THE SECURITIES REPRESENTED HEREBY AND ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
HOWEVER, NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR (iii) AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.
THIS WARRANT IS NOT EXERCISABLE PRIOR TO ________, 1997.
VOID AFTER 5:00 P.M. NEW YORK CITY LOCAL TIME, ________, 2001.
LEVEL 8 SYSTEMS, INC.
Warrants for the Purchase
of
100,000 Shares of Common Stock, Par Value $.01 Per Share
No. HSC2-1
THIS CERTIFIES that, for receipt in hand of $100.00 and other value
received, HAMPSHIRE SECURITIES CORPORATION (together with all permitted assigns,
the "Holder") is entitled to subscribe for, and purchase from, LEVEL 8 SYSTEMS,
INC., a New York corporation (the "Company"), upon the terms and conditions set
forth herein, at any time or from time to time after) _________, 1997, New York
City local time until 5:00 P.M. New York City local time on __________, 2001
(the "Exercise Period"), up to an aggregate of 100,000 shares of common stock,
par value $.01 per share (the "Common Stock"). This Warrant is initially
exercisable at $________ per share; provided, however, that upon the occurrence
of any of the events specified in Section 5 hereof, the rights granted by this
Warrant, including the exercise price and the number of shares of Common Stock
to be received upon such exercise, shall be adjusted as therein specified. The
term "Exercise Price" shall mean, depending on the context, the initial exercise
price (as set forth above) or the adjusted exercise price per share.
This Warrant is the Representative's Warrant or one of the Representative's
Warrants (collectively, including any Representative's Warrant issued upon the
exercise or transfer of any
such Representative's Warrants in whole or in part, the "Warrants") issued
pursuant to the Underwriting Agreement, dated _______, 1996 (the "Underwriting
Agreement"), among the Company, the selling stockholders of the Company named
therein, and Hampshire Securities Corporation, as representative (the
"Representative") of the several underwriters named therein. As used herein,
the term "this Warrant" shall mean and include this Warrant and any Warrant or
Warrants hereafter issued as a consequence of the exercise or transfer of this
Warrant in whole or in part. This Warrant may not be sold, transferred,
assigned, or hypothecated until _______, 1997, except that it may be
transferred, in whole or in part, to (i) one or more officers or partners of the
Holder (or the officers or partners of any such partner); (ii) any other
underwriting firm or member of the selling group which participated in the
public offering of shares of Common Stock which commenced on _________, 1996 (or
the officers or partners of any such firm); (iii) a successor to the Holder, or
the officers or partners of such successor; (iv) a purchaser of substantially
all of the assets of the Holder; or (v) by operation of law. The term the
"Holder" as used herein shall include any transferee to whom this Warrant has
been transferred in accordance with the above.
Each share of Common Stock issuable upon the exercise hereof shall be
hereinafter referred to as a "Warrant Share".
1. This Warrant may be exercised during the Exercise Period, either in
whole or in part, by the surrender of this Warrant (with the election at the end
hereof duly executed) to the Company at its office at _____________, or at such
other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the product of the Exercise Price and the number of Warrant
Shares for which this Warrant is being exercised.
2. Upon each exercise of the Holder's rights to purchase Warrant Shares,
the Holder shall be deemed to be the holder of record of the Warrant Shares,
notwithstanding that the transfer books of the Company shall then be closed or
certificates representing the Warrant Shares with respect to which this Warrant
was exercised shall not then have been actually delivered to the Holder. As
soon as practicable after each such exercise of this Warrant, the Company shall
issue and deliver to the Holder a certificate or certificates representing the
Warrant Shares issuable upon such exercise, registered in the name of the Holder
or its designee. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a
Warrant evidencing the right of the Holder to purchase the balance of the
aggregate number of Warrant Shares purchasable hereunder as to which this
Warrant has not been
exercised or assigned.
3. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes, and shall not be bound to recognize any equitable
or other claim to, or interest in, such Warrant on the part of any other person,
and shall not be liable for any registration or transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Warrant shall be transferable on the books of the Company only upon
delivery thereof duly endorsed by the Holder or by his duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his, her, or its authority shall be produced. Upon any registration
of transfer, the Company shall deliver a new Warrant or Warrants to the person
entitled thereto. This Warrant may be exchanged, at the option of the Holder
thereof, for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like number
of Warrant Shares (or portions thereof), upon surrender to the Company or its
duly authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person if, in
the opinion of counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations thereunder.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the Warrants, such number of shares of Common Stock as shall,
from time to time, be sufficient therefor. The Company represents that all
shares of Common Stock issuable upon exercise of this Warrant are duly
authorized and, upon receipt by the Company of the full payment for such Warrant
Shares, will be validly issued, fully paid, and nonassessable, without any
personal liability attaching to the ownership thereof and will not be issued in
violation of any preemptive or similar rights of stockholders.
5. (a) The Exercise Price for the Warrant in effect from time to time,
and the number of shares of Common Stock issuable upon exercise of the Warrant,
shall be subject to adjustment, as follows:
(i) In the event that the Company shall at any time after the
date hereof (A) declare a dividend on the outstanding Common Stock payable in
shares of its capital stock, (B) subdivide the outstanding Common Stock, (C)
combine the outstanding Common Stock into a smaller number of shares, or (D)
issue any shares of its capital stock by reclassification of the Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), then, in each case,
the Exercise Price per Warrant Share in effect at the time of the record date
for the determination of stockholders entitled to receive such dividend or
distribution or of the effective date of such subdivision, combination, or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying such Exercise Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
action, and the denominator of which shall be the number of shares of Common
Stock outstanding after giving effect to such action. Such adjustment shall be
made successively whenever any event listed above shall occur and shall become
effective at the close of business on such record date or at the close of
business on the date immediately preceding such effective date, as applicable.
(ii) In the event that the Company shall fix a record date for
the determination of stockholders entitled to receive issuance of rights or
warrants to be issued to all holders of Common Stock entitling such stockholders
to subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the then Current Market Price (as defined below) per
share of Common Stock on such record date, the Exercise Price in effect at the
time of such record date shall be adjusted so that the same shall equal the
price determined by multiplying such Exercise Price in effect immediately prior
to the date of such issuance by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on such record date and
the number of additional shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so offered (or the aggregate
conversion price of the convertible securities so offered) would purchase at
such Current Market Price per share of the Common Stock, and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding on
such record date and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so offered
are convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants; and, to the extent that shares of Common Stock are not
delivered (or securities convertible into Common Stock are not delivered) after
the expiration of such rights or warrants, the Exercise Price shall be
readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(iii) In the event the Company shall fix a record date for the
determination of stockholders entitled to receive (including any such
distribution made to the stockholders of the Company in connection with a
consolidation or merger in which the Company is the continuing corporation in a
distribution to all holders of Common Stock) evidences of its indebtedness,
cash, or assets (other than distributions and dividends payable in shares of
Common Stock), or rights, options, or warrants to subscribe for or purchase
shares of Common Stock, or securities convertible into, or exchangeable for,
shares of Common Stock (excluding those referred to in paragraph (ii) above) in
a distribution to all holders of Common Stock, then, in each case, the Exercise
Price in effect at the time of such record date shall be adjusted by multiplying
the Exercise Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the Current Market Price per share of
Common Stock on such record date, less the fair market value (as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error) of the portion of the evidences of
indebtedness or assets so to be distributed, or of such rights, options, or
warrants, or convertible or exchangeable securities, or the amount of such cash,
applicable to one share of Common Stock, and the denominator of which shall be
such Current Market Price per share of Common Stock on such record date. Such
adjustment shall be made successively whenever any event listed above shall
occur and become effective at the close of business on such record date.
