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As filed with the Securities and Exchange Commission on July 30, 1996
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
NETWORK IMAGING CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 54-1590649
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
--------------------
500 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
(703) 478-2260
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
--------------------
JAMES J. LETO
CHIEF EXECUTIVE OFFICER
NETWORK IMAGING CORPORATION
500 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
(703) 478-2260
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
COPY TO:
JOHN W. BLOUCH, ESQ.
JONES & BLOUCH L.L.P.
1025 THOMAS JEFFERSON STREET, N.W.
WASHINGTON, D.C. 20007
(202) 223-3500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement. If any of
the securities being registered in this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. /X/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series I Convertible
Preferred Stock (par value 300 -- -- --
$.0001 per share)
- ----------------------------------------------------------------------------------------------------------------
Common Stock 2,250,000 $3.79 $8,527,500 $2,940.52
(par value $.0001 per
share)(2)
- ----------------------------------------------------------------------------------------------------------------
Total 2,250,000 $3.79 $8,527,500 $2,940.52
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</TABLE>
(1) Estimated pursuant to Rule 457 for the purpose of calculating the
registration fee only; based upon the average of the high and low sales prices
for the Common Stock on July 29, 1996. Registration fee is calculated pursuant
to Rule 457.
(2) Pursuant to Rule 416 also includes such additional shares of Common Stock
as may become issuable under the anti-dilution provisions of the Series I
Convertible Preferred Stock.
================================================================================
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 the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION DATED JULY 30, 1996
PROSPECTUS
300 SHARES SERIES I CONVERTIBLE PREFERRED STOCK
2,250,000 SHARES COMMON STOCK
NETWORK IMAGING CORPORATION
This Prospectus relates to the resale by the holder (the
"Selling Stockholder") of 300 shares of Series I Convertible Preferred Stock
(the "Series I Preferred Stock") of Network Imaging Corporation (the "Company")
and the common stock of the Company (the "Common Stock") into which it is
convertible or which the Company may elect to issue in payment of dividends on
the Series I Preferred Stock (the "Shares"). The Series I Preferred Stock is
convertible into 750,000 shares of Common Stock or a greater number determined
pursuant to a formula based on the average closing bid price of the Common
Stock over a five day period preceding conversion. The Company agreed to
register an aggregate of 2,250,000 shares of Common Stock to provide additional
shares for issuance if required by application of the formula. See "Description
of Securities - Series I Preferred Shares" and "Selling Stockholder."
It is anticipated that the Shares may be sold from time to time in
transactions (which may include block transactions) on the National Association
of Securities Dealers Automated Quotation National Market System
("Nasdaq-NMS"), in negotiated transactions or otherwise at market prices
prevailing at the time of sale, at prices related to such market prices or at
prices otherwise negotiated. The Selling Stockholder and the brokers and
dealers through which sales of the Shares may be made may be deemed to be
"underwriters" within the meaning of the Securities Act, and the commissions or
discounts and other compensation of such brokers and dealers may be regarded as
underwriters' compensation. The Company will not receive any part of the
proceeds from the sale of the Shares by the Selling Stockholder. All expenses
of registration are being borne by the Company except for commissions and
discounts and fees payable to broker-dealers and underwriters. See "Selling
Stockholder" and "Plan of Distribution."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. Risk
factors include: the Company's lack of profitability since inception which has
resulted in an accumulated deficit of approximately $107.4 million at June 30,
1996; an annual dividend requirement of $3.2 million on one class of
outstanding preferred stock, of $240,000 on a second class, of $180,000 on a
third class, and of $1.6 million on a fourth class beginning October 1, 1996
and an obligation to redeem that fourth class for approximately $16.1 million
on January 2, 1998 or earlier under certain circumstances; the rapid
technological change to which the Company's products are subject, the delays
the Company may experience in product development, the Company's dependence on
proprietary technology and the competition which the Company faces which
includes a number of larger and more established competitors with substantially
greater resources than the Company; and the adverse effect which this offering
and other offerings of Common Stock by the Company's stockholders pursuant to
registration agreements with the Company or pursuant to Rule 144 under the
Securities Act may have on the market price of the Common Stock and the
Company's ability to raise additional capital. See "Risk Factors."
The Common Stock is included on Nasdaq-NMS under the symbol IMGX. On
July 23, 1996, the closing sale price of the Common Stock was $4.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
THE DATE OF THIS PROSPECTUS IS ________________, 1996
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TABLE OF CONTENTS
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Page
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Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . . . . . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Summary Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Pro Forma Condensed Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . 10
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Price Range of Common Stock and Dividend Policy . . . . . . . . . . . . . . . . . . . . . . 19
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Selling Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation.
2
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information included in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is hereby made to the Registration Statement, including
the exhibits and schedules thereto. Statements contained in this Prospectus
concerning the provisions or contents of any contract, agreement or any other
document referred to herein are not necessarily complete. With respect to each
such contract, agreement, or document filed as an exhibit to the Registration
Statement, reference is made to such exhibit for a more complete description of
the matters involved, and each statement shall be deemed qualified in its
entirety by such reference to the copy of the applicable document filed with
the Commission.
The Company is subject to the informational requirements of the
Securities and Exchange Act of 1934, as amended, and, in accordance therewith,
files reports, proxy or information statements, and other information with the
Commission. A copy of the Registration Statement, including all exhibits
thereto, filed by the Company with the Commission, as well as such reports,
statements, and other information, may be inspected and copied without charge
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: New York Regional Office, 7 World Trade Center, 13th Floor,
New York, N.Y. 10048, and Chicago Regional Office, Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, IL 60661. Copies of such
material may also be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a site on the World Wide Web that
contains reports, proxy and information statements and other information filed
electronically by the Company with the Commission which can be accessed over
the Internet at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by the
Company are incorporated in this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
2. The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996.
3. The Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996.
4. The Company's Current Report on Form 8-K as filed on July 17,
1996.
5. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A under the
Exchange Act of 1934, as amended, including any amendment or
report filed to update the description.
3
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All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act of 1934, as amended, after the date of this
Prospectus and prior to the termination of the offering of the Common Stock
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing such documents. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any and all of the documents described above, other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
therein. Requests should be directed to: Network Imaging Corporation, 500
Huntmar Park Drive, Herndon, Virginia 20170, Attention: Investor Relations
(telephone (703) 478-2260).
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1VIEW(TM), SpanStor(TM), InfoAccess(TM), Treev+(TM) and the Company logo are
trademarks of Network Imaging Corporation. All other product and brand names
are trademarks or registered trademarks of their respective companies.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere or incorporated by reference in this Prospectus.
THE COMPANY
Products. Network Imaging Corporation (the "Company") is a developer
and marketer of its 1VIEW suite of content-oriented, client/server and world
wide web-based software solutions that address business challenges of managing
multiple data types (content) across distributed enterprise networks while
protecting current investments in applications, database management systems,
people skills and other resources. The Company is also a full service
integrator and software developer for mainframe and PC based Computer Output to
Laser Disk ("COLD") systems, a provider of software related engineering
services and a developer and marketer of software and firmware for networked
hierarchical storage management ("HSM") systems. Revenues for 1995 were
approximately evenly divided between the United States and Europe.
Traditional manual filing, retrieval, and distribution methods are
labor intensive, slow, require bulky file storage and allow only one person to
use a file at a time and often result in misfiled, damaged or lost items.
Large commercial and government organizations must continually process large
volumes of documents stored in hard copy paper files where there is a need for
more efficient movement of information throughout the enterprise. The
information may take the form of documents, database records, graphics, video
clips, audio, CAD and engineering drawings, and other such "information
content" which are distributed throughout a multi-site enterprise. This need
for information storage, retrieval, and distribution management is addressed by
the Company's principal products: the 1VIEW software application suite, a
family of COLD products, and the Doro-family of products for HSM applications.
The Company uses advances in content management software to capture and
store "information content" with more advanced indexing and retrieval features
than those available for paper documents. The Company's information access,
content management and storage management systems have been designed to support
"open systems standards" which permit hardware and software from different
vendors to operate together on a network.
Operations. From its incorporation in 1991 through 1994, the Company
acquired, and acquired or licensed technology from, 19 companies and its
revenues before restatement for subsequent acquisitions increased from $66,000
in 1991 to $67 million in 1994. In 1995 the Company disposed of a number of
operating units, and its revenues, which were $69.2 million on a historical
basis, were $46.4 million on a pro forma basis reflecting the dispositions.
During this period, the Company was engaged in the development of the 1VIEW
suite, the expenses of which were primarily funded by the Company. The Company
has had net losses in each quarterly financial reporting period, except for
one, and had an accumulated deficit at June 30, 1996 of $107.4 million. Net
losses applicable to common shares were $13.5 million for the six months ended
June 30, 1996, $34.9 million for the year ended December 31, 1995 and $44.1
million for the year ended December 31, 1994. Losses have resulted from the
delay in the commercial release of the Company's 1VIEW product, the lead time
required to close sales and recognize revenues, significant non-recurring
charges and increasing operating expenses for sales, marketing and product
research and development.
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The adverse results of operations which the Company experienced in 1995
and the first six months of 1996 are expected to continue, in declining
amounts, for the remainder of 1996. The Company believes that its existing
cash, which includes the $11.9 million of capital raised in the first six months
of 1996 and the anticipated cash flows from 1996 operations, should provide
sufficient resources to fund its activities in 1996 and to maintain net
tangible assets of at least $4 million which is required for continued
inclusion of the Company's securities on Nasdaq-NMS. Anticipated cash flows
from 1996 operations are largely dependent upon the Company's ability to
achieve its sales and gross profit objectives for its 1VIEW and other products.
Achievement of these objectives is subject to various risk factors related to,
among other things: the relative newness of its 1VIEW product suite; the
newness of the markets served by that product; the need to use a two-step
distribution channel involving systems integrators; the long lead times in the
sales cycle; the large dollar size of the average unit sale requiring high
level customer authorizations; the large number of established and potential
competitors in the market; the fast pace of technology evolution related to the
product suite; the newness of the Company's sales and marketing staff; and the
evolving nature of the Company's sales and marketing strategies. The Company
nevertheless believes that its sales and gross profit objectives are achievable
in light of its recent divestitures of non-core businesses, the successful
installation of 1VIEW in a major contract during 1995, the repositioning of its
product lines, additions to executive sales management, and the refocusing of
sales and marketing resources. If the Company is unable to meet these
objectives, it will consider alternative sources of liquidity, such as public
or private offerings of equity securities. Although the Company believes that
it can successfully implement its 1996 operating plan and, if necessary, raise
additional capital, there can no be assurance that implementation of the plan
will be successful or that financing, if sought, will be available.
Forward Looking Information. The Private Securities Litigation Reform
Act of 1995 (the "Reform Act") provides a "safe harbor" for forward-looking
statements to encourage companies to provide prospective information about
their companies, so long as those statements are identified as forward-looking
and are accompanied by meaningful cautionary statements identifying important
factors that could cause actual results to differ materially from those
discussed in the statement. The Company desires to take advantage of the "safe
harbor" provisions of the Reform Act. Except for the historical information
contained herein, the matters discussed in this Prospectus are forward-looking
statements which involve risks and uncertainties. Although the Company
believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, it can give no assurance that its
expectations will be achieved. Important factors that could cause actual
results to differ materially from the Company's expectations are disclosed in
conjunction with the forward-looking statements or elsewhere herein.
Background. The Company's predecessor was incorporated under the laws
of Virginia in December 1990 and changed its state of incorporation in July
1991 by merger into a newly-formed Delaware corporation of the same name. As
used herein, unless the context indicates otherwise, the term "Company" refers
collectively to Network Imaging Corporation, a Delaware corporation
incorporated in May 1991, each of its consolidated subsidiaries and its
predecessor, Network Imaging Corporation, a Virginia corporation. The
principal executive offices of the Company are located at 500 Huntmar Park
Drive, Herndon, Virginia 20170. Its telephone number is (703) 478-2260.
THE OFFERING
By this Prospectus, the Selling Stockholder is offering the Shares.
The Company will not receive any proceeds from the sale of securities by the
Selling Stockholder. See "Selling Stockholder" and "Plan of Distribution."
