As filed with the Securities and Exchange Commission on July 24, 1997
Registration No. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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SCAN-GRAPHICS, INC.
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 95-4091769
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
649 North Lewis Road, Suite 220
Limerick, Pennsylvania 19468
(610) 495-6701
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
LAURENCE L. OSTERWISE
President, Chief Executive Officer
Scan-Graphics, Inc.
649 North Lewis Road, Suite 220
Limerick, Pennsylvania 19468
(610) 495-6701
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
JAY WEIL, ESQ.
Lowenthal, Landau, Fischer & Bring, P.C.
250 Park Avenue
New York, New York 10177
(212) 986-1116
Facsimile No. (212) 986-0604
Approximate Date of Proposed Sale to the Public: As soon as practicable after
this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being r gistered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registrat on statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration stat ment
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Amount to be Aggregate Price Offering Registration
Title of Shares to be Registered Registered(1) per Unit(2) Price(2) Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, par value $.001 6,061,270 $2.875 $17,426,152 $5,280.65
per share
====================================================================================================================================
<FN>
(1) 6,046,270 of such shares are reserved for issuance upon exercise of
outstanding warrants and conversion of convertible promissory notes
held by certain of the Selling Shareholders, which shares of Common
Stock are being offered pursuant to the Registration Statement. This
Registration Statement also covers such indeterminate number of
additional shares of Common Stock as may be issuable upon the exercise
of such warrants or conversion of such convertible promissory notes as
a result of future stock dividends, stock distributions, stock splits
and similar capital readjustments.
(2) Estimated solely for purposes of calculating the registration fee.
</FN>
</TABLE>
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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>
SCAN-GRAPHICS, INC.
Cross Reference Sheet
Form S-3 Item Nos. and Caption Prospectus Caption
- ---------------------------------------------------- -------------------------
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front and Outside
Back Cover Pages
3. Summary Information, Risk Factors, and Ratio
of Earnings to Fixed Charges.................... The Company; Risk Factors
4. Use of Proceeds................................. Use of Proceeds
5. Determination of Offering Price................. *
6. Dilution........................................ *
7. Selling Security Holders........................ Selling Shareholders
8. Plan of Distribution............................ Outside Front Cover Page;
Plan of Distribution
9. Description of Securities to be Registered...... Outside Front Cover Page
of Prospectus; Incorpora-
tion of Certain Documents
By Reference
10. Interests of Named Experts and Counsel.......... *
11. Material Changes................................ Recent Developments
12. Incorporation of Certain Information by
Reference....................................... Incorporation of Certain
Documents By Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.. *
- ---------------------------
* Not applicable.
<PAGE>
PROSPECTUS
6,061,270 Shares
SCAN-GRAPHICS, INC.
Common Stock
($.001 Par Value)
------------------------------------
The shares offered hereby (the "Shares") consist of 1,976,000 shares of
common stock, $.001 par value per share (the "Common Stock") of Scan-Graphics,
Inc., a Pennsylvania corporation (the "Company"), issuable upon the conversion
of certain outstanding convertible notes of the Company (the "1997 Convertible
Notes"), 4,070,270 shares of Common Stock issuable upon the exercise of common
stock purchase warrants ("Warrants") and 15,000 Shares held by one person who
acquired such Shares upon exercise of Warrants.
The Shares may be offered from time to time by the Selling Shareholders
identified herein. See "Selling Shareholders." The Selling Shareholders offering
Shares covered by this Prospectus include the Company's Director of Finance.
Except for the exercise price of the Warrants, the Company will not receive any
part of the proceeds from the sale of the Shares. All expenses of registration
incurred in connection herewith are being borne by the Company, but all selling
and other expenses incurred by the Selling Shareholders will be borne by the
Selling Shareholders.
The Selling Shareholders have not advised the Company of any specific plans
for the distribution of the Shares covered by this Prospectus, but it is
anticipated that the Shares will be sold from time to time primarily in
transactions (which may include block transactions) on the National Association
of Securities Dealers Automated Quotation ("NASDAQ") System at the market price
then prevailing, although sales may also be made in negotiated transactions or
otherwise. The Selling Shareholders and the brokers and dealers through whom
sale of the Shares may be made may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended, and their commission or
discounts and other compensation may be regarded as underwriters' compensation.
See "Plan of Distribution."
The Company's Common Stock is traded in the over-the-counter market and
quoted on NASDAQ under the symbol "SCNG." On July 21, 1997, the closing bid
price of the Common Stock was $2.91.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 3.
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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 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
Page 1
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained or
incorporated by reference in this Prospectus, in connection with the offering
contained herein, and, if given or made, such information and representations
must not be relied upon as having been authorized by the Company or the Selling
Shareholders. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer in such
jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date hereof.
A registration statement on Form S-3 in respect of the Shares offered by
this Prospectus (the "Registration Statement") has been filed with the
Securities and Exchange Commission (the "Commission"), 450 Fifth Street, N.W.,
Washington, D.C. 20549, under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information
contained in such Registration Statement, certain portions of which have been
omitted herefrom pursuant to the rules and regulations of the Commission.
Accordingly, additional information concerning the Company and the Shares is
included in the Registration Statement, including the exhibits thereto, which
may be inspected at the Public Reference Section of the Commission.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Commission. These reports, proxy
statements and other information may be inspected and copied at the public
reference facility maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following regional offices:
Northeast Regional Office, 7 World Trade Center, New York, New York 10048, and
Midwest Regional Office, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60621-2511. Copies of such material may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Electronic registration statements filed through the
Electronic Data Gathering, Analysis and Retrieval system are publicly available
through the Commission's Web site at http://www.sec.gov.
Page 2
<PAGE>
THE COMPANY
Scan-Graphics, Inc., a Pennsylvania corporation (the "Company"), is a
provider of Geographic Information Systems ("GIS") database management software
products and is a pioneer and leader in scanning and image processing
technology, large document scanners, backfile conversion services, and imaging
software and systems. The Company markets its products internationally through
systems integrators and distributors. The Company's principal offices are
located at 649 North Lewis Road, Limerick, Pennsylvania 19468, and its telephone
number at that address is (610) 495-6701.
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully by prospective investors in evaluating
the Company and its business before purchasing the Shares offered by the
Prospectus:
History of Operating Losses. The Company has a history of losses. Other
than for achieving a nominal net operating profit for the fiscal year ended
December 31, 1992, the Company has incurred net operating losses in 1988 and in
each year thereafter. As of March 31, 1997, the Company had accumulated losses
(deficit) of approximately $14,656,000 and a positive net worth of approximately
$2,548,000. There are no material adverse trends known to the Company which will
continue to affect the Company's operations. The Company has taken steps to
improve its results from operations and financial condition by acquiring Sedona
GeoServices, Inc. ("Sedona") in July 1995 and Tangent Engineering, Inc.
("Tangent") in December 1995, raising capital through the private placement of
its securities, expanding sales distribution channels for its products and
introducing new products into the market. There exist uncertainties as to
product acceptance and the potential market for the Company's new products,
including those of its subsidiaries, Sedona and Tangent, and, as a result, there
can be no assurance that the Company will be able to reverse the operating loss
trend or assure future profitability.
Effect of Offering on Market Price of Common Stock. The number of shares of
Common Stock being offered pursuant to this Prospectus by the Selling
Shareholders, including the number of shares issuable upon exercise of the
Warrants and conversion of the 1997 Convertible Notes, represents approximately
39% of the total Common Stock outstanding as of July 18, 1997. See "Selling
Shareholders." Each Selling Shareholder intends to offer its Common Stock at
such time and in such manner as it deems appropriate. There are no agreements
between the Selling Shareholders and the Company with respect to the sale of
Common Stock, and the Company knows of no agreements among the Selling
Shareholders. The possibility that substantial amounts of Common Stock may be
sold in the public market may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities. See "Plan of Distribution."
No Assurance of Active Public Market; Possible Volatility of Stock Price;
No Dividends. Prior to the date of this Prospectus, there has been an active
public market for the Company's Common Stock, but there can be no assurance that
an active public market will be sustained. Additionally, the market price for
the Company's Common Stock has been volatile. The Company has not paid any cash
dividends on its Common Stock and does not anticipate paying any such dividends
in the foreseeable future.
Need for Additional Funding. The Company will not receive any of the
proceeds from the sale of Shares by the Selling Shareholders. In the event that
some or all of the Warrants were to be exercised, the Company would receive the
net proceeds upon such exercises. See "Use of Proceeds." The Company believes
that cash from operations along with the net proceeds from the exercise of the
Warrants, if any, together with cash in excess of $3,500,547 as of June 1, 1997,
will be sufficient to enable it to conduct its operations as currently
contemplated for a period of at least two years. The Company also believes it
may need to raise substantial additional funds to support its long-term growth,
in which case the Company may seek additional funding through public or private
sales of its securities, including equity securities. There can be no assurance,
however, that such
Page 3
<PAGE>
additional funds will be available when needed, or on terms acceptable to the
Company, if at all. See "History of Operating Losses."