(iv) For a period of three years from the effective date of the
Registration Statement, if the Company shall issue shares of Common Stock for a
consideration per share (the "Offering Price") less than the Current Market
Price per share of Common Stock on the date the Company fixes the offering price
of such additional shares, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying such
Exercise Price by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in Subsection (i)
below) for the issuance of such additional shares would purchase at such Current
Market Price per share of Common Stock, and the denominator of which shall be
the number of shares of Common Stock outstanding immediately after the issuance
of such additional shares. Such adjustment shall be made successively whenever
such an issuance is made. Notwithstanding anything herein to the contrary, no
adjustment pursuant to this paragraph (a)(iv) of Section 5
shall take place as a result of the issuance of shares of Common Stock (1) in
any of the transactions described in Subsection (i) above, (2) upon exercise of
options granted to the Company's employees, officers, or directors under
securities ownership or compensation plans adopted by the Board of Directors of
the Company, (3) upon exercise of options or warrants outstanding at __________,
1996 and this Warrant, (4) to shareholders of any corporation which merges with
the Company or any wholly-owned subsidiary of the Company in proportion to their
stock holdings of such corporation immediately prior to, or upon, such merger
and (5) in a bona fide public offering pursuant to a firm commitment
underwriting, but only if no adjustment is required pursuant to any other
Subsection of this Section 5.
(v) For a period of three years from the effective date of the
Registration Statement, if the Company shall issue any securities convertible
into, or exchangeable for, Common Stock (excluding securities issued in
transactions described in Subsections (ii) and (iii) above) for a consideration
per share of Common Stock (the "Conversion Price") initially deliverable upon
conversion or exchange of such securities (determined as provided in Subsection
(i) below) less than the Current Market Price per share of Common Stock in
effect immediately prior to the issuance of such securities, the Exercise Price
in effect immediately prior to the date of such issuance shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying such Exercise Price by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such securities and the number of shares of Common Stock which
the aggregate consideration received (determined as provided in Subsection (i)
below) for such securities would purchase at such Current Market Price per share
of Common Stock, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance and the
maximum number of shares of Common Stock deliverable upon conversion of, or in
exchange for, such securities at the initial conversion or exchange price or
rate. Such adjustment shall be made successively whenever such an issuance is
made. Notwithstanding anything herein to the contrary, no adjustment pursuant
to this paragraph (a)(v) of Section 5 shall take place as a result of the
issuance of securities convertible into, or exchangeable for, shares of Common
Stock pursuant to an employee, officer, or director securities ownership or
compensation plan adopted by the Board of Directors of the Company and no
further adjustment to the Exercise Price shall be made upon the actual
conversion or exchange of the securities into Common Stock.
(b) The Current Market Price per share of Common Stock on any date
shall be deemed to be the average of the daily closing prices for the 10
consecutive trading days immediately
preceding the date in question. The closing price for each day shall be the
last reported sales price regular way or, in case no such reported sale takes
place on such day, the closing bid price regular way, in either case on the
principal national securities exchange (including, for purposes hereof, the
NASDAQ National Market System) on which the Common Stock is listed or admitted
to trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the highest reported bid price for the Common
Stock as furnished by the National Association of Securities Dealers, Inc.
through the Nasdaq SmallCap Market or a similar organization if the Nasdaq
SmallCap Market is no longer reporting such information. If, on any such date,
the Common Stock is not listed or admitted to trading on any national securities
exchange and is not quoted on the Nasdaq SmallCap Market or any similar
organization, the fair value of a share of Common Stock on such date, as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used.
(c) All calculations under this Section 5 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
(d) In any case in which this Section 5 shall require that an
adjustment in the number of Warrant Shares be made effective as of a record date
for a specified event, the Company may elect to defer, until the occurrence of
such event, issuing to the Holder, if the Holder exercised this Warrant after
such record date, the Warrant Shares, if any, issuable upon such exercise over
and above the number of Warrant Shares issuable upon such exercise on the basis
of the number of shares of Common Stock in effect prior to such adjustment;
provided, however, that the Company shall deliver to the Holder a due bill or
other appropriate instrument evidencing the Holder's right to receive such
additional shares of Common Stock upon the occurrence of the event requiring
such adjustment.
(e) Whenever there shall be an adjustment as provided in this Section
5, the Company shall within 15 days thereafter cause written notice thereof to
be sent by registered mail, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares issuable and
the Exercise Price thereof after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and the computation thereof,
which officer's certificate shall be conclusive evidence of the correctness of
any such adjustment absent manifest error.
