As filed with the Securities and Exchange Commission on
November 14, 1996
Registration No. 333-
=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
NETWORK IMAGING CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 54-1590649
(State or other jurisdiction of (I.R.S.
Employer incorporation or organization)
Identification Number)
--------------------
500 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
(703) 478-2260
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive
offices)
--------------------
JAMES J. LETO
CHIEF EXECUTIVE OFFICER
NETWORK IMAGING CORPORATION
500 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
(703) 478-2260
(Name, address, including zip code, and telephone
number,
including area code, of agent for service)
--------------------
COPY TO:
<PAGE>
JOHN W. BLOUCH, ESQ.
JONES & BLOUCH L.L.P.
1025 THOMAS JEFFERSON STREET, N.W.
WASHINGTON, D.C. 20007
(202) 223-3500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this
Registration Statement. If any of the securities being
registered in this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================
==============================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM
PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE
AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE(1)
OFFERING PRICE(1) FEE(1)
-------------------------------------------------------------------------------
------------------------------
<S> <C> <C>
<C> <C>
Series J Convertible
Preferred Stock (par value 500 --
-- --
$.0001 per share)
-------------------------------------------------------------------------------
---------------------------------
Common Stock 3,958,516 $3.35
$13,261,028 $4,572.77
(par value $.0001 per
share)(2)
-------------------------------------------------------------------------------
---------------------------------
Total 3,958,516 $3.35
$13,261,028 $4,572.77
===============================================================================
=================================
</TABLE>
(1) Estimated pursuant to Rule 457 for the purpose of
calculating the registration fee only; based upon the average of
the high and low sales prices for the Common Stock on November
11, 1996. Registration fee is calculated pursuant to Rule 457.
(2) Pursuant to Rule 416 also includes such additional shares of
Common Stock as may become issuable under the anti-dilution
<PAGE>
provisions of the Series J Convertible Preferred Stock.
=================================================================
===============
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION DATED NOVEMBER 14, 1996
PROSPECTUS
500 SHARES SERIES J CONVERTIBLE PREFERRED STOCK
3,958,516 SHARES COMMON STOCK
NETWORK IMAGING CORPORATION
This Prospectus relates to the resale by the
holder (the "Selling Stockholder") of 500 shares of Series J
Convertible Preferred Stock (the "Series J Preferred Stock") of
Network Imaging Corporation (the "Company") and the common stock
of the Company (the "Common Stock") into which it is convertible
or which the Company may elect to issue in payment of dividends
on the Series J Preferred Stock (the "Shares"). The Series J
Preferred Stock is convertible into 1,600,000 shares of Common
Stock or a greater number determined pursuant to a formula based
on the average closing bid price of the Common Stock over a five
day period preceding conversion. The Company agreed to register
an aggregate of 3,958,516 shares of Common Stock to provide
additional shares for issuance if required by application of the
formula. See "Description of Securities - Series J Preferred
Shares" and "Selling Stockholder."
It is anticipated that the Shares may be sold from time
to time in transactions (which may include block transactions) on
the National Association of Securities Dealers Automated
Quotation National Market System ("Nasdaq-NMS"), in negotiated
transactions or otherwise at market prices prevailing at the time
of sale, at prices related to such market prices or at prices
otherwise negotiated. The Selling Stockholder and the brokers
and dealers through which sales of the Shares may be made may be
deemed to be "underwriters" within the meaning of the Securities
Act, and the commissions or discounts and other compensation of
such brokers and dealers may be regarded as underwriters'
compensation. The Company will not receive any part of the
proceeds from the sale of the Shares by the Selling Stockholder.
All expenses of registration are being borne by the Company
except for commissions and discounts and fees payable to broker-
dealers and underwriters. See "Selling Stockholder" and "Plan of
<PAGE>
Distribution."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK. Risk factors include: the Company's lack of profitability
since inception which has resulted in an accumulated deficit of
approximately $111.1 million at September 30, 1996; an annual
dividend requirement of $3.2 million on one class of outstanding
preferred stock, of $208,000 on a second class, of $300,000 on a
third class, and of $1.6 million on a fourth class beginning
October 1, 1996 and an obligation to redeem that fourth class for
approximately $16.1 million on January 2, 1998 or earlier under
certain circumstances; the rapid technological change to which
the Company's products are subject, the delays the Company may
experience in product development, the Company's dependence on
proprietary technology and the competition which the Company
faces which includes a number of larger and more established
competitors with substantially greater resources than the
Company; and the adverse effect which this offering and other
offerings of Common Stock by the Company's stockholders pursuant
to registration agreements with the Company or pursuant to Rule
144 under the Securities Act may have on the market price of the
Common Stock and the Company's ability to raise additional
capital. See "Risk Factors."
The Common Stock is included on Nasdaq-NMS under the
symbol IMGX. On November 4, 1996, the closing sale price of the
Common Stock was $3 3/8.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
THE DATE OF THIS PROSPECTUS IS ________________,
1996
<PAGE>
3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 3
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . . .
. . . . . . 3
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 5
Summary Financial Information . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 7
Pro Forma Condensed Financial Information . . . . . . . . . . . . . . . . . . .
. . . . . . 10
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 14
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 20
Price Range of Common Stock and Dividend Policy . . . . . . . . . . . . . . . .
. . . . . . 21
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 21
Selling Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 28
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 28
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 29
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . 29
</TABLE>
No dealer, salesman or any other person has been
authorized to give any information or to make any representations
other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon
as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to
buy any securities offered hereby by anyone in any jurisdiction
in which such offer or solicitation is not authorized or in which
<PAGE>
the person making such offer or solicitation is not qualified to
do so or to any person to whom it is unlawful to make such offer
or solicitation.
2
<PAGE>
4
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-
3 (the "Registration Statement") under the Securities Act of
1933, as amended, with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information
included in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the
Company and the Common Stock, reference is hereby made to the
Registration Statement, including the exhibits and schedules
thereto. Statements contained in this Prospectus concerning the
provisions or contents of any contract, agreement or any other
document referred to herein are not necessarily complete. With
respect to each such contract, agreement, or document filed as an
exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matters involved,
and each statement shall be deemed qualified in its entirety by
such reference to the copy of the applicable document filed with
the Commission.
The Company is subject to the informational requirements
of the Securities and Exchange Act of 1934, as amended, and, in
accordance therewith, files reports, proxy or information
statements, and other information with the Commission. A copy of
the Registration Statement, including all exhibits thereto, filed
by the Company with the Commission, as well as such reports,
statements, and other information, may be inspected and copied
without charge at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following Regional Offices of the Commission: New
York Regional Office, 7 World Trade Center, 13th Floor, New York,
N.Y. 10048, and Chicago Regional Office, Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661.
Copies of such material may also be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition,
the Commission maintains a site on the World Wide Web that
contains reports, proxy and information statements and other
information filed electronically by the Company with the
Commission which can be accessed over the Internet at
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the
Commission by the Company are incorporated in this Prospectus by
reference:
1. The Company's Annual Report on Form 10-K for the
fiscal year
ended December 31, 1995.
<PAGE>
2. The Company's Quarterly Report on Form 10-Q for
the quarter
ended March 31, 1996.
3. The Company's Quarterly Report on Form 10-Q for
the quarter
ended June 30, 1996.
4. An Amendment to the Company's Quarterly Report
on Form 10-Q
for the quarter ended June 30, 1996.
5. The Company's Quarterly Report on Form 10-Q for
the quarter
ended September 30, 1996.
6. The Company's Current Report on Form 8-K as
filed on July 17,
1996.
7. The Company's Current Report on Form 8-K as
filed on
August 2, 1996.
8. The description of the Company's Common Stock
contained in the
Company's Registration Statement on Form 8-A
under the
Exchange Act of 1934, as amended, including any
amendment or
report filed to update the description.
3
<PAGE>
5
All documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, as
amended, after the date of this Prospectus and prior to the
termination of the offering of the Common Stock shall be deemed
to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing such documents. Any
statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this
Prospectus.
The Company will furnish without charge to each person
to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any and all of the
documents described above, other than exhibits to such documents,
unless such exhibits are specifically incorporated by reference
therein. Requests should be directed to: Network Imaging
Corporation, 500 Huntmar Park Drive, Herndon, Virginia 20170,
Attention: Investor Relations (telephone (703) 478-2260).
-------------------------
1VIEW(TM), SpanStor(TM), InfoAccess(TM), Treev+(TM) and the
Company logo are trademarks of Network Imaging Corporation. All
other product and brand names are trademarks or registered
trademarks of their respective companies.
4
<PAGE>
6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the
more detailed information included elsewhere or incorporated by
reference in this Prospectus.
THE COMPANY
Products. Network Imaging Corporation (the "Company") is
a developer and marketer of its 1VIEW suite of content-oriented,
client/server and world wide web-based software solutions that
address business challenges of managing multiple data types
(content) across distributed enterprise networks while protecting
current investments in applications, database management systems,
people skills and other resources. The Company is also a full
service integrator and software developer for mainframe and PC
based Computer Output to Laser Disk ("COLD") systems, a provider
of software related engineering services and a developer and
marketer of software and firmware for networked hierarchical
storage management ("HSM") systems. Revenues for 1995 were
approximately evenly divided between the United States and
Europe.
Traditional manual filing, retrieval, and distribution
methods are labor intensive, slow, require bulky file storage and
allow only one person to use a file at a time and often result in
misfiled, damaged or lost items. Large commercial and government
organizations must continually process large volumes of documents
stored in hard copy paper files where there is a need for more
efficient movement of information throughout the enterprise. The
information may take the form of documents, database records,
graphics, video clips, audio, CAD and engineering drawings, and
other such "information content" which are distributed throughout
a multi-site enterprise. This need for information storage,
retrieval, and distribution management is addressed by the
Company's principal products: the 1VIEW software application
suite, a family of COLD products, and the Doro-family of products
for HSM applications.
The Company uses advances in content management software
to capture and store "information content" with more advanced
indexing and retrieval features than those available for paper
documents. The Company's information access, content management
and storage management systems have been designed to support
"open systems standards" which permit hardware and software from
different vendors to operate together on a network.
