Document:

Note purchase agreement

NOTE
PURCHASE AGREEMENT

 

THIS NOTE
PURCHASE AGREEMENT (this “Agreement”) is
dated as of __________, 2004, by and between LEVEL 8 SYSTEMS, INC., a Delaware
corporation (the “Company”), and
the various purchasers listed on Schedule
I hereto
(each referred to herein as a “Purchaser” and,
collectively, the “Purchasers”).

 

WHEREAS,
the Company and the Purchasers are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D as promulgated by the United States Securities and Exchange
Commission (the “Commission”) under
Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”);

 

(i)  WHEREAS,
subject to the terms and conditions set forth in this Agreement, the Company
desires to issue and sell to the Purchasers, and the Purchasers desire to
acquire from the Company, a
promissory note (“Promissory Note”) convertible upon Shareholder Approval (as
described herein) at the Purchaser’s option into Senior Debt and Warrants as
described in the Term Sheet (the “Term Sheet”) attached hereto as Exhibit
A (the
“Senior
Debt and Warrants” and
including shares of common stock issuable upon exercise of the warrants
“Conversion Securities”) 

 

(ii)  WHEREAS,
the conversion of the Notes into Senior Debt and Warrants is contingent and
dependent upon the Company’s shareholders approving the merger and
reorganization (“Recapitalization”) of the Company as further described in the
Term Sheet (“Shareholder Approval”), and the Company filing a Form S-4 to
facilitate the shareholder approval and the merger reorganization.

 

NOW,
THEREFORE, in consideration of the promises and mutual covenants and agreements
hereinafter, the Company and the Purchasers hereby agree as follows:

ARTICLE
I.  

 

PURCHASE
AND SALE

 

1.1  Purchase
and Sale. On the
Closing Date (as defined below), subject to the terms and conditions set forth
herein, the Company shall issue and sell to each Purchaser and each Purchaser,
severally and not jointly, shall purchase from the Company the Promissory
Notes as set forth on Schedule
I (the
“Notes”)
convertible into the Senior Debt and Warrants set forth on Schedule
I for such
Purchaser. The aggregate purchase price for the Notes and Warrant purchased by
the Purchasers shall not exceed $1,706,575, of which $925,928 has been purchased
as of November 23, 2004.

 

1.2  Closing. The
closing (the “Closing”) of the
purchase and sale of the Notes shall take place at the offices of the Company,
immediately following the execution hereof or such later date or dates or
different location or locations as the parties shall agree, but in no event
prior to the date that the conditions set forth in Section 4.1 have been
satisfied or waived by the appropriate party (such date of the Closing, the
“Closing
Date”). At
the Closing:

 

1

a. Each
Purchaser shall deliver to the Company (1) this Agreement, duly executed by such
Purchaser, (2) the purchase price as set forth next to its name on Schedule
I in
United States dollars in immediately available funds to an account or accounts
designated in writing by the Company; and

 

b. The
Company shall deliver to each Purchaser (1) this Agreement, duly executed by the
Company, (2) a Promissory Note as set forth on Schedule
I
hereto.

 

ARTICLE
II.  

 

REPRESENTATIONS
AND WARRANTIES

 

2.1  Representations
and Warranties of the Company. The
Company represents and warrants to each of the Purchasers that the statements
contained in this Section 2.1 are true, correct and complete as of the date
hereof, and will be true correct and complete as of the Closing Date (unless
specifically made as of another date), except as specified to the contrary in
the corresponding paragraph of the disclosure schedule prepared by the Company
accompanying this Agreement (the “Company
Disclosure Schedules”):

 

Organization
and Qualification. The
Company duly incorporated, validly existing and in good standing under the laws
of Delaware, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company is duly qualified as a foreign corporation to do business and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not, individually or in the aggregate, (x) adversely
affect the legality, validity or enforceability of any of this Agreement or the
Transaction Documents (as defined in Section 2.1(b)) or any of the transactions
contemplated hereby or thereby, (y) have or result in a material adverse effect
on the results of operations, assets, or financial condition of the Company,
taken as a whole or (z) impair the Company’s ability to perform fully on a
timely basis its obligations under any Transaction Document (any of (x), (y) or
(z), being a “Material
Adverse Effect”).

 

Authorization;
Enforcement. The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by this Agreement, and the Notes
(collectively, the “Transaction
Documents”), and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of each of this Agreement and the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action by the
Company, provided, however, that the conversion of the Notes into Senior Debt
and Warrants will require Shareholder Approval. Each of this Agreement and the
Transaction Documents has been duly executed by the Company and when delivered
in accordance with the terms hereof will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors’ rights and remedies or by
other 

 

2

equitable
principles of general application and except that rights to indemnification and
contribution may be limited by Federal or state securities laws or public policy
relating thereto.

 

Capitalization. As of
the date hereof, the authorized capital stock of the Company is as set forth in
Schedule
2.1(c). All of
such outstanding shares of capital stock have been, or upon issuance will be,
validly authorized and issued, fully paid and nonassessable. Except as
specifically set forth in Schedule
2.1 (c), no
securities of the Company are entitled to preemptive or similar rights, and no
Person (as hereinafter defined) has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents. Except as specifically
set forth in Schedule
2.1 (c), and
except as a result of the purchase and sale of the Notes, there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
The issue and sale of the Notes will not obligate the Company to issue shares of
Common Stock or other securities to any Person (other than the Purchasers) and
will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities.

 

(Intentionally
Deleted)

 

No
Conflicts. The
execution, delivery and performance of this Agreement and each of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby subject as applicable to
Shareholder Approval, do not and will not (i) conflict with or violate any
provision of the Certificate of Incorporation, Bylaws or other organizational
documents of the Company, (ii) subject
to obtaining the consents referred to in Section 2.1(f), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument (evidencing a Company debt or otherwise) to which
the Company is a party or by which any property or asset of the Company is bound
or affected, except where such conflict or violation has not resulted or would
not reasonably be expected to result, individually or in the aggregate, in a
Material Adverse Effect, or (iii) result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company is subject (including
Federal and state securities laws and regulations and the rules and regulations
of the principal market or exchange on which the Common Stock is traded or
listed), or by which any material property or asset of the Company is bound,
except where such conflict has not resulted or would not reasonably be expected
to result, individually or in the aggregate, in a Material Adverse
Effect.

 

Consents
and Approvals. The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority, regulatory or self
regulatory agency, or other Person in connection with the execution, delivery
and performance by the Company of this Agreement or the Transaction Documents,
other than (i) the filing of a Form S-4 with the Commission, which shall be
filed in connection with the

 

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Shareholder
Approval and implementation of the Recapitalization (ii) any filings, notices or
registrations under applicable Federal or state securities laws (together with
the consents, waivers, authorizations, orders, notices and filings referred to
on Schedule
2.1(f), the
“Required
Approvals”),
except where failure to do so has not resulted or would not reasonably result,
individually, or in the aggregate, in a Material Adverse Effect. “Person” means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.

