EXHIBIT 4.11
REGISTRATION RIGHTS AGREEMENT
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REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
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__________________, 2000, by and among Level 8 Systems, Inc., a Delaware
corporation ("Company"), and the parties who have executed this Agreement and
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whose names appear on Schedule I hereto (each party listed on Schedule I hereto
is sometimes referred to herein as "Holder" and all such persons are sometimes
collectively referred to as the "Holders.")
W I T N E S S E T H:
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WHEREAS, pursuant to the terms of that certain Agreement and Plan of
Merger dated as of October 2, 2000 (the "Merger Agreement"), by and among the
Company, Level 8 Technologies Acquisition Corp., Inc. and StarQuest Software,
Inc. ("Target"), certain of the shares of capital stock of Target will be
converted into the right to receive shares of Common Stock of Parent, $0.001 par
value per share (the "Common Stock"), and Warrants to purchase shares of Parent
Common Stock (the "Warrants" and such shares being the "Underlying Shares,"
together with the Common Stock, being collectively the "Registrable
Securities");
WHEREAS, the Company has agreed, as a condition precedent to Target's
obligations under the Merger Agreement, to grant to the Holders certain
registration rights;
WHEREAS, the Company and the Holders desire to define such
registration rights on the terms and subject to the conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, it is agreed as follows:
1. Definitions. Unless otherwise defined herein, terms defined in
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the Merger Agreement are used herein as therein defined, and the following shall
have (unless otherwise provided elsewhere in this Agreement) the following
respective meanings (such meanings being equally applicable to both the singular
and plural form of the terms defined):
"Agreement" shall mean this Registration Rights Agreement, including
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all amendments, modifications and supplements and any exhibits or schedules to
any of the foregoing, and shall refer to the Agreement as the same may be in
effect at the time such reference becomes operative.
"Business Day" shall mean any day that is not a Saturday, a Sunday or
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a day on which banks are required or permitted to be closed in the State of New
York.
"Commission" shall mean the Securities and Exchange Commission or any
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other federal agency then administering the Securities Act and other federal
securities laws.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
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amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"NASD" shall mean the National Association of Securities Dealers,
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Inc., or any successor corporation thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
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any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time.
2. Required Registration. On or prior to the 225/th/ day from the
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Effective Time, the Company shall prepare and file with the Commission a
Registration Statement (the "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 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). The Company shall use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
possible after the filing thereof.
3. Incidental Registration. If Company at any time after the
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Effective Time proposes to file on its behalf and/or on behalf of any of its
security holders (the "demanding security holders") a registration statement
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under the Securities Act on any form (other than a registration statement on
Form S-4 or S-8 or any successor form for securities to be offered in a
transaction of the type referred to in Rule 145 under the Securities Act or to
employees of Company pursuant to any employee benefit plan, respectively) for
the general registration of securities (a "Registration Statement"), it will
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give written notice to all Holders at least twenty (20) Business Days prior to
the initial filing with the Commission of such Registration Statement, which
notice shall set forth the intended method of disposition of the securities
proposed to be registered by Company. The notice shall offer to include in such
filing the aggregate number of shares of Registrable Securities as such Holders
may request.
Each Holder desiring to have Registrable Securities registered under
this Section 3 shall advise Company in writing within ten (10) Business Days
after the date of receipt of such offer from Company, setting forth the amount
of such Registrable Securities for which registration is requested. Company
shall thereupon include in such filing the number of shares of Registrable
Securities for which registration is so requested, subject to the next sentence,
and shall use its best efforts to effect registration under the Securities Act
of such shares. If the managing underwriter of a proposed public
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offering shall advise Company in writing that, in its opinion, the distribution
of the Registrable Securities requested to be included in the registration
concurrently with the securities being registered by Company or such demanding
security holder would materially and adversely affect the distribution of such
securities by Company or such demanding security holder, then all selling
security holders (including the demanding security holder who initially
requested such registration, but not the Company) shall reduce the amount of
securities each intended to be distributed through such offering on a pro rata
basis (which reduced amount may be zero). Except as otherwise provided in
Section 5, all expenses of such registration shall be borne by Company.
Notwithstanding the provisions of this Section 3, the Holders shall
have no right to have any Registrable Securities registered under any
Registration Statement filed by the Company in connection with the registration
of shares of the Company's Common Stock that are issued to persons who have
received such stock as a result of the conversion of indebtedness of Target held
by such persons.
