As filed with the Securities and Exchange Commission on December 4, 1997
Registration No. 333-36517
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NETWORK IMAGING CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 7373 54-1590649
(State or other (Primary Standard Industrial I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
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)
Julia A. Bowen, Esq.
Vice President and General Counsel
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:
Cary J. Meer, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
(202) 778-9000
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 in connection
with the formation of a holding company and there is compliance with General
Instruction G check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Aggregate Offering Registration Fee
Per Share (1) Price (1)
- ----------------------------- ---------------------- ---------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Series A Cumulative 1,750,000 (2) (2) (2) $ -- (2)
Convertible Preferred
Stock
- ----------------------------- ---------------------- ---------------------- ----------------------- -----------------------
Common Stock, $.0001 par 13,401,792 (2) (3) (2) (3) (2) (3) $ -- (2) (3)
value
- ----------------------------- ---------------------- ---------------------- ----------------------- -----------------------
Common Stock, $.0001 par 1,626,145 (4) (4) $1.21 (4) $1,967,635 $ (4) 581.00
value per share
- ----------------------------- ---------------------- ---------------------- ----------------------- -----------------------
Total Registration $ (2) (3)
Fee.......
============================= ====================== ====================== ======================= =======================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended
("Securities Act").
(2) These shares were previously registered under Registration Statement No.
33-70444. Accordingly, no registration fee is required under Rule 429(b) under
the Securities Act. A registration fee of $13,892 was paid in connection with
Registration Statement No. 33-70444 with respect to these shares. (3) Pursuant
to Rule 457(i) of the Securities Act, no fee is required.
(4) These shares are being registered with respect to dividends payable with
respect to the Series A Cumulative Convertible Preferred Stock payable in shares
of Common Stock. Fee is based upon the average of the high and low sales prices
on November 28, 1997, pursuant to Rule 457.
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>
NETWORK IMAGING CORPORATION
------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held December 31, 1997
------------------------------
To the Stockholders of Network Imaging Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders (the
"Special Meeting") of Network Imaging Corporation ("Network Imaging") will be
held on December 31, 1997 at 9:00 a.m., Eastern Standard Time, at the Hidden
Creek Club, 1711 Clubhouse Road, Reston, Virginia, for the following purposes:
1. To approve and adopt the Certificate of Amendment to
Certificate of Designations of Series A Cumulative Convertible
Preferred Stock of Network Imaging Corporation ("Certificate
of Amendment") in the form attached to this Proxy
Statement-Prospectus as Annex B.
2. To transact such further and other business as may properly
come before the meeting or any adjournments or postponements
thereof.
Approval of the Certificate of Amendment (also referred to herein as
"Proposal") requires the approval of (1) a majority of the voting power of all
of the outstanding shares of Common Stock voting separately as a class and (2) a
majority of the voting power of all of the outstanding shares of Series A
Cumulative Convertible Preferred Stock ("Series A Stock") of Network Imaging
voting separately as a class. The Certificate of Amendment must also be approved
by a majority of the voting power of Network Imaging's Series F Convertible
Preferred Stock, voting separately as a class, and by a majority of the voting
power of Network Imaging's Series K Convertible Preferred Stock, voting
separately as a class. Only the holders of Common Stock and Series A Stock as of
December 3, 1997, the record date (the "Record Date") for the Special Meeting,
are entitled to notice of and to vote at the Special Meeting and at any
adjournments or postponements thereof. A list of stockholders as of the Record
Date will be available for inspection by stockholders at the executive office of
Network Imaging located at 500 Huntmar Park Drive, Herndon, Virginia 20170
during ordinary business hours in the ten-day period prior to the Special
Meeting.
Stockholders of Network Imaging will not have the right to seek an
appraisal of their shares of Common Stock in connection with the transaction
described in the accompanying Proxy Statement-Prospectus. See "No Rights of
Dissenting Stockholders" in the attached Proxy Statement-Prospectus.
By Order of the Board of Directors
Julia A. Bowen
Vice President, General Counsel and
Assistant Secretary
December 13, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGIS-
TRATION 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 SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 13, 1997
NETWORK IMAGING CORPORATION
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
To Be Held on December 31, 1997
------------------------------
NETWORK IMAGING CORPORATION
PROXY STATEMENT - PROSPECTUS
1,750,000 Shares of Series A Cumulative Convertible Preferred Stock
(par value $.0001 per share)
15,027,937 Shares of Common Stock
(par value $.0001 per share)
-----------------------------
This Proxy Statement-Prospectus is being furnished in connection with
the solicitation of proxies by the Board of Directors of Network Imaging
Corporation, a Delaware corporation ("Network Imaging" or the "Company"), from
holders of record as of the close of business on December 1, 1997, (the "Record
Date") of the outstanding shares of Common Stock , par value $.0001 per share
("Common Stock "), and Series A Cumulative Convertible Preferred Stock, par
value $.0001 per share ("Series A Stock") of Network Imaging, for use at a
special meeting of stockholders (the "Special Meeting") to be held on December
31, 1997 at 9:00 a.m. local time at the Hidden Creek Club, 1711 Clubhouse Road,
Reston, Virginia and for the purposes specified in the accompanying notice and
at any adjournments or postponements of the Special Meeting.
At the Special Meeting, stockholders of Network Imaging will be asked
to approve the Certificate of Amendment to Certificate of Designations of Series
A Cumulative Convertible Preferred Stock of Network Imaging Corporation in the
form attached to this Proxy Statement - Prospectus as Annex B ("Certificate of
Amendment") (generally, this transaction is referred to as the "Restructuring").
This proposal ("Proposal") must be approved by (1) a majority of the voting
power of all of the outstanding shares of Common Stock voting separately as a
class and (2) a majority of the voting power of all of the outstanding shares of
Series A Stock of voting separately as a class for the Proposal to be adopted.
For the Proposal to be adopted, The Certificate of Amendment must also be
approved by a majority of the voting power of the Company's Series F Convertible
Preferred Stock ("Series F Stock"), voting separately as a class, and by a
majority of the voting power of the Company's Series K Convertible Preferred
Stock ("Series K Stock"), voting separately as a class.
This Proxy Statement-Prospectus also constitutes a prospectus of
Network Imaging with respect to the amended Series A Stock and the Common Stock
to be issued to the holders of Series A Stock in connection with the
Restructuring. The Common Stock and Series A Stock are traded on the Nasdaq
National Market under the symbols "IMGX" and "IMGXP," respectively.
See "Certain Investment Considerations Relating to Network Imaging"
beginning on page 21 for a discussion of certain factors that should be
considered in connection with the purchase of securities hereunder.
This Proxy Statement-Prospectus, the attached Notice of Special
Meeting, and the enclosed form of proxy were first mailed to stockholders of
Network Imaging on or about December 13, 1997.
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 Proxy Statement-Prospectus is December 13, 1997.
--------------------
AVAILABLE INFORMATION
Network Imaging is subject to the informational reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference rooms of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and copies of such materials can be obtained by mail
from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. In addition, copies of such
materials are available for inspection and reproduction at the public reference
facilities of the SEC at its New York regional office, 7 World Trade Center, New
York, New York 10048 and at its Chicago regional office, Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The
SEC also maintains a Web site (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC. The Company's Common Stock, Series A Stock and
Public Warrants are listed on the Nasdaq National Market. Reports, proxy
statements and other information concerning the Company can also be inspected at
Nasdaq, 1735 K Street, N.W., Washington, D.C. 20036.
Network Imaging has filed with the SEC a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), relating to the shares of Series A Stock and Common
Stock to be issued in connection with the Restructuring. As permitted by the
rules and regulations of the SEC, this Proxy Statement-Prospectus does not
contain all of the information set forth in the Registration Statement. Such
additional information may be obtained from the SEC's principal office in
Washington, D.C. as set forth above. Statements contained in this Proxy
Statement-Prospectus as to the contents of any contract or other document are
not necessarily complete and, in each instance where such contract or document
is an exhibit to the Registration Statement, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
No person is authorized to give any information or make any
representation other than those contained or incorporated by reference in this
Proxy Statement-Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Proxy
Statement-Prospectus does not constitute an offer to exchange or sell, or a
solicitation of an offer to exchange or purchase, the securities offered by this
Proxy Statement-Prospectus, or the solicitation of a proxy, in any jurisdiction
in which such offer or solicitation is not authorized or to or from any person
to whom it is unlawful to make such offer or solicitation. The information
contained in this Proxy Statement-Prospectus speaks as of the date hereof unless
otherwise specifically indicated.
* * *
<PAGE>
TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION.................................................. 5
SUMMARY................................................................. 10
Principal Features of the Restructuring........................ 10
Time, Date and Place of Special Meeting........................ 11
Record Date; Votes Required.................................... 12
Purpose of the Special Meeting................................. 12
.........Recommendation of the Board of Directors of
Network Imaging....................................... 12
Opinion of Financial Advisor................................... 12
Accounting Treatment........................................... 13
Network Imaging Market Price and Dividend Data................. 13
No Rights of Dissenting Stockholders........................... 15
Interests of Certain Persons................................... 15
Network Imaging Selected Financial and Other Data.............. 15
THE SPECIAL MEETING..................................................... 17
General........................................................ 17
Record Date.................................................... 18
Required Votes................................................. 18
Proxies........................................................ 18
Ownership of Network Imaging Common Stock and
Series A Stock........................................ 19
CERTAIN CONSIDERATIONS RELATING TO THE RESTRUCTURING.................... 21
Background of the Restructuring................................ 21
Reasons for the Restructuring; Recommendation of the
Board of Directors of Network Imaging ............ 21
Opinion of Financial Advisor to the Board of Directors......... 22
Compensation of the Financial Advisor.......................... 26
Effects of the Restructuring on Network Imaging ............... 27
Unaudited ProForma Condensed Financial Data ................... 27
CERTAIN FORWARD LOOKING STATEMENTS...................................... 29
CERTAIN INVESTMENT CONSIDERATIONS RELATING TO
NETWORK IMAGING....................................... 29
Lack of Profitability.......................................... 29
Continued Adverse Results of Operations Through 1997........... 30
Continued Listing on the NASDAQ National Market................ 30
Inadequate Dividend Coverage................................... 31
European Operations............................................ 32
Guarantee of ATG Lease Payments................................ 32
Competition; Rapid Technological Change ....................... 33
Risks of Defects and Development Delays........................ 33
Dependence on Key Personnel.................................... 34
Dependence on Suppliers........................................ 34
Evolving Distribution Channels................................. 34
Long Sales Cycle; Seasonality ................................. 35
Intellectual Property Rights; Infringement Claims ............. 35
Fluctuations in Financial Performance.......................... 36
Control of the Company......................................... 36
Dividend Policy................................................ 36
Shares Eligible for Future Sale; Effect on Market Price
of Common Stock and the Ability of the Company
to Raise Additional Capital........................... 37
Certain Anti-takeover Provisions of Certificate of
Incorporation and Delaware Law........................ 38
Impact of Offerings and Acquisitions on Net Operating
Loss Carryforwards.................................... 39
TERMS OF THE CERTIFICATE OF AMENDMENT................................... 39
Certificate of Amendment....................................... 39
DESCRIPTION OF NETWORK IMAGING.......................................... 40
Business....................................................... 40
Capitalization................................................. 47
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................. 48
Directors and Executive Officers............................... 56
Executive and Director Compensation............................ 59
Certain Relationships and Related Transactions................. 63
DESCRIPTION OF CAPITAL STOCK............................................ 65
Authorized Stock............................................... 65
Common Stock................................................... 65
Preferred Stock................................................ 65
Series A Cumulative Convertible Preferred Stock................ 66
Acquisition Preferred Stock.................................... 67
Series K Convertible Preferred Stock........................... 70
Limitation of Liability........................................ 74
Transfer Agent and Registrar................................... 74
Anti-takeover Effects of Provisions of the Certificate
of Incorporation and Delaware Law..................... 75
NO RIGHTS OF DISSENTING STOCKHOLDERS.................................... 76
INDEPENDENT ACCOUNTANTS................................................. 76
SHAREHOLDER PROPOSALS................................................... 77
LEGAL MATTERS........................................................... 77
EXPERTS................................................................. 77
INDEX TO FINANCIAL STATEMENTS............................................ F-1
ANNEXES
A. Opinion of Financial Advisor to Network Imaging Corporation
B. Certificate of Amendment to Certificate of Designations of Series
A Cumulative Convertible Preferred Stock of Network Imaging
C. Document Indicating Changes Made by the Certificate of Amendment
to the Certificate of Designations of the Series A Cumulative Con-
vertible Preferred Stock
<PAGE>
SUMMARY
The following is a summary of certain information contained in this
Proxy Statement-Prospectus. This summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed information set
forth elsewhere in this Proxy Statement-Prospectus and its Annexes, all of which
should be reviewed carefully. Unless otherwise indicated, all information in
this Proxy Statement-Prospectus regarding stock ownership and voting power of
Network Imaging Corporation Common Stock is as of November 13, 1997.
Principal Features of the Restructuring
On December 3, 1997, the Board of Directors of Network Imaging adopted
a resolution that provided for a Certificate of Amendment to Certificate of
Designations of Series A Cumulative Convertible Stock.
If the Certificate of Amendment is approved, the rate ("Conversion Rate") at
which holders may voluntarily convert shares of Series A Stock into Common Stock
would be as follows:
Shares of Common
Stock per one Share
Average Stock Price (1) of Series A Stock
- ----------------------------- ------------------
$1.30 or Less 7.68
$1.31-$1.50 6.67
$1.51-$1.75 5.71
More than $1.75 5.00
- --------------
(1) The Average Stock Price would be equal to the average closing price per
share of Common Stock on the Nasdaq National Market during the 20
trading days following the date of Certificate of Amendment is approved
If the Certificate of Amendment is approved, the Company may not force
conversion of shares of Series A Stock into Common Stock during 1998. Beginning
January 1, 1999, the Company would be able convert each share of Series A Stock
into shares of Common Stock if the closing price per share of Common Stock is at
least equal to $4.00 per share for 20 consecutive trading days. Beginning
January 1, 2000, the Company would be able convert each share of Series A Stock
into shares of Common Stock if the closing price per share of Common Stock is at
least equal to $3.00 per share for 20 consecutive trading days. Beginning
January 1, 2001, the Company would be able convert each share of Series A Stock
into shares of Common Stock at any time at the Company's option. The number of
shares of Common Stock received on conversion of the Series A Stock would also
be determined based on the Average Stock Price in accordance with the table set
forth above. In the event of a change of control (which would include a
transaction where an third party acquires more than 50% of the outstanding
shares of Common Stock), the holders of Series A Stock would receive no less
than $25 in value, either in cash, securities or a combination of both.
If the Certificate of Amendment is approved, cash dividends on the
Series A Stock would cease to accrue at their current rate on April 30, 1997.
Starting on the date the Certificate of Amendment is approved and until the
Series A Stock is converted, the Series A Stock would accrue an annual dividend
of $ .84 per share, payable quarterly in cash or Common Stock, at the Company's
option. If the dividend is paid in Common Stock, the number of shares of Common
Stock distributed as a dividend will be based on the average closing price per
share of Common Stock during the 10 day period following the Company's release
of earnings for the applicable quarter. If the Certificate of Amendment is
approved, the liquidation price per share of Series A Stock would be reduced
from $25.00 to $12.00.
If the Certificate of Amendment is approved, the anti-dilution
provisions of the Series A Stock currently in effect would no longer be in
effect. If the Certificate of Amendment is not approved, the Company will be
required to continue accruing dividends on the outstanding shares of Series A
Stock and will be required to issue a significant number of shares of Common
Stock to the holders of Series A Stock in accordance with the currently
applicable Certificate of Designations. See "Description of Capital Stock -
Series A Cumulative Convertible Preferred Stock."
Assuming the Conversion Rate is 7.68, 6.67, 5.71 and 5.00,the holders
of Series A Stock as a class would be entitled to receive 47%, 41%, 35% and 31%
of the shares of Common Stock outstanding on November 13, 1997 (after giving
effect to the issuance of the Common Stock on conversion or exchange of the
Series A Stock and assuming that dividends on the Series A Stock are not paid in
Common Stock).
For further information regarding the Certificate of Amendment, please
see Annex B and Annex C to this Proxy Statement-Prospectus (which is marked to
show the changes made by the Certificate of Amendment to the currently effective
Certificate of Designations for the Series A Cumulative Convertible Preferred
Stock).
The Company's executive offices are located at 500 Huntmar Park Drive,
Herndon, Virginia 20170. The Company's telephone number is (703) 478-2260.
Time, Date and Place of the Special Meeting
The Special Meeting will be held on December 31, 1997, at 9:00 a.m.,
Eastern Standard Time, at the Hidden Creek Club, 1711 Clubhouse Road, Reston,
Virginia.
Record Date; Votes Required
The Board of Directors of Network Imaging has fixed December
1, 1997 as the Record Date for the determination of stockholders entitled to
notice of and to vote at the Special Meeting. Each holder of Common Stock and
each holder of Series A Stock is entitled to one vote per share held of record
on the Record Date. Approval of the Certificate of Amendment requires the
approval of a majority of the voting power of all of the outstanding shares of
Common Stock voting separately as a class and a majority of the voting power of
all of the outstanding shares of Series A Stock, Series F Stock and Series K
Stock, each voting separately as a class.