 

Litigation;
Proceedings. Except
as specifically set forth on Schedule
2.1(g)or in the
SEC Documents (as hereinafter defined), there is no action, suit, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its subsidiaries
or any of their respective properties before or by any court, governmental or
administrative agency or regulatory authority (Federal, state, county, local or
foreign) (collectively, an “Action”) which
(i) adversely affects or challenges the legality, validity or enforceability of
any of this Agreement or the Transaction Documents or (ii) would reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect.
Neither the Company nor any subsidiary, nor, to the knowledge of the Company,
any officer thereof, is or has been, nor, to the knowledge of the Company, any
director thereof is or has been for the last three years, the subject of any
Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been, and,
to the knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director that was a director of the Company at any time during the last three
years or officer of the Company. The Commission has not issued any stop order or
other order suspending the effectiveness of any registration statement filed by
the Company or any subsidiary under the Exchange Act or the Securities
Act.

 

No
Default or Violation. The
Company (i) is not in default under or in violation of any indenture, loan or
other credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound and which is required to
be included as an exhibit to any SEC Document (as defined in Section 2.1(j)) or
will be required to be included as an exhibit to the Company’s next filing under
either the Securities Act or the Securities Exchange Act of 1934, as amended
(the “Exchange
Act”), (ii)
is not in violation of any order of any court, arbitrator or governmental body
applicable to it, (iii) is not in violation of any statute, rule or regulation
of any governmental authority to which it is subject, (iv) is not in default
under or in violation of its Certificate of Incorporation, Bylaws or other
organizational documents, respectively in the case of (i), (ii) and (iii),
except where such violations have not resulted or would not reasonably result,
individually or in the aggregate, in a Material Adverse Effect. 

 

Private
Offering. The
Company and all Persons acting on its behalf have not made, directly or
indirectly, and will not make, offers or sales of any securities or solicited
any offers to buy any security under circumstances that would require
registration of the Notes or the issuance of such securities under the
Securities Act. Subject to the accuracy and completeness of the representations
and warranties of the Purchasers contained in Section 2.2, the offer, sale and
issuance by the Company to the Purchasers of each of the Notes.

 

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SEC
Documents; Financial Statements. The
Common Stock of the Company is registered pursuant to Section 12(g) of the
Exchange Act. Since December 31, 2001, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it,
with the Commission, pursuant to Section 13, 14 or 15(d) of the Exchange Act
(the foregoing materials and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits to such
documents) incorporated by reference therein being collectively referred to
herein as the “SEC
Documents”), on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of any such extension. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto, and fairly present in all material respects the financial position of
the Company and its consolidated subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.

 

Material
Changes. Since
the date of the latest audited financial statements included within the SEC
Documents, except as specifically disclosed in the SEC Documents , (i) there has
been no event, occurrence or development that has had or that could result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting or the
identity of its auditors, (iv) the Company has not declared or made any dividend
or distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock, and (v) the Company has not issued any equity securities to any officer,
director or affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the Commission any request for
confidential treatment of information.

 

Patents
and Trademarks. The
Company and its subsidiaries own, or have rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights that are necessary or material for
use in connection with their respective businesses as described in the SEC
Documents and which the failure to so own or have could have, or reasonably be
expected to result in, a Material Adverse Effect (collectively, the
“Intellectual
Property Rights”).
Except with respect to liabilities reflected in the Company’s financial
statements or as otherwise described in the SEC Documents. The Intellectual
Property Rights are not subject 

 

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to any
lien, mortgage, pledge, security interest, encumbrance, claim, restriction on
use, option, conditional sales agreement, or charge of any kind, or any rights
of others, however evidenced or created which would reasonably be expected to
have a Material Adverse Effect. The business as now conducted and as presently
proposed to be conducted by the Company does not and will not cause the Company
to infringe or violate any of the patents, trademarks, service marks, trade
names, copyrights, domain names, licenses, trade secrets or other proprietary
rights of any other person or entity. Neither the Company nor any subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any subsidiary violates or infringes upon the rights of any Person
which if determined adversely to the Company would, individually or in the
aggregate have a Material Adverse Effect. To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property
Rights.

 

Transactions
With Affiliates and Employees. Except
as set forth in SEC Documents, none of the officers or directors of the Company
and, to the knowledge of the Company, none of the employees of the Company is
presently a party to any transaction with the Company or any subsidiary (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.

 

(Intentionally
Deleted)

 

(Intentionally
Deleted) 

 

Broker’s
Fees. No fees
or commissions or similar payments with respect to the transactions contemplated
by this Agreement or the Transaction Documents have been paid or will be payable
by the Company to any third party broker, financial advisor, finder, investment
banker, or bank. The Purchaser shall have no obligation with respect to any fees
or with respect to any claims made by or on behalf of other Persons for fees of
a type contemplated in this Section 2.1(p) that may be due in connection
with the transactions contemplated by this Agreement and the Transaction
Documents. 

 

Disclosure. Except
for information regarding the transaction contemplated by this Agreement and the
Transaction Documents and the terms and conditions hereof and thereof, the
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any information
the Company believes constitutes material, non-public information. The Company
understands and confirms that the Purchasers will rely on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company are true and correct and do not contain
any untrue statement of a material fact or omit to state any material fact

 

6

necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading.

 

2.2  Representations
and Warranties of the Purchasers. Each of
the Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows: 

 

Organization;
Authority. Such
Purchaser, as applicable, is a corporation or a limited liability company or
limited partnership duly formed, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or formation with the requisite
power and authority, corporate or otherwise, to enter into and to consummate the
transactions contemplated hereby and by this Agreement and the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The purchase by such Purchaser, as applicable, of the Note hereunder has been
duly authorized by all necessary action on the part of such Purchaser. Each of
this Agreement and the Transaction Documents has been duly executed and
delivered by each Purchaser and constitutes the valid and legally binding
obligation of each Purchaser, enforceable against such Purchaser in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors’ rights generally and to general principles of equity and
except that rights to indemnification and contribution may be limited by Federal
or state securities laws or public policy relating thereto. 

 

Investment
Intent. Such
Purchaser is acquiring the Note for its own account and not with a present view
to or for distributing or reselling the Note or the Conversion Securities or any
part thereof or interest therein in violation of the Securities Act. Nothing
contained herein shall be deemed a representation or warranty by such Purchaser
to hold the Note or Conversion Securities for any period of time. Such Purchaser
is acquiring the Note hereunder in the ordinary course of its business. Such
Purchaser does not have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Note or Conversion
Securities.

