Exhibit 4.1
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
March 19, 2003, by and among Level 8 Systems, Inc., a corporation organized
under the laws of the State of Delaware (the "Company"), and the undersigned
(together with their affiliates, the "Initial Investors").
WHEREAS:
A. In connection with that certain Securities Purchase Agreement of
even date herewith by and among the Company and the Initial Investors (the
"Securities Purchase Agreement"), the Company has agreed, upon the terms and
subject to the conditions contained therein, to issue and sell to the Initial
Investors (i) 3,705 shares of the Company's Series D Convertible Preferred Stock
(the "Series D Stock") that are convertible into shares of the Company's common
stock, par value $0.001 per share (the "Common Stock"), and (ii) warrants (the
"Warrants") to acquire shares of Common Stock. The shares of Common Stock, par
value $0.001 per share issuable upon conversion of or otherwise pursuant to the
Series D Stock are referred to herein as the "Conversion Shares" and the shares
of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants
are referred to herein as the "Warrant Shares".
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS.
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(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "INVESTOR" means the Initial Investors and any transferees or
assignees who agree to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of
effectiveness of such Registration Statement by the United States Securities and
Exchange Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means (a) the Conversion Shares,
(b) the Warrant Shares, (c) any shares of Common Stock issuable upon the
exchange of Level8 ASIA Shares (as defined in the Securities Purchase Agreement)
and (d) any shares of capital stock issued or issuable, from time to time (on
account of any anti-dilution or other adjustments or otherwise), as a
distribution on or in exchange for or otherwise with respect to any of the
foregoing, whether as default payments or otherwise; provided, however, that the
term "Registrable Securities" shall not include any shares of Common Stock
issuable upon exercise of or otherwise pursuant to the Series D-2 Warrants (as
defined in the Securities Purchase Agreement) until such time as the Series D-2
Warrants are exercisable.
(iv) "REGISTRATION STATEMENT" means a registration statement of
the Company under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
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(a) Mandatory Registration. The Company shall prepare promptly and file
with the SEC as soon as practicable, but in no event later than the sixtieth
(60th) day following the date hereof (the "FILING DATE"), a Registration
Statement on Form S-3 (or, if Form S-3 is not then available, on such form of
Registration Statement as is then available to effect a registration of all of
the Registrable Securities, subject to the consent of the Initial Investors)
covering the resale of the Registrable Securities. The Registration Statement
filed hereunder, to the extent allowable under the Securities Act and the Rules
promulgated thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Series D Stock and exercise
of the Warrants to prevent dilution resulting from stock splits, stock dividends
or similar transactions. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to (and subject to the approval of) the Initial Investors and
their counsel prior to its filing or other submission.
(b) Underwritten Offering. If any offering pursuant to the Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investor who holds a majority in interest of the Registrable Securities subject
to such underwritten offering, with the consent of the Initial Investors if they
are still holding Registrable Securities, shall have the right to select one
legal counsel to represent the Investors and an investment banker or bankers and
manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the Company.
In the event that the Investor elects not to participate in such underwritten
offering, the Registration Statement covering all of the Registrable Securities
shall contain appropriate plans of distribution reasonably satisfactory to any
Investor participating in such underwritten offering and the Investor electing
not to participate in such underwritten offering (including, without limitation,
the ability of any nonparticipating Investor to sell from time to time and at
any time during the effectiveness of such Registration Statement).
Notwithstanding the foregoing, if the offering does not involve an underwritten
offer, the Investor shall not be entitled to require that the offering be
underwritten.
