<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
-------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22970
NETWORK IMAGING CORPORATION
-----------------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 54-1590649
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S.Employer Identification No.)
incorporation or organization)
500 HUNTMAR PARK DRIVE, HERNDON, VIRGINIA 20170
------------------------------------------------
(Address of principal executive offices)
(703) 478-2260
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES /X/ / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of outstanding shares of the issuer's Common Stock, $.0001 par
value, as of July 19, 1996 was 21,057,428.
<PAGE> 2
NETWORK IMAGING CORPORATION
FORM 10-Q
Table of Contents
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1996
(unaudited) and December 31, 1995 2
Consolidated Statements of Operations (unaudited)
for the three months ended June 30, 1996 and 1995 3
Consolidated Statements of Operations (unaudited)
for the six months ended June 30, 1996 and 1995 4
Consolidated Statement of Changes in Stockholders' Equity 5
(unaudited) for the six months ended June 30, 1996
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
<PAGE> 3
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,413 $ 9,359
Short-term investments - restricted 551 3,052
Accounts and notes receivable, net 12,984 16,300
Inventories 2,645 3,464
Prepaid expenses and other 3,975 3,543
------------- ------------
Total current assets 30,568 35,718
Fixed assets, net 3,719 3,769
Long-term notes receivable, net 1,444 1,215
Software development costs and purchased technology, net 4,294 4,630
Goodwill, net 3,774 4,468
Other assets 160 164
------------- ------------
Total assets $ 43,959 $ 49,964
============= ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and obligations under capital leases $ 2,826 $ 5,365
Accounts payable 4,583 6,201
Accrued compensation and related expenses 2,273 2,638
Other accrued expenses 9,106 8,060
------------- ------------
Total current liabilities 18,788 22,264
Long-term debt and obligations under capital leases 845 1,264
Deferred income taxes 411 773
------------- ------------
Total liabilities 20,044 24,301
Commitments
Redeemable Series F preferred stock 15,757 15,478
Stockholders' equity:
Preferred stock, $.0001 par value, 20,000,000 shares authorized:
Series A 1,605,025 shares issued and outstanding
Series E 2 and 3 shares issued and outstanding
Series G none and 200 shares issued and outstanding
Series H 300 and none shares issued and outstanding
Series I 300 and none shares issued and outstanding
Common stock, $.0001 par value, 50,000,000
shares authorized; 21,030,428 and 18,637,226 shares
issued and outstanding 2 2
Additional paid-in-capital 115,083 105,065
Accumulated deficit (107,362) (95,757)
Translation adjustment 435 875
------------- ------------
Total stockholders' equity 8,158 10,185
------------- ------------
Total liabilities and stockholders' equity $ 43,959 $ 49,964
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Products $ 3,394 $ 14,417
Services 5,735 5,853
------------ ------------
9,129 20,270
------------ ------------
Costs and expenses:
Cost of products sold 2,367 9,419
Cost of services provided 4,001 3,392
Product development 1,702 1,972
Selling, general and administrative 7,548 10,777
Settlement with stockholder 0 892
Loss on closure and sale of subsidiaries 0 9,906
Restructuring costs (19) (286)
------------ ------------
15,599 36,072
------------ ------------
Loss before investment and interest income and income taxes (6,470) (15,802)
Investment and interest income (expense), net 87 (167)
------------ ------------
Loss before income taxes (6,383) (15,969)
Income tax (benefit) provision (114) 72
------------ ------------
Net loss $ (6,269) $ (16,041)
============ ============
Series A preferred stock - cumulative preferred dividends (803) (803)
Series F preferred stock - accretion to redemption value (62) (217)
------------ ------------
Net loss applicable to common shares $ (7,134) $ (17,061)
============ ============
Net loss per common share $ (0.35) $ (1.25)
============ ============
Weighted average shares outstanding 20,208,855 13,628,175
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Products $ 9,390 $ 28,836
Services 10,281 11,482
----------- -----------
19,671 40,318
----------- -----------
Costs and expenses:
Cost of products sold 5,807 19,692
Cost of services provided 7,437 6,673
Product development 3,689 4,148
Selling, general and administrative 14,057 21,024
Exchange fee and gain on sale of asset, net 619 0
Settlement with stockholders 0 1,642
Loss on closure and sale of subsidiaries 0 9,415
Restructuring costs (175) (91)
----------- -----------
31,434 62,503
----------- -----------
Loss before investment and interest income and income taxes (11,763) (22,185)
Investment and interest income (expense), net 146 (112)
----------- -----------
Loss before income taxes (11,617) (22,297)
Income tax benefit (12) (181)
----------- -----------
Net loss $ (11,605) $ (22,116)
=========== ===========
Series A preferred stock - cumulative preferred dividends (1,605) (1,605)
Series F preferred stock - accretion to redemption value (279) (435)
----------- -----------
Net loss applicable to common shares $ (13,489) $ (24,156)
=========== ===========
Net loss per common share $ (0.69) $ (1.77)
=========== ===========
Weighted average shares outstanding 19,560,045 13,628,175
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Series A Series E
Preferred Stock Preferred Stock
Shares Amt. Shares Amt.
------------------------- ------------------------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995 1,605,025 $ -- 3 $ --
Issuance of common stock, net of offering costs of $376
Issuance of Series H preferred stock, net of offering costs of $30
Issuance of Series I preferred stock, net of offering costs of $26
Common stock issued upon exercise of options and warrants
Offering costs on issuance of Series G preferred stock
Conversion of Series E preferred stock (1)
Conversion of Series G preferred stock
Accretion of redeemable Series F preferred stock
Dividends on Series A preferred stock
Translation adjustment
Net loss
------------------------- ------------------------
BALANCE JUNE 30, 1996 1,605,025 $ -- 2 $ --
========================= ========================
</TABLE>
<TABLE>
<CAPTION>
Series G Series H
Preferred Stock Preferred Stock
Shares Amt. Shares Amt.
------------------------ ------------------------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995 200 $ --
Issuance of common stock, net of offering costs of $376
Issuance of Series H preferred stock, net of offering costs of $30 300 $ --
Issuance of Series I preferred stock, net of offering costs of $26
Common stock issued upon exercise of options and warrants
Offering costs on issuance of Series G preferred stock
Conversion of Series E preferred stock
Conversion of Series G preferred stock (200)
Accretion of redeemable Series F preferred stock
Dividends on Series A preferred stock
Translation adjustment
Net loss
------------------------ ------------------------
BALANCE JUNE 30, 1996 0 $ -- 300 $ --
======================== ========================
</TABLE>
<TABLE>
<CAPTION>
Series I Additional
Preferred Stock Common Stock paid-in
Shares Amt. Shares Amt. capital
------------------------ -------------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995 18,637,226 $2 $105,065
Issuance of common stock, net of offering costs of $376 1,760,285 5,986
Issuance of Series H preferred stock, net of offering costs of $30 2,970
Issuance of Series I preferred stock, net of offering costs of $26 300 $ -- 2,974
Common stock issued upon exercise of options and warrants 78,250 93
Offering costs on issuance of Series G preferred stock (121)
Conversion of Series E preferred stock 3,121
Conversion of Series G preferred stock 551,546
Accretion of redeemable Series F preferred stock (279)
Dividends on Series A preferred stock (1,605)
Translation adjustment
Net loss
------------------------ -------------------- ---------
BALANCE JUNE 30, 1996 300 $ -- 21,030,428 $2 $115,083
======================== ==================== =========
</TABLE>
<TABLE>
<CAPTION>
Accumulated Translation
Deficit Adjustment Total
----------- ----------- -------
<S> <C> <C> <C>
BALANCE DECEMBER 31, 1995 ($95,757) $875 $10,185
Issuance of common stock, net of offering costs of $376 5,986
Issuance of Series H preferred stock, net of offering costs of $30 2,970
Issuance of Series I preferred stock, net of offering costs of $26 2,974
Common stock issued upon exercise of options and warrants 93
Offering costs on issuance of Series G preferred stock (121)
Conversion of Series E preferred stock 0
Conversion of Series G preferred stock 0
Accretion of redeemable Series F preferred stock (279)
Dividends on Series A preferred stock (1,605)
Translation adjustment (440) (440)
Net loss (11,605) (11,605)
----------- ----------- -------
BALANCE JUNE 30, 1996 ($107,362) $435 $8,158
=========== =========== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION> Six Months Ended June 30,
-------------------------------------
1996 1995
------------- -------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (11,605) $ (22,116)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,934 2,766
Restructuring costs (175) (91)
Non-cash portion of loss on closure and sale of subsidiaries -- 8,134
Capitalized software write-off -- 44
Realized gain on sale of short-term investments (111) (201)
Changes in assets and liabilities:
Accounts and notes receivable 2,673 (1,150)
Inventories 533 441
Prepaid expenses and other (730) (1,891)
Other assets (2) (17)
Accounts payable (1,523) 2,298
Accrued compensation and related expenses (290) 432
Other accrued expenses 1,261 4,599
Deferred income taxes (91) (374)
------------- -------------
Net cash used in operating activities (7,126) (7,126)
------------- -------------
Cash flows from investing activities:
Sale of short-term investments 111 9,010
Capitalized software development and license costs (1,125) (535)
Purchases of fixed assets (582) (748)
Business divestitures and related costs -- 935
Net cash acquired in business acquisitions -- 54
------------- -------------
Net cash (used) provided in investing activities (1,596) 8,716
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock upon
exercise of options and warrants 93 --
Proceeds from issuance of common stock, net 5,852 --
Proceeds from issuance of Series H preferred stock, net 2,983 --
Proceeds from issuance of Series I preferred stock, net 2,974 --
Cash dividends paid on Series A preferred stock (1,605) (1,605)
Principal payments on bank debt and lines of credit, net (213) (1,285)
Proceeds from term loans -- 754
Proceeds from sale and leaseback of fixed assets 196 --
Principal payments on capital lease obligations (423) (448)
------------- -------------
Net cash provided (used) by financing activities 9,857 (2,584)
------------- -------------
Effect of exchange rate changes on cash and cash equivalents (81) 67
Net increase (decrease) in cash and cash equivalents 1,054 (927)
Cash and cash equivalents at beginning of year 9,359 3,989
------------- -------------
Cash and cash equivalents at June 30, $ 10,413 $ 3,062
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 8
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and should be read in conjunction
with the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 which include
information and note disclosures not included herein. In the opinion of
management all adjustments, which include only those of a normal recurring
nature, necessary to fairly present the Company's financial position, results
of operations and cash flows have been made to the accompanying financial
statements. The results of operations for the three and six month periods
ended June 30, 1996 may not be indicative of the results that may be expected
for the year ending December 31, 1996.
Net loss per common share is computed using the weighted average number of
common shares outstanding during the year. Common share equivalents, which
consist of common stock purchase warrants, stock options and preferred stock,
are only included in the weighted average number of common shares outstanding
if dilutive.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
2. ISSUANCE OF COMMON STOCK
In March 1996, the Company completed a private placement with one accredited
investor of 934,634 shares of Common Stock, together with warrants to purchase
an additional 64,000 shares of Common Stock, pursuant to Regulation D under the
Securities Act of 1933. Proceeds from the offering were $3.2 million and
offering costs were approximately $207,000. As required under the share sale
agreement, the Company registered the Common Stock and Common Stock issuable
upon exercise of the warrants under the Securities Act of 1933 for resale by
the purchaser.
In March 1996, the Company also issued 421,040 shares of Common Stock to two
investors pursuant to Regulation S under the Securities Act of 1933. Net
proceeds from the offering were $1.7 million.
In June 1996, the Company issued 404,611 shares of Common Stock to 10 investors
pursuant to Regulation S under the Securities Act of 1933. Net proceeds from
the offering were $1.3 million.
7
<PAGE> 9
3. CONVERTIBLE PREFERRED STOCK OFFERINGS
In June 1996, the Company completed two offerings, one to two investors
pursuant to Regulation S under the Securities Act of 1933 of 300 shares of
Series H Convertible Preferred Stock and warrants to purchase 80,000 shares of
Common Stock, and one to one investor pursuant to Regulation D under the
Securities Act of 1933 of 300 shares of Series I Convertible Preferred Stock,
both at $10,000 per share from which it received net proceeds of $5.9 million.
The proceeds will be used for working capital and general corporate purposes.
In connection with the sale of the Series I Convertible Preferred Stock, the
Company agreed to register the Series I Preferred Stock and the Common Stock
issuable upon exercise of the Series I .
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 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.
8
<PAGE> 10
4. CONTINGENCIES
Dorotech, which was acquired in October 1993, had previously co-guaranteed the
lease payment of ATG Gigadisc SA ("ATG"), a former affiliated company, under a
sale and leaseback of land and buildings ending April 2007. As part of the
Dorotech acquisition, best efforts were to be made by the selling company to
obtain the release of the guarantee obligations of Dorotech. The
co-guarantor's guaranty is effective through April 1997. On May 31, 1996 ATG
filed for bankruptcy protection with the Court of Commerce in Toulouse, France.
A receiver was appointed by the Court to approve and supervise expenditures
made by and behalf of ATG.
On June 27, 1996 Dorotech received notice from the lessor that ATG was in
default with respect to certain of its lease payments, and that the lessor may
seek to enforce the guarantee against Dorotech. At December 31, 1995, the
remaining lease payments due by ATG totaled approximately $6.1 million,
including interest of approximately $1.8 million. Based on consultation with
its counsel, the Company does not beleve that Dorotech is responsible for such
liabilities and has meritorious defenses to any action that may be brought
against it based on the guarantee and, therefore, no provision for this matter
has been recorded in the financial statements.
5. RESTRUCTURING CHARGES
During the six months ended June 30, 1996, the Company recorded a $175,000
decrease in estimated charges for fixed asset impairment of $118,000 and
severance of $57,000, including a $19,000 decrease in severance during the
second quarter 1996. In addition, $113,000 in termination benefits were paid
under the 1994 restructuring plan.
At June 30, 1996, eighty-six employees had been terminated and or resigned and
the remaining severance accrual balance of $95,000 related to severance costs
for four engineering personnel. The remaining employees will be terminated
and the plan of restructuring will be completed during the third quarter of
1996. Accrued lease exit costs relating to property vacated during the first
quarter of 1996 were $59,000 at June 30, 1996. During the second quarter of
1996, the property was sublet through the lease termination date, August 1999.
The accrued lease exit costs of $59,000 represents the lease payment short-fall
and will be reduced monthly during the remaining lease term.
6. SUBSEQUENT EVENTS
In July 1996, the Company entered into a letter of intent to sell the assets
and liabilities of Symmetrical Technologies, Incorporated, a wholly owned
subsidiary of the Company ("STI"). STI's results contributed revenues of
$400,000 and $1.6 million and losses of $750,000 and $1.1 million for the three
and six months ended June 30, 1996, respectively. The sale is not expected to
have a material impact on the Company's operations in the third quarter 1996.
7. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid cash for interest and income taxes of $185,000 and $88,000 and
$300,000 and $35,000 for the six months ended June 30, 1996 and 1995,
respectively. During the first quarter 1996, the Company repaid its $2.5
million U.S. line of credit.
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Form 10-Q quarterly report 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.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and related notes included herein.
During 1995, in connection with a restructuring plan adopted in the fourth
quarter of 1994, the Company divested seven operating units which were not
considered essential to the 1VIEW suite, including the WildSoft division
("WildSoft"); PE Systems, Inc.("PE"); MicroSouth, Inc. ("MicroSouth"); Tekgraf,
Inc. ("Tekgraf"); Hunt Valley division ("Hunt Valley"), and Network Imaging
(U.K. Holdings) Limited ("NICUK"). In May 1995 the Company's German
subsidiary, IBZ Digital Production AG ("IBZ"), filed an involuntary petition in
bankruptcy under German law.
The following table sets forth, for the periods indicated, certain
financial data from the Company's consolidated statements of operations as a
percentage of total revenue, or as a percentage of the corresponding revenue
line item, and the percentage change in such items compared to corresponding
prior period:
10
<PAGE> 12
<TABLE>
<CAPTION>
Three Months Six Months Percentage Change 1995-1994
Ending June 30, Ending June 30, Three Months Six Months
--------------- --------------- ------------ ----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Products 37% 71% 48% 72% (76)% (67%)
Services 63% 29% 52% 28% 2% (10%)
--- --- --- --- --- ----
Total revenue 100% 100% 100% 100% (55%) 51%
COSTS AND EXPENSES
Cost of products sold (1) 70% 65% 62% 68% (75%) (71%)
Cost of services provided (1) 70% 58% 72% 58% 18% 11%
Product development 19% 10% 19% 10% (14%) (11%)
Selling, general and
administrative 83% 53% 71% 52% (30%) (33%)
Exchange Fee and
asset sale 0% 0% 3% 0% nm nm
Settlement with
stockholders 0% 4% 0% 4% nm nm
Loss on closure and sale
of subsidiaries, net 0% 49% 0% 23% nm nm
Restructuring costs 0% (1%) (1%) 0% (93%) 92%
---- ---- ---- ---- ---- ----
171% 178% 160% 155% (57%) (50%)
LOSS BEFORE INTEREST AND
INCOME TAXES (71%) (78)% (60)% (55)% (59%) (47%)
Investment (expense) income, net 1% (1%) 1% 0% (152%) (230%)
Income tax benefit (1%) 0% 0% (258%) (93%)
NET LOSS (69%) (79%) (59%) (55%) (61%) (48%)
</TABLE>
nm = Not meaningful
(1) This line item is expressed as a percentage of the corresponding revenue
line item and not as a percentage of total revenue.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 AND 1995
REVENUES. Total revenues were $19.7 million and $40.3
million for the six months ended June 30, 1996 and 1995, respectively. The
$20.6 million decrease in revenue was the result of decreases in product
revenue of $19.4 million, or 67%, and decrease in service revenue of $1.2
million, or 10%. The decrease in product and service revenue was attributable
to the Company's disposition of several subsidiaries, which reduced the
revenues by $17.9 million, and a decrease of $2.8 million in comparative
company revenue.
11
<PAGE> 13
PROFIT MARGINS. Profit margins for product sales increased 6 percentage
points for the six months ended June 30, 1996 over the same period in 1995 as
cost of products decreased from 68% to 62% of sales. The increase in product
sales margins was primarily due to the increased sales mix of the Company's
internally developed products and the dispositions during 1995 of the Company's
CAD/CAM resellers. Profit margins for service sales declined 14 percentage
points for the six months ended June 30, 1996 as compared to 1995 as the cost
of services increased from 58% to 72% of sales. The decrease in service sales
margins from 42% to 28% was due to the Company increasing its customer service
infrastructure and the dispositions during 1995 of the Company's CAD/CAM
resellers which historically had higher service sales margins.
PRODUCT DEVELOPMENT. The Company's expenditures on software research and
development activities for the six months ended June 30, 1996 were $4.8
million, of which $1.1 million was capitalized and $3.7 million was expensed.
Software research and development expenditures for the 1995 period were $4.9
million, of which $0.8 million was capitalized and $4.1 million was expensed.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $14.1
million or 71% of revenue, for the six months ended June 30, 1996 compared to
$21.0 million, or 52% of revenue in 1995. The decrease of $6.9 million, or
34%, was primarily the result of the Company's dispositions of various
operating subsidiaries during 1995 which accounted for a $6.5 million decrease
in addition to a $400,000 decrease in SG&A expenses from the Company's
continuing operations.
EXCHANGE FEE AND GAIN ON SALE OF ASSET, NET. In connection with the
exchange of the Company's Acquisition Preferred Stock for shares of Series F
Convertible Preferred Stock ("Series F") during the first quarter of 1996, the
Company paid the holder of the Series F a fee of $650,000 plus $80,000 of
expenses. During the first quarter of 1996, the Company realized a $111,000
gain on the disposition of stock distributed to the Company by its medical
insurance provider in connection with that provider's conversion from a mutual
to a stock company.
RESTRUCTURING COSTS. During the six months of 1996, the Company recorded
a $175,000 decrease in estimated charges, including fixed asset impairment of
$118,000 and severance of $57,000. During the first six months of 1995, a net
income of $91,000 was recorded due to changes in estimate reductions for
inventory offset by write down to net realizable value of fixed assets,
increased lease exit costs and certain severance costs.
