Exhibit 10.3
THIS NOTE AND THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR IN ANY OTHER JURISDICTION. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES
LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
_____% CONVERTIBLE PROMISSORY NOTE
Date: ______, 2004 $_________________
FOR VALUE RECEIVED, LEVEL 8 SYSTEMS, INC., a corporation duly organized
under the laws of the State of Delaware (the "BORROWER"), hereby promises to pay
to the order of ____________________, a ____________________, or its registered
assigns (individually, the "HOLDER," and, collectively with the holders of all
other notes of same like and tenor, the "HOLDERS"), the sum of
_______________________ ($_________) on March ____, 2004 (the "SCHEDULED
MATURITY DATE"), and to pay interest on the unpaid principal balance hereof at
the rate of ________ percent (___%) per annum (except as otherwise provided
herein), all as provided in Article I below.
The term "NOTE" and all references thereto, as used throughout this
instrument, shall mean this instrument as originally executed, or if later
amended or supplemented, then as so amended or supplemented. This Note is being
issued by the Borrower along with similar convertible promissory notes
designated as ____% Convertible Promissory Notes (the "OTHER NOTES" and,
together with this Note, the "NOTES") pursuant to that certain Securities
Purchase Agreement, dated as of the date hereof, between the Borrower and the
signatories thereto (the "SECURITIES PURCHASE AGREEMENT"). The Notes, the
Securities Purchase Agreement, the Warrants issued pursuant to the Securities
Purchase Agreement (the "WARRANTS") and the Registration Rights Agreement, dated
as of the date hereof, between the Borrower and the initial Holders of the Notes
(the "REGISTRATION RIGHTS AGREEMENT") are collectively referred to herein as the
"TRANSACTION DOCUMENTS." All capitalized terms used but not otherwise defined
herein shall have the respective meanings assigned to such terms in the
Securities Purchase Agreement.
ARTICLE I
PAYMENT OF PRINCIPAL AND INTEREST
A. Payment of Interest. Interest shall accrue on the unpaid principal
balance hereof from the date hereof until the same is paid, whether at maturity,
or upon prepayment, repayment, conversion or otherwise. Interest shall be
calculated based on a 365 day year and shall be payable on the Scheduled
Maturity Date.
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B. Payment of Principal. The principal amount hereof, together with all
accrued and unpaid interest thereon, shall be due and payable on the Scheduled
Maturity Date. Payment of principal and accrued interest on the Scheduled
Maturity Date shall be made, at the Holder's election but subject to the
limitations set forth in Article VIII, (i) in cash, (ii) in such number of duly
authorized, validly issued, fully paid and non-assessable shares of Common Stock
determined by dividing the aggregate amount due on the Scheduled Maturity Date
by ($X.XX) (the "CONVERSION PRICE"), or (iii) in any combination of cash and
shares of Common Stock with an aggregate value equal to the principal and
interest then due. In the event that the Borrower is prohibited from issuing
shares of Common Stock in connection with the payment pursuant to this Paragraph
B as a result of the operation of the limitations set forth in Article VIII
("Payment Limitations"), the Borrower shall be required to pay in cash any
amounts due hereunder as to which it is so prohibited.
C. Prepayment. Except as and to the extent otherwise provided herein,
no amounts of principal or interest due hereunder may be prepaid by the Borrower
without the prior written consent of the Holder.
▇. ▇▇▇▇▇▇ of Payments. All cash payments of principal and interest
shall be made in, and all references herein to monetary denominations shall
refer to, lawful money of the United States of America. All payments shall be
made at such address as the Holder shall have given or shall hereafter give to
the Borrower by written notice made in accordance with the provisions of this
Note. If any cash payment to be made hereunder shall be due on a day other than
a business day, such payment shall be made on the next succeeding business day
and such extension of time shall be included in computing interest in connection
with such payment. If any payment due hereunder is not made when due, the Holder
shall thereafter be entitled to interest on the unpaid amount at a per annum
rate equal to the lower of eighteen percent (18%) and the highest interest rate
permitted by applicable law until such amount is paid in full.