4. Registration Procedures. If Company is required by the provisions
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of Section 2 or 3 to use its best efforts to effect the registration of any of
its securities under the Securities Act, Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a Registration
Statement with respect to such securities and use its best efforts to cause such
Registration Statement to become and remain effective for a period of time
required for the disposition of such securities by the Holders thereof, but not
to exceed one hundred and eighty (180) days;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such Registration Statement until
the earlier of such time as all of such securities have been disposed of in a
public offering or the expiration of one hundred and eighty (180) days;
(c) furnish to such selling security Holders such number of
copies of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents, as such selling security Holders may reasonably request;
(d) use its best efforts to register or qualify the
securities covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions within the United States as each Holder of
such securities shall reasonably request to the extent such registration or
qualification is required in such jurisdictions (provided, however, that Company
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shall not be obligated to qualify as a foreign corporation to do business under
the laws of any jurisdiction in which it is not then qualified or to file any
general consent to service or process), and do such other
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reasonable acts and things as may be required of it to enable such Holder to
consummate the disposition in such jurisdiction of the securities covered by
such Registration Statement;
(e) furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to Section 2, on the date that
such shares of Registrable Securities are delivered to the underwriters for sale
pursuant to such registration or, if such Registrable Securities are not being
sold through underwriters, on the date that the Registration Statement with
respect to such shares of Registrable Securities becomes effective, (i) an
opinion, dated such date, of the independent counsel representing Company for
the purposes of such registration, addressed to the underwriters, if any, and if
such Registrable Securities are not being sold through underwriters, then to the
Holders making such request, in customary form and covering matters of the type
customarily covered in such legal opinions; and (ii) a comfort letter dated such
date, from the independent certified public accountants of Company, addressed to
the underwriters, if any, and if such Registrable Securities are not being sold
through underwriters, then to the Holder making such request and, if such
accountants refuse to deliver such letter to such Holder, then to Company, in a
customary form and covering matters of the type customarily covered by such
comfort letters and as the underwriters or such Holder shall reasonably request;
(f) enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities;
(g) notify the Holders as promptly as practicable upon the
occurrence of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, contains an untrue statement of
material fact or omits 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, and as promptly as possible, prepare, file and
furnish to each Holder a reasonable number of copies of a supplement or an
amendment to such prospectus as may be necessary so that such prospectus does
not contain an untrue statement of material fact or omits 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; provided, however,
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that the Company may delay preparing, filing and distributing any such
supplement or amendment if the Board of Directors of the Company determines in
good faith that such supplement or amendment could, in its reasonable judgment,
(i) interfere with or adversely affect the negotiation or completion of a
transaction that is being contemplated by the Company or (ii) involve initial or
continuing disclosure obligations that are not in the best interests of the
Company's stockholders at the time; provided, further, that (w) the Company will
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give notice (a "Standstill Notice") of any such delay prior to such delay, (x)
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such delay shall not extend for a period of more than thirty (30) days without
the written consent of the Holders, (y) the Company may utilize such delay no
more than two (2) times or for an aggregate of more than sixty (60) days in any
period of two hundred and forty (240) consecutive days and (z) the period of
effectiveness of the Registration Statement provided for herein
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shall be extended by the number of days from and including the date of the
giving of a Standstill Notice to and including the date when the Company shall
have delivered to the Holders copies of such supplement or amendment pursuant to
this Section 4(g);
(h) provide each Holder and its representatives the
opportunity to conduct reasonable inquiry of the Company's financial and other
records during normal business hours and make available its officers, directors
and employees for questions regarding information which such Holder may
reasonably request in order to conduct any due diligence;
(i) permit each Holder to review a Registration Statement
covering Registrable Securities and all amendments and supplements thereto a
reasonable period of time prior to the filing thereof with the Commission; and
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security Holders, as soon as reasonably practicable, but not later than eighteen
(18) months after the effective date of the Registration Statement, an earnings
statement covering the period of at least twelve (12) months beginning with the
first full month after the effective date of such Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
It shall be a condition precedent to the obligation of Company to take
any action pursuant to this Agreement in respect of the securities which are to
be registered at the request of any Holder that such Holder shall furnish to
Company such information regarding the securities held by such Holder and the
intended method of disposition thereof as Company shall reasonably request and
as shall be required in connection with the action taken by Company.
