Price then in effect shall be reduced to an amount equal to
the lesser of: (A) the Adjusted Price upon the conversion or exchange of such
Convertible Securities, or (B) the Average Price on the date of such issuance or
sale. No adjustment of the Conversion Price shall be made upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.
(C) Change in Option Price or Rate of Conversion. If there is a change at
----------------------------------------------
any time in (i) the Purchase Price provided for in any Options, (ii) the
additional consideration, if any, payable upon the issue, conversion or exchange
of any Convertible Securities or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock, then
immediately after such change in option price or rate of conversion the
Conversion Price in effect at the time of such change shall be readjusted to the
lesser of: (A) the Conversion Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed Purchase Price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold, or (B) the
Average Price on the date of such change; provided that no adjustment shall be
made if such adjustment would result in an increase of the Conversion Price then
in effect.
exhibit 3.3, page 10
<PAGE>
(D) Effect on Conversion Price of Certain Events. For purposes of
--------------------------------------------------
determining the adjusted Conversion Price under Section 7.1, the following shall
be applicable:
(I) Calculation of Consideration Received. If any Common Stock, Options or
--------------------------------------
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Company therefor. In case any Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company will be
the fair value of such consideration, except where such consideration consists
of securities, in which case the amount of consideration received by the Company
will be the Average Price of such security immediately preceding the date
of receipt. In case any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with any merger
in which the Company is the surviving entity the amount of consideration
therefor will be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be determined jointly by
the Company and the Holders of Preferred Stock representing a majority of the
aggregate number of shares of Preferred Stock then outstanding. If such parties
are unable to reach agreement within ten (10) days after the occurrence of an
event requiring valuation (a "Valuation Event"), the fair value of such
----------------
consideration will be determined within forty-eight (48) hours of the tenth
(10th) day following the Valuation Event by an Appraiser selected in good faith
by the Company and agreed upon by the Holders of Preferred Stock representing a
majority of the aggregate number of shares of Preferred Stock then outstanding.
The determination of such Appraiser shall be binding upon all parties absent
manifest error.
(II) Integrated Transactions. In case any Option is issued in connection
------------------------
with the issue or sale of other securities of the Company, together comprising
one integrated transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options will be deemed to have been
issued for an aggregate consideration of $.001.
(III) Treasury Shares. The number of shares of Common Stock outstanding at
----------------
any given time does not include shares owned or held by or for the account of
the Company, and the disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the holders of Common
------------
Stock for the purpose of entitling them (1) to receive a dividend or other
exhibit 3.3, page 11
<PAGE>
distribution payable in Common Stock, Options or in Convertible Securities or
(2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(V) "Common Stock Deemed Outstanding" means, at any given time, the number
---------------------------------
of shares of Common Stock issued and outstanding at such time, plus the number
of shares of Common Stock deemed to be outstanding pursuant to Sections
7.1(g)(ii)(A) and 7(g)(ii)(B) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock issuable upon exercise of the Warrants.
(E) Certain Events. If any event occurs of the type contemplated by the
---------------
provisions of Section 7.1(g) (subject to the exceptions stated therein) but not
expressly provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then the Company's Board of Directors will make an
appropriate adjustment in the Conversion Price so as to protect the rights of
the Holder, or assigns, of the Preferred Stock; provided, however, that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 7.1(g).
(F) Notices. The Company shall give the Holder written notice of the
-------
occurrence of any of the events specified in this Section 7.1(g) as soon as
practicable, but in no event later than three (3) Business Days, after such
event and shall publicly disclose such event prior to or concurrently with the
giving of such notice. Such notice shall contain at least: (A) a description of
the event, (B) the adjusted Conversion Price with a reference to the applicable
paragraph in Section 7.1(g), and (C) the dates of the five (5) Trading Day
period during which the adjusted Conversion Price is in effect.
(h) Delay in Payment to Holder. If the Company fails for any reason,
------------------------------
voluntarily or involuntarily, to pay the declared dividends on the Preferred
Stock in full on the date such amount is due to the Holder (the "Payment Due
-----------
Date"), then, as partial relief for the delay in such payment to the Holder
- ----
(which remedy shall not be exclusive of any other remedies available at law or
in equity and shall not excuse or waive the Company's obligation to make such
payment), from and after the Payment Due Date the Conversion Price in effect on
the Payment Due Date shall be adjusted to the lesser of (i) the Conversion Price
in effect on the Payment Due Date and (ii) the lowest Per Share Market
Value on any day during the period beginning on and including the Payment Due
Date and ending on the including the date, if ever, the Company pays in full to
the Holder all amounts the Company's failure of which to pay is the basis for
exhibit 3.3, page 12
<PAGE>
this adjustment, subject to further adjustment pursuant to this paragraph or
other provisions of this Certificate of Designation. No adjustments will be
made under this paragraph if the Company's failure to pay is due solely to
delays caused by the Commission, so long as the Company has not breached or
failed to observe or perform any covenant or agreement contained in this
Certificate of Designation, the Warrant(s), the Purchase Agreement or the
Registration Rights Agreement.
(i) Notice of Certain Events. If:
---------------------------
(i) the Company shall declare a dividend (or any other distribution) on its
Common Stock; or
(ii) the Company shall declare a special nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) the Company shall authorize the granting to the holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights; or
(iv) the approval of any shareholders of the Company shall be required in
connection with any reclassification of the Common Stock of the Company, any
consolidation or merger to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of exercise of shares of Preferred Stock, and shall cause to be
delivered to the Registered Owner, at least 10 Business Days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
-------- -------
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
(j) Adjustment of Number of Shares. Upon each adjustment of the Conversion
-------------------------------
Price as a result of the calculations made in this Section 7, each share of
Preferred shall thereafter evidence the right to receive, at the adjusted
Conversion Price, that number of shares of Common Stock (calculated to the
exhibit 3.3, page 13
<PAGE>
nearest one-hundredth) obtained by dividing (i) the product of the aggregate
number of shares covered by such share immediately prior to such adjustment and
the Conversion Price in effect immediately prior to such adjustment of the
Conversion Price by (ii) the Conversion Price in effect immediately after such
adjustment of the Conversion Price.
(k) Expiration or Termination. On the expiration or termination of any
---------------------------
rights, warrants, subscription rights, options or convertible securities, or any
change in the number of shares of Common Stock deliverable upon exercise,
conversion or exchange of such rights, warrants, subscription rights, options or
convertible securities, the Conversion Price then in effect shall forthwith be
readjusted to such Conversion Price as would have been obtained had the
adjustments made upon the issuance of such rights, warrants, subscription
rights, options or convertible securities been made upon the basis of the
delivery of only the number of shares of Common Stock actually delivered or to
be delivered upon the exercise, conversion or exchange of such rights, warrants,
subscription rights, options or convertible securities.
7.2 RESTRICTION ON CONVERSION BY EITHER THE HOLDER OR THE COMPANY.
Notwithstanding anything herein to the contrary, in no event shall any Holder
have the right or be required to convert any or all of the aggregate purchase
price of the Preferred Stock if as a result of such conversion the aggregate
number of shares of Common Stock beneficially owned by such Holder and its
Affiliates would exceed 9.99% of the outstanding shares of the Common Stock
following such conversion. The Company shall be entitled to rely on a Notice of
Conversion in the form of Exhibit A hereto in issuing shares of Common
Stock to a Holder. For purposes of this Section 7.2, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. The provisions of this Section 7.2 may be waived by a Holder
as to itself (and solely as to itself) upon not less than 65 days prior written
notice to the Company, and the provisions of this Section 7.2 shall continue to
apply until such 65th day (or later, if stated in the notice of waiver).
7.3 OFFICER'S CERTIFICATE. Whenever the number of shares purchasable upon
conversion shall be adjusted as required by the provisions of Section 7.1, the
Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted number of shares determined as herein
provided, setting forth in reasonable detail the facts requiring such adjustment
and the manner of computing such adjustment. Each such officer's certificate
shall be signed by the chairman, president or chief financial officer of the
Company and by the secretary or any assistant secretary of the Company. Each
such officer's certificate shall be made available at all reasonable times for
inspection by any holder of the Preferred Stock and the Company shall, forthwith
after each such adjustment, deliver a copy of such certificate to the each of
the Holders.
7.4 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. The Company covenants that
if any shares of Common Stock required to be reserved for purposes of conversion
of Preferred Stock hereunder require registration with or approval of any
governmental authority under any Federal or state law, or any national
securities exchange, before such shares may be issued upon conversion, the
Company will use its best efforts to cause such shares to be duly registered or
approved, as the case may be.
exhibit 3.3, page 14
<PAGE>
7.5 FRACTIONAL SHARES. Upon a conversion hereunder, the Company shall not
be required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
7.6 PAYMENT OF TAX UPON ISSUE OR TRANSFER. The issuance of certificates for
shares of the Common Stock on conversion of the Preferred Stock shall be made
without charge to the Holders thereof for any documentary stamp or similar taxes
that may be payable in respect of the issue or delivery of such certificate,
provided that the Company shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate upon conversion in a name other than that of the Holder of such
Preferred Stock so converted and the Company shall not be required to issue or
deliver such certificates unless or until the Person or Persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
7.7 NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct
answer back received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if received by 5:00 p.m.
eastern time where such notice is to be received), or the first Business Day
following such delivery (if received after 5:00 p.m. eastern time where such
notice is to be received) or (b) on the second Business Day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications are (i) if to the Company to Level 8 Systems,
Inc., 8000 Regency Parkway, Cary, North Carolina 27511 Telephone: (919)
380-5005, Facsimile: (919) 461-2690, Attention: Dennis McKinnie with copies to
Powell, Goldstein, Frazer & Murphy LLP, 16th Floor, 191 Peachtree Street,
Atlanta, GA 30303, Attention: Scott D. Smith, Esq., Facsimile: (404)572-6999,
and (ii) if to any Holder to the address set forth on Schedule II to the
Purchase Agreement with copies to the addressees set forth on Schedule II to the
Registration Rights Agreement or such other address as may be designated in
writing hereafter, in the same manner, by such Person.
7.8 ALLOCATIONS OF RESERVED AMOUNT. The Reserved Amount shall be allocated
pro rata among the Holders based on the number of shares of Preferred Stock
issued to each Holder. Each increase to the Reserved Amount shall be allocated
pro rata among the Holders based on the number of shares of Preferred Stock held
by each Holder at the time of the increase in the Reserved Amount. In the event
a Holder shall sell or otherwise transfer any of such Holder's Preferred Stock,
each transferee shall be allocated a pro rata portion of such transferor's
Reserved Amount. Any portion of the Reserved Amount which remains allocated to
any person or entity which does not hold any Preferred Stock shall be allocated
to the remaining Holders, pro rata, based on the number of shares of Preferred
Stock then held by such Holders.
7.9 NASDAQ LIMITATION. If on any date (the "Determination Date") (a) the
------------------
Common Stock is listed for trading on Nasdaq, (b) the Conversion Price then in
exhibit 3.3, page 15
<PAGE>
effect is such that the aggregate number of shares of Common Stock that would
then be issuable upon conversion in full of the then outstanding shares of
Preferred Stock as if all such shares of Preferred Stock were converted on such
Determination Date (without regard to any limitations on conversions) and as
payment of interest thereon, as would equal or exceed 20% of the number of
shares of the Common Stock outstanding immediately prior to the "Closing Date"
------------
(the "Issuable Maximum"), and (c) the Company shall not have previously obtained
----------------
the vote of the shareholders of the Company (the "Shareholder Approval"), if
--------------------
any, as may be required by the applicable rules and regulations of Nasdaq (or
any successor entity) to approve the issuance of shares of Common Stock in
excess of the Issuable Maximum in a private placement whereby shares of Common
Stock are deemed to have been issued at a price that is less than the greater of
book value or fair market value of the Common Stock, then with respect to the
aggregate shares of Preferred Stock then held by the Holders for which a
conversion in accordance with the Conversion Price would result in an issuance
of shares of Common Stock in excess of such Holder's pro rata allocation (as
described below) of the Issuable Maximum (the "Excess Shares") the Company may
-------------
elect to pay cash to the Holders in an amount equal to the product of the
Average Price on the Determination Date multiplied by the number of shares of
Common Stock that would be issued upon the conversion of the Excess Shares of
the Preferred Stock (the "Prepayment Amount"). Any such election by the Company
-----------------
must be made in writing to the Holders within five (5) Trading Days after the
first such Determination Date and the payment of such Prepayment Amount
applicable to such prepayment must be made in full to the Holders with ten (10)
Business Days after the date such notice is delivered. If the Company does not
deliver timely a notice of its election to prepay under this Section or shall,
if it shall have delivered such a notice, fail to pay the Prepayment Amount
hereunder within ten (10) Business Days thereafter, then each Holder shall have
the option by written notice to the Company, to, if applicable, declare any such
notice given by the Company, if given, to be null and void and require the
Company to either: (i) use its best efforts to obtain the Shareholder Approval
applicable to such issuance as soon as is possible, but in any event not later
than the 60th day after such request unless the Company has previously used its
best efforts to, but has failed to, obtain such approval (provided, that if the
Company shall fail to obtain the Shareholder Approval during such 60-day period,
the Holder may demand the cash payment set forth in Section 7.9(ii) herein) or
(ii) pay cash to such Holder, within five (5) Business Days of such Holder's
notice, in an amount equal to the Prepayment Amount for such Holder's portion of
the Excess Shares. The payment of the Prepayment Amount to each Holder pursuant
to this Section shall be determined on a pro rata basis upon the number of
shares of Preferred Stock held by such Holder on the Determination Date which
is in excess of the pro rata allocation of the Issuable Maximum. If the Company
fails to pay the Prepayment Amount in full pursuant to this Section within five
(5) Business Days after the date payable, the Company will pay interest thereon
at a rate of 20% per annum to the converting Holder, accruing interest daily
from the date of conversion until such amount, plus all such interest thereon,
if any, is paid in full. Until the Company has received the Shareholder
Approval no Holder shall be issued, upon conversion of shares of Preferred
Stock, shares of Common Stock in an amount greater than such Holder's allocated
portion of the Issuable Maximum pursuant to Section 7.8.
7.10 MERGER OR BUSINESS COMBINATION. In the event of any Change of Control,
the Holder shall be entitled upon such event to receive the amount, if any, of
securities, cash or property as if the Holder had converted the shares of the
Common Stock into which the Preferred Stock could have been converted
exhibit 3.3, page 16
<PAGE>
immediately prior to such Change of Control (without taking into account any
limitations or restrictions on the convertibility of the Preferred Stock).
ARTICLE VIII
OPTIONAL REDEMPTION
8.1 OPTIONAL REDEMPTION.
(a) The shares of Preferred Stock are redeemable, in whole or in part, at
the option of the Company during the following time periods, from time to time,
under the following conditions and subject also to the conditions set forth in
Section 8.1(b) (the "Optional Redemption"):
--------------------
(i) After the first anniversary of the Original Issue Date, the Company may
redeem the shares of Preferred Stock subject to the other conditions herein, if
the closing price of the Company's Common Stock over twenty (20) consecutive
Trading Days is greater than $20 per share.
(ii) At any time after the Original Issue Date, the Company may redeem the
shares of Preferred Stock subject to the other conditions herein, if less than
5% of the shares of Preferred Stock issued on the Original Issue Date remain
outstanding, excluding from such calculation any shares of Preferred Stock held
by Affiliates of the Company as of such date (other than any Holder or
transferees or successors or assigns thereof if such Holder is deemed to be an
Affiliate solely by reason of its holdings of Preferred Stock and Warrants).
(b) Subject to the conditions set forth in Section 8.1(a), so long as (i)
any Registration Statement required to be filed and be effective pursuant to the
Registration Rights Agreement is then in effect and has been in effect and
sales of all of the Registrable Securities can be made thereunder for at least
twenty (20) days prior to the Redemption Notice Date (as defined below) and (ii)
the Company has a sufficient number of authorized shares of Common Stock
reserved for issuance upon full conversion of the Preferred Stock, upon ten (10)
Business Days' prior written notice to the Holder (a "Redemption Notice"),
-----------------
shares of Preferred Stock may be redeemed by the Company, in whole or in part in
a minimum amount of at least $5,000,000 Liquidation Value at a price per share
equal to the original purchase price of the Preferred Stock (the "Redemption
----------
Price"), together with any declared but unpaid dividends and all liquidated
- -----
damages and other amounts due in respect thereof up to the Redemption Date (as
defined below) (subject to the right of the Holder on the Record Date to receive
dividends due on the Dividend Payment Date).
8.2 MECHANICS OF REDEMPTION. The Company shall exercise its right to redeem
by delivering its Redemption Notice by facsimile and overnight courier to each
Holder (such date that the notice is given, the "Redemption Notice Date"). Such
----------------------
Redemption Notice shall indicate (A) the Redemption Price, (B) each
exhibit 3.3, page 17
<PAGE>
Holder's pro rata allocation of such maximum amount, and (C) a confirmation of
the date ("Redemption Date") that the Company shall effect the redemption, which
---------------
date shall be not less than thirty (30) calendar days and not more than sixty
(60) calendar days after the Redemption Notice Date. Notwithstanding anything in
this Section 8.2, the Company shall convert any Preferred Stock pursuant to
Article VIII if the Conversion Notice for shares of Preferred Stock submitted
for conversion is (i) received by the Company before the Redemption Date, (ii)
for a Conversion Price greater than or equal to the Redemption Price
(appropriately adjusted in accordance with the terms hereof) or (iii) in excess
of such Holder's pro rata allocation of the maximum Redemption Price indicated
in its Redemption Notice.
8.3 PAYMENT OF REDEMPTION PRICE. The Company shall pay the applicable
Redemption Price to the Holder of the shares of Preferred Stock being redeemed
in cash on the Redemption Date (or, if later, the Business Day following the
Business Day upon which the Company receives the share certificates representing
the Preferred Stock. If the Company shall fail to pay the applicable Redemption
Price to such Holder on the Redemption Date, in addition to any remedy such
Holder may have under this Certificate of Designation and the Purchase
Agreement, such unpaid amount shall bear interest at the rate of 2.0% per month
until paid in full. Until the Company pays such unpaid applicable Redemption
Price in full to each Holder, each Holder of shares of Preferred Stock submitted
for redemption pursuant to this Article VIII and for which the applicable
Redemption Price has not been paid, shall have the option, in lieu of
redemption, to require the Company to promptly return to such Holder all of the
shares of Preferred Stock that were submitted for redemption by such Holder
under this Article VIII and for which the applicable Redemption Price has not
been paid sending written notice to the Company via facsimile requesting the
return to such Holder of all such shares of Preferred Stock (the "Void
----
Redemption Notice"). Upon the Company's receipt of such Void Redemption
---------
Notice(s) and prior to payment of the full applicable Redemption Price to each
Holder, (i) the redemption shall be null and void with respect to those shares
of Preferred Stock submitted for redemption and for which the applicable
Redemption Price has not been paid, (ii) the Company shall immediately return
any Preferred Stock certificates submitted to the Company by each Holder for
redemption under this Article VIII and for which the applicable Redemption Price
has not been paid and (iii) the Conversion Price of such returned shares of
Preferred Stock shall be equal to the Conversion Price in effect on the
Redemption Date. If the Company fails to timely effect a redemption in
accordance with this Article VIII, the Company shall not be allowed to submit
another Redemption Notice without the prior written consent of the Required
Holders.
ARTICLE IX
DEFINITIONS
9.1 DEFINITIONS. For the purposes hereof, the following terms shall have
the following meanings:
"Act" means the Securities Act of 1993, as amended.
---
"Adjusted Price" means the product of (x) the Conversion Price in effect
---------------
immediately prior to such issuance or sale or grant multiplied by (y) the
quotient determined by dividing (1) the sum of (I) the product of (A) the
Conversion Price in effect immediately before the issuance or sale or grant
multiplied by (B) the number of shares of Common Stock Deemed Outstanding (as
defined below) immediately prior to such issuance or sale or grant, plus (II)
exhibit 3.3, page 18
<PAGE>
the consideration, if any, received by the Company upon such issue or sale, by
(2) the product of (I) the Conversion Price in effect immediately before the
issuance or sale or grant, multiplied by (II) number of shares of Common Stock
Deemed Outstanding (as defined below) immediately after such issue or sale or
grant.
"Affiliate" of any Person means any other Person directly or indirectly
---------
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Appraiser" means a nationally recognized or major regional investment banking
---------
firm or firm of independent certified public accountants of recognized standing.
"Authorization Date" has the meaning set forth in Section 6.2.
-------------------
"Average Price" on any date means (x) the sum of the Per Share Market Value for
--------------
the ten (10) Trading Days immediately preceding such date minus (y) the highest
and lowest Per Share Market Value during the ten (10) Trading Days immediately
preceding such date, divided by (z) eight (8), or a similar calculation if
another figure for the number of Trading Days is set forth for clause (x) of
this definition.
"Business Day" means any day except a Saturday, Sunday or other day on which
-------------
commercial banks in the City of New York are authorized or required by law to
close.
"Change of Control" means the occurrence of any of (i) an acquisition after the
------------------
date hereof by an individual or legal entity or "group" (as described in Section
13(d)(3) of the Exchange Act) of in excess of 25% of the voting securities of
the Issuer, (ii) a replacement of more than one-half of the members of the
Issuer's Board of Directors which is not approved by a majority of those
individuals who are members of the Board of Directors on the date hereof, or
their duly elected successors who are directors immediately prior to such
transaction, in one or a series of related transactions, (iii) the merger of the
Issuer with or into another entity, unless following such transaction, the
Holders of the Issuer's securities continue to hold at least 67% of such
securities following such transaction, (iv) the consolidation or sale of all or
substantially all of the assets of the Issuer in one or a series of related
transactions, or (v) the execution by the Issuer of an agreement to which the
Issuer is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii), (iii) or (iv).
"Closing Date" means the date of the closing of the purchase and sale of the
-------------
Preferred Stock.
exhibit 3.3, page 19
<PAGE>
"Commission" means the United States Securities and Exchange Commission, or any
----------
successor to such agency.
"Common Stock" means the Company's common stock, $0.001 par value per share, of
-------------
the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Common Stock Deemed Outstanding" has the meaning set forth in Section
----------------------------------
7.1(g)(ii)(D)(v).