ARTICLE II
CONVERSION
A. Conversion at the Option of the Holder. Subject to the limitations
on conversions contained in Article VIII, the Holder may, at any time and from
time to time, convert (an "OPTIONAL CONVERSION") all or any portion of the
unpaid principal amount hereof and any accrued interest thereon into a number of
fully paid and non-assessable shares of Common Stock as is equal to the quotient
obtained by dividing (x) the amount of principal and interest being so converted
by (y) the Conversion Price then in effect.
B. Mechanics of Conversion. In order to effect an Optional Conversion,
the Holder shall: (x) fax (or otherwise deliver) a copy of the fully executed
Notice of Conversion to the Borrower (Attention: Secretary) and (y) surrender or
cause to be surrendered this Note, duly endorsed, along with a copy of the
Notice of Conversion as soon as practicable thereafter to the Borrower. Upon
receipt by the Borrower of a facsimile copy of a Notice of Conversion from the
Holder, the Borrower shall promptly send, via facsimile, a confirmation to the
Holder stating that the Notice of Conversion has been received, the date upon
which the Borrower expects to deliver the Common Stock issuable upon such
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conversion and the name and telephone number of a contact person at the Borrower
regarding the conversion. The Borrower shall not be obligated to issue shares of
Common Stock upon a conversion unless this Note is delivered to the Borrower as
provided above, or the Holder notifies the Borrower that this Note has been
lost, stolen or destroyed and delivers the documentation to the Borrower
required by Article X.B hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of this Note accompanied by a Notice of Conversion, the Borrower
(itself, or through its transfer agent) shall, no later than the later of (a)
the tenth (10th) business day following the Conversion Date and (b) the business
day following the date of such surrender (or, in the case of lost, stolen or
destroyed certificates, after provision of indemnity pursuant to Article X.B)
(the "DELIVERY PERIOD"), issue and deliver (i.e., deposit with a nationally
recognized overnight courier service postage prepaid) to the Holder or its
nominee (x) that number of shares of Common Stock issuable upon conversion of
that portion of this Note being converted and (y) a new Note representing the
principal balance of this Note not being converted, if any. Notwithstanding the
foregoing, if the Borrower's transfer agent is participating in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer program, and so long as
the certificates therefor do not bear a legend (pursuant to the terms of the
Securities Purchase Agreement) and the holder thereof is not then required to
return such certificate for the placement of a legend thereon (pursuant to the
terms of the Securities Purchase Agreement), the Borrower shall cause its
transfer agent to promptly electronically transmit the Common Stock issuable
upon conversion to the Holder by crediting the account of the Holder or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DTC
TRANSFER"). If the aforementioned conditions to a DTC Transfer are not
satisfied, the Borrower shall deliver as provided above to the Holder physical
certificates representing the Common Stock issuable upon conversion. Further,
the Holder may instruct the Borrower to deliver to the Holder physical
certificates representing the Common Stock issuable upon conversion in lieu of
delivering such shares by way of DTC Transfer.
(ii) Taxes. The Borrower shall pay any and all taxes that may
be imposed upon it with respect to the issuance and delivery of the shares of
Common Stock upon the conversion of this Note.
(iii) No Fractional Shares. If any conversion of this Note
would result in the issuance of a fractional share of Common Stock (aggregating
the entire amount of principal and interest being converted pursuant to a given
Notice of Conversion), such fractional share shall be payable in cash based upon
the Conversion Price of the Common Stock at such time, and the number of shares
of Common Stock issuable upon conversion of this Note shall be the next lower
whole number of shares. If the Borrower elects not to, or is unable to, make
such a cash payment, the holder shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
(iv) Conversion Disputes. In the case of any dispute with
respect to a conversion, the Borrower shall promptly issue such number of shares
of Common Stock as are not disputed in accordance with subparagraph (i) above.