Operations. From its incorporation in 1991 through 1994,
the Company acquired, and acquired or licensed technology from,
19 companies and its revenues before restatement for subsequent
acquisitions increased from $66,000 in 1991 to $67 million in
1994. In 1995 the Company disposed of a number of operating
units, and its revenues, which were $69.2 million on a historical
basis, were $46.4 million on a pro forma basis reflecting the
dispositions. During this period, the Company was engaged in the
development of the 1VIEW suite, the expenses of which were
<PAGE>
primarily funded by the Company. The Company has had net losses
in each quarterly financial reporting period, except for one, and
had an accumulated deficit at September 30, 1996 of $111.1
million. Net losses applicable to common shares were $18.1
million for the nine months ended September 30, 1996, $34.9
million for the year ended December 31, 1995 and $44.1 million
for the year ended December 31, 1994. Losses have resulted from
the delay in the commercial release of the Company's 1VIEW
product, the lead time required to close sales and recognize
revenues, significant non-recurring charges and increasing
operating expenses for sales, marketing and product research and
development.
5
<PAGE>
7
The adverse results of operations which the Company
experienced in 1995 and the first nine months of 1996 are
expected to continue, in declining amounts, for the short term.
The Company believes that its existing cash, which includes the
$16.8 million of capital raised in the first nine months of 1996
and the anticipated cash flows from 1996 operations, should
provide sufficient resources to fund its activities in 1996 and
to maintain net tangible assets of at least $4 million which is
required for continued inclusion of the Company's securities on
Nasdaq-NMS. Anticipated cash flows from 1996 operations are
largely dependent upon the Company's ability to achieve its sales
and gross profit objectives for its 1VIEW and other products.
Achievement of these objectives is subject to various risk
factors related to, among other things: the relative newness of
its 1VIEW product suite; the newness of the markets served by
that product; the need to use a two-step distribution channel
involving systems integrators; the long lead times in the sales
cycle; the large dollar size of the average unit sale requiring
high level customer authorizations; the large number of
established and potential competitors in the market; the fast
pace of technology evolution related to the product suite; the
newness of the Company's sales and marketing staff; and the
evolving nature of the Company's sales and marketing strategies.
The Company nevertheless believes that its sales and gross profit
objectives are achievable in light of its recent divestitures of
non-core businesses, the successful installation of 1VIEW in a
major contract during 1995, the repositioning of its product
lines, additions to executive sales management, and the
refocusing of sales and marketing resources. If the Company is
unable to meet these objectives, it will consider alternative
sources of liquidity, such as public or private offerings of
equity securities. Although the Company believes that it can
successfully implement its 1996 operating plan and, if necessary,
raise additional capital, there can no be assurance that
implementation of the plan will be successful or that financing,
if sought, will be available.
Forward Looking Information. The Private Securities
Litigation Reform Act of 1995 (the "Reform Act") provides a "safe
harbor" for forward-looking statements to encourage companies to
provide prospective information about their companies, so long as
those statements are identified as forward-looking and are
accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ
materially from those discussed in the statement. The Company
desires to take advantage of the "safe harbor" provisions of the
Reform Act. Except for the historical information contained
herein, the matters discussed in this Prospectus are forward-
looking statements which involve risks and uncertainties.
Although the Company believes that the expectations reflected in
such forward-looking statements are based upon reasonable
assumptions, it can give no assurance that its expectations will
be achieved. Important factors that could cause actual results
to differ materially from the Company's expectations are
<PAGE>
disclosed in conjunction with the forward-looking statements or
elsewhere herein.
Background. The Company's predecessor was incorporated
under the laws of Virginia in December 1990 and changed its state
of incorporation in July 1991 by merger into a newly-formed
Delaware corporation of the same name. As used herein, unless
the context indicates otherwise, the term "Company" refers
collectively to Network Imaging Corporation, a Delaware
corporation incorporated in May 1991, each of its consolidated
subsidiaries and its predecessor, Network Imaging Corporation, a
Virginia corporation. The principal executive offices of the
Company are located at 500 Huntmar Park Drive, Herndon, Virginia
20170. Its telephone number is (703) 478-2260.
THE OFFERING
By this Prospectus, the Selling Stockholder is offering
the Shares. The Company will not receive any proceeds from the
sale of securities by the Selling Stockholder. See "Selling
Stockholder" and "Plan of Distribution."
6
<PAGE>
8
SUMMARY FINANCIAL INFORMATION
The following summary financial information is derived
from the consolidated financial statements contained in the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 and its Form 10-Q for the period ended September 30,
1996, which are incorporated herein by reference, and should be
read in conjunction with such financial statements and the notes
thereto included therein. The Company had an accumulated deficit
of approximately $111.1 million at September 30, 1996. For a
discussion of adverse trends in operations and financial
condition, and the steps being taken by the Company in response
thereto, see "The Company" and "Risk Factors -- Lack of
Profitability." For information on the Company's 1995 and 1996
divestitures, see "Pro Forma Condensed Financial Information."
STATEMENT OF OPERATIONS DATA:
HISTORICAL -
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30,
DECEMBER 31,
--------
------------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
1996 1995
1995 1994 1993
---- ----
---- ---- ----
<C> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . $29,049 $56,360
$69,151 $67,028 $34,069
Net loss . . . . . . . . . . . . . . . (15,354) (21,735)
(24,963) (39,625) (30,817)
Net loss applicable to
common shares (1). . . . . . . . . . (18,103) (24,795)
(34,896) (44,121) (31,421)
<PAGE>
Net loss per common share-primary. . . ($0.90) ($1.81)
$(2.41) $(3.56) $(4.48)
Weighted average shares 20,081,412 13,678,991
14,502,399 12,391,225 7,015,234
outstanding-primary
Net loss per common share-fully diluted ($0.90) ($1.81)
$(2.32) $(3.55) $(4.48)
Weighted average shares 20,081,412 13,678,991
15,041,203 12,433,464 7,015,234
outstanding-fully diluted. . . . . .
Ratio of earnings to combined fixed (2) (2)
(2) (2) (2)
charges and preferred stock
dividends. . . .
</TABLE>
7
<PAGE>
9
PRO FORMA (3) -
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30, 1996
DECEMBER 31, 1995
-------------
-----------------
(UNAUDITED)
(UNAUDITED)
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . 27,371
44,778
Net loss . . . . . . . . . . . . . . . . . . . . . (13,343)
(20,652)
Net loss applicable to common shares (1) . . . . . (16,092)
(30,585)
Net loss per common share-primary . . . . . . . . . $(0.76)
$(1.64)
Weighted average shares outstanding-primary . . . . 21,260,899
18,637,166
Net loss per common share-fully diluted . . . . . . $(0.76)
$(1.64)
Weighted average shares outstanding-fully diluted . 21,260,899
18,637,226
Ratio of earnings to combined fixed (2)
(2)
charges and preferred stock dividends . . . . . .
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
SEPTEMBER
30, 1996
<PAGE>
----------
---
(IN
THOUSANDS)
HISTORICAL
----------
(UNAUDITED)
<S> <C>
Working capital. . . . . . . . . . . . . . . . . . . $11,952
Total assets. . . . . . . . . . . . . . . . . . . . 41,626
Long-term debt and obligations under 567
capital leases . . . . . . . . . . . . . . . . . .
Redeemable Series F Convertible 15,817
Preferred Stock. . . . . . . . . . . . . . . . . .
Stockholders' equity . . . . . . . . . . . . . . . . $8,567
</TABLE>
(1) Includes accretion of the Series B Convertible Preferred
Stock issued
in connection with the acquisition of Dorotech France
SA, a French
societe anonyme ("Dorotech") ("Series B Preferred
Stock"), an annual
dividend of $3.2 million on the Company's Series A
Cumulative
Convertible Preferred Stock (the "Series A Preferred
Stock") and the
net cost of capital of $5.9 million which the Company
incurred as a
result of the redemption of 1,086 shares of Series D
Preferred Stock
in the fourth quarter of 1995. See "Description of
Securities." The
Series B Preferred Stock was redeemable by the original
holder on
October 1, 1995 at $9.00 per share. The Company and the
holder of the
Series B Preferred Stock agreed to an exchange of Series
C Convertible
Preferred Stock ("Series C Preferred Stock") for the
Series B
<PAGE>
Preferred Stock, which had the effect of
8
<PAGE>
10
extending the redemption date to October 1, 1996. (The
Series B and
Series C Preferred Stock are collectively referred to
hereinafter as
the "Acquisition Preferred Stock"). In March 1996, the
Acquisition
Preferred Stock was exchanged for Series F Convertible
Preferred Stock
("Series F Preferred Stock") which, among other things,
had the effect
of extending the redemption date to January 2, 1998.
See "Description
of Securities -- Acquisition Preferred Stock" and "Risk
Factors -
Redemption of Acquisition Preferred Stock."
(2) The annual dividend requirement on the Series A
Preferred Stock at the
rate of 8% per annum is $3.2 million. The pro forma and
historical
deficiencies in fixed charges for the nine months ended
September 30, 1996,
before giving effect to the dividend requirement on the
Series A
Preferred Stock, are $13.9 million and $16.0 million,
respectively,
and $17.6 million and $19.6 million, respectively,
after giving
effect to the dividend requirement on the Series A
Preferred Stock.
The pro forma and historical deficiencies in fixed
charges for the
year ended December 31, 1995, before giving effect to
the dividend
requirement on the Series A Preferred Stock, and the
redemption of
Series D Preferred Stock, are $22.0 million and $26.6
million,
respectively, $26.9 million and $31.4 million,
respectively, after
giving effect to the dividend requirement on the Series
A Preferred
Stock and before the Series D Preferred Stock
redemption, and $35.7
million and $40.3 million, respectively, after giving
effect to the
Series D Preferred Stock redemption. The historical
deficiency in
fixed charges for the year ended December 31, 1994,
before giving
effect to the dividend requirement on the Series A
Preferred Stock, is
$43.2 million ($48.0 million after giving effect to the
<PAGE>
dividend
requirement on the Series A Preferred Stock). The
historical
deficiency in fixed charges for the year ended December
31, 1993,
before giving effect to the annual dividend requirement
on the Series
A Preferred Stock, is $6.6 million ($6.8 million after
giving effect
to the annual dividend requirement on the Series A
Preferred Stock).
The deficiency before giving effect to the dividend
requirement on the
Series A Preferred Stock was determined by taking the
sum of earnings
(loss) before purchased in-process research and
development, taxes and
fixed charges, and subtracting therefrom the sum of
fixed charges
(gross interest plus the portion of rent expense
representing finance
charges) and accretion of the Acquisition Preferred
Stock to
redemption value on a pre-tax basis. See "Risk
Factors -- Inadequate
Dividend Coverage" and "Price Range of Common Stock and
Dividend
Policy."
