Document:

Security purchase agreement

Exhibit
10.1

 

SECURITIES
PURCHASE AGREEMENT

 

THIS
SECURITIES 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, shares of
common stock of the Company, par value $.001 per share (the “Common
Stock”), and a
stock purchase warrant (each a “Warrant”, and,
collectively, the "Warrants"), in
the form of Exhibit
A annexed
hereto to purchase shares of the Company’s Common Stock; 

 

(ii)  WHEREAS,
contemporaneously with the execution and delivery of this Agreement, the parties
hereto are executing and delivering a Registration Rights Agreement
substantially in the form of Exhibit
B attached
hereto (the “Registration
Rights Agreement”)
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws;

 

(iii)  WHEREAS,
certain of the Purchasers are holders of shares of stock of Critical Mass Mail,
Inc. d/b/a “Ensured Mail” and “Ensured Solutions” (“Critical”); and

 

(iv)  WHEREAS,
the Company, Cicero Technologies Acquisition, LLC and Critical are entering into
an Asset Purchase Agreement contemporaneously with the execution of this
Agreement, whereby the Company, or a subsidiary will acquire certain of the
assets of Critical in exchange for shares of the Company’s Common Stock (the
“Acquisition”).

 

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 shares of
Common Stock as set forth on Schedule
I (the
“Shares”) and a
Warrant exercisable for the amount of Common Stock as set forth on Schedule
I for such
Purchaser. The aggregate purchase price for the Shares and Warrant purchased by
the Purchasers shall be $1,246,600.

 

1.2  Closing. The
closing (the “Closing”) of the
purchase and sale of the Common Stock and the Warrants shall take place at the
offices of Lemery Greisler LLC, 10 Railroad Place, Saratoga Springs, New York
12866, immediately following the execution hereof or such later date or
different location 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:

 

a. Each
Purchaser shall deliver to the Company (1) this Agreement, duly executed by such
Purchaser, (2) the Registration Rights Agreement, duly executed by such
Purchaser and (3) its portion of 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) the Registration Rights Agreement, duly executed by the Company,
(3) a Warrant representing the Purchaser's right to acquire the number of shares
of Common Stock as set forth on Schedule
I hereto
registered in the name of such Purchaser, and (4) a certificate evidencing the
number of shares of Common Stock purchased by such Purchaser as set forth on
Schedule
I hereto,
registered in the name of such Purchaser.

 

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”):

 

a.  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.
Except as set forth on Schedule
2.1(a), 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”). The
Company has made available to the Purchaser true and correct copies of the
Company's Certificate of Incorporation, as amended and as in effect on the date
hereof (the “Certificate
of Incorporation”), and
the Company's Bylaws, as in effect on the date hereof (the “Bylaws”).

 

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b.  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 Registration
Rights Agreement and the Warrants (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. 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 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.

 

c.  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 Shares and Warrant, 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 Shares and Warrants 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.

 

d.  Authorization
and Validity; Issuance of Shares. The
Shares and the shares of Common Stock issuable upon exercise of the
Warrants (the
“Warrant
Shares”) are
and will at all times hereafter continue to be duly authorized and reserved for
issuance and, when issued and paid for in accordance with this Agreement and the
Transaction Documents, will be validly issued, fully paid and non-assessable,
free and clear of all liens.

 

e.  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 (including the issuance of the
Warrant Shares) 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.

 

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f.  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 registration statement with the Commission,
which shall be filed in accordance with and in the time periods set forth in the
Registration Rights Agreement and (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.

 

g.  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.

 

h.  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. 

 

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i.  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 Common Stock or the Warrants 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
Common Stock and the Warrants and the issuance of the Warrant Shares is exempt
from the registration requirements of the Securities Act.

 

j.  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.

 

k.  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.

 

5

l.  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 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.

 

m.  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.

 

n.  Eligibility
to Register Shares. The
Company is eligible to register the resale of its Common Stock and the Warrant
Shares for resale by the Purchasers under Form S-1 promulgated under the
Securities Act.

 

o.  Registration
Rights. Except
as specifically set forth on Schedule
2.1 (o), the
Company has not granted or agreed to grant to any Person any rights (including
“piggy-back” registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority.

 

p.  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. 