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(c) Payments by the Company. The Company shall use its best efforts to
cause the Registration Statement required to be filed pursuant to Section 2(a)
hereof to become effective as soon as practicable, but in no event later than
the one hundred twentieth (120th) day following the date hereof. At the time of
effectiveness, the Company shall ensure such Registration Statement covers at
least 100% of the Registrable Securities issuable pursuant to the Series D Stock
and Warrants (including, if necessary, by filing an amendment prior to the
effective date of the Registration Statement to increase the number of shares
covered thereby). If (i) (A) the Registration Statement required to be filed by
the Company pursuant to Section 2(a) hereof is not filed with the SEC prior to
the Filing Date or (B) such Registration Statement covering all of the
Registrable Securities is not declared effective by the SEC on or before the one
hundred and fiftieth (150th) day following the date hereof (the "REGISTRATION
DEADLINE") or (ii) if, after such Registration Statement has been declared
effective by the SEC, sales of any of the Registrable Securities required to be
covered by such Registration Statement cannot be made pursuant to such
Registration Statement (by reason of a stop order or otherwise the Registration
Statement contains misstatements or omissions by reason of the Company's failure
to update the Registration Statement or for any other reason outside the control
of the Investor) or (iii) the Common Stock is not listed or included for
quotation on the Nasdaq National Market ("NNM"), the Nasdaq SmallCap Market
("SMALLCAP"), the New York Stock Exchange (the "NYSE"), the American Stock
Exchange (the "AMEX") or the OTC Electronic Bulletin Board (the "OTC") or the
Bulletin Board Exchange (collectively, the "BULLETIN BOARD"), at any time after
the Registration Deadline hereunder, then the Company will make payments to the
Investors in such amounts and at such times as shall be determined pursuant to
this Section 2(c) as partial relief for the damages to the Investor by reason of
any such delay in or reduction of their ability to sell the Registrable
Securities (which remedy shall not be exclusive of any other remedies available
at law or in equity). The Company shall pay to each Investor an amount equal to
the product of (i) the number of shares of Series D Stock multiplied by
$1,000.00 (including, without limitation, Series D Stock that have been
converted into Conversion Shares then held by such Investor as if such shares of
Series D Stock had not been so converted) (the "AGGREGATE SHARE PRICE"),
multiplied by (ii) fifteen thousandths (.015), for the first thirty (30) day
period (or portion thereof) (A) after the Filing Date and prior to the date the
Registration Statement is filed with the SEC pursuant to Section 2(a), (B) after
the Registration Deadline and prior to the date the Registration Statement
covering all of the Registrable Securities is declared effective by the SEC, and
(C) during which sales of any Registrable Securities cannot be made pursuant to
any such Registration Statement after the Registration Statement has been
declared effective or the Common Stock is not listed or included for quotation
on the NNM, SmallCap, NYSE, AMEX, or the Bulletin Board; and (iii) seventy-five
hundreth thousandths (.0075) for each thirty (30) day period (or portion
thereof) subsequent to the first thirty (30) day period (A) after the Filing
Date and prior to the date the Registration Statement is filed with the SEC
pursuant to Section 2(a), (B) after the Registration Deadline and prior to the
date the Registration Statement covering all of the Registrable Securities is
declared effective by the SEC, and (C) during which sales of any Registrable
Securities cannot be made pursuant to any said Registration Statement after the
Registration Statement has been declared effective or the Common Stock is not
listed or included for quotation on the NNM, Small Cap, NYSE, AMEX or the
Bulletin Board; provided, however, that there shall be excluded from each such
period any delays which are solely attributable to changes (other than
corrections of Company mistakes with respect to information previously
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provided by any Investor) required by an Investor in the Registration Statement
with respect to information relating to the Investor, including, without
limitation, changes to the plan of distribution. Such amounts shall be paid in
cash or, at each Investor's option, may be convertible into Common Stock at the
"CONVERSION PRICE" (as defined in the Certificate of Designations, Rights and
Preferences of the Series D Stock (the "CERTIFICATE OF DESIGNATIONS")) then in
effect. Any shares of Common Stock issued upon conversion of such amounts shall
be Registrable Securities. If the Investor desires to convert the amounts due
hereunder into Registrable Securities it shall so notify the Company in writing
within two (2) business days after the date on which such amounts are first
payable in cash and such amounts shall be so convertible (pursuant to the
mechanics set forth in the Certificate of Designations), beginning on the last
day upon which the cash amount would otherwise be due in accordance with the
following sentence. Payments of cash pursuant hereto shall be made within five
(5) days after the end of each period that gives rise to such obligation,
provided that, if any such period extends for more than thirty (30) days,
interim payments shall be made for each such thirty (30) day period.
