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As filed with the Securities and Exchange Commission on October 6, 1997
Registration No. ___-_______
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
IMAGING TECHNOLOGIES CORPORATION
--------------------------------
(Exact name of issuer as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation or organization)
33-0021693
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(IRS Employer Identification Number)
11031 VIA FRONTERA, SAN DIEGO, CALIFORNIA 92127
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619-613-1300
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(Address including zip code, and telephone number,including area code,
of registrant's principal executive offices)
EDWARD W. SAVARESE C/O IMAGING TECHNOLOGIES CORPORATION
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11031 VIA FRONTERA, SAN DIEGO, CALIFORNIA 92127
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619-613-1300
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(Name, address including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to public: AS SOON AS
PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are to 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 of the Securities Act of 1933,
other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box: /X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) of 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(b) of 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 delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING PRICE(2) REGISTRATION FEE
TO BE REGISTERED
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<S> <C> <C>
Common Stock, $.005 par value(1) . . . . . . . . . . $19,500,000 $5,910.00
</TABLE>
(1) Includes shares of Common Stock issuable upon conversion of the Series C
Redeemable Convertible Preferred Stock and Warrants to purchase an aggregate of
200,000 shares of Common Stock.
(2) The offering price per share is estimated pursuant to Rule 457(c) solely
for the purpose of calculating the registration fee and is based upon the
average of the high and low price of shares of Common Stock as reported on the
Nasdaq SmallCap Market on October 2, 1997 (which date is within five business
days prior to the date of the filing of this Registration Statement).
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1997
PROSPECTUS
[LOGO]
IMAGING TECHNOLOGIES CORPORATION
3,000,000 SHARES OF COMMON STOCK
This Prospectus relates to the offer and sale by certain persons listed
herein under "Selling Stockholders" (collectively, the "Selling Stockholders")
of (i) a maximum of 3,000,000 shares (collectively, the "Shares") of Common
Stock, par value $0.005 per share (the "Common Stock"), of Imaging Technology
Corporation. (the "Company") consisting of shares of Common Stock to be issued
from time to time to the Selling Stockholders upon conversion of the Company's
Series C Redeemable Convertible Preferred Stock (the "Preferred Stock") and
shares of Common Stock to be issued upon exercise of warrants to purchase an
aggregate of 200,000 shares of Common Stock (the "Warrants") and (ii) in
accordance with Rule 416 under the Securities Act of 1933, as amended (the
"Securities Act"), such presently indeterminate number of additional Shares as
may be issuable upon conversion or exercise of the Preferred Stock or Warrants,
based upon fluctuations in the conversion or exercise price of the Preferred
Stock or Warrants, respectively. All of the Shares may be offered by the Selling
Stockholders or by pledgees, donees, transferees or other successors in interest
that receive such shares as a gift, partnership distribution or other non-sale
related transfer. The Preferred Stock and Warrants and the Common Stock issuable
upon conversion or exercise thereof have been and will be issued in transactions
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) or other applicable sections thereof. See "General," "Selling
Stockholders" and "Plan of Distribution." The Shares are being registered by the
Company pursuant to registration rights granted to the Selling Stockholders.
The Selling Stockholders have not advised the Company of any specific plans
for the distribution of the Shares covered by this Prospectus. It is
anticipated, however, that the Shares will be offered and sold by the Selling
Stockholders from time to time in transactions on The Nasdaq SmallCap Market, in
privately negotiated transactions, or by a combination of such methods of sale,
at such fixed prices as may be negotiated from time to time, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Stockholders may effect such
transactions by selling the Shares to or through broker-dealers and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders or the purchasers of the Shares for
whom such broker-dealers may act as agent or to whom they sell as principal or
both (which compensation to a particular broker-dealer might be in excess of
customary commissions). See "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders. The Company has agreed to bear certain
expenses in connection with the registration and sale of the Shares being
offered by the Selling Stockholders. The Company has agreed to indemnify the
Selling Stockholders against certain liabilities, including liabilities under
the Securities Act.
The Common Stock of the Company is traded on The Nasdaq SmallCap Market
tier of The Nasdaq Stock Market under the symbol "ITEC." On October 1, 1997, the
last sale price for the Common Stock as quoted on The Nasdaq SmallCap Market was
$6.50 per share.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution" herein for a description of
agreements by the Company to indemnify the Selling Stockholders against certain
liabilities.
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AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY
INVOLVES A HIGH DEGREEE OF RISK.
SEE "RISK FACTORS."
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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.
THE DATE OF THIS PROSPECTUS IS __________, 1997
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THE COMPANY
Imaging Technologies Corporation, formerly Personal Computer Products,
Inc., was incorporated under the laws of California in March 1982 and
reincorporated under the laws of Delaware in May 1983. Imaging Technologies
Corporation ("ITEC" or the "Company") operates from three wholly-owned
subsidiaries, PCPI Technologies ("PCPI"), Prima, Inc. which is doing business as
Prima International ("Prima") and NewGen Imaging Systems, Inc. ("NewGen").
Through these subsidiaries the Company (1) develops and licenses laser printer
technology; (2) manufactures, markets and distributes laser printer controllers
and accessories; (3) markets and distributes internationally a variety of
personal computer accessory products; and (4) markets and distributes high
resolution imaging and color digital proofing products.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files periodic reports and
other information with the Securities and Exchange Commission (the "SEC"). Such
reports, proxy statements, and other information concerning the Company may be
inspected and copies may be obtained at prescribed rates at the offices of the
SEC, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, as well as
at the following regional offices: 7 World Trade Center, Suite 1300, New York,
New York 10048; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036. The SEC
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically. The Company has filed with the
SEC a Registration Statement under the Securities Act of 1933, as amended, with
respect to the securities offered pursuant to this Prospectus. For further
information, reference is made to the Registration Statement and the exhibits
thereto, which are available for inspection at no fee at the public reference
section of the SEC at its principal office at Judiciary Plaza, 450 Fifth Street,
NW, Washington, D.C. 20549.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered, upon written or oral request to
Corporate Secretary, Imaging Technologies Corporation, 11031 Via Frontera, San
Diego, California 92127, phone 619-613-1300, copies of any and all of the
information that has been incorporated by reference into this Prospectus, other
than exhibits to such information unless such exhibits are specifically
incorporated by reference therein. The information relating to the Company
contained in this Prospectus does not purport to be comprehensive and should be
read together with the information contained in the documents or portions of
documents incorporated by reference into this Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following reports and documents filed by the Company with the
Commission pursuant to the Exchange Act are incorporated into this Prospectus by
reference as of their respective dates:
1. Annual Report on Form 10-KSB for the fiscal year ended June 30, 1997,
dated September 29, 1997.
2. All other reports filed by the Registrant pursuant to Sections 13(a)
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
since the end of the fiscal year covered by the Annual Report on Form
10-KSB.
3. The Registrant's Form 8-A filed on July 6, 1984 pursuant to Section
12 of the Exchange Act, in which there is described the terms, rights
and provisions applicable to the Registrant's outstanding Common
Stock.
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Common Stock
pursuant to this Prospectus (this "Offering") shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such reports and documents. Any statement contained herein or in a report or
document incorporated or deemed to be incorporated herein by reference shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed report or
document that 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.
<PAGE>
The making of a modifying or superseding statement shall not be deemed an
admission for any purpose that the modified or superseded statement, when made,
constituted a misrepresentation, an untrue statement of a material fact or an
omission to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in light of the circumstances in
which it was made.
RISK FACTORS
An investment in the Common Stock involves a high degree of risk and may
not be appropriate for investors who cannot afford to lose their entire
investment. Prospective investors should be fully aware of the risk factors set
forth herein. This Prospectus contains or incorporates statements that
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, which reflect the Company's current judgment on those
issues. Those statements appear in a number of places in this Prospectus and in
the documents incorporated by reference and may include statements regarding,
among other matters, the Company's growth opportunities and other factors
affecting the Company's financial condition or results of operations. Because
such statements apply to future events, they are subject to risks and
uncertainties that could cause the actual results to differ materially.
Important factors that could cause actual results to differ materially include,
but are not limited to: business conditions and growth in the electronics
industry and general economy - both domestic and international; lower than
expected customer orders; competitive factors, including pricing pressures,
technological developments and products offered by competitors; availability of
components; technological difficulties and resource constraints encountered in
developing new products; and the timely flow of competitive new products and
market acceptance of those products. Actual results may differ materially from
these statements as a result of risk factors inherent in the Company's business,
industry, customer base, or other factors. Risk factors which are applicable to
the Company are more fully described below.
Users of this Prospectus are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date thereof. The Company
undertakes no obligation to publicly release updates or revisions to these
statements.
COMPETITION
The Company's results may be adversely affected by the actions of existing
or future competitors. The market for personal computer products, generally, and
laser printers and accessories, in particular, is highly competitive. The market
for laser printers is dominated by Hewlett Packard Company with approximately
50% of the worldwide market and by large Japanese manufacturers. These companies
are expected to continue to hold most of the worldwide market for laser printers
for several years to come.
The market for Adobe-Registered Trademark- PostScript-Registered Trademark-
based controllers is estimated to encompass 20% of the worldwide printer market.
In addition to Adobe Systems Incorporated, there are other companies that
compete with PCPI to provide customers with controllers featuring Adobe
PostScript. The Company's chief competition in this regard is Peerless, Inc.,
that has been an Adobe Co-developer longer than PCPI. Several other companies
provide PostScript compatible controllers with emulations of Adobe PostScript,
creating additional competition for low-priced printer controllers. While the
technology represented by many of the Company's products is complex, and
requires substantial knowledge to produce and market, the barriers to entry are
not such that they would prevent other companies from competing with the
Company. For the Company to compete effectively, it must aggressively pursue its
Adobe co-developer status with customers who wish to include PostScript as part
of their printing/imaging solution to end-users and it must continue to
introduce new and enhanced products at competitive prices. In the event that it
is unable to do so, the Company will be materially and adversely affected.
There can be no assurance the Company will be able to compete successfully
in the future with existing or future competitors. New entrants, new technology
and new marketing techniques may cause customer confusion, thereby lengthening
the sales cycle process for the Company. Increased competition may also lead to
downward pricing pressure on the Company's products.
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DEPENDENCE ON ADOBE RELATIONSHIP
The Company's relationship with Adobe Systems Incorporated as an authorized
co-developer to implement the inclusion of Adobe's PostScript language on
printer controllers and in software products is an integral part of its business
strategy. There can be no assurance that this relationship will be successful or
that it will remain in force for some time to come. Loss of the Adobe
relationship could have a substantial negative effect on future revenues.
NEW PRODUCTS AND TECHNOLOGICAL CHANGE
The Company's future operating results may be adversely affected by certain
factors and trends of its market which are beyond its control. The market for
the Company's products is characterized by rapidly changing technology, evolving
industry standards, and changing consumer preferences. Accordingly, the Company
believes that its future success will depend, in part, upon its ability to
continue to produce and/or acquire products that support existing and new laser
printer formats and technologies, including the latest iterations of Adobe
PostScript. In order to do so, the Company must make a significant investment in
research and development, engineering, and marketing to develop new products and
maintain a high profile in industry trade and special-interest publications.
The Company expends significant resources for controller development under
contracts with OEM customers and typically is completed over several quarters.
As noted below under Dependence Upon Suppliers, the Company relies on outside
third parties for certain integral components of the controller development,
which if delayed could jeopardize the development schedule. In addition, due to
the complexities of the development process various internal factors could also
contribute to schedule delays. There can be no assurance that these delays, if
any, during the course of the development will not result in the customers
cancellation of the project.
There can be no assurance that such new products can be developed or will
be available to the Company or available on terms favorable to the Company.
Furthermore, there is no assurance that products, once produced or obtained by
the Company, will be desirable to end-users or attract the necessary attention
by industry publications to promote the products to users. While the Company
believes that its products will continue to be viable for some time to come,
there can be no assurance that future technological developments will not render
current technologies less desirable or obsolete. Also, technological changes or
advances by major laser printer manufacturers could adversely affect the Company
and the market for its products.
INTELLECTUAL PROPERTY
The Company does not hold any patents and relies upon copyrights,
trademarks, and trade secret laws to establish proprietary rights to its
products. There is no assurance that such protection would be adequate in
protecting such rights should they be challenged by others and, therefore, a
risk exists that competitors may potentially imitate and/or duplicate the
Company's products at competitive prices.
There has been substantial litigation regarding patent and other
intellectual property rights in the software industry. As is typical in the
software industry, the Company has received from time to time notices from third
parties alleging infringement claims. Although there are currently no pending
lawsuits against the Company regarding any possible infringement claims, there
can be no assurance infringement claims will not be asserted in the future or
that such assertions will not materially adversely affect the Company's
business, financial condition and results of operations. If any such claims are
asserted against the Company, the Company may need to seek to obtain a license
under the third party's intellectual property rights. There can be no assurance
a license will be available on reasonable terms or at all. Failure to obtain a
necessary license on commercially reasonable terms would materially adversely
affect the Company's business, financial condition and results of operations.
The Company could decide, in the alternative, to resort to litigation to
challenge such claims. Such litigation could be expensive and time consuming and
could materially adversely affect the Company's business, financial condition
and results of operations.
DEPENDENCE UPON SUPPLIERS
At present, many of the Company's products use technology licensed from
outside suppliers. The Company relies heavily on Adobe Systems Incorporated for
upgrades and support of the PostScript language. In the
5
<PAGE>
case of its font products, the Company licenses such fonts from outside
suppliers, including Adobe, who also own the intellectual property rights to
such fonts. The reliance on third-party suppliers involves risk, including
limited control over potential hardware and software incompatibilities with the
Company's products. Furthermore, there can be no assurance that all of the
suppliers of products marketed by the Company will continue to license their
products to the Company indefinitely, or that these suppliers will not license
to other companies simultaneously.
KEY PERSONNEL
The success of the Company is dependent, in large part, on Edward W.
Savarese and other key management and technical personnel. The loss of one or
more of these persons could adversely affect the Company's business. The Company
believes that its future success will depend in large part upon its continued
ability to attract, retain, and motivate highly skilled technical and management
employees and consultants who are in great demand. The need to hire additional
qualified technical personnel to perform the business contemplated is another
important challenge. There can be no assurance that the Company will be able to
do so.
NEED FOR ADDITIONAL FINANCING
There can be no assurance that the Company's working capital or the
proceeds of this offering will be adequate for the Company's long-term future
capital needs. Other methods of financing these capital needs, including funding
by public and private sales of debt or equity securities, will be considered by
the Company from time to time, although such alternatives may not be available
to it or, if utilized, may have a dilutive effect on the ownership interests of
the stockholders. No additional sources of future financing are presently
committed to the Company and, as a result, it should not be assumed that such
financing will be available at such times and in such amounts as are necessary
in the future to assure the Company's ability to accomplish its operating
objectives.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company has historically experienced fluctuations in its operating
results due to its dependence on revenues from licensing and royalties from a
small number of customers. Future operating results may vary from period to
period depending on such factors as the timing of projects, customer product
plans, increased competition, and changes in product demand and economic
conditions.
The Company is currently dependent upon a limited number of customers that
are either contracting for the Company's engineering services or have licensed
its technologies. Accordingly, the loss of any individual customer or supplier,
entrance of new competitors into specific markets, or decline in business
conditions in particular markets would have a severe impact on the company's
operating results.
While the Company has entered into some contracts with OEM customers for
controller development, there can be no assurance that additional contracts will
be obtained for the development of such controllers, or that the existing
contracts will be completed, or that products will be shipped by the customer
which may result in the generation of future royalty and license revenues or
that these products, once generating royalties, will continue to do so.
Variable financial results could adversely affect the price of the Common
Stock and limit the Company's ability to attract additional financing and expand
its operations.