 

6

q.  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
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: 

 

a.  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 shares of Common Stock and
the Warrant 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.

 

b.  Investment
Intent. Such
Purchaser is acquiring the shares of Common Stock and the Warrant for its own
account and not with a present view to or for distributing or reselling the
shares of Common Stock, the Warrant or the Warrant Shares 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
Shares or Warrant or Warrant Shares for any period of time. Such Purchaser is
acquiring the Shares or Warrant or Warrant Shares 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
Shares.

 

c.  Purchaser
Status. At the
time such Purchaser was offered the Common Stock and the Warrant, and at the
Closing Date and each date such Purchaser exercises the Warrant, (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 Common Stock, the Warrant and the Warrant Shares.
Such Purchaser is not a registered broker-dealer under Section 15 of the
Exchange Act.

 

d.  Reliance. Such
Purchaser understands and acknowledges that (i) the Common Stock, the Warrant
and the Warrant Shares 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

e.  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 Common Stock and the Warrant 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 Common Stock and
Warrant 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.

 

f.  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 Common Stock or Warrants.

 

g.  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 Common Stock, the Warrant, or the
Warrant Shares 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 Common Stock, the Warrant or Warrant Shares
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
Common Stock, the Warrant, or Warrant Shares 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 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 Common Stock, the Warrant or the Warrant
Shares to an affiliate of a Purchaser. 

 

8

b. The
Purchasers agree to the imprinting, so long as is required by this Section
3.1(b), of the following legend on the Common Stock, the Warrant and the Warrant
Shares: 

 

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. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SHARES.

 

The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement or grant a security interest in some or
all of the shares of Common Stock, the Warrant or the Warrant Shares and, if
required under the terms of such arrangement, such Purchaser may transfer
pledged or secured shares of Common Stock, Warrant or Warrant Shares to the
pledgees or secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of the pledgee, secured party or
pledgor shall be required in connection therewith. Further, no notice shall be
required of such pledge. At the appropriate Purchaser’s expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured
party reasonably request in connection with a pledge or transfer of the shares
of Common Stock, the Warrant or the Warrant Shares, including the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) of the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of selling stockholders thereunder.

 

The
Company agrees that it will provide any Purchaser, upon request, with a
certificate or certificates representing shares of Common Stock, the Warrant or
the Warrant Shares, free from such legend at such time as such legend is no
longer required hereunder. If such certificate or certificates had previously
been issued with such a legend or any other legend, the Company shall, upon
request and upon the delivery of the legended certificate(s), reissue such
certificate or certificates free of any legend. The Company agrees that
following the effective date of the registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Shares and Warrant Shares by the Purchasers or at such time as
such legend is no longer required under this Section 3.1, it will, no later than
three Trading Days (as such term is defined in the Registration Rights
Agreement) following the delivery by a Purchaser to the Company or the Company's
transfer agent of a certificate representing Shares and Warrant Shares issued
with a restrictive legend, deliver or cause to be delivered to such Purchaser a
certificate representing such Shares and Warrant Shares that is free from all
restrictive and other legends. 

 

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  Reservation
of Warrant Shares. The
Company at all times shall reserve a sufficient number of shares of its
authorized but unissued Common Stock to provide for the full conversion of the
Warrant. If at any time the number of shares of Common Stock authorized and
reserved for issuance is insufficient to cover the number of Warrant Shares
issued and issuable upon exercise of the Warrant (based on the Exercise Price
(as defined in the Warrant) of the Warrant in effect from time to time) without
regard to any limitation on exercises, the Company will promptly take all
corporate action necessary to authorize and reserve such shares including,
without limitation, calling a special meeting of stockholders to authorize
additional shares to meet the Company’s obligations under this Section 3.3, in
the case of an insufficient number of authorized shares, and using best efforts
to obtain stockholder approval of an increase in such authorized number of
shares. 

 

9

3.4   Furnishing
of Information. As long
as any Purchaser owns shares of Common Stock, the Warrant or the Warrant Shares,
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 shares of Common Stock,
the Warrant or the Warrant Shares, 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 Shares 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 shares of Common
Stock hereunder in a manner that would require the registration under the
Securities Act of the sale of the shares Common Stock to the Purchasers, or that
would be integrated with the offer or sale of the Shares for purposes of the
rules and 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 shares of Common Stock
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.