(d) Piggy-Back Registrations. If at any time prior to the expiration of
the Registration Period (as hereinafter defined) and during a period in which
the Registration Statement required to be filed pursuant to Section 2(a) is not
effective, the Company shall file with the SEC 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 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 Investor written notice of such filing and, if within fifteen (15)
days after the date of such notice, such Investor shall so request in writing,
the Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that if,
in connection with any underwritten public offering, the managing underwriter(s)
thereof shall impose a limitation on the number of shares of Common Stock which
may be included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion hereunder
as the underwriter shall permit. Any exclusion of Registrable Securities shall
be made pro rata among the Investor seeking to include Registrable Securities,
in proportion to the number of Registrable Securities sought to be included by
such Investor; provided, however, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not contractually entitled to inclusion of
such securities in such Registration Statement or are not contractually entitled
to pro rata inclusion with the Registrable Securities; and provided, further,
however, that, after giving effect to the immediately preceding proviso, any
exclusion of Registrable Securities shall be made pro rata with holders of other
securities having the contractual right to include such securities in the
Registration Statement other than holders of securities contractually entitled
to inclusion of their securities in such Registration Statement by reason of
demand registration rights. Notwithstanding the foregoing, no such reduction
shall reduce the amount of Registrable Securities included in the registration
below twenty-five (25%) of the total amount of securities included in such
registration. No right to registration of Registrable Securities under this
Section 2(d) shall be construed to limit any
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registration required under Section 2(a) hereof. If an offering in connection
with which an Investor is entitled to registration under this Section 2(d) is an
underwritten offering, then each Investor whose Registrable Securities are
included in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering.
(e) [Intentionally Omitted.]
(f) Rule 416; Notice of Registration Trigger Date. The Company and the
Investor each acknowledge that an indeterminate number of Registrable Securities
shall be registered pursuant to Rule 416 under the Securities Act so as to
include in such Registration Statement any and all Registrable Securities which
may become issuable to prevent dilution resulting from stock splits, stock
dividends or similar transactions, including those resulting from the issuance
of additional securities which occur from the anti-dilution adjustments
contained in the Warrants (collectively, the "RULE 416 SECURITIES"). In this
regard, the Company agrees to take all steps necessary to ensure that all Rule
416 Securities are registered pursuant to Rule 416 under the Securities Act in
the Registration Statement and, absent guidance from the SEC or other definitive
authority to the contrary, the Company shall affirmatively support and not take
any action adverse to the position that the Registration Statements filed
hereunder cover all of the Rule 416 Securities. If the Company determines that
the Registration Statement(s) filed hereunder do not cover all of the Rule 416
Securities, the Company shall immediately provide to each Investor written
notice (a "RULE 416 NOTICE") setting forth the basis for the Company's position
and the authority therefor. In the event that a Registration Trigger Date (as
defined below) occurs, the Company shall provide each Investor written notice of
such Registration Trigger Date within three (3) business days thereafter.
3. OBLIGATIONS OF THE COMPANY.
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In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
(a) The Company shall respond promptly to any and all comments made by
the staff of the SEC to the Registration Statement required by Section 2(a), and
shall submit to the SEC, within two business days following the business day on
which the Company learns (either by telephone or in writing) that no review of
such Registration Statement will be made by the SEC or that the staff of the SEC
has no further comments on such Registration Statement, as the case may be, a
request for acceleration of the effectiveness of such Registration Statement to
a time and date as soon as practicable. The Company shall keep such Registration
Statement effective pursuant to Rule 415 at all times until such date as is the
earlier of (i) the date on which all of the Registrable Securities have been
sold and (ii) the date on which all of the Registrable Securities (in the
reasonable opinion of counsel to the Initial Investors) may be immediately sold
to the public without registration or restriction pursuant to Rule 144(k) under
the Securities Act or any successor provision (the "REGISTRATION PERIOD"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein and all documents incorporated by reference
therein) (i) shall comply in all material respects with the requirements
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of the Securities Act and the rules and regulations of the SEC promulgated
thereunder and (ii) shall not contain any 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. The financial statements of the
Company included in the Registration Statement or incorporated by reference
therein will comply as to form in all material respects with the applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements will be prepared in
accordance with U.S. generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed on summary statements and fairly present in all material
respects the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to immaterial year-end adjustments)).