The Company has issued warrants to RAS Securities Corp. ("RAS") and
Robert A. Schneider ("Schneider") pursuant to the Representatives' Warrant
Agreement ("RAS Agreement") among the Company, RAS Securities Corp. and Starr
Securities, Inc. dated as of December 7, 1993. Pursuant to the RAS Agreement,
RAS and Schneider hold warrants, exercisable until December 7, 1998, to purchase
(i) up to 140,000 shares, in the aggregate, of Series A Stock, (ii) 253,624
shares of Common Stock, or (iii) any combination of (i) and (ii). Under the
terms of the RAS Agreement, the shares of Series A Stock cannot under any
circumstances be redeemed by the Company and remain issuable upon the exercise
of the warrants, irrespective of whether the Company has called all or part of
the Series A Stock for redemption. Accordingly, the Company is seeking to obtain
the consent of RAS and Schneider to an amendment to the RAS Agreement that would
terminate this provision of the RAS Agreement. There can be no assurance that
RAS and Schneider will consent to such an amendment.
Purpose of the Special Meeting
At the Special Meeting, holders of Series A Stock of Network Imaging
will be asked:
1. To approve and adopt the Certificate of Amendment.
2. To transact such further and other business as may properly
come before the meeting or any adjournments or postponements
thereof.
Recommendation of the Board of Directors of Network Imaging
The Board of Directors of Network Imaging has approved the
Restructuring and the transactions related thereto described herein and believes
that the Restructuring is in the best interests of Network Imaging and its
stockholders, including the holders of the Common Stock .
The Board of Directors recommends that stockholders vote FOR the
Proposal. For a detailed description of the factors considered by the Board of
Directors and the reasons for its approval of the Restructuring, see "Certain
Considerations Relating to the Restructuring - Reasons for the Restructuring;
Recommendation of the Board of Directors of Network Imaging."
Opinion of Financial Advisor
On December 2, 1997, BT Alex. Brown ("Financial Advisor") rendered
its opinion to the Board of Directors of Network Imaging that the Restructuring
is fair, from a financial point of view, to its present public holders of Common
Stock.
Stockholders are urged to read the full text of the opinion of the
Financial Advisors, a copy of which is set forth as Annex A to this Proxy
Statement-Prospectus, for descriptions of the procedures followed, assumptions
made, matters considered and limitations on the review undertaken by Alex. Brown
in connection with rendering such opinion. See "Certain Considerations Relating
to the Restructuring - Opinion of Financial Advisor to the Board of Directors."
Accounting Treatment
For financial statement purposes, any gain on accrued, but unpaid,
dividends due as a result of the elimination of accrued dividends of the Series
A Stock by the Certificate of Amendment would be reflected on the Company's
Statement of Operations as a decrease in preferred stock preferences used in
arriving at the Company's net income (loss) applicable to common shares. The
Certificate of Amendment would be considered a capital transaction and recorded
as a reduction to accrued dividends with a corresponding increase directly to
additional paid-in-capital on the Company's financial statements.
Network Imaging Market Price and Dividend Data
Network Imaging Common Stock and Series A Stock are quoted on the
Nasdaq National Market. The following table indicates the high and low sales
prices for the Common Stock and the Series A Stock as reported by Nasdaq for the
periods indicated.
Period Stock Price of Stock Price of
Common Stock Preferred A Stock
------------------ -------------------
High Low High Low
---- --- ---- ---
1995
First Quarter 4 3/4 2 5/8 13 1/4 8 3/4
Second Quarter 5 7/16 3 1/8 15 1/2 10
Third Quarter 7 3/4 4 7/8 19 1/4 14 3/4
Fourth Quarter 5 1/8 2 13/16 17 12 3/4
1996
First Quarter 5 7/8 3 3/4 16 3/8 14 1/2
Second Quarter 5 5/8 3 7/16 16 1/4 13 3/8
Third Quarter 5 1/16 3 1/16 15 3/4 13 3/4
Fourth Quarter 4 5/32 2 11/16 15 7/8 13 1/2
1997
First Quarter 3 1/2 2 9/16 15 3/4 14 1/2
Second Quarter 2 29/32 1 11/16 14 1/4 8
Third Quarter 2 1/32 1 1/4 10 1/2 6 1/8
Fourth Quarter 1 3/4 1 1/32 9 1/2 5 3/4
(through November 13, 1997)
The high and low sales prices per share of Network Imaging Common
Stock as quoted on the Nasdaq National Market on November 24, 1997, the last
full trading day prior to the date of this Proxy Statement-Prospectus, were $1
25/32 and $1 23/32 per share. As of that date, the Company had approximately 385
holders of record of its Common Stock, and based on information supplied by
certain of such holders of record, the Company estimates that as of such date
there were approximately 7,600 beneficial owners of its Common Stock.
The high and low sales prices per share of the Series A Stock as
quoted on the Nasdaq National Market on November 24, 1997, the last full trading
day prior to the date of this Proxy Statement-Prospectus, were $7 3/4 and $7 1/2
per share. As of that date, the Company had approximately 334 holders of record
of its Series A Stock, and based on information supplied by certain of such
holders of record, the Company estimates that as of such date there were
approximately 7,402 beneficial owners of its Series A 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. The Company 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 Stock and the Series F Stock. The Company suspended payment of the
quarterly dividend on the Series A Stock due in July and October 1997 of $0.50
per share or $803,000 in the aggregate, for each period. The Company's future
earnings, if any, may not be adequate for the payment of dividends on its
outstanding preferred stocks. In addition, the purchase agreement for the Series
K Stock requires that the Company not use its proceeds of that offering to make
its quarterly dividend payments to the holders of the Series A Stock.
At June 30, and September 30, 1997, the Company had not maintained net
tangible assets of at least $4 million, which is one of the quantitative
maintenance criteria for continued inclusion of the Company's securities on the
Nasdaq National Market. To remedy the short-fall and offset any adverse impact,
the Company issued, during July 1997, 3,300 shares of Series K Stock and
warrants and received net proceeds of $2.9 million. Pursuant to the terms of the
offering, the purchasers of the Series K Stock ("Purchasers") are also required
to make additional purchases of shares for $3.0 million upon the Company's
achievement of certain performance milestones and the satisfaction of certain
other conditions at their option.
On August 21, 1997, the Company received a letter from the Nasdaq
National Market indicating that the Company may not have sufficient assets to
continue its listing on the Nasdaq National Market. The Company has responded to
that inquiry and after further correspondence with Nasdaq has requested a
hearing before the Nasdaq National Market's Hearing Department to explain its
plan for achievement and maintenance of the minimum net tangible assets
requirement. Following a hearing held on Thursday, October 30, 1997, a Nasdaq
Listing Qualifications Panel granted the Company's request for continued
inclusion in the Nasdaq National Market pursuant to an exception to the Nasdaq
National Market's minimum net tangible asset requirement.
The Panel found that the Company had presented a reasonable plan for
compliance. Based upon the plan detailed by the Company, the Panel concluded
that the Company could achieve compliance with the continued listed requirements
for the long-term.
In order to fully comply with the exception granted by the Panel, the
Company must complete its plan of compliance in accordance with a timetable set
forth by the Panel. The Company must demonstrate full compliance with the Nasdaq
National Market continued listing requirements by December 31, 1997. The Panel
also required that the Company have a minimum of $6.0 million in net tangible
assets to ensure long term compliance with the net tangible assets requirement.
Although the Company would not be required to maintain this minimum each quarter
going forward, the Company would be subject to the new net tangible assets
requirements requiring a minimum of $5.0 million in net tangible assets for the
continued inclusion on the Nasdaq National Market that become effective in
February 1998.
Although the Company believes that it can achieve the required net
tangible assets of at least $6 million through additional issuances of its
Series K Stock and warrants or other additional offerings of equity securities,
there can be no assurance that the Company will complete such offerings or that,
if completed, they will be on terms favorable to the Company or in an amount
sufficient to permit the Company to continue to achieve and maintain the minimum
net tangible asset requirement as stipulated by Nasdaq. If the Company
ultimately is unable to achieve the minimum net tangible asset requirements, the
Company's Common Stock and Series A Stock would be delisted from the Nasdaq
National Market. While the Company believes that trading of its Common Stock and
Series A Stock should continue, any inability to trade on a national exchange
could adversely impact the value of the Company's stock. In the event that the
Company's stock is delisted from the Nasdaq National Market, under the terms of
the Series K Stock, the Purchasers of the Series K Stock are not required to
effect the third closing. Under the terms of the Series A Stock, the Series F
Stock, the existing line of credit and the convertible notes issued in July and
August 1997, a delisting of the Company's stock would not affect those
transactions .
No Rights of Dissenting Stockholders
Stockholders of Network Imaging will not have the right under the
Delaware General Corporation Law (the "DGCL") to seek an appraisal of their
shares of Common Stock in the event that the Proposal is approved.
Interests of Certain Persons
None of the Company's officers or directors nor any of their asso-
ciates own any Series A Stock. See "The Special Meeting-Ownership of Network
Imaging Common Stock and Series A Stock."
Network Imaging Selected Financial and Other Data
The following selected financial data for the five years ended December
31, 1996 are derived from the audited consolidated financial statements of
Network Imaging Corporation. The financial data as of and for the nine months
ended September 30, 1996 and 1997 are derived from the unaudited consolidated
financial statements of Network Imaging Corporation. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which Network Imaging Corporation considers necessary for a fair presentation of
the financial position and results of operations for these periods. Operating
results for the nine months ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1997. The data should be read in conjunction with the consolidated
financial statements, related notes, and other financial information included in
this Proxy Statement - Prospectus.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA Year ended December 31,
- ---------------------------- -----------------------------------------------------
(in thousands, except per
share amounts) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net revenue $ 39,477 $ 69,151 $ 67,028 $ 34,069 $ 27,961
Costs and expenses:
Costs of revenue 24,374 42,398 48,189 25,094 21,366
Research and development 6,500 7,058 4,666 1,315 310
Selling, general and
administration 24,956 35,679 36,765 11,886 6,697
Exchange fee and gain
on sale of asset, net 619 -- -- -- --
Purchased in-process
research and development -- -- 8,821 24,550 --
Settlement with stockholders -- 1,642 -- -- --
Loss on closure and sale of
subsidiaries, net 921 9,274 -- -- --
Restructuring costs (175) (1,433) 1,654 1,646 --
Capitalized software
write-off -- -- 8,743 286 --
(Loss) before interest income
and income taxes (17,718) (25,467) (41,810) (30,708) (412)
Interest income (expense), net 309 224 579 77 (106)
-------- -------- -------- -------- --------
(Loss) before income taxes (17,409) (25,243) (41,231) (30,631) (518)
Income tax (benefit) expense (68) (280) (1,606) 186 (53)
-------- -------- -------- -------- --------
Net (loss) (17,341) (24,963) (39,625) (30,817) (465)
Preferred stock preferences (3,730) (9,933) (4,496) (604) --
======== ======== ======== ======== ========
Net loss applicable to
common shares $(21,071) $(34,896) $(44,121) $(31,421) $ (465)
======== ======== ======== ======== ========
Net loss per common share $ (1.02) $ (2.41) $ (3.56) $ (4.48) $ (0.13)
======== ======== ======== ======== ========
Weighted average shares
outstanding 20,682 14,502 12,391 7,015 3,486
</TABLE>
STATEMENT OF OPERATIONS DATA: Nine Months Ended September 30,
(in thousands, except per share amounts) --------------------------------
1997 1996
Net revenue $ 28,396 $ 29,049
Costs and expenses:
Costs of revenue 18,421 19,951
Product development 3,451 4,190
Selling, general and administration 15,850 19,174
Exchange fee and gain
on sale of asset, net -- 619
Gain from extinguishment of debt (267) --
Loss on sale of subsidiary -- 921
Restructuring costs -- (175)
(Loss) before interest
income and income taxes (9,059) (15,631)
Investment and interest
income (expense), net (163) (188)
-------- --------
(Loss) before income taxes (9,222) (15,443)
Income tax (benefit) expense (87) (89)
-------- --------
Net(loss) (9,135) (15,354)
Preferred stock preferences (3,610) (2,749)
-------- --------
Net loss applicable
to common shares $(12,745) $(18,103)
======== ========
Net loss per common share $ (0.51) $ (0.90)
======== ========
Weighted average shares
outstanding 24,957 20,081
<TABLE>
<CAPTION>
BALANCE SHEET DATA September 30, Year ended December 31,
- ------------------ -----------------------------------------------------------
(in thousands) 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 3,782 $ 7,601 $ 9,359 $ 3,989 $39,764 $ 3,385
Working capital 6,246 9,893 13,454 17,513 45,859 3,823
Current assets 21,851 24,709 35,718 46,051 59,516 10,230
Intangible assets, net 5,575 7,050 9,098 19,874 12,855 2,546
Total assets 31,480 36,778 49,964 71,871 75,519 13,738
Current liabilities 15,605 14,816 22,264 28,538 13,657 6,407
Long term liabilities 7,318 388 2,037 3,568 3,442 287
Redeemable preferred stock 10,057 9,857 15,478 14,609 15,626 --
Total stockholders equity
(deficit) $(1,691) $11,717 $10,185 $25,156 $42,794 $ 7,044
</TABLE>
THE SPECIAL MEETING
General
At the Special Meeting, stockholders of Network Imaging will be asked
to approve and adopt the Certificate of Amendment and to transact such further
and other business as may properly come before the Special Meeting or any
adjournments or postponements thereof. The Proposal will not be approved unless
it is approved by a majority of the voting power of all of the outstanding
shares of Common Stock voting separately as a class and a majority of the voting
power of all of the outstanding shares of Series A Stock, Series F Stock and
Series K Stock, each voting separately as a class. The holders of Series F Stock
and Series K Stock will be asked to consent to the Proposal by unanimous written
consent.
Pursuant to the RAS Agreement, RAS and Schneider hold warrants,
exercisable until December 7, 1998, to purchase (i) up to 140,000 shares, in the
aggregate, of Series A Stock, (ii) 253,624 shares of Common Stock, or (iii) any
combination of (i) and (ii). Under the terms of the RAS Agreement, the shares of
Series A Stock cannot under any circumstances be redeemed by the Company and
remain issuable upon the exercise of the warrants, irrespective of whether the
Company has called all or part of the Series A Stock for redemption.
Accordingly, the Company is seeking to obtain the consent of RAS and Schneider
to an amendment to the RAS Agreement that would terminate this provision of the
RAS Agreement. There can be no assurance that RAS and Schneider will consent to
such an amendment.
Record Date
The Board of Directors of Network Imaging (the "Board") has fixed the
close of business on December 3, 1997 as the Record Date for the determination
of stockholders entitled to notice of and to vote at the Special Meeting. Only
holders of record of shares of Network Imaging Common Stock and Series A Stock
at the close of business on the Record Date will be entitled to notice of and to
vote at the Special Meeting. On the Record Date, 25,940,053 shares of Common
Stock were outstanding and held by approximately 334 holders of record, and
1,605,025 shares of Series A Stock were outstanding and held by 31 holders of
record. Each share of Common Stock and Series A Stock is entitled to one vote
per share held of record on the Record Date.
Required Votes
Approval of the Restructuring (also referred to herein as "Proposal")
requires the approval of (1) a majority of the voting power of all of the
outstanding shares of Common Stock of Network Imaging voting separately as a
class and (2) a majority of the voting power of all of the outstanding shares of
Series A Stock of Network Imaging voting separately as a class. Under Delaware
law, shares of Common Stock and Series A Stock represented at the Special
Meeting (either by properly executed proxy or in person) that reflect
abstentions or "broker non-votes" (i.e., shares held by a broker or nominee that
are represented at the Special Meeting, but with respect to which such broker or
nominee is not empowered to vote on the Proposal) will be counted as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. Abstentions as to the Proposal will have the same effect as votes
against the Proposal. Broker non-votes will be treated as unvoted for purposes
of determining approval of a proposal (and therefore will have the same effect
as a vote against the Proposal). Under the New York Stock Exchange Rules,
brokers will not have discretionary voting authority to vote on the Proposal,
and may not vote for the Proposal without receiving instructions from the
beneficial owners of shares. The Proposal will not be approved unless it is also
approved by a majority of the voting power of all outstanding shares of Series F
Stock and Series K Stock, each voting separately as a class. The holders of
one-third of the shares of Common Stock issued and outstanding and entitled to
vote, when present in person or by proxy, constitute a quorum for the
transaction of business at the Special Meeting. The presence, in person or by
proxy, of a majority of the outstanding shares of the Series A Stock constitute
a quorum at the Special Meeting.
