AGREEMENT Dated November 30, 2006
AGREEMENT
Dated
November 30, 2006
The
parties to this agreement are Level 8 Systems, Inc. (the “Company”) and Liraz
Systems Ltd. (“Liraz”).
Pursuant
to a guaranty agreement between Liraz and Bank Hapoalim B.M. (the “Bank”), Liraz
has guaranteed certain obligations of the Company under the Company’s promissory
note (the “Note”) dated September 28, 2001, in favor of the Bank, which is due
and payable on or about November 15, 2006 (the “Guaranty”). The outstanding
principal amount of the Note is $1,971,000.
The
parties wish to enter into an agreement with respect to, among other things,
(a)
the extension of the maturity of the Note, by amendment, renewal, replacement,
or otherwise, from November 15, 2006 to November 15, 2007, and the related
extension of the Guaranty, (b) the agreement by the Company to repay $120,000
aggregate principal amount of the Note pursuant to the irrevocable instruction
letter in the form of exhibit A (the “Irrevocable Instruction Letter”), and the
cancellation of a secured promissory note issued by the Company in the original
principal amount of $178,000 (the “April 2006 Note”).
Accordingly,
the parties agree as follows:
1. Extension
of Maturity; Cancellation of April 2006 Note; Issuance of Shares
(a) The
Company and Liraz shall cooperate with each other with a view to causing the
Bank, as promptly as practicable, to extend the maturity of the Note from
November 15, 2006 to November 15, 2007. In that connection, Liraz shall take
such action, and execute and deliver to the Bank such documents, as the Bank
may
reasonably require to insure that the Guaranty remain in effect through November
30, 2007. As long as Liraz has any liability or obligation to the Bank under
the
Guaranty, and, except for the extension of the maturity of the Note contemplated
by this section, the Company shall not, directly or indirectly, modify, amend,
or otherwise change the terms of the Note or the Company’s or its subsidiaries’
liabilities or obligations to the Bank, without the prior written consent of
Liraz.
(b)
As
promptly as practicable after the execution and delivery of this agreement
(but
in no event later than, and as a condition of, the execution and delivery of
all
the documents necessary to extend the maturity of the Note and cause the
Guaranty to remain in effect through November 15, ▇▇▇▇), ▇▇▇▇▇ shall cancel
the
April 2006 Note.
(c) As
promptly as practicable after the execution and delivery of this agreement
(but
in no event later than, and as a condition of, the execution and delivery of
all
the documents necessary to extend the maturity of the Note and cause the
Guaranty to remain in effect through November 30, 2007), the Company shall
issue
to Liraz (A) in consideration for Liraz’s undertakings in section 1(a),
6,000,000 fully paid and nonassessable shares of the
Company’s
common stock, free and clear of any adverse claim, and (B) in consideration
for
Liraz’s cancellation of a secured promissory note in the principle amount of
$178,000 plus accrued interest 22,400,000 fully paid and nonassessable shares
of
the Company’s common stock, free and clear of any adverse claim.
(d)
The
Company hereby represents and warrants to Liraz that, on November 15, 2005,
the
Company issued to Liraz (i) 2,400,000 fully paid and nonassessable shares of
the
Company’s common stock, free and clear of any adverse claim; and (ii)3,600,000
cash less warrants to purchase the Company’s common stock, free and clear of any
adverse claim, which shares were issued upon automatic exercise pursuant to
section 2.1(a) of the warrant to purchase shares of common stock dated on or
about November 15, 2005. The Company hereby agrees to issue and deliver to
Liraz
a certificate evidencing the shares referred to in the immediately preceding
sentence as promptly as practicable after the execution and delivery of this
agreement (but in no event later than, and as a condition of, the execution
and
delivery of all the documents necessary to extend the maturity of the Note
and
cause the Guaranty to remain in effect through November 30, 2007).
2. Irrevocable
Instruction Letter.
Liraz
hereby releases the Company from all liabilities and obligations under the
Letter of Instruction referred to in section 2 of the agreement between the
parties dated on or about November 30, 2005 (the “November 2005 Agreement”).
Simultaneously with the execution and delivery of this agreement, the Company
is
terminating that Letter of Instruction and executing and delivering to Bank
of
America, N.A. (the “Depository”) the Irrevocable Instruction Letter. The Company
shall maintain deposits at the Depository sufficient to enable the Depository
to
carry out all the instructions in the Irrevocable Instruction Letter. The
Company acknowledges that Liraz is an intended beneficiary of the Irrevocable
Instruction Letter. The Company represents and warrants to Liraz that the
Depository is the primary bank or other financial institution at which the
Company maintains a checking account or holds deposits. Until $120,000 shall
have been paid to the Bank pursuant to the Irrevocable Instruction Letter,
the
Company shall not amend, withdraw, or terminate, or otherwise permit to become
ineffective, the Irrevocable Instruction Letter, and shall not maintain a
checking, deposit, or similar account in any bank or other financial institution
(other than the Depository) unless it so notifies Liraz at least two weeks
in
advance of any change in financial institution, and enters into an irrevocable
instruction letter substantially the same as the Irrevocable Instruction Letter
referred to above, which irrevocable instruction letter is reasonably
satisfactory to Liraz.