5. Expenses. All expenses incident to the Company's compliance with
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the terms of this Agreement, including, without limitation, all registration and
filing fees (including all expenses incident to filing with the NASD), printing
expenses, fees and disbursements of counsel for Company, the reasonable fees and
expenses of one counsel for the selling security Holders (selected by those
holding a majority of the shares being registered), expenses of any special
audits incident to or required by any such registration and expenses of
complying with the securities or blue sky laws of any jurisdiction pursuant to
Section 4(d), shall be paid by Company, except that Company shall not be liable
for any fees, discounts or commissions to any underwriter or any fees or
disbursements of counsel for any underwriter in respect of the securities sold
by such Holder.
6. Indemnification and Contribution.
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(a) In the event of any registration of any Registrable
Securities under the Securities Act pursuant to this Agreement, Company shall
indemnify and hold harmless the Holder of such Registrable Securities, such
Holder's directors and officers,
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and each other person (including each underwriter) who participated in the
offering of such Registrable Securities and each other person, if any, who
controls such Holder or such participating person within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such Holder or any such director or officer or participating
person or controlling person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any alleged untrue statement of any material fact contained, on the effective
date thereof, in any Registration Statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or (ii)
any alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and shall
reimburse such Holder or such director, officer or participating person or
controlling person for any legal or any other expenses reasonably incurred by
such Holder or such director, officer or participating person or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action. Notwithstanding anything to the contrary set forth
in this Section 6(a), Company shall not be liable to indemnify any person in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon (1) any actual or alleged untrue statement or actual or
alleged omission either (x) made in such Registration Statement, preliminary
prospectus, prospectus or amendment or supplement in reliance upon and in
conformity with written information furnished to Company by such Holder
specifically for use therein or so furnished for such purposes by any
underwriter or (y) that had been corrected in a preliminary prospectus,
prospectus supplement or amendment which had been furnished to such Holder prior
to any distribution of the document alleged to contain the untrue statement or
omission to offerees or purchasers, (2) any offer or sale of Registrable
Securities after receipt by such Holder of a Standstill Notice under Section
4(g) and prior to the delivery of the prospectus supplement or amendment
contemplated by Section 4(g), or (3) Holder's failure to comply with the
prospectus delivery requirements under the Securities Act or failure to
distribute its Registrable Securities in a manner consistent with its intended
plan of distribution as provided to Company and disclosed in the Registration
Statement. Notwithstanding the foregoing, Company shall not be required to
indemnify any person for amounts paid in settlement of any claim without the
prior written consent of Company, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Holder or such director, officer or
participating person or controlling person, and shall survive the transfer of
such securities by such Holder.
(b) Each Holder, by acceptance hereof, agrees to indemnify
and hold harmless Company, its directors and officers and each person who
participated in such offering and each other person, if any, who controls
Company within the meaning of the Securities Act against any losses, claims,
damages or liabilities, joint or several, to which Company or any such director
or officer or any such person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses,
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claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) information in writing provided to Company by such Holder
specifically for use in the following documents and contained, on the effective
date thereof, in any Registration Statement under which securities were
registered under the Securities Act at the request of such Holder, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, (ii) such Holder's offer or sale of Registrable
Securities after receipt by such Holder of a Standstill Notice under Section
4(g) and prior to the delivery of the prospectus supplement or amendment
contemplated by Section 4(g), (iii) such Holder's failure to comply with the
prospectus delivery requirements under the Securities Act or failure to
distribute its Registrable Securities in a manner consistent with its intended
plan of distribution as provided to Company and disclosed in the Registration
Statement, (iv) such Holder's failure to comply with Regulation M under the
Exchange Act, or (v) such Holder's failure to comply with any rules and
regulations applicable because such Holder is, or is an Affiliate of, a
registered broker-dealer. Notwithstanding the provisions of this paragraph (b)
or paragraph (c) below, no Holder shall be required to indemnify any person
pursuant to this Section 6 or to contribute pursuant to paragraph (c) below in
an amount in excess of the amount of the aggregate net proceeds received by such
Holder in connection with any such registration under the Securities Act.