INVESTMENT AND INTEREST INCOME (EXPENSE), NET. Net investment income for
the six months ended June 30, 1996 was $146,000 compared to expense of $112,000
for the same period in 1995.
INCOME TAXES. The Company's income tax benefit for the six months ended
June 30, 1996 of $12,000 resulted from losses generated by the Company's
French operations. The Company incurred an income tax benefit for the six
months ended June 30, 1995 of $181,000 which was primarily the result of income
tax credits generated by Dorotech's European
12
<PAGE> 14
operations for R&D expenditures and a decrease of net deferred liabilities as a
result of net operating losses generated by IBZ's European operations.
NET LOSS. The Company's net loss for the six months ended June 30, 1996
was $11.6 million as compared to $22.1 million for the comparable period of
1995. The net loss decrease of $10.5 million in the six months of 1996 as
compared to the same period in 1995 is due primarily to the loss on sale and
closure of subsidiaries of $9.4 million and $1.6 million settlement with
stockholders in 1995, the $6.9 million reduction in SG&A expenses described
above offset by a $7.5 million reduction in gross margin due in part to the
Company's dispositions of various operating subsidiaries during 1995.
ADVERSE RESULTS OF OPERATIONS. The adverse results of operations which
the Company has experienced are expected to continue in the short term as the
Company expands the sales, marketing and customer support for its 1VIEW suite
of products. For the longer term, the Company is relying on its expanded sales
and marketing efforts and improved product and service gross margins with
respect to its internally developed products to increase overall revenue
levels.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1996 AND 1995
REVENUES. Total revenues were $9.1 million and $20.3 million for the
three months ended June 30, 1996 and 1995, respectively. The $11.2 million
decrease in revenue was the result of decreases in product revenue of $11.0
million, or 76%, and in service revenue of $100,000, or 2%. The decrease in
product and service revenue was attributable to the dispositions in 1995 of
several subsidiaries which reduced the Company's revenues by $7.8 million, and
a decrease of $3.4 million in comparative company revenue.
PROFIT MARGINS. Profit margins for product sales decreased five
percentage points in the second quarter of 1996 over the same period in 1995 as
cost of products increased from 65% to 70% of sales. Profit margins for
service sales declined 12 percentage points for the three months ended June 30,
1996 as compared to 1995 as the cost of services increased from 58% to 70% of
sales. The decrease in service sales margins from 42% to 30% was due to the
Company increasing its customer service infrastructure and the dispositions
during 1995 of the Company's CAD/CAM resellers which historically had higher
service sales margins.
PRODUCT DEVELOPMENT. The Company's expenditures on software research and
development activities in the three months ended June 30, 1996 were $2.4
million, of which $0.7 million was capitalized and $1.7 million was expensed.
Software research and development expenditures for the 1995 period were $2.2
million, of which $0.2 million was capitalized and $2.0 million was expensed.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $7.5
million or 83% of revenue, for the three months ended June 30, 1996 compared to
$10.8 million, or 53% of revenue in 1995. The decrease of $3.3 million, or
30%, was primarily the result of the Company's dispositions of various
operating subsidiaries during 1995 which accounted for a $2.5
13
<PAGE> 15
million decrease in addition to a $750,000 decrease in SG&A expenses from the
Company's continuing operations.
RESTRUCTURING COSTS. During the second quarter of 1996, the Company
recorded a $19,000 decrease in estimated charges for severance. During the
second quarter of 1995, a net income of $286,000 was recorded due to changes in
estimate reductions for inventory and other severance costs.
INVESTMENT AND INTEREST INCOME (EXPENSE), NET. Net investment income for
the three months ended June 30, 1996 was $87,000 compared to expense of
$167,000 for the same period in 1995.
INCOME TAXES. The Company's income tax benefit for the three months ended
June 30, 1996 of $114,000 resulted from losses generated by the Company's
French operations. The Company incurred an income tax expense for the three
months ended June 30, 1995 of $72,000 which was primarily the result of
provisions made for Dorotech's European operations.
NET LOSS. The Company's net loss for the three months ended June 30, 1996
was $6.3 million as compared to $16.0 million for the comparable period of
1995. The net loss decrease of $9.7 million in the second quarter of 1996 as
compared to the same period in 1995 is due primarily to the $9.9 million loss
on sale and closure of subsidiaries and $900,000 settlement with stockholders
in 1995, and the $3.3 million reduction in SG&A expenses described above offset
by a $4.7 million reduction in gross margin due in part to the Company's
dispositions of various operating subsidiaries during 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had $10.4 million in cash and cash
equivalents, as compared to $9.4 million in cash and cash equivalents at
December 31, 1995. Net working capital was $11.8 million at June 30, 1996 as
compared to $13.5 million at December 31, 1995.
During the first quarter of 1996, the Company repaid its $2.5 million U.S.
line of credit which had a termination date of March 31, 1996. At December 31,
1995, $2.5 million of the $3.1 million restricted short-term investments served
as collateral for this line of credit. Although the Company plans to negotiate
a new line of credit with another financial institution, there can be no
assurance that such efforts will be successful.
As of June 30, 1996, the $551,000 in restricted short-term investments
includes a certificate of deposit which secures a line of credit extended by a
UK bank to the Company's former UK subsidiary. The pledge agreement related to
the UK deposit expires in October 1996. If the former subsidiary's performance
improves, all or a portion of these funds would become available to the Company
upon expiration of the agreement.
14
<PAGE> 16
For the six months ended June 30, 1996, the $1.1 million increase in cash
and cash equivalents resulted from the use of $7.1 million in cash to fund
operating activities and $1.6 million to fund investing activities and $9.9
million in cash provided by financing activities.
The Company's use of $7.1 million in operating activities arose primarily
with respect to the cash loss in operations related to product development
expense and SG&A expense. The $1.6 million to fund investing activities arose
with respect to capitalized software development costs and the purchase of
fixed assets. The $9.9 million in cash provided by financing activities arose
primarily from the $5.9 million proceeds from the issuance of Common Stock and
$6.0 million proceeds from the issuance of Series H and I Convertible Preferred
Stock offset by the $1.6 million payment of Series A Preferred Stock dividends.
See Notes 2 and 3 to the Consolidated Financial Statements.
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. In order to offset any adverse impact on
its maintaining net tangible assets of at least $4 million, which is one of the
quantitative maintenance criteria for inclusion of the Company's securities on
NASDAQ-NMS, the Company may consider the offerings of equity securities. There
can be no assurance, however, that any financing the Company might seek will be
available.
15
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For information concerning an investigation of the Company being conducted
by the Securities and Exchange Commission and the U.S. Attorney's Office in the
Southern District of New York and an internal investigation conducted by the
Company as a result thereof, see the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, Item 3, "Legal Proceedings".
Item 6. Exhibits
(a) 3(i).a Certificate of Designation of Series H Convertible
Preferred Stock of the Company filed in Delaware on July
25, 1996.
3(i).b Certificate of Increase of Certificate of Designation of
Series H Convertible Preferred Stock of the Company filed
in Delaware on July 27, 1996.
3(i).c Certificate of Designation of Series I Convertible
Preferred Stock of the Company filed on June 28, 1996.
3(ii) By-Laws of the Company restated and amended as of
May 17, 1996.
4.a Convertible Preferred Stock Purchase Agreement between
Network Imaging Corporation and Newsun Limited dated as of
June 28, 1996.
4.b Form of Warrant to Purchase Common Stock of Network Imaging
Corporation.
16
<PAGE> 18
27 Financial Data Schedule
(b) Reports on Form 8-K
(1) The Registrant filled a Report on Form 8-K July 16, 1996 relating to
the engagement of Ernst and Young LLP as independent accounts for
the Company.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NETWORK IMAGING CORPORATION
(Registrant)
Date: July 30, 1996 By
------------------------------
James Leto
President and Chief Executive Officer
Date: July 30, 1996 By
------------------------------
Jorge R. Forgues
Vice President of Finance and
Administration, Chief Financial Officer
and Treasurer
18
<PAGE> 1
EXHIBIT 3(i).a
NETWORK IMAGING CORPORATION
CERTIFICATE OF DESIGNATION
OF
SERIES H CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the Delaware General
Corporation Law)
We, James J. Leto and Robert P. Bernardi, the President and Secretary,
respectively, of Network Imaging Corporation, a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), in accordance with the provisions of Section 103 thereof, DO
HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors by the
Certificate of Incorporation of the said corporation, the Board of Directors
adopted the following resolution creating a series of 200 shares of its
Preferred Stock to be designated Series H Convertible Preferred Stock:
"WHEREAS, the Certificate of Incorporation of the Corporation authorizes
a class of stock designated Preferred Stock, comprising 20,000,000 shares, of
which 1,750,000 shares have been authorized as Series A Cumulative Convertible
Preferred Stock, 2 shares have been authorized as Series E Convertible Preferred
Stock, 1,792,186 shares have been authorized as the Series F-1, F-2, F-3 or F-4
Convertible Preferred Stock, and 200 shares have been authorized as Series G
Convertible Preferred Stock, and provides that such Preferred Stock may be
divided into such number of series as the Board of Directors may determine, and
authorizes the Board of Directors to (i) determine and alter the powers,
preferences, rights, qualifications, limitations and restrictions granted to or
imposed upon any series of Preferred Stock and (ii) fix the number of shares of
any series of Preferred Stock and the designation of such series of Preferred
Stock; it is
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, this Board of Directors hereby creates a series of Series H
Convertible Preferred Stock, par value $.0001 per share, of the Corporation and
hereby states the designation and number of shares, and fixes the relative
rights, preferences and restrictions thereof (in addition to any provisions set
forth in the Certificate of Incorporation of the Corporation which are
applicable to the Preferred Stock of all classes and series) as follows:
<PAGE> 2
SERIES H CONVERTIBLE PREFERRED STOCK:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series H Convertible Preferred Stock" (the "Series H Preferred
Stock") and the number of shares constituting the Series H Preferred Stock shall
be 200. Such number of shares may be increased or decreased by resolution of
the Board of Directors, provided, that no decrease shall reduce the number of
shares of Series H Preferred Stock to a number less than the number of shares
than outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the conversion of
any outstanding securities issued by the Corporation convertible into Series H
Preferred Stock.
Section 2. Rank The Series H Preferred Stock shall rank: (i) prior to
all of the Corporation's Common Stock, par value $.0001 per share ("Common
Stock"), (ii) prior to any class or series of capital stock of the Corporation
hereafter created specifically ranking by its terms junior to the Series H
Preferred Stock (collectively with the Common Stock, "Junior Securities"); (iii)
(subject to the provisions of Section 8 hereof) on parity with any class or
series of capital stock of the Corporation hereafter created specifically
ranking by its terms on parity with the Series H Preferred Stock ("Parity
Securities"); and (iv) (subject to the provisions of Section 8 hereof) junior to
the Series A Cumulative Convertible Preferred Stock, the Series E Convertible
Preferred Stock, the Series F Convertible Preferred Stock and the Series G
Convertible Preferred Stock and any class or series of capital stock of the
Corporation hereafter created specifically ranking higher than the Series H
Preferred Stock ("Senior Securities"), in each case as to payments of dividends
and distributions of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (all such distributions being
referred to collectively as "Distributions").
Section 3. Dividends. The dividend rate of the Series H Preferred
Stock shall be 8% per share per annum from the date of issuance of the share of
Series H Preferred Stock (the "Original Issuance Date") to the earlier of the
Date of Conversion or the Date of Redemption, as hereinafter defined. Dividends
shall be payable upon conversion or redemption and out of funds legally
available therefor (after giving effect to the payment of all requisite
dividends on Senior Securities). The Corporation may elect to pay the dividend
on the Series H Preferred Stock either in cash or with shares of Common Stock of
the Corporation. If the Corporation elects to pay with shares of Common Stock,
the number of shares to be issued for each share of Series H Preferred Stock
shall be determined pursuant to the following formula:
Common Stock Dividend = (.08)(N/365)(10,000)
Average Closing Bid Price
Where "N" is the number of days between the Original Issuance Date and
the earlier of the Date of Conversion or the Date of Redemption, and "Average
Closing Bid Price" is the average closing bid price for the Corporation's Common
Stock as reported by the
<PAGE> 3
Nasdaq National Market System for the five trading days immediately
preceding the earlier of the Date of Conversion or the Date of Redemption.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of shares of Series H
Preferred Stock shall be entitled to receive, immediately after any
distributions to Senior Securities required by the Corporation's Certificate of
Incorporation or any certificate of designation of preferences, and prior and in
preference to any distribution to Junior Securities but in parity with any
distribution to Parity Securities, an amount per share equal to the sum of (1)
$10,000 for each outstanding share of Series H Preferred Stock (the "Original
Series H Issue Price") and (ii) an amount equal to 12% of the Original Series H
Issue Price per annum for the period that has passed since the date of issuance
of any Series H Preferred Stock (such amount being referred to herein as the
"Premium"). If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series H Preferred Stock and Parity
Securities shall be insufficient to permit the payment to such holders of the
full preferential amounts due to the holders of the Series H Preferred Stock and
the Parity Securities, respectively, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed among the
holders of the Series H Preferred Stock and the Parity Securities, pro rata,
based on the respective liquidation amounts to which each such series of stock
is entitled by the Corporation's Certificate of Incorporation and any
certificate of designation of preferences.
(b) Upon the completion of the distribution required by subsection
4(a), if assets remain in this Corporation, they shall be distributed to holders
of Parity Securities (unless holders of Parity Securities have received
distributions pursuant to subsection (a) above) and Junior Securities in
accordance with the Corporation's Certificate of Incorporation including any
duly adopted certificate(s) of designation of preferences.
(c) A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale, conveyance or disposition of all or
substantially all of the assets of the Corporation or the effectuation by the
Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, shall not be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 4, but shall instead be treated pursuant to Section 7 hereof.
Section 5. Conversion. The holders of the Series H Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series H Preferred Stock shall be
convertible at the option of the holder thereof, at any time after the fortieth
day (40) following the Original Issuance Date, at the office of the Corporation
or any transfer agent for the Series H Preferred Stock, into that number of
fully-paid and non-assessable shares of
<PAGE> 4
Common Stock calculated by dividing $10,000 by $3.50 (the "Conversion
Price"). The number of shares of Common Stock into which each share of Series H
Preferred Stock may be converted is hereinafter referred to as the "Conversion
Rate" for such series.
(b) Mechanics of Conversion. A holder of Series H Preferred Stock shall
effect a conversion of the Series H Preferred Stock into full shares of Common
Stock by giving written notice to the Corporation at the office of the
Corporation that the holder elects to convert the same, the number of shares of
Series H Preferred Stock so converted and a calculation of the Conversion Rate
(with an advance copy of the certificate(s) and the notice by facsimile) and by
surrendering the certificate or certificates therefor, duly endorsed, by either
overnight courier or 2-day courier, to the office of the Corporation or of any
transfer agent for the Series H Preferred Stock. The Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon the conversion unless either the certificates evidencing the shares of
Series H Preferred Stock are delivered to the Corporation or its transfer agent
as provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. No fractional shares
of Common Stock shall be issued upon conversion of Series H Preferred Stock. In
lieu of any fractional shares to which the holder would otherwise be entitled,
the Corporation shall round up to the nearest whole share. In the case of a
dispute as to the calculation of the Conversion Rate, the Corporation's
calculation shall be deemed conclusive absent manifest error.
The Corporation shall use reasonable efforts to issue and deliver within
three (3) business days after delivery to the Corporation of such certificates,
or after such agreement and indemnification, to such holder of Series H
Preferred Stock at the address of the holder on the stock books of the
Corporation, a certificate or certificates for the number of shares of Common
Stock to which the holder shall be entitled as aforesaid. The dividend due
under Section 3 hereof shall be paid at the time of such delivery. The date on
which notice of conversion is given (the "Date of Conversion") shall be
determined as follows: (i) if the notice of conversion is received by the
Corporation before the close of trading on the Nasdaq National Market System
("Nasdaq-NMS"), then the notice of conversion shall be deemed to have been given
on the date on which it is received; or (ii) if the notice of conversion is
received by the Corporation after the close of trading on Nasdaq-NMS, then the
notice of conversion shall be deemed to have been given on the following
business day. If the original shares of Series H Preferred Stock to be
converted are received by the Corporation or its transfer agent within five
business days after the Date of Conversion, the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as the Date of Conversion. If the original shares of Series H
Preferred Stock to be converted are not received by the Corporation or its
transfer agent within five business days after the Date of Conversion, the
notice of conversion shall become null and void.
<PAGE> 5
(c) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Series H Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
then outstanding shares of the Series H Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series H
Preferred Stock, the Corporation will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
Section 6. Redemption.
(a) Right to Redeem. Subject to the rights of holders of Senior
Securities and Parity Securities, at any time following the six-month
anniversary of the Original Issuance Date, the Corporation may elect to redeem
the Series H Preferred Stock for cash equal to $10,000 per share (the "Cash
Redemption Price"). A holder of Series H Preferred Stock will have a period of
30 days after the Corporation gives notice of redemption within which the holder
may nullify the redemption notice by exercising the holder's right to convert
pursuant to Section 5. A holder of Series H Preferred Stock may also elect to
redeem at any time following the six-month anniversary of the Original Issuance
Date, in which case the Corporation may effect the redemption by, at its
election, either paying the Cash Redemption Price or issuing a number of shares
of Common Stock equal to the Cash Redemption Price (the "Redemption Shares"),
with the value of Common Stock for such purpose being determined by the Average
Closing Bid Price as defined in Section 3 hereof.
(b) Mechanics of Redemption. The Corporation shall effect a redemption
by giving notice of its election to redeem, by facsimile, to the holder of
shares of Series H Preferred Stock at the address and facsimile number of such
holder appearing in the Corporation's register for the Series H
Preferred Stock. A holder shall effect a redemption by giving notice of its
intention to redeem, by facsimile, to the Corporation. The date on which
notice of redemption is given by the Corporation or the holder is the "Date of
Redemption." Such redemption notice shall indicate the number of shares of
Series H Preferred Stock being redeemed and the applicable redemption price.
The Corporation shall not be entitled to send any notice of redemption and
begin the redemption procedure unless it has the full amount of the redemption
price, in cash or liquid assets, available in a demand or other immediately
available account in a bank or similar financial institution on the date the
redemption notice is sent to shareholders.
The Cash Redemption Price shall be paid or the Redemption Shares shall
be issued to the holder of shares of Series H Preferred Stock redeemed, in the
case of a redemption by the holder, within 10 business days after the delivery
of a notice of redemption by such holder to the Corporation, or in the case of a
redemption by the Corporation, within 10 business days after the Corporation has
been advised by the holder (either directly or by
<PAGE> 6
the expiration of the 30-day period) that the holder does not intend to exercise
the conversion right under Section 5, with the dividend due under Section 3
hereof to be paid at the time of the delivery of the Cash Redemption Price or
the Redemption Shares; provided, however, that the Corporation shall not be
obligated in any event to deliver any portion of the Cash Redemption Price or
the Redemption Shares unless either the certificates evidencing the shares of
Series H Preferred Stock redeemed are delivered to the Corporation or its
transfer agent or the holder notifies the Corporation or its transfer agent that
such certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates.
Section 7. Corporate Change. The Conversion Price shall be
appropriately adjusted to reflect, as deemed equitable and appropriate by the
Corporation, any stock dividend, stock split or share combination of the Common
Stock. If the Corporation shall consolidate with or merge with or into another
person resulting in a reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock or sell or otherwise transfer all or
substantially all of the assets of the Corporation, then the holder shall
thereafter have the right to convert shares of Series H Preferred Stock into the
kind and amount of stock, securities or assets, if any, such holder would have
been entitled to receive upon such consolidation, merger, sale or transfer had
such holder converted its shares of Series H Preferred Stock into Common Stock
immediately prior to such transaction.
Section 8. Voting Rights. The holders of Series H Preferred Stock will
not have any voting rights except as set forth below or as otherwise from time
to time required by law.
The affirmative vote or consent of the holders of at least a majority of
the outstanding shares of the Series H Preferred Stock, voting separately as a
class, will be required for any amendment, alteration or repeal of the
Corporation's Certificate of Incorporation (including any Certificate of
Designation of Preferences) if, and only if, the amendment, alteration or repeal
adversely affects the powers, preferences or special rights of the Series H
Preferred Stock.