ABSENCE OF DIVIDENDS; DIVIDENDS IN ARREARS
The Company has not paid any cash dividends and does not anticipate paying
any dividends in the foreseeable future. Earnings, if any, will be retained to
fund development and expansion. There is no assurance that the Company will pay
cash dividends at any time. The Company's 5% Convertible Preferred Stock carry
cumulative dividends, which are currently in arrears, as more fully described in
the Company's Form 10-KSB filings with the Securities and Exchange Commission.
As of October 1, 1997 the dividends in arrears were approximately $476,000.
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PREFERRED STOCK DISTRIBUTION PREFERENCE
In the event of any involuntary or voluntary liquidation, dissolution, or
winding up of the affairs of the Company, the 5% convertible preferred
stockholders shall be entitled to receive $1,000 per share, together with
accrued dividends, to the date of distribution or payment, whether or not earned
or declared, and the Series C Redeemable Convertible Preferred stockholders
shall be entitled to receive $10,000 per share, prior to any distribution to
Common stockholders.
POSSIBLE VOLATILITY IN TRADING PRICE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq SmallCap Market System
under the symbol ITEC. In the past year, the trading price of the Company's
Common Stock has experienced substantial volatility. There can be no assurance
that such volatility in the trading price of the Company's Common Stock will not
continue in the future, nor can there be any assurance that the Company will
continue to be listed on the Nasdaq SmallCap Market System under its current
exemption.
FUTURE SALES OF COMMON STOCK AND PREFERRED STOCK: POTENTIAL DILUTION
There can be no assurance that the Company will not issue additional shares
of Common and/or Preferred Stock, which would have a dilutive effect on current
stockholders and investors in this offering. The Company is currently authorized
to issue 100,000,000 shares of Common Stock and 10,000 shares of its Preferred
Stock.
Sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices. A substantial number of shares of
Common Stock (including the shares of Common Stock offered hereby) are issuable
by the Company upon the conversion of the Series C Shares and the exercise of
the Warrants, which would result in substantial dilution to a stockholder's
percentage ownership interest in the Company and could adversely affect the
market price of the Common Stock. Under the applicable conversion formulas of
the Series C Shares (i) the number of shares of Common Stock issuable upon
conversion is generally inversely proportional to the market price of the Common
Stock at the time of conversion (i.e., the number of shares issuable increases
as the market price of the Common Stock decreases); and (ii) a minimum of
555,556 shares are issuable upon conversion of the Series C Shares (based on a
conversion price, subject to adjustment, of $9.00). In addition, the number of
shares issuable upon conversion of the Series C Shares and the exercise of the
Warrants is subject to adjustment upon the occurrence of certain dilutive
events. This Registration Statement, upon being declared effective, will
register for public resale an additional 3,000,000 shares of Common Stock
issuable upon conversion of the Series C Shares. The Company may be obligated to
register additional shares of Common Stock for resale upon conversion of the
Series C Shares depending on, among other factors, the future market price of
the Common Stock.
USE OF ESTIMATES
Management uses estimates in preparing the consolidated financial
statements, in conformity with generally accepted accounting principles.
Significant estimates include collectibility of accounts receivable,
profitability on long-term contracts, as well as recoverability of capitalized
software costs and other intangible assets and long-term fixed assets and
residual values. The Company regularly assesses these estimates and, while
actual results may differ from these estimates, management believes that
material changes will not occur in the near term.
GENERAL
On August 21, 1997, Imaging Technology Corporation (the "Company'") closed
a private placement of its newly designated Series C Redeemable Convertible
Preferred Stock ("Series C Shares") in reliance upon the exemption from
securities registration afforded by Rule 506 of Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 Act").
7
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INITIAL CLOSING
Under the terms of the Placement, in consideration of $5,000,000 the
Company issued an aggregate of 500 Series C Shares and four year warrants to
purchase up to 200,000 shares of the Company's common stock at an exercise price
equal to 125% of the Closing Market Price or $7.50 per share ("Initial Closing).
"PUT" CLOSING
Provided that the following conditions have been satisfied, the Company may
call for a second round of financing for an additional 500 Series C Shares and
warrants to purchase up to 200,000 shares in consideration of $5,000,000 ("Put
Preferred Shares"): (i) the Company's stockholders shall have approved the
issuance of the Securities (as defined) on or prior to the Notice Date; (ii) the
Company's revenues for the period beginning and including April 1, 1997 and
ending and including September 30, 1997 are at least $12,000,000; (iii) during
the period beginning 45 days prior to the Notice Date and ending on and
including the Closing Date, a Registration Statement has been effective and
available for the sale of no less than 125% of the sum of (A) the number of
Conversion Shares then issuable upon the conversion of all outstanding Preferred
Shares and the Put Preferred Shares to be issued by the Company, (B) the number
of Warrant Shares then issuable upon exercise of all outstanding Warrants and
the Warrants to be issued in connection with the Put Preferred Shares and (C)
the number of Conversion Shares and Warrant Shares that are then held by the
Buyers, (iv) during the period beginning 45 days prior to the Notice Date and
ending on and including the Put Closing Date, the Common Stock is designated for
quotation on the Nasdaq National Market or a national securities exchange and is
not suspended from trading; (v) no event constituting a Major Business Event (as
defined below), including an agreement to consummate a Major Business Event, or
a Triggering Event, as defined below, shall have occurred from the period
beginning on the Initial Issuance Date and ending on and including the Put
Closing Date; (vi) on each trading day during the period beginning 20 days prior
to the Notice Date and ending on and including the Put Closing Date, the Market
Price of the Common Stock is not less than $6.00 per share (subject to
adjustment as a result of any stock split, stock dividend, recapitalization,
reverse stock split, consolidation, exchange or similar event); (vii) during the
period beginning 20 days prior to the Notice Date and ending on and including
the Put Closing Date, the Average Daily Trading Dollar Volume (as defined) is
not less than $250,000; (viii) during the period beginning on the Initial
Issuance Date and ending on and including the Put Closing Date, the Company
shall have delivered Conversion Shares upon conversion of the Preferred Shares
and Warrant Shares upon exercise of the Warrants to the Buyers on a timely
basis; and (ix) the Company shall not have previously delivered a Put Share
Notice. A "Major Business Event" means (x) consolidation, merger or other
business combination of the Company with another entity (other than pursuant to
a migratory merger effected solely for the purpose of changing the Company's
jurisdiction of incorporation, (y) the sale or transfer of all or substantially
all of the Company's assets or (z) a purchase, tender or exchange offer made to
and accepted by the holders of more than 10% of the outstanding shares of Common
Stock.
ADDITIONAL CLOSING
During the period beginning on and including January 1, 1998 and ending on
January 1, 2002, if the Market Price of the Common Stock is greater than $7.50
per share (subject to adjustment as a result of any stock split, stock dividend,
recapitalization, reverse stock split, consolidation, exchange or similar event)
purchasers of the Series C Shares are entitled to purchase up to 40% of the
number of Series C Shares, along with the related warrants, held by each
investor on December 31, 1997.
MANDATORY CONVERSION
If any Preferred Shares remain outstanding five years after the applicable
Issuance Date then all such Preferred Shares shall be converted as of such date.
CONVERSION OF PREFERRED SHARES
The Series C Shares have the right, at such holder's option, to convert the
Preferred Shares into shares of the Company's common stock, $.005 par value per
share (the "Common Stock"), on the following terms and conditions:
(a) CONVERSION RIGHT. At any time or times on or after the date
which is 46 days after the Issuance Date (as defined below), any holder of
Preferred Shares shall be entitled to convert any whole number of Preferred
8
<PAGE>
Shares into fully paid and nonassessable shares (rounded to the nearest
whole share) of Common Stock, at the Conversion Rate (as defined below);
provided, however, that in no event shall any holder be entitled to convert
Preferred Shares in excess of that number of Preferred Shares which, upon
giving effect to such conversion, would cause the aggregate number of
shares of Common Stock beneficially owned by the holder and its affiliates
to exceed 4.9% of the outstanding shares of the Common Stock following such
conversion. For purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act
of 1934, as amended. The holder may waive the foregoing limitations by
written notice to the Company upon not less than 61 days prior notice (with
such waiver taking effect only upon the expiration of such 61 day notice
period).
(b) CONVERSION RATE. The number of shares of Common Stock issuable
upon conversion of each of the Preferred Shares shall be determined
according to the following formula (the "Conversion Rate"):
(.06)(N/365)(10,000) + 10,000
-----------------------------
Conversion Price
The following terms shall have the following meanings:
(i) "Conversion Price" means, as of any Conversion Date (as
defined below) or other date of determination, the lower of the Fixed Conversion
Price and the Floating Conversion Price, each in effect as of such date and
subject to adjustment as provided herein;
(ii) "Fixed Conversion Price" means 150% of the Market Price on the
date of issuance of the applicable Preferred Shares, subject to adjustment as
provided herein, with the Fixed Conversion Price being $9.00 per share on the
initial closing date;
(iii) "Floating Conversion Price" means, as of any date of
determination, the amount obtained by multiplying the Conversion Percentage in
effect as of such date by the Market Price as of such date;
(iv) "Conversion Percentage" means (A) 100% for the period
beginning on the Issuance Date and ending on and including the date which is 90
days after the Issuance Date, (B) 95% for the period beginning on and including
the date which is 91 days after the Issuance Date and ending on and including
the date which is 180 days after the Issuance Date and (C) 90% for the period
beginning on and including the date which is 181 days after the Issuance Date
and ending on and including the date which is five years after the Issuance
Date, subject in each case to adjustment as provided herein;
(v) "Market Price" means, with respect to any security for any
date, the lowest Closing Bid Price (as defined below) for such security during
the seven consecutive trading days immediately preceding such date;
(vi) "Closing Bid Price" means, for any security as of any date,
the last closing bid price for such security on The Nasdaq SmallCap Market as
reported by Bloomberg Financial Markets ("Bloomberg"), or, if The Nasdaq
SmallCap Market is not the principal trading market for such security, the last
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid price of such security in
the over-the-counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no closing bid price is reported for such
security by Bloomberg, the last closing trade price of such security as reported
by Bloomberg, or, if no last closing trade price is reported for such security
by Bloomberg, the average of the bid prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau, Inc.
If the Closing Bid Price cannot be calculated for such security on such date on
any of the foregoing bases, the Closing Bid Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
holders of Preferred Shares;
(vii) "N" means the number of days from, but excluding, the Issuance
Date through and including the Conversion Date for the Preferred Shares for
which conversion is being elected; and
(viii) "Issuance Date" means, with respect to each Preferred Share,
the date of issuance of the applicable Preferred Share.
9
<PAGE>
Should a registration statement covering the resale of the shares of Common
Stock issuable upon conversion or exercise of the Preferred Shares and the
Warrants not be (i) filed within 45 days of the first Issuance Date of any
Preferred Shares (the "Scheduled Filing Date"), (ii) declared effective by the
SEC on or before 150 days after the first Issuance Date for any Preferred Shares
(the "Scheduled Effective Date"), or (iii) if after the Registration Statement
has been declared effective by the SEC, sales cannot be made pursuant to the
Registration Statement (whether because of a failure to keep the Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to the Registration Statement, to register sufficient shares of
Common Stock or otherwise), then, as partial relief for the damages to any
holder by reason of any such delay in or reduction of its ability to sell the
underlying shares of Common Stock (i) the Conversion Percentage in effect at
such time shall be reduced by a number of percentage points equal to the product
of (I) .06 and (II) the sum of (x) the number of days after the Scheduled Filing
Date that the relevant Registration Statement is filed with the SEC, (y) the
number of days after the Scheduled Effective Date and prior to the date that the
relevant Registration Statement is declared effective by the SEC (without
double-counting any number of days after the Scheduled Filing Date that the
relevant Registration Statement is filed, if applicable) and (z) the number of
days that sales cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective and (ii) the Fixed Conversion
Price in effect at such time shall be reduced by an amount equal to the product
of (I) the Fixed Conversion Price in effect as of the Issuance Date and
(II) .0006 multiplied by (III) the sum of (x) the number of days after the
Scheduled Filing Date that the relevant Registration Statement is filed with the
SEC, (y) the number of days after the Scheduled Effective Date and prior to the
date that the relevant Registration Statement is declared effective by the SEC
(without double-counting any number of days after the Scheduled Filing Date that
the relevant Registration Statement is filed, if applicable) and (z) the number
of days that sales cannot be made pursuant to the Registration Statement after
the Registration Statement has been declared effective.
CONVERSION AT THE OPTION OF THE COMPANY
At any time or times on or after the Issuance Date, the Company shall have
the right, in its sole discretion, to require that any or all of the outstanding
Preferred Shares be converted at the Conversion Rate; provided that the
Conditions to Conversion at the Option of the Company (as set forth below) are
satisfied. The Company shall exercise its right to Conversion at Company's
Election by providing each holder of Preferred Shares written notice ("Notice of
Conversion at Company's Election") at least 30 days prior to the date selected
by the Company for conversion ("Company's Election Conversion Date"). If the
Company elects to require conversion of some, but not all, of the Preferred
Shares, the Company shall convert an amount from each holder of Preferred Shares
equal to such holder's pro rata amount (based on the number of Preferred Shares
held by such holder relative to the number of Preferred Shares outstanding on
Company's Election Conversion Date) of all Preferred Shares the Company is
requiring to be converted. The Notice of Conversion at Company's Election shall
indicate (x) the number of Preferred Shares the Company has selected for
conversion, (y) the Company's Election Conversion Date, which date shall be not
less than 30 or more than 40 days after each holder's receipt of such notice,
and (z) each holder's pro rata share of outstanding Preferred Shares. All
Preferred Shares selected for conversion in accordance with this provision shall
be converted as of the Company's Election Conversion Date as if the holders of
such Preferred Shares selected by the Company to be converted had given the
Conversion Notice on the Company's Election Conversion Date. All holders of
Preferred Shares shall thereupon and within two business days after the
Company's Election Conversion Date surrender all Preferred Stock Certificates
selected for conversion, duly endorsed for cancellation, to the Company or the
Transfer Agent. "Conditions to Conversion at the Company's Election" means the
following conditions: (i) on each day during the 20 consecutive trading days
immediately preceding the date of the Company's Notice of Conversion at the
Company's Election, the last reported sale price (as reported by Bloomberg) of
the Common Stock is at least 200% of the last reported sale price (as reported
by Bloomberg) as of the applicable Issuance Date of the Preferred Shares being
converted; (ii) on each day during the period beginning on the date of the
Notice of Conversion at the Company's Election and ending on and including the
Company's Election Conversion Date, the last reported sale price (as reported by
Bloomberg) of the Common Stock is at least 170% of the last reported sale price
(as reported by Bloomberg) as of the applicable Issuance Date of the Preferred
Shares being converted; (iii) the Company shall not have previously given Notice
of Conversion at Company's Election; (iv) the Company's stockholders shall have
approved the issuance of the Securities (as defined below) on or prior to the
date of the Company's Notice of Conversion at Company's Election; (v) on each
day during the period beginning 20 days prior to the Notice of Conversion at the
Company's Election and ending on and including the Company's Election Conversion
Date, the Registration Statement shall be effective and available for the sale
of no
10
<PAGE>
less than 125% of the sum of (A) the number of Conversion Shares then issuable
upon the conversion of all outstanding Preferred Shares, including the
Conversion Shares to be issued pursuant to this Conversion at the Company's
Election, (B) the number of Warrant Shares (as defined in the Securities
Purchase Agreement) then issuable upon exercise of all outstanding Warrants and
(C) the number of Conversion Shares and Warrant Shares that are then held by the
holders of the Preferred Shares, (vi) on each day during the period beginning 20
days prior to the date of the Company's Notice of Conversion at Company's
Election and ending on and including the Company's Election Conversion Date, the
Common Stock is designated for quotation on The Nasdaq SmallCap Market or the
Nasdaq National Market or a national securities exchange and is not suspended
from trading; (vii) during the period beginning 20 days prior to the date of the
Company's Notice of Conversion at Company's Election and ending on and including
the Company's Election Conversion Date, the Average Daily Trading Dollar Volume
(as defined below) is not less than $250,000; (viii) during the period beginning
on the Initial Issuance Date and ending on and including the Company's Election
Conversion Date, the Company shall have delivered Conversion Shares upon
conversion of the Preferred Shares and Warrant Shares upon exercise of the
Warrants to the Buyers on a timely basis; and (ix) the Company otherwise has
satisfied its obligations and is not in default under the Securities Purchase
Agreement.