 

Purchaser
Status. At the
time such Purchaser was offered the Note and at the Closing Date and each date
such Purchaser exercises the conversion option under the Note, (i) it was and
will be an “accredited investor” as defined in Rule 501 under the Securities Act
and (ii) such Purchaser, either alone or together with its representatives, had
and will have such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Note and Conversion Securities. Such Purchaser is
not a registered broker-dealer under Section 15 of the Exchange
Act.

 

Reliance. Such
Purchaser understands and acknowledges that (i) the Notes and Conversion
Securities, are being offered and sold to the Purchaser without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act under Section 4(2) of the
Securities Act or Regulation D promulgated thereunder and (ii) the availability
of such exemption depends in part on, and the Company will rely upon the
accuracy and truthfulness of, the representations set forth in this Section 2.2
and such Purchaser hereby consents to such reliance. 

 

7

Information. Such
Purchaser and its advisors, if any, have been furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Note and Conversion Securities which have
been requested by such Purchaser or its advisors. Such Purchaser and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. The Purchaser understands that its investment in the Note and
Conversion Securities involves a significant degree of risk. Neither such
inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives or counsel shall modify, amend or affect such
Purchaser's right to rely on the truth, accuracy and completeness of the
Company's representations and warranties contained in this Agreement or the
Transaction Documents.

 

Governmental
Review. Such
Purchaser understands that no United States Federal or state agency or any other
government or governmental agency has passed upon or made any recommendation or
endorsement of the Notes or Conversion Securities.

 

Residency. Such
Purchaser is a resident of the jurisdiction set forth immediately beside such
Purchaser’s name on Schedule
I
hereto.

 

The
Company acknowledges and agrees that the Purchasers make no representations or
warranties with respect to the transactions contemplated hereby other than those
specifically set forth in this Section 2.2.

ARTICLE
III.  

 

OTHER
AGREEMENTS 

 

3.1  Transfer
Restrictions.

 

a.
 If any
Purchaser should decide to dispose of the Note or Conversion Securities held by
it, such Purchaser understands and agrees that it may do so (1) only pursuant to
an effective registration statement under the Securities Act, (2) pursuant to an
available exemption from the registration requirements of the Securities Act,
(3) to an affiliate of the Purchaser, or (4) pursuant to Rule 144 promulgated
under the Securities Act (“Rule
144”). In
connection with any transfer of any Note or Conversion Securities other than
pursuant to an effective registration statement, Rule 144, to the Company or to
an affiliate of the Purchasers, the Company may require the transferor thereof
to provide to the Company a written opinion of counsel experienced in the area
of United States securities laws selected by the transferor, the form and
substance of which opinion shall be customary for opinions of counsel in
comparable transactions and reasonably acceptable to the Company, to the effect
that such transfer does not require registration of such transferred securities
under the Securities Act; provided, however, that if the Note or Conversion
Securities may be sold pursuant to Rule 144(k), no written opinion of counsel
shall be required from any Purchaser if such Purchaser provides reasonable
assurances that such security can be sold pursuant to Rule 144(k).
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register any transfer by any Purchaser to an affiliate of such Purchaser,
provided that the transferee certifies to the Company that it is an “accredited
investor” as defined in Rule 501(a) under the Securities Act. Any such
transferee shall agree in writing to be bound by the terms of this Agreement and
the Transaction Documents and shall
have the 

 

8

rights of
a Purchaser under this Agreement and the Transaction Documents. The Company
shall not require an opinion of counsel in connection with the transfer of the
shares of Note and Conversion Securities to an affiliate of a Purchaser.

 

b. The
Purchasers agree to the imprinting, so long as is required by this Section
3.1(b), of the following legend on the Note and Conversion Securities :

THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. 

 

3.2  Stop
Transfer Instruction. The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions on transfer set
forth in Section 3.1.

 

3.3  (Intentionally
Deleted)

 

3.4   Furnishing
of Information. As long
as any Purchaser owns the Note the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act. Upon the request of any such Person, the Company shall deliver
to such Person a written certification of a duly authorized officer as to
whether it has complied with the preceding sentence. As long as any Purchaser
owns the Note, if the Company is not required to file reports pursuant to such
laws, it will prepare and furnish to the Purchasers and make publicly available
in accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Company Common Stock under Rule 144. 

 

3.5  Integration. The
Company shall not, and shall use its best efforts to ensure that no affiliate of
the Company shall, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Notes hereunder in a
manner that would require the registration under the Securities Act of the sale
of the Notes to the Purchasers, or that would be integrated with the offer or
sale of the Notes for purposes of the rules and

 

9

regulations
of the Nasdaq National Market, if such integration would result in a violation
of any such rule or regulation.

 

3.6  Use of
Proceeds. The
Company shall use the net proceeds from the sale of the Notes hereunder for
working capital purposes.

 

3.7  Best
Efforts. Each of
the parties hereto shall use its best efforts to satisfy each of the conditions
to be satisfied by it as provided in Article IV of this Agreement.

 

     
ARTICLE IV.  

CONDITIONS

 

4.1  Closing.

 

Conditions
Precedent to the Obligation of the Company to Sell the Notes. The
obligation of the Company to sell the Notes is subject to the satisfaction or
waiver by the Company, at or before the Closing Date, of each of the following
conditions: 

 

Accuracy
of the Purchasers’ Representations and Warranties. The
representations and warranties of each Purchaser in this Agreement shall be true
and correct in all material respects as of the date when made and as of the
Closing Date; 

 

Performance
by the Purchasers. Each
Purchaser shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or before the Closing
Date; 

 

No
Injunction. No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any of
the transactions contemplated by this Agreement or the Transaction Documents;
and

 

Conditions
Precedent to the Obligation of the Purchasers to Purchase the Notes at the
Closing. The
obligation of each Purchaser hereunder to acquire and pay for the Note at the
Closing is subject to the satisfaction or waiver by Purchaser, at or before the
Closing Date, of each of the following conditions: 

 

(i) Accuracy
of the Company’s Representations and Warranties. The
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all respects as of the date when made and as of the
Closing Date; 

 

(ii) Performance
by the Company. The
Company shall have performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or before the Closing Date;

 

10

(iii) No
Injunction. No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any of
the transactions contemplated by this Agreement and the Transaction Documents;

 

(iv) Required
Approvals. All
Required Approvals shall have been obtained; 

 

ARTICLE
V.  

 

INDEMNIFICATION

 

5.1  Indemnification. The
Company will indemnify and hold the Purchasers and their directors, officers,
shareholders, partners, employees and agents (each, a “Purchaser
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys' fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any misrepresentation, breach or inaccuracy, or any
allegation by a third party that, if true, would constitute a breach or
inaccuracy, of any of the representations, warranties, covenants or agreements
made by the Company in this Agreement or in the other Transaction Documents; or
(b) any cause of action, suit or claim brought or made against such Purchaser
Party and solely arising out of or solely resulting from the execution,
delivery, performance or enforcement of this Agreement or any of the other
Transaction Documents. The Company will reimburse such Purchaser for its
reasonable legal and other expenses (including the cost of any investigation,
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred. Notwithstanding the foregoing, the
Company shall not be required to indemnify any the Purchaser under the terms of
this Article V with respect to any claim or violation for which indemnification
is expressly excluded under the Registration Rights Agreement.