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SUMMARY FINANCIAL INFORMATION
The following summary financial information is derived from the
consolidated financial statements contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and its Form 10-Q for the period
ended June 30, 1996, which are incorporated herein by reference, and should be
read in conjunction with such financial statements and the notes thereto
included therein. The Company had an accumulated deficit of approximately
$107.4 million at June 30, 1996. For a discussion of adverse trends in
operations and financial condition, and the steps being taken by the Company in
response thereto, see "The Company" and "Risk Factors -- Lack of
Profitability." For information on the Company's 1995 and anticipated 1996
divestitures, see "Pro Forma Condensed Financial Information."
STATEMENT OF OPERATIONS DATA:
HISTORICAL -
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SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1995 1994 1993
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Revenue . . . . . . . . . . . . . . . . $19,671 $40,318 $69,151 $67,028 $34,069
Net loss . . . . . . . . . . . . . . . (11,605) (22,116) (24,963) (39,625) (30,817)
Net loss applicable to
common shares (1). . . . . . . . . . (13,489) (24,156) (34,896) (44,121) (31,421)
Net loss per common share-primary. . . ($0.69) ($1.77) $(2.41) $(3.56) $(4.48)
Weighted average shares 19,560,045 13,628,175 14,502,399 12,391,225 7,015,234
outstanding-primary
Net loss per common share-fully diluted ($0.69) ($1.77) $(2.32) $(3.55) $(4.48)
Weighted average shares 19,560,045 13,628,175 15,041,203 12,433,464 7,015,234
outstanding-fully diluted. . . . . .
Ratio of earnings to combined fixed (2) (2) (2) (2) (2)
charges and preferred stock
dividends. . . .
</TABLE>
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PRO FORMA (3) -
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SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
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(UNAUDITED) (UNAUDITED)
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Revenue . . . . . . . . . . . . . . . . . . . . . . 17,993 44,778
Net loss . . . . . . . . . . . . . . . . . . . . . (10,515) (20,652)
Net loss applicable to common shares (1) . . . . . (12,399) (30,585)
Net loss per common share-primary . . . . . . . . . $(0.59) $(1.64)
Weighted average shares outstanding-primary . . . . 21,030,428 18,637,166
Net loss per common share-fully diluted . . . . . . $(0.59) $(1.64)
Weighted average shares outstanding-fully diluted . 21,030,428 18,637,226
Ratio of earnings to combined fixed (2) (2)
charges and preferred stock dividends . . . . . .
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
JUNE 30, 1996
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(IN THOUSANDS)
HISTORICAL PRO FORMA (4)
---------- ----------
(UNAUDITED)
<S> <C> <C>
Working capital. . . . . . . . . . . . . . . . . . . $11,780 $12,053
Total assets. . . . . . . . . . . . . . . . . . . . 43,959 43,314
Long-term debt and obligations under 845 809
capital leases . . . . . . . . . . . . . . . . . .
Redeemable Series F Convertible 15,757 15,757
Preferred Stock. . . . . . . . . . . . . . . . . .
Stockholders' equity . . . . . . . . . . . . . . . . $8,158 $8,158
</TABLE>
(1) Includes accretion of the Series B Convertible Preferred Stock issued
in connection with the acquisition of Dorotech France SA, a French
societe anonyme ("Dorotech") ("Series B Preferred Stock"), an annual
dividend of $3.2 million on the Company's Series A Cumulative
Convertible Preferred Stock (the "Series A Preferred Stock") and the
net cost of capital of $5.9 million which the Company incurred as a
result of the redemption of 1,086 shares of Series D Preferred Stock
in the fourth quarter of 1995. See "Description of Securities." The
Series B Preferred Stock was redeemable by the original holder on
October 1, 1995 at $9.00 per share. The Company and the holder of the
Series B Preferred Stock agreed to an exchange of Series C Convertible
Preferred Stock ("Series C Preferred Stock") for the Series B
Preferred Stock, which had the effect of
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<PAGE> 10
extending the redemption date to October 1, 1996. (The Series B and
Series C Preferred Stock are collectively referred to hereinafter as
the "Acquisition Preferred Stock"). In March 1996, the Acquisition
Preferred Stock was exchanged for Series F Convertible Preferred Stock
("Series F Preferred Stock") which, among other things, had the effect
of extending the redemption date to January 2, 1998. See "Description
of Securities -- Acquisition Preferred Stock" and "Risk Factors -
Redemption of Acquisition Preferred Stock."
(2) The annual dividend requirement on the Series A Preferred Stock at the
rate of 8% per annum is $3.2 million. The pro forma and historical
deficiencies in fixed charges for the six months ended June 30, 1996,
before giving effect to the dividend requirement on the Series A
Preferred Stock, are $11.0 million and $12.0 million, respectively,
and $13.4 million and $14.5 million, respectively, after giving
effect to the dividend requirement on the Series A Preferred Stock.
The pro forma and historical deficiencies in fixed charges for the
year ended December 31, 1995, before giving effect to the dividend
requirement on the Series A Preferred Stock, and the redemption of
Series D Preferred Stock, are $22.0 million and $26.6 million,
respectively, $26.9 million and $31.4 million, respectively, after
giving effect to the dividend requirement on the Series A Preferred
Stock and before the Series D Preferred Stock redemption, and $35.7
million and $40.3 million, respectively, after giving effect to the
Series D Preferred Stock redemption. The historical deficiency in
fixed charges for the year ended December 31, 1994, before giving
effect to the dividend requirement on the Series A Preferred Stock, is
$43.2 million ($48.0 million after giving effect to the dividend
requirement on the Series A Preferred Stock). The historical
deficiency in fixed charges for the year ended December 31, 1993,
before giving effect to the annual dividend requirement on the Series
A Preferred Stock, is $6.6 million ($6.8 million after giving effect
to the annual dividend requirement on the Series A Preferred Stock).
The deficiency before giving effect to the dividend requirement on the
Series A Preferred Stock was determined by taking the sum of earnings
(loss) before purchased in-process research and development, taxes and
fixed charges, and subtracting therefrom the sum of fixed charges
(gross interest plus the portion of rent expense representing finance
charges) and accretion of the Acquisition Preferred Stock to
redemption value on a pre-tax basis. See "Risk Factors -- Inadequate
Dividend Coverage" and "Price Range of Common Stock and Dividend
Policy."
(3) See "Pro Forma Condensed Financial Information."
(4) Adjusted to reflect the anticipated sale of Symmetrical Technologies,
Incorporated as if the transaction had occurred on June 30, 1996.
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PRO FORMA CONDENSED FINANCIAL INFORMATION
The purpose of the following unaudited pro forma condensed
statements of operations for the year ended December 31, 1995 and the six
months ended June 30, 1996 is to show the effect of the following 1995 and
anticipated 1996 dispositions as though each of them had occurred at January 1,
1995: the disposition of the assets of Soda Creek Technologies ("SC") on
February 28, 1995, the disposition of the WildSoft division ("WS") on March 31,
1995, the disposition of P E, Systems, Inc. ("PE") on May 9, 1995, the
bankruptcy filing made by IBZ Digital Production AG ("IBZ") on May 22, 1995,
the dispositions of Microsouth, Inc. ("MS") and tekgraf, inc. ("TK") on June
30, 1995, the disposition of Network Imaging (UK Holdings) Limited ("NICUK") on
September 20, 1995, the disposition of the Company's Hunt Valley, Maryland
operations on November 15, 1995, and the anticipated disposition of Symmetrical
Technologies, Incorporated ("STI") during the third quarter of 1996. The
information should be read in conjunction with the financial statements of the
Company incorporated by reference herein. The information is based on
assumptions and estimates set forth in the accompanying notes and is not
necessarily indicative of the results of future operations or the actual
results that would have occurred had the transactions taken place at January 1,
1995.
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THE COMPANY AND 1995 DIVESTITURES
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THE (4) ADDITIONAL
COMPANY SYMMETRICAL ADJUSTMENTS Note PRO FORMA
------------- ------------- ------------- ---------------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C>
REVENUES:
Net sales $ 19,671 $ (1,678) $ $17,993
COSTS AND EXPENSES:
Cost of sales 13,244 (1,379) 11,865
Product development 3,689 (208) 3,481
Selling, general and administrative 14,057 (1,181) 12,876
Exchange fee and gain on sale of asset 619 619
Restructuring costs (175) (175)
------------- ------------- ------------- ---------------
31,434 (2,768) 0 28,666
OPERATING INCOME (LOSS) (11,763) 1,090 0 (10,673)
Investment and interest income, net 146 146
------------- ------------- ------------- ---------------
EARNINGS (LOSS) BEFORE TAXES (11,617) 1,090 0 (10,527)
Income tax benefit (12) 0 (12)
------------- ------------- ------------- ---------------
NET LOSS $ (11,605) $ 1,090 $ 0 $ (10,515)
============= ============= ============= ===============
Series A preferred stock - cumulative preferred dividends (1,605) (1,605)
Series F preferred stock - accretion to redemption value (279) (279)
------------- ---------------
Net loss applicable to common shares $ (13,489) $ (12,399)
============= ===============
NET LOSS PER COMMON SHARE - PRIMARY $ (0.69) $ (0.59)
============= ===============
Weighted average shares outstanding - Primary 19,560,045 1,470,383 (5) 21,030,428
</TABLE>
11
<PAGE> 13
(1) Represents the pro forma adjustments necessary to give effect to the
divestitures as if each occurred at January 1, 1995.
(2) The weighted average number of shares outstanding for the year ended
December 31, 1995 has been increased by 4,134,827 shares and 3,596,023
shares for the primary and fully diluted earning per share
calculations, respectively, to give effect to the shares issued during
1995 as if issuance had taken place at January 1, 1995.
(3) The pro forma information does not reflect the March 1996 issuance, for
aggregate net proceeds of approximately $4.7 million, of 1,355,674
shares of Common Stock with a warrant for an additional 64,000 shares
of Common Stock, exercisable at $4.5375 per share, the June 1996
issuance, for aggregate net proceeds of approximately $1.3 million, of
404,611 shares of Common Stock, or the exchange of the Series F
Preferred Stock, on which the Company must begin paying a quarterly
dividend at an annual rate of $1.6 million on December 31, 1996, for
the Acquisition Preferred Stock, which was entitled only to those
dividends, if any, paid on the Common Stock. See "Risk Factors --
Redemption of Acquisition Preferred Stock" and "Description of
Securities -- Acquisition Preferred Stock."
(4) Represents the pro forma adjustments necessary to give effect to the
proposed divestiture of STI as if it had occurred at January 1, 1995.
(5) The weighted average number of shares outstanding for the six months
ended June 30,1996 has been increased by 1,470,383 for the earnings per
share calculation to give effect to the shares issued during the first
six months of 1996 as if the issuance had taken place at January 1,
1996.
12
<PAGE> 14
RISK FACTORS
An investment in the Company's securities involves a high degree of
risk. In evaluating the Company and its business, prospective purchasers of
the Shares offered hereby should carefully consider the risk factors set forth
below, as well as the other information included in this Prospectus, prior to
making an investment.
LACK OF PROFITABILITY
The Company has had net losses in each period of its operations, except
for one quarter, and it had an accumulated deficit at June 30, 1996 of $107.4
million. Net losses applicable to common shares were $13.5 million for the six
months ended June 30, 1996, $34.9 million for the year ended December 31, 1995,
and $44.1 million for the year ended December 31, 1994. The losses have
resulted primarily from non-recurring charges (including in 1994, a
non-recurring charge of $8.8 million for purchased in-process research and
development and a write-off of $8.7 million in capitalized software which
related to products which were abandoned in favor of 1VIEW, and in 1995,
non-recurring net charges of $9.3 million in connection with the IBZ bankruptcy
and business divestitures) as well as the delay in the commercial release of
the Company's 1VIEW product, the lead time to close sales and recognize
revenues, increasing sales and marketing efforts and costs associated with
product research and development. See "The Company."
