<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSISTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15864
Sedona Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 95-4091769
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
649 North Lewis Road, Limerick, Pennsylvania 19468-1234
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 495-3003
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
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 [ ]
At September 30, 1999, there were 23,896,450 shares outstanding of the
registrant's common stock, par value $0.001 per share.
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -- (Unaudited) September 30, 1999
and December 31, 1998 4
Consolidated Statements of Operations -- (Unaudited)
three and nine months ended September 30, 1999 and 1998 5
Consolidated Statements of Cash Flow -- (Unaudited)
nine months ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements -
September 30, 1999 7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 11
PART II. OTHER INFORMATION
- ---------------------------
Item 1 through Item 6. 12
SIGNATURE PAGE 13
- --------------
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)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-----------------------------------
<S> <C> <C>
Assets
Cash $ 1,791 $ 798
Accounts and notes receivable 37 5
Prepaid expenses and other current assets 213 139
------------------------------
Total current assets 2,041 942
Property and equipment, net of accumulated depreciation
and amortization 367 454
Software development costs, net 407 325
Net assets of discontinued operations 209 2,715
------------------------------
Total assets $ 3,024 $ 4,436
===============================
Liabilities and stockholders' equity Current liabilities:
Accounts payable and accrued expenses $ 518 $ 432
Dividends payable 69 259
Deferred revenue 46 2
Current maturities of capital lease obligations 56 71
-----------------------------
Total current liabilities 689 764
Capital lease obligations, less current maturities 12 60
Deferred revenue and other long-term liabilities 42 155
-------------------------------
Total long-term liabilities 54 215
-------------------------------
Total liabilities 743 979
Stockholders' equity
Class A convertible stock
Authorized Shares - 1,000,000
Series A, par value $2.00,
Issued and outstanding - 500,000 shares 1,000 1,000
Series B, par value $2.00,
Issued and outstanding - 1,000 and -0- 1,000 -
in 1999 and 1998, respectively
Series E, par value $1,000,
Issued and outstanding -0- and 4,347 - 4,347
in 1999 and 1998, respectively
Series F, par value $1,000,
Issued and outstanding - 1,000 and -0- 1,000 -
in 1999 and 1998, respectively
Common stock, par value $.001
Authorized Shares - 50,000,000
Issued and outstanding shares - 23,896,450 and 24 20
19,927,789 in 1999 and 1998, respectively
Additional paid-in-capital 32,263 25,396
Notes receivable, related parties (53) (53)
Accumulated deficit (32,953) (27,253)
-------------------------------
Total shareholders' equity 2,281 3,457
--------------------------------
Total liabilities and shareholders' equity $ 3,024 $ 4,436
===============================
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 23 $ - $ 222 $ 14
License and royalty fees - - - -
-----------------------------------------------------------
Total revenues 23 - 222 14
Cost of goods sold 167 - 284 369
-----------------------------------------------------------
Gross profit (144) - (62) (355)
Expenses
General and administrative 551 500 1,414 1,822
Sales and marketing 130 165 487 506
Research and development 121 159 255 437
-----------------------------------------------------------
Total operating expenses 802 824 2,156 2,765
-----------------------------------------------------------
(946) (824) (2,218) (3,120)
Other income (expense)
Interest income 32 39 65 106
Interest expense (8) (1) (28) (18)
Other - (3) - (13)
-----------------------------------------------------------
Total other income (expense) 24 35 37 75
Loss from continuing operations, before
provision for income taxes (922) (789) (2,181) (3,045)
Income taxes - - - -
-----------------------------------------------------------
Loss from continuing operations (922) (789) (2,181) (3,045)
Discontinued operations
Loss from operations of discontinued - -
Tangent Imaging Systems and - -
Technology Resource Centers, - -
less income taxes (1,450) (15) (2,988) (1,483)
-----------------------------------------------------------
Net loss (2,372) (804) (5,169) (4,528)
Preferred stock dividends (331) (141) (531) (567)
-----------------------------------------------------------
Net loss applicable to common stockholders $(2,703) $ (945) $(5,700) $(5,095)
===========================================================
Basic and diluted net loss from continuing $ (0.05) $ (0.05) $ (0.13) $ (0.19)
operations applicable to common shares
Basic and diluted net loss from discontinued
operations applicable to common shares $ (0.07) $ (0.00) $ (0.14) $ (0.08)
-----------------------------------------------------------
$ (0.12) $ (0.05) $ (0.27) $ (0.27)
===========================================================
Basic and diluted weighted average common
shares outstanding 22,202,267 19,759,252 21,290,801 19,011,605
===========================================================
</TABLE>
See accompanying notes.