(c) If the indemnification provided for in this Section 6
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the 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, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties 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 to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
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)
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shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
7. Certain Limitations on Registration Rights. Notwithstanding the
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other provisions of this Agreement:
(a) Company shall not be obligated to register the
Registrable Securities of any Holder if, in the opinion of counsel to Company
reasonably satisfactory to the Holder and its counsel (or, if the Holder has
engaged an investment banking firm, to such investment banking firm and its
counsel), the sale or other disposition of such Holder's Registrable Securities,
in the manner proposed by such Holder (or by such investment banking firm), may
be effected without registering such Registrable Securities under the Securities
Act;
(b) Company shall not be obligated to register the
Registrable Securities of any Holder pursuant to Section 2 if Company has had a
registration statement, under which such Holder had a right to have its
Registrable Securities included pursuant to Section 3, declared effective;
provided, however, that to the extent such Registrable Securities consist solely
of Underlying Shares, the Company shall be obligated to effect the registration
of such Underlying Shares pursuant to the provisions of Section 3 above; and
(c) Company shall have the right to delay the filing or
effectiveness of the registration statement required pursuant to Section 2
hereof during one or more periods aggregating not more than forty five (45) days
in any twelve-month period in the event that (i) Company would, in accordance
with the advice of its counsel, be required to disclose in the prospectus
information not otherwise then required by law to be publicly disclosed and (ii)
in the judgment of Company's Board of Directors, there is a reasonable
likelihood that such disclosure would materially and adversely affect any
existing or prospective material business situation, transaction or negotiation
or otherwise materially and adversely affect Company.
8. Holder Agreements
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(a) No Holder may participate in an underwritten offering
provided for hereunder unless such Holder (i) agrees to sell such Holder's
Registrable Securities on the basis provided in the underwriting arrangements
contemplated for such offering as reasonably requested by the managing
underwriter, (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements as reasonably requested by the
managing underwriter, and (iii) agrees to bear such Holder's pro rata portion of
all underwriting discounts and commissions.
(b) Each Holder agrees to comply with Regulation M under the
Exchange Act in connection with its offer and sale of Registrable Securities.
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(c) Each Holder agrees that it will not sell any Registrable
Securities registered under the Securities Act pursuant to the terms of this
Agreement until a Registration Statement (and any associated post-effective
amendment) relating thereto has been declared effective and such Holder has been
provided copies of the related prospectus, as amended or supplemented to date.
(d) Each Holder agrees to comply with the prospectus
delivery requirements of the Securities Act as applicable in connection with the
sale of Registrable Securities registered under the Securities Act pursuant to a
Registration Statement.
(e) Each Holder agrees that upon receipt of a Standstill
Notice pursuant to Section 4(g), such Holder shall immediately discontinue
offers and sales of Registrable Securities registered under the Securities Act
pursuant to any Registration Statements covering such Registrable Securities
until such Holder receives copies of the supplemented or amended prospectus
contemplated by Section 4(g) or notice from the Company that no such supplement
or amendment is required.
9. Miscellaneous.
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(a) No Inconsistent Agreements. Except as set forth on
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Schedule A hereto, Company has not previously entered into any agreement with
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respect to any of its securities granting any registration rights to any person.
(b) Remedies. A Holder, in addition to being entitled to
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exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate. In any action or proceeding brought to enforce
any provision of this Agreement or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
(c) Amendments and Waivers. Except as otherwise provided
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herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departure from the provisions hereof
may not be given unless Company has obtained the written consent from a majority
of the Holders.
(d) Notice Generally. Any notice, demand, request, consent,
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approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Agreement shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid, or
by telecopy and confirmed by telecopy answerback, addressed as follows:
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(i) If to a Holder, at the last known address appearing on the
books of Company maintained for such purpose.
(ii) If to Company, at
Level 8 Systems, Inc.
8000 Regency Parkway
Cary, North Carolina 27511
Attention: Dennis McKinnie
Telecopy Number: (919) 461-2690
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback or three (3) Business Days after the same shall have been deposited
in the United States mail.
(e) Rule 144. With a view to making available to the Holders the
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benefits of Rule 144 under the Securities Act ("Rule 144") and any other rule or
regulation of the Commission that may at any time permit the Holders to sell
securities of the Company to the public without registration, the Company agrees
that it will:
(i) make and keep public information available, as those
terms are understood and defined in Rule 144;
(ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the Exchange Act; and
(iii) furnish to each Holder, so long as such Holder owns
any Registrable Securities, forthwith upon request (A) a written statement by
the Company, if true, that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (B) 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 (C) such other information as may be reasonably
requested in availing the Holder of any rule or regulation of the Commission
which permits the selling of any such securities without registration.
