<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
Commission File Number 0-15864
-------------
SEDONA CORPORATION
- -------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
PENNSYLVANIA 95-4091769
- --------------------------- -------------------------------------
(State of Incorporation) (IRS Employer Identification No.)
649 NORTH LEWIS ROAD, LIMERICK, PENNSYLVANIA 19468-1234
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
610-495-3003
- -------------------------------------------------------------------------------
Registrant's telephone number, including area code
SCAN-GRAPHICS, INC.
- -------------------------------------------------------------------------------
Former Name
Indicate by the check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 and 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
------ ------
21,545,348 shares of common stock were outstanding as of June 30, 1999.
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -- June 30, 1999 (Unaudited)
and December 31, 1998 4
Consolidated Statements of Operations -- (Unaudited)
three months ended June 30, 1999 and 1998 5
Consolidated Statements of Operations -- (Unaudited)
six months ended June 30, 1999 and 1998 6
Consolidated Statements of Cash Flow -- (Unaudited)
six months ended June 30, 1999 and 1998 7
Notes to Consolidated Financial Statements -
June 30, 1999 8 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 13
PART II. OTHER INFORMATION
- ---------------------------
Item 1 through Item 6. 14 - 15
SIGNATURE PAGE 16
2
<PAGE>
NOTE ON FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are statements
other than historical information or statements of current condition. Some
forward-looking statements may be identified by use of terms such as "believes",
"anticipates", "intends", or "expects". These forward-looking statements relate
to the plans, objectives, and expectations of Sedona Corporation (the "Company"
or "Sedona Corp.") for future operations. In light of the risks and
uncertainties inherent in all forward-looking statements, the inclusion of such
statements in this Form 10-Q should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved or that any of the Company's operating expectations will be realized.
The Company's revenues and results of operations are difficult to forecast and
could differ materially from those projected in the forward-looking statements
contained herein as a result of certain factors including, but not limited to,
dependence on operating agreements with foreign partners, significant foreign
and U.S.-based customers and suppliers, availability of transmission facilities,
U.S. and foreign regulations, international economic and political instability,
dependence on effective billing and information systems, customer attrition and
rapid technological change. These factors should not be considered exhaustive;
the Company undertakes no obligation to release publicly the results of any
future revisions it may make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
3
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share and per share data)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
Assets
Current Assets:
Cash $ 1,011 $ 798
Accounts and notes receivable, less
allowance for doubtful accounts of
$45 in 1999 and $226 in 1998 787 1,916
Inventories 1,131 932
Prepaid expenses and other current assets 130 139
---------------------------
Total current assets 3,059 3,785
Property And Equipment, less accumulated
depreciation and amortization 919 1,115
Software development costs, net and other assets 466 345
---------------------------
Total assets $ 4,444 $5,245
===========================
Liabilities And Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses $ 956 $ 1,070
Dividend payable 249 259
Deferred revenue 148 47
Current maturities of long-term debt 63 125
----------------------------
Total current liabilities 1,416 1,501
Long-term debt, less current maturities 82 132
Other 81 155
----------------------------
Total long-term liabilities 163 287
----------------------------
Total liabilities $ 1,579 $ 1,788
Stockholders' Equity:
Class A convertible preferred stock
Authorized shares - 1,000,000
Series A, par value $2.00,
Issued and outstanding shares - 500,000 1,000 1,000
Series B, par value $2.00,
Issued and outstanding shares - 1,000 and
-0- in 1999 and 1998, respectively 1,000 --
Series E, par value $1,000,
Issued and outstanding shares - 2,268 and
4,347 in 1999 and 1998, respectively 2,268 4,347
Series F, par value $1,000,
Issued and outstanding shares - 1,000 and
-0- in 1999 and 1998, respectively 1,000 --
Common stock, par value $0.001
Authorized shares - 50,000,000
Issued and outstanding shares - 21,545,348
and 19,927,789 in 1999 and 1998, respectively 22 20
Additional paid-in-capital 27,878 25,396
Notes receivable, related parties (53) (53)
Accumulated deficit (30,250) (27,253)
----------------------------
Total stockholders' equity 2,865 3,457
----------------------------
Total liabilities and stockholders' equity $ 4,444 $ 5,245
============================
</TABLE>
See accompanying notes.
4
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
------------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues:
Sales $ 1,079 $ 1,542
License and royalty fees 3 --
------------------------------------
Total revenues 1,082 1,542
Cost of goods sold 728 779
------------------------------------
Gross profit 354 763
Expenses:
General and administrative 851 704
Sales and marketing 524 674
Research and development 143 397
------------------------------------
Total operating expenses 1,518 1,775
------------------------------------
(1,164) (1,012)
Other income(expense)
Interest income 22 50
Interest expense (23) (21)
Other -- (1)
------------------------------------
Total other income (expense) (1) 28
Loss before provision for income taxes (1,165) (984)
Income taxes -- --
------------------------------------
Net loss (1,165) (984)
Preferred stock dividends (103) (235)
------------------------------------
Net loss applicable to common stockholders $(1,268) $(1,219)
====================================
Basic and diluted net loss applicable to
common shares $ (.06) $ (.06)
====================================
Basic and diluted weighted average common
shares outstanding 21,294,414 18,838,003
====================================
</TABLE>
See accompanying notes.
5
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues:
Sales $ 1,670 $ 2,744
License and royalty fees 5 9
----------------------------------
Total revenues 1,675 2,753
Cost of goods sold 1,375 2,322
----------------------------------
Gross profit 300 431
Expenses:
General and administrative 1,410 1,903
Sales and marketing 1,227 1,469
Research and development 444 828
----------------------------------
Total operating expenses 3,081 4,200
----------------------------------
(2,781) (3,769)
Other income(expense)
Interest income 34 67
Interest expense (50) (29)
Other -- 6
----------------------------------
Total other income (expense) (16) 44
Loss before provision for income taxes (2,797) (3,725)
Income taxes -- --
----------------------------------
Net loss (2,797) (3,725)
Preferred stock dividends (200) (427)
----------------------------------
Net loss applicable to common stockholders $(2,997) $(4,152)
==================================
Basic and diluted net loss applicable to
common shares $ (.14) $ (.22)
==================================
Basic and diluted weighted average common
shares outstanding 20,827,515 18,668,398
==================================
</TABLE>
See accompanying notes.