"Conversion Date" has the meaning set forth in Section 5.3(a).
----------------
"Conversion Default" has the meaning set forth in Section 6.2.
-------------------
"Conversion Default Date" has the meaning set forth in Section 6.2.
-------------------------
"Conversion Default Payments" has the meaning set forth in Section 6.2.
-----------------------------
"Conversion Price" has the meaning set forth in Section 5.1.
-----------------
"Conversion Ratio" means, at any time, a fraction, the numerator of which is the
----------------
Liquidation Value and the denominator of which is the Conversion Price at such
time.
"Conversion Shares" has the meaning set forth in the Purchase Agreement.
------------------
"Converted Preferred Stock" has the meaning set forth in Section 5.3(a).
---------------------------
"Convertible Securities" has the meaning set forth in Section 7.1(g)(ii)(A).
-----------------------
"Determination Date" has the meaning set forth in Section 7.10.
-------------------
"Dividend Payment Date" has the meaning set forth in Section 2.1.
-----------------------
"DTC" means the Depositary Trust Corporation.
---
"Excess Amount" has the meaning set forth in Section 6.2.
--------------
"Excess Shares" has the meaning set forth in Section 7.10.
--------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
-------------
"Holder" or other similar terms means the registered holder of any share of
------
Preferred Stock.
exhibit 3.3, page 20
<PAGE>
"Issuable Maximum" has the meaning set forth in Section 7.10.
-----------------
"Issuance Date" means the date of first issue of any shares of Preferred Stock.
--------------
"Junior Securities" means the Common Stock and all other equity securities of
------------------
the Company which are not expressly by their terms senior in rights and
liquidation preference to Preferred Stock.
"Liquidation Value" has the meaning set forth in Section 1.1.
------------------
"Nasdaq" means the Nasdaq National Market.
------
"Notice of Conversion" has the meaning set forth in Section 5.1(b).
----------------------
"Options" has the meaning set forth in Section 7.1(g)(ii)(A).
-------
"Original Issue Date" shall mean the date of the first issuance of any shares of
-------------------
the Preferred Stock regardless of the number of transfers of any particular
shares of Preferred Stock and regardless of the number of certificates which may
be issued to evidence such Preferred Stock.
"Payment Due Date" has the meaning set forth in Section 7.1(h).
------------------
"Per Share Market Value" means (i) on any particular date the closing bid price
-----------------------
per share of the Common Stock on such date (as reported by Bloomberg Information
Services, Inc., or any successor reporting service) on Nasdaq or, if the Common
Stock is not then quoted on Nasdaq, any Subsequent Market on which the Common
Stock is then listed or if there is no such price on such date, then the closing
bid price on such exchange or quotation system on the date nearest preceding
such date or (ii) if the Common Stock is not listed then on Nasdaq or any
Subsequent Market, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (iii) if the Common
Stock is not then publicly traded the fair market value of a share of Common
Stock as determined by an Appraiser selected in good faith by the Holders;
provided, however, that the Company, after receipt of the determination by such
Appraiser, shall have the right to select in good faith an additional Appraiser,
in which case, the fair market value shall be equal to the average of the
determinations by each such Appraiser; and provided, further that all
determinations of the Per Share Market Value shall be appropriately adjusted for
any stock dividends, stock splits or other similar transactions during such
period.
"Person" means a corporation, an association, a partnership, organization, a
------
business, an individual, a government or political subdivision thereof or a
governmental agency.
"Prepayment Amount" has the meaning set forth in Section 7.10
------------------
"Purchase Agreement" means the Securities Purchase Agreement, dated as of the
-------------------
Original Issue Date, among the Company and the original Holders of the Preferred
Stock.
"Record Date" has the meaning set forth in Section 2.1.
------------
"Redemption Date" has the meaning set forth in Section 8.2.
----------------
exhibit 3.3, page 21
<PAGE>
"Redemption Notice" has the meaning set forth in Section 8.1(b).
------------------
"Redemption Notice Date" has the meaning set forth in Section 8.2.
------------------------
"Redemption Price" has the meaning set forth in Section 8.1(b).
-----------------
"Registrable Securities" has the meaning set forth in the Registration Rights
-----------------------
Agreement.
"Registration Rights Agreement" means the Registration Rights Agreement, dated
-------------------------------
as of the Original Issue Date, by and among the Company and the original
Holders.
"Registration Statement" has the meaning set forth in the Registration Rights
-----------------------
Agreement.
"Required Holders" has the meaning set forth in Section 3.1
-----------------
"Reserved Amount" has the meaning set forth in Section 6.1
----------------
"Shareholder Approval" has the meaning set forth in Section 7.10.
---------------------
"Stock Option Plan" means any contract, plan or agreement which has been
-------------------
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer, director or
consultant.
"Subsidiary" means, with respect to any Person, any corporation or other entity
----------
of which a majority of the Capital Stock or other ownership interests having
ordinary voting power to elect a majority of the Board of Directors or other
persons performing similar functions are at the time directly or indirectly
owned by such Person.
"Subsequent Market" means the New York Stock Exchange, American Stock Exchange
------------------
or Nasdaq Smallcap Market.
"Trading Day" means (a) a day on which the Common Stock is traded on Nasdaq or,
------------
if the Common Stock is not then designated on Nasdaq, on such Subsequent Market
on which the Common Stock is then listed or quoted or (b) if the Common Stock is
not listed on Nasdaq or a Subsequent Market, a day on which the Common Stock is
traded in the over-the-counter Market, as reported by the OTC Bulletin Board, or
(c) if the Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions or reporting prices) provided, however that in any
event that the Common Stock is not listed or quoted as set forth in (a), (b), or
(c) hereof, then a Trading Day shall mean any Business Day.
"Underlying Shares" means the number of shares of Common Stock into which the
------------------
shares of Preferred Stock are convertible or converted in accordance with the
terms hereof and the Purchase Agreement.
exhibit 3.3, page 22
<PAGE>
"Valuation Event" has the meaning set forth in Section 7.1(g)(ii)(D)(I).
----------------
"Void Redemption Notice" has the meaning set forth in Section 8.3.
------------------------
"Warrant" or "Warrants" has the meaning set forth in the Purchase Agreement.
------- --------
ARTICLE X
MISCELLANEOUS
10.1 MODIFICATION OF CERTIFICATE OF DESIGNATION. This Certificate of
Designation may be modified without prior notice to any Holder upon the written
consent of the Company and the Required Holders. The Required Holders may waive
compliance by the Company with any provision of this Certificate of Designation
without prior notice to any Holder. However, without the consent of each Holder
affected, an amendment, supplement or waiver may not (1) reduce the number
of shares of Preferred Stock whose Holders must consent to an amendment,
supplement or waiver, or (2) make any shares of Preferred Stock payable in money
or property other than as stated in this Certificate of Designation.
10.2 MISCELLANEOUS. This Certificate of Designation shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Delaware without regard to the principles of conflicts of law thereof. Each
party hereby irrevocably submits to the nonexclusive jurisdiction of the state
and federal courts sitting in the City of New York, Borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. The parties hereto, including all
guarantors or endorsers, hereby waive presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Certificate of Designation, except as
specifically provided herein, and assent to extensions of the time of payment,
or forbearance or other indulgence without notice. The Holder of Preferred
Stock by acceptance of a share of Preferred Stock agrees to be bound by the
provisions of this Certificate of Designation which are expressly binding on
such Holder.
10.3 PREFERRED STOCK OWNED BY COMPANY DEEMED NOT OUTSTANDING. In
determining whether the holders of the requisite number of shares of Preferred
Stock have concurred in any direction, consent or waiver under this Certificate
of Designation, shares of Preferred Stock which are owned by the Company or any
other obligor on the Preferred Stock or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any other obligor on the Preferred Stock shall be disregarded and
deemed not to be outstanding for the purpose of any such determination; provided
that any shares of Preferred Stock owned by the Purchasers shall be deemed
outstanding for purposes of making such a determination. Shares of Preferred
Stock so owned which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Company the
pledgee's right so to act with respect to such shares of Preferred Stock and
that the pledgee is not the Company or any other obligor upon the Preferred
exhibit 3.3, page 23
<PAGE>
Stock or any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any other obligor on the
Preferred Stock.
10.4 NOTICE TO HOLDERS PRIOR TO TAKING CERTAIN TYPES OF ACTION. In case:
(a) the Company shall authorize the issuance, at any time from and after the
Original Issue Date, to all holders of any class or series of its Capital
Stock, of rights or warrants to subscribe for or purchase shares of its capital
stock or of any other right;
(b) the Company shall authorize, at any time from and after the Original
Issue Date, the distribution to all holders of any class or series of its
Capital Stock, of evidences of its indebtedness or assets;
(c) the Company shall declare a dividend (or other distribution) on its
Common Stock or the Company shall declare a special nonrecurring dividend on or
a redemption of its Common Stock;
(d) of any subdivision, combination or reclassification of any class or
series of Capital Stock of the Company at any time from and after the Original
Issue Date or of any consolidation or merger to which the Company is a party and
for which approval by the shareholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or
(e) of the voluntary or involuntary dissolution, liquidation or winding up
of the Company;
then the Company shall cause to be mailed to the Holders, at their last
addresses as they shall appear upon the registration books of the Company, at
least 10 days prior to the applicable record date hereinafter specified, a
notice stating (i) the date as of which the holders of record of such class or
series of Capital Stock are to be entitled to receive any such rights, warrants
or distribution are to be determined, or (ii) the date on which any such
subdivision, combination, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation, winding up or other action is expected to
become effective, and the date as of which it is expected that holders of record
of such class or series of Capital Stock record shall be entitled to exchange
their stock for securities or other property, if any, deliverable upon such
subdivision, combination, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation, winding up or other action.
The failure to give the notice required by this Section 10.4 or any defect
therein shall not affect the legality or validity of any distribution, right,
warrant, subdivision, combination, reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation, winding up or other action, or the
vote upon any of the foregoing.
10.5 EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
exhibit 3.3, page 24
<PAGE>
10.6 REFERENCES. References to Sections and Articles are to Sections and
Articles of this Certificate of Designation, unless otherwise expressly
provided.
10.7 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
10.8 LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of evidence
reasonably satisfactory to the Company (including any bond the Company's
transfer agent requires the Holders to post) of the loss, theft, destruction or
mutilation of any stock certificates representing Preferred Stock, and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary form and, in the case of mutilation, upon
surrender and cancellation of such Series A Preferred Stock certificate(s), the
Company shall execute and deliver new preferred stock certificate(s) of like
tenor and date; provided, however, the Company shall not be obligated to
-------- -------
re-issue preferred stock certificates if the Holder contemporaneously requests
the Company to convert such Preferred Stock into Common Stock.
10.9 REMEDIES CHARACTERIZED; OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies provided in this Certificate of Designation shall be
cumulative and in addition to all other remedies available under this
Certificate of Designation, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a Holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designation. The Company covenants to each Holder of Preferred Stock that there
shall be no characterization concerning this instrument other than as expressly
provided herein. The Company further covenants that it will not take any action
which might materially and adversely affect the rights of the Holders of
Preferred Stock. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holders of the
Preferred Stock and that the remedy at law in the event of any such breach may
be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holders of the Preferred Stock shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
10.10 SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific provision
contained in this Certificate of Designation shall limit or modify any more
general provision contained herein. This Certificate of Designation shall be
deemed to be jointly drafted by the Company and all Purchasers (as defined in
this Purchase Agreement) and shall not be construed against any person as the
drafter hereof.
exhibit 3.3, page 25
<PAGE>
10.11 LIMITATION ON CASH PAYMENTS. Notwithstanding anything in the
Certificate of Designation to the contrary, in no event at any time shall the
amount of cash to which any Holder is entitled in respect of a share of
Preferred Stock or a Warrant exceed nineteen (19)% per annum of the Liquidation
Value of the aggregate number of shares of Preferred Stock (the "Maximum Cash
Payment") held by such Holder. To the extent any provision in the Certificate
of Designation requires payment in excess of the Maximum Cash Payment, such
provision is superseded by this Section 10.11 such that no amount in excess of
the Maximum Cash Payment shall at anytime be due, payable, or otherwise accrue.
[SIGNATURE PAGE(S) TO FOLLOW]
exhibit 3.3, page 26
<PAGE>
IN WITNESS WHEREOF Level 8 Systems, Inc. has caused this Certificate of
Designation to be signed by its President and Secretary on this 28th day of
June, 1999.
By: /s/Steven Dmiszewicki
Name: Steven Dmiszewicki
Title:President
exhibit 3.3, page 27
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder in order to convert shares of Series A
Convertible Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series _
Convertible Preferred Stock ("Series A Preferred Stock") indicated below, into
------------------------
shares of common stock, par value $.001 per share (the "Common Stock"), of Level
------------
8 Systems, Inc. (the "Company") according to the conditions hereof, as of the
-------
date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer taxes, if
any.
___ The undersigned hereby certifies that the Common Stock issuable
pursuant to this Conversion Notice has been sold pursuant to a registration
statement under the Securities Act of 1933 which identifies the Holder as a
selling security holder. THIS MUST BE CHECKED FOR SHARES FREE OF RESTRICTIVE
LEGENDS TO BE ISSUED.
Conversion calculations:
____________________________________________
Date to effect conversion
____________________________________________
Number of shares of Series _ Preferred Stock to be converted
____________________________________________
Number of shares of Common Stock to be issued
____________________________________________
Applicable Conversion Price
____________________________________________
Signature of Holder
____________________________________________
Name
____________________________________________
Address
exhibit 3.3, page 28
<PAGE>
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
Among
LEVEL 8 SYSTEMS, INC.
and
THE PURCHASERS LISTED ON SCHEDULE I
Dated as of June 28, 1999
exhibit 10.1, page 1
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is dated as of June
---------
28, 1999 among Level 8 Systems, Inc., a Delaware corporation (the "Company"),
-------
and the various purchasers identified and listed on Schedule I hereto (each
referred to herein as a "Purchaser" and, collectively, the "Purchasers.")
--------- ----------
WHEREAS, the Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D as promulgated by the United States Securities
and Exchange Commission (the "Commission") under Section 4(2) of the Securities
----------
Act of 1933, as amended (the "Securities Act");
---------------
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers, and the Purchasers
desire to acquire from the Company, 21,000 shares of the Company's Series A 4%
Convertible Preferred Stock, par value $0.001 per share, liquidation value
$1,000 per share (the "Preferred Stock," at an aggregate purchase price of
----------------
$21,000,000 in the form of Exhibit A annexed hereto, and a stock purchase
----------
warrant or warrants (each, a "Warrant"), in the form of Exhibit B annexed
------- ---------
hereto, to purchase an aggregate amount of 2,100,000 shares of the Company's
common stock, par value $0.001 per share (the "Common Stock");
-------------
WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form of Exhibit C attached hereto (the "Registration Rights
--------- -------------------
Agreement") pursuant to which the Company has agreed to provide certain
- ---------
registration rights under the Securities Act and the rules and regulations
- --------
promulgated thereunder, and applicable state securities laws; and
- -----
NOW THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter, the Company and the Purchasers hereby agree as follows:
exhibit 10.1, page 2
<PAGE>
ARTICLE I.
PURCHASE AND SALE
1.1 Purchase and Sale.
On the Closing Date (as defined below), subject to the terms and conditions
set forth herein, the Company shall issue and sell to each Purchaser and each
Purchaser, severally and not jointly, shall purchase from the Company the shares
of Preferred Stock as set forth on Schedule I and a Warrant or Warrants
-----------
exercisable for the amount of Common Stock as set forth on Schedule I for such
----------
Purchaser. The aggregate purchase price of the shares of Preferred Stock
purchased by the Purchasers shall be $21,000,000 and the aggregate number of
shares of Common Stock for which the Warrant or Warrants will be exercisable
shall be 2,100,000 shares of Common Stock. If this Agreement has been executed
but the Closing shall not have occurred by July 10, 1999, each Purchaser shall
have the right to withdraw from the transaction and shall be paid a termination
fee, by the Company, equal to 1% of its respective purchase amount.
1.2 Closing.
The Closing. The closing of the purchase and sale of the 21,000 shares of
------------
Preferred Stock and Warrants for an aggregate of 2,100,000 shares of Common
Stock (the "Closing") shall take place at the offices of Akin, Gump, Strauss,
-------
Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York 10022, or by
transmission by facsimile and overnight courier, immediately following the
execution hereof or such later date or different location as the parties shall
agree, but not prior to the date that the conditions set forth in Section 4.1
have been satisfied or waived by the appropriate party (the "Closing Date"). At
------------
the Closing:
(i) Each Purchaser shall deliver, as directed by the Company, its portion of
the purchase price as set forth next to its name on Schedule I in United
----------
States dollars in immediately available funds to an account or accounts
designated in writing by the Company;
(ii) The Company shall deliver to each Purchaser a certificate evidencing
the number of shares of Preferred Stock purchased by such Purchaser as set forth
on Schedule I hereto, the Preferred Stock shall have the respective rights,
-----------
preferences, limitations and privileges set forth in Exhibit A attached hereto,
- ---------
which shall be incorporated into a Certificate of Designation of Series and a
Statement of Variations of Relative Rights, Preferences and Limitations (the
"Certificate of Designation") to be approved by the Purchasers and the Company's
Board of Directors and filed on or before the Closing with the Secretary of
State of Delaware;
(iii) The Company shall deliver to each Purchaser a Warrant, in the form of
Exhibit B hereto, representing the right to acquire the number of shares of
- ----------
Common Stock purchased by such Purchaser as set forth on Schedule I hereto; and
----------
exhibit 10.1, page 3
<PAGE>
(iv) The parties shall execute and deliver each of the documents referred to
in Section 4.1.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The Company
----------------------------------------------------------
hereby makes the following representations and warranties to each of the
Purchasers:
a. Organization and Qualification. The Company is a corporation duly
--------------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Except as set forth on Schedule 2.1(a), the Company has no subsidiaries
----------------
(collectively, the "Subsidiaries"). Each of the Subsidiaries (which for
------------
purposes of this Agreement means any entity in which the Company, directly or
indirectly, owns the majority of such entity's capital stock or holds an
equivalent equity or similar interest) is a corporation duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the full corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Except as set forth on Schedule 2.1(a), each of the
---------------
Company and the Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, would not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of any of this
Agreement or the Transaction Documents (as defined in Section 2.1(b)) or any of
the transactions contemplated hereby or thereby, (y) have or result in a
material adverse effect on the results of operations, assets, prospects, or
financial condition of the Company and its Subsidiaries, taken as a whole or (z)
materially impair the Company's ability to perform fully on a timely basis its
obligations under any Transaction Document (any of (x), (y) or (z), being a
"Material Adverse Effect"). The Company has furnished to each of the Purchasers
----- --------------
true and correct copies of the Company's Certificate of Incorporation, as
amended and as in effect on the date hereof (the "Certificate of
---------------
Incorporation"), and the Company's Bylaws, as in effect on the date hereof (the
"Bylaws").
------
b. Authorization; Enforcement. The Company has the requisite corporate
---------------------------
power and authority to enter into and to consummate the transactions
contemplated by this Agreement the Certificate of Designation of Rights,
Preferences and Privileges, the Warrants and the Registration Rights Agreement
(collectively, the "Transaction Documents"), and otherwise to carry out its
----------------------
obligations hereunder and thereunder. The execution and delivery of each of
this Agreement and the Transaction Documents by the Company and the consummation
by it of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action by the Company. Each of this
Agreement and the Transaction Documents has been duly executed by the Company
and when delivered in accordance with the terms hereof will constitute the valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application and
except that rights to indemnification and contribution may be limited by Federal
or state securities laws or public policy relating thereto.
exhibit 10.1, page 4
<PAGE>
c. Capitalization. As of the date hereof, the authorized capital stock of
the Company is as set forth in Schedule 2.1(c). All of such outstanding shares
---------------
of capital stock have been, or upon issuance will be, validly authorized and
issued, fully paid and nonassessable and were issued in accordance with the
registration provisions of the Securities Act, or pursuant to valid exemptions
therefrom. Except as disclosed in Schedule 2.1(c) or the SEC Documents, (i) no
---------------
shares of the Company's capital stock are subject to preemptive rights nor is
any holder of the Common Stock entitled to preemptive or similar rights arising
out of any agreement or understanding with the Company by virtue of any
Transaction Document, as defined in Section 2.1(b) above, (ii) there are no
outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, or giving any Person (as defined below)
any right to subscribe for or acquire, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (iii) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the Securities Act (except the Registration Rights
Agreement), (iv) there are no outstanding securities of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries, (v) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the shares of Common Stock as described in this
Agreement and (vi) except as specifically disclosed in the SEC Documents (as
defined in Section 2.1(k)), to the Company's knowledge, no Person (as defined
below) or group of related Persons beneficially owns (as determined pursuant to
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) or has the right to acquire by agreement with or by
-------------
obligation binding upon the Company beneficial ownership of in excess of 5% of
the Common Stock. "Person" means an individual or corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or subdivision
thereof) or other entity of any kind.
d. Authorization and Validity; Issuance of Shares. The shares of Common
Stock issuable upon conversion of the Preferred Stock (the "Conversion Shares")
and exercise of the Warrants (the "Warrant Shares", and together with the
Conversion Shares the "Underlying Shares") are and will at all times hereafter
continue to be duly authorized and reserved for issuance and will be validly
issued, fully paid and non-assessable, free and clear of all liens, encumbrances
and Company rights of first refusal, other than liens and encumbrances created
by the Purchasers (collectively, "Liens") and will not be subject to any
-----
preemptive or similar rights other than as granted pursuant to the Transaction
Documents.
e. No Conflicts. The execution, delivery and performance of this Agreement
-------------
and each of the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including the
issuance of the Underlying Shares) do not and will not (i) conflict with or
exhibit 10.1, page 5
<PAGE>
violate any provision of the Certificate of Incorporation, Bylaws or other
organizational documents of the Company, except where such conflict or violation
has not resulted or would not reasonably result, individually or in the
aggregate, in a Material Adverse Effect, (ii) subject to obtaining the consents
referred to in Section 2.1(f), conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
(evidencing a Company or Subsidiary debt or otherwise) to which the Company or
any Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected, except where such conflict or violation has
not resulted or would not reasonably result, individually or in the aggregate,
in a Material Adverse Effect, or (iii) result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or any Subsidiary is
subject (including Federal and state securities laws and regulations and the
rules and regulations of the principal market or exchange on which the Common
Stock is traded or listed) applicable to the Company or any of its Subsidiaries,
or by which any material property or asset of the Company or any Subsidiary is
bound or affected, except where such conflict has not resulted or would not
reasonably result, individually or in the aggregate, in a Material Adverse
Effect.