 

a.  Conditions
Precedent to the Obligation of the Company to Sell the Shares of Common Stock
and the Warrants. The
obligation of the Company to sell the shares of Common Stock and the Warrants is
subject to the satisfaction or waiver by the Company, at or before the Closing
Date, of each of the following conditions: 

 

10

(i)  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; 

 

(ii)  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; 

 

(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 or the Transaction Documents;
and

 

(iv)  Acquisition.The
Acquisition by the Company of certain of the assets of Critical pursuant to the
Asset Purchase Agreement between the Company and Critical of even date herewith
be consummated at or before the Closing Date. 

 

b.  Conditions
Precedent to the Obligation of the Purchasers to Purchase the Shares of Common
Stock and Warrants at the Closing. The
obligation of each Purchaser hereunder to acquire and pay for the shares of
Common Stock and the Warrant 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;

 

(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; 

 

11

(v) Shares
of Common Stock. The
Company shall have duly reserved the number of shares of Common Stock and the
number or Warrant Shares issuable upon the exercise of the Warrants acquired by
the Purchasers on the Closing Date;    

 

(vi) Acquisition. The
Acquisition by the Company of certain of the assets of Critical pursuant to the
Asset Purchase Agreement between the Company and Critical of even date herewith
be consummated at or before the Closing Date

 

(vii)  Opinion
of Counsel. The
Purchasers shall have received an opinion from the Company’s counsel, dated the
Closing Date, addressed to the Purchasers, in a form reasonably satisfactory to
Purchasers;

(viii)  Certificates
and Documents. The
Company shall have delivered to the Purchasers:

 

(a)  The
Certificate of Incorporation of the Company, as in effect prior to the Closing,
certified by the Secretary of State of the State of Delaware;

 

 

(b)  Certificate,
as of a date not more than 15 days prior to Closing, as to the corporate good
standing of the Company, issued by the Secretary of State of the State of
Delaware;

 

 

(c)  By-laws
of the Company, certified by its Secretary or Assistant Secretary as being in
effect on the date of Closing; and

 

 

(d)  Resolutions
of the Board of Directors of the Company, authorizing and approving all matters
in connection with this Agreement and the transactions contemplated hereby,
certified by the Secretary or Assistant Secretary of the Company as of the date
of Closing.; and

 

(ix)   Compliance
Certificate. The
Company shall have delivered to the Purchasers a certificate, executed by the
CEO or President of the Company, dated the Closing Date, certifying to the
fulfillment of the conditions specified in this Article IV(b).

12

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:

 

If to
the Company:  

Level 8
Systems, Inc.

214
Carnegie Center, Suite 303

Princeton,
New Jersey 08540

Attn: John P.
Broderick

With
a Copy to: 

Lemery
Greisler LLC

10
Railroad Place

Saratoga
Springs, New York 12866

Attn: Robert J.
May, Jr., Esq.

 

13

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 that 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.

 

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.

 

14

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]

 

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 therefor, 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  Replacement
of Certificates. If any
certificate or instrument evidencing any shares of Common Stock is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction and customary and reasonable indemnity, if requested. The applicants
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs associated with the issuance of such replacement
shares.

 

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. Except
as set forth in the Registration Rights Agreement, and except as provided
herein, each Party shall pay the fees and expenses of its advisers, accountants
and other experts.

 

15

SCHEDULE
I

 

	
       

      Name
      and  

      Address
      of Purchaser
	
       

       

      Residence
	
      Number
      of Shares of Common Stock

      at
      Closing Date
	
       

      Number
      of

      Warrant
      Shares
	
       

       

      Purchase
      Price

	
      Marvin
      Bank

      The
      Rittenhouse, #2505

      210
      West Rittenhouse Square

      Philadelphia,
      PA 19103
	
      PA
	
      33,784
	
      33,784
	
      12,500.00

	
       

      Marshall
      Brooks

      419
      N. Sterling Road

      Elkins
      Park, PA 19027-2013
	
       

      PA
	
       

      18,919
	
       

      18,919
	
       

      7,000.00

	
       

