As filed with the Securities and Exchange Commission on
January 29, 1999
Registration No. 333-_________
=================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
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 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:
ROBERT B. MURPHY, ESQ.
STEVEN E. FRIEDMAN, ESQ.
Schnader Harrison Segal & Lewis LLP
1300 Eye Street, N.W., 11th Floor East
Washington, D.C. 20005-3314
202-216-4200
----------------
Approximate Date of Proposed Sale to the Public: From time
to time 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 registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, other than securities
offered only in connection with dividend or interest reinvestment
plans, check the following box. [X]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.[]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------
Title of each class Proposed Maximum
of securities Amount to be Offering Price
to be registered Registered Per Share*
- ------------------- ------------ ------------------
Common Stock, par 1,853,117 $3.00
value $.001 per
share
- ---------------------------------------------------------------
- -------------------------------------
Proposed maximum Amount of
aggregate Registration
offering price* Fee
- ---------------- ------------
$5,559,351 $1,545.50
- -------------------------------------
* 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 January 27, 1999, as reported
on the NASDAQ SmallCap Market.
----------------
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 THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
=================================================================
<PAGE>
PROSPECTUS
SCAN-GRAPHICS, INC.
1,853,117 Shares
Common Stock
----------------
The selling shareholders listed below may offer from time to
time 1,853,117 shares of our common stock under this prospectus.
Of the 1,853,117 shares, (i) 599,000 are issuable or have been
issued pursuant to the terms of warrants held by certain of our
employees and contractors, and (ii) 1,254,117 are issuable or
have been issued pursuant to the terms of warrants issued in
connection with the restructuring of the terms of our Series E
Preferred Stock. See "Recent Developments Series E
Restructuring" and "Selling Shareholders."
Our common stock is traded on the Nasdaq SmallCap Market
under the symbol "SCNG." On January 27, 1999, the closing bid
price of one share of our common stock was $3.00.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS WHICH ARE
DESCRIBED IN THE "RISK FACTORS" SECTION OF THIS PROSPECTUS
BEGINNING ON PAGE __.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is January __, 1999
<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 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.
TABLE OF CONTENTS
Page
----
Where You Can Find More Information...........
Information Incorporated By Referenced........
The Company...................................
Risk Factors..................................
Use of Proceeds...............................
Recent Developments...........................
Selling Shareholders..........................
Plan of Distribution..........................
Legal Matters.................................
Experts.......................................
WHERE YOU CAN FIND MORE INFORMATION
As a result of the fact that we are subject to the
informational requirements of the Securities Exchange Act of
1934, we file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and
copy any document we file at the SEC's public reference rooms at
the SEC's principal office at Judiciary Plaza, 450 Fifth Street,
N.W., and at the SEC'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. Our SEC filings are also available to the public from the
SEC's website at "http://www.sec.gov". In addition, any of our
SEC filings may also be inspected and copied at the offices of
The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington,
D.C. 20006.
We have filed with the SEC a Registration Statement on Form
S-3 with respect to the common stock offered by this prospectus.
You should be aware that 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
SEC. For further information with respect to our company
and our common stock, 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.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the
information we file with them, which means that we can disclose
important information to you by referring to those documents.
The information incorporated by reference is considered to be
part of this prospectus, and the information that we file at a
later date with the SEC will automatically update and supersede
this information. We incorporate by reference the documents
listed below as well as any future filings we will make with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934:
(a) Our Annual Report on Form 10-K for the fiscal
year ended December 31, 1997.
(b) Our Quarterly Reports on Form 10-Q for the periods ended
March 31, 1998, June 30, 1998 and September 30, 1998.
(c) All other reports pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 since the end of our fiscal
year ended December 31, 1997.
(d) The description of our common stock which is contained
in our Registration Statement on Form 8-B filed under the
Securities Exchange Act, including any amendment or reports filed
for the purpose of updating such description.
You may request a copy of these filings, at no cost, by
writing or telephoning us at the following address:
Scan-Graphics, Inc.