5
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLDATED STATEMENTS OF CASH FLOW
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Operating Activities
Net Loss $(2,181) $(3,045)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 115 81
Increase inventory reserves - 297
Changes in operating assets & liabilities
Accounts receivable (80) 541
Inventories 377 687
Prepaid expenses and other current assets (74) 70
Other non current assets 6 33
Accounts payable and accrued expenses (254) (268)
Other 102 (20)
Discontinued operations (664) (2,787)
-------------------------------
Net cash used in operating activities (2,653) (4,411)
Investing activities
Purchase of property and equipment, net (34) -
Increase in software development costs (88) -
-------------------------------
Net cash used in investing activities (122) -
Financing activities
Payment of preferred stock dividends (553) -
Changes in long-term obligations, net (63) (84)
Proceeds from issuance of preferred stock, net 1,970 5,000
Repurchase of Series E preferred stock for cash (2,313)
Proceeds from issuance of common stock, net 2,366
Proceeds from exercise of common stock
warrants/options 2,361 88
-------------------------------
Net cash provided by financing activities 3,768 5,004
-------------------------------
Net increase in cash and cash equivalents 993 593
Cash and cash equivalents, at beginning of year 798 1,310
-------------------------------
Cash and cash equivalents, at end of period $ 1,791 $ 1,903
===============================
</TABLE>
See accompanying notes.
6
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Note #1: General
-------
The accompanying consolidated financial statements are unaudited and include the
accounts of Sedona Corporation and subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated.
The consolidated financial statements included herein for the three and nine
months ended September 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 nine month period ended September 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 as well as the Company's Form 8-K (and
amendment) and Form S-3, as amended.
Note #2: Discontinued Operations
-----------------------
As earlier reported in Form 8-K filed on October 4, 1999, during the third
quarter, the Company's Board of Directors decided to sell the two divisions of
the Company which were not part of its realigned strategy of focusing on the
development of its Internet-based business intelligence software products.
Accordingly, on July 16, 1999 the sale of the assets of the Technology Resource
Centers to Diversified Technologies, Inc. was completed. On September 17, 1999,
the sale of the Tangent Imaging Systems operation to Colortrac, Inc. was
completed for consideration of $105 in cash paid to the Company and assumption
of $61 in liabilities. Also in connection with this transaction, the Company
recorded $954 in charges and reserves related to the sale of Tangent Imaging
Systems, primarily reserves for inventory, severance and recognition of a loss
on sale of certain assets. The Company may receive additional funds related to
future sales of products and technology in connection with these transactions.
The receipt of cash or estimates of additional revenues in connection with these
transactions are not included in the financial statements.
For all periods presented, these financial statements reflect the results of the
Tangent Imaging Systems and Technology Resource Centers as discontinued
operations.
Revenues from the discontinued operations were $1,836 and $4,467, respectively,
for the nine months ended September 30, 1999 and 1998 and represented
substantially all of the Company's revenues in those periods. The increased
losses from discontinued operations in 1999 periods reflect the transaction
charges and reserves associated with completion of their sales as well as
substantially lower sales activity in 1999 periods when compared to 1998.
7
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Note #3: Property and Equipment
----------------------
Property and equipment consists of:
September 30, December 31,
1999 1998
------------------------------
Machinery & equipment $ 632 $ 619
Equipment under capital lease 36 36
Furniture & fixtures 72 72
Leasehold improvements 9 10
Software 76 76
----- -----
825 813
Less accumulated
depreciation and amortization 458 359
----- -----
$ 367 $ 454
===== =====
Note #4: Stockholders' Equity
--------------------
During the third quarter of 1999, the Company completed the repurchase of all of
its Class A, Series E convertible preferred stock, par value $1,000, plus
one-third of certain associated warrants to purchase shares of the Company's
common stock exercisable at $2.25 per share, and one-third of certain associated
warrants to purchase shares of the Company's common stock exercisable at $4.00
per share. The purchase price for each share of the Series E preferred stock and
such associated warrants equaled 110% of the principal amount of each share of
the Series E preferred stock plus all of the dividends that had accrued through
September 15, 1999.