6
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands, except share and per share data)
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Operating Activities
Net loss $(2,797) $(3,725)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 182 197
Increase accounts receivable reserves 103 --
Increase inventory reserves -- 737
Recovery for losses on accounts receivable (181) --
Changes in operating assets and liabilities:
Accounts receivable 1,206 (848)
Inventories (199) (200)
Prepaid expenses and other current assets 9 41
Other noncurrent assets 103 4
Accounts payable and accrued expenses (54) (8)
Other 101 392
--------------------------
Net cash used in operating activities $(1,527) $(3,410)
Investing Activities:
Purchase of property and equipment, net 14 (97)
Increase in capitalized software development costs (224) --
--------------------------
Net cash used in investing activities (210) (97)
Financing Activities:
Payment of preferred stock dividends $ (71) $ 14
Changes in long-term obligations, net (245) (42)
Proceeds from issuance of preferred stock, net 1,925 5,000
Proceeds from exercise of common stock
warrants/options 341 50
--------------------------
Net cash provided by financing activities 1,950 5,022
--------------------------
Net increase in cash and cash equivalents 213 1,515
Cash and cash equivalents, at beginning of year 798 1,310
--------------------------
Cash and cash equivalents, at end of period $ 1,011 $ 2,825
==========================
</TABLE>
See accompanying notes.
7
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In Thousands, except share and per share data)
Note #1
The accompanying consolidated financial statements are unaudited and include the
accounts of Sedona Corporation and subsidiaries (the "Company"). All significant
inter-company transactions and balances have been eliminated. In April 1999, the
Company announced a name change of the corporation to Sedona Corporation from
SCAN-GRAPHICS, Inc. and began trading under the NASDAQ Symbol "SDNA."
The consolidated financial statements included herein for the three and six
months ended June 30, 1999 and 1998 are unaudited. In the opinion of management,
all adjustments (consisting of normal recurring accruals) have been made which
are necessary to present fairly the financial position of the Company in
accordance with generally accepted accounting principles. The results of
operations experienced for the six month period ended June 30, 1999 are not
necessarily indicative of the results to be experienced for the year ended
December 31, 1999.
The statement and related notes have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying notes should
therefore be read in conjunction with the Company's December 31, 1998 annual
financial statements on Form 10-K and Form l0-Q for the Company's quarter ended
March 31, 1999.
Note #2 Inventories:
Inventories at June 30, 1999 and December 31, 1998 consist of the
following:
June 30,
1999 December 31,
(Unaudited) 1998
----------- ------------
Raw materials $ 311 $ 389
Work-in-process 96 135
Finished products 724 408
------ ------
$1,131 $ 932
====== ======
Note #3 Property and Equipment:
Property and equipment consists of:
June 30,
1999 December 31,
(Unaudited) 1998
----------- ------------
Machinery & equipment $3,237 $3,215
Equipment under capital lease 471 507
Furniture & fixtures 197 199
Autos & trucks -- 12
Leasehold improvements 88 88
Software 290 290
------ ------
4,283 4,311
Less accumulated
depreciation and amortization 3,364 3,196
------ ------
$ 919 $1,115
====== ======
8
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In Thousands, except share and per share data)
Note #4 Long-Term Debt:
Long-term debt consists of the following:
June 30,
1999 December 31,
(Unaudited) 1998
----------- ------------
Note Payable, payable in monthly
installments of $6, including
interest at 8.75% through July
1999. The note payable is
collateralized by equipment. $ 4 $ 40
Capital lease obligations 80 217
---- ----
84 257
Less current maturities 3 125
---- ----
Long-term debt $ 81 $132
==== ====
Note #5 Stockholders' Equity
During the second quarter of 1999, holders of $614 principal value of
the Series "E" Preferred Stock exercised their right to convert into
common stock and 589,785 common shares were issued. In addition, one
Series "E" holder's Preferred Stock with $45 principal value was
redeemed for cash by the Company.
On March 31, 1999, the Company entered into a $1.0 million private
placement purchase agreement for the issuance of 1,000 shares of Series
B convertible preferred stock. After a period of 12 months from March
31, 1999 (anniversary date), the investor can convert the preferred
stock to common stock at the lower of: 1) $2.30 (the "Closing Price"),
or 2) 100% of the common stock's average last trade price during the 25
trading days preceding the Conversion Date (the "Conversion Date
Price"). In no event can the conversion price be below $1.15. The
conversion amount shall be the principal amount of the preferred stock
being converted, plus an 8% premium accruing from the closing date to
the conversion date. In addition, if the common stock's average last
trade price during the 25 days preceding the anniversary is less than
145% of the Closing Price, the investor shall also be entitled to five
year warrants under a variable formula such that the lower the
conversion price, the higher the number of warrants. Additional
warrants may be issued to a maximum of 1,875,749 under this agreement.
Mandatory conversion of the preferred stock shall occur on the third
anniversary after closing.
On May 17, 1999, the Company announced that it would be retiring all
its remaining Series E Preferred Stock with proceeds from new common
stock issuance. This transaction is anticipated to be concluded in the
third quarter of 1999.
During the second quarter of 1999, there were a total of 505,000 common
stock options with exercise prices varying from $1.35 to $2.13 per
share issued to employees and directors of the Company and 485,000
common stock warrants with exercise prices ranging from $1.16 to $2.19
per share issued to certain officers and directors and a consultant to
the Company. The exercise prices of these options and warrants
approximated fair value at the time of such grants.
9
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In Thousands, except share and per share data)
Note #5 Stockholders' Equity
On May 24, 1999, the Company entered into a $1.0 million private
placement purchase agreement for the issuance of 1,000 shares of Series
F convertible preferred stock. After a period of 12 months from May 24,
1999 (anniversary date), the investor can convert the preferred stock
to common stock at the lower of: 1) $1.41 (the "Closing Price"), or 2)
100% of the common stock's average last trade price during the 25
trading days preceding the Conversion Date (the "Conversion Date
Price"). In no event can the conversion price be below $1.00. The
conversion amount shall be the principal amount of the preferred stock
being converted, plus an 8% premium accruing from the closing date to
the conversion date. In addition, if the common stock's average last
trade price during the 25 days preceding the anniversary is less than
145% of the Closing Price, the investor shall also be entitled to five
year warrants under a variable formula such that the lower the
conversion price, the higher the number of warrants. Additional
warrants may be issued to a maximum of 1,646,178 under this agreement.
Mandatory conversion of the preferred stock shall occur on the third
anniversary after closing.
