NOTE PURCHASE AGREEMENT
THIS
NOTE PURCHASE AGREEMENT (this “
Agreement ”)
is dated as of __________, 2004, by and between LEVEL 8 SYSTEMS,
INC., a Delaware corporation (the “
Company ”),
and the various purchasers listed on
Schedule I hereto
(each referred to herein as a “
Purchaser ”
and, collectively, the “
Purchasers ”).
WHEREAS,
the Company and the Purchasers are executing and delivering
this Agreement in reliance upon the exemption from securities
registration afforded by Rule 506 under Regulation D as
promulgated by the United States Securities and Exchange
Commission (the “
Commission ”)
under Section 4(2) of the Securities Act of 1933, as amended (the
“
Securities Act ”);
(i)
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers,
and the Purchasers desire to acquire from the Company,
a
promissory note (“Promissory Note”) convertible upon
Shareholder Approval (as described herein) at the Purchaser’s
option into Senior Debt and Warrants as described in the Term Sheet
(the “Term Sheet”) attached hereto as
Exhibit A (the
“
Senior Debt and Warrants ”
and including shares of common stock issuable upon exercise of the
warrants “Conversion Securities”)
(ii)
WHEREAS, the conversion of the Notes into Senior Debt and Warrants
is contingent and dependent upon the Company’s shareholders
approving the merger and reorganization
(“Recapitalization”) of the Company as further
described in the Term Sheet (“Shareholder Approval”),
and the Company filing a Form S-4 to facilitate the shareholder
approval and the merger reorganization.
NOW,
THEREFORE, in consideration of the promises and mutual
covenants and agreements hereinafter, the Company and the
Purchasers hereby agree as follows:
ARTICLE
I.
PURCHASE
AND SALE
1.1
Purchase and Sale .
On the Closing Date (as defined below), subject to the terms and
conditions set forth herein, the Company shall issue and sell to
each Purchaser and each Purchaser, severally and not jointly, shall
purchase from the Company the
Promissory
Notes as set forth on
Schedule I (the
“
Notes ”)
convertible into the Senior Debt and Warrants set forth on
Schedule I for
such Purchaser. The aggregate purchase price for the Notes and
Warrant purchased by the Purchasers shall not exceed $1,706,575, of
which $925,928 has been purchased as of November 23,
2004.
1.2
Closing .
The closing (the “
Closing ”)
of the purchase and sale of the Notes shall take place at the
offices of the Company, immediately following the execution hereof
or such later date or dates or different location or locations as
the parties shall agree, but in no event prior to the date that the
conditions set forth in Section 4.1 have been satisfied or waived
by the appropriate party (such date of the Closing, the
“
Closing Date ”).
At the Closing:
a.
Each
Purchaser shall deliver to the Company (1) this Agreement,
duly executed by such Purchaser, (2) the purchase price as set
forth next to its name on
Schedule I in
United States dollars in immediately available funds to an account
or accounts designated in writing by the Company; and
b.
The
Company shall deliver to each Purchaser (1) this Agreement,
duly executed by the Company, (2) a Promissory Note as set
forth on
Schedule I hereto.
ARTICLE
II.
REPRESENTATIONS
AND WARRANTIES
2.1
Representations and Warranties of the Company
.
The Company represents and warrants to each of the Purchasers that
the statements contained in this Section 2.1 are true, correct and
complete as of the date hereof, and will be true correct and
complete as of the Closing Date (unless specifically made as of
another date), except as specified to the contrary in the
corresponding paragraph of the disclosure schedule prepared by the
Company accompanying this Agreement (the “
Company Disclosure Schedules ”):
Organization and Qualification .
The Company duly incorporated, validly existing and in good
standing under the laws of Delaware, with the requisite corporate
power and authority to own and use its properties and assets and to
carry on its business as currently conducted. The Company is duly
qualified as a foreign corporation to do business and is in good
standing as a foreign corporation in each jurisdiction in which the
nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, would not,
individually or in the aggregate, (x) adversely affect the
legality, validity or enforceability of any of this Agreement or
the Transaction Documents (as defined in Section 2.1(b)) or any of
the transactions contemplated hereby or thereby, (y) have or result
in a material adverse effect on the results of operations, assets,
or financial condition of the Company, taken as a whole or (z)
impair the Company’s ability to perform fully on a timely
basis its obligations under any Transaction Document (any of (x),
(y) or (z), being a “
Material Adverse Effect ”).
Authorization; Enforcement .
The Company has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by this
Agreement, and the Notes (collectively, the “
Transaction Documents ”),
and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of each of this Agreement
and the Transaction Documents by the Company and the consummation
by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action by the Company,
provided, however, that the conversion of the Notes into Senior
Debt and Warrants will require Shareholder Approval. Each of this
Agreement and the Transaction Documents has been duly executed by
the Company and when delivered in accordance with the terms hereof
will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other
equitable
principles of general application and except that rights to
indemnification and contribution may be limited by Federal or
state securities laws or public policy relating
thereto.
