<PAGE>
As filed with the Securities and Exchange Commission
on May 19, 1998
File No. 333-_______
=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM S-8
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
--------------------------
SCAN-GRAPHICS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 95-4091769
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
649 North Lewis Road, Suite 220
Limerick, Pennsylvania 19468
(Address of Principal Executive Offices including Zip Code)
1992 LONG-TERM INCENTIVE PLAN
(Full title of the plan)
LAURENCE L. OSTERWISE
President and Chief Executive Officer
649 North Lewis Road, Suite 220
Limerick, Pennsylvania 19468
(Name and address of agent for service)
(610) 495-6701
(Telephone number, including area code,
of agent for service)
Copies to:
ROBERT B. MURPHY, ESQ.
THOMAS L. HANLEY, ESQ.
Schnader Harrison Segal & Lewis LLP
1225 Eye Street, N.W., Suite 600
Washington, D.C. 20005
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------
Title of each class Proposed Maximum
of securities Amount to be Offering Price
to be registered Registered Per Share*
- ------------------- ------------ ------------------
Common Stock, par 3,000,000 $2.00
value $.001 per
share
- ---------------------------------------------------------------
- -------------------------------------
Proposed maximum Amount of
aggregate Registration
offering price* Fee
- ---------------- ------------
$6,000,000 $1,770.00
- -------------------------------------
* Estimated pursuant to Rule 457(c) solely for the purpose of
calculating the registration fee, based upon the closing price
for such shares of Common Stock on May 13, 1998, as reported on
the NASDAQ SmallCap Market.
=================================================================
<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Item 1. Plan Information.
Omitted as permitted.
Item 2. Registrant Information and Employee Plan Annual
Information.
Omitted as permitted.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
The following documents filed with the Securities and
Exchange Commission (the "Commission") by Scan-Graphics, Inc.
(the "Company") are incorporated herein by reference:
(a) The Company's latest Annual Report on Form 10-K for the
fiscal year ended December 31, 1997;
(b) The Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1998;
(c) All other reports filed by the Company 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 fiscal year
covered by the Annual Report referenced in (a) above.; and
(d) The description of the Company's common stock, $.001
par value per share (the "Common Stock"), contained in the
Company's Registration Statement on Form 8-B filed with the
Commission on June 22, 1992 under the Exchange Act, including any
amendments 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 and 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 then remaining unsold shall
be deemed to be incorporated by reference herein and to be a part
hereof from the date of the filing such reports and documents.
Item 4. Description of Securities.
Not applicable.
Item 5. Interests of Named Experts and Counsel.
Not applicable.
Item 6. 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 attorneys'
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 attorneys' 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 attorneys' 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 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 attorneys' 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.
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 covered as insureds under a directors' and
officers' liability insurance policy.
Item 7. Exemption from Registration Claimed.
Not Applicable.
Item 8. Exhibits.
4.1 Form of Private Placement Purchase Agreement.
(Incorporated by reference to Exhibit 4.5 to
the Company's Registration Statement on Form
S-3, File No. 333-3719).
4.2 Form of Private Placement Purchase Agreement
for Units consisting of Convertible Notes and
Warrants. (Incorporated by reference to
Exhibit 4.4 to the Company's Registration
Statement on Form S-3, File No. 333-31983.)
4.3 Warrant to purchase 2,100,000 shares of Common
Stock dated April 8, 1997, issued to Broad
Capital Associates, Inc.(Incorporated by
reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-3, File No.
333-31983.)
4.4 Certificate of Designation of the Series A Preferred
Stock, Series E, par value $1,000 per share.
(Incorporated by reference to Exhibit 4.0 to the
Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1998 filed with the
Commission on May 15, 1998.)
4.5 Form of Warrant to purchase shares of Common
Stock. (Incorporated by reference to Exhibit 4.0 to
the Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1998 filed with the
Commission on May 15, 1998.)
4.6 1992 Long Term Incentive Plan (filed as Appendix A
to the Company's Definitive Proxy Materials dated
May 23, 1997 and incorporated herein by reference).
5.1* Opinion of Schnader Harrison Segal & Lewis LLP
23.1* Consent of BDO Seidman, LLP.
23.2* Consent of Schnader Harrison Segal & Lewis LLP
(included in Exhibit 5.1).
24.1* Power of Attorney (contained on signature
page).