CONVERSION RESTRICTIONS
Other than a mandatory conversion or a conversion at the option of the
Company, the right of a holder of Preferred Shares to convert Preferred Shares
shall be limited as set forth below. Without the prior consent of the Company,
a holder of Preferred Shares shall not be entitled convert an aggregate number
of Preferred Shares from the Issuance Date of such Preferred Shares through the
date of this determination in excess of the number of Preferred Shares which
when divided by the number of Preferred Shares purchased by such holder on such
Issuance Date would exceed (i) 0.20 for the period beginning on the date which
is 46 days after the Issuance Date and ending on and including the date which is
90 days after the Issuance Date, (ii) 0.40 for the period beginning on and
including the date which is 91 days after the Issuance Date and ending on and
including the date which is 135 days after the Issuance Date, (iii) 0.60 for the
period beginning on the date which is 136 days after the Issuance Date and
ending on and including the date which is 180 days after the Issuance Date,
(iv) 0.80 for the period beginning on and including the date which is 181 days
after the Issuance Date and ending on and including the date which is 225 days
after the Issuance Date and (v) 1.00 for the period beginning on and including
the date which is 226 days after the Issuance Date and ending on and including
the date which is five years after the Issuance Date. Notwithstanding the
foregoing, the conversion restriction set forth shall not apply (x) if there
shall have occurred a Material Adverse Change, (y) with respect to any
conversion of Preferred Shares at a Conversion Price which is equal to the Fixed
Conversion Price then in effect or (z) the Company has delivered a Put Notice.
A "Material Adverse Change" means any change, event, result or happening
involving, directly or indirectly, the Company or any of its subsidiaries
resulting in a material adverse effect on the business, prospects, financial
condition or results or operations of the Company and its subsidiaries, taken as
a whole, including, without limitation, an event constituting a Major Business
Event or a Triggering Event shall have occurred.
REDEMPTION
On the date which is two years after the Issuance Date, but only on such
date, the Company shall have the right, in its sole discretion, to redeem from
time to time, any or all of the Preferred Shares at the Redemption Price at the
Company's Election (as defined below). If the Company elects to redeem some, but
not all, of the Preferred Shares, the Company shall redeem an amount from each
holder of Preferred Shares equal to such holder's pro-rata amount (based on the
number of Preferred Shares held by such holder relative to the number of
Preferred Shares outstanding) of all Preferred Shares being redeemed. The
redemption price shall be an amount per Preferred Share equal to the product of
(i) 1.1 multiplied by (ii) the sum of (A) (.06)(P/365)(10,000) plus (B) 10,000;
where "P" means the number of days from, but excluding, the Issuance Date
through and including the date of redemption.
11
<PAGE>
Simultaneous with the occurrence of a Major Transaction (as defined below),
each holder of Preferred Shares shall have the right, at such holder's option,
to require the Company to redeem all or a portion of such holder's Preferred
Shares at a price per Preferred Share equal to greater of (i) Liquidation Value
(as defined below) and (ii) the product of (A) the Conversion Rate at such time
and (B) the Closing Bid Price on the date of the public announcement of such
Major Transaction or the next date on which the exchange or market on which the
Common Stock is traded is open if such public announcement is made (X) after
12:00 p.m., Central Time, time on such date or (Y) on a date on which the
exchange or market on which the Common Stock is traded is closed ("Major
Transaction Redemption Price").
After a Triggering Event (as defined below), each holder of Preferred
Shares shall have the right, at such holder's option, to require the Company to
redeem all or a portion of such holder's Preferred Shares at a price per
Preferred Share equal to the greater of (i) $12,500 and (ii) the product of
(A) the Conversion Rate at such time and (B) the Closing Bid Price calculated as
of the date immediately preceding such Triggering Event on which the exchange or
market on which the Common Stock is traded is open ("Triggering Event Redemption
Price" and, collectively with "Major Transaction Redemption Price," the
"Redemption Price"); provided, however, that in the case of Triggering Event
described below, the Triggering Event Redemption Price shall equal the greater
of (i) the Liquidation Value and (ii) the product of (A) the Conversion Rate at
such time and (B) the Closing Bid Price calculated as of the date immediately
preceding such Triggering Event on which the exchange or market on which the
Common Stock is traded is open. The Company hereby warrants and agrees that the
Fixed Conversion Price for any Preferred Shares that are not redeemed after the
occurrence of a Triggering Event described below shall be reset to equal the
lesser of (x) 150% of the Market Price on the date of issuance of the applicable
Preferred Shares, subject to adjustment, and (y) 150% of the Market Price on the
date immediately following such Triggering Event on which the exchange or market
on which the Common Stock is traded is open.
A "Major Transaction" shall be deemed to have occurred at such time as any
of the following events: (ix) the consolidation, merger or other business
combination of the Company with or into another Person (other than pursuant to a
migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company) pursuant to which either (x) the continuing or
surviving entity is not a public company or (y) the stockholders of the Company
existing at the time of such consolidation, merger or other business combination
cannot elect a majority of the directors of the continuing or surviving entity
immediately following such consolidation, merger or business combination; (xii)
the sale or transfer of all or substantially all of the Company's assets
pursuant to which either (x) the purchasing entity is not a public company or
(y) the stockholders of the Company existing at the time of such sale cannot
elect a majority of the directors of the purchasing entity immediately following
such sale; or (xi) a purchase, tender or exchange offer made to and accepted by
the holders of more than 10% of the outstanding shares of Common Stock which
requires or receives the consent of the Company's Board of Directors.
A "Triggering Event" shall be deemed to have occurred at such time as any
of the following events: (xii) the failure of the Registration Statement to be
declared effective by the SEC on or prior to the date that is 240 days after the
Initial Issuance Date; (ixiii) while the Registration Statement is required to
be maintained effective the effectiveness of the Registration Statement lapses
for any reason (including, without limitation, the issuance of a stop order) or
is unavailable to the holder of the Preferred Shares for sale of the Registrable
Securities and such lapse or unavailability continues for a period of ten
consecutive trading days, provided that the cause of such lapse or
unavailability is not due to factors solely within the control of such holder of
Preferred Shares; (xiv) the failure of the Common Stock to be listed on the
Nasdaq National Market, The Nasdaq SmallCap Market, The New York Stock Exchange,
Inc. or The American Stock Exchange, Inc. for a period of seven consecutive days
(provided that such failure shall not constitute a Triggering Event if the
Company delists the Common Stock at the election of the holders of Preferred
Shares; or (ivxv) the Company's notice to any holder of Preferred Shares,
including by way of public announcement, at any time, of its intention not to
comply with proper requests for conversion of any Preferred Shares into shares
of Common Stock.
USE OF PROCEEDS
Since this Prospectus relates to the offering of Common Stock by the
holders of the Series C shares, the Company will not receive any of the proceeds
from the sale of the Common Stock offered hereby. However, upon the exercise of
the Warrants, except in the case of a "cashless exercise," the Company will
receive an amount equal
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<PAGE>
to the product of the exercise price of the warrant and the number of Warrants
being exercised, as more fully described herein.
SELLING STOCKHOLDERS
The following table sets forth certain information, as of the date hereof,
with respect to the number of shares of Common Stock beneficially owned by each
of the Selling Stockholders and as adjusted to give effect to the sale of the
Shares offered hereby. The Shares are being registered to permit public
secondary trading of the Shares, and the Selling Stockholders may offer the
Shares for resale from time to time. See "Plan of Distribution."
This Prospectus covers the resale by the Selling Stockholders of up to
3,000,000 Shares, plus, in accordance with Rule 416 under the Securities Act,
such presently indeterminate number of additional Shares as may be issuable upon
conversion of the Series C Shares or exercise of Warrants, based upon
fluctuations in the conversion price of the Series C Shares. See "General."
The Company has agreed to register a specified number of Shares for resale
by the Selling Stockholders. The number of Shares shown in the following table
as being offered by the Selling Stockholders does not include such presently
indeterminate number of shares of Common Stock as may be issuable upon
conversion of the Series C Shares or exercise of Warrants pursuant to the
provisions thereof regarding determination of the applicable conversion price
but which shares are, in accordance with Rule 416 under the Securities Act,
included in the Registration Statement of which this Prospectus forms as part.
The Shares covered by this Prospectus may be offered from time to time by
the Selling Stockholders named below:
<TABLE>
<CAPTION>
OWNERSHIP
AFTER OFFERING
--------------
NUMBER OF NUMBER OF
SHARES OWNED SHARES BEING NUMBER
NAME OF SELLING SHAREHOLDER PRIOR TO OFFERING (1)(2) OFFERED (3) OF SHARES PERCENT
--------------------------- ------------------------ ------------- --------- -------
<S> <C> <C> <C> <C>
Themis Partners, L.P. 60,308 60,308 0 0%
Heracles Fund 60,308 60,308 0 0%
Samyang Merchant Bank 80,410 80,410 0 0%
Olympus Securities, Ltd. (4) 201,026 201,026 0 0%
Nelson Partners(4) 201,026 201,026 0 0%
Leonardo, L.P. 201,026 201,026 0 0%
GAM Arbitrage Investments, Inc. 20,103 20,103 0 0%
AG Super Fund International Partners, L.P. 20,103 20,103 0 0%
Raphael, L.P. 60,308 60,308 0 0%
Ramius Fund, Ltd. 80,410 80,410 0 0%
Hick Investments, Ltd. 20,103 20,103 0 0%
--------- ---------
1,005,131 1,005,131
--------- ---------
--------- ---------
</TABLE>
(1) Except as indicated by footnote, the persons named in the table above
have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them. Beneficial ownership
is determined in accordance with the rules of the Securities Exchange
Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock subject to warrants and
convertible preferred stock currently exercisable or convertible, or
exercisable or convertible within 60 days, are deemed outstanding,
including for purposes of computing the percentage of the person
holding such option, but not for purposes of computing the percentage
of any other holder.
(2) Beneficial ownership is shown as of September 29, 1997. Beneficial
ownership is based upon conversion of all of the Series C Shares at
$6.25 per share of Common Stock (which price is 100% of the average of
the lowest sale prices of the Common Stock for each of the seven days
immediately preceding October 3, 1997) and the exercise of the
Warrants. If all shares of Series C Shares held by such Selling
Shareholder had been converted on September 29, 1997, (assuming
conversion of all
13
<PAGE>
of the Series C Shares at $6.25 per share of Common Stock) the Company
would have been obligated to issue 1,005,131 shares of Common Stock in
respect thereto. The actual number of shares of Common Stock issued or
issuable upon the conversion of the Series C Shares is subject to
adjustment and could be materially less or more than such estimated
amount depending upon factors which cannot be predicted by the Company
at this time, including, among others, the future market price of the
Common Stock and anti-dilution adjustments. Pursuant to the terms of
the Series C Shares, the Series C Shares are convertible by the
holders thereof only to the extent that the number of shares of Common
Stock thereby issuable, together with the number of shares of Common
Stock then held by such holder and its affiliates (not including
shares underlying unconverted shares of Series C Shares) would not
exceed 4.9% of the then outstanding Common Stock as determined in
accordance with Section 13(d) of the Securities Act of 1934, as
amended, except pursuant to 61 days prior written notice. Accordingly,
the number of shares of Common Stock set forth for such Selling
Shareholder may exceed the actual number of shares of Common Stock
that such Selling Shareholder could own beneficially at any given time
through its ownership of the Series C Shares. See "Risk Factors -
Future Sales of Common Stock and Preferred Stock.
(3) This Prospectus also covers the resale of such presently indeterminate
number of additional shares as may be issuable upon conversion of the
Series C Shares or exercise of the Warrants, based upon fluctuations
in the conversion or exercise price of the Series C Shares or
Warrants, respectively.
(4) Citadel Limited Partnership is the managing general partner of Nelson
Partners ("Nelson") and the trading manager of Olympus Securities,
Ltd. ("Olympus") and consequently has voting control and investment
discretion over securities held by both Nelson and Olympus. The
ownership information for Nelson does not include the shares owned by
Olympus and the ownership information for Olympus does not include the
shares owned by Nelson.
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering. The Shares offered
hereby may be sold by the Selling Stockholders or by pledgees, donees,
transferees or other successors in interest that receive such shares as a gift,
partnership distribution or other non-sale related transfer. The Shares may be
sold from time to time in transactions in the over-the-counter market, in
negotiated transactions, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, at
prices related to prevailing market prices or at negotiated prices. The Selling
Stockholders may effect such transactions by selling the Shares to or through
broker-dealers, including block trades in which brokers or dealers will attempt
to sell the Shares as agent but may position and resell the block as principal
to facilitate the transaction, or in one or more underwritten offerings on a
firm commitment or best effort basis. Sales of Selling Stockholders' Shares may
also be made pursuant to Rule 144 under the Securities Act, where applicable.
To the extent required under the Securities Act, the aggregate amount of
Selling Stockholders' Shares being offered and the terms of the offering, the
names of any such agents, brokers, dealers or underwriters and any applicable
commission with respect to a particular offer will be set forth in an
accompanying Prospectus supplement. Any underwriters, dealers, brokers or agents
participating in the distribution of the Shares may receive compensation in the
form of underwriting discounts, concessions, commissions or fees from a Selling
Stockholder and/or purchasers of Selling Stockholders' Shares, for whom they may
act (which compensation as to a particular broker-dealer might be in excess of
customary commissions).
From time to time, one or more of the Selling Stockholders may pledge,
hypothecate or grant a security interest in some or all of the Shares owned by
them, and the pledgees, secured parties or persons to whom such securities have
been hypothecated shall, upon foreclosure in the event of default, be deemed to
be Selling Stockholders hereunder. In addition, a Selling Stockholder may, from
time to time, sell short the Common Stock of the Company, and in such instances,
this Prospectus may be delivered in connection with such short sales and the
Shares offered hereby may be used to cover such short sales.
From time to time one or more of the Selling Stockholders may transfer,
pledge, donate or assign such Selling Stockholders' Shares to lenders or others
and each of such persons will be deemed to be a "Selling Stockholder" for
purposes of this Prospectus. The number of Selling Stockholders' Shares
beneficially owned by those Selling Stockholders who so transfer, pledge, donate
or assign Selling Stockholders' Shares will decrease as and when they take such
actions. The plan of distribution for Selling Stockholders' Shares sold
hereunder will
14
<PAGE>
otherwise remain unchanged, except that the transferees, pledgees, donees or
other successors will be Selling Stockholders hereunder.
A Selling Stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the Common
Stock in the course of hedging the positions they assume with such Selling
Stockholder, including, without limitation, in connection with distributions of
the Common Stock by such broker-dealers. A Selling Stockholder may also enter
into option or other transactions with broker-dealers that involve the delivery
of the Common Stock to the broker-dealers, who may then resell or otherwise
transfer such Common Stock. A Selling Stockholder may also loan or pledge the
Common Stock to a broker-dealer and the broker-dealer may sell the Common Stock
so loaned or upon a default may sell or otherwise transfer the pledged Common
Stock.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the Shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not bid for or purchase shares of
Common Stock during a period which commences one business day (5 business days,
if the Company's public float is less than $25 million or its average daily
trading volume is less than $100,000) prior to such person's participation in
the distribution, subject to exceptions for certain passive market making
activities. In addition and without limiting the foregoing, each Selling
Stockholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including, without limitation, Regulation M
which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by such Selling Stockholder.
