As filed with the Securities and Exchange Commission on September 25, 1997
Registration No. 333-35265
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
1MAGE Software, Inc.
(Exact name of registrant as specified in its charter)
Colorado 84-0866294
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6486 S. Quebec St.
Englewood, Colorado 80111
(303) 694-9180
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
DAVID R. DEYOUNG
President and Chief Executive Officer
1MAGE Software, Inc.
6486 S. Quebec St.
Englewood, Colorado 80111
(303) 694-91
(Address, including zip code, and telephone number, including area code,
of registrant's agent for service)
------------------------
With copies to:
CYNTHIA R. SMITH, Esq.
Gorsuch Kirgis L.L.C.
1401 17th Street, Suite 1100
Denver, Colorado 80202
(303) 299-8947 Telephone
(303) 298-0215 Fax
------------------------
Approximate date of commencement of proposed sale to the public: From
time to time after this registration statement becomes effective when
warranted by market conditions and other factors.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check
the following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check
the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Each Class of Amount to be Price Per Offering Registration
Securities to be Registered Registered Share(1) Price (1) Fee
- --------------------------------------- ------------------- ------------
<S> <C> <C> <C> <C>
Common Stock, $.004 par
value per share 1,200,158 $1.50 $1,800,237 $545.53
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of
the registration fee. The price of $1.50 per share is the last sale price
reported by The Nasdaq Stock Market on September 5, 1997.
The Registrant hereby amends this Registration Statement on such
dates or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1997
[LOGO TO BE
INSERTED]
1MAGE SOFTWARE, INC.
1,200,158 Shares
Common Stock
$0.004 Par Value
This Prospectus relates to the offer and sale of 1,200,158 shares of
common stock, par value $0.004 per share (the "Shares") of 1MAGE Software,
Inc. (the "Company") by certain warrant holders and shareholders of the
Company (the "Selling Shareholders"). The Shares may be sold from time to
time by the Selling Shareholders, through ordinary brokerage transactions
in negotiated transactions or otherwise, at fixed prices which may be
changed, at market prices prevailing at the time of sale or at negotiated
prices. See- "Selling Shareholders" and "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares. The Company has agreed to bear certain expenses in connection
with the registration of the Shares being offered and sold by the Selling
Shareholders. See- "Selling Shareholders."
The Company's Common Stock, $0.004 par value per share (the "Common
Stock") is quoted on The Nasdaq Stock Market - SmallCap Market under the
symbol "ISOL" On September 24, 1997, the last reported sale price of the
Company's Common Stock was $1.625.
THESE ARE SPECULATIVE SECURITIES.
SUCH SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGE 4
==========================================================================
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
==========================================================================
No person has been authorized to give any information or to make any
representation other than those contained in the Prospectus in connection
with the offering made hereby, and if given or made, such information or
representation must not be relied upon as having been authorized by the
Company or by the Selling Shareholders. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information herein is correct as of any
time subsequent to the date hereof.
----------------------------
The date of this Prospectus is September 25, 1997.
AVAILABLE INFORMATION
1MAGE Software, Inc. (the "Company") has filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement on
Form S-3 (the "Registration Statement" ) under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto or
incorporated by reference therein. Such information, including exhibits
and schedules to the Registration Statement incorporated by reference
therein, can be inspected and copied at the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Room 1024, Judiciary Plaza,
Washington, D.C 20549. Statements made in this Prospectus as to the
contents of any contract or any other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy
of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information
with the Commission. All such information may be inspected and copied at
the public reference facilities maintained by the Commission at its
principal office at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza,
Washington, D.C. 20549, and at the following regional offices of the
Commission: 1801 California Street, Suite 4800, Denver, Colorado 80202-
2648; Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can also be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a site on the World Wide Web at
http://www.sec.gov/edgarhp.htm that contains reports, proxy and
information statements and other information concerning registrants that
file electronically with the Commission. The Common Stock is traded on
the National Association of Securities Dealers, Inc., Automated Quotation
System ("Nasdaq"). Information filed by the Company with Nasdaq may be
inspected at the offices of Nasdaq at 1735 K Street, N.W., Washington,
D.C. 20006.
This Prospectus incorporates by reference documents which are not
presented herein or delivered herewith. Copies of these documents (other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference) are available to any person, including any
beneficial owner, to whom this Prospectus is delivered, on written or oral
request, without charge, directed to David R. DeYoung, President and Chief
Executive Officer, 1MAGE Software, Inc., 6486 S. Quebec St., Englewood,
Colorado 80111, telephone number 303/694-9180.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference
(Commission File No. 0-12535):
1. Annual Report on Form 10-K for the year ended December 31, 1996,
filed March 26, 1997;
2. Form 8-A (Commission File No. 0-12535) filed October 7, 1993
3. Form 10-Q for the quarter ended March 31, 1997, filed May 14,
1997.
4. Form 10-Q for the quarter ended June 30, 1997, filed July 11,
1997.
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Prospectus and prior to the termination of the offering
shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing of such reports and documents. Any
statement contained in a document incorporated or deemed to be
incorporated by reference herein prior to the date hereof shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
A copy of the documents incorporated by reference other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference in the information contained in this Prospectus), may be
obtained upon request without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus has been delivered
upon the written or oral request of such person. Requests for such copies
should be made to David R. DeYoung, President and Chief Executive Officer,
1MAGE Software, Inc. 6486 S. Quebec Street, Englewood, CO 80111, telephone
number 303/694-9180. In addition, those materials which were filed
electronically by the Company with the Commission are available at the
Commission's World Wide Web site at http://www.sec.gov/edgarhp.htm.
THE COMPANY
1MAGE Software, Inc., (the "Company") develops and markets a software
product called 1MAGE(R), a UNIX-based electronic document image management
and retrieval system. Electronic imaging systems like 1MAGE(R) allow any
paper document to be converted to electronic form for magnetic storage.
Magnetic storage drastically reduces the physical space needed for paper-
based filing systems and offers computer access to handwritten or non-
computer generated documents within seconds, a dramatic improvement over
traditional paper filing systems. The software has the ability to file,
route, track, archive and manage the flow of incoming and outgoing
documents throughout an organization. Using an open, client/server
architecture design, 1MAGE(R) provides a comprehensive solution for
scanning, indexing, storing and retrieving document images so that these
may be viewed, printed and faxed.
The Company targets the Multi-Value Relational Data Base Management
Systems ("RDBMS") market for 1MAGE(R) through Multi-Value RDBMS VARs,
systems integrators, and other companies which market complementary
software or other products. Significant Multi-Value RDBMS target markets
identified to date are manufacturing, insurance, government,
transportation, and health care. The Company has contracts in place with
VARs for the financial services, government, manufacturing, distribution,
health care, transportation and systems integration markets and is
actively seeking to expand its independent sales network.
The Company offers a comprehensive reseller program which provides,
in the context of a cooperative marketing effort, a broad range of sales,
marketing, and technical support. The program includes technical training
and assistance, marketing communications, sales training and assistance,
excellent support and training, lead referral services, customized product
literature, and a discounted demonstration/development program.
RISK FACTORS
An investment in the Company involves a high degree of risk. In
addition to the other information set forth in this Prospectus,
prospective investors should carefully consider the following risk factors
when evaluating an investment in the Company.
RELIANCE ON TRADE SECRET AND COPYRIGHT LAWS. The Company regards its
software as proprietary and relies for protection upon trade secret and
copyright laws and non-disclosure agreements with its employees as well as
restrictions on disclosure and transferability contained in its software
license agreements with its customers. Despite these restrictions, it may
be possible for competitors or customers to copy aspects of the Company's
products or obtain information that the Company regards as proprietary.
Furthermore, there can be no assurance that others will not independently
develop software products similar to those developed or planned by the
Company. Although the Company believes its software does not infringe on
the proprietary rights of others and has not received any notice of
claimed infringement, it is possible that portions of the software
marketed by the Company could be claimed to infringe on existing
proprietary rights. In the unlikely event that any such infringements are
found to exist, there can be no assurance that any necessary licenses or
rights could be obtained, or could be obtained on terms satisfactory to
the Company. Further, in such event, the Company could be required to
modify the infringing software. There can be no assurance that the Company
would be able to do so in a timely manner, upon acceptable terms and
conditions, or at all; the failure to do so could have a material adverse
effect on the Company.
DEPENDENCE ON SUPPLIERS. The success of the business of the Company
may depend in part upon the reliability of the Company's suppliers of
subcomponents and raw materials. The Company is subject to the risks of
shortages and delays in delivery of subcomponents and such materials.
There can be no assurance that the Company will continue to be able to
locate reliable secondary sources of these subcomponents and materials.
DEPENDENCE ON KEY MANAGEMENT AND EMPLOYEES. The Company is highly
dependent upon the efforts of its management for its success. The loss of
the services of one or more of its key officers, particularly David R.
DeYoung, President and Chief Executive Officer, could have a material
adverse effect on the Company's business. Mr. DeYoung is employed
pursuant to an employment agreement which expires October 31, 1999. The
Company maintains "key man" life insurance on the life of Mr. DeYoung in
the amount of $1,000,000. The success of the Company also depends upon
the Company's ability to attract and retain other qualified personnel.
The competition for qualified personnel in the computer software industry
is intense. Accordingly, there can be no assurance that the Company will
be able to continue to hire or retain such personnel.
TECHNOLOGICAL OBSOLESCENCE. The computer software industry has been
characterized by significant and rapid technological changes. The ability
of the Company to compete successfully in the future will depend in large
part on its ability to adapt to technological changes in the industry and
develop products that meet the changing needs of its customers. While the
Company believes that its software products are currently competitive,
future demand for the Company's software products will depend on its
ability to enhance and improve existing products and successfully develop
and market new products. There can be no assurance that competitors will
not develop technology or introduce software or systems that render the
Company's systems and software products obsolete or less marketable or
that the Company will be able to successfully enhance its existing
products or develop new products.
COMPETITION. The Company experiences competition in its business
from competitors who target one or more of the same markets or market
segments as the Company. Software and systems that perform many of the
same functions as the Company's systems and software are readily available
from a number of competitors of the Company, some of which are larger and
have greater financial, technical, marketing and other resources than the
Company. The Company believes that the principal factors affecting a
prospective customer's choice of a system are the database it uses,
performance, service and price. The Company believes that usage of the
popular UNIX based operating system and the Multi-Value RDBMS has
strengthened the Company's competitive position by making the Company's
software compatible with more types of hardware and Multi-Value
application software offered by Multi-Value software developers and system
integrators. The Company further believes that its principal advantage
over its competitors is the Company's utilization of a UNIX based open
systems architecture and the Multi-Value RDBMS which can be offered at
lower prices. Nevertheless, the Company's estimation of its own technical
and marketing advantages over its competitors may prove inaccurate and its
efforts to compete in the computer software industry may ultimately be
unsuccessful.
LIMITED MARKETS. The reseller program targets complementary markets
and allows the Company to draw from a much larger market with respect to
its imaging software products than its traditional markets of the trucking
and transportation industries. As noted above, the Company's strategy has
been to expand the domestic and international markets for its imaging
software by engaging VARs for various industries and markets. The
Company's experience has been that economic downturns or increased
competitive pressures in its niche markets sometimes result in reduction
or deferral of capital expenditures by potential customers. While such
adverse conditions can sometimes lead to opportunities as potential
customers downsize to smaller, more cost-efficient computer systems or
replace custom designed systems that require higher levels of support and
maintenance, the Company believes that both a strong national economy and,
to a lesser extent, a strong transportation industry are important to the
success of its sales efforts. Accordingly, purchasers of the Shares need
to be cognizant of the Company's potential dependence on such general
economic conditions.
POSSIBLE FLUCTUATIONS IN OPERATING RESULTS. The Company's sales
cycle, which generally commences at the time a prospective customer issued
a request for proposal or otherwise demonstrates to the Company a serious
interest in purchasing a system and ends upon execution of a sales
contract, typically ranges from two to six months. The Company's
operating results could vary from period to period as a result of the
length of the Company's sales cycle, the timing of individual systems
sales and conditions in the Company's target markets and the economy in
general.
