As filed with the Securities and Exchange Commission on June 3, 2002
Registration No. 333-82768
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LEVEL 8 SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 11-2920559
(I.R.S. Employer
(State or other jurisdiction of Identification Number)
incorporation or organization)
8000 REGENCY PARKWAY
CARY, NORTH CAROLINA 27511
(919) 380-5000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
JOHN P. BRODERICK
CHIEF FINANCIAL OFFICER
LEVEL 8 SYSTEMS, INC.
8000 REGENCY PARKWAY
CARY, NORTH CAROLINA 27511
(919) 380-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES OF COMMUNICATIONS TO:
Scott D. Smith, Esq.
Katherine M. Koops, Esq.
Powell, Goldstein, Frazer & Murphy LLP
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
(404) 572-6600
---------------
Approximate date of commencement of proposed sale to the public: From time
to time or at one time after the effective date of this registration statement
as determined by the selling stockholders.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion; dated June 3, 2002
PROSPECTUS
8,604,540 Shares
LEVEL 8 SYSTEMS, INC.
[LOGO OF LEVEL 8 SYSTEMS]
Common Stock
-----------
This prospectus registers for resale up to 8,604,540 shares of our common
stock which may be offered from time to time by the selling stockholders
identified in the section entitled "Selling Stockholders" on page 13. We have
also registered 3,905,420 additional shares of our common stock on behalf of a
different group of selling stockholders on Form S-3 (SEC File No. 333-70596).
On May 31, 2002, the last reported sales price of our common stock on the
Nasdaq National Market was $0.91 per share. Our common stock is traded on the
Nasdaq National Market under the symbol "LVEL."
The selling stockholders may also offer additional shares of common stock
acquired as a result of stock splits, stock dividends or similar transactions.
We will not receive any proceeds from the sale of shares of common stock by
the selling stockholders. The selling stockholders may sell their shares of
common stock from time to time in various types of transactions, including on
the Nasdaq National Market, in the over-the-counter market, and in privately
negotiated transactions. For additional information on methods of sale, you
should refer to the section entitled "Plan of Distribution" on page 16.
-----------
Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 6.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
The date of this prospectus is , 2002.
TABLE OF CONTENTS
AVAILABLE INFORMATION....................................................... 1
THE COMPANY................................................................. 2
RISK FACTORS................................................................ 6
INCORPORATION BY REFERENCE.................................................. 11
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........................... 12
USE OF PROCEEDS............................................................. 12
SELLING STOCKHOLDERS........................................................ 13
PLAN OF DISTRIBUTION........................................................ 16
LEGAL MATTERS............................................................... 17
EXPERTS..................................................................... 17
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
these reports, proxy statements and other information at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may also obtain copies of those materials at
prescribed rates from the public reference section of the SEC at 450 Fifth
Street, Washington, D.C. 20549. The public may obtain information on the
operation of the public reference room by calling the SEC at (800) SEC-0330. In
addition, we are required to file electronic versions of those materials with
the SEC through the SEC's EDGAR system. The SEC maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-3 to register the shares included in this offering. This
prospectus is a part of the Registration Statement. This prospectus does not
include all of the information contained in the Registration Statement. For
further information about us and the securities offered in this prospectus, you
should review the Registration Statement. You can inspect or copy the
Registration Statement, at prescribed rates, at the Securities and Exchange
Commission's public reference facility.
1
THE COMPANY
We are a global provider of business integration software that enables
organizations to integrate new and existing information and processes at the
desktop with our Cicero(R) product and at the server or back-office level with
our Geneva Enterprise Integrator and Business Process Automator products. Our
flagship product, Cicero, is a business integration software product that
maximizes end-user productivity, streamlines business operations and integrates
systems and applications that would not otherwise work together. By using our
Cicero solution, companies can decrease their customer management costs,
increase their customer service level and more efficiently cross-sell the full
range of their products and services resulting in an overall increase in return
on information technology investments.
Cicero is a software product that allows companies to integrate their
existing software applications into a seamless integrated desktop. Cicero
subordinates and controls most Windows-based applications and provides a
seamless environment with a consistent look and feel. The end-user can navigate
any number of software applications whether local, client-server, mainframe
legacy or web-browser in a consistent and intuitive way that is completely
customizable by their employer. Cicero runs on Windows NT, Windows 2000 and
Windows XP to organize applications under a book-chapter-section metaphor that
keeps all the application functionality that the user needs within easy reach.
For instance, selecting the "memo" tab might cause a Microsoft Word memo-
template to be created within the Cicero desktop. The end-user need not even
know that they are using Microsoft Word. Moreover, a customer tracking database
can be linked with the customer relationship management software package even
though such products were not originally designed to integrate in that fashion.
Virtually any application can be integrated under the Cicero book-chapter
metaphor and be used in conjunction with other contact center applications.
The key component of the Cicero solution is visual integration at the
desktop that consolidates applications that do not inherently work together
into a cohesive, simplified work environment embodied in a single look and feel
desktop user interface. Cicero is designed to increase the productivity of
anyone requiring access to multiple applications and information sources.
Cicero provides a unique approach that allows companies to organize components
of their existing applications into processes required to complete common
tasks. Cicero streamlines all activities by providing a single, seamless user
interface for instant access to all systems associated with a task. Cicero
provides automatic information sharing among all line-of-business applications
and tools. Cicero is ideal for deployment in customer contact centers where its
highly productive, task-oriented user interface promotes user efficiency.
Cicero was officially launched in a general release version in June 2001.
There have been no significant sales of Cicero to date. A previous version of
Cicero has been in use on over 30,000 workstations at Merrill Lynch for
approximately five years. We have substantially modified the version of Cicero
used at Merrill Lynch to introduce a commercial product that may be implemented
in our target markets.
We also offer products under our Geneva brand name to provide organizations
with Systems Integration tools and Messaging solutions. Our Systems Integration
products include Geneva Enterprise Integrator and Geneva Business Process
Automator. Our Messaging solution is Geneva Integration Broker. Although we
plan to focus our efforts principally on our Cicero solution, we will continue
to support and develop our remaining Geneva products. Our Geneva Enterprise
Integrator and Business Process Automator products are currently being
rewritten in the Java language, scheduled to be completed in the 4th quarter of
2002. Until we release the new version of these products, many potential
customers may hold off purchasing our current versions. Accordingly, in the
short term, we anticipate that our Geneva products will generate less revenue
than in previous periods. See "--Recent Developments."