To the extent that under Delaware law the vote of the holders of the
Series H Preferred Stock, voting separately as a class, is required to authorize
a given action of the Corporation, the affirmative vote or consent of the
holders of at least a majority of the outstanding shares of the Series H
Preferred Stock shall constitute the approval of such action by the class. To
the extent that under Delaware law the holders of the Series H Preferred Stock
are entitled to vote on a matter with holders of Common Stock, voting together
as one class, each share of Series H Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common Stock into which it is
then convertible using the record date for the taking of such vote of
stockholders as the date as of which the Conversion Price is calculated. Holders
of the
<PAGE> 7
Series H Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Corporation's
by-laws and applicable statutes.
Section 9. Protective Provisions. So long as shares of Series H
Preferred Stock are outstanding, the Corporation shall not take any action that
would impair the rights of the holders of the Series H Preferred Stock set forth
herein and shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series H Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
shares of Series H Preferred Stock or any Senior Securities so as to affect
adversely the Series H Preferred Stock; or
(b) create any new class or series of stock having a preference
over, or being on a parity with, the Series H Preferred Stock with respect to
Distributions (as defined in Section 2 above).
Section 10. Status of Redeemed or Converted Stock. In the event any
shares of Series H Preferred Stock shall be redeemed or converted pursuant to
Section 5 or Section 6 hereof, the shares so converted or redeemed shall be
canceled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Corporation as Series
H Preferred Stock.
<PAGE> 8
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 21st 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> 1
EXHIBIT 3(i)b
NETWORK IMAGING CORPORATION
CERTIFICATE OF INCREASE
OF
CERTIFICATE OF DESIGNATION
OF
SERIES H CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the Delaware General
Corporation Law)
We, James J. Leto and Robert P. Bernardi, the President and Secretary,
respectively, of Network Imaging Corporation, a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), in accordance with the provisions of Section 103 thereof, DO
HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors by the
Certificate of Incorporation of the Corporation, Section 151 (g) of the
Delaware General Corporation Law and Section 1 of the Certificate of
Designation of Series H Convertible Preferred Stock ("Series H Preferred
Stock"), the Board of Directors adopted the following resolution amending its
Certificate of Designation of Series H Preferred Stock:
WHEREAS, pursuant to Article Fourth of the Company's Certificate of
Incorporation and Sections 151(a) and (g) of the Delaware General Corporation
Law, the Board of Directors of the Company is authorized to provide for the
issuance of preferred stock of the Company in one or more series and to fix the
designations, powers, preferences and rights and the qualifications,
limitations and restrictions of each series; and
WHEREAS, on June 21, 1996 the Board of Directors took action to provide
for the issuance of up to 200 shares of Series H Preferred Stock, $.0001 par
value per share, and authorized the filing of a Certificate of Designation with
respect thereto; and
WHEREAS, pursuant to Section 151(g) of the Delaware General Corporation
Law, the Board of Directors of the Company is authorized to increase the number
of shares of stock of any series by a certificate likewise executed,
acknowledged, filed and recorded setting forth a statement that a specified
increase has
<PAGE> 2
been authorized and directed by a resolution adopted by the Board of Directors;
and
WHEREAS, the Certificate of Designation of Series H Preferred Stock was
filed on June 25, 1996 and the Board of Directors of the Company has determined
to increase the number of authorized shares of Series H Preferred Stock from
200 to 300 shares; it is
<PAGE> 3
RESOLVED, that the resolution contained in and comprising the "Certificate
of Designation of Series H Preferred Stock" of the Company (the "Certificate of
Designation") be, and it hereby is, amended by deleting the first sentence of
Section 1 and substituting therefor the following:
"The shares of such series shall be designated as "Series H
Convertible Preferred Stock" (the "Series H Preferred Stock") and the
number of shares constituting the Series H Preferred Stock shall be
300."
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 25th
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> 1
EXHIBIT 3(i).c
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 3(ii)
As amended through May 17, 1996
BY-LAWS
OF
NETWORK IMAGING CORPORATION
ARTICLE I
OFFICES
SECTION 1.01. Registered Office. The registered office
of Network Imaging Corporation (the "Corporation") in the State of
Delaware shall be at the principal office of The Prentice-Hall
Corporation System, Inc. in the City of Dover, County of Kent, and
the registered agent in charge thereof shall be The Prentice-Hall
Corporation System, Inc.
SECTION 1.02. Other Offices. The Corporation may also
have an office or offices at any other place or places within or
without the State of Delaware as the Board of Directors of the
Corporation (the "Board") may from time to time determine or the
business of the Corporation may from time to time require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01. Annual Meetings. The annual meeting of
stockholders of the Corporation for the election of directors of
the Corporation ("Directors"), and for the transaction of such
other business as may properly come before such meeting, shall be
held at such place, date and time as shall be fixed by the Board
and designated in the notice or waiver of notice of such annual
meeting; provided, however, that no annual meeting of stockholders
need by held if all actions, including the election of Directors,
required by the General Corporation Law of the State of Delaware
(the "General Corporation Law") to be taken at such annual meeting
are taken by written consent in lieu of meeting pursuant to Section
2.09 hereof.
SECTION 2.02. Special Meetings. Special meetings of
stockholders for any purpose or purposes may be called by the Board
or the Chairman of the Board, the Chief Executive Officer, the
President or the Secretary of the Corporation or by the
recordholders of at least a majority of the shares of common stock
of the Corporation issued and outstanding ("Shares") and entitled
<PAGE> 2
to vote thereat, to be held at such place, date and time as shall
be designated in the notice or waiver of notice thereof.
SECTION 2.03. Notice of Meetings. (a) Except as
otherwise provided by law, written notice of each annual or special
meeting of stockholders stating the place, date and time of such
meeting and, in the case of a special meeting, the purpose of
purposes for which such meeting is to be held, shall be given
personally or by first-class mail (air mail in the case of
international communications) to each recordholder of Shares (a
"Stockholder") entitled to vote thereat, not less than 10 nor more
than 60 days before the date of such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United
States mail, postage prepaid, directed to the Stockholder at such
Stockholder's address as it appears on the records of the
Corporation. If, prior to the time of mailing, the Secretary of
the Corporation (the "Secretary") shall have received from any
Stockholder a written request that notices intended for such
Stockholder are to be mailed to some address other than the address
that appears on the records of the Corporation, notices intended
for such Stockholder shall be mailed to the address designated in
such request.
(b) Notice of a special meeting of Stockholders may be
given by the person or persons calling the meeting, or, upon the
written request of such person or persons, such notice shall be
given by the Secretary on behalf of such person or persons. If the
person or persons calling a special meeting of Stockholders give
notice thereof, such person or persons shall deliver a copy of such
notice to the Secretary. Each request to the Secretary for the
giving of notice of a special meeting of Stockholders shall state
the purpose or purposes of such meeting.
SECTION 2.04. Waiver of Notice. Notice of any annual or
special meeting of Stockholders need not be given to any
Stockholder who files a written waiver of notice with the
Secretary, signed by the person entitled to notice, whether before
or after such meeting. Neither the business to be transacted at,
nor the purpose of, any meeting of Stockholders need be specified
in any written waiver of notice thereof. Attendance of a Stock-
holder at a meeting, in person or by proxy, shall constitute a
waiver of notice of such meeting, except when such Stockholder
attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the
grounds that the notice of such meeting was inadequate or
improperly given.
SECTION 2.05. Adjournments. Whenever a meeting of
Stockholders, annual or special, is adjourned to another date, time
<PAGE> 3
or place, notice need not be given of the adjourned meeting if the
date, time and place thereof are announced at the meeting at which
the adjournment is taken. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be
given to each Stockholder entitled to vote thereat. At the
adjourned meeting, any business may be transacted which might have
been transacted at the original meeting.
SECTION 2.06. Quorum. Except as otherwise provided by
law or the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), the recordholders of one-third of
the Shares entitled to vote thereat, present in person or by proxy,
shall constitute a quorum for the transaction of business at all
meetings of Stockholders, whether annual or special. If, however,
such quorum shall not be present in person or by proxy at any
meeting of Stockholders, the Stockholders entitled to vote thereat
may adjourn the meeting from time to time in accordance with
Section 2.05 hereof until a quorum shall be present in person or by
proxy.
SECTION 2.07. Voting. To the extent a Stockholder is
permitted to vote, each Stockholder shall be entitled to one vote
for each Share held of record by such Stockholder. Except as
otherwise provided by law or the Certificate of Incorporation,
Directors shall be elected by a plurality of the votes of the
Shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors, and in all other
matters, the affirmative vote of the majority of the Shares present
in person or represented by proxy at the meeting and entitled to
vote on the subject matter shall be the act of the Stockholders.
SECTION 2.08. Proxies. Each Stockholder entitled to
vote at a meeting of Stockholders or to express, in writing,
consent to or dissent from any action of Stockholders without a
meeting may authorize another persons or persons to act for such
Stockholder by proxy. Such proxy shall be filed with the Secretary
before such meeting of Stockholders or such action of Stockholders
without a meeting, at such time as the Board may require. No proxy
shall be voted or acted upon more than three years from its date,
unless the proxy provides for a longer period.
SECTION 2.09. Stockholder's Consent in Lieu of Meeting.
Any action required by the General Corporation Law to be taken at
any annual or special meeting of Stockholders, and any action which
may be taken at any annual or special meeting of Stockholders, may
be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken,
shall be signed by the recordholders of Shares having not less than
<PAGE> 4
the minimum number of votes necessary to authorize or take such
action at a meeting at which the recordholders of all Shares
entitled to vote thereon were present and voted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. General Powers. The business and affairs
of the Corporation shall be managed by the Board, which may
exercise all such powers of the Corporation and do all such lawful
acts and things as are not by law, the Certificate of Incorporation
or these By-laws directed or required to be exercised or done by
Stockholders.
SECTION 3.02. Number and Term of Office. The number of
Directors shall be one or such other number as shall be fixed from
time to time by the Board. Directors need not be Stockholders.
Directors shall be elected at the annual meeting of Stockholders
or, if, in accordance with Section 2.01 hereof, no such annual
meeting is held, by written consent in lieu of meeting pursuant to
Section 2.09 hereof, and each Director shall hold office until his
successor is elected and qualified, or until his earlier death or
resignation or removal in the manner hereinafter provided.
SECTION 3.03. Resignation. Any Director may resign at
any time by giving written notice to the Board, the Chairman of the
Board of the Corporation (the "Chairman") or the Secretary. Such
resignation shall take effect at the time specified in such notice
or, if the time is not specified, upon receipt thereof by the
Board, the Chairman or the Secretary, as the case may be. Unless
otherwise specified therein, acceptance of such resignation shall
not be necessary to make it effective.
SECTION 3.04. Removal. Any or all of the Directors may
be removed, with or without cause, at any time by vote of the
recordholders of a majority of the Shares then entitled to vote at
an election of Directors, or by written consent of the
recordholders of Shares pursuant to Section 2.09 hereof.
SECTION 3.05. Vacancies. Vacancies occurring on the
Board as a result of the removal of Directors without cause may be
filled only by vote or the recordholders of a majority of the
Shares then entitled to vote at an election of Directors, or by
written consent of such recordholders pursuant to Section 2.09
hereof. Vacancies occurring on the Board for any other reason,
including, without limitation, vacancies occurring as a result of
the creation of new directorships that increase the number of
Directors, may be filled by such vote or written consent or by vote
of the Board or by written consent of the Directors pursuant to
<PAGE> 5
Section 3.08 hereof. If the number of Directors then in office is
less than a quorum, such other vacancies may be filled by vote of
a majority of the Directors then in office or by written consent of
all such Directors pursuant to Section 3.08 hereof. Unless earlier
removed pursuant to Section 3.04 hereof, each Director chosen in
accordance with this Section 3.05 shall hold office until the next
annual election of Directors by the Stockholders and until his
successor shall be elected and qualified.
SECTION 3.06. Meetings. (a) Annual Meetings. As soon
as practicable after each annual election of Directors by the
Stockholders, the Board shall meet for the purpose of organization
and the transaction of other business, unless it shall have
transacted all such business by written consent pursuant to Section
3.08 hereof.
(b) Other Meetings. Regular meetings of the Board may be
held at such places within or without the State of Delaware and at
such times as the Board may from time to time determine, and if so
determined, notwithstanding Section 3.06(c) hereof, notices thereof
need not be given. Other meetings of the Board shall be held at
such times as the Chairman, the Chief Executive Officer, the
President of the Corporation (the "President"), the Secretary or a
majority of the Board shall from time to time determine.
(c) Notice of Meetings. The Secretary shall give written
notice to each Director of each meeting of the Board, which notice
shall state the place, date, time and purpose of such meeting.
Notice of each such meeting shall be given to each Director, if by
mail, addressed to him at his residence or usual place of business,
at least two days before the day on which such meeting is to be
held, or shall be sent to him at such place by telecopy, telegraph,
cable, or other form of recorded communication, or be delivered
personally or by telephone not later than the day before the day on
which such meeting is to be held. A written waiver of notice,
signed by the Director entitled to notice, whether before or after
the time of the meeting referred to in such waiver, shall be deemed
equivalent to notice. Neither the business to be transacted at,
nor the purpose of any meeting of the Board need by specified in
any written waiver of notice thereof. Attendance of a Director at
a meeting of the Board shall constitute a waiver of notice of such
meeting except as provided by law.
(d) Place of Meetings. The Board may hold its meetings
at such place or places within or without the State of Delaware as
the Board or the Chairman may from time to time determine, or as
shall be designated in the respective notices or waivers of notice
of such meetings.
(e) Quorum and Manner of Acting. One-third of the total
<PAGE> 6
number of Directors then in office (but in no event less than two
if the total number of directorships, including vacancies, is
greater than one and in no event a number less than one-third of
the total number of directorships, including vacancies) shall be
present in person at any meeting of the Board in order to
constitute a quorum for the transaction of business at such
meeting, and the vote of a majority of those Directors present at
any such meeting at which a quorum is present shall be necessary
for the passage of any resolution or act of the Board, except as
otherwise expressly required by law, the Certificate of Incorpo-
ration or these By-laws. In the absence of a quorum for any such
meeting, a majority of the Directors present thereat may adjourn
such meeting from time to time until a quorum shall be present.
(f) Organization. At each meeting of the Board, one of
the following shall act as chairman of the meeting and preside, in
the following order of precedence:
(i) the Chairman;
(ii) the Chief Executive Officer
(iii) the President;
(iv) any Director chosen by a majority of the
Directors present.
The Secretary or, in the case of his absence, any person (who shall
be an Assistant Secretary if an Assistant Secretary is present)
whom the chairman of the meeting shall appoint shall act as
secretary of such meeting and keep the minutes thereof.
SECTION 3.07. Committees of the Board. The Board may,
by resolution passed by a majority of the whole Board, designate
one or more committees, each committee to consist of one or more
Directors. The Board may designate one or more Directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of such committee. In the
absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum may
unanimously appoint another Director to act at the meeting in the
place of any such absent or disqualified member. Any committee of
the Board, to the extent provided in the resolution of the Board
designating such committee, shall have and may exercise all the
powers and authority of the Board in the management of the business
and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it;
provided, however, that no such committee shall have such power or
authority in reference to amending the Certificate of Incorporation
(except that such a committee may, to the extent authorized in the
<PAGE> 7
resolution or resolutions providing for the issuance of shares of
stock adopted by the Board as provided in Section 151(a) of the
General Corporation Law, fix the designations and any of the
preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series),
adopting an agreement of merger or consolidation under Section 251
or 252 of the General Corporation Law, recommending to the
Stockholders the sale, lease or exchange of all or substantially
all the Corporation's property and assets, recommending to the
Stockholders a dissolution of the Corporation or the revocation of
a dissolution, or amending these By-laws; provided further,
however, that, unless expressly so provided in the resolution of
the Board designating such committee, no such committee shall have
the power or authority to declare a dividend, to authorize the
issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law.
Each committee of the Board shall keep regular minutes of its
proceedings and report the same to the Board when so requested by
the Board.
SECTION 3.08. Directors' Consent in Lieu of Meeting.
Any action required or permitted to be taken at any meeting of the
Board or of any committee thereof may be taken without a meeting,
without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by all the
members of the Board or such committee and such consent is filed
with the minutes of the proceedings of the Board or such committee.
SECTION 3.09. Action by Means of Telephone or Similar
Communications Equipment. Any one or more members of the Board, or
of any committee thereof, may participate in a meeting of the Board
or such committee by means of conference telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other, and participation
in a meeting by such means shall constitute presence in person at
such meeting.
SECTION 3.10. Compensation. Unless otherwise restricted
by the Certificate of Incorporation, the Board may determine the
compensation of Directors. In addition, as determined by the
Board, Directors may be reimbursed by the Corporation for their
expenses, if any, in the performance of their duties as Directors.
No such compensation or reimbursement shall preclude any Director
from serving the Corporation in any other capacity and receiving
<PAGE> 8
compensation therefor.
ARTICLE IV
OFFICERS
SECTION 4.01. Officers. The officers of the Corporation
shall be the Chairman, the Chief Executive Officer, the President,
the Secretary, and a Treasurer and may include one or more Vice
Presidents, one or more Assistant Secretaries and one or more
Assistant Treasurers, and such other officers as the Board from
time to time deems necessary or appropriate.
SECTION 4.02. Authority and Duties. All officers shall
have such authority and perform such duties in the management of
the Corporation as may be provided in these By-laws or, to the
extent not so provided, by resolution of the Board.
SECTION 4.03. Term of Office, Resignation and Removal.
(a) Each officer shall be appointed by the Board and
shall hold office for such term as may be determined by the Board.
Each officer shall hold office until his successor has been
appointed and qualified or his earlier death or resignation or
removal in the manner hereinafter provided. The Board may require
any officer to give security for the faithful performance of his
duties.
(b) Any officer may resign at any time by giving written
notice to the Board, the Chairman, the Chief Executive Officer, the
President or the Secretary. Such resignation shall take effect at
the time specified in such notice or, if the time be not specified,
upon receipt thereof by the Board, the Chairman, the Chief
Executive Officer, the President or the Secretary, as the case may
be. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
(c) All officers and agents appointed by the Board shall
be subject to removal, with or without cause, at any time by the
Board or by the action of the recordholders of a majority of the
Shares entitled to vote thereon.
SECTION 4.04. Vacancies. Any vacancy occurring in any
office of the Corporation, for any reason, shall be filled by
action of the Board. Unless earlier removed pursuant to Section
4.03 hereof, any officer appointed by the Board to fill any such
vacancy shall serve only until such time as the unexpired term of
his predecessor expires unless reappointed by the Board.
SECTION 4.05. The Chairman. The Chairman shall have the
power to call special meetings of Stockholders, to call special
meetings of the Board and, if present, to preside at all meetings
of Stockholders and all meetings of the Board. The Chairman shall
perform all duties incident to the office of Chairman of the Board
and all such other duties as may from time to time be assigned to
<PAGE> 9
him by the Board or these By-laws.
SECTION 4.06. The Chief Executive Officer. The Chief
Executive Officer shall have general and active management and
control of the business and affairs of the Corporation, subject to
the control of the Board and the Chairman, and shall see that all
orders and resolutions of the Board are carried into effect. The
Chief Executive Officer shall perform all duties incident to the
office of Chief Executive Officer and all such other duties as may
from time to time be assigned to him by the Chairman, the Board or
these By-laws.
SECTION 4.07. The President. The President shall have
general and active management and control of the business and
affairs of the Corporation, subject to the control of the Board and
the Chairman. The President shall perform all duties incident to
the office of President and all such other duties as may from time
to time be assigned to him by the Chairman, the Board or these By-
laws.
SECTION 4.08. Vice Presidents. Vice Presidents, if any,
in order of their seniority or in any other order determined by the
Board, shall generally assist the President and perform such other
duties as the Board or the President shall prescribe, and in the
absence or disability of the President, shall perform the duties
and exercise the powers of the President.