REDEMPTION OF ACQUISITION PREFERRED STOCK
The Company has outstanding 1,792,186 shares of Series F Preferred
Stock which it exchanged in March 1996 for the Acquisition Preferred Stock
issued in connection with the acquisition of Dorotech. The Company must begin
paying quarterly dividends on the Series F Preferred Stock on December 31, 1996
at a rate equal to the greater of 10% per annum or the annual rate of any
dividend paid on the Company's Common Stock. The Company must redeem the
Series F Preferred Stock on January 2, 1998 for $9.00 per share (approximately
$16.1 million) plus accrued and unpaid dividends (the "Redemption Price"),
unless the holder elects not to redeem by prior written notice to the Company.
In the event of a change in control of the Company, the then holder of the
Series F Preferred Stock may elect to redeem at the Redemption Price; provided,
however, that if the acquiror has a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934 and has outstanding voting
stock held by non-affiliates with an aggregate market value of at least $100
million and if the Company agrees to pay the holder in cash the excess, if any,
of the Redemption Price over the transaction consideration, the holder will not
be entitled to redemption and will be deemed to have elected to convert the
Series F Preferred Stock. The then holders of the Series F Preferred Stock
may also redeem some or all of the Series F Preferred Stock if the Company is
in arrears with respect to two quarterly dividend payments or defaults in
certain of the agreements it entered into in connection with the exchange. See
"Description of Securities - Acquisition Preferred Stock."
INADEQUATE DIVIDEND COVERAGE
The annual dividend requirements on the Company's preferred stocks
are: Series A Preferred Stock, $3.2 million (payable quarterly); Series F
Preferred Stock, $1.6 million (payable quarterly beginning December 31, 1996);
Series H Convertible Preferred Stock, $240,000 (payable upon conversion or
redemption); and Series I Preferred Stock, $180,000 (payable upon conversion or
redemption). All quarterly dividends on the Series A Preferred Stock have been
paid through April 30,
13
<PAGE> 15
1996. Failure to pay any quarterly dividend will result in a reduction in the
conversion price and failure to pay a total of four quarterly dividends will
entitle the holders of the Series A Preferred Stock to elect one director. By
law, dividends may be paid from surplus or current earnings. There can be no
assurance that future surplus or earnings, if any, will be adequate to pay
dividends on the preferred stock. See "-- Redemption of Acquisition Preferred
Stock" and "Description of Securities."
EXPANSION THROUGH ACQUISITIONS
After its initial public offering in May 1992, the Company expanded
rapidly and acquired 14 other companies. Rapid expansion through acquisition
presented risks in terms of the Company's ability to manage and consolidate
disparate operations. In 1995, the Company disposed of a number of its
operating units. See "Pro Forma Consolidated Financial Information." There
can be no assurance, however, that additional problems resulting from the
Company's remaining acquisitions will not arise.
EUROPEAN OPERATIONS
The Company's European operations accounted for approximately 45% of
its revenue in 1995. The Company's business in European markets is subject to
the risks customarily associated with overseas operations, including
fluctuations in foreign currency exchange rates and controls, tariffs,
expropriation, nationalization and other economic, tax and regulatory policies
of foreign governments. Since Dorotech conducts virtually all of its business
in currencies other than the U.S. dollar, foreign currency fluctuations may
affect the Company's asset valuations. The Company has not used financial
instruments with off-balance sheet risk in managing foreign currency
fluctuation risks. The Company's results will also be affected by any laws
affecting its ability to repatriate foreign profits, if any, and by changes in
foreign tax laws and tax rates, as well as changes in international tax
treaties. There can be no assurance that these and similar factors will not
have a negative impact on the Company's operations.
GUARANTEE OF ATG LEASE PAYMENTS
Prior to the acquisition of Dorotech by the Company, Dorotech's parent
(which was merged into Dorotech prior to the acquisition) signed a guarantee of
lease payments by an affiliated company, ATG Gigadisc SA ("ATG"), under a sale
and leaseback of land and buildings by ATG. At December 31, 1995, the
remaining lease payments due by ATG totaled approximately $6.1million,
including interest of approximately $1.8 million. On May 31, 1996, ATG filed
for bankruptcy protection with the Court of Commerce in Toulouse, France, and
officials were appointed by the Court to supervise the operations of ATG. In
July 1996, the lessor notified Dorotech that ATG was in default with respect to
one lease payment, that as a result, it was filing a claim with one of the
officials for accelerated payment of all remaining amounts due under the lease
and that it was requesting from Dorotech the amount due under the guarantee.
The Company is not itself a party to the guarantee; however, if Dorotech were
to become obligated to fulfill the guarantee, there could be a material adverse
effect on the Company's results of operations and financial condition.
Dorotech believes it has meritorious defenses to, and intends to defend
vigorously against, any action that may be brought against it based on the
guarantee. There can be no assurance, however, that Dorotech would prevail if
such action were brought.
14
<PAGE> 16
COMPETITION; RAPID TECHNOLOGICAL CHANGE
The computer industry, including the information access, imaging and
optical disk storage segments, is highly competitive, and is characterized by
rapid and continuous technological change, short product cycles, frequent
product innovations and evolving industry standards. The Company's future
profitability will depend, among other things, on wide-scale market acceptance
of the Company's products, the Company's ability to demonstrate the potential
advantages of its products over other types of similar products and on the
Company's ability to develop in a timely fashion enhancements to existing
products or new products which are responsive to the demands of the marketplace
for information access, imaging and optical disk storage systems. There can be
no assurance that the Company will be able to market successfully its current
products, develop and market enhancements to existing products or introduce new
products. In addition, the Company faces competitors which are larger and more
established and have substantially greater resources than the Company, and
technological advances by any of the Company's competitors could render
obsolete or less competitive the products being offered by the Company.
DELAYS IN INTRODUCTION OF PRODUCTS
The Company's development of enhancements to existing products and of
new products is subject to the kinds of problems and delays that are routinely
encountered in the development of software. Delays in the release of products
or product enhancements are likely to have an adverse effect on the Company,
but the Company does not believe it is practicable to quantify the impact which
such delays have had or in the future may have on its operating results. There
can be no assurance that the Company will not experience difficulties that will
interrupt the marketing and distribution of its current products or that the
Company will not experience difficulties in the future that could materially
delay or prevent the successful development of other products.
DEPENDENCE ON KEY PERSONNEL
The Company is substantially dependent on the business and technical
expertise and business relationships of certain key personnel and on its
ability to attract and retain key management and technical employees in the
future. Competition for such employees is intense. The loss of current key
employees or the Company's inability to attract and retain other employees with
necessary business or technical skills in the future would have a material
adverse effect on the Company's business.
DEPENDENCE ON SUPPLIERS
The Company relies exclusively on outside suppliers for the hardware
components of its products such as scanners, printers, computers and optical
disk drives and jukeboxes. Most parts and components are currently available
from multiple sources at competitive prices. To date, the Company has not
experienced significant delays in obtaining parts and components, and although
there can be no assurance, the Company does not expect to experience such
delays in the future. Lack of availability of certain components could require
minor redesign of the Company's products and result in production delays. One
of the Company's non-1VIEW software products, which accounted for approximately
five percent of the Company's 1995 revenue, is reliant on a single hardware
platform. The Company currently buys hardware such as jukeboxes, optical
drives and media for this platform from one supplier. The Company has begun to
experience delays in delivery of this hardware. Although the delays have not
had a material impact on operating results, increased delays in the future
could result in reduced sales, which would affect operating results adversely.
A major component of 1VIEW software suite is dependent upon a third party
database product, and the royalty which the Company pays for this product can
significantly impact
15
<PAGE> 17
the Company's overall profitability in the near term. The Company has an
agreement with the supplier of the database product which provides for a
royalty on terms which the Company considers to be favorable to it. The
agreement expires on November 16, 1996, and although the Company can give no
assurance that it will do so successfully, it does not anticipate any long-term
difficulties or severe impact in negotiating an extension to the existing
agreement.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company regards its software as proprietary and relies principally
on the protection afforded by trade secret, copyright and trademark laws and by
routinely requiring many employees, consultants, suppliers and others with
access to the Company's proprietary information to enter into non-disclosure
agreements which require such persons to maintain the confidentiality of such
information. However, the Company filed two patent applications in 1995 and
expects to file another in the near future covering key components of the 1VIEW
suite. There can be no assurance that the Company's patent applications will
be approved, that such approval will be granted on a timely basis, or that any
issued patent may be successfully applied to the Company's products or
otherwise provide commercial success. Furthermore, there can be no assurance
that such patents will provide meaningful protection from competition.
To the extent the Company relies on unpatented proprietary technology,
the Company has no recourse if others independently develop substantially
equivalent proprietary technology or gain access to the Company's proprietary
technology without violating the Company's trade secrets, copyrights and
non-disclosure agreements. In addition, effective patent, copyright and trade
secret protection may be unavailable or limited in certain foreign countries
and there can be no assurance that the Company's non-disclosure agreements will
be honored or will be effective. If the validity of the Company's copyrights,
trademarks or prospective patents is successfully challenged or if the
Company's confidential proprietary information becomes publicly available, the
Company's financial condition and results of operations could be materially
adversely affected. In addition, substantial resources may be required to
prosecute infringement claims for unauthorized use by third parties of the
Company's proprietary rights, or to defend claims that the Company's products
infringe upon the proprietary rights of others. There can be no assurance that
the Company will have adequate resources to prosecute or defend such
infringement claims, or that the Company's proprietary rights, including
patents, if any, will be upheld if the Company seeks judicial relief with
respect to such claims.
FLUCTUATIONS IN FINANCIAL PERFORMANCE
Timing and volume differences in the shipment of the Company's
products and the performance of services under contracts can produce
significant fluctuations in quarter-to-quarter and year-to-year financial
performance. Factors that could affect such timing include, among other
things, customer purchasing patterns, new product transitions, delays in new
product introductions and shortages of system components. Past financial
performance should not be considered to be a reliable indicator of future
performance in any particular fiscal period.
CONTROL OF THE COMPANY
The executive officers and directors of the Company beneficially own
approximately 9% of the Company's outstanding Common Stock, other officers and
employees of the Company beneficially own at least another 7% of the
outstanding shares and officers and employees may, in the future, acquire
substantial additional amounts of Common Stock upon the exercise of stock
options which are not currently exercisable. Although there are no
arrangements requiring the executive officers and other employees of the
Company to vote their Common Stock collectively, those persons may exert
16
<PAGE> 18
considerable influence over the outcome of matters requiring stockholder votes,
including the election of directors and proposals to sell, merge or liquidate
the Company.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock since its
inception, and it does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. See "Price Range of Common Stock and Dividend
Policy," and "Description of Securities -- Common Stock."
EFFECT OF OFFERING ON MARKET PRICE OF COMMON STOCK AND THE ABILITY OF THE
COMPANY TO RAISE ADDITIONAL CAPITAL
The shares of Common Stock covered by this Prospectus, if issued,
would represent approximately 10% of the total shares of Common Stock
outstanding as of July 19, 1996. To fulfill various commitments, the Company
has also registered pursuant to separate registration statements 6,994,884
shares of Common Stock that may be offered from time to time by the
stockholders named in those registration statements or that may be sold by the
Company upon exercise of certain outstanding warrants and options (the
6,994,884 shares would represent approximately 25% of the shares outstanding at
July 19, 1996 if all the warrants and options for which underlying shares are
included in the registration statements were exercised). The Selling
Stockholder and the selling stockholders named in the other registration
statements intend to offer Common Stock at such time and in such manner as such
stockholder deems appropriate. If the Selling Stockholder or the other selling
stockholders, individually or in the aggregate, were to offer a large amount of
Common Stock in the market, the market price of the Common Stock and the
Company's ability to raise additional capital could be adversely affected. See
" -- Future Sales of Common Stock," "Selling Stockholder" and "Plan of
Distribution."
FUTURE SALES OF COMMON STOCK
As of July 19, 1996, the Company had outstanding 21,057,428 shares of
Common Stock, of which 4,600,179 shares were "restricted securities," as that
term is defined in Rule 144 under the Securities Act ("Rule 144"), which were
not covered by an effective registration statement under the Securities Act or
eligible for sale pursuant to Rule 144(k). Of those shares, 1,429,500 were
otherwise eligible for sale under Rule 144. As of July 19, 1996, the Company
had outstanding options and warrants which are exercisable for 9,429,435 shares
of Common Stock at prices ranging from $1.00 to $14.88 per share (subject to
adjustment pursuant to the anti-dilution provisions of the respective
instruments) and expire at various times through July 18, 2006.