Proxies
Holders of Common Stock and Series A Stock of record on the Record Date
may vote at the Special Meeting in person or by means of the enclosed Proxy
Card. You may specify your voting choices by marking the appropriate boxes on
the Proxy Card. The proxy solicited hereby, if properly signed and returned to
the Company and not revoked prior to or at the Special Meeting, will be voted in
accordance with the instructions specified thereon. If you properly sign and
return your Proxy Card, but do not specify your choices, your shares will be
voted by the proxy holders FOR the Proposal.
The Board encourages you to complete and return the Proxy Card even if
you expect to attend the Special Meeting. You may revoke your proxy at any time
before it is voted at the Special Meeting by giving written notice of revocation
to the Secretary of the Company, by submission of a proxy bearing a later date
or by attending the Special Meeting and voting in person.
The proxy holders, James J. Leto and Jorge R. Forgues, will vote all
shares of Common Stock and Series A Stock represented by Proxy Cards that are
properly signed and returned by stockholders. The Proxy Card also authorizes the
proxy holders to vote the shares represented with respect to any matters not
known at the time this Proxy Statement-Prospectus was printed that may properly
be presented for consideration at the Special Meeting. You must return a signed
Proxy Card if you want the proxy holders to vote your shares of Common Stock
and/or Series A Stock.
The cost of preparing, assembling and mailing this Proxy
Statement-Prospectus will be paid by the Company. Following the mailing of proxy
solicitation materials, proxies may be solicited by directors, officers and
regular employees of the Company and its subsidiaries personally, by mail,
telephone, telecopier or by personal solicitation, for which they will receive
no additional compensation. In addition, the Company will reimburse brokers,
custodians, nominees and other persons holding shares of Common Stock and Series
A Stock for others for their reasonable expenses in sending proxy materials to
the beneficial owners of such shares and in obtaining their proxies. Brokerage
houses and other nominees, fiduciaries, and custodians nominally holding shares
of Common Stock and/or Series A Stock as of the Record Date will be requested to
forward proxy soliciting material to the beneficial owners of such shares, and
will be reimbursed by the Company for their reasonable expenses. The Company has
retained Georgeson & Company, Inc., Wall Street Plaza, New York, New York 10005,
to aid in the solicitation of proxies, for a fee of $15,000, plus reasonable
out-of-pocket expenses. Proxies may be solicited by personal interview, mail,
and telephone.
Ownership of Network Imaging Common Stock and Series A Stock
The following table sets forth certain information, as of November 13,
1997, with respect to the beneficial ownership of shares of Common Stock by (i)
each stockholder known by the Company to be the beneficial owner of more than
five percent (5%) of the outstanding shares of Common Stock; (ii) each director
of the Company; (iii) each officer named in the summary compensation table (see
"Description of Network Imaging Executive and Director Compensation - Summary
Compensation Table"); and (iv) all executive officers and directors as a group.
Except as indicated in the footnotes to the table, persons named in the table
have sole voting and investment power with respect to all shares of Common Stock
that they respectively own beneficially. The table does not include shares of
Common Stock that may be issued to the Purchasers because, except in the event
of a required conversion at maturity, no holder of Series K Stock is entitled to
convert such securities to the extent that the shares to be received by such
holder upon conversion would cause such holder to beneficially own more than
4.9% of the outstanding shares of Common Stock. See `Description of Capital
Stock - Series K Convertible Preferred Stock".
The address of each person who is an executive officer or director of
the Company is 500 Huntmar Park Drive, Herndon, Virginia 20170.
Name and Address Number of Shares Percent of
of Beneficial Owner Beneficially Owned (1) Class
------------------------- ---------------------- -----
Fred E. Kassner(2).............. 2,085,597 8.8
Robert P. Bernardi(3)........... 1,153,247 4.4
James J. Leto(4)................ 91,816 0.3
Robert M. Sterling, Jr.(5)...... 1,334,247 5.1
Mark T. Wasilko(6).............. 21,494 *
John F. Burton (7).............. 50,000 *
C. Alan Peyser(8)............... 21,500 *
Robert Ripp(9).................. 23,338 *
Brian H. Hajost(10)............. 17,248 *
Directors and executive officers
as a group (9) persons........ 1,420,262 5.5
- --------------------
* Less than 1% of the outstanding Common Stock.
(1) Under applicable rules of the SEC, a person is deemed to be the
beneficial owner of share of Common Stock if, among other things, he or
she directly or indirectly has or shares voting power or investment power
with respect to such shares. A person is also considered to beneficially
own shares of Common Stock that he or she does not actually own but has
the right to acquire presently or within the next sixty (60) days, by
exercise of stock options or otherwise.
(2) The address of Mr. Kassner is 69 Spring Street, Ramsey, New Jersey 07446.
Of the total shares shown, Mr. Kassner has shared voting and dispositive
power with respect to 1,207,857 shares, including 80,000 shares
underlying a warrant, held by Liberty Travel, Inc. of which Mr. Kassner
is an officer, director, and stockholder. Of the shares reported as being
held directly by Mr. Kassner, 154,000 are issuable upon the exercise of
warrants.
(3) Includes 755,747 shares issuable upon exercise of options.
(4) Includes 65,549 shares issuable upon exercise of options.
(5) Includes 755,747 shares issuable upon exercise of options and 96,000
shares issuable upon exercise of Redeemable Common Stock Purchase War-
rants.
(6) All shares are issuable upon exercise of options.
(7) All shares are issuable upon exercise of options.
(8) Includes 12,500 shares issuable upon exercise of options.
(9) Includes 17,088 shares issuable upon exercise of options.
(10) Includes 15,244 shares issuable upon exercise of options.
To the best of the Company's knowledge, no one beneficial owner or
group of beneficial owners owns more than 5% of the outstanding shares of Series
A Stock. In addition, to the best of the Company's knowledge, none of the
Company's directors or executive officers owns any shares of Series A Stock.
CERTAIN CONSIDERATIONS RELATING TO THE RESTRUCTURING
Background of the Restructuring
At November 13, 1997, the Company had outstanding 1,605,025 shares of
Series A Stock. The terms of the Series A Stock provide for an annual dividend
of $3.2 million, in the aggregate. If the Company does not make a dividend
payment the conversion ratio increases according to a specific formula. On July
28, 1997, the Company suspended the quarterly dividend payment on the Series A
Stock. At November 13, 1997, the accrued dividends on the Series A Stock were
$1.6 million.
The terms of the Series A Stock may be amended with the approval of
over 50% of the outstanding shares of the Series A Stock.
Reasons for the Restructuring; Recommendation of the Board of Directors of
Network Imaging
Despite significant increases in its domestic sales, Network Imaging
has recently experienced liquidity problems due largely to the required
dividends of the Existing Series A Preferred (over $3.2 million per year). On
July 28, 1997 the Company announced that it would suspend payment of dividends
on the existing Series A. As a result of the Proposal, the face amount of the
Series A Stock will be reduced by over 50% and the Company will be relieved of
paying a cash dividend on the Series A Stock. In addition, Common Stockholders
will benefit from the removal of an onerous provision of the Series A Stock
which would lower the conversion price of the Preferred Stock $0.50 each quarter
the dividend is accrued. The new Series A Preferred Stock will provide a larger
number of conversion shares (5.00 - 7.68) as compared to the current 1.8 shares.
The effective conversion price of the Proposal (i.e., existing face amount of
$25.00 divided by the new conversion ratio) represents a significant premium to
the currently traded common stock price: $3.26 - $5.00, depending on the Average
Stock Price.
In addition to the accretive effect of the Proposal and the enhanced
liquidity of the Company, the Proposal will also provide the Network Imaging
with other benefits including the greater ability to attract additional capital,
improved reputation with large-sized corporate customers and value-added
resellers and allows the Company to invest in marketing and development to drive
top-line sales growth.
Absent the Restructuring, the Company will have much greater
difficulty in attracting new capital and as a result, may not have the financial
resources to continue as a going concern.
The Board of Directors of Network Imaging has unanimously approved the
Restructuring and believes that the Restructuring is in the best interests of
Network Imaging and its stockholders. The Board of Directors recommend that
stockholders vote FOR the Proposal.
The Board of Directors, in reaching its decision, considered a number
of factors, including, without limitation, the following:
Opinion of Financial Advisor to the Board of Directors
The Financial Advisor has delivered to the Board of Directors
of the Company a written opinion (the "Fairness Opinion") as to the fairness of
the Proposal, from a financial point of view, to the present public holders of
Common Stock. The full text of the Fairness Opinion is attached hereto as Annex
A. Holders of Common Stock are urged to read the Fairness Opinion in its
entirety. The summary of the Fairness Opinion set forth in this Proxy
Statement-Prospectus is qualified in its entirety by reference to the full text
of the opinion attached hereto. The Financial Advisor's opinion was prepared for
the use of the Board of Directors and does not constitute a recommendation to
any stockholders as to how such stockholder should vote.
In connection with its Fairness Opinion, the Financial Advisor, among
other things, reviewed (i) the Company's Certificate of Incorporation, (ii) the
Certificate of Amendment, (iii) certain publicly available financial information
concerning the Company, (iv) certain nonpublic information, including financial
forecasts, concerning the Company, (v) the reported price and trading activity
for the Common Stock and Series A Stock and (vi) certain financial and stock
market information for the Company and similar information for certain other
public companies. In addition, the Financial Advisor held discussions with
members of the senior management of the Company regarding its business and
prospects and performed such other studies and analyses and considered such
other factors as the Financial Advisor deemed appropriate.
The following is a summary of the analyses performed and factors
considered by the Financial Advisor in connection with the rendering of the
Fairness Opinion:
Financial Position. In rendering its opinion, The Financial Advisor
took into account the Company's January 31, 1996 purchase agreement with the
sole holder of its Series F Stock by excluding the operations of its Dorotech
subsidiary and the Series F Stock from its analysis. See "Certain Investment
Considerations Relating to Network Imaging." The Financial Advisor reviewed and
analyzed the historical and current financial condition of the Company, which
included (i) an analysis of the Company's financial statements for its fiscal
years ended on or about December 31, 1993-1996, (ii) an analysis of the
Company's revenue, growth and operating performance trends, (iii) an assessment
of the Company's financial obligations under the terms of its Series A Stock,
(iv) the Company's pro forma projected consolidated income statement and
statement of cash flows, and (v) the Company's pro forma capitalization as of
the latest quarter end, as adjusted to give effect to the Proposal and other
agreements to which the Company is a party.
Historical Stock Price Performance. The Financial Advisor reviewed and
analyzed the daily closing per share market prices and trading volume for the
Common Stock for the latest twelve month period. In addition, for such period,
the Financial Advisor (i) reviewed the trading volume of the Common Stock at
various prices, (ii). compared the closing per share market price of the Common
Stock to the movement of prices of the Dow Jones Industrial Average, the S&P 500
and the Nasdaq composite average, (iii) compared the relative per share trading
value of the Common Stock to the Series A Stock, and (iv) compared the per share
market price of the Common Stock to the effective conversion price according to
the Proposal (i.e. the current face amount of $25.00 divided by the new
conversion ratio, 5.00 -7.68, or $3.26 - $5.00, or the "Range of Effective
Conversion Prices"). The Financial Advisor noted that the Company generally
underperformed the indices to which it was compared and that the Common Stock
generally traded well below such proposed Range of Effective Conversion Prices.
This information was presented to give the Board of Directors background
information that is relevant to the Proposal.
Analysis of Certain Other Publicly Traded Companies. The Financial
Advisor's analysis included an examination of the Company's valuation in the
public market as compared to the valuation in the public market of other
selected publicly traded companies. The Financial Advisor compared certain
financial information (based on the commonly used valuation measurements
described below) relating to the Company to certain corresponding information
from a group of publicly traded software systems (consisting of Caere
Corporation, Documentum, Inc., Excaliber Technologies, Inc., Filenet
Corporation, Fulcrum Technologies, Inc., Imnet Systems, Inc.,
Industri-Maternatik, INSCI Corp., Manugistics Group, Inc., Optika Imaging
Systems, Inc., PC Docs Group International Inc. and Verity, Inc. (collectively,
the "Selected Companies")). Such financial information included, among other
things, (i) common equity market valuation, (ii) capitalization ratios, (iii)
operating performance, (iv) ratios of total enterprise value (common equity
market value as adjusted for debt, preferred stock and cash) to revenues,
earnings before interest expense and income taxes ("EBIT") and earnings before
interest expense, income taxes, depreciation and amortization ("EBITDA"), each
for the latest reported twelve-month period as derived from publicly available
information and (v) ratios of common equity market prices per share to earnings
per share ("EPS"). The Financial Advisor noted that the total enterprise value
(market capitalization for common equity plus debt and preferred stock less
cash) to trailing twelve months revenues for the Selected Companies was a range
of 0.5x to 10.1x with an adjusted mean of 2.7x, as compared to 3.3x for the
Company. The Financial Advisor also noted that total enterprise value to
trailing twelve months EBIT and EBITDA were not meaningful values for the
Company and most of the Selected Companies due to negative values. The ratio of
share price to trailing twelve months EPS was also not meaningful for the
Company and most of the Selected Companies due to negative values. The financial
information used in connection with the analysis was based on the latest
reported twelve-month period as derived from publicly available information. In
choosing the Selected Companies, the Financial Advisor looked for software
developers focused on creating enterprise computing systems for a variety of
business and database applications. As a result of the foregoing procedures, the
Financial Advisor noted that the revenue multiple for the Company was in the
middle of the range of the multiples for the Selected Companies.
Analysis of Precedent Transactions. The Financial Advisor reviewed the
financial terms, to the extent publicly available, of 21 completed mergers and
acquisitions since April 1990 in the software development area (the "Selected
Transactions"). The Selected Transactions consisted of the acquisitions of Aurum
Software, Fractal Design Corporation, OpenVision Technologies, Bendata Inc., TGV
Software, Inc., Firefox Communications, Servantis Systems Holding, Softool
Corp., Microtec Research, Renaissance Software, Delrina Corporation, Saber
Software, Digitalk Inc., Trinzic Corporation, Caller Recognition Systems, Q & E
Software, Uniface Holdings, B.V., SmartStar Corporation, Goal Systems
International Inc., Peter Norton Computing, Inc. and Stockholder Systems. The
Financial Advisor calculated various financial multiples based on certain
publicly available information for each of the Selected Transactions and applied
them to the Company to arrive at an implied range of values for the Common
Stock. The Financial Advisor noted that the multiple of adjusted purchase price
(value of consideration paid for common equity adjusted for debt, preferred
stock and cash) to trailing twelve months revenues for the acquired company was
a range of 1.6x to 10.1x with an adjusted mean of 3.1x for the Selected
Transactions. The multiple of adjusted purchase price to trailing twelve months
EBIT for the acquired companies was a range of 11.5x to 233.0x with an adjusted
mean of 64.8x. The Financial Advisor further noted that the multiple of
aggregate purchase price to trailing twelve months net income for the acquired
company was not meaningful for the Company and most of the Selected Transactions
due to negative values. All multiples for the Selected Transactions were based
on public information available at the time of announcement of such
transactions, without taking into account differing market and other conditions
during the period in which the Selected Transactions occurred.
Discounted Cash Flow Analysis. The Financial Advisor performed a
discounted cash flow analysis for the Company. The discounted cash flow approach
values businesses based on the current value of the future cash flow that the
business will generate. To establish a current value under this approach, future
cash flow must be estimated and an appropriate discount rate determined. The
Financial Advisor used estimates of projected financial performance for the
Company for the fiscal years 1998 through 2002, prepared by management of the
Company. The Financial Advisor aggregated the present value of the cash flows
through 2002 with the present value of a range of terminal values. The Financial
Advisor discounted these cash flows at discount rates ranging from 17.5% to
19.5%. The terminal value was computed based upon an expected terminal growth
rate ranging from 11.5% to 12.5%. The Financial Advisor arrived at such discount
rates based on its judgment of the weighted average cost of capital of publicly
traded companies in the industry and arrived at such terminal values based on an
analysis of the growth in projected free cash flows for the Company. The
Financial Advisor noted that the projections were predicated on this Transaction
and as such the analysis was not considered in evaluating fairness. This
analysis did, however, indicate increased equity value as a result of completing
the Transaction.
No company used in the analysis of the other publicly traded companies
is identical to the Company. Accordingly, such analyses must take into account
differences in the financial and operating characteristics of the Selected
Companies and the Company and other factors that would affect the public trading
value of the Selected Companies.
While the foregoing summary describes certain of the analyses and
factors that The Financial Advisor deemed material in its presentation to the
Board of Directors, it is not a comprehensive description of all analyses and
factors considered by the Financial Advisor. The preparation of a fairness
opinion is a complex process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances; and, therefore, the analytical
process underlying such an opinion is not readily susceptible to summary
description. The Financial Advisor believes that its analyses must be considered
as a whole and that selecting portions of its analyses and of the factors
considered by it, without considering all analyses and factors, would create an
incomplete view of the evaluation process underlying the Fairness Opinion. In
performing its analyses, the Financial Advisor considered general economic,
market and financial conditions and other matters, many of which are beyond the
control of the Company. The analyses performed by the Financial Advisor are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by such analyses.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty. Additionally, analyses relating to the value of a business do not
purport to be appraisals or to reflect the prices at which the business actually
may be sold. Furthermore, the Financial Advisor expressed no opinion as to the
prices at which shares of the Common Stock may trade at any future time.