Strategic Realignment
Historically, we have been a global provider of software solutions to help
companies integrate new and existing applications as well as extend those
applications to the Internet. This market segment is commonly known as
"Enterprise Application Integration" or "EAI." Historically, EAI solutions work
directly at the server or back-office level allowing disparate applications to
communicate with each other.
2
Until 2001, we focused primarily on the development, sale and support of EAI
solutions through our Geneva product suite. After extensive strategic
consultation with outside advisors and an internal analysis of our products and
services, we recognized that a new market opportunity had emerged. This
opportunity was represented by the increasing need to integrate applications
that are physically resident on different hardware platforms, a typical
situation in larger companies. In most cases, financial services companies
utilize numerous different ("disparate") applications that were not designed to
effectively communicate and pass information among themselves, which leads to
enterprise inefficiency. With Cicero, which integrates the functionality of
these disparate applications at the desktop, we believe that we have found a
novel solution to this problem. We believe that our existing experience in and
understanding of the EAI marketplace coupled with the unique Cicero solution,
which approaches traditional EAI needs in a more effective manner, position us
to be a competitive provider of business integration solutions to the financial
services industry.
We originally licensed the Cicero technology and related patents on a
worldwide, royalty-free basis from Merrill Lynch in August of 2000 under a
license agreement containing standard provisions and a two year exclusivity
period. On January 3, 2002, the license agreement was amended to extend our
exclusive worldwide marketing, sales and development rights to Cicero in
perpetuity (subject to Merrill Lynch's rights to terminate in the event of
bankruptcy or a change in control of Level 8) and to grant ownership rights in
the Cicero trademark. We are indemnified by Merrill Lynch with regard to the
rights granted to us by them. Consideration for the original Cicero license
consisted of 1,000,000 shares of our common stock. In exchange for the
amendment, we granted an additional 250,000 shares of common stock to MLBC,
Inc., a Merrill Lynch affiliate and entered into a royalty sharing agreement.
Under the royalty sharing agreement, we pay a royalty of 3% of the sales price
for each sale of Cicero or related maintenance services. The royalties are not
payable in excess of $20,000,000.
In connection with executing our strategic realignment and focusing on
Cicero, we have restructured our business, reduced our number of employees and
sold assets associated with Geneva AppBuilder, Geneva Message Queuing and
Geneva XIPC. We experienced a net loss in the year ended December 31, 2001 of
approximately $105.1 million, largely attributable to our restructuring, our
new strategic focus, a general slowing of the economy, a decrease in sales of
our Geneva products, a substantial accounting charge related to the impairment
of certain assets of $43.9 million and a restructuring charge of $8.7 million.
For the three months ended March 31, 2002, we experienced a net loss of
approximately $6.2 million, principally as a result of a decrease in revenues
from product lines that were sold in the latter part of 2001.
Recent Developments
Going Concern Risk. In our annual report on Form 10-K, filed on April 1,
2002 and in our Amendment No. 1 on Form 10-K/A filed April 30, 2002, we noted
that there is substantial doubt as to our ability to continue operating as a
going concern. In other words, there will not be sufficient cash on hand and
income from operations for us to operate for the next 12 months unless
additional financing is obtained or we are able to operate on a positive cash
flow basis. To address these issues we are actively promoting and expanding our
product line and have entered into preliminary sales negotiations with several
significant new customers that have begun the "proof of concept" stage.
Additionally, we successfully completed a private financing round wherein we
raised approximately $3.5 million of new funds from several investors and are
seeking additional equity capital in the near term. Furthermore, we are
reviewing strategic options, such as non-strategic asset sales, with third
parties and have retained an investment banker to assist in the evaluation. We
have identified the Star/SQL and CTRC components of the Messaging and
Application Engineering segment as non-strategic and are further evaluating the
assets in the Systems Integration segment. We do not intend to sell Cicero.
There can be no assurance that we will be successful in executing these
strategies as anticipated or in a timely manner or that increased revenues will
reduce further operating losses. If we are unable to increase cash flow, obtain
financing or close a sale of non-strategic assets, we may not be able to
generate enough capital to fund operations for the next twelve months and may
be required to pursue other means of financing that may not be on terms
favorable to us or to our stockholders.
3
Offer for Star/SQL and CTRC Products. In May 2002, we received an
unsolicited offer to purchase the Star/SQL and CTRC products, which are
included in our Messaging and Application Engineering segment. As a result, we
reviewed and assessed the net realizable value of the software product
technology assets associated with Star/SQL and CTRC based on the potential sale
to a third party. Based upon this review and assessment, we determined that an
additional impairment had occurred in the amount of $1,564, which was recorded
as software amortization.
License of Geneva J2EE Technology. During the second quarter of 2002, the
Company completed a non-exclusive perpetual license to develop and sell its
Geneva J2EE technology to Amdocs Ltd., which is included in our Systems
Integration segment. Under the agreement, Amdocs Ltd. will pay the Company a
license fee for the source and object code for Geneva J2EE and relieve the
Company's obligation to perform under the funded research and development
agreement. Additionally, Amdocs will assume full responsibility for the
development team of professionals located in our Dulles facility and sublease a
portion of that facility for a limited period. This will allow the Company to
reduce its operating costs and retain its intellectual property rights to
Geneva J2EE in its current state of development, as well as Geneva Enterprise
Integrator and Geneva Business Process Automator. As a result of the
transaction, we reassessed the recoverability of the software product
technology associated with the Geneva Enterprise Integrator and Geneva Business
Process Automator products based on its net realizable value and determined
that no impairment had occurred.