The Series C Shares and Warrants were originally issued to the Selling
Stockholders pursuant to an exemption from the registration requirements of the
Securities Act provided by Section 4(2) or other applicable provisions thereof.
The Company agreed to register the Shares under the Securities Act and to
indemnify and hold the Selling Stockholders harmless against certain liabilities
under the Securities Act that could arise in connection with the sale by the
Selling Stockholders of the Shares. The Company has agreed to pay all reasonable
fees and expenses incident to the filing of this Registration Statement.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Carmine J. Bua,
Esq., San Diego, California.
EXPERTS
The consolidated financial statements of Imaging Technologies Corporation
incorporated by reference in this prospectus and elsewhere in the registration
statement have been audited by Boros & Farrington APC, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
15
<PAGE>
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK TO
WHICH IT RELATES, OR AN OFFER IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME
AFTER THE DATE HEREOF.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PAGE
----
The Company. . . . . . . . . . 3
Available Information. . . . . 3
Risk Factors . . . . . . . . . 4
General. . . . . . . . . . . . 7
Use of Proceeds. . . . . . . . 12
Legal Matters. . . . . . . . . 15
Experts. . . . . . . . . . . . 15
- --------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO]
IMAGING TECHNOLOGIES CORPORATION
3,000,000
SHARES OF COMMON STOCK
PROSPECTUS
___________ __, 1997
16
<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred by
the Registrant in connection with the sale and distribution of the securities
being registered hereby. All amounts are estimated except the Securities and
Exchange Commission registration fee.
SEC registration fee $5,910.00
Accounting fees and expenses 10,000.00
Legal fees and expenses 50,000.00
Miscellaneous fees and expenses 9,090.00
--------
$75,000.00
----------
----------
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors of the Registrant under certain conditions and subject
to certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the provisions of Section 145 of the
Delaware General Corporation Law.
Article X of the Bylaws of the Registrant provides that the Registrant
shall indemnify its officers, directors and employees. The rights to indemnity
thereunder continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of the person. In addition, expenses incurred by a director or
officer in defending any action, suit or proceeding by reason of the fact that
he or she is or was a director or officer of the Registrant shall be paid by the
Registrant unless such officer, director or employee is adjudged liable for
negligence or misconduct in the performance of his or her duties.
Article Fourth of the Registrant's Certificate of Incorporation provides
that the Registrant shall indemnify all persons whom it may indemnify pursuant
to Section 145 of the Delaware General Corporation Law to the full extent
permitted by such Section 145.
ITEM 16. EXHIBITS
4a Amended Certificate of Designation of Imaging Technologies
Corporation with respect to the 5% Convertible Preferred Stock.
(Incorporated by reference to Exhibit 4(d) to 1987 Form 10-K.)
4b Amended Certificate of Designation of Imaging Technologies
Corporation with respect to theSeries C Redeemable Convertible
Preferred Stock
5.1 Opinion of Carmine J. Bua, Esq.
23.1 Consent of Independent Public Accountants.
23.2 Consent of Carmine J. Bua, Esq. (included in Exhibit 5.1).
17
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement; provided, however, that (i) and (ii)
do not apply if the Registration Statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by (i) and
(ii) is contained in periodic reports filed with or furnished to the Commission
by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on October 6, 1997.
IMAGING TECHNOLOGIES CORPORATION
By /s/ Edward W. Savarese
-----------------------------
Edward W. Savarese
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Edward W. Savarese Vice Chairman and Chief Executive Officer October 6, 1997
- ----------------------
(Edward W. Savarese) (Principal Executive Officer)
/s/ Brian Bonar President, Chief Operating Officer and October 6, 1997
- ----------------------
(Brian Bonar) Director
/s/ Ralph R. Barry Vice President, Chief Financial Officer, October 6, 1997
- ----------------------
(Ralph R. Barry) Secretary and Treasurer,
(Principal Financial Officer)
/s/ Harry J. Saal Chairman October 6, 1997
- ----------------------
(Harry J. Saal)
/s/ Irwin Roth Director October 6, 1997
- ----------------------
(Irwin Roth)
/s/ Frank Kavanaugh Director October 6, 1997
- ----------------------
(Frank Kavanaugh)
/s/ A.L. Dubrow Director October 6, 1997
- ----------------------
(A.L. Dubrow)
</TABLE>
19
<PAGE>
EXHIBIT INDEX
Exhibit
Number Document Description
- ------ --------------------
4a Amended Certificate of Designation of Imaging Technologies Corporation
with respect to the 5% Convertible Preferred Stock. (Incorporated by
reference to Exhibit 4(d) to 1987 Form 10-K.)
4b Amended Certificate of Designation of Imaging Technologies Corporation
with respect to the Series C Redeemable Convertible Preferred Stock
5.1 Opinion of Carmine J. Bua, Esq.
23.1 Consent of Independent Public Accountants.
23.2 Consent of Carmine J. Bua, Esq. (included in Exhibit 5.1).
20
<PAGE>
EXHIBIT 4b
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK
OF
IMAGING TECHNOLOGIES CORPORATION
Imaging Technologies Corporation (the "COMPANY"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, does
hereby certify that, pursuant to authority conferred upon the Board of Directors
of the Company by the Certificate of Incorporation, as amended, of the Company,
and pursuant to Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a series of the Company's previously authorized
preferred stock, par value $1,000 per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of One Thousand Two
Hundred (1,200) shares of Series C Redeemable Convertible Preferred Stock of the
Company, as follows:
RESOLVED, that the Company is authorized to issue 1,200 shares of
Series C Redeemable Convertible Preferred Stock (the "PREFERRED SHARES"),
par value $1,000 per share, which shall have the following powers,
designations, preferences and other special rights:
(1) DIVIDENDS. The Preferred Shares shall not bear any dividends.
(2) HOLDER'S CONVERSION OF PREFERRED SHARES. A holder of Preferred
Shares shall have the right, at such holder's option, to convert the
Preferred Shares into shares of the Company's common stock, $.005 par value
per share (the "COMMON STOCK"), on the following terms and conditions:
(a) CONVERSION RIGHT. Subject to the provisions of Section 2(k)
below, at any time or times on or after the date which is 46 days after the
Issuance Date (as defined below), any holder of Preferred Shares shall be
entitled to convert any whole number of Preferred Shares into fully paid
and nonassessable shares (rounded to the nearest whole share in accordance
with Section 2(i) below) of Common Stock, at the Conversion Rate (as
defined below); provided, however, that in no event shall any holder be
entitled to convert Preferred Shares in excess of that number of Preferred
Shares which, upon giving effect to such conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by the holder
and its affiliates to exceed 4.9% of the outstanding shares of the Common
Stock following such conversion. For purposes of the foregoing proviso,
the aggregate number of shares of Common Stock beneficially owned by the
holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of the Preferred Shares with respect to
which the determination of such proviso is being made, but shall exclude
the number of shares of Common Stock which would be issuable upon
(i) conversion of the remaining, nonconverted Preferred Shares beneficially
owned by the holder and its affiliates and (ii) exercise or conversion of
the unexercised or unconverted portion of any other securities of the
Company (including, without limitation, any warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the holder and its affiliates. Except as set
forth in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. The holder may waive the
foregoing limitations by written notice to the Company upon not less than
61 days prior notice (with such waiver taking effect only upon the
expiration of such 61 day notice period).
(b) CONVERSION RATE. The number of shares of Common Stock
issuable upon conversion of each of the Preferred Shares pursuant to
Sections (2)(a), 2(g) and 2(h) shall be determined according to the
following formula (the "CONVERSION RATE"):
(.06)(N/365)(10,000) + 10,000
-----------------------------
Conversion Price
1
<PAGE>
For purposes of this Certificate of Designations, the following terms shall
have the following meanings:
(i) "CONVERSION PRICE" means, as of any Conversion Date
(as defined below) or other date of determination, the lower of the Fixed
Conversion Price and the Floating Conversion Price, each in effect as of such
date and subject to adjustment as provided herein;
(ii) "FIXED CONVERSION PRICE" means 150% of the Market
Price on the date of issuance of the applicable Preferred Shares, subject to
adjustment as provided herein;
(iii) "FLOATING CONVERSION PRICE" means, as of any date of
determination, the amount obtained by multiplying the Conversion Percentage in
effect as of such date by the Market Price as of such date;
(iv) "CONVERSION PERCENTAGE" means (A) 100% for the
period beginning on the Issuance Date and ending on and including the date which
is 90 days after the Issuance Date, (B) 95% for the period beginning on and
including the date which is 91 days after the Issuance Date and ending on and
including the date which is 180 days after the Issuance Date and (C) 90% for the
period beginning on and including the date which is 181 days after the Issuance
Date and ending on and including the date which is five years after the Issuance
Date, subject in each case to adjustment as provided herein;
(v) "MARKET PRICE" means, with respect to any security
for any date, the lowest Closing Bid Price (as defined below) for such security
during the seven consecutive trading days immediately preceding such date;
(vi) "CLOSING BID PRICE" means, for any security as of
any date, the last closing bid price for such security on The Nasdaq SmallCap
Market as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if The
Nasdaq SmallCap Market is not the principal trading market for such security,
the last closing bid price of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price is reported
for such security by Bloomberg, the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as mutually determined by the Company
and the holders of Preferred Shares. If the Company and the holders of
Preferred Shares are unable to agree upon the fair market value of the Common
Stock, then such dispute shall be resolved pursuant to Section 2(f)(iii) below
with the term "Closing Bid Price" being substituted for the term "Market Price."
(All such determinations to be appropriately adjusted for any stock dividend,
stock, split or other similar transaction during such period).
(vii) "N" means the number of days from, but excluding,
the Issuance Date through and including the Conversion Date for the Preferred
Shares for which conversion is being elected; and
(viii) "ISSUANCE DATE" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.
(c) EFFECT OF FAILURE TO OBTAIN AND MAINTAIN EFFECTIVENESS OF
REGISTRATION STATEMENT. If the registration statement (the "REGISTRATION
STATEMENT") covering the resale of the shares of Common Stock issuable upon
conversion or exercise of the Preferred Shares and the Warrants (as defined in
the Securities Purchase Agreement), respectively, and required to be filed by
the Company pursuant to the Registration Rights Agreement between the Company
and the Buyers referred to therein (the "REGISTRATION RIGHTS AGREEMENT") is not
(i) filed within 45 days of the first Issuance Date of any Preferred Shares (the
"SCHEDULED FILING DATE"), (ii) declared effective by the United States
Securities and Exchange Commission (the "SEC") on or before 150 days after the
first Issuance Date for
2
<PAGE>
any Preferred Shares (the "SCHEDULED EFFECTIVE DATE"), or (iii) if after the
Registration Statement has been declared effective by the SEC, sales cannot be
made pursuant to the Registration Statement (whether because of a failure to
keep the Registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to the Registration Statement, to
register sufficient shares of Common Stock or otherwise), then, as partial
relief for the damages to any holder by reason of any such delay in or reduction
of its ability to sell the underlying shares of Common Stock (which remedy shall
not be exclusive of any other remedies available at law or in equity), the
Conversion Percentage and the Fixed Conversion Price shall be adjusted as
follows:
(A) CONVERSION PERCENTAGE. The Conversion
Percentage in effect at such time shall be reduced by a number of
percentage points equal to the product of (I) .06 and (II) the sum of
(x) the number of days after the Scheduled Filing Date that the relevant
Registration Statement is filed with the SEC, (y) the number of days after
the Scheduled Effective Date and prior to the date that the relevant
Registration Statement is declared effective by the SEC (without
double-counting any number of days after the Scheduled Filing Date that the
relevant Registration Statement is filed, if applicable) and (z) the number
of days that sales cannot be made pursuant to the Registration Statement in
accordance with the Registration Rights Agreement after the Registration
Statement has been declared effective. (For example, if the Registration
Statement becomes effective 30 days after the Scheduled Effective Date, the
Conversion Percentage would be 88.2% percent until any subsequent
adjustment; if thereafter sales could not be made pursuant to the
Registration Statement for a period of 40 additional days, the Conversion
Percentage would then be 85.8%); and
(B) FIXED CONVERSION PRICE. The Fixed Conversion
Price in effect at such time shall be reduced by an amount equal to the
product of (I) the Fixed Conversion Price in effect as of the Issuance Date
and (II) .0006 multiplied by (III) the sum of (x) the number of days after
the Scheduled Filing Date that the relevant Registration Statement is filed
with the SEC, (y) the number of days after the Scheduled Effective Date and
prior to the date that the relevant Registration Statement is declared
effective by the SEC (without double-counting any number of days after the
Scheduled Filing Date that the relevant Registration Statement is filed, if
applicable) and (z) the number of days that sales cannot be made pursuant
to the Registration Statement in accordance with the Registration Rights
Agreement after the Registration Statement has been declared effective.
(For example, assuming for purposes of this Section 3(c)(B) only that the
Fixed Conversion Price equals $9.00, if the Registration Statement becomes
effective 30 days after the Scheduled Effective Date, the Fixed Conversion
Price would be $8.982 until any subsequent adjustment; if thereafter sales
could not be made pursuant to the Registration Statement for a period of 40
additional days, the Fixed Conversion Price would then be $8.958.)
(d) ADJUSTMENT TO CONVERSION PRICE C DILUTION AND OTHER EVENTS.
In order to prevent dilution of the rights granted under this Certificate of
Designations, the Conversion Price will be subject to adjustment from time to
time as provided in this Section 2(d).
(i) ADJUSTMENT OF FIXED CONVERSION PRICE UPON ISSUANCE
OF COMMON STOCK. If and whenever on or after the date of issuance of the
Preferred Shares, the Company issues or sells, or is deemed to have issued or
sold, any shares of Common Stock (other than shares of Common Stock deemed to
have been issued by the Company in connection with an Approved Stock Plan (as
defined below)) for a consideration per share less than the Fixed Conversion
Price in effect immediately prior to such time (the "APPLICABLE PRICE"), then
immediately after such issue or sale, the Fixed Conversion Price shall be
reduced to an amount equal to the product of (x) the Fixed Conversion Price in
effect immediately prior to such issue or sale and (y) the quotient determined
by dividing (1) the sum of (I) the product of the Applicable Price and the
number of shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, and (II) the consideration, if any,
received by the Company upon such issue or sale, by (2) the product of (I) the
Applicable Price and (II) the number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale. For purposes of determining
the adjusted Fixed Conversion Price under this Section 2(d)(i), the following
shall be applicable:
3
<PAGE>
(A) ISSUANCE OF OPTIONS. If the Company in any
manner grants any rights or options to subscribe for or to purchase Common
Stock (other than pursuant to an Approved Stock Plan or upon conversion of
the Preferred Shares) or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being herein called
"OPTIONS" and such convertible or exchangeable stock or securities being
herein called "CONVERTIBLE SECURITIES") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities is less than the
Applicable Price, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. For purposes
of this Section 2(d)(i)(A), the "price per share for which Common Stock is
issuable upon exercise of such Options or upon conversion or exchange of
such Convertible Securities" is determined by dividing (I) the total
amount, if any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of all
such Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by (II) the total
maximum number of shares of Common Stock issuable upon exercise of such
Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No adjustment of the
Fixed Conversion Price shall be made upon the actual issuance of such
Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(B) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Company in any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon such conversion or
exchange is less than the Applicable Price, then the maximum number of
shares of Common Stock issuable upon conversion or exchange of such
Convertible Securities shall be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For the purposes
of this Section 2(d)(i)(B), the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by dividing
(I) the total amount received or receivable by the Company as consideration
for the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange
of all such Convertible Securities. No adjustment of the Fixed Conversion
Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of the Fixed Conversion Price had been or are
to be made pursuant to other provisions of this Section 2(d)(i), no further
adjustment of the Fixed Conversion Price shall be made by reason of such
issue or sale.