The Financial Advisor did not independently verify any of the foregoing
information and assumed the accuracy, completeness and fair presentation of such
information. With respect to financial forecasts and other information relating
to the prospects of the Company, the Financial Advisor assumed that such
forecasts and other information were reasonably prepared and reflect the best
currently available estimates and good faith judgments of the management of the
Company as to the likely future financial performance of the Company. In
addition, the Financial Advisor did not conduct a physical inspection of the
properties or facilities or make an independent evaluation or appraisal of the
assets of the Company, nor was it furnished with any such evaluation or
appraisal. Moreover, the Financial Advisor made no independent investigation of
any legal matters affecting the Company and assumed the correctness of all legal
advice given to the Company and the Board of Directors. Further, the Financial
Advisor's opinion was based on financial, economic, monetary, market and other
conditions as of the date of the Fairness Opinion.
Management of the Company, after consultation with the Special
Committee, selected the Financial Advisor to act as its financial advisor in
connection with transactions of the type contemplated by the Proposal and to
render the Fairness Opinion on the basis of the Financial Advisor's expertise in
such matters and its familiarity with the industry and business of the Company.
The Company agreed to pay the Financial Advisor certain fees for rendering such
financial advisory services. See "-- Compensation of the Financial Advisor."
Compensation of the Financial Advisor
The Company and the Financial Advisor, entered into an agreement dated
as of August 13, 1997 whereby the Company retained the Financial Advisor as sole
and exclusive financial advisor to provide the Company with general
restructuring advice. Upon execution of the agreement, the Company paid the
Financial Advisor a retainer fee of $25,000 in cash, 19,048 shares of Common
Stock and warrants to purchase 33,951 shares of Common Stock at an exercise
price of $1.56 per share. Upon consummation of the Restructuring, the Company is
obligated to pay the Financial Advisor a success fee consisting of (i) 155,844
shares of Common Stock, (ii) warrants to purchase 277,778 shares of Common Stock
at an exercise price of $__ per share and (iii) an additional $339,701 in cash.
The Company must also promptly reimburse the Financial Advisor for all (i)
reasonable out-of-pocket expenses (including travel and lodging, data processing
and communications charges, courier services and other appropriate expenditures)
and (ii) other fees and expenses, including expenses of counsel, if any. The
Common Stock issued to the Financial Advisor cannot be sold, and the warrants
issued and to be issued to the Financial Advisor cannot be exercised, until
August 14, 1998. Furthermore, the Financial Advisor has been granted piggyback
registration rights with respect to the shares of Common Stock issued and to be
issued to, and the shares of Common Stock and warrants issued and to be issued.
If, during the term of the agreement with the Financial Advisor, the
Financial Advisor assists the Company in obtaining an investment from a third
party or in a business combination that results in a change of control
transaction, the Company is obligated to pay the Financial Advisor a success fee
based on the transaction value. The Financial Advisor's fee is 1.5% of the
aggregate consideration up to $50 million, 0.75% of the aggregate consideration
greater than $50 million but less than or equal to $250 million, 0.375% of the
aggregate consideration greater than $250 million but less than or equal to $1
billion and 0.1875% of the aggregate consideration greater than $1 billion.
If, during the term of the agreement with the Financial Advisor, the
Company determines to utilize an investment banker or other advisor in raising
new capital in an amount greater than or equal to $10 million through the issue
of public or private debt or equity securities for the purpose of refinancing
the operations of the Company, the Company, under the terms of the agreement
with the Financial Advisor, is required to retain the Financial Advisor as sole
placement agent or lead manager in connection with such transaction. In the
event of the successful completion of such a transaction, the Company is
obligated to pay the Financial Advisor a fee of 6.0% of the principal amount
raised in the transaction.
Under the terms of the agreement with the Financial Advisor, the
Company is obligated to pay the Financial Advisor a fee of $100,000 in cash for
rendering the fairness opinion included in this Proxy Statement-Prospectus as
Annex A.
Under the terms of the agreement with the Financial Advisor, the
Company is obligated to indemnify and hold harmless the Financial Advisor and
each of its directors, officers, agents, employees and controlling persons
against any losses, claims, damages or liabilities related to or arising out of
engagements pursuant to the agreement with the Financial Advisor, and is
obligated to reimburse the Financial Advisor and each other person indemnified
for all legal and other expenses as incurred in connection with investigating or
defending any such loss, claim, damage, liability action or proceeding whether
or not in connection with pending or threatened litigation in which the
Financial Advisor or any of its directors, officers, agents, employees and
controlling persons is a party; provided, however, that the Company will not be
liable in the event of any losses, claims, damages, liabilities (or actions or
proceedings in respect thereof) or expenses to the extent that they result from
action taken or omitted to be taken by the Financial Advisor, or any other
indemnified party, resulting directly from the sole or gross negligence or
willful misconduct of the Financial Advisor or any other indemnified party.
Effects of the Restructuring on Network Imaging
Assuming that the Proposal set forth in this Proxy Statement -
Prospectus is approved and that the Certificate of Amendment is effective
January 1, 1998, the Series A Stock would be amended as discussed herein. Within
twenty trading days of the effective date of the Certificate of Amendment, the
Series A Stock would be convertible into Common Stock, with the number of shares
issuable dependent upon the average trading price of the Common Stock during
those twenty trading days. Approximately 13,401,792 shares of Common Stock would
be reserved for issuance upon conversion of the Series A Stock.
If the Certificate of Amendment is approved, the Company's dividend
payments shall be reduced annually by $3.2 million and the dividend accruals on
the Series A Stock will be eliminated.
The issuance of shares of Common Stock as contemplated by the
Certificate of Amendment would have a dilutive effect on the voting power of the
currently outstanding shares of Common Stock.
Unaudited Pro Forma Condensed Financial Data
The following Unaudited Pro Forma Condensed Financial Data (the "Pro
Forma Financial Data") reflects the contemplated Certificate of Amendment,
whereby the amended Series A Stock would carry a conversion feature into shares
of Common Stock at a proposed rate ranging from 5.00 to 7.68 shares of Common
Stock for each share of Series A Stock. The Pro Forma Financial Data also
reflects the reclassification of the Series K Preferred Stock from temporary
equity to additional paid-in capital resulting from the November 30, 1997
amendment of certain redemption provisions. The following Unaudited Pro Forma
Condensed Balance Sheet gives effect to the above transactions as if they had
occurred on September 30, 1997. A Pro Forma Condensed Statement of Operations is
not included. The contemplated Certificate of Amendment with the new conversion
rate into Common Shares described above effects only the loss per share which
would have been ($0.10), ($0.28) and ($0.54) for the three and nine months ended
September 30, 1997, and year ended December 31, 1996, respectively, at the
conversion rate of 7.68 shares of common stock for each share of Series A Stock.
The actual losses were ($0.18), ($0.51) and ($1.02) for the three and nine
months ended September 30, 1997 and the year ended December 31, 1996,
respectively. The pro forma loss per share gives effect as if the contemplated
transaction had occurred in the beginning of the respective periods.
If the contemplated preferred Series A transaction is consummated, the
actual number of shares of Common Stock that will be issued will differ somewhat
from the shares assumed in the Pro Forma Financial Data. The effective date of
the contemplated preferred Series A transaction, if consummated, will occur at a
date later than the dates assumed for the Pro Forma Financial Data, and the
accrued dividends on the Series A Stock should be greater than the amounts
assumed because of the additional accrual of dividends to the effective date of
the contemplated transaction. The Pro Forma Financial Data does not purport to
represent what the Company's results of operations actually would have been if
the contemplated transaction had occurred as of the dates indicated or what such
results will be for any future periods.
The Pro Forma Financial Data is based upon assumptions that the Company
believes are reasonable and should be read in conjunction with the Condensed
Financial Statements of the Company and the accompanying notes thereto which are
included in this document.
The Company and Contemplated Preferred Transaction
Pro Forma Condensed Balance Sheet
September 30, 1997 (In thousands)
(Unaudited)
(A)
Historical
With Effect of
Series A
Conversion
and Reclassif-
ication of
Series K
Historical Pro Forma Preferred
As Reported Adjustments Stock
----------- ----------- ------------
Assets
Current assets ..................... $ 21,851 $ $ 21,851
Intangible assets .................. 5,575 5,575
Other long-term assets ............. 4,054 4,054
--------- --------- ---------
Total assets ............. $ 31,480 -- 31,480
Liabilities
Current liabilities ................ $ 15,605 (1,338) 14,267
Long-term liabilities .............. 7,509 7,509
--------- --------- ---------
Total liabilities ........ $ 23,114 (1,338) 21,776
Mandatorily Redeemable Series F
Preferred Stock ................... 6,357 6,357
Redeemable Series K
Preferred Stock ................... 3,700 (3,700) --
Stockholders' equity:
Preferred Stock .................. -- --
Common Stock ..................... 3 3
Additional paid-in capital ....... 121,108 5,038 126,146
Accumulated deficit .............. (122,233) (122,233)
Translation Adjustment ........... (569) (569)
--------- --------- ---------
Total stockholders' equity
(deficit) ...................... (1,691) 5,038 3,347
--------- --------- ---------
Total liabilities
and stockholders' equity ...... $ 31,480 $ -- $ 31,480
========= ========= =========
(A) The computation of the Pro Forma Condensed Balance Sheet is based upon the
contemplated Certificate of Amendment. A conversion rate of 7.68 shares of
Common Stock per share of Series A Preferred Share was used, which resulted in
the issuance of 12,326,592 shares of Common Stock. In addition, all dividends
accrued during 1997 through September 30, were accrued but unpaid because the
Series A dividend was suspended. The pro forma balance sheet also includes the
reclassification of the Series K Preferred Stock from temporary equity to
additional paid-in capital as a result of the Agreement of the parties to amend
certain redemption provisions of the Certificate of Designation to the Series K
Stock.
CERTAIN FORWARD-LOOKING STATEMENTS
This Proxy Statement - Prospectus contains or may contain certain
forward-looking statements and information as well as estimates and assumptions
made by the Company's management. When used in this Proxy Statement -
Prospectus, words such as "anticipate," "believe," "estimate," "expect,"
"future," "intend," "plan" and similar expressions, as they relate to the
Company or the Company's management, identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions relating
to the Company's operations and results of operations, shifts in market demand,
the timing of product releases, economic conditions in foreign countries,
competitive products and pricing and other risks and uncertainties including, in
addition to any uncertainties specifically identified in the text surrounding
such statements, uncertainties with respect to changes or developments in
social, economic, business, industry, market, legal and regulatory circumstances
and conditions and actions taken or omitted to be taken by third parties,
including the Company's stockholders, customers, suppliers, business partners,
competitors, and legislative, regulatory, judicial and other governmental
authorities and officials. Should one or more of these risks or uncertainties
materialize, or should the underlying estimates or assumptions prove incorrect,
actual results or outcomes may vary significantly from those anticipated,
believed, estimated, expected, intended or planned.
CERTAIN INVESTMENT CONSIDERATIONS RELATING TO NETWORK IMAGING
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 Certain Investment
Considerations Relating to Network Imaging set forth below, as well as the other
information included in this Proxy Statement - 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, 1997 of
$122.2 million. Net losses applicable to common shares were $12.7 million for
the nine months ended September 30, 1997, $21.1 million for the year ended
December 31, 1996, and $34.9 million for the year ended December 31, 1995. 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 that related
to products that were abandoned in favor of 1View, and, in 1995, non-recurring
net charges of $9.3 million in connection with the bankruptcy of IBZ Digital
Production AG ("IBZ"), a company that had been purchased by the Company as a
wholly owned subsidiary, 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 "Description of Network
Imaging - Business."
Continued Adverse Results of Operations Through 1997
The adverse results of operations that the Company has experienced is
expected to continue at least until the first part of 1998. The Company believes
that the combination of existing cash, proceeds from potential future sales of
Series K Stock and warrants, potential future proceeds from such additional
offerings of equity securities as may be required, and the anticipated cash
flows from operations, should provide sufficient resources to fund its
activities through the next twelve months and to achieve net tangible assets of
at least $6 million as of December 31, 1997, which is required for continued
inclusion of the Company's securities on the Nasdaq National Market. The Company
have had discussions with prospective investors with respect to selling
additional equity of the Company. While no formal or contractual commitments has
been received to date, the Company believes that, if required, it could sell
such equity for cash prior to January 1, 1998, and thereby raise sufficient
additional equity to achieve such tangible net asset measure at December 31,
1997; however, there can be no assurance that such efforts would be successful
should they become necessary. Additionally, there can be no assurance that the
Company will be able to satisfy the conditions precedent to the issuance of
additional shares of Series K Stocks and warrants. The Company expects to close
a financing with Zanett Lombardier, Ltd. and Capital Ventures International on
or before December 8, 1997. In order for the closing to take place under the
Securities Purchase Agreement, the Company has to achieve certain milestones and
satisfy certain conditions (one of which is the Common Stock remain listed on
the Nasdaq National Market). The Company believes it has already satisfied the
milestones for the second tranche. Anticipated cash flows from operations are
largely dependent upon the Company's ability to achieve its sales and gross
profit objectives for its 1View and other products. If the Company is unable to
meet these objectives, it will consider alternative sources of liquidity, such
as additional offerings of equity securities. Although the Company believes that
it can successfully implement its operating plan and, if necessary, raise
additional capital, there can be no assurance that implementation of the plan
will be successful or that financing, if sought, will be available.
Continued Listing on the Nasdaq National Market
At June 30, and September 30, 1997, the Company had not maintained net
tangible assets of at least $4 million, which is one of the quantitative
maintenance criteria for inclusion of the Company's securities on the Nasdaq
National Market. To remedy the short-fall and offset any adverse impact, the
Company issued, during July 1997, 3,300 shares of Series K Stock and warrants
and received net proceeds of $2.9 million. Pursuant to the terms of the
offering, the purchasers are also required to make additional purchases of
shares of Series K Stock and warrants for $3.0 million upon the Company's
achievement of certain performance milestones and the satisfaction of certain
other conditions and an additional $4.7 million at their option.
On August 21, 1997, the Company received a letter from the Nasdaq
National Market indicating that the Company may not have sufficient assets to
continue its listing on the Nasdaq National Market. The Company has responded to
that inquiry and after further correspondence with Nasdaq requested a hearing
before the Nasdaq National Market's Hearing Department to explain its plan for
achievement and maintenance of the minimum net tangible assets requirement.
Following a hearing held on Thursday, October 30, 1997, a Nasdaq Listing
Qualifications Panel granted the Company's request for continued inclusion in
the Nasdaq National Market pursuant to an exception to the Nasdaq National
Market's minimum net tangible asset requirement.
The Panel found that the Company had presented a reasonable plan for
compliance. Based upon the plan detailed by the Company, the Panel concluded
that the Company could achieve compliance with the continued listed requirements
for the long-term.
In order to fully comply with the exception granted by the Panel, the
Company must complete its plan of compliance in accordance with a timetable set
forth by the Panel. The Company must demonstrate full compliance with the Nasdaq
National Market continued listing requirements by December 31, 1997. The Panel
also required that the Company have a minimum of $6.0 million in net tangible
assets to ensure long term compliance with the net tangible assets requirement.
Although the Company would not be required to maintain this minimum each quarter
going forward, the Company would be subject to the new net tangible assets
requirement (requiring a minimum of $5.0 million in net tangible assets) for the
continued inclusion on the Nasdaq National Market that become effective in
February 1998.
Although the Company believes that it can achieve the required net
tangible assets of at least $6 million through additional issuances of its
Series K Stock and warrants or other additional offerings of equity securities,
there can be no assurance that the Company will complete such offerings or that,
if completed, they will be on terms favorable to the Company or in an amount
sufficient to permit the Company to continue to achieve and maintain the minimum
net tangible asset requirement as stipulated by Nasdaq. If the Company
ultimately is unable to achieve the minimum tangible net asset requirements, the
Company's Common Stock and Series A Stock would be delisted from the Nasdaq
National Market. While the Company believes that trading of its Common Stock and
Series A Stock should continue, any ability to trade on a national exchange
could adversely impact the value of the Company's stock. In the event that the
Company's stock is delisted from the Nasdaq National Market, under the terms of
the Series K Stock the purchasers of the Series K Stock are not required to
effect the third closing. Under the terms of the Series A Stock, the Series F
Stock, the existing line of credit and the convertible notes issued in July and
August 1997, a delisting of the Company's stock would not effect those
transactions.
Inadequate Dividend Coverage
The annual dividend requirements on the Company's Series A Cumulative
Convertible Preferred Stock ("Series A Stock") is $3.2 million payable
quarterly. All quarterly dividends on the Series A Stock have been paid through
April 1997. The Company suspended payment on the quarterly dividends on the
Series A Stock due in July and October 31, 1997 in the amounts of $0.50 per
share or $803,000 in the aggregate, for each period. Failure to pay any
quarterly dividend has resulted 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 Stock to elect one director. (Because the sole holder of all of the
outstanding shares of Series F Stock has agreed to sell all of such shares to
the Company for a set price, the Company accrues dividends on the outstanding
shares of Series F Stock but is not obligated to make any payments until January
31, 1998 or upon the occurrence of certain conditions under the control of the
Company.) By law, dividends may be paid from surplus or net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year.