Adoption of New Accounting Pronouncements. In July 2001, the FASB issued
Statement of Financial Accounting Standards No. 141, "Business Combination",
which eliminates the pooling of interests method of accounting for all business
combinations initiated after June 30, 2001 and addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination. The Company adopted this accounting standard for
business combinations initiated after June 30, 2001.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets", or SFAS No. 142. The Company
adopted SFAS No. 142 as of January 1, 2002. SFAS No. 142 addresses the
financial accounting and reporting standards for the acquisition of intangible
assets outside of a business combination and for goodwill and other intangible
assets subsequent to their acquisition. This accounting standard requires that
goodwill be separately disclosed from other intangible assets in the statement
of financial position, and no longer be amortized but tested for impairment on
a periodic basis. The provisions of this accounting standard also require the
completion of a transitional impairment test within six months of adoption,
with any impairments identified treated as a cumulative effect of a change in
accounting principle. As the Company has no remaining goodwill on its balance
sheet as of December 31, 2001, the Company does not believe that the provisions
of this statement will have a material impact on the consolidated financial
statements.
A reconciliation of previously reported net income and earnings per
share to the amounts adjusted for the exclusion of goodwill
amortization follows:
Years Ended December 31,
-----------------------------
2001 2000 1999
--------- -------- --------
Reported net income (loss)................... $(105,135) $(28,367) $(15,477)
Add: Goodwill amortization................... 10,212 14,191 6,959
--------- -------- --------
Adjusted net income (loss)................... $ (94,923) $(14,176) $ (8,518)
========= ======== ========
Reported basic income (loss) per share....... $ (6.65) $ (2.44) $ (1.78)
Add: Goodwill amortization................... 0.64 1.01 0.78
--------- -------- --------
Adjusted basic income (loss) per share....... $ (6.01) $ (1.43) $ (1.00)
========= ======== ========
4
Significant Sales of Common Stock by Our Principal Stockholder. As of
November 20, 2001, Advanced Systems Europe B.V., a subsidiary of Liraz Systems
Ltd., our principal stockholder, notified us that it had sold 1,004,700 shares
of our common stock in a series of transactions. We have also been notified
that Liraz sold 500,000 shares of our common stock during May 2002. Such sales
reduced the beneficial ownership of Liraz from approximately 37.5% to
approximately 25%.
----------------
Our principal executive offices are located at 8000 Regency Parkway, Cary,
North Carolina 27511 and our telephone number is (919) 380-5000. Our web site
is located at www.level8.com. Information contained on our web site is not a
part of this prospectus. Level 8, Level 8 Systems, Cicero and the Level 8 logo
are trademarks of Level 8 Systems, Inc. Level 8 Technologies, Geneva, Geneva
Integration Suite, Geneva Message Queuing, Geneva XIPC, Geneva Integration
Broker, Geneva Enterprise Integrator, Geneva Business Process Automator and
Geneva AppBuilder are trademarks of Level 8 Technologies, Inc., a wholly owned
subsidiary of Level 8 Systems, Inc. All other product and company names are for
identification purposes only and are the property of, and may be the trademarks
of, their respective owners.
5
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the specific factors listed below together with the other
information included in this prospectus before you decide whether to purchase
shares of our common stock. Additional risks and uncertainties, including those
that are not yet identified or that we currently think are immaterial, may also
adversely affect our business, results of operations and financial condition.
The market price of our common stock could decline due to any of these risks,
and you could lose all or part of your investment.
We have substantially changed our business model and depend on a new, unproven
strategy for ongoing revenue.
Based on our consultations with external strategic advisors and an analysis
of our products and revenues, we determined that our best possibility of long-
term success would be to concentrate our sales efforts into the customer
contact centers of large companies, where the customer service representatives
of our target market interact with their customers via telephone, facsimile,
electronic mail and other means of communication. The success of our new
strategy is highly dependent on market acceptance of Cicero, which we have
licensed from Merrill Lynch. Cicero has no track record of sales to the
financial services industry and there is no certainty that we will have strong
market penetration with our Cicero offering.
Cicero was officially launched in a general release version in June 2001.
There have been no significant sales of Cicero to date. A previous version of
Cicero has been in use on over 30,000 workstations at Merrill Lynch for
approximately five years. We have substantially modified the version of Cicero
used at Merrill Lynch to introduce a commercial product that may be implemented
in our target markets.
Furthermore, we are greatly decreasing our sales and marketing efforts with
respect to our historical revenue producing products, the Geneva Integration
Suite line of products, and putting less emphasis on our historical business of
Enterprise Application Integration at the server level. We have sold all assets
associated with the Geneva AppBuilder software, which represented approximately
59% of our revenue in fiscal year 2001. We have also sold our Geneva Message
Queuing and XIPC products in a separate transaction and expect to sell our
Star/SQL and CTRC products during the second quarter of 2002. These sales and
expected sales represent substantially all of the products in our Messaging and
Application Engineering segment. Our past performance and revenues therefore
provide no indication of our future prospects and revenues.
Our new strategy is subject to the following specialized risks that may
adversely affect our long-term revenue and profitability prospects:
. Cicero was originally developed internally by Merrill Lynch and has no
track record of successful sales to organizations within the financial
services industry and may not gain market acceptance;
. We are approaching a different segment of the financial services
industry, the customer contact center, than our sales and marketing
efforts in the past and there can be no assurance that we can
successfully sell and market into this industry.
We have a history of losses and expect that we will continue to experience
losses at least through a portion of 2002.
Although we reported operating income and net income in 1997, we experienced
operating losses and net losses in 1998, 1999, 2000 and 2001 and in the first
quarter of 2002. We incurred a net loss of $25.1 million for 1998, $15.5
million for 1999, $28.4 million for 2000 and $105.1 million for 2001, and a net
loss of $6.2 million in the first quarter of 2002. At March 31, 2002, we had a
working capital deficit of $5.9 million and an accumulated deficit of $187.5
million. Our ability to generate positive cash flow is dependent upon achieving
and sustaining certain cost reductions and generating sufficient revenues.
Therefore, due to these and other factors, we expect that we will continue
to experience net losses at least through the first three quarters of 2002. In
the future, we may not generate sufficient revenues to pay for all of our
operating costs or other expenses. We cannot predict with accuracy our future
results of operations and believe that any period-to-period comparisons of our
results of operations are not meaningful.