      Stuart
      R. Chalfin

      233
      S. 6th
      Street #2502

      Philadelphia,
      PA 19106
	
       

      PA
	
       

      270,270
	
       

      270,270
	
       

      100,000.00

	
       

      Dr.
      Michael Feldman

      229
      S. Van Pelt Street

      Philadelphia,
      PA 19103
	
       

      PA
	
       

      94,595
	
       

      94,595
	
       

      35,000.00

	
       

      Don
      L. Freeman

      The
      Touraine #700

      1520
      Spruce Street

      Philadelphia,
      PA 19102
	
       

      PA
	
       

      40,541
	
       

      40,541
	
       

      15,000.00

	
       

      Mark
      Friedman

      17291
      St. James Court

      Boca
      Raton, FL 33496
	
       

      FL
	
       

      33,784
	
       

      33,784
	
       

      12,500.00

	
       

      Allan
      Gordon

      1900
      Rittenhouse Square 11B

      Philadelphia,
      PA 19103
	
       

      PA
	
       

      33,784
	
       

      33,784
	
       

      12,500.00

	
       

      Ron
      Kushner

      Oak
      Hill Terrace, Apt. 413N

      1655
      Oakwood Drive

      Penn
      Valley, PA 19072
	
       

      PA
	
       

      33,784
	
       

      33,784
	
       

      12,500.00

	
       

      Leslie
      Littman

      264
      Grays Lane

      Haverford,
      PA 19041
	
       

      PA
	
       

      33,784
	
       

      33,784
	
       

      12,500.00

	
       

      Melvyn
      Rothbard

      N.
      Columbus Blvd., Unit 225

      Philadelphia,
      PA 19106
	
       

      PA
	
       

      33,784
	
       

      33,784
	
       

      12,500.00

	
       

      Norman
      Rothbard

      1420
      Locust St., #10K

      Philadelphia,
      PA 19102
	
       

      PA
	
       

      33,784
	
       

      33,784
	
       

      12,500.00

	
       

      Larry
      Rutstein

      2356
      NW 60th
      Street

      Boca
      Raton, FL 33496
	
       

      FL
	
       

      33,784
	
       

      33,784
	
       

      12,500.00

16

	 	 	
      SCHEDULE
      1

      Continued
	 	 
	
       

      Name
      and  

      Address
      of Purchaser
	
       

       

      Residence
	
      Number
      of Shares of Common Stock

      at
      Closing Date
	
       

      Number
      of

      Warrant
      Shares
	
       

       

      Purchase
      Price

	
      Bernard
      Spain

      233
      S. 6th
      Street #2505

      Philadelphia,
      PA 19106
	
      PA
	
      270,270
	
      270,270
	
      100,000.00

	
       

      Joseph
      H. Weiss

      226
      West Rittenhouse Sq. #3106

      Philadelphia,
      PA 19103
	
       

      PA
	
       

      270,270
	
       

      270,270
	
       

      100,000.00

	
       

      Jacqueline
      Whyte

      2007
      Aspen Circle

      Springfield,
      PA 19064
	
       

      PA
	
       

      14,865
	
       

      14,865
	
       

      5,500.00

	
       

      Arthur
      Lerner

      3852
      Shelly Road

      Huntingdon
      Valley, PA 19006
	
       

      PA
	
       

      13,514
	
       

      13,514
	
       

      5,000.00

	
       

      Douglas
      W. Baena

      33
      Twin Lane North

      Wantagh,
      NY 11793
	
       

      NY
	
       

      54,054
	
       

      54,054
	
       

      20,000.00

	
       

      Dr.
      Richard H. Blanck

      Nine
      Hickory Road

      Manhasset
      Hills, NY 11040
	
       

      NY
	
       

      27,027
	
       

      27,027
	
       

      10,000.00

	
       

      Narinder
      Chugh

      26-20
      Bayside Lane

      Flushing,
      NY 11358
	
       

      NY
	
       

      27,027
	
       

      27,027
	
       

      10,000.00

	
       

      Conrad
      Clement

      441
      Orange Blvd.

      Sanford,
      FL 31771
	
       

      FL
	
       

      135,135
	
       

      135,135
	
       

      50,000.00

	
       

      Delphi
      Partners, Ltd.