If such dispute involves the calculation of the Conversion Price, and such
dispute is not promptly resolved by discussion between the Holders and the
Borrower, the Borrower shall submit the disputed calculations to an independent
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outside accountant (which accountant shall be subject to the reasonable approval
of the Majority Holders) via facsimile within three business days of receipt of
the Notice of Conversion. The accountant shall promptly audit the calculations
and notify the Borrower and the Holders of the results no later than three
business days from the date it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive, absent manifest error, and
the party whose proposed calculation is further from the calculation determined
by the accountant shall bear all of the accountant's expenses (which, if the
disputing Holders are the non-prevailing party, shall be allocated pro rata
among such disputing Holders). The Borrower shall then issue the appropriate
number of shares of Common Stock in accordance with subparagraph (i) above.
(v) Payment of Accrued Amounts. Upon conversion of any unpaid
principal amount of this Note, all accrued interest on such amount through and
including the Conversion Date shall be paid on the Conversion Date in accordance
with one of the permitted payment methods set forth in Article I.A above.
ARTICLE III
RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. On or prior to the Issuance Date, the Borrower
shall reserve ______________ shares of its authorized but unissued shares of
Common Stock for issuance upon conversion of the Notes pursuant to Article II,
and, thereafter, the number of authorized but unissued shares of Common Stock so
reserved (the "RESERVED AMOUNT") shall at all times be sufficient to provide for
the full conversion of all of the Notes outstanding at the then current
Conversion Price thereof (without giving effect to the limitations contained in
Article VIII). The Reserved Amount shall be allocated among the Holders as
provided in Article X.C.
ARTICLE IV
FAILURE TO SATISFY CONVERSIONS
A. Conversion Defaults. If, at any time, (i) the Holder submits a
Notice of Conversion and the Borrower fails for any reason (other than because
such issuance would exceed the Holder's allocated portion of the Reserved
Amount, for which failures the holders shall have the remedies set forth in
Article III) to deliver, on or prior to the fifth business day following the
expiration of the Delivery Period for such conversion, such number of freely
tradable shares of Common Stock to which the Holder is entitled upon such
conversion, (such event being a "CONVERSION DEFAULT"), then the Holder may
elect, at any time and from time to time prior to the Default Cure Date for such
Conversion Default, by delivery of a Default Notice to the Borrower, to have all
or any portion of the unpaid principal amount hereof and accrued interest
thereto paid by the Borrower in cash.
ARTICLE V
EVENTS OF DEFAULT
A. Events of Default. In the event (each of the events described in
clauses (i)-(v) below after expiration of the applicable cure period (if any)
being an "EVENT OF DEFAULT"):
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(i) the Borrower fails to pay in full the principal hereof,
and/or the accrued and unpaid interest thereon, when due, whether at maturity,
upon acceleration or otherwise;
(ii) the Borrower provides written notice (or otherwise
indicates) to the Holder, or states by way of public announcement distributed
via a press release, at any time, of its intention not to issue, or otherwise
refuses to issue, shares of Common Stock to the Holder upon conversion in
accordance with the terms of this Note;
(iii) the Borrower or any subsidiary of the Borrower shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business, or such a receiver or trustee shall otherwise be
appointed;
(iv) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for the relief of debtors shall be instituted
by or against the Borrower or any subsidiary of the Borrower and if instituted
against the Borrower or any subsidiary of the Borrower by a third party, shall
not be dismissed within 60 days of their initiation; or
(v) except with respect to matters covered by subparagraph (i)
- (iv) above, as to which such applicable subparagraphs shall apply, the
Borrower otherwise shall breach any material term hereunder or under the other
Transaction Documents, including, without limitation, the representations and
warranties contained therein (i.e., in the event of a material breach as of the
date such representation and warranty was made) and if such breach is curable,
shall fail to cure such breach within thirty business days after the Borrower
has been notified thereof in writing by the Holder; then, upon the occurrence of
any such Event of Default, at the option of the Holder, exercisable in whole or
in part at any time and from time to time by delivery of a written notice to
such effect (a "DEFAULT NOTICE") to the Borrower while such Event of Default
continues, the Borrower shall pay the outstanding principal amount of this Note
and accrued and unpaid interest thereon (The "Default Amount"), provided,
however, that (a) in the case of an Event of Default described in clauses (iii)
and (iv) of this Article V.A, the Borrower's obligation hereunder shall be
automatic and shall not require the delivery of a Default Notice by the Holder.