(f) The Company shall not be required to issue fractions of shares of
Common Stock or other capital stock of the Company upon the exercise of this
Warrant. If any fraction of a share
of Common Stock would be issuable on the exercise of this Warrant (or specified
portions thereof), the Company shall purchase such fraction for an amount in
cash equal to the same fraction of the Current Market Price of such share of
Common Stock on the date of exercise of this Warrant.
(g) No adjustment in the Exercise Price per Warrant Share shall be
required if such adjustment is less than $.10; provided, however, that any
adjustments which by reason of this Section 5 are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
(h) Whenever the Exercise Price payable upon exercise of this Warrant
is adjusted pursuant to Subsections (a)(i), (a)(ii), (a)(iii), (a)(iv), or
(a)(v) above, the number of Warrant Shares issuable upon exercise of this
Warrant shall simultaneously be adjusted by multiplying the number of Warrant
Shares theretofore issuable upon exercise of this Warrant by the Exercise Price
in effect on the date hereof and dividing the product so obtained by the
Exercise Price, as adjusted.
(i) For purposes of any computation respecting consideration received
pursuant to Subsections (a)(iv) and (a)(v) above, the following shall apply:
(i) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for
any commissions, discounts, or other expenses incurred by
the Company for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the
fair market value thereof as determined in good faith by
the board of directors of the Company (irrespective of
the accounting treatment thereof), the determination of
which shall be a conclusive absent manifest error; and
(iii) in the case of the issuance of securities convertible
into, or exchangeable for, shares of Common Stock, the
aggregate consideration received therefor shall be deemed
to be the consideration received by the Company for the
issuance of such securities plus the additional minimum
consideration, if any, to be received by the Company upon
the conversion or exchange thereof (the consideration in
each case to be determined in the same manner as provided
in clauses (i) and (ii) of this Subsection (i)).
(j) Notwithstanding anything herein to the contrary, if any
adjustment under this Section 5 of the Exercise Price or the number of shares of
Common Stock or other securities issuable upon exercise of this Warrant shall be
determined by the National Association of Securities
Dealers, Inc. (the "NASD") to violate either or both of Section
44(c)(6)(B)(vi)(7) or Section 44(c)(6)(B)(vi)(8) of Article III of the Rules of
Fair Practice of the NASD, and such determination shall not be subject to
further appeal or review, the violative provisions or provisions shall be deemed
to be amended to the minimum extent necessary to cause each such provision to
comply with the applicable violated paragraph of Section 44 of the NASD Rules of
Fair Practice.
6. (a) In case of any capital reorganization, other than in the cases
referred to in Section 5(a) hereof, or the consolidation or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the continuing corporation and which does not result in
any reclassification of the outstanding shares of Common Stock or the conversion
of such outstanding shares of Common Stock into shares of other stock or other
securities or property), or in the case of any sale, lease, or conveyance to
another corporation of the property and assets of any nature of the Company as
an entirety or substantially as an entirety (such actions being hereinafter
collectively referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of this Warrant (in lieu of the number of Warrant
Shares theretofore deliverable) the number of shares of stock or other
securities or property to which a holder of the respective number of Warrant
Shares which would otherwise have been deliverable upon the exercise of this
Warrant would have been entitled upon such Reorganization if this Warrant had
been exercised in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the board
of directors of the Company, shall be made in the application of the provisions
herein set forth with respect to the rights and interests of the Holder so that
the provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable
upon exercise of this Warrant. Any such adjustment shall be made by, and set
forth in, a supplemental agreement between the Company, or any successor
thereto, and the Holder, with respect to this Warrant, and shall for all
purposes hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization unless, upon or prior to the
consummation thereof, the successor corporation, or if the Company shall be the
surviving corporation in any such Reorganization and is not the issuer of the
shares of stock or other securities or property to be delivered to holders of
shares of the Common Stock outstanding at the effective time thereof, then such
issuer, shall assume by written instrument the obligation to deliver to the
Holder such shares of stock, securities, cash, or other property as such Holder
shall be entitled to purchase in accordance with the foregoing provisions. In
the event of sale, lease, or conveyance or other transfer of all or
substantially all of the assets of the Company as part of a plan for liquidation
of the Company, all rights to exercise this Warrant shall terminate 30 days
after the Company gives written notice to the Holder that such sale or
conveyance or other transfer has been
consummated.