The Company has filed registration statements with the SEC with
respect to the shares underlying certain of these options and warrants and with
respect to certain restricted securities and has registration commitments with
respect to other securities issued by it. The Company's obligations generally
are to maintain such registrations for varying periods ranging generally from
nine months to two years at its expense, except for commissions and legal costs
incurred by selling stockholders. In addition to the Registration Statement of
which this Prospectus is a part, the Company has filed registration statements
covering an aggregate of 6,994,884 shares of Common Stock that may be offered
from time to time by the stockholders named in such registration statements or
that may be sold by the Company upon exercise of certain outstanding warrants
and options. The Company has also registered 8,100,000 shares of Common Stock
that may be issued pursuant to employee benefit plans. At July 19, 1996, the
Company had registration commitments with respect to another 6,569,176 shares
of Common Stock that were outstanding or that may be acquired pursuant to
warrants and options and convertible securities that were exercisable or
convertible within 60 days, and, as a result of the warrant issued to a
representative of the
17
<PAGE> 19
underwriters in the Series A Preferred Stock offering, with respect to 140,000
shares of Series A Preferred Stock or 253,624 shares of Common Stock or some
combination of those securities. The Company believes that the presence of
options or warrants, with exercise prices less than the prevailing market price
of the Common Stock, and the possibility of, as well as actual, sales of shares
of Common Stock under Rule 144, pursuant to registration statements and
otherwise in all likelihood may have an adverse effect on the market price of
the Common Stock and on the Company's ability to raise future equity capital.
IMPACT OF OFFERINGS AND ACQUISITIONS ON NET OPERATING LOSS CARRYFORWARDS
As a result of the issuance of the Series A Preferred Stock, the
issuance of securities in acquisitions and the sale of shares by certain
stockholders, the utilization of the Company's net operating loss carryforward
of approximately $32.2 million at December 31, 1995 is subject to the
limitations and expiration periods imposed by Section 382 and other provisions
of the Internal Revenue Code, thereby increasing the probability that all or a
portion may expire before utilization.
INVESTIGATION
The Company was advised in 1994 that it was the subject of an
investigation being conducted by the Securities and Exchange Commission and the
U.S. Attorney's Office in the Southern District of New York which the Company
understood was focusing on certain accounting issues, including questions
relating to capitalization of software and pooling-of-interests accounting
treatment for certain acquisitions, and certain other matters relating to
activities during the years 1992 and 1993. The Company has been cooperating
with the investigation. Although there can be no assurance as to the outcome,
the Company believes that the investigation will not have any adverse material
effect on its operations.
In response to the government investigation, the Board of Directors of
the Company appointed a Special Investigation Committee consisting of two
independent directors and retained special counsel, Morgan, Lewis & Bockius, to
conduct an internal investigation. Morgan, Lewis & Bockius in turn retained
Price Waterhouse LLP to assist it with accounting issues. The internal
investigation was completed in March 1995. As a result, the Company reported
certain accounting adjustments to its 1993 quarterly financial results that
reflect revenue recognition adjustments at two subsidiaries which had no effect
on the Company's annual results for 1993 as originally reported. The
adjustments caused revenue for the first, second and third quarters of 1993 to
decrease from $7,216,000, $7,362,000 and $7,853,000 to $6,507,000, $7,375,000
and $7,087,000, and revenue for the fourth quarter of 1993 to increase from
$11,638,000 to $13,100,000. The adjustments caused net loss for the first,
second and third quarters of 1993 to increase from $288,000, $588,000 and
$554,000 to $432,000, $731,000 and $803,000, and net loss for the fourth
quarter of 1993 to decrease from $29,388,000 to $28,852,000. The Company also
reported that the internal investigation raised issues concerning the
accounting treatment of four business combinations which occurred in 1992 and
the accounting treatment of costs associated with software development incurred
during 1992. If the business combinations had been accounted for using the
purchase method rather than the pooling-of-interests method, and capitalized
software development costs had been adjusted, the effect would have been to
reduce 1992 revenues from $28 million to $23 million and to increase 1992 net
loss from $465,000 to $977,000. The Company believes these adjustments do not
have a material effect on its 1993, 1994 or 1995 year-end financial statements
or its current financial condition or results of operations.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth, as of June 30, 1996, the capitalization of the
Company (including loan capital).
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
(in thousands, except share amounts)
<S> <C> <C>
Short-Term Debt:
Bank credit facilities. . . . . . . . . . . . . . . . . . . 732
2,094
-----
Other notes payable. . . . . . . . . . . . . . . . . . . . 2,826
Total Short-Term Debt. . . . . . . . . . . . . . . . . . .
Long-Term Debt and Obligations
Under Capital Leases. . . . . . . . . . . . . . . . . . . 845
Series F Preferred Stock, 1,792,186
shares outstanding . . . . . . . . . . . . . . . . . . . . 15,757
Stockholders' Equity:
Preferred stock, par value $.0001 per share,
20,000,000 shares authorized. . . . . . . . . . . . . . .
Series A Preferred Stock, 1,605,025 shares
outstanding. . . . . . . . . . . . . . . . . . . . . .
Series E Preferred Stock, 2 shares
outstanding. . . . . . . . . . . . . . . . . . . . . .
Series H Preferred Stock, 300 shares
outstanding. . . . . . . . . . . . . . . . . . . . . .
Series I Preferred Stock, 300 shares outstanding
Common stock, par value $.0001 per share,
50,000,000 shares authorized; 21,030,428
shares outstanding . . . . . . . . . . . . . . . . . . . . 2
Additional paid in capital. . . . . . . . . . . . . . . . . 115,083
Accumulated deficit. . . . . . . . . . . . . . . . . . . . (107,362)
Translation adjustment . . . . . . . . . . . . . . . . . . . 435
-------
Stockholders' Equity. . . . . . . . . . . . . . . . . . . 8,158
------
Total Capitalization. . . . . . . . . . . . . . . . . . . $27,586
======
</TABLE>
19
<PAGE> 21
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is quoted on Nasdaq-NMS under the symbol IMGX. Prior
to December 7, 1993, the Common Stock was quoted on the Nasdaq SmallCap Market.
The following table indicates, for each calendar quarter from January 1, 1994,
the high and low sale prices for the Common Stock as reported by Nasdaq (which
reflect interdealer prices without retail mark-up, mark-down or commission and
may not represent actual transactions).
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
PERIOD HIGH LOW
- -----------------------------------------------------------------------------------------
<S> <C> <C>
1994 -- First Quarter . . . . . . . . . . . . . . . . . 13 9
-- Second Quarter . . . . . . . . . . . . . . . . 10 7 3/4
-- Third Quarter . . . . . . . . . . . . . . . . . 9 3/4 5 3/4
-- Fourth Quarter . . . . . . . . . . . . . . . . 8 3
1995 -- First Quarter . . . . . . . . . . . . . . . . . 4 3/4 2
-- Second Quarter . . . . . . . . . . . . . . . . 5 7/16 3
-- Third Quarter . . . . . . . . . . . . . . . . 7 3/4 4
-- Fourth Quarter . . . . . . . . . . . . . . . . 5 1/8 2 13/16
1996 -- First Quarter . . . . . . . . . . . . . . . . 5 5/8 3 5/16
-- Second Quarter . . . . . . . . . . . . . . . 5 5/8 3 5/16
-- Third Quarter (through July 19, 1996) . . . . 5 1/16 3 13/16
</TABLE>
On July 19, 1996, the closing sale price for the Common Stock as
reported by Nasdaq was $4 5/16 . As of that date the Company had approximately
370 holders of record of its Common Stock, and, based on information supplied
by certain of such holders of record, the Company estimates that as of such
date there were approximately 7,500 beneficial owners of its Common Stock.
The Company has not paid any cash dividends on its Common Stock since
its inception and does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. For the annual dividend requirements on the
Company's preferred stocks, see "Risk Factors -- Inadequate Dividend Coverage."
The Company's future earnings, if any, may not be adequate for the payment of
dividends on its preferred stocks, in which event such dividends may be paid
out of the Company's then surplus (the Company's net assets minus the aggregate
par or stated value of the outstanding shares of the Company's capital stock),
if any.
20
<PAGE> 22
DESCRIPTION OF SECURITIES
The following statements with respect to the Company's securities are
subject to, and qualified in their entirety by reference to, the detailed
provisions of the Company's Certificate of Incorporation and Bylaws and the
resolutions adopted by the Board of Directors of the Company establishing the
rights, preferences, privileges and restrictions relating to the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock,
the Series E Preferred Stock, the Series F Preferred Stock, the Series H
Preferred Stock, and Series I Preferred Stock as filed under Delaware law (the
"Certificates of Designations").
AUTHORIZED STOCK
The Company is authorized to issue up to 50,000,000 shares of Common Stock,
$.0001 par value, of which 21,050,428 shares were outstanding at July 19, 1996,
and 3,397,813 shares of preferred stock, $.0001 par value (the "Preferred
Stock"), of which 1,605,025 shares of Series A Preferred Stock, two shares of
Series E Preferred Stock, 1,792,186 shares of Series F Preferred Stock, 300
shares of Series H Preferred Stock, and 300 shares of Series I Preferred Stock
were outstanding on that date.
COMMON STOCK
All holders of Common Stock are entitled to one vote per share on any
matter coming before the stockholders for a vote, unless the matter is one upon
which by express provision of law a different vote is required. The Common
Stock does not have cumulative voting rights, which means, in effect, that
holders of more than 50% of the shares can generally elect all the directors.
Each holder of Common Stock is entitled to receive ratably such
dividends on the Common Stock as may be declared by the Board of Directors out
of funds legally available therefor and, in the event of the liquidation,
dissolution or winding up of the Company, is entitled to share ratably in all
assets of the Company remaining after payment of liabilities and payment of
amounts due to holders of capital stock senior to the Common Stock. The Board
of Directors may not declare dividends payable to holders of Common Stock
unless and until all accrued cash dividends through the most recent past
Dividend Payment Date have been paid in full to holders of the Series A and F
Preferred Stocks. Holders of Common Stock have no conversion, preemptive or
other rights to subscribe for additional shares, and there are no redemption
rights or sinking fund provisions with respect to the Common Stock. The
outstanding shares of Common Stock are validly issued, fully paid and
nonassessable.
The Company has never paid any dividends on the Common Stock and does
not anticipate paying any such dividends in the foreseeable future.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to
establish and designate the classes, series, voting powers, designations,
preferences and relative, participating, optional or other rights, and such
qualifications, limitations and restrictions of the Preferred Stock as the
Board, in its sole discretion, may determine without further vote or action by
the stockholders.
The rights, preferences, privileges, and restrictions or
qualifications of different series of Preferred Stock may differ with respect
to dividend rates, amounts payable on liquidation, voting rights, conversion
rights, redemption provisions, sinking fund provisions, and other matters. The
issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to holders of
21
<PAGE> 23
Common Stock or could adversely affect the rights and powers, including voting
rights, of holders of Common Stock.
The existence of the Preferred Stock, and the power of the Board of
Directors of the Company to set its terms and issue a series of Preferred Stock
at any time without stockholder approval, could have certain anti-takeover
effects. These effects include that of making the Company a less attractive
target for a "hostile" takeover bid or rendering more difficult or discouraging
the making of a merger proposal, assumption of control through the acquisition
of a large block of Common Stock or removal of incumbent management, even if
such actions could be beneficial to the stockholders of the Company.