649 North Lewis Road
Limerick, PA 19468
Attention: Michael A. Mulshine, Corporate Secretary
(610) 495-3003
<PAGE>
THE COMPANY
Scan-Graphics is comprised of three operating companies:
Tangent Imaging Systems, Sedona GeoServices, and Technology
Resource Centers. This group pioneered and remains a leader in
scanning and image processing technology and large document
scanners. Further, this group has developed and is developing
Internet enabled business geographics and data visualization
software and solutions, imaging software and systems and backfile
conversion services. We market our products abroad through
systems integrators and distributors.
Our principal executive officers are located at 649 North
Lewis Road, Limerick, Pennsylvania 19468, and our telephone
number is (610) 495-3003.
RISK FACTORS
Investing in our common stock will provide you with an
equity ownership interest in Scangraphics. As one of our
shareholders, you may be subject to risks inherent in our
business. The performance of your shares will reflect the
performance of our business relative to, among other things, our
competition, general economic and market conditions and industry
conditions. The value of your investment may increase or decline
and could result in a loss. You should carefully consider the
following factors as well as other information contained in this
prospectus before deciding to invest in shares of our common
stock.
This prospectus includes certain forward-looking statements
and information which may be identified by the use of
forward-looking terms such as "believes," "expects," "may,"
"should," or "anticipates" or the negative of such words. We
have based these forward-looking statement on our current
expectations and projections about future events. These forward-
looking statements are subject to risks, uncertainties, and
assumptions about our company and therefore, the forward-looking
statements might not occur.
WE HAVE A HISTORY OF OPERATING LOSSES. Other than for
achieving a nominal net operating profit for the fiscal year
ended December 31, 1992, we incurred net operating losses in 1988
and in each year thereafter. As of September 30, 1998, we had
accumulated losses (deficit) of approximately $26,416,000 and
stockholders' equity of approximately $4,223,000. We have taken
steps to attempt to improve our 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 our securities, expanding sales distribution channels for our
products and introducing new products into the market. We are
uncertain as to the acceptance of our current products and the
potential market for our new products, including those of Sedona
and Tangent. If our current and future products fail to gain
acceptance in the marketplace it is unlikely that we will be able
to reverse the operating loss trend or assure future
profitability.
THIS OFFERING MAY EFFECT THE MARKET PRICE OF OUR COMMON
STOCK. The number of shares of our common stock being offered
pursuant to this prospectus by the selling shareholders
represents approximately 8.50% of the total of our outstanding
common stock as of December 31, 1998. We anticipate that each
selling shareholder will offer its shares of common stock at such
time and in such manner as the selling shareholder feels is
appropriate. Sales of a substantial number of shares of common
stock in the public market could adversely affect the prevailing
market price of the common stock and impair our ability to raise
capital through the sale of our equity securities. Further, the
possibility that substantial amounts of common stock may be sold
in the public market by other holders of warrants, options or
other rights to acquire shares of common stock also may adversely
affect prevailing market prices for the common stock and could
impair our ability to raise capital through the future sale of
our equity securities. See Section below for further details as
well as "Plan of Distribution."
THE EXERCISE OF WARRANTS, OPTIONS, CONVERTIBLE NOTES AND THE
SERIES E PREFERRED STOCK MAY DEPRESS OUR STOCK PRICE. As of
December 31, 1998, there were outstanding additional warrants
(other than those hereunder) to purchase 7,994,542 shares of our
common stock, of which warrants to purchase an aggregate of
5,420,006 shares of 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 December 31,
1998, was approximately $3.11 per share. There were also
outstanding options to purchase 1,587,277 shares of our common
stock, of which options to purchase 988,944 shares were
immediately exercisable. All of these options were issued to our
officers, directors, employees and contractors and are
exercisable at prices ranging from approximately $0.47 to
$3.69 per share. The weighted average exercise price of all
options outstanding as of December 31, 1998, was approximately
$2.45 per share. Finally, there were also outstanding 4,347
shares of our Series E Preferred Stock. Based on the average
closing bid price for the five trading days ended December 31,
1998, the outstanding shares of Series E Preferred Stock would be
convertible into an aggregate of 2,211,550 shares of common
stock. While outstanding warrants and options are exercisable or
while conversions of the Series E Preferred Stock are "in the
money," the holders of those securities have the opportunity to
profit from a rise in the market price of our 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 may adversely affect
prevailing market prices for the common stock and could impair
our ability to raise capital through the future sale of our
equity securities. See "- Effect of Offering on Market Price of
Common Stock."