 

ARTICLE
VI.  

 

MISCELLANEOUS

 

6.1  Entire
Agreement. This
Agreement, together with the Exhibits and Schedules hereto and the Transaction
Documents contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters.

 

6.2  Notices.
Whenever it is provided herein that any notice, demand, request, consent,
approval, declaration or other communication shall or may be given to or served
upon any of the parties by another, or whenever any of the parties desires to
give or serve upon another any such communication with respect to this
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and either shall be delivered in person
with receipt acknowledged or by registered or certified mail, return receipt
requested, postage prepaid, or by telecopy and confirmed by telecopy answerback
addressed as follows:

 

11

 

If to
the Company:  

Level 8
Systems, Inc.

1433
Highway 34, Building C

Farmingdale,
New Jersey 07727

Attn: John P. Broderick

 

If to
the Purchasers: To the
address set forth on the counterpart signature page of such Purchaser, or at
such other address as may be substituted by notice given as herein provided. The
giving of any notice required hereunder may be waived in writing by the party
entitled to receive such notice. Every notice, demand, request, consent,
approval, declaration or other communication hereunder shall be deemed to have
been duly given and effective on the earliest of (a) the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number specified in this Section prior to 6:30 p.m. (New York City time) on a
business day, (b) the next business day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a business day or later than 6:30
p.m. (New York City time) on any business day, (c) the business day following
the date of mailing, if sent by U.S. nationally recognized overnight courier
service, or (d) upon actual receipt by the party to whom such notice is required
to be given. As used herein, a “business day” means any day except Saturday,
Sunday and any day which shall be a federal legal holiday or a day on which
banking institutions in the State of New York are authorized or required by law
or other governmental action to close.

6.3  Amendments;
Waivers. No
provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by both the Company and each of
the Purchasers or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. No waiver of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter. 

 

6.4  Headings. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.

 

6.5  References.
References herein to Sections are to Sections of this Agreement, unless
otherwise expressly provided.

 

6.6  Successors
and Assigns; Assignability. Neither
this Agreement nor any right, remedy, obligation or liability arising hereunder
or by reason hereof shall be assignable by either the Company or the Purchasers
without the prior written consent of the other party. In the event such prior
written consent is obtained and this Agreement is assigned by either party, all
covenants contained herein shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns.

 

12

 

6.7  No
Third-Party Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person. 

 

6.8  Governing
Law; Waiver of Jury Trial. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of Delaware, without regard to the
principles of conflicts of law thereof. Each party agrees that all proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other Transaction Documents (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) (each a “Proceeding”) shall
be commenced exclusively in the state and federal courts sitting in the State of
Delaware. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the State of Delaware
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of the any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any Proceeding, any claim that
it is not personally subject to the jurisdiction of any such court, that such
Proceeding is improper. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such Proceeding
by mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any
legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence a Proceeding to
enforce any provisions of a Transaction Document, then the prevailing party in
such Proceeding shall be reimbursed by the other party for its attorneys fees
and other costs and expenses incurred with the investigation, preparation and
prosecution of such Proceeding.

 

6.9   Survival. The
representations, warranties, agreements and covenants contained herein shall
survive following the Closing.

 

6.10   Counterparts;
Facsimile Signatures. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original
thereof.

 

6.11  (Intentionally
Deleted)

 

13

 

6.12  Publicity. Neither
the Company nor the Purchasers shall issue any press release or make any public
disclosure regarding the transactions contemplated hereby unless such press
release or public disclosure is approved by the other party hereto in advance.
Notwithstanding the foregoing, each of the parties hereto may, in documents
required to be filed by it with the SEC or other regulatory bodies, make such
statements with respect to the transactions contemplated hereby as each may be
advised by counsel is legally necessary or advisable, and may make such
disclosure as it is advised by its counsel is required by law.

 

6.13  Severability. In case
any one or more of the provisions of this Agreement shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision which shall be a reasonable substitute therefore, and upon
so agreeing, shall incorporate such substitute provision in this Agreement.

 

6.14  Further
Assurances. Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.

 

6.15  (Intentionally
Deleted)

 

6.16  Remedies. In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Purchasers and the Company will
be entitled to specific performance under this Agreement or the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.

 

6.17  Independent
Nature of Purchasers’ Obligations and Rights. The
obligations of each Purchaser under this Agreement or any Transaction Document
are several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser under this Agreement or any Transaction Document. Nothing
contained herein or in any Transaction Document, and no action taken by any
Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
this Agreement or any the Transaction Document. Each Purchaser shall be entitled
to independently protect and enforce its rights, including without limitation
the rights arising out of this Agreement or out of the other Transaction
Documents, and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose.

 

6.18  Fees
and Expenses. Each
Party shall pay the fees and expenses of its advisers, accountants and other
experts.

 

IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized persons as of the
day and year first above written.

	
      LEVEL
      8 SYSTEMS, INC.

	 	 
	
      By:
	 
	 	
      John
      P. Broderick

	 	
      Chief
      Operating and Financial Officer

	
      PURCHASERS

	 
	
      [COUNTERPART
      SIGNATURE PAGES FOLLOW]

	 

14

IN
WITNESS WHEREOF, the undersigned Purchaser has caused this Securities Purchase
Agreement to be duly executed by its respective authorized persons as of the day
and year first above written.

PURCHASER:

	
       
	
      (Print
      or Type Name of Purchaser)

	
      By:
      
	
       

	
      Name:
      
	
       

	
      Title:
	
       

	
       
	
       

	
      RESIDENCE:
	
       

	
       
	
       

	
      ADDRESS:
      
	
       

	
       
	 
	 	 

	
      Telephone:
	 
	
      Facsimile:
	 
	
      Attention:
	 

AGGREGATE
SUBSCRIPTION AMOUNT:

 

Face
Value of Promissory Note:_______________________________________

[PURCHASER
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]

EXHIBIT
“A”

Term
Sheet

SCHEDULE
I

	
       

      Name
      and

      Address
      of Purchaser
	
       

       

      Residence
	
       

      Face
      Value of Promissory
      Note
	
       

       

      Warrants
      @ $.002
	
       

      Early
      Adopter Warrants
      2:1

	
      Advanced
      Systems Europe B.V.

      Azrieli
      Center 3, Triangle Bldg.