- ---------------
* Filed herewith
Item 9. Undertakings.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act 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;
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
Sections 13 or 15(d) of the Exchange Act that are incorporated by
reference in this Registration Statement.
(2) 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) 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.
(b) 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 this 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.
(c) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described under Item 6 above, or otherwise, the Registrant has
been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
<PAGE>
<PAGE>
PROSPECTUS
SCAN-GRAPHICS, INC.
104,444 Shares
Common Stock
----------------
This Prospectus relates to an aggregate of up to 104,444
shares (the "Shares") of the common stock, $.001 par value per
share (the "Common Stock"), of Scan-Graphics, Inc.(the "Company")
which may be offered for sale from time to time by any or all of
the selling shareholders (the "Selling Shareholders") named
herein. The Shares were acquired by the Selling Shareholders
through the exercise of incentive stock options or non-qualified
stock options granted to the Selling Shareholders pursuant to the
Company's 1992 Long-Term Incentive Plan (the "Plan"). Each such
option was subject to the terms, conditions and restrictions set
forth in the Plan and the respective stock option agreements
entered into by each Selling Shareholder with the Company
pursuant to the Plan. See "Selling Shareholders."
The Company will not receive any proceeds from the sale of
the Shares offered hereby by the Selling Shareholders. The
Company has agreed to pay the expenses of registration of the
Shares, including related legal and accounting fees and expenses.
The Selling Shareholders will bear all selling expenses,
commissions, discounts and similar expenses in connection with
the sale of their Shares.
The Selling Shareholders have not advised the Company of any
specific plans for the distribution of the Shares covered by this
Prospectus. The Shares may be offered and sold from time to time
by the Selling Shareholders in ordinary broker's transactions on
the Nasdaq or any national securities exchange on which the
Common Stock may be listed at the time of sale, in the
over-the-counter market, through sales to one or more dealers for
the resale of such Shares as principals, in negotiated
transactions, or otherwise, at fixed prices, at market prices
prevailing at the time of sale, at prices related to such
prevailing prices, or at negotiated prices. Usual and customary
or specifically negotiated brokerage fees or commissions may be
paid by the Selling Shareholders in connection with such sales of
Shares. The Selling shareholders and the broker-dealers to or
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 commissions or discounts and other
compensation may be regarded as underwriters' compensation. See
"Plan of Distribution."
The Common Stock is traded on the Nasdaq SmallCap Market
under the symbol "SCNG." On May 15, 1998, the closing bid
price of the Common Stock was $2.00.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6 OF THIS PROSPECTUS.
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 May 19, 1998
<PAGE>
----------------
One or more supplements to this Prospectus will be filed
pursuant to Rule 424, or otherwise, under the Securities Act to
describe material arrangements for sale of the Shares, if any,
when such arrangements are entered into by the Selling
Shareholders.
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 OR 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.
<PAGE>
TABLE OF CONTENTS
Page
----
Available Information.........................
Incorporation of Certain
Documents by Reference......................
The Company...................................
Risk Factors..................................
Use of Proceeds...............................
Recent Developments...........................
Selling Shareholders..........................
Plan of Distribution..........................
Legal Matters.................................
Experts.......................................
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
Securities and Exchange Commission (the "Commission"). These
reports, proxy statements and other information may be inspected
and copied at the Public Reference Room of the Commission's
principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Securities and Exchange
Commission's regional offices at Seven World Trade Center, 13th
Floor, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can also be obtained at prescribed rates from the
Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. Electronic
filings made through the Electronic Data Gathering Analysis and
Retrieval System are also publicly available through the
Commission's Web Site (http://www.sec.gov). In addition,
such material may also be inspected and copied at the offices of
The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington,
D.C. 20006.
The Company has filed with the Commission a Registration
Statement on Form S-8 with respect to the securities offered by
this Prospectus. This Prospectus does not contain all of the
information set forth or incorporated by reference in the
Registration Statement and the exhibits and schedules to the
Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company
and the securities offered, reference is made to the Registration
Statement and the exhibits and schedules filed as a part of or
incorporated by reference in the Registration Statement. Each
such statement is qualified in all respects by such reference to
such exhibit. The Registration Statement, including exhibits and
schedules thereto, as well as the reports and other information
filed by the Company with the Commission, may be inspected and
obtained as set forth in the preceding paragraph. Statements
contained in this Prospectus concerning the contents of any
document referred to herein are not necessarily complete and in
each instance reference is made to the applicable document filed
with the Commission.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by
the Company with the Commission (File No. 0-15864) are
incorporated by reference in this Prospectus.