(3) See "Pro Forma Condensed Financial Information."
(4) Adjusted to reflect the anticipated sale of Symmetrical
Technologies,
Incorporated as if the transaction had occurred on June
30, 1996.
9
<PAGE>
11
PRO FORMA CONDENSED FINANCIAL INFORMATION
The purpose of the following unaudited pro forma
condensed statements of operations for the year ended December
31, 1995 and the nine months ended September 30, 1996 is to show
the effect of the following 1995 and 1996 dispositions as though
each of them had occurred at January 1, 1995: the disposition of
the assets of Soda Creek Technologies ("SC") on February 28,
1995, the disposition of the WildSoft division ("WS") on March
31, 1995, the disposition of P E, Systems, Inc. ("PE") on May 9,
1995, the bankruptcy filing made by IBZ Digital Production AG
("IBZ") on May 22, 1995, the dispositions of Microsouth, Inc.
("MS") and tekgraf, inc. ("TK") on June 30, 1995, the disposition
of Network Imaging (UK Holdings) Limited ("NICUK") on September
20, 1995, the disposition of the Company's Hunt Valley, Maryland
operations on November 15, 1995, and the disposition of
Symmetrical Technologies, Incorporated ("STI") during the third
quarter of 1996. The information should be read in conjunction
with the financial statements of the Company incorporated by
reference herein. The information is based on assumptions and
estimates set forth in the accompanying notes and is not
necessarily indicative of the results of future operations or the
actual results that would have occurred had the transactions
taken place at January 1, 1995.
10
<PAGE>
12
THE COMPANY AND 1995 DIVESTITURES
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THE (4) ADDITIONAL
COMPANY SYMMETRICAL ADJUSTMENTS Note PRO FORMA
-----
- -------- ------------- ------------- --------------
- -
(In thousands, except share amounts)
<S> <C> <C> <C> <C>
<C>
REVENUES:
Net sales $
29,049 $ (1,678) $ $27,371
COSTS AND EXPENSES:
Cost of sales
18,780 (1,379) 17,401
Product development
5,099 (208) 4,891
Selling, general and administrative
19,436 (1,181) 18,255
Exchange fee and gain on sale of asset
619 619
Loss on sale of subsidiary 921
Restructuring costs
(175) (175)
-----
- -------- ------------- ------------- --------------
- -
44,680 (2,768) 0 40,991
OPERATING INCOME (LOSS)
(15,631) 1,090 0
(13,620)
Investment and interest income, net
<PAGE>
188 188
-----
- -------- ------------- ------------- --------------
- -
EARNINGS (LOSS) BEFORE TAXES
(15,443) 1,090 0
(13,432)
Income tax benefit
(89) 0 (89)
-----
- -------- ------------- ------------- --------------
- -
NET LOSS $
(15,354) $ 1,090 $ 0 $
(13,343)
============= ============= =============
===============
Series A preferred stock - cumulative preferred dividends
(2,408) (2,408)
Series F preferred stock - accretion to redemption value
(341) (341)
-----
- -------- --------------
- -
Net loss applicable to common shares $
(18,103) $
(16,092)
=============
===============
NET LOSS PER COMMON SHARE - PRIMARY $
(0.90) $ (0.76)
=============
===============
Weighted average shares outstanding - Primary
20,081,412 1,179,487 (5)
21,260,899
</TABLE>
<PAGE>
11
<PAGE>
13
THE COMPANY AND 1995 DIVESTITURES
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1995 DIVESTITURES (1)
THE -----------------------------------------
COMPANY
IBZ MS TK
---------------
----------- ----------- ------------
(In
thousands, except share amounts)
<S> <C> <C> <C>
<C>
REVENUES:
Net sales $ 69,151 $
(1,464) $ (5,407) $ (1,402)
COSTS AND EXPENSES:
Cost of sales 42,515
(913) (4,659) (1,177)
Product development 6,756
(67)
Selling, general and administrative 35,864
(1,748) (457) (158)
Settlement with stockholders 1,642
(Gain)/Loss on closure and sale of subsidiaries, net 9,274
Restructuring costs (1,433)
------------
---------- --------- ----------
94,618
(2,728) (5,116) (1,335)
OPERATING INCOME (LOSS) (25,467)
1,264 (291) (67)
<PAGE>
Investment and interest income, net 224
1 13 (2)
------------
---------- --------- ----------
EARNINGS (LOSS) BEFORE TAXES (25,243)
1,265 (278) (69)
Income tax benefit (280)
271 (20) 0
------------
---------- --------- ----------
NET LOSS $ (24,963) $
994 $ (258) $ (69)
============
========== ========= ==========
Series A preferred stock - cumulative preferred dividends (3,210)
Series B preferred stock - accretion to redemption value (869)
Series D preferred stock - redemption (5,854)
------------
Net loss applicable to common shares $ (34,896)
============
NET LOSS PER COMMON SHARE - PRIMARY $ (2.41)
============
Weighted average shares outstanding - Primary 14,502,339
NET LOSS PER COMMON SHARE - FULLY DILUTED $ (2.32)
============
Weighted average shares outstanding - Fully Diluted 15,041,203
<PAGE>
</TABLE>
<TABLE>
1995 DIVESTITURES (1)
------------------
-------------------------------------------------
PE
WS SC NICUK HUNT VALLEY
------------ ---
-------- ------------ ----------- ------------
(In
thousands, except share amounts)
<S> <C> <C> <C> <C>
<C>
REVENUES:
Net sales $ (1,147) $
(3) $ (29) $ (10,894) $ (2,297)
COSTS AND EXPENSES:
Cost of sales (758)
(20) (7,503) (1,736)
Product development
(61) (36)
Selling, general and administrative (349)
(278) (136) (3,756) (766)
Settlement with stockholders
(Gain)/Loss on closure and sale of subsidiaries, net
715
Restructuring costs
29 16
--------- --
------ --------- ---------- ----------
(1,107)
(339) (163) (10,528) (2,502)
OPERATING INCOME (LOSS) (40)
336 134 (366) 205
Investment and interest income, net 1
0 0 106 1
--------- --
<PAGE>
------ --------- ---------- ----------
EARNINGS (LOSS) BEFORE TAXES (39)
336 134 (260) 206
Income tax benefit (3)
0 0 0 0
--------- --
------ --------- ---------- ----------
NET LOSS $ (36) $
336 $ 134 $ (260) $ 206
=========
======== ========= ========== ==========
Series A preferred stock - cumulative preferred dividends
Series B preferred stock - accretion to redemption value
Series D preferred stock - redemption
Net loss applicable to common shares
NET LOSS PER COMMON SHARE - PRIMARY
Weighted average shares outstanding - Primary
NET LOSS PER COMMON SHARE - FULLY DILUTED
Weighted average shares outstanding - Fully Diluted
</TABLE>
<PAGE>
<TABLE>
(4)
ADDITIONAL
SYMMETRICAL
ADJUSTMENTS Note PRO FORMA (3)
------------ ----
------- ---------------
(In
thousands, except share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ (1,730) $
$ 44,778
COSTS AND EXPENSES:
Cost of sales (1,880)
23,869
Product development (748)
5,844
Selling, general and administrative (2,366)
25,850
Settlement with stockholders
1,642
(Gain)/Loss on closure and sale of subsidiaries, net
9,989
Restructuring costs
(1,388)
---------- --
------- ------------
(4,994)
0 65,806
OPERATING INCOME (LOSS) 3,264
0 (21,028)
Investment and interest income, net
344
---------- --
------- ------------
EARNINGS (LOSS) BEFORE TAXES 3,264
0 (20,684)
Income tax benefit 0
(32)
---------- --
------- ------------
NET LOSS $ 3,264 $
0 $ (20,652)
==========
========= ============
<PAGE>
Series A preferred stock - cumulative preferred dividends
(3,210)
Series B preferred stock - accretion to redemption value
(869)
Series D preferred stock - redemption
(5,854)
------------
Net loss applicable to common shares
$ (30,585)
============
NET LOSS PER COMMON SHARE - PRIMARY
$ (1.64)
============
Weighted average shares outstanding - Primary
4,134,827 (2) 18,637,166
NET LOSS PER COMMON SHARE - FULLY DILUTED
$ (1.64)
============
Weighted average shares outstanding - Fully Diluted
3,596,023 (2) 18,637,226
</TABLE>
12
<PAGE>
14
(1) Represents the pro forma adjustments necessary to give
effect to the
divestitures as if each occurred at January 1, 1995.
(2) The weighted average number of shares outstanding for
the year ended
December 31, 1995 has been increased by 4,134,827 shares
and 3,596,023
shares for the primary and fully diluted earning per
share
calculations, respectively, to give effect to the shares
issued during
1995 as if issuance had taken place at January 1, 1995.
(3) The pro forma information does not reflect the March 1996
issuance, for
aggregate net proceeds of approximately $4.7 million, of
1,355,674
shares of Common Stock with a warrant for an additional
64,000 shares
of Common Stock, exercisable at $4.5375 per share, the
June 1996
issuance, for aggregate net proceeds of approximately
$1.3 million, of
404,611 shares of Common Stock, or the exchange of the
Series F
Preferred Stock, on which the Company must begin paying a
quarterly
dividend at an annual rate of $1.6 million on December
31, 1996, for
the Acquisition Preferred Stock, which was entitled only
to those
dividends, if any, paid on the Common Stock. See "Risk
Factors --
Redemption of Acquisition Preferred Stock" and
"Description of
Securities -- Acquisition Preferred Stock."
(4) Represents the pro forma adjustments necessary to give
effect to the
proposed divestiture of STI as if it had occurred at
January 1, 1995.
(5) The weighted average number of shares outstanding for the
nine months
ended September 30,1996 has been increased by 1,179,487
for the earnings per
share calculation to give effect to the shares issued
during the first
nine months of 1996 as if the issuance had taken place at
January 1,
1996.
<PAGE>
13
<PAGE>
15
RISK FACTORS
An investment in the Company's securities involves a
high degree of risk. In evaluating the Company and its business,
prospective purchasers of the Shares offered hereby should
carefully consider the risk factors set forth below, as well as
the other information included in this Prospectus, prior to
making an investment.