NASDAQ MAINTENANCE STANDARDS. The National Association of Securities
Dealers, Inc. ("NASD") has recently increased its standards for companies
to remain listed on the Nasdaq SmallCap Market. These new standards which
were adopted August 25, 1997, now require the Company to maintain a
minimum of (i) net tangible assets greater than $2,000,000, market
capitalization greater than $35,000,000 or net income greater than
$500,000 for two of the last three years; (ii) a public float of at least
500,000 shares; (iii) a market value of the public float of at least
$1,000,000; (iv) a minimum bid price of $1.00 per share; (v) at least two
market makers in the Company's Common Stock; (vi) at least 300
shareholders; and (vii) certain corporate governance standards in order to
remain listed on Nasdaq. While the NASD has announced that non-complying
companies will have six (6) months from the August 25, 1997 adoption date
to meet the new standards, failure to meet these maintenance standards
could result in delisting from the Nasdaq system and that would adversely
affect the liquidity and value of the Company's Common Stock. The Company
does not presently meet these new requirements but is making substantial
efforts to increase its net tangible assets and meet the other
requirements by the February 25, 1998 deadline. There can be no
assurance, however, that the Company will be able to meet the NASD
maintenance standards at that time.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
of Common Stock by the Selling Shareholders. The Selling Shareholders
have agreed to pay all commissions and other compensation to any
securities broker-dealers through whom they sell any of the Shares.
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
Selling Shareholders and the Shares offered by the Selling Shareholders
pursuant to this Prospectus. None of the Selling Shareholders within the
past three years has had any material relationship with the Company or any
of its affiliates except as described below.
<TABLE>
<CAPTION>
No. of No. of Shares to be
Shares Shares Beneficially Owned
Name of Selling Beneficially Being on Completion of the
Shareholder Owned Offered Offering
- ------------------------- ------------ ------- --------------------
Number % of Class
------- ----------
<S> <C> <C> <C> <C>
David R. DeYoung 504,331 100,000(1) 404,331 17.0%
Transition Partners,
Limited 53,689 53,689(2) 0 0%
Copeland Consulting Group,
Inc. 53,689 53,689(2) 0 0%
C. Maylena Burchfield 275,000 275,000(3) 0 0%
Dean S. Dumont 275,000 275,000(3) 0 0%
BurchMont Equities Group,
Inc. 35,000 35,000(4) 0 0%
Spencer D. Lehman 209,459 203,890(5) 5,569 *
John G. Mazza 243,890 203,890(5) 40,000 *
</TABLE>
* Less than one percent.
(1) Consists of Warrants to purchase Shares.
(2) Consists of a Warrant to purchase Shares issued in connection with a
corporate development and financial advice agreement.
(3) Consists of Warrants to purchase Shares issued in connection with an
agreement with BurchMont Equities Group, Inc. for certain financial
advice.
(4) Consists of Shares issuable upon exercise of Warrants issued to C.
Maylena Burchfield and Dean S, Dumont.
(5) Includes two convertible promissory notes, plus accrued interest,
which are convertible into 128,890 shares of Common Stock as of the
dates of their maturity, February 18, 1998. The two notes are not
convertible until that date.
- ----------------------
David R. DeYoung is President and Chief Executive Officer of the
Company. Spencer D. Lehman and John G. Mazza each own more than 5% of the
Company's outstanding shares of Common Stock and therefore are considered
"affiliates" of the Company within the meaning of Rule 144 of the
Securities Act of 1933. Other than as described, the Company has no
relationship with the Selling Shareholders.
In connection with an agreement between the Company and Transition
Partners, Limited ("Transition") whereby Transition provides corporate
development and financial advice, the Company granted a warrant to
purchase 53,689 shares of the Company's Common Stock to each of Transition
and Copeland Consulting Group, Inc. on December 16, 1996 (the "Transition
Warrants"). The Warrants are exercisable at $1.00 per share. The
purchase right for 25,000 of the Shares contained in the Transition
Warrants is exercisable until December 16, 1999. The purchase right for
the remaining 28,689 shares will vest upon the successful completion of a
capital transaction arranged by Transition. The Warrants grant the
holders "piggyback" registration rights to be included in the registration
by the Company of shares of its Common Stock. The Company has agreed to
bear the expenses of such registration. The Company pays $6,000 per month
to Transition throughout the duration of the contract, which expires
January 31, 1998. The Company will be charged a contingent advisory fee
of 5% of the total capital or debt procured as a result of the agreement.
On July 28, 1997, the Company entered into an agreement with BurchMont
Equities Group, Inc. ("BurchMont") to provide investor relations,
corporate finance and the similar services to the Company. In exchange
for the services, the Company issued to each of C. Maylena Burchfield and
Dean S. Dumont (a) a common stock purchase warrant to purchase up to
250,000 shares of the Company's Common Stock for a period of six (6)
months (the "Six Month Warrants") exercisable at the lower of (i) $1.25
per Share (the closing price of the Company's Common Stock on July 27,
1997) or (ii) the average closing bid price reported on Nasdaq for the
five days preceding the date of the issuance of the warrants (which was,
based on the August 14, 1997 issuance date, $1.34 per Share), and (b) a
common stock purchase warrant to purchase 25,000 Shares at a price of
$1.50 per share for a period of two (2) years (the "Two Year Warrants").
Further, the Company agreed that upon exercise of any of the Six Month
Warrants, that it will issue Shares equal to seven percent (7%) of the
number of Shares purchased pursuant to the Six Month Warrants to
BurchMont. Both the Six Month Warrants and the Two Year Warrants contain
terms and provisions regarding limitations on exercisability under certain
circumstances. Pursuant to the terms of the Six Month and Two Year
Warrants, the holders thereof are entitled to demand registration of the
shares of Common Stock issuable upon exercise of the Warrants and they
have exercised that right. In accordance with the Warrants, the Company
has agreed to bear the expenses of such registration.
On January 28, 1994, the Board of Directors granted a total of
100,000 warrants to David R. DeYoung to purchase shares of the Company's
Common Stock at an exercise price of $1.5625 per Share until January 31,
1999. The Company agreed to let Mr. DeYoung "piggyback" his Shares on the
registration of the Shares being registered hereunder. The Company has
agreed to bear the expenses of such registration.
In connection with a Convertible Note Purchase Agreement dated
January 5, 1995, the Company issued $50,000 promissory notes to each of
PaineWebber for the Benefit of Spencer D. Lehman and John G. Mazza,
Trustee of the John G. Mazza Loving Trust. The notes are convertible into
shares of the Company's Common Stock at $.75 per share. The Company also
issued $25,000 promissory notes to each of the same persons in connection
with a Convertible Note Purchase Agreement dated August 21, 1995 between
the Company and the holders which are also convertible into shares of the
Company's Common Stock at $.75 per share. The notes are all due on
February 18, 1998 and are not convertible until that date. The Shares
into which the notes are convertible are being registered pursuant to
"piggyback" registration rights in the aforesaid agreements permitting
them to be included in the registration by the Company of shares of its
Common Stock. The Company has agreed to bear the expenses of such
registration.
PLAN OF DISTRIBUTION
All of the Shares offered hereby are being sold by the Selling
Shareholders. The Shares will be offered by the Selling Shareholders from
time to time at market prices prevailing at the time of offer and sale, at
prices related to such prevailing market prices, at negotiated prices, or
at fixed prices which may be changed. The Selling Shareholders may effect
such transactions by offering and selling the Shares directly to or
through securities broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from
the Selling Shareholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom the Selling Shareholders may
sell as principal, or both (which compensation as to a particular broker-
dealer might be in excess of customary commissions)
The Selling Shareholders and any broker-dealers who act in connection
with the sale of the Shares hereunder may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act of 1933 (the
"Securities Act") and any commissions received by them and profit on any
resale of the Shares as principal might be deemed to be underwriting
discounts and commissions under the Securities Act. The Company has
agreed to indemnify the Selling Shareholders against certain liabilities,
including liabilities under the Securities Act as underwriters or
otherwise. The Company has advised the Selling Shareholders that they and
any securities broker- dealers or others who may be deemed to be statutory
underwriters will be subject to the Prospectus delivery requirements under
the Securities Act.
Under applicable rules and regulations under the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") any person engaged
in a distribution of any of the Shares may not simultaneously engage in
market activities with respect to the Common Stock for the applicable
period under Regulation M prior to the commencement of such distribution.
In addition and without limiting the foregoing, the Selling Shareholders
will be subject to applicable provisions of the Exchange Act and the rules
and regulations thereunder, including without limitation Rules 10b-5 and
Regulation M, which provisions may limit the timing of purchases and sales
of any of the Shares by the Selling Shareholders. All of the foregoing
may affect the marketability of the Common Stock.
In the absence of this Prospectus, those of the Selling Shareholders
who are executive officers, Directors and other "affiliates" of the
Company, would be able to sell their Shares only subject to the
limitations of Rule 144, promulgated under the Securities Act ("Rule
144"). In general, under Rule 144 as currently in effect, an "affiliate"
of the Company or a person who has beneficially owned shares which are
"restricted securities" as defined in Rule 144 for at least one year, is
entitled to sell within any three-month period a number of shares that
does not exceed the greater of: (i) one percent (1%) of the then
outstanding shares of Common Stock of the Company, or (ii) the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding a sale by such person. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Under Rule
144, however, a person who is not, and for the three months prior to the
sale of such shares has not been, an affiliate of the Company is free to
sell shares which are not "restricted securities," or "restricted
securities" which have been held for at least two years, without regard to
the limitations contained in Rule 144. The executive officers, Directors
or other "affiliates of the Company will not be subject to the foregoing
restrictions.
Under Section 16 of the Securities Exchange Act of 1934, Mr. DeYoung
and any other executive officer, Directors, and 10% or greater
shareholders of the Company will be liable to the Company for any profit
realized from any purchase and sale (or any sale and purchase) of Common
Stock within a period of less than six months.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the shares of Common Stock is
American Securities Transfer & Trust, Inc., 1825 Lawrence Street, #444,
Denver, Colorado, 80202.
LEGAL MATTERS
The validity of the securities to be offered hereby will be passed
upon for the Company by Gorsuch Kirgis L.L.C., Denver, Colorado, counsel
for the Company.
EXPERTS
The financial statements of 1MAGE Software, Inc. as of December 31,
1996 and 1995 and for the years then ended have been incorporated by
reference herein and in the registration statement in reliance upon the
report of Karsh & Company, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
INDEMNIFICATION OF DIRECTORS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimates of fees and expenses incurred or to be incurred in
connection with the issuance and distribution of securities being
registered are as follows:
Securities and Exchange Commission Filing Fee $ 546
State Securities Laws (Blue Sky) Fees and Expenses 200
Printing and Mailing Costs and Fees 1,000
Legal Fees and Costs 5,000
Accounting Fees and Costs 2,500
Miscellaneous 1,754
-------
TOTAL $11,000
All fees and expenses are estimated except for the filing fee paid to the
Commission.
The Selling Shareholders have agreed to pay all commissions and other
compensation to any securities broker-dealers through whom they sell any
of the Shares.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, bylaw, contract or arrangement under which any
controlling person, director or officer of the Company is insured or
indemnified in any matter against liability which he may incur in his
capacity as such, is as follows:
Paragraphs 8.1, 8.2 and 8.3 of Article VIII of the Restated Articles
of Incorporation, as amended, of the Company include the following
provisions:
8.1 Any mandate for indemnification, whether by statute or order of
court, is to be expressly subject to the corporation's reasonable
capability of paying.
8.2 No person will be entitled to be reimbursed for expenses
incurred in connection with a court proceeding to obtain Court ordered
indemnification unless such person first made reasonable application to
the Corporation and the Corporation either unreasonably denied such
application or through no fault of the applicant was unable to consider
such application within a reasonable time.
8.3 A director who is or was made a party to a proceeding because he
is or was an officer, employee, or agent of the Corporation is entitled to
the same rights as if he were or had been made a party because he was a
director.