(b) In case of any reclassification or change of the shares of Common
Stock issuable upon exercise of this Warrant (other than a change in par value
or from a specified par value to no par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder or holders of this
Warrant shall have the right thereafter to receive upon exercise of this Warrant
solely the kind and amount of shares of stock and other securities, property,
cash, or any combination thereof receivable upon such reclassification, change,
consolidation, or merger by a holder of the number of Warrant Shares for which
this Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose:
(a) to pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per share
than the most recent such cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all holders
of Common Stock entitling them to purchase any additional shares of Common Stock
or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares of
Common Stock or any consolidation, merger, sale, lease, or conveyance of
property, as described in Section 6; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company; or
(e) to take any other action which would cause an adjustment to the
Exercise Price per Warrant Share;
then, and in any one or more of such cases, the Company shall give written
notice thereof by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would require
an adjustment to the Exercise Price per Warrant Share.
8. The issuance of any shares or other securities upon the exercise of
this Warrant and the delivery of certificates or other instruments representing
such shares or other securities shall be made without charge to the Holder for
any tax or other charge in respect of such issuance. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder and the Company shall not be required to issue or
deliver any such certificate unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
9. (a) If, at any time during the five-year period commencing on
__________, 1997, the Company shall file a registration statement (other than on
Form S-4, Form S-8 or any successor form) with the Securities and Exchange
Commission (the "Commission") while any Registrable Securities (as hereinafter
defined) are outstanding, the Company shall give all the then holders of any
Registrable Securities (the "Eligible Holders") at least 15 days prior written
notice of the filing of such registration statement. If requested by any
Eligible Holder in writing within 10 days after receipt of any such notice, the
Company shall, at the Company's sole expense (other than the fees and
disbursements of counsel for the Eligible Holders and the underwriting
discounts, if any, payable in respect of the Registrable Securities sold by any
Eligible Holder), register or qualify all or, at each Eligible Holder's option,
any portion of the Registrable Securities of any Eligible Holders who shall have
made such request, concurrently with the registration of such other securities,
all to the extent requisite to permit the public offering and sale of the
Registrable
Securities through the facilities of all appropriate securities exchanges and
the over-the-counter market, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable. Notwithstanding the foregoing, if the
managing underwriter of any such offering shall advise the Company in writing
that, in its opinion, the distribution of all or a portion of the Registrable
Securities requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely affect the
distribution of such securities by the Company for its own account, then the
Registrable Securities to be offered for the accounts of the Eligible Holders
shall be eliminated entirely or reduced pro rata as to all Eligible Holders who
requested registration on the basis of the relative number of Registrable
Securities each such Eligible Holder has requested to be included in such
registration, to the extent necessary to reduce the total amount advised by such
managing underwriter; provided, however, that no securities may be offered in
such registration for the account of persons other than the Company (including
for this purpose any affiliate of the Company) by virtue of their having
"piggyback" registration rights or otherwise, unless the Registrable Securities
requested to be included in such registration are included on a pro rata basis
(by percentage of each class of securities) as to such other persons and the
Eligible Holders requesting registration and provided, further that nothing in
this Section 9 (a) shall be implied to permit the Company to include in such
registration, shares of any person other than persons holding "piggyback"
registration rights unless the Registrable Securities requested to be included
in such registration are included. As used herein, "Registrable Securities"
shall mean the Warrants and the Warrant Shares which, in each case, have not
been previously sold pursuant to a registration statement or Rule 144
promulgated under the Act.
(b) If, on any one occasion during the five-year period commencing on
___________, 1997, the Company shall receive a written request from Eligible
Holders who in the aggregate own (or upon exercise of all Warrants then
outstanding would own) a majority of the total number of shares of Common Stock
then included (or upon such exercises would be included) in the Registrable
Securities (the "Majority Holders"), to register the sale of all or part of such
Registrable Securities (a "Demand Registration"), the Company shall, as promptly
as practicable, prepare and file with the Commission a registration statement
sufficient to permit the public offering and sale of the Registrable Securities
through the facilities of all appropriate securities exchanges and the
over-the-counter market, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable, at the Company's expense (other than the
fees and disbursements of counsel for the Eligible Holders and
underwriting discounts, if any, payable in respect of the Registrable Securities
sold by the Eligible Holders). Within three business days after receiving any
request contemplated by this Section 9(b), the Company shall give written notice
to all the other Eligible Holders, advising each of them that the Company is
proceeding with such registration and offering to include therein all or any
portion of any such other Eligible Holder's Registrable Securities, provided
that the Company receives a written request to do so from such Eligible Holder
within 10 days after receipt by him, her, or it of the Company's notice.