(f) Successors and Assigns. This Agreement shall inure to the
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benefit of and be binding upon the successors and assigns of each of the parties
hereto including any person to whom Registrable Securities are transferred.
(g) Headings. The headings in this Agreement are for convenience
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of reference only and shall not limit or otherwise affect the meaning hereof.
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(h) Governing Law; Jury Waiver. This Agreement shall be governed by,
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construed and enforced in accordance with the laws of the State of California
without giving effect to the conflict of laws provisions thereof. The parties
hereto waive all right to trial by jury in any action or proceeding to enforce
or defend any rights hereunder.
(i) Severability. Wherever possible, each provision of this Agreement
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shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
(j) Entire Agreement. This Agreement, together with the Merger
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Agreement and the other transaction documents, represents the complete agreement
and understanding of the parties hereto in respect of the subject matter
contained herein and therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
LEVEL 8 SYSTEMS, INC.
By:__________________________________
Dennis McKinnie
Senior Vice President, Chief Legal and
Administrative Officer, Corporate Secretary
HOLDERS:
[COUNTERPART SIGNATURE PAGES
FOLLOW]
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Level 8 Systems, Inc.
Registration Rights Agreement
The undersigned hereby executes this Registration Rights Agreement, and
hereby authorizes this signature page to be attached to a counterpart of such
Agreement executed by the other party hereof.
Dated: ________________________
HOLDER (Individual): HOLDER (Entity):
____________________________________
(print/type complete name of entity)
____________________________________ By: ________________________________
(signature) (signature)
Name: ______________________________ Name: ______________________________
(please print or type full name) (please print or type full name)
Title: _____________________________
*Social Security Number: ___________ *Tax Identification Number: ________
*if applicable
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SCHEDULE A
Registration Rights.
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Agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated.
In connection with the sale of 1,000,000 shares of Level 8 Common Stock to
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
pursuant to a Purchase Agreement dated July 31, 2000 (the "Merrill Lynch
Purchase Agreement"), Level 8 and Merrill Lynch entered into a
"Registration Rights Agreement." Pursuant to that registration rights
agreement, after October 30, 2000 the holders of at least 30% of the shares
issued pursuant to the Merrill Lynch Purchase Agreement will have the right
to request registration of those shares, and any of the other shares issued
pursuant to the Merrill Lynch Purchase Agreement whose holders elect to
participate. Those requesting the registration may specify the intended
method or methods of disposition. The registration rights agreement also
provides the holders of shares issued pursuant to the Merrill Lynch
Purchase Agreement to participate in other registration statements filed by
Level 8.
Agreement related to issuance of Series B Preferred Stock.
In connection with the issuance of its Series B Preferred Stock and certain
warrants in July of 2000, Level 8 entered into a "Registration Rights
Agreement" dated July 19, 2000 among Level 8 and certain investors,
including Brown Simpson Strategic Growth Funds, and Seneca Capital. This
agreement requires the registration of the 1,197,007 shares of Common Stock
issuable upon conversion of the Series B Preferred Stock, and the 1,047,382
shares of Common Stock issuable upon exercise of the warrants.
Level 8 met its obligation to file a "shelf" registration for sale on a
delayed or continuous basis, with the S-1 Registration Statement,
subsequent amendment and prospectus dated September 22, 2000. The
registration rights further provide the Series B Preferred Stock holders
with the right, on two occasions, to have the prospectus associated with
the shelf registration amended to provide for underwritten offerings.
Agreement related to issuance of Series A Preferred Stock.
In connection with the issuance of its Series A Preferred Stock and certain
warrants in June of 1999, Level 8 entered into a "Registration Rights
Agreement" dated June 28, 1999 among Level 8 and certain investors,
including Brown Simpson Strategic Growth Funds, Advanced Systems Europe
B.V. and Seneca Capital. This Registration Rights Agreement was filed with
the SEC as Exhibit 10.3 to Level 8's Current Report on Form 8-K filed July
23, 1999. The agreement required the registration of the 2,100,000 shares
of Common Stock issuable upon conversion of the Series A Preferred Stock,
and the 2,100,000 shares of Common Stock issuable upon exercise of the
warrants.