Note #6 Supplemental Disclosures of Cash Flow Information:
Six months ended June 30,
-------------------------
1999 1998
------- ------
Cash paid during period for interest $ 50 $ 29
======= ======
Non-cash financing activities
are as follows:
Conversion of debenture interest
and preferred stock dividends
into common stock $ 48 $ 196
======= ======
Conversion of debentures into
preferred stock $ -- $ 311
======= ======
Conversion of preferred stock
to common stock $ 614 $2,740
======= ======
Expenses incurred related to
issuance of convertible stock $ 30 $ 230
======= ======
Notes Receivable, related parties
reductions $ -- $ 906
======= ======
10
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands, except share and per share data)
Results of Operations
Revenues for the three months ended June 30, 1999 were $1,082 a 30% decrease
compared to the three months ended June 30, 1998 amount of $1,542. The decrease
was caused principally by sales of fewer units in Tangent Imaging Systems offset
to some extent by increases in sales in the SedonaGeo Services unit. Revenue to
two customers accounted for approximately 35% of net revenue for the three
months ended June 30, 1999, compared to revenue to two customers which accounted
for approximately 25% of net revenue for the three months ended June 30, 1998.
Net revenue for the six months ended June 30, 1999 decreased to $1,675, a 39%
decrease compared to the six months ended June 30, 1998, amount of $2,753. This
decrease was the result of declining sales in Tangent offset to some extent by
increases in Sedona GeoServices and Technology Resource Centers. Revenue to two
customers accounted for approximately 34% of net revenue for the six months
ended June 30, 1999, and revenue to one customer accounted for approximately 22%
of net revenue for the six months ended June 30, 1998.
Gross margin percentages for the three months ended June 30, 1999 and 1998 were
32.7% and 49.5% of revenue, respectively. The decrease in gross profit margin is
due to the decline in margins in Tangent Imaging Systems and Technology Resource
Centers which were offset to some extent by increases in Sedona GeoServices. The
decline in Tangent Imaging Systems was due primarily to high fixed costs versus
low sales volumes. In Technology Resource Centers, negative margins stemmed
primarily from certain technical difficulties in production.
Gross margin percentages for the six months ended June 30, 1999 and 1998 were
17.9% and 15.7% of revenue, respectively. The increase in gross profit margin is
accounted for principally by certain reserves taken in the first quarter of
1998. Excluding those reserves, gross margin would have been 42.4% for the first
half ended June 30, 1998. On this basis, margins during the first six months of
1999 declined principally due to lower sales volumes in the Company's Tangent
Imaging Systems division.
General and administrative expense for the three months ended June 30, 1999 was
78.7% of revenue compared to 45.7% of revenue at June 30, 1998. This increase
was due principally to lower sales volume.
General and administrative expense for the six months ended June 30, 1999 was
84.2% of revenue compared to 69.1% at June 30, 1998. This increase was due
principally to lower sales volumes.
Sales and marketing expense as a percentage of revenue increased to 48.4% of
sales for the three months ended June 30, 1999 compared to 43.7% at June 30,
1998. This increase was due principally to low revenue in Tangent Imaging
Systems offset to some extent by lower dollar expenditures.
Sales and marketing expenses as a percentage of revenue increased to 73.3% of
revenue for the six months ended June 30, 1999, compared to 53.3% at June 30,
1998. The increase was due to low sales volumes offset to some extent by lower
total dollar expenditures in this category.
11
<PAGE>
Results of Operations (Continued)
Research and development expense as a percentage of revenue decreased to 13.2%
of revenue for the three months ended June 30, 1999 compared to 25.7% of revenue
for the three months ended June 30, 1998 due principally to capitalized software
development costs.
For the six months ended June 30, 1999 and 1998, research and development
expenses as a percentage of revenues decreased to 26.5% versus 30.1%,
respectively, reflecting lower dollar expenditures and capitalized software
development costs.
Liquidity and Capital Resources
At June 30, 1999, cash and cash equivalents increased to $1,011, a $213 increase
compared to the December 31, 1998 amount of $798. The above change in cash and
cash equivalents are explained as follows in the cash flow from operating,
investing and financing activities.
As of June 30, 1999, the cash flows from operating activities resulted in a net
use of cash of $1,527. This use of cash was primarily due to the operating
losses sustained by all divisions.
Decreases in receivables of $1,206 were due principally to decreases in sales
levels.
As of June 30, 1999, the cash flows from investing activities resulted in a net
use of cash of $210 primarily due to increases in capitalized software
development costs.
As of June 30, 1999, the cash flows from financing activities resulted in net
cash provided by financing activities of $1,950. The decrease in cash provided
when compared to the same period a year ago was due principally to lower
proceeds on the sale of a new series of preferred stock as described below
offset to some extent by greater proceeds from exercises of options and
warrants.
On May 24, 1999, the Company entered into a $1.0 million private placement
purchase agreement for the issuance of 1,000 shares of Series F convertible
preferred stock. After a period of 12 months from May 24, 1999 (anniversary
date), the investor can convert the preferred stock to common stock at the lower
of: 1) $1.41 (the "Closing Price"), or 2) 100% of the common stock's average
last trade price during the 25 trading days preceding the Conversion Date (the
"Conversion Date Price"). In no event can the conversion price be below $1.00.
The conversion amount shall be the principal amount of the preferred stock being
converted, plus an 8% premium accruing from the closing date to the conversion
date. In addition, if the common stock's average last trade price during the 25
days preceding the anniversary is less than 145% of the Closing Price, the
investor shall also be entitled to five year warrants under a variable formula
such that the lower the conversion price, the higher the number of warrants.
Additional warrants may be issued to a maximum of 1,646,178 under this
agreement. Mandatory conversion of the preferred stock shall occur on the third
anniversary after closing.
12
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Thousands, except share and per share data)
Liquidity and Capital Resources (Continued)
The Company believes that proceeds from the private placements noted above and
funds generated from operations and/or additional equity contributions, will be
sufficient to meet the Company's working capital requirements for 1999.
Inflation
There can be no assurance that the Company's business will not be affected by
inflation in the future, however, management believes the inflation did not have
a material effect on the results of operations or financial condition of the
Company during the period presented herein.
Year 2000
The Company has and is continuing to conduct reviews of the Year 2000 issue with
all key executives participating. These reviews include all software produced by
the Company for use by its customers as well as the principal internally used
management information systems. As a result of these reviews management has
concluded that there is no Year 2000 issue of significance regarding either
software produced by the Company or used internally. Nevertheless, management
plans to continue compliance testing and will develop a comprehensive plan to
address any issues which may arise.
Subsequent Events
On July 16, 1999 the Company announced that the sale of assets of the Technology
Resource Centers to Diversified Technologies, Inc. of Scranton, PA. Completion
of this transaction is expected in the third quarter. No significant impact on
operations or the financial status of the Company is anticipated as a result of
this transaction.
Also on July 16, 1999, the Company announced that a letter of intent had been
signed with a major international imaging and scanner manufacturing company
which intends to acquire the Company's Tangent Imaging Systems operation.
Closing is expected within the third quarter. With the completion of this
transaction the Company will be wholly focused on the work of its Sedona
GeoServices division.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
No new actions have been filed against the Company since prior
filings of the Company and there have been no substantive
developments in previously disclosed matters.