Net Operating Loss Carryforwards. As of December 31, 1996, the Company had
net operating loss carryforwards ("NOLs") for federal income tax purposes
aggregating approximately $11.7 million. These NOLs, if unused, will expire
between 1999 and 2009. At December 31, 1996 the related deferred tax asset
amounts to approximately $5.2 million and has been entirely offset by a
valuation allowance of $5.2 million. As discussed above in "History of Operating
Losses," the Company has taken steps that it believes will improve its results
of operations, but there exist uncertainties as to product acceptance and the
potential market for its new products, and, as a result, there can be no
assurance that the Company will be able to reverse the operating loss trend or
assure future profitability. Also, Section 382 of the Internal Revenue Code of
1986, as amended (the "Code") imposes an annual limitation on the amount of
taxable income that may be offset by net operating loss carryforwards of a
corporation if the losses giving rise to the net operating loss carryforwards
were incurred before an "ownership change." The use by the Company of the NOLs
to offset future taxable income will be limited by Section 382 of the Code and
may be limited by other provisions of the Code. The Company believes that this
offering will not trigger an ownership change under Section 382. The Internal
Revenue Service may dispute the amount of the NOLs, may disagree with the
Company's interpretation of how Section 382 applies to limit its use of the NOLs
and may contend that limitations contained in the Code, other than those
discussed above, apply to the Company's NOLs. Therefore, no assurances can be
given with respect to the existence or potential use of the Company's NOLs.
NASDAQ Listing Requirements. For continued inclusion on the NASDAQ System,
the Company must meet certain qualification requirements. Among these criteria
are the following requirements: (1) the issue has at least two registered and
active market makers; (2) the Company has total assets of at least $2 million;
(3) the Company has capital and surplus of at least $1 million; (4) the minimum
bid price per share is at least $1; (5) there are at least 300 holders of the
common stock; and (6) there are at least 100,000 publicly held shares with a
market value of at least $200,000. The Company currently meets the continued
inclusion requirements of the NASDAQ System. However, if the Company continues
to suffer operating losses without additional infusions of capital, of if NASDAQ
raises its minimum listing requirements, the Company may be subject to delisting
of its Common Stock, which could have a material adverse effect on the market
price of the Common Stock.
Dependence on Key Personnel. The Company is dependent upon the efforts,
ability and experience of several key members of its management for the
successful operation and development of its business. In addition, the Company
believes that its future success will depend in large part upon its ability to
attract and retain technically qualified personnel with backgrounds in
engineering, software development, production and marketing. There can be no
assurance that the Company will be able to retain key employees. The loss of the
services of one or more key employees could have a material adverse effect on
the Company's business.
Exercise of Warrants and Options and Conversion of Series C Stock and
Convertible Notes. As of June 30, 1997, there were outstanding warrants to
purchase 7,062,389 shares of Common Stock, of which warrants to purchase an
aggregate of 5,537,682 shares of Common Stock were immediately exercisable. The
outstanding warrants are exercisable at prices ranging from approximately $0.38
to $4.00 per share. The weighted average exercise price of all outstanding
warrants as of June 30, 1997 was approximately $3.16 per share. As of such date,
there were also outstanding options to purchase 1,633,471 shares of Common
Stock, of which options to purchase 1,061,805 shares of Common Stock were
immediately exercisable. All of these options were issued to officers,
directors, employees and contractors of the Company and are exercisable at
prices ranging from approximately $0.46 to $4.06 per share. The weighted average
exercise price of all options outstanding as of June 30, 1997 was approximately
$2.42 per share. As of June 30, 1997 there were outstanding 102,000 shares of
Class A Convertible Preferred Stock Series C, par value $10.00 per share
("Series C Stock") having an aggregate liquidation preference of approximately
$1,169,000, all of which shares were subscribed for during the period from June
to September in 1995. Commencing two years after the date it was subscribed and
paid for each outstanding share of Series C Stock is convertible into a number
of shares of Common Stock at a rate based upon 50% of the average quoted daily
closing bid price of the Common Stock for a period of 20 trading days
immediately preceding the giving by the holder to the Company of a notice of
conversion, but the conversion rate shall in no event be
Page 4
<PAGE>
greater than one share of Common Stock for every $.50 of liquidation preference
of the Series C Stock or less than one share of Common Stock for every $2.50 of
liquidation preference of the Series C Stock. The liquidation preference of the
Series C Stock includes accrued and unpaid dividends on such Series C Stock.
Based upon an assumed conversion rate of one share for every $.50 of liquidation
preference, the shares of Series C Stock outstanding as of June 30, 1997
(including accrued dividends on such shares through such date), will be
convertible into an aggregate of 2,338,000 shares of Common Stock. Assuming no
dividends are paid on such shares for three years from the date of subscription
and payment therefor and assuming the same conversion rate, an aggregate of
2,529,600 shares of Common Stock would be issuable in respect of such shares. As
of June 30, 1997 there were outstanding 1997 Convertible Notes in the aggregate
principal amount of $5,200,000 which on and after September 30, 1997 shall be
convertible into Common Stock at a rate of one share of Common Stock for an
amount of principal and accrued interest of the Convertible Note equal to the
lesser of $7.00 or the Applicable Percentage (defined below) of the average
closing bid price of a share of Common Stock during the five trading days
immediately preceding the date of such conversion. (The Applicable Percentage
for any such conversion is 90% minus 1% for each full $.20 by which the
conversion price for such conversion is greater than $4.00.) Based on the
average closing bid price for the five trading days ended July 18, 1997, the
entire outstanding principal of the 1997 Convertible Notes would be convertible
(after the date the 1997 Convertible Notes become convertible into Common Stock)
into an aggregate of 1,946,108 shares of Common Stock. While outstanding
warrants and options are exercisable and the shares of Series C Stock are
convertible, the holders thereof have the opportunity to profit from a rise in
the market price of the Common Stock. The Company may find it more difficult to
raise additional equity capital while the warrants, options and Series C Stock
are outstanding.
Technological Obsolescence. The Company maintains continuous research and
development programs with the goal of maintaining its software and scanner
products as technically strong competitive offerings to their respective
markets. The Company has incurred research and development expenses of
approximately $744,000, $582,000 and $783,000, which amounted to 14.7%, 11.7%
and 15.5% of its total revenues for the years 1996, 1995 and 1994, respectively.
The Company anticipates research and development expenses of approximately 21%
of total revenues in 1997 and approximately 15% of total revenues in 1998.
Although the Company intends to continue its on-going research and development
efforts, the Company's competitors might succeed in developing technologies and
products that are more attractive than any that are being developed and marketed
by the Company or that would otherwise render the Company's technology and
products obsolete or noncompetitive.
Competition. The GIS, scanning and image processing industries are highly
competitive. The Company competes with a number of competitors, many of which
have substantially greater financial and marketing resources than the Company.
The Company offers an advanced line of GIS software and large format scanners
and imaging software through a variety of domestic and international
distribution channels. There can be no assurance that the Company will not
encounter competition in the future which will limit the Company's ability to
maintain and increase its position in the market for its products or otherwise
adversely affect the Company's business. The Company has only recently begun to
compete in the GIS software market and there can be no assurance that the
Company will be able to successfully compete with its more established
competitors.
USE OF PROCEEDS
In the event that all of the Company's outstanding warrants and options
were to be exercised, the net proceeds to the Company upon such exercises,
estimated at approximately $26,306,725, would be used for product development,
sales and marketing expenses, working capital and for general corporate
purposes. The Company will not receive any proceeds from the sale of the Shares
by the Selling Shareholders.
Prior to expenditure, the net proceeds from the exercise of the warrants
and options will be invested in high grade short and intermediate term interest
bearing investments.
Page 5
<PAGE>
RECENT DEVELOPMENTS
In June, 1997 the Company consummated the sale to certain Selling
Shareholders for an aggregate purchase price of $5,200,000, of an aggregate of
(a) $5,200,000 principal amount of the Company's 7% Convertible Notes due May
31, 1999 (herein referred to as the "1997 Convertible Notes") and (b) Warrants
to purchase an aggregate of 900,016 Shares for $4.00 per share at any time until
June 1, 2001 (subject to earlier termination of he exercise period in certain
circumstances). The net proceeds of the sale of such securities are being used
for working capital.
Page 6
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth as of June 30, 1997, information regarding
the beneficial ownership of Common Stock held by the Selling Shareholders who
may resell the Shares pursuant to this Prospectus as of such date, the number of
Shares registered to permit sales from time to time by such Selling
Shareholders, and the total beneficial ownership of shares of Common Stock if
all such Shares so registered should be sold by the Selling Shareholders.
<TABLE>
<CAPTION>
Total Number
of Shares to Total Number of
be Offered for Shares to be
Shares Beneficially Selling Beneficially Owned
Name of Selling Owned Prior to Shareholder's Upon Completion of
Shareholder Offering** Account** Offering (1)
- --------------------------------- --------------------------- ---------------------- ------------------------------
Number Percent
------------------------------
<S> <C> <C> <C> <C>
Stephen J. Harmelin (2) 10,000(3) 10,000 0 *
Joseph Jacovini (4) 15,000(5) 15,000 0 *
Dilworth Paxson Kalish & 12,500(7) 12,500 0 *
Kauffman, LLP (6)
Harry Kalish (8) 12,500(9) 12,500 0 *
Denis P. Kelly (10) 25,000(11) 25,000 0 *
Ronald B. MacIntyre (12) 25,000(13) 25,000 0 *
Richard L. Rex (14) 61,000(15) 51,000 10,000 *
William C. Hubbard (16) 259,000(17) 50,000 209,000 *
Berardi & DeAngelo 200,000(19) 200,000 0 *
Consultants, Inc. (18)
Killeba Holdings, S.A. 387,100(20) 179,322 207,778 *
Abraham S. Elias 13,548(21) 7,769 5,779 *
Mueller Trading LP 1,935(22) 1,233 702 *
Ruthy Halima 1,935(23) 1,118 817 *
Wolowitz Pension Fund 5,806(24) 3,669 2,137 *
Moshe Mueller 1,935(25) 1,257 678 *
Clifton Management & 1,935(26) 1,223 712 *
Trading, Inc.