LACK OF PROFITABILITY
The Company has had net losses in each period of its
operations, except for one quarter, and it had an accumulated
deficit at September 30, 1996 of $111.1 million. Net losses
applicable to common shares were $18.1 million for the nine
months ended September 30, 1996, $34.9 million for the year ended
December 31, 1995, and $44.1 million for the year ended December
31, 1994. The losses have resulted primarily from non-recurring
charges (including in 1994, a non-recurring charge of $8.8
million for purchased in-process research and development and a
write-off of $8.7 million in capitalized software which related
to products which were abandoned in favor of 1VIEW, and in 1995,
non-recurring net charges of $9.3 million in connection with the
IBZ bankruptcy and business divestitures) as well as the delay in
the commercial release of the Company's 1VIEW product, the lead
time to close sales and recognize revenues, increasing sales and
marketing efforts and costs associated with product research and
development. See "The Company."
REDEMPTION OF ACQUISITION PREFERRED STOCK
The Company has outstanding 1,792,186 shares of Series F
Preferred Stock which it exchanged in March 1996 for the
Acquisition Preferred Stock issued in connection with the
acquisition of Dorotech. The Company must begin paying quarterly
dividends on the Series F Preferred Stock on December 31, 1996 at
a rate equal to the greater of 10% per annum or the annual rate
of any dividend paid on the Company's Common Stock. The Company
must redeem the Series F Preferred Stock on January 2, 1998 for
$9.00 per share (approximately $16.1 million) plus accrued and
unpaid dividends (the "Redemption Price"), unless the holder
elects not to redeem by prior written notice to the Company. In
the event of a change in control of the Company, the then holder
of the Series F Preferred Stock may elect to redeem at the
Redemption Price; provided, however, that if the acquiror has a
class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934 and has outstanding voting stock
held by non-affiliates with an aggregate market value of at least
$100 million and if the Company agrees to pay the holder in cash
the excess, if any, of the Redemption Price over the transaction
consideration, the holder will not be entitled to redemption and
will be deemed to have elected to convert the Series F Preferred
<PAGE>
Stock. The then holders of the Series F Preferred Stock may
also redeem some or all of the Series F Preferred Stock if the
Company is in arrears with respect to two quarterly dividend
payments or defaults in certain of the agreements it entered into
in connection with the exchange. See "Description of
Securities - Acquisition Preferred Stock."
INADEQUATE DIVIDEND COVERAGE
The annual dividend requirements on the Company's
preferred stocks are: Series A Preferred Stock, $3.2 million
(payable quarterly); Series F Preferred Stock, $1.6 million
(payable quarterly beginning December 31, 1996); Series H
Convertible Preferred Stock, $208,000 (payable upon conversion or
redemption); and Series J Preferred Stock, $300,000 (payable upon
conversion or redemption). All quarterly dividends on the Series
A Preferred Stock have been paid through October 31,
14
<PAGE>
16
1996. Failure to pay any quarterly dividend will result in a
reduction in the conversion price and failure to pay a total of
four quarterly dividends will entitle the holders of the Series A
Preferred Stock to elect one director. By law, dividends may be
paid from surplus or current earnings. There can be no assurance
that future surplus or earnings, if any, will be adequate to pay
dividends on the preferred stock. See "-- Redemption of
Acquisition Preferred Stock" and "Description of Securities."
EXPANSION THROUGH ACQUISITIONS
After its initial public offering in May 1992, the
Company expanded rapidly and acquired 14 other companies. Rapid
expansion through acquisition presented risks in terms of the
Company's ability to manage and consolidate disparate operations.
In 1995 and 1996, the Company disposed of a number of its
operating units. See "Pro Forma Consolidated Financial
Information." There can be no assurance, however, that
additional problems resulting from the Company's remaining
acquisitions will not arise.
EUROPEAN OPERATIONS
The Company's European operations accounted for
approximately 45% of its revenue in 1995. The Company's business
in European markets is subject to the risks customarily
associated with overseas operations, including fluctuations in
foreign currency exchange rates and controls, tariffs,
expropriation, nationalization and other economic, tax and
regulatory policies of foreign governments. Since Dorotech
conducts virtually all of its business in currencies other than
the U.S. dollar, foreign currency fluctuations may affect the
Company's asset valuations. The Company has not used financial
instruments with off-balance sheet risk in managing foreign
currency fluctuation risks. The Company's results will also be
affected by any laws affecting its ability to repatriate foreign
profits, if any, and by changes in foreign tax laws and tax
rates, as well as changes in international tax treaties. There
can be no assurance that these and similar factors will not have
a negative impact on the Company's operations.
GUARANTEE OF ATG LEASE PAYMENTS
Prior to the acquisition of Dorotech by the Company,
Dorotech's parent (which was merged into Dorotech prior to the
acquisition) signed a guarantee of lease payments by an
affiliated company, ATG Gigadisc SA ("ATG"), under a sale and
leaseback of land and buildings by ATG. At December 31, 1995,
the remaining lease payments due by ATG totaled approximately $9
million, including interest of approximately $1.8 million. On
May 31, 1996, ATG filed for bankruptcy protection with the Court
of Commerce in Toulouse, France, and officials were appointed by
the Court to supervise the operations of ATG. In July 1996, the
<PAGE>
lessor notified Dorotech that ATG was in default with respect to
one lease payment, that as a result, it was filing a claim with
one of the officials for accelerated payment of all remaining
amounts due under the lease and that it was requesting from
Dorotech the amount due under the guarantee. The Company is not
itself a party to the guarantee; however, if Dorotech were to
become obligated to fulfill the guarantee, there could be a
material adverse effect on the Company's results of operations
and financial condition. Dorotech believes it has meritorious
defenses to, and intends to defend vigorously against, any action
that may be brought against it based on the guarantee. There can
be no assurance, however, that Dorotech would prevail if such
action were brought.
15
<PAGE>
17
COMPETITION; RAPID TECHNOLOGICAL CHANGE
The computer industry, including the information access,
imaging and optical disk storage segments, is highly competitive,
and is characterized by rapid and continuous technological
change, short product cycles, frequent product innovations and
evolving industry standards. The Company's future profitability
will depend, among other things, on wide-scale market acceptance
of the Company's products, the Company's ability to demonstrate
the potential advantages of its products over other types of
similar products and on the Company's ability to develop in a
timely fashion enhancements to existing products or new products
which are responsive to the demands of the marketplace for
information access, imaging and optical disk storage systems.
There can be no assurance that the Company will be able to market
successfully its current products, develop and market
enhancements to existing products or introduce new products. In
addition, the Company faces competitors which are larger and more
established and have substantially greater resources than the
Company, and technological advances by any of the Company's
competitors could render obsolete or less competitive the
products being offered by the Company.
DELAYS IN INTRODUCTION OF PRODUCTS
The Company's development of enhancements to existing
products and of new products is subject to the kinds of problems
and delays that are routinely encountered in the development of
software. Delays in the release of products or product
enhancements are likely to have an adverse effect on the Company,
but the Company does not believe it is practicable to quantify
the impact which such delays have had or in the future may have
on its operating results. There can be no assurance that the
Company will not experience difficulties that will interrupt the
marketing and distribution of its current products or that the
Company will not experience difficulties in the future that could
materially delay or prevent the successful development of other
products.
DEPENDENCE ON KEY PERSONNEL
The Company is substantially dependent on the business
and technical expertise and business relationships of certain key
personnel and on its ability to attract and retain key management
and technical employees in the future. Competition for such
employees is intense. The loss of current key employees or the
Company's inability to attract and retain other employees with
necessary business or technical skills in the future would have a
material adverse effect on the Company's business.
DEPENDENCE ON SUPPLIERS
The Company relies exclusively on outside suppliers for
the hardware components of its products such as scanners,
printers, computers and optical disk drives and jukeboxes. Most
<PAGE>
parts and components are currently available from multiple
sources at competitive prices. To date, the Company has not
experienced significant delays in obtaining parts and components,
and although there can be no assurance, the Company does not
expect to experience such delays in the future. Lack of
availability of certain components could require minor redesign
of the Company's products and result in production delays. One
of the Company's non-1VIEW software products, which accounted for
approximately five percent of the Company's 1995 revenue, is
reliant on a single hardware platform. The Company currently
buys hardware such as jukeboxes, optical drives and media for
this platform from one supplier. The Company has begun to
experience delays in delivery of this hardware. Although the
delays have not had a material impact on operating results,
increased delays in the future could result in reduced sales,
which would affect operating results adversely. A major component
of 1VIEW software suite is dependent upon a third party database
product, and the royalty which the Company pays for this product
can significantly impact
16
<PAGE>
18
the Company's overall profitability in the near term. The
Company has an agreement with the supplier of the database
product which provides for a royalty on terms which the Company
considers to be favorable to it. The agreement expires on
November 16, 1996, and although the Company can give no assurance
that it will do so successfully, it does not anticipate any long-
term difficulties or severe impact in negotiating an extension to
the existing agreement.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company regards its software as proprietary and
relies principally on the protection afforded by trade secret,
copyright and trademark laws and by routinely requiring many
employees, consultants, suppliers and others with access to the
Company's proprietary information to enter into non-disclosure
agreements which require such persons to maintain the
confidentiality of such information. However, the Company filed
two patent applications in 1995 and expects to file another in
the near future covering key components of the 1VIEW suite.
There can be no assurance that the Company's patent applications
will be approved, that such approval will be granted on a timely
basis, or that any issued patent may be successfully applied to
the Company's products or otherwise provide commercial success.
Furthermore, there can be no assurance that such patents will
provide meaningful protection from competition.
To the extent the Company relies on unpatented
proprietary technology, the Company has no recourse if others
independently develop substantially equivalent proprietary
technology or gain access to the Company's proprietary technology
without violating the Company's trade secrets, copyrights and
non-disclosure agreements. In addition, effective patent,
copyright and trade secret protection may be unavailable or
limited in certain foreign countries and there can be no
assurance that the Company's non-disclosure agreements will be
honored or will be effective. If the validity of the Company's
copyrights, trademarks or prospective patents is successfully
challenged or if the Company's confidential proprietary
information becomes publicly available, the Company's financial
condition and results of operations could be materially adversely
affected. In addition, substantial resources may be required to
prosecute infringement claims for unauthorized use by third
parties of the Company's proprietary rights, or to defend claims
that the Company's products infringe upon the proprietary rights
of others. There can be no assurance that the Company will have
adequate resources to prosecute or defend such infringement
claims, or that the Company's proprietary rights, including
patents, if any, will be upheld if the Company seeks judicial
relief with respect to such claims.