(a) The Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997.
(b) The Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1998.
(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, 1997.
(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 with the
Commission 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
Michael A. Mulshine, Secretary, Scan-Graphics, Inc., 649 North
Lewis Road, Limerick, PA 19468.
<PAGE>
THE COMPANY
Scan-Graphics, Inc., 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) 495-3003.
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 hereby. This Prospectus contains
certain forward-looking statements and information which may be
identified by the use of forward-looking terminology such as
"believes," "expects," "may," "should," or "anticipates" or the
negative thereof or other variations thereon or comparable
terminology or as discussions of strategy. No assurance can be
given that the future results covered by the forward-looking
statements will be achieved or that the events contemplated
thereby will occur or have the effects anticipated. The
following matters constitute cautionary statements identifying
important factors with respect to such forward-looking
statements, including certain risks and uncertainties that could
cause actual results to vary materially from those covered in
such forward-looking statements. In addition, other factors
could cause actual results to vary materially from the
anticipated results covered in such forward-looking statements.
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, 1998, the Company had accumulated
losses (deficit) of approximately $23,855,000 and stockholders'
equity of approximately $3,614,000. The Company has taken steps
to attempt 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 represents less than one
percent of the total Common Stock outstanding as of March 31,
1998. The Company anticipates that each Selling Shareholder will
offer its Common Stock at such time and in such manner as such
Selling Shareholder deems appropriate. The possibility that
substantial amounts of Common Stock may be sold in the public
market by the Selling Shareholders or by other holders of
warrants, options or other rights to acquire shares of
Common Stock may adversely affect prevailing market prices for
the Common Stock and could impair the Company's ability to raise
capital through the future sale of its equity securities. See
"Exercise of Warrants, Options, Convertible Notes and Series D &
E Preferred" and "Plan of Distribution."
Exercise of Warrants, Options, Convertible Notes and Series
D Preferred. As of March 31, 1998, there were outstanding other
warrants to purchase 7,562,016 shares of Common Stock, of which
warrants to purchase an aggregate of 5,783,803 shares of Common
Stock were immediately exercisable. The outstanding warrants are
exercisable at prices ranging from approximately $0.38 to $5.29
per share. The weighted average exercise price of all
outstanding warrants as of March 31, 1998, was approximately
$3.17 per share. As of such date, there were also outstanding
options to purchase 1,409,860 shares of Common Stock, of which
options to purchase 817,361 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 $0.47 to
$4.00 per share. The weighted average exercise price of all
options outstanding as of March 31, 1998, was approximately $2.46
per share. As of March 31, 1998, there were also outstanding
1,435 shares of Class A Preferred Stock, Series D (the "Series D
Preferred Stock"), and 2,085 shares of Class A Preferred Stock,
Series E (the "Series E Preferred Stock"). Based on the average
closing bid price for the five trading days ended March 31, 1998,
the outstanding shares of Series D Preferred Stock and Series E
Preferred Stock would be convertible into an aggregate of
1,791,334 shares of Common Stock. While outstanding warrants and
options are exercisable or while conversions of the Series D
Preferred and Series E Preferred Stock are "in the money", the
holders thereof have the opportunity to profit from a rise in the
market price of the Common Stock. The possibility that
substantial amounts of Common Stock may be sold in the public
market by holders of warrants, options or other rights to acquire
shares of Common Stock, including the Series D Preferred Stock
and Series E Preferred Stock, may adversely affect prevailing
market prices for the Common Stock and could impair the Company's
future ability to raise capital through the sale of its equity
securities. See "- Effect of Offering on Market Price of Common
Stock."
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.
See "- Nasdaq Listing Requirements."
Need for Additional Funding. The Company will not receive
any of the proceeds from the sale of Shares by the Selling
Shareholders. See "Use of Proceeds." The Company believes
that additional financing, in the form of the proceeds from the
exercise of currently outstanding warrants and/or other financing
activities, may be required for the Company to conduct its
operations as currently contemplated for a period of at least one
year. 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 any of the outstanding warrants
will be exercised or that other additional financing will be
available on terms acceptable to the Company, if at all. See
"History of Operating Losses."