SECTION 4.09. The Secretary. The Secretary shall, to
the extent practicable, attend all meetings of the Board and all
meetings of Stockholders and shall record all votes and the minutes
of all proceedings in a book to be kept for that purpose, and shall
perform the same duties for any committee of the Board when so
requested by such committee. He shall give or cause to be given
notice of all meetings of Stockholders and of the Board, shall
perform such other duties as may be prescribed by the Board, the
Chairman or the President and shall act under the supervision of
the Chairman. He shall keep in safe custody the seal of the
Corporation and affix the same to any instrument that requires that
the seal be affixed to it and which shall have been duly authorized
for signature in the name of the Corporation and, when so affixed,
the seal shall be attested by his signature or by the signature of
the Treasurer of the Corporation (the "Treasurer") or an Assistant
Secretary or Assistant Treasurer of the Corporation. He shall keep
in safe custody the certificate books and stockholder records and
such other books and records of, the Corporation as the Board, the
Chairman or the President may direct and shall perform all other
duties incident to the office of Secretary and such other duties as
from time to time may be assigned to him by the Board, the Chairman
or the President.
<PAGE> 10
SECTION 4.10. Assistant Secretaries. Assistant
Secretaries of the Corporation ("Assistant Secretaries"), if any,
in order of their seniority or in any other order determined by the
Board, shall generally assist the Secretary and perform such other
duties as the Board or the Secretary shall prescribe, and, in the
absence or disability of the Secretary, shall perform the duties
and exercise the powers of the Secretary.
SECTION 4.11. The Treasurer. The Treasurer shall have
the care and custody of all the funds of the Corporation and shall
deposit such funds in such banks or other depositories as the
Board, or any officer or officers, or any officer and agent jointly
duly authorized by the Board, shall from time to time, direct or
approve. He shall disburse the funds of the Corporation under the
direction of the Board and the President. He shall keep a full and
accurate account of all moneys received and paid on account of the
Corporation and shall render a statement of his accounts whenever
the Board, the Chairman or the President shall so request. He
shall perform all other necessary actions and duties in connection
with the administration of the financial affairs of the Corporation
and shall generally perform all the duties usually appertaining to
the office of treasurer of a corporation. When required by the
Board, he shall give bonds for the faithful discharge of his duties
in such sums and with such sureties as the Board shall approve.
SECTION 4.12. Assistant Treasurers. Assistant
Treasurers of the Corporation ("Assistant Treasurers"), if any, in
order of their seniority or in any other order determined by the
Board, shall generally assist the Treasurer and perform such other
duties as the Board or the Treasurer shall prescribe, and, in the
absence or disability of the Treasurer, shall perform the duties
and exercise the powers of the Treasurer.
ARTICLE V
CHECKS, DRAFTS, NOTES, AND PROXIES
SECTION 5.01. Checks, Drafts and Notes. All checks,
drafts and other orders for the payment of money, notes and other
evidences of indebtedness issued in the name of the Corporation
shall be signed by such officer or officers, agent or agents of the
Corporation and in such manner as shall be determined, from time to
time, by resolution of the Board.
SECTION 5.02. Execution of Proxies. The Chairman, the
Chief Executive Officer or the President, or, in the absence or
disability of all of them, any Vice President, if any, may
authorize, from time to time, the execution and issuance of proxies
to vote shares of stock or other securities of other corporations
held of record by the Corporation and the execution of consents to
action taken or to be taken by any such corporation. All such
<PAGE> 11
proxies and consents, unless otherwise authorized by the Board,
shall be signed in the name of the Corporation by the Chairman, the
Chief Executive Officer, the President or any Vice President, if
any.
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
SECTION 6.01. Certificates Evidencing Shares. Shares
and, where appropriate, other securities of the Corporation shall
be evidenced by certificates in such form or forms as shall be
approved by the Board. Certificates shall be issued in consecutive
order and shall be numbered in the order of issue, and shall be
signed by, or in the name of the Corporation by, the Chairman of
the Board of Directors, or the President or any Vice President, and
by the Treasurer or any Assistant Treasurer, or the Secretary or
any Assistant Secretary. Any or all the signatures on certificates
may be a facsimile. In the event any such officer who has signed
or whose facsimile signature has been placed upon a certificate
shall have ceased to be an officer before such certificate is
issued, it may be issued by the Corporation with the same effect as
if such officer held such office at the date of issue.
SECTION 6.02. Stock Ledger. A stock ledger in one or
more counterparts shall be kept by the Secretary, in which shall be
recorded the name and address of each person, firm or corporation
owning the Shares evidenced by each certificate evidencing Shares
issued by the Corporation, the number of Shares evidenced by each
such certificate, the date of issuance thereof and, in the case of
cancellation, the date of cancellation. Except as otherwise
expressly required by law, the person in whose name Shares stand on
the stock ledger of the Corporation shall be deemed the owner and
recordholder thereof for all purposes.
SECTION 6.03. Transfers of Shares. Registration of
transfers of Shares shall be made only in the stock ledger of the
Corporation upon request of the registered holder of such shares,
or of his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary, and upon the surrender of
the certificate or certificates evidencing such Shares properly
endorsed or accompanied by a stock power duly executed, together
with such proof of the authenticity of signatures as the
Corporation may reasonably require.
SECTION 6.04. Addresses of Stockholders. Each
Stockholder shall designate to the Secretary an address at which
notices of meetings and all other corporate notices may be served
or mailed to such Stockholder, and, if any Stockholder shall fail
to so designate such an address, corporate notices may be served
upon such Stockholder by mail directed to the mailing address, if
<PAGE> 12
any, as the same appears in the stock ledger of the Corporation or
at the last known mailing address of such Stockholder.
SECTION 6.05. Lost, Destroyed and Mutilated
Certificates. Each recordholder of Shares shall promptly notify
the Corporation of any loss, destruction or mutilation of any
certificate or certificates evidencing any Share or Shares of which
he is the recordholder. The Board may, in its discretion, cause
the Corporation to issue a new certificate in place of any certifi-
cate theretofore issued by it and alleged to have been mutilated,
lost, stolen or destroyed, upon the surrender of the mutilated
certificate or, in the case of loss, theft or destruction of the
certificate, upon satisfactory proof of such loss, theft or
destruction, and the Board may, in its discretion, require the
recordholder of the Shares evidenced by the lost, stolen or
destroyed certificate or his legal representative to give the
Corporation a bond sufficient to indemnify the Corporation against
any claim made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new
certificate.
SECTION 6.06. Regulations. The Board may make such
other rules and regulations as it may deem expedient, not
inconsistent with these By-laws, concerning the issue, transfer and
registration of certificates evidencing Shares.
SECTION 6.07. Fixing Date for Determination of
Stockholders of Record. In order that the Corporation may
determine the Stockholders entitled to notice of or to vote at any
meeting of Stockholders or any adjournment thereof, or to express
consent to, or to dissent from, corporate action in writing without
a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board may
fix, in advance, a record date, which shall not be more than 60 nor
less than 10 days before the date of such meeting nor more than 60
days prior to any other such action. A determination of the
Stockholders entitled to notice of or to vote at a meeting of
Stockholders shall apply to any adjournment of such meeting;
provided, however, that the Board may fix a new record date for the
adjourned meeting.
ARTICLE VII
SEAL
SECTION 7.01. Seal. The Board may approve and adopt a
corporate seal, which shall be in the form of a circle and shall
bear the full name of the Corporation, the year of its
incorporation and the words "Corporate Seal Delaware".
<PAGE> 13
ARTICLE VIII
FISCAL YEAR
SECTION 8.01. Fiscal Year. The fiscal year of the
Corporation shall end on the thirty-first day of December of each
year unless changed by resolution of the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
SECTION 9.01. Indemnification. (a) The Corporation
shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he/she is or was or has
agreed to become a director or officer of the Corporation, or is or
was serving at the request of the Corporation as director or
officer of another corporation, partnership, joint venture, trust
or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged
action or inaction in an official capacity while serving as a
director, officer, partner, trustee, employee or agent or in any
other capacity while serving as a director, officer, partner,
trustee, employee or agent, against expenses (including reasonable
attorney's fees), judgments, fines and amounts paid in settlement
actually or reasonably incurred by him/her in connection with such
action, suit or proceeding if he/she acted in good faith and in a
manner he/she reasonably believed to be in or not opposed to the
best interests of the Corporation and with respect to any criminal
action or proceeding, had no reasonable cause to believe his/her
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, orders, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and
in a manner which he/she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to
believe that his/her conduct was unlawful.
(b) The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation as a director
or officer of another corporation, partnership joint venture, trust
or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the
<PAGE> 14
defense or settlement of such action or suit if he acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
(c) To the extent that a director, officer, employee or
agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to
in Section 9.01(a) and (b) of these By-laws, or in defense of any
claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under Section 9.01(a) and (b) of
these By-laws (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in Section 9.01(a) and
(b) of these By-laws. Such determination shall be made (i) by the
Board by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable, a quorum
of disinterested directors so directs, by independent legal counsel
in a written opinion, or (iii) by the stockholders of the
Corporation.
(e) Expenses incurred by an officer or director in
defending a civil or criminal action, suit or proceeding may be
paid by the Corporation in advance of the final disposition of such
action suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified
by the Corporation pursuant to this Article IX.
(f) The indemnification and advancement of expenses
provided by or granted pursuant to other Sections of this Article
IX shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled
under any law, by-law agreement vote of stockholders or
disinterested directors or otherwise, both as to action in an
<PAGE> 15
official capacity and as to action in another capacity while
holding such office.
(g) For purposes of this Article IX, references to "the
Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents
so that any person who is or was a director, officer, employee or
agent of such constituent corporation or is or was serving at the
request of such constituent corporation as a director or officer of
another corporation partnership, joint venture, trust or other
enterprise shall stand in the same position under the provisions of
this Article IX with respect to the resulting or surviving
corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(h) For purposes of this Article IX, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by such director, officer,
employee or agent with respect to any employee benefit plan its
participants or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests
of the Corporation" as referred to in this Article IX.
(i) The indemnification and advancement of expenses
provided by or granted pursuant to, this Article IX shall, unless
otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director or officer and shall inure
to the benefit of the heirs, executors and administrators of such
a person.
SECTION 9.02. Insurance for Indemnification. The
Corporation may purchase and maintain insurance on behalf of any
person who is or was a director or officer of the Corporation, or
is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation partnership,
joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under
the provisions of Section 145 of the General Corporation Law.
<PAGE> 16
ARTICLE X
AMENDMENTS
SECTION 10.01. Amendments. Any By-law (including these
By-laws) may be adopted, amended or repealed by the vote of the
recordholders of a majority of the Shares then entitled to vote at
an election of Directors or by written consent of Stockholders
pursuant to Section 2.09 hereof, or by vote of the Board or by a
written consent of Directors pursuant to Section 3.08 hereof.
<PAGE> 1
EXHIBIT 4.a
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
By and Among
NETWORK IMAGING CORPORATION
and
- ------------------------------
Dated as of June 28, 1996
- ------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS . . . . . . . . . . . . . . 1
Section 1.1. Certain Definitions. . . . . . . . . . . . . 1
ARTICLE II PURCHASE OF SHARES. . . . . . . . . . . . . . . 3
Section 2.1. Purchase of Shares; Closing . . . . . . . . 3
ARTICLE III REPRESENTATIONS AND WARRANTIES. . . . . . . . . 4
Section 3.1. Representations and Warranties of the
Company. . . . . . . . . . . . . . . . . . 4
Section 3.2. Representations and Warranties of the
Purchaser. . . . . . . . . . . . . . . . . 8
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES . . . . . . . . 10
Section 4.1. Transfer Restrictions. . . . . . . . . . . 10
Section 4.2. Stop Transfer Instruction. . . . . . . . . 11
Section 4.3. Furnishing of Information. . . . . . . . . 11
Section 4.4. Notice of Certain Events . . . . . . . . . 11
Section 4.5. Copies and Use of Disclosure Materials . . 12
Section 4.6. Modification to Disclosure Materials . . . 12
Section 4.7. Blue Sky Laws. . . . . . . . . . . . . . . 12
Section 4.8. Integration. . . . . . . . . . . . . . . . 12
Section 4.9. Furnishing of Rule 144A Materials. . . . . 13
Section 4.10. Solicitation Materials . . . . . . . . . . 13
Section 4.11. Subsequent Financial Statements. . . . . . 13
Section 4.12. Right of First Refusal . . . . . . . . . . 13
Section 4.13. Purchaser Ownership of Common Stock. . . . 14
Section 4.14. Listing of Underlying Shares . . . . . . . 15
Section 4.15. Conversion Procedures. . . . . . . . . . . 15
ARTICLE V CONDITIONS PRECEDENT TO CLOSING . . . . . . . . 15
Section 5.1. Conditions Precedent to Obligations of
the Purchaser. . . . . . . . . . . . . . . 15
Section 5.2. Conditions Precedent to Obligations of
the Company. . . . . . . . . . . . . . . . 17
ARTICLE VI TERMINATION . . . . . . . . . . . . . . . . . . 17
<PAGE> 3
Section 6.1. Termination by Mutual Consent. . . . . . . 17
Section 6.2. Termination by the Company or the
Purchaser. . . . . . . . . . . . . . . . . 18
Section 6.3. Termination by the Company . . . . . . . . 18
Section 6.4. Termination by the Purchaser . . . . . . . 18
ARTICLE VII MISCELLANEOUS . . . . . . . . . . . . . . . . . 19
Section 7.1. Fees and Expenses. . . . . . . . . . . . . 19
Section 7.2. Entire Agreement; Amendments . . . . . . . 19
Section 7.3. Notices. . . . . . . . . . . . . . . . . . 20
Section 7.4. Amendments; Waivers. . . . . . . . . . . . 20
Section 7.5. Headings . . . . . . . . . . . . . . . . . 21
Section 7.6. Successors and Assigns . . . . . . . . . . 21
Section 7.7. No Third Party Beneficiaries . . . . . . . 21
Section 7.8. Governing Law. . . . . . . . . . . . . . . 21
Section 7.9. Survival . . . . . . . . . . . . . . . . . 21
Section 7.10. Counterpart Signatures . . . . . . . . . . 21
Section 7.11. Publicity. . . . . . . . . . . . . . . . . 22
Section 7.12. Severability . . . . . . . . . . . . . . . 22
Section 7.13. Remedies . . . . . . . . . . . . . . . . . 22
Exhibit A Certificate of Designation
Exhibit B Registration Rights Agreement
Exhibit C Form of Opinion of Jones & Blouch, counsel for the
Company
Exhibit D Conversion Procedures
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(f) Required Consents and Approvals
Schedule 3.1(g) Litigation
<PAGE> 4
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated
as of June 28, 1996 (this "Agreement"), by and among Network
Imaging Corporation, a Delaware corporation (the "Company"), and
, a corporation organized and existing under the laws
of (the "Purchaser").
WHEREAS, the Company desires to issue and sell to the
Purchaser and the Purchaser desires to acquire shares of the
Company's Series I Convertible Preferred Stock, par value $.0001
per share (the "Preferred Stock").
IN CONSIDERATION of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions. As used in this
Agreement, and unless the context requires a different meaning,
the following terms have the meanings indicated:
"Affiliate" means, with respect to any Person, any
Person that, directly or indirectly, controls, is controlled by
or is under common control with such Person. For the purposes of
this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with") shall
mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities
or by contract or otherwise.
"Business Day" means any day except Saturday, Sunday
and any day which shall be a legal holiday or a day on which
banking institutions in the state of New York are authorized or
required by law or other government actions to close.
"Closing" shall have the meaning set forth in Section
2.1(b).
"Closing Date" shall have the meaning set forth in
Section 2.1(b).
<PAGE> 5
"Certificate of Designation" shall have the meaning set
forth in Section 2.1(a).
"Code" means the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder as in effect on
the date hereof.
"Commission" means the Securities and Exchange
Commission.
"Common Stock" means the Company's common stock, par
value $.0001 per share.
"Disclosure Materials" means, collectively, the SEC
Documents, the disclosure package delivered to the Purchaser in
connection with the offering by the Company of the Shares and the
Schedules to this Agreement furnished by or on behalf of the
Company pursuant to Section 3.1.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Lien" means, with respect to any asset, any mortgage,
lien, pledge, encumbrance, charge or security interest of any
kind in or on such asset or the revenues or income thereon or
therefrom.
"Material Adverse Effect" shall have the meaning set
forth in Section 3.1(a).
"NASD" means the National Association of Securities
Dealers, Inc.
"Per Share Consideration" shall have the meaning set
forth in Section 2.1(a).
"Person" means an individual or a corporation,
partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company,
government (or an agency or political subdivision thereof) or
other entity of any kind.
"Preferred Stock" shall have the meaning set forth in
the recitals hereto.
<PAGE> 6
"Purchase Price" shall have the meaning set forth in
Section 2.1(a).
"Registration Rights Agreement" means the registration
rights agreement, substantially in the form of Exhibit B, as the
same may be amended, supplemented or otherwise modified in
accordance with its terms.
"Required Approvals" shall have the meaning set forth
in Section 3.1(f).
"SEC Documents" shall have the meaning set forth in
Section 3.1(l).
"Securities Act" means the Securities Act of 1933, as
amended.
"Shares" means the shares of Preferred Stock purchased
by the Purchaser pursuant to this Agreement.
"Subsidiaries" shall have the meaning set forth in
Section 3.1(a).
"Underlying Shares" means the shares of Common Stock
into which the Shares are convertible in accordance with the
terms hereof and the Certificate of Designation.
ARTICLE II
PURCHASE OF SHARES
Section 2.1. Purchase of Shares; Closing.
(a) Subject to the terms and conditions herein set
forth, the Company shall issue and sell to the Purchaser, and the
Purchaser shall purchase from the Company on the Closing Date 300
Shares, which shall have the respective rights, preferences and
privileges set forth in Exhibit A (the "Certificate of
Designation"), at a price per Share of US$10,000 (the "Per Share
Consideration"). The Per Share Consideration multiplied by the
number of Shares to be purchased by the Purchaser hereunder is
hereinafter referred to as the "Purchase Price."
<PAGE> 7
(b) The closing of the purchase and sale of the Shares
(the "Closing") shall take place at the offices of Robinson
Silverman Pearce Aronsohn & Berman LLP, 1290 Avenue of the
Americas, New York, New York 10104, immediately following the
execution hereof, or at such other time and/or place as the
Purchaser and the Company may agree, provided, however, in no
case shall the Closing take place later than the fifth day after
the last of the conditions listed in Article V is satisfied or
waived by the appropriate party. The date of the Closing is
hereinafter referred to as the "Closing Date".
(c) At the Closing, (i) the Company shall deliver
to the Purchaser (A) one or more stock certificates representing
the Shares purchased hereunder, registered in the name of the
Purchaser and (B) all documents, instruments and writings
required to have been delivered at or prior to Closing by the
Company pursuant to this Agreement, (ii) the Purchaser shall
deliver to the Company (A) the Purchase Price as determined
pursuant to this Article I in United States dollars in
immediately available funds by wire transfer to an account
designated in writing by the Company prior to the Closing and (B)
all documents, instruments and writings required to have been
delivered at or prior to Closing by the Purchaser pursuant to
this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of the
Company. The Company hereby represents and warrants to the
Purchaser as follows:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation,
with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries other than
as set forth in the SEC Documents or in Schedule 3.1(a)
(collectively, the "Subsidiaries"). Each of the Subsidiaries is
a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation,
<PAGE> 8
with the full corporate power and authority to own and use its
properties and assets and to carry on its business as currently
conducted. Each of the Company and the Subsidiaries is duly
qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of the
business conducted or property owned by it makes such
qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not
reasonably be expected to have, individually or in the aggregate,
a material adverse effect on the results of operations, assets,
prospects, or financial condition of the Company and the
Subsidiaries, taken as a whole (a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the
requisite corporate power and authority to enter into and to
consummate the transactions contemplated hereby and by the
Registration Rights Agreement and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery
of this Agreement and the Registration Rights Agreement by the
Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. Each of this
Agreement and the Registration Rights Agreement has been duly
executed and delivered by the Company and constitutes the valid
and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles
of general application.
(c) Capitalization. The authorized, issued and
outstanding capital stock of the Company and each of the
Subsidiaries is set forth in Schedule 3.1(c). No shares of
Common Stock are entitled to preemptive or similar rights.
Except as specifically disclosed in Schedule 3.1(c), there are no
outstanding options, warrants, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or,
except as a result of the purchase and sale of the Shares
hereunder, securities, rights or obligations convertible into or
exchangeable for, or giving any person any right to subscribe for
or acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of
<PAGE> 9
Common Stock, or securities or rights convertible or exchangeable
into shares of Common Stock. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, bylaws or other charter
documents.