Samuel Shapiro 1,935(27) 1,077 858 *
OHR Somayach 9,677(28) 5,068 4,609 *
Tanenbaum Education
Center
Mirrer Yeshiva Central 9,677(29) 6,114 3,563 *
Institute
Rita Folger 74,663(30) 67,890 6,773 *
Seth Antine 3,871(31) 2,446 1,425 *
Mark Nordlicht 283,168(32) 246,496 36,672 *
Jules Nordlicht 539,239(33) 505,372 33,867 *
Chesed Avraham 94,018(34) 80,471 13,547 *
Mark Fisher 19,355(35) 12,113 7,242 *
Leonard J. Adams 19,355(36) 12,560 6,795 *
Wayne Saker 19,355(37) 12,560 6,795 *
Israel Trading Fund, Ltd. 58,065(38) 27,404 30,661 *
Yeshiva Beth Mikroh 19,355(39) 12,582 6,773 *
Dalton Trading, S.A. 154,840(40) 96,901 57,939 *
Reuven Dessler 19,355(41) 12,346 7,009 *
Page 7
<PAGE>
Total Number
of Shares to Total Number of
be Offered for Shares to be
Shares Beneficially Selling Beneficially Owned
Name of Selling Owned Prior to Shareholder's Upon Completion of
Shareholder Offering** Account** Offering (1)
- --------------------------------- --------------------------- ---------------------- ------------------------------
Number Percent
------------------------------
The NAIS Corp. 1,935(42) 1,223 712 *
American Stock Transfer 38,710(43) 24,225 14,485 *
& Trust Company
Laura Huberfeld/Naomi 193,550 (44) 121,127 72,423 *
Bodner Partnership
Millenco L.P. 663,696 (45) 663,696 0 *
Ace Foundation 553,080 (46) 553,080 0 *
Saleslink LTD 331,848 (47) 331,848 0 *
The Jerusalem Fund 55,308 (48) 55,308 0 *
Karfunkel Family 55,308 (48) 55,308 0 *
Foundation
Jack Rudman 55,308 (48) 55,308 0 *
Moses Elias 55,308 (48) 55,308 0 *
Mr. & Mrs. Moshe 55,308 (48) 55,308 0 *
Lehrfield
Jeremy Fineberg 55,308 (48) 55,308 0 *
Andreas Typaldos 55,308 (48) 55,308 0 *
S. Sandor Brull 55,308 (48) 55,308 0 *
Bodenhimer Foundation 55,308 (48) 55,308 0 *
Abraham Ziskind 55,308 (48) 55,308 0 *
Broad Capital Associates, 2,100,000 (50) 2,100,000 0 *
Inc. (49)
Sales Resources 15,000 15,000 0 *
Consultants, Inc. (51)
<FN>
* Indicates less than 1%.
** Except as otherwise noted, all shares are beneficially owned, and sole
voting and investment power is held by the person named.
(1) Assuming the sale of all Shares listed in the "Total Number of Shares to be
Offered for Selling Shareholder's Account" column. Also assumes that none
of the Selling Shareholders sell securities not listed in such column or
purchase additional securities.
(2) Mr. Harmelin has provided certain business development consulting services
to the Company.
(3) Includes 10,000 shares issuable upon exercise of outstanding warrants.
(4) Mr. Jacovini has provided certain business development consulting services
to the Company.
(5) Includes 15,000 shares issuable upon exercise of outstanding warrants.
(6) Dilworth Paxson Kalish & Kauffman, LLP has provided certain business
development consulting services to the Company.
(7) Includes 12,500 shares issuable upon exercise of outstanding warrants.
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<PAGE>
(8) Mr. Kalish has provided certain business development consulting services to
the Company.
(9) Includes 12,500 shares issuable upon exercise of outstanding warrants.
(10) Mr. Kelly is Director of Finance of the Company.
(11) Includes 25,000 shares issuable upon exercise of outstanding warrants.
(12) Mr. MacIntyre is Group Vice President of the Company.
(13) Includes 25,000 shares issuable upon exercise of outstanding warrants.
(14) Mr. Rex is President of Tangent Imaging Systems, a division of the Company.
(15) Includes 51,000 shares issuable upon exercise of outstanding warrants.
(16) Mr. Hubbard is an Executive Vice President of the Company.
(17) Includes 100,000 shares issuable upon exercise of outstanding warrants.
(18) Berardo & DeAngelo Consultants, Inc. has provided certain business
development consulting services to the Company.
(19) Includes 200,000 shares issuable upon exercise of outstanding warrants.
(20) Includes 387,100 shares issuable upon exercise of outstanding warrants.
(21) Includes 13,548 shares issuable upon exercise of outstanding warrants.
(22) Includes 1,935 shares issuable upon exercise of outstanding warrants.
(23) Includes 1,935 shares issuable upon exercise of outstanding warrants.
(24) Includes 5,806 shares issuable upon exercise of outstanding warrants.
(25) Includes 1,935 shares issuable upon exercise of outstanding warrants.
(26) Includes 1,935 shares issuable upon exercise of outstanding warrants.
(27) Includes 1,935 shares issuable upon exercise of outstanding warrants.
(28) Includes 9,677 shares issuable upon exercise of outstanding warrants.
(29) Includes 9,677 shares issuable upon exercise of outstanding warrants.
(30) Includes 36,663 shares issuable upon exercise of outstanding warrants and
38,000 shares issuable upon conversion of convertible notes.
(31) Includes 3,871 shares issuable upon exercise of outstanding warrants.
(32) Includes 131,168 shares issuable upon exercise of outstanding warrants and
152,000 shares issuable upon conversion of convertible notes.
(33) Includes 235,239 shares issuable upon exercise of outstanding warrants and
304,000 shares issuable upon conversion of convertible notes.
Page 9
<PAGE>
(34) Includes 56,018 shares issuable upon exercise of outstanding warrants and
38,000 shares issuable upon conversion of convertible notes.
(35) Includes 19,355 shares issuable upon exercise of outstanding warrants.
(36) Includes 19,355 shares issuable upon exercise of outstanding warrants.
(37) Includes 19,355 shares issuable upon exercise of outstanding warrants.
(38) Includes 58,065 shares issuable upon exercise of outstanding warrants.
(39) Includes 19,355 shares issuable upon exercise of outstanding warrants.
(40) Includes 154,840 shares issuable upon exercise of outstanding warrants.
(41) Includes 19,355 shares issuable upon exercise of outstanding warrants.
(42) Includes 1,935 shares issuable upon exercise of outstanding warrants.
(43) Includes 38,710 shares issuable upon exercise of outstanding warrants.
(44) Includes 193,550 shares issuable upon exercise of outstanding warrants.
(45) Includes 207,696 shares issuable upon exercise of outstanding warrants and
456,000 shares issuable upon conversion of convertible notes.
(46) Includes 173,080 shares issuable upon exercise of outstanding warrants and
380,000 shares issuable upon conversion of convertible notes.
(47) Includes 103,848 shares issuable upon exercise of outstanding warrants and
228,000 shares issuable upon conversion of convertible notes.
(48) Includes 17,308 shares issuable upon exercise of outstanding warrants and
38,000 shares issuable upon conversion of convertible notes.
(49) Broad Capital Associates, Inc. has provided certain consulting services to
the Company.
(50) Includes 2,100,000 shares issuable upon exercise of outstanding warrants.
(51) Sales Resources Consultants, Inc. has provided certain consulting services
to the Company.
</FN>
</TABLE>
Page 10
<PAGE>
PLAN OF DISTRIBUTION
In connection with a private placement of convertible notes and warrants
completed in April 1996 the Company became obligated to register the Common
Stock to be issued upon conversion of the convertible notes and exercise of the
warrants. The resale of the shares of Common Stock issued upon conversion of the
convertible notes and certain shares of Common Stock issued upon exercise of the
warrants was registered pursuant to the Company's Registration Statement on Form
S-3 (File No. 333-3719). The resale of certain additional shares of Common Stock
which may be issued upon exercise of warrants sold in such private placement
have been registered pursuant to the Registration Statement on Form S-3 of which
this Prospectus constitutes a part.
On April 8, 1997 the Company entered into a Consulting Agreement with Broad
Capital Associates Inc. ("Broad") pursuant to which it issued to Broad a warrant
to purchase 2,100,000 shares of Common Stock and agreed to register the Common
Stock to be issued upon exercise of such warrant.
In connection with a private placement of the 1997 Convertible Notes and
warrants completed in June 1997 the Company became obligated to register the
Common Stock to be issued upon conversion of the 1997 Convertible Notes,
including accrued interest thereon, and exercise of the warrants.