Section 7-109-101 of the Colorado Business Corporation Act provides
that each corporation shall have the following powers using the following
definitions:
"As used in this article:
(a) "Corporation" includes any domestic or foreign entity that is a
predecessor of a corporation by reason of a merger or other transaction in
which the predecessor's existence ceased upon consummation of the
transaction.
(b) "Director" means an individual who is or was a director of a
corporation or an individual who, while a director of a corporation, is or
was serving at the corporation's request as a director, officer, partner,
trustee, employee, fiduciary, or agent of another domestic or foreign
corporation or other person or of an employee benefit plan. A director is
considered to be serving an employee benefit plan at the corporation's
request if his or her duties of the corporation also impose duties on, or
otherwise involve services by, the director to the plan or to participants
in or beneficiaries of the plan. "Director" includes, unless the context
requires otherwise, the estate or personal representative of a director.
(c) "Expenses" includes counsel fees.
(d) "Liability" means the obligation incurred with respect to a
proceeding to pay a judgment, settlement, penalty, fine, including an
excise tax assessed with respect to an employee benefit plan, or
reasonable expenses.
(e) "Official capacity" means, when used with respect to a director,
the office of director in a corporation and, when used with respect to a
person other than a director as contemplated in section 7-109-107, the
office in a corporation held by the officer or the employment, fiduciary,
or agency relationship undertaken by the employee, fiduciary, or agent on
behalf of the corporation. "Official capacity" does not include service
for any other domestic or foreign corporation or other person or employee
benefit plan.
(f) "Party" includes a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
7-109-102. AUTHORITY TO INDEMNIFY DIRECTORS.
(1) Except as provided in subsection (4) of this section, a
corporation may indemnify a person made a party to a proceeding because
the person is or was a director against liability incurred in the
proceeding if:
(a) The person conducted himself or herself in good faith; and
(b) The person reasonably believed:
(I) In the case of conduct in an official capacity with
the corporation, that his or her conduct was in the corporation's best
interests; and
(II) In all other cases, that his or her conduct was at
least not opposed to the corporation's best interests; and
(b) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit plan
for a purpose the director reasonably believed of be in the interests of
the participants in or beneficiaries of the plan is conduct that satisfies
the requirement of subparagraph (II) of paragraph (b) of subsection (1) of
this section. A director's conduct with respect to an employee benefit
plan for a purpose that the director did not reasonably believe to be in
the interests of the participants in or beneficiaries of the plan shall be
deemed not to satisfy the requirements of paragraph (a) of subsection (1)
of this section.
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of
conduct described in this section.
(4) A corporation may not indemnify a director under this section.
(a) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation;
or
(b) In connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not involving
action in an official capacity, in which proceeding the director was
adjudged liable on the basis that he or she derived an improper personal
benefit.
(5) Indemnification permitted under this section in connection with
a proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with the proceeding.
79-109-103. MANDATORY INDEMNIFICATION OF DIRECTORS. Unless limited
by its articles of incorporation, a corporation shall indemnify a person
who was wholly successful, on the merits or otherwise, in the defense of
any proceeding to which the person was a party because the person is or
was a director, against reasonable expenses incurred by him or her in
connection with the proceeding.
79-109-104. ADVANCE OF EXPENSES TO DIRECTORS.
(1) A corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding if:
(a) The director furnishes to the corporation a written
affirmation of the director's good faith belief that he or she has met the
standard of conduct described in section 7-109-102;
(b) The director furnishes to the corporation a written
undertaking, executed personally or on the director's behalf, to repay the
advance if it is ultimately determined that he or she did not meet the
standard of conduct; and
(c) A determination is made that the facts then known to those
making the determination would not preclude indemnification under this
article.
(2) The undertaking required by paragraph (b) of subsection (1) of
this section shall be an unlimited general obligation of the director but
need not be secured and may be accepted without reference to financial
ability to make repayment.
(3) Determinations and authorizations of payments under this section
shall be made in the manner specified in section 7-109-106.
7-109-105. COURT-ORDERED INDEMNIFICATION OF DIRECTORS.
(1) Unless otherwise provided in the articles of incorporation, a
director who is or was a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court
of competent jurisdiction. On receipt of an application, the court, after
giving any notice the court considers necessary, may order indemnification
in the following manner:
(a) If it determines that the director is entitled to mandatory
indemnification under section 7-109-103, the court shall order
indemnification, in which case the court shall also order the corporation
to pay the director's reasonable expenses incurred to obtain court-ordered
indemnification.
(b) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances,
whether or not the director met the standard of conduct set forth in
section 7-109-102(1) or was adjudged liable in the circumstances described
in section 7-109-102(4), the court may order such indemnification as the
court deems proper; except that the indemnification with respect to any
proceeding in which liability shall have been adjudged in the
circumstances described in section 7-109-102(4) is limited to reasonable
expenses incurred in connection with the proceeding and reasonable
expenses incurred to obtain court-ordered indemnification.
7-109-06. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF
DIRECTOR.
(1) A corporation may not indemnify a director under Section 7-109-
102 unless authorized in the specific case after a determination has been
made that indemnification of the director is permissible in the
circumstances because the director has met the standard of conduct set
forth in section 7-109-102. A corporation shall not advance expenses to a
director under section 7-109-104 unless authorized in the specific case
after the written affirmation and undertaking required by section 7-109-
104(1)(a) and (1)(b) are received and the determination required by
section 7-109-104(1)(c) has been made.
(2) The determinations required by subsection (1) of this section
shall be made:
(a) By the board of directors by a majority vote of those
present at a meeting at which a quorum is present, and only those
directors not parties to the proceeding shall be counted in satisfying the
quorum; or
(b) If a quorum cannot be obtained, by a majority vote of a
committee of the board of directors designated by the board of directors,
which committee shall consist of two or more directors not parties to the
proceeding; except that the directors who are parties to the proceeding
may participate in the designation of directors for the committee.
(3) If a quorum cannot be obtained as contemplated in paragraph (a)
of this subsection (2) of this section, and a committee cannot be
established under paragraph (b) of subsection (2) of this section, or,
even if a quorum is obtained or a committee is designated, if a majority
of the directors constituting such quorum or such committee so directs,
the determination required to be made by subsection (1) of this section
shall be made:
(a) By independent legal counsel selected by a vote of the
board of directors or the committee in the manner specified in paragraph
(a) or (b) of subsection (2) of this section or, if a quorum of the full
board cannot be obtained and a committee cannot be established, by
independent legal counsel selected by a majority vote of the full board of
directors; or
(b) By the shareholders.
(4) Authorization of indemnification and advance of expenses shall
be made in the same manner as the determination that indemnification or
advance of expenses is permissible; except that, if the determination that
indemnification or advance of expenses is permissible is made by
independent legal counsel, authorization of indemnification and advance of
expenses shall be made by the body that selected such counsel.
7-109-107. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND
AGENTS.
(1) Unless otherwise provided in the articles of incorporation;
(a) An officer is entitled to mandatory indemnification under
section 7-109-103, and is entitled to apply for court-ordered
indemnification under section 7-109-105, in each case to the same extent
as a director;
(b) A corporation may indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a greater
extent, if not inconsistent with public policy, and if provided for by its
bylaws, general or specific action of its board of directors or
shareholders, or contract.
7-109-08. INSURANCE. A corporation may purchase and maintain
insurance on behalf of a person who is or was a director, officer,
employee, fiduciary, or agent of the corporation, or who, while a
director, officer, employee, fiduciary, or agent of the corporation, is or
was servicing at the request of the corporation as a director, officer,
partner, trustee, employee, fiduciary, or agent of another domestic or
foreign corporation or other person or of an employee benefit plan,
against liability asserted against or incurred by the person in that
capacity or arising from his or her status as a director, officer,
employee, fiduciary, or agent, whether or not the corporation would have
power to indemnify the person against the same liability under section 7-
109-102, 7-109-103, or 7-109-107. Any such insurance may be procured from
any insurance company designated by the board of directors, whether such
insurance company is formed under the laws of this state or any other
jurisdiction of the United States or elsewhere, including any insurance
company in which the corporation has an equity or any other interest
through stock ownership or otherwise.
7-109-09. LIMITATION OF INDEMNIFICATION OF DIRECTORS.
(1) A provision treating a corporation's indemnification of, or
advance of expenses to, directors that is contained in its articles of
incorporation or bylaws, in a resolution of its shareholders or board of
directors, or in a contract, except an insurance policy, or otherwise, is
valid only to the extent the provision is not inconsistent with sections 7-
109-101 to 7-109-108. If the articles of incorporation limit
indemnification or advance of expenses, indemnification and advance of
expenses are valid only to the extent not inconsistent with the articles
of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a corporation's
power to pay or reimburse expenses incurred by a director in connection
with an appearance as a witness in a proceeding at a time when he or she
has not been made a named defendant or respondent in the proceeding.
7-109-110. NOTICE TO SHAREHOLDERS OF INDEMNIFICATION OF DIRECTOR.
If a corporation indemnifies or advances expenses to a director under this
article in connection with a proceeding by or in the right of the
corporation, the corporation shall give written notice of the
indemnification or advance to the shareholders with or before the notice
of the next shareholders' meeting. If the next shareholder action is
taken without a meeting at the instigation of the board of directors, such
notice shall be given to the shareholders at or before the time the first
shareholder signs a writing consenting to such action.
Section 7-108-402(2) of the Colorado Revised Statutes states as
follows:
No officer or director shall be personally liable for any injury
to person or property arising out of a tort committed by an employee
unless such officer or director was personally involved in the situation
giving rise to the litigation or unless such officer or director committed
a criminal offense. The protection afforded in this section shall not
restrict other common law protections and rights that an officer or
director may have. This section shall not restrict the corporation's
right to eliminate or limit the personal liability of a director to the
corporation or to its shareholders for monetary damages for breach of
fiduciary duty as a director.
Paragraph 8.4 of Article VIII of the Restated Articles of
Incorporation, as amended, of the Company includes the following
provision:
The liability of the directors of this Corporation for monetary
damages shall be eliminated to the fullest extent permissible under
Colorado law.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, the Company
has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in
the Securities Act of 1933 and is therefore unenforceable.
ITEM 16. EXHIBITS.
Exhibit No. Description
----------- -----------
4.1 Form 1994 Class A Warrant issued to David R.
DeYoung dated February 1, 1995 filed as Exhibit 4.1
to the Company's Registration Statement on Form S-3
(No. 333-35265)
4.2 Form of Warrant to Purchase Shares of Common
Stock issued to each of Copeland Consulting Group,
Inc. and Transition Partners, Limited dated December
16, 1996 filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-3 (No. 333-35265)
4.3 Form of Two Year Warrant to Purchase Shares of
Common Stock dated August 14, 1997
4.4 Form of Six Month Warrant to Purchase Shares of
Common Stock dated August 14, 1997
4.5 Consulting Agreement between the Company and
BurchMont Equities Group, Inc. dated July 28, 1997
filed as Exhibit 4.5 to the Company's Registration
Statement on Form S-3 (No. 333-35265)
5 Opinion of Gorsuch Kirgis L.L.C. filed as
Exhibit 5 to the Company's Registration Statement on
Form S-3 (No. 333-35265)
23.1 Consent of Karsh & Company, P.C.
23.2 Consent of Gorsuch Kirgis L.L.C. contained in
its opinion filed as Exhibit 5
ITEM 17. UNDERTAKINGS.
The undersigned Company hereby undertakes with respect to the
securities being offered and sold in this offering:
(1) File, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(a) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(c) Include any additional or changed material information on
the plan of distribution;
provided, however, that small business issuers do not need to give the
statements in paragraphs (1)(a) and (1)(b) if the registration statement
is on Form S-3 or Form S-8, and the information required in a post-
effective amendment is incorporated by reference from the periodic reports
filed by the small business issuer pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
SIGNATURES
In accordance with the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Englewood, State of Colorado, on
September 24, 1997.
1MAGE SOFTWARE, INC.