3.
Repayment
Obligations.
(a)
The
Company hereby acknowledges and confirms to Liraz that (i) it is required to
repay the indebtedness under the Note immediately upon the consummation of
a
financing by it or any of its direct or indirect subsidiaries, to the extent
of
10% of any net proceeds of any such financing in accordance with exhibit 6.1.1
of the asset purchase agreement dated August 8, 2001 between the Company and
BluePhoenix Solutions Ltd. (“BluePhoenix”) (the “APA”), (ii) it shall not, and
it shall not permit any of its direct or indirect subsidiaries to, consummate
any such financing, if the related repayment of the indebtedness under the
Note
in accordance with the immediately preceding sentence does not occur
simultaneously with the
consummation
of the financing, and (iii) the liabilities and obligations referred to in
(i)
and (ii) above are in addition to the liabilities and obligations of the Company
under the Irrevocable Instruction Letter (for the avoidance of doubt, it is
understood and agreed that (A) the satisfaction or discharge of any liability
or
obligation under the Irrevocable Instruction Letter shall not satisfy or
discharge any liability or obligation referred to in (i) or (ii) above, and
(B)
the satisfaction or discharge of any liability or obligation under (i) or (ii)
above shall not satisfy or discharge any liability or obligation under the
Irrevocable Instruction Letter.
(b) The
Company hereby acknowledges and agrees that, if the Company fails to pay when
due any interest on the Note and Liraz pays any or all such interest, Liraz
may,
from time to time, by notice given to the Company, elect to require the Company
to issue to Liraz a number of fully paid and nonassessable shares of the
Company’s common stock, free and clear of any adverse claim, determined by
dividing the amount of that payment by the fair market value of the Company’s
common stock based on the trailing 10 days closing price as listed on the OTC,
less a discount of 25%. If, from time to time, Liraz makes that election, the
Company shall, not later than five business days after such election, issue
to
Liraz a certificate evidencing such shares.
4.
Registration
(a) The
Company represents and warrants to Liraz that all shares required to be issued
pursuant to section 1, 22,400,000 shares for the cancellation of the promissory
note plus accrued interest; 2,400,000 shares issued in November 2005 for the
extension of the loan guaranty and extension of the maturity date on the bank
indebtedness; 3,600,000 warrants issued in November 2005 in consideration for
extension of the loan guaranty and extension of the maturity date on the bank
indebtedness and 6,000,000 shares as compensation for the extension of the
loan
guarantee and extension of the maturity date of the bank indebtedness until
October 31, 2007 and before any reverse stock splits shares that may be issued
pursuant to section 3, and the 3,942,000 shares issued pursuant to an agreement
between the parties dated on or about September 29, 2004, will be included
in a
registration statement on Form S-1 filed with the Securities and Exchange
Commission (the “SEC”) within 45 days from the date of execution of this
agreement. The Company shall cause such registration statement to become
effective and current, until (a) all the certificates evidencing the unsold
shares covered by the registration statement cease to bear any restrictive
legends, (b) no such shares are subject to any stop transfer orders, and (c)
all
the unsold shares covered by the registration statement may be sold publicly
without registration under the Securities Act of 1933 (without limitation as
to
volume in any period). Except as otherwise provided in this section 4, the
provisions of the registration rights agreement among the Company and the
Purchasers named therein dated October 15, 2003 shall be applicable to the
shares required to be registered pursuant to this section 4, mutatis
mutandis.
(b) Notwithstanding
anything to the contrary in this section 4, if the Company is or becomes a
party
to any agreement with any other person or entity respecting registration of
shares under Securities Act of 1933, which agreement contains provisions
entitling such other person or entity to rights not otherwise provided to Liraz
under this section 4, this section 4 shall be deemed amended to the extent
necessary to provide Liraz such additional rights (but without adversely
affecting the rights otherwise provided under this section 4).
5. Left
empty.
6.
Release.