Net Operating Loss Carryforwards. As of December 31, 1997
(the latest date for which information is available), the Company
had net operating loss carryforwards ("NOLs") for federal income
tax purposes aggregating approximately $19.5 million. These
NOLs, if unused, will expire between 1999 and 2017. At December
31, 1997, the related deferred tax asset amounts to approximately
$8.1 million and has been entirely offset by a valuation
allowance of $8.1 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 SmallCap Market Listing Requirements. For continued
inclusion of the Common Stock on the Nasdaq SmallCap Market, the
Company must meet certain listing requirements imposed by Nasdaq.
On August 22, 1997, the Commission approved new listing standards
that had been adopted by Nasdaq which govern the Nasdaq National
Market and the Nasdaq SmallCap Market which took effect on
February 22, 1998 (the "New Listing Requirements"). The Company
had been advised by Nasdaq in December 1997 that the Company may
not be in compliance with the continued listing standards then in
effect. On March 10, 1998, the Nasdaq Listing Qualifications
Panel confirmed that the Company has met all of the listing
requirements.
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 key personnel who possess
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.
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 $1,327,000, $744,000 and $582,000, which amounted
to 27.5%, 14.7% and 11.7% of its total revenues for the years
1997, 1996 and 1995, respectively. 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
The Company will not receive any proceeds from the sale of
the Shares by the Selling Shareholders.
RECENT DEVELOPMENTS
Warrant Exercises. In the first four months of 1998 ending
April 30, 1998, warrant holders exercised none of the outstanding
warrants, but options were exercised resulting in the issuance of
50,000 shares of Common Stock and resulting in the Company's
receipt of $50,000.
Sedona GeoServices, Inc. The Company's Sedona GeoServices
(Sedona) unit is in the final stages of development of a new
visualization and query tool code named Jbuffet. This product
provides the means to visualize spatial information contained in
text databases, superimposed on a wide variety of mapping and
image products ranging from satellite imagery to street maps.
Jbuffet allows users to query the database to perform spatial
analysis and ultimately produce maps detailing regions or
specifics of particular interest. Jbuffet is a 100% Java-based,
open architecture product, based on concepts developed in DMTool.
Jbuffet is user friendly and valuable to both the traditional GIS
expert and the emerging GIS user focused on business management
and marketing analysis. The initial release of Jbuffet, in the
early summer of 1998, will focus on enabling Oracle's Spatial
Cartridge and is expected by management of the Company to be
welcomed by a large number of Spatial Cartridge users.
Sedona's strategies in the near term involve exploiting
existing channels of distribution for its geospatial software
products (e.g., application providers for and customers of major
database providers such as Oracle).
The early feedback in this software area (Jbuffet) coupled
with the disappointing evolution of the mapping conversion market
has led the Company to reduce its resources focused on mapping
conversion.
Tangent Imaging Systems. Based on its successes in the
commercial color reprographics and scanning marketplace coupled
with the changing market requirements, the continuing
technological difficulties, and the results of the newspaper
field trials in the monochrome marketplace, the Company has
decided to focus its resources in the faster growth, higher
margin color markets, thereby decreasing its resources devoted to
monochrome development, manufacturing and distribution.
The Technology Resource Centers unit of the Company
continues to extend and expand its business into additional
market areas. In this regard, it has begun to team with Sedona
in the area of mapping conversion.
Other. On March 11, 1998, an action was commenced in the
Court of Common Pleas of Montgomery County, PA, against the
Company by a former employee, seeking damages of $361,000, for
termination of contract, by change of control and for
convenience. This plaintiff asserts that the sum sought
represents the excess of market value over the exercise price of
unvested warrants held by the plaintiff which the plaintiff
asserts should have been vested and thereby available for
exercise and sale. The Company has categorically denied the
plaintiff's claims and will defend its actions if required.
SELLING SHAREHOLDERS
The following table sets forth as of April 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.
NUMBER OF
COMMON STOCK SHARES OF COMMON STOCK
OWNED PRIOR TO COMMON STOCK OWNED AFTER
NAME THE OFFERING(1) TO BE OFFERED THE OFFERING(2)
- ---- -------------- ------------- ---------------
NUMBER PERCENT
------ -------
David S. Hirsch(3) 229,567(4) 47,222 183,345 *
James C. Sargent(5) 115,243(6) 32,222 83,021 *
William C. Hubbard(7) 259,000(8) 25,000 234,000 *
- -----------------
* Represents beneficial ownership of one percent or less of
the outstanding shares of Common Stock.