NO ASSURANCE OF ACTIVE TRADING MARKET; POSSIBLE VOLATILITY
OF STOCK PRICE; NO DIVIDENDS. Prior to the date of this
prospectus, there has been an active trading market for our
common stock, but we cannot assure you such a market will
continue indefinitely. Moreover, the market price for our common
stock has been volatile. We have not paid any cash dividends on
our common stock and we do not anticipate doing so in the
foreseeable future.
NEED FOR ADDITIONAL FUNDING. We will not receive any of the
proceeds from the sale of shares by the selling shareholders
unless some or all of the warrants are exercised in which case we
will receive the net proceeds upon such exercises. See "Use of
Proceeds." We believe that additional financing, in the form of
the proceeds from the exercise of currently outstanding warrants
and/or other financing activities, may be required in order for
us to conduct our operations as currently contemplated for a
period of at least one year. In this regard, we are actively
pursuing various sources of asset based loans as well as new
equity infusions to provide additional funding. We also believe
that we may need to raise substantial additional funds to support
our long-term growth, in which case we may seek additional
funding through public or private sales of our securities,
including equity securities. Our failure to obtain the necessary
financing may force us to reduce our expenditures and/or sell our
assets or proprietary rights in order to generate cash. There
can be no assurance, however, that any of the outstanding
warrants will be exercised, that other additional financing will
be available on terms acceptable to us (if at all), or that we
can reduce our expenditures or sell assets or proprietary rights
without having a material effect on our business. See "History
of Operating Losses."
NET OPERATING LOSS CARRYFORWARDS. As of December 31, 1997
(the latest date for which information is available), we 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 amounted to
approximately $8.1 million and had been entirely offset by a
valuation allowance of $8.1 million. As discussed above in
"History of Operating Losses," we have taken steps that we
believe will improve our results of operations, but there exist
uncertainties as to product acceptance and the potential market
for our new products, and, therefore, there can be no assurance
that we will be able to reverse the operating loss trend
or assure future profitability. Also, Section 382 of the
Internal Revenue Code of 1986 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." Our use of the NOLs to offset future taxable
income will be limited by Section 382 of the Internal Revenue
Code and may be further limited by other provisions of that code.
We believe 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 our
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 our NOLs. Therefore,
we can give no assurances with respect to the existence or
potential use of the NOLs.
TECHNOLOGICAL OBSOLESCENCE. We maintain continuous research
and development programs with the goal of maintaining our
software and scanner products as technically strong competitive
offerings to their respective markets. We have 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 our
total revenues for the years 1997, 1996 and 1995, respectively.
Although we intend to continue on-going research and development
efforts, our competitors might succeed in developing technologies
and products that are more attractive than any that are being
developed and marketed by us or that would otherwise render our
technology and products obsolete or noncompetitive. In the nine
months through September 30, 1998, the Company spent $1,213,000
on research and development which represented 27.1% of total
revenues for that period.
COMPETITION. The business intelligence, scanning and image
processing industries are highly competitive. We compete with a
number of companies and many of them have substantially greater
financial and marketing resources than us. We offer an advanced
line of business intelligence software and large format scanners
and imaging software through a variety of domestic and
international distribution channels. There can be no assurance
that we will not encounter competition in the future which will
limit the Company's ability to maintain and increase our position
in the market for our products or otherwise adversely affect our
business. We have only recently begun to compete in the business
intelligence software market and we can not be sure that we will
be able to successfully compete with the more established
competitors in the market.