6
There is substantial doubt as to whether we can continue as a going concern.
Because we incurred net operating losses of $105.1 million and $6.2 million
for the year ended December 31, 2001 and the first quarter of 2002,
respectively, experienced negative cash flows from operations, had a
significant working capital deficiency at March 31, 2002 and are relying on
acceptance of a newly developed and marketed product, there is substantial
doubt that we can continue to operate as a going concern. While we have
attracted some additional capital to continue to fund operations, there can be
no assurance that we can obtain additional financing and if we do obtain
financing that it will be on terms that are favorable to us or our
stockholders.
Because we cannot accurately predict the amount and timing of individual sales,
our quarterly operating results may vary significantly, which could adversely
impact our stock price.
Our quarterly operating results have varied significantly in the past, and
we expect they will continue to do so in the future. We have derived, and
expect to continue to derive in the near term, a significant portion of our
revenue from relatively large customer contracts or arrangements. The timing of
revenue recognition from those contracts and arrangements has caused and may
continue to cause fluctuations in our operating results, particularly on a
quarterly basis. Our quarterly revenues and operating results typically depend
upon the volume and timing of customer contracts received during a given
quarter and the percentage of each contract which we are able to recognize as
revenue during the quarter. Each of these factors is difficult to forecast. As
is common in the software industry, the largest portion of software license
revenues are typically recognized in the last month of each fiscal quarter and
the third and fourth quarters of each fiscal year. We believe these patterns
are partly attributable to budgeting and purchasing cycles of our customers and
our sales commission policies, which compensate sales personnel for meeting or
exceeding periodic quotas.
Furthermore, because the size of individual sales of Geneva Enterprise
Integrator and Geneva Business Process Automator products have been large in
the past and because we anticipate that Cicero sales may also be large, each
sale can or will account for a large percentage of our revenue and a single
sale may have a significant impact on the results of a quarter. The sales of
both our historical products and Cicero can be classified as generally large in
size to a small discrete number of customers. For example, Cicero pricing
starts at $795 per seat with discounts for large installations. In addition,
the substantial commitment of executive time and financial resources that have
historically been required in connection with a customer's decision to purchase
our other products increases the risk of quarter-to-quarter fluctuations. We
expect that Cicero sales will require a similar commitment of time and
financial resources because it is an enterprise product. Typically, the
purchase of our products involves a significant technical evaluation by the
customer and the delays frequently associated with customers' internal
procedures to approve large capital expenditures and to test, implement and
accept new technologies that affect key operations. This evaluation process
frequently results in a lengthy sales process of several months. It also
subjects the sales cycle for our products to a number of significant risks,
including our customers' budgetary constraints and internal acceptance reviews.
The length of our sales cycle may vary substantially from customer to customer.
We typically do not have any material backlog of unfilled software orders,
and product revenue may fluctuate from quarter to quarter due to the completion
or commencement of significant assignments, the number of working days in a
quarter and the utilization rate of services personnel. As a result of these
factors, we believe that a period-to-period comparison of our historical
results of operations is not necessarily meaningful and should not be relied
upon as indications of future performance. In particular, our revenues in the
third and fourth quarters of our fiscal years may not be indicative of the
revenues for the first and second quarters. Moreover, if our quarterly results
do not meet the expectations of our securities analysts and investors, the
trading price of our common stock would likely decline.
Loss of key personnel associated with Cicero development could adversely affect
our business.
We have recently hired several people with specialized knowledge of the
Cicero technology. Loss of some or all of these software engineers could have a
significant impact on our execution of our new strategy because they have
specialized knowledge developed over a long period of time with respect to the
Cicero technology.
7
Different competitive approaches or internally developed solutions to the same
business problem could delay or prevent adoption of Cicero.
Cicero is designed to address in a novel way the problems that large
companies face integrating the functionality of different software applications
by integrating these applications at the desktop. To effectively penetrate the
market for solutions to this disparate application problem, Cicero will compete
with traditional EAI solutions that attempt to solve this business problem at
the server or back-office level. Server level EAI solutions are currently sold
and marketed by companies such as NEON, Mercator, Vitria, and BEA. There can be
no assurance that our potential customers will determine that Cicero's desktop
integration methodology is superior to traditional middleware EAI solutions
provided by the competitors described above in addressing this business
problem. Moreover, the information systems departments of our target customers,
large financial institutions, are large and may elect to attempt to internally
develop an internal solution to this business problem rather than to purchase
the Cicero product. Cicero itself was originally developed internally by
Merrill Lynch to solve these integration needs.
Accordingly, we may not be able to provide products and services that
compare favorably with the products and services of our competitors or the
internally developed solutions of our customers. These competitive pressures
could delay or prevent adoption of Cicero or require us to reduce the price of
our products, either of which could have a material adverse effect on our
business, operating results and financial condition.
We may be unable to enforce or defend our ownership and use of proprietary and
licensed technology.
Our success depends to a significant degree upon our proprietary and
licensed technology. We rely on a combination of patent, trademark, trade
secret and copyright law, contractual restrictions and passwords to protect our
proprietary technology. However, these measures provide only limited
protection, and there is no guarantee that our protection of our proprietary
rights will be adequate. Furthermore, the laws of some jurisdictions outside
the United States do not protect proprietary rights as fully as in the United
States. In addition, our competitors may independently develop similar
technology, duplicate our products or design around our patents or our other
intellectual property rights. We may not be able to detect or police the
unauthorized use of our products or technology, and litigation may be required
in the future to enforce our intellectual property rights, to protect our trade
secrets or to determine the validity and scope of our proprietary rights.
Additionally, with respect to the Cicero line of products, there can be no
assurance that Merrill Lynch will protect its patents or that we will have the
resources to successfully pursue infringers. Any litigation to enforce our
intellectual property rights would be expensive and time-consuming, would
divert management resources and may not be adequate to protect our business.