(b) The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement. In the event the number of
shares available under a Registration Statement filed pursuant to this Agreement
is, for any three (3) consecutive trading days (the last of such three (3)
trading days being the "REGISTRATION TRIGGER DATE"), insufficient to cover one
hundred percent (100%) of the Registrable Securities issued or issuable upon
conversion (without giving effect to any limitations on conversion contained in
Article IV.C of the Certificate of Designations) and exercise of the Warrants
(without giving effect to any limitations on exercise on Section 8(g) of the
Warrants), the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover one hundred percent (100%) of the Registrable Securities
issued or issuable (without giving effect to any limitations on conversion or
exercise contained in the Series D Stock or the Warrants) as of the Registration
Trigger Date, in each case, as soon as practicable, but in any event within
fifteen (15) days after the Registration Trigger Date (based on the market price
then in effect of the Common Stock and other relevant factors on which the
Company reasonably elects to rely). The Company shall cause such amendment(s)
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof. In the event that the Company fails to obtain the
effectiveness of any such Registration Statement within sixty (60) days after a
Registration Trigger Date (the "PENALTY DATE"), the Company shall thereafter be
obligated to pay each Investor payments ("PENALTY PAYMENTS") in an amount equal
to the (x) the product of (1) the greater of the Closing Bid Price (as defined
below) or the Conversion Price (as defined in the Securities Purchase Agreement)
in effect as of the Penalty Date, multiplied by the number of shares of Common
Stock the Investor would otherwise be entitled to receive assuming full
conversion of such Investor's shares of Series D Stock, multiplied by (2) 0.25,
multiplied by (y) (N/365), where N equals the number of days from the date the
Penalty Date first occurs, (z) plus
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the amount of any declared and unpaid dividends on such shares of Series D
Stock, for each day from and including the Penalty Date until the Registration
Statement is effective.
For purposes of this Section 3(b), "CLOSING BID PRICE" means, for any
security as of any date, the last sales price of such security on the OTC or
other trading market where such security is listed or traded as reported by
Bloomberg Financial Markets (or a comparable reporting service of national
reputation selected by the Corporation and reasonably acceptable to holders of a
majority of the then outstanding shares of Series D Stock ("MAJORITY HOLDERS")
if Bloomberg Financial Markets is not then reporting closing bid prices of such
security) (collectively, "BLOOMBERG"), or if the foregoing does not apply, the
closing bid price of such security on a national exchange or other trading
market for such security as reported by Bloomberg, or, if no such price is
reported for such security by Bloomberg, the average of the bid prices of all
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc., in each case for such date or, if such date was not a
trading day for such security, on the next preceding date which was a trading
day. If the Closing Bid Price cannot be calculated for such security as of
either of such dates on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as reasonably
determined by an investment banking firm selected by the Corporation and
reasonably acceptable to the Majority Holders, with the costs of such appraisal
to be borne by the Company.
(c) The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC (including, without limitation, any request to
accelerate the effectiveness of the Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of the SEC,
in each case relating to the Registration Statement (other than any portion, if
any, thereof which contains information for which the Company has sought
confidential treatment), (ii) on the date of effectiveness of the Registration
Statement or any amendment thereto, a notice stating that the Registration
Statement or amendment has been declared effective, and (iii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.