By: /s/ DAVID R. DEYOUNG
---------------------------------------
David R. DeYoung, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
DAVID R. DEYOUNG Date: September 24. 1997
- -------------------------------
David R. DeYoung, President and
Chief Executive Officer
/s/ CHARLES E. BURNS Date: September 24, 1997
- -------------------------------
Charles E. Burns, Director
/s/ROBERT WIEGAND, II Date: September 24, 1997
- -------------------------------
Robert Wiegand, II, Secretary and
Director
/s/ MARY ANNE DEYOUNG Date: September 24, 1997
- -------------------------------
Mary Anne DeYoung, Treasurer,
Chief Financial Officer,
Assistant Secretary, and
Director
/s/ RICHARD A. KNAPP Date: September 24, 1997
- -------------------------------
Richard A. Knapp, Director
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
4.3 Form of Two Year Warrant to Purchase Shares of
Common Stock dated August 14, 1997
4.4 Form of Six Month Warrant to Purchase Shares of
Common Stock dated August 14, 1997
23.1 Consent of Karsh & Company, P.C.
All of the foregoing exhibits are filed herewith electronically.
INDEPENDENT AUDITOR'S CONSENT
- -----------------------------
We consent to the incorporation by reference in Amendment No. 1 of the
Registration Statement on Form S-3 of 1MAGE Software, Inc. of our report
dated February 11, 1997, which appears on page 28 of the 1996 Annual
Report to Shareholders on Form 10-K of 1MAGE Software, Inc. and to the
reference to our Firm under the caption "Experts" in the Prospectus.
/s/ Karsh & Company, P.C.
- -------------------------
Karsh & Company, P.C.
Denver, Colorado
September 24, 1997
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW.
THESE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR AN EXEMPTION THEREFROM UNDER SAID ACT AND LAWS.
THIS WARRANT MAY NOT BE EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS TO THE REASONABLE SATISFACTION OF THE
COMPANY AND LEGAL COUNSEL FOR THE COMPANY.
Void after 5:00 P.M., Denver, Right to Purchase 25,000
Colorado time, on the first to Shares of the Common
occur of (a) February 13, 2000, Stock of 1mage Software,
or (b) such earlier date as Inc.
this Warrant may expire
pursuant to Section 1 hereof.
1MAGE SOFTWARE, INC.
Stock Purchase Warrant (Two Years)
1mage Software, Inc., a Colorado corporation (the "Company"), hereby
certifies that, for value received, Dean S. Dumont or his assigns (the
"Holder"), are entitled to purchase, subject to the terms and conditions
hereinafter set forth, an aggregate of Twenty-Five Thousand (25,000) fully
paid and nonassessable shares ("Shares") of the common stock of the
Company ("Common Stock"), at an exercise price of $1.50 per share. The
number of Shares to be received upon the exercise of this Warrant and the
price to be paid for a Share may be adjusted from time to time as
hereinafter set forth. The exercise price of a Share in effect at any
time and as adjusted from time to time is hereinafter referred to as the
"Warrant Price."
1. TERM. The purchase right represented by this Warrant for Twenty-
Five Thousand (25,000) Shares is exercisable, in whole or in part, from
February 14, 1998 until the earlier of (i) February 13, 2000, or (ii) six
(6) months after the date of termination of that certain Consulting
Agreement between the Company and BurchMont Equities Group, Inc. dated
July 28, 1997 pursuant to which this Warrant was issued (the "Agreement").
The Company shall be under no obligation to furnish to any Holder a notice
of the expiration date of this Warrant. The Warrant is immediately
exercisable only if and to the extent that, on the date of any exercise or
attempt to exercise the Warrant, the Holder is not the beneficial owner
(within the meaning ascribed to that term by Section 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") and has not been the
beneficial owner of more than 9.99% of the Common Stock (calculated as
required by Section 13(d) of the Exchange Act) for a period of 60 days
prior to the date of such exercise or attempted exercise (hereinafter
referred to as the "9.99% Restriction"). In accordance with the expressly
stated intent of the parties to the Agreement, this Warrant is not
exercisable by the Holder hereof if and to the extent such Holder would,
by such exercisability or otherwise, be the beneficial owner of more than
9.99% of the Company's Common Stock. Any interpretation of this Warrant,
or of the 9.99% Restriction specifically, should seek to construe the
terms hereof in accordance with such intent and, to the extent that such a
construction may not be achieved, the provisions of this Warrant should be
reformed to achieve such intent.
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) Subject to Section 1 hereof, the purchase right represented
by this Warrant may be exercised by any Holder hereof, in whole or in
part, by the surrender of this Warrant (with the notice of exercise form
attached hereto as Exhibit A duly executed) at the principal office of the
Company and by the payment to the Company, by check, of an amount equal
to the then applicable Warrant Price per share multiplied by the number of
Shares then being purchased, or if the Company is merged, acquired or
consolidated pursuant to a transaction in which the Company is not the
surviving party, by surrender on the date of such merger, acquisition or
consolidation of the right to receive upon exercise hereof a number of
Shares equal to the value (as determined below) of the Shares with respect
to which this Warrant is being exercised, in which case the number of
shares to be issued to the Holder upon such exercise shall be computed
using the following formula:
X = Y(A-B)
---------
A
Where: X = the number of shares of Common Stock to be issued to the
Holder.
Y = the number of shares of Common Stock with respect to
which this Warrant is being exercised.
A = the fair market value of one share of Common Stock.
B = Warrant Price.
(b) If any Holder shall surrender such exercise right in
conjunction with a merger, acquisition or other consolidation pursuant to
which the Company is not the surviving party, then the fair market value
of one share of Common Stock shall be the value received by the holders of
the Company's Common Stock pursuant to such transaction for each share of
Common Stock, and such purchase shall be effective upon the closing of
such transaction, subject to the due, proper and prior surrender of this
Warrant; or
(c) In the event of an exercise of the purchase right
represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the exercising Holder hereof within thirty
days of the effective date of such purchase and, unless this Warrant has
been fully exercised or expired, a new Warrant representing the portion of
the Shares, if any, with respect to which this Warrant shall not then have
been exercised shall also be issued to such Holder hereof within such
thirty-day period. Upon the effective date of such purchase, the
exercising Holder shall be deemed to be the holder of record of the
Shares, even if a certificate representing such Shares has not been
delivered to such Holder or if such Shares have not yet been set forth on
the stock transfer books of the Company.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares which may
be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof. During the
period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for
the purpose of the issue upon exercise of the purchase rights evidenced by
this Warrant, a sufficient number of shares of its Common Stock to provide
for the exercise of the rights represented by this Warrant.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number
and kind of securities purchasable upon the exercise of this Warrant and
the Warrant Price shall be subject to adjustment from time to time upon
the occurrence of certain events, as follows:
(a) RECLASSIFICATION OR MERGER. In case of any reclass
ification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result
of a subdivision or combination), or in case of any merger of the Company
with or into another corporation (other than a merger with another
corporation in which the Company is a continuing corporation and which
does not result in any reclassification or change of outstanding
securities issuable upon exercise of this Warrant), or in case of any sale
of all or substantially all of the assets of the Company, the Company
shall, as a condition precedent to such transaction, execute a new Warrant
or cause such successor or purchasing corporation, as the case may be, to
execute a new Warrant, providing that the Holders shall have the right to
exercise such new Warrant and upon such exercise to receive, in lieu of
each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money
and property receivable upon such reclassification, change or merger by
the holder of one share of Common Stock. Such new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable
to the adjustments provided for in this paragraph 4. The provisions of
this paragraph (a) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the
case of a combination.
(c) STOCK DIVIDENDS. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend with respect to
Common Stock payable in, or make any other distribution with respect to
Common Stock (except any distribution specifically provided for in the
foregoing paragraphs (a) and (b)) of, Common Stock then the Warrant Price
shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that
price determined by multiplying the Warrant Price in effect immediately
prior to such date of determination by a fraction (a) the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to such dividend or distribution, and (b) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
(d) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in
the Warrant Price, the number of Shares of Common Stock purchasable
hereunder shall be adjusted, to the nearest whole share, to the product
obtained by multiplying the number of Shares purchasable immediately prior
to such adjustment in the Warrant Price by a fraction, the numerator of
which shall be the Warrant Price immediately prior to such adjustment and
the denominator of which shall be the Warrant Price immediately
thereafter.
5. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price shall be
adjusted pursuant to Section 4 hereof, the Company shall make a
certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the
Warrant Price or Prices after giving effect to such adjustment, and shall
cause copies of such certificate to be mailed (by first class mail,
postage prepaid) to all Holders.
6. NOTICE OF CERTAIN ACTIONS. In the event that the Company shall
propose at any time:
(i) to declare any dividend or distribution upon any class
or series of its stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether or not out
of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any
class or series or other rights;
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its assets
or property, or to liquidate, dissolve or wind up, whether voluntary or
involuntary,
then in connection with each such event, the Company shall send to the
Holders:
(1) at least 10 days prior written notice of the date
on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of
Common Stock shall be entitled thereto) or for determining rights to vote
in respect of the matters referred to in (i) and (ii) above;
(2) in the case of the matters referred to in (iii)
and (iv) above, at least 10 days prior written notice of the date for the
determination of shareholders entitled to vote thereon (and specifying the
date on which the holders of Common Stock shares shall be entitled to
exchange their Common Stock for securities or other property deliverable
upon the occurrence of such event); and
(3) prompt notice of any material change in the terms
of the transaction described in (i) through (iv) above.
Each such written notice shall be delivered personally or given
by first class mail, postage prepaid, addressed to the holders of the
Warrants at the address for each such holder as shown on the books of this
Company.
7. FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefore in an
amount determined in such reasonable manner as may be prescribed by the
board of directors of the Company.
8. COMPLIANCE WITH SECURITIES ACT. The Holders, by acceptance
hereof, agree that this Warrant and the Shares to be issued upon exercise
hereof are being acquired for investment and that no Holder will offer,
sell or otherwise dispose of this Warrant or any Shares to be issued upon
exercise hereof except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the "Act"). Upon any
acquisition or exercise of this Warrant or any portion thereof, the
exercising Holder shall confirm in writing, in a form attached hereto as
Exhibit B, that the Shares so purchased are being acquired for investment
and not with a view toward distribution or resale other than by a
registration statement filed by the Company pursuant to Section 10 hereof.
In addition, in the absence of such registration, the exercising Holder
shall provide such additional information regarding such Holder's
financial and investment background as the Company may reasonably request.
All Shares issued upon exercise of this Warrant (unless registered under
the Act) shall be stamped or imprinted with a legend in substantially the
following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMPANY AND WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT.
9. RIGHTS OF SHAREHOLDERS. No Holder shall be entitled to vote or
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon any Holder of this Warrant, as such, any of the
rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issuance of stock, reclassification of
stock, change of par value or change of stock to no par value, consolida
tion, merger, conveyance, or otherwise) or to receive notice of meetings,
or to receive dividends or subscription rights or otherwise before the
Warrant or Warrants shall have been exercised and the Shares purchasable
upon the exercise hereof shall have become deliverable, as provided
herein.
10. REGISTRATION RIGHTS.
(a) RIGHT TO DEMAND REGISTRATION. If, at any time after the
issuance hereof until the first anniversary of the date hereof, any Holder
of this Warrant or Shares issued hereunder makes a written request (the
"Request Notice") to the Company for registration under the Act of all or
part of the Common Stock issuable or issued upon exercise of this Warrant
(such Common Stock is hereinafter sometimes referred to as "Registrable
Securities"), the Company shall thereupon file a registration statement
covering all of the Registrable Securities with the Commission within
twenty (20) days after the Company receives the Request Notice and shall
use its best efforts have such registration statement declared effective
by the Commission (a "Registration") within sixty (60) days after receipt
of the Request Notice. Within ten (10) days after receipt of such
request, the Company will serve written notice (the "Notice") of such
registration request to all Holders of Warrants or Shares issued hereunder
and to all Holders of six-month warrants to purchase 500,000 shares of the
Company's Common Stock, issued by the Company August 14, 1997 ("Six-Month
Warrants") and the Company will include in such registration all
Registrable Securities of such Holders (including Holders of the Six-Month
Warrants) except for those for which the Company has received written
requests not to be included therein ("Nonregistration Notices"). The
Company is under no obligation to file an additional registration
statement for those submitting Nonregistration Notices. All Holder of
Warrants or Shares permitting the registration of any of their Registrable
Securities (the "Selling Holders") shall, prior to the filing of the
Registration Statement, deliver a notice to the Company confirming their
desire for such registration (the "Request Notice") which notice will also
specify the intended methods of disposition thereof. Each Holder
(including Holders of the Six-Month Warrants) shall be entitled so to
request or participate in only one (1) Registration filed with and
declared effective by the Commission, the expenses of which shall be borne
by the Company in accordance with this Warrant.