      45
      Sparks Avenue

      Nantucket,
      MA 02554
	
       

      MA
	
       

      50,000
	
       

      50,000
	
       

      18,500.00

	
       

      C.
      Glen & Joan O. Dugdale

      3609
      Centerville Road

      Greenville,
      DE 19807
	
       

      DE
	
       

      67,568
	
       

      67,568
	
       

      25,000.00

	
       

      Paul
      & Marjorie Krubiner

      79
      Golf View Terrace

      Fairfield,
      CT 06434
	
       

      CT
	
       

      27,027
	
       

      27,027
	
       

      10,000.00

	
       

      Mark
      & Carolyn Landis

      251
      Crandon Blvd.

      Townhouse
      #161

      Key
      Biscayne, FL 33149
	
       

      FL
	
       

      135,135
	
       

      135,135
	
       

      50,000.00

	
       

      Philip
      C. Leavitt

      65
      S. Deere Park Drive

      Highland
      Park, IL 60035
	
       

      IL
	
       

      67,568
	
       

      67,568
	
       

      25,000.00

17

	 	 	
      SCHEDULE
      1

      Continued
	 	 
	
       

      Name
      and  

      Address
      of Purchaser
	
       

       

      Residence
	
      Number
      of Shares of Common Stock

      at
      Closing Date
	
       

      Number
      of

      Warrant
      Shares
	
       

       

      Purchase
      Price

	
      Fredric
      Mack

      2115
      Linwood Avenue

      Fort
      Lee, NJ 07024
	
      NJ
	
      67,568
	
      67,568
	
      25,000.00

	
       

      Bruce
      D. Miller

      45
      Sparks Avenue

      Nantucket,
      MA 02554
	
       

      MA
	
       

      100,000
	
       

      100,000
	
       

      37,000.00

	
       

      Steven
      S. Schneider

      488
      7th
      Avenue #3H

      New
      York, NY 10018
	
       

      NY
	
       

      27,027
	
       

      27,027
	
       

      10,000.00

	
       

      Dr.
      Philip Simkovitz

      78
      North Park Avenue

      Easton,
      CT 06612
	
       

      CT
	
       

      42,162
	
       

      42,162
	
       

      15,600.00

	
       

      Joseph
      H. Weiss

      226
      West Rittenhouse Sq. #3106

      Philadelphia,
      PA 19103
	
       

      PA
	
       

      10,135
	
       

      10,135
	
       

      3,750.00

	
       

      Stuart
      R. Chalfin

      233
      S. 6th
      Street #2502

      Philadelphia,
      PA 19106
	
       

      PA
	
       

      10,135
	
       

      10,135
	
       

      3,750.00

	
       

      Bruce
      D. Miller

      45
      Sparks Avenue

      Nantucket,
      MA 02554
	
       

      MA
	
       

      150,000
	
       

      150,000
	
       

      55,500.00

	
       

      James
      M. Stevens

      8818
      Ashridge Park Drive

      Spring,
      TX 77379
	
       

      TX
	
       

      150,000
	
       

      150,150
	
       

      55,500.00

	
       

      Marvin
      Bank

      The
      Rittenhouse #2505

      210
      West Rittenhouse Sq.

      Philadelphia,
      PA 19103
	
       

      PA
	
       

      67,568
	
       

      67,568
	
       

      25,000.00

	
       

      Sandra
      Grodko

      596
      South Forest Drive

      Teaneck,
      NJ 07666
	
       

      NJ
	
       

      50,000
	
       

      50,000
	
       

      18,500.00

	
       

      Seneca
      Capital, L.P.

      527
      Madison Avenue, 11th
      Floor

      New
      York, NY 10022
	
       

      NY
	
       

      270,270
	
       

      270,270
	
       

      100,000.00

	
       

      Delphi
      Partners, Ltd.