We do not believe that any of our products infringe the proprietary rights
of third parties. However, companies in the software industry have experienced
substantial litigation regarding intellectual property and third parties could
assert claims that we have infringed their intellectual property rights. In
addition, we may be required to indemnify our distribution partners and end-
users for similar claims made against them. Any claims against us would divert
management resources, and could require us to spend significant time and money
in litigation, pay damages, develop new intellectual property or acquire
licenses to intellectual property that is the subject of the infringement
claims. These licenses, if required, may not be available on acceptable terms.
As a result, intellectual property claims against us could have a material
adverse effect on our business, operating results and financial condition.
We have not paid any dividends on our common stock and it is likely that no
dividends will be paid in the future.
We have never declared or paid cash dividends on our common stock and we do
not anticipate paying any cash dividends on our common stock in the foreseeable
future.
8
Liraz could significantly influence matters submitted to our stockholders.
Liraz Systems Ltd. ("Liraz"), an Israeli public company, and its
subsidiaries currently hold approximately 18% of our outstanding voting stock.
As a result, Liraz may have significant influence over all matters submitted to
our stockholders for a vote, including the election of directors and the
approval of mergers and other business combination transactions for which a
majority vote is required, which could adversely affect the market price of our
common stock or delay or prevent a change of control. In addition, a wholly
owned subsidiary of Liraz beneficially owns an additional 1,200,048 shares of
common stock issuable upon the conversion of our Series A1 Preferred Stock. If
Liraz's subsidiary converts all of its Level 8 preferred stock, Liraz and its
subsidiaries would then hold approximately 25% of our outstanding common stock,
based on the number of shares of our common stock outstanding as of March 31,
2002.
Provisions of our charter and Bylaws and Delaware law could deter takeover
attempts.
Section 203 of the Delaware General Corporation Law, which prohibits certain
persons from engaging in business combinations with Level 8, may have anti-
takeover effects and may delay, defer or prevent a takeover attempt that a
stockholder may consider to be in the holder's best interests. These provisions
of Delaware law also may adversely affect the market price of our common stock.
Our certificate of incorporation authorizes the issuance, without stockholder
approval, of preferred stock, with such designations, rights and preferences as
may be determined from time to time by the board of directors. Such
designations, rights and preferences established by the board may adversely
affect our stockholders. In the event of issuance, the preferred stock could be
used, under certain circumstances, as a means of discouraging, delaying or
preventing a change of control of Level 8. Although we have no present
intention to issue any shares of preferred stock in addition to the currently
outstanding preferred stock, we may issue preferred stock in the future.
Our stockholders may be diluted by the exercise of options and warrants and
conversion of preferred stock or by the registration of additional securities
for resale.
We have reserved 6,400,000 shares of common stock for issuance under our
employee incentive plans and 120,000 shares under our outside director
incentive plan. As of March 31, 2002, options to purchase an aggregate of
4,343,818 shares of common stock were outstanding pursuant to our employee and
director incentive plans. Warrants to purchase an additional 3,045,024 shares
of common stock are outstanding. We have also reserved 1,388,456 shares of
common stock for issuance upon conversion of the outstanding Series A1
Preferred Stock and 2,394,063 shares of common stock for issuance upon
conversion of the outstanding Series B1 Preferred Stock. The exercise of such
options and warrants or conversion of preferred stock and the subsequent sale
of the underlying common stock in the public market could adversely cause the
market price of our common stock to decline.
We previously negotiated the right to issue up to 3,000,000 shares of common
stock, warrants or other securities without triggering the anti-dilution
provisions of the Series A1 Preferred Stock and related warrants, and the
Series B1 Preferred Stock and related warrants. Because we have now issued all
of these shares, we may not issue additional shares of common stock or
equivalent equity securities in financing transactions at a market price below
the conversion prices of the Series A1 and Series B1 Preferred Stock without
triggering these anti-dilutive provisions. The conversion prices of the Series
A1 and B1 Preferred Stock are $8.333 and $12.531, respectively. The anti-
dilution provisions will therefore restrict our ability to access the capital
markets or to pursue equity financing transactions.
The number of shares of common stock into which the Series A1 and Series B1
Preferred Stock are convertible into is 3,782,519, which represents a 61%
increase in the number of shares of common stock issuable upon conversion of
the previously outstanding Series A and Series B Preferred Stock. Moreover,
when we effected the exchange of the Series A and Series B Preferred Stock for
the Series A1 and Series B1 Preferred Stock on October 16, 2001, we decreased
the exercise price of the 1,801,022 related warrants to $1.77, which increases
the likelihood that these warrants will be exercised. Conversion of the Series
A1
9
Preferred Stock and/or the Series B1 Preferred Stock or the exercise of the
related warrants would dilute existing stockholders and may cause the market
price of our stock to decline.
As described below, we have registered an additional 3,905,420 shares of
common stock by means of another prospectus and registration statement. Resale
of a significant number of such shares could adversely affect the market price
of our common stock.
Future sales of common stock by Liraz or its affiliate could cause the market
price of our common stock to decline.
Future sales of substantial numbers of shares of common stock (including
shares issued upon the conversion of preferred stock) by Liraz or its
affiliate, or the perception that such sales could occur, could adversely
affect the market price of our common stock. Liraz and its affiliates have
registered for resale up to 3,905,420 shares of common stock in a prior
registration statement. We are registering an additional 1,200,048 shares of
common stock underlying the Series A1 Preferred Stock held by a Liraz affiliate
by means of this registration statement. If Liraz sells a large portion of its
securities on the open market at or about the same time, the market price of
our common stock may decline.
We will not receive any proceeds from this offering and, because of expenses,
our book value may decline as a result of this and other resale offerings.
This prospectus is for the resale from time to time of shares of common
stock held by the selling stockholders. We will not receive any proceeds from
the sale of shares by the selling stockholders. Pursuant to contractual
requirements, we are paying all the expenses of registration for this resale
offering. Moreover, we anticipate filing additional resale registration
statements covering additional shares that may be offered from time to time by
selling stockholders and will not receive any proceeds from those offerings.
Accordingly, following effectiveness of this prospectus and the registration of
future shares for resale, the book value of our common stock may be lower than
it was previously.