(d) Issuance of Shares. The Shares are duly
authorized and, when paid for in accordance with the terms
hereof, shall be validly issued, fully paid and nonassessable.
The Company has and at all times while the Shares are outstanding
will maintain an adequate reserve of shares of Common Stock to
enable it to perform its obligations under this Agreement and the
Certificate of Designation. When issued in accordance with the
terms hereof, the Underlying Shares will be duly authorized,
validly issued, fully paid and nonassessable.
(e) No Conflicts. The execution, delivery and
performance of this Agreement and the Registration Rights
Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby do not and will
not (i) conflict with or violate any provision of its certificate
of incorporation or bylaws or (ii) subject to obtaining the
consents referred to in Section 3.1(f), conflict with, or
constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the Company
is a party, or (iii) to the knowledge of the Company result in a
violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or govern-
mental authority to which the Company is subject (including
Federal and state securities laws and regulations), or by which
any property or asset of the Company is bound or affected, except
in the case of each of clauses (ii) and (iii), such conflicts,
defaults, terminations, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate,
have a Material Adverse Effect. The business of the Company is
not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for violations
which, individually or in the aggregate, do not have a Material
Adverse Effect.
(f) Consents and Approvals. Except as specifically
set forth in Schedule 3.1(f), neither the Company nor any
Subsidiary is required to obtain any consent, waiver,
<PAGE> 10
authorization or order of, or make any filing or registration
with, any court or other federal, state, local or other govern-
mental authority or other Person in connection with the execu-
tion, delivery and performance by the Company of this Agreement
and the Registration Rights Agreement, other than the filing of
the registration statement covering the Underlying Shares with
the Commission and the making of the applicable blue-sky filings
under state securities laws, each as contemplated by the
Registration Rights Agreement and other than, in all cases, where
the failure to obtain such consent, waiver, authorization or
order, or to give or make such notice or filing, would not
materially impair or delay the ability of the Company to effect
the Closing and deliver to the Purchaser the Shares free and
clear of all Liens (collectively, the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically
disclosed in the Disclosure Materials or in Schedule 3.1(g),
there is no action, suit, notice of violation, proceeding or
investigation pending or, to the best knowledge of the Company,
threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by
any court, governmental or administrative agency or regulatory
authority (Federal, State, county, local or foreign) which (i)
relates to or challenges the legality, validity or enforceability
of this Agreement, the Registration Rights Agreement or the
Shares (ii) could, individually or in the aggregate, have a
Material Adverse Effect or (iii) could, individually or in the
aggregate, materially impair the ability of the Company to
perform fully on a timely basis its obligations under this
Agreement or the Registration Rights Agreement.
(h) No Default or Violation. Neither the Company nor
any Subsidiary (i) is in default under or in violation of any
indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its
properties is bound, except such conflicts or defaults as do not
have a Material Adverse Effect, (ii) is in violation of any order
of any court, arbitrator or governmental body, except for such
violations as do not have a Material Adverse Effect, or (iii) is
in violation of any statute, rule or regulation of any
governmental authority which could (individually or in the
aggregate) (x) adversely affect the legality, validity or
enforceability of this Agreement or the Registration Rights
Agreement, (y) have a Material Adverse Effect or (z) adversely
impair the Company's ability or obligation to perform fully on a
<PAGE> 11
timely basis its obligations under this Agreement or the
Registration Rights Agreement.
(i) Certain Fees. No fees or commission will be
payable by the Company to any broker, finder, investment banker
or bank with respect to the consummation of the transactions
contemplated hereby.
(j) Disclosure Materials. The Disclosure Materials do
not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were
made, not misleading.
(k) Private Offering. Neither the Company nor any
Person acting on its behalf has taken or will take any action
(including, without limitation, any offering of any securities of
the Company under circumstances which would require the
integration of such offering with the offering of the Shares
under the Securities Act) which might subject the offering,
issuance or sale of the Shares to the registration requirements
of Section 5 of the Securities Act.
(l) SEC Documents. The Company has filed all reports
required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company
was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC
Documents") on a timely basis, or has received a valid extension
of such time of filing. As of their respective dates, the SEC
Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of
the SEC Documents, when filed, contained any untrue statement of
a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company
included in the SEC Documents comply as to form in all material
respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect
thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied
on a consistent basis during the periods involved, except as may
<PAGE> 12
be otherwise indicated in such financial statements or the notes
thereto, and fairly present in all material respects the
financial position of the Company as of and for the dates thereof
and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal
year-end audit adjustments. Since the date of the financial
statements included in the Company's last filed Quarterly Report
on Form 10-Q, there has been no event, occurrence or development
that has had a Material Adverse Effect which is not specifically
disclosed in any of the Disclosure Materials.
Section 3.2. Representations and Warranties of the
Purchaser. The Purchaser hereby represents and warrants to the
Company as follows:
(a) Organization; Authority. The Purchaser is a
corporation duly and validly existing and in good standing under
the laws of the jurisdiction of its incorporation. The Purchaser
has the requisite power and authority to enter into and to
consummate the transactions contemplated hereby and by the
Registration Rights Agreement and otherwise to carry out its
obligations hereunder and thereunder. The purchase of the Shares
by the Purchaser hereunder has been duly authorized by all
necessary action on the part of the Purchaser. Each of this
Agreement and the Registration Rights Agreement has been duly
executed and delivered by the Purchaser or on its behalf and
constitutes the valid and legally binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights
generally and to general principles of equity.
(b) Investment Intent. The Purchaser is acquiring the
Shares and the Underlying Shares for its own account (and/or on
behalf of managed accounts who are purchasing solely for their
own accounts for investment) for investment purposes only and not
with a view to or for distributing or reselling such Shares or
Underlying Shares or any part thereof or interest therein,
without prejudice, however, to the Purchaser's right, subject to
the provisions of this Agreement and the Registration Rights
Agreement, at all times to sell or otherwise dispose of all or
any part of such Shares or Underlying Shares under an effective
registration statement under the Securities Act and in compliance
with applicable State securities laws or under an exemption from
such registration.
<PAGE> 13
(c) Purchaser Status. At the time the Purchaser (and
any account for which it is purchasing) was offered the Shares,
it (and any account for which it is purchasing) was, and at the
date hereof, it (and any account for which it is purchasing) is,
and at the Closing Date, it (and any account for which it is
purchasing) will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act.
(d) Experience of Purchaser. The Purchaser, either
alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of the
prospective investment in the Shares, and has so evaluated the
merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment.
The Purchaser is able to bear the economic risk of an investment
in the Shares and, at the present time, is able to afford a
complete loss of such investment.
(f) Prohibited Transactions. The Shares to be
purchased by the Purchaser are not being acquired, directly or
indirectly, with the assets of any "employee benefit plan",
within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended.
(g) Access to Information. The Purchaser acknowledges
receipt of the Disclosure Materials and further acknowledges that
it has been afforded (i) the opportunity to ask such questions as
it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and
conditions of the offering of the Shares and the merits and risks
of investing in the Shares; (ii) access to information about the
Company and the Company's financial condition, results of
operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment in the Common
Stock; and (iii) the opportunity to obtain such additional
information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the Shares and to
verify the accuracy and completeness of the information contained
in the Disclosure Materials.
<PAGE> 14
(h) Reliance. The Purchaser understands and
acknowledges that (i) the Shares are being offered and sold, and
the Underlying Shares are being offered, to it without
registration under the Securities Act in a private placement that
is exempt from the registration provisions of the Securities Act
and (ii) the availability of such exemption, depends in part on,
and that the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and the Purchaser hereby
consents to such reliance.
The Company acknowledges and agrees that the Purchaser
makes no representation or warranty with respect to the
transactions contemplated hereby other than those specifically
set forth in Article III herein.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
Section 4.1. Transfer Restrictions. If the Purchaser
should decide to dispose of any of the Shares to be purchased by
it hereunder (and upon conversion thereof, any Underlying
Shares), the Purchaser understands and agrees that it may do so
only (i) pursuant to an effective registration statement under
the Securities Act, (ii) to the Company or (iii) pursuant to an
available exemption from registration under the Securities Act.
In connection with any transfer of any Shares other than pursuant
to an effective registration statement or to the Company, the
Company may require that the transferor of such Shares provide to
the Company an opinion of counsel experienced in the area of
United States securities laws selected by the transferor, the
form and substance of which opinion shall be, reasonably satis-
factory to the Company, to the effect that such transfer does not
require registration of such Shares under the Securities Act or
any State securities laws.
The Purchaser agrees to the imprinting, so long as
appropriate, of the following legend on certificates representing
the Shares:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH
THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
<PAGE> 15
REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, THEY MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ITS ACCEPTANCE HEREOF, THE HOLDER OF THESE SECURITIES AGREES
THAT IT WILL NOT RESELL, PLEDGE OR OTHERWISE TRANSFER THESE
SECURITIES OR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE, EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (B) TO
NETWORK IMAGING CORP. (THE "COMPANY") OR (C) PURSUANT TO AN
AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT. IF THE PROPOSED TRANSFER IS TO BE MADE OTHER THAN
PURSUANT TO CLAUSE (A) OR (B) ABOVE, THE HOLDER MUST, PRIOR
TO SUCH TRANSFER, FURNISH TO THE COMPANY AND THE TRANSFER
AGENT SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY RULE 902 PROMULGATED UNDER THE SECURITIES
ACT.
The legend set forth above may be removed if and when
the Shares represented by such certificate or the Underlying
Shares, as the case may be, are disposed of pursuant to an
effective registration statement under the Securities Act or in
the opinion of counsel to the Company experienced in the area of
United States securities laws such legend is no longer required
under applicable requirements of the Securities Act. The stock
certificates representing the Shares and the Underlying Shares
shall also bear any other legends required by applicable Federal
or state securities laws, which legends may be removed when, in
the opinion of counsel to the Company experienced in the
applicable securities laws, such legends are no longer required
under the applicable requirements of such securities laws. The
Company agrees that it will provide the Purchaser, upon request,
with a substitute stock certificate or certificates, free from
such legend at such time as such legend is no longer applicable.
The Purchaser agrees that, in connection with any transfer of
Shares or Underlying Shares by it pursuant to an effective reg-
istration statement under the Securities Act, it Purchaser will
comply with all prospectus delivery requirements of the
Securities Act. The Company makes no representation, warranty or
<PAGE> 16
agreement as to the availability of any exemption from
registration under the Securities Act with respect to any resale
of Shares or Underlying Shares.
Section 4.2. Stop Transfer Instruction. The
Purchaser agrees that the Company shall be entitled to make a
notation on its records and give instructions to any transfer
agent of the Company in order to implement the restrictions on
transfer set forth in this Agreement.
Section 4.3. Furnishing of Information. As long as
the Purchaser owns Shares or Underlying Shares, the Company will
promptly furnish to it all reports filed by the Company pursuant
to Section 13(a) or 15(d) of the Exchange Act (or if the Company
is not at the time required to file reports pursuant to such
sections, annual and quarterly reports comparable to those
required by Section 13(a) or 15(d) of the Exchange Act).
Section 4.4. Notice of Certain Events. The Company
shall (i) advise the Purchaser promptly after obtaining knowledge
thereof, and, if requested by the Purchaser, confirm such advice
in writing, of (A) the issuance by any state securities
commission of any stop order suspending the qualification or
exemption from qualification of the Shares or the Common Stock
for offering or sale in any jurisdiction, or the initiation of
any proceeding for such purpose by any state securities
commission or other regulatory authority, or (B) any event that
makes any statement of a material fact made in the Disclosure
Materials untrue or that requires the making of any additions to
or changes in the Disclosure Materials in order to make the
statements therein, in the light of the circumstances under which
they are made, not misleading, (ii) use its best efforts to
prevent the issuance of any stop order or order suspending the
qualification or exemption from qualification of the Shares or
the Common Stock under any state securities or Blue Sky laws, and
(iii) if at any time any state securities commission or other
regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Shares or
the Common Stock under any such laws, use its best efforts to
obtain the withdrawal or lifting of such order at the earliest
possible time.
Section 4.5. Copies and Use of Disclosure Materials.
The Company shall furnish the Purchaser, without charge, as many
copies of the Disclosure Materials, and any amendments or
<PAGE> 17
supplements thereto, as the Purchaser may reasonably request.
The Company consents to the use of the Disclosure Materials, and
any amendments and supplements thereto, by the Purchaser in
connection with resales of the Shares or the Underlying Shares
other than pursuant to an effective registration statement.
Section 4.6. Modification to Disclosure Materials.
If any event shall occur as a result of which, in the reasonable
judgment of the Company or the Purchaser, it becomes necessary or
advisable to amend or supplement the Disclosure Materials in
order to make the statements therein, in the light of the
circumstances at the time the Disclosure Materials were delivered
to the Purchaser, not misleading, or if it is necessary to amend
or supplement the Disclosure Materials to comply with applicable
law, the Company shall promptly prepare an appropriate amendment
or supplement to the Disclosure Materials (in form and substance
reasonably satisfactory to the Purchaser) so that (i) as so
amended or supplemented the Disclosure Materials will not include
an untrue statement of material fact or omit to state a material
fact necessary in order to make the statements therein, in the
light of the circumstances existing at the time it is delivered
to Purchaser, not misleading and (ii) the Disclosure Materials
will comply with applicable law.
Section 4.7. Blue Sky Laws. The Company shall
cooperate with the Purchaser in connection with the qualification
of the Shares and the Underlying Shares under the securities or
Blue Sky laws of such jurisdictions as the Purchaser may request
and to continue such qualification at all times through the third
anniversary of the Closing Date; provided, however, that neither
the Company nor its Subsidiaries shall be required in connection
therewith to qualify as a foreign corporation where they are not
now so qualified.
Section 4.8. Integration. The Company shall not and
shall use its best efforts to ensure that no Affiliate shall
sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or
sale of the Shares or the Underlying Shares in a manner that
would require the registration under the Securities Act of the
sale of the Shares or Underlying Shares to the Purchaser.
Section 4.9. Furnishing of Rule 144A Materials. The
Company shall, for so long as any of the Shares or Underlying
<PAGE> 18
Shares remain outstanding and during any period in which it is
not subject to Section 13 or 15(d) of the Exchange Act, make
available to any registered holder of Shares or Underlying Shares
in connection with any sale thereof and any prospective purchaser
of such Shares or Underlying Shares from such Person, the
following information in accordance with Rule 144A(d)(4) under
the Securities Act: a brief statement of the nature of the
business of the Company and the products and services it offers
and the Company's most recent audited balance sheet and profit
and loss and retained earnings statements, and similar audited
financial statements for such part of the two preceding fiscal
years as the Company has been in operation.
Section 4.10. Solicitation Materials. The Company
shall not (i) distribute any offering materials in connection
with the offering and sale of the Shares or Underlying Shares
other than the Disclosure Materials and any amendments and
supplements thereto prepared in compliance herewith or (ii)
solicit any offer to buy or sell the Shares or Underlying Shares
by means of any form of general solicitation or advertising.
Section 4.11. Subsequent Financial Statements. The
Company shall furnish to the Purchaser, promptly after they are
filed with the Commission, a copy of all financial statements for
any period subsequent to the period covered by the financial
statements included in the Disclosure Materials.
Section 4.12. Right of First Refusal. (a) The
Company shall not directly or indirectly, without the prior
consent of the Purchaser, offer, sell, grant any option to
purchase, or otherwise dispose (or announce any offer, sale,
grant or any option to purchase or other disposition) of any of
its or its Affiliates equity or equity-equivalent securities (a
"Subsequent Sale") for a period of 90 days after Closing Date,
except (i) the granting of options to employees, officers and
directors under, and the issuance of shares upon exercise of
options granted under, any stock option plan heretofore or
hereinafter adopted by the Company; (ii) shares issued upon
exercise of any currently outstanding warrants and upon
conversion of any currently outstanding convertible preferred
stock disclosed in Schedule 3.1 and (iii) shares of Common Stock
issued upon conversion of Shares in accordance herewith, unless
(A) the Company provides the Purchaser a written notice (the
"Subsequent Financing Notice") of its intention to effect such
Subsequent Financing, which Subsequent Financing Notice shall
<PAGE> 19
describe in reasonable detail the proposed terms of such
Subsequent Financing and the amount of proceeds intended to be
raised thereunder and (B) the Purchaser shall not have notified
the Company within forty-eight (48) hours of its receipt of the
Subsequent Financing Notice of its willingness to enter into good
faith negotiations to provide (or to cause its sole designee to
provide) financing to the Company on substantially the terms set
forth in the Subsequent Financing Notice. If the Purchaser shall
fail to notify the Company of its intention to enter into such
negotiations within such forty-eight (48) hour period, the
Company may effect the Subsequent Financing substantially upon
the terms set forth in the Subsequent Financing Notice; provided,
that the Company shall provide the Purchaser with a second
Subsequent Financing Notice, and the Purchaser shall again have
the right of first refusal set forth above in this paragraph (a),
if the Subsequent Financing subject to the initial Subsequent
Financing Notice shall not have been consummated for any reason
on the terms set forth in such Subsequent Financing Notice within
30 days after the date of the initial Subsequent Financing
Notice.
(b) Notwithstanding anything herein to the contrary
contained, the Company shall have the option, exercisable by
notice to the Purchaser given at any time prior to the expiration
of 90 days after the date that the registration statement
contemplated by the Registration Rights Agreement is declared
effective by the Commission, to place with the Purchaser or its
sole designee up to Three Million dollars ($3,000,000) in
additional shares of Preferred Stock pursuant to the terms and
conditions of agreements substantially similar to this Agreement
and the Registration Rights Agreement to be prepared and
negotiated by the Company and the Purchaser (or its sole
designee) at such time.
(c) From the date hereof through the Closing Date, the
Company shall not and shall cause the Subsidiaries not to,
without the consent of the Purchaser, (i) amend its Certificate
of Incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Purchaser; (ii) split, combine
or reclassify its outstanding capital stock; (iii) declare,
authorize, set aside or pay any dividend or other distribution
with respect to the Common Stock; (iv) redeem, repurchase or
offer to repurchase or otherwise acquire shares of its Common
Stock; or (v) enter into any agreement with respect to any of the
foregoing.
<PAGE> 20
Section 4.13. Purchaser Ownership of Common Stock. The
Purchaser may not use its ability to convert Shares hereunder or
under the Certificate of Designation to the extent that such
conversion would result in the Purchaser owning more than 4.9% of
the outstanding shares of the Common Stock; provided, however,
that this Section 4.13 shall not effect the Company's right under
Section 5(b) of the Certificate of Designation to force the
Purchaser to convert its outstanding Shares under the
circumstances set forth in such section. The Company shall,
promptly upon its receipt of a Holder Conversion Notice tendered
by the Purchaser (or its sole designee) under the Certificate of
Designation, notify the Purchaser of the number of shares of
Common Stock outstanding on such date and the number of
Underlying Shares which would be issuable to the Purchaser (or
its sole designee, as the case may be) if the conversion
requested in such Conversion Notice were effected in full,
whereupon, notwithstanding anything to the contrary set forth in
the Certificate of Designation, the Purchaser may revoke such
conversion to the extent that it determines that such conversion
would result in the Purchaser owning in excess of 4.9% of such
outstanding shares of Common Stock.
Section 4.14. Listing of Underlying Shares. The
Company shall take all steps necessary to cause the Underlying
Shares to be approved for listing in The NASDAQ National Market
(or other national securities exchange or market on which the
Common Stock is listed) no later than the first day after which
shares may be converted hereunder by the Purchaser, and shall
provide to the Purchaser evidence of such listing.
Section 4.15. Conversion Procedures. Exhibit D
attached hereto sets forth the procedures with respect to the
conversion of the Shares, including the forms of conversion
notice to be provided upon conversion, instructions as to the
procedures for conversion, the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent
and such other information and instructions as may be reasonably
necessary to enable the Purchaser to exercise its right of
conversion smoothly and expeditiously.