Such Default Amount, together with all other ancillary amounts payable
hereunder, shall immediately become due and payable, all without demand,
presentment or notice, all of which are hereby expressly waived, together with
all costs, including, without limitation, legal fees and expenses of collection,
and the Holder shall be entitled to exercise all other rights and remedies
available at law or in equity. Upon the Borrower's receipt of any Default Notice
hereunder, the Borrower shall immediately (and in any event within five business
days following such receipt) deliver a written notice (a "DEFAULT ANNOUNCEMENT")
to all Holders of the Notes stating the date upon which the Borrower received
such Default Notice and the amount of the Notes covered thereby. Following the
delivery of a Default Announcement hereunder, at any time and from time to time,
the Holder may request (either orally or in writing) information from the
Borrower with respect to the instant default (including, but not limited to, the
aggregate principal amount outstanding of Notes covered by Default Notices
received by the Borrower) and the Borrower shall furnish (either orally or in
writing) as soon as practicable such requested information to the Holder.
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B. Failure to Pay Default Amounts. If the Borrower fails to pay the
Holder the Default Amount with respect to any Note within five business days
after its receipt of a Default Notice (the "PREPAYMENT DATE"), then the Holder
shall be entitled to interest on the Default Amount at a per annum rate equal to
the lower of eighteen percent (18%) and the highest interest rate permitted by
applicable law from the date on which the Borrower receives the Default Notice
until the date of payment of the Default Amount hereunder. In the event the
Borrower is not able to pay the outstanding Notes required to be paid hereunder
the Borrower shall pay the outstanding Notes from each Holder pro rata, based on
the total amounts due on the Notes at the time of default..
ARTICLE VI
ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time
as follows:
A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the
Issuance Date, the number of outstanding shares of Common Stock is increased by
a stock split, stock dividend, combination, reclassification or other similar
event, the Conversion Price shall be proportionately reduced, or of the number
of outstanding shares of Common Stock is decreased by a reverse stock split,
combination, reclassification or other similar event, the Conversion Price shall
be proportionately increased. In such event, the Borrower shall notify the
Borrower's transfer agent of such change on or before the effective date
thereof.
▇. ▇▇▇▇▇▇, Consolidation, Etc. If, at any time after the Issuance Date,
there shall be (i) any reclassification or change of the outstanding shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), (ii) any consolidation or merger of the Borrower with any other
entity (other than a merger in which the Borrower is the surviving or continuing
entity and its capital stock is unchanged), (iii) any sale or transfer of all or
substantially all of the assets of the Borrower or (iv) any share exchange or
other transaction pursuant to which all of the outstanding shares of Common
Stock are converted into other securities or property (each of (i) - (iv) above
being a "CORPORATE CHANGE"), then the Holder shall thereafter have the right to
receive upon conversion, in lieu of the shares of Common Stock otherwise
issuable, such shares of stock, securities and/or other property as would have
been issued or payable in such Corporate Change with respect to or in exchange
for the number of shares of Common Stock which would have been issuable upon
conversion had such Corporate Change not taken place (without giving effect to
the limitations contained in Article VIII), and in any such case, appropriate
provisions (in form and substance reasonably satisfactory to the Majority
Holders) shall be made with respect to the rights and interests of the Holder
hereunder to the end that the economic value of this Note are in no way
diminished by such Corporate Change and that the provisions hereof (including,
without limitation, in the case of any such consolidation, merger or sale in
which the successor entity or purchasing entity is not the Borrower, an
immediate adjustment of the Conversion Price so that the Conversion Price
immediately after the Corporate Change reflects the same relative value as