Capitalization .
As of the date hereof, the authorized capital stock of the Company
is as set forth in
Schedule 2.1(c) .
All of such outstanding shares of capital stock have been, or upon
issuance will be, validly authorized and issued, fully paid and
nonassessable. Except as specifically set forth in
Schedule 2.1 (c) ,
no securities of the Company are entitled to preemptive or similar
rights, and no Person (as hereinafter defined) has any right of
first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by
the Transaction Documents. Except as specifically set forth
in
Schedule 2.1 (c) ,
and except as a result of the purchase and sale of the Notes, there
are no outstanding options, warrants, script rights to subscribe
to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for
or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any
subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable
into shares of Common Stock. The issue and sale of the Notes will
not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such
securities.
(Intentionally
Deleted)
No Conflicts .
The execution, delivery and performance of this Agreement and each
of the Transaction Documents by the Company and the consummation by
the Company of the transactions contemplated hereby and thereby
subject as applicable to Shareholder Approval, do not and will not
(i) conflict with or violate any provision of the Certificate of
Incorporation, Bylaws or other organizational documents of the
Company, (ii)
subject
to obtaining the consents referred to in Section 2.1(f), conflict
with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license
or instrument (evidencing a Company debt or otherwise) to which the
Company is a party or by which any property or asset of the Company
is bound or affected, except where such conflict or violation has
not resulted or would not reasonably be expected to result,
individually or in the aggregate, in a Material Adverse Effect, or
(iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company is subject (including
Federal and state securities laws and regulations and the rules and
regulations of the principal market or exchange on which the Common
Stock is traded or listed), or by which any material property or
asset of the Company is bound, except where such conflict has not
resulted or would not reasonably be expected to result,
individually or in the aggregate, in a Material Adverse
Effect.
Consents and Approvals .
The Company is not required to obtain any consent, waiver,
authorization or order of, give any notice to, or make any filing
or registration with, any court or other federal, state, local or
other governmental authority, regulatory or self regulatory agency,
or other Person in connection with the execution, delivery and
performance by the Company of this Agreement or the Transaction
Documents, other than (i) the filing of a Form S-4 with the
Commission, which shall be filed in connection with
the
Shareholder
Approval and implementation of the Recapitalization (ii) any
filings, notices or registrations under applicable Federal or
state securities laws (together with the consents, waivers,
authorizations, orders, notices and filings referred to
on
Schedule 2.1(f), the
“
Required Approvals ”),
except where failure to do so has not resulted or would not
reasonably result, individually, or in the aggregate, in a Material
Adverse Effect. “
Person ”
means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
Litigation; Proceedings .
Except as specifically set forth on
Schedule 2.1(g) or
in the SEC Documents (as hereinafter defined), there is no action,
suit, notice of violation, proceeding or investigation pending or,
to the knowledge of the Company, threatened against or affecting
the Company or any of its subsidiaries or any of their respective
properties before or by any court, governmental or administrative
agency or regulatory authority (Federal, state, county, local or
foreign) (collectively, an “
Action ”)
which (i) adversely affects or challenges the legality, validity or
enforceability of any of this Agreement or the Transaction
Documents or (ii) would reasonably be expected to, individually or
in the aggregate, have a Material Adverse Effect. Neither the
Company nor any subsidiary, nor, to the knowledge of the Company,
any officer thereof, is or has been, nor, to the knowledge of the
Company, any director thereof is or has been for the last three
years, the subject of any Action involving a claim of violation of
or liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and, to the knowledge
of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any
current or former director that was a director of the Company at
any time during the last three years or officer of the Company. The
Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the
Company or any subsidiary under the Exchange Act or the Securities
Act.
No Default or Violation .
The Company (i) is not in default under or in violation of any
indenture, loan or other credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its
properties is bound and which is required to be included as an
exhibit to any SEC Document (as defined in Section 2.1(j)) or will
be required to be included as an exhibit to the Company’s
next filing under either the Securities Act or the Securities
Exchange Act of 1934, as amended (the “
Exchange Act ”),
(ii) is not in violation of any order of any court, arbitrator or
governmental body applicable to it, (iii) is not in violation of
any statute, rule or regulation of any governmental authority to
which it is subject, (iv) is not in default under or in violation
of its Certificate of Incorporation, Bylaws or other organizational
documents, respectively in the case of (i), (ii) and (iii), except
where such violations have not resulted or would not reasonably
result, individually or in the aggregate, in a Material Adverse
Effect.
Private Offering .
The Company and all Persons acting on its behalf have not made,
directly or indirectly, and will not make, offers or sales of any
securities or solicited any offers to buy any security under
circumstances that would require registration of the Notes or the
issuance of such securities under the Securities Act. Subject to
the accuracy and completeness of the representations and warranties
of the Purchasers contained in Section 2.2, the offer, sale and
issuance by the Company to the Purchasers of each of the
Notes.