f. Consents and Approvals. Except as specifically set forth on Schedule
------------------------ --------
2.1(f), neither the Company nor any Subsidiary is required to obtain any
---
consent, waiver, authorization or order of, give any notice to, or make any
---
filing or registration with, any court or other federal, state, local or other
-
governmental authority, regulatory or self regulatory agency, or other Person in
connection with the execution, delivery and performance by the Company of this
Agreement or the Transaction Documents, other than (i) the filing of a
registration statement with the Commission, which shall be filed in accordance
with and in the time periods set forth in the Registration Rights Agreement,
(ii) the application(s) or any letter(s) acceptable to the Nasdaq National
Market ("Nasdaq") for the listing of the Underlying Shares with Nasdaq (and with
------
any other national securities exchange or market on which the Common Stock is
then listed), and (iii) any filings, notices or registrations under applicable
state securities laws (together with the consents, waivers, authorizations,
orders, notices and filings referred to on Schedule 2.1(f), the "Required
---------------- --------
Approvals"), except where failure to do so has not resulted or would not
----
reasonably result, individually, or in the aggregate, in a Material Adverse
-
Effect.
g. Litigation; Proceedings. Except as specifically set forth on Schedule
------------------------ --------
2.1(g) or in the SEC Documents, there is no action, suit, notice of violation,
----
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or any of
their respective properties before or by any court, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) which (i) adversely affects or challenges the legality, validity or
enforceability of any of this Agreement or the Transaction Documents or (ii)
would reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect.
h. No Default or Violation. Neither the Company nor any Subsidiary (i) is
-------------------------
in default under or in violation of any indenture, loan or other credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound and which is required to be included
as an exhibit to any SEC Document (as defined in Section 2.1(k)) or will be
exhibit 10.1, page 6
<PAGE>
required to be included as an exhibit to the Company's next filing under either
the Securities Act or Exchange Act (ii) is in violation of any order of any
court, arbitrator or governmental body applicable to it, (iii) is in violation
of any statute, rule or regulation of any governmental authority to which it is
subject, (iv) is in default under or in violation of its Certificate of
Incorporation, Bylaws or other organizational documents, respectively in each
case, except where such violations have not resulted or would not reasonably
result, individually or in the aggregate, in a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being conducted, and shall
not be conducted, in violation of any law, ordinance, rule or regulation of any
governmental entity, except where such violations have not resulted or would not
reasonably result, individually or in the aggregate, in a Material Adverse
Effect.
i. Disclosure; Absence of Certain Changes. None of this Agreement, the
------------------------------------------
Schedules to this Agreement, the Transaction Documents hereby contained,
contains, or will contain at the time it was or is so furnished any untrue
statement of a material fact or omitted, omits or will omit at such time to
state any material fact necessary in order to make the statements made herein
and therein, in light of the circumstances under which they were made, not
misleading. Except as disclosed on Schedule 2.1(i) or in SEC Documents filed on
EDGAR, since December 31, 1998, there has been no material adverse change and no
material adverse development in the business, properties, operations, financial
condition, liabilities or results of operations or, insofar as can reasonably be
foreseen, prospects of the Company or the Subsidiaries. The Company has not
taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or any of its
Subsidiaries have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings.
j. Private Offering. The Company and all Persons acting on its behalf have
------------------
not made, directly or indirectly, and will not make, offers or sales of any
securities or solicited any offers to buy any security under circumstances that
would require registration of the Preferred Stock, the Warrants or the
Underlying Shares or the issuance of such securities under the Securities Act.
Subject to the accuracy and completeness of the representations and warranties
of the respective Purchasers contained in Section 2.2, the offer, sale and
issuance by the Company to the Purchasers of the Preferred Stock, the Warrants
and the Underlying Shares is exempt from the registration requirements of the
Securities Act.
k. SEC Documents; Financial Statements. The Common Stock of the Company is
------------------------------------
registered pursuant to Section 12(g) of the Exchange Act. Since December 31,
1998, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it, with the Commission, pursuant to Section
13, 14 or 15(d) of the Exchange Act (the foregoing materials and all exhibits
included therein and financial statements and schedules thereto and documents
(other than exhibits to such documents) incorporated by reference therein being
collectively referred to herein as the "SEC Documents"), on a timely basis or
-------------
has received a valid extension of such time of filing and has filed any such SEC
Documents prior to the expiration of any such extension. As of their respective
dates, the SEC Documents complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
exhibit 10.1, page 7
<PAGE>
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. All agreements to which the Company or any
Subsidiary is a party or to which the property or assets of the Company or any
Subsidiary are subject and which are required to be filed as exhibits to the SEC
Documents have been filed as exhibits to the SEC Documents as required. As of
their respective dates, the financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved, except as may be otherwise specified in such financial
statements or the notes thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial year-end audit adjustments.
Neither the Company nor any of its Subsidiaries or any of their officers,
directors, employees or agents have provided the Purchasers with any material,
nonpublic information without first identifying to the Purchasers that they were
receiving material, nonpublic information. The Company acknowledges that the
Purchasers will be trading in the securities of the Company in reliance on the
foregoing representation and warranty.
l. Investment Company. The Company is not, and is not controlled by or
-------------------
under common control with an affiliate (an "Affiliate") of an "investment
---------
company" within the meaning of the Investment Company Act of 1940, as amended.
m. Broker's Fees. No fees or commissions or similar payments with respect
--------------
to the transactions contemplated by this Agreement or the Transaction Documents
have been paid or will be payable by the Company to any broker, financial
advisor, finder, investment banker, or bank, other than as set forth in Schedule
2.1(m). The Purchasers shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section 2.1(m) that may be due in connection with the
transactions contemplated by this Agreement and the Transaction Documents.
n. Form S-3 Eligibility. The Company is, and at the Closing Date will be,
----------------------
eligible to register securities (including the Underlying Shares) for resale
with the Commission under Form S-3 (or any successor form) promulgated under the
Securities Act.
o. Listing and Maintenance Requirements Compliance. The principal market on
-----------------------------------------------
which the Common Stock is currently traded is Nasdaq. Except as disclosed on
Schedule 2.1(o), the Company has not since December 31, 1998 received notice
---------------
(written or oral) from Nasdaq (or any stock exchange, market or trading facility
on which the Common Stock is or has been listed (or on which it has been
quoted)) to the effect that the Company is not in compliance with the listing or
maintenance requirements of such market or exchange. After giving effect to the
transactions contemplated by this Agreement and the Transaction Documents, the
Company is and will be in compliance with all such maintenance requirements.
p. Intellectual Property Rights. The Company and each of its Subsidiaries
------------------------------
own or possess adequate rights or licenses to use all trademarks, trademark
applications, trade names and service marks, whether or not registered, and all
patents, patent applications, copyrights, inventions, licenses, approvals,
exhibit 10.1, page 8
<PAGE>
governmental authorizations, trade secrets and intellectual property rights
(collectively, "Intellectual Property Rights") which are necessary for use in
------------------------------
connection with their respective businesses as now conducted and as described in
the SEC Documents. Except as set forth on Schedule 2.1(p), none of the
-----------------
Company's Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate within two years from the date of this
Agreement. To the Company's knowledge, neither the Company nor any of its
Subsidiaries has infringed or is infringing on any of the Intellectual Property
Rights of any Person and, except as set forth on Schedule 2.1(p), there is no
---------------
claim, action or proceeding which has been made or brought against, or to the
Company's knowledge, is being made, brought or threatened against, the Company
or its Subsidiaries regarding the infringement of any of the Intellectual
Property Rights, and the Company and its Subsidiaries are unaware of any facts
or circumstances which might give rise to any of the foregoing, except where any
of the foregoing would not have a Material Adverse Effect. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
q. Internal Accounting Controls. The Company and its Subsidiaries maintain
-----------------------------
a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with United States
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
r. Transactions With Affiliates. Except as set forth on Schedule 2.1(c) or
----------------------------- ---------------
Schedule 2.1(r), none of the executive officers or directors of the Company is
- ---------------
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for services as executive officers and directors) involving an
amount in excess of $60,000, including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or entity in which any officer,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner.
s. Application to Takeover Protection. The Company and its Board of
-------------------------------------
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the Certificate of Incorporation or Bylaws
which is or could become applicable to the Purchasers or the Transaction
Documents as a result of the purchase of the Preferred Stock and the Warrants
pursuant to this Agreement. None of the transactions contemplated by this
Agreement or the Transaction Documents, including the conversion of the Shares
of Preferred Stock and the exercise of the Warrants, will trigger any poison
pill provisions of any of the Company's stockholders' rights or similar
agreements.
exhibit 10.1, page 9
<PAGE>
t. Acknowledgement Regarding Purchasers' Purchase of Preferred Stock. The
--------------------------------------------------------------------
Company further acknowledges that no Purchaser is acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any statement made by any
Purchaser or any of their respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Purchasers' purchase of the
securities. The Company further represents to each Purchaser that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
u. Seniority; Exclusivity. No class of equity securities of the Company
------------------------
will be senior to the Preferred Stock in right of payment, whether upon
liquidation, dissolution or otherwise. So long as any Preferred Stock issued
hereunder remains outstanding, the Company shall not exchange, redeem or covert
any of the Company's capital stock for indebtedness, including convertible debt,
of the Company. The Company shall not issue and sell any Shares of Preferred
Stock, other than to the Purchasers pursuant to this Agreement, without the
prior written consent of each of the Purchasers.
2.2 Representations and Warranties of the Purchasers. Each of the
-----------------------------------------------------
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
a. Organization; Authority. Such Purchaser is a corporation or a limited
------------------------
duration company or a limited liability company or limited partnership duly
formed, validly existing and in good standing under the laws of the jurisdiction
of its incorporation or formation with the requisite power and authority,
corporate or otherwise, to enter into and to consummate the transactions
contemplated hereby and by the Transaction Documents and otherwise to carry out
its obligations hereunder and thereunder. The purchase by such Purchaser of the
Shares of Preferred Stock and the Warrants hereunder has been duly authorized by
all necessary action on the part of such Purchaser. Each of this Agreement and
the Registration Rights Agreement has been duly executed and delivered by such
Purchaser and constitutes the valid and legally binding obligation of such
Purchaser, enforceable against such Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity.
b. Investment Intent. Such Purchaser is acquiring the shares of Preferred
------------------
Stock, the Warrants and the Underlying Shares for its own account and not with a
present view to or for distributing or reselling the shares of Preferred Stock,
the Warrants, the Conversion Shares or the Warrant Shares or any part thereof or
interest therein in violation of the Securities Act; provided, however, that by
-------- -------
making the representations herein, such Purchaser does not agree to hold any of
the shares of Preferred Stock, the Warrants, the Conversion Shares or the
Warrant Shares for any minimum or other specific term and reserves the right to
dispose of the shares of Preferred Stock at any time in accordance with or
pursuant to a registration statement or an exemption under the Securities Act.
exhibit 10.1, page 10
<PAGE>
c. Purchaser Status. At the time such Purchaser was offered the Preferred
-----------------
Stock and the Warrants, and at the Closing Date and each date such Purchaser
exercises Warrants, (i) it was and will be an "accredited investor" as defined
in Rule 501 under the Securities Act and (ii) such Purchaser, either alone or
together with its representatives, had and will have such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Preferred Stock, the Warrants and the Common Stock.
d. Reliance. Such Purchaser understands and acknowledges that (i) the
--------
Preferred Stock, the Warrants and the underlying Shares are being offered and
sold to such Purchaser without registration under the Securities Act in a
private placement that is exempt from the registration provisions of the
Securities Act under Section 4(2) of the Securities Act or Regulation D
promulgated thereunder and (ii) the availability of such exemption depends in
part on, and the Company will rely upon the accuracy and truthfulness of, the
representations set forth in this Section 2.2 and such Purchaser hereby consents
to such reliance.
e. Information. Such Purchaser and its advisors, if any, have been
-----------
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Preferred
Stock and Warrants which have been requested by such Purchaser or its advisors.
Such Purchaser and its advisors, if any, have been afforded the opportunity to
ask questions of the Company. Neither such inquiries nor any other due
diligence investigation conducted by Purchaser or any of its advisors or
representatives shall modify, amend or affect Purchaser's right to rely on the
Company's representations and warranties contained in Section 2.1 above or
representations and warranties of the Company contained in any other transaction
document. Such Purchaser understands that its investment in the Preferred Stock
and Warrants involves a significant degree of risk.
f. Governmental Review. Such Purchaser understands that no United States
--------------------
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Preferred Stock or
Warrants.
g. Residency. Such Purchaser is a resident of the jurisdiction set forth
---------
immediately below such Purchaser's name on Schedule II hereto.
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III.
OTHER AGREEMENTS
3.1 Transfer Restrictions.
a. If any Purchaser should decide to dispose of the Preferred Stock, the
Warrants, the Conversion Shares or the Warrant Shares held by it, such Purchaser
understands and agrees that it may do so only pursuant to an effective
exhibit 10.1, page 11
<PAGE>
registration statement under the Securities Act, to the Company or pursuant to
an available exemption from the registration requirements of the Securities Act
or Rule 144 promulgated under the Securities Act ("Rule 144"). In connection
--------
with any transfer of any Preferred Stock, Warrants, Conversion Shares or Warrant
Shares other than pursuant to an effective registration statement, Rule 144 or
to the Company, the Company may require the transferor thereof to provide to the
Company a written opinion of counsel experienced in the area of United States
securities laws selected by the transferor, the form and substance of which
opinion shall be customary for opinions of counsel in comparable transactions
and reasonably acceptable to the Company, to the effect that such transfer does
not require registration of such transferred securities under the Securities
Act; provided, however, that if the Preferred Stock, Warrants, Conversion Shares
-------- -------
or Warrant Shares may be sold pursuant to Rule 144(k), no written opinion of
counsel shall be required from the Purchaser if such Purchaser provides
reasonable assurances that such security can be sold pursuant to Rule 144(k).
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register any transfer by any Purchaser to an Affiliate (as defined in the
Certificate of Designation) of such Purchaser, provided that the transferee
certifies to the Company that it is an "accredited investor" as defined in Rule
501(a) under the Securities Act. Any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Transaction Documents. If a Purchaser provides the
Company with an opinion of counsel, the form and substance of which opinion
shall be customary for opinions of counsel in comparable transactions and
reasonably acceptable to the Company, to the effect that a public sale,
assignment or transfer of the Preferred Stock, the Conversion Shares, the
Warrants and the Warrant Shares may be made without registration under the
Securities Act or the Purchaser provides the Company with reasonable assurances
that the Warrants, the Conversion Shares and the Warrant Shares can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold, the Company
shall permit the transfer, and, in the case of the Conversion Shares and the
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. Notwithstanding the foregoing or
anything else contained herein to the contrary, the securities may be pledged as
collateral in connection with a bona fide margin account or other lending
arrangement.
b. Each Purchaser agrees to the imprinting, so long as is required by this
Section 3.1(b), of the following legend on the Preferred Stock, the Warrants,
the Conversion Shares and the Warrant Shares:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
exhibit 10.1, page 12
<PAGE>
Neither the Preferred Stock, the Warrants, the Conversion Shares, nor the
Warrant Shares shall contain the legend set forth above (or any other legend)
(i) if in the written opinion of counsel to the Company experienced in the area
of United States securities laws such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission) or (ii) if such Preferred
Stock, Warrants, Conversion Shares or Warrant Shares may be sold pursuant to
Rule 144(k). The Company agrees that it will provide each Purchaser, upon
request, with a certificate or certificates representing shares of Preferred
Stock, Warrants, Conversion Shares or Warrant Shares, free from such legend at
such time as such legend is no longer required hereunder. If such certificate
or certificates had previously been issued with such a legend or any other
legend, the Company shall, upon request and upon the delivery of the legended
certificate(s), reissue such certificate or certificates free of any legend.
3.2 Stop Transfer Instruction. The Company may not make any notation on its
-------------------------
records or give instructions to any transfer agent of the Company which
enlarge the restrictions on transfer set forth in Section 3.1.
3.3 Furnishing of Information. As long as any Purchaser owns the Preferred
--------------------------
Stock, the Warrants, the Conversion Shares or the Warrant Shares, the Company
will cause the Common Stock to continue at all times to be registered under
Section 12 of the Exchange Act or subject to Section 15(d) of the Exchange Act,
will timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to Section 13, 14 or 15(d) of the Exchange Act and will
not take any action or file any document (whether or not permitted by the
Exchange Act or the rules thereunder) to terminate or suspend such reporting and
filing obligations. As long as any Purchaser owns the Preferred Stock, the
Warrants, the Conversion Shares or the Warrant Shares, if the Company is not
required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act,
it will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c) promulgated under the Securities Act annual and
quarterly financial statements, together with a discussion and analysis of such
financial statements in form and substance substantially similar to those that
would otherwise be required to be included in reports required by Section 13(a)
or 15(d) of the Exchange Act, as well as any other information required thereby,
in the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as the holders of a majority of the Preferred Stock, the
Warrants, the Conversion Shares or the Warrant Shares may reasonably request,
all to the extent required from time to time to enable such Person to sell the
Preferred Stock, the Warrants, the Conversion Shares, or the Warrant Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
the legal opinion referenced above in Section 3.1(b). Upon the request of any
such Person, the Company shall deliver to such Person a written certification of
a duly authorized officer as to whether it has complied with such requirements.
3.4 Integration. The Company shall not sell, offer for sale or solicit
-----------
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Preferred Stock, the Warrants, the Conversion Shares or the Warrant
Shares in a manner that would require the registration under the Securities Act
exhibit 10.1, page 13
<PAGE>
of the sale of the Preferred Stock, the Warrants, the Conversion Shares or the
Warrant Shares to any Purchaser, or to issue securities in such circumstances
that is likely to result in such offering being integrated with the sale of the
Preferred Stock, Warrants and Underlying Shares in such manner that stockholder
approval would be required pursuant to any stockholder approval provision
applicable to the Company or its securities.
3.5 Listing and Reservation of Conversion Shares and Warrant Shares.
a. The Company shall (i) not later than ten (10) business days after the
Closing Date prepare and file with Nasdaq (as well as any other national
securities exchange or market on which the Common Stock is then listed)
additional shares listing applications or letters acceptable to Nasdaq covering
and listing a number of shares of Common Stock which is at least equal to 100%
the maximum number of Underlying Shares then issuable, assuming that the payment
of all future dividends on such shares then outstanding were made in shares
of Common Stock, (ii) take all steps necessary to cause the Underlying Shares to
be approved for listing on Nasdaq (as well as on any other national securities
exchange or market on which the Common Stock is then listed) as soon as possible
thereafter, (iii) maintain, so long as any other shares of Common Stock shall be
so listed, such listing of all such Underlying Shares, and (iv) provide to the
Purchasers evidence of such listing. Prior to the effectiveness of the
Registration Statement, the Company shall promptly provide to each Purchaser
copies of any notices it receives from Nasdaq regarding the continued
eligibility of the Common Stock for listing on such automated quotation system.
The Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 3.5(a).
b. The Company at all times shall reserve a sufficient number of shares of
its authorized but unissued Common Stock to provide for the full conversion of
the outstanding shares of Preferred Stock and exercise of the outstanding
Warrants. Shares of Common Stock reserved for issuance upon conversion of the
shares of Preferred Stock and the exercise of the Warrants shall be allocated
pro rata to each of the Purchasers in accordance with the number of shares of
Preferred Stock and Warrants issued and delivered to such Purchaser at the
Closing. If at any time the number of shares of Common Stock authorized and
reserved for issuance is insufficient to cover 100% of the number of Conversion
Shares and Warrant Shares issued and issuable upon conversion of the shares of
Preferred Stock and exercise of the Warrants (based on the Conversion Price (as
defined in the Certificate of Designation) of the shares of Preferred Stock in
effect from time to time and the Exercise Price (as defined in the Warrants) of
the Warrants in effect from time to time) without regard to any limitation on
conversions or exercises, the Company will promptly take all corporate action
necessary to authorize and reserve 100% of such shares pursuant to Section 3(b)
of the Registration Rights Agreement, including, without limitation, calling a
special meeting of stockholders to authorize additional shares to meet the
Company's obligations under this Section 3.5(b), in the case of an insufficient
number of authorized shares, and using best efforts to obtain stockholder
approval of an increase in such authorized number of shares.
3.6 Notice of Breaches.
--------------------
a. Prior to the effectiveness of the Registration Statement, the Company and
each Purchaser shall give prompt written notice to the other of any breach
exhibit 10.1, page 14
<PAGE>
by it of any representation, warranty or other agreement contained in this
Agreement or in the Transaction Documents, as well as any events or occurrences
arising after the date hereof and prior to the Closing Date, which would
reasonably be likely to cause any representation or warranty or other agreement
of such party, as the case may be, contained herein to be incorrect or breached
as of the Closing Date. However, no disclosure by either party pursuant to this
Section 3.6 shall be deemed to cure any breach of any representation, warranty
or other agreement contained herein or in the Transaction Documents.
b. Notwithstanding the generality of Section 3.6(a), the Company shall
promptly notify each Purchaser of any notice or claim (written or oral) that it
receives from any lender of the Company or any Subsidiary to the effect that the
consummation of the transactions contemplated hereby and by the Registration
Rights Agreement violates or would violate any written agreement or
understanding between such lender and the Company or any Subsidiary, and the
Company shall promptly furnish by facsimile to the Purchasers a copy of any
written statement in support of or relating to such claim or notice.
c. The default by any Purchaser of any of its obligations, representations
or warranties under this Agreement or the Transaction Documents shall not be
imputed to, and shall have no effect upon, any other Purchaser or affect the
Company's obligations under this Agreement or any Transaction Document to any
non-defaulting Purchaser, except as expressly provided in the Transaction
Documents or to the extent an obligation of the Company can not reasonably be
met as a result of a default by a Purchaser.
3.7 Form D. The Company agrees to file a Form D with respect to the
-------
Preferred Stock and Warrants as required by Rule 506 under Regulation D and to
provide a copy thereof to each Purchaser promptly after such filing.