10
INCORPORATION BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this prospectus. This means that we can disclose
important information to you by referring you to another document filed by us
with the SEC. Information incorporated by reference is deemed to be part of
this prospectus and information that we file later with the SEC will
automatically update and supersede this information.
The following documents are incorporated by reference herein:
(a) Our Annual Report on Form 10-K/A (Amendment No. 1) for the fiscal year
ended December 31, 2001 as filed with the SEC on April 30, 2002;
(b) Our Quarterly Report on Form 10-Q for the quarter ended March 31,
2002;
(c) Our Current Reports on Form 8-K filed with the SEC on January 11, 2002
and January 25, 2002;
(d) The description of our common stock set forth in our registration
statement on Form 8-A filed with the SEC on July 11, 1995, and
including any subsequent amendment or report filed for the purpose of
updating such description.
In addition, all documents we have filed or subsequently file with the SEC
under Sections 13(a), 14 or 15(d) of the Securities and Exchange Act of 1934
before the termination of the offering are incorporated by reference.
We will provide without charge to any person (including any beneficial
owner) to whom this prospectus has been delivered, upon the oral or written
request of such person a copy of any document incorporated by reference in the
registration statement (not including exhibits to the information that is
incorporated by reference unless such exhibits are specifically incorporated by
reference into the information that the registration statement incorporates),
of which this prospectus forms a part. Such requests should be directed to
Investor Relations, Level 8 Systems, Inc., 8000 Regency Parkway, Cary, North
Carolina 27511. Our telephone number is (919) 380-5000. Our web site is
http://www.level8.com. The information on our web site is not intended to be a
part of this prospectus.
11
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements, including or
related to our future results, including certain projections and business
trends. Assumptions relating to forward-looking statements involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. When
used in this prospectus, the words "estimate," "project," "intend," "believe,"
"expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate, and
we may not realize the results contemplated by the forward-looking statement.
Management decisions are subjective in many respects and susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause us to alter our business strategy
or capital expenditure plans that may, in turn, affect our results of
operations. In light of the significant uncertainties inherent in the forward-
looking information included in this prospectus, you should not regard the
inclusion of such information as our representation that we will achieve any
strategy, objective or other plans. The forward-looking statements contained in
this prospectus speak only as of the date of this prospectus as stated on the
front cover, and we have no obligation to update publicly or revise any of
these forward-looking statements.
These and other statements which are not historical facts are based largely
on management's current expectations and assumptions and are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those contemplated by such forward-looking statements. These
risk and uncertainties include, among others, the risks and uncertainties
described in "Risk Factors" on page 6.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock by the selling stockholders.
12
SELLING STOCKHOLDERS
Our shares of common stock to which this prospectus relates are being
registered for resales by the selling stockholders. The selling stockholders
may resell all, a portion or none of such shares of common stock from time to
time. The table below sets forth with respect to each selling stockholder,
based upon information available to us as of April 1, 2002, the number of
shares of common stock beneficially owned, the number of shares of common stock
registered by this prospectus and the number and percent of outstanding common
stock that will be owned after the sale of the registered shares of common
stock assuming the sale of all of the registered shares of common stock under
this prospectus and all other currently effective prospectuses. Because the
selling stockholders may offer all, some or none of their respective shares of
common stock, no definitive estimate as to the number of shares thereof that
will be held by the selling stockholders after such offering can be provided.
Number of
Shares of
Common Stock
Number of Shares To Be Owned
Number of Shares of Common Stock After Offering
of Common Stock Which May Be --------------
Name Owned(1) Offered(1) Number Percent
---- ---------------- ---------------- ------ -------
Brown Simpson Partners I,
Ltd....................... 2,420,722(2) 2,420,722(2) -- *
Advanced Systems Europe
B.V....................... 1,200,048(3) 1,200,048(3) -- *
Seneca Capital
International, Ltd........ 1,121,011(4) 1,121,011(4) -- *
Seneca Capital, L.P........ 841,759(5) 841,759(5) -- *
Mark and Carolyn Landis.... 600,000(6) 600,000(6) -- *
Vertical Ventures
Investments, LLC.......... 558,342(7) 558,342(7) -- *
Vertical International
Limited................... 400,000(8) 400,000(8) -- *
Cleveland Overseas Ltd..... 320,000(9) 320,000(9) -- *
Conrad Clement............. 160,000(10) 160,000(10) -- *
Murray Forman.............. 160,000(11) 160,000(11) -- *
William & Barbara Turner... 120,000(12) 120,000(12) -- *
Fredrick H. Mack........... 103,999(13) 103,999(13) -- *
Marvin Bank................ 80,000(14) 80,000(14) -- *
Diamond Investments II,
LLC....................... 80,000(15) 80,000(15) -- *
Richard H. Keates, MD Inc
Prf Shr Trust DTD
1-15-71................... 80,000(16) 80,000(16) -- *
Michael Howard Weiss....... 80,000(17) 80,000(17) -- *
Haines Family Associates
LP........................ 60,000(18) 60,000(18) -- *
Fredrick H. Mack 4-30-92
Trust..................... 56,001(19) 56,001(19) -- *
First Investors Holding
Co........................ 141,658 141,658 -- *
Paul Kanevsky.............. 10,000 10,000 -- *
Anthony Pizi............... 4,000 4,000 -- *
Joseph DeFranco............ 3,000 3,000 -- *
Jay Seidle................. 3,000 3,000 -- *
Patty Sandor............... 1,000 1,000 -- *
--------
* Represents less than one percent (1%).
(1) The number of shares of common stock owned by each selling stockholder
includes the aggregate number of shares of common stock which may be
obtained by each stockholder upon conversion of all of the Series A1
Preferred Stock and Series B1 Preferred Stock owned by such stockholder, or
based upon the exercise of warrants held by such stockholder. The shares
offered by this prospectus may be sold by the selling stockholder from time
to time. The number of shares, if any, offered by each selling stockholder
and the corresponding number of shares beneficially owned by each selling
stockholder after each sale will vary depending upon the terms of the
individual sales. Beneficial ownership is determined in accordance
13
with SEC rules and generally includes voting or investment power with
respect to securities. Common shares that are issuable upon the exercise of
outstanding options, warrants, convertible preferred stock or other
purchase rights, to the extent exercisable within 60 days of the date of
this Prospectus, are treated as outstanding for purposes of computing each
selling stockholders' percentage ownership of outstanding common shares.