There can be no assurance that future surplus or earnings, if any, will be
adequate to pay dividends on the preferred stock. See "Description of Capital
Stock."
European Operations
The Company's European operations are conducted through the Company's
subsidiary Dorotech, S.A. ("Dorotech") and accounted for approximately 46% of
its revenue in 1996 and approximately 40% of the Company's revenue and 10% of
its net loss during the first nine months of 1997. 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 and net income. 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.
On December 31, 1996, the Company entered into a purchase agreement
with CDR Enterprises ("CDRE") for the sale and purchase of all of the Series F
Stock. Pursuant to the purchase agreement with CDRE, as amended on May 30, 1997
and Decmber 1, 1997, the Company is obligated to make to CDRE an aggregate cash
payment of $6,400,000 plus interest in the amount of $190,000. (Because the sole
holder of all of the outstanding shares of Series F Stock has agreed to sell all
of such shares to the Company for a set price, the Company accrues dividends on
the outstanding shares of Series F Stock, but is not obligated to make any
payments until January 31, 1998 or upon certain conditions under the control of
the Company.) The Company has granted CDRE a first ranking pledge on all of the
outstanding stock of Dorotech and, if the Company fails to make the payments to
CDRE when due, CDRE is at liberty to sell all of the Dorotech shares owned by
the Company and may withhold all amounts due and payable to CDRE before paying
back excess money, if any, to the Company. See "- Guarantee of ATG Lease
Payment" and "Description of Capital Stock - Acquisition Preferred Stock." The
Company cannot repurchase the outstanding shares of Series F Stock from CDRE
unless and until all accrued dividends on the Series A Stock have been paid. See
"- Inadequate Dividend Coverage" and "Description of Capital Stock - Series A
Cumulative Convertible Preferred Stock."
The Company is endeavoring to sell all of the outstanding stock of
Dorotech to a third party. There can be no assurance that the Company will be
able to do so by January 31, 1998 or at all or on favorable terms.
Guarantee of ATG Lease Payments
Prior to the acquisition of Dorotech by the Company, Dorotech's parent
(which was merged into Dorotech prior to the acquisition) signed a guarantee of
lease payments by an affiliated company, ATG Gigadisc SA ("ATG"), under a sale
and leaseback of land and buildings by ATG. At December 31, 1995, the remaining
lease payments due by ATG totaled approximately $6.1 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
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. On December 31, 1996,
the Company entered into a purchase agreement with CDRE for the sale and
purchase of the Series F Stock. See "--European Operations." As a condition to
entering into that Purchase Agreement, CDRE agreed it would endeavor to obtain a
release of the lease guarantee. To date, neither the Company nor Dorotech has
received a release of the lease guarantee. If claims would be made against
Dorotech, 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.
In the event that Dorotech is sold by January 31, 1998, CDRE has agreed
to be responsible for any claims or damages brought by any party in connection
with the ATG lease.
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 new product introductions, evolving industry standards,
and changes in customer requirements and preferences. 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 that 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 existing competitors that are larger
and more established and have substantially greater resources than the Company.
Because of the rapid expansion of the information access, imaging and optical
disk storage market, the Company will also face competition from new entrants,
possibly including the Company's customers, suppliers or resellers.
Technological advances by any of the Company's current or future competitors
could render obsolete or less competitive the products being offered by the
Company. The Company believes that the principal competitive factors affecting
the market for information access, imaging and optical disk storage products
include effectiveness, scope of product offerings, technical features, ease of
use, reliability, customer service and support, name recognition, distribution
resources and price. Current and potential competitors have established, or may
establish in the future, strategic alliances to increase their ability to
compete for the Company's prospective customers. Accordingly, it is possible
that new competitors or alliances may emerge and rapidly acquire significant
market share. Such competition could have a material adverse effect on the
Company's business, financial condition and results of operations.
Risks of Defects and Development Delays
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. For example, the Company may
experience schedule overruns in software development triggered by factors such
as insufficient staffing or the unavailability of development-related software,
hardware or technologies. Further, during the development of new software
products, or the enhancement of existing products, the Company's development
schedules may be altered as a result of the discovery of software bugs,
performance problems or changes to the product specification in response to
customer requirements, market developments or Company initiated changes. Changes
in product specifications may delay completion of documentation, packaging or
testing, which may, in turn, affect the release schedule of the product. In
connection with complex software products, the technology market may shift
during the development cycle, requiring the Company either to enhance or change
a product's specifications to meet a customer's changing needs. Any of these
factors may cause a product to enter the market behind schedule, which may
adversely affect market acceptance of the product, or place it at a disadvantage
to a competitor's product that has already gained market share or market
acceptance during the delay. The Company does not believe, however, that it is
practicable to quantify the impact that such delays have had or in the future
may have on its operating results. There can be no assurance that the Company
will not experience difficulties that will interrupt the marketing and
distribution of its current products or that the Company will not experience
difficulties in the future that could materially delay or prevent the successful
development of other products.
Dependence on Key Personnel
The Company is substantially dependent on the business and technical
expertise and business relationships of certain key personnel and on its ability
to attract and retain key management and technical employees in the future.
Competition for such employees is intense. The loss of current key employees or
the Company's inability to attract and retain other employees with necessary
business or technical skills in the future would have a material adverse effect
on the Company's business.
Dependence on Suppliers
The Company relies exclusively on outside suppliers for the hardware
components of its products such as scanners, printers, computers and optical
disk drives and jukeboxes. Most parts and components are currently available
from multiple sources at competitive prices. To date, the Company has not
experienced significant delays in obtaining parts and components and, although
there can be no assurance, the Company does not expect to experience such delays
in the future. Lack of availability of certain components could require minor
redesign of the Company's products and result in production delays.
Evolving Distribution Channels
The Company has developed a distribution strategy that involves the
development of strategic alliances with resellers, integrators, and
international distributors to enable the Company to achieve broad market
penetration. The Company's reseller distribution channel is established, and the
Company intends to expand that channel. There can be no assurance, however, that
the Company will be able to continue to attract distributors and resellers that
will be able to market the Company's products effectively and will be qualified
to provide timely and cost-effective customer support and service. The Company
ships products to distributors and resellers on a purchase-order basis, and its
distributors, integrators and resellers may, in some instances, carry competing
product lines. Therefore, there can be no assurance that any distributor,
integrator, or reseller will continue to represent the Company's products. The
inability to recruit, or the loss of, important sales personnel, distributors,
integrators or resellers could materially adversely affect the Company's
business, financial condition and results of operations in the future.
Long Sales Cycle; Seasonality
Sales of the Company's products sometimes involve a significant
commitment of capital by customers, with the attendant delays frequently
associated with large capital expenditures. Prior to such sales, the Company
often permits customers to evaluate products being considered for license,
generally involving a small license fee. In addition, the type of software that
the Company manufactures and sells is of the type that requires businesses to
re-engineer their processes, and completion of this may be arduous. For these
and other reasons, the sales cycle associated with the Company's products is
likely to be lengthy and subject to a number of significant risks over which the
Company has little or no control and, as a result, the Company believes that its
quarterly results are likely to vary significantly in the future. The Company
may be required to ship products shortly after it receives orders and,
consequently, order backlog, if any, at the beginning of any period may
represent only a small portion of that period's expected revenues. As a result,
product revenues in any period will be substantially dependent on orders booked
and shipped in that period. The Company plans its production and inventory
levels based on internal forecasts of customer demand, which is highly
unpredictable and can fluctuate substantially. If revenues fall significantly
below anticipated levels, the Company's financial condition and results of
operations could be materially and adversely affected. In addition, the Company
has experienced significant seasonality in its business, and the Company's
financial condition and results of operations may be affected by such trends in
the future. Such trends may include higher revenues in the third and fourth
quarters of the year and lower revenues in the first and second quarters. The
Company believes that revenues may tend to higher in the fourth quarter due to
year-end budgetary pressures on the Company's commercial customers.
Intellectual Property Rights; Infringement Claims
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 all of its employees, consultants, suppliers and others with
access to the Company's proprietary information to enter into non-disclosure
agreements that require such persons to maintain the confidentiality of such
information. The Company filed two patent applications in 1995, one of which was
granted in July 1997, and expects to file several more in the near future
covering key components of the 1View suite. Prosecution of these patent
applications, and any other patent applications that the Company may
subsequently determine to file, may require the expenditure of substantial
resources. The issuance of a patent from a patent application may require 24
months or longer. There can be no assurance that the Company's technology will
not become obsolete while the Company's applications for patents are pending.
There also can be no assurance that any pending or future patent application
will be granted, that any future patents will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide meaningful
competitive advantages to the Company. Further, the Company has not pursued
patent protection outside of the United States for the technology covered by the
Company's existing patent and pending patent applications. The Company currently
intends to pursue patent protection outside of the United States for the
technology covered by such patent applications, although there can be no
assurance that any such protection will be granted or, if granted, that it will
adequately protect the technology covered thereby. In addition, there can be no
assurance that others will not independently develop similar technologies or
duplicate any technology developed by the Company or that its technology will
not infringe upon patents, copyrights or other intellectual property rights
owned by others.
Further, the Company may be subject to additional risk as the Company
enters into transactions in countries where intellectual property laws are not
well developed or are poorly enforced. Legal protections of the Company's rights
may be ineffective in foreign markets and technology developed by the Company
may not be protectable in such foreign jurisdictions in circumstances where
protection is ordinarily available in the United States.
The Company believes that, due to the rapid pace of technological
innovation for the Company's imaging and optical storage products, the Company's
ability to maintain a position of technology leadership in the industry is
dependent more upon the skills of its development personnel than upon legal
protections afforded its existing or future technology.
As the number of information access, imaging and optical storage
products in the industry increases and the functionality of these products
further overlap, software developers may become subject to infringement claims.
There can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products.
The Company also may desire or be required to obtain licenses from others in
order to develop, produce and market commercially viable products effectively.
Failure to obtain those licenses could have a material adverse effect on the
Company's ability to market its software products. There can be no assurance
that such licenses will be obtainable on commercially reasonable terms, if at
all, that the patents (if any) underlying such licenses will be valid and
enforceable or that the proprietary nature of the unpatented technology
underlying such licenses will remain proprietary.
Any claims or litigation, with or without merit, could be costly and
could result in a diversion of management's attention, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, there can be no assurance that the Company
will have adequate resources to prosecute or defend such claims or litigation,
or that the Company's proprietary rights, including patents, if any, will be
upheld. Adverse determinations in such claims or litigation could also have a
material adverse effect on the Company's business, financial condition and
results of operations.
Fluctuations in Financial Performance
Timing and volume differences in the shipment of the Company's products
and the performance of services under contracts can produce significant
fluctuations in quarter-to-quarter and year-to-year financial performance.
Factors that could affect such timing include, among other things, customer
purchasing patterns, new product transitions, delays in new product
introductions and shortages of system components. Past financial performance
should not be considered to be a reliable indicator of future performance in any
particular fiscal period.
Control of the Company
The executive officers and directors of the Company beneficially own
approximately 6% of the Company's outstanding Common Stock, other officers and
employees of the Company beneficially own at least another 6% 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. There are no arrangements requiring the executive
officers and other employees of the Company to vote their Common Stock
collectively.
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. The Company 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 Stock and the Company's Series F Stock. The Company suspended its
quarterly dividend on the Series A Stock due in July and October 31, 1997 in the
amounts of $0.50 per share or $803,000 in the aggregate, for each period . By
its terms, the Series K Stock purchase agreement requires that the Company not
use the proceeds of that offer to make quarterly dividend payments to the
holders of Series A Stock. See "Summary -Network Imaging Market Price and
Dividend Data," and "Description of Capital Stock - Common Stock."
Shares Eligible for Future Sale; Effect on Market Price of Common Stock and the
Ability of the Company to Raise Additional Capital
As of November 13, 1997, the Company had outstanding 25,959,101 shares
of Common Stock, of which approximately 3.5 million shares were "restricted
securities" as that term is defined under Rule 144 of 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,
approximately 1.8 million were otherwise eligible for sale under Rule 144.
As of November 13, 1997, the Company had outstanding options and
warrants that were exercisable for 8,947,487 shares of Common Stock with
exercise prices of the options and warrants ranging from $1.00 to $14.88 per
share (subject to adjustment pursuant to the anti-dilution provisions of the
respective instruments and based upon the closing sale and bid price of the
Company's Common Stock on November 13, 1997). The number of shares of Common
Stock into which the Company's convertible securities convert could increase
significantly depending upon a number of factors, including the market price of
the Company's Common Stock at the time of conversion or redemption of the
convertible securities and the adoption of the Certificate of Amendment. The
options and warrants expire at various time through November 11, 2007.
As of November 13, 1997, the Company had outstanding other convertible
securities (including certain convertible notes, and the Series A and K
Preferred Stock) that were convertible into 7,187,855 shares of Common Stock
(subject to adjustment pursuant to the anti-dilution provisions of the
respective instruments and based upon the closing sale and bid price of the
Company's Common Stock on November 13, 1997). The number of shares of Common
Stock into which the Company's convertible securities convert could increase
significantly depending on a number of factors, including the market price of
the Company's Common Stock at the time of conversion or redemption of the
convertible securities and the adoption of the Certificate of Amendment. (The
Common Stock issuable on conversion of the Series F Stock has not been included
as the holder of the Series F Stock is obligated to sell the Series F Stock to
the Company at a set price. However, the Company may not redeem the Series F
Stock when there are accrued and unpaid dividends on the Series A Stock. See
"Description of Capital Stock - Acquisition Preferred Stock.). The conversion
prices of the convertible securities range from $1.01 to $12.61 per share. The
convertible securities may convert at various times through August 20, 2002
Those options, warrants and convertible securities that are not subject
to registration rights may, upon exercise or conversion, be sold pursuant to
Rule 144 or, if applicable, Rule 144(k). In addition, the Company is obligated
to issue to the Purchasers and Zanett additional shares of Series K Stock and
warrants that would be convertible into or exercisable for 4,427,500 shares of
Common Stock in certain circumstances. See "Description of Capital Stock -
Series K Convertible Preferred Stock."
The Company has registration commitments with respect to 6,569,176
shares ("Registrable Shares") of Common Stock in connection with certain
options, warrants and convertible securities that the Company has issued. This
amount does not include 4,427,500 shares of Common Stock issuable on conversion
of Series K Stock and warrants that the Company may be obligated to issue to the
Purchasers and Zanett in certain circumstances. See "Description of Capital
Stock - Series K Convertible Preferred Stock.". The Company has filed
registration statements with the Securities and Exchange Commission ("SEC")
covering in the aggregate 14,994,884 of the Registrable Shares, which 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 or conversion of
certain outstanding warrants, options or convertible securities. In addition,
the Company has registered 9,100,000 shares of Common Stock that may be issued
pursuant to stock option plans. The Company's obligations generally are to
maintain such registration statements for varying periods at its expense, except
for commissions and legal costs incurred by selling stockholders.
The Company believes that the existence of convertible securities,
options and warrants, with conversion or 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 has had and may continue to have an
adverse effect on the market price of the Common Stock and on the Company's
ability to raise future equity capital. In addition, if the selling stockholders
or the others, 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.
Certain Anti-takeover Provisions of Certificate of Incorporation and
Delaware Law
The Company's Board of Directors has the authority to issue up to
20,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights of those
shares, without any further vote or action by the Company's shareholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of preferred stock that has already been
issued and that may be issued in the future. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire a majority of the voting stock of the Company. As
of November 13, 1997, the Company had outstanding 1,605,025 shares of Series A
Stock, 792,186 shares of Series F Stock and 3,300 shares of Series K Stock. The
Company may issue additional shares of Series K Stock. See "Description of
Capital Stock."
The Company is subject to Section 203 of the Delaware General Cor-
poration Law, which places certain restrictions on the ability of Delaware
corporations to engage in business combinations with interested shareholders.
See "Description of Capital Stock."
Impact of Offerings and Acquisitions on Net Operating Loss Carryforwards
As a result of the issuance of the Series A 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
$53 million at December 31, 1996 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.
TERMS OF THE CERTIFICATE OF AMENDMENT
The following is a summary of certain provisions of the Certificate of
Amendment, a copy of which is attached as Annex B hereto and incorporated herein
by reference. Such summary is qualified in its entirety by reference to the full
text of the Certificate of Amendment.