3.8 Future Financings. As long as shares of the Preferred Stock are
------------------
outstanding, except for (i) issuance of the Underlying Shares; (ii) shares of
Common Stock deemed to have been issued by the Company in connection with any
plan which has been approved by the Board of Directors of the Company, pursuant
to which the Company's securities may be issued to any employee, officer,
director or consultant of the Company; (iii) shares of Common Stock issuable
upon the exercise of any options or warrants outstanding on the date hereof and
listed in Schedule 2.1(c) hereto; (iv) the securities to be issued in the
transactions set forth on such Schedule 2.1(c); (v) shares issued in a
transaction registered under the Securities Act; or (vi) shares of Common Stock
issued or deemed to have been issued as consideration for an acquisition by the
Company of a division, assets or business (or stock constituting any portion
thereof) from another Person, if the Company agrees to issue shares of Common
Stock or other securities convertible into or exchangeable or exercisable for
Common Stock (the "New Security") while any shares of Preferred Stock are
-------------
outstanding at an effective price per share which is less (including, without
limitation, any security which is convertible into or exchangeable or
exercisable for Common Stock at a price which may change with the market price
of the Common Stock) than the Conversion Price (as defined in the Certificate of
Designation) of the shares of Preferred Stock as of the date thereof (a "Future
------
Financing"), the Company shall provide to the Purchasers by 5:00 p.m. (New York
- ---------
time) on or before the third (3rd) Trading Day (as defined below) after the
decision to issue the New Security has been made, written notice of the Future
Financing containing in reasonable detail (i) the proposed terms of the Future
exhibit 10.1, page 15
<PAGE>
Financing, (ii) the amount of the proceeds that will be raised and (iii) the
Person with whom such Future Financing shall be effected, and attached to which
shall be a term sheet or similar document relating thereto (the "Future
------
Financing Notice"). Upon receiving the Future Financing Notice, each Purchaser
---------
shall have the pro rata right (based on the purchase price of the shares of
Preferred Stock held by such Purchaser relative to the aggregate purchase price
of shares of Preferred Stock outstanding) to purchase, on the same terms as the
Future Financing, an amount of New Securities (in addition to the New Securities
being issued in the Future Financing) having a purchase price which shall not
exceed the lesser of (i) the aggregate purchase price set forth in Schedule I
----------
hereto opposite such Purchaser's name, or (ii) the aggregate purchase price of
the New Securities being issued in the Future Financing. In the event a
Purchaser desires to exercise the right granted under this Section 3.8, such
Purchaser must notify the Company on or prior to the fifth (5th)Trading Day
after such Purchaser has received the Future Financing Notice. In the event the
terms and conditions of a proposed Future Financing are amended in any material
respect after delivery of the Future Financing Notice but prior to the closing
of the proposed Future Financing to which such Future Financing Notice relates,
the Company shall deliver a new notice to each Purchaser describing the amended
terms and conditions of the proposed Future Financing and each Purchaser
thereafter shall have an option during the two (2) Trading Days period following
delivery of such new notice to purchase its pro rata share (based on the
Purchaser's percentage of the aggregate purchase price of the outstanding shares
of Preferred Stock such Purchaser owns) of the New Securities being offered on
the same terms as contemplated by such proposed Future Financing, as amended, or
to withdraw its election to exercise such right. The foregoing sentence shall
apply to successive amendments to the terms and conditions of any proposed
Future Financing. At the closing for such Future Financing, the transactions
contemplated by this Section 3.8 shall close, subject to the completion of
mutually satisfactory documentation, and the Company shall tender to each
Purchaser certificates representing the New Securities that it agreed to
purchase and the Purchasers shall make payment for the entire purchase price in
immediately available funds at the closing of such sale; provided, however, that
-------- -------
each Purchaser, in lieu of providing cash as consideration for the purchase
price, may retire all or a portion of the outstanding number of and any
dividends owing on the shares of Preferred Stock as payment of the purchase
price for the shares of Common Stock that it desires to purchase pursuant to
this Section 3.8. "Trading Day" shall mean a day on which the Nasdaq (or in the
-----------
event the Common Stock is not traded on Nasdaq, such other securities market on
which the Common Stock is listed) is open for trading.
3.9 Use of Proceeds. The Company shall use the proceeds from the sale of
-----------------
the Preferred Stock and the exercise of the Warrants to acquire assets, reduce
debt and for working capital.
3.10 Transactions with Affiliates. So long as any Preferred Stock or
------------------------------
Warrants are outstanding, the Company shall not, and shall cause each of its
Subsidiaries or affiliated entities not to, enter into, amend, modify or
supplement, or permit any Subsidiary to enter into, amend, modify or supplement,
any agreement, transaction, commitment or arrangement with any of its or any
Subsidiary's officers, directors or persons who were officers or directors at
any time during the previous two years, stockholders who beneficially own 10% or
more of the Common Stock, or Affiliates or any individual related by blood,
marriage or adoption to any such individual or with any entity in which any such
entity or individual owns a 10% or more beneficial interest (each a "Related
-------
Party"), except for (a) customary employment arrangements and benefit programs
--
on reasonable terms consistent with prior practice, (b) any agreement,
exhibit 10.1, page 16
<PAGE>
transaction, commitment or arrangement on an arms-length basis on terms no less
favorable than terms which would have been obtainable from a Person other than
such Related Party, (c) any agreement, transaction, commitment or arrangement
which is approved by a majority of the directors of the Company who have no
material financial interest in the matter or (d) transactions pursuant to the
Transaction Documents. "Affiliate" for purposes of this section only means,
---------
with respect to any person or entity, another person or entity that, directly or
indirectly, (i) has a 20% or more equity interest in that person or entity, (ii)
has 20% or more common ownership with that person or entity, (iii) controls or
is controlled by that person or entity, or (iv) shares common control or is
under common control with that person or entity. "Control" or "Controls" for
------- --------
purposes of this section means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.
3.11 Transfer Agent Instructions. At each Closing the Company shall issue
-----------------------------
irrevocable instructions to its transfer agent (and shall issue to any
subsequent transfer agent as required), to issue certificates, registered in the
name of each such Purchaser or its respective nominee(s), for the Conversion
Shares and/or the Warrant Shares in such amounts as specified from time to time
by each Purchaser to the Company in a form similar to Exhibit __ attached hereto
(the "Irrevocable Transfer Agent Instructions"). So long as required pursuant
----------------------------------------
to Section 3.1(b), all such certificates shall bear the restrictive legend
specified in Section 3.1(b) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.11, and stop transfer instructions to give effect to Section
3.1 (in the case of the Conversion Shares and the Warrant Shares, prior to
registration of the Conversion Shares under the Securities Act) will be given by
the Company to its transfer agent. If a Purchaser provides the Company with an
opinion of counsel of a law firm with recognized expertise in securities
addressed to the Company, the form and substance of which opinion shall be
customary for opinions of counsel in comparable transactions, to the effect that
a public sale, assignment or transfer of the Preferred Stock, the Conversion
Shares, the Warrants and the Warrant Shares may be made without registration
under the Securities Act or the Purchaser provides the Company with reasonable
assurances that the Warrants, the Conversion Shares and the Warrant Shares can
be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold,
the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Purchasers by violating the intent and purpose of the transactions contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 3.11 will be inadequate and agrees,
in the event of a beach or threatened breach by the Company of the provisions of
this Section 3.11, that the Purchasers, shall be entitled, in addition to all
other available remedies, to an order and/or injunction restraining any breach
and requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
3.12 Press Release; Filing of Form 8-K. Subject to the provisions of
--------------------------------------
Section 6.11, the Company shall issue a press release in form and substance
acceptable to the Purchasers promptly following the Closing.
exhibit 10.1, page 17
<PAGE>
3.13 Non-public Information Ordinary Course Brokerage and Trading.
------------------------------------------------------------------
Purchasers acknowledge that they may have been provided material non-public
information in connection with the transactions contemplated hereby and that
trading in securities of the Company while in the possession of material
non-public information is prohibited by the federal securities laws. No
Purchaser who is in possession of material non-public information shall trade in
any securities of the Company prior to the third business day after the Company
publicly announces its results of operations for the quarter ended September 30,
1999, or at any time thereafter that such Purchaser is in possession of material
non-public information. Subject to compliance with all applicable securities
laws, Nasdaq regulations, no Purchaser shall be prohibited by the Company from
engaging in its ordinary course brokerage and trading activities in respect of
the Company's Common Stock; provided that the personnel engaged in such
--------
activities have not been involved with the transactions contemplated hereby and
have not been provided with confidential information with respect to the
Company; provided further that Purchasers shall not engage in any ordinary
-------- -------
course brokerage or trading activities in respect of the Company's Common Stock
during the ninety (90) day period commencing on the Closing Date, unless the
Average Price (as defined in the Certificate of Designation) on any given date
as calculated on the basis of 22 consecutive Trading Days rises above 200% of
the Conversion Price (as defined in the Certificate of Designation). No
Purchaser shall engage in any trading activity in the Company's securities in
violation of Regulation M under the Exchange Act.
3.14 Best Efforts. Each of the parties hereto shall use its best efforts to
------------
satisfy each of the conditions to be satisfied by it as provided in Article IV
of this Agreement.
3.15 Corporate Existence. Until such time as all of the Purchasers provide
--------------------
the Company with written notice that they do not beneficially own any shares of
Preferred Stock or Warrants, the Company shall maintain its corporate existence
and shall not sell all or substantially all of the Company's assets, except in
the event of a merger or consolidation or sale of all or substantially all of
the Company's assets, where the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose common stock is listed for trading on the
Nasdaq, the New York Stock Exchange or the American Stock Exchange.
3.16 No Violation of Applicable Law. Notwithstanding any provision of this
-------------------------------
Agreement to the contrary, if the redemption of shares of Preferred Stock
otherwise required under this Agreement or the Registration Rights Agreement
would be prohibited by the relevant provisions of the Delaware General
Corporation Law, such redemption shall be effected as soon as it is permitted
under such law; provided, however, that from the fifth (5th) day after such
redemption notice until such redemption price is paid in full, interest on any
such unpaid amount shall accrue and be payable at the rate of 15% per annum in
accordance with the applicable Certificate of Designation.
ARTICLE IV.
CONDITIONS
4.1 Closing.
exhibit 10.1, page 18
<PAGE>
a. Conditions Precedent to the Obligation of the Company to Sell the Shares
-------------------------------------------------------------------------
of Preferred Stock and Warrants. The obligation of the Company to sell the
- -----------------------------------
shares of Preferred Stock and Warrants is subject to the satisfaction or waiver
(with prior written notice to each Purchaser) by the Company, at or before the
Closing Date of each of the following conditions:
(i) Accuracy of the Purchasers' Representations and Warranties. The
- --- ----------------------------------------------------------------
representations and warranties of each Purchaser in this Agreement shall be true
and correct in all material respects as of the date when made and as of the
Closing;
(ii) Performance by the Purchasers. Each Purchaser shall have performed,
- ---- --------------------------------
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Purchaser at or before the Closing; and
(iii) No Injunction. No statute, rule, regulation, executive order, decree,
- ----- --------------
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement or
the Transaction Documents.
b. Conditions Precedent to the Obligation of the Purchasers to Purchase the
-------------------------------------------------------------------------
Shares of Preferred Stock and Warrants at the Closing. The obligation of each
- -------------------------------------------------------
Purchaser hereunder to acquire and pay for the shares of Preferred Stock and
Warrants at the Closing is subject to the satisfaction or waiver by such
Purchaser, at or before the Closing Date, of each of the following conditions:
(i) Accuracy of the Company's Representations and Warranties. The
- --- --------------------------------------------------------------
representations and warranties of the Company set forth in this Agreement and in
the Registration Rights Agreement shall be true and correct in all respects
as of the date when made and as of the Closing Date;
(ii) Performance by the Company. The Company shall have performed, satisfied
- ---- --------------------------
and complied in all respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or before the Closing Date;
(iii) No Injunction. No statute, rule, regulation, executive order, decree,
- ----- --------------
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement and
the Transaction Documents;
(iv) No Suspensions of Trading in Common Stock. The trading in the Common
- ---- --------------------------------------------
Stock shall not have been suspended by the Commission, on Nasdaq (except for any
suspension of trading of limited duration solely to permit dissemination of
material information regarding the Company);
(v) Listing of Common Stock. The Common Stock shall have been at all times
- --- -------------------------
since the date of this Agreement and on the Closing Date listed for trading on
the Nasdaq;
exhibit 10.1, page 19
<PAGE>
(vi) Required Approvals. All Required Approvals shall have been obtained and
- ---- ------------------
copies thereof delivered to the Purchasers other than those relating solely to
Closing Dates other than the Closing Date;
(vii) Required Filing. The Company shall have filed the Certificate of
- ----- ----------------
Designation with the Secretary of State of Delaware and it shall have become
effective;
(viii) Shares of Common Stock. The Company shall have duly reserved the
- ------ -------------------------
number of Underlying Shares issuable upon the exercise of the Warrants or the
conversion of the shares of Preferred Stock acquired by the Purchaser on the
Closing Date;
(ix) Adverse Changes. Since the date of the financial statements included in
- ---- ---------------
the Company's Quarterly Report on Form 10-Q or Annual Report on Form 10-K,
whichever is more recent, last filed prior to the date of this Agreement, no
event which had a Material Adverse Effect shall have occurred (for purposes
hereof, changes in the market price of the Common Stock as compared to the
market generally may be considered as a factor in determining whether there has
occurred an event which has had a Material Adverse Effect);
(x) Litigation. No litigation shall have been instituted or threatened
- --- ----------
against the Company which would reasonably be expected to, individually or in
the aggregate, have had a Material Adverse Effect;
(xi) Change of Control. No Change of Control shall have occurred between the
- ---- -----------------
date hereof and the Closing Date. "Change of Control" means the occurrence of
-----------------
any of (i) an acquisition after the date hereof by an individual or legal entity
or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange
Act), other than the Purchasers or any of their Affiliates, of in excess of 25%
of the voting securities of the Company, (ii) a replacement of more than
one-half of the members of the Company's Board of Directors that is not approved
by those individuals who are members of the Board of Directors on the date
hereof in one or a series of related transactions, (iii) the merger of the
Company with or into another entity, (iv) the consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions or (v) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii), (iii) or (iv);
(xii) Transfer Agent Instructions. The Irrevocable Transfer Agent
- ----- -----------------------------
Instructions, in a form acceptable to the Purchasers, shall have been delivered
to and acknowledged in writing by the Company's transfer agent with a copy
forwarded to each Purchaser;
(xiii) Insider Participation. Current insiders of the Company (which
- ------ ----------------------
includes officers, directors and owners of at least 10% of the Common Stock)
shall invest a minimum of Two Million Dollars ($2,000,000) excluding conversion
of related-party debt, and more than Seven Million Dollars ($7,000,000)
including conversion of related-party debt, in accordance with the terms of this
Agreement; and
(xiv) Market Decline. The S&P 500 Index shall not have declined by ten
- ----- ---------------
(10)% or more since the closing price on June 22, 1999.
exhibit 10.1, page 20
<PAGE>
c. Documents and Certificates. At the Closing, the Company shall have
----------------------------
delivered to the Purchasers, the following in form and substance reasonably
satisfactory to the Purchasers:
(i) Opinion. An opinion of the Company's legal counsel in the form attached
- --- -------
hereto as Exhibit D dated as of the Closing Date;
----------
(ii) Preferred Stock Certificate. A Preferred Stock Certificate(s)
- ---- -----------------------------
representing the number of shares of Preferred Stock purchased by such Purchaser
- ----
as set forth next to such Purchaser's name on Schedule I, registered in the name
----------
of such Purchaser, each in form satisfactory to the Purchaser;
(iii) Warrant. A Warrant(s) representing the Warrants purchased by such
- ----- -------
Purchaser as set forth next to such Purchaser's name on Schedule I, registered
- --- ----------
in the name of such Purchaser;
(iv) Registration Rights. The Company shall have executed and delivered the
- ---- -------------------
Registration Rights Agreement;
(v) Officer's Certificate. An Officer's Certificate dated the Closing Date
- --- ----------------------
and signed by an executive officer of the Company confirming the accuracy of the
Company's representations and warranties as of such Closing Date and confirming
the compliance by the Company with the conditions precedent set forth in this
Section 4.1(c) as of the Closing Date;
(vi) Secretary's Certificate. A Secretary's Certificate dated the Closing
- ---- ------------------------
Date and signed by the Secretary or Assistant Secretary of the Company
certifying (A) that attached thereto is a true and complete copy of the
Certificate of Incorporation of the Company, as in effect on the Closing Date,
(B) that attached thereto is a true and complete copy of the by-laws of the
Company, as in effect on the Closing Date and (C) that attached thereto is a
true and complete copy of the Resolutions duly adopted by the Board of Directors
of the Company authorizing the execution, delivery and performance of this
Agreement and of the Transaction Documents, and that such Resolutions have not
been modified, rescinded or revoked;
(vii) Certificates of Incorporation. The Company shall have delivered to
- ----- -------------------------------
each of the Purchasers a copy of a certificate evidencing the incorporation and
good standing of the Company as of a date within ten days of the Closing Date.
The Company shall have delivered to the Purchasers a copy of its Certificate of
Incorporation as certified by the Secretary of State of the State of Delaware
within ten days of the Closing Date;
(viii) Transfer Agent Letter. The Company shall have delivered to each
- ------ -----------------------
Purchaser a letter from the Company's transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five days of the Closing
Date; and
(ix) Other Documents. The Company shall have delivered to each Purchaser
- ---- ----------------
such other documents relating to the transactions contemplated by the
Transaction Documents as the Purchasers or its counsel may reasonably request.
exhibit 10.1, page 21
<PAGE>
ARTICLE V.
INDEMNIFICATION
5.1 Indemnification. Except to the extent that matters which could be
---------------
covered by this Section 5 are covered by Section 5 of the Registration Rights
Agreement, in consideration of the Purchasers execution and delivery of this
Agreement and the Transaction Documents and acquiring the Preferred Stock,
Conversion Shares, Warrants and Warrant Shares thereunder and in addition to all
of the Company's other obligations under this Agreement and the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Purchaser, its past and present Affiliates and their successors and assigns (in
accordance with the provisions of Section 6.6), each other holder of the
Underlying Shares and all of their stockholders, officers, directors, employees,
members, partners and managers and direct or indirect investors and any of the
foregoing Person's agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnities") from and against any and all
-----------
actions, causes of action, suits, claims, losses, proceedings, costs (as
incurred), penalties, fees (including legal fees and expenses), liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnity is a party to the action for which indemnification hereunder is
sought), and including interest, penalties and attorneys' fees and disbursements
(the "Indemnified Liabilities"), incurred by any Indemnity as a result of, or
------------------------
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement or in the
Transaction Documents, or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or the Transaction
Documents, or any other certificate, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim brought or made, other
than by the Company, against such Indemnity and arising out of or resulting from
(i) the execution, delivery, performance or enforcement of this Agreement or the
Transaction Documents, (ii) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of the issuance of the
Preferred Stock or Warrants or (iii) solely the status of such Purchasers or
holder of the Preferred Stock, the Conversion Shares, the Warrants or the
Warrant Shares as an investor in the Company; provided however, that the Company
-------- -------
shall not be required to provide indemnification for any losses, claims,
damages, liabilities or expenses arising out of the gross negligence or willful
misconduct of a Purchaser. The indemnification obligations of the Company under
this paragraph shall be in addition to any liability which the Company may
otherwise have, shall extend upon the same terms and conditions to any affiliate
of the Purchasers and partners, directors, agents, employees and controlling
Persons (if any), as the case may be, of the Purchasers and any such affiliate,
and shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of the Company, the Purchasers and any such
affiliate and any such Person. The Company also agrees that neither the
Purchasers nor any such Affiliates, partners, directors, agents, employees or
controlling Persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company in connection with or
as a result of the consummation of this Agreement or any of the Transaction
Documents except to the extent for any losses, claims, damages, liabilities or
expenses incurred by the Company result from the gross negligence or willful
misconduct of such Purchaser or entity in connection with the transactions
contemplated by this Agreement or the Transaction Documents. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law.
exhibit 10.1, page 22
<PAGE>
ARTICLE VI.
MISCELLANEOUS
6.1 Entire Agreement. This Agreement, together with the Exhibits and
-----------------
Schedules hereto and the Transaction Documents contain the entire understanding
of the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such
matters.
6.2 Notices. Any notices, consents, waivers or other communications
-------
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party (if received by 5:00 p.m. eastern time ("ET")
where such notice is received) or the first business day following such delivery
(if received after 5:00 p.m. ET where such notice is received); or (iii) one
business day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
Level 8 Systems, Inc.
8000 Regency Parkway
Cary, North Carolina 27511
Telephone: (919) 380-5005
Facsimile: (919) 461-2690
Attention: Dennis McKinnie
With a copy to:
Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street, 16th Floor
Atlanta, GA 30303
Facsimile: (404) 572-6999
Attention: Scott D. Smith, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Facsimile: (718) 921-8334
Attention: Isaac Kagan or Rosie Rosenbloom
exhibit 10.1, page 23
<PAGE>
If to Brown Simpson Strategic Growth Fund, Ltd. to:
152 West 57th Street, 40th Floor
New York, New York 10029
Telephone: (212) 247-8200
Facsimile: (212) 247-1329
Attention: Paul Gustus
If to Brown Simpson Strategic Growth Fund, L.P. to:
152 West 57th Street, 40th Floor
New York, New York 10029
Telephone: (212) 247-8200
Facsimile: (212) 247-1329
Attention: Paul Gustus
With a copy, in the case of Notice to Brown Simpson Strategic Growth Fund,
Ltd., or Brown Simpson Strategic Growth Fund, L.P., to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Telephone: (212) 872-1000
Facsimile: (212) 872-1002
Attention: James Kaye
If to Advanced Systems Europe B.V. to:
5 Hazoref Street
Holon, Israel 58856
Telephone:
Facsimile:
Attention:
With copy to:
Goldfarb, Levy & Eran
Eliahu House
2 Ibn Gvirol Street
Tel Aviv, Israel 64077
Telephone: 972-3-695-4343
Facsimile: 972-3-695-4344
Attention: Mr. Oden Eran
Mr. Erez Altit
exhibit 10.1, page 24
<PAGE>
If to Seneca Capital L.P., to:
c/o Seneca Capital Advisors, LLC
830 Third Avenue, 14th Floor
New York, New york 10022
Telephone: (212) 371-1300
Facsimile: (212) 758-6060
Attention: Mr. Doug Hirsch
If to Seneca Capital International, Ltd., to:
c/o Seneca Capital Advisors, LLC
830 Third Avenue, 14th Floor
New York, New york 10022
Telephone: (212) 371-1300
Facsimile: (212) 758-6060
Attention: Mr. Doug Hirsch
With a copy, in the case of Notice to Seneca Capital, L.P. or Seneca Capital
International. Ltd., to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022-3852
Telephone: (212) 715-9186
Facsimile: (212) 715-8000
Attention: Thomas T. Janover, Esq.