No other actions other than matters involved in the ordinary
course of business are currently known by management and none
of these are believed by management to have potential
significance.
Item 2 - Changes in Securities - None
Item 3 - Default Upon Senior Securities - None
Item 4 - Submission of Matters to a Vote of Security Holders - None
Item 5 - Other Information - None
Item 6 - Exhibits and Reports on Form 8-K - None
Exhibit Document
----------------
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession. - None
*(4) Instruments defining the rights of security holders.
Documents related to Class A Convertible Preferred Stock,
Series F. (Exhibit 4.0)
(10) Material Contracts - None
(11) Statement re: computation of per share earnings. Not
applicable
(15) Letter re: unaudited financial information. Not applicable
(18) Letter re: change in accounting principles. Not applicable
(19) Previously unfiled documents. - None
(20) Report(s) furnished to security holders. - None
14
<PAGE>
PART II - OTHER INFORMATION (CONTINUED)
(23) Published report regarding matters submitted to vote of
security holders.
Proposal No. 1
--------------
In Election of Directors to terms expiring in 1999:
WITHHELD/
FOR AGAINST TOTAL
---------- --------- ----------
R. Barry Borden 17,405,734 1,996,019 19,401,753
David S. Hirsch 17,403,334 1,998,419 19,401,753
Michael A. Mulshine 19,287,305 114,448 19,401,753
Laurence L. Osterwise 17,344,909 2,056,844 19,401,753
Jack A. Pellicci 19,296,055 105,698 19,401,753
James C. Sargent 19,264,955 136,798 19,401,753
Robert M. Shapiro 19,292,455 109,298 19,401,753
James T. Womble 19,265,250 136,503 19,401,753
(24) Consents of experts and counsel. - None
(25) Power of attorney. None
*(28) Additional exhibits.
Articles of Amendment-Domestic Business Corporation
Corporation Name Change to Sedona Corporation - Exhibit 28
* Filed herewith
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned,
Thereunto duly authorized.
SEDONA CORPORATION
DATE: August 16, 1999 /S/ Laurence L. Osterwise
---------------------- --------------------------------------------
Laurence L. Osterwise
President and Chief Executive Officer
DATE: August 16, 1999 /S/ William K. Williams
---------------------- --------------------------------------------
William K. Williams
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
16
<PAGE>
EXHIBIT A
ARTICLES OF AMENDMENT
of
SEDONA CORPORATION
STATEMENT OF DESIGNATION
of
CLASS A, SERIES F CONVERTIBLE PREFERRED STOCK
Sedona Corporation, a corporation organized and existing under
the laws of the Commonwealth of Pennsylvania (the "Corporation"), does hereby
certify that, pursuant to the authority conferred on the Board of Directors of
the Corporation by the Articles of Incorporation (the "Articles of
Incorporation"), of the Corporation and in accordance with Section 1522 of the
Business Corporation Law of the Commonwealth of Pennsylvania, the Board of
Directors of the Corporation adopted the following resolution establishing a
series of 1,000 shares of Preferred Stock of the Corporation designated as
"Class A, Series F Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the
Board of Directors of this Corporation by the Articles of
Incorporation, a series of Preferred Stock, par value $2.00 per share,
of the Corporation is hereby established and created, and that the
designation and number of shares thereof and the voting and other
powers, preferences and relative, participating, optional or other
rights of the shares of such Preferred Stock and the qualifications,
limitations and restrictions thereof are as follows:
There shall be a series of Preferred Stock designated as
"Class A, Series F Convertible Preferred Stock" and the number of shares
constituting such series shall be 1,000, subject to adjustment as provided
herein. Such series is referred to herein as the "Series F Convertible Preferred
Stock".
1. Voting. The holders of shares of Series F Convertible
Preferred Stock shall not be entitled to any vote with respect to such shares on
any question or matter, except as expressly set forth herein or as required by
applicable law.
2. Dividends. Except as otherwise provided in this paragraph
2, the holders of shares of Series F Convertible Preferred Stock shall not be
entitled to receive dividends. The holders of the Series F Convertible Preferred
Stock shall be entitled to receive, out of funds legally available therefor,
dividends at the same rate as dividends (other than dividends on the Common
Stock paid solely in additional shares of Common Stock, except as provided in
subparagraph 4D(4)) are paid with respect to the Common Stock (treating each
share of Series F Convertible Preferred Stock as being equal to the number of
shares of Common Stock (including fractions of a share) into which each share of
Series F Convertible Preferred Stock is then convertible).
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EXHIBIT A
3. Liquidation, Dissolution and Winding-up.
3A. Subject to adjustment as set forth in paragraph 3C below,
upon any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of the shares of Series F Convertible
Preferred Stock shall be paid an amount equal to $1,000.00 per share (the
"Original Purchase Price") (which amount shall be subject to equitable
adjustment whenever there shall occur a stock split combination,
reclassification or other similar event involving the Series F Convertible
Preferred Stock) plus, in the case of each share, an amount equal to dividends
accrued but unpaid thereon, computed to the date payment thereof is made
available, before any payment shall be made to the holders of any stock ranking
on liquidation junior to the Series F Convertible Preferred Stock, such amount
payable with respect to one share of Series F Convertible Preferred Stock being
sometimes referred to as the "Series F Liquidation Preference Payment" and with
respect to all shares of Series F Convertible Preferred Stock being sometimes
referred to as the "Series F Liquidation Preference Payments." If upon any
liquidation, dissolution, or winding up of the Corporation, the assets to be
distributed to the holders of the Series F Convertible Preferred Stock shall be
insufficient to permit payment to such stockholders of the full preferential
amounts aforesaid, then all of the assets of the Corporation available for
distribution to holders of the Series F Convertible Preferred Stock shall be
distributed to such holders of the Series F Convertible Preferred Stock pro
rata, so that each holder receives that portion of the assets available for
distribution as the number of shares of Series F Convertible Preferred Stock
held by such holder bears to the total number of shares of Series F Convertible
Preferred Stock then outstanding. For purposes hereof, the Common Stock shall
rank on liquidation junior to the Series F Convertible Preferred Stock.
3B. Upon any liquidation, dissolution or winding up of the
Corporation, immediately after the holders of Series F Convertible Preferred
Stock shall have been paid in full the Series F Liquidation Preference Payments
or funds necessary for such Series F Liquidation Preference Payments shall have
been set aside by the Corporation in trust for the account of holders of the
Series F Convertible Preferred Stock so as to be available for such Series F
Liquidation Preference Payments, the holders of the Series F Convertible
Preferred Stock shall be entitled to no further participation in the
distribution of the assets of the Corporation, and the remaining assets of the
Corporation legally available for distribution to its stockholders shall be
distributed among the holders of other classes of securities of the Corporation
in accordance with their respective terms.