FLUCTUATIONS IN FINANCIAL PERFORMANCE
Timing and volume differences in the shipment of the
<PAGE>
Company's products and the performance of services under
contracts can produce significant fluctuations in quarter-to-
quarter and year-to-year financial performance. Factors that
could affect such timing include, among other things, customer
purchasing patterns, new product transitions, delays in new
product introductions and shortages of system components. Past
financial performance should not be considered to be a reliable
indicator of future performance in any particular fiscal period.
CONTROL OF THE COMPANY
The executive officers and directors of the Company
beneficially own approximately 9% of the Company's outstanding
Common Stock, other officers and employees of the Company
beneficially own at least another 10% of the outstanding shares
and officers and employees may, in the future, acquire
substantial additional amounts of Common Stock upon the exercise
of stock options which are not currently exercisable. Although
there are no arrangements requiring the executive officers and
other employees of the Company to vote their Common Stock
collectively, those persons may exert
17
<PAGE>
19
considerable influence over the outcome of matters requiring
stockholder votes, including the election of directors and
proposals to sell, merge or liquidate the Company.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock
since its inception, and it does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. See
"Price Range of Common Stock and Dividend Policy," and
"Description of Securities -- Common Stock."
EFFECT OF OFFERING ON MARKET PRICE OF COMMON STOCK AND THE
ABILITY OF THE
COMPANY TO RAISE ADDITIONAL CAPITAL
The shares of Common Stock covered by this Prospectus,
if issued, would represent approximately 15% of the total shares
of Common Stock outstanding as of November 4, 1996. To fulfill
various commitments, the Company has also registered pursuant to
separate registration statements 9,244,884 shares of Common Stock
that may be offered from time to time by the stockholders named
in those registration statements or that may be sold by the
Company upon exercise of certain outstanding warrants and options
(the 9,244,884 shares would represent approximately 33% of the
shares outstanding at November 4, 1996 if all the warrants and
options for which underlying shares are included in the
registration statements were exercised). The Selling Stockholder
and the selling stockholders named in the other registration
statements intend to offer Common Stock at such time and in such
manner as such stockholder deems appropriate. If the Selling
Stockholder or the other selling stockholders, individually or in
the aggregate, were to offer a large amount of Common Stock in
the market, the market price of the Common Stock and the
Company's ability to raise additional capital could be adversely
affected. See " -- Future Sales of Common Stock," "Selling
Stockholder" and "Plan of Distribution."
FUTURE SALES OF COMMON STOCK
As of November 4, 1996, the Company had outstanding
22,474,676 shares of Common Stock, of which 3,695,003 shares were
"restricted securities," as that term is defined in Rule 144
under the Securities Act ("Rule 144"), which were not covered by
an effective registration statement under the Securities Act or
eligible for sale pursuant to Rule 144(k). Of those shares,
526,824 were otherwise eligible for sale under Rule 144. As of
November 4, 1996, the Company had outstanding options and
warrants which are exercisable for 9,305,645 shares of Common
Stock at prices ranging from $1.00 to $14.88 per share (subject
to adjustment pursuant to the anti-dilution provisions of the
respective instruments) and expire at various times through
October 27, 2006.
<PAGE>
The Company has filed registration statements with the
SEC with respect to the shares underlying certain of these
options and warrants and with respect to certain restricted
securities and has registration commitments with respect to other
securities issued by it. The Company's obligations generally are
to maintain such registrations for varying periods ranging
generally from nine months to two years at its expense, except
for commissions and legal costs incurred by selling stockholders.
In addition to the Registration Statement of which this
Prospectus is a part, the Company has filed registration
statements covering an aggregate of 9,244,884 shares of Common
Stock that may be offered from time to time by the stockholders
named in such registration statements or that may be sold by the
Company upon exercise of certain outstanding warrants and
options. The Company has also registered 8,100,000 shares of
Common Stock that may be issued pursuant to employee benefit
plans. At November 4, 1996, the Company had registration
commitments with respect to another 6,365,176 shares of Common
Stock that were outstanding or that may be acquired pursuant to
warrants and options and convertible securities that were
exercisable or convertible within 60 days, and, as a result of
the warrant issued to a representative of the
18
<PAGE>
20
underwriters in the Series A Preferred Stock offering, with
respect to 140,000 shares of Series A Preferred Stock or 253,624
shares of Common Stock or some combination of those securities.
The Company believes that the presence of options or warrants,
with exercise prices less than the prevailing market price of the
Common Stock, and the possibility of, as well as actual, sales of
shares of Common Stock under Rule 144, pursuant to registration
statements and otherwise in all likelihood may have an adverse
effect on the market price of the Common Stock and on the
Company's ability to raise future equity capital.
IMPACT OF OFFERINGS AND ACQUISITIONS ON NET OPERATING LOSS
CARRYFORWARDS
As a result of the issuance of the Series A Preferred
Stock, the issuance of securities in acquisitions and the sale of
shares by certain stockholders, the utilization of the Company's
net operating loss carryforward of approximately $32.2 million at
December 31, 1995 is subject to the limitations and expiration
periods imposed by Section 382 and other provisions of the
Internal Revenue Code, thereby increasing the probability that
all or a portion may expire before utilization.
19
<PAGE>
21
CAPITALIZATION
The following table sets forth, as of September 30, 1996, the
capitalization of the Company (including loan capital).
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------
(in
thousands, except share amounts)
<S> <C>
Short-Term Debt:
Bank credit facilities. . . . . . . . . . . . . . . . . . .
827
Other notes payable. . . . . . . . . . . . . . . . . . . .
1,836
------
Total Short-Term Debt. . . . . . . . . . . . . . . . . . .
2,663
Long-Term Debt and Obligations
Under Capital Leases. . . . . . . . . . . . . . . . . . .
567
Series F Preferred Stock, 1,792,186
shares outstanding . . . . . . . . . . . . . . . . . . . .
15,817
Stockholders' Equity:
Preferred stock, par value $.0001 per share,
20,000,000 shares authorized. . . . . . . . . . . . . . .
Series A Preferred Stock, 1,605,025 shares
outstanding. . . . . . . . . . . . . . . . . . . . . .
Series E Preferred Stock, 2 shares
outstanding. . . . . . . . . . . . . . . . . . . . . .
Series H Preferred Stock, 260 shares
outstanding. . . . . . . . . . . . . . . . . . . . . .
Series J Preferred Stock, 500 shares outstanding
Common stock, par value $.0001 per share,
50,000,000 shares authorized; 21,260,899
shares outstanding . . . . . . . . . . . . . . . . . . . .
2
<PAGE>
Additional paid in capital. . . . . . . . . . . . . . . . .
119,253
Accumulated deficit. . . . . . . . . . . . . . . . . . . .
(111,111)
Translation adjustment . . . . . . . . . . . . . . . . . . .
423
-------
Stockholders' Equity. . . . . . . . . . . . . . . . . . .
8,567
------
Total Capitalization. . . . . . . . . . . . . . . . . . .
$27,614
======
</TABLE>
20
<PAGE>
22
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is quoted on Nasdaq-NMS under the
symbol IMGX. Prior to December 7, 1993, the Common Stock was
quoted on the Nasdaq SmallCap Market. The following table
indicates, for each calendar quarter from January 1, 1994, the
high and low sale prices for the Common Stock as reported by
Nasdaq (which reflect interdealer prices without retail mark-up,
mark-down or commission and may not represent actual
transactions).
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
----------
PERIOD HIGH
LOW
-------------------------------------------------------------------------------
----------
<S> <C> <C>
1994 -- First Quarter . . . . . . . . . . . . . . . . . 13
9
-- Second Quarter . . . . . . . . . . . . . . . . 10
7 3/4
-- Third Quarter . . . . . . . . . . . . . . . . . 9 3/4
5 3/4
-- Fourth Quarter . . . . . . . . . . . . . . . . 8
3
1995 -- First Quarter . . . . . . . . . . . . . . . . . 4 3/4
2
-- Second Quarter . . . . . . . . . . . . . . . . 5 7/16
3
-- Third Quarter . . . . . . . . . . . . . . . . 7 3/4
4
-- Fourth Quarter . . . . . . . . . . . . . . . . 5 1/8
2 13/16
1996 -- First Quarter . . . . . . . . . . . . . . . . 5 5/8
3 5/16
-- Second Quarter . . . . . . . . . . . . . . . 5 5/8
3 5/16
<PAGE>
-- Third Quarter . . . . . . . . . . . . . . . . 5 1/16
2 13/16
-- Fourth Quarter (through November 4, 1996) . 3 21/32
3 1/8
</TABLE>
On November 4, 1996, the closing sale price for the Common Stock as
reported by Nasdaq was $3 3/8 . As of that date the Company had approximately
360 holders of record of its Common Stock, and, based on information supplied
by certain of such holders of record, the Company estimates that as of such
date there were approximately 8,000 beneficial owners of its Common Stock.
The Company has not paid any cash dividends on its Common Stock since
its inception and does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. For the annual dividend requirements on the
Company's preferred stocks, see "Risk Factors -- Inadequate Dividend Coverage."
The Company's future earnings, if any, may not be adequate for the payment of
dividends on its preferred stocks, in which event such dividends may be paid
out of the Company's then surplus (the Company's net assets minus the aggregate
par or stated value of the outstanding shares of the Company's capital stock),
if any.
21
<PAGE>
23
DESCRIPTION OF SECURITIES
The following statements with respect to the Company's securities are
subject to, and qualified in their entirety by reference to, the detailed
provisions of the Company's Certificate of Incorporation and Bylaws and the
resolutions adopted by the Board of Directors of the Company establishing the
rights, preferences, privileges and restrictions relating to the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock,
the Series E Preferred Stock, the Series F Preferred Stock, the Series H
Preferred Stock, and Series J Preferred Stock as filed under Delaware law (the
"Certificates of Designations").
AUTHORIZED STOCK
The Company is authorized to issue up to 50,000,000 shares of Common Stock,
$.0001 par value, of which 22,474,676 shares were outstanding at November 4,
1996, and 20,000,000 shares of preferred stock, $.0001 par value (the
"Preferred Stock"), of which 1,605,025 shares of Series A Preferred Stock, two
shares of Series E Preferred Stock, 1,792,186 shares of Series F Preferred
Stock, 260 shares of Series H Preferred Stock, and 500 shares of Series J
Preferred Stock were outstanding on that date.
COMMON STOCK
All holders of Common Stock are entitled to one vote per share on any
matter coming before the stockholders for a vote, unless the matter is one upon
which by express provision of law a different vote is required. The Common
Stock does not have cumulative voting rights, which means, in effect, that
holders of more than 50% of the shares can generally elect all the directors.