The remainder of the Common Stock covered in this Prospectus has been
included as a result of the exercise of piggy-back registration rights granted
to certain of the Selling Shareholders.
The Shares owned by or to be acquired by the Selling Shareholders upon
exercise of Warrants may be sold from time to time by the Selling Shareholders,
or by pledgees, donees, transferees or other successors in interest.
The Selling Shareholders may sell some or all of the Shares in transactions
involving broker-dealers, who may act as agent or acquire the Shares as
principal. Any broker-dealer participating in such transactions as agent may
receive commissions from the Selling Shareholders (and, if they act as agent for
the purchaser of such Shares, from such purchaser). Usual and customary
brokerage fees will be paid by the Selling Shareholders. Broker- dealers may
agree with the Selling Shareholders to sell a specified number of Shares at a
stipulated price per Share and, to the extent such a broker-dealer is unable to
do so acting as agent for the Selling Shareholders, to purchase as principals
any unsold Shares at the price required to fulfill the respective
broker-dealer's commitment to the Selling Shareholders. Broker-dealers who
acquire Shares as principals may thereafter resell such Shares from time to time
in transactions (which may involve cross and block transactions and which may
involve sales to and through other broker-dealers, including transactions of the
nature described above) in the over-the-counter market, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale or at
negotiated prices, and in connection with such resales may pay to or receive
from the purchases of such Shares commissions. The Selling Shareholders also may
sell some or all of the Shares directly to purchasers without the assistance of
any broker-dealer.
The Company is bearing all costs relating to the registration of the
Shares. Any commissions or other fees payable to broker-dealers in connection
with any sale of the Shares will be borne by the Selling Shareholders or other
party selling such Shares.
Upon the Company's being notified by the Selling Shareholders that any
material arrangement has been entered into with a broker-dealer or underwriter
for the sale of a material portion of the Shares covered by this Prospectus, a
post-effective amendment will be filed setting forth the name of the
participating broker-dealer(s) or underwriters, the number of Shares involved,
the price at which such Shares were sold by the Selling Shareholders, the
commissions paid or discounts or concessions allowed by the Selling Shareholders
to such broker-dealer(s)or underwriters, and where applicable, that such
broker-dealer(s) or underwriters did not conduct any investigation to verify the
information set out in this Prospectus. Any future offering via broker-dealers
or underwriters of a material portion of the Shares covered by this Prospectus
would be contingent upon the effectiveness of such post-effective amendment and
clearance by the National Association of Securities Dealers, Inc. of the
proposed underwriting compensation arrangements.
Page 11
<PAGE>
LEGAL OPINION
The validity of the Shares offered hereby will be passed upon for the
Company by Dilworth, Paxson, Kalish & Kauffman LLP.
EXPERTS
The financial statements and schedule incorporated by reference in this
Prospectus have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in its report
incorporated herein by reference, and are incorporated herein in reliance upon
such report given upon the authority of said firm as experts in auditing and
accounting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the Company with
the Commission are incorporated by reference in this Prospectus.
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
(c) All other reports pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), since the end
of the Company's fiscal year ended December 31, 1996.
(d) The description of the Company's Common Stock which is contained in
the Company's Registration Statement on Form 8-B filed under the
Exchange Act, including any amendment or reports filed for the purpose
of updating such description.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing
of a post-effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities remaining unsold, shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of the filing of such reports and documents.
Any statement contained in a document, all or a portion of which is
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained or
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.
The Company will provide without charge to each person to whom this
Prospectus is delivered a copy of any or all of such documents which are
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the documents that
this Prospectus incorporates). Written requests for copies should be directed to
Denis P. Kelly, Director of Finance, Scan-Graphics, Inc., 649 North Lewis Road,
Limerick, PA 19468.
Page 12
<PAGE>
===================================== =======================================
6,061,270 Shares
SCAN-GRAPHICS, INC.
Common Stock
-------------------
TABLE OF CONTENTS
Page
-----------------------
Available Information.............2
The Company.......................3
Risk Factors......................3
Use of Proceeds...................5 PROSPECTUS
Recent Developments ..............6
Selling Shareholders..............7
Plan of Distribution ............11 -----------------------
Legal Opinion....................12
Experts......................... 12
Incorporation of Certain
Documents by Reference........12
-------------------
_______________, 1997
===================================== =======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution*
Registration fee - Securities and Exchange Commission $
Printing.............................................................
Accounting fees...................................................... **
Legal fees........................................................... **
Miscellaneous........................................................ **
Total........................................................... **
* No portion of these expenses will be borne by the Selling Shareholders
** To be filed by amendment.
Item 15. Indemnification of Directors and Officers.
The Pennsylvania Business Corporation Law of 1988, as amended (the "BCL"),
permits a corporation to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by them in connection with any pending,
threatened or completed action or proceeding, and permits such indemnification
against expenses (including attorney's fees) incurred by them in connection with
any pending, threatened or completed derivative action, if the director or
officer has acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. Pennsylvania law requires that a corporation indemnify its
directors and officers against expenses (including attorney's fees) actually and
reasonably incurred by them in connection with any action or proceeding,
including derivative actions, to the extent that such person has been successful
on the merits or otherwise in defense of the action or in defense of any claim,
issue or matter therein. Furthermore, Pennsylvania law provides that expenses
incurred in defending any action or proceeding may be paid by the corporation in
advance of the final disposition upon receipt of an undertaking by or on behalf
of the director or officer to repay the amount if it is ultimately determined
that the director or officer is not entitled to be indemnified by the
corporation.
In Pennsylvania, the statutory provisions for indemnification and
advancement of expenses are non-exclusive with respect to any other rights, such
as contractual rights or under a by-law or vote of shareholders or disinterested
directors, to which a person seeking indemnification or advancement of expenses
may be entitled. Such contractual or other rights may, for example, under
Pennsylvania law, provide for indemnification against judgments, fines and
amounts paid in settlement incurred by the indemnified person in connection with
derivative actions. Pennsylvania law permits such derivative action
indemnification in any case except
II-1
<PAGE>
where the act or failure to act giving rise to the claim for indemnification is
determined by a court to have constituted willful misconduct or recklessness.
The provisions of Article VII of the Company's By-laws require or authorize
indemnification of officers and directors in all situations in which it is not
expressly prohibited by law. At the present time, the limitations on
indemnification would be dictated by the BCL and related legislation, which
prohibit indemnification where the conduct is determined by a court to
constitute willful misconduct or recklessness. Subject to these statutory
limitations, the By-laws specifically authorize indemnification against both
judgments and amounts paid in settlement of derivative suits. These provisions
also authorize indemnification for negligence or gross negligence and for
punitive damages and certain liabilities incurred under the federal securities
laws. The By-laws also prohibit indemnification attributable to receipt from the
Company of a personal benefit to which the recipient is not legally entitled.
Under the indemnification provisions of the By-laws a person who has
incurred an indemnifiable expense or liability would have a right to be
indemnified, and that right would be enforceable against the Company as long as
indemnification is not prohibited by law. To the extent indemnification is
permitted only for a portion of a liability, the By-laws also require the
Company to indemnify such portion.
Section 7.03 of the By-laws provides that the financial ability of a person
to be indemnified to repay an advance of indemnifiable expenses is not a
prerequisite to the making of the advance.
Section 7.06 of the By-laws provides that any dispute concerning a person's
right to indemnification or advancement of expenses thereunder will be resolved
only by arbitration by three persons, each of whom is required to have been a
director or executive officer of a corporation whose shares, during at least one
year of such service, were listed on the New York Stock Exchange or the American
Stock Exchange or were quoted on the NASDAQ system. The Company also is
obligated to pay the expenses (including attorney's fees) incurred by any person
who is successful in the arbitration. The arbitration provisions effectively
waive the Company's right to have a court determine the unavailability of
indemnification in cases involving willful misconduct or recklessness.
Section 7.07 of the By-laws provides that in circumstances in which
indemnification is held to be unavailable, the Company must contribute to the
liabilities to which a director or officer may be subject in such proportion as
is appropriate to reflect the intent of the indemnification provisions of the
By-laws. Since the foregoing provisions purport to provide partial relief to
directors and officers in circumstances in which the law or public policy is
construed to prohibit indemnification, substantial uncertainties exist as to the
enforceability of the provisions in such circumstances.
Section 7.10 of the By-laws also contains provisions stating that the
indemnification rights thereunder are not exclusive of any other rights to which
the person may be entitled under any statute, agreement, vote of shareholders or
disinterested directors or other arrangement.
II-2
<PAGE>
All future directors and officers of the Company automatically would be
entitled to the protections of the indemnification provisions of the By-laws at
the time they assume office.
Pennsylvania law permits a corporation to purchase and maintain insurance
on behalf of any director or officer of the corporation against any liability
asserted against the director or officer and incurred in such capacity, whether
or not the corporation would have the power to indemnify the director or officer
against such liability. The directors and officers of the Company are not
currently covered as insureds under a directors' and officers' liability
insurance policy.
Item 16. Exhibits.
Number Description
4.1 Articles of Incorporation. Incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K
dated June 15, 1992.
4.2 By-laws. Incorporated by reference to Exhibit 3.2 to the
Company's Current Report on Form 8-K, dated June 15,
1992.
4.3 Form of Private Placement Purchase Agreement for
Warrants. Incorporated by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-3 (File No.