SEC Documents; Financial Statements .
The Common Stock of the Company is registered pursuant to Section
12(g) of the Exchange Act. Since December 31, 2001, the Company has
filed all reports, schedules, forms, statements and other documents
required to be filed by it, with the Commission, pursuant to
Section 13, 14 or 15(d) of the Exchange Act (the foregoing
materials and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits
to such documents) incorporated by reference therein being
collectively referred to herein as the “
SEC Documents ”),
on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Documents prior to the expiration
of any such extension. As of their respective dates, the SEC
Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of
the SEC Documents, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in
the SEC Documents comply in all material respects with applicable
accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing.
Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent
basis during the periods involved (“
GAAP ”),
except as may be otherwise specified in such financial statements
or the notes thereto, and fairly present in all material respects
the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.
Material Changes .
Since the date of the latest audited financial statements included
within the SEC Documents, except as specifically disclosed in the
SEC Documents , (i) there has been no event, occurrence or
development that has had or that could result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected
in the Company's financial statements pursuant to GAAP or required
to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting or the identity of
its auditors, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock, and (v) the
Company has not issued any equity securities to any officer,
director or affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the
Commission any request for confidential treatment of
information.
Patents and Trademarks .
The Company and its subsidiaries own, or have rights to use, all
patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with
their respective businesses as described in the SEC Documents and
which the failure to so own or have could have, or reasonably be
expected to result in, a Material Adverse Effect (collectively, the
“
Intellectual Property Rights ”).
Except with respect to liabilities reflected in the Company’s
financial statements or as otherwise described in the SEC
Documents. The Intellectual Property Rights are not
subject
to
any lien, mortgage, pledge, security interest, encumbrance,
claim, restriction on use, option, conditional sales
agreement, or charge of any kind, or any rights of others,
however evidenced or created which would reasonably be
expected to have a Material Adverse Effect. The business as
now conducted and as presently proposed to be conducted by the
Company does not and will not cause the Company to infringe or
violate any of the patents, trademarks, service marks, trade
names, copyrights, domain names, licenses, trade secrets or
other proprietary rights of any other person or entity.
Neither the Company nor any subsidiary has received a written
notice that the Intellectual Property Rights used by the
Company or any subsidiary violates or infringes upon the
rights of any Person which if determined adversely to the
Company would, individually or in the aggregate have a
Material Adverse Effect. To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is
no existing infringement by another Person of any of the
Intellectual Property Rights.
Transactions With Affiliates and Employees .
Except as set forth in SEC Documents, none of the officers or
directors of the Company and, to the knowledge of the Company, none
of the employees of the Company is presently a party to any
transaction with the Company or any subsidiary (other than for
services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of
the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director,
trustee or partner.
(Intentionally
Deleted)
(Intentionally
Deleted)
Broker’s Fees .
No fees or commissions or similar payments with respect to the
transactions contemplated by this Agreement or the Transaction
Documents have been paid or will be payable by the Company to any
third party broker, financial advisor, finder, investment banker,
or bank. The Purchaser shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section 2.1(p)
that may be due in connection with the transactions contemplated by
this Agreement and the Transaction Documents.
Disclosure .
Except for information regarding the transaction contemplated by
this Agreement and the Transaction Documents and the terms and
conditions hereof and thereof, the Company confirms that neither it
nor any other Person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information the
Company believes constitutes material, non-public information. The
Company understands and confirms that the Purchasers will rely on
the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the
Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company are true and correct and
do not contain any untrue statement of a material fact or omit to
state any material fact
necessary
in order to make the statements made therein, in light of the
circumstances under which they were made, not
misleading.
2.2
Representations and Warranties of the Purchasers
.
Each of the Purchasers, severally and not jointly, hereby
represents and warrants to the Company as follows:
Organization; Authority .
Such Purchaser, as applicable, is a corporation or a limited
liability company or limited partnership duly formed, validly
existing and in good standing under the laws of the jurisdiction of
its incorporation or formation with the requisite power and
authority, corporate or otherwise, to enter into and to consummate
the transactions contemplated hereby and by this Agreement and the
Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The purchase by such Purchaser, as
applicable, of the Note hereunder has been duly authorized by all
necessary action on the part of such Purchaser. Each of this
Agreement and the Transaction Documents has been duly executed and
delivered by each Purchaser and constitutes the valid and legally
binding obligation of each Purchaser, enforceable against such
Purchaser in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting
creditors’ rights generally and to general principles of
equity and except that rights to indemnification and contribution
may be limited by Federal or state securities laws or public policy
relating thereto.
Investment Intent .
Such Purchaser is acquiring the Note for its own account and not
with a present view to or for distributing or reselling the Note or
t