The majority of the repurchase of the Series E preferred stock was funded with
the proceeds of a private placement of $2,376 of certain units of Company
securities in September 1999. Each "unit" sold in the private placement
consisted of 50,000 shares of common stock and warrants to purchase 44,444
shares of the Company's common stock at $2.25 per share.
In addition, on August 25, 1999 the Company sold 1,142,858 shares of common
stock through a negotiated partial exercise of an outstanding warrant by its
holder and realized total net proceeds of approximately $2,000. The outstanding
warrant originally permitted the holder to acquire 2,100,000 shares of common
stock at an exercise price of $4.00 per share. After considering the needs for
working capital and additional funds that were required to repurchase the Series
E preferred stock described above, the Company negotiated with the warrant
holder to permit partial exercise of the warrant at an exercise price of $1.75
per share. The portion of the proceeds not used to repurchase the Series E
preferred stock is being used for general working capital needs.
During the third quarter of 1999, there were a total of 200,000 common stock
options with an exercise price of $2.25 issued to an officer and a director of
the Company. Additionally, 1,889,482 common stock warrants with exercise prices
ranging from $2.25 to $2.50 per share were issued to certain officers and
directors and a consultant to the Company as well as the investors in the $2,376
Private Placement described above. The exercise prices of these options and
warrants approximated the fair market value of the common stock at the time of
such grants.
8
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Note #5: Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
Nine months ended September 30,
-------------------------------
1999 1998
------ ------
Cash paid during period for interest $ 28 $ 39
=== =====
Cash expenses incurred relative to
Issuance of stock $ 41 $ 200
=== =====
Non-cash financing activities
are as follows:
Conversion of debenture interest
and preferred stock dividends
into common stock $ 48 $ 30
=== =====
Conversion of debentures into
preferred stock $ - $ 311
=== ======
Conversion of preferred stock
to common stock $614 $2,990
=== =====
Expenses incurred related to
issuance of convertible stock $ - $ 320
=== =====
Notes Receivable, related parties
reductions $ - $1,247
=== =====
9
<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)
Realignment of Operations
- -------------------------
As earlier reported in Form 8-K filed on October 4, 1999, during the third
quarter, the Company's Board of Directors decided to sell the two divisions of
the Company which were not part of its realigned strategy of focusing on the
development of its Internet-based business intelligence software products.
Accordingly, on July 16, 1999 the sale of the assets of the Technology Resource
Centers to Diversified Technologies, Inc. was completed. On September 17, 1999,
the sale of the Tangent Imaging Systems operation to Colortrac, Inc. was
completed for consideration of $105 in cash paid to the Company and assumption
of $61 in liabilities. Also in connection with this transaction, the Company
recorded $954 in charges and reserves related to the sale of Tangent Imaging
Systems, primarily reserves for inventory, severance and recognition of a loss
on sale of certain assets. The Company may receive additional funds related to
future sales of products and technology in connection with these transactions.
The receipt of cash or estimates of additional revenues in connection with these
transactions are not included in the financial statements.
For all periods presented, these financial statements reflect the results of the
Tangent Imaging Systems and Technology Resource Centers as discontinued
operations.
Revenues from the discontinued operations were $1,836 and $4,467, respectively,
for the nine months ended September 30, 1999 and 1998 and represented
substantially all of the Company's revenues in those periods. The increased
losses from discontinued operations in 1999 periods reflect the transaction
charges and reserves associated with completion of their sales as well as
substantially lower sales activity in 1999 periods when compared to 1998.
With the realignment of operations completed, the Company is now able to focus
all efforts on its business of providing enterprises with Internet-based
application solutions enabling marketing and sales organizations to more quickly
and precisely identify and visualize new market opportunities and improve sales
results and market penetration. The Company is positioned, through its growing
relationships with leading database, enterprise application package and data
warehouse (content management) vendors, to take a significant share of the
rapidly developing market for business information query and visualization.
The remainder of management's discussion and analysis of financial condition and
results of operations reflects principally the continuing operations of the
Company.