(b) SELECTION OF UNDERWRITER(S). The Holder(s) giving a
Request Notice with respect to a proposed Registration shall have sole
discretion to select the underwriter(s), if any, to manage the sale of
Registrable Securities pursuant to such Registration.
(c) EFFECTIVE REGISTRATION STATEMENT. A Registration requested
pursuant to this section will be deemed to have been effected as soon as
it has been declared effective by the Commission; PROVIDED, however that
if the offering of Registrable Securities pursuant to such registration is
interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court within
135 days after it has become effective, such Registration will be deemed
not to have been effected. If any such stop order or injunction is
rescinded, the effective periods required by this Agreement shall continue
upon such rescission and be extended by the number of days by which such
stop order reduced the effective period.
11. REGISTRATION PROCEDURES. It shall be a condition precedent to
the obligations of the Company and any underwriter(s) to take any action
pursuant to this section that the Selling Holders in any Registration
shall furnish to the Company such information regarding them, the
Registrable Securities held by them, the intended method of disposition of
such Registrable Securities, and such agreements regarding
indemnification, disposition of such securities and the other matters
referred to in this section as the Company shall reasonably request. With
respect to any Registration pursuant to this section, the Company shall,
as expeditiously as practicable:
(a) Prepare a Form S-3 registration statement, (or the Company
if is not eligible to use a Form S-3, then another appropriate form
prescribed by the Commission) and file it with the Commission within
twenty (20) days after the Company receives a Request Notice and any
necessary amendments thereto covering the Registrable Securities of the
Selling Holders and use its best efforts to cause such registration
statement to become effective within sixty (60) days after receipt of the
Request Notice;
(b) Prepare and file with the Commission such amendments and
post- effective amendments to such registration statement and any
documents required to be incorporated by reference therein as may be
necessary to keep the registration statement effective for a period of two
(2) years (or such shorter period which will terminate when there are no
longer any Warrants outstanding hereunder or when all Registrable
Securities covered by such registration statement have been sold or
withdrawn, but not prior to the expiration of the time period referred to
in Section 4(3) of the Act and Rule 174 thereunder, if applicable) and
cause the prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Act (or any successor rule);
(c) Furnish to such Selling Holder(s), without charge, at least
one conformed copy of the registration statement and any post-effective
amendment thereto, upon request, and a reasonable number of copies of the
final prospectus and any preliminary prospectus(es) and any amendments or
supplements thereto, and any exhibits or documents incorporated therein by
reference;
(d) Immediately notify such Selling Holder(s), at any time when
a prospectus relating thereto is required to be delivered under the Act,
when the Company becomes aware of any event which causes the prospectus to
contain any untrue statement of material fact or omit to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and, as promptly
as practicable thereafter, prepare and file and furnish a supplement or
amendment to such prospectus correcting same;
(e) Use its best efforts to cause all securities included in
such registration statement to be listed, by the date of the first sale of
securities pursuant to such registration statement, on Nasdaq;
(f) Make generally available to the Selling Holders an earnings
statement satisfying the provisions of Section 11(a) of the Act no later
than 90 days after the end of the 12-month period beginning with the first
month of the Company's first fiscal quarter commencing after the effective
date of the registration statement, which statement shall cover said 12-
month period;
(g) Make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the registration statement at
the earliest possible moment;
(h) As promptly as practicable after filing with the Commission
of any subsequently filed document which is incorporated by reference into
a registration statement (such as a Form 10-Q), deliver a reasonable
number of copies of such document to such Selling Holder;
(i) Prior to the date on which the registration statement is
declared effective, use its best efforts to register or qualify the
securities covered by the registration statement for offer and sale under
the securities or blue sky laws of each state of the United States as such
Selling Holder(s) or underwriter(s), may reasonably request and to keep
each such registration or qualification effective, including through new
filings, or amendments or renewals, during the period such registration
statement is required to be kept effective and to do any and all other
acts or things necessary or advisable to enable the disposition in all
such jurisdictions of the Registrable Securities covered by the applicable
registration statement;
(j) Enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions
customarily taken by registrants as the Selling Holder(s) who own a
majority of such Registrable Securities or the underwriter(s), if any,
reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities;
(k) Obtain a "cold comfort" letter or letters from the
Company's independent public accountants in customary form as may
reasonably be requested;
(l) Make available for inspection by any Selling Holder(s)
holding Registrable Securities covered by such registration statement, by
any underwriter participating in any disposition to be effected pursuant
to such registration statement and by any attorney, accountant or other
agent retained by any such Selling Holder(s) or any such underwriter, all
pertinent financial and other records, pertinent corporate documents and
properties of the Company, and supply all information reasonably requested
by any such Selling Holder(s), underwriter, attorney, accountant or agent
in connection with such registration statement;
(m) Cooperate with such Selling Holder(s) and the
underwriter(s), if any, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legends) representing the
Shares to be sold under the registration statement, and enable such
securities to be in such denominations and registered in such names as the
Selling Holder(s) or the underwriter(s), if any, may request; and
(n) Use its best efforts to cause the Shares covered by the
registration statement to be registered with or approved by such other
governmental agencies or authorities within the United States, including,
without limitation, the National Association of Securities Dealers, Inc.,
as may be necessary to enable the seller or sellers thereof or the
underwriter(s), if any, to consummate the disposition of such Registrable
Securities.
The Selling Holders, upon receipt of any notice from the Company
of any event of the kind described in paragraph (d) of this section, will
forthwith discontinue disposition of the Shares until the Selling Holders'
receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph (b) of this section or until they are advised in
writing (the "Advice") by the Company that the use of the prospectus may
be resumed, and have received copies of any additional or supplemental
filings which are incorporated by reference in the prospectus. In the
event the Company shall give any such notice, the time periods mentioned
in paragraph (b) of this section shall be extended by the number of days
during the period from and including any date of the giving of such notice
to and including the date when each seller of securities covered by such
registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by paragraph (b) of this section or the
Advice.
12. BLACKOUT PERIODS. (i) At any time when a registration
statement relating to Registrable Securities is effective, upon written
notice from the Company to the Selling Holders that either:
(a) after the registration statement covering the Registrable
Securities has been effective for a period of at least one hundred twenty
(120) days, the Company has determined to engage in a publicly registered
offering of its Common Stock and has been advised in writing (with a copy
to the Selling Holders) by a nationally recognized independent investment
banking firm selected by the Company that, in such firm's opinion, the
Selling Holders' sale of Registrable Securities pursuant to the
registration statement would adversely affect such immediately planned
Company Offering (a "Transaction Blackout"); or
(b) the Company determines in the good faith judgment of legal
counsel to the Company that the cessation of the Selling Holders' sale of
Registrable Securities pursuant to the registration statement is mandated
by law (an "Information Blackout"),
the Selling Holders shall suspend sales of Registrable Securities pursuant
to such registration statement until the earlier of:
(c) in the case of a Transaction Blackout, the earliest of (A)
thirty (30) days after the beginning of such Transaction Blackout, (b) the
termination of any "blackout" period required by the underwriters to be
applicable to the Selling Holders, if any, in connection with such Company
offering, (C) promptly after abandonment of such Company's offering
causing the Transaction Blackout or (D) sixty (60) days after the date of
the Company's written notice of a Transaction Blackout, or (ii) in the
case of an Information Blackout, the earlier of (A) the date upon which
the cessation of such sales would, in the opinion of the Company's legal
counsel, no longer be mandated by law, or (iii) thirty (30) days after the
beginning of such Information Blackout; or
(d) such time as the Company notifies the Selling Holders that
sales pursuant to such registration statement may be resumed (the number
of days from such suspension of sales of the Selling Holders until the day
when such sales may be resumed hereunder is hereinafter called a "Sales
Blackout Period");
PROVIDED, HOWEVER, that the Company may not impose a Transaction Blackout
during (a) any underwritten public offering by the Selling Holders, (b)
the 120-day period immediately following the date on which a registration
statement effected pursuant to this section first became effective or (c)
the 365-day period immediately following the expiration of any other
Transaction Blackout.
(e) if there is a Transaction Blackout or an Information
Blackout, the time periods set forth in paragraph (b) of Section 11 shall
be extended for a number of days equal to the number of days in the Sales
Blackout Period.
13. REGISTRATION EXPENSES. In the case of any Registration, the
Company shall bear all of the costs and expenses of such Registration
(including, without limitation, the expenses of preparing any registration
statement, Commission and state "blue sky" filing, registration and
qualification fees, the cost of providing any legal opinion or "cold
comfort" letters reasonably requested by the Selling Holders and printing
costs); PROVIDED, HOWEVER, that the Company shall not be responsible for
legal fees or expense of counsel for any of the Selling Holders, or for
any underwriter's discounts or commissions that are attributable to the
Registrable Securities of a Selling Holder.
14. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Selling Holder, its officers, directors
and agents and each person who controls (within the meaning of the Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) such
Selling Holder, including, without limitation, any general partner or
manager of any thereof, against all losses, claims, damages, liabilities
and expenses arising out of or based upon any untrue or alleged untrue
statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus in which such Selling Holder is
participating or in any document incorporated by reference therein or any
omission or alleged omission to state therein a material fact necessary to
make the statement therein (in the case of the prospectus or any
preliminary prospectus, in light of the circumstances under which they
were made) not misleading, except insofar as the same are caused by, based
upon or contained in any information with respect to such Selling Holder
furnished in writing to the Company by such Selling Holder expressly for
use therein; PROVIDED, HOWEVER, that the foregoing indemnity agreement
with respect to any preliminary prospectus shall not inure to the benefit
of any Selling Holder from whom the person asserting such loss, claim,
damage or liability purchased the securities if it is determined that it
was the responsibility of such Selling Holder to provide such person with
a current copy of the prospectus and such current copy of the prospectus
would have cured such loss, claim, damage or liability. The Company will
also indemnify underwriters (as such term is defined in the Act), their
officers and directors and each person who controls such persons (within
the meaning of the Act) to the same extent as provided above with respect
to the indemnification of the Selling Holders.
(b) INDEMNIFICATION BY THE SELLING HOLDERS. In connection with
any Registration in which a Selling Holder is participating, such Selling
Holder will furnish to the Company in writing such information and
affidavits with respect to such Selling Holder as the Company reasonably
requests for use in connection with any registration statement or
prospectus and agrees to indemnify and hold harmless the Company, its
directors, officers and agents and each person who controls (within the
meaning of the Act and the Exchange Act) the Company against any losses,
claims, damages, liabilities and expenses arising out of or based upon any
untrue statement of a material fact or any omission to state a material
fact necessary to make the statements in the registration statement or
prospectus or preliminary prospectus (in the case of the prospectus or
preliminary prospectus, in light of the circumstances under which they
were made) not misleading, to the extent, but only to the extent, that
such untrue statement or omission is contained in any information or
affidavit such Selling Holder furnished in writing to the Company by such
Selling Holder expressly for use therein; PROVIDED, HOWEVER, that the
amount recoverable by the Company from any Selling Holder under this
indemnification provision shall not exceed the amount of net proceeds
received by the Selling Holder from the sale of Registrable Securities
hereunder; and PROVIDED, FURTHER, that the indemnity agreement contained
in this section shall not apply to amounts paid in settlement of any loss,
claim, damage, liability or action arising pursuant to a Registration if
such settlement is effected without the consent of the Selling Holder
(which consent shall not be unreasonably withheld). Such indemnity shall
remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any of the prospective sellers, or any of
their respective affiliates, directors, officers or controlling persons
and shall survive the transfer of such securities by such seller.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person
entitled to indemnification hereunder will (i) give prompt written notice
to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest may exist between such indemnified and
indemnifying party, permit the indemnifying party to assume the defense of
such claim, jointly with any other indemnifying party similarly notified
to the extent it may elect, with counsel reasonably satisfactory to the
indemnified party. The failure to so notify the indemnifying party shall
relieve the indemnifying party from any liability hereunder with respect
to the action to the extent that such failure materially prejudices the
indemnifying party; PROVIDED, HOWEVER, that any such failure shall not
relieve the indemnifying party from any other liability which it may have
to any other party. Whether or not such defense is assumed by the
indemnifying party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent
will not be unreasonably withheld). No indemnifying party will consent to
entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect of
such claim or litigation. An indemnifying party who is not entitled to,
or elects not to, assume the defense of a claim will not be obligated to
pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless
in the reasonable judgment of any indemnified party a conflict of interest
may exist between such indemnified party and any other of such indemnified
parties with respect to such claim, in which event the indemnifying party
shall be obligated to pay the reasonable fees and expenses of such
additional counsel or counsels.