compared to the value of the surviving entity's common stock that existed
between the Conversion Price and the value of the Borrower's Common Stock
immediately prior to such Corporate Change) shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock or securities
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thereafter deliverable upon the conversion thereof. The Borrower shall not
effect any Corporate Change unless the resulting successor or acquiring entity
(if not the Borrower) assumes by written instrument (in form and substance
reasonable satisfactory to the Holder) the obligations under this Note
(including, without limitation, the obligation to make interest payments accrued
but unpaid through the date of such consolidation, merger or sale and accruing
thereafter). The above provisions shall apply regardless of whether or not there
would have been a sufficient number of shares of Common Stock authorized and
available for issuance upon conversion of this Note as of the date of such
transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
C. Distributions. If, at any time after the Issuance Date, the Borrower
shall declare or make any distribution of its assets (or rights to acquire its
assets) to holders of Common Stock as a partial liquidating dividend, by way of
return of capital or otherwise (including any dividend or distribution to the
Borrower's stockholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a "DISTRIBUTION"), then the
Holder shall be entitled, upon any conversion of this Note after the date of
record for determining stockholders entitled to such Distribution (or if no such
record is taken, the date on which such Distribution is declared or made), to
receive the amount of such assets which would have been payable to the Holder
with respect to the shares of Common Stock issuable upon such conversion
(without giving effect to the limitations contained in Article VIII) had the
Holder been the holder of such shares of Common Stock on the record date for the
determination of stockholders entitled to such Distribution (or if no such
record is taken, the date on which such Distribution is declared or made).
D. Convertible Securities and Purchase Rights. If, at any time after
the Issuance Date, the Borrower issues any securities or other instruments which
are convertible into or exercisable or exchangeable for Common Stock
("CONVERTIBLE SECURITIES") or options, warrants or other rights to purchase or
subscribe for Common Stock or Convertible Securities ("PURCHASE RIGHTS") pro
rata to the record holders of the Common Stock, whether or not such Convertible
Securities or Purchase Rights are immediately convertible, exercisable or
exchangeable, then the Holder shall be entitled, upon any conversion of this
Note after the date of record for determining stockholders entitled to receive
such Convertible Securities or Purchase Rights (or if no such record is taken,
the date on which such Convertible Securities or Purchase Rights are issued), to
receive the aggregate number of Convertible Securities or Purchase Rights which
the Holder would have received with respect to the shares of Common Stock
issuable upon such conversion (without giving effect to the limitations
contained in Article VIII) had the Holder been the holder of such shares of
Common Stock on the record date for the determination of stockholders entitled
to receive such Convertible Securities or Purchase Rights (or if no such record
is taken, the date on which such Convertible Securities or Purchase Rights were
issued).
F. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article VI amounting to a
more than ten percent (10%) change in such Conversion Price, or any change in
the number or type of stock, securities and/or other property issuable upon
conversion of the Notes, the Borrower, at its expense, shall promptly compute
such adjustment or readjustment or change and prepare and furnish to the Holder
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a certificate setting forth such adjustment or readjustment or change and
showing in detail the facts upon which such adjustment or readjustment or change
is based. The Borrower shall, upon the written request at any time of the
Holder, furnish to the Holder a like certificate setting forth (i) such
adjustment or readjustment or change, (ii) the Conversion Price at the time in
effect and (iii) the number of shares of Common Stock and the amount, if any, of
other securities or property which at the time would be received upon conversion
of the Notes.
