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As filed with the Securities and Exchange Commission on May 23, 2000
Registration No. 333- _____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Sedona Corporation
(Exact name of registrant as specified in its charter)
649 North Lewis Road
Suite 220
Limerick, PA 19468
(610) 495-3003
(Address of principal executive offices)
Pennsylvania 95-4091769
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
------------
Marco A. Emrich
President and Chief Executive Officer
Sedona Corporation
649 North Lewis Road
Suite 220
Limerick, PA 19468
(610) 495-3003
(Name, address, including zip code and telephone number, including
area code of agent for service)
------------
Copies to:
Robert B. Murphy, Esq.
Piper Marbury Rudnick & Wolfe LLP
1200 19th Street, N.W.
Washington, D.C. 20036
(202) 861-3900
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Approximate date of commencement of proposed sale to the public: From time to
time after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]___________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================
Title of Each Class of Securities To Be Proposed Maximum Aggregate Offering Amount of
Registered Price (1) (2) (3) Registration Fee
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.001 per share
Class A Preferred Stock, par value $2.00
per share Debt Securities
Warrants
Total $50,000,000 $13,200
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</TABLE>
(1) Not specified as to each class of securities to be registered pursuant to
General Instruction II(D) to Form S-3.
(2) Includes the amount of securities that may be issued in exchange for, or
upon conversion of, the debt securities and preferred stock and for which
no separate consideration will be received.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion - May 23, 2000
Prospectus
SEDONA CORPORATION
$50,000,000
Common Stock
Class A Preferred Stock
Debt Securities
Warrants
We may offer from time to time under this prospectus up to $50,000,000
of the securities listed above. We will circulate a prospectus supplement each
time we plan to issue our securities, which will inform you about the specific
terms of that offering and also may add, update or change information contained
in this prospectus. You should read this prospectus and any prospectus
supplement carefully before you invest.
Our common stock is traded on the Nasdaq Small Cap Market under the
symbol SDNA. On May 19, 2000, the closing price of one share of our common stock
was $3.31.
We have engaged on a best efforts basis Ladenburg Thalmann & Co., Inc.
as our exclusive placement agent for this offering.
--------------------
Investing in our common stock involves a high degree of risk. You
should carefully read and consider the risk factors beginning on page 4.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is May ___, 2000.
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TABLE OF CONTENTS
Page
Prospectus Summary.................................................... 3
Risk Factors.......................................................... 4
Forward-Looking Statements............................................ 7
Recent Developments................................................... 8
Use of Proceeds....................................................... 9
Dividend Policy....................................................... 9
Selected Financial Data............................................... 10
Business.............................................................. 12
Management............................................................ 17
Related Party Transactions............................................ 24
Principal Stockholders................................................ 26
General Description of Securities..................................... 28
Plan of Distribution.................................................. 46
Legal Matters......................................................... 47
Experts............................................................... 47
Where You Can Find More Information................................... 47
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us and our securities being sold in this offering and our
financial statements and accompanying notes appearing elsewhere in this
prospectus.
Sedona Corporation
SEDONA Corporation develops, markets, services and supports
Internet-based customer relationship management solutions that provide
organizations with the ability to optimize their return on customer
relationships and greatly improve their customer acquisition, intimacy,
satisfaction and retention capabilities.
The rise of the Internet has opened the door to a whole new level of
competition in business today. In almost every industry, new competitors are
entering the market daily. Companies are aggressively looking to implement new
ebusiness strategies, which combine Internet technology with innovative
marketing to obtain and maintain market share.
In the new economy, there has been an increasing realization that focus
on the customer is of great importance. As the Internet has made the world
smaller, it has also made consumers more demanding than ever before. In order to
acquire and retain customers, enterprises have to find innovative ways to
leverage customer information to build personalized relationships with their
customers by offering customized products and services to them before the
competition does.
A new class of applications is changing the landscape of business
solutions by enabling enterprises with the competitive ability to effectively
personalize their customer relationships as well as identify otherwise unknown
sales and marketing opportunities. To do this in a timely and accurate way, new
technologies are needed which transform raw customer data into dynamically
created and visually presented smart content. Smart content is customer data
enhanced with consumer demographics, behaviors, interests and preferences
information that is then filtered and analyzed visually to provide timely and
precise information on-demand to business users.
SEDONA is an Internet customer relationship management application
provider targeting small and mid-sized financial services companies and the new
breed of e-commerce merchants known as etailers. Working with strategic alliance
partners, SEDONA's technologies can also be found in large-scale customer
relationship management, supply chain management and enterprise resource
management applications within Fortune 1000 organizations.
Our principal executive offices are located at 649 North Lewis Road,
Limerick, Pennsylvania 19468, and our telephone number is (610) 495-3003.
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RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the following risk factors as well as other information contained in
this prospectus before deciding to invest in our securities. Any of these risk
factors could materially and adversely affect our business, financial condition
or operating results. In that case, the trading price of our common stock could
decline and you could lose all or part of your investment.
We have a limited operating history with which you can evaluate our business.
We only began focusing exclusively on our Internet-based application
solutions in 1999. As a result, we have only a limited operating history with
which you can evaluate our business and prospects. Our limited operating history
makes predicting our future operating results difficult. In addition, our
prospects must be considered in light of the risks and uncertainties encountered
by companies in the early stages of development in new and rapidly evolving
markets, specifically the rapidly evolving market for knowledge management
solutions. These risks include our ability to:
o acquire and retain customers;
o build awareness and acceptance of our brand name;
o extend existing and develop new strategic partner relationships;
o access additional capital when required;
o upgrade and develop our software and systems in a timely and
effective manner; and
o attract and retain key personnel.
Our business strategy may not be successful and we may not successfully
address these and other risks and uncertainties related to our limited operating
history.
We have limited revenues, have incurred operating losses in recent years and may
not be profitable in the future.
We had total revenues from continuing operations of $718,000, $244,000,
$15,000 and $260,000 and losses from continuing operations of $1.5 million, $3.3
million, $3.9 million and $5.3 million for the three months ended March 31, 2000
and the years ended December 31, 1999, 1998 and 1997, respectively. As of March
31, 2000, we had an accumulated deficit of $34.6 million. If our current and
future products fail to gain acceptance in the marketplace, we believe it is
unlikely that we will be able to reverse our operating loss trend or assure you
of our future profitability.
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Shares offered under this prospectus may depress our stock price.
Based on our closing price of $3.69 per share on May 15, 2000, we are
registering securities with an aggregate value equaling approximately 49.6% of
our market capitalization as of that date. Sales of a substantial number of
shares of common stock or preferred stock and debt convertible into our common
stock in the public market under this prospectus may decrease the prevailing
market price for our common stock.
The common stock issuable upon conversion of our convertible preferred stock may
significantly increase the supply of our common stock in the public market,
which may cause our stock price to decline.
We have issued and outstanding series A, series F, series G and series
H convertible Class A preferred stock. As of May 15, 2000, these series of
preferred stock were convertible into 2,529,527 shares of common stock. The
actual number of shares of common stock issuable upon conversion of the
convertible preferred stock is indeterminate and is dependent on the market
price of our common stock at the time of conversion. We have registered for
public resale 3,041,437 shares of common stock issuable upon conversion of the
series B, series F and series G convertible preferred stock to take into account
additional shares of common stock that would be issuable should the market price
for our common stock decline. We are obligated to register for public resale
200% of the shares of common stock that will be issuable upon conversion of the
series H convertible preferred stock, which equaled 802,140 shares as of May 15,
2000. Sale of all or a substantial number of shares of common stock received
upon conversion of the convertible preferred stock in the public market may
depress the prevailing market price for our common stock, which would enable the
holders of the preferred stock to convert into more shares, further depressing
the market price for our common stock. Further, the issuance of additional
convertible Class A preferred stock under this prospectus and its subsequent
conversion could further depress the market price for our common stock.
The exercise of warrants or options may depress our stock price.
There are a significant number of warrants and options to purchase our
common stock outstanding. Holders may sell the common stock acquired upon
exercise of the warrants and options at a market price that exceeds the exercise
price of the warrants and options paid by the holders. Sales of a substantial
number of shares of common stock in the public market by holders of warrants or
options may depress the prevailing market price for our common stock and could
impair our ability to raise capital through the future sale of our equity
securities. As of May 15, 2000, we had 7,378,671 warrants outstanding at a
weighted average exercise price of $2.75 per share and 2,386,044 options
outstanding with a weighted average exercise price of $2.44 per share.
Approximately 80.4% of the warrants and 35.0% of the options were exercisable as
of May 15, 2000.
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We do not expect to pay any dividends on our common stock.
We have not paid any cash dividends on our common stock and we do not
expect to pay any dividends in the immediate future. The value of your shares
will be determined solely by the market price of our common stock.
We may require additional capital that may not be available.
Although we believe that this offering will enable us to conduct our
operations as currently contemplated for a period of at least one year, we may
require additional financing at a later date. We do not know if additional
financing will be available to us on terms that we can accept. If financing is
not available, we may have to sell, suspend or terminate our operations.
If we are unable to successfully integrate our recent acquisition, our financial
results will suffer.
We completed our acquisition of the Customer Information Management
System unit from Acxiom Corporation on April 9, 2000. Our future profitability
will depend heavily on our ability to integrate this business with our company.
Failure to successfully integrate the businesses may cause significant operating
inefficiencies and adversely affect profitability. To successfully integrate the
companies, we must, among other things, install and standardize adequate
operational, financial and control systems.
The compatibility of our products with the Internet is important to our success.
Our applications communicate through public and private networks over
the Internet. The increased commercial use of the Internet could require
substantial modification and customization of our software products and the
introduction of new products.
If our products fail to meet the evolving requirements of our customers, our
business may be adversely affected.
We may not be successful in developing, marketing and releasing new
products or new versions of our applications that respond to technological
developments, evolving industry standards or changing customer requirements. Our
business, operating results and financial condition could be materially and
adversely affected if we are not able to meet the changing industry standards or
customer demands.
We rely on our intellectual property which we may be unable to protect, or we
may be found to infringe the rights of others.
We rely on a combination of copyright, trade secret and trademark laws,
confidentiality procedures and contractual provisions to protect our proprietary
rights which afford only limited protection. Others may develop technologies
that are similar or superior to our technology or design around our technology.
Policing unauthorized use of our products is difficult. In addition, the laws of
some foreign countries do not protect our proprietary rights as fully as do the
laws of the United States. Our means of protecting our proprietary rights in the
United States or abroad may not be adequate. Further, we cannot guarantee that
third parties will not assert infringement claims against us in the future, that
assertions by such parties will not result in costly litigation, or that we
would prevail in any such litigation or be able to license any valid or
infringed patents from third parties on commercially reasonable terms.
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We must recruit and retain qualified professionals to succeed in our business.
Our future success depends in large part on our ability to recruit and
retain qualified professionals skilled in engineering, software development,
production and marketing. Such professionals are in great demand and are likely
to remain a limited resource in the foreseeable future. Competition for
qualified professionals is intense. Any inability to recruit and retain a
sufficient number of qualified employees could hinder the growth of our
business.
Loss of any of our key management or skilled personnel could negatively impact
our business.
Our future success depends to a significant extent on the continued
service and coordination of our executive officers and other key employees. The
loss or departure of any of our officers or key employees could materially
adversely affect our ability to implement our business plan. In addition, if for
any reason our key employees, or any replacement key employees, are not able to
work together effectively or successfully, our business could be materially
adversely affected.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future
expectations and state other forward-looking information. Forward-looking
statements can be identified by the use of progressive terminology, such as may,
will, expect, anticipate, estimate, continue or other similar words. These
statements are subject to known and unknown risks and uncertainties that could
cause our actual results to differ materially from those contemplated by the
statements. Factors that might cause such a difference include those discussed
in the section titled Risk Factors. The information contained in this prospectus
is current only as of its date, regardless of the time of delivery of this
prospectus or of any sale of the shares. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
or revise any forward-looking statements.
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RECENT DEVELOPMENTS
In May 2000, all of the issued and outstanding shares of our series B
convertible preferred stock, including accrued dividends of $88,000, were
converted into 473,091 shares of common stock.
In April 2000, we acquired Acxiom Corporation's Customer Information
Management System, or CIMS, business unit for total potential consideration of
$4.0 million. CIMS is a provider of customer relationship management software.
In connection with the transaction, we issued $1.5 million of our series H
convertible preferred stock and warrants exercisable into 247,934 shares of our
common stock at an exercise price of $3.025 per share. We also will pay Acxiom a
10% royalty fee on all collections of license fees derived from CIMS technology,
such royalties to be not less than $1 million over the three year period
following the acquisition, and will assume certain liabilities related
principally to the service and warranty contracts assigned by Acxiom to us.
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USE OF PROCEEDS
Each time we sell our securities, we will provide a prospectus
supplement that will contain information about how we intend to use the net
proceeds from each offering.
In general, we intend to use the net proceeds from the sale of our
securities for working capital and general corporate purposes.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
We currently expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends on
our common stock in the foreseeable future. The declaration and payment of any
dividends in the future will be determined by our board of directors in its
discretion, and will depend on a number of factors, including our earnings,
capital requirements and overall financial condition.