USE OF PROCEEDS
We will not receive any proceeds from the sale of
the shares of our common stock by the selling shareholders. In
the event that any or all of the warrants held by the selling
shareholders are exercised, the net proceeds to us will be used
for product development, sales and marketing expenses, working
capital and for general corporate purposes. In the meantime, we
will invest the net proceeds from the exercise of the warrants,
if any, in high grade short term interest bearing investments.
RECENT DEVELOPMENTS
SERIES E PREFERRED STOCK RESTRUCTURING. On August 7, 1998
we restructured the $5.2 million private placement of equity
securities which we completed in April 1998. That private
placement consisted of the sale of units consisting of Series E
Preferred Stock and warrants. Under the restructured terms of
that private placement, the investors agreed not to convert any
of their shares of Series E Preferred Stock through January 31,
1999. Thereafter up to 25% of the remaining Series E Preferred
Stock may be converted per month on a cumulative basis per
holder. This restriction will be lifted at a conversion price at
or above $3.00 per share (which would require the average closing
bid price of shares of our common stock to exceed $3.53 per share
for the five prior trading days). As part of the restructuring,
we agreed to adjust, from $3.00 to $2.25, the per share exercise
price of the 1,500,200 warrants issued as part of the units, on
the condition that prior to February 1, 1999, these warrants
cannot be exercised if the price of our common stock is below
$4.00 per share. The final component of the restructuring
consisted of our agreement to issue up to 1,500,200 new warrants
to the investors at an exercise price of $4.00 per share. An
investor will receive 28,850 warrants for each $100,000, or pro
rata portion thereof, of Series E Preferred Stock held on
February 1, 1999. It is the shares of our common stock
underlying these additional warrants that are being offered
pursuant to this prospectus (in addition to the 599,000 shares
held by certain of our employees and contractors).
WARRANT AND OPTION EXERCISES. In 1998, warrant holders
exercised warrants resulting in the issuance of 187,500 shares
and resulting in the Company's receipt of $200,000 and options
were exercised resulting in the issuance of 68,333 shares of
common stock and resulting in the Company's receipt of $68,333.
SEDONA GEOSERVICES, INC. Our Sedona GeoServices
(Sedona) unit develops and markets enterprise scale geo-
intelligence solutions that focus on ease of use,
interoperability, Internet accessibility and intuitive
visualization of geographic components of enterprise data.
Through strategic industry alliances, Sedona is uniquely
positioned to address the needs of Oracle database customers.
The vision of the company is to enable business clients in
turning warehoused data into relevant visual information from
which informed decisions are made to swiftly improve bottom-line
results.
In November 1998, Sedona launched its flagship software
product, SpatialVision, at the Oracle Open World Symposium in San
Francisco. Sedona is currently working with several major
clients to develop enterprise-wide solutions to their business
intelligence challenges.
Distribution of the product will be handled by exploiting
primarily VAR and OEM channels in addition to direct sales via
the Internet.
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, we have decided to
focus our resources in the faster growth, higher margin color
markets, thereby decreasing the resources we devote to
monochrome development, manufacturing and distribution.
Our Technology Resource Centers unit 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 us 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. We have
categorically denied the plaintiff's claims and are defending our
position.