      45
      Sparks Avenue

      Nantucket,
      MA 02554
	
       

      MA
	
       

      100,000
	
       

      100,000
	
       

      37,000.00

18

	 	 	
      SCHEDULE
      1

      Continued
	 	 
	
       Name
      and 

      Address
      of Purchaser
	
       

      Residence 
	
      Number
      of Shares of Common Stock at Closing Date 
	
      Number
      of Warrant Shares
	
      Purchase
  Price

	
      Sandra
      Grodko

      596
      South Forest Drive

      Teaneck,
      NJ 07666
	
      NJ
	
      100,000
	
      100,000
	
      37,000.00

	
       

      Brown
      Simpson Partners, LTD

      152
      West 57th,
      21st
      Floor

      New
      York, NY 10019
	
       

      NY
	
       

      270,270
	
       

      270,270
	
       

      100,000.00

	
       

      Haines
      Family Ltd. Partnership

      3
      Lucas Lane

      Freehold,
      NJ 07728
	
       

      NJ
	
       

      100,000
	
       

      100,000
	
       

      37,000.00

19Promissory note

[Bank Hapoalim Graphic Reference]

 

 

AMENDMENT
NO.1 TO PROMISSORY NOTE

 

 

As
of November 8, 2004

 

 

 

Leve1
8 Systems, Inc. 8000 Regency Parkway Cary, NC 27511

RE:
 Promissory
Note identifıed below of the entity named above ("Borrower") to the order of
Bank Hapoalim B.M. (the "Bank") and all riders,
corrections, allonges, amendments, modifıcations
and/or extensions with respect thereto (collectively the
"Note") 

Gentlemen:

The
date on which the principal amount of the Note is due and payable is extended to
the New Maturity Date
specified below, subject to your signing and returning the enclosed copy of this
letter to the Bank. The
Note shall remain unchanged, except as set forth herein. The Bank waives none of
its rights, all of which are reserved.

Please
indicate your acknowledgement of and agreement to the foregoing by signing and
returning the enclosed
copy of this letter to the attention of Maxine Levy, Vice
President.

New
Maturity Date: November
3, 2005

Identifıcation
of original Promissory Note:

Date:
As
of November 15, 2003
Current amount of Note: $1,971,000.00

Most
recent previous amendment to Note: None

Very
truly yours,

Acknowledged
and Agreed to:     BANK
HAPOALIM B.M.

 

LEVEL
8 SYSTEMS, INC.                     By:
______________________

By:
_________________________                   Title: 

   Title:   

                By:
______________________

By:
______________________                    Title:

   Title:

\gina\-04
agreements\04..235 Level 8 Systems Inc. Letter Agreement (11/29/04)

 

New
York Branches

1177
Avenue of the Americas New York NY 10036-2790

T. 212
782 2000 F. 212 782 2222 www.hapoalimusa.com

[Bank Hapoalim Graphic Reference]

As of
November 8, 2004

Level 8
Systems, Inc.

8000
Regency Parkway

Cary, NC
27511

 

Gentlemen:

We are
pleased to advise that Bank Hapoalim B.M. (the “Bank”) has agreed, subject to
the conditions set forth below, to extend the expiration date of the existing
term loan (the “Loan”) to you (the
“Borrower”) in the amount of $1,971,000.00. The Loan shall be available as of
the date hereof and shall expire on November 3, 2005. Any amounts prepaid at any
time during the term of the Loan may not be reborrowed. The renewal of the Loan
is subject to the Bank’s receipt of such documentation as it may request,
including without limitation, the following, each in form and substance
satisfactory to the Bank: (1) this Letter Agreement, (2) Amendment No.1 to the
existing Promissory Note executed by the Borrower in favor of the Bank, (3) a
Letter of Undertaking from Bank Hapoalim Rishon Le Zion Branch in the aggregate
amount of $1,971,000.00, and (4) any other documents as the Bank may require.
The Borrower shall also pay an amendment fee in the amount of
$350.00.

Please
indicate your acknowledgment of and agreement to the foregoing by signing and
returning the enclosed copy of this letter to the attention of Maxine Levy, Vice
President.

Very
truly yours,

Acknowledged
and Agreed to:     BANK
HAPOALIM B.M.

LEVEL
8 SYSTEMS, INC.                 By:
______________________

By:
_________________________                 Title: 

   Title:   

          By:
______________________

By:
______________________                      Title:

  Title:

 

J:\gina\-04
agreements\04 236 Level 8 Systems Inc Letter Agreement (2/25/05)

 

New
York Branches

1177
Avenue of the Americas New York NY 10036-2790

T. 212
782 2000 F. 212 782 2222 www.hapoalimusa.com

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