(d) CONTRIBUTION. If for any reason the indemnification
provided for in the preceding paragraphs (a) and (b) of this section is
unavailable to an indemnified party as contemplated thereby for any
reason, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying
party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable
considerations. Notwithstanding the foregoing, if the indemnifying party
is a Selling Holder, any contribution pursuant to this paragraph shall be
several and not joint, and shall be limited to the amount of net proceeds
received by such Selling Holder from the sale of Registrable Securities
hereunder.
(e) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this section (with appropriate
modifications) shall be given by the Company and each seller of
Registrable Securities with respect to any required registration or other
qualification of securities under any federal or state law or regulation
or governmental authority other than the Act.
15. EXCHANGE ACT REPORTS. The Company agrees that at all times
after it has filed a registration statement pursuant to the requirements
of the Act relating to any class of equity securities of the Company, it
will use its best efforts to file in a timely manner all reports required
to be filed by it pursuant to the Exchange Act to the extent the Company
is required to file such reports. Upon request of a Selling Holder, the
Company will furnish the requesting Selling Holder with such information
as may be necessary to enable such Selling Holder to effect sales pursuant
to Rule 144A. Notwithstanding the foregoing, the Company may deregister
any class of its equity securities under Section 12 of the Exchange Act or
suspend its duty to file reports with respect to any class of its
securities pursuant to Section 15(d) of the Exchange Act if it is then
permitted to do so pursuant to the Exchange Act and rules and regulations
thereunder.
16. PARTICIPATION IN REGISTRATIONS. No Selling Holder may
participate in any Registration hereunder unless such Selling Holder (a)
agrees to sell the Selling Holder's securities on the basis provided in
any underwriting arrangements approved by the persons entitled hereunder
to approve such arrangements, and (b) completes and executes all
questionnaires, powers of attorney, underwriting agreements and other
documents customarily required under the terms of such underwriting
arrangements.
17. REMEDIES. Each Selling Holder shall have the right and remedy
to have the registration rights provided hereby specifically enforced by
any court having jurisdiction in the event that the Company breaches such
provisions, and the Company shall reimburse such Selling Holder for the
reasonable costs of the expenses for counsel for such Purchaser incurred
in connection with such proceeding.
18. GOVERNING LAW. The terms and conditions of this Warrant shall
be governed by and construed in accordance with Colorado law.
19. MISCELLANEOUS. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a
part hereof. Neither this Warrant nor any term hereof may be changed,
waived, discharged or terminated orally but only by an instrument in
writing signed by the Company and the registered holder hereof. All
notices and other communications from the Company to the Holders shall be
mailed by first-class registered or certified mail, postage prepaid, to
the address furnished to the Company in writing by the last holder of this
Warrant who shall have furnished an address to the Company in writing.
1MAGE SOFTWARE, INC.
By:/s/David R. DeYoung
David R. DeYoung, President
Date: August 14, 1997
EXHIBIT A
NOTICE OF EXERCISE
TO: 1MAGE SOFTWARE, INC.
1. The undersigned hereby elects to purchase ------------ shares of
Common Stock of 1mage Software, Inc. (the "Company") pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full, together with all applicable transfer taxes,
if any.
2. The undersigned notifies the Company that the undersigned
beneficially owns, directly or indirectly, the following number of
Warrants, options, shares of Common Stock or other securities of the
Company:
3. The undersigned represents that, pursuant to the terms of the
Warrant, the issuance of the Common Stock will not be a violation of the
9.99% Restriction as described therein.
4. The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment
and not with a view to, or for resale in connection with, the distribution
thereof and that the undersigned has no present intention of distributing
or reselling such shares. In support thereof, the undersigned has
executed an Investment Representation Statement attached hereto as
Exhibit B.
5. Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other
name as is specified below:
By:-----------------------------
Date:--------------
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
COMPANY : 1MAGE SOFTWARE, INC.
SECURITY : COMMON STOCK PURCHASE WARRANTS AND UNDERLYING COMMON
STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company
the following:
(a) The Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
Securities. The Purchaser is purchasing these Securities for the
Purchaser's own account for investment purposes only and not with a view
to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933 ("Securities Act").
(b) The Purchaser understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the Purchaser's investment intent as expressed herein. In this
connection, the Purchaser understands that, in the view of the Securities
and Exchange Commission ("SEC"), the statutory basis for such exemption
may be unavailable if the Purchaser's representation was predicated solely
upon a present intention to hold these Securities for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or
until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future.
(c) The Purchaser further understands that the Securities must be
held indefinitely unless subsequently registered under the Securities Act
or unless an exemption from registration is otherwise available.
Moreover, the Purchaser understands that the Company is under no
obligation to register the Securities except as set forth in the Stock
Purchase Warrant. In addition, the Purchaser understands that the
certificate evidencing the Securities will be imprinted with a legend
which prohibits the transfer of the Securities unless they are registered
or, in the opinion of counsel for the Company, such registration is not
required.
(d) The Purchaser is aware of the provisions of Rule 144,
promulgated under the Securities Act which, in substance, permits limited
public resale of "restricted securities " acquired, directly or
indirectly, from the issuer thereof (or from an affiliate of such issuer),
in a non-public offering subject to the satisfaction of certain
conditions.
(e) The Purchaser furthers understand that, while the Company's
Common Stock is presently traded upon the Nasdaq Small Cap Market, there
can be no assurance that, at the time the Purchaser wishes to sell the
Securities, there will be a public market in which to make such a sale.
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 are not satisfied, registration under the
Securities Act or compliance with Regulation A or some other registration
exemption will be required; and that, notwithstanding the fact that Rule
144 is not exclusive, the staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons
and their respective brokers who participate in such transactions do so at
their own risk.
Signature of Purchaser:
By:-----------------------------
Date:---------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW.
THESE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR AN EXEMPTION THEREFROM UNDER SAID ACT AND LAWS.
THIS WARRANT MAY NOT BE EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS TO THE REASONABLE SATISFACTION OF THE
COMPANY AND LEGAL COUNSEL FOR THE COMPANY.
Void after 5:00 P.M., Denver, Colorado
time, on the first to occur of (a) Right to Purchase 250,000
February 13, 1998, or (b) up to sixty Shares of the Common Stock of
(60) days thereafter if extended 1mage Software, Inc.
pursuant to Section 1 hereof.
1MAGE SOFTWARE, INC.
Stock Purchase Warrant (Six Months)
1mage Software, Inc., a Colorado corporation (the "Company"), hereby
certifies that, for value received, Dean S. Dumont or his assigns (the
"Holder"), are entitled to purchase, subject to the terms and conditions
hereinafter set forth, an aggregate of Two Hundred Fifty Thousand
(250,000) fully paid and nonassessable shares ("Shares") of the common
stock of the Company ("Common Stock"), at an exercise price equal to the
lower of (i) $1.25 per share; or (ii) the average closing bid price for
the Common Stock reported on Nasdaq for the five (5) days immediately
preceding the issuance of this Warrant ("Average Price"), provided,
however, that if such Average Price is less than $1.00 per share, then the
exercise price shall be $1.00 per Share. The number of Shares to be
received upon the exercise of this Warrant and the price to be paid for a
Share may be adjusted from time to time as hereinafter set forth. The
exercise price of a Share in effect at any time and as adjusted from time
to time is hereinafter referred to as the "Warrant Price."
1. TERM. The purchase right represented by this Warrant for
250,000 Shares is exercisable, in whole or in part, from August 14, 1997
through February 13, 1998. The Company shall be under no obligation to
furnish to any Holder a notice of the expiration date of this Warrant.
The Warrant is immediately exercisable only if and to the extent that, on
the date of any exercise or attempt to exercise the Warrant, the Holder is
not the beneficial owner (within the meaning ascribed to that term by
Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
and has not been the beneficial owner of more than 9.99% of the Common
Stock (calculated as required by Section 13(d) of the Exchange Act) for a
period of 60 days prior to the date of such exercise or attempted exercise
(hereinafter referred to as the "9.99% Restriction"). In accordance with
the expressly stated intent of the parties to that certain Consulting
Agreement between the Company and BurchMont Equities Group, Inc. dated
July 8, 1997 pursuant to which this Warrant has been issued (the
"Agreement"), this Warrant is not exercisable by the Holder hereof if and
to the extent such Holder would, by such exercisability or otherwise, be
the beneficial owner of more than 9.99% of the Company's Common Stock.
Any interpretation of this Warrant, or of the 9.99% Restriction
specifically, should seek to construe the terms hereof in accordance with
such intent and, to the extent that such a construction may not be
achieved, the provisions of this Warrant should be reformed to achieve
such intent. As provided in the Agreement, if on February 13, 1998, any
portion of this Warrant is not exercisable on that date because of the
9.99% Restriction, then the Company will extend such unexercisable portion
for up to sixty (60) days beyond February 13, 1998.
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) Subject to Section 1 hereof, the purchase right represented
by this Warrant may be exercised by any Holder hereof, in whole or in
part, by the surrender of this Warrant (with the notice of exercise form
attached hereto as Exhibit A duly executed) at the principal office of the
Company and by the payment to the Company, by check, of an amount equal
to the then applicable Warrant Price per share multiplied by the number of
Shares then being purchased, or if the Company is merged, acquired or
consolidated pursuant to a transaction in which the Company is not the
surviving party, by surrender on the date of such merger, acquisition or
consolidation of the right to receive upon exercise hereof a number of
Shares equal to the value (as determined below) of the Shares with respect
to which this Warrant is being exercised, in which case the number of
shares to be issued to the Holder upon such exercise shall be computed
using the following formula:
X = Y(A-B)
A
Where: X = the number of shares of Common Stock to be issued to
the Holder.
Y = the number of shares of Common Stock with respect to
which this Warrant is being exercised.
A = the fair market value of one share of Common Stock.
B = Warrant Price.
(b) If any Holder shall surrender such exercise right in
conjunction with a merger, acquisition or other consolidation pursuant to
which the Company is not the surviving party, then the fair market value
of one share of Common Stock shall be the value received by the holders of
the Company's Common Stock pursuant to such transaction for each share of
Common Stock, and such purchase shall be effective upon the closing of
such transaction, subject to the due, proper and prior surrender of this
Warrant; or
(c) In the event of an exercise of the purchase right
represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the exercising Holder hereof within thirty
days of the effective date of such purchase and, unless this Warrant has
been fully exercised or expired, a new Warrant representing the portion of
the Shares, if any, with respect to which this Warrant shall not then have
been exercised shall also be issued to such Holder hereof within such
thirty-day period. Upon the effective date of such purchase, the
exercising Holder shall be deemed to be the holder of record of the
Shares, even if a certificate representing such Shares has not been
delivered to such Holder or if such Shares have not yet been set forth on
the stock transfer books of the Company.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares which may
be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof. During the
period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for
the purpose of the issue upon exercise of the purchase rights evidenced by
this Warrant, a sufficient number of shares of its Common Stock to provide
for the exercise of the rights represented by this Warrant.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number
and kind of securities purchasable upon the exercise of this Warrant and
the Warrant Price shall be subject to adjustment from time to time upon
the occurrence of certain events, as follows:
(a) RECLASSIFICATION OR MERGER. In case of any reclass
ification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result
of a subdivision or combination), or in case of any merger of the Company
with or into another corporation (other than a merger with another
corporation in which the Company is a continuing corporation and which
does not result in any reclassification or change of outstanding
securities issuable upon exercise of this Warrant), or in case of any sale
of all or substantially all of the assets of the Company, the Company
shall, as a condition precedent to such transaction, execute a new Warrant
or cause such successor or purchasing corporation, as the case may be, to
execute a new Warrant, providing that the Holders shall have the right to
exercise such new Warrant and upon such exercise to receive, in lieu of
each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money
and property receivable upon such reclassification, change or merger by
the holder of one share of Common Stock. Such new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable
to the adjustments provided for in this paragraph 4. The provisions of
this paragraph (a) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the
case of a combination.