3C. Written notice of such liquidation, dissolution or winding
up, stating a payment date and the place where said payments shall be made,
shall be given by mail, postage prepaid, or by telex to non-U.S. residents, not
less than 20 days prior to the payment date stated therein, to the holders of
record of Series F Convertible Preferred Stock, such notice to be addressed to
each such holder at its address as shown by the records of the Corporation. The
(x) consolidation or merger of the Corporation into or with any other entity or
entities which results in the exchange of outstanding shares of the Corporation
for securities or other consideration issued or paid or caused to be issued or
paid by any such entity or affiliate thereof (except a consolidation or merger
into a wholly-owned subsidiary or merger in which the Corporation is the
surviving Corporation and the holders of the Corporation's voting stock
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EXHIBIT A
outstanding immediately prior to the transaction constitute a majority of the
holders of voting stock outstanding immediately following the transaction), (y)
the sale or transfer by the Corporation of all or substantially all its assets,
or (z) the sale or transfer by the Corporation's stockholders of more than 50%
in voting power of the Corporation's capital stock, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
the provisions of this paragraph 3.
Whenever the distributions provided for in this paragraph 3 shall be payable in
property other than cash, the value of such distributions shall be the fair
market value of such property as determined in good faith by the Board of
Directors of the Corporation.
4. Conversion. The holders of shares of Series F Convertible
Preferred Stock shall have the following conversion rights:
4A. Right to Convert. Subject to the terms and conditions of
this paragraph 4, the holder of any share or shares of Series F Convertible
Preferred Stock shall have the right (the "Conversion Right"), at its option, to
convert any such shares of Series F Convertible Preferred Stock (except that
upon any liquidation of the Corporation the right of conversion shall terminate
at the close of business on the business day fixed for payment of the amounts
distributable on the Series F Convertible Preferred Stock) into such number of
fully paid and nonassessable shares of Common Stock as is obtained by (i)
multiplying the number of shares of Series F Convertible Preferred Stock so to
be converted by the Original Purchase Price, plus a premium on such Original
Purchase Price accruing at a rate equal to eight percent (8%) per annum (the
"Original Purchase Price Premium"), and (ii) dividing the result by the
conversion price of $1.41, or in case an adjustment of such price has taken
place pursuant to the further provisions of this paragraph 4, then by the
conversion price as last adjusted and in effect at the date any share or shares
of Series F Convertible Preferred Stock are surrendered for conversion (such
price, or such price as last adjusted, being referred to as the "Series F
Conversion Price"). Such rights of conversion shall be exercised by the holder
thereof by giving written notice that the holder elects to convert a stated
number of shares of Series F Convertible Preferred Stock into Common Stock and
by surrender of a certificate or certificates for the shares so to be converted
to the Corporation at its principal office (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing to the
holders of the Series F Convertible Preferred Stock) at any time during its
usual business hours on the date set forth in such notice, together with a
statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued.
4B. Issuance of Certificates; Time Conversion Effected.
Subject to the limitations in paragraph 4P, promptly after the receipt of the
written notice referred to in paragraph 4A and surrender of the certificate or
certificates for the share or shares of Series F Convertible Preferred Stock to
be converted, but in no event later than ten (10) trading days following the
Conversion Date (as defined below), the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Series F Convertible Preferred Stock. In the event the limitations in
paragraph 4P do not apply and the Corporation fails to deliver the
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EXHIBIT A
proper documentation to the Corporation's transfer agent such that the transfer
agent may deliver to the holder such shares of Common Stock within such
10-trading day period, the Corporation shall be obligated to pay to the holder a
late payment fee of (i) $100 for each $10,000 of shares of Series F Convertible
Preferred Stock so converted (determined by multiplying such shares of Series F
Convertible Preferred Stock by the Series F Conversion Price then in effect) per
day for each of the first five (5) trading days following the specified date of
delivery and (ii) $300 for each $10,000 of shares of Series F Convertible
Preferred Stock so converted (determined by multiplying such shares of Series F
Convertible Preferred Stock by the Series F Conversion Price then in effect) per
day thereafter. To the extent permitted by law, such conversion shall be deemed
to have been effected and the Series F Conversion Price shall be determined as
of the close of business on the date on which such written notice shall have
been received by the Corporation and the certificate or certificates for such
share or shares shall have been surrendered as aforesaid (the "Conversion
Date"), and at such time the rights of the holder of such share or shares of
Series F Convertible Preferred Stock shall cease, and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby.
4C. Fractional Shares; Partial Conversion. No fractional
shares shall be issued upon conversion of Series F Convertible Preferred Stock
into Common Stock and no payment or adjustment shall be made upon any conversion
on account of any cash dividends on the Common Stock issued upon such
conversion. In case the number of shares of Series F Convertible Preferred Stock
represented by the certificate or certificates surrendered pursuant to paragraph
4A exceeds the number of shares converted, the Corporation shall, upon such
conversion, execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Series F Convertible Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted. If any fractional share
of Common Stock would, except for the provisions of the first sentence of this
paragraph 4C, be delivered upon such conversion, the Corporation, in lieu of
delivering such fractional share, shall pay to the holder surrendering the
Series F Convertible Preferred Stock for conversion an amount in cash equal to
the current market price of such fractional share as determined in reference to
the closing price of the Corporation's Common Stock on the Nasdaq SmallCap
Market (or such other quotation system or securities exchange upon which the
Corporation's Common Stock is then traded) on the Conversion Date, and based
upon the aggregate number of shares of Series F Convertible Preferred Stock
surrendered by any one holder of conversion into Common Stock.
4D. Adjustment of Series F Conversion Price Upon Issuance of
Common Stock. For a period not to exceed eighteen (18) months after the Closing
Date (as defined in the Purchase Agreement), except as provided in paragraphs 4F
and 4G, if and whenever the Corporation shall issue or sell, or is, in
accordance with subparagraphs 4D(1) through 4D(7), deemed to have been issued or
sold, any shares of Common Stock for a consideration per share less than the
lesser of (x) the Series F Conversion Price in effect immediately prior to the
time of such issue or sale, (such number being appropriately adjusted to reflect
the occurrence of any event described in paragraph 4G), and (y) the closing
price of the Corporation's Common Stock
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on the Nasdaq SmallCap Market (or such other quotation system or securities
exchange upon which the Corporation's Common Stock is then traded) on the date
of such issue or sale, then, forthwith upon such issue or sale, the Series F
Conversion Price shall be reduced to the price determined by dividing (i) the
aggregate consideration received by the Corporation upon such issue or sale by
(ii) the total number of shares of Common Stock issued upon such issue or sale.