      42nd
      Floor

      Tel
      Aviv 67023 Israel
	
      Israel
	
      88,699.70
	
      9,074,885
	
      1,773,994

	
      Douglas
      W. Baena

      33
      Twin Lane North

      Wantagh,
      NY 11793
	
      NY
	
      5,405.40
	
      648,648
	 
	
      Marvin
      Bank

      The
      Rittenhouse, #2502

      210
      West Rittenhouse Square

      Philadelphia,
      PA 19103
	
      PA
	
      13,113.20
	
      1,702,824
	
      262,264

	
       

      Jerald
      & Sara Berger

      95
      Thales Blvd.

      Bergenfield,
      NJ 07621
	
       

      NJ
	
       

      1,000.00
	
       

      136,549
	 
	
       

      Dr.
      Richard H. Blanck

      Nine
      Hickory Road

      Manhasset
      Hills, NY 11040
	
       

      NY
	
       

      2,702.70
	
       

      324,324
	 
	
       

      Larry
      Blisko

      46
      Mariner Way

      Monsey,
      NY 10952
	
       

      PA
	
       

      1,300.00
	
       

      177,513
	 
	
       

      Lee
      V. Brower

      1330
      Vincenzo Drive

      Toms
      River, NJ 08753
	
       

      NJ
	
       

      4,000.00
	
       

      546,195
	 
	
      Brown
      Simpson Partners I, Ltd.

      152
      West 57th
      Street, 21st
      Floor

      New
      York, NY 10019
	
       

      NY
	
       

      215,000.00
	
       

      28,837,851
	
       

      4,300,000

	
      Joseph
      A. Calandra

      436
      Flanders Road

      Southington,
      CT 06489
	
      CT
	
      5,000.00
	
      682,744
	 
	
      Narinder
      Chugh

      26-20
      Bayside Lane

      Flushing,
      NY 11358
	
      NY
	
      2,702.70
	
      324,324
	 
	
      Conrad
      Clement

      441
      Orange Blvd.

      Sanford,
      FL 31771
	
      FL
	
      16,180.20
	
      1,941,624
	 

A -1

SCHEDULE
I Continued

	
       

      Name
      and

      Address
      of Purchaser
	
       

       

      Residence
	
       

      Face
      Value of Promissory
      Note
	
       

       

      Warrants
      @ $.002
	
       

      Early
      Adopter Warrants
      2:1

	
      Leonard
      J. Corwin, MD

      90
      Millburn Avenue

      Millburn,
      NJ 07041
	
      NJ
	
      1,111.10
	
      133,332
	
      22,222

	
      Leonard
      J. Corwin, M.D.

      90
      Millburn Avenue

      Millburn,
      NJ 07041
	
      NJ
	
      10,000.00
	
      1,365,488
	 
	
      Robert
      J. Davis, Jr.

      35
      Bristol Place

      Bay
      Head, NJ 08742
	
      NJ
	
      5,000.00
	
      682,744
	 
	
      Delphi
      Partners, Ltd.

      45
      Sparks Avenue

      Nantucket,
      MA 02554
	
      MA
	
      10,203.49
	
      2,201,136
	
      351,372

	
      Stuart
      Ditchek

      1834
      East 28th
      Street

      Brooklyn,
      NY 11229
	
      NY
	
      1,000.00
	
      136,549
	 
	
      Diamond
      Investments II, LLC

      149
      Knob Hill Road

      Mooresville,
      NC 28117
	
      NC
	
      1,333.30
	
      159,996
	 
	
      C.
      Glen & Joan O. Dugdale

      3609
      Centerville Road

      Greenville,
      DE 19807
	
      DE
	
      26,937.78
	
      3,749,596
	
      559,962

	
      William
      C. Dugdale

      1909
      Mt. Vernon Avenue

      Wilmington,
      DE 19806
	
      DE
	
      5,000.00
	
      682,744
	 
	
      Devon
      D. Hathaway

      6206
      Blackburn Lane

      Baltimore,
      MD 21212
	
      MD
	
      5,000.00
	
      682,744
	 
	
      Priscilla
      R. Dugdale

      250
      Fairview Road

      Coatesville,
      PA 19320
	
      PA
	
      10,000.00
	
      1,365,488
	 

A -2

SCHEDULE
I Continued

	
       

      Name
      and

      Address
      of Purchaser
	
       

       

      Residence
	
       

      Face
      Value of Promissory
      Note
	
       

       

      Warrants
      @ $.002
	
       

      Early
      Adopter Warrants
      2:1

	
      Ike
      Dweck

      46
      Ocean Avenue

      Deal,
      NJ 07723
	
      NJ
	
      4,886.11
	
      1,146,457
	
      115,394

	
      Ike
      Dweck

      46
      Ocean Avenue

      Deal,
      NJ 07723
	
      NJ
	
      5,000.00
	
      682,744
	 
	
      Alice
      Emerson

      39
      New Street

      P.O.
      Box 206

      Siasconset,
      MA 02564
	
      MA
	
      1,388.90
	
      166,668
	 
	
      Harold
      Falik

      562
      Winthrop Road

      Teaneck,
      NJ 07666
	
      NJ
	
      2,500.00
	
      341,372
	 
	
      Marc
      Feder

      37
      Harborview West

      Lawrence,
      NY 11559
	
      NY
	
      1,644.70
	
      326,604
	
      32,894

	
      Irving
      Forman

      802
      Westwood Avenue

      Staten
      Island, NY 10314
	
      NY
	
      3,289.50
	
      653,228
	 
	
      Murray
      Forman

      291
      Ocean Avenue

      Lawrence,
      NY 11559
	
      NY
	
      15,776.51
	
      3,099,521
	 
	
      Don
      L. Freeman

      The
      Touraine #700

      1520
      Spruce Street

      Philadelphia,
      PA 19102
	
      PA
	
      4,054.10
	
      486,492
	 
	
       

      Aaron
      Friedman

      24B
      Remsen Avenue

      Monsey,
      NY 10952
	
       

      NY
	
       

      1,000.00
	
       

      136,549
	 
	
       

      Mark
      Friedman

      17291
      St. James Court

      Boca
      Raton, FL 33496
	
       

      FL
	
       

      3,378.40
	
       

      405,408
	
       

      67,568

	
      Sidney
      Gable

      111
      Joseph Avenue

      Staten
      Island, NY 10314
	
      NY
	
      1,644.70
	
      326,604
	 

A -3

SCHEDULE
I CONTINUED

	
       

      Name
      and

      Address
      of Purchaser
	
       

       

      Residence
	
       

      Face
      Value of Promissory
      Note
	
       

       

      Warrants
      @ $.002
	
       