Certificate of Amendment
On December 3, 1997, the Board of Directors of the Company adopted the
Certificate of Amendment. If the Certificate of Amendment is approved, the rate
("Conversion Rate") at which holders may voluntarily convert shares of Series A
Stock into Common Stock would be as follows:
Shares of Common
Stock per one Share
Average Stock Price (1) of Series A Stock
- ----------------------------- ------------------
$1.30 or Less 7.68
$1.31-$1.50 6.67
$1.51-$1.75 5.71
More than $1.75 5.00
- --------------
(1) The Average Stock Price would be equal to the average closing price per
share of Common Stock on the Nasdaq National Market during the 20
trading days following the date of Certificate of Amendment is approved
If the Certificate of Amendment is approved, the Company may not force
conversion of shares of Series A Stock into Common Stock during 1998. Beginning
January 1, 1999, the Company would be able convert each share of Series A Stock
into shares of Common Stock if the closing price per share of Common Stock is at
least equal to $4.00 per share for 20 consecutive trading days. Beginning
January 1, 2000, the Company would be able convert each share of Series A Stock
into shares of Common Stock if the closing price per share of Common Stock is at
least equal to $3.00 per share for 20 consecutive trading days. Beginning
January 1, 2001, the Company would be able convert each share of Series A Stock
into shares of Common Stock at any time at the Company's option. The number of
shares of Common Stock received on conversion of the Series A Stock would also
be determined based on the Average Stock Price in accordance with the table set
forth above. In the event of a change of control (which would include a
transaction where an third party acquires more than 50% of the outstanding
shares of Common Stock), the holders of Series A Stock would receive no less
than $25 in value, either in cash, securities or a combination of both.
If the Certificate of Amendment is approved, cash dividends on the
Series A Stock would cease to accrue at their current rate on April 30, 1997.
Starting on the date the Certificate of Amendment is approved and until the
Series A Stock is converted, the Series A Stock would accrue an annual dividend
of $1.75 per share, payable quarterly in cash or Common Stock, at the Company's
option. If the dividend is paid in Common Stock, the number of shares of Common
Stock distributed as a dividend will be based on the average closing price per
share of Common Stock during the 10 day period following the Company's release
of earnings for the applicable quarter. If the Certificate of Amendment is
approved, the liquidation price per share of Series A Stock would be reduced
from $25.00 to $12.00.
If the Certificate of Amendment is approved, the anti-dilution
provisions of the Series A Stock currently in effect would no longer be in
effect. If the Certificate of Amendment is not approved, the Company will be
required to continue accruing dividends on the outstanding shares of Series A
Stock and will be required to issue a significant number of shares of Common
Stock to the holders of Series A Stock in accordance with the currently
applicable Certificate of Designations. See "Description of Capital Stock --
Series A Cumulative Convertible Preferred Stock."
Assuming the Conversion Rate is 7.68, 6.67, 5.71 and 5.00, the holders
of Series A Stock as a class would be entitled to receive 47%, 41%, 35% and 31%
of the shares of Common Stock outstanding on November 13, 1997 (after giving
effect to the issuance of the Common Stock on conversion or exchange of the
Series A Stock and assuming that dividends on the Series A Stock are not paid in
Common Stock).
The Certificate of Amendment also eliminates the right of the holders
of Series A Stock to elect a member of the Company's Board of Directors and the
right of the Company to redeem the Series A Stock for cash. For further
information regarding the Certificate of Amendment, please see Annex B and Annex
C to this Proxy Statement-Prospectus (which is marked to show the changes made
by the Certificate of Amendment to the currently effective Certificate of
Designations for the Series A Cumulative Convertible Preferred Stock).
DESCRIPTION OF NETWORK IMAGING
Business
General. The Company was incorporated in Delaware in May 1991. The
Company provides software products supporting storage, management and
distribution. These products provide businesses and government organizations
with an automated method of electronically storing, managing and distributing
large volumes of structured data (text) and unstructured data (diagrams,
documents, photos, voice and full-motion video).
The Company is a leader in content and storage management for all
unstructured information. Its flagship product, the 1View suite, manages the
storage, access and distribution of any multimedia (or unstructured) data, such
as diagrams, documents, photographs, voice, and full-motion video. 1View is a
solution for use in distributed, high transaction, high volume mission critical
applications across legacy, client/server and Internet/intranet based
environments. The Company is also a software developer for mainframe and
PC-based Computer Output to Laser Disk ("COLD") systems and a developer and
marketer of storage management software systems. 1View, InfoAccess(TM),
Treev+(TM) and the Company logo are trademarks of Network Imaging Corporation.
United States operations are conducted in Herndon, Virginia (primarily
the development, marketing and sales activities of the 1View suite and mainframe
COLD products), Minneapolis, Minnesota and Denver, Colorado (PC COLD products).
European operations are conducted primarily in Paris, France (hierarchical
storage management ("HSM") software and related storage products and engineering
services).
Traditional manual filing, retrieval, and distribution methods are
labor intensive, slow, require bulky file storage, 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,
computer aided design ("CAD") and engineering drawings, and other such
"information objects" which are distributed throughout a multi-site enterprise.
To address this need for information storage, retrieval, and distribution
management, the Company has developed its 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 object management software to capture and
store "information objects" with more advanced indexing and retrieval features
than those available for paper documents or "structured data". The Company's
information access, object 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.
1 View.
The Company's 1View suite is designed to answer the information access needs
of large organizations. 1View's object enabling suite of software tools contains
flexible and layered application program interfaces ("APIs"), which allow
developers to select the appropriate level of API to suit customer solution
requirements, provide a bridge to "legacy" systems previously used, and allow
for easy customization of software systems in comparison to standard file
structures. 1View is an independent platform and can work on top of any data
base in the marketplace.
The 1View suite consists of the following:
1View: Object Manager is an API toolkit that provides a unique solution
for storing, managing, and distributing any type of multimedia document object
in high transaction, high volume, client/server and Internet/intranet
environments. It can manage information that originates from a large variety of
sources, including scanned documents, computer output, word processor or
spreadfile sheets, audio/voice or full motion clips, and photographic images.
1View: Object Manager helps companies seamlessly and efficiently
multimedia-enable existing or new database applications while preserving their
investments in legacy information systems, hardware equipment and personnel
training.
1View: EDM (Engineering Document Management) is a software product with
an application that solves the document management problems unique to
engineering organizations. Target customers include manufacturing, utilities,
transportation and other engineering-based corporations. It supports a variety
of document types including oversized engineering and architectural drawings,
project plans, specifications and blueprints indexing the documents according to
end-user criteria.
1View: Workflow is a software product with an easy-to-implement suite
of software tools designed to automate complex business processes in
client/server and Web environments. It is a rules-based workflow management
system designed to allow integration and automation of work process management
applications into mainstream business practices. 1View:Workflow provides the
ability to graphically represent and control business processes by linking
together a variety of people and software elements to automate the flow of
documents (objects) throughout an enterprise.
1View: WebMOM (Web Multimedia Object Manager) is a software product
that allows companies to build customer Internet/intranet applications easily
and cost-effectively using the 1View:Object Manager as a back-end storage
repository. It delivers high performance access from Web browsers due to its
caching capabilities, while protecting confidentiality of data by linking to Web
security mechanisms. Upon requests from Web users, it locates the object,
retrieves it, adds a MIME header to it, and finally transfers it back through
the Web server to the Web browser. 1View:WebMOM supports all major Web browsers
and servers, such as Netscape Navigator, Netscape Web Server, MS Internet
Explorer, and MS Internet Information Server.
1View: COLD/ES is a report storage and retrieval system that offers
high volume, high speed mission critical print data handling. It lets the user
maximize the power and extensive resources of the mainframe computer by
off-loading report management operations to a cost-effective dedicated server
and its associated high efficiency data storage subsystem.
Another product in the suite is a software product that provides a
storage and retrieval system for scanned images and other documents. It provides
a simple and consistent way to find and view information regardless of its
storage location or internal format. In most cases, documents are added to this
system using a batch scanning process. This product is an end-user application
that runs with 1View:Object Manager. 1View:Object Manager handles the physical
management of documents as they are being scanned into the system and after they
have been stored on storage media while This product allows the end-user to
organize documents electronically in a structure that is meaningful to the
end-user and retrieves information rapidly.
Other Products.
A significant portion of the Company's product emphasis is on packaged software
solutions. COLD software is an important component of several of these products.
COLD technology is widely accepted as a way to permanently archive and provide
for the retrieval of permanent business reports produced by computers (computer
output). COLD typically replaces printed paper reports and Computer Output
Microfiche (COM or "microfiche") with high capacity optical disks. Once written
permanently to this unalterable media, COLD provides for on-line viewing of
information such as banking and brokerage statements, utility bills, payroll
reports and corporate financial journals and reports. COLD technology provides a
more economical way to store the information as well as a faster method to
retrieve reports. Optical disk is much less expensive storage medium than
microfiche or paper. By putting reports back on-line utilizing an organization's
standard terminals, workstations, and networks, productivity is increased as
compared to manually handling physical paper and microfiche. The Company is one
of the largest commercial providers of COLD technology.
The TREEV Division of the Company's U.S. operations has developed and
markets PC-based COLD systems used in over 2,000 community banks. TREEV also
markets imaging products to the community bank marketplace including a software
product repackaged as TREEV Voyager II. TREEV Division provides "turn-key"
hardware and software solutions, maintenance services for its client systems,
consulting, training, and high quality optical supplies.
The Company's French subsidiary, Dorotech, headquartered in Paris,
develops and markets a family of software products designed to manage large
volumes of information and provides professional engineering services.
Dorotech's software products include DoroStore, DoroFile, Doro-JB, Dorokey, and
Dorodoc (the "DoroStore suite"). The DoroStore suite implements advanced data
and storage management solutions for enterprises with complex networks and large
numbers of servers and workstations. The capabilities of the DoroStore suite
include: (1) centralized administration capability to implement uniform data and
storage policies throughout a distributed network, (2) advanced backup and
restore processes to protect and secure data from disasters, and provide users
with a direct link to retrieving their individual files, (3) On-Line Database
Backup/Restore ("ODBR") to manage the backup and recovery of databases, (4)
advanced archiving methods that allow retrieval of files using keywords,
phrases, and date ranges, thereby reducing costly processes involving users and
administrators searching for specific files, (5) hierarchical storage management
for transparently and automatically storing data onto lower cost storage
subsystems, providing virtually limitless network capacity, and (6) full
security protection for all operations. The DoroStore suite provides a single
utility for administering heterogeneous environments in terms of storage space
and data protection across networks on any scale, up to and including the very
largest networks. The Company is endeavoring to sell all of the outstanding
stock of Dorotech to a third party. There can be no assurance that the Company
will be able to do so by January 31, 1998 or at all or on favorable terms.
Product Development. The Company's plan to consolidate the various
1View product development groups into a common product development organization
was completed in 1996. The unified team now operates under a single senior
manager and is located at the Company's headquarters in Herndon, VA. This
consolidation allows the organization to operate under a common shared strategy,
which includes both the 1View product suite's technical vision and software
development methodology. During 1997, the product development group focused on
completing product release plans that are responsive to the market and support
the Company's short term revenue goals.
The strategic direction for the products is to provide a cohesive suite
of 1View products that will deliver innovative, intelligent, multimedia content
management solutions to enable the Company's customers and business partners to
leverage existing applications and exploit emerging business opportunities
across the Internet/intranet. This vision has been accomplished by leveraging
the existing 1View suite of products and adapting them to the Web environment as
well as to database vendor products such as Sybase's OmniConnect. The Company
was an early adopter of the Microsoft's ActiveX technology and will continue to
migrate the existing toolkits and API into components that can be used to
rapidly build new enterprise wide applications and easily integrated into
existing customer applications.
The Company views the product development organization as one of its
key assets and will continue to invest in building the group's infrastructure,
refining the group's software development methodology, and implementing the
1View, COLD and storage management products strategy.
Assembly; Sources of Supply. The Company assembles its products at its
facilities in Herndon, Virginia, Denver, Colorado, and Paris, France. The
Company relies exclusively on outside suppliers for the hardware components of
its products such as scanners, printers, computers and optical disk drives and
jukeboxes. Most parts and components are currently available from multiple
sources at competitive prices. To date, the Company has not experienced
significant delays in obtaining parts and components, and although there can be
no assurance, the Company does not expect to experience such delays in the
future.
Warranty and Service. Warranties for hardware sold by the Company are
generally provided by the manufacturer. The Company typically provides for its
software products warranties for ninety days and service contracts for support
and maintenance that usually cover one year periods. The Company recognizes
revenue under service contracts ratably over the contract period.
Competition. Management believes that the Company's 1View product line
is an innovative solution available for enterprise scaleable content and storage
management in the industry today. When companies have a clear need for storing,
managing and distributing multimedia objects such as large drawings,
photographs, documents, video clips, and audio clips that must: (a) scale to
many terabytes, (b) serve thousands of users and (c) work with existing and new
applications, application databases or universal database platforms in
distributed heterogeneous environments, there is no direct competition from
other companies. When only some, but not all, of these requirements must be met,
there is competition from companies such as FileNet Corporation, Wang,
Recognition International, Eastman Kodak and other vendors in the traditional
imaging and document management markets. For smaller scale systems in
centralized environments with low performance requirements, the competitive
issue becomes price or company size and stability.
With increasing recognition by companies such as Sybase, Informix, Sun
Microsystems, and Microsoft of the unique capability of the Network Imaging
product suite, many of those issues have become less important from a
competitive perspective.
There is, however, the potential for competition from the database,
application and storage vendors who in some cases are Network Imaging partners.
The new Universal Server initiatives from Oracle, Informix and IBM all
seem to indicate support to store and manage the same multimedia content in
markets that Network Imaging serves.
Scaleability of content storage requirements, complexity of the
environment (i.e., distributed content base, multiplatform, and multiple
application content access), and cost management of the storage resources
(hierarchical storage environments) are real and significant issues in this
industry. None of the database vendors completely solve these issues and most of
them have recognized that and are working with Network Imaging on large scale
system proposals. Importantly, Sybase, Inc. has entered into a reseller
agreement to remarket the 1View solution as part of their adaptive server
initiative. The Network Imaging partner marketing program is targeted to address
these competitive issues and make partners of the apparent competitors.
In the future, the systems management companies such as Computer
Associates and Tivoli are expected to recognize the need for comprehensive
content and storage management for multimedia as a part of their overall systems
management architecture. Their option to cooperate or compete will depend on how
rapidly they want to enter this market. In a market segment (Internet/intranet)
poised for explosive growth, Network Imaging has significant time to market
advantage over their competitors' software technology.
Backlog Orders. As of November 2, 1997, the Company had a backlog of
orders for $1,000,000 for its TREEV division, whereas on November 2, 1996, the
Company had a backlog of $800,000 for its TREEV division. The backlog of orders
for 1View and COLD exceed several million dollars. The Company expects that it
will fill approximately 80% of the current backlog within the current fiscal
year.
Marketing and Sales. The Company sells its products directly, through
its own sales force and indirectly, through value added resellers, system
integrators, and distributors. The Company maintains sales offices in locations
in or near New York, Boston, Washington D.C., Atlanta, Charlotte, Denver,
Detroit, Minneapolis, Los Angeles, San Francisco, Dallas, Seattle and in Europe,
near Paris, France.
The Company has active programs to develop marketing partnerships with
vendors of complementary product technologies such as companies who market and
manufacture database, application development, systems management, and
communication and connectivity middleware.
The Company also focuses on vertical market segments that have proven
requirements for the Company's product line. These market segments include
Telecommunications and Utilities, Finance Banking and Insurance, Healthcare,
Manufacturing, and the Public Sector. The Company has developed vertical
business development programs in these segments to identify sales opportunities,
create product awareness, and develop contacts for the Company's indirect sales
channels.
The Company advertises in numerous major industries, vertical market
and news publications. The Company markets diverse products to multiple
industries. It is not dependent on any one customer or business partner for a
major percentage of its business.
Business Dispostions
During 1994, the Company committed itself to a plan of restructuring that was
designed to improve operating results by concentrating the Company's resources
on the marketing and continued development of its 1View suite and COLD software
products. In connection with its restructuring plan, the Company, during 1995
and 1996, disposed of a number of operating units (the "Divestitures"), which
were not considered complimentary to the Company's business.
As a result of the Divestitures, the Company recorded losses of
$921,000 and $9.3 million in 1996 and 1995, respectively. The aggregate
consideration received by the Company from the Divestitures was $1.6 million in
cash and $4.3 million in notes receivable, of which $320,000 was reserved as
uncollectible at December 31, 1996.
The Company sold the assets and liabilities of its Symmetrical
Technologies, Inc. ("STI") subsidiary in September 1996. During 1995, the
Company disposed of the following operations: Hunt Valley Division (formerly
NSI, Inc.), Network Imaging (UK Holdings) Limited, Microsouth, Inc., Tekgraf,
Inc., P E Systems, Inc., WildSoft Division, and IBZ.
The Company is endeavoring to sell all of the outstanding stock of
Dorotech to a third party. There can be no assurance that the Company will be
able to do so by January 31, 1998 or at all or on favorable terms. See "Certain
Investment Considerations Relating to Network Imaging--European Operations."
License Agreements and Pricing. The Company's software product revenues
consist primarily of fees generated from license of software products. In
consideration of the payment of license fees, the Company generally grants
nonexclusive, nontransferable, perpetual licenses that are primarily computer
site or user specific. License fee arrangements vary depending upon the type of
software product being licensed and on the number of users or locations in the
case of client/server implementations and on a per CPU basis in the case of
mainframe installations. The United States list price for the Company's 1View
products ranges from $5,000 for a single product to several million dollars for
the entire suite of the Company's products.