(C) CHANGE IN OPTION PRICE OR RATE OF CONVERSION.
If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of
any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock change at any time,
the Fixed Conversion Price in effect at the time of such change shall be
readjusted to the Fixed Conversion Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or
changed conversion rate, as the case may be, at the time initially granted,
issued or sold; provided that no adjustment shall be made if such
adjustment would result in an increase of the Fixed Conversion Price then
in effect.
4
<PAGE>
(D) CERTAIN DEFINITIONS. For purposes of
determining the adjusted Fixed Conversion Price under this Section 2(d)(i),
the following terms have meanings set forth below:
(I) "APPROVED STOCK PLAN" shall mean any
contract, plan or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's securities may be
issued to any employee, officer, director, consultant or other service
provider.
(II) "COMMON STOCK DEEMED OUTSTANDING" means, at
any given time, the number of shares of Common Stock actually outstanding
at such time, plus the number of shares of Common Stock deemed to be
outstanding pursuant to Sections 2(d)(i)(A) and 2(d)(i)(B) hereof
regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock issuable
upon conversion of the Preferred Shares.
(E) EFFECT ON FIXED CONVERSION PRICE OF CERTAIN
EVENTS. For purposes of determining the adjusted Fixed Conversion Price
under this Section 2(d)(i), the following shall be applicable:
(I) CALCULATION OF CONSIDERATION RECEIVED. If
any Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the Company
therefor. In case any Common Stock, Options or Convertible Securities are
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair
value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the
Company will be the Market Price of such securities for the twenty (20)
consecutive trading days immediately preceding the date of receipt. In
case any Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in which
the Company is the surviving entity the amount of consideration therefor
will be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair
value of any consideration other than cash or securities will be determined
jointly by the Company and the holders of a majority of the Preferred
Shares then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation
(the "VALUATION EVENT"), the fair value of such consideration will be
determined within forty-eight (48) hours of the tenth (10th) day following
the Valuation Event by an independent, reputable appraiser selected by the
Company. The determination of such appraiser shall be deemed binding upon
all parties absent manifest error.
(II) INTEGRATED TRANSACTIONS. In case any
Option is issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto,
the Options will be deemed to have been issued for a consideration of $.01.
(III) TREASURY SHARES. The number of shares of
Common Stock outstanding at any given time does not include shares owned or
held by or for the account of the Company, and the disposition of any
shares so owned or held will be considered an issue or sale of Common
Stock.
(IV) RECORD DATE. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Common Stock, Options
or in Convertible Securities or (2) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date will be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
5
<PAGE>
(ii) ADJUSTMENT OF FIXED CONVERSION PRICE UPON
SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock
into a greater number of shares, the Fixed Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced. If
the Company at any time combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock
into a smaller number of shares, the Fixed Conversion Price in effect
immediately prior to such combination will be proportionately increased.
(iii) ADJUSTMENT OF FLOATING CONVERSION PRICE UPON
ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner issues or
sells Convertible Securities that are convertible into Common Stock at a
price which varies with the market price of the Common Stock (the
formulation for such variable price being herein referred to as, the
"VARIABLE PRICE") and such Variable Price is not calculated using the same
formula used to calculate the Floating Conversion Price in effect
immediately prior to the time of such issue or sale, the Company shall
provide written notice thereof via facsimile and overnight courier to each
holder of the Preferred Shares ("VARIABLE NOTICE") on the date of issuance
of such Convertible Securities. If the holders of Preferred Shares
representing at least two-thirds (2/3) of the Preferred Shares then
outstanding provide written notice via facsimile and overnight courier (the
"VARIABLE PRICE ELECTION NOTICE") to the Company within five (5) business
days of receiving a Variable Notice that such holders desire to replace the
Floating Conversion Price then in effect with the Variable Price described
in such Variable Notice, the Company shall prepare and deliver to each
holder of the Preferred Shares via facsimile and overnight courier a copy
of an amendment to this Certificate of Designations (the "VARIABLE PRICE
AMENDMENT") that substitutes the Variable Price for the Floating Conversion
Price (together with such modifications to this Certificate of Designations
as may be required to give full effect to the substitution of the Variable
Price for the Floating Conversion Price) within five (5) business days
after receipt of the requisite number of Variable Price Election Notices
set forth above. The Company shall file such Variable Price Amendment with
the Secretary of State of the State of Delaware within five (5) business
days after delivery of the Variable Price Amendment to the holders of the
Preferred Shares; provided that in the event that the Company receives a
notice prior to the filing of the Variable Price Amendment from any holder
who has delivered a Variable Price Election Notice in connection with such
Variable Price Amendment that such holder objects to the form of the
Variable Price Amendment, the Company shall not file such Variable Price
Amendment until such time as the Variable Price Amendment has been revised
to the reasonable satisfaction of such holder and approved in writing by
the holders of the Preferred Shares representing at least two-thirds (2/3)
of the Preferred Shares then outstanding. Except as provided in the
preceding proviso, a holder's delivery of a Variable Price Election Notice
shall serve as the consent required to amend this Certificate of
Designations pursuant to Section 14 below.
(iv) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION,
MERGER OR SALE. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets to another Person (as defined below) or other transaction which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for Common Stock is referred to
herein as "ORGANIC CHANGE." Prior to the consummation of any Organic
Change, the Company will make appropriate provision (in form and substance
satisfactory to the holders of a majority of the Preferred Shares then
outstanding) to insure that each of the holders of the Preferred Shares
will thereafter have the right to acquire and receive in lieu of or
addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Preferred Shares, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Preferred Shares had such Organic Change not
taken place (without taking into account any limitations or restrictions on
the timing or amount of conversions). In any such case, the Company will
make appropriate provision (in form and substance satisfactory to the
holders of a majority of the Preferred Shares then outstanding) with
respect to such holders' rights and interests to insure that the provisions
of this Section 2(d) and Section 2(e) below will thereafter be applicable
to the Preferred Shares (including, in the case of any such consolidation,
merger or
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sale in which the successor entity or purchasing entity is other than the
Company, an immediate adjustment of the Fixed Conversion Price to the value
for the Common Stock reflected by the terms of such consolidation, merger
or sale, if the value so reflected is less than the Fixed Conversion Price
in effect immediately prior to such consolidation, merger or sale). The
Company will not effect any such consolidation, merger or sale, unless
prior to the consummation thereof, the successor entity (if other than the
Company) resulting from consolidation or merger or the entity purchasing
such assets assumes, by written instrument (in form and substance
satisfactory to the holders of a majority of the Preferred Shares then
outstanding), the obligation to deliver to each holder of Preferred Shares
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire. "PERSON"
shall mean an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(v) CERTAIN EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 2(d) but not expressly
provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company's Board of Directors will make an
appropriate adjustment in the Conversion Price so as to protect the rights
of the holders of the Preferred Shares; provided that no such adjustment
will increase the Conversion Price as otherwise determined pursuant to this
Section 2(d).
(vi) NOTICES.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice thereof to each
holder of Preferred Shares, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(B) The Company will give written notice to
each holder of Preferred Shares at least twenty (20) days prior to the date
on which the Company closes its books or takes a record (I) with respect to
any dividend or distribution upon the Common Stock, (II) with respect to
any pro rata subscription offer to holders of Common Stock or (III) for
determining rights to vote with respect to any Organic Change, dissolution
or liquidation; provided that in no event shall such notice be provided to
such holder prior to such information being made known to the public.
(C) The Company will also give written notice
to each holder of Preferred Shares at least twenty (20) days prior to the
date on which any Organic Change, dissolution or liquidation will take
place; provided that in no event shall such notice be provided to such
holder prior to such information being made known to the public.
(e) PURCHASE RIGHTS. In addition to any adjustments of the
Conversion Price pursuant to Section 2(d) above, if at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the holders
of Preferred Shares will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Preferred Shares (without taking into account
any limitations or restrictions on the timing or amount of conversions)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(f) MECHANICS OF CONVERSION. Subject to the Company's inability
to fully satisfy its obligations under a Conversion Notice (as defined below) as
provided for in Section 6 below:
(i) HOLDER'S DELIVERY REQUIREMENTS. To convert
Preferred Shares into full shares of Common Stock on any date (the
"CONVERSION DATE"), the holder thereof shall (A) transmit by facsimile (or
otherwise deliver), for receipt on or prior to 11:59 p.m., Central Time on
such date, a copy of a
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fully executed notice of conversion in the form attached hereto as Exhibit
I (the "CONVERSION NOTICE"), to the Company or its designated transfer
agent (the "TRANSFER AGENT"), and (B) surrender to a common carrier for
delivery to the Company or the Transfer Agent as soon as practicable
following such date, the original certificates representing the Preferred
Shares being converted (or an indemnification undertaking with respect to
such shares in the case of their loss, theft or destruction) (the
"PREFERRED STOCK CERTIFICATES") and the originally executed Conversion
Notice.
(ii) COMPANY'S RESPONSE. Upon receipt by the Company of
a facsimile copy of a Conversion Notice, the Company shall immediately
send, via facsimile, a confirmation of receipt of such Conversion Notice to
such holder. Upon receipt by the Company or the Transfer Agent of the
Preferred Stock Certificates to be converted pursuant to a Conversion
Notice, together with the originally executed Conversion Notice, the
Company or the Transfer Agent (as applicable) shall, on the next business
day following the date of receipt (or the second business day following the
date of receipt if received after 11:00 a.m. local time of the Company or
Transfer Agent, as applicable), (I) issue and surrender to a common carrier
for overnight delivery to the address as specified in the Conversion
Notice, a certificate, registered in the name of the holder or its
designee, for the number of shares of Common Stock to which the holder
shall be entitled, or (II) credit such aggregate number of shares of Common
Stock to which the holder shall be entitled to the holder's or its
designee's balance account with The Depository Trust Company. If the
number of Preferred Shares represented by the Preferred Stock
Certificate(s) submitted for conversion is greater than the number of
Preferred Shares being converted, then the Company or Transfer Agent, as
the case may be, shall, as soon as practicable and in no event later than
two business days after receipt of the Preferred Stock Certificate(s) and
at its own expense, issue and deliver to the holder a new Preferred Stock
Certificate representing the number of Preferred Shares not converted.
(iii) DISPUTE RESOLUTION. In the case of a dispute as to
the determination of the Market Price or the arithmetic calculation of the
Conversion Rate, the Company shall promptly issue to the holder the number
of shares of Common Stock that is not disputed and shall submit the
disputed determinations or arithmetic calculations to the holder via
facsimile as soon as possible, but in no event later than two (2) business
days after receipt of such holder's Conversion Notice. If such holder and
the Company are unable to agree upon the determination of the Market Price
or arithmetic calculation of the Conversion Rate within one (1) business
day of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall within one (1) business day
submit via facsimile (A) the disputed determination of the Market Price to
an independent, reputable investment bank or (B) the disputed arithmetic
calculation of the Conversion Rate to its independent, outside accountant.
The Company shall cause the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the
Company and the holder of the results no later than forty-eight (48) hours
from the time it receives the disputed determinations or calculations.
Such investment bank's or accountant's determination or calculation, as the
case may be, shall be binding upon all parties absent manifest error.
(iv) RECORD HOLDER. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Preferred
Shares shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.
(v) COMPANY'S FAILURE TO TIMELY CONVERT. If within ten
(10) business days of the Company's or the Transfer Agent's receipt of the
Preferred Stock Certificates to be converted and the originally executed
Conversion Notice the Company shall fail to issue a certificate to a holder
or credit the holder's balance account with The Depository Trust Company
for the number of shares of Common Stock to which such holder is entitled
upon such holder's conversion of Preferred Shares or to issue a new
Preferred Stock Certificate representing the number of Preferred Shares to
which such holder is entitled pursuant to Section 2(f)(ii), in addition to
all other available remedies which such holder may pursue hereunder and
under the Securities Purchase Agreement between the Company and the initial
holders of the Preferred Shares (the "SECURITIES PURCHASE AGREEMENT")
(including indemnification pursuant to Section 8 thereof), the Company
shall pay additional damages to such holder on each date after such tenth
(10th) business day that such
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conversion is not timely effected in an amount equal to 1.0% of the product
of (A) the number of shares of Common Stock not issued to the holder on a
timely basis pursuant to Section 2(f)(ii) and to which such holder is
entitled and, in the event the Company has failed to deliver a Preferred
Stock Certificate to the holder on a timely basis pursuant to Section
2(f)(ii), the number of shares of Common Stock issuable upon conversion of
the Preferred Shares represented by such Preferred Stock Certificate, as of
the last possible date which the Company could have issued such Preferred
Stock Certificate to such holder without violating Section 2(f) (ii) and
(B) the Closing Bid Price of the Common Stock on the last possible date
which the Company could have issued such Common Stock and such Preferred
Stock Certificate, as the case may be, to such holder without violating
Section 2(f)(ii).
(g) MANDATORY CONVERSION. If any Preferred Shares remain
outstanding on the Mandatory Conversion Date (as defined below), then all
such Preferred Shares shall be converted as of such date in accordance with
this Section 2 as if the holders of such Preferred Shares had given the
Conversion Notice on the Mandatory Conversion Date. All holders of
Preferred Shares shall thereupon surrender all Preferred Stock
Certificates, duly endorsed for cancellation, to the Company or the
Transfer Agent and on the Mandatory Conversion Date all Preferred Shares,
whether or not the Preferred Stock Certificates therefor are surrendered,
shall be cancelled and deemed null and void provided that the Company has
complied with its obligations under this Section 2(g). "MANDATORY
CONVERSION DATE" means the date which is five years after the applicable
Issuance Date.