<PAGE> 21
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
Section 5.1. Conditions Precedent to Obligations of
the Purchaser. The obligation of the Purchaser to purchase the
Shares is subject to the satisfaction or waiver by the Purchaser,
at or prior to the Closing, of each of the following conditions:
(a) Legal Opinion. The Purchaser shall have received
the legal opinion, addressed to it and dated the Closing Date, of
Jones & Blouch, counsel for the Company, substantially in the
form of Exhibit C;
(b) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company
contained herein and in the Registration Rights Agreement shall
be true and correct in all material respects as of the date when
made and as of the Closing Date as though made at that time
(except that representations and warranties that are made as of a
specific date need be true in all material respects only as of
such date);
(c) Performance by the Company. The Company shall
have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this
Agreement and the Registration Rights Agreement to be performed,
satisfied or complied with by the Company at or prior to the
Closing;
(d) No Material Adverse Effect. Since the date of the
financial statements included in the Company's last filed
Quarterly Report on Form 10-Q, no event which had a Material
Adverse Effect shall have occurred which is not disclosed in the
Disclosure Materials;
(e) No Prohibitions. The purchase of and payment for
the Shares (and upon conversion thereof, the Underlying Shares)
hereunder (i) shall not be prohibited or enjoined (temporarily or
permanently) by any applicable law or governmental regulation and
(ii) shall not subject the Purchaser to any penalty, or in its
reasonable judgment, other onerous condition under or pursuant to
any applicable law or governmental regulation that would
materially reduce the benefits to the Purchaser of the purchase
of the Shares or the Underlying Shares (provided, however, that
such regulation, law or onerous condition was not in effect in
such form at the date of this Agreement);
<PAGE> 22
(f) Company Certificates. The Purchaser shall have
received a certificate, dated the Closing Date, signed by the
Secretary or an Assistant Secretary of the Company and certifying
(i) that attached thereto is a true, correct and complete copy of
(A) the Company's Certificate of Incorporation, as amended to the
date thereof, (B) the Company's By-Laws, as amended to the date
thereof, and (C) resolutions duly adopted by the Board of
Directors of the Company authorizing the execution and delivery
of this Agreement and the Registration Rights Agreement and the
issuance and sale of the Shares and the Underlying Shares and
(ii) the incumbency of officers executing this Agreement and the
Registration Rights Agreement;
(g) Registration Rights Agreement. The Company shall
have executed the Registration Rights Agreement;
(h) No Suspensions of Trading in Common Stock.
Trading in the Common Stock shall not have been suspended by the
Commission or the NASD or other exchange or market on which the
Common Stock is listed or quoted (except for any suspension of
trading of limited duration solely to permit dissemination of
material information regarding the Company);
(i) Required Approvals. All Required Approvals shall
have been obtained; and
(j) Delivery of Stock Certificates. The Company shall
have delivered to the Purchaser the stock certificate(s)
representing the Shares, registered in the name of the Purchaser,
each in form satisfactory to the Purchaser.
Section 5.2. Conditions Precedent to Obligations of
the Company. The obligation of the Company to issue and sell the
Shares hereunder is subject to the satisfaction or waiver by the
Company, at or to the Closing, of each of the following
conditions:
(a) Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of the Purchaser
shall be true and correct in all material respects as of the date
when made and as of the Closing Date as though made at that time
(except that representations and warranties that are made as of a
specific date need be true in all material respects only as of
such date);
<PAGE> 23
(b) Performance by the Purchaser. The Purchaser shall
have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this
Agreement and the Registration Rights Agreement to be performed,
satisfied or complied with by it at or prior to the Closing; and
(c) No Prohibitions. The sale of the Shares (and upon
conversion thereof, the Underlying Shares) hereunder (i) shall
not be prohibited or enjoined (temporarily or permanently) by any
applicable law or governmental regulation and (ii) shall not
subject the Company to any penalty, or in its reasonable
judgment, any other onerous condition under or pursuant to any
applicable law or governmental regulation that would materially
reduce the benefits to the Company of the sale of Shares or the
Underlying Shares to the Purchaser (provided, however, that such
regulation, law or onerous condition was not in effect in such
form at the date of this Agreement).
ARTICLE VI
TERMINATION
Section 6.1. Termination by Mutual Consent. This
Agreement may be terminated at any time prior to Closing by the
mutual consent of the Company and the Purchaser.
Section 6.2. Termination by the Company or the
Purchaser. This Agreement may be terminated prior to Closing by
either the Company or the Purchaser, by giving written notice of
such termination to the other party, if:
(a) the Closing shall not have occurred by
July 7, 1996; provided that the terminating party is not
then in material breach of its obligations under this
Agreement in any manner that shall have caused the failure
referred to in this paragraph (a);
(b) there shall be in effect any statute, rule,
law or regulation that prohibits the consummation of the
Closing or if the consummation of the Closing would violate
any non-appealable final judgment, order, decree, ruling or
injunction of any court of or governmental authority having
competent jurisdiction; or
<PAGE> 24
(c) there shall have been an amendment to
Regulation D or an interpretive release promulgated or
issued thereunder, which, in the reasonable judgment of the
terminating party, would materially adversely affect the
transactions contemplated hereby and by the Registration
Rights Agreement.
Section 6.3. Termination by the Company. This
Agreement may be terminated prior to Closing by the Company, by
giving notice of such termination to the Purchaser, if the
Purchaser has materially breached any representation, warranty,
covenant or agreement contained in this Agreement or the
Registration Rights Agreement and such breach is not cured within
five business days following receipt by the Purchaser of notice
of such breach.
Section 6.4. Termination by the Purchaser. This
Agreement may be terminated prior to Closing by the Purchaser, by
giving notice of such termination to the Company, if:
(a) the Company has breached any representation,
warranty, covenant or agreement contained in this Agreement
or the Registration Rights Agreement and such breach is not
cured within five business days following receipt by the
Company of notice of such breach;
(b) there has occurred an event since the date of
the financial statements included in the Company's last
filed Quarterly Report on Form 10-Q which could reasonably
be expected to have a Material Adverse Effect and which is
not disclosed in the Disclosure Materials; or
(c) trading in the Common Stock has been
suspended by the Commission or the NASD or other exchange or
market on which the Common Stock is listed or quoted (except
for any suspension of trading of limited duration solely to
permit dissemination of material information regarding the
Company).
<PAGE> 25
ARTICLE VII
MISCELLANEOUS
Section 7.1. Fees and Expenses. Each party shall pay
the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall
pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares (and upon conversion thereof, the
Underlying Shares) pursuant hereto. The Purchaser shall be
responsible for its own tax liability that may arise as a result
of the investment hereunder or the transactions contemplated by
this Agreement. Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is terminated,
the Company shall pay (i) all costs, expenses, fees and all taxes
incident to and in connection with: (A) the preparation, printing
and distribution of the Disclosure Materials and all amendments
and supplements thereto (including, without limitation, financial
statements and exhibits), and all preliminary and final Blue Sky
memoranda and all other agreements, memoranda, correspondence and
other documents prepared and delivered in connection herewith (B)
the issuance and delivery of the Shares and, upon conversion
thereof, the Underlying Shares, (C) the qualification of the
Shares and, upon conversion thereof, the Underlying Shares for
offer and sale under the securities or Blue Sky laws of the
several states (including, without limitation, the fees and
disbursements of the Purchasers' counsel relating to such
registration or qualification), (D) furnishing such copies of the
Disclosure Materials and all amendments and supplements thereto,
as may reasonably be requested for use in connection, with
resales of the Shares and, upon conversion thereof, the
Underlying Shares, and (E) the preparation of certificates for
the Shares and, upon conversion thereof, the Underlying Shares
(including, without limitation, printing and engraving thereof),
(ii) all fees and expenses of the counsel and accountants of the
Company and (iii) all expenses and listing fees in connection
with the application for quotation of the underlying Shares in
the NASDAQ National Market.
Section 7.2. Entire Agreement; Amendments. This
Agreement, together with the Exhibits, Annexes and Schedules
hereto, and the Registration Rights Agreement contain the entire
understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters.
Section 7.3. Notices. Any notice or other
communication required or permitted to be given hereunder shall
<PAGE> 26
be in writing and shall be deemed to have been received (a) upon
hand delivery (receipt acknowledged) or delivery by telex (with
correct answer back received), telecopy or facsimile (with
transmission confirmation report) at the address or number
designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on
a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company: Network Imaging Corporation
500 Huntmar Park Drive
Herndon, VA 22070
Facsimile No.: (703) 904-3292
Attn: Jorge R. Forgues
With copies to: Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, N.W.
Suite 405 West
Washington, D.C. 20007
Facsimile No.: (202) 223-4593
Attn: John W. Blouch
If to the Purchaser:
With copies to: Robinson Silverman Pearce
Aronsohn & Berman LLP
1209 Avenue of the Americas
New York, NY 10019
Attn: Kenneth L. Henderson
Facsimile No.: (212) 541-4630
or such other address as may be designated in writing hereafter,
in the same manner, by such person.
<PAGE> 27
Section 7.4. Amendments; Waivers. No provision of
this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by both the
Company and the Purchaser, or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission
of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
Section 7.5. Headings. The headings herein are for
convenience only, do not constitute a part of this Agreement and
shall not be deemed to limit or affect any of the provisions
hereof.
Section 7.6. Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. Neither the Company nor
the Purchaser may assign this Agreement or any rights or
obligations hereunder without the prior written consent of the
other. The assignment by a party of this Agreement or any rights
hereunder shall not affect the obligations of such party under
this Agreement.
Section 7.7. No Third Party Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns and is not for
the benefit of, nor may any provision hereof be enforced by, any
other person.
Section 7.8. Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the
internal laws of the State of New York without regard to the
principles of conflicts of law thereof.
Section 7.9. Survival. The representations and
warranties of the Company and the Purchaser contained in Article
III and the agreements and covenants of the parties contained in
Article IV and this Article VII shall survive the Closing (or any
earlier termination of this Agreement) and any conversion of
Shares hereunder.
<PAGE> 28
Section 7.10. Counterpart Signatures. This Agreement
may be executed in two or more counterparts, all of which when
taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each
party and delivered to the other party, it being understood that
both parties need not sign the same counterpart. In the event
that any signature is delivered by facsimile transmission, such
signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed)
the same with the same force and effect as if such facsimile
signature page were an original thereof.
Section 7.11. Publicity. The Company and the
Purchaser shall consult with each other in issuing any press
releases or otherwise making public statements with respect to
the transactions contemplated hereby and neither party shall
issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which
consent shall not be unreasonably withheld or delayed.
Section 7.12. Severability. In case any one or more
of the provisions of this Agreement shall be invalid or
unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in
any way be affecting or impaired thereby and the parties will
attempt to agree upon a valid and enforceable provision which
shall be a reasonable substitute therefor, and upon so agreeing,
shall incorporate such substitute provision in this Agreement.
Section 7.13. Remedies. In addition to being entitled
to exercise all rights provided herein or granted by law,
including recovery of damages, the Purchaser will be entitled to
specific performance of the obligations of the Company under this
Agreement and the Company will be entitled to specific
performance of the obligations of the Purchaser hereunder with
respect to the subsequent transfer of Shares and the Underlying
Shares. Each of the Company and the Purchaser agrees that
monetary damages would not be adequate compensation for any loss
incurred by reason of any breach of its obligations described in
the foregoing sentence and hereby agrees to waive in any action
for specific performance of any such obligation the defense that
a remedy at law would be adequate.
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first indicated
above.
Company:
NETWORK IMAGING CORPORATION
By: /s/ Robert P. Bernardi
Name: Robert P. Bernardi
Title: Chairman
Purchaser:
By:
<PAGE> 30
Exhibit A
Certificate of Designation of Series I Convertible Stock filed as
Exhibit to the Quarterly Report on Form 10-Q for the period ended
June, 1996.
<PAGE> 31
Exhibit B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is
made and entered into as of June 28, 1996, by and among Network
Imaging Corp., a Delaware corporation (the "Company"), and, a
corporation (the "Purchaser").
This Agreement is made pursuant to the Convertible
Preferred Stock Purchase Agreement, dated as of June 28, 1996 by
and among the Company and the Purchaser (the "Purchase Agreement").
The execution of this Agreement is a condition to the closing of
the transactions contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein
shall have the meanings given such terms in the Purchase Agreement.
As used in this Agreement, the following terms shall have the
following meanings:
"Advice" shall have meaning set forth in Section 4(o).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or
under common control with such Person. For the purposes of this
definition, "control," when used with respect to any Person, means
the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and
"controlled" have meanings correlative to the foregoing.
"Blackout" shall have the meaning set forth in Section
3(b).
"Business Day" means any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking
<PAGE> 32
institutions in the state of New York generally are authorized or
required by law or other government actions to close.
"Closing Date" shall have the meaning set forth in the
Purchase Agreement.
"Commission" means the Securities and Exchange
Commission.
"Common Stock" means the Company's Common Stock, par
value $.0001 per share.
"Effectiveness Date" means the 75th day following the
Closing Date.
"Effectiveness Period" shall have the meaning set forth
in Section 2(a).
"Event" shall have the meaning set forth in Section 5.
"Event Date" shall have the meaning set forth in Section
5.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Filing Date" means the 17th day following the Closing
Date.
"Holder" or "Holders" means the holder or holders, as the
case may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 7(c).
"Indemnifying Party" shall have the meaning set forth in
Section 7(c).
"Losses" shall have the meaning set forth in Section
7(a).
"New York Courts" shall have the meaning set forth in
Section 9(i).
"Person" means an individual or a corporation,
<PAGE> 33
partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company,
government (or an agency or political subdivision thereof) or other
entity of any kind.
"Proceeding" means an action, claim, suit, investigation
or proceeding (including, without limitation, an investigation or
partial proceeding, such as a deposition), whether commenced or
threatened.
"Prospectus" means the prospectus included in the
Registration Statement (including, without limitation, a prospectus
that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under to the Securities Act), as amended
or supplemented by any prospectus supplement, with respect to the
terms of the offering of any portion of the Registrable Securities
covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments,
and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"Registrable Securities" means the shares of Series I
Preferred purchased by the Purchaser pursuant to the Purchase
Agreement and the shares of Common Stock into which such shares of
Series I Preferred are convertible pursuant to the Purchase
Agreement.
"Registration Statement" means the registration
statement, contemplated by Section 2(a), including the Prospectus,
amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration
statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted
by the Commission having substantially the same effect as such
Rule.
"Rule 144A" means Rule 144A promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted
<PAGE> 34
by the Commission having substantially the same effect as such
Rule.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted
by the Commission having substantially the same effect as such
Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted
by the Commission having substantially the same effect as such
Rule.
"Securities Act" means the Securities Act of 1933, as
amended.
"Special Counsel" means any special counsel to the
Holders, for which the Holders will be reimbursed by the Company
pursuant to Section 5.
"Underwritten registration or underwritten offering"
means a registration in connection with which securities of the
Company are sold to an underwriter for reoffering to the public
pursuant to an effective registration statement.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall
prepare and file with the Commission a "shelf" Registration
Statement covering all Registrable Securities (which
Registrable Securities shall include 2,250,000 shares of Common
Stock or such other number of shares agreed to by the parties to
the Purchase Agreement) for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement shall be on
Form S-3 or another appropriate form permitting registration of
Registrable Securities for resale by the Holders in the manner or
manners designated by them (including, without limitation, public
or private sales and one or more underwritten offerings). The
Company shall (i) not permit any securities other than the
Registrable Securities to be included in the Registration
Statement and (ii) use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act as
promptly as practicable after the filing thereof, but in
<PAGE> 35
any event prior to the Effectiveness Date, and to keep such
Registration Statement continuously effective under the Securities
Act until the date which is three years after the Closing Date or
such earlier date when all Registrable Securities covered by such
Registration Statement have been sold or may be sold pursuant to
Rule 144(A) as determined by the counsel to the Company pursuant to
a written opinion letter, addressed to the Holders, to such effect
(the "Effectiveness Period"); provided, however, that the Company
shall not be deemed to have used its best efforts to keep the
Registration Statement effective during the Effectiveness Period if
it voluntarily takes any action that would result in the Holders
not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such
action is required under applicable law or the Company has filed a
post-effective amendment to the Registration Statement and the
Commission has not declared it effective or except as otherwise
permitted by Section 3(a).
(b) If the Holders of a majority of the Registrable
Securities so elect, an offering of Registrable Securities pursuant
to the Registration Statement may be effected in the form of an
underwritten offering. In such event, and if the managing
underwriters advise the Company and such Holders in writing that in
their opinion the amount of Registrable Securities proposed to be
sold in such offering exceeds the amount of Registrable Securities
which can be sold in such offering, there shall be included in such
underwritten offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and
such amount shall be allocated pro rata among the Holders proposing
to sell Registrable Securities in such underwritten offering.
(c) If any of the Registrable Securities are to be sold
in an underwritten offering, the investment banker or investment
bankers and manager or managers that will administer the offering
will be selected by the Holders of a majority of the Registrable
Securities included in such offering. No Holder may participate in
any underwritten offering hereunder unless such Person (i) agrees
to sell its Registrable Securities on the basis provided
in any underwriting agreements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the
terms of such arrangements.
3. Hold-Back Agreements
<PAGE> 36
(a) Restrictions on Public Sale by the Holders. Subject
to paragraph (b) of this Section 3, the Purchaser hereby
understands and agrees that the registration rights of the
Purchaser pursuant to this Agreement and its ability to offer and
sell Registrable Securities pursuant to the Registration Statement
are limited by the provisions of the immediately following
sentence. If the Company determines in its good faith judgment
that the filing of the Registration Statement in accordance with
Section 2 or the use of any Prospectus would require the disclosure
of material information which the Company has a bona fide business
purpose for preserving as confidential or the disclosure of which
would impede the Company's ability to consummate a significant
transaction, upon written notice of such determination by the
Company, the rights of the Purchaser to offer, sell or distribute
any Registrable Securities pursuant to the Registration Statement
or to require the Company to take action with respect to the
registration or sale of any Registrable Securities pursuant to
the Registration Statement (including any action contemplated by
Section 4) will for up to 60 days in any 12-month period be
suspended until the date upon which the Company notifies
the Holders in writing that suspension of such rights for the
grounds set forth in this Section 3(a) is no longer necessary;
provided that there may be no such further suspension after the
initial twelve-month period in which such suspension has occurred.
(b) Limitation on Blackouts. Notwithstanding anything
contained herein to the contrary, the aggregate number of days
(whether or not consecutive) during which the Company may delay the
effectiveness of the Registration Statement or prevent offerings,
sales or distributions by the Purchaser pursuant to paragraph (a)
above or the last paragraph of Section 4 (collectively, a
"Blackout") shall in no event exceed 90 days during any
12-month period and no Blackout may continue in consecutive 12
month periods.
4. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission within the time
period set forth in Section 2 a Registration Statement on Form S-3
in accordance with the method or methods of distribution thereof as
specified by the Holders, and cause the Registration Statement to
<PAGE> 37
become effective and remain effective as provided herein; provided,
however, that not less than 5 Business Days prior to the filing of
the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would
be incorporated or deemed to be incorporated therein by reference),
the Company shall (i) furnish to the Holders, their Special Counsel
and any managing underwriters, copies of all such documents
proposed to be filed, which documents (other than those
incorporated or deemed to be incorporated by reference) will be
subject to the review of such Holders, their Special Counsel and
such managing underwriters, and (ii) cause its officers and
directors, counsel and independent certified public accountants to
respond to such inquiries as shall be necessary, in the opinion of
respective counsel to such Holders and such underwriters, to
conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration
Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any managing
underwriters, shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such
amendments, including post-effective amendments, to the
Registration Statement as may be necessary to keep the
Registration Statement continuously effective for the applicable
time period; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities
Act; (iii) respond as promptly as practicable to any comments
received from the Commission with respect to the Registration
Statement or any amendment thereto; and (iv) comply with the
provisions of the Securities Act and the Exchange Act with respect
to the disposition of all Registrable Securities covered
by the Registration Statement during the applicable period in
accordance with the intended methods of disposition by the Holders
thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be
sold, their Special Counsel and any managing underwriters
immediately (and, in the case of (i)(A) below, not less than 5 days
prior to such filing) and (if requested by any such Person) confirm
such notice in writing no later than one Business Day following the
day (i)(A) when a Prospectus or any Prospectus supplement or
<PAGE> 38
post-effective; amendment to the Registration Statement is
proposed to be filed and, (B) with respect to the Registration
Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or
supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable
Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and
warranties of the Company contained in any agreement (including any
underwriting agreement) contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company
of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and
(vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to
the Registration Statement, Prospectus or other documents so
that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading.