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SELECTED FINANCIAL DATA
(in thousands, expect per share data)
The selected financial data set forth below should be read in
conjunction with the financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
appearing elsewhere in this prospectus. The statement of operations data for the
years ended December 31, 1997, 1998 and 1999, and the balance sheet data as of
December 31, 1998 and 1999, are derived from, and are qualified by reference to,
audited financial statements incorporated by reference to the registration
statement of which this prospectus is a part. In a realignment of our business,
we sold our Technology Resource Centers and Tangent Imaging Systems divisions in
the third quarter of 1999. For all periods presented, the financial data reflect
the results of these divisions as discontinued operations. Revenues generated
prior to 1998 were derived from businesses unrelated to our current business. As
a result, financial data from the years ended December 31, 1998 and 1999 are not
readily comparable to prior years. In April 2000, we acquired all of the assets
of the Customer Information Management System business unit from Acxiom
Corporation. As a result, the historical results presented here are not
necessarily indicative of the operating results to be expected in the future.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
-----------------------
----------- ------------ ------------ ------------ ------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- ------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenues ......................... $ -- $ 190 $ 260 $ 15 $ 244 $ 1 $ 718
Loss from continuing
operations...................... (151) (1,516) (5,301) (3,879) (3,264) (765) (1,529)
Loss from discontinued
operations....................... (1,086) (2,754) (2,216) (1,633) (2,973) (867) (1)
Loss from continuing and
discontinued operations
before extraordinary item....... (1,237) (4,270) (7,517) (5,512) (6,237) (1,632) (1,530)
Extraordinary item................. -- -- (300) -- -- -- --
Net loss ......................... (1,237) (4,270) (7,817) (5,512) (6,237) (1,632) (1,530)
Preferred dividends................ (158) (220) (182) (1,592) (601) (97) (77)
Net loss applicable to
common stockholders.............. (1,395) (4,490) (7,999) (7,104) (6,838) (1,729) (1,607)
Net loss per share applicable to
to common stockholders
before extraordinary item....... $ (.03) $ (.15) $ (.34) $ (.28) $ (.18) $ (.04) $ (.06)
Extraordinary item per share........ $ -- $ -- $ (.02) $ -- $ -- $ -- $ --
Basic and diluted net loss
per common share applicable
to continuing operations........ $ (.03) $ (.15) $ (.36) $ (.28) $ (.18) $ (.04) $ (.06)
Loss per common share
applicable to discontinued
operations....................... $ (.11) $ (.24) $ (.13) $ (.08) $ (.13) $ (.04) $ --
Loss per common share................$. (.14) $ (.39) $ (.49) $ (.36) $ (.31) $ (.08) $ (.06)
</TABLE>
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<TABLE>
<CAPTION>
As of December 31, As of Mar. 31,
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1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets...................... $ 2,587 $ 2,566 $ 4,403 $ 4,435 $ 2,204 $ 9,465
Net working capital............... 7 749 902 179 262 7,318
Long-term obligations............. -- -- 59 215 51 46
Stockholders' equity.............. 2,105 2,556 3,514 3,457 1,431 8,671
</TABLE>
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BUSINESS
Overview
SEDONA Corporation develops, markets, services and supports
Internet-based customer relationship management, or CRM, solutions that provide
organizations with the ability to retain and optimize their return on customer
relationships and to improve their customer acquisition, intimacy, satisfaction
and retention capabilities. We made significant realignments in our business in
1999 by exiting non-strategic businesses in order to focus on the core
application solution strategy.
Our principal executive offices are located at 649 North Lewis Road,
Limerick, Pennsylvania 19468, and the telephone number is (610) 495-3003.
Description of Business and Principal Products
The markets that SEDONA's solutions target are experiencing rapid
growth, fueled by a strong demand by businesses for the next-generation
application solutions that allow them to build personalized relationships with
their customers by offering customized products and services that will enable
them to greatly improve their customer acquisition, intimacy, satisfaction and
retention.
Customer Acquisition
A high close rate and a short sales cycle characterize a sales team
that knows how to identify their ideal prospect. Customer profiles provide
models to help target new prospects. Our applications provide an incisive view
of sales prospects fully qualified through the filter of an ideal customer
profile. We believe this will result in a higher level of sales productivity
with a lower cost of sales.
Customer Intimacy
Through customer intimacy, our customers can build a valuable 1-to-1
relationship with new and existing customers. When key customer variables
change, opportunities arise to sell new products and services. Our applications
increase knowledge of customer behavior to provide consistent communications
between marketing to customer service.
Customer Satisfaction
Greater customer understanding improves the quality of each customer
interaction. With our applications, that customer interaction can become
tailored to the customer, improving service, decision making and response time.
With precise information presented visually and on-demand, call centers are able
to promptly and efficiently meet the customer's needs.
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Customer Retention
Improving retention creates more repeat customers and opportunities to
sell upgraded and complementary products and services to these customers. With
the in-depth knowledge management provided by our applications, users can
visualize historical sales and service information along with external, enhanced
information to help better understand and anticipate customer needs.
We believe SEDONA delivers CRM solutions that allow sales and marketing
professionals to quickly and easily identify new marketing and selling
opportunities by utilizing critical business technologies such as the Internet,
smart content and visualization. Developed and priced to meet the specific needs
of small to mid-sized financial services companies and the new breed of
e-commerce merchants known as e-tailers, SEDONA's Internet CRM application
solution combines our powerful Customer Information Management System and visual
profiling application components with other leading-edge technologies such as
Lead Factory, a Web-based lead tracking application, to deliver a comprehensive
and customized CRM solution to the targeted markets.
SEDONA's Internet CRM application solution leverages visual profiling
technology to enhance internal customer and prospect data with real-time,
third-party information about consumer demographics, behaviors, interests and
preferences to deliver smart content over the Internet which enables the
creation of timely and precise profiles of an organization's customers and
prospects. This profile information is displayed to users visually in the form
of live graphs, charts and maps, allowing users to filter and analyze complex
data, for quicker and improved decision making. The analysis and the visual
presentations are constantly updated as data changes, delivering "information on
demand" to organizations, which will greatly improve their ability to sell
upgraded and complementary products and services to their customers.
Working through strategic alliances with leading application providers,
SEDONA's technologies can also be found in large-scale CRM, supply chain
management and enterprise resource management applications within the Fortune
1000 organizations.
Research & Development
The main strategy of the research and development organization is to
provide high-quality, high-value products and support services in a fast,
consistent and predictable manner as follows:
o Promote and cultivate a culture of team-based development. The research
and development organization is structured into small teams of highly
knowledgeable developers, responsible for the design, development and
unit testing of each component of SEDONA's Internet CRM solutions. Each
project team also provides technical assistance to the system
integration group.
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o Implement a state-of-the-art software development process that
encourages component reusability and enhances the predictability,
timeliness and quality of the overall software process. We have adopted
the Base Level Integration Plans software development methodology,
which has been designed to promote an interactive and predictable
process for the development, unit and system integration testing and
delivery of products. This methodology breaks the development of
sophisticated products into small, pre-defined cycles of 10 weeks (Base
Levels) during the delivery process. It also allows the company to
quickly react to business and technical changes generated by the
marketplace and/or new customer requirements.
Base levels serve as the fundamental planning and execution process
that drives the engineering activities for that time period, including
the maintenance of existing products and releases, training and
education requirements, as well as new product development. This
process operates in the context of a development organization where
there is a set of small project teams cooperating to build a large,
complex software product.
Research and development expenses were $346,000 $239,000 and $824,000,
for the years ended December 31, 1999, 1998 and 1997, respectively.
Patents and Copyrights
We strongly believe in copyrighting and trademarking our products and
servicemarking our services. We have been awarded or are in the process of
applying for a total of 20 copyrights, trademarks and servicemarks.
Sales and Marketing
We reach the targeted small to mid-sized financial services and
e-tailer markets by aggressively creating a direct sales distribution channel
comprised of experienced field sales representatives and highly-qualified field
systems engineers that we believe ensures the best pre- and post-sales support
for customer implementations. Our strategy is to provide a secure,
Internet-based, scalable, reliable, secure and full-featured customer
relationship management solution, customized to the needs of the marketing and
sales professionals of these companies.
We reach the Fortune 1000 organizations by creating an indirect sales
distribution channel that is responsible for building strategic original
equipment manufacturer and value added reseller alliances and partnerships with
1) enterprise application package suppliers, delivering CRM, supply chain
management and enterprise resource managment solutions, 2) integrators
implementing these packages in end-user organizations and 3) content management
providers for consumer and business data. Our strategy is to exploit these
strategic partners' brand, marketing power and relationships with their
customers that implement and deploy these applications to best access and
address the needs of the targeted professionals within these companies.
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Marketing activities focus on the delivery of highly qualified leads to
the sales channels. To facilitate this, SEDONA has unified its marketing,
product management and customer care organizations to provide a complete,
end-to-end customer service capability and overall feedback loop into product
development and positioning activities.
The marketing organization is putting heavy emphasis on corporate
branding, public and investor relations, customer-centric product requirements
development, telemarketing and telesales programs and an overall initiative to
provide outstanding customer relationship management to our customer base.
Competition
The customer relationship management solution market has offerings from
providers that focus on sales force automation, call center management, contact
management and the like. We believe our offering is unique when compared to our
competition in that it offers a comprehensive solution which:
o is 100% customized and personalized for financial services and
e-tailing target markets;
o creates smart content by combining, filtering and analyzing live data
from internal and external data sources in order to provide timely and
precise decision critical information;
o contains a valuable profitability component to better understand
profitability dynamics by customer, customer type and product;
o provides visualization capabilities to maximize intuitiveness of
information and speed decision process; and
o delivers capabilities on the Internet in a cost effective, usable
manner.
The comprehensive customer relationship management solution vendors are
our potential partners, either through integrating our capabilities into their
solution or integrating their solution into our application solution, creating
an overall remarketing/reselling opportunity for both.
Software Development and Services
We produce and service our software products from our headquarters in
Limerick, Pennsylvania as well as utilize outside contract organizations. In
addition, a field service organization covers all areas of the nation.
Employees
As of May 15, 2000, we had 59 full time employees. None of these
employees are represented by a labor union. We believe that our relationships
with our employees are good.
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Properties
We lease our corporate offices as well as principal facilities for
operations at 649 North Lewis Road, Limerick, Pennsylvania 19468. This facility
is currently being leased on a short term basis as management plans a relocation
within the Philadelphia area during 2000. Management believes that adequate
facilities will be available to fulfill its current and near-future needs.
Legal Proceedings
In March 1998, an action was commenced in the Court of Common Pleas of
Montgomery County, PA, against us by a former employee, seeking damages of
$361,000, for termination of contract, by change of control and for convenience.
This plaintiff asserts this sum represents the excess of market value over the
exercise price of unvested warrants held by the plaintiff which the plaintiff
asserts should have been vested and thereby available for exercise and sale. We
believe this claim is without merit and are defending our position.
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.
16
<PAGE>
MANAGEMENT
The following table sets forth information regarding our directors and
executive officers as of May 15, 2000.
Name Age Position
- ---- --- --------
Laurence L. Osterwise 52 Chairman of the Board
R. Barry Borden 60 Vice Chairman of the Board
Marco A. Emrich 47 Chief Executive Officer, President and Director
William K. Williams 57 Vice President and Chief Financial Officer
Robert J. Griffin 54 Vice President
Michael A. Mulshine 60 Secretary and Director
David S. Hirsch 64 Director
Jack Pellicci 61 Director
James C. Sargent 84 Director
Robert M. Shapiro 54 Director
James C. Womble 57 Director
Laurence L. Osterwise was appointed Chairman of the Board in September
1999, after having been our Chief Executive Officer, President and a director
since April 1997. Mr. Osterwise came to us in November 1996 as the Chief
Operating Officer and President of Sedona GeoServices, Inc., a subsidiary.
Before joining us, he was President of the Communications Division of General
Instrument Corporation, now a division of Motorola. Prior to joining General
Instrument, Mr. Osterwise was with IBM Corporation for 25 years, where he held
positions as President of Production Industries, U.S. Vice President and
Corporate Director of Market Driven Quality, and IBM Rochester General Manager
and Director of Application Business Systems. Under his leadership, IBM
Rochester was awarded the Malcomb Baldridge National Quality Award. Mr.
Osterwise received a BS in Mathematics from Duke University in 1969 and an MS in
Computer Sciences from Syracuse University in 1973.
R. Barry Borden has been Vice Chairman of the Board since September
1999 and, prior to this position, served on the board since June 1996 as
Chairman. He has founded and managed businesses in the computer hardware and
software industry for the past 30 years. Since August 1997, he has served as
President of Nettech Systems, Inc., a supplier of software for wireless data
communications. Prior to that he has served as Chairman and CEO of Mergent
International, a supplier of software for data security on PC desktops and
enterprise wide networks. Mr. Borden also serves on the board of directors of
FASTNET Corporation, an Internet software service provider and AM
Communications, a provider of monitoring systems for cable TV companies. Since
1984, Mr. Borden has been President of LMA Group Inc., a general management
consulting firm. From 1968 to 1980, Mr. Borden was the founder, President and
CEO of Delta Data Systems, a CRT terminal manufacturer, and from 1981 to 1984 he
was founder, Chairman and CEO of Franklin Computer Corp., a manufacturer of
microcomputers. In 1989 he served as President and CEO of Cricket Software,
Inc., a supplier of graphics software. Mr. Borden received a BSEE degree from
the University of Pennsylvania in 1961.
17
<PAGE>
Marco A. Emrich has been Chief Executive Officer, President and a
director since September 1999. He has over 20 years of software industry
experience. Most recently, he served as President and CEO of Cambridge-based
e-commerce application service provider Empresa Inc. Prior to joining Empresa
Inc., Mr. Emrich was President, CEO and Chairman of CenterLine Software, Inc.,
where he created and launched a web-based application that enables businesses to
monitor, manage and report on network-centric or multi-tier distributed business
applications. Prior to CenterLine, he held positions as Senior Director of
Cincom Systems, Inc.'s Advanced Technology Group and as Manager, NAS Information
Network Technology at Digital Equipment Corporation. Mr. Emrich holds a
bachelor's degree in Electrical Engineering with specialization in Systems
Engineering.
William K. Williams was appointed Vice President and Chief Financial
Officer in April 1998. Prior to his joining us, Mr. Williams worked as an
independent financial consultant with emerging growth companies, served as Vice
President of Business Development for a Fortune 500 company and held various
financial management positions at DuPont, including four years as Director of
Finance for Japan operations. Mr. Williams joined DuPont upon earning an MBA
degree in Finance from the University of Maryland.
Robert J. Griffin was appointed Vice President in March 1998 and
currently manages our relationship with IBM. He joined us as Senior Vice
President of Sales and Distribution in our Tangent Imaging Systems division in
September 1997 and was President of that unit from January 1998 until its sale
in the third quarter of 1999. Prior to joining us, Mr. Griffin was with IBM for
over 20 years and directed a broad array of marketing and sales initiatives
including market and brand management, customer satisfaction, business partner
recruitment and support, sales training and field sales management. In his most
recent position with IBM, Mr. Griffin served as Director, Worldwide Competitive
Marketing and Sales for IBM, a position that directly reported to the CEO and
senior executive team.
Michael A. Mulshine has been a director and Secretary since May 1985
and has been associated with us on a management consulting basis since 1979. He
has been the President of Osprey Partners, a management consulting firm, since
1977. In addition, he is a director of VASCO Data Security International, Inc.,
a leading provider of Internet and computer network hardware and software
security solutions for financial institutions, industry and government. Mr.
Mulshine received a BSEE degree from the Newark College of Engineering in 1961.
David S. Hirsch has been a director since January 1992. He retired in
1991 from Schroder & Co., Incorporated and its predecessor firms where he was a
principal during the five years preceding his retirement. Mr. Hirsch received a
BA degree from Cornell University in 1957 and an MBA degree from Harvard
University in 1959.
18
<PAGE>
Jack A. Pellicci has been a director since October 1996. Mr. Pellicci
is Oracle Corporation's Vice President of Global Service Industries where he is
responsible for knowledge management, strategy, market development and spatial
solutions for Oracle's major service industries -- Health, Financial Services,
Communications, Utilities and Public Services -- in over 140 countries. Prior to
joining Oracle in 1992, Mr. Pellicci retired as a Brigadier General with 30
years in the U.S. Army, where he was the Commanding General of the Personnel
Information Systems Command. Mr. Pellicci is a member of the board of directors
of the Open GIS Consortium (OGC), an organization of over 70 commercial,
governmental and educational entities dedicated to open systems approaches to
geoprocessing. He is also a member of the board of directors of OGETA Services,
the Fairfax County Chamber of Commerce and the United Services Organization
(USO). He currently serves as a Corporate Fellow for the National Governors
Association. He is a graduate of the U.S. Military Academy at West Point with a
Bachelor of Engineering degree, and received a Master of Mechanical Engineering
degree from the Georgia Institute of Technology.