The provisions of this paragraph 4D may be waived in any instance, without a
meeting, prospectively or retroactively, by the holders of Series F Convertible
Preferred Stock by obtaining the approval of the holders of Series F Convertible
Preferred Stock in the manner prescribed by paragraph 4.
For purposes of this paragraph 4D, the following subparagraphs
4D(1) to 4D(7) shall also be applicable:
4D(1) Issuance of Rights or Options. Except for the Reserved
Shares, in case at any time the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any warrants or other rights
to subscribe for or to purchase, or any options for the purchase of, Common
Stock or any stock or security convertible into or exchangeable for Common Stock
(such warrants, rights or options being called "Options" and such convertible or
exchangeable stock or securities being called "Convertible Securities") whether
or not such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as consideration for
the granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be less
than the Series F Conversion Price in effect immediately prior to the time of
the granting of such Options, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such price per
share as of the date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to be outstanding. Except
as otherwise provided in subparagraph 4D(3), no adjustment of the Series F
Conversion Price shall be made upon the actual issue of such Common Stock or of
such Convertible Securities upon exercise of such Options or upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities.
4D(2) Issuance of Convertible Securities. Except for the
Reserved Shares, in case the Corporation shall in any manner issue (whether
directly or by assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to
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EXHIBIT A
exchange or convert any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon such conversion
or exchange (determined by dividing (i) the total amount received or receivable
by the Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the Series F
Conversion Price in effect immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding,
provided that (a) except as otherwise provided in subparagraph 4D(3), no
adjustment of the Series F Conversion Price shall be made upon the actual issue
of such Common Stock upon conversion or exchange of such Convertible Securities
and (b) if any such issue or sale of such Convertible Securities is made upon
exercise of any Options to purchase any such Convertible Securities for which
adjustments of the Series F Conversion Price have been or are to be made
pursuant to other provisions of this paragraph 4D, no further adjustment of the
Series F Conversion Price shall be made by reason of such issue or sale.
4D(3) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price provided
for in any Option referred to in subparagraph 4D(1), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraph 4D(1) or 4D(2), or the rate
at which Convertible Securities referred to in subparagraph 4D(1) or 4D(2) are
convertible into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of provisions
designed to protect against dilution), the Series F Conversion Price in effect
at the time of such event shall forthwith be readjusted to the Series F
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold, but only if as a result of such
adjustment the Series F Conversion Price then in effect hereunder is thereby
reduced; and on the expiration of any such Option or the termination of any such
right to convert or exchange such Convertible Securities, the Series F
Conversion Price then in effect hereunder shall forthwith be increased to the
Series F Conversion Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
4D(4) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the Corporation
payable in Common Stock (except for the issue of stock dividends or
distributions upon the outstanding Common Stock for which adjustment is made
pursuant to paragraph 4G), Options or Convertible Securities, any Common Stock,
Options or Convertible Securities, as the case may be, issuable in payment of
such dividend or distribution shall be deemed to have been issued or sold
without consideration and the Series F Conversion Price then in effect shall be
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EXHIBIT A
appropriately decreased so that the number of shares of Common Stock issuable
upon conversion of each share of Series F Convertible Preferred Stock shall be
increased in proportion to such increase in the aggregate number of shares of
Common Stock outstanding.
4D(5) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued for such consideration
as determined in good faith by the Board of Directors of the Corporation.
4D(6) Record Date. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock, Options or
Convertible Securities or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
4D(7) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purpose of this paragraph
4D.
4E. Adjustment of Series F Conversion Price to Conversion Date
Price. In the event the average of the closing prices of the Common Stock on the
Nasdaq SmallCap Market (or such other quotation system or securities exchange
upon which the Corporation's Common Stock is then traded) as reported by the
Nasdaq Stock Market for the consecutive 25-trading day period immediately
preceding the Conversion Date (the "Conversion Date Price") is less than the
then existing Series F Conversion Price, the Series F Conversion Price shall be
immediately adjusted to equal the Conversion Date Price, provided, however, that
in no event shall the Conversion Date Price be deemed to be less than $1.00.
4F. Certain Issues of Common Stock Excepted. Anything herein
to the contrary notwithstanding, the Corporation shall not be required to make
any adjustment of the Series F Conversion Price in the case of the issuance of
(i) shares of Common Stock issuable upon conversion of the Series F Convertible
Preferred Stock and (ii) Reserved Shares.
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EXHIBIT A
4G. Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Series F Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and, conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Series F Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
4H. Reorganization or Reclassification. Subject to paragraph
3C, if any capital reorganization, reclassification, recapitalization,
consolidation, merger, sale of all or substantially all of the Corporation's
assets or other similar transaction (any such transaction being referred to
herein as an "Organic Change") shall be effected in such a way that holders of
Common Stock shall be entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock, then, as a condition of such Organic Change, lawful and adequate
provisions shall be made whereby each holder of a share or shares of Series F
Convertible Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of or in
addition to, as the case may be, the shares of Common Stock immediately
theretofore receivable upon the conversion of such share or shares of Series F
Convertible Preferred Stock, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such Common Stock
immediately theretofore receivable upon such conversion had such Organic Change
not taken place, and in any case of a reorganization or reclassification only
appropriate provisions shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including without limitation
provisions for adjustments of the Series F Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights.
4I. Notice of Adjustment. Upon any adjustment of the Series F
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by first class mail, postage prepaid, or by facsimile
transmission to non-U.S. residents, addressed to each holder of shares of Series
F Convertible Preferred Stock at the address of such holder as shown on the
books of the Corporation, which notice shall state the Series F Conversion Price
resulting from such adjustment, setting forth in reasonable detail the method
upon which such calculation is based.
4J. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the holders of
its Common Stock;
(2) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class or
other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
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EXHIBIT A
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by facsimile transmission to non-U.S. residents,
addressed to each holder of any shares of Series F Convertible Preferred Stock
at the address of such holder as shown on the books of the Corporation, (a) at
least 20 days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 20 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto and such notice in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
4K. Stock to be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Series F Convertible Preferred Stock
as herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series F Convertible
Preferred Stock. The Corporation covenants that all shares of Common Stock which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value per share of the Common Stock is at
all times equal to or less than the Series F Conversion Price in effect at the
time. The Corporation will take all such action as may be necessary to assure
that all such shares of Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirement of any national securities
exchange upon which the Common Stock may be listed.
4L. No Reissuance of Series F Convertible Preferred Stock.
Shares of Series F Convertible Preferred Stock which are converted into shares
of Common Stock as provided herein shall not be reissued.