Each party shall provide written notice to the other party of any change in
address or facsimile number in accordance with the provisions hereof.
6.3 Amendments; Waivers. No provision of this Agreement may be waived or
--------------------
amended except in a written instrument signed, in the case of an amendment, by
both the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay
or omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter. Notwithstanding the
foregoing, no such amendment shall be effective to the extent that it applies to
less than all of the holders of the shares of Preferred Stock outstanding. The
exhibit 10.1, page 25
<PAGE>
Company shall not offer or pay any consideration to a Purchaser for consenting
to such an amendment or waiver unless the same consideration is offered to each
Purchaser and the same consideration is paid to each Purchaser which consents to
such amendment or waiver.
6.4 Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
6.5 References. References herein to Sections are to Sections of this
-----------
Agreement, unless otherwise expressly provided.
6.6 Successors and Assigns. This Agreement shall be binding upon and inure
-----------------------
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers. The Purchasers may
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Company, provided, that any assignees must execute and
deliver to the company an instrument expressly making the representations and
warranties set forth in Section 2.2 and agrees to become a party hereto; further
that, prior to the Closing Date, the Purchasers may assign this Agreement its
rights and rights or obligations hereunder only to an Affiliate of such
Purchaser. This provision shall not limit a Purchaser's right to transfer
securities in accordance with all of the terms of this Agreement or the
Transaction Documents.
6.7 No Third-Party Beneficiaries. This Agreement is intended for the
------------------------------
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
6.8 Governing Law. This Agreement shall be governed by and construed and
--------------
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
6.9 Survival. The representations and warranties of the Company and the
--------
Purchasers contained in Sections 2.1 and 2.2, the agreements and covenants set
exhibit 10.1, page 26
<PAGE>
forth in Section 3, and the indemnification provisions set forth in Section 5,
shall survive the Closing and any conversion of the shares of Preferred Stock or
exercise of the Warrants regardless of any investigation made by or on behalf of
the such Purchaser or by or on behalf of the Company, except that, in the case
of representations and warranties such survival shall be limited to the period
of four (4) years following the Closing Date on which they were made or deemed
to have been made (other than with respect to any claim by a third party against
the party to this Agreement who seeks to assert a claim based on such
representations and warranties). This section shall have no effect on the
survival of the indemnification provisions of the Registration Rights Agreement.
6.10 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
6.11 Publicity. The Company and the Purchasers shall consult with each other
---------
in issuing any press releases or otherwise making public statements with respect
to the transactions contemplated hereby and neither party shall issue any such
press release or otherwise make any such public statement without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
party with prior notice of such public statement. The Company shall not
publicly or otherwise disclose the names of any of the Purchasers without each
such Purchaser's prior written consent, except to the extent required by law.
The Purchasers and their affiliated companies shall, without further cost, have
the right to use in its advertising, marketing or other similar materials all or
parts of the Company's press releases that focus on the Transaction forming the
subject matter of this Agreement or which make reference to the Transaction.
The Purchasers understand that this grant by the Company only waives objections
that the Company might have to the use of such materials by the Purchasers and
in no way constitutes a representation by the Company that references in such
materials to the activities of third-parties have been cleared or constitute a
fair use.
6.12 Severability. In case any one or more of the provisions of this
------------
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
6.13 Remedies. In addition to being entitled to exercise all rights
--------
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
this Agreement or the Transaction Documents without the showing of economic loss
and without any bond or other security being required. Each of the Company and
the Purchasers (severally and not jointly) agree that monetary damages would not
be adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agree to waive in any
action for specific performance of any such obligation the defense that a remedy
at law would be adequate.
exhibit 10.1, page 27
<PAGE>
6.14 Independent Nature of Purchasers' Obligations and Rights. The
--------------------------------------------------------------
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
6.15 Payment Set Aside. To the extent that the Company makes a payment or
-------------------
payments to the Purchasers hereunder or pursuant to the Transaction Documents or
the Purchasers enforce or exercise their rights hereunder or thereunder, and
such payment or payments or the proceeds of such enforcement or exercise or any
part thereof are subsequently invalidated, declared fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other Person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
6.16 Further Assurances. Each party shall do and perform, or cause to be
-------------------
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
6.17 Fees and Expenses. Except as set forth in the Registration Rights
-------------------
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement; provided, however, that the Company shall pay
-------- -------
Brown Simpson Asset Management, LLC an aggregate fee of $30,000 at the Closing
and shall reimburse Seneca Capital, L.P. and Seneca Capital International, Ltd.
at the Closing for the reasonable fees and expenses of their counsel, auditors
and any consultants ("Seneca Expenses") in an amount up to $10,000; provided
---------------- --------
further, that if the Closing does not take place prior to July 10, 1999 due to a
----
decision by the Company, for any reason, then the Company will pay all the
Seneca Expenses within 30 days of receipt of documentation of such expenses.
exhibit 10.1, page 28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
LEVEL 8 SYSTEMS, INC.
By: /s/ Steven Dmiszewicki
Name: Steven Dmiszewicki
Title: President
BROWN SIMPSON STRATEGIC
GROWTH FUND, LTD.
By: Brown Simpson Asset Management LLC
By: Brown Simpson, LLC
Its Member
By:/s/ James R. Simpson
Name: James R. Simpson
Title: Principal
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
By: Brown Simpson Capital, LLC
Its General Partner
By: Brown Simpson Partners, LLC
Its Member
By:/s/ James R. Simpson
Name: James R.Simpson
Title: Principal
exhibit 10.1, page 29
<PAGE>
ADVANCED SYSTEMS EUROPE B.V.
By:/s/ Arie Kilman
Name: Arie Kilman
Title: Chairman
SENECA CAPITAL, L.P.
By: Seneca Capital Advisors, LLC, its
general partner
By:/s/ Douglas Hirsch
Name: Douglas Hirsch
Title: Managing Partner
SENECA CAPITAL INTERNATIONAL, LTD.
By:/s/ Douglas Hirsch
Name: Douglas Hirsch
Title: Managing Partner
exhibit 10.1, page 30
<PAGE>
SCHEDULE I
Number of shares
of Preferred Stock Number of Shares
Name of Purchaser at Closing Date Underlying Warrants
- ------------------- -------------------- -----------------
Brown Simpson Strategic
Growth Fund, L.P. 2,450 245,000
Brown Simpson Strategic
Growth Fund, Ltd. 4,550 455,000
Advanced Systems
Europe B.V. 10,000 1,000,000
Seneca Capital, L.P. 1,945 194,540
Seneca Capital International, Ltd. 2,055 205,460
exhibit 10.1, page 31
<PAGE>
SCHEDULE II
Name of Purchaser Address
- ------------------- -------
Brown Simpson Strategic Growth Fund, Ltd.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
Residence: Grand Cayman, Cayman Islands
Brown Simpson Strategic Growth Fund, L.P.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
Residence: New York, New York
Advanced Systems Europe B.V.
BV5 Hazoref Street
Holon, Israel 58856
Attn:
Fax:
Residence:
Seneca Capital L.P.
c/o Seneca Capital Advisors, LLC
830 Third Avenue, 14th Floor
New York, New york 10022
Attn: Mr. Doug Hirsch
Fax: (212) 758-6060
Residence:
Seneca Capital International, Ltd.:
c/o Seneca Capital Advisors, LLC
830 Third Avenue, 14th Floor
New York, New york 10022
Attn: Mr. Doug Hirsch
Fax: (212) 758-6060
Residence:
exhibit 10.1, page 32
<PAGE>
EXHIBIT 10.2
[WARRANTS TO PURCHASE A TOTAL OF 2,100,000 SHARES IN THE FOLLOWING FORM WERE
ISSUED ON JUNE 29,1999.]
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
June 29, 1999
shares Warrant No. 1999-
- ---------- -----
LEVEL 8 SYSTEMS, INC.
STOCK PURCHASE WARRANT
Registered Owner:
----------------------------
This certifies that, for value received, Level 8 Systems, Inc., a Delaware
corporation, the ("Company") grants the following rights to the Registered
Owner, or assigns, of this Warrant:
1. ISSUE. Upon tender (as defined in Section 5) to the Company, the
Company, within three (3) Business Days of the date thereof, shall issue to the
Registered Owner, or assigns, up to the number of shares specified in Section 2
of fully paid and nonassessable shares of Common Stock that the Registered
Owner, or assigns, is otherwise entitled to purchase.
2. NUMBER OF SHARES. The total number of shares of Common Stock that the
Registered Owner, or assigns, of this Warrant is entitled to receive upon
exercise of this Warrant (the "Warrant Shares") is shares, subject to
-------------- --------
adjustment from time to time as set forth in Section 6. The Company shall at
all times reserve and hold available sufficient shares of Common Stock to
satisfy all conversion and purchase rights represented by outstanding
convertible securities, options and warrants, including this Warrant. The
Company covenants and agrees that all shares of Common Stock that may be issued
upon the exercise of this Warrant shall, upon issuance, be duly and validly
issued, fully paid and nonassessable, free from all taxes, liens and charges
with respect to the purchase and the issuance of the shares, and shall not have
any legend or restrictions on resale, except as required by Section 3.2(b) of
the Purchase Agreement.
exhibit 10.2, page 1
<PAGE>
3. EXERCISE PRICE. The initial per share exercise price of this Warrant,
representing the price per share at which the shares of stock issuable upon
exercise of this Warrant may be purchased, is Ten Dollars ($10.00) (the
"Exercise Price").
--------
4. EXERCISE PERIOD. This Warrant may be exercised from the Closing Date (as
defined in the Purchase Agreement) up to and including June 29, 2004 (the
"Exercise Period"). If not exercised in compliance with Section 5 during this
-----------
period, this Warrant and all rights granted under this Warrant shall expire and
lapse.
5. TENDER; ISSUANCE OF CERTIFICATES.
a. This Warrant may be exercised, in whole or in part, by (i) actual
delivery of (a) the Exercise Price in cash, (b) a duly executed Warrant Exercise
Form, a copy of which is attached to this Warrant as Exhibit A, properly
---------
executed by the Registered Owner, or assigns, of this Warrant, and (c) by
surrender of this Warrant, or (ii) if the resale of the Warrant Shares by the
Registered Owner is not then registered pursuant to an effective registration
statement under the Securities Act, delivery to the Company of (i) the Warrant
and (ii) a written notice of an election to effect a "Cashless Exercise" (as
-----------------
defined below) for the Warrant Shares specified in the Warrant Exercise Form.
The Warrant Shares so purchased shall be deemed to be issued to the Registered
Owner as of the close of business on the Business Day on which this Warrant
shall have been surrendered, the completed Warrant Exercise Form shall have been
delivered and payment shall have been made for such shares as set forth above.
Unless otherwise directed in writing by the Company, the payment, Warrant and
Warrant Exercise Form must be delivered to the principal office of the Company
either in person or as set for in Section 14.
b. Commencing ninety (90) days from the Filing Date (as defined in the
Registration Rights Agreement), if, and only if, at the time of exercise of this
Warrant, the Warrant Shares are not saleable pursuant to an effective
registration statement, then in addition to the exercise of all or a part of
this Warrant by payment of the Exercise Price in cash as provided above, and in
lieu of such payment, the Registered Owner shall have the right to effect a
cashless exercise (a "Cashless Exercise"). In the event of a Cashless Exercise,
-----------------
the Registered Owner may exercise this Warrant in whole or in part by
surrendering this Warrant, together with a duly executed Warrant Exercise Form,
in exchange for the number of shares of Common Stock equal to the product of (x)
the number of shares as to which this Warrant is being exercised multiplied by
(y) a fraction, the numerator of which is the Per Share Market Value of the
Common Stock less the Exercise Price then in effect and the denominator of which
is the Per Share Market Value (in each case adjusted for fractional shares as
herein provided).
c. In lieu of physical delivery of the Warrant Shares, provided the
Company's transfer agent is participating in the Depositary Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the
----
Registered Owner and in compliance with the provisions hereof, the Company shall
use its best efforts to cause its transfer agent to electronically transmit the
Warrant Shares to the Registered Owner by crediting the account of the
Registered Owner's Prime Broker with DTC through its Deposit Withdrawal Agent
exhibit 10.2, page 2
<PAGE>
Commission system. The time period for delivery described herein shall apply to
the electronic transmittals described herein. The Company and its transfer
agent shall be entitled to rely in good faith on the instructions which
reasonably appear on their face to be issued on behalf of the Holder, and will
have no liability with respect to any misdelivery of Warrant Shares if such
instructions are followed.
d. Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in the Warrant Exercise Form, shall be
delivered to the Registered Owner within a reasonable time, not exceeding three
(3) Business Days, after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be reasonably
requested by the Registered Owner and shall be registered in the name of the
Registered Owner or such other name as shall be designated by such Registered
Owner. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the Registered Owner a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
6. ADJUSTMENT OF EXERCISE PRICE.
a. Common Stock Dividends; Common Stock Splits; Reverse Common Stock Splits.
- -- ------------------------------------------------------------------------
If the Company, at any time while this Warrant is outstanding, (a) shall
pay a stock dividend on its Common Stock, (b) subdivide outstanding shares of
Common Stock into a larger number of shares, (c) combine outstanding shares of
Common Stock into a smaller number of shares or (d) issue by reclassification of
shares of Common Stock any shares of capital stock of the Company, then the
Exercise Price thereafter shall be determined by multiplying the Exercise Price
by a fraction the numerator of which shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding before such event and the
denominator of which shall be the number of shares of Common Stock outstanding
after such event. Any adjustment made pursuant to this paragraph (6)(a) shall
become effective on the effective date of any dividend, distribution,
subdivision, combination or re-classification.
b. Rights; Warrants. If the Company, at any time while this Warrant is
- -- -----------------
outstanding, shall issue rights or warrants to all of the holders of Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Exercise Price and similar rights are not
concurrently distributed to the Registered Holder, the Exercise Price shall
thereafter be determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and the numerator of which shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding on the
date of issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at the Exercise Price. Such adjustment shall be made whenever such rights or
warrants are issued, and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such rights or
warrants.
exhibit 10.2, page 3
<PAGE>
c. Subscription Rights. If the Company, at any time while this Warrant is
- -- --------------------
outstanding, shall distribute to all of the holders of Common Stock evidence of
its indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in paragraphs 6(a) and (b) above) and
similar rights are not concurrently distributed to the Registered Owner, then in
each such case the Exercise Price at which the Warrant shall thereafter be
exercisable shall be determined by multiplying the Exercise Price in effect
immediately prior to the record date fixed for determination of shareholders
entitled to receive such distribution by a fraction, the denominator of which
shall be the Per Share Market Value of Common Stock determined as of the record
date mentioned above, and the numerator of which shall be such Per Share Market
Value of the Common Stock on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Board of Directors in good faith; provided, however, that in the event of a
-------- -------
distribution exceeding ten percent (10%) of the net assets of the Company, such
fair market value shall be determined by one Appraiser selected in good faith by
the Registered Owner of the Warrant; and provided, further, that the Company,
-------- -------
after receipt of the determination by such Appraiser shall have the right to
select in good faith an additional Appraiser meeting similar qualifications in
which case the fair market value shall be equal to the average of the
determinations by each such Appraiser. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date mentioned above.
d. Rounding. All calculations under this Section 6 shall be made to the
- -- --------
nearest cent or the nearest l/l00th of a share, as the case may be.
e. Notice of Adjustment. Whenever the Exercise Price is adjusted pursuant
- -- ----------------------
to paragraphs 6(a), (b) or (c), the Company shall promptly deliver to the
Registered Owner a notice setting forth the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
f. Events Triggering Redemption. The following are "Redemption Events"
- -- ------------------------------ -----------------
under this Section 6.(f): (A) any reclassification of the Common Stock which
would have a material adverse affect on the rights of holders of the securities
into which the Warrant is exercisable, (B) any suspension from listing or
delisting of the Common Stock such that the Common Stock is not listed on Nasdaq
or any Subsequent Market for a period of ten consecutive Trading Days, or (C) a
breach by the Company of its obligations under this Warrant, but only if such
breach continues for a period of at least 10 Trading Days after the Company is
notified by any Holder of such breach.
On and after notice of the occurrence of a Redemption Event, the Holder
shall have the option to require the Company to redeem (the "Redemption Right")
----------------
in cash and subject to the terms of payment provisions set forth in Section 5,
from funds legally available therefor at the time of such redemption, the
Holder's shares of Common Stock immediately theretofore acquirable and
exhibit 10.2, page 4
<PAGE>
receivable upon the exercise of such Holder's Warrant at a price per share equal
to the product of (i) the difference between (A) Average Price immediately
preceding the effective date, the date of the closing, date of occurrence or the
date of the announcement, as the case may be, of the Redemption Event triggering
such Redemption Right and (B) the Exercise Price, and (ii) the number of shares
of Common Stock that would have been issued upon the exercise of the Warrant
immediately prior to such Redemption Event. By accepting the Preferred Stock,
each Holder expressly acknowledges that the Preferred Stock shall not be
redeemable in any event if redeemability in such event would cause the Preferred
Stock not to be classified as stockholders' equity on the Company's balance
sheet. Nothing in this Section 7.1(f) shall be deemed to authorize the Company
to enter into any transaction not otherwise permitted by the Purchase Agreement.
This provision shall similarly apply to successive Redemption Events.
g. Notice of Certain Events. If:
- -- ----------------------------
(i) the Company shall declare a dividend (or any other distribution) on its
Common Stock; or
(ii) the Company shall declare a special nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) the Company shall authorize the granting to the holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights; or
(iv) the approval of any shareholders of the Company shall be required in
connection with any reclassification of the Common Stock of the Company, any
consolidation or merger to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of exercise of this Warrant, and shall cause to be delivered to the
Registered Owner, at least 10 Business Days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
exhibit 10.2, page 5
<PAGE>
share exchange; provided, however, that the failure to mail such notice or any
-------- -------
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
h. Adjustment to Exercise Price. If the Company, at any time while
- -- -------------------------------
this Warrant is outstanding, takes any of the actions described in this Section
6, then, in order to prevent dilution of the rights granted under this Warrant,
the Exercise Price will be subject to adjustment from time to time as provided
in this Section 6.
(i) Adjustment of Exercise Price upon Issuance of Common Stock. If at
-----------------------------------------------------------
any time while this Warrant is outstanding the Company issues or sells, or is
deemed to have issued or sold, any shares of Common Stock (other than (1) the
Underlying Shares or shares of Common Stock deemed to have been issued by the
Company in connection with an Approved Stock Plan, (2) the shares of Common
Stock issuable upon the exercise of any options or warrants outstanding on the
date hereof and listed in Schedule 2.1(c) of the Purchase Agreement, (3) the
securities to be issued in the transactions set forth on such Schedule 2.1(c),
(4) the shares of Common Stock issuable upon an Underwritten Offer (as defined
in the Registration Rights Agreement) occurring before December 31, 2000, or (5)
the shares of Common Stock issued or deemed to have been issued as consideration
for an acquisition by the Company of a division, assets or business (or stock
constituting any portion thereof) from another person) for a consideration per
share less than the Exercise Price in effect immediately prior to such issuance
or sale, then immediately after such issue or sale, the Exercise Price then in
effect shall be reduced to an amount equal to the lesser of: (1) the Adjusted
Price in such issuance or sale or (2) the Average Price on the date of such
issuance or sale. For the purpose of determining the adjusted Exercise Price
under this Section 6(h)(i), the following shall be applicable:
(A) Issuance of Options. If at any time while this Warrant is outstanding
- --- ---------------------
the Company in any manner grants any rights or options to subscribe for or to
purchase Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (other than (1) the Underlying Shares or shares of
Common Stock deemed to have been issued by the Company in connection with
an Approved Stock Plan, (2) the shares of Common Stock issuable upon the
exercise of any options or warrants outstanding on the date hereof and listed in
Schedule 2.1(c) of the Purchase Agreement, (3) the securities to be issued in
the transactions set forth on such Schedule 2.1(c), (4) the shares of Common
Stock issuable upon an Underwritten Offer (as defined in the Registration Rights
Agreement) occurring before December 2000, (5) the shares of Common Stock
issuable upon an Underwritten Offer (as defined in the Registration Rights
Agreement) or (6) the shares of Common Stock issued or deemed to have been
issued as consideration for an acquisition by the Company of a division, assets
or business (or stock constituting any portion thereof) from another person)
(such rights or options being herein called "Options" and such convertible or
-------
exhibit 10.2, page 6
<PAGE>
exchangeable stock or securities being herein called "Convertible Securities")
----------------------
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities is
less than the Exercise Price in effect immediately prior to such grant, then the
Exercise Price shall be adjusted to equal to the lesser of: (1) the Adjusted
Price upon the exercise of such Options or upon the conversion or exchange of
such Convertible Securities or (2) the Average Price on the date of such grant.
No adjustment of the Exercise Price shall be made upon the actual issuance of
such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(B) Issuance of Convertible Securities. If at any time while this Warrant
- --- ------------------------------------
is outstanding the Company in any manner issues or sells any Convertible
Securities and the price per share for which Common Stock is issuable upon such
conversion or exchange (other than the Underlying Shares or shares of Common
Stock deemed to have been issued by the Company in connection with an Approved
Stock Plan, shares of Common Stock issuable upon the exercise of any options or
warrants outstanding on the date hereof and listed in Schedule 2.1(c) of the
Purchase Agreement, shares of Common Stock issued or deemed to have been issued
as consideration for an acquisition by the Company of a division, assets or
business (or stock constituting any portion thereof) from another person) is
less than the Exercise Price in effect immediately prior to issuance or sale,
then the Exercise Price shall be adjusted to equal to the lesser of: (1) the
Adjusted Price issuable upon the conversion or exchange of such Convertible
Securities or (2) the Average Price on the date of such issuance or sale.