James C. Sargent has been a director since January 1992. Mr. Sargent is
Counsel to the law firm of Opton, Handler, Gottlieb, Fieler & Katz, and to Abel
Noser Corporation, a member of the New York Stock Exchange. He was previously a
partner and counsel to Whitman Breed Abbott & Morgan, LLP. He was New York
Regional Administrator from 1955 to 1956, and Commissioner of the Securities and
Exchange Commission from 1956 to 1960.
Robert M. Shapiro has been a director since November 1998. Mr. Shapiro
is Vice President of Global Sales and Business Development for Autoweb.com, a
major online automotive retailer. From 1995 to 1997 Mr. Shapiro was Senior Vice
President of R. L. Polk & Company, a privately owned $400 million global
information services company, where he directed worldwide marketing, product
management and business development activities for all software products sold to
the transportation, insurance, finance, retail, fundraising and publishing
industries. Prior to joining R. L. Polk, Mr. Shapiro was Senior Vice President,
Commercial Marketing for Prodigy, where he created the first commercially viable
interactive service including product positioning and branding. He is noted as a
pioneer in building online business-to-consumer commercial sites. Prior to
joining Prodigy, Mr. Shapiro gained his early marketing and sales experience
during seventeen years with IBM Corporation and Proctor & Gamble. Mr. Shapiro
serves on the board of directors of Blackburn Polk Marketing Services of Canada
and Carfax, USA. He received his BA degree from the University of San Diego in
1967.
James T. Womble has been a director since April 1999. Mr. Womble has
been a director of Acxiom Corporation since 1975, and is Division Leader of its
Financial Services Division. This division has locations in Conway and Little
Rock, Arkansas, Chicago, Phoenix, and Memphis and manages relationships around
the world with Acxiom's clients in the credit card, retail banking and insurance
industries. Prior to joining Acxiom, Mr. Womble worked for IBM as a systems
engineer and marketing representative. He holds a degree in civil engineering
from the University of Arkansas.
All directors hold office until the next annual meeting of the our
shareholders and until their successors are elected and qualified.
19
<PAGE>
All officers serve at the discretion of the board of directors subject
to the terms of their employment agreements.
Executive Compensation
The following table sets forth summary information concerning
compensation for services in all capacities awarded to, earned by or paid to,
our Chief Executive Officer and our other most highly compensated officers,
whose aggregate cash and cash equivalent compensation exceeded $100,000, with
respect to the last three fiscal years. We refer to these individuals as our
named executive officers.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities All Other
Name and Principal Position Year Salary Bonus Underlying Options Compensation (1)
- --------------------------- -------- -------- ------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Laurence L. Osterwise............... 1999 $ -- $ -- 400,000 $ --
Chairman of the Board (2) 1998 38,078 -- 300,000 --
1997 121,154 -- 250,000 --
Marco A. Emrich..................... 1999 63,173 -- 725,000 --
Chief Executive Officer and
President (3)
Robert J. Griffin................... 1999 160,426 -- 100,000 --
Vice President 1998 198,330 -- 50,000 --
1997 37,500 -- 50,000 --
</TABLE>
- ------------------
(1) In fiscal years 1999, 1998 and 1997, no named executive officer
received prerequisites or other personal benefits, securities or
property as a portion of the named executive officer's salary and
bonus.
(2) Mr. Osterwise served as our Chief Executive Officer until September 1999.
(3) Mr. Emrich joined us as our Chief Executive Officer in September 1999.
Option/Warrant Grants
The following table sets forth information concerning options/warrants
granted to the named executive officers, and additional information concerning
such grants of stock options/warrants during fiscal year 1999. No stock
appreciation rights have been granted.
20
<PAGE>
<TABLE>
<CAPTION>
Potential Realizable Value
Number of at Assumed Annual Rates
Securities Percentage of Total of Stock Price
Underlying Options/ Appreciation for
Option/ Warrants Granted to Option/Warrant Term (1)
Warrant Employees in Fiscal Exercise Price Expiration -----------------------
Name Grants Year 1999 (Per Share) Date 5% 10%
- ---- ------------ ------------------- -------------- ------------ --- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Laurence L. Osterwise...... 400,000 25.0% $ 2.19 12/31/08 $1,399,210 $2,546,128
Marco A. Emrich............ 725,000 37.1% 2.25 8/31/09 2,350,653 4,592,648
Robert J. Griffin.......... 100,000 5.1% 1.35 4/21/09 406,845 701,024
</TABLE>
- ------------------
(1) The options have ten year terms, subject to earlier termination upon
death, disability or termination of employment. The potential
realizable value is calculated based on the term of the option at the
time of grant. Stock price appreciation of 5% and 10% is assumed
pursuant to rules promulgated by the SEC and does not represent our
prediction of our stock price performance. The potential realizable
values at 5% and 10% appreciation are calculated by assuming that the
exercise price on the date of grant represents the fair value of a
share of common stock on that date, that the value appreciates annually
at the indicated rate for the entire term of the option and that the
option is exercised at the exercise price and sold on the last day of
its term at the appreciated price.
Option Exercises and Fiscal Year-End Values
The following table sets forth information as of December 31, 1999,
regarding the number and year end value of unexercised stock options and
warrants held by each of the named executive officers. There were no option or
warrant exercises in 1999 by the named executive officers.
<TABLE>
<CAPTION>
Number of Securities Underlying
Unexercised Options/Warrants at Value of Unexercised In-the-Money
December 31, 1999 Options/Warrants at December 31, 1999 (1)
------------------------------------- -----------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Laurence L. Osterwise............... 1,038,888 300,000 $794,777 $375,000
Marco A. Emrich..................... -- 725,000 -- 862,750
Robert J. Griffin................... 65,000 135,000 84,563 240,437
</TABLE>
- ------------------
(1) Based on the closing price of our common stock as reported on the
Nasdaq SmallCap Market on December 31, 1999 ($3.44), net of the
option/warrant exercise price.
Employment Agreements with Executive Officers
In September 1999, we entered into an employment agreement with Marco
A. Emrich, our Chief Executive Officer and President. This agreement has a term
of two years and three months. Compensation during this period will be $225,000
as base annual salary plus additional compensation as directed by the board of
directors. Mr. Emrich can also earn up to $100,000 in the form of a cash bonus
for years 2000 and 2001, subject to quarterly measurements. In addition Mr.
Emrich was granted options to purchase 200,000 shares of common stock and
warrants to purchase 175,000 shares, exercisable at $2.50 per share, which will
vest over 4 years at 25% per year. He also was granted warrants to purchase
350,000 shares at an exercise price of $2.50 per share, which will vest in four
years, although vesting may be accelerated based on stock price performance. In
the event of change of control within 12 months there will be a 33% acceleration
of unvested options/warrants; and 50% acceleration after the first 12 months. If
Mr. Emrich resigns as a result of a change of control, he would be entitled to
severance benefits, including payment of up to nine months salary and targeted
bonus. Severance remuneration is not payable in the event of termination for
cause.
21
<PAGE>
We have entered into an employment agreement with Robert J. Griffin
that entitles him to a base salary and bonus. In the event that he resigns
following a change of control, Mr. Griffin would receive up to six months'
salary as severance. Mr. Griffin has agreed to not compete with us during the
term of his employment and to preserve the confidentiality and the proprietary
nature of all information relating to our business during and after the term of
his employment.
Compensation of Directors
On the first business day of January in each year, each of our
non-employee directors receives a grant of an option to purchase shares of
common stock at the then-current fair market value, as determined in accordance
with the 1992 Long-Term Incentive Plan, as follows: an option to purchase 15,000
shares of common stock for service to the board during the preceding year, plus
an option to purchase 2,500 shares of common stock for serving as the Chairman
of the Board or chairman of a committee of the board during the preceding year.
However, if a director shall become eligible for an option grant after the first
regularly scheduled meeting of the board during any calendar year, the
compensation committee shall determine the size of such option grant by
multiplying 15,000 shares (and/or 2,500 shares) by a fraction which is
determined by dividing the number of regularly scheduled board meetings
remaining in the calendar year by six. The non-employee directors were issued
the following option grants in January 2000 for service to the board in 1999:
Mr. Borden, 20,000 shares; Messrs. Hirsch, Mulshine, and Pellicci, 17,500
shares; Messrs. Sargent, Shapiro, and Womble, 15,000 shares.
In addition, under the terms of the 1992 Plan, any new director who has
been elected to the board was granted an option to purchase 25,000 shares of
common stock at the then-current fair market value as determined in accordance
with the 1992 Plan. The shares underlying these options will vest at the rate of
5,000 shares per year for five years, commencing on the first anniversary date
of his election to the board and on each subsequent anniversary thereafter. In
the future, upon ratification of the 2000 Stock Incentive Plan at the next
annual meeting of shareholders, the compensation committee of the board of
directors will determine the number of options that directors will receive for
service to the board and upon being elected to serve as a director.
Further, on or before January 31 in each year, each non-employee
director receives an annual retainer of $5,000 as cash compensation for his
services as a director for the preceding year. Also, each non-employee director
will receive $500 for attendance at each board and committee meeting, with
multiple meetings held on the same day to count as one. These amounts shall be
subject to annual review and possible adjustment at the discretion of the board.
22
<PAGE>
Board Committees
Our bylaws provide that our board of directors may designate one or
more board committees. We currently have an audit committee and a compensation
committee.
Audit committee. Our audit committee, currently comprised of Messrs.
Hirsch, Mulshine and Sargent, performs the following functions:
o recommends to our board of directors the independent auditors to
conduct the annual audit of our books and records;
o reviews the proposed scope and results of the audit;
o approves the audit fees to be paid;
o reviews accounting and financial controls with the independent public
accountants and our financial and accounting staff; and
o reviews and approves transactions between us and our directors,
officers and affiliates.
Compensation committee. Our compensation committee, currently comprised
of Messrs. Borden, Hirsch and Osterwise, performs the following functions:
o reviews and recommends to the board of directors the compensation and
benefit arrangements for management, including our executive officers;
o establishes and reviews general policies relating to the compensation
and benefits of our employees; and
o administers our stock option plans.
Compensation Committee Interlocks and Insider Participation
None of our executive officers have served as a director or member of
the compensation committee (or other committee serving an equivalent function)
of any other entity, whose executive officers served as a director of or member
of our compensation committee.
23
<PAGE>
RELATED PARTY TRANSACTIONS
Through August 31, 1997, we leased our former principal office and
manufacturing facility from Lin-Lea Corporation, which was owned by Andrew E.
Trolio our former Chairman. Rent expense charged to operations was $64,000 for
the portion of 1997 in which we operated out of that facility.
In January 1997, the board of directors approved a consulting agreement
with Osprey Partners, a company that is owned by Michael A. Mulshine, one of our
directors. Under the agreement, Osprey was paid a $5,000 monthly retainer during
1997 for shareholder and investor relations activities and for management
consulting services. In January 1998, Osprey's agreement was adjusted, so that
in lieu of cash compensation for 1998, Osprey was issued warrants to purchase up
to 70,000 shares of common stock, with the warrants to vest at the rate of
5,833.33 shares on the first of each month for the twelve months starting
January 1, 1998, and to be exercisable for up to ten years at 25% above the
closing bid ($3.36) on the effective date of the agreement. In addition to the
above-referenced monthly retainer fee, we incurred commissions and management
consulting expenses in the amount of $180,708 for the year ended December 31,
1997 to Osprey.
In March 1999, the board of directors ratified another consulting
agreement with Osprey Partners. Under the agreement, Osprey was issued warrants
to purchase up to 72,000 shares of common stock, with such warrants to vest at
the rate of 6,000 shares on the first of each month for the twelve months
starting January 1, 1999, and such warrants to be exercisable for up to ten
years at an exercise price of $2.50 per warrant.
In January 2000, a new consulting agreement with Osprey was negotiated.
Under this agreement, Osprey will receive $3,500 each month during 2000 and
warrants to purchase 37,500 shares of common stock at an exercise price of $2.25
per share, which will vest 1/12th each month of 2000.
Effective March 21, 1998, Andrew E. Trolio entered into a retirement
settlement agreement with us. Under the agreement, Mr. Trolio agreed to step
down as Chairman. In addition, Mr. Trolio agreed to surrender 500,000 shares of
common stock that he purchased at the end of 1996 from us, and certain
promissory notes relating to such purchase were canceled. In consideration of
the preceding, Mr. Trolio was issued warrants to purchase up to 250,000 shares
of the our common stock, exercisable for ten years at the exercise price of
$2.546875, which was the average of the bid and asked prices at the closing on
March 20, 1998. Further, while Mr. Trolio was expected to remain as a Director
of the Company for a minimum of three years, he elected to resign from the Board
of Directors effective March 6, 1999.
During March 1999, Laurence L. Osterwise, our former Chief Executive
Officer and current Chairman, agreed to loan up to $500,000 to us on a
short-term basis bearing interest at the rate of 1.5% per month. Maximum
advances under this loan arrangement amounted to $185,000 and were repaid in
March 1999. As of March 31, 2000, there were no borrowings outstanding.
24
<PAGE>
In February 2000, we committed to acquire a 10% equity interest for
$140,000, payable at various times in the future, in a start-up company which
designs, builds and markets computer software and services to aid sales and
marketing persons with their customer prospecting. This lead generation and
management product will be integrated with our visual customer relationship
management profiling and CIMS application solutions to provide further value to
our customers. The principal owner of this company is also one of our vice
presidents.
25
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of May 15, 2000 by (a) each person known by us
to be the beneficial owner of more than five percent of any class of our common
stock, (b) each member of our board of directors, (c) each of our named
executive officers and (d) all directors and executive officers as a group.
The term "beneficial ownership" includes shares over which the
indicated beneficial owner exercises voting and/or investment power. Common
stock subject to options or warrants currently exercisable, or exercisable
within 60 days, is also deemed to be outstanding for purposes of computing the
percentage ownership of the person holding the options or warrants, but are not
deemed to be outstanding for purposes of computing the percentage ownership of
any other person. For purposes of calculating the percentage beneficially owned
for each shareholder, 29,832,602 shares of common stock equivalents are deemed
outstanding before the offering, including 27,303,075 shares of common stock
outstanding as of May 15, 2000 and 2,529,527 shares of common stock equivalents
issuable upon conversion of all outstanding preferred stock, together with
applicable options and warrants for that shareholder.
