EXHIBIT 10.2
WAIVER AGREEMENT
THIS WAIVER AGREEMENT (this "Agreement") is dated as of March 19, 2003,
between Level 8 Systems, Inc., a Delaware corporation (the "Company"), and the
stockholders identified and listed on the signature page hereto (each referred
to herein as a "Holder" and, collectively, the "Holders").
WITNESSETH
----------
WHEREAS, the Holders hold either (i) shares of the Series A3
Convertible Redeemable Preferred Stock of the Company (the "Series A3 Preferred
Stock") having the rights and preferences as set forth in that certain
Certificate of Designation of Rights, Preferences and Limitations filed with the
Secretary of State of the State of Delaware on October 25, 2002 (the "Series A3
Certificate of Designation"), and related warrants to purchase the common stock
of the Company (the "Series A3 Warrants"); (ii) shares of the Series B3
Convertible Redeemable Preferred Stock of the Company (the "Series B3 Preferred
Stock") having the rights and preferences as set forth in that certain
Certificate of Designation of Rights, Preferences and Limitations filed with the
Secretary of State of the State of Delaware on October 25, 2002 (the "Series B3
Certificate of Designation"), and related warrants to purchase common stock of
the Company (the "Series B3 Warrants"); or (iii) some combination of Series A3
Preferred Stock, Series B3 Preferred Stock (collectively, the "Preferred
Stock"), Series A3 Warrants and/or Series B3 Warrants (collectively, the
"Warrants"); and
WHEREAS, the Company is currently contemplating the issuance of up to
$3,410,000 of Series D Preferred Stock (the "Series D Preferred Stock") and
related warrants (collectively, the "Series D Financing"), pursuant to the terms
and conditions of the Financing Term Sheet attached hereto as Exhibit A and the
Joint Venture Term Sheet attached hereto as Exhibit B. In connection with the
Series D Financing, the Company will exceed the Share Limitation (as hereinafter
defined); and
WHEREAS, the Series D Financing would be considered a Subsequent
Financing as such term is defined in each of the Series A3 Certificate of
Designation and the Series B3 Certificate of Designation and would require the
Company to issue additional common stock purchase warrants to the Holders (the
"Subsequent Financing Warrants"); and
WHEREAS, the Company has been delisted from the Nasdaq SmallCap Market
and is no longer eligible to register securities on a Form S-3 registration
statement and, concurrent with the filing of its Annual Report on Form 10-K on
or about March 31, 2003, will no longer be eligible to maintain the
effectiveness of its existing Registration Statement on Form S-3 (SEC Nos.
333-100983) (the "Existing Registration Statement"); and
WHEREAS, pursuant to that certain Exchange Agreement dated as of August
29, 2002 (the "Exchange Agreement"), as amended by that certain First Amendment
to Exchange
Agreement dated as of October 25, 2002 (the "Exchange Amendment" and, together
with the Exchange Agreement, the "Amended Exchange Agreement"), the Holders are
entitled to receive notice of and the right to participate in the Series D
Financing; and
WHEREAS, pursuant to that certain Registration Rights Agreement dated
as of August 29, 2002 (the "Registration Rights Agreement"), as amended by that
certain First Amendment to Registration Rights Agreement dated as of October 25,
2002 (the "Registration Rights Amendment" and, together with the Registration
Rights Agreement, the "Amended Registration Rights Agreement"), the Holders may
be entitled to receive certain payments in the event the Registrable Securities
(as such term is defined in the Registration Rights Amendment) are not
continuously registered for resale under the Securities Act of 1933, as amended
(the "Registration Delay Payments") as provided therein; and
WHEREAS, subject to the terms and conditions set forth in this
Agreement and as a condition to the closing of the Series D Financing, each
Holder desires to waive, as applicable to each Holder, the applicability of
certain provisions of each of the Series A3 Certificate of Designation, the
Series B3 Certificate of Designation, the Series A3 Warrants, the Series B3
Warrants, the Amended Exchange Agreement and the Amended Registration Rights
Agreement, respectively and to permit the Company to delay the issuance of the
Subsequent Financing Warrants.
NOW, THEREFORE, for and in consideration of the premises set forth
herein and other good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition shall
have the meaning attributed to them in the Series B3 Certificate of Designation.
For the purposes hereof, the following terms shall have the following meanings:
"Antidilution Adjustment" shall mean the conversion price adjustments
contemplated by Section 8.1(g) of each of the Series A3 Certificate of
Designation and the Series B3 Certificate of Designation.
"Delisting Provisions" shall mean each of (i) Section 8.1(f)(B) of each
of the Series A3 Certificate of Designation and the Series B3 Certificate of
Designation and (ii) Section 6(f)(B) of each of the Series A3 Warrants and the
Series B3 Warrants.