SERIES A PREFERRED STOCK
The issuance of up to 1,750,000 shares of Series A Preferred Stock has
been authorized and 1,605,025 shares are outstanding. The Series A Preferred
Stock has a liquidation preference of $25.00 per share. It is convertible into
Common Stock at any time prior to redemption at the rate of 1.8116 shares of
Common Stock for each share of Series A Preferred Stock (an effective
conversion price of $13.80 per share), and upon 30 days written notice after
December 7, 1996, is redeemable by the Company at $25.00 per share, plus
accumulated and unpaid dividends, and exchangeable by the Company for Common
Stock having a current market price of $25.00 per share, provided in each case
that the closing bid price of the Common Stock for at least 20 consecutive
trading days ending not more than 10 trading days prior to the date notice of
the call for redemption or notice of exchange is given is at least $18.00 per
share, or after December 7, 1997, at the cash redemption prices (ranging from
$26.75 to $25.00) set forth in the Certificate of Designations, plus
accumulated and unpaid dividends. The Company may not redeem by exchange
unless all accumulated and unpaid dividends have been paid or funds for payment
have been set aside. Cumulative dividends on the Series A Preferred Stock at
the rate of $2.00 per share per annum are payable quarterly, out of funds
legally available therefor, on January 31, April 30, July 31 and October 31 of
each year, commencing January 31, 1994. Failure to pay any quarterly dividend
will result in a reduction of $.50 per share in the conversion price. If the
Company fails to pay dividends on the Series A Preferred Stock for four
quarterly dividend payment periods, holders of Series A Preferred Stock voting
separately as a class will be entitled to elect one director; such voting
rights will be terminated as of the next annual meeting of stockholders
following payment of all accrued dividends. The Series A Preferred Stock is
senior to the Series E, F, H and I Preferred Stocks. The Company is not
subject to any mandatory redemption or sinking fund provision with respect to
Series A Preferred Stock. The holders of the Series A Preferred Stock are not
entitled to preemptive rights to subscribe for or to purchase any shares or
securities of any class which may at any time be issued, sold or offered for
sale by the Company. Shares of Series A Preferred Stock redeemed or otherwise
reacquired by the Company shall be retired by the Company and shall be
unavailable for subsequent issuance as Series A Preferred Stock.
ACQUISITION PREFERRED STOCK
In connection with the acquisition of Dorotech, the Company issued
2,092,186 shares of Series B Preferred Stock to a corporate stockholder of
Dorotech. The Series B Preferred Stock was entitled to the same cash dividends
as were paid on the Common Stock, if any, was convertible into Common Stock
commencing six months after it was issued on a share for share basis (subject
to anti-dilution adjustments), had a liquidation value of $9.00 per share, and
had no voting rights, except those required by law. Four series of Series B
Preferred Stock were authorized, and all had substantially the same terms.
Each of the first three series provided that if it had not been transferred by
the original holder to an unaffiliated third party prior to the time it became
convertible at the end of a six-month period following its issuance, it would
have been automatically exchanged for the next series, unless the holder
elected otherwise by
22
<PAGE> 24
prior written notice to the Company. The fourth series provided that
immediately prior to the time it became convertible, it would have been
redeemed by the Company for $9.00 per share, unless the holder had transferred
the shares to an unaffiliated third party or elected not to redeem by prior
written notice to the Company. Any shares of any of the Series B Preferred
Stock transferred by the original holder to an unaffiliated third party would
thereafter have been redeemable by the Company for Common Stock at the
conversion rate in effect at the time of redemption. The Series B Preferred
Stock was junior to the Series A Preferred Stock.
The original holder converted 300,000 shares of the Series B Preferred
Stock into Common Stock in April 1994. In July 1994, the Company entered into
an agreement with the holder and an affiliate of the holder, which was a
prospective transferee of the Series B Preferred Stock and the Common Stock, in
which the holder and the affiliate agreed, among other things, to extend the
cash redemption date for the Preferred Stock from October 1, 1995 to October 1,
1996. In order to accomplish the extension, the Company agreed to offer to
exchange a Series C Preferred Stock for the Series B Preferred Stock and the
holder of the Series B Preferred Stock and its affiliate agreed to accept the
exchange. The provisions of the Series C Preferred Stock and the Series B
Preferred Stock (collectively, the "Acquisition Preferred Stock") were the same
in all material respects except for the cash redemption date.
In March 1996, the Company and the holder of the Acquisition Preferred
Stock exchanged the Acquisition Preferred Stock for 1,792,186 shares of Series
F Preferred Stock and in connection therewith all authorized shares of the
Acquisition Preferred Stock were returned to the status of authorized preferred
stock of the Company of no designated class or series. The Series F Preferred
Stock is junior to the Series A and E Preferred Stocks. In connection with the
exchange, the Company paid the holder a fee of $650,000 plus expenses and
agreed to obtain the consent of the holder prior to issuing any unsecured
long-term debt, extend registration rights to June 30, 1999, assist the holder
with a private placement of the Series F Preferred Stock or the Common Stock
into which it is convertible, and extend observer rights to the holder with
respect to regular meetings of the Board of Directors of the Company. The
Series F Preferred Stock has no voting rights, except with respect to the
issuance of senior and parity securities, the redemption of parity and junior
securities and other matters required by law. It is convertible into Common
Stock six months after it is issued on a share for share basis (subject to
antidilution adjustments). Four series of Series F Preferred Stock have been
authorized, and all have substantially the same terms. Each of the first three
series provides that, at the end of the six month period following its
issuance, it will be automatically exchanged for the next series, unless the
holder elects otherwise by prior written notice to the Company. The fourth
series provides that it will be redeemed by the Company on January 2, 1998 for
$9 per share plus accrued and unpaid dividends (the "Redemption Price"), unless
the holder elects not to redeem by prior written notice to the Company.
Beginning October 1, 1996 the Series F Preferred Stock is entitled to receive
dividends in an amount equal to the greater of 10% per annum or the annual rate
of any dividend paid on the Company's Common Stock. Dividends will accrue
daily and be payable on the last day of June, September, December and March
commencing on December 31, 1996.
In the event of a change in control of the Company, the Series F
Preferred Stock becomes convertible and the then holder of the Series F
Preferred Stock may elect to redeem at the Redemption Price; provided, however,
that if the acquiror has a class of securities registered pursuant to section
12 of the Securities Exchange Act of 1934 and has outstanding voting stock held
by non-affiliates with an aggregate market value of at least $100 million and
if the Company agrees to pay the holder in cash the excess, if any, of the
Redemption Price over the transaction consideration, the holder will not be
entitled to redemption and will be deemed to have elected to convert the Series
F Preferred Stock. A change in control is deemed to occur if substantially all
the assets of the Company are sold, if the Company is merged or consolidated
with another corporation, if any person acquires 50% or more of the Company's
outstanding voting securities or if during any period of two consecutive years
individuals who at the
23
<PAGE> 25
beginning of such period constitute the Board of Directors of the Company cease
for any reason to constitute at least a majority thereof, unless the election
of each director who was not a director at the beginning of such period has
been approved in advance by directors representing at least a majority of the
directors who were directors at the beginning of the period or whose election
was previously so approved. For purposes of conversion, a change in control is
deemed to occur when the Company enters into an agreement to merge, consolidate
or sell substantially all its assets or when a tender offer is commenced for
50% or more of the outstanding voting securities of the Company. The then
holders of the Series F Preferred Stock may also redeem some or all of the
Series F Preferred Stock if the Company is in arrears with respect to two
quarterly dividend payments or defaults in its agreements relating to Board
observer status, the issuance of long-term debt or the extension of voting
rights to the Series F Preferred Stock holders.
SERIES E PREFERRED STOCK
The issuance of up to 800 shares of Series E Preferred Stock was
authorized, and the Company issued 258 shares, all but two of which have been
converted into Common Stock. The Series E Preferred Stock has a per share
liquidation preference, subject to the liquidation preferences of the Series A
Preferred Stock, of an amount per share equal to the sum of $10,000 plus 12%
per annum simple interest thereon for the period since the date of issuance.
Each share is convertible at the option of the holder into the number of shares
of Common Stock determined by dividing an amount equal to the initial purchase
price of $10,000 plus 8% thereon per annum by the lesser of the closing bid
price of the Common Stock on the date of original issuance of the Series E
Preferred Stock ($6.00) or 85% of the average closing bid price of the Common
Stock for the five trading days immediately preceding the conversion (the
"Conversion Shares"). The Company may, commencing on July 21, 1996, require
conversion. The Series E Preferred Stock, subject to the rights of Series A
Preferred Stock regarding redemption, is redeemable by the Company when
submitted by its holder for conversion at a price per share equal to the amount
determined by multiplying the number of Conversion Shares by the closing bid
price on the date of conversion. The Series E Preferred Stock is non-dividend
paying. The Company is not subject to any mandatory redemption or sinking fund
provision with respect to the Series E Preferred Stock. Shares of Series E
Preferred Stock redeemed or otherwise reacquired by the Company shall be
retired by the Company and shall be unavailable for subsequent issuance as
Series E Preferred Stock.
24
<PAGE> 26
SERIES H PREFERRED STOCK
The issuance of up to 300 shares of Series H Preferred Stock was
authorized, and the Company issued 300 shares, none of which have been
converted into Common Stock. The Series H Preferred Stock has a per share
liquidation preference, subject to the liquidation preferences of the Series A
Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock,
of an amount per share equal to the sum of $10,000 plus 12% per annum simple
interest thereon for the period since the date of issuance. Each share is
convertible at the option of the holder into the number of shares of Common
Stock determined by dividing an amount equal to the initial purchase price of
$10,000 by $3.50. Commencing on December 27, 1996, the Company may redeem the
shares at the initial purchase price, if the holder does not exercise his
conversion rights, and the holder may submit the shares for redemption at that
price, in which case the Company may elect to pay the cash redemption price or
issue a number of shares of Common stock equal to that price, with the value of
the Common Stock being determined by its average closing bid price for the five
trading days immediately preceding the notice of redemption (the "Average Bid
Price"). The Series H Preferred Stock has a dividend rate of 8% which is
payable at the time of conversion or redemption in cash or shares of Common
Stock, as elected by the Company, with the value of the Common Stock being
determined by the Average Bid Price. The Company is not subject to any
mandatory redemption or sinking fund provision with respect to the Series H
Preferred Stock. Shares of Series H Preferred Stock redeemed or otherwise
reacquired by the Company shall be retired by the Company and shall be
unavailable for subsequent issuance as Series H Preferred Stock.
SERIES I PREFERRED STOCK
The issuance of up to 300 shares of Series I Preferred Stock was
authorized, and the Company issued 300 shares, none of which have been
converted into Common Stock. The Series I Preferred Stock has a per share
liquidation preference, subject to the liquidation preferences of the Series A
Preferred Stock, the Series E Preferred Stock , the Series F Preferred Stock,
and the Series H Preferred Stock, of an amount per share equal to the sum of
$10,000 plus an amount equal to accrued but unpaid dividends per share since
the date of issuance. Each share is convertible at the option of the holder
into the number of shares of Common Stock ("Conversion Shares") determined by
dividing an amount equal to the initial purchase price of $10,000 by the lesser
of $4.00 and 81% of the average closing bid for the Common Stock for the five
trading days immediately preceding the conversion (the "Average Bid Price").
The Company may, commencing on June 28, 1997, require conversion if the Series
I Preferred Stock and underlying Common Stock have been registered under the
Securities Act for at least ten trading days. When the Average Bid Price is
less than $4.00, the Company, subject to the rights of senior securities
regarding redemption, may redeem shares of Series I Preferred Stock submitted
for conversion at a price per share equal to the amount determined by
multiplying the number of Conversion Shares by the Average Bid Price. The
Series I Preferred Stock has a dividend rate of 6% which is payable at the time
of conversion or redemption in cash or shares of Common Stock, as elected by
the Company. The Company is not subject to any mandatory redemption or sinking
fund provision with respect to the Series I Preferred Stock. Shares of Series
I Preferred Stock redeemed or otherwise reacquired by the Company shall be
retired by the Company and shall be unavailable for subsequent issuance as
Series I Preferred Stock.
LIMITATION OF LIABILITY
Pursuant to the Company's Certificate of Incorporation and under
Delaware law, directors of the Company are not liable for monetary damages for
breach of their fiduciary duty as directors except (i) for a breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions by
25
<PAGE> 27
the director not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for a willful or negligent declaration of an
unlawful dividend, stock purchase or redemption or (iv) for transactions from
which the director derived an improper personal benefit.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock and Series A
Preferred Stock is American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005.