Customers may generally obtain support services and maintenance for an
annual fee that is approximately 16% of the then-current annual license fee. The
support and maintenance fee is billed monthly or annually and is subject to
changes in software license list prices. Resellers of the Company's software
products are generally required to collect and remit to the Company 8% of the
Company's then-current annual license fees for maintenance and support services.
In such cases, the Company only provides a certain level of support to the
end-user and general maintenance and support, such as initial calls and queries,
are performed by the reseller. The Company also provides pre-installation
assistance, systems administration, training and other product-related services,
generally on a time and materials basis.
Proprietary Rights and Licenses. The Company regards its software as
proprietary and relies on a combination of trade secret, copyright and trademark
laws, license agreements, nondisclosure and other contractual provisions and
technical measures to protect its proprietary rights in its products. The
Company distributes its software products under reseller agreements and software
license agreements that typically grant customers nonexclusive, nontransferable
licenses to the Company's products and have perpetual terms unless terminated
for breach. Under these license agreements, the Company retains the right to
market its products. Use of the licensed software by the end user/customer is
usually restricted to the customer's internal operations on designated computers
at specified sites unless the customer obtains a site license, which restricts
that use of the software to designated users. Use is subject to terms and
conditions prohibiting unauthorized reproduction or transfer of the software.
The Company also seeks to protect the source code of its software as a trade
secret and as an unpublished, copyrighted work. See "Certain Investment
Considerations Relating to Network Imaging -- Intellectual Property Rights;
Infringement Claims."
Facilities. The Company's corporate headquarters, including its
principal administrative, product development, product management, technical
support, and sales and marketing operations, are located in 25,600 square feet
of office space in a building in Herndon, Virginia. The Company occupies the
space under leases expiring in the year 2000. The Company also leases an
aggregate of 55,000 square feet of space in or near Atlanta, Georgia, Charlotte,
North Carolina, Chicago, Illinois, Dallas, Texas, Denver, Colorado, Los Angeles,
California, Minneapolis, Minnesota, New York New York, San Francisco,
California, Seattle, Washington, and Paris France. The Company believes that its
existing facilities are suitable and adequate for its present needs and that
suitable space will be available as needed to accommodate any expansion of
operations.
Employees.
As of November 13, 1997, the Company had 234 full-time employees, including 78
employees primarily engaged in research and development, 48 in technical support
and services, 76 in sales and marketing, and 32 in operations, finance and
administration.
Legal Proceedings.
From time to time, the Company is involved in litigation relating to claims
arising out of its operation in the normal course of business. The Company is
not currently a party to any legal proceedings.
Capitalization
The following table sets forth, as of September 30, 1997, the
capitalization of the Company (including loan capital).
September 30, 1997 (unaudited)
(in thousands, except share amounts)
Short-Term Debt:
Bank credit facilities $ 648
Other notes payable 590
----
Total Short-Term Debt 1,238
Long-Term Debt and Obligations
Under Capital Leases 7,318
Mandatorily Redeemable Series F
Preferred Stock, 792,186
shares outstanding 6,357
Redeemable Series K Preferred
Stock, 3,300 shares outstanding 3,700
Stockholders' Equity:
Preferred stock, par value $.0001
per share, 20,000,000 shares
authorized; 1,605,035 shares
outstanding
Common stock, par value $.0001
per share, 50,000,000 shares
authorized; 25,865,809
shares outstanding 3
Additional paid in capital 121,108
Accumulated deficit (122,233)
Translation adjustment (569)
Stockholders' Equity (1,691)
------
Total Capitalization $16,922
======
Management's Discussion and Analysis of Financial Condition and Results of
Operations
This Proxy Statement - Prospectus contains, in addition to historical
information, forward-looking statements that involve risks and uncertainty. The
Company's actual results could differ significantly from the results discussed
in the forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Certain Investment Considerations
Relating to Network Imaging" as well as those discussed elsewhere in this Proxy
Statement - Prospectus.
Results of Operations for the Years Ended December 31, 1996, 1995 and 1994
Revenue. Product revenue includes sales of software licenses and
computer equipment. Product revenue is recognized upon delivery or, for
contracts with significant completion services requiring attainment of customer
acceptance, upon customer acceptance. Service revenue includes software
maintenance contracts, installation and customization. Service revenue is
recognized over the terms of the related contracts as the services are completed
or under the percentage of completion method where appropriate.
Total revenue was $39 million in 1996, $69 million in 1995 and $67
million in 1994. The decrease in total revenue in 1996 over 1995 of $30 million,
or 43%, resulted from decreases in product revenues of $29.2 million, or 61%, to
$18.3 million, and in service revenue of $500,000, or 2%, to $21.1 million. The
increase in total revenue in 1995 over 1994 of $2 million, or 3%, resulted from
increases in service revenue of $4.5 million, or 26% to $21.6 million, offset by
a decrease in product revenue of $2.4 million, or 5% to $47.5 million.
During 1994, the Company committed itself to a plan of restructuring
that was designed to improve operating results by concentrating the Company's
resources on the marketing and continued development of its 1View suite and COLD
software products. In connection with its restructuring plan, the Company,
during 1995 and 1996, disposed of a number of operating units (the
"Divestitures"), which were not considered complimentary to the Company's
business. The decrease in product revenue in 1996 of $29.2 million was primarily
attributable to the Divestitures, which reduced product revenue by $19.9
million, and a major installation project in 1995 for $9.3 million, which was
not duplicated in 1996.
The decrease in product revenue in 1995 of $2.4 million was primarily
attributable to the Divestitures, which reduced product revenue by $10.6
million, offset by an increase of $8.2 million in 1View and COLD product
revenue. The increase in 1View product revenue was attributable to licenses
provided for a major installation project, involving approximately 40 servers
and 3,000 clients, in more than 50 districts of a major telecommunications
company. This project accounted for approximately 15 percent of the Company's
revenues in 1995.
The decrease in service revenue in 1996 of $500,000 was attributable to
the Divestitures, which reduced service revenue by $2.9 million, offset by an
increase of $2.4 million in 1View sales and service revenue. The increase in
1View sales and service revenue was attributable to increased staffing and
management emphasis on the professional services business. The increase in
service revenue in 1995 of $4.5 million was primarily attributable both to
Dorotech, the Company's French subsidiary, and to domestic COLD storage
maintenance services.
Profit Margins. Profit margins for product sales improved in 1996 over
1995 as the cost of products sold decreased from 62% to 54% of sales. The
increase in product sales margins was due to the continued increased sales of
the Company's internally developed products and due to the dispositions in 1995
of the Company's CAD/CAM resellers. Profit margins for product sales improved in
1995 over 1994 as the cost of products sold decreased from 74% to 62%. The
significant increase in product sales margins was also due primarily to the
increased sales of the Company's internally developed 1View product suite and
the dispositions of the Company's WildSoft and Hunt Valley divisions and PE
Systems, Inc., Microsouth, Inc., Tekgraft, Inc., IBZ and Network Imaging (UK)
Holders Limited subsidiaries during 1995, which primarily occurred in the second
and third quarters.
Profit margins for service sales decreased in 1996 over 1995 as the
cost of products sold increased from 61% to 68% of sales. The decrease in
service sales margins was primarily attributable to the increased staffing in
the professional services business. Profit margins for service sales improved in
1995 as compared to 1994, as the cost of service sales decreased from 67% to
61%. The increase in service sales margins was due primarily to customization
and maintenance service sales of the Company's internally developed 1View
product suite, an increase in COLD storage maintenance margins and the
Divestitures.
Research and Development. The Company's expenditures on software
research and development activities ("R&D") in 1996 were $8.5 million, of which
$2.0 million was capitalized and $6.5 million was expensed. The slight increase
in capitalization between 1996 and 1995 was due to the development of the
Company's next generation mainframe and PC-based COLD products. The Company's
expenditures on software R&D activities in 1995 were $8.7 million, of which $1.7
million was capitalized and $7.0 million was expensed. The Company's
expenditures on software research and development activities and for the
acquisition of software licenses in 1994 were $11.6 million, of which $7.0
million was capitalized and $4.6 million was expensed. The 48% increase in
product development expense from $4.6 million in 1994 to $6.8 million in 1995
was primarily attributable to the general release of the Company's 1View product
suite in early 1995, whereas in 1994, the R&D efforts for the 1View product
suite were still in the development stage. The net decrease in total R&D
expenditures from $11.6 million in 1994 to $8.5 million in 1995, or $3.1
million, was primarily attributable to the Divestitures; a reduced focus on the
Company's network attachable storage products, which resulted in a $770,000
reduction in R&D expenditures; an increased focus on Dorotech's engineering
services, which resulted in a $810,000 reduction in R&D expenditures; a net
$200,000 reduction in software license acquisitions; and, increased domestic
engineering services for installation and maintenance of the Company's 1View
product suite.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $25.0 million, or 63% of revenue, in 1996,
$35.7 million, or 52% of revenue, in 1995, $36.8 million, or 55% of revenue, in
1994. The decrease in 1996 compared to 1995 of $10.7 million, or 30% was the
result of the Divestitures, which accounted for a $8.7 million decrease in
addition to a $2.0 million decrease in SG&A expenses from the Company's
continuing 1View, COLD and French operations. The decrease in 1995 compared to
1994 of $900,000, or 2%, is due to the Divestitures, which reduced SG&A expense
an aggregate of $5.0 million, offset by increases in sales and marketing efforts
of $4.1 million.
Exchange Fee and Gain on Sale of Asset, Net. During 1996, the Company
paid a fee of $650,000 plus $80,000 of expenses in connection with the extension
of the redemption date of the Company's Dorotech Acquisition Preferred Stock.
See "Descriptions of Capital Stock--Acquisition Preferred Stock." During 1996,
the Company realized a $111,000 gain on the disposition of stock distributed to
the Company by its medical insurance provider.
Purchased In-Process R&D. In connection with the acquisition of DCR
Technologies, Inc. ("TREEV"), now wholly-owned division of the Company, during
1994, the Company incurred a charge totaling $8.8 million relating to the
expensing of purchased in-process research and development.
Settlement with Stockholders. Operating expenses in 1995 include a $1.6
million expense related to settlement of obligations with former stockholders of
IBZ and TREEV for $750,000 and $892,000, respectively. The Company entered into
an agreement with the former principle stockholder of IBZ whereby, in exchange
for an aggregate of $750,000, the former principle shareholder of IBZ
relinquished rights to a loan guarantee. During 1995, the Company and four
former stockholders of TREEV, entered into agreements to settle a dispute
arising from the acquisition of DCR in exchange for extensions of employment
agreements and an aggregate of 175,000 additional shares of Common Stock of the
Company, valued at that time at approximately $892,000.
Restructuring Charges and Capitalized Software Write-Offs. At December
31, 1996, the 1994 restructuring plan ("1994 Plan"), whereby excess personnel,
duplicate facilities and products to be discontinued were identified was
complete. Under the 1994 Plan, the Company incurred a net change in estimate of
$175,000 in 1996.
During 1995, the Company incurred additional charges under the 1994
Plan for items that exceeded its original estimates totaling $297,000. These
additional charges were offset by $1.4 million reflecting a decrease in
estimated charges for impairment of inventory and maintenance spare parts.
During 1995, $322,000 of the 1993 restructuring plan costs were reversed after a
release was negotiated from the landlord for vacated property.
The Company incurred a $2.0 million restructuring charge in 1994 when
establishing the 1994 Plan. In conjunction with the 1994 Plan, the Company also
expensed capitalized software of $5.3 million, in 1994, which related to
products that were abandoned in favor of the 1View suite. During 1994, $300,000
of costs from the 1993 restructuring plan were adjusted due to changes in
estimate.
Investment and Interest Income. Net investment and interest income was
$309,000 in 1996, $224,000 in 1995 and $579,000 in 1994. The $85,000 increase in
net investment and interest income between 1996 and 1995 was primarily
attributable to the interest earned for the cash received and invested from the
offerings done during the first three quarters of 1996. The $355,000 decrease in
net investment and interest income between 1995 and 1994 was primarily
attributable to a decrease in cash, cash equivalents and short-term investment
balances during the same period and to increased interest expense from capital
leases and the lines of credit.
Income Taxes. The Company incurred income tax benefits of $68,000,
$280,000 and $1.6 million in 1996, 1995 and 1994, respectively. The $68,000
income tax benefit incurred in 1996 was the result of net operating losses
generated by Dorotech's operations offset by a decrease in Dorotech's net
deferred tax liabilities. The $280,000 income tax benefit incurred in 1995 was
primarily the result of a decrease of net deferred tax liabilities resulting
from the divestiture of IBZ's European operations and other purchase accounting
adjustments. The $1.6 million income tax benefit in 1994 was primarily the
result of income tax credits generated by Dorotech's European operations for R&D
expenditures and net operating losses generated by Dorotech's and IBZ's European
operations.
Net Loss. The Company's net loss was $17.3 million in 1996, $25.0
million in 1995 and $39.6 million in 1994. The $7.6 million decrease in net loss
between 1996 and 1995 was due to the 1995 losses from the Divestitures of $9.3
million, the $1.6 million settlement with stockholders, and the $10.7 million
reduction in SG&A expenses in 1996. These reductions in expenses were offset by
a $11.7 million reduction in gross margin in 1996, the loss on sale of
subsidiary in 1996 of $921,000, and the change in estimate of $1.4 million in
restructuring costs in 1995.
The $14.7 million decrease in net loss between 1995 and 1994 was due
primarily to significantly improved margins on product and service sales of $7.8
million, the 1994 expenses incurred for purchased in-process research and
development of $8.8 million, restructuring charges of $1.7 million and
capitalized software write-offs of $8.7 million in 1994, offset by the 1995 loss
on closure and sales of subsidiaries of $9.3 million, settlement expenses, of
$1.6 million, and reversals of restructuring costs, of $1.4 million.
Excluding the impact of the write-off of purchased in-process R&D and
the write-off of capitalized software, the entities divested in 1995 and 1996
contributed a net loss of approximately $1.1 million in 1996, $4.3 million in
1995 and $14.4 million in 1994.
Net Loss Applicable to Common Shares. Net loss applicable to common
shares includes adjustments for dividends, accretion and redemption amounts
related to the Company's preferred stock. The net loss applicable to common
shares was $21.1 million, or $1.02 per share, in 1996; $34.9 million, or $2.41
per share, in 1995; $44.1 million, or $3.56 per share, in 1994. The decrease in
1995 over 1994 is attributable to the decrease in net loss described above and
the reduction in accretion to redemption value of the Company's Series B
Convertible Preferred Stock of $417,000 offset by the cost of redemption of
Series D Preferred Stock of $5.9 million.
Domestic and Foreign Sales. For information regarding the Company's
domestic and foreign sales, see Note 13 to the Consolidated Financial Statements
for the years ended December 31, 1994, 1995 and 1996.
Liquidity and Capital Resources for the Years Ended December 31, 1996 and 1995
As of December 31, 1996, the Company had $7.6 million in cash and cash
equivalents compared to $9.4 million in cash and cash equivalents and $3.0
million in restricted short-term investments, or a total of $12.4 million, at
December 31, 1995. Net working capital decreased to $9.9 million at December 31,
1996 from $13.2 million at December 31, 1995; however, the Company's working
capital ratio improved from 1.6:1 to 1.7:1.
At December 31, 1996, the Company had outstanding debt of $2.2 million,
$2.1 million of which is due within one year. This compares with debt of $6.6
million at December 31, 1995, $5.4 million of which was due within one year. The
decrease in debt of $4.4 million primarily arose from net repayments of maturing
obligations. See Note 8 to the Consolidated Financial Statements for the years
ended December 31, 1994, 1995 and 1996.
For 1996, the $1.8 million decrease in cash and cash equivalents
resulted from a $11.9 million use of cash from operating activities, $2.6
million used in investing activities and the generation of $12.7 million from
financing activities. The $11.9 million use of cash in operating activities
arose primarily from the $17.3 million loss from operations offset by $5.8
million in depreciation and amortization charges. The $2.6 million to fund
investing activities arose with respect to capitalized software development
costs and the purchase of fixed assets. The $12.7 million in cash provided by
financing activities arose primarily from the $6.0 million proceeds from the
issuance of Common Stock and $10.9 million proceeds from the issuance of
Convertible Preferred Stock, Series H, I and J, offset by the $3.2 million
payment of Series A Stock dividends and net payments in debt and capital leases
of $1.2 million.
During the first quarter of 1996, the Company repaid its $2.5 million
U.S. line of credit, which had a termination date of March 31, 1996. At December
31, 1995, $2.5 million of the $3.1 million restricted short-term investments
served as collateral for this line of credit. The Company negotiated a new line
of credit during the fourth quarter of 1996, see Note 8 to the Consolidated
Financial Statements for the years ended December 31, 1994, 1995 and 1996.