Results of Operations
- ---------------------
Revenues for the three months ended September 30, 1999 were $23, reflecting the
recent sale of Tangent Imaging Systems and Technology Resource Centers which
represented substantially all of the revenue generating assets of the Company.
Net revenues for the nine months ended September 30, 1999 increased to $222,
compared to the nine months ended September 30, 1998, amount of $14. This
increase represented a sale to a customer in the second quarter of 1999.
During the periods reported, gross margins were not meaningful or were negative
reflecting the realignment of the Company's continuing operations. Expenses in
continuing operations have been reduced in the first nine months of 1999
compared to the same period in 1998 reflecting principally lower reorganization
costs and capitalization of certain software development costs in 1999.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1999, cash and cash equivalents increased to $1,791, a $993
increase compared to the December 31, 1998 amount of $798. As of September 30,
1999 the cash flows from operating activities resulted in a net use of cash of
$2,653. This use of cash was primarily due to the operating losses sustained by
both
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)
Liquidity and Capital Resources (continued)
- -------------------------------
continuing and discontinued operations. The cash flows from investing activities
during the same period resulted in a use of cash of $122 primarily due to
increases in software development costs and purchase of equipment.
As of September 30, 1999, the cash flows from financing activities resulted in
net cash provided by financing activities of $3,768. The decrease in cash
provided when compared to the same period a year ago was due principally to
lower proceeds on the sale of new series of preferred stock offset by greater
proceeds from exercises of options and warrants as well as proceeds from
issuance of new common stock.
During the third quarter of 1999, the Company completed the repurchase of all of
its Class A, Series E Convertible Preferred Stock, par value $1,000, plus
one-third of certain associated warrants to purchase shares of the Company's
common stock exercisable at $2.25 per share, and one-third of certain associated
warrants to purchase shares of the Company's common stock exercisable at $4.00
per share. The purchase price for each share of the Series E Preferred Stock and
such associated warrants equaled 110% of the principal amount of each share of
the Series E Preferred Stock plus all of the dividends that had accrued through
September 15, 1999.
The majority of the repurchase of the Series E Preferred Stock was funded with
the proceeds of a private placement of $2,376 of certain units of Company
securities. Each unit consisted of 50,000 shares of common stock and warrants to
purchase 44,444 shares of common stock at $2.25 per share.
In addition, on August 25, 1999 the Company sold 1,142,858 shares of common
stock through a negotiated partial exercise of an outstanding warrant by its
holder and realized total net proceeds of approximately $2,000. The outstanding
warrant originally permitted the holder to acquire 2,100,000 share of common
stock at an exercise price of $4.00 per share. After considering the needs for
working capital and additional funds that were required to repurchase the Series
E preferred stock described above, the Company negotiated with the warrant
holder to permit partial exercise of the warrant at an exercise price of $1.75
per share. The portion of the proceeds not used to repurchase the Series E
Preferred Stock is being used for general working capital needs.
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 the remainder
of 1999 and 2000.
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.
11
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings
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
Reports - October 4, 1999 and November 2, 1999
Exhibits
--------
4.1* Warrant to Purchase 957,142 shares of Common Stock dated June
1, 1997, as amended August 25, 1999.
4.2 Form of Subscription Agreement for Units consisting of Common
Stock and Warrants (incorporated by reference to Exhibit 4.7
to the Company's Form S-3 amendment filed October 14, 1999).
4.3 Form of Warrant to Purchase shares of Common Stock issued
pursuant to The Private Placement of Units (included as
Appendix B to Form of Subscription Agreement for Units filed
as Exhibit 4.7 to the Company's Form S-3 amendment filed
October 14, 1999).
10.1* Employment Agreement date September 15, 1999 between Sedona
Corporation and Marco A. Emrich
* Filed herewith
12
<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: November 15, 1999 /S/Marco A. Emrich
----------------- --------------------------------------------
Marco A. Emrich
President and Chief Executive Officer
DATE: November 15, 1999 /S/ William K. Williams
----------------- --------------------------------------------
William K. Williams
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
13
<PAGE>
EXHIBIT 4.1
-----------
Number: WC0249A **957,142** Shares
SEDONA CORPORATION
------------------
Incorporated under the laws of the Commonwealth of Pennsylvania
COMMON STOCK PURCHASE WARRANT
-----------------------------
NOTICE: On August 25, 1999, the Holder exercised 1,142,858 shares of the
original 2,100,000 share Warrant represented by Cert. No WC0249. This Cert. No.