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth information regarding the
beneficial ownership of our common stock held by the selling
shareholders as of December 31, 1998, the number of shares being
registered hereunder to permit sales from time to time by such
selling shareholders, and the total beneficial ownership of
shares of our 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
------ -------
Richard Bruce
Rabinowitz 16,643(3) 4,329 12,314 *
American Friends of
Tiferet Tiberias
Institutions, Inc. 99,815(4) 25,965 73,850 *
Milwaukee Kollel, Inc. 99,815(4) 25,965 73,850 *
Wayne Saker 119,170(5) 25,965 93,205 *
Keren MYCB Elias, Inc. 99,815(4) 25,965 73,850 *
Leonard J. Adams 119,170(5) 25,965 93,205 *
The Jerusalem Fund 117,123(6) 25,965 91,158 *
Herman & Nanni
Bodenheimer 93,167(7) 19,733 73,434 *
Gabriel Bodenheimer 23,956(8) 6,232 17,724 *
Thomas Meyer 33,288(9) 8,659 24,629 *
Charles Kushner 499,075(10) 129,825 369,250 1.85
Richard Stadtmauer 199,630(11) 51,930 147,700 *
Murray Kushner 299,445(12) 77,895 221,550 1.11
Josh Berkowitz 24,955(13) 6,492 18,463 *
Michael Kule 9,982 (14) 2,597 7,385 *
Rita Folger 136,478(15) 25,965 110,513 *
Vavel Corp. 299,445(16) 77,895 221,550 1.11
Karfunkel Family
Foundation, Inc. 117,123(6) 25,965 91,158 *
Jules Nordlicht 534,684(17) 77,895 456,789 2.29
ACE Foundation 1,171,230(18) 259,650 911,580 4.57
Huberfeld/Bodner
Family Foundation 218,731(19) 44,141 174,590 *
Abraham Elias 74,862(20) 19,474 55,388 *
Millenco Partners L.P. 998,150(21) 259,650 738,500 3.70
Progressive
Consultants, Inc.(22) 20,000(23) 20,000 0 *
Charles Soltis(24) 5,000(25) 5,000 0 *
Barry Maser(26) 20,000(27) 10,000 10,000 *
George Griffin(28) 150,000(29) 150,000 0 *
Michael G. Cunniff(30) 30,000(31) 12,000 18,000 *
Osprey Partners(32) 586,583(33) 72,000 514,583 2.58
Laurence L. Osterwise(34)850,000(35) 300,000 550,000 2.76
C&F Global
Enterprises, Inc.(36) 246,874(37) 30,000 216,874 1.09
- ---------------------------------------
* 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 SEC, 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 shares of our common
stock or securities convertible into or exchangeable for our
common stock.
(3) Includes 9,139 shares issuable upon exercise of
outstanding warrants and 7,504 shares issuable upon conversion of
Series E Preferred Stock.
(4) Includes 54,815 shares issuable upon exercise of
outstanding warrants and 45,000 shares issuable upon conversion
of Series E Preferred Stock.
(5) Includes 74,170 shares issuable upon exercise of
outstanding warrants and 45,000 shares issuable upon conversion
of Series E Preferred Stock.
(6) Includes 72,123 shares issuable upon exercise of
outstanding warrants and 45,000 shares issuable upon conversion
of Series E Preferred Stock.
(7) Includes 58,967 shares issuable upon exercise of
outstanding warrants and 34,200 shares issuable upon conversion
of Series E Preferred Stock.
(8) Includes 13,156 shares issuable upon exercise of
outstanding warrants and 10,800 shares issuable upon conversion
of Series E Preferred Stock.
(9) Includes 18,280 shares issuable upon exercise of
outstanding warrants and 15,008 shares issuable upon conversion
of Series E Preferred Stock.
(10) Includes 274,075 shares issuable upon exercise of
outstanding warrants and 225,000 shares issuable upon conversion
of Series E Preferred Stock.
(11) Includes 109,630 shares issuable upon exercise of
outstanding warrants and 90,000 shares issuable upon conversion
of Series E Preferred Stock.
(12) Includes 164,445 shares issuable upon exercise of
outstanding warrants and 135,000 shares issuable upon conversion
of Series E Preferred Stock.
(13) Includes 13,705 shares issuable upon exercise of
outstanding warrants and 11,250 shares issuable upon conversion
of Series E Preferred Stock.
(14) Includes 5,482 shares issuable upon exercise of
outstanding warrants and 4,500 shares issuable upon conversion of
Series E Preferred Stock.
(15) Includes 91,478 shares issuable upon exercise of
outstanding warrants and 45,000 shares issuable upon conversion
of Series E Preferred Stock.
(16) Includes 164,445 shares issuable upon exercise of
outstanding warrants and 135,000 shares issuable upon conversion
of Series E Preferred Stock.
(17) Includes 399,684 shares issuable upon exercise of
outstanding warrants and 135,000 shares issuable upon conversion
of Series E Preferred Stock.