      Early
      Adopter Warrants
      2:1

	
      Anna
      Gertz

      1419
      E. 27th
      Street

      Brooklyn,
      NY 11210
	
      NY
	
      1,000.00
	
      136,549
	 
	
      Eugene
      Garb

      30
      Londonberry Drive

      Holmdel,
      NJ 07753
	
      NJ
	
      1,000.00
	
      136,549
	 
	
      William
      Gononsky

      653
      Thames Blvd.

      Teaneck,
      NJ 07666
	
      NJ
	
      1,000.00
	
      136,549
	 
	
      Jeffrey
      Grodko

      1865
      E. 28th
      Street

      Brooklyn,
      NY 11229
	
      NY
	
      5,000.00
	
      682,744
	 
	
      Phillip
      Grodko

      3926
      Bedford Avenue

      Brooklyn,
      NY 11229
	
      NY
	
      1,500.00
	
      204,823
	 
	
      Sandra
      Grodko

      596
      South Forest Drive

      Teaneck,
      NJ 07666
	
      NJ
	
      15,000.00
	
      1,800,000
	
      300,000

	
      Sandra
      Grodko

      596
      South Forest Drive

      Teaneck,
      NJ 07666
	
      NJ
	
      10,000.00
	
      1,365,488
	 
	
      Steven
      Grodko

      596
      South Forest Drive

      Teaneck,
      NJ 07666
	
      NJ
	
      1,250.00
	
      150,000
	
      25,000

	
      Leonard
      Grunstein

      665
      South Forest Drive

      Teaneck,
      NJ 07666
	
      NJ
	
      8,000.00
	
      1,092,391
	 
	
      Haines
      Family Associates L.P.

      3
      Lucas Lane

      Freehold,
      NJ 07728
	
      NJ
	
      14,289.50
	
      1,973,228
	
      285,790

	
      Haines
      Family Associates L.P.

      3
      Lucas Lane

      Freehold,
      NJ 07728
	
      NJ
	
      50,000.00
	
      6,827,441
	 
	
      Roger
      Haines

      3
      Lucas Lane

      Freehold,
      NJ 07728
	
      NJ
	
      10,000.00
	
      1,365,488
	 
	
      Leona
      Husarsky

      1730
      E. 27th
      Street

      Brooklyn,
      NY 11229
	
      NY
	
      1,000.00
	
      136,549
	 
	
      Joseph
      Huszcza

      53
      Mada Avenue

      Staten
      Island, NY 10310
	
      NY
	
      1,000.00
	
      136,549
	 

A -4

SCHEDULE
I CONTINUED

	
       

      Name
      and

      Address
      of Purchaser
	
       

       

      Residence
	
       

      Face
      Value of Promissory
      Note
	
       

       

      Warrants
      @ $.002
	
       

      Early
      Adopter Warrants
      2:1

	
      Joel
      Kaliroff

      155
      Kentucky Way

      Freehold,
      NJ 07728
	
      NJ
	
      5,000.00
	
      682,744
	 
	
      David
      Katz

      583
      Winthrop Road

      New
      Jerey, NJ 07666
	
      NJ
	
      1,000.00
	
      136,549
	 
	
      Richard
      Keates, M.D.

      99
      N. Main Street

      New
      Hope, PA 18938
	
      PA
	
      1,333.30
	
      159,996
	
      26,666

	
      Richard
      Keates, M.D.

      99
      N. Main Street

      New
      Hope, PA 18938
	
      PA
	
      15,000.00
	
      2,048,232
	 
	
      Manuel
      Koitz

      P.O.
      Box 346

      Oakhurst,
      NJ 07755
	
      NJ
	
      7,000.00
	
      955,842
	 
	
      Paul
      & Marjorie Krubiner

      79
      Golf View Terrace

      Fairfield,
      CT 06825
	
      CT
	
      2,702.70
	
      324,324
	 
	
      Mark
      & Carolyn Landis

      251
      Crandon Blvd.

      Townhouse
      #161

      Key
      Biscayne, FL 33149
	
      FL
	
      134,527.00
	
      18,860,167
	
      3,057,206

	
       

      Philip
      C. Leavitt

      7508
      N. Red Ledge Drive

      Paradise
      Valley, AZ 85253
	
       

      AZ
	
       

      6,756.80
	
       

      810,816
	 
	
       

      Arthur
      Lerner

      3852
      Shelly Road

      Huntingdon
      Valley, PA 19006
	
       

      PA
	
       

      1,351.40
	
       

      162,168
	 
	
       

      Liraz
      Systems Ltd.

      8
      Maskit Street

      P.O.
      Box 2062

      Herzlia
      46120 Israel
	
       

      Israel
	
       

      8,223.70
	
       

      1,633,059
	
       

      164,474

	
      Anna
      Loboda

      1
      Roseld Avenue

      P.O.
      Box 75

      Deal,
      NJ 07723
	
      NJ
	
      2,000.00
	
      273,098
	 
	
      David
      K. & Gina W. Loebell

      20
      Meadowbrook Drive

      East
      Windsor, NJ 08520
	
      NJ
	
      2,000.00
	
      273,098
	 
	
      Estate
      of Martin Lustgarten

      2900
      Route 42

      Sicklerville,
      NJ 08081
	
      NJ
	
      21,121.40
	
      2,534,568
	
      422,428

A -5

SCHEDULE
I CONTINUED

	
       

      Name
      and

      Address
      of Purchaser
	
       

       

      Residence
	
       

      Face
      Value of Promissory
      Note
	
       

       

      Warrants
      @ $.002
	
       

      Early
      Adopter Warrants
      2:1

	
      Scott
      Lustgarten

      418
      Hillbrook Road

      Bryn
      Mawr, PA 19010
	
      PA
	
      1,644.70
	
      326,604
	
      32,894

	
      Scott
      Lustgarten

      418
      Hillbrook Road

      Bryn
      Mawr, PA 19010
	
      PA
	
      15,000.00
	
      2,048,232
	 
	
      Earle
      I. Mack Family Trust II

      2115
      Linwood Avenue

      Fort
      Lee, NJ 07024
	
      NJ
	
      4,166.70
	
      500,004
	
      83,334

	
      Earle
      I. Mack Family Trust II

      2115
      Linwood Avenue

      Fort
      Lee, NJ 07024
	
      NJ
	
      10,000.00
	
      1,365,488
	 
	
      Fred
      Mack

      2115
      Linwood Avenue

      Fort
      Lee, NJ 07024
	
      NJ
	
      63,288.30
	
      7,594,596
	
      1,265,766

	
      Fred
      Mack 4/30/92 Trust

      2115
      Linwood Avenue

      Fort
      Lee, NJ 07024
	
      NJ
	
      4,000.60
	
      721,621
	
      80,012

	
      Fred
      Mack Trust (Hailey Mack)

      2115
      Linwood Avenue

      Fort
      Lee, NJ 07024
	
      NJ
	
      416.70
	
      50,004
	
      8,334

	
      Fred
      Mack Trust (Jason Mack)