ARTICLE VII
NOTICE OF CERTAIN ACTIONS
A. Notice Rights. The Borrower shall provide the Holder with prior
notification of any meeting of the stockholders (and copies of proxy materials
and other information sent to stockholders). If the Borrower takes a record of
its stockholders for the purpose of determining stockholders entitled to (i)
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (ii) to vote in connection with any proposed
sale, lease or conveyance of all or substantially all of the assets of the
Borrower, or any proposed merger, consolidation, liquidation, dissolution or
winding up of the Borrower, the Borrower shall mail a notice to the Holder,
promptly, but in no event earlier than public announcement of such proposed
transaction, of the date on which any such record is to be taken for the purpose
of such vote, dividend, distribution, right or other event, and a brief
statement regarding the amount and character of such vote, dividend,
distribution, right or other event to the extent known at such time.
ARTICLE VIII
LIMITATIONS ON CERTAIN CONVERSIONS, REDEMPTIONS AND TRANSFERS
In no event shall the Borrower issue Common Stock to the Holder in
connection with the repayment of this Note pursuant to Article I.B, and in no
event shall the Holder have the right to effect an Optional Conversion of this
Note into shares of Common Stock or to dispose of this Note to the extent that
such repayment, conversion or right to effect such conversion or disposition
would result in the Holder and its affiliates together beneficially owning more
than 4.99% of the outstanding shares of Common Stock. For purposes of this
Article VIII, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D-G thereunder.
The restriction contained in this Article VIII may not be altered, amended,
deleted or changed in any manner whatsoever unless the holders of a majority of
the outstanding shares of Common Stock and the Holder shall approve, in writing,
such alteration, amendment, deletion or change. In the event that the Borrower
is prohibited from issuing shares of Common Stock in connection with the
repayment of this Note pursuant to Article I.B as a result of the operation of
this Article VIII, the Borrower shall make such repayment in cash.
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ARTICLE IX
CERTAIN DEFINITIONS
For purposes of this Note, in addition to the other terms defined
herein, the following terms shall have the following meanings:
A. "BUSINESS DAY" means any day, other than a Saturday or Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law, regulation or executive order to close.
B. "COMMON STOCK" means the common stock of the Borrower, par value
$0.001 per share.
C. "CONVERSION DATE" means, as applicable, (i) for any Optional
Conversion (as defined in Article II.A), the date specified in the notice of
conversion in the form attached hereto (the "NOTICE OF CONVERSION"), so long as
a copy of the Notice of Conversion is faxed (or delivered by other means
resulting in notice) to the Borrower before 11:59 p.m., New York City time, on
the Conversion Date indicated in the Notice of Conversion; provided, however,
that if the Notice of Conversion is not so faxed or otherwise delivered before
such time, then the Conversion Date shall be the date the holder faxes or
otherwise delivers the Notice of Conversion to the Borrower.
D. "CONVERSION PRICE" means $X.XX, and shall be subject to adjustment
as provided herein.
E. "DEFAULT CURE DATE" means, as applicable, (i) with respect to a
Conversion Default described in clause (i) of Article IV.A, the date the
Borrower effects the conversion of the full amount of this Note being converted,
(ii) with respect to a Conversion Default described in clause (ii) of Article
IV.A, the date the Borrower issues shares of Common Stock in satisfaction of the
conversion of the full amount of this Note being converted in accordance with
Article II, or (iii) with respect to either type of a Conversion Default, the
date on which the Borrower prepays this Note pursuant to Article IV.A.
F. "ISSUANCE DATE" means the date of the closing under the Securities
Purchase Agreement, pursuant to which the Borrower issued, and such purchasers
purchased, the Notes.
G. "MAJORITY HOLDERS" means the holders of a majority of the aggregate
principal amount and accrued interest represented by the then outstanding Notes.
ARTICLE X
MISCELLANEOUS
A. Failure or Indulgency Not Waiver. No failure or delay on the part of
any Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
B. Lost or Stolen Notes. Upon receipt by the Borrower of (i) evidence
of the loss, theft, destruction or mutilation of any Note and (ii) (y) in the
case of loss, theft or destruction, of indemnity (without any bond or other
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security) reasonably satisfactory to the Borrower, or (z) in the case of
mutilation, the Note (surrendered for cancellation), the Borrower shall execute
and deliver a new Note of like tenor and date. However, the Borrower shall not
be obligated to reissue such lost, stolen, destroyed or mutilated Note if the
Holder contemporaneously requests the Borrower to convert such Note.