(d) Use its best efforts to avoid the issuance of, or,
if issued, obtain the withdrawal of (i) any order suspending the
effectiveness of the Registration Statement or (ii) any suspension
of the qualification (or exemption from qualification) of any of
the Registrable Securities for sale in any jurisdiction, at the
earliest practicable moment.
(e) If requested by any managing underwriter or the
Holders of a majority of the Registrable Securities to be sold in
connection with an underwritten offering, (i) promptly incorporate
in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as such managing
underwriters and such Holders reasonably agree should be included
therein and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable
<PAGE> 39
after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective
amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 4(e) that
would, in the opinion of counsel for the Company, violate
applicable law.
(f) Furnish to each Holder, their Special Counsel and
any managing underwriters, without charge, at least one executed
copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and
all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special
Counsel, and any underwriters, without charge, as many copies of
the Prospectus or Prospectuses (including each form of prospectus)
and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of
the selling Holders and any underwriters in connection with the
offering and sale of the Registrable Securities covered by such
Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable
Securities, use its best efforts to register or qualify or
cooperate with the selling Holders, any underwriters and their
respective counsel in connection with the registration or
qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder or underwriter requests in writing,
to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any
and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable
Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so
qualified or to take any action that would subject it to general
service of process in any such jurisdiction where it is not then so
subject or subject the Company to any material tax in any
such jurisdiction where it is not then so subject.
<PAGE> 40
(i) Cooperate with the Holders and any managing
underwriters to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be
sold, which certificates shall be free of all restrictive legends,
and to enable such Registrable Securities to be in such
denominations and registered in such names as any such managing
underwriters or Holders may request at least two Business Days
prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by
Section 4(c)(vi), as promptly as practicable, prepare a supplement
or amendment, including a post-effective amendment, to the
Registration Statement or a supplement to the related Prospectus or
any document incorporated or deemed to be incorporated therein by
reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor
such Prospectus will contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable
Securities relating to such Registration Statement to be listed on
each securities exchange or market, if any, on which
similar securities issued by the Company are then listed.
(l) Enter into such agreements (including an
underwriting agreement in form, scope and substance as is customary
in underwritten offerings ) and take all such other
actions in connection therewith (including those reasonably
requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) in order
to expedite or facilitate the disposition of such Registrable
Securities, and whether or not an underwriting agreement is entered
into, (i) make such representations and warranties to such
Holders and such underwriters as are customarily made by issuers
to underwriters in underwritten public offerings, and confirm the
same if and when requested; (ii) obtain and deliver copies thereof
to each Holder and the managing underwriters, if any, of opinions
of counsel to the Company and updates thereof addressed to each
selling Holder and each such underwriter, in form, scope and
substance reasonably satisfactory to any such managing
underwriters and Special Counsel to the selling Holders covering
the matters customarily covered in opinions requested in
<PAGE> 41
underwritten offerings and such other matters as may be
reasonably requested by such Special Counsel and underwriters;
(iii) immediately prior to the effectiveness of the Registration
Statement, and, in the case of an underwritten offering, at
the time of delivery of any Registrable Securities sold pursuant
thereto, obtain and deliver copies to the Holders and the managing
underwriters, if any, of "cold comfort" letters and
updates thereof from the independent certified public accountants
of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the
Registration Statement), addressed to each selling Holder and each
of the underwriters, if any, in form and substance as are
customary in connection with underwritten offerings; (iv) if an
underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the
selling Holders and the underwriters, if any, than those set forth
in Section 7 (or such other provisions and procedures acceptable to
the managing underwriters, if any, and holders of a majority of
Registrable Securities participating in such underwritten
offering; and (v) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and
any managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to clause 4(l)(i)
above and to evidence compliance with any customary conditions
contained in the underwriting agreement or other agreement entered
into by the Company.
(m) Make available for inspection by the selling
Holders, any representative of such Holders, any underwriter
participating in any disposition of Registrable Securities,
and any attorney or accountant retained by such selling Holders or
underwriters, at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent
corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors, agents and
employees of the Company and its subsidiaries to supply all
information in each case requested by any such Holder,
representative, underwriter, attorney or accountant in connection
with the Registration Statement; provided, however, that any
information that is determined in good faith by the Company in
writing to be of a confidential nature at the time of delivery of
such information shall be kept confidential by such Persons, unless
<PAGE> 42
(i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of
regulatory authorities; (ii) disclosure of such information, in the
opinion of counsel to such Person, is required by law;
(iii) such information becomes generally available to the public
other than as a result of a disclosure or failure to safeguard by
such Person; or (iv) such information becomes available
to such Person from a source other than the Company and such source
is not bound by a confidentiality agreement.
(n) Comply with all applicable rules and regulations of
the Commission and make generally available to its securityholders
earning statements satisfying the provisions of Section 11(a) of
the Securities Act and Rule 158 not later than 45 days after the
end of any 12-month period (or 90 days after the end of any
12-month period if such period is a fiscal year) (i) commencing at
the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters in such
an offering, commencing on the first day of the first fiscal
quarter of the Company after the effective date of the Registration
Statement, which statement shall cover said 12-month period, or end
shorter periods as is consistent with the requirements of Rule 158.
(o) Provide a CUSIP number for all Registrable
Securities, not later than the effective date of the Registration
Statement.
The Company may require each selling Holder to furnish to
the Company such information regarding the distribution of such
Registrable Securities as is required by law to be disclosed in the
Registration Statement and the Company may exclude from such
registration the Registrable Securities of any such Holder who
unreasonably fails to furnish such information within a reasonable
time after receiving such request.
If the Registration Statement refers to any Holder by
name or otherwise as the holder of any securities of the Company,
then such Holder shall have the right to require (i) the inclusion
therein of language, in form and substance reasonably satisfactory
to such Holder, to the effect that the ownership by such Holder of
such securities is not to be construed as a recommendation by such
Holder of the investment quality of the Company's securities
covered thereby and that such ownership does not imply that such
Holder will assist in meeting any future financial requirements of
<PAGE> 43
the Company, or (ii) if such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar
Federal statute then in force, the deletion of the reference to
such Holder in any amendment or supplement to the Registration
Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Purchaser covenants and agrees that (i) it will not
offer or sell any Registrable Securities under the Registration
Statement until it has received copies of the Prospectus as then
amended or supplemented as contemplated in Section 4(g) and notice
from the Company that such Registration Statement and any
post-effective amendments thereto have become effective as
contemplated by Section 4(c) and (ii) the Purchaser and its
officers, directors or Affiliates, if any, will comply with the
prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable
Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section 4(c)(ii),
4(c)(iii), 4(c)(iv), 4(c)(v) or 4(c)(vi), such Holder will
forthwith discontinue disposition of such Registrable Securities
until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement contemplated by
Section 4(j), or until it is advised in writing (the "Advice") by
the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus or Registration
Statement.
5. Liquidated Damages. The Company acknowledges and
agrees that the Holders will suffer damages, and that it would not
be feasible to ascertain the extent of such damages with precision,
if the Company fails to fulfill its obligations hereunder and (a)
a Registration Statement is not filed with the Commission on or
prior to the Filing Date, (b) a Registration Statement is not
declared effective by the Commission on or prior to the
Effectiveness Date or (c) a Registration Statement is filed and
declared effective but thereafter ceases to be effective at any
time during the Effectiveness Period without being succeeded within
30 days by a subsequent Registration Statement filed with and
declared effective by the Commission (any such failure being
<PAGE> 44
hereinafter referred to as an "Event", and for purposes of clauses
(a) and (b) the date on which such Event occurs, or for purposes
of clause (c) the date on which such 30-day limit is exceeded,
being hereinafter referred to as an "Event Date").
Upon the occurrence of an Event, the Company agrees to
increase the discount applicable to a conversion of Series I
Preferred in accordance with Section 5(d)(i) of the Certificate of
Designation by two percent (2%) per month for each of the first two
months after each Event Date. Commencing on the third month after
an Event Date, the two percent (2%) monthly penalty shall be paid
to the Holder in cash. Such increase in discount and/or
payment in cash, as the case may be, shall be paid as liquidated
damages, and not as a penalty, to each Holder; provided, that such
liquidated damages will, in each case, cease to accrue (subject to
the occurrence of another Event) on the date in which the
applicable Registration Statement is no longer subject to an order
suspending the effectiveness thereof or Proceedings relating
thereto or a subsequent Shelf Registration is declared effective.
The Company shall notify each Holder within five days of
each Event and Event Date. The Company shall pay the liquidated
damage due on the Registrable Securities to each Holder of record
as at the Event Date on the first Business Day of each month in
which such liquidated damages shall accrue by check delivered to
the address for notice of such Holder set forth herein.
6. Registration Expenses
(a) All fees and expenses incident to the performance of
or compliance with this Agreement by the Company shall be borne by
the Company whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses
referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings
required to be made with the National Association of Securities
Dealers, Inc. and (B) in compliance with state securities or Blue
Sky laws (including, without limitation, fees and disbursements of
counsel for the underwriters or Holders in connection with Blue Sky
qualifications of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under
the laws of such jurisdictions as the managing underwriters, if
any, or Holders of a majority of Registrable Securities may
<PAGE> 45
designate)), (ii) printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities and
of printing prospectuses if the printing of prospectuses is
requested by the managing underwriters, if any, or by the holders
of a majority of the Registrable Securities included in
the Registration Statement), (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holders (subject to
the provisions of Section 6(b)), (v) fees and disbursements of all
independent certified public accountants referred to in Section
4(1)(iii) (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to
such performance), (vi) Securities Act liability insurance, if the
Company so desires such insurance, and (vii) fees and expenses of
all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement.
In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without
limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with
the listing of the Registrable Securities on any securities
exchange on which similar securities issued by the Company are then
listed.
(b) In connection with the Registration Statement, the
Company shall reimburse the Holders for the reasonable fees and
disbursements of one firm of attorneys chosen by the Holders of a
majority of the Registrable Securities.
7. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding termination of this Agreement and without
limitation as to time, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers, investment advisors and
employees of each of them, each Person who controls any such Holder
(within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) and the officers, directors, agents
and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, with-
out limitation, costs of preparation and attorneys' fees) and
expenses (collectively, "Losses"), as incurred, arising out of or
<PAGE> 46
relating to any untrue or alleged untrue statement of a material
fact contained in the Registration Statement, any Prospectus or any
form of prospectus or in any amendment or supplement thereto or in
any preliminary prospectus, or arising out of or relating to any
omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the
case of any Prospectus or form of prospectus or supplement thereto,
in light of the circumstances under which they were made) not mis-
leading, except to the extent, but only to the extent, that such
untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by or on
behalf of such Holder expressly for use therein, which information
was reasonably relied on by the Company for use therein or to the
extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by
such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or
supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which
the Company is aware in connection with the transactions
contemplated by this Agreement.
(b) Indemnification by Holders. In connection with the
Registration Statement, each Holder shall furnish to the Company in
writing such information as the Company reasonably requests for use
in connection with the Registration Statement or any Prospectus and
agrees, jointly and not severally, to indemnify and hold harmless
the Company, their directors, officers, agents and employees, each
Person who controls the Company (within the meaning of Section 15
of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable
law, from and against all Losses (as determined by a court of
competent jurisdiction in a final judgment not subject to appeal or
review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration
Statement, any Prospectus, or any form of prospectus, or arising
solely out of or based solely upon any omission of a material fact
required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that
such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically
for inclusion in the Registration Statement or such Prospectus
and that such information was reasonably relied upon by the Company
<PAGE> 47
for use in the Registration Statement, such Prospectus or such form
of prospectus or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in
writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus.
In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the proceeds received
by such Holder upon the sale of the Registrable Securities giving
rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any
Proceeding shall be brought or asserted against any Person entitled
to indemnity hereunder (an "Indemnified Party"), such Indemnified
Party promptly shall notify the Person from whom indemnity is
sought (the "Indemnifying Party") in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with
defense thereof; provided, that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party
of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined
by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure
shall have proximately and materially adversely prejudiced the
Indemnifying Party.
An Indemnified Party shall have the right to employ
separate counsel in any such Proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party or Parties unless: (1)
the Indemnifying Party has agreed to pay such fees and expenses; or
(2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or
(3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the
Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to exist
if the same counsel were to represent such Indemnified Party and
the Indemnifying Party (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense
<PAGE> 48
thereof and such counsel shall be at the expense of the
Indemnifying Party). The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its
written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified
Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that
are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection
with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the
Indemnified Party, as incurred, within 10 Business Days of written
notice thereof to the Indemnifying Party (regardless of whether it
is ultimately determined that an Indemnified Party is not
entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake
to reimburse all such fees and expenses to the extent it is
finally judicially determined that such Indemnified Party is not
entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under
Section 7(a) or 7(b) is unavailable to an Indemnified Party or is
insufficient to hold such Indemnified Party harmless for any Losses
in respect of which this Section would apply by its terms (other
than by reason of exceptions provided in this Section), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified
Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party
and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in ques-
tion, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information sup-
plied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any
<PAGE> 49
Losses shall be deemed to include, subject to the limitations set
forth in Section 7(c), any attorneys' or other fees or expenses
incurred by such party in connection with any Proceeding to the
extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was
available to such party.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 7(d), the
Purchaser shall not be required to contribute, in the aggregate,
any amount in excess of the amount by which the proceeds actually
received by the Purchaser from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any
damages that the Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall
be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.
The indemnity and contribution agreements contained in
this Section are in addition to any liability that the Indemnifying
Parties may have to the Indemnified Parties.
8. Rule 144
The Company shall file the reports required to be filed
by it under the Securities Act and the Exchange Act in a timely
manner and, if at any time the Company is not required to file such
reports, they will, upon the request of any Holder, make publicly
available other information so long as necessary to permit sales of
its securities pursuant to Rule 144. The Company further covenants
that it will take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable
such Holder to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions
provided by Rule 144. Upon the request of any Holder, the Company
shall deliver to such Holder a written certification of a duly
authorized officer as to whether it has complied with such
requirements.
<PAGE> 50
9. Miscellaneous
(a) Remedies. In the event of a breach by the Company
or by a Holder, of any of their obligations under this Agreement,
each Holder or the Company, as the case may be, in addition to
being entitled to exercise all rights granted by law and under this
Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not
provide adequate compensation for any losses incurred by reason of
a breach by it of any of the provisions of this Agreement and
hereby further agrees that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense
that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Except as specifically
set forth in Schedule 3.1 to the Purchase Agreement, none of the
Company nor any of its subsidiaries has, as of the date hereof, nor
shall the Company or any of its subsidiaries, on or after the
date of this Agreement, enter into any agreement with respect to
its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as set specifically forth in Schedule
3.1 to the Purchase Agreement, none of the Company nor any of its
subsidiaries has previously entered into any agreement granting any
registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without
the written consent of the Holders of a majority of the then
outstanding Registrable Securities, the Company shall not grant to
any Person the right to request the Company to register any
securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights
in full of the Holders set forth herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as
specifically set forth in Schedule 3.1 to the Purchase Agreement,
none of the Company nor any of its securityholders (other than the
Holders in such capacity pursuant hereto) may include securities of
the Company in the Registration Statement other than the Common
Stock to be issued under the Purchase Agreement, and the Company
shall not enter into any agreement providing any such right to any
of its securityholders.
<PAGE> 51
(d) Entire Agreement; Amendments. This Agreement,
together with the Exhibits, Annexes and Schedules hereto, contain
the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters.
(e) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be
amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless
the same shall be in writing and signed by the Company and the
Holders of at least a majority of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this
sentence, Registrable Securities that are owned, directly or
indirectly, by the Company, or an Affiliate of the Company are not
deemed outstanding. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a
matter that relates exclusively to the rights of Holders and that
does not directly or indirectly affect the rights of other Holders
may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided,
however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the
provisions of the immediately preceding sentence.
(f) Notices. Any notice or other communication required
or permitted to be given hereunder shall be in writing and shall be
deemed to have been received (a) upon hand delivery (receipt
acknowledged) or delivery by telex (with correct answer back
received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business
day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company: Network Imaging Corporation
500 Huntmar Park Drive
Herndon, VA 22070
Facsimile No.: (703) 478-7523
Attn: Chief Executive Officer
<PAGE> 52
With copies to: Jones & Blouch L.L.P.
1025 Thomas Jefferson Street,
N.W.
Suite 405
Washington, D.C. 20007
Facsimile No.: (202) 223-4593
Attn: John W. Blouch
If to the Purchaser:
With copies to: Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10019
Attn: Kenneth L. Henderson
Facsimile No.: (212) 541-4630
If to any other Person who is then the registered Holder:
To the address of such Holder as
it appears in the stock transfer
books of the Company
or such other address as may be
designated in writing hereafter,
in the same manner, by such
Person.
(g) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and permitted
assigns of each of the parties and shall inure to the benefit of
each Holder. The Company may not assign its rights or obligations
hereunder without the prior written consent of each Holder.
(h) Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be
deemed to be an original and, all of which taken together shall
<PAGE> 53
constitute one and the same Agreement. In the event that any
signature is delivered by facsimile transmission, such signature
shall create a valid binding obligation of the party executing (or
on whose behalf such signature is executed) the same with the same
force and effect as if such facsimile signature were the original
thereof.
(i) Governing Law; Submission to Jurisdiction; Waiver of
Jury Trial. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard
to principles of conflicts of law. The Company hereby irrevocably
submits to the jurisdiction of any New York state court sitting in
the Borough of Manhattan in the City of New York or any federal
court sitting in the Borough of Manhattan in the City of New York
(collectively, the "New York Courts") in respect of any Proceeding
arising out of or relating to this Agreement, and irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, jurisdiction of the New York Courts. The Company
irrevocably waives to the fullest extent it may effectively do so
under applicable law any objection that it may now or hereafter
have to the laying of the venue of any such Proceeding
brought in any New York Court and any claim that any such
Proceeding brought in any New York Court has been brought in an
inconvenient forum. Nothing herein shall affect the right
of any Holder to serve process in any manner permitted by law or to
commence legal proceedings or otherwise proceed against the company
in any other jurisdiction.
(j) Cumulative Remedies. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
(k) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no
way be affected, impaired or invalidated, and the parties hereto
shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid,
illegal, void or unenforceable.
<PAGE> 54
(l) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
(m) Shares held by The Company and its Affiliates.
Whenever the consent or approval of Holders of a specified
percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company or its Affiliates (other
than the Purchaser or transferees or successors or assigns thereof
if such Persons are deemed to be Affiliates solely by reason of
their holdings of such Registrable Securities) shall not be
counted in determining whether such consent or approval was given
by the Holders of such required percentage.
<PAGE> 55
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
NETWORK IMAGING CORPORATION
By:
Name:
Title:
By:
<PAGE> 56
EXHIBIT C
[Form of Opinion of Jones & Blouch L.L.P.]
Gentlemen:
We have acted as counsel to Network Imaging Corporation,
a Delaware corporation (the "Company"), in connection with the
execution and delivery of the Convertible Preferred Stock Purchase
Agreement, dated as of June 28, 1996 (the "Purchase Agreement"), by
and between the Company and Newsun Limited (the "Purchaser"),
pursuant to which the Company is issuing to the Purchaser shares of
its Series I Convertible Preferred Stock, par value $.0001 per
share (the "Shares"). Terms used and not otherwise defined herein
shall have the respective meanings set forth in the Purchase
Agreement.
This opinion is delivered to you pursuant to Section
5.1(a) of the Purchase Agreement.
In connection with this opinion, we have examined:
(a) An executed copy of the Purchase Agreement;
(b) The Certificate of Designation of Series I
Convertible Preferred Stock of the Company, as
filed with the Secretary of the State of Delaware
on June 28, 1996 (the "Certificate of
Designation");
(c) The Certificate of Incorporation and By-laws of the
Company, each as amended to date hereof;
(d) An executed copy of the Registration Rights
Agreement, dated as of June 28, 1996 (the
"Registration Rights Agreement"), between the
Company and the Purchaser;
(e) Records of proceedings and actions of the Board of
Directors of the Company relating to the
transactions contemplated by the Purchase Agreement
and the Registration Rights Agreement;
(f) Officer's Certificate for the Company, dated June
28, 1996 (the "Officer's Certificate"); and
(g) The Certificate of Incorporation and By-laws of
Symmetrical Technologies, Incorporated (the
"Domestic Subsidiary"), each as amended to date
hereof.