"Proceeds Limitation" shall mean $5,000,000 in aggregate consideration
to the Company for shares of Common Stock or Common Stock Equivalents, which is
the maximum permissible amount of consideration for shares of Common Stock and
Common Stock Equivalents that could be issued by the Company without exceeding
the Issuance Cap, as defined in Section 8.1(k) of the Series A3 Certificate of
Designation and the Series B3 Certificate of Designation, respectively.
"Revised Proceeds Limitation" shall mean the Proceeds Limitation plus
an additional $5,000,000 of aggregate consideration to the Company, for a total
of $10,000,000, for shares of
2
Common Stock or Common Stock Equivalents, which is the revised maximum
permissible amount of consideration for shares of Common Stock and Common Stock
Equivalents that may be issued by the Company without exceeding the Issuance
Cap, as defined in Section 8.1(k) of the Series A3 Certificate of Designation
and the Series B3 Certificate of Designation, respectively.
"Share Limitation" shall mean 17,500,000 aggregate shares of Common
Stock or Common Stock Equivalents, which is the maximum permissible amount of
shares of Common Stock and Common Stock Equivalents that could be issued by the
Company without exceeding the Issuance Cap, as defined in Section 8.1(k) of the
Series A3 Certificate of Designation and the Series B3 Certificate of
Designation, respectively.
2. Waiver of Dividend Provisions. Each of the Holders hereby waives the
Delisting Provisions, as applicable to such Holder, such that the suspension
from listing or the 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 shall not (a) be deemed a "Triggering Event" giving rise to a
Dividend Event with respect to the Preferred Stock, nor (b) be deemed a
"Redemption Event" giving rise to a Redemption Right with respect to the
Warrants. Effective June 30, 2005, this waiver shall terminate and the Delisting
Provisions shall be in full force and effect as of such date and shall not be
applied retroactively.
3. Waiver of Share Limitation; Consent to Issuance of Senior
Securities. Each of the Holders hereby waives compliance by the Company with the
Share Limitation and expressly permits the Company to exceed the Share
Limitation without triggering any Antidilution Adjustments in connection with
the Series D Financing and any other financing that, together with the Series D
Financing and any other previous financings, do not exceed the Revised Proceeds
Limitation; provided, however, that the Company expressly acknowledges that the
Revised Proceeds Limitation is in full force and effect and shall be treated,
for purposes of interpretation of the Series A3 Certificate of Designation and
the Series B3 Certificate of Designation as modifying the Proceeds Limitation.
Furthermore, the Holders consent to the issuance of the Series D Preferred Stock
and any other senior series of capital stock, which is (or will be) expressly by
its terms senior to the Preferred Stock, and acknowledge that this Agreement
satisfies the provisions of Section 3.1 of each of the Series A3 Certificate of
Designation and the Series B3 Certificate of Designation regarding Holder
consent to the issuance of a Senior Security.
4. Waiver of Registration Delay Payments. Each Holder expressly
acknowledges that the Company will be required to amend the Existing
Registration Statement to maintain the effectiveness or to re-register all
Registrable Securities at or prior to the filing of the Company's Annual Report
on Form 10-K and hereby waives the accrual or payment of any Registration Delay
Payments pursuant to Section 2(d) of the Registration Rights Agreement during
the period such Registrable Securities cannot be sold pursuant to an effective
registration statement; provided, however, that if the Company fails to have a
registration statement on Form S-1 or a Post-Effective Amendment to Form S-3 on
Form S-1 registering (or maintaining the registration of) the Registrable
Securities declared effective by the SEC within 180 days from the date hereof
(the "New Effectiveness Date"), Registration Delay Payments shall accrue from
the New
3
Effectiveness Date in accordance with the provisions of Section 2(d) of the
Registration Rights Agreement as though the New Effectiveness Date was the first
date that the Registrable Securities were not registered for resale. Each Holder
hereby further waives the application of Section 2(d)(iii) requiring the
payments of Registration Delay Payments for the failure of the Company to be
listed on Nasdaq.
5. Waiver of Share Limitation and Proceeds Limitation With Respect to
Lenders' Warrants. Each Holder hereby agrees that the Company may from time to
time issue up to an aggregate of five million (5,000,000) Lenders' Warrants in
connection with bona fide loan transactions, and such Lenders' Warrants shall
not be counted towards the Share Limitation or Proceeds Limitation and so shall
not be included in calculating the aggregate number of shares issued under the
Issuance Cap; provided, however, that the Company expressly acknowledges that
the Holders, pursuant to Sections 5.1 (b) of each of the Series A3 Certificate
of Designation and the Series B3 Certificate of Designation, shall still be
entitled to receive on a pro rata basis up to five million (5,000,000) warrants
to purchase shares of the Company's common stock in number equal to the number
of Lenders' Warrants and pursuant to such Sections.