Unless otherwise indicated, the address for each stockholder listed is
c/o SEDONA Corporation, 649 North Lewis Road, Limerick, PA 19468. Except as
otherwise indicated, each of the persons named in this table has sole voting and
investment power with respect to all the shares indicated.
<TABLE>
<CAPTION>
Number of Shares Percentage of Common Stock
Name of Beneficial Owner Beneficially Owned Beneficially Owned
- ------------------------ ------------------ --------------------------
<S> <C> <C>
Laurence L. Osterwise....................... 1,180,286 3.96%
Marco A. Emrich............................. -- *
Michael A. Mulshine......................... 823,755 (1) 2.76%
David S. Hirsch............................. 407,217 (2) 1.37%
James C. Sargent............................ 142,067 *
R. Barry Borden............................. 91,780 *
Jack A. Pellicci............................ 62,260 *
Robert M. Shapiro........................... 62,500 *
James T. Womble............................. 20,000 *
Robert J. Griffin........................... 89,333 *
Andrew E. Trolio............................ 1,832,488 6.14%
All directors and executive officers as a
group (11 persons).......................... 2,913,130 9.76%
</TABLE>
- -------------------
* Represents one percent or less.
(1) Includes warrants to purchase 682,666 shares issued to Osprey Partners, a
company owned by Mr. Mulshine.
(2) Includes 10,940 shares of common stock held by Mr. Hirsch's wife and 51,100
shares of common stock held by Mr. Hirsch's children. Mr. Hirsch disclaims
beneficial ownership of these shares.
26
<PAGE>
The foregoing table also includes shares which the following directors
and executive officers have the right to acquire within sixty days upon the
exercise of options and warrants: Mr. Osterwise, 1,097,221 warrants; Mr.
Mulshine, 93,595 options, 682,666 warrants; Mr. Hirsch, 130,345 options, 60,000
warrants; Mr. Sargent, 94,845 options; Mr. Borden, 91,780 options; Mr. Pellicci,
62,260 options; Mr. Shapiro, 42,500 options; Mr. Womble, 20,000 options; and Mr.
Griffin, 89,932 options.
27
<PAGE>
GENERAL DESCRIPTION OF SECURITIES
We may offer under this prospectus shares of common stock, shares of
Class A preferred stock, debt securities, warrants to purchase common stock or
Class A preferred stock or any combination of the foregoing, either individually
or as units consisting of one or more securities. The aggregate offering price
of securities offered by us under this prospectus will not exceed $50,000,000.
Each time we offer these securities, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. Certain
of the securities to be offered hereby may involve a high degree of risk. To the
extent not set forth under "Risk Factors" in this prospectus, such risks will be
set forth in the prospectus supplement relating to such securities.
Description of Common Stock
As of the date of this prospectus, we are authorized to issue up to
50,000,000 shares of common stock. As of May 15, 2000, we had 27,303,075 shares
of common stock issued and outstanding and had reserved 7,378,671 and 2,429,015
shares of common stock for issuance upon exercise of warrants and options,
respectively.
Dividends
The holders of common stock are entitled to receive dividends when, as
and if declared by our board of directors, out of funds legally available for
their payment.
Rights Upon Liquidation
In the event of our voluntary or involuntary liquidation, dissolution
or winding up, the holders of common stock will be entitled to share equally in
any of our assets available for distribution after the payment in full of all
debts and distributions and after the holders of all series of outstanding
preferred stock have received their liquidation preferences in full.
Voting Rights
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders.
Miscellaneous
The holders of common stock are not entitled to preemptive or
redemption rights. Shares of common stock are not convertible into shares of any
other class of capital stock. StockTrans is the transfer agent and registrar for
our common stock.
28
<PAGE>
Description of Preferred Stock
General
Our Articles of Incorporation authorize our board of directors, without
further shareholder action, to provide for the issuance of up to 1,000,000
shares of Class A preferred stock, in one or more series, and to fix the
designations, terms and relative rights and preferences, including the dividend
rate, voting rights, conversion rights, redemption and sinking fund provisions
and liquidation values of each of these series. Upon receiving the required
approval of our stockholders, we may amend from time to time our Articles of
Incorporation to increase the number of authorized shares of Class A preferred
stock. As of the date of this prospectus, we have 356,000 shares of authorized
but undesignated Class A preferred stock available for issuance and have
designated series of Class A preferred stock that are issued and outstanding in
the following amounts: 500,000 as series A convertible Class A preferred stock;
1,000 as series F convertible Class A preferred stock; 3,000 as series G
convertible Class A preferred stock and 1,500 as series H convertible Class A
preferred stock.
The following summarizes the terms of the Class A preferred stock that
we may offer under this prospectus. The particular terms of any series of Class
A preferred stock will be described in the prospectus supplement relating to
that series of preferred stock. Those terms may include:
(1) the title and liquidation preference per share of the preferred
stock and the number of shares offered;
(2) the purchase price of the preferred stock;
(3) the dividend rate (or method of calculation), the dates on which
dividends will be paid and the date from which dividends will begin to
accumulate;
(4) any redemption or sinking fund provisions of the preferred stock;
(5) any conversion provisions of the preferred stock;
(6) the voting rights, if any, of the preferred stock; and
(7) any additional dividend, liquidation, redemption, sinking fund and
other rights, preferences, privileges, limitations and restrictions of
the preferred stock.
The summary in this prospectus or any prospectus supplement is not
complete. For a complete description, you should refer to the certificates of
designation establishing a particular series of preferred stock, which will be
filed with the Secretary of the Commonwealth of Pennsylvania and the SEC in
connection with the offering of the preferred stock.
29
<PAGE>
Dividend Rights
The preferred stock will be preferred over the common stock as to
payment of dividends to the extent any series of preferred stock is entitled to
dividends. Before any dividends or distributions on the common stock (other than
dividends or distributions payable in common stock) shall be declared and set
apart for payment or paid, the holders of shares of each series of preferred
stock will be entitled to receive dividends when, as and if declared by our
board of directors. We will pay those dividends either in cash, shares of common
stock or preferred stock or otherwise, at the rate and on the date or dates set
forth in the prospectus supplement. With respect to each series of preferred
stock, the dividends on each share of the series will be cumulative from the
date of issue of the share unless some other date is set forth in the prospectus
supplement relating to the series. Accruals of dividends will not bear interest.
Rights Upon Liquidation
The preferred stock will be preferred over the common stock as to
assets so that the holders of each series of preferred stock will be entitled to
be paid, upon our voluntary or involuntary liquidation, dissolution or winding
up and before any distribution is made to the holders of common stock, the
amount set forth in the applicable prospectus supplement. However, in the
holders of preferred stock will not be entitled to any other or further payment
unless otherwise specified in the applicable prospectus supplement. If upon any
liquidation, dissolution or winding up our net assets are insufficient to permit
the payment in full of the respective amounts to which the holders of all
outstanding preferred stock are entitled, our entire remaining net assets and
funds legally available for distribution to the preferred stock shall be
distributed ratably among such shares in proportion to the ratio that the
liquidation preference payable on each such share bears to the aggregate
liquidation preference payable on all such shares.
Redemption
All shares of any series of preferred stock will be redeemable to the
extent set forth in the prospectus supplement relating to the series.
Conversion
Shares of any series of preferred stock will be convertible into shares
of common stock or into shares of any other series of preferred stock to the
extent set forth in the applicable prospectus supplement.
Voting Rights
Except as indicated in the prospectus supplement, the holders of
preferred stock shall have no voting power whatsoever except as provided by law.
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Description of Debt Securities
The debt securities will be either our senior debt securities or our
subordinated debt securities. The senior debt securities and the subordinated
debt securities will be issued under separate indentures between us and a
trustee. The debt securities may be issued from time to time in one or more
series. The particular terms of each series which are offered by a prospectus
supplement will be described in the prospectus supplement.
We have summarized selected provisions of the intended indentures
below. The summary is not complete. The form of each indenture will be filed
with the SEC either by a post-effective amendment to our registration statement
or in a Current Report on Form 8-K prior to our initial offering of debt
securities under that Indenture and you should read the indenture for provisions
that may be important to you.
General
The indentures will provide that debt securities in separate series may
be issued thereunder from time to time without limitation as to aggregate
principal amount other than the overall $50,000,000 limitation imposed by the
registration statement of which this prospectus is a part. We may specify a
maximum aggregate principal amount for the debt securities of any series. We
will determine the terms and conditions of the debt securities, including the
maturity, principal and interest, but those terms must be consistent with the
indenture. The debt securities will be our unsecured obligations.
The subordinated debt securities will be subordinated in right of
payment to the prior payment in full of all of our senior debt (as defined) as
described under "-- Subordination of Subordinated Debt Securities" and in the
prospectus supplement applicable to any subordinated debt securities. If the
prospectus supplement so indicates, the subordinated debt securities will be
convertible into our common stock as described under "-- Conversion of
Subordinated Debt Securities."
The applicable prospectus supplement will set forth the price or prices
at which the debt securities to be offered will be issued and will describe the
following terms of such debt securities:
(1) the title of the debt securities;
(2) whether the debt securities are senior debt securities or
subordinated debt securities and, if subordinated debt securities, the
related subordination terms;
(3) any limit on the aggregate principal amount of the debt securities;
(4) the dates on which the principal of the debt securities will be
payable;
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(5) the interest rate which the debt securities will bear and the
interest payment dates for the debt securities;
(6) the places where payments on the debt securities will be payable;
(7) any terms upon which the debt securities may be redeemed, in whole
or in part, at our option;
(8) any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities;
(9) the portion of the principal amount, if less than all, of the debt
securities that will be payable upon declaration of acceleration of the
maturity of the debt securities;
(10) whether the debt securities are defeasible;
(11) any addition to or change in the events of default;
(12) whether the debt securities that constitute subordinated debt
securities are convertible into our common stock and, if so, the terms
and conditions upon which conversion will be effected, including the
initial conversion price or conversion rate and any adjustments thereto
in addition to or different from those described in this prospectus,
the conversion period and other conversion provisions in addition to or
in lieu of those described in this prospectus;
(13) any addition to or change in the covenants in the indenture
applicable to any of the debt securities; and
(14) any other terms of the debt securities not inconsistent with the
provisions of the indenture.
Debt securities, including original issue discount securities, may be
sold at a substantial discount below their principal amount. Special United
States federal income tax considerations applicable to debt securities sold at
an original issue discount may be described in the applicable prospectus
supplement. In addition, special United States federal income tax or other
considerations applicable to any debt securities that are denominated in a
currency or currency unit other than United States dollars may be described in
the applicable prospectus supplement.
Subordination of Subordinated Debt Securities
The indebtedness evidenced by the subordinated debt securities will, to
the extent set forth in the subordinated indenture with respect to each series
of subordinated debt securities, be subordinate in right of payment to the prior
payment in full of all of our senior debt that we may have outstanding at the
time, including the senior debt securities, and it may also be subordinate in
right of payment to all of our other subordinated debt that we may have
outstanding at the time. The prospectus supplement relating to any subordinated
debt securities will summarize the subordination provisions of the subordinated
indenture applicable to that series including:
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(1) the applicability and effect of such provisions upon any payment or
distribution of our assets to creditors upon any liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of
creditors or marshaling of assets or any bankruptcy, insolvency or
similar proceedings;
(2) the applicability and effect of such provisions in the event of
specified defaults with respect to any senior debt, including the
circumstances under which and the periods in which we will be
prohibited from making payments on the subordinated debt securities;
and
(3) the definition of senior debt applicable to the subordinated debt
securities of that series and, if the series is issued on a senior
subordinated basis, the definition of subordinated debt applicable to
that series.
The prospectus supplement will also describe as of a recent date the
approximate amount of senior debt to which the subordinated debt securities of
that series will be subordinated.
The failure to make any payment on any of the subordinated debt
securities by reason of the subordination provisions of the subordinated
indenture described in the prospectus supplement will not be construed as
preventing the occurrence of an event of default with respect to the
subordinated debt securities arising from any such failure to make payment.
The subordination provisions described above will not be applicable to
payments in respect of the subordinated debt securities from a defeasance trust
established in connection with any defeasance or covenant defeasance of the
subordinated debt securities as described under "-- Defeasance and Covenant
Defeasance."
Conversion of Debt Securities
The indentures may provide for a right of conversion of senior or
subordinated debt securities into our common stock (or cash in lieu thereof).
The following provisions will apply to debt securities that are convertible into
common stock unless otherwise provided in the prospectus supplement for such
debt securities.
The holder of any convertible debt securities will have the right
exercisable at any time prior to the close of business on the second business
day prior to their stated maturity, unless previously redeemed or otherwise
purchased by us, to convert such debt securities into shares of common stock at
the conversion price set forth in the prospectus supplement, subject to
adjustment. The holder of convertible debt securities may convert any portion
thereof which is $1,000 in principal amount or any multiple thereof.
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In certain events, the conversion price will be subject to adjustment
as set forth in the applicable indenture. Such events include:
(1) any payment of a dividend (or other distribution) payable in common
stock on any class of our capital stock;
(2) any subdivision, combination or reclassification of common stock;
(3) any issuance to all holders of common stock of rights, options or
warrants entitling them to subscribe for or purchase common stock at
less than the then current market price (as determined in accordance
with the applicable indenture) of common stock; provided, however, that
if such rights, options or warrants are only exercisable upon the
occurrence of certain triggering events relating to control and
provided for in shareholders' rights plans, then the conversion price
will not be adjusted until such triggering events occur;
(4) any distribution to all holders of common stock of evidences of
indebtedness, shares of our capital stock other than common stock, cash
or other assets (including securities, but excluding those dividends
and distributions referred to above for which an adjustment must be
made and excluding regular dividends and distributions paid exclusively
in cash);
(5) the completion of a tender or exchange offer made by us for common
stock that involves an aggregate consideration that, together with (1)
any cash and the fair market value of other consideration payable in a
tender or exchange offer by us for common stock expiring within the 12
months preceding the expiration of such tender or exchange offer in
respect of which no adjustment has been made and (2) the aggregate
amount of any such all-cash distributions to all holders of common
stock within the 12 months preceding the expiration of such tender or
exchange offer in respect of which no adjustments have been made,
exceeds 15% of our market capitalization on the expiration of such
tender offer.
No adjustment of the conversion price will be required to be made until
the cumulative adjustments amount to 1.0% or more of the conversion price as
last adjusted. We reserve the right to make such reductions in the conversion
price in addition to those required in the preceding provisions as we consider
to be advisable in order that any event treated for federal income tax purposes
as a dividend of a stock or stock rights will not be taxable to the recipients.
Should we elect to make such a reduction in the conversion price, we will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder if and to the extent that such laws
and regulations are applicable in connection with the reduction of the
conversion price.