(d) The Company shall use its reasonable best efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as each Investor who holds Registrable Securities being offered
reasonably requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith
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or as a condition thereto to (A) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section 3(d),
(B) subject itself to general taxation in any such jurisdiction, (C) file a
general consent to service of process in any such jurisdiction, (D) provide any
undertakings that cause the Company undue expense or burden, or (E) make any
change in its charter or bylaws, which in each case the Board of Directors of
the Company determines to be contrary to the best interests of the Company and
its stockholders.
(e) In the event the Investor who holds a majority in interest of the
Registrable Securities being offered in an offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
(f) As promptly as practicable after becoming aware of such event, the
Company shall notify each Investor by telephone and facsimile of the happening
of any event, of which the Company has knowledge, as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and, use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver such number of copies of such supplement or amendment to
each Investor as such Investor may reasonably request.
(g) The Company shall use its best efforts (i) to prevent the issuance
of any stop order or other suspension of effectiveness of a Registration
Statement, and, if such an order is issued, to obtain the withdrawal of such
order at the earliest practicable moment (including in each case by amending or
supplementing such Registration Statement) and (ii) to notify each Investor who
holds Registrable Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and the
resolution thereof (and if such Registration Statement is supplemented or
amended, deliver such number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request).
(h) The Company shall permit a single firm of counsel designated by the
Initial Investors to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to its filing with the
SEC, and not file any document in a form to which such counsel reasonably
objects.
(i) The Company shall make generally available to its security holders
as soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Securities Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
(j) At the request of any Investor in the case of an underwritten
public offering, the Company shall furnish, on the date of effectiveness of the
Registration Statement (i) an opinion, dated as of such date, from counsel
representing the Company addressed to any such Investor and in form, scope and
substance as is customarily given in an underwritten public offering and (ii) a
letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and any such Investor.
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(k) The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(A) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (B) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (C) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. Nothing herein shall be deemed to
limit an Investor's ability to sell Registrable Securities in a manner, which is
otherwise consistent with applicable laws and regulations.
(l) The Company shall hold in confidence and not make any disclosure of
information concerning an Investor 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, (iv) such information has been
made generally available to the public other than by disclosure in violation of
this or any other agreement, or (v) such Investor consents to the form and
content of any such disclosure. The Company agrees that it shall, upon learning
that disclosure of such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor prior to making such disclosure, and allow
the Investor, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
(m) The Company shall use its best efforts to promptly cause all of the
Registrable Securities covered by the registration Statement to be listed on the
Electronic Bulletin or another national securities exchange or automated
quotation system and on each additional national securities exchange or
automated quotation system on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange or
automated quotation system.
(n) The Company shall provide a transfer agent and registrar, which may
be a single entity, for the Registrable Securities not later than the effective
date of the Registration Statement.
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(o) The Company shall cooperate with an Investor who holds Registrable
Securities being offered and the managing underwriter or underwriters, if any,
to facilitate the timely preparation and delivery of certificates (not bearing
any restrictive legends) representing Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, as the managing underwriter
or underwriters, if any, or the Investor may reasonably request and registered
in such names as the managing underwriter or underwriters, if any, or an
Investor may request, and, within three (3) business days after the Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel selected by the Company
to deliver, to the transfer agent for the Registrable Securities (with copies to
an Investor whose Registrable Securities are included in such Registration
Statement), an opinion of such counsel in the form attached hereto as EXHIBIT 1.
(p) At the request of any Investor, the Company shall prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement. (q) The Company shall
comply with all applicable laws related to a Registration Statement and offering
and sale of securities and all applicable rules and regulations of governmental
authorities in connection therewith (including, without limitation, the
Securities Act and the Securities Exchange Act of 1934, as amended, (the
"EXCHANGE ACT") and the rules and regulations promulgated by the SEC.)
4. OBLIGATIONS OF THE INVESTOR.
----------------------------
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) trading
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor.