4M. Issue Tax. The issuance of certificates for shares of
Common Stock upon conversion of Series F Convertible Preferred Stock shall be
made without charge to the holders thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series F Convertible Preferred Stock which is being converted.
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EXHIBIT A
4N. Closing of Books. The Corporation will at no time close
its transfer books against the transfer of any Preferred Stock or of any shares
of Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion of
such Preferred Stock, except as may otherwise be required to comply with
applicable securities laws.
4O. Definition of Common Stock. As used in this paragraph 4,
the term "Common Stock" shall mean and include the Corporation's authorized
Common Stock, par value $0.001 per share, as constituted on the date of filing
of these terms of the Series F Convertible Preferred Stock, and shall also
include any capital stock of any class of the Corporation thereafter authorized
which shall neither be limited to a fixed sum or percentage of par value in
respect of the rights of the holders thereof to participate in dividends nor
entitled to a preference in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation; provided
that the shares of Common Stock receivable upon conversion of shares of Series F
Convertible Preferred Stock shall include only shares designated as Common Stock
of the Corporation on the date of filing of this instrument, or in case of any
reorganization or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in paragraph 4H.
4P. Limitations on Conversion.
(a) The holder of any share or shares of Series F Convertible
Preferred Stock shall not be entitled to exercise the Conversion Right set forth
in paragraph 4A prior to the Anniversary Date (as defined in the Purchase
Agreement), provided, however, that the foregoing restriction shall not be
applicable if any of the following events occurs:
(i) a public announcement of a Change of Control (as defined
in paragraph 6(a) hereof); or
(ii) a material adverse change in the Corporation's business
or condition (financial or otherwise).
(b) The aggregate number of shares of Common Stock issuable
upon conversion of the Series F Convertible Preferred Stock and the Warrants (as
defined in the Purchase Agreement) shall not exceed 19.9% of the Corporation's
issued and outstanding capital stock as of the Closing Date (as defined in the
Purchase Agreement) without first obtaining stockholder approval as required by
NASD Rule 4310(c)(25)(H)(i).
4Q. Mandatory Conversion. All outstanding shares of Series F
Convertible Preferred Stock shall automatically convert to shares of Common
Stock on the third anniversary of the Closing Date (as defined in the Purchase
Agreement).
5. Right of First Refusal.
(a) Subject to paragraph 5(e), for so long as any shares of
Series F Convertible Preferred Stock remain outstanding during the twelve (12)
month period after the
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EXHIBIT A
Closing Date (as defined in the Purchase Agreement), the Corporation shall not
issue, sell or exchange, agree to issue, sell or exchange, in any case whether
from treasury shares, from the issuance of authorized but unissued shares or
otherwise, any (i) shares of Common Stock, (ii) any Convertible Securities, or
(iii) any Options unless, in each case, the Corporation shall have first offered
to sell to each Eligible Purchaser (as defined in subparagraph (f) below) such
Eligible Purchaser's Proportionate Percentage (as defined in subparagraph (f)
below) of such securities (the "Offered Securities") at a unit price and on such
other terms as shall have been specified by the Corporation in a written offer
delivered to such Eligible Purchasers (the "Offer"), which Offer by its terms
shall remain open and irrevocable for a period of 10 days from the date it is
delivered by the Corporation to the Eligible Purchasers.
(b) Notice of each Eligible Purchaser's intention to accept an
Offer made pursuant to subparagraph (a) above shall be evidenced by a writing
(the "Notice of Acceptance") signed by such Eligible Purchaser and delivered to
the Corporation prior to the end of the 10-day period of such Offer, setting
forth the portion of the Offered Securities which such Eligible Purchaser elects
to purchase. If any Eligible Purchaser fails to subscribe for all of its
Proportionate Percentage of the Offered Securities to be sold, the participating
Eligible Purchasers shall be entitled to purchase the balance of that Eligible
Purchaser's Proportionate Percentage in the same proportion in which they were
first entitled to purchase the Offered Securities (excluding for purposes of the
computation of such proportions such Eligible Purchasers subscribing for less
than their respective Proportionate Percentages). The Corporation shall by
written notice notify each Eligible Purchaser five days following the expiration
of the 10-day period described above of the amount of Offered Securities which
each Eligible Purchaser may purchase pursuant to the foregoing sentence and each
Eligible Purchaser shall then have five (5) additional days from the delivery of
such notice to indicate such additional amount, if any, that such Eligible
Purchaser wishes to purchase. This process shall be repeated until one or more
such Eligible Purchasers have agreed, or no one or more such Eligible Purchasers
have agreed, to accept the Offer with respect to all of the Offered Securities.
(c) In the event that Notices of Acceptance are not given by
the Eligible Purchasers in respect of all of the Offered Securities, the
Corporation shall have 90 days from the expiration of the later of the foregoing
10 or 5 day period, whichever is applicable, to sell or enter into an agreement
to sell all or any part of the Offered Securities as to which a Notice of
Acceptance has not been given by the Eligible Purchasers (the "Refused
Securities") to any other person or persons, on terms and conditions, including,
without limitation, unit price, which are no more favorable to such other person
or persons or less favorable to the Corporation and the Eligible Purchasers
which have given Notices of Acceptance than those set forth in the Offer. Upon
the closing of the sale of the Refused Securities, each applicable Eligible
Purchaser shall purchase from the Corporation, and the Corporation shall sell to
each applicable Eligible Purchaser, the Offered Securities in respect of which a
Notice of Acceptance was delivered to the Corporation by such Eligible
Purchaser, on the terms specified in the Offer.
(d) Any Offered Securities not purchased by the Eligible
Purchasers or other person or persons in accordance with subparagraph (c) above
may not be sold or otherwise disposed of until they are again offered to the
Eligible Purchasers under the procedures specified in subparagraphs (a), (b) and
(c) hereof.
11
<PAGE>
EXHIBIT A
(e) The rights of the Eligible Purchasers under this provision
shall not apply to the following securities (the "Excluded Securities"):
(i) Reserved Shares;
(ii) shares of Common Stock issued as a stock dividend or upon
any subdivision or combination of shares of Common Stock;
(iii) shares of Common Stock issued upon the conversion of the
Series F Convertible Preferred Stock;
(iv) securities of the Corporation issued in connection with
the acquisition of all or part of another entity or in connection with a joint
venture or such other strategic investment;
(v) securities of the Corporation to be offered and sold to
the public through underwriters pursuant to a registration statement under the
Securities Act of 1933, as amended; and
(vi) the warrant that may be issued under Section 6.8 of the
Purchase Agreement and the shares of Common Stock issued upon the exercise of
that warrant (or warrants).