333-3719).
*4.4 Form of Private Placement Purchase Agreement for
Warrants.
*4.5 Warrant to purchase 2,100,000 shares of Common
Stock, dated April 8, 1997, issued to Broad
Capital Associates, Inc.
*5.1 Opinion of Dilworth, Paxson, Kalish & Kauffman LLP.
*23.1 Consent of BDO Seidman, LLP.
*23.2 Consent of Dilworth, Paxson, Kalish & Kauffman LLP is
included in Exhibit 5.1.
*24.1 Powers of Attorney (contained on signature page of
Registration Statement).
- ----------------------
* Filed herewith
II-3
<PAGE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes to file, during any period in
which offers or sales are being made, a post-effective amendment to this
Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement
or any material change to such information in the Registration
Statement including (but not limited to) any addition of a managing
underwriter, provided, however, that he undertakings set forth in
paragraphs (i) and (ii) above do not apply if the information required
to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to
Section 15(d) of the Exchange Act that are incorporated by reference
in this Registration Statement.
(2) The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relative to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes to remove from
registration by means of a post-effective amendment any of the securities being
registered hereby which remain unsold at the termination of the offering.
(4) The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
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.
II-4
<PAGE>
(5) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 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 is 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 of 1933 and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with 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 Limerick, Commonwealth of Pennsylvania, on July 24,
1997.
SCAN-GRAPHICS, INC.
By:/s/ Laurence L.Osterwise
-------------------------------
Laurence L. Osterwise,
President, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Laurence
L. Osterwise and Michael Mulshine and each of them, as his lawful
attorney-in-fact and agent, each with full power of substitution and
resubstitution for him and in his name, place and stead in any and all
capacities to execute in the name of each such person who is then an officer or
director of the registrant any and all amendments (including post-effective
amendments) to this registration statement and to file the same with all
exhibits thereto and other documents in connection therewith with the Securities
and Exchange Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing required or
necessary to be done in and about the premises as fully as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
- --------------------------- ---------------------------- -------------------
/s/ Andrew E. Trolio Chairman of the Board of July 24, 1997
- --------------------------- Directors
Andrew E. Trolio
/s/ Laurence L. Osterwise President and Chief Executive July 24, 1997
- --------------------------- Officer
Laurence L. Osterwise
/s/ Denis P. Kelly Director of Finance July 24, 1997
- --------------------------- (Principal Financial and
Denis P. Kelly Accounting Officer)
/s/Michael A. Mulshine Director and Secretary July 24, 1997
- ---------------------------
Michael A. Mulshine
/s/ David S. Hirsch Director July 24, 1997
- ---------------------------
David S. Hirsch
/s/ James C. Sargent Director July 24, 1997
- ---------------------------
James C. Sargent
/s/ R. Barry Borden Director July 24, 1997
- ---------------------------
R. Barry Borden
/s/ Jack A. Pellicci Director July 24, 1997
- ---------------------------
Jack A. Pellicci
<PAGE>
EXHIBIT INDEX
Number Description
4.1 Articles of Incorporation. Incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K
dated June 15, 1992.
4.2 By-laws. Incorporated by reference to Exhibit 3.2 to the
Company's Current Report on Form 8-K, dated June 15,
1992.
4.3 Form of Private Placement Purchase Agreement for
Warrants. Incorporated by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-3 (File No.
333-3719).
*4.4 Form of Private Placement Purchase Agreement for
Warrants.
*4.5 Warrant to purchase 2,100,000 shares of Common
Stock, dated April 8, 1997, issued to Broad
Capital Associates, Inc.
*5.1 Opinion of Dilworth, Paxson, Kalish & Kauffman LLP.
*23.1 Consent of BDO Seidman, LLP.
*23.2 Consent of Dilworth, Paxson, Kalish & Kauffman LLP is
included in Exhibit 5.1.
*24.1 Powers of Attorney (contained on signature page of
Registration Statement).
- --------------------
* Filed herewith
<PAGE>
EXHIBIT 4.4
PRIVATE PLACEMENT PURCHASE AGREEMENT
Scangraphics, Inc.
700 Abbott Drive
Broomall, PA 19008
Re: Purchase of Units
Gentlemen:
1. The undersigned ("Subscriber") has reviewed the filings which Scangraphics,
Inc. (the "Company") has made with the Securities Exchange Commission
during the past 12 months. The Company represents and warrants to the
Subscriber that all such filings are correct and accurate in all material
respects and in all material respects state all facts necessary to make
such filings not misleading. Subscriber has had the opportunity to discuss
the Company's affairs with the Company's officers.
2. Sale of Units.
(a) The Company hereby sells to Subscriber, and Subscriber hereby
purchases from the Company, the number of Units set forth opposite
Subscriber's name below. The purchase price of each Unit is $100,000,
and is payable in cash concurrently with the execution and delivery
hereof.
(b) Each Unit consists of one Convertible Note in the principal amount of
$100,000 (a "Note"), and one warrant (a "Warrant") to purchase 17,308
shares of common stock of the Company ("Common Stock") at an exercise
price of $4 per share. The Note and the Warrant are in the forms of
Exhibits A and B annexed hereto.
(c) The term "Purchasers" as used herein means subscribers who in the
aggregate are on this day purchasing Notes in the aggregate principal
amount of 52 Units under agreements of the same tenor as this
Agreement. The date as of which all Units have been sold is referred
to herein as the "Completion Date."
3. So long as Subscriber owns any Notes or Warrants, Subscriber will not
directly or indirectly (whether through affiliates or otherwise) engage in
any short sale of Common Stock other than any sales of shares which
Subscriber expects to receive upon conversion of the Note within the five
business day period after such sale.
4. Registration.
(a) The Company will utilize its diligent efforts to file, on or before
the 30th day after the Completion Date, or as soon thereafter as is
possible with such diligent efforts, a registration statement on Form
S-3 (the "Registration Statement") for the public sale by Subscriber
of the shares which are issuable on conversion of the Notes and on
exercise of the Warrants. The shares to be covered by the Registration
Statement are collectively referred to as the "registered shares."
(b) The Company shall use its diligent efforts to cause the Registration
Statement to become effective not later than 90 days after the date of
filing, and to remain effective for two years. The registration shall
be accompanied by blue sky clearances in such states as Subscriber may
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<PAGE>
reasonably request. The Company will not issue or commit to issue any
shares of capital stock or securities convertible into capital stock
(other than upon exercise of options or warrants issued heretofore),
or borrow any money in public or private financings, until the close
of business on the 45th business day after the date on which the
Registration Statement is first declared effective.
(c) The Company shall pay all expenses of the registration hereunder,
other than Subscriber's underwriting discounts.
(d) The Company shall supply to Subscriber a reasonable number of copies
of all registration materials and prospectuses. The Company and
Subscriber shall execute and deliver to each other indemnity
agreements which are conventional in registered offerings of this
type. The Subscriber shall reasonably cooperate with the Company in
the preparation and filing of the Registration Statement and
appropriate amendments thereto.
(e) Subscriber may transfer a proportionate part of its registration
rights to a limited number of permitted transferees of the Units or
portion thereof.
5. Securities Representations.
(a) Subscriber represents and warrants that it is purchasing the Units
solely for investment solely for its own account and not with a view
to or for the resale or distribution thereof except as permitted under
the Registration Statement.
(b) Subscriber understands that it may sell or otherwise transfer the
Units or the shares issuable on conversion of the Notes or the
Warrants only if such transaction is duly registered under the
Securities Act of 1933, as amended, under the Registration Statement
or otherwise, or if Subscriber shall have received the favorable
opinion of counsel to the holder, which opinion shall be reasonably
satisfactory to counsel to the Company, to the effect that such sale
or other transfer may be made in the absence of registration under the
Securities Act of 1933, as amended, and registration or qualification
in every applicable state. The certificates representing the aforesaid
securities will be legended to reflect these restrictions, and stop
transfer instructions will apply. Subscriber realizes that the Units
are not a liquid investment.
(c) Subscriber has not relied upon the advise of a "Purchaser
Representative" (as defined in Regulation D of the Securities Act) in
evaluating the risks and merits of this investment. Subscriber has the
knowledge and experience to evaluate the Company and the risks and
merits relating thereto.
(d) Subscriber represents and warrants that Subscriber is an "accredited
investor" as such term is defined in Rule 501 of Regulation D
promulgated pursuant to the Securities Act of 1933, as amended, and
shall be such on the date any shares are issued to the holder;
Subscriber acknowledges that Subscriber is able to bear the economic
risk of losing Subscriber's entire investment in the shares and
understands that an investment in the Company involves substantial
risks; Subscriber has the power and authority to enter into this
agreement, and the execution and delivery of, and performance under
this agreement shall not conflict with any rule, regulation, judgment
or agreement applicable to the Subscriber; and Subscriber has invested
in previous transactions involving restricted securities.
6. Miscellaneous.
This Agreement may not be changed or terminated except by written
agreement. It shall be binding on the parties and on their personal
representatives and permitted assigns. It sets forth all agreements of the
parties. It shall be enforceable by decrees of specific performance
(without posting bond or other security) as well as by other available
remedies. This Agreement shall be governed by, and construed in accordance
with, the laws of Pennsylvania. The federal and state
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<PAGE>
courts sitting in the City of Philadelphia shall have exclusive
jurisdiction over all matters relating to this Agreement. Trial by jury is
expressly waived.