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If we distribute rights or warrants (other than those referred to in
(3) in the preceding paragraph) pro rata to holders of common stock, so long as
any such rights or warrants have not expired or been redeemed by us, the holder
of any convertible debt security surrendered for conversion will be entitled to
receive upon such conversion, in addition to the shares of common stock issuable
upon such conversion, a number of rights or warrants to be determined as
follows:
(1) if such conversion occurs on or prior to the date for the
distribution to the holders of rights or warrants of separate
certificates evidencing such rights or warrants, the same number of
rights or warrants to which a holder of a number of shares of common
stock equal to the number of conversion shares is entitled at the time
of such conversion in accordance with the terms and provisions of and
applicable to the rights or warrants, and
(2) if such conversion occurs after such distribution date, the number
of rights or warrants to which a holder of the number of shares of
common stock into which such debt security was convertible immediately
prior to such distribution date would have been entitled on such
distribution date in accordance with the terms and provisions of and
applicable to the rights or warrants.
The conversion price will not be subject to adjustment on account of
any declaration, distribution or exercise of such rights or warrants.
Fractional shares of common stock will not be issued upon conversion,
but, instead, we will pay a cash adjustment based on the then current market
price for the common stock. Upon conversion, accrued interest or dividends shall
be added to principal and converted.
In the case of any reclassification of the conversion shares,
consolidation or merger of our company with or into another person or any merger
of another person with or into us (with certain exceptions), or in case of any
conveyance, transfer or lease of our assets substantially as an entirety, each
convertible debt security then outstanding will, without the consent of any
holder, become convertible only into the kind and amount of securities, cash and
other property receivable upon such reclassification, consolidation, merger,
conveyance, transfer or lease by a holder of the number of shares of common
stock into which such debt security was convertible immediately prior thereto,
after giving effect to any adjustment event, who failed to exercise any rights
of election and received per share the kind and amount received per share by a
plurality of non-electing shares.
Form, Exchange and Transfer
The debt securities of each series will be issuable only in fully
registered form, without coupons, and, unless otherwise specified in the
applicable prospectus supplement, only in denominations of $1,000 and integral
multiples thereof.
At the option of the holder, subject to the terms of the applicable
indenture and the limitations applicable to global securities, debt securities
of each series will be exchangeable for other debt securities of the same series
of any authorized denomination and of a like tenor and aggregate principal
amount.
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Subject to the terms of the applicable indenture and the limitations
applicable to global securities, debt securities may be presented for exchange
as provided above or for registration of transfer (duly endorsed or with the
form of transfer endorsed thereon duly executed) at the office of the security
registrar or at the office of any transfer agent designated by us for such
purpose. No service charge will be made for any registration of transfer or
exchange of debt securities, but we may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith. Such
transfer or exchange will be effected upon the security registrar or such
transfer agent, as the case may be, being satisfied with the documents of title
and identity of the person making the request. The security registrar and any
other transfer agent initially designated by us for any debt securities will be
named in the applicable prospectus supplement. We may at any time designate
additional transfer agents or rescind the designation of any transfer agent or
approve a change in the office through which any transfer agent acts, except
that we will be required to maintain a transfer agent in each place of payment
for the debt securities of each series.
If the debt securities of any series (or of any series and specified
terms) are to be redeemed in part, we will not be required to (i) issue,
register the transfer of or exchange any debt security of that series (or of
that series and specified terms, as the case may be) during a period beginning
at the opening of business 15 days before the day of mailing of a notice of
redemption of any such debt security that may be selected for redemption and
ending at the close of business on the day of such mailing or (ii) register the
transfer of or exchange any debt security so selected for redemption, in whole
or in part, except the unredeemed portion of any such debt security being
redeemed in part.
Global Securities
Some or all of the debt securities of any series may be represented,
in whole or in part, by one or more global securities which will have an
aggregate principal amount equal to that of the debt securities represented
thereby. Each global security will be registered in the name of a depositary or
its nominee identified in the applicable prospectus supplement, will be
deposited with such depositary or nominee or its custodian and will bear a
legend regarding the restrictions on exchanges and registration of transfer
thereof referred to below and any such other matters as may be provided for
pursuant to the applicable Indenture.
Notwithstanding any provision of the indentures or any debt security
described in this prospectus, no global security may be exchanged in whole or in
part for debt securities registered, and no transfer of a global security in
whole or in part may be registered, in the name of any person other than the
depositary for such global security or any nominee of such depositary unless:
(1) the depositary has notified us that it is unwilling or unable to
continue as depositary for such global security or has ceased to be
qualified to act as such as required by the applicable indenture;
(2) an event of default with respect to the debt securities represented
by such global security has occurred and is continuing and the security
registrar has received a written request from the depositary to issue
certificated debt securities; or
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(3) other circumstances exist, in addition to or in lieu of those
described above, as may be described in the applicable prospectus
supplement.
All debt securities issued in exchange for a global security or any
portion thereof will be registered in such names as the depositary may direct.
As long as the depositary, or its nominee, is the registered holder of
a global security, the depositary or such nominee, as the case may be, will be
considered the sole owner and holder of such global security and the debt
securities that it represents for all purposes under the debt securities and the
applicable indenture. Except in the limited circumstances referred to above,
owners of beneficial interests in a global security will not be entitled to have
such global security or any debt securities that it represents registered in
their names, will not receive or be entitled to receive physical delivery of
certificated debt securities in exchange therefor and will not be considered to
be the owners or holders of such global security or any debt securities that it
represents for any purpose under the debt securities or the applicable
indenture. All payments on a global security will be made to the depositary or
its nominee, as the case may be, as the holder of the security. The laws of some
jurisdictions require that some purchasers of debt securities take physical
delivery of such debt securities in definitive form. These laws may impair the
ability to transfer beneficial interests in a global security.
Ownership of beneficial interests in a global security will be limited
to institutions that have accounts with the depositary or its nominee
("participants") and to persons that may hold beneficial interests through
participants. In connection with the issuance of any global security, the
depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of debt securities represented by the global
security to the accounts of its participants. Ownership of beneficial interests
in a global security will be shown only on, and the transfer of those ownership
interests will be effected only through, records maintained by the depositary
(with respect to participants' interests) or any such participant (with respect
to interests of persons held by such participants on their behalf). Payments,
transfers, exchanges and other matters relating to beneficial interests in a
global security may be subject to various policies and procedures adopted by the
depositary from time to time. Neither us nor the trustees or our agents or the
agents of the trustee will have any responsibility or liability for any aspect
of the depositary's or any participant's records relating to, or for payments
made on account of, beneficial interests in a global security, or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
Payment and Paying Agents
Unless otherwise indicated in the applicable prospectus supplement,
payment of interest on a debt security on any interest payment date will be made
to the person in whose name such debt security (or one or more predecessor debt
securities) is registered at the close of business on the regular record date
for such interest.
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Unless otherwise indicated in the applicable prospectus supplement,
principal of and any premium and interest on the debt securities of a particular
series will be payable at the office of such paying agent or paying agents as we
may designate for such purpose from time to time, except that at our option
payment of any interest may be made by check mailed to the address of the person
entitled thereto as such address appears in the security register. Unless
otherwise indicated in the applicable prospectus supplement, the corporate trust
office of the trustee under the senior indenture in the City of New York will be
designated as sole paying agent for payments with respect to senior debt
securities of each series, and the corporate trust office of the trustee under
the subordinated indenture in the City of New York will be designated as the
sole paying agent for payment with respect to subordinated debt securities of
each series. Any other paying agents initially designated by us for the debt
securities of a particular series will be named in the applicable prospectus
supplement. We may at any time designate additional paying agents or rescind the
designation of any paying agent or approve a change in the office through which
any paying agent acts, except that we will be required to maintain a paying
agent in each place of payment for the debt securities of a particular series.
All monies paid by us to a paying agent for the payment of the
principal of or any premium or interest on any debt security which remain
unclaimed at the end of two years after such principal, premium or interest has
become due and payable will be repaid to us, and the holder of such debt
security thereafter may look only to us for payment thereof.
Consolidation, Merger and Sale of Assets
We may not consolidate with or merge into, or convey, transfer or
lease our properties and assets substantially as an entirety to, any person (a
"successor person"), and may not permit any person to merge into, or convey,
transfer or lease its properties and assets substantially as an entirety to, us,
unless:
(1) the successor person (if any) is a corporation, partnership, trust
or other entity organized and validly existing under the laws of any
domestic jurisdiction and assumes our obligations on the debt
securities and under the indentures;
(2) immediately after giving effect to the transaction, no event of
default, and no event which, after notice or lapse of time or both,
would become an event of default, shall have occurred and be
continuing; and
(3) several other conditions, including any additional conditions with
respect to any particular debt securities specified in the applicable
prospectus supplement, are met.
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Events of Default
Unless otherwise specified in the prospectus supplement, each of the
following will constitute an event of default under the applicable indenture
with respect to debt securities of any series:
(1) failure to pay principal of or any premium on any debt security of
that series when due, whether or not, in the case of subordinated debt
securities, such payment is prohibited by the subordination provisions
of the subordinated indenture;
(2) failure to pay any interest on any debt securities of that series
when due, continued for 30 days, whether or not, in the case of
subordinated debt securities, such payment is prohibited by the
subordination provisions of the subordinated indenture;
(3) failure to deposit any sinking fund payment, when due, in respect
of any debt security of that series, whether or not, in the case of
subordinated debt securities, such deposit is prohibited by the
subordination provisions of the subordinated indenture;
(4) failure to perform or comply with the provisions described under
"Consolidation, Merger and Sale of Assets;"
(5) failure to perform any of our other covenants in such indenture
(other than a covenant included in such indenture solely for the
benefit of a series other than that series), continued for 60 days
after written notice has been given by the applicable trustee, or the
holders of at least 25% in principal amount of the outstanding debt
securities of that series, as provided in such indenture;
(6) certain events of bankruptcy, insolvency or reorganization; and
If an event of default (other than an event of default described in
clause (6) above) with respect to the debt securities of any series at the time
outstanding shall occur and be continuing, either the applicable trustee or the
holders of at least 25% in aggregate principal amount of the outstanding debt
securities of that series by notice as provided in the indenture may declare the
principal amount of the debt securities of that series (or, in the case of any
debt security that is an original issue discount debt security or the principal
amount of which is not then determinable, such portion of the principal amount
of such debt security, or such other amount in lieu of such principal amount, as
may be specified in the terms of such debt security) to be due and payable
immediately. If an event of default described in clause (6) above with respect
to the debt securities of any series at the time Outstanding shall occur, the
principal amount of all the debt securities of that series (or, in the case of
any such original issue discount security or other debt security, such specified
amount) will automatically, and without any action by the applicable trustee or
any holder, become immediately due and payable. After any such acceleration, but
before a judgment or decree based on acceleration, the holders of a majority in
aggregate principal amount of the outstanding debt securities of that series
may, under certain circumstances, rescind and annul such acceleration if all
events of default, other than the non-payment of accelerated principal (or other
specified amount), have been cured or waived as provided in the applicable
indenture. For information as to waiver of defaults, see "-- Modification and
Waiver" below.
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Subject to the provisions of the indentures relating to the duties of
the trustees in case an event of default shall occur and be continuing, each
trustee will be under no obligation to exercise any of its rights or powers
under the applicable indenture at the request or direction of any of the
holders, unless such holders shall have offered to such trustee reasonable
indemnity. Subject to such provisions for the indemnification of the trustees,
the holders of a majority in aggregate principal amount of the outstanding debt
securities of any series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee or
exercising any trust or power conferred on the trustee with respect to the debt
securities of that series.
No holder of a debt security of any series will have any right to
institute any proceeding with respect to the applicable indenture, or for the
appointment of a receiver or a trustee, or for any other remedy thereunder,
unless:
(1) such holder has previously given to the trustee under the
applicable indenture written notice of a continuing event of default
with respect to the debt securities of that series;
(2) the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series have made written request,
and such holder or holders have offered reasonable indemnity, to the
trustee to institute such proceeding as trustee; and
(3) the trustee has failed to institute such proceeding, and has not
received from the holders of a majority in aggregate principal amount
of the outstanding debt securities of that series a direction
inconsistent with such request, within 60 days after such notice,
request and offer.
However, such limitations do not apply to a suit instituted by a
holder of a debt security for the enforcement of payment of the principal of or
any premium or interest on such debt security on or after the applicable due
date specified in such debt security.
We will be required to furnish to each trustee annually a statement by
certain of our officers as to whether or not we, to their knowledge, are in
default in the performance or observance of any of the terms, provisions and
conditions of the applicable indenture and, if so, specifying all such known
defaults.
Modification and Waiver
Modifications and amendments of the indentures may be made by us and
the applicable trustee with the consent of the holders of a majority in
aggregate principal amount of the outstanding debt securities of each series
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the holder of each
outstanding debt security affected thereby:
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(1) change the stated maturity of the principal of, or any installment
of principal of or interest on, any debt security;
(2) reduce the principal amount of, or any premium or interest on, any
debt security;
(3) reduce the amount of principal of an original issue discount
security or any other debt security payable upon acceleration of the
maturity thereof;
(4) change the place or currency of payment of principal of, or any
premium or interest on, any debt security;
(5) impair the right to institute suit for the enforcement of any
payment on or with respect to any debt security;
(6) in the case of subordinated debt securities, modify the
subordination or conversion provisions in a manner adverse to the
holders of the subordinated debt securities;
(7) reduce the percentage in principal amount of outstanding debt
securities of any series, the consent of whose holders is required for
modification or amendment of the indenture;
(8) reduce the percentage in principal amount of outstanding debt
securities of any series necessary for waiver of compliance with
certain provisions of the indenture or for waiver of certain defaults;
or
(9) modify such provisions with respect to modification and waiver.
The holders of a majority in principal amount of the outstanding debt
securities of any series may waive compliance by us with certain restrictive
provisions of the applicable indenture. The holders of a majority in principal
amount of the outstanding debt securities of any series may waive any past
default under the applicable indenture, except a default in the payment of
principal, premium or interest and certain covenants and provisions of the
indenture which cannot be amended without the consent of the holder of each
outstanding debt security of such series affected.
The indentures may provide that in determining whether the holders of
the requisite principal amount of the outstanding debt securities have given or
taken any direction, notice, consent, waiver or other action under such
indenture as of any date,
(1) the principal amount of an original issue discount security that
will be deemed to be outstanding will be the amount of the principal
thereof that would be due and payable as of such date upon acceleration
of the maturity thereof to such date;
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(2) if, as of such date, the principal amount payable at the stated
maturity of a debt security is not determinable (for example, because
it is based on an index), the principal amount of such debt security
deemed to be outstanding as of such date will be an amount determined
in the manner prescribed for such debt security; and
(3) the principal amount of a debt security denominated in one or more
foreign currencies or currency units that will be deemed to be
outstanding will be the U.S. dollar equivalent, determined as of such
date in the manner prescribed for such debt security, of the principal
amount of such debt security (or, in the case of a debt security
described in clause (1) or (2) above, of the amount described in such
clause).