A-1
Level 8 met the registration obligations of this agreement when the
registration statement on Form S-3, filed on August 8, 1999, became
effective, registering resales of the 4,200,000 shares. As long as that
registration statement remains effective, the requirements of this
registration rights agreement remain satisfied.
Agreement with Welsh, Carson, Anderson & Stowe related to the purchase of Seer.
Level 8 purchased a majority interest in Seer Technologies, Inc. with an
"Agreement" dated November 23, 1998. The Agreement is filed with the SEC
as Exhibit B to Level 8's Schedule on Form SC 13-D, filed January 11, 1999,
and is also filed Exhibit 2.1 to Seer Technologies, Inc.'s Annual Report on
Form 10-K405, filed January 12, 1999. The agreement was among Level 8 and
twenty parties, all of whom were related to the Welsh, Carson, Anderson &
Stowe investment firm (the "WCAS Parties"). Under the agreement the WCAS
Parties received 1,000,000 shares of Level 8 stock and warrants to purchase
up to 250,000 additional shares at $12.00 per share. The agreement
incorporates a voting agreement binding the WCAS Parties.
The Agreement provides the WCAS Parties with piggyback registration rights
in any underwritten public offering which includes shares already
outstanding (Agreement Section 9.3.4). The rights apply "if, at any time
before [January 1, 2001], Level 8 determines to file a registration
statement." Any cutbacks at the advice of the underwriter are to be pro
rata equally among all participating shareholders. This would appear to
apply even in the event of another shareholder exercising a demand
registration, as "[t]he rights with respect to such offering by any WCAS
Party whose shares are included shall not be less, and the obligations with
respect to such offering by any such WCAS Party shall not be greater, than
those of any other shareholder whose shares are included in such offering."
Agreements related to Level 8's purchase of Momentum Software Corporation.
Level 8 purchased Momentum Software Corporation in February of 1998,
pursuant to an Agreement and Plan of Reorganization by and Among Level 8
Systems, Inc., Middleware Acquisition Corporation, Momentum Software
Corporation and Robert Brill, Bruns Grayson and Hubertus Vandervoort, as
Trustees of the Momentum Liquidating Trust, on Behalf of the
Securityholders of Momentum Software Corporation (the "Momentum Purchase
Agreement"), filed with the SEC as Exhibit 10.42 to Level 8's Annual Report
on Form 10-K, filed March 31, 1998. The Momentum Purchase Agreement
provides for two associated Registration Rights Agreements.
One of the two agreements relates to 36,000 shares of Level 8 Common Stock
issued to former Momentum employees in exchange for Momentum Series E
Preferred Shares, and 50,000 shares of Level 8 Common Stock issued as
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consideration for some of the employees agreeing to continue on as
employees of Level 8 (the "Momentum Employees' Registration Agreement")
The other agreement relates to 575,000 shares of Level 8 Common Stock,
200,000 additional shares underlying warrants and 250,000 further
additional shares which could be issued in exchange for a $3,000,000
promissory note, all issued to the stockholders and management of Momentum.
(the "Momentum Stockholders' Registration Agreement")
The Momentum Employees' Registration Agreement states that Level 8 will
file a registration statement for the 86,000 shares by September 15, 1998.
Section 2(d) states that the Holders of a majority in interest may select
the managing underwriters, if any, for any such registration, subject to
the approval of the Company, which shall not be unreasonably withheld. No
such registration was ever filed. The registration rights are not
transferable, and extinguish if the shares are sold, pursuant to Rule 144
or otherwise. While there is no particular termination date for the
agreement, the Company need only keep the demand registration effective
until "the date on which all Holders can sell all Registrable Securities
covered by such Demand Registration Statement pursuant to Rule 144 of the
Securities Act without restriction under Rule 144(e) thereof." Because the
shares have been outstanding for two years, it is likely that all or most
are eligible for transfer without registration pursuant to Rule 144.