(f) For purposes hereof, the following terms shall have the
following respective meanings:
(i) "Eligible Purchasers" shall mean any and all holders of
shares of Series F Convertible Preferred Stock; and
(ii) "Proportionate Percentage" shall mean, as to an Eligible
Purchaser, that percentage which expresses the ratio which (x) the number of
outstanding shares of Series F Convertible Preferred Stock then beneficially
owned by such Eligible Purchaser bears to (y) the then aggregate number of
outstanding shares of Series F Convertible Preferred Stock.
6. Definitions. As used herein, the following terms shall have
the following meanings:
(a) The term Change of Control shall mean (i) any transaction
or series of transactions (including, without limitation, a tender offer, merger
or consolidation) the result of which is that any "person" or "group" (within
the meaning of sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), becomes the
12
<PAGE>
EXHIBIT A
"beneficial" owners (as defined in rule 13(d)(3) under the Securities Exchange
Act of 1934) of more than 50 percent (50%) of the total aggregate voting power
of all classes of the voting stock of the Corporation and/or warrants or options
to acquire such voting stock, calculated on a fully diluted basis, or (ii) a
sale of assets constituting all or substantially all of the assets of the
Corporation (determined on a consolidated basis).
(b) The term "Purchase Agreement" shall mean, collectively,
the Series F Convertible Preferred Stock Purchase Agreements to be entered into
on or about the date these Articles of Amendment become effective by and between
the Corporation and Oscar L. Tang and the Corporation and The Tang Fund.
(c) The term "Reserved Shares" shall mean (i) (A) 3,000,000
shares of Common Stock which are reserved for issuance to key employees,
non-employee directors and consultants of the Corporation under the
Corporation's 1992 Long-Term Incentive Plan, as amended, (B) 500,000 shares of
Common Stock which are reserved for conversion of the outstanding Class A
Preferred Stock, Series A, par value $2.00 per share (the "Series A Preferred
Stock"), (C) 1,648,915 shares of Common Stock which remain reserved for
conversion of the outstanding Series E Preferred Stock ("Series E Preferred
Stock"), (D) 2,754,322 shares of Common Stock which are reserved for exercise of
warrants issued in connection with the Series E Preferred Stock, (E)
approximately 939,130 shares of Common Stock which are reserved for conversion
of the Series B Convertible Preferred Stock, (F) 3,000,016 shares of Common
Stock which are reserved for the exercise the exercise of outstanding warrants
issued in connection with the Class A Preferred Stock, Series D (the "Series D
Preferred Stock"), (G) 3,923,043 shares of Common Stock which are reserved for
the exercise of other outstanding warrants, including warrants issued in
connection with the Class A Preferred Stock, Series C (the "Series C Preferred
Stock") and (H) 1,000,000 shares of Common Stock which are reserved for
conversion of the Series F Convertible Preferred Stock; (ii) 2,000,000 shares of
Class B Preferred Stock, none of which are issued and outstanding or available
for reissuance; and (iii) 1,000,000 shares of Class A Preferred Stock, (A)
500,000 shares of which have been designated Series A Preferred Stock, all of
which are issued and outstanding, (B) 5,000 shares of which have been designated
Series B Stock, 1,000 shares of which are issued and outstanding, (C) 5,200
shares of which have been designated Series E Preferred Stock, 2,313 shares of
which are issued and outstanding, (D) 125,000 shares of which have been
designated as Series C Preferred Stock, none of which are issued and outstanding
or available for reissuance, (E) 3,300 shares of which have been designated as
Series D Preferred Stock, none of which are issued and outstanding or available
for reissuance, and (F) 1,000 shares of which have been designated Series F
Convertible Preferred Stock, all of which are issued and outstanding. All of the
foregoing are subject to adjustment to reflect an event described in paragraph
4G hereof.
* * * * * *
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000764843
<NAME> SEDONA CORP
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,011
<SECURITIES> 0
<RECEIVABLES> 832
<ALLOWANCES> 45
<INVENTORY> 1,131
<CURRENT-ASSETS> 3,059
<PP&E> 4,283
<DEPRECIATION> 3,364
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 1,416
<BONDS> 163
0
5,268
<COMMON> (2,403)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,444
<SALES> 1,082
<TOTAL-REVENUES> 1,082
<CGS> 728
<TOTAL-COSTS> 728
<OTHER-EXPENSES> 1,496
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> (1,165)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,165)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,268)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
<PAGE>
EXHIBIT 28.0
<TABLE>
<CAPTION>
<S> <C>
Microfilm Number 9926-758 Filed with the Department of State on April 2, 1999
-------- -------------
Entity Number 2090356 /s/ Kim Pizzingrilli
------- ------------------------------------
Acting Secretary of the Commonwealth
</TABLE>
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSC8: 15-1915 (Rev 90)
In compliance with the requirements of 15 Pa.C.S. ss. 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
1. The name of the corporation is: Scan-Graphics, Inc.
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name or its commercial re-registered office
provider and the county of venue is (the Department is hereby
authorized to correct the following information to conform to the
records of the Department):
(a) 649 North Lewis Rd., Ste 220, Limerick, PA 19468 Montgomery
-----------------------------------------------------------------
(b) c/o:
-----------------------------------------------------------
Name of Commercial Registered Office Provider
For a corporation represented by a commercial registered office provider, the
county in(b) shall be deemed the county in which the corporation is located for
venue and official publication publication purposes.
3. The statute by or under which it was incorporated is: Pennsylvania
Business Corporation Law.
4. The date of its incorporation is May 14, 1992.
5. (Check, and if appropriate complete, one of the following):
|X| The amendment shall be effective upon filing these Articles of
Amendment in the Department of State.
| | The amendment shall be effective on: at
------------ -------------
<PAGE>
Date Hour
6. (Check one of the following):
| | The amendment was adopted by the shareholders (or members) pursuant
to 15 Pa.C.S. ss. 1914(a) and (b).
|X| The amendment was adopted by the board of directors pursuant to 15
Pa.C.S. ss. 1914(c).
7. (Check, and if appropriate complete, one of the following):
|X| The amendment adopted by the corporation, set forth in full, is as
follows:
Article I is deleted in its entirety and the following is substituted
in lieu thereof: "The name of the corporation is" SEDONA CORPORATION"
| | The amendment adopted by the corporation is set forth in full in
Exhibit A attached hereto and made a part hereof.
PA DEPT. OF STATE
APR 02 1999
8. (Check if the amendment restates the Articles):
| | The restated Articles of Incorporation supersede the original Articles
and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these
Articles of Amendment to be signed by the duly authorized officer this 1st day
of April, 1999.
Scan-Graphics, Inc.
(Name of Corporation)
By:
----------------------------
(Signature)
Title: President