Certain debt securities, including those for whose payment or
redemption money has been deposited or set aside in trust for the holders and
those that have been fully defeased, will not be deemed to be outstanding.
Except in certain limited circumstances, we will be entitled to set
any day as a record date for the purpose of determining the holders of
outstanding debt securities of any series entitled to give or take any
direction, notice, consent, waiver or other action under the applicable
indenture, in the manner and subject to the limitations provided in the
indenture. In certain limited circumstances, the trustee will be entitled to set
a record date for action by holders. If a record date is set for any action to
be taken by holders of a particular series, such action may be taken only by
persons who are holders of outstanding debt securities of that series on the
record date. To be effective, such action must be taken by holders of the
requisite principal amount of such debt securities within a specified period
following the record date. For any particular record date, this period will be
180 days or such other period as may be specified by us (or the trustee, if it
set the record date), and may be shortened or lengthened (but not beyond 180
days) from time to time.
Defeasance and Covenant Defeasance
If and to the extent indicated in the applicable prospectus
supplement, we may elect, at our option at any time, to have the provisions
relating to defeasance and discharge of indebtedness, or the provisions relating
to defeasance of certain restrictive covenants, applied to the debt securities
of any series, or to any specified part of a series.
Defeasance and Discharge. The indentures will provide that, upon our
exercise of our option (if any) to have the defeasance provisions applied to any
debt securities, we will be discharged from all our obligations, and, if such
debt securities are subordinated debt securities, the provisions of the
subordinated indenture relating to subordination (but not to conversion, if
applicable) will cease to be effective, with respect to such debt securities
(except for certain obligations to exchange or register the transfer of debt
securities, to replace stolen, lost or mutilated debt securities, to maintain
paying agencies and to hold moneys for payment in trust) upon the deposit in
trust for the benefit of the holders of such debt securities of money or U.S.
government obligations, or both, which, through the payment of principal and
interest in respect thereof in accordance with their terms, will provide money
in an amount sufficient to pay the principal of and any premium and interest on
such debt securities on the respective stated maturities in accordance with the
terms of the applicable indenture and such debt securities. Such defeasance or
discharge may occur only if, among other things,
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(1) we have delivered to the applicable trustee an opinion of counsel
to the effect that we have received from, or there has been published
by, the United States Internal Revenue Service a ruling, or there has
been a change in tax law, in either case to the effect that holders of
such debt securities will not recognize gain or loss for federal income
tax purposes as a result of such deposit, defeasance and discharge and
will be subject to federal income tax on the same amount, in the same
manner and at the same times as would have been the case if such
deposit, defeasance and discharge were not to occur;
(2) no event of default or event that with the passing of time or the
giving of notice, or both, shall constitute an event of default shall
have occurred or be continuing;
(3) such deposit, defeasance and discharge will not result in a breach
or violation of, or constitute a default under, any agreement or
instrument to which we are a party or by which we are bound;
(4) in the case of subordinated debt securities, at the time of such
deposit, no default in the payment of all or a portion of principal of
(or premium, if any) or interest on or other obligations in respect of
any of our senior debt shall have occurred and be continuing and no
other event of default with respect to any of our senior debt shall
have occurred and be continuing permitting after notice or the lapse of
time, or both, the acceleration thereof; and
(5) we have delivered to the trustee an opinion of counsel to the
effect that such deposit shall not cause the trustee or the trust so
created to be subject to the Investment Company Act of 1940.
Defeasance of Certain Covenants. The indentures will provide that,
upon our exercise of our option (if any) to have the covenant defeasance
provisions applied to any debt securities, we may omit to comply with certain
restrictive covenants, including those that may be described in the applicable
prospectus supplement, and the occurrence of certain events of default,
including any that may be described in the applicable prospectus supplement,
will not be deemed to either be or result in an event of default and, if such
debt securities are subordinated debt securities, the provisions of the
subordinated indenture relating to subordination (but not to conversion, if
applicable) will cease to be effective, in each case with respect to such debt
securities. In order to exercise such option, we must deposit, in trust for the
benefit of the holders of such debt securities, money or U.S. government
obligations, or both, which, through the payment of principal and interest in
respect thereof in accordance with their terms, will provide money in an amount
sufficient to pay the principal of and any premium and interest on such debt
securities on the respective stated maturities in accordance with the terms of
the applicable indenture and such debt securities. Such covenant defeasance may
occur only if we have delivered to the applicable trustee an opinion of counsel
that in effect says that holders of such debt securities will not recognize gain
or loss for federal income tax purposes as a result of such deposit and
defeasance of certain obligations and will be subject to federal income tax on
the same amount, in the same manner and at the same times as would have been the
case if such deposit and defeasance were not to occur and the requirements set
forth in clauses (2), (3), (4) and (5) above are satisfied. If we exercise this
option with respect to any debt securities and such debt securities were
declared due and payable because of the occurrence of any event of default, the
amount of money and U.S. government obligations so deposited in trust would be
sufficient to pay amounts due on such debt securities at the time of their
respective stated maturities but may not be sufficient to pay amounts due on
such debt securities upon any acceleration resulting from such event of default.
In such case, we would remain liable for such payments.
43
<PAGE>
Notices
Notices to holders of debt securities will be given by mail to the
addresses of such holders as they may appear in the security register.
Title
We, the trustees and any agent of us or a trustee may treat the person
in whose name a debt security is registered as the absolute owner of the debt
security (whether or not such debt security may be overdue) for the purpose of
making payment and for all other purposes.
Governing Law
The indentures and the debt securities will be governed by, and
construed in accordance with, the law of the State of New York.
Description of Warrants
We may issue warrants for the purchase of preferred stock or common
stock. Warrants may be issued independently or together with debt securities,
preferred stock or common stock and may be attached to or separate from any
offered securities. Each series of warrants will be issued under a separate
warrant agreement. This summary of some provisions of the warrants is not
complete. You should refer to the warrant agreement relating to the specific
warrants being offered for the complete terms of the warrants. The warrant
agreements will be filed with the SEC in connection with the offering of the
specific warrants.
The particular terms of any issue of warrants will be described in the
prospectus supplement relating to the issue. Those terms may include:
(1) the designation, number of shares, stated value and terms
(including, without limitation, liquidation, dividend, conversion and
voting rights) of the series of preferred stock purchasable upon
exercise of warrants to purchase shares of preferred stock and the
price at which such number of shares of preferred stock of such series
may be purchased upon such exercise;
44
<PAGE>
(2) the number of shares of common stock purchasable upon the exercise
of warrants to purchase shares of common stock and the price at which
such number of shares of common stock may be purchased upon such
exercise;
(3) the date on which the right to exercise the warrants will commence
and the date on which the right will expire;
(4) United States Federal income tax consequences applicable to the
warrants; and
(5) any other terms of the warrants.
Warrants for the purchase of preferred stock and common stock will be
offered and exercisable for U.S. dollars only. Warrants will be issued in
registered form only. Each warrant will entitle its holder to purchase the
number of shares of preferred stock or common stock at the exercise price set
forth in, or calculable as set forth in, the applicable prospectus supplement.
The exercise price may be adjusted upon the occurrence of certain events as set
forth in the prospectus supplement. After the close of business on the
expiration date, unexercised warrants will become void. We will specify the
place or places where, and the manner in which, warrants may be exercised in the
applicable prospectus supplement.
Prior to the exercise of any warrants to purchase preferred stock or
common stock, holders of the warrants will not have any of the rights of holders
of the preferred stock or common stock purchasable upon exercise, including the
right to vote or to receive any payments of dividends on the preferred stock or
common stock purchasable upon exercise.
Listing of Securities
Our common stock is traded on the Nasdaq Small Cap Market under the
symbol SDNA. Our intention to list for trading other securities that are issued
under this prospectus will be described in the appropriate prospectus
supplement.
45
<PAGE>
PLAN OF DISTRIBUTION
We have engaged on a best efforts basis Ladenburg Thalmann & Co., Inc.
as our exclusive placement agent for this offering. Ladenburg Thalmann has
agreed with us that it will seek to identify institutional investors who may
wish to purchase our common stock, Class A preferred stock, debt securities and
warrants from time to time on specific terms to be negotiated between us and the
institutional investors. Ladenburg Thalmann is not committed to purchase any of
shares of our securities, regardless of whether it does or does not successfully
identify others to purchase our securities. Also, Ladenburg Thalmann has advised
us that it will not purchase any shares of our securities for its own account or
for any discretionary accounts managed by it.
We have agreed to pay Ladenburg Thalmann a fee upon the closing of the
initial placement of our securities equal to 1% of the face value of the
securities covered by this registration statement. We have also agreed to pay
Ladenburg Thalmann a placement fee equal to 6% of the gross proceeds from each
sale of securities. We also will issue Ladenburg Thalmann common stock purchase
warrants at the closing of each placement equal in number to 7% of the gross
proceeds from each such placement divided by the sale price per share to the
public in such transaction, or assumed sale price per share in the case of any
convertible security. The exercise price of each such warrant shall be 110% of
the offering price or assumed offering price of the common stock in such
particular placement.
We have also agreed to pay Ladenburg Thalmann a $35,000 non-accountable
expense allowance, one-half of which was paid upon the engagement of Ladenburg
Thalmann and one-half of which will be due upon the closing of the initial
placement of securities. Ladenburg Thalmann also has a right of first refusal
for a period of one year from the conclusion of this offering to provide
additional financing to us. We have agreed to give Ladenburg Thalmann customary
underwriter's indemnification against liabilities under the Securities Act.
Any variance from these underwriting terms will be disclosed in a
prospectus supplement.
46
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered will be passed upon
for us by Piper Marbury Rudnick & Wolfe LLP.
EXPERTS
The consolidated financial statements of Sedona Corporation appearing
in our annual report on Form 10-K as of December 31, 1999 and 1998 and for the
two years then ended, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report included therein and incorporated herein
by reference. The consolidated financial statements of Sedona Corporation for
the year ended December 31, 1997 appearing in our annual report on Form 10-K for
the year ended December 31, 1999, have been audited by BDO Seidman, LLP,
independent certified public accountants, as set forth in their report included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon these reports
given on the authority of such firms as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Sedona is subject to the informational requirements of the Securities
Exchange Act of 1934. We file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document we file at the SEC's public reference rooms at the SEC's principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the SEC's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You may obtain information on the operation of this
public reference room by calling 1-800-SEC-0330. Our SEC filings are also
available to the public from the SEC's web site at http://www.sec.gov. In
addition, any of our SEC filings may also be inspected and copied at the offices
of The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
We have filed with the SEC a registration statement on Form S-3
covering the securities offered by this prospectus. You should be aware that
this prospectus does not contain all of the information contained or
incorporated by reference in that registration statement and its exhibits and
schedules, particular portions of which have been omitted as permitted by the
SEC rules. For further information about Sedona and our securities, we refer you
to the registration statement and its exhibits and schedules. You may inspect
and obtain the registration statement, including exhibits, schedules, reports
and other information filed by Sedona with the SEC, as described in the
preceding paragraph. Statements contained in this prospectus concerning the
contents of any document we refer you to are not necessarily complete and in
each instance we refer you to the applicable document filed with the SEC for
more complete information.
47
<PAGE>
The SEC allows us to incorporate by reference the information we file
with them, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is
considered to be part of this prospectus, and the information that we file at a
later date with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below as well as
any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934:
(a) Our annual report on Form 10-K for the fiscal year ended December
31, 1999, as amended.
(b) Our quarterly report on Form 10-Q for the quarter ended March 31,
2000.
(c) Our current report on Form 8-K filed April 25, 2000.
(d) The description of our common stock which is contained in our
registration statement on Form 8-B filed under the Securities
Exchange Act, including any amendment or reports filed for the
purpose of updating this description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: Sedona Corporation, 649 North Lewis
Road, Limerick, PA 19468, Attention: Michael A. Mulshine, Corporate Secretary,
(610) 495-3003.
You should rely only upon information contained in this prospectus. We
have not authorized anyone to provide you with information or to represent
anything to you not contained in this prospectus. We are offering to sell, and
seeking offers to buy, our securities only in jurisdictions where offers and
sales are permitted.
48
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses payable by us in
connection with the sale and distribution of the securities offered in this
offering. All of the amounts shown are estimated except the Securities and
Exchange Commission registration fee.
Securities and Exchange Commission
registration fee $ 13,200
Printing expenses 10,000
Legal fees and expenses 30,000
Accounting fees and expenses 15,000
Miscellaneous expenses 10,000
Underwriters expenses 35,000
-----------
Total 113,200
-----------
15. Indemnification of Officers and Directors
The Pennsylvania Business Corporation Law of 1988, as amended (the "BCL"),
permits a corporation to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by them in connection with any pending,
threatened or completed action or proceeding, and permits such indemnification
against expenses (including attorney's fees) incurred by them in connection with
any pending, threatened or completed derivative action, if the director or
officer has acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. Pennsylvania law requires that a corporation indemnify its
directors and officers against expenses (including attorney's fees) actually and
reasonably incurred by them in connection with any action or proceeding,
including derivative actions, to the extent that such person has been successful
on the merits or otherwise in defense of the action or in defense of any claim,
issue or matter therein. Furthermore, Pennsylvania law provides that expenses
incurred in defending any action or proceeding may be paid by the corporation in
advance of the final disposition upon receipt of an undertaking by or on behalf
of the director or officer to repay the amount if it is ultimately determined
that the director or officer is not entitled to be indemnified by the
corporation.
In Pennsylvania, the statutory provisions for indemnification and
advancement of expenses are non-exclusive with respect to any other rights, such
as contractual rights or under a by-law or vote of shareholders or disinterested
directors, to which a person seeking indemnification or advancement of expenses
may be entitled. Such contractual or other rights may, for example, under
Pennsylvania law, provide for indemnification against judgments, fines and
amounts paid in settlement incurred by the indemnified person in connection with
derivative actions. Pennsylvania law permits such derivative action
indemnification in any case except where the act or failure to act giving rise
to the claim for indemnification is determined by a court to have constituted
willful misconduct or recklessness.
II-1
<PAGE>
The provisions of Article VII of the Company's By-laws require or authorize
indemnification of officers and directors in all situations in which it is not
expressly prohibited by law. At the present time, the limitations on
indemnification would be dictated by the BCL and related legislation, which
prohibit indemnification where the conduct is determined by a court to
constitute willful misconduct or recklessness. Subject to these statutory
limitations, the By-laws specifically authorize indemnification against both
judgments and amounts paid in settlement of derivative suits. These provisions
also authorize indemnification for negligence or gross negligence and for
punitive damages and specific liabilities incurred under the federal securities
laws. The By-laws also prohibit indemnification attributable to receipt from the
Company of a personal benefit to which the recipient is not legally entitled.