(18) Includes 721,230 shares issuable upon exercise of
outstanding warrants and 450,000 shares issuable upon conversion
of Series E Preferred Stock.
(19) Includes 142,231 shares issuable upon exercise of
outstanding warrants and 76,500 shares issuable upon conversion
of Series E Preferred Stock.
(20) Includes 41,112 shares issuable upon exercise of
outstanding warrants and 33,750 shares issuable upon conversion
of Series E Preferred Stock.
(21) Includes 548,150 shares issuable upon exercise of
outstanding warrants, and 450,000 shares issuable upon conversion
of Series E Preferred Stock.
(22) Progressive Consultants, Inc. provides certain business
development consulting services to us.
(23) Includes 20,000 shares issuable upon exercise of
outstanding warrants.
(24) Charles Soltis provides certain business development
consulting services to us.
(25) Includes 5,000 shares issuable upon exercise of
outstanding warrants.
(26) Barry Maser provides certain business development
consulting services to us.
(27) Includes 10,000 shares issuable upon exercise of
outstanding warrants, and 10,000 shares issuable upon exercise of
outstanding options.
(28) Mr. Griffin provides certain management consulting
services to us.
(29) Includes 150,000 shares issuable upon exercise of
outstanding warrants.
(30) Mr. Cunniff provides certain management consulting
services to us.
(31) Includes 30,000 shares issuable upon exercise of
outstanding warrants.
(32) Osprey Partners provides certain management consulting
services to us.
(33) Includes 586,583 shares issuable upon exercise of
outstanding warrants.
(34) Mr. Osterwise is our President, Chief Executive Officer
and a director.
(35) Includes 850,000 shares issuable upon exercise of
outstanding warrants.
(36) C&F Global Enterprises, Inc. provides certain
management consulting services to us.
(37) Includes 246,874 shares issuable upon exercise of
outstanding warrants.
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling
shareholders. The shares being registered are owned or may be
acquired by the selling shareholders upon exercise of warrants.
"Selling shareholders", as used in this prospectus, includes
donees, pledgess, transferees or other successors in interest who
may receive shares received from a named selling shareholder
after the date of this prospectus. The selling shareholders may
offer their shares of our common stock at various times in one or
more of the following transactions:
-in ordinary broker's transactions on Nasdaq or any
national securities exchange on which our common stock may be
listed at the time of sale;
-in the over-the-counter market;
-in private transactions other than in the
over-the-counter market;
-in connection with short sales of other shares of our
common stock;
-by pledge to secure debts and other obligations;
-in connection with the writing of non-traded and
exchange-traded call options, in hedge transactions and in
settlement of other transactions in standardized or
over-the-counter options; or
-in a combination of any of the above transactions.
The selling shareholders may sell their shares at market
prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated price or at fixed prices.
The selling shareholders may use broker-dealers to sell
their shares. If this happens, broker-dealers will either
receive discounts or commissions from the selling shareholders,
or they will receive commissions from purchasers of shares for
whom they acted as agents.
Selling shareholders also may resell all or a portion of the
shares in open market transactions in reliance upon Rule 144
under the Securities Act, provided they meet the criteria and
conform to the requirements of that rule.
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 us of any
specific plans for the distribution of the shares covered by this
prospectus. When and if we are notified by any of 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.
We have 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.
We have agreed to pay 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.
LEGAL MATTERS
The validity of the shares of common stock offered hereby
will be passed upon for us by Schnader Harrison Segal & Lewis
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 their 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.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution*
SEC Registration fee....................$ 1,545.50
Printing fees........................... 0,000.00
Accounting fees......................... 5,000.00
Legal fees.............................. 10,000.00
Miscellaneous........................... 0,000.00
Total................................$16,545.50
======
_____________________
* Estimated, except for SEC Registration fee. No portion of
these expenses will be borne by the selling shareholders.
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 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.
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 currently covered as insureds under a
directors' and officers' liability insurance policy.
Item 16. Exhibits.