(b) Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
(c) In the event Investor holding a majority in interest of the
Registrable Securities being offered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual
10
and customary form, including, without limitation, customary indemnification and
contribution obligations, with the underwriter(s) of such offering and the
Company and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities, unless
such Investor has notified the Company in writing of such Investor's election
not to participate in such underwritten distribution.
(d) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Sections 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Sections 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
Notwithstanding anything to the contrary, subject to compliance with applicable
laws, the Company shall cause the transfer agent for the Registrable Securities
to deliver unlegended shares of Common Stock to a transferee of an Investor in
accordance with the terms of the Series D Stock and Warrants in connection with
any sale of Registrable Securities with respect to which any such Investor has
entered into a contract for sale prior to receipt of such notice and for which
any such Investor has not yet settled.
(e) No Investor may participate in any underwritten distribution
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below, and (iv) complies with all applicable laws
in connection therewith. Notwithstanding anything in this Section 4(e) to the
contrary, this Section 4(e) is not intended to limit an Investor's rights under
Sections 2(a) or 3(b) hereof.
5. EXPENSES OF REGISTRATION.
------------------------
All reasonable expenses incurred by the Company or the Investors in
connection with registrations, filings or qualifications pursuant to Sections 2
and 3 above, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, the fees and disbursements of
counsel for the Company and the fees and disbursements of one counsel selected
by the Investors shall be borne by the Company. In addition, the Company shall
pay all of the Investors' costs and expenses (including legal fees) incurred in
connection with the enforcement of the rights of any such Investor hereunder.
Notwithstanding anything to the contrary herein, the Company shall not be
required to pay the expenses of the Investors in accordance with this Section in
excess of $5000 (exclusive of any amount payable by the Company in accordance
with the Securities Purchase Agreement), unless prior approval is obtained from
the Company.
11
6. INDEMNIFICATION.
----------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities, and
(ii) the directors, officers, partners, members, employees and agents of each
Investor and each person who controls any Investor within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, if any, (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (1) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, (2) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(3) 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 the
Registrable Securities (the matters in the foregoing clauses (1) through (3)
being, collectively, "VIOLATIONS"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Investor and each other Indemnified Person, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (x) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (y) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (z) with respect to any preliminary prospectus, shall
not inure to the benefit of any Indemnified Person if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented, if such
corrected prospectus was timely made available by the Company pursuant to
Section 3(c) hereof, and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise to a Violation
and such Indemnified Person, notwithstanding such advice, used it. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investor pursuant to Section 9 hereof.
12
(b) In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees severally and not jointly to
indemnify, hold harmless and defend, to the same extent and in the same manner
set forth in Section 6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement, its employees, agents and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such stockholder within the
meaning of the Securities Act or the Exchange Act (collectively and together
with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim to which
any of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and subject to Section 6(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds actually
received by such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investor pursuant to Section 9 hereof. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.
(c) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that such indemnifying party shall not be entitled to assume such
defense and an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified
13
Person or the Indemnified Party and the indemnifying party and any such
Indemnified Person or Indemnified Party reasonably determines that there may be
legal defenses available to such Indemnified Person or Indemnified Party which
are in conflict with those available to such indemnifying party. The
indemnifying party shall pay for only one separate legal counsel for the
Indemnified Persons or the Indemnified Parties, as applicable, and such legal
counsel shall be selected by Investor holding a majority-in-interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates (with the approval of the Initial Investors if it holds Registrable
Securities included in such Registration Statement), if the Investors are
entitled to indemnification hereunder, or by the Company, if the Company is
entitled to indemnification hereunder, as applicable. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. CONTRIBUTION.
-------------
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law as is appropriate to
reflect the relative fault of the indemnifying party, on the one hand, and the
Indemnified Person or Indemnified Party, as the case may be, on the other hand,
with respect to the Violation giving rise to the applicable Claim; provided,
however, that (i) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6, (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (iii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXCHANGE ACT.