The
Company, on its own behalf and on behalf of each of its subsidiaries and
controlled affiliates, hereby releases, acquits, and forever discharges Liraz
and its affiliates, agents, representatives, officers, directors, and employees,
whether in their individual or representative capacities, and their successors
and assigns from, and acknowledge the full accord and satisfaction of, any
and
all claims, accounts, debts, obligations, demands, damages, actions, or suits
of
whatever nature, whether in contract, tort, or otherwise, now accrued known
or
unknown, arising out of any and all transactions and occurrences up to and
including the execution and delivery of this agreement; provided,
however,
that
this release shall not release Liraz or any of its affiliates from any
obligations not in default immediately before the execution and delivery of
this
agreement and required to be performed by any of them on or after the date
of
this agreement pursuant to the APA, the ▇▇▇▇ of sale and assignment and
assumption agreement dated October 1, 2001 among the Company, ▇▇▇▇▇ ▇
Technologies, Inc. and BluePhoenix, the sublease dated October 1, 2001 between
the Company and BluePhoenix, insofar as it relates to the premises in Cary,
North Carolina, or this agreement.
7. Remedy. If
the
Company fails to perform any of its obligations under this agreement, Liraz
may,
at its option, by notice given to the Company, terminate any or all of its
obligations to perform further under this agreement, without any liability
therefore.
8. Miscellaneous
(a) Further
Assurances.
Each
party shall, without further consideration, take such action and execute and
deliver such documents as any other party reasonably requests to carry out
this
agreement.
(b)
Expenses.
Each
party shall bear its own expenses in connection with the negotiation and
preparation of this agreement and all duties and obligations required to be
performed by it under this agreement.
(c) Governing
Law.
This
agreement shall be governed by and construed in accordance with the law of
the
state of New York, without giving effect to its conflict of law
principles.
(d) Headings.
The
section headings of this agreement are for reference purposes only, and are
to
be given no effect in the construction or interpretation of this
agreement.
(e) Notices.
All
notices and other communications under this agreement shall be in writing and
may be given by any of the following methods: (i) personal delivery; (ii)
facsimile transmission; (iii) registered or certified mail, postage prepaid,
return receipt requested; or (iv) overnight delivery service. Notices shall
be
sent to the appropriate party at its address or facsimile number given below
(or
at such other address or facsimile number for that party as shall be specified
by notice given under this section 8(e)):
(y)
if to
the Company, to it at:
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention:
Mr. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
With
a
copy to:
Golenbock,
Eiseman, Assor, ▇▇▇▇ and ▇▇▇▇▇▇, LLP
▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇▇▇ ▇▇▇▇, Esq.
(z)
if to
Liraz, to it at:
8
Maskit
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Attention:
Chief Financial Officer
With
a
copy to:
Law
Office of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
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All
such
notices and communications shall be deemed received upon (v) actual receipt
by
the addressee, (vi) actual delivery to the appropriate address, or (vii) in
the
case of a facsimile transmission, upon transmission by the sender and issuance
by the transmitting machine of a confirmation slip confirming that the number
of
pages constituting the notice have been transmitted without error. In the case
of notices sent by facsimile transmission, the sender shall contemporaneously
mail a copy of the notice to the addressee at the address provided for above.
However, such mailing shall in no way alter the time at which the facsimile
notice is deemed received.
(f) Separability.
The
invalidity of unenforceability of any provision of this agreement shall not
affect the validity or enforceability of any other provision of this agreement,
which shall remain in full force and effect.
(g) Waiver.
Any
party may waive compliance by the others with any provision of this agreement.
No waiver of any provision shall be construed as a waiver of any other
provision. Any waiver must be in writing and signed by the waiving party.
(h) Counterparts.
This
agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
(i) Arbitration.
Any
dispute or controversy arising under or in connection with this agreement shall
be settled exclusively by arbitration to be held in the City of New York before
a single arbitrator in accordance with the rules of the American Arbitration
Association then in effect. As part of his award, the arbitrator shall make
a
fair allocation between the parties of the fee and expenses of the American
Arbitration Association and the cost of any transcript, taking into account
the
merits of the parties’ claims and defenses. Judgment may be entered on the
arbitrator’s award in any court having jurisdiction, and the parties irrevocably
consent to the jurisdiction of the New York courts for that purpose. The parties
waive personal service in connection with any such arbitration; any process
or
other papers under this provision may be served outside the state of New York
by
at least 10 days’ written notice given in accordance with section 8(e). The
arbitrator may grant injunctive or other relief.
(j) Entire
Agreement.
This
agreement is a complete statement of all the terms of the arrangements between
the parties with respect to the matters provided for, supersedes all previous
agreements and understandings between the parties with respect to those matters,
and cannot be changed or terminated orally.
▇▇▇▇▇
▇
SYSTEMS, INC.
By:_________________________________
LIRAZ
SYSTEMS LTD.
By:_________________________________