WC0249A represents the remaining 957,142 shares.
DATED: June 1, 1997
----------------------------
Number of Shares: 957,142
-------------------
Holder: BROAD CAPITAL ASSOCIATES
-------------------------------------------------------------------
Address: 152 West 57th Street - 54th Floor, New York, NY 10019
------------------------------------------------------------------
1. THIS CERTIFIES THAT the Holder is entitled to purchase from SEDONA
CORPORATION (formerly known as Scangraphics, Inc.), a Pennsylvania corporation
(hereinafter called the "Company"), at $1.75 per share the number of shares of
the Company's common stock ("Common Stock") set forth above.
2. All rights granted under this Warrant shall expire on June 1, 2001, subject
to earlier termination as set forth in Section 3.
3. Early Expiration.
A. The following terms shall have the following definitions:
1. Effective Date means the date of the effectiveness of the registration
statement (the "Registration Statement") referred to in a Subscription
Agreement dated as of the date of this Warrant (the "Subscriptions
Agreement").
2. The "30-day Price" means the closing bid (on NASDAQ or such other
securities exchange where the common stock may then be listed) of the
Common Stock on not less than 30 days in any consecutive 45-day
periods (the "Test Period") which begins after the Effective Date and
through which the Registration Statement continues to be effective.
B. If any 30-day Price is not less than $8.00 per share in any Test Period,
then, as of the end of such Test Period, this Warrant shall expire as to
1/3 of the shares of Common Stock initially purchasable thereunder.
C. If any 30-day Price is not less than $10.00 per share in any Test Period,
then, as of the end of such Test Period, this Warrant shall expire as to
2/3 of the shares of Common Stock initially purchasable thereunder on a
basis which is cumulative with any expiration theretofore occurring under
Section (B).
D. If any 30-day Price is not less that $12.00 per share in any Test Period,
then, as of the last day of the Test Period, this Warrant shall expire in
full.
<PAGE>
4. Notwithstanding anything to the contrary contained herein, Holder shall not
have the right to exercise this Warrant so long as and to the extent that at the
time of such exercise, such exercise would cause the Holder then to be the
"beneficial owner" of five percent (5%) or more of the Company's then
outstanding Common Stock. For purposes hereof, the term "beneficial owner" shall
have the meaning ascribed to it in Section 13(d) of the Securities Act of 1934.
The opinion of legal counsel to Holder, in form and substance satisfactory to
the Company and the Company's counsel, shall prevail in all matters relating to
the amount of Holder's beneficial ownership.
5. This Warrant and the Common Stock issuable on exercise of this Warrant (the
"Underlying Shares") may be transferred, sold, assigned or hypothecated, only if
registration by the Company under the securities Act of 1933 (the "Act") or if
the Company has received from counsel to the Company a written opinion to the
effect that registration of the Warrant or the Underlying Shares in not
necessary in connection with such transfer, sale, assignment or hypothecation.
The Warrant and the Underlying Shares shall be appropriately legended to reflect
this restriction and stop transfer instructions shall apply. The Holder shall
through its counsel provide such information, as is reasonably necessary in
connection with such opinion.
6. The Holder of this Warrant is entitled to certain registration rights under
the Subscription Agreement.
7. Any permitted assignment of this Warrant shall be effected by the Holder by
(i) executing the form of assignment at the end hereof; (ii) surrendering the
Warrant for cancellation at the office of the Company, accompanied by the
opinion of counsel to the Company referred to above; and (iii) unless in
connection with an effective registration statement which covers the sale of
this Warrant and or the shares underlying the Warrant, delivery to the Company
of a statement by the transferee (in form acceptable to the Company and its
counsel) that such Warrant is being acquired by the Holder for investment and
not with a view to its distribution or resale; whereupon the Company shall
issue, in the name or names specified by the Holder (including the Holder) hew
Warrants representing in the aggregate rights to purchase the same number of
Shares as are purchasable under the Warrants surrendered. Such Warrants shall be
exercisable immediately upon any such assignment of the number of Warrants
assigned. The transferor will pay all relevant transfer taxes. Replacement
Warrants shall bear the same legend as is borne by this Warrant.