(h) CONVERSION AT THE OPTION OF THE COMPANY. At any time or
times on or after the Issuance Date, the Company shall have the right, in
its sole discretion, to require that any or all of the outstanding
Preferred Shares be converted ("CONVERSION AT COMPANY'S ELECTION") at the
Conversion Rate; provided that the Conditions to Conversion at the Option
of the Company (as set forth below) are satisfied. The Company shall
exercise its right to Conversion at Company's Election by providing each
holder of Preferred Shares written notice ("NOTICE OF CONVERSION AT
COMPANY'S ELECTION") at least 30 days prior to the date selected by the
Company for conversion ("COMPANY'S ELECTION CONVERSION DATE"). If the
Company elects to require conversion of some, but not all, of the Preferred
Shares, the Company shall convert an amount from each holder of Preferred
Shares equal to such holder's pro rata amount (based on the number of
Preferred Shares held by such holder relative to the number of Preferred
Shares outstanding on Company's Election Conversion Date) of all Preferred
Shares the Company is requiring to be converted. The Notice of Conversion
at Company's Election shall indicate (x) the number of Preferred Shares the
Company has selected for conversion, (y) the Company's Election Conversion
Date, which date shall be not less than 30 or more than 40 days after each
holder's receipt of such notice, and (z) each holder's pro rata share of
outstanding Preferred Shares. All Preferred Shares selected for conversion
in accordance with the provision of this Section 2(h) shall be converted as
of the Company's Election Conversion Date in accordance with this Section 2
as if the holders of such Preferred Shares selected by the Company to be
converted had given the Conversion Notice on the Company's Election
Conversion Date. All holders of Preferred Shares shall thereupon and
within two business days the Company's Election Conversion Date surrender
all Preferred Stock Certificates selected for conversion, duly endorsed for
cancellation, to the Company or the Transfer Agent. "CONDITIONS TO
CONVERSION AT THE COMPANY'S ELECTION" means the following conditions:
(i) on each day during the 20 consecutive trading days immediately
preceding the date of the Company's Notice of Conversion at the Company's
Election, the last reported sale price (as reported by Bloomberg) of the
Common Stock is at least 200% of the last reported sale price (as reported
by Bloomberg) as of the applicable Issuance Date of the Preferred Shares
being converted; (ii) on each day during the period beginning on the date
of the Notice of Conversion at the Company's Election and ending on and
including the Company's Election Conversion Date, the last reported sale
price (as reported by Bloomberg) of the Common Stock is at least 170% of
the last reported sale price (as reported by Bloomberg) as of the
applicable Issuance Date of the Preferred Shares being converted; (iii) the
Company shall not have previously given Notice of Conversion at Company's
Election; (iv) the Company's stockholders shall have approved the issuance
of the Securities (as defined below) on or prior to the date of the
Company's Notice of Conversion at Company's Election; (v) on each day
during the period beginning 20 days prior to the Notice of Conversion at
the Company's Election and ending on and including the Company's Election
Conversion Date, the Registration Statement shall be effective and
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available for the sale of no less than 125% of the sum of (A) the number of
Conversion Shares then issuable upon the conversion of all outstanding
Preferred Shares, including the Conversion Shares to be issued pursuant to
this Conversion at the Company's Election, (B) the number of Warrant Shares
(as defined in the Securities Purchase Agreement) then issuable upon
exercise of all outstanding Warrants and (C) the number of Conversion
Shares and Warrant Shares that are then held by the holders of the
Preferred Shares, (vi) on each day during the period beginning 20 days
prior to the date of the Company's Notice of Conversion at Company's
Election and ending on and including the Company's Election Conversion
Date, the Common Stock is designated for quotation on The Nasdaq SmallCap
Market or the Nasdaq National Market or a national securities exchange and
is not suspended from trading; (vii) during the period beginning 20 days
prior to the date of the Company's Notice of Conversion at Company's
Election and ending on and including the Company's Election Conversion
Date, the Average Daily Trading Dollar Volume (as defined below) is not
less than $250,000; (viii) during the period beginning on the Initial
Issuance Date and ending on and including the Company's Election Conversion
Date, the Company shall have delivered Conversion Shares upon conversion of
the Preferred Shares and Warrant Shares upon exercise of the Warrants to
the Buyers on a timely basis as set forth in Section 2(f)(ii) of this
Certificate of Designations and Sections 2(a) and 2(b) of the Warrants,
respectively; and (ix) the Company otherwise has satisfied its obligations
and is not in default under this Certificate of Designations, the
Securities Purchase Agreement and the Registration Rights Agreement. For
purposes of this Section 2(h), "AVERAGE DAILY TRADING DOLLAR VOLUME" means
the average during any period of the number of shares of Common Stock sold
on each trading day multiplied by such day's weighted-average trading price
as reported by Bloomberg; provided, however, that for purposes of
determining the Average Daily Trading Dollar Volume, block trades in excess
of 30,000 shares of Common Stock shall be counted as the sale of only
30,000 shares of Common Stock. Notwithstanding the above, any holder of
Preferred Shares may convert such shares (including Preferred Shares
selected for conversion) into Common Stock pursuant to Section 2(a) on or
prior to the date immediately preceding the Company's Election Conversion
Date (and, after such holder's receipt of the Notice of Conversion at
Company's Election, without regard to the conversion limitations set forth
in Section 2(k) below).
(i) FRACTIONAL SHARES. The Company shall not issue any fraction
of a share of Common Stock upon any conversion. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one
Preferred Share by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a
fraction of a share of Common Stock. If, after the aforementioned
aggregation, the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up or down to the nearest whole share.
(j) TAXES. The Company shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of Common Stock
upon the conversion of the Preferred Shares.
(k) CONVERSION RESTRICTIONS. Other than a conversion pursuant
to Section 2(g) or 2(h), the right of a holder of Preferred Shares to
convert Preferred Shares pursuant to this Section 2 shall be limited as set
forth below. Without the prior consent of the Company, a holder of
Preferred Shares shall not be entitled convert an aggregate number of
Preferred Shares from the Issuance Date of such Preferred Shares through
the date of this determination in excess of the number of Preferred Shares
which when divided by the number of Preferred Shares purchased by such
holder on such Issuance Date would exceed (i) 0.20 for the period beginning
on the date which is 46 days after the Issuance Date and ending on and
including the date which is 90 days after the Issuance Date, (ii) 0.40 for
the period beginning on and including the date which is 91 days after the
Issuance Date and ending on and including the date which is 135 days after
the Issuance Date, (iii) 0.60 for the period beginning on the date which is
136 days after the Issuance Date and ending on and including the date which
is 180 days after the Issuance Date, (iv) 0.80 for the period beginning on
and including the date which is 181 days after the Issuance Date and ending
on and including the date which is 225 days after the Issuance Date and
(v) 1.00 for the period beginning on and including the date which is 226
days after the Issuance Date and ending on and including the date which is
five years after the Issuance Date. Notwithstanding the foregoing, the
conversion restriction set forth in this Section 2(k) shall not apply
(x) if
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there shall have occurred a Material Adverse Change (as defined below),
(y) with respect to any conversion of Preferred Shares at a Conversion
Price which is equal to the Fixed Conversion Price then in effect or (z)
the Company has delivered a Put Share Notice (as defined under the
Securities Purchase Agreement). For purposes of this Section 2(k),
"MATERIAL ADVERSE CHANGE" means any change, event, result or happening
involving, directly or indirectly, the Company or any of its subsidiaries
resulting in a material adverse effect on the business, prospects,
financial condition or results or operations of the Company and its
subsidiaries, taken as a whole, including, without limitation, an event
constituting a Major Business Event (as defined in the Securities Purchase
Agreement) or a Triggering Event shall have occurred.
(l) ADJUSTMENT OF CONVERSION RESTRICTIONS UPON ISSUANCE OF
CONVERTIBLE SECURITIES. If the Company in any manner issues or sells
Convertible Securities that are convertible into Common Stock and are
subject to restrictions on the amount of shares that can be converted (the
restriction on conversions being herein referred to as, the "CONVERSION
RESTRICTIONS") and such Conversion Restriction is not formulated with using
the same time periods and percentages used in Section 2(k), the Company
shall provide written notice thereof via facsimile and overnight courier to
each holder of the Preferred Shares ("CONVERSION RESTRICTION NOTICE") on
the date of issuance of such Convertible Securities. If the holders of
Preferred Shares representing at least two-thirds (2/3) of the Preferred
Shares then outstanding which remain subject to the restrictions in Section
2(k) provide written notice via facsimile and overnight courier (the
"CONVERSION RESTRICTION ELECTION NOTICE") to the Company within five (5)
business days of receiving a Conversion Restriction Notice that such
holders desire to replace the conversion restrictions set forth in Section
2(k) then in effect with the Conversion Restriction described in such
Conversion Restriction Notice, the Company shall prepare and deliver to
each holder of the Preferred Shares via facsimile and overnight courier a
copy of an amendment to this Certificate of Designations (the "CONVERSION
RESTRICTION AMENDMENT") that substitutes the Conversion Restriction for
conversion restrictions set forth in Section 2(k) (together with such
modifications to this Certificate of Designations as may be required to
give full effect to the substitution of the Conversion Restriction for the
conversion restrictions set forth in Section 2(k)) within five (5) business
days after receipt of the requisite number of Conversion Restriction
Election Notices set forth above. The Company shall file such Conversion
Restriction Amendment with the Secretary of State of the State of Delaware
within five (5) business days after delivery of the Conversion Restriction
Amendment to the holders of the Preferred Shares; provided that in the
event that the Company receives a notice prior to the filing of the
Conversion Restriction Amendment from any holder who has delivered a
Conversion Restriction Election Notice in connection with such Conversion
Restriction Amendment that such holder objects to the form of the
Conversion Restriction Amendment, the Company shall not file such
Conversion Restriction Amendment until such time as the Conversion
Restriction Amendment has been revised to the reasonable satisfaction of
such holder and approved in writing by the holders of the Preferred Shares
representing at least two-thirds (2/3) of the Preferred Shares then
outstanding. Except as provided in the preceding proviso, a holder's
delivery of a Conversion Restriction Election Notice shall serve as the
consent required to amend this Certificate of Designations pursuant to
Section 14 below.
(3) REDEMPTION AT OPTION OF HOLDERS.
(a) REDEMPTION OPTION UPON MAJOR TRANSACTION. In addition to
all other rights of the holders of Preferred Shares contained herein,
simultaneous with the occurrence of a Major Transaction (as defined below),
each holder of Preferred Shares shall have the right, at such holder's
option, to require the Company to redeem all or a portion of such holder's
Preferred Shares at a price per Preferred Share equal to greater of
(i) Liquidation Value (as defined in Section 10 below) and (ii) the product
of (A) the Conversion Rate at such time and (B) the Closing Bid Price on
the date of the public announcement of such Major Transaction or the next
date on which the exchange or market on which the Common Stock is traded is
open if such public announcement is made (X) after 12:00 p.m., Central
Time, time on such date or (Y) on a date on which the exchange or market on
which the Common Stock is traded is closed ("MAJOR TRANSACTION REDEMPTION
PRICE").
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(b) REDEMPTION OPTION UPON TRIGGERING EVENT. In addition to all
other rights of the holders of Preferred Shares contained herein, after a
Triggering Event (as defined below), each holder of Preferred Shares shall
have the right, at such holder's option, to require the Company to redeem
all or a portion of such holder's Preferred Shares at a price per Preferred
Share equal to the greater of (i) $12,500 and (ii) the product of (A) the
Conversion Rate at such time and (B) the Closing Bid Price calculated as of
the date immediately preceding such Triggering Event on which the exchange
or market on which the Common Stock is traded is open ("TRIGGERING EVENT
REDEMPTION PRICE" and, collectively with "MAJOR TRANSACTION REDEMPTION
PRICE," the "REDEMPTION PRICE"); provided, however, that in the case of
Triggering Event described in Section 3(d)(iii) below, the Triggering Event
Redemption Price shall equal the greater of (i) the Liquidation Value and
(ii) the product of (A) the Conversion Rate at such time and (B) the
Closing Bid Price calculated as of the date immediately preceding such
Triggering Event on which the exchange or market on which the Common Stock
is traded is open. The Company hereby warrants and agrees that the Fixed
Conversion Price for any Preferred Shares that are not redeemed after the
occurrence of a Triggering Event described in Section 3(d)(iii) below shall
be reset to equal the lesser of (x) 150% of the Market Price on the date of
issuance of the applicable Preferred Shares, subject to adjustment, and
(y) 150% of the Market Price on the date immediately following such
Triggering Event on which the exchange or market on which the Common Stock
is traded is open.
(c) "MAJOR TRANSACTION". A "MAJOR TRANSACTION" shall be deemed
to have occurred at such time as any of the following events:
(i) the consolidation, merger or other business
combination of the Company with or into another Person (other than pursuant
to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company) pursuant to which either
(x) the continuing or surviving entity is not a public company or (y) the
stockholders of the Company existing at the time of such consolidation,
merger or other business combination cannot elect a majority of the
directors of the continuing or surviving entity immediately following such
consolidation, merger or business combination.
(ii) the sale or transfer of all or substantially all of
the Company's assets pursuant to which either (x) the purchasing entity is
not a public company or (y) the stockholders of the Company existing at the
time of such sale cannot elect a majority of the directors of the
purchasing entity immediately following such sale; or
(iii) a purchase, tender or exchange offer made to and
accepted by the holders of more than 10% of the outstanding shares of
Common Stock which requires or receives the consent of the Company's Board
of Directors.
(d) "TRIGGERING EVENT". A "TRIGGERING EVENT" shall be deemed to
have occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be
declared effective by the SEC on or prior to the date that is 240 days
after the Initial Issuance Date;
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any
reason (including, without limitation, the issuance of a stop order) or is
unavailable to the holder of the Preferred Shares for sale of the
Registrable Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such
lapse or unavailability continues for a period of ten consecutive trading
days, provided that the cause of such lapse or unavailability is not due to
factors solely within the control of such holder of Preferred Shares;
(iii) the failure of the Common Stock to be listed on the
Nasdaq National Market, The Nasdaq SmallCap Market, The New York Stock
Exchange, Inc. or The American Stock
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Exchange, Inc. for a period of seven consecutive days (provided that such
failure shall not constitute a Triggering Event if the Company delists the
Common Stock at the election of the holders of Preferred Shares pursuant to
Section 3(g) below); or
(iv) the Company's notice to any holder of Preferred
Shares, including by way of public announcement, at any time, of its
intention not to comply with proper requests for conversion of any
Preferred Shares into shares of Common Stock, including due to any of the
reasons set forth in Section 6(a) below.
(e) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON MAJOR
TRANSACTION. No sooner than 15 days nor later than 10 days prior to the
consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written
notice thereof via facsimile and overnight courier ("NOTICE OF MAJOR
TRANSACTION") to each holder of Preferred Shares. At any time after
receipt of a Notice of Major Transaction, the holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding may require the
Company to redeem all of the holder's Preferred Shares then outstanding by
delivering written notice thereof via facsimile and overnight courier
("NOTICE OF REDEMPTION AT OPTION OF BUYER UPON MAJOR TRANSACTION") to the
Company, which Notice of Redemption at Option of Buyer Upon Major
Transaction shall indicate (i) the number of Preferred Shares that such
holders are voting in favor of redemption and (ii) the applicable Major
Transaction Redemption Price, as calculated pursuant to Section 3(a) above.
(f) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON TRIGGERING
EVENT. Within one (1) day after the occurrence of a Triggering Event, the
Company shall deliver written notice thereof via facsimile and overnight
courier ("NOTICE OF TRIGGERING EVENT") to each holder of Preferred Shares.
At any time after receipt of a Notice of Triggering Event, the holders of
at least two-thirds (2/3) of the Preferred Shares then outstanding may
require the Company to redeem all of the Preferred Shares by delivering
written notice thereof via facsimile and overnight courier ("NOTICE OF
REDEMPTION AT OPTION OF BUYER UPON TRIGGERING EVENT") to the Company, which
Notice of Redemption at Option of Buyer Upon Triggering Event shall
indicate (i) the number of Preferred Shares that such holders are voting in
favor of redemption and (ii) the applicable Triggering Event Redemption
Price, as calculated pursuant to Section 3(b) above.