<PAGE> 57
We have also investigated such questions of law,
including, without limitation, Regulation D ("Regulation D")
promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), and examined such additional corporate records
of the Company and such other documents and public records as we
have deemed necessary or appropriate to render the opinions
contained herein.
We have assumed the genuineness of all signatures (except
those of officers of the Company), the authenticity of all
documents submitted to us as originals and the conformity to
original documents of documents submitted to us as certified,
conformed or photostatic copies. We have also assumed, without
verification, the legal capacity of each individual who has
executed documents or instruments in connection with the
transaction contemplated hereby. With respect to certain factual
matters, we have relied, without independent investigation on the
facts stated in the representations and warranties contained in the
Purchase Agreement and the Schedules thereto, the SEC Documents,
the Registration Rights Agreement and the Officers' Certificate
(other than in each case facts constituting conclusions of law).
We have also assumed, without verification (i) that the
parties to the Purchase Agreement and the other agreements,
instruments and documents executed in connection therewith, other
than the Company, have the power (including, without limitation,
corporate power where applicable) and authority to enter into and
perform the Purchase Agreement and such other agreements,
instruments and documents, (ii) the due authorization, execution
and delivery by such other parties of the Purchase Agreement and
such other agreements, instruments and documents, and (iii) that
the Purchase Agreement and such other agreements, instruments and
documents constitute legal, valid and binding obligations of each
such other party, enforceable against such other party in
accordance with their respective terms.
Based upon and subject to the foregoing, we are of the
opinion that:
1. Each of the Company and the Domestic Subsidiary is
a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation,
with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently
conducted.
<PAGE> 58
2. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions
contemplated by the Purchase Agreement and the Registration Rights
Agreement and otherwise to carry out its obligations under such
agreements. The execution and delivery of the Purchase Agreement
and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated thereby have
been duly authorized by all necessary action on the part of the
Company. Each of the Purchase Agreement and the Registration
Rights Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the
Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles
of general application and except as rights to indemnity or
contribution may be limited by applicable law.
3. No shares of common stock, par value $.0001 per share
(the "Common Stock"), of the Company are entitled to preemptive or
similar rights. Except as specifically disclosed in Schedules 3.1
to the Purchase Agreement, to our knowledge, there are no
outstanding options, warrants, scrip rights to subscribe to, calls
or commitments of any character whatsoever relating to, or, except
as a result of the purchase and sale of the Shares under the
Purchase Agreement, securities, rights or obligations convertible
into or exchangeable for, or giving any person any right to
subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company
or any Subsidiary is or may become bound to issue additional shares
of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock.
4. The Shares are duly authorized and, when paid for in
accordance with the terms of the Purchase Agreement, shall have
been validly issued, fully paid and nonassessable.
5. The shares of Common Stock into which the Shares are
convertible (the "Underlying Shares") have been duly authorized and
reserved for issuance by the Company and, when issued by the
Company in accordance with the terms of the Purchase Agreement and
the Certificate of Designation, will be validly issued, fully paid
and nonassessable.
<PAGE> 59
6. Assuming the accuracy of the representations and
warranties of the Company set forth in Section 3.1(k) of the
Purchase Agreement and of the Purchasers set forth in Section 3.2
of the Purchase Agreement, the offer, issuance and sale of the
Shares or the Underlying Shares to the Purchaser pursuant to the
Purchase Agreement are exempt from the registration requirements of
the Securities Act by reason of Regulation D promulgated
thereunder.
7. The execution, delivery and performance of the
Purchase Agreement and the Registration Rights Agreement by the
Company and the consummation by the Company of the transactions
contemplated by such agreements do not and will not (i) conflict
with or violate any provision of its certificate of incorporation
or bylaws, (ii) to our knowledge, conflict with, or constitute a
default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party,
or (iii) to our knowledge, result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the
Company is subject (excluding Federal and state securities laws and
regulations as to which we express no opinion except as set forth
in 6 above), or by which any property or asset of the Company is
bound or affected. To our knowledge, the business of the Company
is not being conducted in violation of any law, ordinance or
regulation of any governmental authority.
8. Other than the Required Approvals, to our knowledge,
the Company is not required to obtain any consent, waiver,
authorization, or order of, or make any filing or registration
with, any court or other federal, state, local or other
governmental authority or other person in connection with the
execution, delivery and performance by the Company of the Purchase
Agreement and the Registration Rights Agreement, except that we
express no opinion on Federal and state securities laws and
regulations except as set forth in 6 above.
9. To our knowledge, the Company has filed all reports
required to be filed by it under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the
<PAGE> 60
date hereof (or such shorter period as the Company was required by
law to file such material) on a timely basis, or has received a
valid extension of such time of filing.
We do not undertake to advise you or anyone else of any
changes in the opinions expressed herein resulting from changes in
law, changes in facts or any other matters that hereafter might
occur or be brought to our attention that did not exist on the date
hereof and of which we had no knowledge.
We express no opinion as to the law of any jurisdiction
other than the federal law of the United States, the laws of the
District of Columbia and, to the extent relevant to the opinions
expressed herein, the General Corporation Law of the State of
Delaware (the "DGCL"). To the extent the laws of any state other
than the DGCL govern any of the opinions expressed herein, we have
assumed that the laws of such state are the same as the laws of the
District of Columbia.
Very truly yours,
<PAGE> 61
EXHIBIT D
Conversion Procedures
Conversion shall be effectuated by surrendering the Preferred
Stock to be converted by overnight courier to the Company with a
Notice of Conversion, a copy of which is attached hereto (with an
advance copy of such conversion notice to the Company and its
counsel by facsimile at (703) 904-3292 and (202) 223-4593,
respectively), executed by the holder evidencing such holder's
intention to convert the number of shares of Preferred Stock
subject to such notice, and accompanied, in the event the holder
desires to register the shares of Common Stock in a name other than
that of holder, by proper assignment hereof. The Company shall
cause its transfer agent (the "Transfer Agent") to deliver the
shares of Common Stock subject to such notice (free of restrictive
legend except as provided in the Convertible Preferred Stock
Purchase Agreement between the Company and the original holder of
the Preferred Stock) to the holder within three business days from
date of receipt of the conversion notice and the original of the
Preferred Stock certificate (or a lost certificate affidavit and
bond in form reasonably satisfactory to the Company if the original
certificate has been lost, mutilated or destroyed). If the holder
is converting less than all shares of Preferred Stock represented
by the certificate or certificates tendered by the holder with the
above mentioned conversion notice, the Company shall promptly
deliver to the holder a certificate for such number of shares of
Preferred Stock as have not been converted.
<PAGE> 1
EXHIBIT 4.B
WARRANT TO PURCHASE COMMON STOCK
OF
NETWORK IMAGING CORPORATION
Holder:
Name:
Address:
Taxpayer Identification No.:
No. of Shares of Common Stock: 40,000
Grant Date: , 1996
Termination Date: , 2001 (at 5:00
p.m., Washington, D.C. Time)
Purchase Price Per Share: $3.75
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OF THE UNITED STATES OF AMERICA AND
HAS BEEN ISSUED IN RELIANCE UPON THE EXEMPTION FROM SUCH REGISTRA-
TION CONTAINED IN REGULATION S UNDER THE ACT. THIS WARRANT MAY NOT
BE OFFERED, SOLD OR TRANSFERRED IN THE UNITED STATES OR TO ANY
<PAGE> 2
"U.S. PERSON" (AS DEFINED IN REGULATION S).
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
ITS EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OF THE UNITED STATES OF AMERICA, AND THIS
WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY "U.S. PERSON"
(AS DEFINED IN REGULATION S UNDER THE ACT) UNLESS SUCH SHARES OF
COMMON STOCK ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS IN THE UNITED STATES OR EXEMPTIONS FROM SUCH
REGISTRATION ARE AVAILABLE.
FOR VALUE RECEIVED, Network Imaging Corporation, a Delaware
Corporation (the "Company"), hereby certifies that the person iden-
tified on the cover page as the holder or permitted assigns (the
"Holder") is entitled to purchase from the Company the number of
fully paid and nonassessable shares of Common Stock, par value
$.0001 per share, of the Company set forth on the cover page at the
purchase price set forth on the cover page. (Hereinafter, (i) said
Common Stock, together with any other equity securities which may
be issued by the Company with respect thereto or in substitution
therefor, is referred to as the "Common Stock," (ii) the shares of
the Common Stock purchasable hereunder are referred to as the
"Warrant Shares," (iii) the aggregate purchase price payable here-
under for the Warrant Shares is referred to as the "Aggregate
Warrant Price," (iv) the price payable hereunder for each of the
Warrant Shares is referred to as the "Per Share Warrant Price," and
(v) this Warrant and all warrants hereafter issued in exchange or
substitution for this Warrant are referred to as the "Warrant.")
1. Exercise of Warrant. The Warrant may be exercised at any
time or from time to time commencing on the date hereof and prior
to 5:00 p.m. Washington, D.C. time on the Termination Date set
forth on the cover page. The Holder may exercise this Warrant for
the number of shares then exercisable (or any lesser amount of
shares the Holder may choose to exercise) by the surrender of this
Warrant (with the subscription form at the end hereof duly execut-
<PAGE> 3
ed) at the address set forth in Subsection 8(a) hereof, together
with proper payment of the Aggregate Warrant Price (or the propor-
tionate part thereof if this Warrant is exercised in part).
Payment for Warrant Shares shall be made by certified or official
bank check payable to the order of the Company. Upon such surren-
der of this Warrant, the Company will issue a certificate or cer-
tificates in the name of the Holder for the largest number of whole
shares of the Common Stock to which the Holder shall be entitled
and, in lieu of issuing any fractional share of Common Stock to
which the Holder shall be entitled, shall pay the Holder cash equal
to the value of such fractional share (all calculations to be made
to the nearest cent). The Warrants may not be exercised in full or
in part by any Holder if, in the opinion of counsel to the Company,
exercise of the Warrants by such Holder would violate the securi-
ties registration provisions of the securities laws of the United
States or any jurisdiction the laws of which apply to such exer-
cise.
2. Adjustments. In case the Company shall hereafter (i) pay
a dividend in shares of Common Stock, (ii) subdivide its outstand-
ing shares of Common Stock, or (iii) combine its outstanding shares
of Common Stock into a smaller number of shares, then, and in each
such case, the number of shares of Common Stock which the Holder is
entitled to purchase pursuant to this Warrant immediately prior to
the happening of any of such events shall be adjusted so that the
Holder shall be entitled to receive upon exercise of this Warrant
the number of shares of Common Stock which he would have owned or
would have been entitled to receive immediately following the
happening of such event had this Warrant been exercised immediately
prior thereto, and the Per Share Warrant Price shall be correspond-
ingly adjusted. An adjustment made pursuant to this Section 2
shall become effective immediately after the record date in the
case of a dividend and immediately after the effective date in the
case of a subdivision or combination.
3. Fully Paid Stock; Taxes. The Company agrees that the
shares of the Common Stock delivered on the exercise of this War-
rant, at the time of such delivery, will be validly issued and out-
standing, fully paid and nonassessable, and not subject to preemp-
tive rights. The Company shall not be obligated to pay any stamp,
original issue, transfer or other taxes in respect of this Warrant
or the Common Stock deliverable on the exercise of this Warrant.
4. Limitations on Transfer and Exercise.
<PAGE> 4
(a) Securities Laws. Neither this Warrant nor the
Warrant Shares issuable upon the exercise hereof have been
registered under the Securities Act of 1933 (the "Securities Act")
or under any state securities laws and, unless so registered, may
not be assigned, transferred, sold, pledged, hypothecated, or
otherwise disposed of unless an exemption from such registration is
available. In the event the Holder desires to transfer the Warrant
or any of the Warrant Shares otherwise then pursuant to an
effective registration statement under the Securities Act, the
Holder must give the Company prior written notice of such proposed
transfer, including the name and address of the proposed transfer-
ee, and furnish the Company with an opinion of counsel satisfactory
to the Company to the effect that the proposed transfer may be
effected without registration or qualification under the Securities
Act or any applicable state securities laws.
(b) Regulation S Conditions. This Warrant may not be
exercised unless the Company has received from the Holder (i) a
written certification in the form of the Subscription attached
hereto or other form acceptable to counsel for the Company that the
Holder is not a "U.S. Person" as defined in Regulation S under the
Securities Act and is not exercising the Warrant on behalf, or for
the benefit or account, of a "U.S. Person," and (ii) if requested
by the Company, a written opinion of counsel acceptable to counsel
for the Company to the effect that the shares of Common Stock
issuable upon exercise of the Warrant have been registered under
the Securities Act and any applicable state securities laws or are
exempt from such registration. THIS WARRANT MAY NOT BE EXERCISED
IN THE UNITED STATES AND THE SHARES OF COMMON STOCK DUE UPON
EXERCISE WILL NOT BE DELIVERED IN THE UNITED STATES UNLESS SUCH
SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR ARE EXEMPT
FROM SUCH REGISTRATION.
(c) Legend and Stop Transfer Orders. Upon exercise of
any part of the Warrant and the issuance of any of the Warrant
Shares during the Restricted Period as defined in the Subscription
Agreement between the Company and the Holder pursuant to which this
Warrant is issued, the Company shall instruct its transfer agent to
enter stop transfer orders with respect to such shares, and all
certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
<PAGE> 5
ACT OF 1933 OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR TRANSFERRED
WITHOUT COMPLIANCE WITH THE REGISTRATION OR
QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL
AND STATE SECURITIES LAWS OR APPLICABLE EXEMP-
TIONS THEREFROM.
(d) Transfer. Except as restricted hereby, this Warrant
and the Warrant Shares issued may be transferred by the Holder in
whole or in part at any time or from time to time. Upon surrender
of this Warrant to the Company with assignment documentation duly
executed and funds sufficient to pay any transfer tax, and upon
compliance with the foregoing provisions, the Company shall,
without charge, execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment, and this
Warrant shall promptly be cancelled. In the case of transfers to
be effected by the Holder's attorney, executor, administrator,
trustee, guardian or other legal representative, the Company may
require such representative to produce and deposit duly authenti-
cated evidence of such representative's authority before giving
effect to the requested assignment. Any assignment, transfer,
pledge, hypothecation or other disposition of this Warrant
attempted contrary to the provisions of this Warrant, or any levy
of execution, attachment or other process attempted upon the War-
rant, shall be null and void and without effect.
5. Indemnification. The Holder acknowledges that the Holder
understands the meaning and legal consequences of Section 4 hereof,
regarding securities laws and conditions to transfer, and the
Holder hereby agrees to indemnify and hold harmless the Company,
its representatives and each officer and director thereof from and
against any and all loss, damage or liability (including all
attorneys fees and costs incurred in enforcing this indemnity
provision) to which the Company or any such director or officer or
representative may become subject under the Securities Act or any
other statute or common law due to or arising out of any transfer
or disposition of the Warrant or any of the Warrant Shares not in
accordance with this Warrant.
6. Loss, etc. of Warrant. Upon receipt of evidence satis-
factory to the Company of the loss, theft, destruction or mutila-
tion of this Warrant, and of indemnity reasonably satisfactory to
the Company, if lost, stolen or destroyed, and upon surrender and
cancellation of this Warrant, if mutilated, the Company shall
execute and deliver to the Holder a new Warrant of like date, tenor
and denomination.
<PAGE> 6
7. Warrant Holder Not Stockholder. This Warrant does not
confer upon the Holder any right to vote or to consent to or
receive notice as a stockholder of the Company, as such, in respect
of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
8. Communication. No notice or other communication under
this Warrant shall be effective unless the same is in writing and
is delivered by hand or is mailed to:
(a) the Company at 500 Huntmar Park Drive, Herndon,
Virginia 22070 or such other address as the Company has designated
in writing to the Holder, or
(b) the Holder at the address set forth above, or such
other address as the Holder has designated in writing to the
Company.
All such notices or other communications shall be deemed
effective upon the earlier of confirmed receipt or, if mailed, five
business days after deposit in the United States mail, postage pre-
paid, registered or certified, return receipt requested.
9. Headings. The headings of this Warrant have been in-
serted as a matter of convenience and shall not affect the con-
struction hereof.
10. Applicable Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware
without giving effect to the principles of conflicts of law
thereof. The Company and the Holder each agree to submit to the
non-exclusive jurisdiction of the courts of the Commonwealth of
Virginia in any action or proceeding arising out of or relating to
this Warrant.
11. Successors. All the rights and obligations and other
provisions of this Warrant shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto.
12. Amendment. This Warrant may not be amended orally, but
only by an amendment in writing signed both by the Company and the
Holder.
<PAGE> 7
13. Severability. If any provision hereof is for any reason
and to any extent declared to be illegal, invalid or unenforceable,
the legality, validity and enforceability of the remaining provi-
sions of this Warrant shall not in any way be affected or impaired
thereby.
<PAGE> 8
IN WITNESS WHEREOF, NETWORK IMAGING CORPORATION, has caused
this Warrant to be signed by the Chairman of the Board on June ,
1996.
NETWORK IMAGING CORPORATION
By
Robert P. Bernardi
Chairman
<PAGE> 9
SUBSCRIPTION
The undersigned, , pursuant
to the provisions of the foregoing Warrant hereby irrevocably
agrees to subscribe for the purchase of shares of the
Common Stock of NETWORK IMAGING CORPORATION covered by said
Warrant, and makes payment therefor in full at the price per share
provided by said Warrant. The undersigned requests that a
certificate representing such shares of Common Stock be issued in
the name of the person (the "Certificate Holder"), and delivered to
the address, set forth below. The undersigned hereby represents
that (i) neither the undersigned, the Certificate Holder nor any
person for whom the Certificate Holder is acting or who will own a
beneficial interest in the shares issuable upon exercise is a (a)
natural person resident in the United States, (b) partnership or
corporation organized or incorporated under the laws of the United
States, (c) an agency or branch of a foreign entity located in the
United States, (d) a discretionary or similar account held by a
fiduciary organized, incorporated or (if an individual) resident in
the United States, (e) a partnership or corporation organized under
the laws of a non-U.S. jurisdiction and formed for the purpose of
investing in securities not registered under U.S. securities laws,
or (f) an estate of which any executor or administrator, or trust
of which any trustee, or non-discretionary or similar account held
by a fiduciary of which a beneficiary, is a person described by
(a), (b), (c), (d) or (e), and (ii) the undersigned is not located
in the United States at the time of making this subscription.
Name of Certificate Holder Signature of Warrant Holder
Signed this day of ,
199 at .
Address of Certificate Holder
<PAGE> 10
Taxpayer ID Number of Certificate Holder
THE SHARES DUE UPON EXERCISE OF THE WARRANT WILL NOT BE DELIVERED
IN THE UNITED STATES.
<PAGE> 11
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned Registered Warrant Holder
hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(Please print or type name and address)
of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints to
transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated:
Signature of Registered Warrant
Holder
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST
CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE
OF THIS WARRANT IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND, IF THE
WARRANT OR WARRANT SHARES ARE TO BE ISSUED IN A NAME OTHER THAN
THAT OF THE HOLDER, MUST BE GUARANTEED BY A
COMMERCIAL BANK, TRUST COMPANY, CREDIT UNION, SAVINGS AND LOAN
ASSOCIATION, A MEMBER FIRM OF A NATIONAL
SECURITIES EXCHANGE OR A BROKERAGE FIRM.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,413
<SECURITIES> 551
<RECEIVABLES> 13,378
<ALLOWANCES> (394)
<INVENTORY> 2,645
<CURRENT-ASSETS> 30,568
<PP&E> 8,526
<DEPRECIATION> (4,807)
<TOTAL-ASSETS> 43,959
<CURRENT-LIABILITIES> 18,788
<BONDS> 0
15,757
0
<COMMON> 2
<OTHER-SE> 8,156
<TOTAL-LIABILITY-AND-EQUITY> 43,959
<SALES> 19,671
<TOTAL-REVENUES> 19,671
<CGS> 13,244
<TOTAL-COSTS> 13,244
<OTHER-EXPENSES> 18,190
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (11,617)
<INCOME-TAX> (12)
<INCOME-CONTINUING> (11,605)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,489)
<EPS-PRIMARY> (0.69)
<EPS-DILUTED> 0
</TABLE>