8. The term "Holder" should be deemed to include any permitted record transferee
of this Warrant.
9. The Company covenants and agrees that all shares of Common Stock which may be
issued upon exercise hereof will, upon issuance, be duly and validly issued,
fully paid and non-assessable and no personal liability will attach to the
holder thereof. The Company further covenants and agrees that, during the
periods within which this Warrant may be exercised, the Company will at all
times have authorized and reserved a sufficient number of shares of Common Stock
for issuance of this Warrant and all other Warrants.
10. This Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
11. In the event that as a result of reorganization, merger, consolidation,
liquidation, recapitalization, stock split, combination of shares or stock
dividends payable with respect to such Common Stock, the outstanding shares of
Common stock of the Company are at any time increased or changed into or
exchanged for a different number or kind of shares or other security of the
Company or of another corporation, then appropriate adjustments in the number
and kind of such securities then subject to this Warrant shall be made effective
as of the date of such occurrence so that the position of the Holder upon
exercise will be the same as it would have been had it owned immediately prior
to the occurrence of such events the Common Stock subject to this Warrant. Such
adjustment shall be made successively whenever any event listed above shall
occur and the Company will notify the Holder of the Warrant of each such
adjustment. Any fraction of a share resulting from any adjustment shall be
eliminated and the price per share of the remaining shares subject to this
Warrant adjusted accordingly.
2
<PAGE>
12. The rights represented by this Warrant may be exercised at any time within
the period above specified by (i) surrender of this Warrant (with the purchase
form at the end hereof properly executed) at the principal executive office of
the Company (or such other office or agency of the Company as it may designate
by notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price for the
number of Shares specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any; and (iii) unless in connection with an
effective registration statement which covers the sale of the shares underlying
the Warrant, the delivery to the Company of a statement by the Holder (in form
acceptable to the Company and its counsel) that such Shares are being acquired
by the Holder for investment and not with a view to their distribution or
resale.
13. The certificates for the Common Stock so purchased shall be delivered to the
Holder within a reasonable time, not exceeding five business days after all
requisite documentation has been provided, after the rights represented by this
Warrant shall have been so exercised, and shall bear a restrictive legend with
respect to any applicable securities laws.
14. This Warrant shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania. The federal and state courts in the city of
Philadelphia shall have exclusive jurisdiction over this instrument and the
enforcement thereof. Service of process shall be effective if by certified mail,
return receipt requested. All notices shall be in writing and shall be deemed
given upon receipt by the party to whom addressed. This instrument shall be
enforceable by decrees of specific performance as well as other remedies.
IN WITNESS WHEREOF, SEDONA CORPORATION has caused this Warrant to be signed
by its duly authorized officers under Its corporate seal and to be dated as of
the date set forth above.
SEDONA CORPORATION
By: /S/ Laurence L. Osterwise
------------------------------
(Apply Corporate Seal)
3
<PAGE>
- --------------------------------------------------------------------------------
TERM SHEET
MARCO EMRICH
President & CEO, SEDONA Corporation
August 28, 1999
- --------------------------------------------------------------------------------
Title President & Chief Executive Officer
- --------------------------------------------------------------------------------
Compensation Base: $225,000
Bonus: $100,000 yearly with quarterly measurements.
Targets to be mutually agreed upon, see
attachment for initial guidance.
- --------------------------------------------------------------------------------
Equity A grant of 375,000 combined options and warrants
(200,000 options and 175,000 warrants at a strike
price of $2.50 or lower (current market price at
signing). Vesting cycle of four years, 25% vested per
year.
350,000 warrants at current market price with a
four-year cliff vest. The acceleration of the vesting
cycle can occur as follows: 125,000 when the stock
price reaches $6 per share; 115,000 when the stock
price reaches $9; 110,000 when the stock price
reaches $12. ($ per share = 90 day average of
closing prices.)
- --------------------------------------------------------------------------------
Relocation and Living $3,000 per month to be treated as business years for
expenses for 2 reasonable and actual Expenses living related
expenses to include trips to and from Cincinnati with
a total value of $72,000, which can be applied to a
full relocation at any time.