All notices, requests, service of process, consents, and other
communications under this Agreement shall be in writing and shall be deemed
to have been delivered (i) on the date personally delivered or (ii) one day
after properly sent by Federal Express, addressed to the respective parties
at their address set forth in this Agreement or (iii) on the day
transmitted by facsimile so long as a confirmation copy is simultaneously
forwarded by Federal Express, in each case addressed to the respective
parties at their address set forth in this Agreement. Either party hereto
may designate a different address by providing written notice of such new
address to the other party hereto as provided above.
7. Each party hereto shall be responsible for its own expenses with regard to
the negotiation and execution of this Agreement.
Dated: _____________________________________
SUBSCRIBER:
signature: _________________________________
type or print name: ________________________
Address: ___________________________________
Fax No.
Social Security No.: _______________________
Number of Units: ___________________________
AGREED:
SCANGRAPHICS, INC.
BY__________________________________________
EXHIBIT A
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED, DISPOSED OF OR OFFERED FOR SALE, IN
WHOLE OR IN PART, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THAT ACT COVERING THIS NOTE AND/OR THE COMMON STOCK ISSUABLE UPON CONVERSION
THEREOF, OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO SCANGRAPHICS, INC.,
THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
$-------------------
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<PAGE>
CONVERTIBLE NOTE
(the "Note")
SCANGRAPHICS, INC.
SCANGRAPHICS, INC., a Pennsylvania corporation (hereinafter called the
"Corporation"), hereby promises to pay to the order of _______________
(hereinafter the "Holder") the principal sum of $____ on May 31, 1999. This Note
shall accrue interest at the rate of 7% per annum payable quarterly on the first
day of each calendar quarter commencing October 1, 1997 and on maturity.
1. This Note is being issued under a Private Placement Purchase Agreement
between the Company and the Holder (the "Subscription Agreement"). The term
"Registration Statement" shall have the meaning attributed thereto in the
Subscription Agreement, and the term "Effective Date" means the date on
which the Registration Statement shall be declared to be effective.
"Completion Date" shall have the meaning ascribed thereto in the
Subscription Agreement.
2. Conversion Rights and Optional Redemption.
(a) The principal and accrued interest on this Note is convertible by
Subscriber from time to time after the 90th day after the Completion
Date, in whole or in part, into shares of common stock of the Company
("Common Stock") at the lesser (the "Conversion Price") of $7.00 per
share (the "Cap") or the Applicable Percentage (as hereinafter
defined) of the average closing bid price (the "Average Price") of the
Common Stock during the last five trading days prior to conversion.
(b) The Applicable Percentage for any conversion is 90%, minus 1% for each
full $.20 by which the Conversion Price for such conversion is greater
than $4.00.
(c) In the event that the Holder elects to exercise its conversion rights
hereunder, such conversion shall be effective when Holder shall give
to the Company written notice of such election (which may be effected
by facsimile). Holder shall thereafter promptly surrender this Note to
the Company for cancellation against payment of interest accrued
through the date of conversion. The Company shall within five business
days after conversion deliver to Holder a certificate for the Common
Stock acquired by Holder upon such conversion.
(d) If the Effective Date has not occurred by the 121st day after the
Completion Date, then, in addition to the Holder's other remedies:
(i) the interest rate under the Note shall be increased to 12% per
annum (or, if less, the highest rate permitted by law) until the
Effective Date, and
(ii) at Holder's option, the Note shall not be repaid by the Company
and shall remain convertible and accrue interest, until such date
as is designated by Holder but not later than 180 days after the
Effective Date.
(e) If the Effective Date has not occurred by the 180th day after the
Completion Date, then, in addition to the Holder's other remedies, the
interest rate under the Note shall be further
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<PAGE>
increased to 18% per annum (or, if less, the highest rate permitted by
law) until the Effective Date.
(f) The Company shall reserve for issuance on conversion and exercise of
this Note and the Warrant (as defined in the Subscription Agreement)
8,500,000 shares of Common Stock. The Company shall use its best
efforts promptly to list on NASDAQ all shares of Common Stock which
are issued upon conversion of this Note.
(g) Conversion of the Note is subject to the following restrictions:
(i) If the Effective Date shall have occurred on or before the 90th
day after the Completion Date, no more than 10% of the initial
principal amount of this Note shall be convertible in any
calendar month (with the unconverted portion of each month's
installment being carried forward to later months), provided that
the restriction in this clause (i) shall no longer apply if:
(A) the closing bid price of a share of Common Stock from and
after any day on which the closing bid price of the Common
Stock was $7 or more on NASDAQ (or such other securities
exchange where the common stock may then be listed); or
(B) if L.L. Osterwise for any reason is no longer the CEO of the
Company.
(ii) The Note shall be convertible at any time only to the extent that
Holder would not as result of such exercise beneficially own more
than 4.99% of the then outstanding Common Stock. Beneficial
ownership shall be defined in accordance with Rule 13(d)-3 under
the Securities Exchange Act of 1934. The opinion of counsel to
Holder shall prevail in the event of any dispute on the
calculation of Holder's beneficial ownership.
(h) Adjustments to Conversion Rights.
(i) If any capital reorganization or reclassification of the common
stock, or consolidation or merger of the Company with or into
another corporation, or the sale or conveyance of all or
substantially all of its assets to another corporation shall be
effected, then, as a condition precedent of such reorganization
or sale, the following provision shall be made: The Holder of the
Note shall from and after the date of such reorganization or sale
have the right to receive (in lieu of the shares of common stock
of the Company immediately theretofore receivable with respect to
the Note, upon the exercise of conversion rights), such shares of
stock, securities or assets as would have been issued or payable
with respect to or in exchange for the number of outstanding
shares of such common stock immediately theretofore receivable
with respect to the Note (assuming the Note were then
convertible). In any such case, appropriate provision shall be
made with respect to the rights and interests of the Holders to
the end that such conversion rights (including, without
limitation, provisions for appropriate adjustments) shall
thereafter be applicable, as nearly as may be practicable in
relation to any shares
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<PAGE>
of stock, securities or assets thereafter deliverable upon the
exercise thereof.
3. Redemption Rights. In the event that the Holer proposes to convert all or
any portion of the principal or interest of this Note at a conversion price
of less than $3, the Company shall at its option be entitled to redeem all
or any portion of the Note proposed to be converted, Such option shall be
exercisable by paying to the Holder, within three business days after the
date of such proposed conversion, 110% of the amount of the principal and
interest proposed to be converted.
4. The Company converts and agrees that all shares of Common Stock which may
be issued upon conversion of this Note will, upon issuance, be duly and
validly issued, fully paid and non-assessable and no personal liability
will attach to the holder thereof.
5. Purchase for Investment. The Holder, by acceptance hereof, acknowledges
that the Note (and the Common Stock into which the Note is convertible) has
not been registered under the Act, covenants and agrees with the Company
that such Holder is taking and holding this Note (and the Common Stock into
which the Note is convertible) for investment purposes and not with a view
to, or for sale in connection with, a distribution thereof and that this
Note (and the Common Stock into which the Note is convertible) may not be
assigned, hypothecated or otherwise disposed of in the absence of an
effective registration statement under the Act or an opinion of counsel for
the Holder, which counsel shall be reasonably satisfactory to the Company,
to the effect that such disposition is in compliance with the Act, and
represents and warrants that such Holder is an "accredited investor" that
such Holder has, or with its representative has, such knowledge and
experience in financial and business matters to be capable of evaluating
the merits and risks in respect of this Note (and the Common Stock into
which the Note is convertible) and is able to bear the economic risk of
such investment.
6. Events of Default and Acceleration of the Note.
(a) An "event of default" with respect to this Note shall exist if any of
the following shall occur, if:
(i) The Company shall breach or fail to comply with any provision of
this Note and such breach or failure shall continue for 15 days
after written notice by any Holder of any Note to the Company.
(ii) A receiver, liquidator or trustee of the Company or of a
substantial part of its properties shall be appointed by court
order and such order shall remain in effect for more than 15
days; or the Company shall be adjudicated bankrupt or insolvent;
or a substantial part of the property of the Company shall be
sequestered by court order and such order shall remain in effect
for more than 15 days; or a petition to reorganize the Company
under any bankruptcy, reorganization or insolvency law shall be
filed against the Company and shall not be dismissed within 45
days after such filing.
(iii)The Company shall file a petition in voluntary bankruptcy or
request reorganization under any provision of any bankruptcy,
reorganization or insolvency law, or shall consent to the filing
of any petition against it under any such law.
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<PAGE>
(iv) The Company shall make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts
generally as they become due, or consent to the appointment or a
receiver, trustee or liquidator of the Company, or of all or any
substantial part of its properties.
(b) If an event of default referred to in clause (i) shall occur, the
Holder may, in addition to such Holder's other remedies, by written
notice to the Company, declare the principal amount of this Note,
together with all interest accrued thereon, to be due and payable
immediately. Upon any such declaration, such amount shall become
immediately due and payable and the Holder shall have all such rights
and remedies provided for under the terms of this Note and the
Subscription Agreement. If an event of default referred to in clauses
(ii), (iii) or (iv) shall occur, the principal amount of this Note,
together with all interest accrued thereon, shall become immediately
due and payable and the Holder shall have all such rights and remedies
provided for under the terms of this Note and Subscription Agreement.