Each holder of Common Stock is entitled to receive ratably such
dividends on the Common Stock as may be declared by the Board of Directors out
of funds legally available therefor and, in the event of the liquidation,
dissolution or winding up of the Company, is entitled to share ratably in all
assets of the Company remaining after payment of liabilities and payment of
amounts due to holders of capital stock senior to the Common Stock. The Board
of Directors may not declare dividends payable to holders of Common Stock
unless and until all accrued cash dividends through the most recent past
Dividend Payment Date have been paid in full to holders of the Series A and F
Preferred Stocks. Holders of Common Stock have no conversion, preemptive or
other rights to subscribe for additional shares, and there are no redemption
rights or sinking fund provisions with respect to the Common Stock. The
outstanding shares of Common Stock are validly issued, fully paid and
nonassessable.
The Company has never paid any dividends on the Common Stock and does
not anticipate paying any such dividends in the foreseeable future.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to
establish and designate the classes, series, voting powers, designations,
preferences and relative, participating, optional or other rights, and such
qualifications, limitations and restrictions of the Preferred Stock as the
Board, in its sole discretion, may determine without further vote or action by
<PAGE>
the stockholders.
The rights, preferences, privileges, and restrictions or
qualifications of different series of Preferred Stock may differ with respect
to dividend rates, amounts payable on liquidation, voting rights, conversion
rights, redemption provisions, sinking fund provisions, and other matters.
The issuance of Preferred Stock could decrease the amount of earnings and
assets available for distribution to holders of
22
<PAGE>
24
Common Stock or could adversely affect the rights and powers, including voting
rights, of holders of Common Stock.
The existence of the Preferred Stock, and the power of the Board of
Directors of the Company to set its terms and issue a series of Preferred Stock
at any time without stockholder approval, could have certain anti-takeover
effects. These effects include that of making the Company a less attractive
target for a "hostile" takeover bid or rendering more difficult or discouraging
the making of a merger proposal, assumption of control through the acquisition
of a large block of Common Stock or removal of incumbent management, even if
such actions could be beneficial to the stockholders of the Company.
SERIES A PREFERRED STOCK
The issuance of up to 1,750,000 shares of Series A Preferred Stock has
been authorized and 1,605,025 shares are outstanding. The Series A Preferred
Stock has a liquidation preference of $25.00 per share. It is convertible into
Common Stock at any time prior to redemption at the rate of 1.8116 shares of
Common Stock for each share of Series A Preferred Stock (an effective
conversion price of $13.80 per share), and upon 30 days written notice after
December 7, 1996, is redeemable by the Company at $25.00 per share, plus
accumulated and unpaid dividends, and exchangeable by the Company for Common
Stock having a current market price of $25.00 per share, provided in each case
that the closing bid price of the Common Stock for at least 20 consecutive
trading days ending not more than 10 trading days prior to the date notice of
the call for redemption or notice of exchange is given is at least $18.00 per
share, or after December 7, 1997, at the cash redemption prices (ranging from
$26.75 to $25.00) set forth in the Certificate of Designations, plus
accumulated and unpaid dividends. The Company may not redeem by exchange
unless all accumulated and unpaid dividends have been paid or funds for payment
have been set aside. Cumulative dividends on the Series A Preferred Stock at
the rate of $2.00 per share per annum are payable quarterly, out of funds
legally available therefor, on January 31, April 30, July 31 and October 31 of
each year, commencing January 31, 1994. Failure to pay any quarterly dividend
will result in a reduction of $.50 per share in the conversion price. If the
Company fails to pay dividends on the Series A Preferred Stock for four
quarterly dividend payment periods, holders of Series A Preferred Stock voting
separately as a class will be entitled to elect one director; such voting
rights will be terminated as of the next annual meeting of stockholders
following payment of all accrued dividends. The Series A Preferred Stock is
senior to the Series E, F, H and J Preferred Stocks. The Company is not
subject to any mandatory redemption or sinking fund provision with respect to
Series A Preferred Stock. The holders of the Series A Preferred Stock are not
entitled to preemptive rights to subscribe for or to purchase any shares or
securities of any class which may at any time be issued, sold or offered for
sale by the Company. Shares of Series A Preferred Stock redeemed or otherwise
reacquired by the Company shall be retired by the Company and shall be
unavailable for subsequent issuance as Series A Preferred Stock.
ACQUISITION PREFERRED STOCK
In connection with the acquisition of Dorotech, the Company issued
2,092,186 shares of Series B Preferred Stock to a corporate stockholder of
Dorotech. The Series B Preferred Stock was entitled to the same cash dividends
as were paid on the Common Stock, if any, was convertible into Common Stock
<PAGE>
commencing six months after it was issued on a share for share basis (subject
to anti-dilution adjustments), had a liquidation value of $9.00 per share, and
had no voting rights, except those required by law. Four series of Series B
Preferred Stock were authorized, and all had substantially the same terms.
Each of the first three series provided that if it had not been transferred
by the original holder to an unaffiliated third party prior to the time it
became convertible at the end of a six-month period following its issuance,
it would have been automatically exchanged for the next series, unless the
holder elected otherwise by
23
<PAGE>
25
prior written notice to the Company. The fourth series provided that
immediately prior to the time it became convertible, it would have been
redeemed by the Company for $9.00 per share, unless the holder had transferred
the shares to an unaffiliated third party or elected not to redeem by prior
written notice to the Company. Any shares of any of the Series B Preferred
Stock transferred by the original holder to an unaffiliated third party would
thereafter have been redeemable by the Company for Common Stock at the
conversion rate in effect at the time of redemption. The Series B Preferred
Stock was junior to the Series A Preferred Stock.
The original holder converted 300,000 shares of the Series B Preferred
Stock into Common Stock in April 1994. In July 1994, the Company entered into
an agreement with the holder and an affiliate of the holder, which was a
prospective transferee of the Series B Preferred Stock and the Common Stock, in
which the holder and the affiliate agreed, among other things, to extend the
cash redemption date for the Preferred Stock from October 1, 1995 to October 1,
1996. In order to accomplish the extension, the Company agreed to offer to
exchange a Series C Preferred Stock for the Series B Preferred Stock and the
holder of the Series B Preferred Stock and its affiliate agreed to accept the
exchange. The provisions of the Series C Preferred Stock and the Series B
Preferred Stock (collectively, the "Acquisition Preferred Stock") were the
same in all material respects except for the cash redemption date.
In March 1996, the Company and the holder of the Acquisition Preferred
Stock exchanged the Acquisition Preferred Stock for 1,792,186 shares of Series
F Preferred Stock and in connection therewith all authorized shares of the
Acquisition Preferred Stock were returned to the status of authorized preferred
stock of the Company of no designated class or series. The Series F Preferred
Stock is junior to the Series A and E Preferred Stocks. In connection with the
exchange, the Company paid the holder a fee of $650,000 plus expenses and
agreed to obtain the consent of the holder prior to issuing any unsecured long-
term debt, extend registration rights to June 30, 1999, assist the holder with
a private placement of the Series F Preferred Stock or the Common Stock into
which it is convertible, and extend observer rights to the holder with respect
to regular meetings of the Board of Directors of the Company. The Series F
Preferred Stock has no voting rights, except with respect to the issuance of
senior and parity securities, the redemption of parity and junior securities
and other matters required by law. It is convertible into Common Stock six
months after it is issued on a share for share basis (subject to antidilution
adjustments). Four series of Series F Preferred Stock have been authorized,
and all have substantially the same terms. Each of the first three series
provides that, at the end of the six month period following its issuance, it
will be automatically exchanged for the next series, unless the holder elects
otherwise by prior written notice to the Company. The fourth series provides
that it will be redeemed by the Company on January 2, 1998 for $9 per share
plus accrued and unpaid dividends (the "Redemption Price"), unless the holder
elects not to redeem by prior written notice to the Company. Beginning October
1, 1996 the Series F Preferred Stock is entitled to receive dividends in an
amount equal to the greater of 10% per annum or the annual rate of any dividend
paid on the Company's Common Stock. Dividends will accrue daily and be payable
on the last day of June, September, December and March commencing on December
31, 1996.
In the event of a change in control of the Company, the Series F
<PAGE>
Preferred Stock becomes convertible and the then holder of the Series F
Preferred Stock may elect to redeem at the Redemption Price; provided, however,
that if the acquiror has a class of securities registered pursuant to section
12 of the Securities Exchange Act of 1934 and has outstanding voting stock held
by non-affiliates with an aggregate market value of at least $100 million and
if the Company agrees to pay the holder in cash the excess, if any, of the
Redemption Price over the transaction consideration, the holder will not be
entitled to redemption and will be deemed to have elected to convert the Series
F Preferred Stock. A change in control is deemed to occur if substantially all
the assets of the Company are sold, if the Company is merged or consolidated
with another corporation, if any person acquires 50% or more of the Company's
outstanding voting securities or if during any period of two consecutive years
individuals who at the
24
<PAGE>
26
beginning of such period constitute the Board of Directors of the Company cease
for any reason to constitute at least a majority thereof, unless the election
of each director who was not a director at the beginning of such period has
been approved in advance by directors representing at least a majority of the
directors who were directors at the beginning of the period or whose election
was previously so approved. For purposes of conversion, a change in control is
deemed to occur when the Company enters into an agreement to merge, consolidate
or sell substantially all its assets or when a tender offer is commenced for
50% or more of the outstanding voting securities of the Company. The then
holders of the Series F Preferred Stock may also redeem some or all of the
Series F Preferred Stock if the Company is in arrears with respect to two
quarterly dividend payments or defaults in its agreements relating to Board
observer status, the issuance of long-term debt or the extension of voting
rights to the Series F Preferred Stock holders.
SERIES E PREFERRED STOCK
The issuance of up to 800 shares of Series E Preferred Stock was
authorized, and the Company issued 258 shares, all but two of which have been
converted into Common Stock. The Series E Preferred Stock has a per share
liquidation preference, subject to the liquidation preferences of the Series A
Preferred Stock, of an amount per share equal to the sum of $10,000 plus 12%
per annum simple interest thereon for the period since the date of issuance.