      2115
      Linwood Avenue

      Fort
      Lee, NJ 07024
	
      NJ
	
      416.70
	
      50,004
	
      8,334

	
      Bruce
      D. Miller

      45
      Sparks Avenue

      Nantucket,
      MA 02554
	
      MA
	
      17,502.31
	
      3,802,272
	
      602,744

	
      Bruce
      D. Miller

      45
      Sparks Avenue

      Nantucket,
      MA 02554
	
      MA
	
      15,000.00
	
      2,048,232
	 
	
      Luciano
      Morelli

      28
      Mountainside Drive

      Morris
      Township, NJ 07960
	
      NJ
	
      30,000.00
	
      4,096,465
	 
	
      Richard
      Nager

      433
      Gulf Street

      Milford,
      CT 06460
	
      CT
	
      3,289.50
	
      653,228
	
      65,790

	
      Joseph
      A. & Michele K. Nappi

      3267
      Regal Crest Drive

      Longwood,
      FL 32779
	
      FL
	
      10,000.00
	
      1,365,488
	 
	
      North
      Sound Legacy

      53
      Forest Avenue, Suite 203

      Old
      Greenwich, CT 06870
	
      CT
	
      1,261.24
	
      745,173
	
      106,608

A -6

SCHEDULE
I CONTINUED

	
       

      Name
      and

      Address
      of Purchaser
	
       

       

      Residence
	
       

      Face
      Value of Promissory
      Note
	
       

       

      Warrants
      @ $.002
	
       

      Early
      Adopter Warrants
      2:1

	
      North
      Sound Legacy Institutional

      53
      Forest Avenue, Suite 203

      Old
      Greenwich, CT 06870
	
      CT
	
      19,549.27
	
      8,832,636
	
      959,484

	
      North
      Sound Legacy International

      53
      Forest Avenue, Suite 203

      Old
      Greenwich, CT 06870
	
      CT
	
      42,251.64
	
      14,907,771
	
      1,006,126

	
      Bruce
      Orlofsky

      246
      Elm Street

      West
      Hempstead, NY 11552
	
      NY
	
      1,000.00
	
      136,549
	 
	
      Gary
      Orlofsky

      18
      Voyager Court

      Monsey,
      NY 10952
	
      NY
	
      1,200.00
	
      163,859
	 
	
      Martin
      Orlofsky Family Trust

      487
      Langley Avenue

      West
      Hempstead, NY 11552
	
      NY
	
      2,500.00
	
      341,372
	 
	
      Jeffrey
      O. Perl

      1646
      Ruth Road

      Madison,
      VA 22727
	
      VA
	
      5,000.00
	
      682,744
	 
	
      Anthony
      Pizi

      16
      Blackhawk Court

      Princeton
      Junction, NJ 08550
	
      NJ
	
      40,000.00
	
      7,443,841
	
      1,166,666

	
      Anthony
      Pizi

      16
      Blackhawk Court

      Princeton
      Junction, NJ 08550
	
      NJ
	
      200,000.00
	
      26,924,444
	 
	
      Anthony
      Pizi

      16
      Blackhawk Court

      Princeton
      Junction, NJ 08550
	
      NJ
	
      150,000.00
	
      20,623,795
	 
	
      Milton
      H. Polin

      Derech
      Hachoresh 34

      Jerusalem
      97278 Israel
	
      Israel
	
      1,000.00
	
      136,549
	 
	
      Israel
      M. Popack

      10
      Hoover Avenue

      W.
      Orange, NJ 07052-2319
	
      NJ
	
      1,000.00
	
      136,549
	 
	
      Jonathan
      P. Robinson

      12
      Great Woods Lane

      Malvern,
      PA 19355
	
      PA
	
      1,388.90
	
      166,668
	 
	
      Larry
      Rutstein

      2356
      NW 60th
      Street

      Boca
      Raton, FL 33496
	
      FL
	
      3,378.40
	
      405,408
	
      67,568

A -7

SCHEDULE
I CONTINUED

	
       

      Name
      and

      Address
      of Purchaser
	
       

       

      Residence
	
       

      Face
      Value of Promissory
      Note
	
       

       

      Warrants
      @ $.002
	
       

      Early
      Adopter Warrants
      2:1

	
      Steven
      Schneider

      255
      W. 94 St., Apt. 95

      New
      York, NY 10025
	
      NY
	
      2,702.70
	
      324,324
	 
	
      Kenneth
      Schwartz

      192
      Fen Way

      Syasset,
      NY 11791
	
      NY
	
      1,000.00
	
      136,549
	 
	
      SDS
      Capital

      53
      Forest Avenue, Suite 203

      Old
      Greenwich, CT 06870
	
      CT
	
      63,062.15
	
      20,716,485
	
      2,107,068

	
      Joseph
      Shelanski

      710
      Mill Creek Road

      Gladwyne,
      PA 19035
	
      PA
	
      3,889.68
	
      983,824
	 
	
      Dr.
      Philip Simkovitz

      78
      North Park Avenue

      Easton,
      CT 06612
	
      CT
	
      4,216.20
	
      505,944
	 
	
      James
      Simpson

      53
      Coronado Pointe

      Laguna
      Niguel, CA 92677
	
      CA
	
      1,666.70
	
      200,004
	 
	
      Richard
      F. Siracusa

      57
      Mallard Road

      Middletown,
      NJ 07748
	
      NJ
	
      5,000.00
	
      682,744
	 
	
      Sobol
      , Tziporah

      2701
      Avenue P

      Brooklyn,
      NY 11229
	
      NY
	
      2,000.00
	
      273,098
	 
	
      Bernard
      Spain

      233
      S. 6th
      Street #2505

      Philadelphia,
      PA 19106
	
      PA
	
      27,027.00
	
      3,243,240
	 
	
      David
      Spivak

      1
      Island Drive, Unit 21

      Norwalk,
      CT 06855
	
      CT
	
      1,111.10
	
      133,332
	 
	
      James
      M. Stevens

      8818
      Ashridge Park Drive

      Spring,
      TX 77379
	
      TX
	
      27,502.00
	
      4,592,891
	
      603,056

	
      Frank
      Tamberelli

      2515
      Arbroath Trace

      Gastonia,
      NC 28054
	
      NC
	
      657.90
	
      130,646
	 
	
      William
      & Barbara Turner

      393
      N. Lake Shore Drive

      Fontana,
      WI 53125
	
      WI
	
      2,000.00
	
      240,000
	
      40,000

	
      Eli
      Robert Vegh

      749
      Westwood Avenue

      Staten
      Island, NY 10314
	
      NY
	
      1,644.70
	
      326,604
	 

A -8

SCHEDULE
I CONTINUED

	
       

      Name
      and

      Address
      of Purchaser
	
       

       

      Residence
	
       

      Face
      Value of Promissory
      Note
	
       

       

      Warrants
      @ $.002
	
       