26
<PAGE> 28
SELLING STOCKHOLDER
The following table sets forth as of July 19, 1996, information
regarding the beneficial ownership of Series I Preferred Stock held by the
Selling Stockholder. Except as otherwise noted, the Company believes, based on
information furnished by the Selling Stockholder, that all shares are
beneficially owned, and sole voting and investment power is held, by the person
named.
<TABLE>
<CAPTION>
NAME SHARES BENEFICIALLY SHARES TO BE SHARES BENEFICIALLY
OF SELLING OWNED PRIOR TO SOLD IN OWNED AFTER
STOCKHOLDER SECURITY OFFERING OFFERING OFFERING
- ------------- -------- ------------- ----------- ------------------
NUMBER PERCENT NUMBER PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Newsun Limited Series I 300 100 300 0 0
Common Stock 2,250,000 10 2,250,000 0 0
</TABLE>
Newsun Limited ("Newsun") acquired an aggregate of 300 shares
of Series I Preferred Stock directly from the Company in a private offering.
The Series I Preferred Stock is convertible into Common Stock on the effective
date of the Registration Statement of which this Prospectus is a part or August
27, 1996, if earlier, at a rate determined by a formula set forth in the
Certificate of Designation for the Series I Preferred Stock (the "Formula").
The Company may also elect to issue Common Stock in payment of the dividend due
upon conversion of the Series I Preferred Stock. See "Description of
Securities-Series I Preferred Stock." The Formula provided for the issuance of
767,598 shares of Common Stock upon conversion of the Series I Preferred Stock
at the time it was issued. The Company agreed to register an aggregate of
2,250,000 shares of Common Stock in case the future application of the Formula
should require the issuance of a greater number of shares. This Prospectus
covers the sale by Newsun of the shares of Series I Preferred Stock which it
acquired from the Company and the shares of Common Stock which it may acquire
upon the conversion of the Series I Preferred Stock.
PLAN OF DISTRIBUTION
The Shares registered on behalf of the Selling Stockholder may be sold
from time to time by the Selling Stockholder, or by pledgees, donees,
transferees or other successors in interest, in one or more transactions on the
Nasdaq-NMS, in negotiated transactions or otherwise at market prices prevailing
at the time of sale, at prices related to such market prices or at prices
otherwise negotiated. In addition, any Shares that qualify for sale under the
Securities Act pursuant to Rule 144 thereunder may be sold under Rule 144
rather than pursuant hereto.
The Selling Stockholder may sell some or all of the Shares in
transactions involving broker-dealers, who may act as agent or acquire the
Shares as principal. Any broker-dealer participating in such transactions as
agent may receive commissions from the Selling Stockholder (and, if the
broker-dealer acts as agent for the purchaser of such Shares, from such
purchaser). Broker-dealers may agree with the Selling Stockholder to sell a
specified number of Shares at a stipulated price per Share and, to the extent
such broker-dealers are unable to do so acting as agents for the Selling
Stockholder, to purchase as
27
<PAGE> 29
principals any unsold Shares at the price required to fulfill the respective
broker-dealer's commitment to the Selling Stockholder. Broker-dealers who
acquire Shares as principals may thereafter resell such Shares from time to
time in transactions (which may involve cross and block transactions and which
may involve sales to and through other broker-dealers, including transactions
of the nature described above) in the over-the-counter market, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale, at
prices related to such market prices or at negotiated prices, and in connection
with such resales may pay to or receive from the purchasers of such Shares
commissions. The Selling Stockholder also may sell some or all of the Shares
directly to purchasers without the assistance of any broker-dealer. At the
time a particular offer of the Shares is made, if required, a supplement to the
Prospectus will be distributed, or a post-effective amendment to the
registration statement will be filed, which will set forth the number of shares
of Common Stock being offered and the terms of the offering, including the
purchase price, public offering price, name or names of any agents, dealers or
underwriters, any discounts, commissions and other items constituting
compensation from the Selling Stockholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers.
The Company is bearing all costs relating to the registration
of the Shares, except for commissions and discounts and fees payable to
broker-dealers or underwriters.
Under applicable rules and regulations under the Exchange Act,
any person engaged in a distribution of the Shares may be limited in its
ability to engage in market activities with respect to shares of Common Stock.
In addition and without limiting the foregoing, the Selling Stockholder will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, rules 10b-5, 10b-6 and
10b-7, which provisions may limit the timing of purchases and sales of any of
the Shares.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has
been passed upon for the Company by Jones & Blouch L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements incorporated in this
Prospectus by reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
28
<PAGE> 30
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable in connection with
the registration of the Common Stock that is the subject of this Registration
Statement, all of which shall be borne by the Company. All the amounts shown
are estimates except for the Securities and Exchange Commission registration
fee.
<TABLE>
<CAPTION>
To Be Paid By
Registrant
--------------
<S> <C>
Securities and Exchange Commission registration fee . . . . . . . . . . . . . . $ 2,940.52
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,000.00
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,500.00
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,440.52
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware General Corporation Law, Section 102(b)(7), enables a
corporation in its certificate of incorporation to eliminate or limit personal
liability of members of its Board of Directors for monetary damages for breach
of a director's fiduciary duty of care. The elimination or limitation does not
apply where there has been a breach of the duty of loyalty, failure to act in
good faith, engaging in intentional misconduct or knowingly violating a law,
paying a dividend or approving a stock repurchase which was deemed illegal or
obtaining an improper personal benefit. The Company's Certificate of
Incorporation provides that directors "shall be excused from liability to the
fullest extent permitted by Delaware law," as now in effect or as subsequently
amended.
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware law to indemnify directors and officers with respect
to any matter in which the director or officer acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful. The Bylaws of the
Company include comparable provisions.
Directors and officers are also insured against certain liabilities
under a directors and officers' liability insurance policy maintained by the
Company.
ITEM 16. EXHIBITS.
(a) The following is a list of exhibits furnished:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
-------- -------
<S> <C>
4 -- Series I - Certificate of Designation
5 -- Opinion of Jones & Blouch L.L.P. as to the legality of the
registered securities.
</TABLE>
II-1
<PAGE> 31
<TABLE>
<S> <C>
12 -- Statements of computation of ratio of pro forma earnings to combined
pro forma fixed charges and preferred dividend.
23.1 -- Consent of Price Waterhouse LLP.
23.2 -- Consent of Jones & Blouch L.L.P. (contained in opinion filed as Exhibit 5).
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any
additional or changed material information on the plan of distribution.
(2) For the purpose of determining any liability under the Securities Act
of 1933, that each post-effective amendment 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.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) That, for purposes 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 Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions set forth in response to Item
15, 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 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 Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE> 32
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 County of Fairfax, Commonwealth of Virginia, on July 30,
1996.
Network Imaging Corporation
By:/s/ James J. Leto
-----------------------
James J. Leto
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
- --------------------- Director, President and
James J. Leto Chief Executive Officer July 30, 1996
- ----------------------
Robert P. Bernardi Chairman of the Board July 30, 1996
- -----------------------
John F. Burton Director July 30, 1996
- -----------------------
C. Alan Peyser Director July 30, 1996
- ----------------------
Robert Ripp Director July 30, 1996
Vice President of Finance and
Administration, Chief Financial
- ---------------------- Officer and Treasurer (Principal
Jorge R. Forgues Accounting Officer) July 30, 1996
</TABLE>
II-3
<PAGE> 1
EXHIBIT 4
CERTIFICATE OF DESIGNATION OF
SERIES I CONVERTIBLE PREFERRED STOCK OF
NETWORK IMAGING CORPORATION
The undersigned, James J. Leto and Robert P. Bernardi,
hereby certify that:
I. They are the duly elected and acting President
and Secretary, respectively, of Network Imaging Corporation, a
Delaware corporation (the "Company").
II. The Certificate of Incorporation of the Company
authorizes 20,000,000 shares of preferred stock, par value $.0001
per share, of which the following have been authorized and are
issued and outstanding: Series A Cumulative Convertible Preferred
Stock, 1,750,000 authorized and 1,605,025 outstanding; Series E
Convertible Preferred Stock, 2 authorized and 2 outstanding; Series
F-1, F-2, F-3 or F-4 Convertible Preferred Stock, 1,792,186
authorized and 1,792,186 of Series F-1 Convertible Preferred Stock
outstanding; and Series H Convertible Preferred Stock, 300
authorized and 300 outstanding.
III. The following is a true and correct copy of
resolutions duly adopted by the Board of Directors at a meeting
duly held June 27, 1996, which constituted all requisite
action on the part of the Company for adoption of such resolutions.
RESOLUTIONS
WHEREAS, the Board of Directors of the Company (the
"Board of Directors") is authorized to provide for the issuance of
the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designations, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof;
WHEREAS, the Board of Directors desires, pursuant to
its authority as aforesaid, to designate a new series of preferred
stock, set the number of shares constituting such series and fix
<PAGE> 2
the rights, preferences, privileges and restrictions of such
series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of
Directors hereby designates a new series of preferred stock and the
number of shares constituting such series and fixes the rights,
preferences, privileges and restrictions relating to such series as
follows:
Section 1. Designation, Amount and Par Value. The
series of Preferred Stock shall be designated as the Series I
Convertible Preferred Stock (the "Preferred Stock"), and the number
of shares so designated shall be 300. The par value of each share
of Preferred Stock shall be $.0001. Each share of Preferred Stock
shall have a stated value of $10,000 per share (the "Stated
Value").
Section 2. Dividends.
(a) Holders of Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors out of
funds legally available therefor, and the Company shall pay,
cumulative dividends at the rate per share (as a percentage of the
Stated Value per share) equal to 6% per annum, payable, in cash or
shares of Common Stock, in arrears on the Conversion Date (as
hereinafter defined). Dividends on the Preferred Stock shall
accrue daily commencing the Original Issue Date (as defined in
Section 6) and shall be deemed to accrue on such date whether or
not earned or declared and whether or not there are profits,
surplus or other funds of the Company legally available for the
payment of dividends. The party that holds the Preferred Stock on
an applicable record date for any dividend payment will be entitled
to receive such dividend payment and any other accrued and unpaid
dividends which accrued prior to such dividend payment date,
without regard to any sale or disposition of such Preferred Stock
subsequent to the applicable record date but prior to the
applicable dividend payment date. Except as otherwise provided
herein, if at any time the Company pays less than the total amount
of dividends then accrued to any class of Preferred Stock, such
payment shall be distributed ratably among the holders of such
class based upon the number of shares held by each holder.
(b) So long as any Preferred shall remain
outstanding, neither the Company nor any subsidiary thereof shall
redeem, purchase or otherwise acquire directly or indirectly any
<PAGE> 3
Junior Securities (as defined in Section 6), nor shall the Company
directly or indirectly pay or declare any dividend or make any
distribution (other than a dividend or distribution described in
Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or
applied to the purchase or redemption (through a sinking fund or
otherwise) of any Junior Securities unless all dividends on the
Preferred Stock for all past dividend periods shall have been paid.
Section 3. Voting Rights. Except as otherwise
provided herein and as otherwise provided by law, the Preferred
Stock shall have no voting rights. However, so long as any shares
of Preferred Stock are outstanding, the Company shall not, without
theaffirmative vote of the holders of a majority of the shares of
the Preferred Stock then outstanding, (i) alter or change adversely
the powers, preferences or rights given to the Preferred Stock or
(ii) authorize or create any class of stock ranking as to dividends
or distribution of assets upon a Liquidation (as defined below) senior
to, prior to or pari passu with the Preferred Stock.
Section 4. Liquidation. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or
involuntary (a "Liquidation"), the holders of shares of Preferred
Stock shall be entitled to receive out of the assets of the
Company, whether such assets are capital or surplus, for each share
of Preferred Stock an amount equal to the Stated Value, plus an
amount equal to accrued but unpaid dividends per share, whether
declared or not, but without interest, before any distribution or
payment shall be made to the holders of any Junior Securities, and
if the assets of the Company shall be insufficient to pay in full
such amounts, then the entire assets to be distributed shall be
distributed among the holders of Preferred Stock ratably in
accordance with the respective amounts that would be payable
on such shares if all amounts payable thereon were paid in full.