Each share is convertible at the option of the holder into the number of shares
of Common Stock determined by dividing an amount equal to the initial purchase
price of $10,000 plus 8% thereon per annum by the lesser of the closing bid
price of the Common Stock on the date of original issuance of the Series E
Preferred Stock ($6.00) or 85% of the average closing bid price of the Common
Stock for the five trading days immediately preceding the conversion (the
"Conversion Shares"). The Company may, commencing on July 21, 1996, require
conversion. The Series E Preferred Stock, subject to the rights of Series A
Preferred Stock regarding redemption, is redeemable by the Company when
submitted by its holder for conversion at a price per share equal to the amount
determined by multiplying the number of Conversion Shares by the closing bid
price on the date of conversion. The Series E Preferred Stock is non-dividend
paying. The Company is not subject to any mandatory redemption or sinking fund
provision with respect to the Series E Preferred Stock. Shares of Series E
Preferred Stock redeemed or otherwise reacquired by the Company shall be
retired by the Company and shall be unavailable for subsequent issuance as
Series E Preferred Stock.
25
<PAGE>
27
SERIES H PREFERRED STOCK
The issuance of up to 300 shares of Series H Preferred Stock was
authorized, and the Company issued 300 shares, none of which have been
converted into Common Stock. The Series H Preferred Stock has a per share
liquidation preference, subject to the liquidation preferences of the Series A
Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock,
of an amount per share equal to the sum of $10,000 plus 12% per annum simple
interest thereon for the period since the date of issuance. Each share is
convertible at the option of the holder into the number of shares of Common
Stock determined by dividing an amount equal to the initial purchase price of
$10,000 by $3.50. Commencing on December 27, 1996, the Company may redeem the
shares at the initial purchase price, if the holder does not exercise his
conversion rights, and the holder may submit the shares for redemption at that
price, in which case the Company may elect to pay the cash redemption price or
issue a number of shares of Common stock equal to that price, with the value of
the Common Stock being determined by its average closing bid price for the five
trading days immediately preceding the notice of redemption (the "Average Bid
Price"). The Series H Preferred Stock has a dividend rate of 8% which is
payable at the time of conversion or redemption in cash or shares of Common
Stock, as elected by the Company, with the value of the Common Stock being
determined by the Average Bid Price. The Company is not subject to any
mandatory redemption or sinking fund provision with respect to the Series H
Preferred Stock. Shares of Series H Preferred Stock redeemed or otherwise
reacquired by the Company shall be retired by the Company and shall be
unavailable for subsequent issuance as Series H Preferred Stock.
SERIES J PREFERRED STOCK
The issuance of up to 500 shares of Series J Preferred Stock was
authorized, and the Company issued 500 shares, none of which have been
converted into Common Stock. The Series J 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 $3.125 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 September 30, 1997, require conversion if the
Series J 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 $3.125, the Company, subject to the rights of senior securities
regarding redemption, may redeem shares of Series J 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 J Preferred Stock has a dividend rate of 6% which is payable at the time
of conversion or redemption in cash or shares of Common Stock, as elected by
the Company. The Company is not subject to any mandatory redemption or sinking
fund provision with respect to the Series J Preferred Stock. Shares of Series
J Preferred Stock redeemed or otherwise reacquired by the Company shall be
<PAGE>
retired by the Company and shall be unavailable for subsequent issuance as
Series J Preferred Stock.
LIMITATION OF LIABILITY
Pursuant to the Company's Certificate of Incorporation and under
Delaware law, directors of the Company are not liable for monetary damages for
breach of their fiduciary duty as directors except (i) for a breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions by
26
<PAGE>
28
the director not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for a willful or negligent declaration of an
unlawful dividend, stock purchase or redemption or (iv) for transactions from
which the director derived an improper personal benefit.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock and Series A
Preferred Stock is American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005.
27
<PAGE>
29
SELLING STOCKHOLDER
The following table sets forth as of November 4, 1996, information
regarding the beneficial ownership of Series J Preferred Stock held by the
Selling Stockholder. Except as otherwise noted, the Company believes, based on
information furnished by the Selling Stockholder, that all shares are
beneficially owned, and sole voting and investment power is held, by the person
named.
<TABLE>
<CAPTION>
NAME SHARES BENEFICIALLY
SHARES TO BE SHARES BENEFICIALLY
OF SELLING OWNED PRIOR TO
SOLD IN OWNED AFTER
STOCKHOLDER SECURITY OFFERING
OFFERING OFFERING
------------- -------- -------------
----------- ------------------
NUMBER PERCENT
NUMBER PERCENT
<S> <C> <C> --<C>----
------<C>- <C> <C> ------ -------
Southbrook Series J 500 100
500 0 0
Common Stock 1,600,000 6.6
1,600,000 0 0
Southbrook International Investments, Ltd.
("Southbrook") acquired an aggregate of 500 shares of Series J
Preferred Stock directly from the Company in a private offering.
The Series J Preferred Stock is convertible into Common Stock on
or after the effective date of the Registration Statement of
which this Prospectus is a part or November 29, 1996, if earlier,
for the number of shares set forth in the table or, if greater,
the number of shares determined by a formula set forth in the
Certificate of Designation for the Series J Preferred Stock (the
"Formula"). The Company may also elect to issue Common Stock in
payment of the dividend due upon conversion of the Series J
Preferred Stock. See "Description of Securities-Series J
Preferred Stock." The Formula provided for the issuance of
1,979,258 shares of Common Stock upon conversion of the Series J
Preferred Stock at the time it was issued. The Company agreed to
register an aggregate of 3,958,516 shares of Common Stock in case
<PAGE>
the future application of the Formula should require the issuance
of a greater number of shares. In the event that this future
application of the Formula is required, the Company will issue
more than the 1,600,000 shares of Common Stock set forth in the
above table. The number of shares of Common Stock that will
ultimately be issued to Southbrook, upon conversion of the Series
J Preferred Stock, cannot be determined at this time. This
Prospectus covers the sale by Southbrook of the shares of Series
J Preferred Stock which it acquired from the Company and the
shares of Common Stock which it may acquire upon the conversion
of the Series J Preferred Stock.
PLAN OF DISTRIBUTION
The Shares registered on behalf of the Selling
Stockholder may be sold from time to time by the Selling
Stockholder, or by pledgees, donees, transferees or other
successors in interest, in one or more transactions on the
Nasdaq-NMS, in negotiated transactions or otherwise at market
prices prevailing at the time of sale, at prices related to such
market prices or at prices otherwise negotiated. In addition,
any Shares that qualify for sale under the Securities Act
pursuant to Rule 144 thereunder may be sold under Rule 144 rather
than pursuant hereto.
The Selling Stockholder may sell some or all of
the Shares in transactions involving broker-dealers, who may act
as agent or acquire the Shares as principal. Any broker-dealer
participating in such transactions as agent may receive
commissions from the Selling Stockholder (and, if the broker-
dealer acts as agent for the purchaser of such Shares, from such
purchaser). Broker-dealers may agree with the Selling
Stockholder to sell a specified number of Shares at a stipulated
price per Share and, to the extent such broker-dealers are unable
to do so acting as agents for the Selling Stockholder, to
purchase as
28
<PAGE>
30
principals any unsold Shares at the price required to fulfill the
respective broker-dealer's commitment to the Selling Stockholder.
Broker-dealers who acquire Shares as principals may thereafter
resell such Shares from time to time in transactions (which may
involve cross and block transactions and which may involve sales
to and through other broker-dealers, including transactions of
the nature described above) in the over-the-counter market, in
negotiated transactions or otherwise, at market prices prevailing
at the time of sale, at prices related to such market prices or
at negotiated prices, and in connection with such resales may pay
to or receive from the purchasers of such Shares commissions.
The Selling Stockholder also may sell some or all of the Shares
directly to purchasers without the assistance of any broker-
dealer. At the time a particular offer of the Shares is made, if
required, a supplement to the Prospectus will be distributed, or
a post-effective amendment to the registration statement will be
filed, which will set forth the number of shares of Common Stock
being offered and the terms of the offering, including the
purchase price, public offering price, name or names of any
agents, dealers or underwriters, any discounts, commissions and
other items constituting compensation from the Selling
Stockholder and any discounts, commissions or concessions allowed
or reallowed or paid to dealers.
The Company is bearing all costs relating to the
registration of the Shares, except for commissions and discounts
and fees payable to broker-dealers or underwriters.
Under applicable rules and regulations under the
Exchange Act, any person engaged in a distribution of the Shares
may be limited in its ability to engage in market activities with
respect to shares of Common Stock. In addition and without
limiting the foregoing, the Selling Stockholder will be subject
to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, rules 10b-
5, 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of any of the Shares.
LEGAL MATTERS
The validity of the shares of Common Stock
offered hereby has been passed upon for the Company by Jones &
Blouch L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements
incorporated in this Prospectus by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995
have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
<PAGE>
29
<PAGE>
31
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable in
connection with the registration of the Common Stock that is the
subject of this Registration Statement, all of which shall be
borne by the Company. All the amounts shown are estimates except
for the Securities and Exchange Commission registration fee.
</TABLE>
<TABLE>
<CAPTION>
To Be Paid By
Registrant
--------------
<S> <C>
Securities and Exchange Commission registration fee . . . . . . . . . . . . . .
$ 4,572.77
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,000.00
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,500.00
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 22,072.77
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware General Corporation Law, Section 102(b)(7),
enables a corporation in its certificate of incorporation to
eliminate or limit personal liability of members of its Board of
Directors for monetary damages for breach of a director's
fiduciary duty of care. The elimination or limitation does not
apply where there has been a breach of the duty of loyalty,
failure to act in good faith, engaging in intentional misconduct
or knowingly violating a law, paying a dividend or approving a
stock repurchase which was deemed illegal or obtaining an
improper personal benefit. The Company's Certificate of
Incorporation provides that directors "shall be excused from
liability to the fullest extent permitted by Delaware law," as
now in effect or as subsequently amended.
Delaware General Corporation Law, Section 145, permits a
corporation organized under Delaware law to indemnify directors
<PAGE>
and officers with respect to any matter in which the director or
officer acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding,
he had no reasonable cause to believe his conduct was unlawful.
The Bylaws of the Company include comparable provisions.
Directors and officers are also insured against certain
liabilities under a directors and officers' liability insurance
policy maintained by the Company.
ITEM 16. EXHIBITS.
(a) The following is a list of exhibits furnished:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
-------- -------
<S> <C>
4 -- Series J - Certificate of Designation
5 -- Opinion of Jones & Blouch L.L.P. as to the legality of the
registered securities.
12 -- Statements of computation of ratio of pro forma earnings to
combined pro forma fixed charges and preferred dividend.