(c) STOCK DIVIDENDS. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend with respect to
Common Stock payable in, or make any other distribution with respect to
Common Stock (except any distribution specifically provided for in the
foregoing paragraphs (a) and (b)) of, Common Stock then the Warrant Price
shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that
price determined by multiplying the Warrant Price in effect immediately
prior to such date of determination by a fraction (a) the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to such dividend or distribution, and (b) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution.
(d) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in
the Warrant Price, the number of Shares of Common Stock purchasable
hereunder shall be adjusted, to the nearest whole share, to the product
obtained by multiplying the number of Shares purchasable immediately prior
to such adjustment in the Warrant Price by a fraction, the numerator of
which shall be the Warrant Price immediately prior to such adjustment and
the denominator of which shall be the Warrant Price immediately
thereafter.
5. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price shall be
adjusted pursuant to Section 4 hereof, the Company shall make a
certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the
Warrant Price or Prices after giving effect to such adjustment, and shall
cause copies of such certificate to be mailed (by first class mail,
postage prepaid) to all Holders.
6. NOTICE OF CERTAIN ACTIONS. In the event that the Company shall
propose at any time:
(i) to declare any dividend or distribution upon any class
or series of its stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether or not out
of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any
class or series or other rights;
(iii)to effect any reclassification or recapitalization of
its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its assets
or property, or to liquidate, dissolve or wind up, whether voluntary or
involuntary,
then in connection with each such event, the Company shall send to the
Holders:
(1) at least 10 days prior written notice of the date
on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of
Common Stock shall be entitled thereto) or for determining rights to vote
in respect of the matters referred to in (i) and (ii) above;
(2) in the case of the matters referred to in (iii) and (iv) above, at
least 10 days prior written notice of the date for the determination of
shareholders entitled to vote thereon (and specifying the date on which
the holders of Common Stock shares shall be entitled to exchange their
Common Stock for securities or other property deliverable upon the
occurrence of such event); and
(3) prompt notice of any material change in the terms
of the transaction described in (i) through (iv) above.
Each such written notice shall be delivered personally or given
by first class mail, postage prepaid, addressed to the holders of the
Warrants at the address for each such holder as shown on the books of this
Company.
7. FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefore in an
amount determined in such reasonable manner as may be prescribed by the
board of directors of the Company.
8. COMPLIANCE WITH SECURITIES ACT. The Holders, by acceptance
hereof, agree that this Warrant and the Shares to be issued upon exercise
hereof are being acquired for investment and that no Holder will offer,
sell or otherwise dispose of this Warrant or any Shares to be issued upon
exercise hereof except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the "Act"). Upon any
acquisition or exercise of this Warrant or any portion thereof, the
exercising Holder shall confirm in writing, in a form attached hereto as
Exhibit B, that the Shares so purchased are being acquired for investment
and not with a view toward distribution or resale other than by a
registration statement filed by the Company pursuant to Section 10 hereof.
In addition, in the absence of such registration, the exercising Holder
shall provide such additional information regarding such Holder's
financial and investment background as the Company may reasonably request.
All Shares issued upon exercise of this Warrant (unless registered under
the Act) shall be stamped or imprinted with a legend in substantially the
following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMPANY AND WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR
THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT.
9. RIGHTS OF SHAREHOLDERS. No Holder shall be entitled to vote or
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon any Holder of this Warrant, as such, any of the
rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issuance of stock, reclassification of
stock, change of par value or change of stock to no par value,
consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise
before the Warrant or Warrants shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable, as
provided herein.
10. REGISTRATION RIGHTS.
(a) RIGHT TO DEMAND REGISTRATION. If, at any time after the
issuance hereof until the first anniversary of the date hereof, any Holder
of this Warrant or Shares issued hereunder makes a written request (the
"Request Notice") to the Company for registration under the Act of all or
part of the Common Stock issuable or issued upon exercise of this Warrant
(such Common Stock is hereinafter sometimes referred to as "Registrable
Securities"), the Company shall thereupon file a registration statement
covering all of the Registrable Securities with the Commission within
twenty (20) days after the Company receives the Request Notice and shall
use its best efforts have such registration statement declared effective
by the Commission (a "Registration") within sixty (60) days after receipt
of the Request Notice. Within ten (10) days after receipt of such
request, the Company will serve written notice (the "Notice") of such
registration request to all Holders of Warrants or Shares issued
hereunder, and to all Holders of two-year warrants to purchase 50,000
shares of the Company's Common Stock issued by the Company on August 14,
1997 ("Two-Year Warrants"), and the Company will include in such
registration all Registrable Securities of such Holders (including Holders
of the Two-Year Warrants) except for those for which the Company has
received written requests not to be included therein ("Nonregistration
Notices"). The Company is under no obligation to file an additional
registration statement for those submitting Nonregistration Notices. All
Holder of Warrants or Shares permitting the registration of any of their
Registrable Securities (the "Selling Holders") shall, prior to the filing
of the Registration Statement, deliver a notice to the Company confirming
their desire for such registration (the "Request Notice") which notice
will also specify the intended methods of disposition thereof. Each
Holder (including Holders of the Two-Year Warrants) shall be entitled to
request or participate in only one (1) Registration filed with and
declared effective by the Commission, the expenses of which shall be borne
by the Company in accordance with this Warrant.
(b) SELECTION OF UNDERWRITER(S). The Holder(s) giving a
Request Notice with respect to a proposed Registration shall have sole
discretion to select the underwriter(s), if any, to manage the sale of
Registrable Securities pursuant to such Registration.
(c) EFFECTIVE REGISTRATION STATEMENT. A Registration requested
pursuant to this section will be deemed to have been effected as soon as
it has been declared effective by the Commission; provided, however that
if the offering of Registrable Securities pursuant to such registration is
interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court within
135 days after it has become effective, such Registration will be deemed
not to have been effected. If any such stop order or injunction is
rescinded, the effective periods required by this Agreement shall continue
upon such rescission and be extended by the number of days by which such
stop order reduced the effective period.
11. REGISTRATION PROCEDURES. It shall be a condition precedent to
the obligations of the Company and any underwriter(s) to take any action
pursuant to this section that the Selling Holders in any Registration
shall furnish to the Company such information regarding them, the
Registrable Securities held by them, the intended method of disposition of
such Registrable Securities, and such agreements regarding
indemnification, disposition of such securities and the other matters
referred to in this section as the Company shall reasonably request. With
respect to any Registration pursuant to this section, the Company shall,
as expeditiously as practicable:
(a) Prepare a Form S-3 registration statement, (or the Company
if is not eligible to use a Form S-3, then another appropriate form
prescribed by the Commission) and file it with the Commission within
twenty (20) days after the Company receives a Request Notice and any
necessary amendments thereto covering the Registrable Securities of the
Selling Holders and use its best efforts to cause such registration
statement to become effective within sixty (60) days after receipt of the
Request Notice;
(b) Prepare and file with the Commission such amendments and
post- effective amendments to such registration statement and any
documents required to be incorporated by reference therein as may be
necessary to keep the registration statement effective for a period of two
(2) years (or such shorter period which will terminate when there are no
longer any Warrants outstanding hereunder or when all Registrable
Securities covered by such registration statement have been sold or
withdrawn, but not prior to the expiration of the time period referred to
in Section 4(3) of the Act and Rule 174 thereunder, if applicable) and
cause the prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Act (or any successor rule);
(c) Furnish to such Selling Holder(s), without charge, at least
one conformed copy of the registration statement and any post-effective
amendment thereto, upon request, and a reasonable number of copies of the
final prospectus and any preliminary prospectus(es) and any amendments or
supplements thereto, and any exhibits or documents incorporated therein by
reference;
(d) Immediately notify such Selling Holder(s), at any time when
a prospectus relating thereto is required to be delivered under the Act,
when the Company becomes aware of any event which causes the prospectus to
contain any untrue statement of material fact or omit to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and, as promptly
as practicable thereafter, prepare and file and furnish a supplement or
amendment to such prospectus correcting same;
(e) Use its best efforts to cause all securities included in
such registration statement to be listed, by the date of the first sale of
securities pursuant to such registration statement, on Nasdaq;
(f) Make generally available to the Selling Holders an earnings
statement satisfying the provisions of Section 11(a) of the Act no later
than 90 days after the end of the 12-month period beginning with the first
month of the Company's first fiscal quarter commencing after the effective
date of the registration statement, which statement shall cover said
12-month period;
(g) Make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the registration statement at
the earliest possible moment;
(h) As promptly as practicable after filing with the Commission
of any subsequently filed document which is incorporated by reference into
a registration statement (such as a Form 10-Q), deliver a reasonable
number of copies of such document to such Selling Holder;
(i) Prior to the date on which the registration statement is
declared effective, use its best efforts to register or qualify the
securities covered by the registration statement for offer and sale under
the securities or blue sky laws of each state of the United States as such
Selling Holder(s) or underwriter(s), may reasonably request and to keep
each such registration or qualification effective, including through new
filings, or amendments or renewals, during the period such registration
statement is required to be kept effective and to do any and all other
acts or things necessary or advisable to enable the disposition in all
such jurisdictions of the Registrable Securities covered by the applicable
registration statement;
(j) Enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions
customarily taken by registrants as the Selling Holder(s) who own a
majority of such Registrable Securities or the underwriter(s), if any,
reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities;
(k) Obtain a "cold comfort" letter or letters from the
Company's independent public accountants in customary form as may
reasonably be requested;
(l) Make available for inspection by any Selling Holder(s)
holding Registrable Securities covered by such registration statement, by
any underwriter participating in any disposition to be effected pursuant
to such registration statement and by any attorney, accountant or other
agent retained by any such Selling Holder(s) or any such underwriter, all
pertinent financial and other records, pertinent corporate documents and
properties of the Company, and supply all information reasonably requested
by any such Selling Holder(s), underwriter, attorney, accountant or agent
in connection with such registration statement;
(m) Cooperate with such Selling Holder(s) and the
underwriter(s), if any, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legends) representing the
Shares to be sold under the registration statement, and enable such
securities to be in such denominations and registered in such names as the
Selling Holder(s) or the underwriter(s), if any, may request; and
(n) Use its best efforts to cause the Shares covered by the
registration statement to be registered with or approved by such other
governmental agencies or authorities within the United States, including,
without limitation, the National Association of Securities Dealers, Inc.,
as may be necessary to enable the seller or sellers thereof or the
underwriter(s), if any, to consummate the disposition of such Registrable
Securities.
The Selling Holders, upon receipt of any notice from the Company
of any event of the kind described in paragraph (d) of this section, will
forthwith discontinue disposition of the Shares until the Selling Holders'
receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph (b) of this section or until they are advised in
writing (the "Advice") by the Company that the use of the prospectus may
be resumed, and have received copies of any additional or supplemental
filings which are incorporated by reference in the prospectus. In the
event the Company shall give any such notice, the time periods mentioned
in paragraph (b) of this section shall be extended by the number of days
during the period from and including any date of the giving of such notice
to and including the date when each seller of securities covered by such
registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by paragraph (b) of this section or the
Advice.