C. Allocation of Reserved Amount. The initial Reserved Amount shall be
allocated pro rata among the Holders of the Notes based on the principal amount
of Notes issued to each Holder. Any increase to the Reserved Amount shall be
allocated pro rata among the Holders of the Notes based on the principal amount
of Notes held by each Holder at the time of the increase in the Reserved Amount.
In the event a Holder shall sell or otherwise transfer any of such Holder's
Notes, each transferee shall be allocated a pro rata portion of such
transferor's Reserved Amount. Any portion of the Reserved Amount which remains
allocated to any person or entity which does not hold any Notes shall be
allocated to the remaining Holders of the Notes, pro rata based on the principal
balance of Notes then held by such Holders.
D. Status as Stockholder. Upon submission of a Notice of Conversion by
the Holder, (i) the shares covered thereby (other than the shares, if any, which
cannot be issued because their issuance would exceed the Holder's allocated
portion of the Reserved Amount) shall be deemed converted into shares of Common
Stock and (ii) the Holder's rights as a holder of such converted Note shall
cease and terminate, excepting only the right to receive certificates for such
shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to the Holder because of a failure by the Borrower
to comply with the terms of this Note. Notwithstanding the foregoing, if the
Holder has not received certificates for all shares of Common Stock prior to the
Sixth (6th) business day after the expiration of the Delivery Period with
respect to a conversion of this Note for any reason, then (unless the Holder
otherwise elects to retain its status as a holder of Common Stock by so
notifying the Borrower within five business days after the expiration of such
six business day period after expiration of the Delivery Period) the Holder
shall regain the rights of a holder of this Note and the Borrower shall, as soon
as practicable, return such unconverted Note to the Holder. In all cases, the
Holder shall retain all of its rights and remedies for the Borrower's failure to
convert this Note.
E. Remedies Cumulative. The remedies provided in this Note shall be
cumulative and in addition to all other remedies available under this Note, at
law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the Holder's right to pursue
actual damages for any failure by the Borrower to comply with the terms of this
Note. The Borrower acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the Holder and that the remedy at law for any
such breach may be inadequate. The Borrower therefore agrees, in the event of
any such breach or threatened breach, that the Holder shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
F. Waiver. Notwithstanding any provision in this Note to the contrary,
any provision contained herein and any right of the Holder granted hereunder may
be waived as to all Notes (and the Holders thereof) upon the written consent of
the Majority Holders, unless a higher percentage is required by applicable law,
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in which case the written consent of the Holders of not less than such higher
percentage of Notes shall be required.
G. Notices. Any notices required or permitted to be given under the
terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally, by responsible overnight carrier or by
confirmed facsimile, and shall be effective five days after being placed in the
mail, if mailed, or upon receipt or refusal of receipt, if delivered personally
or by responsible overnight carrier or confirmed facsimile, in each case
addressed to a party. The addresses for such communications are:
(i) if to the Borrower, to:
Level 8 Systems, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
With a Copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLC
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇, ▇▇., Esq.
(ii) if to the Holder, to the address set forth under the
Holder's name on the execution page to the Securities Purchase Agreement, or
such other address as may be designated in writing hereafter, in the same
manner, by such person.
H. Amendment Provision. This Note and any provision hereof may be
amended only by an instrument in writing signed by the Borrower and the Holder.
I. Assignability. This Note shall be binding upon the Borrower and its
successors and assigns and shall inure to the benefit of the Holder and its
successors and assigns. Notwithstanding anything to the contrary contained in
this Note or the Transaction Documents, this Note may be pledged and all rights
of the Holder under this Note may be assigned to any affiliate or to any other
person or entity without the consent of the Borrower.