(1) Beneficial ownership is determined in accordance with
the rules of the Commission, and includes voting or investment
power with respect to the shares beneficially owned. Unless
otherwise noted, all shares are beneficially owned, and sole
voting and investment power is held by the person named.
(2) Assuming the sale of all Shares listed under "Number of
Shares of Common Stock to be Offered." Also assumes that none
of the Selling Shareholders sell securities which are
beneficially owned by them and are not listed in such column or
purchase or otherwise acquire additional Common Stock or
securities convertible into or exchangeable for Common Stock.
(3) Mr. Hirsch is a director of the Company.
(4) Includes 65,345 shares issuable upon exercise of
outstanding stock options.
(5) Mr. Sargent is a director of the Company.
(6) Includes 77,845 shares issuable upon exercise of
outstanding stock options.
(7) Mr. Hubbard is an Executive Vice President of the
Company.
(8) Includes 131,000 shares issuable upon exercise of
outstanding warrants, and 10,000 shares issuable upon exercise of
outstanding stock options.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling
Shareholders (or by their respective pledgees, donees,
transferees or other successors in interest) but only in such
amount that does not exceed during any three month period, the
amount specified in Rule 144(e) under the Securities Act. In
addition to any such amount sold hereunder, the Selling
Shareholder may, at the same time, sell any shares of Common
Stock owned by them in compliance with all of the requirements of
Rule 144, regardless of whether such shares are covered by this
Prospectus.
The Shares may be offered and sold from time to time by the
Selling Shareholders in ordinary broker's transactions on Nasdaq
or any national securities exchange on which the Common Stock may
be listed at the time of sale, in the over-the-counter market,
through sales to one or more dealers for the resale of such
Shares as principals, in negotiated transactions, or otherwise,
at fixed prices, at market prices prevailing at the time of sale,
at prices related to such prevailing prices, or at negotiated
prices. 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. Usual and
customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Shareholders in connection
with such sales of Shares. In addition, any Shares covered by
this Prospectus which qualify for sale under Rule 144 under the
Securities Act may be sold pursuant to Rule 144 rather than
pursuant to this Prospectus.
The Selling Shareholders and the broker-dealers to or
through whom sale of the Shares may be made may be deemed to be
"underwriters" within the meaning of the Securities Act, and
their commissions or discounts and other compensation received in
connection with such sales may be regarded as underwriters'
compensation.
The Selling Shareholders have not advised the Company of any
specific plans for the distribution of the Shares covered by this
Prospectus. 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 Prospectus
supplement or post-effective amendment to the Registration
Statement will be filed setting forth the name of the
participating broker-dealer(s) or underwriters, the number of
Shares involved, the price or prices 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-dealers or underwriters, and other material
information.
The Company has advised the Selling Shareholders that the
anti-manipulation rules promulgated under the Exchange Act,
including Regulation M, may apply to sales of the Shares offered
hereby by the Selling Shareholders.
The Company has agreed to bear 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.
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
uditing and accounting.
INDEMNIFICATION
Sections 1741 through 1750 of the Pennsylvania Business
Corporation Law (the "PBCL") provide for indemnification of
directors and officers, and Article VII of the Company's By-laws
provides for the indemnification under certain conditions of
directors, officers, acting in their official capacities.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the PBCL, the
Company's By-laws or otherwise, the Company has been informed
that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable.
___________
<PAGE>
SIGNATURES
The Registrant. 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-8 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 May 15, 1998.
SCAN-GRAPHICS, INC.
By: /s/ Laurence L. Osterwise
-----------------------------
Laurence L. Osterwise,
President, Chief Executive
Officer
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and
appoints Laurence L. Osterwise and Michael A. 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/ R. Barry Borden Chairman of May 13, 1998
- ------------------------- the Board of
R. Barry Borden Directors
/s/ Laurence L. Osterwise President, Chief May 13, 1998
- ------------------------- Executive Officer
Laurence L. Osterwise and Director
(Principal Executive Officer)
/s/ William K. Williams Vice President May 13, 1998
- ------------------------- and Chief Fin-
William K. Williams ancial Officer
(Principal Financial and Accounting Officer)
/s/ Andrew E. Trolio Director May 14, 1998
- -------------------------
Andrew E. Trolio
/s/ Michael A. Mulshine Director and May 13, 1998
- ------------------------- Secretary
Michael A. Mulshine
/s/ David S. Hirsch Director May 13, 1998
- -------------------------
David S. Hirsch
/s/ James C. Sargent Director May 13, 1998
- -------------------------
James C. Sargent
/s/ Jack A. Pellicci Director May 14, 1998
- -------------------------
Jack A. Pellicci
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
4.1 Form of Private Placement Purchase Agreement.
(Incorporated by reference to Exhibit 4.5 to
the Company's Registration Statement on Form
S-3, File No. 333-3719).