12. BLACKOUT PERIODS. (i) At any time when a registration
statement relating to Registrable Securities is effective, upon written
notice from the Company to the Selling Holders that either:
(a) after the registration statement covering the Registrable
Securities has been effective for a period of at least one hundred twenty
(120) days, the Company has determined to engage in a publicly registered
offering of its Common Stock and has been advised in writing (with a copy
to the Selling Holders) by a nationally recognized independent investment
banking firm selected by the Company that, in such firm's opinion, the
Selling Holders' sale of Registrable Securities pursuant to the
registration statement would adversely affect such immediately planned
Company Offering (a "Transaction Blackout"); or
(b) the Company determines in the good faith judgment of legal
counsel to the Company that the cessation of the Selling Holders' sale of
Registrable Securities pursuant to the registration statement is mandated
by law (an "Information Blackout"),
the Selling Holders shall suspend sales of Registrable Securities pursuant
to such registration statement until the earlier of:
(c) in the case of a Transaction Blackout, the earliest of (A)
thirty (30) days after the beginning of such Transaction Blackout, (b) the
termination of any "blackout" period required by the underwriters to be
applicable to the Selling Holders, if any, in connection with such Company
offering, (C) promptly after abandonment of such Company's offering
causing the Transaction Blackout or (D) sixty (60) days after the date of
the Company's written notice of a Transaction Blackout, or (ii) in the
case of an Information Blackout, the earlier of (A) the date upon which
the cessation of such sales would, in the opinion of the Company's legal
counsel, no longer be mandated by law, or (iii) thirty (30) days after the
beginning of such Information Blackout; or
(d) such time as the Company notifies the Selling Holders that
sales pursuant to such registration statement may be resumed (the number
of days from such suspension of sales of the Selling Holders until the day
when such sales may be resumed hereunder is hereinafter called a "Sales
Blackout Period");
provided, however, that the Company may not impose a Transaction Blackout
during (a) any underwritten public offering by the Selling Holders, (b)
the 120-day period immediately following the date on which a registration
statement effected pursuant to this section first became effective or (c)
the 365-day period immediately following the expiration of any other
Transaction Blackout.
(e) if there is a Transaction Blackout or an Information
Blackout, the time periods set forth in paragraph (b) of Section 11 shall
be extended for a number of days equal to the number of days in the Sales
Blackout Period.
13. REGISTRATION EXPENSES. In the case of any Registration, the
Company shall bear all of the costs and expenses of such Registration
(including, without limitation, the expenses of preparing any registration
statement, Commission and state "blue sky" filing, registration and
qualification fees, the cost of providing any legal opinion or "cold
comfort" letters reasonably requested by the Selling Holders and printing
costs); provided, however, that the Company shall not be responsible for
legal fees or expense of counsel for any of the Selling Holders, or for
any underwriter's discounts or commissions that are attributable to the
Registrable Securities of a Selling Holder.
14. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Selling Holder, its officers, directors
and agents and each person who controls (within the meaning of the Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) such
Selling Holder, including, without limitation, any general partner or
manager of any thereof, against all losses, claims, damages, liabilities
and expenses arising out of or based upon any untrue or alleged untrue
statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus in which such Selling Holder is
participating or in any document incorporated by reference therein or any
omission or alleged omission to state therein a material fact necessary to
make the statement therein (in the case of the prospectus or any
preliminary prospectus, in light of the circumstances under which they
were made) not misleading, except insofar as the same are caused by, based
upon or contained in any information with respect to such Selling Holder
furnished in writing to the Company by such Selling Holder expressly for
use therein; provided, however, that the foregoing indemnity agreement
with respect to any preliminary prospectus shall not inure to the benefit
of any Selling Holder from whom the person asserting such loss, claim,
damage or liability purchased the securities if it is determined that it
was the responsibility of such Selling Holder to provide such person with
a current copy of the prospectus and such current copy of the prospectus
would have cured such loss, claim, damage or liability. The Company will
also indemnify underwriters (as such term is defined in the Act), their
officers and directors and each person who controls such persons (within
the meaning of the Act) to the same extent as provided above with respect
to the indemnification of the Selling Holders.
(b) INDEMNIFICATION BY THE SELLING HOLDERS. In connection with
any Registration in which a Selling Holder is participating, such Selling
Holder will furnish to the Company in writing such information and
affidavits with respect to such Selling Holder as the Company reasonably
requests for use in connection with any registration statement or
prospectus and agrees to indemnify and hold harmless the Company, its
directors, officers and agents and each person who controls (within the
meaning of the Act and the Exchange Act) the Company against any losses,
claims, damages, liabilities and expenses arising out of or based upon any
untrue statement of a material fact or any omission to state a material
fact necessary to make the statements in the registration statement or
prospectus or preliminary prospectus (in the case of the prospectus or
preliminary prospectus, in light of the circumstances under which they
were made) not misleading, to the extent, but only to the extent, that
such untrue statement or omission is contained in any information or
affidavit such Selling Holder furnished in writing to the Company by such
Selling Holder expressly for use therein; provided, however, that the
amount recoverable by the Company from any Selling Holder under this
indemnification provision shall not exceed the amount of net proceeds
received by the Selling Holder from the sale of Registrable Securities
hereunder; and provided, further, that the indemnity agreement contained
in this section shall not apply to amounts paid in settlement of any loss,
claim, damage, liability or action arising pursuant to a Registration if
such settlement is effected without the consent of the Selling Holder
(which consent shall not be unreasonably withheld). Such indemnity shall
remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any of the prospective sellers, or any of
their respective affiliates, directors, officers or controlling persons
and shall survive the transfer of such securities by such seller.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person
entitled to indemnification hereunder will (i) give prompt written notice
to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest may exist between such indemnified and
indemnifying party, permit the indemnifying party to assume the defense of
such claim, jointly with any other indemnifying party similarly notified
to the extent it may elect, with counsel reasonably satisfactory to the
indemnified party. The failure to so notify the indemnifying party shall
relieve the indemnifying party from any liability hereunder with respect
to the action to the extent that such failure materially prejudices the
indemnifying party; provided, however, that any such failure shall not
relieve the indemnifying party from any other liability which it may have
to any other party. Whether or not such defense is assumed by the
indemnifying party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent
will not be unreasonably withheld). No indemnifying party will consent to
entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect of
such claim or litigation. An indemnifying party who is not entitled to,
or elects not to, assume the defense of a claim will not be obligated to
pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless
in the reasonable judgment of any indemnified party a conflict of interest
may exist between such indemnified party and any other of such indemnified
parties with respect to such claim, in which event the indemnifying party
shall be obligated to pay the reasonable fees and expenses of such
additional counsel or counsels.
(d) CONTRIBUTION. If for any reason the indemnification
provided for in the preceding paragraphs (a) and (b) of this section is
unavailable to an indemnified party as contemplated thereby for any
reason, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying
party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable
considerations. Notwithstanding the foregoing, if the indemnifying party
is a Selling Holder, any contribution pursuant to this paragraph shall be
several and not joint, and shall be limited to the amount of net proceeds
received by such Selling Holder from the sale of Registrable Securities
hereunder.
(e) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this section (with appropriate
modifications) shall be given by the Company and each seller of
Registrable Securities with respect to any required registration or other
qualification of securities under any federal or state law or regulation
or governmental authority other than the Act.
15. EXCHANGE ACT REPORTS. The Company agrees that at all times
after it has filed a registration statement pursuant to the requirements
of the Act relating to any class of equity securities of the Company, it
will use its best efforts to file in a timely manner all reports required
to be filed by it pursuant to the Exchange Act to the extent the Company
is required to file such reports. Upon request of a Selling Holder, the
Company will furnish the requesting Selling Holder with such information
as may be necessary to enable such Selling Holder to effect sales pursuant
to Rule 144A. Notwithstanding the foregoing, the Company may deregister
any class of its equity securities under Section 12 of the Exchange Act or
suspend its duty to file reports with respect to any class of its
securities pursuant to Section 15(d) of the Exchange Act if it is then
permitted to do so pursuant to the Exchange Act and rules and regulations
thereunder.
16. PARTICIPATION IN REGISTRATIONS. No Selling Holder may
participate in any Registration hereunder unless such Selling Holder (a)
agrees to sell the Selling Holder's securities on the basis provided in
any underwriting arrangements approved by the persons entitled hereunder
to approve such arrangements, and (b) completes and executes all
questionnaires, powers of attorney, underwriting agreements and other
documents customarily required under the terms of such underwriting
arrangements.
17. REMEDIES. Each Selling Holder shall have the right and remedy
to have the registration rights provided hereby specifically enforced by
any court having jurisdiction in the event that the Company breaches such
provisions, and the Company shall reimburse such Selling Holder for the
reasonable costs of the expenses for counsel for such Purchaser incurred
in connection with such proceeding.
18. GOVERNING LAW. The terms and conditions of this Warrant shall
be governed by and construed in accordance with Colorado law.
19. MISCELLANEOUS. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a
part hereof. Neither this Warrant nor any term hereof may be changed,
waived, discharged or terminated orally but only by an instrument in
writing signed by the Company and the registered holder hereof. All
notices and other communications from the Company to the Holders shall be
mailed by first-class registered or certified mail, postage prepaid, to
the address furnished to the Company in writing by the last holder of this
Warrant who shall have furnished an address to the Company in writing.
1MAGE SOFTWARE, INC.
By:/s/David R. DeYoung
David R. DeYoung, President
Date: August 14, 1997
EXHIBIT A
NOTICE OF EXERCISE
TO: 1MAGE SOFTWARE, INC.
1. The undersigned hereby elects to purchase ---------- shares of
Common Stock of 1mage Software, Inc. (the "Company") pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full, together with all applicable transfer taxes,
if any.
2. The undersigned notifies the Company that the undersigned
beneficially owns, directly or indirectly, the following number of
Warrants, options, shares of Common Stock or other securities of the
Company:
3. The undersigned represents that, pursuant to the terms of the
Warrant, the issuance of the Common Stock will not be a violation of the
9.99% Restriction as described therein.
4. Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other
name as is specified below:
5. The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment
and not with a view to, or for resale in connection with, the distribution
thereof and that the undersigned has no present intention of distributing
or reselling such shares. In support thereof, the undersigned has
executed an Investment Representation Statement attached hereto as Exhibit
B.
By:--------------------------
---
Date:----------------------
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
COMPANY : 1MAGE SOFTWARE, INC.
SECURITY : COMMON STOCK PURCHASE WARRANTS AND UNDERLYING COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company
the following:
(a) The Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
Securities. The Purchaser is purchasing these Securities for the
Purchaser's own account for investment purposes only and not with a view
to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933 ("Securities Act").
(b) The Purchaser understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the Purchaser's investment intent as expressed herein. In this
connection, the Purchaser understands that, in the view of the Securities
and Exchange Commission ("SEC"), the statutory basis for such exemption
may be unavailable if the Purchaser's representation was predicated solely
upon a present intention to hold these Securities for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or
until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future.
(c) The Purchaser further understands that the Securities must be
held indefinitely unless subsequently registered under the Securities Act
or unless an exemption from registration is otherwise available.
Moreover, the Purchaser understands that the Company is under no
obligation to register the Securities except as set forth in the Stock
Purchase Warrant. In addition, the Purchaser understands that the
certificate evidencing the Securities will be imprinted with a legend
which prohibits the transfer of the Securities unless they are registered
or, in the opinion of counsel for the Company, such registration is not
required.
(d) The Purchaser is aware of the provisions of Rule 144,
promulgated under the Securities Act which, in substance, permits limited
public resale of "restricted securities " acquired, directly or
indirectly, from the issuer thereof (or from an affiliate of such issuer),
in a non-public offering subject to the satisfaction of certain
conditions.
(e) The Purchaser furthers understand that, while the Company's
Common Stock is presently traded upon the Nasdaq Small Cap Market, there
can be no assurance that, at the time the Purchaser wishes to sell the
Securities, there will be a public market in which to make such a sale.
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 are not satisfied, registration under the
Securities Act or compliance with Regulation A or some other registration
exemption will be required; and that, notwithstanding the fact that Rule
144 is not exclusive, the staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons
and their respective brokers who participate in such transactions do so at
their own risk.
Signature of Purchaser:
By:-------------------------------
--
Date:---------------------