6. Delayed Issuance of Subsequent Financing Warrants; Limited Rights to
Additional Subsequent Financing Warrants. Each Holder agrees that the Company
may delay the issuance of any Subsequent Financing Warrants until such time as
the stockholders of the Company have authorized an increase in the authorized
Common Stock of the Company; provided, however, that the Company shall issue
each Holder Subsequent Financing Warrants pursuant to Section 5.1 of each of the
Series A3 Certificate of Designation and the Series B3 Certificate of
Designation within 10 business days of the approval by the stockholders of the
increase in the Company's authorized Common Stock. Each Holder further agrees
that the Company's obligation to issue Subsequent Financing Warrants does not
extend to subsequent financings where the aggregate proceeds are in excess of
the Proceeds Limitation. If the Company exceeds the Proceeds Limitation, but not
the Revised Proceeds Limitation, the Company shall issue warrants ("Additional
Subsequent Financing Warrants") to the Holders as described in Schedule 1
attached hereto.
7. Waiver of Notice and Right to Participate. Each Holder acknowledges
compliance by the Company with the notice provisions contained in Section 3.8 of
the Exchange Agreement and hereby waives any right to participate in the Series
D Financing pursuant to such Section or pursuant to any other agreements between
the Company and such Holder.
8. Standstill. Except as permitted pursuant to Schedule 2 attached
hereto, each of the Holders hereby covenants and agrees to refrain from selling,
transferring, or otherwise disposing of any shares of Preferred Stock or
Warrants (or shares of Common Stock underlying the Preferred Stock or Warrants)
from the date hereof for a period of one hundred and twenty (120) days from the
date the registration statement registering the resale of the common stock
issuable upon conversion of the Series D Preferred Stock is declared effective
by the SEC under the Securities Act of 1933, as amended (the "Standstill
Period"). The foregoing restriction has been expressly agreed to preclude each
Holder from also engaging in any hedging or other transaction during the
Standstill Period that is designed to or reasonably expected to lead to or
result in any transfer of the Company's common stock. Such prohibited hedging or
other transaction would
4
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale, or grant of any right (including, without limitation, any
put or call option) with respect to the Company's common stock or with respect
to any security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from the Company's
common stock.
9. Restrictions on Transfer. In addition to the provisions of Section 8
above and any other restrictions with respect to the sale or transfer of the
Preferred Stock and the Warrants (or shares of Common Stock underlying the
Preferred Stock or Warrants), each Holder hereby further agrees that the
Preferred Stock and the Warrants may only be sold or transferred if the proposed
transferee shall agree in writing to be bound by the terms of this Agreement.
10. Required Holders. Each of the Holders hereby covenants and agrees
that the signature of all the Holders hereto constitutes the consent of the
"Required Holders" as defined in Sections 3.1 of each of the Series A3
Certificate of Designation and the Series B3 Certificate of Designation. Each of
the Holders hereby covenants and agrees, severally and not jointly, that each
holds such number of Series A3 Warrants and Series B3 Warrants as each Holder
received as of the date the Series A3 Warrants and Series B3 Warrants were
issued by the Company.
11. No Other Amendment or Waiver. Except for the agreements set forth
herein, the terms of the Series A3 Certificate of Designation, the Series B3
Certificate of Designation, the Series A3 Warrants, the Series B3 Warrants, the
Amended Exchange Agreement and the Amended Registration Rights Agreement shall
remain unchanged and in full force and effect.
12. 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 page were
an original hereof.
13. 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, waivers 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
Series D Financing transaction.
14. 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
5
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. 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.
[Remainder of Page Intentionally Left Blank]
6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
Xxxxx 0 Systems, Inc.
By:
-----------------------------------
Xxxx X. Xxxxxxxxx,
Chief Financial and Operating Officer,
Corporate Secretary
HOLDERS:
Advanced Systems Europe B.V., in its capacity as a Xxxxx Xxxxxxx Partners I, Ltd., in its capacity as
holder of Series A3 Preferred Stock a holder of Series B3 Preferred Stock, Series A3
Warrants and Series B3 Warrants
By:
--------------------------------------- By:
Name: --------------------------------------
--------------------------------------- Name:
Title: --------------------------------------
--------------------------------------- Title:
--------------------------------------
Seneca Capital, L.P., in its capacity as a holder of Seneca Capital International, Ltd., in its capacity
Series A3 Preferred Stock, Series B3 Preferred Stock, as a holder of Series A3 Preferred Stock, Series B3
Series A3 Warrants and Series B3 Warrants Preferred Stock and Series B3 Warrants
By:
--------------------------------------- By:
Name: --------------------------------------
--------------------------------------- Name:
Title: --------------------------------------
--------------------------------------- Title:
--------------------------------------
7