(c) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall use its best efforts to cause the Registrable
Securities so registered to be registered or qualified for sale under the
securities or blue sky laws of such jurisdictions as the Holder or such holders
may reasonably request; provided, however, that the Company shall not be
required by reason of this Section 9(c) to register or qualify the Registrable
Securities in any jurisdiction where, as a result thereof, the Company would be
subject to service of general process or to taxation as a foreign corporation
doing business in such jurisdiction to which the Company is not then subject.
(d) The Company shall keep effective any registration or
qualification contemplated by this Section 9 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document, and communication for such period of
time as shall be required to permit the Eligible Holders to complete the offer
and sale of the Registrable Securities covered thereby. The Company shall in no
event be required to keep any such registration or qualification in effect for a
period in excess of nine months from the date on which the registration
statement is declared effective under the Act; provided, however, that, if the
Company is required to keep any such registration or qualification in effect
with respect to securities other than the Registrable Securities beyond such
period, the Company shall keep such registration or qualification in effect as
it relates to the Registrable Securities for so long as such registration or
qualification remains or is required to remain in effect in respect of such
other securities.
(e) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall furnish to each Eligible Holder such number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such
reasonable number of copies of each prospectus contained in such registration
statement and each supplement or amendment thereto (including each preliminary
prospectus), all of which shall conform to the requirements of the Act and the
rules and regulations thereunder, and such other documents, as any Eligible
Holder may reasonably request to facilitate the disposition of the Registrable
Securities included in such registration.
(f) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall furnish each Eligible Holder of any Registrable
Securities so registered with an opinion of its counsel (reasonably acceptable
to the Eligible Holders) to the effect that (i) the registration statement has
become effective under the Act and no order suspending the effectiveness of the
registration statement, or preventing or suspending the use of the registration
statement, any preliminary prospectus, any final prospectus or any amendment or
supplement thereto, has been issued, nor has the Commission or any securities or
blue sky authority of any jurisdiction instituted or threatened to institute any
proceedings with respect to such an order, (ii) the registration statement and
each prospectus forming a part thereof (including each preliminary prospectus),
and any amendment or supplement thereto, complies as to form with the Act and
the rules and regulations thereunder, and (iii) such counsel has no knowledge of
any material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented. Such opinion shall also state the
jurisdictions in which the Registrable Securities have been registered or
qualified for sale pursuant to the provisions of Section 9(c).
(g) In the event of a registration pursuant to the provision of this
Section 9, the Company shall enter into a cross-indemnity agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses, and customary closing
conditions, including, without limitation, opinions of counsel and accountants'
cold comfort letters, with any underwriter who acquires any Registrable
Securities.
(h) The Company agrees that until all the Registrable Securities have
been sold under a registration statement or pursuant to Rule 144 under the Act,
it shall keep current in filing all reports, statements, and other materials
required to be filed with the Commission to permit holders of the Registrable
Securities to sell such securities under Rule 144 under the Act.
(i) Except for rights in existence on the date hereof, the Company
will not, without the written consent of the Majority Holders, grant to any
persons the right to request the Company to register any securities of the
Company, provided that the Company may grant such registration rights to other
persons so long as such rights are not prior to the rights of the Eligible
Holders.