A sale, conveyance or disposition of all or substantially all of
the assets of the Company or the effectuation by the Company of a
transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed of shall be
deemed a Liquidation; provided that, a consolidation or merger of
the Company with or into any other Company or Companies shall
not be treated as a Liquidation, but instead shall be subject to
the provisions of Section 5. The Company shall mail written notice
of any such liquidation, not less than 60 days prior to
the payment date stated therein, to each record holder of Preferred
Stock.
<PAGE> 4
Section 5. Conversion.
(a) Each share of Preferred Stock shall be
convertible into shares of Common Stock at the Conversion Ratio at
the option of the holder in whole or in part at any time after the
expiration of the earlier to occur of (i) 60 days after the
Original Issue Date and (ii) the date that the Commission declares
effective under the Securities Act the registration statement
contemplated by the Registration Rights Agreement, dated the
Original Issue Date (the "Registration Rights Agreement"), by and
between the Company and the original holder of Preferred Stock
relating to the Preferred Stock and the shares of Common Stock into
which the Preferred Stock is convertible in accordance with the
terms hereof. Any conversion under this Section 5(a) shall be of
a minimum amount of at least 10 shares of Preferred Stock. The
holder shall effect conversions by surrendering the certificate or
certificates representing the shares of Preferred Stock to be
converted to the Company, together with the form of conversion
notice attached hereto as Exhibit A (the "Holder Conversion
Notice") in the manner set forth in Section 5(j). Each Holder
Conversion Notice shall specify the number of shares of Preferred
Stock to be converted and the date on which such conversion is to
be effected, which date may not be prior to the date the Holder
delivers such Notice by facsimile (the "Holder Conversion Date").
Subject to Section 5(c) and, as to the original Holder (or its sole
designee), subject to Section 4.13 of the Purchase Agreement
(as defined in Section 6), each Holder Conversion Notice, once
given, shall be irrevocable. If the holder is converting less than
all shares of Preferred Stock represented by the certificate or
certificates tendered by the holder with the Holder Conversion
Notice, the Company shall promptly deliver to the holder a
certificate for such number of shares as have not been converted.
(b) Provided that ten (10) Trading Days shall have
elapsed from the date the Securities and Exchange Commission (the
"Commission") declared the registration statement contemplated by
the Registration Rights Agreement effective under the Securities
Act, each share of the Preferred Stock shall be convertible into
shares of Common Stock at the Conversion Ratio at the option of the
Company in whole or in part at any time on or after the expiration
of one year after the Original Issue Date; provided, however, that
the Company is not permitted to deliver a Company Conversion Notice
(as defined below) within 10 days of issuing any press release or
<PAGE> 5
other public statement relating to such conversion. The Company
shall effect such conversion by delivering to the holders of such
shares of Preferred Stock to be converted a written notice in the
form attached hereto as Exhibit B (the "Company Conversion
Notice"), which Company Conversion Notice, once given, shall be
irrevocable. Each Company Conversion Notice shall specify the
number of shares of Preferred Stock to be converted and the date on
which such conversion is to be effected, which date will be at
least one Trading Day after the date the Company delivers such
Notice by facsimile to the holder (the "Company Conversion Date").
The Company shall give such Company Conversion Notice in accordance
with Section 5(j) below at least one Trading Day before the Company
Conversion Date. Any such conversion shall be effected on a pro
rata basis among the holders of Preferred Stock. Upon the
conversion of shares of Preferred Stock pursuant to a Company
Conversion Notice, the holders of the Preferred Stock shall
surrender the certificates representing such shares at the office
of the Company or of any transfer agent for the Preferred Stock or
Common Stock. If the Company is converting less than all shares of
the Preferred, the Company shall, upon conversion of such shares
subject to such Company Conversion Notice and receipt of the
certificate or certificates representing such shares of Preferred
Stock deliver to the holder or holders a certificate for such
number of shares of Preferred Stock as have not been converted.
Each of a Holder Conversion Notice and a Company Conversion Notice
is sometimes referred to herein as a "Conversion Notice," and each
of a "Holder Conversion Date" and a "Company Conversion Date" is
sometimes referred to herein as a "Conversion Date."
(c) (i) If the average of the Per Share Market
Value for the five (5) Trading Days immediately preceding the date
that the Company receives any Holder Conversion Notice is less than
$4.00, then the Company shall have the right, exercisable by notice
to the tendering Holder by the close of business on the Business
Day following the Company's receipt of such Conversion Notice, to
redeem the Preferred Stock tendered for conversion pursuant to such
Holder Conversion Notice at a price equal to the product of (i)
the average of the Per Share Market Value for the five (5) Trading
Days immediately preceding the Conversion Date, (ii) the number of
shares of Preferred Stock which would then be converted but for
this section, and (iii) the Conversion Ratio, which redemption
price will be paid by the Company within ten (10) Business Days of
its receipt of such Holder Conversion Notice. If the Company fails
for any reason to pay such redemption price within such period, the
Company shall effect the conversion of Preferred Shares subject to
<PAGE> 6
such Holder Conversion Notice at the lesser of the Conversion Price
measured on the Conversion Date indicated in the Holder Conversion
Notice and the Conversion Price measured at the end of such ten
(10) Business Day period. The Holder shall have the right,
exercisable at any time when the Per Share Market Value is such
that the Company would have the right of redemption contemplated in
this section were it to receive a Holder Conversion Notice, to
deliver to the Company (by facsimile) a letter inquiring whether
the Company would exercise such redemption right if it received a
Holder Conversion Notice within five (5) calendar days of its
receipt of such letter, which such inquiry letter shall set forth
the number of shares that would be subject to such Holder
Conversion Notice. The Company shall respond to the inquiry letter
(by facsimile) by the close of business on the Business Day after
which it is received, which response shall be binding upon it with
respect to the Conversion Notice that is subject to such inquiry
letter. The Company shall be deemed to have waived its redemption
right if it fails for any reason to respond by facsimile to the
Holder delivering such inquiry letter by the close of business on
the Business Day after its receipt of the inquiry letter.
(ii) Not later than three Trading Days after
the Conversion Date, the Company will deliver to the holder (i) a
certificate or certificates which shall be free of restrictive
legends and trading restrictions (other than those then required by
law and as set forth in the Purchase Agreement, representing the
number of shares of Common Stock being acquired upon the conversion
of shares of Preferred Stock and (ii) one or more certificates
representing the number of shares of Preferred Stock not converted;
provided, however that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon
conversion of any shares of Preferred Stock until certificates
evidencing such shares of Preferred Stock are either delivered for
conversion to the Company or any transfer agent for the Preferred
Stock or Common Stock, or the holder notifies the Company
that such certificates have been lost, stolen or destroyed and
provides a bond (or other adequate security reasonably acceptable
to the Company) satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection therewith. The
Company shall, upon request of the holder, use its best efforts to
deliver any certificate or certificates required to be delivered by
the Company under this Section 5(c) electronically through
the Depository Trust Corporation or another established clearing
corporation performing similar functions. In the case of a
conversion pursuant to a Holder Conversion Notice, if
<PAGE> 7
such certificate or certificates are not delivered by the date
required under this Section 5(c), the holder shall be entitled by
written notice to the Company at any time on or before such
holder's receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall
immediately return the certificates representing the shares of
Preferred Stock tendered for conversion.
(d) (i) The conversion price for each share of
Preferred Stock (the "Conversion Price") in effect on any
Conversion Date shall be the lesser of (a) $4.00 and (b) 81% of the
average Per Share Market Value for the five (5) Trading Days
immediately preceding the Conversion Date; provided, however, if
the registration statement to be filed by the Company in accordance
with the Registration Rights Agreement is not declared effective by
the Commission for any reason by the Effective Date (as defined in
the Registration Rights Agreement), then for each of the first two
months after such Effective Date that such registration statement
shall not have been so declared effective, clause (b) above shall
be decreased by 2% (i.e., 79% at the end of the first such month
and 77% at the end of the second such month).
(ii) If the Company, at any time while any
shares of Preferred Stock are outstanding, (a) shall pay a stock
dividend or otherwise make a distribution or distributions on
shares of its Junior Securities payable in shares of its capital
stock (whether payable in shares of its Common Stock or of capital
stock of any class), (b) subdivide outstanding shares of Common
Stock into a larger number of shares, (c) combine outstanding
shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of
capital stock of the Company, the Conversion Price designated in
Section 5(d)(i) shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding
before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 5(d)(ii) shall become
effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any
shares of Preferred Stock are outstanding, shall issue rights or
warrants to all holders of Common Stock entitling them to subscribe
<PAGE> 8
for or purchase shares of Common Stock at a price per share less
than the Per Share Market Value of Common Stock at the record date
mentioned below, the Conversion Price designated in Section 5(d)(i)
shall be multiplied by a fraction, of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares,
if any) outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the numerator
shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights
or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at
such Per Share Market Value. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination
of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase
Common Stock the issuance of which resulted in an adjustment in the
Conversion Price designated in Section 5(d)(i) pursuant to this
Section 5(d)(iii), if any such right or warrant shall expire and
shall not have been exercised, the Conversion Price designated in
Section 5(d)(i) shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any
other adjustments in the Conversion Price made pursuant to the
provisions of this Section 5 after the issuance of such rights or
warrants) had the adjustment of the Conversion Price made upon the
issuance of such rights or warrants been made on the basis of
offering for subscription or purchase only that number of shares of
Common Stock actually purchased upon the exercise of such rights or
warrants actually exercised.
(iv) If the Company, at any time while shares
of Preferred Stock are outstanding, shall distribute to all holders
of Common Stock (and not to holders of Preferred Stock) evidences
of its indebtedness or assets or rights or warrants to subscribe
for or purchase any security (excluding those referred to in
Section 5(d)(iii) above) then in each such case the Conversion
Price at which each share of Preferred Stock shall thereafter be
convertible shall be determined by multiplying the Conversion Price
in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution
by a fraction of which the denominator shall be the Per Share
Market Value of Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Per Share
<PAGE> 9
Market Value of the Common Stock on such record date less the then
fair market value at such record date of the portion of such assets
or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by the Board of
Directors in good faith; provided, however that in the event of a
distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial
statements of the Company) (an "Appraiser") selected in good faith
by the holders of a majority in interest of the shares of Preferred
Stock; and provided, further that the Company, after receipt of the
determination by such Appraiser shall have the right to select an
additional Appraiser, in which case the fair market value shall be
equal to the average of the determinations by each such Appraiser.
In either case the adjustments shall be described in a statement
provided to all holders of Preferred Stock of the portion of assets
or evidences of indebtedness so distributed or such subscription
rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(v) All calculations under this Section 5
shall be made to the nearest cent or the nearest 1/100th of a
share, as the case may be.
(vi) Whenever the Conversion Price is adjusted
pursuant to Section 5(d)(ii),(iii), (iv) or (v), the Company shall
promptly mail to each holder of Preferred Stock, a notice setting
forth the Conversion Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment.
(vii) In case of any reclassification of the
Common Stock, any consolidation or merger of the Company with or
into another person, the sale or transfer of all or substantially
all of the assets of the Company or any compulsory share exchange
pursuant to which the Common Stock is converted into other
securities, cash or property, the holders of the Preferred Stock
then outstanding shall have the right thereafter to convert such
shares only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common
Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the holders of the Preferred Stock
shall be entitled upon such event to receive such amount of
<PAGE> 10
securities or property as the shares of the Common Stock of the
Company into which such shares of Preferred Stock could have been
converted immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange would have
been entitled. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to
continue to give to the holder of Preferred Stock the right to
receive the securities or property set forth in this Section
5(d)(vii) upon any conversion following such consolidation,
merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges.
(viii)If:
a. the Company shall declare a dividend
(or any other distribution) on its Common Stock; or
b. the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock;
or
c. the Company shall authorize the
granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class
or of any rights; or
d. the approval of any stockholders of
the Company shall be required in connection with any
reclassification of the Common Stock of the Company (other than a
subdivision or combination of the outstanding shares of Common
Stock), any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or property;
or
e. the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding-up of
the affairs of the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Preferred Stock, and
shall cause to be mailed to the holders of Preferred Stock at their
last addresses as they shall appear upon the stock books of the
<PAGE> 11
Company, at least 30 calendar days prior to the applicable record
or effective date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined,
or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall
be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution,
liquidation or winding-up; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to
be specified in such notice.