      Early
      Adopter Warrants
      2:1

	
      Stanley
      Waintraub

      480
      Winthrop Road

      Teaneck,
      NJ 07666
	
      NJ
	
      1,000.00
	
      136,549
	 
	
      Michael
      Weiss

      25
      Briarwood Lane

      Lawrence,
      NY 11559
	
      NY
	
      3,964.90
	
      682,578
	
      79,298

	
      Hervey
      Weitzman

      68
      North Park Avenue

      Easton,
      CT 06612
	
      CT
	
      1,388.90
	
      166,668
	
      27,778

	
      Hervey
      Weitzman

      68
      North Park Avenue

      Easton,
      CT 06612
	
      CT
	
      5,000.00
	
      682,744
	 
	
      Hal
      Wenig

      141-22
      73rd
      Terrace

      Kew
      Garden Hills, NY 11367
	
      NY
	
      2,500.00
	
      341,372
	 
	
      Jacqueline
      Whyte

      2007
      Aspen Circle

      Springfield,
      PA 19064
	
      PA
	
      1,486.50
	
      178,380
	 
	
      James
      Wilkins

      21
      Clark Road

      Woodbridge,
      CT 06525
	
      CT
	
      1,388.90
	
      166,668
	 
	
      Roger
      Wittenbach

      10
      Woodward Lane

      Latherville,
      MD 21093
	
      MD
	
      1,388.90
	
      166,668
	 
	
      Matthew
      Yaakovian

      Dugdale
      Chariable Remainder Trust

      3609
      Centerville Road

      Greenville,
      DE 19807
	
      DE
	
      2,777.80
	
      333,336
	
      55,556

	
      Roselyn
      Zelman

      1649
      E. 28th
      Street

      Brooklyn,
      NY 11229
	
       

      NY
	
       

      3,000.00
	
       

      409,646
	 

A -9Form of promissory note

PROMISSORY
NOTE

 

$____________                                                                 ____________,
2004

 

FOR VALUE
RECEIVED, Level
8 Systems, Inc., a
Delaware corporation (together with its successors and assigns, the
“Obligor”),
hereby promises to pay to the order of _____________________
(together with its successors and assigns, the “Holder”), the
principal sum of __________________________________________________________
($__________) (the “Note
Amount”) on
January 30, 2005 (the “Maturity
Date”),
together with interest on the outstanding principal sum at the rate of
10% per annum from the date hereof until such principal sum is paid in full.

 

This Note
is subject to all applicable terms of that certain Intellectual Property
Security Agreement, dated as of August 10, 2004, between Obligor and Holder (the
“Security
Agreement”), and
is and shall remain secured thereby. Terms used but not defined herein which are
defined in the Security Agreement shall have the respective meanings assigned
thereto in the Security Agreement.

 

The
payment of principal or interest shall be made by check to the Holder of this
Note on the Maturity Date at the address in the continental United States to
which such Holder has, by written notice delivered to Obligor, not less than
five business days prior to such payment date, directed Obligor to make such
payment or, if no such notice is timely received by Obligor, by check posted to
such Holder at its last known address of which the Obligor has
notice.

 

The
principal of and interest on this Note are payable in such coin or currency of
the United States of America as at the time of payment is legal tender for the
payment of public and private debts. All such interest shall be calculated based
upon a 360-day year and paid for the actual number of days elapsed including the
first day but excluding the last day. Notwithstanding anything herein to the
contrary, the interest or any amount deemed to be interest payable by Obligor
with respect to this Note shall not exceed the maximum amount permitted by
applicable law.

 

Obligor
may prepay this Note in whole at any time or in part from time to time without
premium or penalty at par plus accrued and unpaid interest.

 

In case
one or more of the following events (each an “Event
of Default”)
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be
continuing:

 

 

(i)  any
representation or warranty made by the Obligor in the Security Agreement or in
any certificate or other document delivered pursuant to the Security Agreement
shall prove to have been incorrect in any material respect when
made;

 

 

 

 

(ii)  the
appointment of a custodian, receiver, or liquidator for Obligor or any of its
property which such appointment is not discharged or dismissed within 60
days;

 

(iii)  the
adjudication of the Obligor as insolvent;

 

(iv)  the
making by the Obligor of an assignment for the benefit of its
creditors;

 

(v)  an
admission by the Obligor of his inability to pay its debts as they become
due;

 

(vi)  the
commencement of any proceeding under any bankruptcy or similar law by or against
the Obligor which is not discharged or dismissed within 60 days; or

 

(vii)  failure
on the part of Obligor to duly observe or perform in any material respect any of
the covenants or agreements on the part of the Obligor contained herein and in
the Security Agreement for a period of 10 days after the date on which written
notice specifying such failure and demanding that Obligor remedy the same, shall
have been given to Obligor by the Holder of this Note,then, and
in each and every such case, the principal of and accrued interest on this Note
shall become immediately due and payable without any declaration or other act on
the part of the Holder of this Note.

 

In case
this Note shall become mutilated, defaced or be apparently destroyed, lost or
stolen, Obligor shall execute and deliver a replacement Note in exchange and in
substitution for the mutilated or defaced Note, or in lieu of and in
substitution for the Note so apparently destroyed, lost or stolen. In every case
the Holder of this Note shall furnish to Obligor such security or indemnity as
may be reasonably required by Obligor to indemnify and defend and to save
Obligor harmless and, in every case of destruction, loss or theft evidence to
Obligor’s reasonable satisfaction of the apparent destruction, loss or theft of
such Note and of the ownership thereof. 

 

No
failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive or any rights or remedies provided by
law.

 

The
Obligor hereby waives demand, presentment, notice of dishonor, diligence,
protest, notice of protest and all other notices or demands relating to this
Note. The Obligor also (a) acknowledges and agrees that, in any suit, action, or
proceeding under this Note, the courts of the State of New Jersey or the courts
of the United States District Court for the District of New Jersey shall have
exclusive jurisdiction, (b) consents to the jurisdiction of such courts and (c)
consents to and waives any objection which the Obligor now has or may hereafter
have to proper venue existing in any of such courts. This Note shall be governed
by, and construed in accordance with, the laws of the State of New Jersey,
without regard to conflict of laws principles thereof.

2

This Note
and the indebtedness evidenced hereby are deemed obligations secured by the
Security Agreement previously executed and delivered by the Obligor to Holder.
The Obligor hereby warrants and agrees that the liens granted under the Security
Agreement are validly perfected, first priority liens securing all of the
existing and future obligations owing by the Obligor to Holder. The Obligor
acknowledges and agrees that the Security Agreement remains in full force and
effect and that Holder’s rights and remedies thereunder are not intended to be
limited by this Note or any other note or agreement executed in connection
herewith. 

THE
OBLIGOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY
NOW HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT TO ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS PROMISSORY
NOTE.

IN
WITNESS WHEREOF, Obligor has caused this Note to be executed on and as of this
__th day of ________, 2004.

LEVEL
8 SYSTEMS, INC.

By:
________________________________

Name:
John Broderick

Title:
Chief Financial Officer 

3

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