(2) Brown Simpson Partners I, Ltd. owns and may offer from time to time
1,197,031 shares of common stock issuable upon the conversion of Series
B1 Preferred Stock. It also owns and may offer from time to time under
this prospectus 1,223,691 shares issuable upon the exercise of warrants
at an exercise price of $1.77 per share of common stock subject to
adjustment. Brown Simpson Partners I, Ltd. is not currently the
beneficial owner of all of such shares of common stock.
(3) Advanced Systems Europe B.V. owns and may offer from time to time
1,200,048 shares of common stock issuable upon the conversion of Series
A1 Preferred Stock.
(4) Seneca Capital International, Ltd. owns and may offer from time to time
under this prospectus 779,826 shares of common stock issuable upon the
conversion of Series B1 Preferred Stock. It also owns and may offer from
time to time under this prospectus 341,185 shares issuable upon the
exercise of warrants at an exercise price of $1.77 per share of common
stock subject to adjustment.
(5) Seneca Capital, L.P. owns and may offer from time to time under this
prospectus 417,205 shares of common stock issuable upon the conversion of
Series B1 Preferred Stock. It also owns and may offer from time to time
under this prospectus 188,408 shares of common stock issuable upon the
conversion of Series A1 Preferred Stock. It also owns and may offer from
time to time under this prospectus 236,146 shares issuable upon the
exercise of warrants at an exercise price of $1.77 per share of common
stock subject to adjustment.
(6) Includes 100,000 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
(7) Includes 93,057 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
The holder may not exercise the warrant into shares of our common stock
if after the exercise, such holder, together with any of its affiliates,
would beneficially own over 9.999% of the outstanding shares of our
common stock. This restriction may be waived by each holder on not less
than 61 days notice to us. However, the 9.999% limitation would not
prevent the holders from acquiring and selling in excess of 9.999% of our
common stock through a series of exercises.
(8) Includes 66,667 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
The holder may not exercise the warrant into shares of our common stock
if after the exercise, such holder, together with any of its affiliates,
would beneficially own over 9.999% of the outstanding shares of our
common stock. This restriction may be waived by each holder on not less
than 61 days notice to us. However, the 9.999% limitation would not
prevent the holders from acquiring and selling in excess of 9.999% of our
common stock through a series of exercises.
(9) Includes 53,333 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
The holder may not exercise the warrant into shares of our common stock if
after the exercise, such holder, together with any of its affiliates,
would beneficially own over 9.999% of the outstanding shares of our common
stock. This restriction may be waived by each holder on not less than 61
days notice to us. However, the 9.999% limitation would not prevent the
holders from acquiring and selling in excess of 9.999% of our common stock
through a series of exercises.
(10) Includes 26,667 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
(11) Includes 26,667 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
(12) Includes 20,000 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
(13) Includes 17,333 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
14
(14) Includes 13,333 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
(15) Includes 13,333 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
(16) Includes 13,333 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
(17) Includes 13,333 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
(18) Includes 10,000 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
(19) Includes 9,334 shares issuable upon the exercise of warrants at an
exercise price of $2.50 per share of common stock subject to adjustment.
15
PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of the selling
stockholders. All costs, expenses and fees in connection with the registration
of the shares offered by this prospectus will be borne by us, other than
brokerage commissions and similar selling expenses, if any, attributable to the
sale of shares which will be borne by the selling stockholders. The Company has
agreed to indemnify the selling stockholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act. Sales
of shares may be effected by selling stockholders from time to time in one or
more types of transactions (which may include block transactions) on the Nasdaq
National Market, in the over-the-counter market, in negotiated transactions,
through put or call options transactions relating to the shares, through short
sales of shares, or a combination of any such methods of sale, and any other
method permitted pursuant to applicable law, at market prices prevailing at the
time of sale, or at negotiated prices. Such transactions may or may not involve
brokers or dealers. The selling stockholders have advised us that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities, nor is
there an underwriter or coordinated broker acting in connection with the
proposed sale of shares by the selling stockholders.
The selling stockholders may enter into hedging transactions with broker-
dealers or other financial institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in short sales of the
shares or of securities convertible into or exchangeable for the shares in the
course of hedging positions they assume with selling stockholders. The selling
stockholders may also enter into options or other transactions with broker-
dealers or other financial institutions which require the delivery to such
broker-dealers or other financial institutions of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as amended or supplemented to reflect such
transaction). The selling stockholders may pledge and or loan these shares to
broker-dealers who may borrow the shares against their hedging short position
and in turn sell these shares under the prospectus to cover such short
position.
The selling stockholders may make these transactions by selling shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from selling stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular broker-
dealer is not expected to be in excess of customary commissions).
The selling stockholders and any broker-dealers that act in connection with
the sale of shares may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers or any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or
commissions under the Securities Act. The selling stockholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the shares against certain liabilities, including
liabilities arising under the Securities Act.
Because selling stockholders may be deemed "underwriters" within the meaning
of Section 2(11) of the Securities Act, the selling stockholders may be subject
to the prospectus delivery requirements of the Securities Act. We have informed
the selling stockholders that the anti-manipulative provisions of Regulation M
promulgated under the Exchange Act may apply to their sales in the market.
Selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act provided
they meet the criteria and conform to the requirements of Rule 144.
Upon our being notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
16
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing:
. the name of each such selling stockholder and of the participating
broker-dealer(s);
. the number of shares involved;
. the initial price at which such shares were sold;
. the commissions paid or discounts or concessions allowed to such broker-
dealer(s), where applicable;
. that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this prospectus;
and
. other facts material to the transactions.
In addition, upon our being notified by a selling stockholder that a donee
or pledgee intends to sell more than 500 shares, a supplement to this
prospectus will be filed. The selling stockholder may from time to time pledge
or grant a security interest in some or all of the Shares or common stock or
Warrant owned by them and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell the shares of
common stock from time to time under this prospectus, or under an amendment to
this prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act of 1933 amending the list of selling stockholders to include the
pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.