10. (a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Eligible Holder, its officers, directors,
partners, employees, agents, and counsel,
and each person, if any, who controls any such person within the meaning of
Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), from and against any and all loss, liability,
charge, claim, damage, and expense whatsoever (which shall include, for all
purposes of this Section 10, without limitation, reasonable attorneys' fees and
reasonable expenses incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with, (i) any untrue
statement or alleged untrue statement of a material fact contained in (A) any
registration statement, preliminary prospectus, or final prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
relating to the offer and sale of any of the Registrable Securities, or (B) any
application or other document or communication (in this Section 10, referred to
collectively as an "application") executed by, or on behalf of, the Company or
based upon written information furnished by, or on behalf of, the Company filed
in any jurisdiction in order to register or qualify any of the Registrable
Securities under the securities or "blue sky" laws thereof or filed with any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon, and
in conformity with, written information furnished to the Company with respect to
such Eligible Holder by, or on behalf of, such person expressly for inclusion in
any registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in this Warrant. The foregoing agreement to indemnify shall
be in addition to any liability the Company may otherwise have, including
liabilities arising under this Warrant.
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability it may have other than pursuant to this Section
10(a)) and the Company shall promptly assume the defense of such action,
including, without limitation, the employment of counsel reasonably satisfactory
to such indemnified party or parties and payment of reasonable expenses. Such
indemnified party or parties shall have the right to employ its or their own
counsel in any
such case, but the fees and expenses of such counsel shall be at the expense of
such indemnified party or parties unless the employment of such counsel shall
have been authorized in writing by the Company in connection with the defense of
such action or the Company shall not have promptly employed counsel reasonably
satisfactory to such indemnified party or parties to have charge of the defense
of such action or such indemnified party or parties shall have concluded that
there may be one or more legal defenses available to it or them or to other
indemnified parties which are different from, or in addition to, those available
to the Company, in any of which events such reasonable fees and expenses shall
be borne by the Company, and the Company shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties. Anything
in this paragraph to the contrary notwithstanding, the Company shall not be
liable for any settlement of any such claim or action effected without its
written consent, which consent shall not be unreasonably withheld. The Company
shall not, without the prior written consent of each indemnified party that is
not released as described in this sentence, settle or compromise any action, or
permit a default or consent to the entry of judgment or otherwise seek to
terminate any pending or threatened action, in respect of which indemnity may be
sought hereunder (whether or not any indemnified party is a party thereto),
unless such settlement, compromise, consent, or termination includes an
unconditional release of each indemnified party from all liability in respect of
such action. The Company agrees promptly to notify the Eligible Holders of the
commencement of any litigation or proceedings against the Company or any of its
officers or directors in connection with the sale of any Registrable Securities
or any preliminary prospectus, prospectus, registration statement, or amendment
or supplement thereto, or any application relating to any sale of any
Registrable Securities.
(b) Each Eligible Holder severally agrees to indemnify and hold
harmless the Company, each director of the Company, each officer of the Company
who shall have signed any registration statement relating to Registrable
Securities held by such Eligible Holder, and each other person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company to the Eligible Holders in Section 10(a), but only with respect to
statements or omissions, if any, made in any registration statement, preliminary
prospectus, or final prospectus (as from time to time amended and supplemented),
or any amendment or supplement thereto, or in any application, in reliance upon,
and in conformity with, written information furnished to the Company with
respect to any Eligible Holder by, or on behalf of, such ▇▇▇▇▇▇▇▇ Holder
expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or any application,
and in respect of which indemnity may be sought against any Eligible Holder
pursuant to this Section 10(b), such Eligible Holder shall have the rights and
duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the indemnified parties,
by the provisions of Section 10(a). The foregoing agreement to indemnify shall
be in addition to any liability the Eligible Holder may otherwise have.