(g) PAYMENT OF REDEMPTION PRICE. Upon the Company's receipt of
a Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a
Notice(s) of Redemption at Option of Buyer Upon Triggering Event, as the
case may be, from the holders of at least two-thirds (2/3) of the Preferred
Shares then outstanding, the Company shall immediately notify each holder
by facsimile of the Company's receipt of such requisite notices necessary
to affect a redemption and each holder of Preferred Shares shall thereafter
promptly send such holder's Preferred Stock Certificates to be redeemed to
the Company or its Transfer Agent. The Company shall deliver the
applicable Redemption Price to such holder within five days after the
Company's receipt of the requisite notices required to affect a redemption;
provided, however, that the Major Transaction Redemption Price must be
delivered to such holder prior to, or simultaneously with, the occurrence
of a Major Transaction; provided further that a holder's Preferred Stock
Certificates shall have been so delivered to the Company or its Transfer
Agent; provided further that if the Company is unable to redeem all of the
Preferred Shares, the Company shall redeem an amount from each holder of
Preferred Shares equal to such holder's pro-rata amount (based on the
number of Preferred Shares held by such holder relative to the number of
Preferred Shares outstanding) of all Preferred Shares being redeemed. The
Company hereby covenants and agrees that a Major Transaction shall not be
consummated until the Company redeems all of the Preferred Shares submitted
for redemption pursuant to a Major Transaction. If the Company shall fail
to redeem all of the Preferred Shares submitted for redemption pursuant to
a Triggering Event (other than pursuant to a dispute as to the arithmetic
calculation of the Triggering Event Redemption Price), in addition to any
remedy such holder of Preferred Shares may have under this Certificate of
Designations and the Securities Purchase Agreement, the Triggering Event
Redemption Price payable in respect of such unredeemed Preferred Shares
shall bear interest at the rate of 1.0% per month (prorated for partial
months) until paid in full. Until the Company pays any unpaid applicable
Redemption Price in full to each holder, holders of at least two-
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thirds (2/3) of the Preferred Shares then outstanding, including shares of
Preferred Shares submitted for redemption pursuant to this Section 3 and
for which the applicable Redemption Price has not been paid, shall have the
option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of redemption,
require the Company to promptly return to each holder all of the Preferred
Shares that were submitted for redemption by such holder under this Section
3 and for which the applicable Redemption Price has not been paid, by
sending written notice thereof to the Company via facsimile (the "VOID
OPTIONAL REDEMPTION NOTICE"). Upon the Company's receipt of such Void
Optional Redemption Notice(s) and prior to payment of the full applicable
Redemption Price to each holder, (i) the Notice(s) of Redemption at Option
of Buyer Upon Triggering Event or the Notice(s) of Redemption at Option of
Buyer Upon Major Transaction, as the case may be, shall be null and void
with respect to those Preferred Shares submitted for redemption and for
which the applicable Redemption Price has not been paid, (ii) the Company
shall immediately return any Preferred Shares submitted to the Company by
each holder for redemption under this Section 3(i) and for which the
applicable Redemption Price has not been paid, (iii) the Fixed Conversion
Price of such returned Preferred Shares shall be adjusted to the lesser of
(A) the Fixed Conversion Price as in effect on the date on which the Void
Optional Redemption Notice(s) is delivered to the Company and (B) the
lowest Closing Bid Price during the period beginning on the date on which
the Notice(s) of Redemption of Option of Buyer Upon Major Transaction or
the Notice(s) of Redemption at Option of Buyer Upon Triggering event, as
the case may be, is delivered to the Company and ending on the date on
which the Void Optional Redemption Notice(s) is delivered to the Company;
provided that no adjustment shall be made if such adjustment would result
in an increase of the Fixed Conversion Price then in effect, and (iv) the
Conversion Percentage in effect at such time shall be reduced by a number
of percentage points equal to the product of (A) .25 and (B) the number of
days in the period beginning on the date on which the Notice(s) of
Redemption at Option of Buyer Upon Major Transaction or the Notice(s) of
Redemption at Option of Buyer Upon Triggering Event, as the case may be, is
delivered to the Company and ending on the date on which the Void Optional
Redemption Notice(s) is delivered to the Company. In addition, if a
redemption voided pursuant to this Section 3(i) was caused by a Triggering
Event involving the Company's inability to issue Conversion Shares because
of the Exchange Cap (as defined in Section 13), and if so directed by the
holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding, including shares of Preferred Shares submitted for redemption
pursuant to this Section 3 with respect to which the applicable Redemption
Price has not been paid, in a Void Mandatory Redemption Notice, the Company
shall immediately delist the Common Stock from such exchange and have the
Common Stock, at such holders' option, listed on The Nasdaq SmallCap Market
or traded on the electronic bulletin board or the "pink sheets".
Notwithstanding the foregoing, in the event of a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation of the
Redemption Price, such dispute shall be resolved pursuant to Section
2(f)(iii) above with the term "Closing Bid Price" being substituted for the
term "Market Price" and the term "Redemption Price" being substituted for
the term "Conversion Rate". Payments provided for in this Section 3 shall
have priority to payments to other stockholders in connection with a Major
Transaction.
(4) COMPANY'S RIGHT TO REDEEM AT ITS ELECTION. Notwithstanding
Section 2(g) or anything herein to the contrary but subject to Sections
4(d) and 4(e) below, on the date which is two years after the Issuance
Date, but only on such date, the Company shall have the right, in its sole
discretion, to redeem ("REDEMPTION AT THE COMPANY'S ELECTION"), from time
to time, any or all of the Preferred Shares at the Redemption Price at the
Company's Election (as defined below). If the Company elects to redeem
some, but not all, of the Preferred Shares, the Company shall redeem an
amount from each holder of Preferred Shares equal to such holder's pro-rata
amount (based on the number of Preferred Shares held by such holder
relative to the number of Preferred Shares outstanding) of all Preferred
Shares being redeemed.
(a) REDEMPTION PRICE AT THE COMPANY'S ELECTION. The "REDEMPTION
PRICE AT THE COMPANY'S ELECTION" shall be an amount per Preferred Share
equal to the product of (i) 1.1 multiplied by (ii) the sum of
(A) (.06)(P/365)(10,000) plus (B) 10,000; where "P" means the number of
days from, but excluding, the Issuance Date through and including the Date
of Redemption at the Company's Election (as defined in Section 4(b)).
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<PAGE>
(b) MECHANICS OF REDEMPTION AT THE COMPANY'S ELECTION. The
Company shall effect each such redemption no sooner than 20 trading days
nor later than 40 trading days after delivering written notice of its
Redemption at the Company's Election via facsimile and overnight courier
("NOTICE OF REDEMPTION AT THE COMPANY'S ELECTION") to (i) each holder of
the Preferred Shares and (ii) the Transfer Agent. Such Notice of
Redemption at the Company's Election shall indicate (A) the number of
shares of Preferred Shares that have been selected for redemption, (B) the
date that such redemption is to become effective (the "DATE OF REDEMPTION
AT THE COMPANY'S ELECTION") and (C) the applicable Redemption Price at the
Company's Election. Notwithstanding the above, any holder may convert into
Common Stock pursuant to Section (2)(a) above, on or prior to the date
immediately preceding the Date of Redemption at the Company's Election, any
Preferred Shares that such holder is otherwise entitled to convert (and,
after such holder's receipt of the Notice of Redemption at the Company's
Election, without regard to the conversion limitations set forth in Section
2(k)), including Preferred Shares that have been selected for Redemption at
the Company's Election pursuant to this Section 4.
(c) PAYMENT OF REDEMPTION PRICE. Each holder submitting
Preferred Shares being redeemed under this Section 4 shall send such
holder's Preferred Stock Certificates so redeemed to the Company or its
Transfer Agent within five (5) business days after the Date of Redemption
at the Company's Election, and the Company shall pay the applicable
Redemption Price at the Company's Election to that holder in cash within
three business days after such holder's Preferred Stock Certificates are so
delivered to the Company or its Transfer Agent. If the Company shall fail
to pay the applicable Redemption Price at the Company's Election to such
holder on a timely basis as described in this Section 4(c), in addition to
any remedy such holder of Preferred Shares may have under this Certificate
of Designations and the Securities Purchase Agreement, such unpaid amount
shall bear interest at the rate of 2.5% per month until paid in full.
Notwithstanding the foregoing, if the Company fails to pay the applicable
Redemption Price at the Company's Election to a holder within the time
period described in this Section 4 due to a dispute as to the arithmetic
calculation of the Redemption Price at the Company's Election, such dispute
shall be resolved pursuant to Section 2(f)(iii) above with the term
"Redemption Price at the Company's Election" being substituted for the term
"Conversion Rate."
(d) COMPANY MUST HAVE IMMEDIATELY AVAILABLE FUNDS OR CREDIT
FACILITIES. The Company shall not be entitled to send any Notice of
Redemption at the Company's Election pursuant to Section 4(b) above and
begin the redemption procedure under this Section 4, unless it has:
(i) the full amount of the Redemption Price at the
Company's Election in cash, available in a demand or other immediately
available account in a bank or similar financial institution;
(ii) credit facilities, with a bank or similar financial
institutions that are immediately available and unrestricted for use in
redeeming the Preferred Shares, in the full amount of the Redemption Price
at the Company's Election;
(iii) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from the Company a
sufficient number of shares of stock to provide proceeds necessary to
redeem any stock that is not converted prior to a Redemption at the
Company's Election; or
(iv) a combination of the items set forth in the
preceding clauses (i), (ii) and (iii), aggregating the full amount of the
Redemption Price at the Company's Election.
(e) CERTAIN CONDITIONS DURING NOTICE PERIOD. The Company shall
not be entitled to redeem the Preferred Shares on a Date of Redemption at
the Election of the Company, unless each of the following conditions are
satisfied as of the date of the Notice of Redemption at the Company's
Election and on each day from such date until and including the later of
the Date of Redemption at the Company's Election and the date on which the
Company pays the applicable Redemption Price:
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<PAGE>
(i) The Company's stockholders shall have approved the
issuance of the Securities (as defined below) on or prior to the Date of
Redemption at the Company's Election;
(ii) The Registration Statement shall be effective and
available for the sale of no less than 125% of the sum of (A) the number of
Conversion Shares then issuable upon the conversion of all outstanding
Preferred Shares, including the Conversion Shares to be issued pursuant to
this Conversion at the Company's Election, (B) the number of Warrant Shares
then issuable upon exercise of all outstanding Warrants and (C) the number
of Conversion Shares and Warrant Shares that are then held by the holders
of the Preferred Shares;
(iii) The Common Stock is designated for quotation on the
Nasdaq National Market or a national securities exchange and is not
suspended from trading;
(iv) The Average Daily Trading Dollar Volume (as defined
in Section 2(h)) is not less than $250,000;
(v) The Company shall have delivered Conversion Shares
upon conversion of the Preferred Shares and Warrant Shares upon exercise of
the Warrants to the Buyers on a timely basis as set forth in Section
2(f)(ii) of this Certificate of Designations and Sections 2(a) and 2(b) of
the Warrants, respectively; and
(vi) the Company otherwise has satisfied its obligations
and is not in default under this Certificate of Designations, the
Securities Purchase Agreement and the Registration Rights Agreement.
(5) COMPANY'S RIGHT TO REDEEM IN LIEU OF CONVERSION.
(a) Notwithstanding Section 2 or anything herein to the contrary but
subject to Section 5(e) below, at any time after the Issuance Date, the
Company may elect to redeem Preferred Shares submitted for conversion in
lieu of converting such Preferred Shares, provided that the Conversion Rate
for such Preferred Shares on the date submitted for conversion is less than
$5.00 per share (a "COMPANY REDEMPTION IN LIEU OF CONVERSION"). If the
Company elects to redeem some, but not all, of the Preferred Shares
submitted for conversion, the Company shall redeem an amount from each
holder of Preferred Shares submitted for conversion on the applicable date
a number of Preferred Shares equal to such holder's pro-rata amount (based
on the number of Preferred Shares held by such holder relative to the
number of Preferred Shares outstanding) of all Preferred Shares submitted
for conversion which the Company elects to redeem.
(b) REDEMPTION PRICE OF COMPANY REDEMPTION IN LIEU OF
CONVERSION. The "REDEMPTION PRICE OF COMPANY REDEMPTION IN LIEU OF
CONVERSION" shall be an amount per Preferred Share equal to the product of
(i) the Conversion Rate of the Preferred Shares on the date such Preferred
Shares are submitted for conversion and (ii) the last reported sale price
of the Common Stock (as reported by Bloomberg) on the date the applicable
Preferred Shares are submitted for conversion.
(c) MECHANICS OF COMPANY REDEMPTION IN LIEU OF CONVERSION. The
Company shall exercise its right to redeem by delivering written notice by
facsimile and overnight courier ("NOTICE OF COMPANY REDEMPTION IN LIEU OF
CONVERSION") to (i) each holder of the Preferred Shares and (ii) the
Transfer Agent. Such Notice of Company Redemption in Lieu of Conversion at
the Company's Election shall indicate (A) the maximum, if any, aggregate
Redemption Price of Company Redemption in Lieu of Conversion which the
Company is willing to expend for Company Redemption in Lieu of Conversion,
(B) confirm the time period during which the Company may effect Company
Redemption in Lieu of conversion, which period shall begin on and include
the date which is five business days after the date of receipt by all of
the holders' of the Notice of Redemption in Lieu of Conversion and shall
end on and include the date which is 30 calendar days after the fifth
business day following the date of receipt by all of the holders of the
Notice of Redemption in Lieu of Conversion (the "REDEMPTION IN LIEU OF
CONVERSION PERIOD"). The
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Company may terminate a Redemption in Lieu of Conversion Period at any time
with respect to Preferred Shares which have not been submitted for
conversion by delivering written notice of such termination to each holder
of Preferred Shares by facsimile and overnight courier. Any Preferred
Shares submitted for conversion after the termination of the Redemption in
Lieu of Conversion Period or the redemption price of which is in excess of
the maximum aggregate Redemption Price of Company Redemption in Lieu of
Conversion shall be converted in accordance with Section 2.
(d) PAYMENT OF REDEMPTION PRICE. The Company shall pay the
applicable Redemption Price of Company Redemption in Lieu of Conversion to
the holder of the Preferred Shares being redeemed in cash within a number
of days after the termination or expiration of the Redemption in Lieu of
Conversion Period equal to (i) five days if the number of Preferred Shares
presented for conversion and subject to redemption is less than or equal to
200 Preferred Shares, (ii) 10 days if the number of Preferred Shares
presented for conversion and subject to redemption is greater than 200 but
less than or equal to 400 Preferred Shares, (iii) 15 days if the number of
Preferred Shares presented for conversion and subject to redemption is
greater than 400 but less than or equal to 600 Preferred Shares, (iv) 25
days if the number of Preferred Shares presented for conversion and subject
to redemption is greater than 600 but less than or equal to 800 Preferred
Shares and (v) 35 days if the number of Preferred Shares presented for
conversion and subject to redemption is greater than 800. If the Company
shall fail to pay the applicable Redemption Price of Company Redemption in
Lieu of Conversion to such holder on a timely basis as described in this
Section 5(d), in addition to any remedy such holder of Preferred Shares may
have under this Certificate of Designations and the Securities Purchase
Agreement, such unpaid amount shall bear interest at the rate of 2.5% per
month until paid in full. Until the Company pays such unpaid applicable
Redemption Price of Company Redemption in Lieu of Conversion full to each
holder, each holder of Preferred Shares submitted for redemption pursuant
to this Section 5 and for which the applicable Redemption Price of Company
Redemption in Lieu of Conversion has not been paid, shall have the option
(the "VOID COMPANY REDEMPTION OPTION") to, in lieu of redemption, require
the Company to promptly return to each holder all of the Preferred Shares
that were submitted for redemption by such holder under this Section 5 and
for which the applicable Redemption Price of Company Redemption in Lieu of
Conversion has not been paid, by sending written notice thereof to the
Company via facsimile (the "VOID COMPANY REDEMPTION NOTICE"). Upon the
Company's receipt of such Void Company Redemption Notice(s) and prior to
payment of the full applicable redemption price to each holder, (i) the
Company's Redemption in Lieu of Conversion shall be null and void with
respect to those Preferred Shares submitted for redemption and for which
the applicable redemption price has not been paid, (ii) the Company shall
immediately return any Preferred Shares submitted to the Company by each
holder for redemption under this Section 5 and for which the applicable
Redemption Price of Company Redemption in Lieu of Conversion has not been
paid and (iii) the Fixed Conversion Price of such returned Preferred Shares
shall be adjusted to the lesser of (A) the Conversion Rate applicable to
such conversion on the date on which such Preferred Shares were originally
presented for conversion and (B) the Conversion Rate which would have been
effect if such Preferred Shares were presented for conversion on the
business day immediately following the last day on which the Company could
have effected a timely Company Redemption in Lieu of Conversion.
Notwithstanding the foregoing, if the Company fails to pay the applicable
Redemption Price of Company Redemption in Lieu of Conversion to a holder
within the time period described in this Section 5(d) due to a dispute as
to the arithmetic calculation of the Redemption Price of Company Redemption
in Lieu of Conversion, such dispute shall be resolved pursuant to Section
2(f)(iii) above with the term "Redemption Price of Company Redemption in
Lieu of Conversion" being substituted for the term "Conversion Rate." If
the Company fails to timely effect a Company Redemption in Lieu of
Conversion in accordance with this Section 5, the Company shall not be
allowed to submit another Notice of Company Redemption in Lieu of
Conversion without the prior written consent of the holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding.