7. Miscellaneous.
(a) All notices and other communications required or permitted to be given
hereunder shall be in writing and shall be given (and shall be deemed
to have been duly given upon receipt) by delivery in person, by
telegram, by facsimile, recognized overnight mail carrier, telex or
other standard form of telecommunications, or by registered or
certified mail, postage prepaid, return receipt requested, addressed
as follows: (a) if to the Holder, to such address as such Holder shall
furnish to the Company in accordance with this Section, or (b) if to
the Company, to it at its headquarters office, or to such other
address as the Company shall furnish to the Holder in accordance with
this Section.
(b) This note shall be governed and construed in accordance with the laws
of the Commonwealth of Pennsylvania applicable to agreements made and
to be performed entirely within such state.
(c) The Company waives protest, notice of protest, presentment, dishonor,
notice of dishonor and demand.
(d) If any provision of this Note shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision hereof, but his Note shall be construed
as if such invalid or unenforceable provision had never been contained
herein.
(e) The waiver of any event of default or the failure of the Holder to
exercise any right or remedy to which it may be entitled shall not be
deemed a waiver of any subsequent event of default or of the Holder's
right to exercise that or any other right or remedy to which the
Holder is entitled.
(f) The Holder of this Note shall be entitled to recover its legal and
other costs of collecting on this Note, and such costs shall be deemed
added to the principal amount of this Note.
(g) In addition to all other remedies to which the Holder may be entitled
hereunder, Holder shall also be entitled to decrees of specific
performance without posting bond or other security.
-7-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed on
the date set forth below.
Dated:________________
SCANGRAPHICS, INC.
By:___________________________
-8-
<PAGE>
EXHIBIT B
Neither this Warrant nor the shares of Common Stock issuable on exercise of this
Warrant have been registered under the Securities Act of 1933. None of such
securities may be transferred in the absence of registration under such Act or
an opinion of counsel to the effect that such registration is not required.
SCANGRAPHICS, INC.
WARRANT
DATED:
Number of Shares:
Holder:
Address:
__________________________
1. THIS CERTIFIES THAT the Holder is entitled to purchase from SCANGRAPHICS,
INC., a Pennsylvania corporation (hereinafter called the "Company"), at $4
per share the number of shares of the Company's common stock ("Common
Stock") set forth above.
2. All rights granted under this Warrant shall expire on June 1, 2001, subject
to the earlier termination as set forth in Section 3.
3. Early expiration.
(a) The following terms shall have the following definitions:
(i) Effective Date means the date of the effectiveness of the
registration statement ("Registration Statement") referred to in
a Subscription Agreement dated as of the date of this Warrant
(the "Subscription Agreement").
(ii) The "30-day Price" means the closing bid price (on NASDAQ or such
other securities exchange where the common stock may then be
listed) of the Common Stock on not less than 30 days in any
consecutive 45-day period (the "Test Period") which begins after
the Effective Date and through which the Registration Statement
continues to be effective.
(b) If any 30-day Price is not less than $8 per share in any Test Period,
then, as of the end of such Test Period, this Warrant shall expire as
to 1/3 of the shares of Common Stock initially purchasable thereunder.
(c) If any 30-day Price is not less than $10 per share in any Test Period,
then, as of the end of such Test Period, this Warrant shall expires as
to 2/3 of the shares of Common Stock initially purchasable thereunder
on a basis which is cumulative with any expiration theretofore
occurring under Section (b).
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<PAGE>
(d) If any 30-day Price is not less than $12 per share in Test Period,
then, as of the end of such Test Period, then as of the last day of
the Test Period, this Warrant shall expire in full.
4. Notwithstanding anything to the contrary contained herein, Holder shall not
have the right to exercise this Warrant so long as and to the extent that
at the time of such exercise, such exercise would cause the Holder then to
be the "beneficial owner" of five percent (5%) or more of the Company's
then outstanding Common Stock. For purposes hereof, the term "beneficial
owner" shall have the meaning ascribed to it in Section 13(d) of the
Securities Exchange Act of 1934. The opinion of legal counsel to Holder, in
form and substance satisfactory to the Company and the Company's counsel,
shall prevail in all matters relating to the amount of Holder's beneficial
ownership.
5. This Warrant and the Common Stock issuable on exercise of this Warrant (the
"Underlying Shares") may be transferred, sold, assigned, or hypothecated,
only if registered by the Company under the Securities Act of 1933 (the
"Act") of if the Company has received from counsel to the Company a written
opinion to the effect that registration of the Warrant or the Underlying
Shares is not necessary in connection with such transfer, sale, assignment
or hypothecation. The Warrant and the Underlying Shares shall be
appropriately legended to reflect this restriction and stop transfer
instructions shall apply. The Holder shall through its counsel provide such
information as is reasonably necessary in connection with such opinion.
6. The Holder of this Warrant is entitled to certain registration rights under
the Subscription Agreement.
7. Any permitted assignment of this Warrant shall be effected by the Holder by
(i) executing the form of assignment at the end hereof, (ii) surrendering
the Warrant for cancellation at the office of the Company, accompanied by
the opinion of counsel to the Company referred to above; and (iii) unless
in connection with an effective registration statement which covers the
sale of this Warrant and or the shares underlying the Warrant, delivery to
the Company of a statement by the transferee (in a form acceptable to the
Company and its counsel) that such Warrant is being acquired by the Holder
for investment and not with a view to its distribution or resale; whereupon
the Company shall issue, in the name or names specified by the Holder
(including the Holder) new Warrants representing in the aggregate rights to
purchase the same number of Shares as are purchasable under the Warrant
surrendered. Such Warrants shall be exercisable immediately upon any such
assignment of the number of Warrants assigned. The Transferor will pay all
relevant transfer taxes. Replacement warrants shall bear the same legend as
is borne by this Warrant.
8. The term "Holder" should be deemed to include any permitted record
transferee of this Warrant.
9. The Company covenants and agrees that all shares of Common Stock which may
be issued upon exercise hereof will, upon issuance, by duly and validly
issued, fully paid and non-assessable and no personal liability will
attached to the holder thereof. The Company further covenants and agrees
that, during the periods within which this Warrant may be exercised, the
Company will at all times have authorized and reserved a sufficient number
of shares of Common Stock for issuance upon exercise of this Warrant and
all other Warrants.
10. This Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
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<PAGE>
11. In the event that as a result of reorganization, merger, consolidation,
liquidation, recapitalization, stock split, combination of shares or stock
dividends payable with respect to such Common Stock, the outstanding shares
of Common Stock of the Company are at any time increased or decreased or
changed into or exchanged for a different number or kind of share or other
security of the Company or of another corporation, then appropriate
adjustments in the number and kind of such securities then subject to this
Warrant shall be made effective as of the date of such occurrence so that
the position of the Holder upon exercise will be the same as it would have
been had it owned immediately prior to the occurrence of such events the
Common Stock subject to this Warrant. Such adjustment shall be made
successively whenever any event listed above shall occur and the Company
will notify the Holder of the Warrant of each such adjustment. Any fraction
of a share resulting from any adjustment shall be eliminated and the price
per share of the remaining shares subject to this Warrant adjusted
accordingly.
12. The rights represented by this Warrant may be exercised at any time within
the period above specified by (i) surrender of this Warrant (with the
purchase form at the end hereof properly executed) at the principal
executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the
address of the Holder appearing on the books of the Company); (ii) payment
to the Company of the exercise price for the number of Shares specified in
the above-mentioned purchase form together with applicable stock transfer
taxes, if any; and (iii) unless in connection with an effective
registration statement which covers the sale of the shares underlying the
Warrant, the delivery to the Company of a statement by the Holder (in a
form acceptable to the Company and its counsel) that such Shares are being
acquired by the Holder for investment and not with a view of their
distribution or resale.
13. The certificates for the Common Stock so purchased shall be delivered to
the Holder within a reasonable time, not exceeding five business days after
all requisite documentation has been provided, after the rights represented
by this Warrant shall have been so exercised, and shall bear a restrictive
legend with respect to any applicable securities laws.
14. This Warrant shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania. The federal and state courts in the
city of Philadelphia shall have exclusive jurisdiction over this instrument
and the enforcement thereof. Service or process shall be effective by
certified mail, return receipt requested. All notices shall be in writing
and shall be deemed given upon receipt by the party to whom addressed. This
instrument shall be enforceable by decrees of specific performances well as
other remedies.
IN WITNESS WHEREOF, Scangraphics, Inc. has caused this Warrant to be signed
by its duly authorized officers under Its corporate seal, and to be dated as of
the date set forth above.
SCANGRAPHICS, INC.
By:___________________________
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<PAGE>
Exhibit 4.5
Neither this Warrant nor the shares of Common Stock issuable on exercise of this
Warrant have been registered under the Securities Act of 1933. None of such
securities may be transferred in the absence of registration under such Act or
an opinion of counsel to the effect that such registration is not required.
SCANGRAPHICS, INC.