Under the indemnification provisions of the By-laws a person who has
incurred an indemnifiable expense or liability would have a right to be
indemnified, and that right would be enforceable against the Company as long as
indemnification is not prohibited by law. To the extent indemnification is
permitted only for a portion of a liability, the By-laws also require the
Company to indemnify such portion.
Section 7.03 of the By-laws provides that the financial ability of a person
to be indemnified to repay an advance of indemnifiable expenses is not a
prerequisite to the making of the advance.
Section 7.06 of the By-laws provides that any dispute concerning a person's
right to indemnification or advancement of expenses thereunder will be resolved
only by arbitration by three persons, each of whom is required to have been a
director or executive officer of a corporation whose shares, during at least one
year of such service, were listed on the New York Stock Exchange or the American
Stock Exchange or were quoted on the Nasdaq system. The Company also is
obligated to pay the expenses (including attorney's fees) incurred by any person
who is successful in the arbitration. The arbitration provisions effectively
waive the Company's right to have a court determine the unavailability of
indemnification in cases involving willful misconduct or recklessness.
Section 7.07 of the By-laws provides that in circumstances in which
indemnification is held to be unavailable, the Company must contribute to the
liabilities to which a director or officer may be subject in such proportion as
is appropriate to reflect the intent of the indemnification provisions of the
By-laws. Since the foregoing provisions purport to provide partial relief to
directors and officers in circumstances in which the law or public policy is
construed to prohibit indemnification, substantial uncertainties exist as to the
enforceability of the provisions in such circumstances.
II-2
<PAGE>
Section 7.10 of the By-laws also contains provisions stating that the
indemnification rights thereunder are not exclusive of any other rights to which
the person may be entitled under any statute, agreement, vote of shareholders or
disinterested directors or other arrangement.
All future directors and officers of the Company automatically would be
entitled to the protections of the indemnification provisions of the By-laws at
the time they assume office.
Pennsylvania law permits a corporation to purchase and maintain insurance
on behalf of any director or officer of the corporation against any liability
asserted against the director or officer and incurred in such capacity, whether
or not the corporation would have the power to indemnify the director or officer
against such liability. The directors and officers of the Company are currently
covered as insureds under a directors' and officers' liability insurance policy.
16. Exhibits
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit No. Description
1.1 Placement Agent Agreement with Ladenburg Thalmann & Co., Inc. dated January 24, 2000
1.2 Amendment dated March 8, 2000 to Placement Agent Agreement with Ladenburg Thalmann & Co., Inc.
4.1* Form of Senior Indenture
4.2* Form of Subordinated Indenture
4.3* Form of Warrant
5.1 Opinion of Piper Marbury Rudnick & Wolfe LLP, regarding legality of securities being registered
23.1 Consent of Ernst & Young LLP
23.2 Consent of BDO Seidman, LLP
23.3 Consent of Piper Marbury Rudnick & Wolfe LLP (included as part of Exhibit 5.1 hereto)
24.1 Power of Attorney (included in signature page)
25.1** Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of
the trustee under the Senior Indenture
25.2** Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of
the trustee under the Subordinated Indenture
</TABLE>
* To be filed as an amendment to this Registration Statement or as an exhibit
to a Current Report on Form 8-K
** To be filed in accordance with the requirements
of Section 305(b)(2) of the Trust Indenture Act and Rule 5b-1 thereunder.
II-3
<PAGE>
17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in the registration statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered hereby which remain unsold at the termination
of the offering.
The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions of its Charter or By-laws or the
Pennsylvania Business Corporation Law of 1988 or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining eligibility of the trustee to act under subsection (a) of
Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Limerick, Montgomery County, Commonwealth of
Pennsylvania, on the 23rd day of May, 2000.
SEDONA CORPORATION
By: /s/ Marco A. Emrich
-------------------------------------
Marco A. Emrich
President and Chief Executive Officer
Each person whose signature appears below constitutes and appoints Marco A.
Emrich and Michael A. Mulshine and each of them, as his lawful attorney-in-fact
and agent, each with full power of substitution and resubstitution for him and
in his name, place and stead in any and all capacities to execute in the name of
each such person who is then an officer or director of the registrant any and
all amendments (including post-effective amendments) to this registration
statement and to file the same therewith with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing required or necessary
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Laurence L. Osterwise Chairman of the Board of May 23, 2000
- ------------------------- Directors
Laurence L. Osterwise
/s/ Marco A. Emrich President, Chief Executive May 23, 2000
- --------------------------- Officer and Director (Principal
Marco A. Emrich Executive Officer)
/s/ William K. Williams Vice President and Chief May 23, 2000
- ----------------------- Financial Officer (Principal
William K. Williams Financial and Accounting Officer)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Director May __, 2000
- ---------------------------
R. Barry Borden
/s/ Michael A. Mulshine Secretary and Director May 23, 2000
- -----------------------
Michael A. Mulshine
/s/ David S. Hirsch Director May 23, 2000
- -------------------
David S. Hirsch
Director May __, 2000
- ---------------------------
James C. Sargent
/s/ Jack A. Pellicci Director May 23, 2000
- --------------------
Jack A. Pellicci
/s/ Robert M. Shapiro Director May 23, 2000
- ---------------------
Robert M. Shapiro
/s/ James T. Womble Director May 23, 2000
- -------------------
James T. Womble
</TABLE>
<PAGE>
Exhibit List
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C> <C>
1.1 Placement Agent Agreement with Ladenburg Thalmann & Co., Inc. dated January 24, 2000
1.2 Amendment dated March 8, 2000 to Placement Agent Agreement with Ladenburg Thalmann & Co., Inc.
4.2* Form of Subordinated Indenture
4.3* Form of Warrant
5.1 Opinion of Piper Marbury Rudnick & Wolfe LLP, regarding legality of securities being registered
23.1 Consent of Ernst & Young LLP
23.2 Consent of BDO Seidman, LLP
23.3 Consent of Piper Marbury Rudnick & Wolfe LLP (included as part of Exhibit 5.1 hereto)
24.1 Power of Attorney (included in signature page)
25.1** Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of
the trustee under the Senior Indenture
25.2** Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of
the trustee under the Subordinated Indenture
</TABLE>
* To be filed as an amendment to this Registration Statement or as an exhibit
to a Current Report on Form 8-K
** To be filed in accordance with the requirements of Section 305(b)(2) of the
Trust Indenture Act and Rule 5b-1 thereunder.
<PAGE>
Exhibit 1.1
January 24, 2000
William K. Williams
Vice President/Chief Financial Officer
Sedona Corporation
649 North Lewis Road
Limerick, PA 19468
Dear Mr. Williams:
The purpose of this letter agreement (the "Agreement") is to set forth the terms
and conditions pursuant to which Ladenburg Thalmann & Co. Inc. ("LTCO") shall
serve as exclusive placement agent in connection with the proposed offering (the
"Offering") of equity securities (the "Securities") of Sedona Corporation (the
"Company") pursuant to a registration statement. The gross proceeds from the
Offering will be up to $15,000,000. All references to dollars shall be to U.S.
dollars. The terms of such Offering and the Securities shall be as agreed to
between the Company and the purchasers thereof.
Upon the terms and subject to the conditions of this Agreement, the
parties hereto agree as follows:
1. Appointment. (a) Subject to the terms and conditions of this
Agreement hereinafter set forth, the Company hereby retains LTCO, and LTCO
hereby agrees to act as the Company's exclusive placement agent and financial
advisor in connection with the Offering, effective as of the date hereof. The
Company expressly acknowledges and agrees that LTCO's obligations hereunder are
on a reasonable best efforts basis only and that the execution of this Agreement
does not constitute a commitment by LTCO to purchase the Securities and does not
ensure the successful placement of the Securities or any portion thereof or the
success of LTCO with respect to securing any other financing on behalf of the
Company. LTCO shall not commence any selling efforts until the registration
statement has been declared effective by the SEC.
<PAGE>
(b) Except as set forth below in this Section 1, during the
effectiveness of this Agreement, neither the Company nor any of its subsidiaries
or affiliates shall, directly or indirectly, through any officer, director,
employee, agent or otherwise (including, without limitation, through any
placement agent, broker, investment banker, attorney or accountant retained by
the Company or any of its subsidiaries or affiliates), solicit, initiate or
encourage the submission of any proposal or offer (an "Investment Proposal")
from any person or entity (including any of such person's or entity's officers,
directors, employees, agents and other representatives) relating to any issuance
of the Company's or any of its subsidiaries' equity securities (including debt
securities with any equity feature) or relating to any other transaction having
a similar effect or result on the Company's or any of its subsidiaries'
capitalization, or participate in any discussions or negotiations regarding, or
furnish to any other person or entity any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage any effort or attempt by any other person or entity to do or seek to
do any of the foregoing. The Company shall immediately cease and cause to be
terminated any and all contacts, discussions and negotiations with third parties
regarding any Investment Proposal. The Company shall promptly notify LTCO if any
such Investment Proposal, or any inquiry or contact with any person or entity
with respect thereto, is made. The Company shall not provide or release any
information with respect to this Agreement or the Offering except as required by
law. Notwithstanding the above, the Company shall not be precluded from
negotiating directly with current warrant holders regarding exercise of
outstanding warrants.
(c) Notwithstanding the foregoing, nothing contained in this Agreement
shall prevent the Board of Directors of the Company from furnishing information
to or entering into discussions or negotiations with any unsolicited person or
entity with respect to an Investment Proposal if and only to the extent that the
Board of Directors of the Company shall have determined in good faith that such
action is required in the exercise if its fiduciary duties. The Company will as
soon as reasonably practicable notify LTCO if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with the
Company.
2. Fees and Compensation. In consideration of the services rendered by
LTCO in connection with the Offering, the Company agrees to pay LTCO the
following fees and other compensation:
(a) 1) a fee payable immediately upon the initial closing equal to 1%
of the face value of the shares covered by the registration
statement; and
2) a fee payable upon the initial and each subsequent closing
equal to 6% of the gross proceeds to the Company at each such
closing;
(b) $35,000 non-accountable expense allowance payable [one half] upon
the engagement of LTCO by the Company hereunder [and the remainder
upon initial funding by LTCO].
2
<PAGE>
(c) 7% warrant coverage (LTCO shall receive warrants to purchase the
number of shares equal to the following: gross proceeds to the
Company * 7% / the offering price of the Company's Common Stock;
the strike price of the warrants shall be 110% of the offering
price of the Company's Common Stock).
(d) All fees payable hereunder shall be paid to LTCO out of an attorney
escrow account at the closing or by such other means acceptable to
LTCO.
(e) Should LTCO provide a qualified institutional investor acceptable
to the Company and such investor is willing to invest at
substantially the same terms as agreed upon between the Company and
the investor, and the Company were to terminate the Agreement after
January 11, 2000 or prior to December 31, 2000 (the "Termination
Date"), for reasons other than a breach of this Agreement by LTCO,
the Company will pay $250,000 to LTCO as a "break-up" fee.
3. Terms of Retention. (a) Unless extended or terminated in writing by
the parties hereto in accordance with the provisions hereof, this Agreement
shall remain in effect until the Termination Date of December 31, 2000.
(b) Notwithstanding anything herein to the contrary, the obligation to
pay the Fees and Compensation and Expenses described in Section 2, if any, and
paragraphs 2, 6, and 8 of Exhibit A and all of Exhibit B and Exhibit C attached
hereto, each of which exhibits is incorporated herein by reference, shall
survive any termination or expiration of the Agreement. It is expressly
understood and agreed by the parties hereto that any private financing of equity
or debt or other capital raising activity of the Company within 24 months of the
termination or expiration of this Agreement, with any investors to whom the
Company was introduced by LTCO or who was contacted by LTCO while this Agreement
was in effect and disclosed to the Company in writing (the total number of such
investors shall not exceed 15), shall result in such fees and compensation being
due and payable by the Company to LTCO under the same terms of Section 2 above.
4. Right of First Refusal. Upon completion of the Offering, LTCO shall
have an irrevocable right of first refusal for a period of one year to provide
all financing arrangements for the Company (other than conventional banking
arrangements, borrowing and commercial debt financing and discrete unrelated
transactions of not more than $250,000 where no investment banking fee is being
paid). LTCO shall exercise such right in writing within five (5) business days
of receipt of a written term sheet describing such proposed transaction in
reasonable detail.
5. Information. The Company recognizes and confirms that in completing
its engagement hereunder, LTCO will be using and relying on publicly available
3
<PAGE>
information and on data, material and other information furnished to LTCO by the
Company or the Company's affiliates and agents. It is understood and agreed that
in performing under this engagement, LTCO will rely upon the accuracy and
completeness of, and is not assuming any responsibility for independent
verification of, such publicly available information and the other information
so furnished. Notwithstanding the foregoing, it is understood that LTCO will
conduct a due diligence investigation of the Company and the Company will
cooperate in all respects with such investigation as a condition of LTCO's
obligations hereunder.
6. Registration. Promptly following execution of this Agreement, the
Company shall prepare and file with the SEC a registration statement. From time
to time in connection with any particular sale of Securities, the Company will,
at its own expense, obtain any registration or qualification required to sell
any Securities under the Blue Sky laws of any applicable jurisdictions, as
reasonably requested by LTCO.
7. [intentionally omitted]
8. Closing. The closing of the sale of the Securities shall be subject
to customary closing conditions, including the provision at closing by the
Company of officers' certificates, opinions of counsel and "cold comfort"
letters from the Company's auditors.
9. Miscellaneous. This Agreement together with the attached Exhibits A
through C constitutes the entire understanding and agreement between the parties
with respect to its subject matter and there are no agreements or understandings
with respect to the subject matter hereof which are not contained in this
Agreement. This Agreement may be modified only in writing signed by the party to
be charged hereunder. From and after the filing of the registration statement,
the Company shall pre-clear any proposed press release with LTCO.
If the foregoing correctly sets forth our agreement, please confirm
this by signing and returning to us the duplicate copy of this letter.
4
<PAGE>
We appreciate this opportunity to be of service and are looking forward
to working with you on this matter.
Very truly yours,
LADENBURG THALMANN & CO. INC.
By: /s/ David Boris
--------------------------------
Name: David Boris
Title: EVP
Agreed to and accepted
as of the date first written above:
SEDONA CORPORATION
By: /s/ William K. Williams
--------------------------
Name: William K. Williams
Title: VP & CFO
5
<PAGE>
EXHIBIT A
STANDARD TERMS AND CONDITIONS
1. The Company shall promptly provide LTCO with all relevant information
about the Company (to the extent available to the Company in the case
of parties other than the Company) that shall be reasonably requested
or required by LTCO, which information shall be accurate in all
material respects at the time furnished.
2. LTCO shall keep all information obtained from the Company strictly
confidential except: (a) information which is otherwise publicly
available, or previously known to, or obtained by LTCO independently of
the Company and without breach of LTCO's agreement with the Company;
(b) LTCO may disclose such information to its employees and attorneys,
and to its other advisors and financial sources on a need to know basis
only and shall ensure that all such employees, attorneys, advisors and
financial sources will keep such information strictly confidential; and
(c) pursuant to any order of a court of competent jurisdiction or other
governmental body or as may otherwise be required by law.