The Momentum Stockholders' Registration Agreement provides for one demand
registration, to occur not earlier than March 2000 (two years from the date
of the agreement). The agreement provides that the Company is to file a
registration statement within 60 days of the demand from Holders of a
majority in interest of the "Registrable Securities." The Holders have the
right to select the managing underwriters, if any, for the demand
registration, subject to the approval of the Company, not to be
unreasonably withheld. All of the Registrable Securities (being 1,025,000
shares of Common Stock (which includes shares initially issued, underlying
the warrant, and issuable in return for the promissory note)) are to be
registered, unless a Holder opts out. The Company need only keep the
demand registration effective until "the date on which all Holders can sell
all Registrable Securities covered by such Demand Registration Statement
pursuant to Rule 144 of the Securities Act without restriction under Rule
144(e) thereof." Because the shares have been outstanding for two years,
it is likely that all or most are eligible for transfer without
registration pursuant to Rule 144.
Under the Momentum Stockholders' Registration Agreement, the Holders are
also given piggyback registration rights. These rights are explicitly
secondary to earlier granted registration rights, but are to be apportioned
pro rata among all other selling security Holders. The registration rights
are not transferable, and extinguish if the shares are sold pursuant to
Rule 144 or otherwise.
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Hampshire Securities Warrants
Hampshire Securities Corporation served as the lead underwriter for the
Company's initial public offering in June of 1995 and for a subsequent
public offering in December of 1996. In the underwriting agreements for
each of the two offerings Hampshire got a warrant to purchase Level 8's
Common Stock. Both of the warrants included registration rights.
The first warrant (related to the IPO) was for 140,000 shares of Common
Stock at $7.425 per share, exerciseable from July 28, 1996 to July 27,
2000. A preliminary form of the warrant was filed with the SEC as Exhibit
10.27 to the Company's Registration Statement on Form S-1, filed June 14,
1995. The warrant provided for two demand registrations and piggyback
registrations during the period July 1996 to July 2001. The Company filed
a registration statement on Form S-3, filed March 7, 1997 and assigned File
No. 333-22979, registering the 140,000 underlying shares.
The second warrant (related to the December 1996 public offering) was for
100,000 shares of Common Stock (the final version may have been for
110,000) at $14.85 per share, exercisable from December 17, 1997 to
December 17, 2001. (These terms are pursuant to the form of warrant filed
as Exhibit 10.45 to the Company's Registration Statement on Form S-1, filed
November 4, 1996.) The warrant grants Hampshire a single demand
registration and piggyback registration rights, both during the period from
December 17, 1997 to December 17, 2002. The rights are terminated once the
warrants or underlying shares are sold pursuant to a registration statement
or Rule 144, but there does not appear to be a provision that Rule 144
eligibility (as opposed to sale) terminated or mooted the registration
rights. The agreement provides that the Company cannot grant any
registration rights "prior to the rights of" Hampshire. With regard to
piggyback rights, the agreement more particularly provides that other
piggy-back rights are only allowable if the [Hampshire securities]
requested to be included in such registration are included on a pro rata
basis as to such other persons. Thus, it appears that the Company could
grant piggyback rights equal to Hampshire's, to be cut back on a pro rata
basis if the underwriter advises a cut back.
A prospectus Supplement, filed with the SEC on Form 424B3, filed December
16, 1999, incorporated 246,473 shares into a previously filed Registration
Statement on Form S-3. Those shares were held by various warrant and
Common Stock holders who had piggyback rights. The shares included by the
supplement are in the names of approximately 40 individuals and businesses.
Most of these shares are shares which were underlying the warrants issued
to Hampshire, including shares from the warrant associated with the initial
public offering which had previously been registered. There are only about
400 shares underlying the warrants distributed to Hampshire which are not
now registered.
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Liraz Registration Rights Agreement
The Registration Rights Agreement dated June 13, 1995 by and between Across
Data Systems, Inc. (predecessor to Level 8) and Liraz Systems Ltd.
("Liraz"), filed with the SEC as Exhibit 10.24 to Level 8's Registration
Statement on Form S-1 filed June 14, 1995, applies to all shares of Level 8
Common Stock held by Liraz. It grants to Liraz two demand registrations at
any time after 18 months after the Company's initial public offering (that
IPO being pursuant to the June 14, 1995 Registration Statement). Liraz was
also granted piggyback registration rights (with 30 days to respond to
notice). Liraz is subject to pro-rata reductions with all other
stockholders. The agreement contains the following stand-off provision:
"During the duration of the period specified by the Company and an
underwriter of Common Shares of other securities of the Company following
the effective date of the registration statement", Liraz shall not directly
or indirectly sell or transfer any securities of Level 8 except for any of
its shares included in the offering.
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