WARRANT
DATED: 01 June 1997
------------
Number of Shares: 2,100,000
------------
Holder: Broad Capital Associates
------------------------
Address: 152 West Broadway, New York, NY 10019
--------------------------------------
I. THIS CERTIFIES THAT the Holder is entitled to purchase from SCANGRAPHICS,
INC., a Pennsylvania corporation (hereinafter called the "Company"), at $4
per share the number of shares of the Company's common stock ("Common
Stock") set forth above.
II. All rights granted under this Warrant shall expire on June 2, 2001, subject
to earlier termination as set forth in Section 3.
III. Early Expiration.
A. The following terms shall have the following definitions:
1. Effective Date means the date of the effectiveness of the
registration statement (the "Registration Statement") referred to
in the Subscription Agreement dated as of the date of this
Warrant (the "Subscription Agreement").
2. The "30-day Price" means the closing bid price (on NASDAQ or such
other securities exchange where the common stock may then be
listed) of the Common Stock on not less than 30 days in any
consecutive 45-day period (the "Test Period") which begins after
the Effective Date and through which the Registration Statement
continues to be effective.
B. If any 30-day Price is not less than $8 per share in any Test Period,
then, as of the end of such Test Period, this Warrant shall expire as
to the 1/3 of the shares of Common stock initially purchased
thereunder.
<PAGE>
C. If any 30-day Price is not less than $10 per share in any Test Period,
then, as of the end of such Test Period, this Warrant shall expire as
to 2/3 of the shares of Common stock initially purchasable thereunder
on a basis which is cumulative with any expiration theretofore
occurring under Section (b).
If any 30-day Price is not less than $12 per share in any Test period, then, as
of the end of such Test Period, this Warrant shall expire in full.
4. Notwithstanding anything to the contrary contained herein, Holder shall not
have the right to exercise this Warrant so long as and to the extent that
at the time of such exercise, such exercise would cause the Holder then to
be the "beneficial owner" of five percent (5%) or more of the Company's
then outstanding Common Stock. For the purposes hereof, the term
"beneficial owner" shall have the meaning ascribed to it in Section 13(d)
of the Securities Exchange Act of 1934. The opinion of legal counsel to
Holder, in form and substance satisfactory to the Company and the Company's
counsel, shall prevail in all matters relating to the amount of Holder's
beneficial ownership.
5. This Warrant and the Common Stock issuable on exercise of this Warrant (the
"Underlying Shares") may be transferred, sold, assigned or hypothecated,
only if registered by the Company under the Securities Act of 1933 (the
"Act") or if the Company has received from counsel to the Company a written
opinion to the effect that registration of the Warrant or the Underlying
Shares is not necessary in connection with such transfer, sale, assignment
or hypothecation. The Warrant and the Underlying Shares shall be
appropriately legended to reflect this restriction and stop transfer
instructions shall apply. The Holder shall through its counsel provide such
information as is reasonably necessary in connection with such opinion.
6. The holder of this warrant is entitled to certain registration rights under
the Subscription Agreement.
7. Any permitted assignment of this Warrant shall be effected by the Holder by
(i) executing the form of assignment at the end hereof, (ii) surrendering
the Warrant for cancellation at the office of the Company, accompanied by
the opinion of counsel to the Company referred to above; and (iii) unless
in connection with an effective registration statement which covers the
sale of this Warrant and or the shares underlying the Warrant, delivery to
the Company of a statement by the transferee (in a form acceptable to the
Company and its counsel) that such Warrant is being acquired by the Holder
for investment and not with a view to its distribution or resale; whereupon
the Company shall issue, in the name or names specified by the Holder
(including the Holder) new Warrants representing in the aggregate rights to
purchase the same number of Shares as are purchasable under the Warrant
surrendered. Such Warrants shall be exercisable immediately upon any such
assignment of the number of Warrants assigned. The transferor will pay all
relevant transfer taxes. Replacement warrants shall bear the same legend as
is borne by this Warrant.
8. The term "Holder" should be deemed to include any permitted record
transferee of this Warrant.
9. The Company covenants and agrees that all shares of Common Stock which may
be issued upon exercise hereof will, upon issuance, be duly and validly
issued, fully paid and non-assessable and no personal liability will attach
to the holder thereof. The Company further covenants and agrees that,
during the periods within which this Warrant may be exercised, the
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<PAGE>
Company will at all times have authorized and reserved a sufficient number
of shares of Common Stock for issuance upon exercise of this Warrant and
all other Warrants.
10. The Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
11. In the event that as a result of reorganization, merger, consolidation,
liquidation, recapitalization, stock split, combination of shares or stock
dividends payable with respect to such Common Stock, the outstanding shares
of Common Stock of the Company are at any time increased or decreased or
changed into or exchanged for a different number or kind of share or other
security of the Company or of any corporation, then appropriate adjustments
in the number and kind of such securities then subject to this Warrant
shall be made effective as of the date of such occurrence so that the
position of the Holder upon exercise will be the same as it would have been
had it owned immediately prior to the occurrence of such events the Common
Stock subject to this Warrant. Such adjustments shall be made successively
whenever any event listed above shall occur and the Company will notify the
Holder of the Warrant of each such adjustment. Any fraction of a share
resulting from any adjustment shall be
I. eliminated and the price per share of the remaining shares subject to this
Warrant adjusted accordingly.
II. The rights represented by this Warrant may be exercised at any time within
the period above specified by (i) surrender of this Warrant (with the
purchase form at the end hereof properly executed) at the principal
executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the
address of the Holder appearing on the books of the Company); (ii) payment
to the Company of the exercise price for the number of Shares specified in
the above-mentioned purchase form together with applicable stock transfer
taxes, if any; and (iii) unless in connection with an effective
registration statement which covers the sale of the shares underlying the
Warrant, the delivery to the Company of a statement by the Holder (in a
form acceptable to the Company and its counsel) that such Shares are being
acquired by the Holder for investment and not with a view to their
distribution or resale.
III. The certificates for the Common Stock so purchased shall be delivered to
the Holder within a reasonable time, not exceeding five business days after
all requisite documentation has been provided, after the rights represented
by this Warrant shall have been so exercised, and shall bear a restrictive
legend with respect to any applicable securities laws.
IV. This Warrant shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania. The federal and state courts in the
city of Philadelphia shall have exclusive jurisdiction over this instrument
and the enforcement thereof. Service of process shall be effective if any
certified mail, return receipt requested. All notices shall be in writing
and shall be deemed given upon receipt by the party to whom addressed. This
instrument shall be enforceable by decrees of specific performances as well
as other remedies.
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<PAGE>
IN WITNESS WHEREOF, Scangraphics, Inc. has caused this Warrant to be signed
by its duly authorized officers under Its corporate seal, to be dated as of the
date set forth above.
SCANGRAPHICS, INC.
By: /s/ Laurence L. Osterwise
-------------------------
Laurence L. Osterwise
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<PAGE>
EXHIBIT 5.1
July 22, 1997
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have acted as special Pennsylvania counsel to Scan-Graphics, Inc., a
Pennsylvania corporation (the "Company"), in connection with the Registration
Statement on Form S-3 (the "Registration Statement") under the Securities Act of
1933, as amended, relating to an aggregate of 6,061,270 shares of Common Stock,
$.001 par value per share, of the Company (the "Shares") including an aggregate
of 6,046,270 Shares which are issuable upon (a) conversion of certain
outstanding convertible securities of the Company or (b) exercise of certain
outstanding warrants to purchase Shares.
In connection with this opinion, we have examined the originals, or copies,
certified or otherwise identified to our satisfaction, of all such records,
agreements, instruments and documents as we have deemed relevant or necessary as
the basis for the opinions hereinafter expressed. In making such examinations,
we have assumed the authenticity of all documents submitted to us as originals,
the conformity to authentic originals of all documents submitted to us as
copies, the completeness of all documents furnished to us and the genuineness of
all signatures of the respective parties to such documents. As to various
questions of fact relevant to our opinion, we have relied where appropriate, and
without further investigation on our part, upon certificates of public officials
and statements or certificates of officers or representatives of the Company and
others. Insofar as this opinion relates to securities to be issued in the
future, we have assumed that all applicable laws, regulations and rules in
effect at the time or of such issuance are the same as those in effect on the
date hereof.
Based upon and subject to the foregoing, we are of the opinion that the
Shares (including the Shares issuable upon conversion of outstanding convertible
securities or exercise of outstanding warrants), when issued and delivered
against payment therefor in accordance with the terms of the respective
convertible securities or warrants under which they are issued and in accordance
with the terms of the Registration Statement, will be legally issued, fully paid
and nonassessable.
We consent to the filing of this opinion as Exhibit 5.1 to the Registration
Statement and we further consent to the reference made to us under the caption
"Legal Opinion" in the Registration Statement.
<PAGE>
U.S. Securities and Exchange Commission
July 22, 1997
Page 2
The law covered by the opinion expressed herein is limited to the corporate
laws of the Commonwealth of Pennsylvania.
Very truly yours,
/s/ Dilworth, Paxson, Kalish & Kauffman LLP
---------------------------------------
DILWORTH, PAXSON, KALISH &
KAUFFMAN LLP
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EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Scan-Graphics, Inc.
Limerick, Pennsylvania
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated February
27, 1997, relating to the consolidated financial statements and schedule of
Scan-Graphics, Inc. appearing in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
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BDO SEIDMAN, LLP
Philadelphia, Pennsylvania
July 23, 1997