3. The Company recognizes that in order for LTCO to perform properly its
obligations in a professional manner, it is necessary that LTCO be
informed of and, to the extent practicable, participate in meetings and
discussions between the Company and any third party relating to the
matters covered by the terms of LTCO's engagement.
4. The Company agrees that any report or opinion, oral or written,
delivered to it by LTCO is prepared solely for its confidential use and
shall not be reproduced, summarized, or referred to in any public
document or given or otherwise divulged to any other person without
LTCO's prior written consent, except as may be required by applicable
law or regulation.
5. No fee payable to LTCO pursuant to any other agreement with the Company
or payable by the Company to any agent, lender or investor shall reduce
or otherwise affect any fee payable by the Company to LTCO hereunder.
6. The Company represents and warrants that: (a) it has full right, power
and authority to enter into this Agreement and to perform all of its
obligations hereunder; (b) this Agreement has been duly authorized and
executed and constitutes a valid and binding agreement of the Company
enforceable in accordance with its terms; and (c) the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby does not conflict with or result in a breach of (i)
the Company's certificate of incorporation or by-laws or (ii) any
agreement to which the Company is a party or by which any of its
property or assets is bound.
6
<PAGE>
EXHIBIT A (CONTINUED)
7. Nothing contained in this Agreement shall be construed to place LTCO
and the Company in the relationship of partners or joint venturers.
Neither LTCO nor the Company shall represent itself as the agent or
legal representative of the other for any purpose whatsoever nor shall
either have the power to obligate or bind the other in any manner
whatsoever. LTCO, in performing its services hereunder, shall at all
times be an independent contractor.
8. This Agreement has been and is made solely for the benefit of LTCO and
the Company and each of the persons, agents, employees, officers,
directors and controlling persons referred to in Exhibit B and their
respective heirs, executors, personal representatives, successors and
assigns, and nothing contained in this Agreement shall confer any
rights upon, nor shall this Agreement be construed to create any rights
in, any person who is not party to such Agreement, other than as set
forth in this paragraph.
9. The rights and obligations of either party under this Agreement may not
be assigned without the prior written consent of the other party hereto
and any other purported assignment shall be null and void.
10. All communications hereunder, except as may be otherwise specifically
provided herein, shall be in writing and shall be mailed, hand
delivered, or sent via facsimile and confirmed by letter, to the party
to whom it is addressed at the following addresses or such other
address as such party may advise the other in writing:
To the Company:
William K. Williams
Sedona Corporation
649 North Lewis Road
Limerick, PA 19468
Telephone: (610) 495-3003
Facsimile: (610) 495-3092
To LTCO:
Ladenburg Thalmann & Co. Inc.
590 Madison Avenue
New York, NY 10022
Attention: David B. Boris
Telephone: (212) 409-2000
Facsimile: (212) 409-2169
All notices hereunder shall be effective upon receipt by the party to which it
is addressed.
7
<PAGE>
EXHIBIT B
INDEMNIFICATION
The Company agrees that it shall indemnify and hold harmless, LTCO, its
stockholders, directors, officers, employees, agents, affiliates and controlling
persons within the meaning of Section 20 of the Securities Exchange Act of 1934
and Section 15 of the Securities Act of 1933, each as amended (any and all of
whom are referred to as an "Indemnified Party"), from and against any and all
losses, claims, damages, liabilities, or expenses, and all actions in respect
thereof (including, but not limited to, all legal or other expenses reasonably
incurred by an Indemnified Party in connection with the investigation,
preparation, defense or settlement of any claim, action or proceeding, whether
or not resulting in any liability), incurred by an Indemnified Party: (a)
arising out of, or in connection with, any actions taken or omitted to be taken
by the Company, its affiliates, employees or agents, or any untrue statement or
alleged untrue statement of a material fact contained in any of the financial or
other information contained in the registration statement and/or final
prospectus furnished to LTCO by or on behalf of the Company or the omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; or (b) with respect to, caused by, or otherwise
arising out of any transaction contemplated by the Agreement or LTCO's
performing the services contemplated hereunder; provided, however, the Company
will not be liable under clause (b) hereof to the extent, and only to the
extent, that any loss, claim, damage, liability or expense is finally judicially
determined to have resulted primarily from LTCO's gross negligence or bad faith
in performing such services.
If the indemnification provided for herein is conclusively determined
(by an entry of final judgment by a court of competent jurisdiction and the
expiration of the time or denial of the right to appeal) to be unavailable or
insufficient to hold any Indemnified Party harmless in respect to any losses,
claims, damages, liabilities or expenses referred to therein, then the Company
shall contribute to the amounts paid or payable by such Indemnified Party in
such proportion as is appropriate and equitable under all circumstances taking
into account the relative benefits received by the Company on the one hand and
LTCO on the other, from the transaction or proposed transaction under the
Agreement or, if allocation on that basis is not permitted under applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand and LTCO on the other, but also the
relative fault of the Company and LTCO; provided, however, in no event shall the
aggregate contribution of LTCO and/or any Indemnified Party be in excess of net
compensation actually received by LTCO and/or such Indemnified Party pursuant to
this Agreement.
The Company shall not settle or compromise or consent to the entry of
any judgment in or otherwise seek to terminate any pending or threatened action,
claim, suit or proceeding in which any Indemnified Party is or could be a party
and as to which indemnification or contribution could have been sought by such
Indemnified Party hereunder (whether or not such Indemnified Party is a party
8
<PAGE>
thereto), unless such consent or termination includes an express unconditional
release of such Indemnified Party, reasonably satisfactory in form and substance
to such Indemnified Party, from all losses, claims, damages, liabilities or
expenses arising out of such action, claim, suit or proceeding.
The foregoing indemnification and contribution provisions are not in
lieu of, but in addition to, any rights which any Indemnified Party may have at
common law hereunder or otherwise, and shall remain in full force and effect
following the expiration or termination of LTCO's engagement and shall be
binding on any successors or assigns of the Company and successors or assigns to
all or substantially all of the Company's business or assets.
9
<PAGE>
EXHIBIT C
JURISDICTION
The Company hereby irrevocably: (a) submits to the jurisdiction of any
court of the State of New York or any federal court sitting in the State of New
York for the purposes of any suit, action or other proceeding arising out of the
Agreement between the Company and LTCO which is brought by or against the
Company or LTCO; (b) agrees that all claims in respect of any suit, action or
proceeding may be heard and determined in any such court; and (c) to the extent
that the Company has acquired, or hereafter may acquire, any immunity from
jurisdiction of any such court or from any legal process therein, the Company
hereby waives, to the fullest extent permitted by law, such immunity.
The Company waives, and the Company agrees not to assert in any such
suit, action or proceeding, in each case, to the fullest extent permitted by
applicable law, any claim that: (a) the Company is not personally subject to the
jurisdiction of any such court; (b) the Company is immune from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
the aid of execution, execution or otherwise) with respect to it or its
property; (c) any such suit, action or proceeding is brought in an inconvenient
forum; (d) the venue of any such suit, action or proceeding is improper; or (e)
this Agreement may not be enforced in or by any such court.
Any process against the Company in, or in connection with, any suit,
action or proceeding filed in the United States District Court for the Southern
District of New York or any other court of the State of New York, arising out of
or relating to this Agreement or any transaction or agreement contemplated
hereby, may be served on the Company personally, or by first class mail or
overnight courier (with the same effect as though served upon the Company
personally) addressed to the Company at the address set forth in the Agreement
between the Company and LTCO.
Nothing in these provisions shall affect any party's right to serve
process in any manner permitted by law or limit its rights to bring a proceeding
in the competent courts of any jurisdiction or jurisdictions or to enforce in
any lawful manner a judgment obtained in one jurisdiction in any other
jurisdiction.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to conflicts of law
principles.
10
<PAGE>
LADENBURG
THALMANN
ESTABLISHED 1876
LOGO
Exhibit 1.2
March 8, 2000
William K. Williams
Vice President/Chief Financial Officer
Sedona Corporation
649 North Lewis Road
Limerick, PA 19468
Dear Mr. Williams:
Reference is hereby made to the letter agreement dated January 24, 2000 (the
"Engagement Agreement") between Sedona Corporation (the "Company") and Ladenburg
Thalmann & Co. Inc. ("LTCO").
The Company and LTCO hereby agree to amend the Engagement Agreement as follows:
1. The sentence "The gross proceeds from the Offering will be up to
$15,000,000." in the first paragraph of the Engagement Agreement is hereby
amended to read as follows:
The gross proceeds from the Offering will be up to $50,000,000.
Except as amended pursuant hereto, the terms and conditions of the Engagement
Agreement shall remain in full force and effect.
If the foregoing correctly sets forth our agreement, please confirm this by
signing and returning to us the duplicate copy of this letter.
Very truly yours,
LADENBURG THALMANN & CO. INC.
By: /s/ David Boris
------------------------
Name: David Boris
Title: EVP
Agreed to and accepted
As of the date first written above:
SEDONA CORPORATION
By: William K. Williams
----------------------------
Name: Williams K. Williams
Title: VP & CFO
<PAGE>
Exhibit 5.1
Form of
[PIPER MARBURY RUDNICK & WOLFE LLP LETTERHEAD]
_____________, 2000
Sedona Corporation
649 North Lewis Road
Suite 220
Limerick, PA 19468
Gentlemen:
We are acting as counsel to Sedona Corporation, a Pennsylvania
corporation (the "Company"), in connection with the registration on a
Registration Statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
of up to $50,000,000 aggregate amount of (i) shares of common stock, par value
$0.001 per share (the "Common Stock"), (ii) shares of Class A preferred stock,
in one or more series, as may be designated by the Board of Directors of the
Company (the "Preferred Stock"), (iii) debt securities, in one or more series,
consisting of notes, debentures or other evidences of indebtedness (the "Debt
Securities") and (iv) warrants (the "Warrants") to purchase Common Stock and
Preferred Stock (collectively, the "Securities").
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. In examining the
foregoing documents, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies, and the authenticity of the originals of such latter documents. As to
various questions of fact material to such opinion, we have relied, to the
extent we deemed appropriate, upon representations, statements and certificates
of officers and representatives of the Company and others.
Based on the foregoing, we are of the opinion that:
(i) when (a) the Board of Directors of the Company (or a duly
authorized committee thereof) has taken all necessary corporate action
to approve the issuance and sale of any shares of Common Stock or of
any series of Preferred Stock, and (b) such shares have been issued and
sold as contemplated in the Registration Statement, the shares of
Common Stock and Preferred Stock will be duly authorized, validly
issued, fully paid and nonassessable, and any shares of Common Stock
issued upon conversion of any such Preferred Stock in accordance with
the terms of such Preferred Stock will be duly authorized, validly
issued, fully paid and nonassessable.
<PAGE>
(ii) when (a) the terms of any Debt Securities and of their
issuance and sale have been duly established in conformity with the
applicable indenture so as not to violate any applicable law or result
in a default under or breach of any agreement or instrument binding
upon the Company and so as to comply with any requirements or
restrictions imposed by any court or governmental body having
jurisdiction over the Company, and (b) the Debt Securities have been
duly executed and authenticated in accordance with such indenture and
issued and sold as contemplated in the Registration Statement, the Debt
Securities will constitute valid and legally binding obligations of the
Company, subject to bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium and similar laws relating to or affecting creditors' rights
generally and to general equitable principles, and any shares of Common
Stock issued upon conversion of any such Debt Securities in accordance
with the terms of such indenture will be duly authorized, validly
issued, fully paid and nonassessable.
(iii) when (a) the terms of any Warrants and of their issuance
and sale have been duly established in conformity with the applicable
warrant agreement so as not to violate any applicable law or result in
a default under or breach of any agreement or instrument binding upon
the Company and so as to comply with any requirements or restrictions
imposed by any court or governmental body having jurisdiction over the
Company, and (b) such Warrants have been duly executed and
authenticated in accordance with the applicable warrant agreement and
issued and sold as contemplated in the Registration Statement, the
Warrants will constitute valid and legally binding obligations of the
Company, subject to bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium and similar laws relating to or affecting creditors' rights
generally and to general equitable principles, and any shares of Common
Stock issued upon exercise of any such Warrants in accordance with the
terms of the applicable Warrant Agreement will be duly authorized,
validly issued, fully paid and nonassessable.
The foregoing opinions are subject to, and qualified by, the following
additional conditions:
(a) with respect to the Common Stock, the due authorization
for issuance of such number of shares of Common Stock that are offered
and sold (or the reservation of such shares as may become issuable upon
the conversion or exercise of any Preferred Stock, Debt Securities or
Warrants);
(b) with respect to the Preferred Stock, the due designation
of an applicable series within that class and the due authorization for
issuance of such number of shares of Preferred Stock within the series
that are offered and sold (or the reservation of such shares as may
become issuable upon the conversion or exercise of any Preferred Stock
or Warrants);
(c) with respect to the Debt Securities, the due
authorization, execution and delivery by the Company, and by each
counterparty thereto, of each applicable indenture evidencing any of
<PAGE>
the Debt Securities and payment therefore in accordance with the terms
of such authorization, and the due qualification of each applicable
indenture under the Trust Indenture Act of 1939, as amended;
(d) with respect to the Warrants, the due authorization,
execution and delivery by the Company, and by each counterparty
thereto, of each applicable warrant agreement evidencing any of the
Warrants and payment therefore in accordance with the terms of such
authorization; and
(e) with respect to the Preferred Stock and the Common Stock,
such Preferred Stock and Common Stock has been paid for in accordance
with applicable resolutions of the Board of Directors and the
consideration is legal and sufficient under the Business Corporation
Law of the Commonwealth of Pennsylvania.
We hereby consent to the use of our name in the Registration Statement
and under the caption "Legal Matters" in the related Prospectus and consent to
the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus of Sedona Corporation
for the registration of shares of its common stock and to the incorporation by
reference therein of our report dated March 18, 2000, with respect to the
consolidated financial statements of Sedona Corporation included in its Annual
Report (Form 10-K) for the year ended December 31, 1999, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
Philadelphia, Pennsylvania
May 18, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Sedona Corporation
Limerick, Pennsylvania
We hereby consent to the incorporation by reference into Registration Statement
on Form S-3 and related prospectus for the registration of securities of up to
$50,000,000 of our report dated March 13, 1998, except for Note 14 which is
dated March 27, 1998, relating to the consolidated statements of operations,
stockholders' equity, and cash flows for the year ended December 31, 1997 of
Sedona Corporation (formerly Scan-Graphics, Inc.) included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
--------------------------------
BDO Seidman, LLP
Philadelphia, Pennsylvania
May 19, 2000