Number Description
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 Class A
Preferred Stock, Series E, par value $1,000 per
share. (Incorporated by reference from Exhibit
4.0 to the Company's Quarterly Report on Form
10-Q for the three months ended March 31,
1998.)
4.3 Form of Warrant to purchase shares of Common
Stock.(Incorporated by reference from Exhibit
4.0 to the Company's Quarterly Report on Form
10-Q for the three months ended March 31,
1998.)
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 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act 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 end of the estimated
maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than
a 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 the 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 13 or Section 15(d)of the Exchange Act that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating 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.
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 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.
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
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 of 1933 and will be governed by
the final adjudication of such issue.
<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 Township of Limerick, Montgomery County, Commonwealth of
Pennsylvania, on January 27, 1999.
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 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 January 27, 1999
- ------------------------- the Board of
R. Barry Borden Directors
/s/ Laurence L. Osterwise President, Chief January 27, 1999
- ------------------------- Executive Officer
Laurence L. Osterwise and Director
(Principal Executive Officer)
/s/ William K. Williams Vice President January 27, 1999
- ------------------------- and Chief Fin-
ancial Officer
(Principal Financial and Accounting Officer)
/s/ Andrew E. Trolio Director January 27, 1999
- -------------------------
Andrew E. Trolio
/s/ Michael A. Mulshine Director and January 27, 1999
- ------------------------- Secretary
Michael A. Mulshine
/s/ David S. Hirsch Director January 27, 1999
- -------------------------
David S. Hirsch
Director January , 1999
- -------------------------
James C. Sargent
Director January __, 1999
- -------------------------
Jack A. Pellicci
/s/ Robert M. Shapiro Director January 27, 1999
- -------------------------
Robert M. Shapiro
<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 from Exhibit 4.0 to the
Company's Quarterly Report on Form 10-Q for the
three months ended March 31, 1998.)
4.3 Form of Warrant to purchase shares of Common
Stock. (Incorporated by reference from Exhibit 4.0
to the Company's Quarterly Report on Form 10-Q for
the three months ended March 31, 1998.)
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
1300 EYE STREET, N.W., 11th Floor East
WASHINGTON, D.C. 20005
202-216-4200
TELECOPIER 202-775-8741
January 29, 1999
Scan-Graphics, Inc.
649 North Lewis Road, Suite 220
Limerick, Pennsylvania 19468
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We are acting as counsel to Scan-Graphics, Inc., a
Pennsylvania corporation (the "Company"), in connection with the
registration of shares of the Company's Common Stock, par value
$.001 per share (the "Shares"),pursuant to a Registration
Statement on Form S-3(the "Registration Statement"), filed with
the Securities and Exchange Commission under the Securities Act
of 1933, as amended. Such Shares will be sold from time to time
by the shareholders named in the Registration Statement (the
"Selling Shareholders").
As counsel for the Company, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of
such documents, corporate records, certificates of public
officials and other instruments as we have deemed necessary for
the purposes of rendering this opinion. In our examination, we
have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity
with the originals of all documents submitted to us as copies.
As to various questions of fact material to such opinion, we have
relied, to the extent we deemed appropriate, upon
representations, statements and certificates of officers and
representatives of the Company and others.
Based upon the foregoing, we are of the opinion that the
Shares to be registered for sale by the Selling Shareholders have
been duly authorized by the Company, and when issued, delivered
and paid for in accordance with the terms of the warrants
referred to in the Registration Statement (the "Warrants"), will
be, validly issued, fully paid and nonassessable. Our opinion is
expressly limited to the Shares that may be issued to the Selling
Shareholders in connection with exercise of the Warrants.
We consent to the use of this opinion as an exhibit to the
Registration Statement, and we consent to the use of our name
under the caption "Legal Maters" in the Prospectus forming a part
of 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 in this
Registration Statement on Form S-3 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. appearing in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
We also consent to the reference to us under the caption
"Experts" in the Prospectus
BDO SEIDMAN, LLP
Philadelphia, Pennsylvania
January 29, 1999