-------------------------------
With a view to making available to the Investors the benefits of Rule
144 promulgated under the Securities Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
(a) file with the SEC in a timely manner and make and keep available
all reports and other documents required of the Company under the Securities Act
and the Exchange Act so long as the Company remains subject to such requirements
(it being understood that nothing herein shall limit the Company's obligations
under Section 4(c) of the Securities Purchase Agreement) and the filing and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
14
(b) furnish to each Investor so long as such Investor holds Series D
Stock, Warrants or Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested to permit such Investor to sell such securities under Rule
144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
----------------------------------
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the Series D Stock, the Warrants or the Registrable Securities if:
(a) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company after such
assignment, (b) the Company is furnished with written notice of (i) the name and
address of such transferee or assignee, and (ii) the securities with respect to
which such registration rights are being transferred or assigned, (c) following
such transfer or assignment, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, (d) the transferee or assignee agrees in writing for the
benefit of the Company to be bound by all of the provisions contained herein,
and (e) such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement, the Certificate of
Designations and the Warrants, as applicable. In addition, and notwithstanding
anything to the contrary contained in this Agreement, the Securities Purchase
Agreement, the Certificate of Designations or the Warrants, the Securities (as
defined in the Securities Purchase Agreement) may be pledged, and all rights of
the Investor under this Agreement or any other agreement or document related to
the transactions contemplated hereby may be assigned, without further consent of
the Company, to a bona fide pledgee in connection with an Investor's margin or
brokerage account.
10. AMENDMENT OF REGISTRATION RIGHTS.
---------------------------------
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, the
Initial Investors (to the extent the Initial Investor still owns Series D Stock,
Warrants or Registrable Securities) and the Investor or Investors who hold a
majority in interest of the Registrable Securities or, in the case of a waiver,
with the written consent of the party charged with the enforcement of any such
provision; provided, however, that no amendment hereto which restricts the
ability of an Investor to elect not to participate in an underwritten offering
shall be effective against any Investor which does not consent in writing to
such amendment; provided, further, however, that no consideration shall be paid
to an Investor by the Company in connection with an amendment hereto unless each
Investor similarly affected by such amendment receives a pro-rata amount of
consideration from the Company. Unless an Investor otherwise agrees, each
amendment hereto must similarly affect each Investor. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Investor
and the Company.
15
11. MISCELLANEOUS.
--------------
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Any notices required or permitted to be given under the terms of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five (5) days after being placed in the mail, if mailed, or
upon receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Xxxxx 0 Systems, Inc.
0000 Xxxxxxx Xxxxxxx
Xxxx, Xxxxx Xxxxxxxx 00000
Fax: (000) 000-0000
Attn: Xxxx X. Xxxxxxxxx
with a copy simultaneously transmitted by like means to:
Powell, Goldstein, Xxxxxx & Xxxxxx LLP
000 Xxxxxxxxx Xxxxxx; 00xx Xxxxx
Xxxxxxx, Xxxxxxx 00000
Fax: (000) 000-0000
Attn: Xxxxx X. Xxxxx, Esq.
and if to any Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b).
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware applicable to contracts made and to be
performed in the State of Delaware. The Company irrevocably consents to the
jurisdiction of the United States federal courts and the state courts located in
the County of New Castle, State of Delaware in any suit or proceeding based on
or arising under this Agreement and irrevocably agrees that all claims in
respect of such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The
16
Company further agrees that service of process upon the Company, mailed by first
class mail shall be deemed in every respect effective service of process upon
the Company in any such suit or proceeding. Nothing herein shall affect an
Investor's right to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
(e) This Agreement and the other Transaction Documents (including any
schedules and exhibits thereto), constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the other
Transaction Documents supersede all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof and thereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
(i) 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.
(j) All consents, approvals and other determinations to be made by the
Investors pursuant to this Agreement shall be made by the Investors holding a
majority in interest of the Registrable Securities (determined as if all Series
D Stock and Warrants then outstanding had been converted into or exercised for
Registrable Securities) held by all Investors.