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 10(a) or
10(b) (subject to the limitations thereof), but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act, or otherwise, then the
Company (including for this purpose any contribution made by, or on behalf of,
any director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company), as one entity,
and the Eligible Holders of the Registrable Securities included in such
registration in the aggregate (including for this purpose any contribution by,
or on behalf of, an indemnified party), as a second entity, shall contribute to
the losses, liabilities, claims, damages, and expenses whatsoever to which any
of them may be subject, on the basis of relevant equitable considerations such
as the relative fault of the Company and such Eligible Holders in connection
with the facts which resulted in such losses, liabilities, claims, damages, and
expenses. The relative fault, in the case of an untrue statement, alleged
untrue statement, omission, or alleged omission, shall be determined by, among
other things, whether such statement, alleged statement, omission, or alleged
omission relates to information supplied by the Company or by such Eligible
Holders, and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement, alleged statement, omission,
or alleged omission. The Company and the Eligible Holders agree that it would
be unjust and inequitable if the respective obligations of the Company and the
Eligible Holders for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages, and expenses
(even if the Eligible Holders and the other indemnified parties were treated as
one entity for such purpose) or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 10(c). In no
case shall any Eligible Holder be responsible for a portion of the contribution
obligation imposed on all Eligible Holders in excess of its pro rata share based
on the number of shares of Common Stock owned (or which would be owned upon
exercise of all Registrable Securities) by it and
included in such registration as compared to the number of shares of Common
Stock owned (or which would be owned upon exercise of all Registrable
Securities) by all Eligible Holders and included in such registration. No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section
10(c), each person, if any, who controls any Eligible Holder within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act and each officer,
director, partner, employee, agent, and counsel of each such Eligible Holder or
control person shall have the same rights to contribution as such Eligible
Holder or control person and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, each officer of the Company who shall have signed any such registration
statement, each director of the Company, and its or their respective counsel
shall have the same rights to contribution as the Company, subject in each case
to the provisions of this Section 10(c). Anything in this Section 10(c) to the
contrary notwithstanding, no party shall be liable for contribution with respect
to the settlement of any claim or action effected without its written consent.
This Section 10(c) is intended to supersede any right to contribution under the
Act, the Exchange Act, or otherwise.
11. Unless registered pursuant to the provisions of Section 9 hereof, the
Warrant Shares issued on exercise of the Warrants shall be subject to a stop
transfer order and the certificate or certificates representing the Warrant
Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. HOWEVER, SUCH SECURITIES MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR
(iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon receipt by the Company of reasonably
satisfactory indemnification, the Company shall execute and deliver to the
Holder thereof a new Warrant of like date, tenor, and denomination.
13. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
14. This Warrant shall be construed in accordance with the laws of the
State of New York applicable to contracts made and performed within such State,
without regard to principles of
conflicts of law.
15. The Company irrevocably consents to the jurisdiction of the courts of
the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of, or relating to, this
Warrant, any document or instrument delivered pursuant to, in connection with,
or simultaneously with, this Warrant, or a breach of this Warrant or any such
document or instrument. In any such action or proceeding, the Company waives
personal service of any summons, complaint, or other process and agrees that
service thereof may be made in accordance with Section 12 of the Underwriting
Agreement. Within 30 days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding, the Company shall appear to answer such summons, complaint, or
other process. Should the Company so served fail to appear or answer within
such 30-day period or such extended period, as the case may be, the Company
shall be deemed in default and judgment may
be entered against the Company for the amount as demanded in any summons,
complaint, or other process so served.
Dated:
LEVEL 8 SYSTEMS, INC.
By:
--------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Chairman of the Board of Directors
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto _________________ a Warrant to purchase __________ shares of
Common Stock, par value $.01 per share, of Level 8 Systems, Inc., a New York
corporation (the "Company"), and does hereby irrevocably constitute and appoint
___________ attorney to transfer such Warrant on the books of the Company, with
full power of substitution.
Dated: _________________
Signature_______________________
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
ELECTION TO EXERCISE
To: Level 8 Systems, Inc.
[ADDRESS]
The undersigned hereby exercises his, her, or its rights to purchase shares
of Common Stock, par value $.01 per share ("the Common Stock"), of Level 8
Systems, Inc. a New York corporation (the "Company"), covered by the within
Warrant and tenders payment herewith in the amount of $_____ in accordance with
the terms thereof, and requests that certificates for the securities
constituting such shares of Common Stock be issued in the name of, and delivered
to:
(Print Name, Address, and Social Security
or Tax Identification Number)
and, if such number of shares of Common Stock shall not constitute all such
shares of Common Stock covered by the within Warrant, that a new Warrant for the
balance of the shares of Common Stock covered by the within Warrant shall be
registered in the name of, and delivered to, the undersigned at the address
stated below.
Dated: Name
------------------------ --------------------
(Print)
Address:
-----------------------------
(Signature)