Additionally, a $100,000, four-year interest free
loan will be available for actual relocation
expenses. The loan will be forgiven at 25% per year
of employment. Combined max relocation expenses:
$150,000.
Relocation expenses include selling costs, closing
costs, relocation of household goods, transportation
of family to new location, 21 days living expenses
and other reasonable costs.
- --------------------------------------------------------------------------------
Change of Control Within the first 12 months 33% acceleration of
unvested options; 50% acceleration after the first
12 months.
- --------------------------------------------------------------------------------
Employment If the Candidate resigns his employment for good
Agreement cause (constructive termination) during the first
12 months, Candidate will receive 9 months salary,
plus targeted bonus and 2 years of stock vesting.
After the first year of employment if he resigns, his
employment for good cause, he will receive 6 months
salary plus targeted bonus plus 2 years of additional
stock vesting. Constructive termination to be defined
in final contract, see attached note.
- --------------------------------------------------------------------------------
Other Standard benefit package.
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
This Agreement made as of this 15th day of September, 1999, by and between
Sedona Corporation, Inc., a Corporation of the Commonwealth of Pennsylvania (the
"Company"), and Marco Emrich (the "Employee").
WITNESSETH:
1. Employment. The Company hereby agrees to employ Employee and Employee hereby
accepts employment by the Company for the period and the terms and conditions
hereinafter set forth.
2. Capacity and Duties.
a) Employee shall be employed by the Company in the capacity of President and
Chief Executive Officer of the Company and Employee shall have such authority
and shall perform such key executive duties and responsibilities as may from
time-to-time reasonably be specified by the Chairman and the Board of Directors
of the Company with respect to the Company and its affiliates. It is the present
expectation of the parties that Employee will be re-elected during the entire
term of this Agreement to serve in this position and Employee agrees to serve in
such capacities without any compensation in addition to that herein provided.
Employee acknowledges that neither the Company nor its Board of Directors is
legally obligated to elect or re-elect Employee to this position.
<PAGE>
b) During the term of this Agreement, Employee shall devote all of his time,
in exercising his best efforts to the performance of his duties hereunder.
c) Notwithstanding the foregoing, Employee shall be entitled to have
investments in other enterprises provided, however, that he shall not have any
investments or financial interest in any business enterprise which conducts
business activities competitive with any business activities conducted by the
Company now or at any time during the term of the Employee's employment
hereunder (other than an investment of no more than 5% of any class of equity
securities of a company the securities of which are traded on a national
securities exchange). However, in the event the Company enters into a new field
in which the Employee has previously invested, the Employee agrees to disclose
his investment, if said investment exceeds 5% of equity of the company in which
the Employee has invested. If the Employee is so requested by the Board of
Directors of the Company, the Employee shall divest himself of the said
investment within one year after said request.
3. Compensation. Employee's compensation shall be as reflected in Exhibit 1.
4. Expenses. Employee is authorized to incur reasonable expenses for promoting
the business of the Company and in carrying out his duties hereunder, including
without limitation, reasonable expenses for automobile, travel and similar
items. The Company shall reimburse Employee for all such ordinary and necessary
expenses upon the presentation by Employee from time-to-time of an itemized
account of such expenditures. Employee shall present and itemized account of
expenditures not less frequently than monthly.
<PAGE>
5. Term of Agreement; Separation.
a) The term of this Employment Agreement, shall be Two(2) years and Three(3)
months commencing on the date hereof.
b) The Company may terminate this Employment Agreement for cause, defined as
follows:
1) Deliberate disclosure of Company secrets for consideration; or
2) Conviction of Employee of a felony involving moral turpitude, or of any
other law which may reasonably be deemed to cause a detrimental effect upon the
Company as a result of mutual association. If the Company separates the Employee
for cause, the Company will have no further liability or obligation except to
pay the Employee earned and unpaid compensation.
c) The Company may separate the Employee; a) without cause, or b) should the
Employee die or become disabled such that the Employee has been unable to
perform any duties here under for ninety (90) days during any year of this
Employment Agreement or for any period of sixty (60) consecutive days. In the
event of such separation, the severance package described in Exhibit 1 applies.
d) The Employee may resign for good cause (constructive termination) to be
defined as: There is no continuing employment in a comparable position of
responsibility at the Company (or successor company) or the position has been
downgraded to a position with "Total Compensation" (i.e., base salary plus
target annual incentives) less than 90% (applied equally to base and incentive.)