(e) COMPANY MUST HAVE IMMEDIATELY AVAILABLE FUNDS OR CREDIT
FACILITIES. The Company shall not be entitled to send any Notice of
Company Redemption in Lieu of Conversion pursuant to Section 5(b) above and
begin the redemption procedure under this Section 5, unless it has:
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<PAGE>
(i) the full amount of the Redemption Price of Company
Redemption in Lieu of Conversion in cash, available in a demand or other
immediately available account in a bank or similar financial institution;
(ii) credit facilities, with a bank or similar financial
institutions that are immediately available and unrestricted for use in
redeeming the Preferred Shares, in the full amount of the Redemption Price
of Company Redemption in Lieu of Conversion;
(iii) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from the Company a
sufficient number of shares of stock to provide proceeds necessary to
redeem any stock that is not converted prior to a Company Redemption in
Lieu of Conversion; or
(iv) a combination of the items set forth in the preceding
clauses (i), (ii) and (iii), aggregating the full amount of the Redemption
Price of Company Redemption in Lieu of Conversion.
(6) INABILITY TO FULLY CONVERT.
(a) HOLDER'S OPTION IF COMPANY CANNOT FULLY CONVERT. If, upon
the Company's receipt of a Conversion Notice, the Company can not issue
shares of Common Stock registered for resale under the Registration
Statement for any reason, including, without limitation, because the
Company (x) does not have a sufficient number of shares of Common Stock
authorized and available, (y) is otherwise prohibited by applicable law or
by the rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over the
Company or its Securities, including without limitation the Exchange Cap,
from issuing all of the Common Stock which is to be issued to a holder of
Preferred Shares pursuant to a Conversion Notice or (z) fails to have a
sufficient number of shares of Common Stock registered for resale under the
Registration Statement, then the Company shall issue as many shares of
Common Stock as it is able to issue in accordance with such holder's
Conversion Notice and pursuant to Section 2(f) above and, with respect to
the unconverted Preferred Shares, the holder, solely at such holder's
option, can elect to:
(i) require the Company to redeem from such holder those
Preferred Shares for which the Company is unable to issue Common Stock in
accordance with such holder's Conversion Notice ("MANDATORY REDEMPTION") at
a price per Preferred Share (the "MANDATORY REDEMPTION PRICE") equal to the
Redemption Price as of such Conversion Date;
(ii) if the Company's inability to fully convert Preferred
Shares is pursuant to Section 6(a)(z) above, require the Company to issue
restricted shares of Common Stock in accordance with such holder's
Conversion Notice and pursuant to Section 2(f) above;
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted Preferred Shares that were
to be converted pursuant to such holder's Conversion Notice; or
(iv) if the Company's inability to fully convert Preferred
Shares is pursuant to the Exchange Cap described in Section 6(a)(y) above,
require the Company to issue shares of Common Stock in accordance with such
holder's Conversion Notice and pursuant to Section 2(f) above at a
Conversion Price equal to the Market Price of the Common Stock for the five
consecutive trading days preceding such holder's Notice in Response to
Inability to Convert (as defined below).
(b) MECHANICS OF FULFILLING HOLDER'S ELECTION. The Company
shall immediately send via facsimile to a holder of Preferred Shares, upon
receipt of a facsimile copy of a Conversion Notice from such holder which
cannot be fully satisfied as described in Section 6(a) above, a notice of
the Company's inability to fully satisfy such holder's Conversion Notice
(the "INABILITY TO FULLY CONVERT NOTICE"). Such Inability to Fully Convert
Notice shall indicate (i) the reason why the Company is unable to fully
satisfy such holder's Conversion Notice, (ii) the number of Preferred
Shares which cannot be converted and (iii) the
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<PAGE>
applicable Mandatory Redemption Price. Such holder must within five (5)
business days of receipt of such Inability to Fully Convert Notice deliver
written notice via facsimile to the Company ("NOTICE IN RESPONSE TO
INABILITY TO CONVERT") of its election pursuant to Section 6(a) above.
(c) PAYMENT OF REDEMPTION PRICE. If such holder shall elect to
have its shares redeemed pursuant to Section 6(a)(i) above, the Company
shall pay the Mandatory Redemption Price in cash to such holder within
thirty (30) days of the Company's receipt of the holder's Notice in
Response to Inability to Convert. If the Company shall fail to pay the
applicable Mandatory Redemption Price to such holder on a timely basis as
described in this Section 6(c) (other than pursuant to a dispute as to the
determination of the arithmetic calculation of the Redemption Price), in
addition to any remedy such holder of Preferred Shares may have under this
Certificate of Designations and the Securities Purchase Agreement, such
unpaid amount shall bear interest at the rate of 2.5% per month (prorated
for partial months) until paid in full. Until the full Mandatory
Redemption Price is paid in full to such holder, such holder may void the
Mandatory Redemption with respect to those Preferred Shares for which the
full Mandatory Redemption Price has not been paid and receive back such
Preferred Shares. Notwithstanding the foregoing, if the Company fails to
pay the applicable Mandatory Redemption Price within such thirty (30) days
time period due to a dispute as to the determination of the arithmetic
calculation of the Redemption Rate, such dispute shall be resolved pursuant
to Section 2(f)(iii) above with the term "Redemption Price" being
substituted for the term "Conversion Rate".
(d) PRO-RATA CONVERSION AND REDEMPTION. In the event the
Company receives a Conversion Notice from more than one holder of Preferred
Shares on the same day and the Company can convert and redeem some, but not
all, of the Preferred Shares pursuant to this Section 6, the Company shall
convert and redeem from each holder of Preferred Shares electing to have
Preferred Shares converted and redeemed at such time an amount equal to
such holder's pro-rata amount (based on the number of Preferred Shares held
by such holder relative to the number of Preferred Shares outstanding) of
all Preferred Shares being converted and redeemed at such time.
(7) REISSUANCE OF CERTIFICATES. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of
the Preferred Shares represented by a particular Preferred Stock
Certificate, the Company shall promptly cause to be issued and delivered to
the holder of such Preferred Shares a preferred stock certificate
representing the remaining Preferred Shares which have not been so
converted or redeemed.
(8) RESERVATION OF SHARES. The Company shall, so long as any of the
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Preferred Shares, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of
all of the Preferred Shares then outstanding; provided that the number of
shares of Common Stock so reserved shall at no time be less than 150% of
the number of shares of Common Stock for which the Preferred Shares are at
any time convertible; provided further that such shares of Common Stock so
reserved shall be allocated for issuance upon conversion of Preferred
Shares pro rata among the holders of Preferred Shares based on the number
of Preferred Shares held by such holder relative to the total number of
authorized Preferred Shares.
(9) VOTING RIGHTS. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the General
Corporation Law of the State of Delaware, and as expressly provided in this
Certificate of Designations.
(10) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Preferred Shares shall be entitled to receive
in cash out of the assets of the Company, whether from capital or from
earnings available for distribution to its stockholders (the "PREFERRED
FUNDS"), before any amount shall be paid to the holders of any of the
capital stock of the Company of any class junior in rank to the Preferred
Shares in respect of the preferences as to the distributions and payments
on the liquidation, dissolution and winding up of the
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Company, an amount per Preferred Share equal to the sum of (i) $10,000 and
(ii) an amount equal to the product of (.06) (N/365) ($10,000) (such sum
being referred to as the "LIQUIDATION VALUE"); provided that, if the
Preferred Funds are insufficient to pay the full amount due to the holders
of Preferred Shares and holders of shares of other classes or series of
preferred stock of the Company that are of equal rank with the Preferred
Shares as to payments of Preferred Funds (the "PARI PASSU SHARES"), then
each holder of Preferred Shares and Pari Passu Shares shall receive a
percentage of the Preferred Funds equal to the full amount of Preferred
Funds payable to such holder as a liquidation preference, in accordance
with their respective Certificate of Designations, Preferences and Rights,
as a percentage of the full amount of Preferred Funds payable to all
holders of Preferred Shares and Pari Passu Shares. The purchase or
redemption by the Company of stock of any class, in any manner permitted by
law, shall not, for the purposes hereof, be regarded as a liquidation,
dissolution or winding up of the Company. Neither the consolidation or
merger of the Company with or into any other Person, nor the sale or
transfer by the Company of less than substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation, dissolution
or winding up of the Company. No holder of Preferred Shares shall be
entitled to receive any amounts with respect thereto upon any liquidation,
dissolution or winding up of the Company other than the amounts provided
for herein.
(11) PREFERRED RANK. All shares of Common Stock shall be of junior
rank to all Preferred Shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding up
of the Company. The rights of the shares of Common Stock shall be subject
to the preferences and relative rights of the Preferred Shares. Without
the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares, the Company
shall not hereafter authorize or issue additional or other capital stock
that is of senior or equal rank to the Preferred Shares in respect of the
preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company. Without the prior express
written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares, the Company shall not hereafter
authorize or make any amendment to the Company's Certificate of
Incorporation or bylaws, or file any resolution of the board of directors
of the Company with the Delaware Secretary of State containing any
provisions, which would adversely affect or otherwise impair the rights or
relative priority of the holders of the Preferred Shares relative to the
holders of the Common Stock or the holders of any other class of capital
stock. In the event of the merger or consolidation of the Company with or
into another corporation, the Preferred Shares shall maintain their
relative powers, designations and preferences provided for herein and no
merger shall result inconsistent therewith.
(12) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS WITH RESPECT TO
OTHER CAPITAL STOCK. Until all of the Preferred Shares have been converted
or redeemed as provided herein, the Company shall not, directly or
indirectly, redeem, or declare or pay any cash dividend or distribution on,
its Common Stock without the prior express written consent of the holders
of not less than two-thirds (2/3) of the then outstanding Preferred Shares.
(13) LIMITATION ON NUMBER OF CONVERSION SHARES. The Company shall not
be obligated to issue, in the aggregate, more than 1,975,120 shares of
Common Stock (such amount to be proportionately and equitably adjusted from
time to time in the event of stock splits, stock dividends, combinations,
reverse stock splits, reclassification, capital reorganizations and similar
events relating to the Common Stock) (the "EXCHANGE CAP") upon conversion
of the Preferred Shares, if issuance of a larger number of shares of Common
Stock would constitute a breach of the Company's obligations under the
rules or regulations of The Nasdaq Stock Market, Inc. or any other
principal securities exchange or market upon which the Common Stock is or
becomes traded. The Exchange Cap shall be allocated among the Preferred
Shares pro rata based on the total number of authorized Preferred Shares.
(14) VOTE TO CHANGE THE TERMS OF PREFERRED SHARES. The affirmative
vote at a meeting duly called for such purpose or the written consent
without a meeting, of the holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares, shall be required for any change to this
Certificate of
20
<PAGE>
Designations or the Company's Certificate of Incorporation which would
amend, alter, change or repeal any of the powers, designations, preferences
and rights of the Preferred Shares.
(15) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company and, in the case
of mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall
not be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares
into Common Stock.
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be signed by Dr. Edward W. Savarese, its Chief Executive Officer, as of the
21st day of August, 1997.
IMAGING TECHNOLOGIES CORPORATION
By:
------------------------------------------
Name: Dr. Edward W. Savarese
Its: Chief Executive Officer
21
<PAGE>
EXHIBIT I
IMAGING TECHNOLOGIES CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Series C Redeemable Convertible Preferred Stock (the "CERTIFICATE OF
DESIGNATIONS"). In accordance with and pursuant to the Certificate of
Designations, the undersigned hereby elects to convert the number of shares of
Series C Redeemable Convertible Preferred Stock, par value $1,000 per share (the
"PREFERRED SHARES"), of Imaging Technologies Corporation, a Delaware corporation
(the "COMPANY"), indicated below into shares of Common Stock, par value $.005
per share (the "COMMON STOCK"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below as
of the date specified below.
Date of Conversion:
---------------------------------------------------
Number of Preferred Shares to be converted:
----------------------------
Stock certificate no(s). of Preferred Shares to be converted:
----------
Please confirm the following information:
Conversion Price:
------------------------------------------------------
Number of shares of Common Stock
to be issued:
----------------------------------------------------------
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Facsimile Number:
---------------------------------------------------
Authorization:
---------------------------------------------------
By:
----------------------------------------------
Title:
------------------------------------------
Dated:
---------------------------------------------------
Account Number:
(if electronic book entry transfer):
---------------------------------
Transaction Code Number
(if electronic book entry transfer):
---------------------------------
<PAGE>
EXHIBIT 5.1
LAW OFFICES OF CARMINE J. BUA
3838 CAMINO DEL RIO NORTH SUITE 333
SAN DIEGO, CALIFORNIA 92108-1789
TELEPHONE (619) 280-8000
FACSIMILE (619) 280-8001
OCTOBER 2, 1997
Imaging Technologies Corporation
11031 Via Frontera
San Diego, California 92127
Re: My Legal Opinion Pursuant to SEC Form S-3
Registration Statement-Imaging Technologies Corporation
Gentlemen:
You have requested our opinion as counsel for Imaging Technologies
Corporation, a Delaware corporation (the "Company") in connection with a
Registration Statement on Form S-3 and the Prospectus included therein
(collectively the "Registration Statement") to be filed with the Securities and
the Exchange Commission.
1. The Registration Statement: The Registration Statement relates to an
offering of up to 3,000,000 shares of Common Stock (the "Common Stock") of the
Company which may be issued upon the conversion of the Company's Series C
Redeemable Convertible Preferred Stock (the"Preferred Stock") and/or the
exercise of warrants to purchase an aggregate amount of 200,000 shares of Common
Stock (the "Warrants") issued to the holders of the Preferred Stock.
2. Basis for Opinion: The documentary basis and other basis for this
opinion is our review and analysis of the below listed items:
1. The Company's Articles of Incorporation, Certificate of
Amendment, By-Laws, Minutes of board of Directors Meeting, Minutes of
Shareholder Meetings and Shareholder Lists (collectively the "Company
Records").
2. The Registration Statement.
3. The eligibility requirements for the use of Form S-3 set forth
in General Instruction I of Form S-3 (the "Eligibility Requirements").
3. Legal Opinion: Based upon our review of the Company Records, the
Registration Statement and the Eligibility Requirements, we are of the opinion
that:
1. Organization and Qualification: The Company and each of its
subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and has
requisite corporate power and authority to conduct its business, and to
own, lease and operate its properties, as described in the Registration
Statement and in the Company's Annual Report on Form 10-K for the year
ended June 30, 1996. The Company and each of its subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing
in each jurisdiction in which the nature of the business conducted by it
makes such qualification necessary.
2. Compliance With Eligibility Requirements of Form S-3: After
reasonable investigation, we have no actual knowledge that the Eligibility
Requirements for use of Form S-3 have not been satisfied with respect to
the Registration Statement.
<PAGE>
3. Issuance of Common Stock: That when the Registration Statement
has become effective, that upon the conversation of the Preferred Stock
and/or the exercise of the Warrants, the Common Stock when issued in
accordance with the terms of such conversation and/or Warrant exercise and
as specifically set forth in the Registration Statement will be duly
authorized, legally and validly issued and fully paid and nonaccessible.
4. Consent to Use of Legal Opinion: We consent to the filing of this
opinion as an exhibit to the Registration Statement and consent to the use of
our name under the caption "Legal Matters" in the Prospectus which is a part of
thereof.
Very truly yours,
/s/ CARMINE J. BUA, III
CARMINE J. BUA, III
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Form S-3 registration statement and related Prospectus of
our report dated August 25, 1997 included in the Annual Report on Form 10-K of
Imaging Technologies Corporation (the "Company") for the fiscal year ended June
30, 1997 and to all references to our Firm included in this registration
statement.