(C) Change in Option Price or Rate of Conversion. If there is a change at
- --- ----------------------------------------------
any time in (i) the purchase price provided for in any Options, (ii) the
additional consideration, if any, payable upon the issuance, conversion or
exchange of any Convertible Securities or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock,
then the Exercise Price in effect at the time of such change shall be readjusted
to the lesser of (1) the Exercise Price which would have been in effect at such
time had such Options or Convertible Securities still outstanding provided for
such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold or (2)
the Average Price on the date of such change; provided that no adjustment shall
be made if such adjustment would result in an increase of the Exercise Price
then in effect.
(D) Effect on Exercise Price of Certain Events. For purposes of determining
- --- ------------------------------------------
the adjusted Exercise Price under this Section 6, the following shall be
applicable:
(I) Calculation of Consideration Received. If any Common Stock, Options or
- --- --------------------------------------
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
exhibit 10.2, page 7
<PAGE>
amount received by the Company therefor. In case any Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company will be
the fair value of such consideration, except where such consideration consists
of securities, in which case the amount of consideration received by the Company
will be the Average Price of such security on Trading Day immediately
preceding the date of receipt thereof. In case any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the registered owners of a
majority of the Underlying Shares of Warrants then outstanding. If such parties
are unable to reach agreement within ten (10) days after the occurrence of an
event requiring valuation (the "Valuation Event"), the fair value of such
----------------
consideration will be determined within forty-eight (48) hours of the tenth
(10th) day following the Valuation Event by an Appraiser selected in good faith
by the Company and agreed upon in good faith by the holders of a majority of
the Warrants then outstanding. The determination of such Appraiser shall be
binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is issued in connection
- ---- ------------------------
with the issue or sale of other securities of the Company, together comprising
- --
one integrated transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options will be deemed to have been
issued for an aggregate consideration of $.001.
(III) Treasury Shares. The number of shares of Common Stock outstanding at
- ----- ----------------
any given time does not include shares owned or held by or for the account of
the Company, and the disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the holders of Common
- ---- ------------
Stock for the purpose of entitling them (1) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or
(2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
exhibit 10.2, page 8
<PAGE>
(V) Certain Events. If any event occurs of the type contemplated by the
- --- ---------------
provisions of this Section 6(h)(i) (subject to the exceptions stated therein)
but not expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights or
other rights with equity features), then the Company's Board of Directors will
make an appropriate adjustment in the Exercise Price so as to protect the rights
of the Registered Owner, or assigns, of this Warrant; provided, however, that no
such adjustment will increase the Exercise Price as otherwise determined
pursuant to this Section 6(h).
(VI) "Common Stock Deemed Outstanding" means, at any given time, the number
--------------------------------
of shares of Common Stock issued and outstanding at such time, plus the number
of shares of Common Stock deemed to be outstanding pursuant to Sections
7.1(g)(ii)(A) and 7(g)(ii)(B) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock issuable upon exercise of the Warrants
Notwithstanding the foregoing, in no event shall any provision in this
Section 6 cause the Exercise Price to be greater than the Exercise Price on the
date of issuance of this Warrant.
i. Adjustment of Number of Shares. Upon each adjustment of the Exercise
- -- ----------------------------------
Price as a result of the calculations made in this Section 6, this Warrant shall
thereafter evidence the right to receive, at the adjusted Exercise Price,
that number of shares of Common Stock (calculated to the nearest one-hundredth)
obtained by dividing (i) the product of the aggregate number of shares covered
by this Warrant immediately prior to such adjustment and the Exercise Price in
effect immediately prior to such adjustment of the Exercise Price by (ii) the
Exercise Price in effect immediately after such adjustment of the Exercise
Price.
7. OPTIONAL REDEMPTION.
a. Optional Redemption. This Warrant is redeemable in whole or in part at
- -- --------------------
the option of the Company at any time, subject to the conditions herein, (the
"Optional Redemption"):
- ---------------------
(i) Commencing on the First Business Day immediately after the first
anniversary of the Closing Date, provided that the closing price of the
Company's Common Stock is greater than Fifteen Dollars ($15) for twenty (20)
consecutive Trading Days and subject to the other conditions set forth herein.
(ii) After the Original Issue Date, if the Warrants outstanding represent
less than 5% of the Warrant Shares to be issued upon exercise of the Warrants
issued on the Original Issue Date remain unexercised, excluding from such
calculation any Warrants held by Affiliate of the Company as of such date (other
that any Holder or transferees or successors or assigns thereof if such Holder
is deemed to be an Affiliate solely by reason of its holding of Preferred Stock
and Warrants)
exhibit 10.2, page 9
<PAGE>
b. Redemption Notice. Subject to the conditions set forth in Section 7(a),
- -- ------------------
so long as (i) any Registration Statement required to be filed and be effective
pursuant to the Registration Rights Agreement is then in effect and has been in
effect and sales of all of the Registrable Securities can be made thereunder for
at least twenty (20) days prior to the Redemption Notice Date (as defined
below) and (ii) the Company has a sufficient number of authorized shares of
Common Stock reserved for issuance upon full exercise of the outstanding
Warrants, upon ten (10) Business Days' prior written notice to the Registered
Owner (a "Redemption Notice"), the Warrant may be redeemed by the Company, in
------------------
whole or in part, at a redemption price equal to $.001 per Warrant (the
"Redemption Price').
c. Mechanics of Redemption. The Company shall exercise its right to redeem
- -- -------------------------
by delivering its Redemption Notice by facsimile and overnight courier to each
Registered Owner (such date that the Redemption Notice is given on the
"Redemption Notice Date"). Such Redemption Notice shall indicate (A) the
----------------
Redemption Price, (B) each Registered Owner's pro rata allocation of such
maximum amount, and (C) a confirmation of the date that the Company shall effect
the redemption (the "Redemption Date"). The Redemption Date shall be not less
---------------
than ten (10) Business Days and not more than sixty (60) calendar days after the
Redemption Notice Date. Notwithstanding anything in this Section 7(c), the
Company shall convert any Warrant pursuant to Section 5 if the Warrant Exercise
Form for a Warrant submitted for exercise is (i) received by the Company,
together with the Exercise Price in cash and the Warrant, before the Redemption
Date, (ii) for an Exercise Price greater than or equal to the Redemption Price
(appropriately adjusted in accordance with the terms hereof) and (iii) in excess
of such Registered Owner's pro rata allocation of the maximum Redemption Price
indicated in its Redemption Notice.
d. Payment of Redemption Price. The Company shall pay the applicable
- -- ------------------------------
Redemption Price to the Registered Owner of the Warrants being redeemed in cash
on the Redemption Date (or, if later, the Business Day following the Business
Day upon which the Company receives the Warrant). If the Company shall fail to
pay the applicable Redemption Price to such Registered Owner on the Redemption
Date, in addition to any remedy such Registered Owner may have under this
Warrant and the Purchase Agreement, such unpaid amount shall bear interest at
the rate of 2.0% per month until paid in full.
8. NASDAQ LIMITATION. If on any date (the "Determination Date") (a) the
------------------
Common Stock is listed for trading on Nasdaq, (b) the Exercise Price then in
effect is such that the aggregate number of shares of Common Stock that would
then be issuable upon exercise in full of the then outstanding Warrants as if
all such Warrants were exercised on such Determination Date (without regard to
any limitations on exercises) and as payment of interest thereon, as would equal
or exceed 20% of the number of shares of the Common Stock outstanding
immediately prior to the "Closing Date" (the "Issuable Maximum"), and (c) the
------------ ----------------
Company shall not have previously obtained the vote of the shareholders of the
Company (the "Shareholder Approval"), if any, as may be required by the
---------------------
exhibit 10.2, page 10
<PAGE>
applicable rules and regulations of Nasdaq (or any successor entity) to approve
the issuance of shares of Common Stock in excess of the Issuable Maximum in a
private placement whereby shares of Common Stock are deemed to have been issued
at a price that is less than the greater of book value or fair market value of
the Common Stock, then with respect to the aggregate number of Warrants then
held by the Holders for which an exercise in accordance with the Exercise Price
would result in an issuance of shares of Common Stock in excess of such Holder's
pro rata allocation (as described below) of the Issuable Maximum (the "Excess
------
Amount"), the Company may elect to pay cash to the Holders in an amount equal to
----
the product of the Average Price on the Determination Date multiplied by the
number of shares of Common Stock that would be issued upon the exercise of the
Warrants resulting in the Excess Amount (the "Prepayment Amount"). Any such
-----------------
election by the Company must be made in writing to the Holders within five (5)
Trading Days after the first such Determination Date and the payment of such
Prepayment Amount applicable to such prepayment must be made in full to the
Holders with ten (10) Business Days after the date such notice is delivered. If
the Company does not deliver timely a notice of its election to prepay under
this Section or shall, if it shall have delivered such a notice, fail to pay the
Prepayment Amount hereunder within ten (10) Business Days thereafter, then each
Holder shall have the option by written notice to the Company, to, if
applicable, declare any such notice given by the Company, if given, to be null
and void and require the Company to either: (i) use its best efforts to obtain
the Shareholder Approval applicable to such issuance as soon as is possible, but
in any event not later than the 60th day after such request unless the Company
has previously used its best efforts to, but has failed to, obtain such approval
(provided, that if the Company shall fail to obtain the Shareholder Approval
during such 60-day period, the Holder may demand the cash payment set forth in
Section 8(ii) herein) or (ii) pay cash to such Holder, within five (5) Business
Days of such Holder's notice, in an amount equal to the Prepayment Amount for
such Holder's portion of the Excess Amount. The payment of the Prepayment
Amount to each Holder pursuant to this Section shall be determined on a pro rata
basis upon the number of shares of Common Stock issuable upon the exercise of
the Warrants held by such Holder on the Determination Date which is in excess
of the pro rata allocation of the Issuable Maximum. If the Company fails to pay
the Prepayment Amount in full pursuant to this Section within five (5) Business
Days after the date payable, the Company will pay interest thereon at a rate of
20% per annum to the converting Holder, accruing interest daily from the date of
conversion until such amount, plus all such interest thereon, if any, is paid in
full. Until the Company has received the Shareholder Approval no Holder shall
be issued, upon exercise of a Warrant , shares of Common Stock in an amount
greater than such Holder's allocated portion of the Issuable Maximum pursuant to
Section 8.
9. RESTRICTION ON EXERCISE BY EITHER THE REGISTERED OWNER OR THE COMPANY.
Notwithstanding anything herein to the contrary, in no event shall any
Registered Owner have the right or be required to exercise this Warrant if as a
result of such conversion the aggregate number of shares of Common Stock
beneficially owned by such Registered Owner and its Affiliates would exceed
9.99% of the outstanding shares of the Common Stock following such exercise.
The Company shall be entitled to rely on a Notice of Exercise in the form of
Exhibit A hereto in issuing shares of Common Stock to a Registered Owner. For
purposes of this Section 9, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended. The provisions of this Section 9 may be waived by a Registered Owner
as to itself (and solely as to itself) upon not less than 65 days prior written
notice to the Company.
exhibit 10.2, page 11
<PAGE>
10. OFFICER'S CERTIFICATE. Whenever the number of shares purchasable upon
exercise shall be adjusted as required by the provisions of Section 6, the
Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted number of shares determined as herein
provided, setting forth in reasonable detail the facts requiring such adjustment
and the manner of computing such adjustment. Each such officer's certificate
shall be signed by the chairman, president or chief financial officer of the
Company and by the secretary or any assistant secretary of the Company. Each
such officer's certificate shall be made available at all reasonable times for
inspection by any Registered Owner of the Warrants and the Company shall,
forthwith after each such adjustment, deliver a copy of such certificate to the
each of the Registered Owners.
11. DEFINITIONS. Capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in the Purchase Agreement.
As used in this Warrant, the following terms have the following meanings:
"Adjusted Price" means the product of (x) the Exercise Price in effect
---------------
immediately prior to such issuance or sale or grant multiplied by (y) the
quotient determined by dividing (1) the sum of (I) the product of (A) the
Exercise Price in effect immediately before the issuance or sale or grant
multiplied by (B) the number of shares of Common Stock Deemed Outstanding (as
defined below) immediately prior to such issuance or sale or grant, plus (II)
the consideration, if any, received by the Company upon such issue or sale, by
(2) the product of (I) the Exercise Price in effect immediately before the
issuance or sale or grant, multiplied by (II) number of shares of Common Stock
Deemed Outstanding (as defined below) immediately after such issue or sale or
grant.
"Affiliate" means, with respect to any Person, any other Person that directly or
---------
indirectly controls or is controlled by or under common control with such
Person. For the purposes of this definition, "control," when used with respect
-------
to any Person, means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms of "affiliated," "controlling" and "controlled" have meanings correlative
---------- ----------- ----------
to the foregoing.
"Appraiser" shall mean a nationally recognized or major regional investment
---------
banking firm or firm of independent certified public accountants of recognized
standing.
"Approved Stock Plan" shall mean any contract, plan or agreement which has been
--------------------
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer, director or
consultant.
"Average Price" has the meaning set forth in the Certificate of Designation.
--------------
exhibit 10.2, page 12
<PAGE>
"Business Day" means any day except Saturday, Sunday and any day which shall be
-------------
a legal holiday or a day on which banking institutions in the state of New York
generally are authorized or required by law or other government actions to
close.
"Certificate of Designation" has the meaning assigned to it in Section 6(f).
----------------------------
"Closing" has the meaning set forth in Section 1.2(a) of the Purchase Agreement.
-------
"Closing Date" has the meaning set forth in the Certificate of Designation.
-------------
"Common Stock" means the shares of the Company's Common Stock, par value $0.001
-------------
per share.
"Common Stock Deemed Outstanding" has the meaning assigned to it in Section
----------------------------------
(h)(i)(D)(VI).
"Company" means Level 8 Systems, Inc., a New York corporation.
-------
"Convertible Securities" has the meaning assigned to it in Section 6(h)(i)(A).
-----------------------
"Determination Date" has the meaning assigned to it in Section 8.
-------------------
"Distribution Date" has the meaning assigned to it in Section 22.
------------------
"Exercise Period" has the meaning assigned to it the Section 4.
----------------
"Exercise Price" has the meaning assigned to it in Section 3.
---------------
"Excess Amount" has the meaning assigned to it in Section 8.
--------------
"Issuable Maximum" has the meaning assigned to it in Section 8.
-----------------
"Options" has the meaning assigned to it in Section 6(h)(i)(A).
-------
"Per Share Market Value" means on any particular date (i) the closing bid price
-----------------------
per share of the Common Stock on such date on the Nasdaq National Market or
other registered national stock exchange on which the Common Stock is then
listed or if there is no such price on such date, then the closing bid price on
such exchange or quotation system on the date nearest preceding such date, or
(ii) if the Common Stock is not listed then on the Nasdaq National Market or the
Nasdaq SmallCap Market or any registered national stock exchange, the closing
bid price for a share of Common Stock in the over-the-counter market, as
reported by the National Quotation Bureau Incorporated (or similar organization
or agency succeeding to its functions of reporting prices) at the close of
business on such date, or (iii) if the Common Stock is not then publicly traded
the fair market value of a share of Common Stock as determined by an Appraiser
selected in good faith by the holder of this Warrant; provided, however, that
-------- -------
the Company, after receipt of the determination by such Appraiser, shall have
the right to select, in good faith, an additional Appraiser, in which case the
fair market value shall be equal to the average of the determinations by each
such Appraiser; and provided, further that all determinations of the Per Share
-------- -------
Market Value shall be appropriately adjusted for any stock dividends, stock
splits or other similar transactions during such period.
exhibit 10.2, page 13
<PAGE>
"Preferred Stock" means the shares of the Series A 4% convertible preferred
----------------
stock issued pursuant to the Company's Certificate of Designation and sold
pursuant to the Purchase Agreement.
---
"Prepayment Amount" has the meaning assigned to it in Section 8.
------------------
"Purchase Agreement" means that certain Securities Purchase Agreement, dated
-------------------
June 28, 1999, among the Company and the Purchasers.
"Purchaser" has the meaning set forth in the Purchase Agreement.
---------
"Redemption Date" has the meaning assigned to it in Section 7(c).
----------------
"Redemption Event" has the meaning assigned to it in Section 6(f).
-----------------
"Redemption Notice" has the meaning assigned to it in Section 7(b).
------------------
"Registered Owner" means the person identified on the face of this Warrant as
-----------------
the registered owner hereof or such other person as shown on the records of the
Company as being the registered owner of this Warrant.
"Redemption Price" has the meaning assigned to it in Section 7(b) hereof.
-----------------
"Registrable Securities" has the meaning assigned to it in the Registration
-----------------------
Rights Agreement.
"Registration Rights Agreement" means that certain Registration Rights
-------------------------------
Agreement, dated June 28, 1999, among the Company and the Purchasers.
"Rights" has the meaning assigned to it in Section 22.
------
"Shareholder Approval" has the meaning assigned to it in Section 8.
---------------------
"Trading Day(s)" means any day on which the primary market on which shares of
---------------
Common Stock are listed is open for trading.
"Underlying Shares" has the meaning assigned to it in Section 2.1(d) of the
------------------
Purchase Agreement.
"Warrant(s)" means the warrants issuable at the Closing.
----------
12. REGISTRATION RIGHTS. The Company will undertake the registration of the
Common Stock into which such Warrants are exercisable at such times and upon
such terms pursuant to the provisions of the Registration Rights Agreement.
13. NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct
exhibit 10.2, page 14
<PAGE>
answer back received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if received by 8:00 p.m. EST
where such notice is to be received), or the first Business Day following such
delivery (if received after 8:00 p.m. EST where such notice is to be received)
or (b) on the second Business Day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications are (i) if to the Company to Level 8 Systems, Inc., 9000 Regency
Parkway, Cary, North Carolina 27571, Telephone: (919) 380-5005, Facsimile:
(919) 461-2690, Attention: Dennis McKinnie, with copies to Powell, Goldstein,
Frazer & Murphy LLP, 16th Floor, 191 Peachtree Street, Atlanta, GA 30303,
Attention: Scott D. Smith, Esq., Facsimile: (404)572-6999 and (ii) if to the
Registered Owner to the address set forth on Schedule II to the Purchase
Agreement with copies to the addressees set forth on Schedule II to the
Registration Rights Agreement or such other address as may be designated in
writing hereafter, in the same manner, by such person.
14. COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. The Company covenants that if
any shares of Common Stock required to be reserved for purposes of exercise of
Warrants hereunder require registration with or approval of any governmental
authority under any Federal or state law, or any national securities exchange,
before such shares may be issued upon exercise, the Company will use its best
efforts to cause such shares to be duly registered or approved, as the case may
be.
15. FRACTIONAL SHARES. Upon any exercise hereunder, the Company shall not
be required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the
Registered Owner shall be entitled to receive, in lieu of the final fraction of
a share, one whole share of Common Stock.
16. PAYMENT OF TAX UPON ISSUE OF TRANSFER. The issuance of certificates for
shares of the Common Stock upon exercise of the Warrants shall be made without
charge to the Registered Owners thereof for any documentary stamp or similar
taxes that may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate upon exercise in a name other than that of the
Registered Owner of such Warrant so converted and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
17. WARRANTS OWNED BY COMPANY DEEMED NOT OUTSTANDING. In determining whether
the holders of the outstanding Warrants have concurred in any direction, consent
or waiver under this Warrant, Warrants which are owned by the Company or any
other obligor on the Warrants or by any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any other obligor on the Warrants shall be disregarded and deemed not
to be outstanding for the purpose of any such determination; provided that any
Warrants owned by the Purchasers (as defined in the Purchase Agreement) shall be
deemed outstanding for purposes of making such a determination. Warrants so
owned which have been pledged in good faith may be regarded as outstanding if
the pledgee establishes to the satisfaction of the Company the pledgee's right
so to act with respect to such Warrants and that the pledgee is not the Company
or any other obligor upon the Warrants or any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any other obligor on the Warrants.
exhibit 10.2, page 15
<PAGE>
18. EFFECT OF HEADINGS; REFERENCES. The section headings herein are for
convenience only and shall not affect the construction hereof. References
herein to Sections are to Sections of this Warrant, unless otherwise expressly
provided.
19. NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle the Registered
Owner to any rights as a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other distributions, or
to receive notice of, or to attend, meetings of stockholders or any other
proceedings of the Company, unless and to the extent exercised for shares of
Common Stock in accordance with the terms hereof.
20. CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
21. SHAREHOLDER RIGHTS PLAN. Notwithstanding the foregoing, in the event
that the Company shall distribute "poison pill" rights pursuant to a "poison
pill" shareholder rights plan (the "Rights"), the Company shall, in lieu of
------
making any adjustment pursuant to Section 6, make proper provision so that each
Registered Owner who exercises a Warrant after the record date for such
distribution and prior to the expiration or redemption of the Rights shall be
entitled to receive upon such exercise, in addition to the shares of Common
Stock issuable upon such exercise, a number of Rights to be determined as
follows: (i) if such exercise occurs on or prior to the date for the
distribution to the holders of Rights of separate certificates evidencing such
Rights (the "Distribution Date"), the same number of Rights to which a holder of
-----------------
a number of shares of Common Stock equal to the number of shares of Common Stock
issuable upon such exercise at the time of such exercise would be entitled in
accordance with the terms and provisions of and applicable to the Rights; and
(ii) if such exercise occurs after the Distribution Date, the same number of
Rights to which a holder of the number of shares into which the Warrant to
exercised was exercisable immediately prior to the Distribution Date would have
been entitled on the Distribution Date in accordance with the terms and
provisions of and applicable to the Rights, and in each case subject to the
terms and conditions of the Rights.
exhibit 10.2, page 16
<PAGE>
22. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and inure to
the benefit of the Registered Owners and its assigns, and shall be binding upon
any entity succeeding to the Company by merger or acquisition of all or
substantially all the assets of the Company. The Company may not assign this
Warrant or any rights or obligations hereunder without the prior written consent
of the Registered Owner. The Registered Owner may assign this Warrant, in
compliance with applicable law, without the prior written consent of the
Company.