(k) The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time of such
establishment or increase, as the case may be. In the event an Investor shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of shares of
Registrable Securities then held by such Investors. For the avoidance of doubt,
the number of Registrable Securities held by any Investor shall be determined as
if all Series D Stock and Warrants then outstanding were converted into or
exercised for Registrable Securities.
17
(l) Each party to this Agreement has participated in the negotiation
and drafting of this Agreement. As such, the language used herein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.
(m) For purposes of this Agreement, the term "business day" means any
day other than a Saturday or Sunday or a day on which banking institutions in
the State of New York are authorized or obligated by law, regulation or
executive order to close, and the term "trading day" means any day on which the
OTC or, if the Common Stock is not then traded on the OTC, the principal
securities exchange or trading market where the Common Stock is then listed or
traded, is open for trading.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY
18
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the date first above written.
LEVEL 8 SYSTEMS, INC.
By:
-----------------------------------------------
Name:
---------------------------------------------
Its:
----------------------------------------------
PURCHASERS
SDS MERCHANT FUND L.P.
by SDS Capital Partners L.L.C., its
managing member
By:
-----------------------------------------------
Name:
---------------------------------------------
Its:
----------------------------------------------
DMG LEGACY FUND LLC
by DMG Advisors LLC, its
managing member
By:
-----------------------------------------------
Name:
---------------------------------------------
Its:
----------------------------------------------
DMG LEGACY INSTITUTIONAL FUND LLC
by DMG Advisors LLC, its
managing member
By:
-----------------------------------------------
Name:
---------------------------------------------
Its:
----------------------------------------------
DMG LEGACY INTERNATIONAL LTD.
by DMG Advisors LLC, its
managing member
By:
-----------------------------------------------
Name:
---------------------------------------------
Its:
----------------------------------------------
19
PURCHASERS (CONT.)
XXX XXXXX
By:
----------------------------------------------
Name:
---------------------------------------------
XXXXX XXXXXX
By:
---------------------------------------------
Name:
---------------------------------------------
XXX XXXXXXX
By:
-----------------------------------------------
Name:
---------------------------------------------
XXXX XXXX 4/30/92 TRUST
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
-------------------------------------------
VERTICAL VENTURES INVESTMENTS LLC
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
Xxxxxx Xxxxxxxxx
By:
-----------------------------------------------
Name:
---------------------------------------------
20
PURCHASERS (CONT.)
C. Xxxx & Xxxx Xxxxxxx
By:
----------------------------------------------
Name:
--------------------------------------------
XXXXXXX XXXX
By:
----------------------------------------------
Name:
--------------------------------------------
21
EXHIBIT 1
[Date]
[Name and address
of transfer agent]
RE: XXXXX 0 SYSTEMS, INC.
Ladies and Gentlemen:
We are counsel to Level 8 Systems, Inc., a corporation organized under the laws
of the State of Delaware (the "COMPANY"), and we understand that [Name of
Investor] (the "HOLDER") has purchased from the Company (i) shares of Series D
Convertible Preferred Stock that are convertible into shares of the Company's
common stock, par value $._____ per share (the "COMMON STOCK"), and (ii)
warrants to acquire shares of Common Stock. Pursuant to a Registration Rights
Agreement, dated as of ____ ___, 2002, by and among the Company and the
signatories thereto (the "REGISTRATION RIGHTS AGREEMENT"), the Company agreed
with the Holder, among other things, to register the Registrable Securities (as
that term is defined in the Registration Rights Agreement) under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), upon the terms provided in the
Registration Rights Agreement. In connection with the Company's obligations
under the Registration Rights Agreement, on __________, 2003, the Company filed
a Registration Statement on Form S-___ (File No. 333- _____________) (the
"REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities, which names the Holder as a
selling stockholder thereunder. The Registration Statement was declared
effective by the SEC on _____________, 2003. [Other customary introductory and
scope of examination language to be inserted] Based on the foregoing, we are of
the opinion that the Registrable Securities have been registered under the
Securities Act. [Other customary language to be included.]
Very truly yours,
cc: [Name of Investor]