J. Cost of Collection. If an Event of Default occurs hereunder, the
Borrower shall pay the Holder hereof costs of collection, including reasonable
attorneys' fees.
K. Governing Law; Jurisdiction. This Note shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Borrower
irrevocably consents to the jurisdiction of the United States federal courts and
the state courts located in the County of New Castle, State of Delaware, in any
suit or proceeding based on or arising under this Note and irrevocably agrees
that all claims in respect of such suit or proceeding may be determined in such
courts. The Borrower irrevocably waives the defense of an inconvenient forum to
105
the maintenance of such suit or proceeding in such forum. The Borrower further
agrees that service of process upon the Borrower mailed by first class mail
shall be deemed in every respect effective service of process upon the Borrower
in any such suit or proceeding. Nothing herein shall affect the right of the
Holder to serve process in any other manner permitted by law. The Borrower
agrees that a final non-appealable judgment in any such suit or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
L. Denominations. At the request of the Holder, upon surrender of this
Note, the Borrower shall promptly issue new Notes in the aggregate outstanding
principal amount hereof, in the form hereof, in such denominations of at least
$25,000 as the Holder shall request.
M. Certain Waivers. The Borrower and each endorser hereby waive
presentment, notice of nonpayment or dishonor, protest, notice of protest and
all other notices in connection with the delivery, acceptance, performance,
default or enforcement of payment of this Note, and hereby waive all notice or
right of approval of any extensions, renewals, modifications or forbearances
which may be allowed.
N. Severability. If any provision of this Note shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Note or the
validity or enforceability of this Note in any other jurisdiction.
O. Maximum Interest Rate. If the effective interest rate on this Note
would otherwise violate any applicable usury law, then the interest rate shall
be reduced to the maximum permissible rate and any payment received by the
Holder in excess of the maximum permissible rate shall be treated as a
prepayment of the principal of this Note.
[REMAINDER OF ▇▇▇▇ LEFT BLANK INTENTIONALLY]
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IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by
its duly authorized officer as of the date first written above.
LEVEL 8 SYSTEMS, INC.
By:
-------------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Chief Financial Officer, Chief Operating Officer
[SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE]
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EXHIBIT A
NOTICE OF OPTIONAL CONVERSION
To: Level 8 Systems, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
Chief Financial Officer
The undersigned hereby irrevocably elects to convert $____________ of the
outstanding principal balance of, and accrued interest on, the Note (the
"CONVERSION"), into shares of common stock ("COMMON STOCK") of Level 8 Systems,
Inc. (the "CORPORATION") according to the conditions of the ____% Convertible
Promissory Note dated March ___, 2004 (the "NOTE"), as of the date written
below. If securities are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto. No fee will be charged to the holder for any conversion, except for
transfer taxes, if any. The original of the Note is attached hereto (or evidence
of loss, theft or destruction thereof).
Except as may be provided below, the Corporation shall electronically transmit
the Common Stock issuable pursuant to this Notice of Conversion to the account
of the undersigned or its nominee (which is ________________) with DTC through
its Deposit Withdrawal Agent Commission System ("DTC TRANSFER").
In the event of partial exercise, please reissue an appropriate Note(s) for the
principal balance which shall not have been converted.
The undersigned acknowledges and agrees that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Note have been or will be made only pursuant to an effective registration of the
transfer of the Common Stock under the Securities Act of 1933, as amended (the
"ACT"), or pursuant to an exemption from registration under the Act.
Check Box if Applicable:
[ ] In lieu of receiving the shares of Common Stock issuable pursuant to this
Notice of Conversion by way of DTC Transfer, the undersigned hereby requests
that the Corporation issue and deliver to the undersigned or its nominee (if
applicable) physical certificates representing such shares of Common Stock.
Date of Conversion:
-------------------------------------------------
Applicable Conversion Price:
----------------------------------------
Number of Shares of
Common Stock to be Issued:
------------------------------------------
Signature:
----------------------------------------------------------
Name:
---------------------------------------------------------------
Address:
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