(e) If at any time conditions shall arise by reason
of action taken by the Company which in the opinion of the Board of
Directors are not adequately covered by the other provisions hereof
and which might materially and adversely affect the rights of the
holders of Preferred Stock (different than or distinguished from
the effect generally on rights of holders of any class of the
Company's capital stock) or if at any time any such conditions
are expected to arise by reason of any action contemplated by the
Company, the Company shall mail a written notice briefly describing
the action contemplated and the material adverse effects of such
action on the rights of the holders of Preferred Stock at least 30
calendar days prior to the effective date of such action, and an
Appraiser selected by the holders of majority in interest of the
Preferred Stock shall give its opinion as to the adjustment, if any
(not inconsistent with the standards established in this Section
5), of the Conversion Price (including, if necessary, any
adjustment as to the securities into which shares of Preferred
Stock may thereafter be convertible) and any distribution which is
or would be required to preserve without diluting the rights of the
holders of shares of Preferred Stock; provided, however, that the
Company, after receipt of the determination by such Appraiser,
shall have the right to select an additional Appraiser, in which
case the adjustment shall be equal to the average of the
adjustments recommended by each such Appraiser. The Board of
Directors shall make the adjustment recommended forthwith upon the
receipt of such opinion or opinions or the taking of any such
<PAGE> 12
action contemplated, as the case may be; provided, however, that no
such adjustment of the Conversion Price shall be made which in the
opinion of the Appraiser(s) giving the aforesaid opinion or
opinions would result in an increase of the Conversion Price to
more than the Conversion Price then in effect.
(f) The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued
Common Stock solely for the purpose of issuance upon conversion of
Preferred Stock as herein provided, free from preemptive rights or
any other actual contingent purchase rights of persons other than
the holders of Preferred Stock, such number of shares of Common
Stock as shall be issuable (taking into account the adjustments and
restrictions of Section 5(b) and Section 5(d) hereof) upon the
conversion of all outstanding shares of Preferred Stock. The
Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued
and fully paid and nonassessable.
(g) Upon a conversion hereunder the Company shall
not be required to issue stock certificates representing fractions
of shares of Common Stock, but may if otherwise permitted, make a
cash payment in respect of any final fraction of a share based on
the Per Share Market Value at such time. If the Company elects
not, or is unable, to make such a cash payment, the holder of a
share of Preferred Stock shall be entitled to receive, in lieu of
the final fraction of a share, one whole share of Common Stock.
(h) The issuance of certificates for shares of
Common Stock on conversion of Preferred Stock shall be made without
charge to the holders thereof for any documentary stamp or similar
taxes that may be payable in respect of the issue or delivery of
such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the holder of such shares
of Preferred Stock so converted and the Company shall not be
required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
(i) Shares of Preferred Stock converted into Common
Stock shall be canceled and shall have the status of authorized but
unissued shares of preferred stock.
<PAGE> 13
(j) Each Holder Conversion Notice shall be given by
facsimile and by mail, postage prepaid, addressed to the attention
of the Chief Financial Officer of the Company at the facsimile
telephone number and address of the principal place of business of
the Company. Each Company Conversion Notice shall be given by
facsimile and by mail, postage prepaid, addressed to each holder of
Preferred Stock at the facsimile telephone number and address of
such holder appearing on the books of the Company or provided to
the Company by such holder for the purpose of such Company
Conversion Notice, or if no such facsimile telephone number or
address appears or is so provided, at the principal place
of business of the holder. Any such notice shall be deemed given
and effective upon the earliest to occur of (i)(a) if such
Conversion Notice is delivered via facsimile at the facsimile
telephone number specified in this Section 5(j) prior to 4:30 p.m.
(Eastern Standard Time) on any date, such date (or, in the case of
a Company Conversion Notice, the next Trading Day) or such later
date as is specified in the Conversion Notice, and (b) if such
Conversion Notice is delivered via facsimile at the facsimile
telephone number specified in this Section 5(j) after 4:30 p.m.
(Eastern Standard Time) on any date, the next date (or, in the case
of a Company Conversion Notice, the next Trading Day after such
next day) or such later date as is specified in the Conversion
Notice, (ii) five days after deposit in the United States mails or
(iii) upon actual receipt by the party to whom such notice is
required to be given.
Section 6. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
"Common Stock" means shares now or hereafter
authorized of the class of Common Stock, par value $.0001, of the
Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of
which the numerator is Stated Value plus accrued but unpaid
dividends, and of which the denominator is the Conversion Price at
such time.
"Junior Securities" means the Common Stock and all
other equity securities of the Company, except the Company's Series
A Cumulative Convertible Preferred Stock, Series E Convertible
Preferred Stock, Series F-1, F-2, F-3 and F-4 Convertible Preferred
Stock, and Series H Convertible Preferred Stock.
<PAGE> 14
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the
number transfers of any particular shares of Preferred Stock and
regardless of the number of certificates which may be issued to
evidence such Preferred Stock.
"Per Share Market Value" means on any particular date
(a) the closing bid price per share of the Common Stock on such
date on The NASDAQ National Market or other stock exchange on which
the Common Stock has been listed or if there is no such price
on such date, then the closing bid price on such exchange on the
date nearest preceding such date, or (b) if the Common Stock is not
listed on The NASDAQ National Market or any stock exchange, the
closing bid for a share of Common Stock in the over-the-counter
market, as reported by the NASDAQ Stock Market at the close of
business on such date, or (c) if the Common Stock is not quoted on
the NASDAQ Stock Market, the closing bid price for a share of
Common Stock in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or similar organization or
agency succeeding to its functions of reporting prices), or (d) if
the Common Stock is no longer publicly traded the fair market
value of a share of Common Stock as determined by an Appraiser (as
defined in Section 5(d)(iv) above) selected in good faith by the
holders of a majority in interest of the shares of the Preferred
Stock; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an
additional Appraiser, in which case, the fair market value shall be
equal to the average of the determinations by each such Appraiser.
"Person" means a corporation, an association, a
partnership, organization, a business, an individual, a government
or political subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred
Stock Purchase Agreement, dated as of the Original Issue Date,
between the Company and the original holder of the Preferred Stock.
"Trading Day" means (a) a day on which the Common
Stock is traded on The NASDAQ National Market or principal stock
exchange on which the Common Stock has been listed, or (b) if the
Common Stock is not listed on The NASDAQ National Market or
any stock exchange, a day on which the Common Stock is traded in
the over-the-counter market, as reported by the NASDAQ Stock
<PAGE> 15
Market, or (c) if the Common Stock is not quoted on the NASDAQ
Stock Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices).
RESOLVED FURTHER, that the President and Secretary of
the Company be, and they hereby are, authorized and directed to
prepare, execute, verify, and file in Delaware, a Certificate of
Designation in accordance with these resolutions and as required
by law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 16
IN WITNESS WHEREOF, Network Imaging Corporation has
caused its corporate seal to be hereunto affixed and this
certificate to be signed by James J. Leto, its President, and
attested by Robert P. Bernardi, its Secretary, this 28th day of
June, 1996.
NETWORK IMAGING CORPORATION
By: /s/ James J. Leto
James J. Leto
President
Attest:
By: /s/ Robert P. Bernardi
Robert P. Bernardi
Secretary
<PAGE> 17
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder in order to Convert shares
of Preferred Stock)
The undersigned hereby irrevocably elects to convert the number of
shares of Series I Convertible Preferred Stock indicated below,
into shares of Common Stock, par value U.S.$.0001 per share (the
"Common Stock"), of Network Imaging Corporation (the "Company")
according to the conditions hereof, as of the date written below.
If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates
and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the Holder for any
conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect
Conversion
Number of shares of
Preferred Stock
to be Converted
Applicable Conversion
Price
Signature
Name:
Address:
<PAGE> 18
EXHIBIT B
NETWORK IMAGING CORPORATION
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of Network Imaging
Corporation (the "Company")
hereby notifies the addressee hereof that the Company hereby elects
to exercise its right to
convert
[ ] shares of its Series I Convertible Preferred Stock
held by the Holder into shares
of Common Stock, par value U.S.$.0001 per share (the "Common
Stock") of the Company
according to the terms hereof, as of the date written below. No
fee will be charged to the
Holder for any conversion hereunder, except for such transfer
taxes, if any which may be
incurred by the Company if shares are to be issued in the name of
a person other than the person
to whom this notice is addressed.
Conversion calculations:
Date to Effect
Conversion
Number of Shares of
Preferred Stock
to be Converted
Applicable Conversion
Price
Signature
Name:
Address:
<PAGE> 1
EXHIBIT 5
Jones & Blouch L.L.P.
Suite 405 West
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007-0805
July 30, 1996
Board of Directors
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, VA 20170
Gentlemen:
This firm has represented Network Imaging Corporation, a Delaware
corporation (the "Company"), in connection with the Company's
preparation and filing of the Company's Registration Statement on
Form S-3 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Act"), in which the Company is registering
for sale by Newsun Limited ("Newsun"): (i) 300 shares of Series I
Convertible Preferred Stock (the "Preferred Shares") that were
issued to Newsun in a private offering and (ii) up to 2,250,000
shares of Common Stock of the Company, par value $.0001 per share
(the "Common Shares"), that may be issued upon conversion of the
Preferred Shares or in payment of dividends thereon.
We are familiar with the Certificate of Incorporation and Bylaws,
as amended, of the Company, including the Certificate of
Designation of Series I Convertible Preferred Stock of the Company
(the "Certificate of Designation"), and with the corporate
proceedings taken by the Company in connection with the issuance of
the Preferred Shares.
Based upon a review of such documents and consideration of such
matters of law and fact as we deem appropriate, we are of the
opinion that:
1. The Preferred Shares have been legally issued by the Company
and are fully paid and nonassessable.
2. The Common Shares will be legally issued, fully paid and
nonassessable when issued in accordance with the Certificate of
Designation upon conversion of the Preferred Shares or in payment
of dividends thereon.
This opinion is provided solely for the benefit of the addressee
hereof and is not to be relied upon by any other person. We hereby
consent to the use of this opinion and to references to our firm in
the Registration Statement and any amendments thereto.
Very truly yours,
/s/ Jones & Blouch L.L.P.
<PAGE> 1
NETWORK IMAGING CORPORATION EXHIBIT 12
PRO FORMA FIXED CHARGE COVERAGE DEFICIENCY
Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
Pro Forma Historical
------------- -------------
(in thousands)
<S> <C> <C>
Net loss before tax:
Net loss $ (10,515) $ (11,605)
Income tax provision (benefit) (12) (12)
------------- -------------
(10,527) (11,617)
------------- -------------
Fixed charges:
Gross interest expense 149 178
Appropriate portion of rentals (1/3) 287 310
------------- -------------
436 488
------------- -------------
Income before income taxes and fixed charges $ (10,091) $ (11,129)
============= =============
Accretion of redeemable Series B preferred stock 1/ $ 279 $ 279
------------- -------------
Divided by 1-tax rate(34%)= 66% 423 423
Add: fixed charges 436 488
------------- -------------
Total fixed charges and preferred stock accretion
to redemption value 858 910
------------- -------------
Fixed charge coverage deficiency before Series A dividend $ (10,950) $ (12,040)
============= =============
Series A preferred stock dividend 2/ $ 1,605 $ 1,605
------------- -------------
Divided by 1-tax rate(34%)= 66% 2,432 2,432
------------- -------------
Fixed charge coverage deficiency after Series A dividend $ (13,382) $ (14,472)
============= =============
</TABLE>
1/ Represents accretion of 1,792,186 shares of Series B Preferred Stock
from its carrying value to its redemption value of $16,130,000.
2/ Represents Series A Cumulative Preferred Stock dividend on 1,605,025
shares at $2.00 per share per annum.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated March 29, 1996 appearing on Page F-2 of Network Imaging Corporation's
Annual Report on Form 10-K for the year ended December 31, 1995. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
- -----------------------
PRICE WATERHOUSE LLP
Washington, D.C.
July 26, 1996