4.2 Form of Private Placement Purchase Agreement
for Units consisting of Convertible Notes and
Warrants. (Incorporated by reference to
Exhibit 4.4 to the Company's Registration
Statement on Form S-3, File No. 333-31983.)
4.3 Warrant to purchase 2,100,000 shares of Common
Stock dated April 8, 1997, issued to Broad
Capital Associates, Inc.(Incorporated by
reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-3, File No.
333-31983.)
4.4 Certificate of Designation of the Series A Preferred
Stock, Series E, par value $1,000 per share.
(Incorporated by reference to Exhibit 4.0 to the
Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1998 filed with the
Commission on May 15, 1998.)
4.5 Form of Warrant to purchase shares of Common
Stock. (Incorporated by reference to Exhibit 4.0 to
the Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1998 filed with the
Commission on May 15, 1998.)
4.6 1992 Long Term Incentive Plan (filed as Appendix A
to the Company's Definitive Proxy Materials dated
May 23, 1997 and incorporated herein by reference).
5.1* Opinion of Schnader Harrison Segal & Lewis LLP
23.1* Consent of BDO Seidman, LLP.
23.2* Consent of Schnader Harrison Segal & Lewis LLP
(included in Exhibit 5.1).
24.1* Power of Attorney (contained on signature
page).
- ---------------
* Filed herewith
<PAGE>
EXHIBIT 5.1
LAW FIRM
SCHNADER HARRISON SEGAL & LEWIS LLP
1225 EYE STREET, N.W., SUITE 600
WASHINGTON, D.C. 20005-3914
202-216-4300
TELECOPIER 202-775-8741
May 18, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Ladies and Gentlemen:
A Registration Statement on Form S-8 (the "Registration
Statement") is being filed on or about the date of this letter
with the Securities and Exchange Commission to register shares of
common stock, par value $.001 per share (the "Shares"),of
Scan-Graphics, Inc.(the "Company") which may from time to time
be offered by the Company in connection with its 1992 Long-Term
Incentive Plan (the "Plan"). This opinion is delivered in
accordance with the requirements of Item 601(b)(5) of Regulation
S-K under the Securities Act of 1933, as amended.
We have acted as counsel to the Company in connection with
the Registration Statement. In rendering this opinion, we have
examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of the corporate
records of the Company, including its Certificate of
Incorporation, its By-Laws, and minutes of directors' meetings,
and such other documents (including the Plan) which we have
deemed relevant or necessary as the basis for the opinion as
hereinafter set forth.
We have assumed the legal capacity of all natural persons,
the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of
such latter documents. As to any facts material to the opinion
expressed herein, we have relied upon oral or written statements
and representations of officers and other representatives of the
Company and others.
Based upon and subject to the foregoing, it is our opinion
that the Shares that will be issued under the Plan have been duly
authorized and, when issued pursuant to, and in accordance with
the Plan, will be validly issued, fully paid and non-assessable.
We consent to the inclusion of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
/s/ SCHNADER HARRISON SEGAL
& LEWIS LLP
<PAGE>
EXHIBIT 23.1
Consent of Independent Certified Public Accountants
Scan-Graphics, Inc.
Limerick, Pennsylvania
We hereby consent to the incorporation by reference and inclusion
in the Prospectus constituting a part of the Registration
Statement on Form S-8 of our report dated March 13, 1998, except
for Note 14 which is dated March 27, 1998, relating to the
consolidated financial statements and schedule of Scan-Graphics,
Inc. and Subsidiaries as of December 31, 1996 and 1997, and for
each of the years in the three-year period ended December 31,
1997.
We also consent to the reference to us under the caption
"Experts" in the Prospectus
BDO SEIDMAN, LLP
Philadelphia, Pennsylvania
May 15, 1998