23. GOVERNING LAW. This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Warrant and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer as of the date first set forth above.
LEVEL 8 SYSTEMS, INC.
By:/s/Steven Dmiszewicki
Name: Steven Dmiszewicki
Title:President
exhibit 10.2, page 17
<PAGE>
EXHIBIT A
Warrant Exercise Form
---------------------
TO: LEVEL 8 SYSTEMS, INC.
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _______ shares of Common Stock of Level 8 Systems, Inc., pursuant to
Warrant No. ___ heretofore issued to ___________________ on ____________, 1999;
(2) encloses a payment of $__________ for these shares at a price of $____ per
share (as adjusted pursuant to the provisions of the Warrant); and (3) requests
that a certificate for the shares be issued in the name of the undersigned and
delivered to the undersigned at the address specified below.
____ The undersigned hereby certifies that the Common Stock issuable pursuant to
this Conversion Notice has been sold pursuant to a registration statement under
the Securities Act of 1933 which identifies the Holder as a selling security
holder. THIS MUST BE CHECKED FOR SHARES FREE OF RESTRICTIVE LEGENDS TO BE
ISSUED.
Date:
Investor Name:
Taxpayer Identification
Number:
By:
Printed Name:
Title:
Address:
Note: The above signature should correspond exactly with the name on the
face of this Warrant Certificate or with the name of assignee appearing in
assignment form below.
AND, if said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant Certificate is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder less
any fraction of a share paid in cash and delivered to the address stated above.
exhibit 10.2, page 18
<PAGE>
TO: The TRANSFER AGENT
The issuance of the shares of Common Stock set forth above is hereby
authorized and directed by the Company.
LEVEL 8 SYSTEMS INC.
By:
Name:
Title:
exhibit 10.2, page 19
<PAGE>
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of June 28, 1999, among Level 8 Systems, Inc., a Delaware
corporation (the "Company"), and the parties who have executed this Agreement
-------
and whose names appear on Schedule I hereto (each party listed on Schedule I
hereto is sometimes individually referred to herein as a "Purchaser" and all
---------
such parties are sometimes collectively referred to herein as the "Purchasers").
----------
This Agreement is made pursuant to the Securities Purchase Agreement,
dated as of the date hereof among the Company and the Purchasers (the "Purchase
--------
Agreement").
- ---------
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" has meaning set forth in Section 3(o).
------
"Affiliate" means, with respect to any Person, any other Person that
---------
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
-------
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "affiliated," controlling" and "controlled" have meanings
---------- ----------- ----------
correlative to the foregoing.
"Aggregate Price" has the meaning set forth in Section 2(d).
----------------
"AMEX" has the meaning set forth in Section 2(d).
----
"Average Price" has the meaning set forth in the Certificate of
--------------
Designations.
"Business Day" means any day except Saturday, Sunday and any day which
------------
shall be a legal holiday or a day on which banking institutions in the State of
New York generally are authorized or required by law or other government actions
to close.
"Certificate of Designations" has the meaning set forth in the
-----------------------------
Purchase Agreement.
"Closing Date" shall mean the Closing Date as such term is defined in
-------------
the Purchase Agreement.
exhibit 10.3, page 1
<PAGE>
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the Company's Common Stock, par value $0.001 per
-------------
share.
"Effectiveness Date" means the earlier of (i) the 120th day following the
-------------------
Closing Date, or (ii) the fifth day after the Company has received notice
(written or oral) from the Commission that the Commission Staff will not be
reviewing the Registration Statement or has no further comments on the
Registration Statement, unless the Required Holders consent in writing to a
longer period, such consent not to be unreasonably withheld.
"Effectiveness Period" has the meaning set forth in Section 2(a).
---------------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
-------------
"Event" has the meaning set forth in Section 2(d).
-----
"Filing Date" means as soon as practicable but in no event later than
------------
the later of (i) the 30th day following the Closing Date, or (ii) August 15,
1999.
"Holder" or "Holders" means the holder or holders, as the case may be,
------ -------
from time to time of Registrable Securities.
"Indemnified Party" has the meaning set forth in Section 5(c).
------------------
"Indemnifying Party" has the meaning set forth in Section 5(c).
-------------------
"Initial Registration Statement" has the meaning set forth in Section
-------------------------------
2(a).
"Losses" has the meaning set forth in Section 5(a).
------
"Nasdaq" has the meaning set forth in Section 2(d).
------
"NYSE" has the meaning set forth in Section 2(d).
----
"Person" means an individual or a corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the Company's Series A 4% Convertible Preferred
----------------
Stock issuable at the Closing (as defined in the Purchase Agreement) pursuant to
the Purchase Agreement.
exhibit 10.3, page 2
<PAGE>
"Proceeding" means an action, claim, suit, investigation or proceeding
----------
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
----------
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock issued or
-----------------------
issuable upon (i) conversion of or with respect to the Preferred Stock, (ii)
payment of dividends or any other payments in respect of the Preferred Stock,
(iii) exercise of Warrants for an aggregate 2,100,000 shares of Common Stock,
and (iv) any shares of the Company's capital stock issued with respect to (i),
(ii) or (iii) as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise.
"Registration Delay Payment" has the meaning set forth in Section
----------------------------
2(d).
"Registration Statement" means the Initial Registration Statement and
-----------------------
any additional registration statements contemplated by Sections 2(a), 2(b) and
7(d), including (in each case) the Prospectus, amendments and supplements to
such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference in
such registration statement.
"Required Holders" has the meaning set forth in the Certificates of
-----------------
Designation.
-
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
---------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
---------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
---------
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
---------------
"Special Counsel" means one special counsel to the Holders, for which
----------------
the Holders will be reimbursed by the Company pursuant to Section 4.
exhibit 10.3, page 3
<PAGE>
"Standstill Notice" has the meaning set forth in Section 2(e).
------------------
"Standstill Period" has the meaning set forth in Section 2(e).
------------------
"Trading Day" means a day on which Nasdaq (or such other securities
------------
market on which the Common Stock is listed) is open for trading.
"Underlying Shares" means the shares of Common Stock issuable upon
------------------
conversion of the Preferred Stock and exercise of the Warrants.
"Underwritten Registration or Underwritten Offering" means a
------------------------------------------------------
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrants" means the warrants issuable pursuant to the Purchase
--------
Agreement.
2. Registration Requirements
(a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission a Registration Statement (the "Initial Registration
--------------------
Statement") which shall cover all Registrable Securities for an offering to be
------
made on a continuous basis pursuant to a "Shelf" registration statement under
Rule 415. The Initial Registration Statement shall be on Form S-3 or any
successor form (except if the Company is not then eligible to register for
resale the Registrable Securities on Form S-3, in which case such registration
shall be on another appropriate form in accordance herewith, subject to the
reasonable consent of the original Holders of the Registrable Securities). The
Company shall use its best efforts to cause the Initial Registration Statement
to be declared effective under the Securities Act as promptly as possible after
the filing thereof, but in any event on or prior to the Effectiveness Date, and
to keep such Initial Registration Statement continuously effective under the
Securities Act until the date which is four years after the date that such
Initial Registration Statement is declared effective by the Commission or such
earlier date when all Registrable Securities covered by such Initial
Registration Statement have been sold or may be sold without volume restrictions
pursuant to Rule 144 as determined by counsel to the Company pursuant to a
written opinion letter, addressed to the Holders and the Company's transfer
agent to such effect (the "Effectiveness Period"). The number of shares of
--------------------
Common Stock initially included in the Initial Registration Statement shall be
no less than 100% of the aggregate number of shares of Common Stock that are
then issuable upon conversion of the Preferred Stock (based on the Conversion
Price (as defined in the Preferred Stock ) as would then be in effect at such
time) and the exercise of the Warrants, without regard to any limitation on the
Investor's ability to convert the Preferred Stock or exercise the Warrants.
(b) In addition to the Initial Registration Statement, if the
Holders of a majority of the Registrable Securities covered by a Registration
exhibit 10.3, page 4
<PAGE>
Statement so elect on or after September 30, 1999, an offering of Registrable
Securities pursuant to such Registration Statement may be effected on no more
than two (2) occasions in the form of an Underwritten Offering of at least one
million shares of Common Stock. In such event, and if the managing underwriters
advise the Company and such Holders in writing that in their opinion the amount
of Registrable Securities proposed to be sold in such Underwritten Offering
exceeds the amount of Registrable Securities which can be sold in such
Underwritten Offering, there shall be included in such Underwritten Offering the
amount of such Registrable Securities which in the opinion of such managing
underwriters can be sold, and such amount shall be allocated pro rata among the
--- ----
Holders proposing to sell Registrable Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering, subject to the consent of the Company,
which will not be unreasonably withheld. No Holder may participate in any
Underwritten Offering hereunder unless such Holder (i) agrees to sell its
Registrable Securities on the basis provided in any underwriting agreements
approved by the Persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
arrangements.
(d) If (i) the Initial Registration Statement covering all the
applicable Registrable Securities and required to be filed by the Company
pursuant to this Agreement is not (A) filed with the Commission on or before the
Filing Date or (B) declared effective by the Commission on or before the
applicable Effectiveness Date, (ii) on any day after the Registration Statement
has been declared effective by the Commission (A) sales of all the Registrable
Securities required to be included on a Registration Statement cannot be made
pursuant to the Registration Statement (including, without limitation, because
of a failure to keep the Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to the Registration
Statement, or to register sufficient shares of Common Stock) or (B) the Common
Stock is not listed or included for quotation on either the Nasdaq SmallCap
Market or the Nasdaq National Market of the Nasdaq Stock Market ("Nasdaq"), the
------
New York Stock Exchange ("NYSE") or the American Stock Exchange (the "AMEX") or
---- ----
(iii) the Company shall otherwise fail to file a Registration Statement required
by Section 2(a), (each such event specified in (i), (ii) and (iii) above, an
"Event"), then, as partial relief for the damages to any Holder by reason of any
---
such delay in or reduction of its ability to sell the Registrable Securities
(which remedy shall not be exclusive of any other equitable remedies), after a
60-day period commencing on the date of the Event, the Company shall pay to each
Holder an amount in cash (a "Registration Delay Payment") equal to the purchase
--------------------------
price of Preferred Stock as set forth in Schedule I the Purchase Agreement (the
"Aggregate Price") multiplied by .015 times the sum of: (i) the number of months
---------------
(rounded upwards to the nearest 30 day increment for partial months) after the
end of the Effectiveness Date and prior to the date the Registration Statement
is declared effective by the Commission, provided, however, that there shall be
-------- -------
excluded from such period any delays which are primarily attributable to changes
required by the Purchasers in the Registration Statement with respect to
information relating to the Purchasers, or to the failure of the Purchasers to
conduct their review of the Registration Statement pursuant to Section 3(a);
(ii) the number of months (rounded upwards to the nearest 30 day increment for
partial months) that sales cannot be made pursuant to the Registration Statement
after the Registration Statement has been declared effective (including, without
exhibit 10.3, page 5
<PAGE>
limitation, when sales cannot be made by reason of the Company's failure to
properly supplement or amend the Prospectus in accordance with the terms of this
Agreement, or otherwise, but excluding when such sales cannot be made solely by
reason of any act or omission primarily attributable to the Purchasers); and
(iii) the number of months (rounded upwards to the nearest 30 day increment for
partial months) that the Common Stock is not listed or included for quotation on
the Nasdaq, NYSE or AMEX or that trading thereon is halted after the
Registration Statement has been declared effective. The Company shall pay any
Required Registration Delay Payments to each Holder in cash on the last Business
Day of each month during which an Event has occurred and is continuing. In the
event the Company fails to make a Registration Delay Payment in a timely manner,
such Registration Delay Payment shall bear interest at the rate of 1.5% per
month (rounded upwards to the nearest 30 day increment for partial months) until
paid in full. No Standstill Period (as defined in paragraph (e)) shall be
included in the period an Event is deemed to be continuing pursuant to this
Section 2(d). Notwithstand anything in this Agreement to the contrary, in lieu
of cash payment described above during the sixty (60) day period described
below, if the Event is the Company's failure to file the Initial Registration
Statement on or before the Filing Date, the Company shall issue to the Holders
Warrants to purchase additional 55,000 shares of Common Stock for each 30-day
period that passes following the Filing Date up to a maximum of two such 30-day
periods, if the Event is the failure to have the Registration Statement declared
effective on or before the Effectiveness Date, the Company shall issue to the
Holders Warrants to purchase an additonal 55,000 shares of Common Stock for each
30-day period that passes following the Effectiveness Date up to a maximum of
two such 30-day periods. The Warrant issued to each Holder shall be to purchase
a portion of the aggregate number of shares of Common Stock on a pro rata basis
equal to its percentage ownership of the then outstanding number of shares of
Preferred Stock. In the case of an occurrence on an Event specified in (ii)(B)
above, the Holders shall be obligated to elect to receive the Registration Delay
Payments set forth in this paragraph or, alternatively, the redemption or
dividend adjustment set forth in Section 7(f) of the Certificate of Designation
and the adjustment set forth in Section 6(f) in the Warrant. Such election
shall be made by the holders of a majority of the outstanding Preferred Stock
(excluding Preferred Stock held by Affiliates of the Company, other than persons
who are Affilates solely as a result of the Preferred Stock and Warrants held by
such person) and the Company shall not be obligated to effect such payment or
adjustment until such election is made. The Company shall have no liability to
any Holder for actions taken in accordance with such election by the holders of
a majority of the Preferred Stock.
(e) Notwithstanding anything to the contrary herein, the Company may
delay preparing, filing any Registration Statement, and may withhold efforts to
cause the Registration Statement to become effective, and may delay the filing
of any supplement or amendment if the Company determines in good faith that such
supplement or amendment might, in the reasonable judgment of the Company (i)
interfere with or affect the negotiation or completion of a transaction that is
being contemplated by the Company (whether or not a final decision has been made
to undertake such transaction) or (ii) involve initial or continuing disclosure
obligations that are not in the best interests of the Company's stockholders at
such time; provided however, that (x) the Company will give notice (a
"Standstill Notice") of any such delay no less than five (5) Business Days prior
--------
to such delay (other than an Event specified in Section 2(d)(ii)(B)), (y) such
delay shall not extend for a period of more than fifteen (15) Trading Days
without the written consent of the Holder and (z) the Company may utilize such
delay no more than an aggregate of thirty (30) Trading Days in each calendar
year (each a "Standstill Period"). Each Holder agrees, upon receipt of a
------------------
exhibit 10.3, page 6
<PAGE>
Standstill Notice, forthwith to cease making offers and sales of the Shares
pursuant to any Registration Statement that is effective or deliveries of the
prospectus contained therein and to return to the Company, for modification and
exchange, the copies of such prospectus not theretofore delivered by such
Holder; provided that the Company shall forthwith prepare and deliver to such
Holder after such delay a reasonable number of copies of any supplement to or
amendment of such prospectus that may be necessary so that such prospectus does
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing. No Registration
Delay Payments shall be payable nor any Warrants issued pursuant to Section 2(d)
hereof with respect to any Standstill Period.
(f) The Company represents and warrants that it meets the
registrant eligibility and transaction requirements for the use of Form S-3 for
the registration of the sale of Registrable Securities by the Purchasers and any
other Holders and the Company shall file all reports required to be filed by the
Company with the Commission in a timely manner so as to maintain such
eligibility for the use of Form S-3.
3. Registration Procedures
------------------------
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Subject to Section 2(e), prepare and file with the Commission
on or prior to the Filing Date a Registration Statement on Form S-3 or its
successor form (or if the Company is not then eligible to register for resale
the Registrable Securities on Form S-3 such registration shall be on another
appropriate form in accordance herewith (which shall include a Plan of
Distribution substantially in the form of Exhibit A annexed hereto, unless in
---------
connection with an Underwritten Offering) or in connection with an Underwritten
Offering hereunder, such other form agreed to by the Company and by a
majority-in-interest of Holders of Registrable Securities to be covered by such
Registration Statement) (except if otherwise directed by the Holders), and use
its best efforts to cause the Registration Statement to become effective and
remain effective as provided herein; provided, however, that not less than three
-------- -------
(3) Business Days prior to the filing of the Registration Statement or any
related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated therein by reference), the Company shall, if
reasonably practicable (i) furnish to the Holders, their Special Counsel and any
managing underwriters, copies of all such documents proposed to be filed
(including documents incorporated by reference), which documents will be subject
to the review of such Holders, their Special Counsel and such managing
underwriters, and (ii) use its best efforts to cause its officers and directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the reasonable opinion of respective counsel
to such Holders and such underwriters, to conduct a reasonable investigation
within the meaning of the Securities Act. The Company shall not file the
Registration Statement or any such Prospectus or any amendments or supplements
thereto to which the Holders of a majority of the Registrable Securities, their
Special Counsel or any managing underwriters shall reasonably object, and will
not request acceleration of such Registration Statement without prior notice to
exhibit 10.3, page 7
<PAGE>
such counsel and in either event no Registration Delay Payment shall be payable
nor any Warrants issued pursuant to Section 2(d) hereof. The sections of such
Registration Statement covering information with respect to the Holders, the
Holder's beneficial ownership of securities of the Company or the Holders
intended method of disposition of Registrable Securities shall conform to the
information provided to the Company by each of the Holders.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424 (or any similar
provisions then in force) promulgated under the Securities Act; (iii) respond as
promptly as possible to any comments received from the Commission with respect
to the Registration Statement or any amendment thereto and as promptly as
possible provide the Holders true and complete copies of all correspondence from
and to the Commission relating to the Registration Statement; and (iv) comply in
all material respects with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
In the event the number of shares available under a Registration Statement filed
pursuant to this Agreement is insufficient to cover 100% of the Registrable
Securities issued or issuable upon conversion of the Preferred Stock and
exercise of the Warrants, the Company shall amend the Registration Statement, or
file a new Registration Statement (on the short form available therefore, if
applicable), or both, so as to cover 100% of the Registrable Securities, in each
case, as soon as practicable, but in any event within twenty (20) Business Days
after the necessity therefor arises (based on the Conversion Price of the
Preferred Stock and other relevant factors on which the Company reasonably
elects to rely). The Company shall use its best efforts to cause such amendment
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof. The provisions of Section 2(d) above shall be
applicable with respect to such obligation, with the time periods specified
therein running from the day after the date on which the Company reasonably
first determines (or reasonably should have determined) the need therefor.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters as promptly as possible (and, in
the case of (i)(A) below, not less than three (3) Business Days prior to such
filing and, in the case of (i)(C) below, not later than the first Business Day
after effectiveness) and (if requested by any such Person) confirm such notice
in writing no later than two (2) Business Days following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment to the
Registration Statement is proposed to be filed; (B) when the Commission notifies
the Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement and
(C) with respect to the Registration Statement or any post-effective amendment,
exhibit 10.3, page 8
<PAGE>
when the same has become effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to
the Registration Statement or Prospectus or for additional information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement covering any or all of the Registrable Securities or
the initiation of any Proceedings for that purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event that makes any statement made in
the Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein under applicable law and
(ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
-------- -------
required to take any action pursuant to this Section 3(e) that would, in the
opinion of counsel for the Company, violate applicable law.
(f) Furnish to each Holder, their Special Counsel, and any
managing underwriters, upon request and without charge, at least one conformed
copy of each Registration Statement and each amendment thereto, including
financial statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and
any underwriters, as many copies of the Prospectus or Prospectuses (including
each form of prospectus) and each amendment or supplement thereto as such
Persons may reasonably request; and the Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the selling
Holders and any underwriters in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto; unless the Company notifies the Holders on any event
described in Sections 3(c)(ii) through 3(c)(v).
exhibit 10.3, page 9
<PAGE>
(h) Prior to any public offering of Registrable Securities, use
its best efforts to register or qualify to the extent required or to cooperate
with the selling Holders or any underwriters and their Special Counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions within the United
States as any Holder or underwriter requests in writing, to keep each such
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by a Registration Statement; provided, however, that the
-------- -------
Company shall not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by applicable law and the
Purchase Agreement, of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such names as any such
managing underwriters or Holders may request at least two (2) Business Days
prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(v), as promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on Nasdaq and any other securities
exchange, quotation system, market or over-the-counter bulletin board, if any,
on which similar securities issued by the Company are then listed as and when
required pursuant to the Purchase Agreement.
(l) In the case of an Underwritten Offering (i) enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the Underwritten Offering of such
Registrable Securities, (ii) make such representations and warranties to such
Holders and such underwriters as are customarily made by issuers to underwriters
in underwritten public offerings, and confirm the same if and when requested;
(iii) obtain and deliver copies thereof to the managing underwriters, if any, or
in the case of non-Underwritten Offerings, if reasonably requested by the
exhibit 10.3, page 10
<PAGE>
selling Holders, to use its best efforts to obtain and deliver copies thereof to
such selling Holders, of opinions of counsel to the Company and updates thereof
addressed to each such underwriter, in form, scope and substance reasonably
satisfactory to any such managing underwriters and Special Counsel to the
selling Holders covering the matters customarily covered in opinions requested
in Underwritten Offerings and such other matters as may be reasonably requested
by such Special Counsel and underwriters; (iv) immediately prior to the
effectiveness of the Registration Statement, at the time of delivery of any
Registrable Securities sold pursuant thereto, and, in the case of
non-Underwritten Offerings, at such time as the selling Holders may reasonably
request, to use its best efforts to obtain and deliver copies to the Holders and
the managing underwriters, if any, of "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and, if
required, any other independent certified public accountants of any subsidiary
of the Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
Registration Statement), addressed to each of the underwriters, if any, in form
and substance as are customary in connection with Underwritten Offerings; (v) if
an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
Holders and the underwriters, if any, than those set forth in Section 5 (or such
other provisions and procedures acceptable to the managing underwriters, if any,
and holders of a majority of Registrable Securities participating in such
Underwritten Offering; and (vi) deliver such documents and certificates as may
be reasonably requested by the Holders of a majority of the Registrable
Securities being sold, their Special Counsel and any managing underwriters to
evidence the continued validity of the representations and warranties made
pursuant to clause 3(1)(ii) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and no more than two (2) law firms and one accounting
firm retained by such selling Holders or underwriters, at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors, agents and employees of the
Company and its subsidiaries to supply all information in each case reasonably
requested by any such Holder, representative, underwriter, attorney or
accountant in connection with the Registration Statement; provided, however,
-------- -------
that if any information is determined in good faith by the Company in writing to
be of a confidential nature at the time of delivery of such information, then
prior to delivery of such information, the Company and the Holders shall enter
into a confidentiality agreement reasonably acceptable to the Company and the
Holders providing that such information shall be kept confidential, unless (i)
disclosure of such information is required by court or administrative order or
is necessary to respond to inquiries of regulatory authorities (provided,
--------
however, that the Company shall be given notice of any such pending disclosure
-
so that the Company may seek a protective order); (ii) disclosure of such
information, in the opinion of counsel to such Person, is required by law; (iii)
such information becomes generally available to the public other than as a
result of a disclosure or failure to safeguard by such Person; or (iv) such
information becomes available to such Person from a source other than the
Company and such source is not known by such Person to be bound by a
confidentiality agreement with the Company.
exhibit 10.3, page 11
<PAGE>
(n) Use its best efforts to comply in all material respects with
all applicable rules and regulations of the Commission and make generally
available to its securityholders earning statements satisfying the provisions of
Section 11(a) of the Securities Act and Rule 158 not later than 45 days after
the end of any 12-month period (or 90 days after the end of any 12-month period
if such period is a fiscal year) (i) commencing at the end of any fiscal quarter
in which Registrable Securities are sold to underwriters in a firm commitment or
best efforts Underwritten Offering and (ii) if not sold to underwriters in such
an offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.