In the event of such separation, the severance package described in Exhibit 1
applies.
<PAGE>
e) In the event of change of control of the Company, Employee may elect to
terminate his employment in which event he shall receive the severance package
describe in Exhibit 1. For these purposes, change of control includes the
following: Sale of a majority of the outstanding shares or assets of the
Company, Change in composition of more than 50% of the Board of Directors as
presently constituted.
6) Restrictions on Competition. Employee covenants and agrees that: (a) during
the initial term and any renewal terms of his employment hereunder and, (b) if,
but only if, this Employment Agreement is terminated by the Employee (as
hereinafter defined) during the initial term, or any renewal term hereof, for a
period on one (1) year after termination of his employment hereunder, he shall
not, directly or indirectly, engage in any business activities within the limits
of the Continental United States, the same as, or in competition with, business
activities carried on by the Company during the period of the Employee's
employment by the Company, or in the definitive planning stages at the time of
termination of Employee's employment.
The term "engage in" shall include, without being limited to, activities as
proprietor, partner, stockholder, principal, agent, employee or consultant.
However, nothing contained in this Paragraph shall prevent Employee from having
investments of the types permitted in Subparagraph 2 c) hereof.
<PAGE>
These restrictions shall not apply if separation is by the Company under
Section 5c and 5d or if separation is by Employee under Section 5e of this
Employment Agreement.
7. Trade Secrets. During the term of employment under this Employment Agreement,
the Employee will have access to, and become familiar with, various trade
secrets, consisting of formulas, patterns, devices, secret inventions,
processes, compilation of information, records and specifications, which are
owned by the Company and which are regularly used in the operation of the
business of the Company.
The Employee shall not disclose any of the aforesaid trade secrets, directly
or indirectly, nor use them in any way, either during the term of this Agreement
or at any time thereafter, except as required in the course of his employment by
the Company.
All files, records, documents, drawings, specifications, equipment, and similar
items relating to the business of the Company, whether prepared by the Employee
or otherwise coming into his possession, shall remain the exclusive property of
the Company and be returned to the Company by request of the Company, provided
the same information is not available to the general public.
8. Miscellaneous Provisions.
a) Any notices pursuant to this Agreement shall be validly given or served if
in writing and delivered personally or sent by registered or certified mail,
postage prepaid, to the following addresses:
If to Company: Sedona Corporation, Inc.
649 N. Lewis Road
Limerick, PA 19468
Attn: Chairman of the Board
<PAGE>
If to Employee: Marco Emrich
8020 Quail Meadow Lane
Westchester, OH 45069
or to such other addresses as either party may hereafter designate to the other
in writing.
b) Notices delivered personally shall be deemed communicated as of the actual
receipt; notices mailed shall be deemed communicated as of five (5) days after
mailing.
c) If any provision of this Agreement shall be or become illegal or
unenforceable in whole or in part for any reason whatsoever, the remaining
provisions shall nevertheless be deemed valid, binding and subsisting.
d) The waiver by either party of a breach or violation of any provision of
this Employment Agreement shall not operate or be construed as a waiver of any
subsequent breach or violation thereof.
e) This writing represents the entire Employment Agreement and understanding
of the parties with respect to the subject matter hereof; it may not be altered
or amended except by agreement in writing.
f) The Employment Agreement has been made in and its validity, performance
and effect shall be determined in accordance with the laws of the Commonwealth
of Pennsylvania.
<PAGE>
g) The headings of paragraphs in this Employment Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
h) This Employment Agreement supersedes any earlier Employment
Agreement and as such is the only Employment Agreement in force.
IN WITNESS WHEREOF, and intending to be legally bound, the parties have executed
this Employment Agreement under seal on the day and year first above written.
SEDONA CORPORATION, INC.
ATTEST: /s/ Victoria R. Franchetti /s/ Laurence L. Osterwise
------------------------------ ---------------------------
Chairman of the Board Assistant Secretary
EMPLOYEE:
/s/ Marco Emrich
---------------------------
Marco Emrich
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<NAME> SEDONA CORP
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
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0
3,000
<COMMON> (719)
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