23.1 -- Consent of Price Waterhouse LLP.
23.2 -- Consent of Jones & Blouch L.L.P. (contained in opinion filed
as Exhibit 5).
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement to include any additional or changed material
information on the plan of distribution.
<PAGE>
(2) For the purpose of determining any liability under the
Securities Act of 1933, that each post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end
of the offering.
(4) That, for purposes of determining any liability under
the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference
in the registration statement shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions set forth in response to Item 15, or
otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
33
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the County of Fairfax, Commonwealth of Virginia, on November 14,
1996.
Network Imaging
Corporation
By:/s/ James J.
Leto
--------------
- ---------
James J. Leto
Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE
DATE
---- -----
----
<S> <C> <C>
/s/ James J. Leto Director,
President and
- ---------------------- Chief Executive
Officer November 14, 1996
James J. Leto
/s/ Robert P. Bernardi Chairman of the
Board November 14, 1996
- -----------------------
Robert P. Bernardi
/s/ John F. Burton Director
November 14, 1996
- -----------------------
John F. Burton
<PAGE>
/s/ C. Alan Peyser Director
November 14 , 1996
- -----------------------
C. Alan Peyser
/s/ Robert Ripp Director
November 14, 1996
- -----------------------
Robert Ripp
/s/ Jorge R. Forgues Vice President
of Finance and
- ----------------------- Administration,
Chief Financial
Jorge R. Forgues Officer and
Treasurer (Principal
Accounting
Officer) November 14, 1996
</TABLE>
II-3
<PAGE>
CERTIFICATE OF DESIGNATION OF
SERIES J CONVERTIBLE PREFERRED STOCK OF
NETWORK IMAGING CORPORATION
The undersigned, James J. Leto and Robert P.
Bernardi, hereby certify that:
1 They are the duly elected and acting President
and Secretary, respectively, of Network Imaging Corporation, a
Delaware corporation (the "Company").
1 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; Series H
Convertible Preferred Stock, 270 authorized and 270
outstanding; Series I Convertible Preferred Stock, 275
authorized and 275 outstanding.
1 The following is a true and correct copy of
resolutions duly adopted by the Board of Directors at a meeting
duly held September 25, 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 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:
1 Designation, Amount and Par Value. The series of
Preferred Stock shall be designated as the Series J Convertible
Preferred Stock (the "Preferred Stock"), and the number of
shares so designated shall be 500. 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").
1 Dividends.
1 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.
1 So long as any Preferred Stock shall remain
outstanding, neither the Company nor any subsidiary thereof
shall redeem, purchase or otherwise acquire directly or
indirectly any 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.
1 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
the affirmative 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.
1 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.
1 Conversion.
1 Each share of Preferred Stock shall be
convertible into shares of Common Stock at the Conversion Ratio
(as defined in Section 6) 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 Securities and Exchange Commission (the
"Commission") declares effective under the Securities Act of
1933, as amended (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 ten (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.
1 Provided that ten (10) Trading Days (as defined
in Section 6) shall have elapsed from the date 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 (1) year after the Original Issue
Date; provided, however, that the Company is not permitted to
deliver a Company Conversion Notice (as defined below) within
ten (10) days of issuing any press release or 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 (1) 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 (1) 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
Stock, 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."
1 (i) If the average of the Per Share Market
Value (as defined in Section 6) for the five (5) Trading Days
immediately preceding the date that the Company receives any
Holder Conversion Notice is less than $3 1/8, 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 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 (3) 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 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.
1 (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) $3 1/8 and (b) 81%
of the average Per Share Market Value for the five (5) Trading
Days immediately preceding the Conversion Date; provided,
however, (x) if the registration statement to be filed by the
Company in accordance with the Registration Rights Agreement is
not filed with the Commission on or prior to the Filing Date
(as defined in the Registration Rights Agreement), (y) such
registration statement so filed is not declared effective by
the Commission on or prior to the Effectiveness Date (as
defined in the Registration Rights Agreement) or (z) such
registration statement so filed is declared effective but
thereafter ceases to be effective at any time during the
Effectiveness Period (as defined in the Registration Rights
Agreement) without being succeeded within 30 days by a
subsequent registration statement filed with and declared
effective by the Commission (any such failure being hereinafter
referred to as an "Event", and for purposes of clauses (x) and
(y) the date on which such Event occurs, or for purposes of
clause (z) the date on which such 30-day limit is exceeded,
being hereinafter referred to as an "Event Date"), clause (b)
above shall be decreased by 2% monthly (i.e., 79% at the end of
the first such month and 77% at the end of the second such
month). Commencing on the third month after an Event Date, the
two (2%) percent monthly penalty shall be paid to the holder in
cash.
(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 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 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 (1)
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 (1)
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 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 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.
1 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 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.
1 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 Sections 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.
1 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.
1 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.
1 Shares of Preferred Stock converted into Common
Stock shall be canceled and shall have the status of authorized
but unissued shares of preferred stock.
1 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
stock 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 7:30 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 7:30 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.
1 Definitions. For the purposes hereof, the
following terms shall have the following meanings:
"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.
"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, Series H Convertible Preferred
Stock and Series I Convertible Preferred Stock.
"Original Issue Date" shall mean the date of the
first issuance of any shares of the Preferred Stock regardless
of the number of 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 national securities
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 national securities exchange or market on the date nearest
preceding such date, or (b) if the Common Stock is not listed
on The NASDAQ National Market or any national securities
exchange or market, the closing bid price for a share of Common
Stock on 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 on 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 reported by the National Quotation
Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the
average of the "Pink Sheet" quotes for the relevant conversion
period as determined by the holder, or (e) 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
national securities exchange or market 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 or market,
a day on which the Common Stock is traded on the
over-the-counter market, as reported by the NASDAQ Stock
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>
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 __th day of
September, 1996.
NETWORK IMAGING CORPORATION
By:________________________________
James J. Leto
President
Attest:
By:___________________________
Robert P. Bernardi
Secretary
<PAGE>
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 J 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:
The Company undertakes to promptly upon its receipt of this
conversion notice (and, in any case prior to the time it effects
the conversion requested hereby), notify the converting holder by
facsimile of the number of shares of Common Stock outstanding on
such date and the number of shares of Common Stock which would be
issuable to the holder if the conversion requested in this
conversion notice were effected in full, whereupon, the holder
may, within one day of the notice from the Company, revoke the
conversion requested hereby to the extent that it determines that
such conversion would result in it owning in excess of 4.9% of the
outstanding shares of Common Stock on such date, and the Company
shall issue to the holder one or more certificates representing
shares of Preferred Stock which have not been converted as a
result of this provision. If the holder waives the applicability
of this limitation by notice to the Company delivered upon its
receipt of the Company's notice regarding the number of
outstanding shares of Common Stock or if the Purchaser fails to
respond to the Company's notice within one day thereafter, the
Company shall effect in full the conversion requested in this
notice.<PAGE>
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 J 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
Number of Shares of Common Stock
outstanding at close of trading
on Conversion Date
Signature
Name:
Address:
Jones & Blouch L.L.P.
Suite 405- West
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007
(202) 223-3500
November 14, 1996
Board of Directors
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, VA 20170
Gentlemen:
This letter is being submitted to Network Imaging Corporation,
a Delaware corporation (the "Company"), in connection with its
preparation and filing of a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as
amended, in which the Company is registering for sale by Southbrook
International Investments, Ltd. ("Southbrook"): (i) 500 shares of
Series J Convertible Preferred Stock (the "Preferred Shares") that
were issued to Southbrook in a private offering and (ii) up to
3,958,516 shares of Common Stock of the Company, par value $.0001
per share (the "Common Shares"), that may be issued upon conversion
or redemption of the Preferred Shares or in payment of dividends
thereon.
We are familiar with the Certificate of Incorporation and
Bylaws, as amended, of the Company, including the Certificate of
Designation of Series J Convertible Preferred Stock of the Company
(the "Certificate of Designation"), and with the corporate
proceedings taken by the Company in connection with the issuance of
the Preferred Shares.
Based upon a review of such documents and consideration of
such matters of law and fact as we deem appropriate, we are of the
opinion that:
1. The Preferred Shares have been legally issued by the
Company and are fully paid and nonassessable.
2. The Common Shares will be legally issued, fully paid and
nonassessable when issued in accordance with the Certificate of
Designation upon conversion or redemption of the Preferred Shares
or in payment of dividends thereon.
This opinion is provided solely for the benefit of the
addressee hereof and is not to be relied upon by any other person.
We hereby consent to the use of this opinion and to references to
our firm in the Registration Statement.
Very truly yours,
/s/ Jones & Blouch L.L.P.
NETWORK IMAGING CORPORATION Exhibit 12
PRO FORMA FIXED CHARGE COVERAGE DEFICIENCY
Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Pro Forma Historical
------------ -------------
(in thousands)
<S> <C> <C>
Net loss before tax:
Net loss $ (13,343) $ (15,354)
Income tax provision (benefit) (89) (89)
----------- ------------
(13,432) (15,443)
----------- ------------
Fixed charges:
Gross interest expense 201 230
Appropriate portion of
rentals (1/3) 421 444
----------- ------------
622 674
Income before income taxes and
fixed charges $ (12,810) $ (14,769)
=========== ============
Accretion of redeemable Series
B preferred stock 1/ $ 341 $ 341
----------- ------------
Divided by 1-tax rate(34%)= 66% 517 517
Add: fixed charges 622 674
----------- ------------
Total fixed charges and preferred
stock accretion to redemption value 1,139 1,191
----------- ------------
Fixed charge coverage deficiency
before Series A dividend $ (13,949) $ (15,960)
=========== ============
Series A preferred stock dividend 2/ $ 2,408 $ 2,408
----------- ------------
Divided by 1-tax rate(34%)= 66% 3,648 3,648
----------- ------------
Fixed charge coverage deficiency
after Series A dividend $ (17,597) $ (19,608)
=========== ============
</TABLE>
1/ Represents accretion of 1,792,186 shares of Series B Preferred
Stock from its carrying value to its redemption value of
$16,130,000.
2/ Represents Series A Cumulative Preferred Stock dividend on
1,605,025 shares at $2.00 per share per annum.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus constituting part of this Registration Statement on
Form S-3 of our report dated March 29, 1996 appearing on page F-2
of Network Imaging Corporation's Annual Report on Form 10-K
for the year ended December 31, 1995. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Falls Church, Virginia
November 13, 1996
<PAGE>