The selling stockholders also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.
LEGAL MATTERS
Certain legal matters in connection with the shares of common stock offered
by this prospectus have been passed on for Level 8 Systems, Inc. by Powell,
Goldstein, Frazer & Murphy LLP, Atlanta, Georgia.
EXPERTS
The financial statements incorporated in this prospectus by reference from
the Company's Annual Report on Form 10-K/A Amendment No. 1 as of December 31,
2001 and 2000 and for the years then ended have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report (which report
expresses an unqualified opinion and includes an explanatory paragraph
referring to the Company's ability to continue as a going concern), which is
incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
Our financial statements for the year ended December 31, 1999 incorporated
in this prospectus by reference to the Annual Report of Level 8 Systems, Inc.
on Form 10-K/A (Amendment No. 1) for the year ended December 31, 2001, have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses to be paid in
connection with the common stock being registered, all of which will be paid by
Level 8 Systems, Inc. (on behalf of itself and the selling stockholders) in
connection with this offering. All amounts are estimates except for the
registration fee.
SEC Registration Fee................................................ $ 852
Accounting Fees and Expenses........................................ 10,000
Legal Fees and Expenses............................................. 10,000
Miscellaneous....................................................... 9,148
-------
Total............................................................. $30,000
=======
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits indemnification
of directors, officers, employees and agents of corporations for liabilities
arising under the Securities Act of 1933, as amended.
The registrant's certificate of incorporation and bylaws provide for
indemnification of the registrant's directors and officers to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law.
Statutory Provisions Section 102(b)(7) of the Delaware General Corporation Law
enables a corporation in its certificate of incorporation to eliminate or limit
the personal liability of members of its board of directors to the corporation
or its stockholders for monetary damages for violations of a director's
fiduciary duty of care. The provision would have no effect on the availability
of equitable remedies, such as an injunction or rescission, for breach of
fiduciary duty. In addition, no provision may eliminate or limit the liability
of a director for breaching his duty of loyalty, failing to act in good faith,
engaging in intentional misconduct or knowingly violating a law, paying an
unlawful dividend or approving an illegal stock repurchase, or obtaining an
improper personal benefit.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify any person who was or is a party to or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for expenses which the court shall deem proper. Additionally, a
corporation is required to indemnify its directors and officers against
expenses to the extent that the directors or officers have been successful on
the merits or otherwise in any action, suit or proceeding or in defense of any
claim, issue or matter.
An indemnification can be made by the corporation only upon a determination
that indemnification is proper in the circumstances because the party seeking
indemnification has met the applicable standard of conduct as set forth in the
Delaware General Corporation Law. The indemnification provided by the Delaware
General Corporation Law shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors, or
II-1
otherwise. A corporation also has the power to purchase and maintain insurance
on behalf of any person, whether or not the corporation would have the power to
indemnify him against such liability. The indemnification provided by the
Delaware General Corporation Law shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of the person. Our company's certificate of
incorporation limits a director's liability for monetary damages to our company
and our stockholders for breaches of fiduciary duty except under the
circumstances outlined in the Delaware General Corporation Law as described
above.
The registrant's certificate of incorporation extends indemnification rights
to the fullest extent authorized by the Delaware General Corporation Law to
directors and officers involved in any action, suit or proceeding where the
basis of the involvement is the person's alleged action in an official capacity
or in any other capacity while serving as a director or officer of the
registrant.
Item 16. Exhibits
Exhibit
Number Description
------- -----------
5.1 Opinion of Powell, Goldstein, Frazer & Murphy LLP as to the legality
of the securities registered hereby (previously filed).
23.1 Consent of Deloitte & Touche LLP (filed herewith).
23.2 Consent of PricewaterhouseCoopers LLP (filed herewith).
23.3 Consent of Powell, Goldstein, Frazer & Murphy LLP (included in exhibit
5.1).
24.1 Power of Attorney (included on signature page).
Item 17. Undertakings
(a) (1) The undersigned registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering price may be reflected in the form of
Prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the such Act and will be governed by the
final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment no. 1 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
Town of Cary, State of North Carolina, on June 3, 2002.
LEVEL 8 SYSTEMS, INC.
/s/ Anthony C. Pizi
By: _________________________________
Anthony C. Pizi
Chairman of the Board, Chief
Executive Officer
and Chief Technology Officer
Signature Title Date
--------- ----- ----
/s/ Anthony C. Pizi Chairman of the Board, June 3, 2002
______________________________________ Chief Executive Officer
Anthony C. Pizi and Chief Technology
Officer (Principal
Executive Officer)
/s/ Paul Rampel* President and Director June 3, 2002
______________________________________
Paul Rampel
/s/ John P. Broderick* Chief Financial Officer, June 3, 2002
______________________________________ Treasurer and Corporate
John P. Broderick Secretary (Principal
Financial and Accounting
Officer)
/s/ Michel Berty* Director June 3, 2002
______________________________________
Michel Berty
/s/ Theodore Fine* Director June 3, 2002
______________________________________
Theodore Fine
/s/ Byron Vielehr Director June 3, 2002
______________________________________
Byron Vielehr
/s/ Frank Artale* Director June 3, 2002
______________________________________
Frank Artale
/s/ Richard Daly* Director June 3, 2002
______________________________________
Richard Daly
/s/ John Barbano Director June 3, 2002
______________________________________
John Barbano
Director
______________________________________
Jon Anton
/s/ Anthony C. Pizi
*By: _______________________
Anthony C. Pizi
Attorney-in-Fact
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EXHIBIT INDEX
Exhibit
Number Description
------- -----------
5.1 Opinion of Powell, Goldstein, Frazer & Murphy LLP as to the legality
of the securities registered hereby (previously filed).
23.1 Consent of Deloitte & Touche LLP (filed herewith).
23.2 Consent of PricewaterhouseCoopers LLP (filed herewith).
23.3 Consent of Powell, Goldstein, Frazer & Murphy LLP (included in exhibit
5.1).
24.1 Power of Attorney (included on signature page).