(o) Each selling Holder shall furnish to the Company information
regarding such Holder and the distribution of such Registrable Securities as is
required by law to be disclosed in the Registration Statement, and the Company
may exclude from such registration the Registrable Securities of any such Holder
who fails to furnish such information within a reasonable time after receiving
such request. Each selling Holder shall also use its best efforts to cooperate
with the Company in connection with the preparation and filing of any
Registration Statement including Registrable Securities.
The Company shall hold in confidence and not make any disclosure of
information concerning a Holder provided to the Company unless (i) disclosure of
such information is necessary to comply with federal or state securities laws,
(ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other order from a court
or governmental body of competent jurisdiction, or (iv) such information has
been made generally available to the public other than by disclosure in
violation of this or any other agreement. The Company agrees that it shall,
upon learning that disclosure of such information concerning a Holder is sought
in or by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to such Holder prior to making such disclosure, and
allow the Holder, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
If the Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar Federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
exhibit 10.3, page 12
<PAGE>
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv) or 3(c)(v), such
Holder will forthwith discontinue offers and dispositions of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "Advice")
------
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. Notwithstanding anything to the contrary, the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a
bona fide transferee of a Holder in accordance with the terms of the Securities
Purchase Agreement in connection with any sale of Registrable Securities with
respect to which an Holder has entered into a contract for sale in good faith
prior to the Holder's receipt of a notice from the Company of the happening of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv) or
3(c)(v) and for which the Holder has not yet settled.
(p) The Company agrees to respond fully and completely to any and all
comments on a Registration Statement received from the Commission staff as
promptly as possible but, for non-Underwritten Offerings, in no event later
than ten (10) Business Days of the receipt of such comments, regardless of
whether such comments are in oral or written form.
(q) Within two (2) Business Days after a Registration Statement
which covers applicable Registrable Securities is ordered effective by the
Commission, the Company shall deliver, and shall cause legal counsel for the
Company to deliver, to the transfer agent for such Registrable Securities (with
copies to the Holders whose Registrable Securities are included in such
Registration Statement) confirmation that such Registration Statement has been
declared effective by the Commission in the form attached hereto as Exhibit B.
---------
4. Registration Expenses
----------------------
All fees and expenses of the Company incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company, whether or not pursuant to an Underwritten Offering and whether or not
the Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with Nasdaq
and each other securities exchange or market on which Registrable Securities are
required hereunder to be listed and (B) in compliance with state securities or
Blue Sky laws (including, without limitation, reasonable fees and disbursements
of counsel for the Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the managing
underwriters, if any, or the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
exhibit 10.3, page 13
<PAGE>
printing certificates for Registrable Securities and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriters, if any,
or by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company, (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions contemplated by this Agreement. In addition, the Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, and the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder. The
Holder shall pay all underwriting discounts and fees and commissions, brokerage
fees and commissions, any fees and expenses of counsel to the Holders and
Holders' out of pocket expense.
5. Indemnification
---------------
(a) Indemnification by the Company. The Company shall,
---------------------------------
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all joint or
several losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or self-regulatory organization, whether commenced or threatened, "Losses"), as
------
incurred, arising out of or relating to (i) any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary Prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading (in the case of any Prospectus or form of
prospectus or supplement thereto, in light of the circumstances under which they
were made), except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon and in conformity with information
regarding a Holder furnished in writing to the Company by a Holder expressly for
use therein, which information was reasonably relied on by the Company for use
therein or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of prospectus or in any
amendment or supplement thereto (provided that the Company amended any
disclosure with respect to the method of distribution upon written notice from
the Holders that such section of the Prospectus should be revised in any way) or
exhibit 10.3, page 14
<PAGE>
(ii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer or
sale of Registrable Securities. The Company shall not, however, be liable for
any Losses to any Holder with respect to any untrue or alleged untrue statement
of material fact or omission or alleged omission of material fact if such
statement or omission was made in a preliminary Prospectus or form of prospectus
which has subsequently been amended or supplemented and such Holder did receive
a copy of the final Prospectus (or any amendment or supplement thereto) at or
prior to the confirmation of the sale of the Registrable Securities in any case
where such delivery is required by the Securities Act and the untrue or alleged
untrue statement of material fact or omission or alleged omission of material
fact contained in such preliminary Prospectus was corrected in the final
Prospectus (or any amendment or supplement thereto), unless the failure to
deliver such final Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 3(g) of this Agreement. The Company
shall notify the Holders promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the transactions
contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and
---------------------------
not jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon any untrue statement of a
material fact contained in the Registration Statement, any Prospectus, or any
form of prospectus, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading to the extent, but only to the extent, that
such untrue statement or omission is contained in any information so furnished
in writing by such Holder to the Company specifically for inclusion in the
Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was furnished by such Holder or,
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of prospectus;
provided, however, that the indemnity agreement contained in this Section 5(b)
-------
shall not apply to amounts paid in settlement of any Losses if such settlement
is effected without the prior written consent of such Holder, which consent
shall not be unreasonably withheld. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation; unless such Holder withholds
consent to a settlement offered at a lower amount.
(c) Conduct of Indemnification Proceedings. If any Proceeding
-----------------------------------------
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
------------------
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
------------------
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all reasonable fees and expenses incurred in connection with defense
exhibit 10.3, page 15
<PAGE>
thereof; provided, however, that the failure of any Indemnified Party to give
--------- -------
such notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent that it
shall be finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that such failure
shall have proximately and materially adversely prejudiced the Indemnifying
Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof the Indemnifying Party shall bear the fees
and expenses for one such counsel for all of the Indemnified Parties. The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within thirty (30)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section
------------
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a court of competent jurisdiction to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
exhibit 10.3, page 16
<PAGE>
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 5(c), any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms. In no event shall any selling Holder be required to
contribute an amount under this Section 5(d) in excess of the net proceeds
received by such Holder upon sale of the Registrable Securities pursuant to the
Registration Statement giving rise to such contribution obligation.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Rule 144
---------
As long as any Holder owns Registrable Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or l5(d) of the Exchange
Act and to promptly furnish the Holders with true and complete copies of all
such filings. As long as any Holder owns Registrable Securities, if the Company
is not required to file reports pursuant to Section 13(a) or l5(d) of the
Exchange Act, it will prepare and furnish to the Holders and make publicly
available in accordance with Rule 144(c) promulgated under the Securities Act
annual and quarterly financial statements, together with a discussion and
analysis of such financial statements in form and substance substantially
similar to those that would otherwise be required to be included in reports
required by Section 13(a) or 15(d) of the Exchange Act, as well as any other
information required thereby, in the time period that such filings would have
been required to have been made under the Exchange Act. Upon the request of any
Holder, the Company shall deliver to such Holder a written certification of a
duly authorized officer as to whether it has complied with such requirements.
The Company further covenants that it will take such further action as any
Holder may reasonably request, all to the extent required from time to time to
enable such Person to sell Underlying Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act.
7. Miscellaneous
-------------
exhibit 10.3, page 17
<PAGE>
(a) Remedies. In the event of a breach by the Company or by a
--------
Holder of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The Company and each Holder agree that monetary damages would not provide
adequate compensation for any losses incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of
----------------------------
its subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as disclosed in Schedule 2.1(c) of the Purchase Agreement, neither the
Company nor any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subordinated in all respects to the rights in
full of the Holders set forth in Section 2 herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement. This Agreement,
together with the Purchase Agreement, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
(c) No Piggyback on Registrations. Except as disclosed on
--------------------------------
Schedule 2.1(c) of the Purchase Agreement, neither the Company nor any of its
securityholders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the Registration Statements and the Company
shall not after the date hereof enter into any agreement providing such right to
any of its securityholders, unless the right so granted is on parity with or
subordinated in all respects to the rights in full of the Holders set forth
herein, and is not otherwise in conflict or inconsistent with the provisions of
this Agreement.
(d) Piggy-Back Registrations. Except as provided herein if, at
-------------------------
any time when there is not an effective Registration Statement covering the
Registrable Securities, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, the Company shall send to each Holder of Registrable Securities
written notice of such determination and, if within ten (10) days after receipt
of such notice, any such Holder shall so request in writing, (which request
shall specify the Registrable Securities intended to be disposed of by the
Purchasers), the Company will use reasonable efforts to effect the registration
exhibit 10.3, page 18
<PAGE>
under the Securities Act of all Registrable Securities which the Company has
been so requested to register by the Holder, to the extent requisite to permit
the disposition of the Registrable Securities so to be registered, provided that
if at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to such Holder and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay expenses in accordance with
Section 4), and (ii) in the case of a determination to delay registering, shall
be permitted to delay registering any Registrable Securities being registered
pursuant to this Section 7(d) for the same period as the delay in registering
such other securities. The Company shall include in such registration statement
all or any part of such Registrable Securities such Holder requests to be
registered; provided, however, that the Company shall not be required to
-------- -------
register any Registrable Securities pursuant to this Section 7(d) that are
eligible for sale pursuant to Rule 144(k) of the Securities Act. In the case of
an underwritten public offering, if the Company after consultation with the
Underwriter's representative should reasonably determine that the inclusion of
such Registrable Securities would materially adversely affect the offering
contemplated in such registration statement, and based on such determination
recommends inclusion in such registration statement of fewer Registrable
Securities then proposed to be sold by the Holders, then (x) the number of
Registrable Securities of the Holders included in such registration statement
shall be reduced pro rata among such Holders (based upon the number of
Registrable Securities requested to be included in the registration) or (y) none
of the Registrable Securities of the Holders shall be included in such
registration statement if the Company, after consultation with the
underwriter(s), recommends the inclusion of none of such Registrable Securities;
provided, however, that if securities are being offered for the account of other
- -------- -------
persons or entities as well as the Company, such reduction shall not represent a
greater fraction of the number of Registrable Securities intended to be offered
by the Holders than the fraction of similar reductions imposed on such other
persons or entities (other than the Company). Notwithstanding the foregoing,
the Company shall not file any registration statement under the Securities Act
(other than on Form S-4 or Form S-8 or Form S-3 for resale of private placement
securities and proposed Underwritten Offerings registered on the available form)
relating to the offer and sale of any equity securities of the Company, or offer
or sell any equity securities of the Company in a transaction exempt from
registration pursuant to Regulation S under the Securities Act, until such time
as the Initial Registration Statement has been effective for a period of sixty
(60) Trading Days, which period shall be tolled if the effectiveness of the
Initial Registration Statement is suspended for any reason whatsoever. In
connection with any underwritten offering of securities proposed by the Company
(other than pursuant to an employee benefit plan, pursuant to a merger, exchange
offer or a transaction described in Rule 145 under the Securities Act or
pursuant to a "shelf registration"), each Holder of Registrable Securities
agrees that it shall not effect any sale or distribution of any Registrable
Securities similar to the securities offered in such underwritten offering, or
convertible into or exchangeable for such securities, during the 10-day period
prior to, and during a period beginning on the effective date of such
registration and not to exceed 90 days, and hereby agrees to execute a "lock-up
letter" in form and substance customary for transactions of such type if so
requested by the managing underwriter for such underwritten offering.
exhibit 10.3, page 19
<PAGE>
(e) Amendments and Waivers. The provisions of this Agreement,
------------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two thirds of the then outstanding Registrable
Securities; provided, however, that for the purposes of this sentence,
-------- -------
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
-------- -------
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) Notices. Any notice or other communication required or
-------
permitted to be given hereunder shall be in writing and shall be deemed to have
been received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if received by
5:00 p.m. eastern time where such notice is to be received), or the first
Business Day following such delivery (if received after 5:00 p.m. eastern time
where such notice is to be received) or (b) on the second Business Day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications are (i) if to the Company to Level 8
Systems, Inc., 9000 Regency Parkway, Cary, North Carolina 27571, Telephone:
(919) 380-5005, Facsimile: (919) 461-2690, Attention: Dennis McKinnie, with
copies to Powell, Goldstein, Frazer & Murphy LLP, 16th Floor, 191 Peachtree
Street, Atlanta, GA 30303, Attention: Scott D. Smith, Esq., Facsimile:
(404)572-6999 and (ii) if to any Purchaser to the address set forth on Schedule
I hereto with copies to the addressees set forth on Schedule II hereto or such
other address as may be designated in writing hereafter, in the same manner, by
such Person.
(g) Successors and Assigns. This Agreement shall inure to the
------------------------
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign its rights hereunder in the manner and to
the Persons as permitted under the Purchase Agreement. In addition, the rights
of each Holder hereunder, including the right to have the Company register for
resale Registrable Securities in accordance with the terms of this Agreement,
shall be automatically assignable by each Holder if: (i) the Holder agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and applicable
state securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
of this Agreement, and (v) such transfer shall have been made in accordance with
the applicable requirements of the Purchase Agreement and applicable law. The
rights to assignment shall apply to the Holders (and to subsequent) successors
and assigns.
exhibit 10.3, page 20
<PAGE>
(h) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) the same with the same force and
effect as if such facsimile signature were the original thereof.
(i) Governing Law. The corporate laws of the State of Delaware
--------------
shall govern all issues concerning the relative rights of the Company and the
Purchasers as its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by and construed in accordance with the laws of the State of New
York, without regard to principles of conflicts of law. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consent to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
(j) Cumulative Remedies. The remedies provided herein are
--------------------
cumulative and not exclusive of any remedies provided by law.
(k) Severability. If any term, provision, covenant or restriction
------------
of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(l) Headings; References. The headings in this Agreement are for
- --- ---------------------
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. References in this Agreement to Sections are to Sections of
this Agreement, unless otherwise expressly provided.
(m) Shares Held by The Company and its Affiliates. Whenever the consent or
- --- ----------------------------------------------
approval of Holders of a specified percentage of Registrable Securities is
exhibit 10.3, page 21
<PAGE>
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if
such Holder is deemed to be an Affiliate solely by reason of its holdings of
such Registrable Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
(n) Revision of SEC Position on Warrants. In the event the rules and
--------------------------------------
regulations of the Commission or the policies of the staff of the Commission are
modified and as a result thereof the Company determines in good faith that it
may be practicable and in the interests of the Company and the Holders to
register the exercise of the Warrants so that the Warrant Shares may be freely
resold without maintaining an effective registration statement under the
Securities Act for resales, the Company and the Holders agree to cooperate in
good faith to effect such amendments to this Agreement as may be appropriate to
provide that the Company may fulfill its obligations hereunder with respect to
the Warrants and the Warrant Shares by maintaining an effective registration
statement under the Securities Act covering the exercise of the Warrants rather
than the resale of the Warrant Shares.
exhibit 10.3, page 22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
LEVEL 8 SYSTEMS, INC.
By: /s/ Steven Dmiszewicki
Name: Steven Dmiszewicki
Title: President
BROWN SIMPSON STRATEGIC
GROWTH FUND, LTD.
By: Brown Simpson Asset Management LLC
By: Brown Simpson, LLC
Its Member
By:/s/ James R. Simpson
Name: James R. Simpson
Title: Principal
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
By: Brown Simpson Capital, LLC
Its General Partner
By: Brown Simpson Partners, LLC
Its Member
By:/s/ James R. Simpson
Name: James R. Simpson
Title: Principal
exhibit 10.3, page 23
<PAGE>
ADVANCED SYSTEMS EUROPE B.V.
By:/s/ Arie Kilman
Name: Arie Kilman
Title: Chairman
SENECA CAPITAL, L.P.
By: Seneca Capital Advisors, LLC, its
general partner
By:/s/ Douglas Hirsch
Name: Douglas Hirsch
Title: Managing Partner
SENECA CAPITAL INTERNATIONAL, LTD.
By:/s/ Douglas Hirsch
Name: Douglas Hirsch
Title: Managing Partner
exhibit 10.3, page 24
<PAGE>
SCHEDULE I
-----------
Company
- -------
LEVEL 8 SYSTEMS, INC.
8000 Regency Parkway
Cary, North Carolina 27511
Attention: Dennis McKinnie
Facsimile: (919) 461-2690
Purchasers:
- ----------
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
ADVANCED SYSTEMS EUROPE B.V.
5 Hazoref Street
Holon, Israel 58856
Attention:
SENECA CAPITAL L.P.
c/o Seneca Capital Advisors, LLC
830 Third Avenue, 14th Floor
New York, New York 10022
Attention: Mr. Doug Hirsch
SENECA CAPITAL INTERNATIONAL, LTD.
c/o Seneca Capital Advisors, LLC
830 Third Avenue, 14th Floor
New York, New York 10022
Attention: Mr. Doug Hirsch
exhibit 10.3, page 25
<PAGE>
------
SCHEDULE II
-----------
Purchasers:
- ----------
In the case of notice to Brown Simpson Strategic Growth Fund, Ltd., or Brown
Simpson Strategic Growth Fund, L.P., with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Attention: James Kaye
Facsimile: (212) 872-1002
In the case of notice to Advanced Systems Europe B.V., with a copy to:
Goldfarb, Levy & Eran
Eliahu House
2 Ibn Gvirol Street
Tel Aviv, Israel 64077
Attention: Mr. Oden Eran
Mr. Erez Altit
Facsimile: 972-3-695-4344
In the case of notice to Seneca Capital, L.P. or Seneca Capital International.
Ltd., with a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022-3852
Attention: Thomas T. Janover, Esq.
Facsimile: (212) 715-8000
exhibit 10.3, page 26
<PAGE>
EXHIBIT A
PLAN OF DISTRIBUTION
Our company is registering the shares of common stock on behalf of the
selling stockholders. All costs, expenses and fees in connection with the
registration of the shares offered by this prospectus will be borne by the
Company, other than brokerage commissions and similar selling expenses, if any,
attributable to the sale of shares which will be borne by the selling
stockholders. Sales of shares may be effected by selling stockholders from time
to time in one or more types of transactions (which may include block
transactions) on the Nasdaq National Market, in the over-the-counter market, in
negotiated transactions, through put or call options transactions relating to
the shares, through short sales of shares, or a combination of such methods of
sale, at market prices prevailing at the time of sale, or at negotiated prices.
Such transactions may or may not involve brokers or dealers. The selling
stockholders have advised our company that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor is there an
underwriter or coordinated broker acting in connection with the proposed sale of
shares by the selling stockholders.
The selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in short sales of the
shares or of securities convertible into or exchangeable for the shares in the
course of hedging positions they assume with selling stockholders. The selling
stockholders may also enter into options or other transactions with
broker-dealers or other financial institutions which require the delivery to
such broker-dealers or other financial institutions of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as amended or supplemented to reflect such
transaction).
The selling stockholders may make these transactions by selling shares directly
to purchasers or to or through broker-dealers, which may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from selling stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The selling stockholders and any broker-dealers that act in connection with the
sale of shares are "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by such broker-dealers or any
profit on the resale of the shares sold by them while acting as principals might
be deemed to be underwriting discounts or commissions under the Securities Act.
The selling stockholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the shares
against certain liabilities, including liabilities arising under the Securities
Act.
Because selling stockholders are "underwriters" within the meaning of Section
2(11) of the Securities Act, the selling stockholders will be subject to the
exhibit 10.3, page 27
<PAGE>
prospectus delivery requirements of the Securities Act. Our company has informed
the selling stockholders that the anti-manipulative provisions of Regulation M
promulgated under the Exchange Act may apply to their sales in the market.
Selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
they meet the criteria and conform to the requirements of Rule 144.
Upon our company being notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing:
the name of each such selling stockholder and of the participating
broker-dealer(s);
the number of shares involved;
the initial price at which such shares were sold;
the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable;
that such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus; and
other facts material to the transactions.
In addition, upon our company being notified by a selling stockholder that a
donee or pledgee intends to sell more than 500 shares, a supplement to this
prospectus will be filed.
exhibit 10.3, page 28
<PAGE>
EXHIBIT B
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn.:
Re: Level 8 Systems, Inc.
Ladies and Gentlemen:
We are counsel to Level 8 Systems, a New York corporation (the "Company"),
and have represented the Company in connection with that certain Securities
Purchase Agreement (the "Purchase Agreement") entered into by and among the
Company and the buyers named therein (collectively, the "Holders") pursuant to
which the Company issued to the Holders its Series A 4% convertible preferred
stock, par value $0.001 per share (the "Preferred Stock"), convertible into
shares of the Company's common stock, par value $0.01 per share (the "Common
Stock"), and Warrants (the "the Warrants") to acquire shares of Common Stock.
Pursuant to the Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Holders (the "Registration Rights
Agreement") pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of Common Stock issuable upon conversion of the
Preferred Stock and exercise of the Warrants, under the Securities Act of 1933,
as amended (the "1933 Act"). In connection with the Company's obligations under
the Registration Rights Agreement, on _______________, 1999, the Company filed a
Registration Statement on Form S-3 (File No. 333-_____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
CC: [LIST NAMES OF HOLDERS]
exhibit 10.3, page 29
<PAGE>