For 1995, the $5.4 million increase in cash and cash equivalents
resulted from a $9 million use of cash from operating activities, the generation
of $9.6 million from investing activities, and the generation of $4.7 million
from financing activities. The $9 million use of cash in operating activities
arose primarily from the $25 million net loss offset by $6.3 million in
depreciation and amortization charges and a $9.3 million loss on the sale of
subsidiaries. The $9.6 million raised from investing activities arose primarily
from the sale of short-term investments offset by capitalized software
development costs and purchases of fixed assets. The $4.7 million raised from
financing activities arose primarily from the $28.1 proceeds from the issuance
of Preferred Stocks, Series D, E and G, and the issuance of Common Stock, offset
by the $15.6 million redemption cost for the Series D Preferred Stock, $3.2
million in dividend payments on the Series A Stock, $2.3 million net payments in
debt and capital lease financings, and $3.1 million purchase of restricted
short-term investments. In 1995, the Company divested seven operating units for
which the Company received $1.2 million in cash.
As a result of stock offerings in 1996, the Company received net
proceeds of approximately $16.9 million with offering costs of approximately
$500,000. Under the offerings, the Company issued 1,760,285 shares of Common
Stock and 1,100 shares of Preferred Stock. The net proceeds of the offerings
were used for working capital purposes.
The annual dividend requirements on the Company's Series A Cumulative
Convertible Preferred Stock ("Series A Stock") is $3.2 million payable
quarterly. All quarterly dividends on the Series A Stock have been paid through
April 1997. The Company suspended payment on the quarterly dividends on the
Series A Stock due in July and October 31, 1997 in the amounts of $0.50 per
share or $803,000 in the aggregate, for each period. Failure to pay any
quarterly dividend has resulted 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 Stock to elect one director. (Because the sole holder of all of the
outstanding shares of Series F Stock has agreed to sell all of such shares to
the Company for a set price, the Company accrues dividends on the outstanding
shares of Series F Stock but is not obligated to make any payments until January
31, 1998 or upon the occurrence of certain conditions under the control of the
Company.) By law, dividends may be paid from surplus or net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year.
There can be no assurance that future surplus or earnings, if any, will be
adequate to pay dividends on the preferred stock. See "Description of Capital
Stock."
Results of Operations for the Nine Months Ended September 30, 1997 and 1996.
Revenues. Total revenues were $28.4 million and $29.0 million for the
nine months ended September 30, 1997 and 1996, respectively. The $700,000
decrease in revenue was the result of decreases in service revenue of $700,000,
or 5%, offset by an increase in product revenue of $94,000, or 1%. The decrease
in service revenue was primarily attributable to a decrease of $1.6 million in
the Company's French subsidiary's service revenues, due in part to the weakening
of the U.S. dollar against the French franc and to a temporary slow down in a
major service contract, offset by a $1.1 million increase in domestic service
revenue. The disposition in 1996 of STI, also reduced the Company's service
revenues by $170,000. The increase in product revenue of $94,000 was the result
of a $2.2 million increase in comparable Company U.S. revenues offset by a
decrease of $640,000 in the Company's French subsidiary's product revenues and a
decrease of $1.5 million due to the disposition of STI in 1996.
Profit Margins. Profit margins for product sales increased 9% for the
first nine months of 1997 over the same period in 1996 as cost of products
decreased from 59% to 50% of sales. The increase in product sales margins was
primarily due in part to the disposition during 1996 of STI, and an increase in
both domestic and French margins. Profit margins for service sales decreased 2%
for the nine months ended September 30, 1997 as compared to 1996 as the cost of
services increased from 77% to 79% of sales. The decrease in service sales
margins from 23% to 21% was attributable to the Company's French subsidiary.
Sales and Marketing. Sales and marketing expenses were $10.9 million or
38% of revenue for the nine months ended September 30, 1997 compared to $11.7
million, or 40% of revenue in 1996. The decrease of $800,000, or 6%, was
primarily the result of the Company's disposition of STI during 1996.
General and Administrative ("G&A"). G&A expenses $4.9 million or 17% of
revenue for the nine months ended September 30, 1997 compared to $7.5 million,
or 26% of revenue, in 1996. The decrease of $2.6 million, or 34%, was primarily
the result of the Company's efforts in cost reductions in the Company's
continuing operations.
Product Development. The Company's expenditures on software research
and development activities for the nine months ended September 30, 1997 were
$4.5 million, of which $1.1 million was capitalized and $3.4 million was
expensed. Software research and development expenditures for the 1996 period
were $5.7 million, of which $1.5 million was capitalized and $4.2 million was
expensed. The $1.2 million decrease in research and development expenditures is
attributable to the Company's 1996 plan to consolidate the various 1View product
development groups into a common product development organization operating
under a single senior manager. During 1996, the Company consolidated its COLD
product development groups from three separate locations to one, and vacated the
excess office space. The Company's disposition of STI also resulted in a
reduction of $208,000 in research and development expenditures.
Gain on Extinguishment of Debt. The Company's French subsidiary
realized a $267,000 gain in connection with the partial forgiveness of a grant
made by a French government agency.
Income Taxes. The Company's income tax benefit for the nine months
ended September 30, 1997 and 1996 of $87,000 and $89,000, respectively, resulted
from taxable losses generated by the Company's French operations.
Net Loss. The Company's net loss for the nine months ended September
30, 1997 was $9.1 million as compared to a net loss of $15.3 million for the
comparable period of 1996. The net loss decrease of $6.2 million for the first
nine months of 1997 as compared to the same period in 1996 is due primarily to
the $2.6 million reduction in G&A expenses, $800,000 reduction in sales and
marketing expenses, $700,000 reduction in product development expenses,
increased profit margins resulting in $880,000 additional gross margin, and the
loss on sale of subsidiary and exchange fee incurred in 1996.
Net Loss Applicable to Common Stock. The net loss applicable to common
shares includes adjustments for dividends and accretion amounts related to the
Company's preferred stock. The net loss applicable to common shares was $12.7
million, or ($.51) per share, for the nine months ended September 30, 1997 as
compared to $18.1 million or ($.90) per share, for the comparable period of
1996. The decrease is attributable to the decrease in net loss described above.
Liquidity and Capital Resources for the Nine Months Ended September 30, 1997
As of September 30, 1997, the Company had $3.8 million in cash and cash
equivalents, as compared to $7.6 million in cash and cash equivalents at
December 31, 1996. Net working capital was $6.2 million at September 30, 1997
and $9.9 million at December 31, 1996.
During the first nine months of 1997, the Company redeemed 1,000,000
shares of Series F Stock for $3.5 million by using proceeds from its domestic
line of credit, and drew the remaining $1,500,000 from its line of credit. In
addition, the Company issued convertible debentures and Series K Stock for which
it received net proceeds of $2.0 million and $2.9 million, respectively.
For the nine months ended September 30, 1997, the $3.8 million decrease
in cash and cash equivalents resulted from the use of $5.1 million in cash to
fund operating activities, $1.6 million to fund investing activities, offset by
$3.1 million in cash generated by financing activities.
The $5.1 million funding of operating activities arose primarily with
respect to a net loss in operations. The $1.6 million in cash used to fund
investing activities arose with respect to capitalized software development
costs and the purchase of fixed assets. The $3.1 million in cash provided by
financing activities arose primarily from the proceeds of $5.0 million from
borrowing from the line of credit, $2.0 million from the issuance of convertible
notes and $2.9 million from the issuance of Series K Stock, offset by the $1.8
million payment of preferred stock dividends, $3.5 million payment on Series F
Stock and $1.6 million in principle payments on debt and capital lease
obligations.
The adverse results of operations that the Company has experienced is
expected to continue until the first part of 1998. The Company believes that its
existing cash, together with the future proceeds from the sale of Series K Stock
and warrants and the anticipated cash flows from operations, should provide
sufficient resources to fund its activities through the next twelve months and
to maintain net tangible assets of at least $6.0 million, which is required for
continued inclusion of the Company's securities on Nasdaq National Market. See
"Certain Investment Considerations Relating to Network Imaging - Continued
Listing on the Nasdaq National Market." However, there can be no assurance that
the Company will be able to satisfy the conditions precedent to the issuance of
additional shares of Series K Stock and warrants. The Company expects to close a
financing with Zanett Lombardier, Ltd. and Capital Ventures International on or
before December 8, 1997. In order for the closing to take place, pursuant to the
terms of the Securities Purchase Agreement, the Company has to achieve certain
milestones and satisfy certain conditions (one of which is that the Common Stock
remain listed on the Nasdaq National Market). The Company believes it has
already satisfied the milestones for the second tranche. Anticipated cash flows
from operations are largely dependent upon the Company's ability to achieve its
sales and gross profit objectives for its 1View and other products. If the
Company is unable to meet these objectives, it will consider alternative sources
of liquidity, such as additional offerings of equity securities. Although the
Company believes that it can successfully implement its operating plan and, if
necessary, raise additional capital, there can be no assurance that
implementation of the plan will be successful or that financing, if sought, will
be available.
Recent Events
On December 31, 1996, the Company entered into a restricted $5 million
line of credit agreement with Fred E. Kassner ("Loan Agreement") to finance the
buy back of the Series F Stock. The line of credit bears a rate of interest rate
at 2% above a commercial lender's fluctuating prime rate. The line of credit was
initially secured by a lien against all of the domestic accounts receivable of
the Company pursuant to a security agreement with the stockholder ("Security
Agreement"). In connection with the line of credit, the Company issued to the
stockholder warrants to purchase 100,000 shares of Common Stock at an exercise
price of $3.06 per share, warrants to purchase 70,000 shares of Common Stock at
an exercise price of $3.06 per share and warrants to purchase 30,000 shares of
Common Stock at an exercise price of $2.09 per share (collectively, the "Kassner
Warrants"). In connection with the Kassner Warrants, the Company granted the
stockholder with one demand and two piggyback registration rights, which will
become effective on January 1, 1998.
On June 8, 1997, the Company and the stockholder entered into an
amendment to the Loan Agreement pursuant to which the stockholder permitted the
Company to use the proceeds of the loan for general corporate purposes and
entered into an amendment to the Security Agreement, which expanded the
stockholder's security to cover, including without limitation, (1) all personal
property of the Company, (2) all leases, licenses, permits, (3) all software
products intellectual property now owned or hereafter developed by the Company,
(4) all inventory, (5) all accounts, contract rights, chattel paper,
instruments, general intangibles, documents and other obligations, (6) all trade
or service names, trademarks, service marks, logos and all patents, patent
applications, copyrights, licensing agreements and royalty payments, (7)
proceeds of the foregoing, and (8) all of the capital stock of Dorotech. Also at
that time, the stockholder agreed to modify and thereby eliminate a provision in
the Loan Agreement that required the Company to achieve and maintain
profitability by the end of the third quarter of 1997.
During July and August 1997, the Company issued to nominees for Mark
Shoom and Charles G. Kucey (collectively referred to as "Noteholders"), pursuant
to a private placement exemption under the Securities Act, 8% Convertible Notes
due July 8, 2002 and August 20, 2002 totaling $2.0 million (the "Convertible
Notes"). $1.8 million of the notes are convertible into the Company's Common
Stock beginning 45 days after issue at a conversion price of $1.875 per share
and $200,000 of the nots are convertible into the Company's Common Stock
beginning 45 days after issue at a conversion price of $1.50 per share, the
price on the issue dates. The net proceeds of the Convertible Notes have been
used for working capital and general corporate purposes. The Company also issued
warrants to purchase 36,000 shares and 4,000 shares of Common Stock, in the
aggregate, to the Noteholders at exercise prices of $1.875 and $1.50 per share
("Note Warrants"). The Note Warrants expire on July 8, 2002 and August 20, 2002.
Interest on the Convertible Notes is payable at 8% per annum,
compounded semi-annually. The Company has the option of paying interest in cash
or Common Stock at the redemption or conversion price described below.
The holders of the Convertible Notes have a security interest in
accounts receivable, inventory, the intellectual property of the 1 View Software
and on the stock of the Company's subsidiary, Dorotech. The payment of
principal, premium, if any, and interest on the Convertible Notes is
subordinated to the senior indebtedness of the Company held by Fred E. Kassner
who has granted a line of credit to the Company. As of November 13, 1997, the
amount of outstanding indebtedness (including accrued and unpaid interest) owed
by the Company to Mr. Kassner under this line of credit was $5.036 million.
Pursuant to the terms of the Convertible Notes, the Company was
obligated to file a registration statement with the SEC to register the Common
Stock issuable on conversion of the Convertible Notes. This registration
statement has been filed with, but has not been declared effective by the SEC.
On or after October 30, 1997 (with respect to $1.8 million of
Convertible Notes) and December 12, 1997 (with respect to $.2 million of
Convertible Notes), the holders have the right to redeem the Convertible Notes
plus accrued interest on one business days' notice to the Company in cash or
shares of Common Stock, at the Company's election. On or after October 30 (with
respect to $1.8 million of Convertible Notes), and December 12, 1997 (with
respect to $.2 million of Convertible Notes), the Company has the right to
redeem the Convertible Notes plus accrued interest on 30 days' notice to the
holders in cash or shares of Common Stock, at the holders' election. If shares
of Common Stock are used, Common Stock is issued at a rate of 90% of the
previous 5 trading days average closing bid price.
See "Description of Capital Stock--Series K Convertible Preferred
Stock" for a description of the securities sold to the Purchasers and Zanett.
Directors and Executive Officers
The executive officers and directors of the Company, and their respec-
tive ages at September 2, 1997 are as follows:
Name Age Position
---- --- --------
James J. Leto (2) 53 President, Chief Executive Officer and
Chairman of the Board
Jorge R. Forgues 42 Senior Vice President of Finance and
Administration, Chief Financial
Officer
John M. Flowers 47 Senior Vice President of Engineering
Brian H. Hajost 41 Senior Vice President of Marketing
Mark T. Wasilko 43 Senior Vice President of Business
Alliances
Robert P. Bernardi (2) 46 Director and Assistant Secretary
John F. Burton (1) 46 Director
C. Alan Peyser 63 Director
Robert Ripp (1)(2) 56 Director
- --------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
James J. Leto became President and Chief Executive Officer and a
Director of the Company in May 1996 and became Chairman of the Board in June
1997. Mr. Leto served as the Chairman and Chief Executive Officer of PRC Inc.,
an information technology company ("PRC"), from January 1993 to February 1996,
and prior thereto in various capacities as an executive officer of that company.
From January 1989 until February 1992, Mr. Leto served as the Vice President and
General Manager of AT&T Federal Systems Computer Division, a division of AT&T
charged with developing a major system integration and computer presence in the
federal marketplace. Mr. Leto first joined AT&T in November 1977. Mr. Leto is a
director of Government Technology Systems, Inc.
Jorge R. Forgues became Chief Financial Officer, Vice President of
Finance and Administration and Treasurer of the Company in April 1996. In
January 1997, Mr. Forgues was promoted to Senior Vice President. From October
1993 through April 1996, he served as the Vice President of Finance &
Administration and Chief Financial Officer of Globalink, Inc., a computer
software developer that offers foreign language translation software. From July
1992 to September 1993, Mr. Forgues served as Director of Accounting at Spirit
Cruises, Inc., and from June 1987 to June 1992 he served as the Vice President
of Finance of Best Programs, Inc., a computer software developer. Mr. Forgues is
a director of On-Site Sourcing Incorporated.
John M. Flowers, Jr. was appointed Senior Vice President of Engineering
Services in April 1996. From 1989 to April 1996, he was with PRC, serving in
various capacities, including Manager of the Center for Imaging Technology,
Chief Architect for Systems Integration Division, Corporate Director of the
Imaging Core Competency Program, and Vice President and Chief Scientist for the
Information Systems Division.
Brian H. Hajost joined the Company in March 1996, was appointed Senior
Vice President of Integrated Products in April 1996 and was appointed Senior
Vice President of Marketing in May 1997. Form 1985 to 1995, Mr. Hajost was with
Servantis Systems, Inc. (formerly Stockholder Systems, Inc.) where he served in
various capacities including Securities Products Group Regional Manager,
Securities Products Group Regional Director Banking Sales, Securities Product
Group Vice President Sales Manager, Imaging Technologies Group Vice President
Sales and Marketing, and Imaging Technologies Group Senior Vice President
Business Unit Manager.
Mark T. Wasilko joined the Company in September 1995, became Senior
Vice President of Marketing for the Company in October 1995 and was appointed
Senior Vice President of Business Alliances in May 1997. From January 1994 to
August 1995, Mr. Wasilko was Vice President of Corporate Marketing for Legent
Corporation ("Legent"), an independent software vendor. Prior thereto, Mr.
Wasilko was Senior Vice President for Corporate Marketing at Computer Associates
International, Inc., an independent software vendor, where he had held a variety
of sales and marketing positions since 1982.
Robert P. Bernardi was a co-founder of the Company and has been a
Director of the Company (and its predecessor) since its inception. He served as
Chairman of the Board of Directors from September 1995 through June 1997. Mr.
Bernardi served as President of the Company from inception to February 1995 and
as Chief Executive Officer from inception to May 1996. From 1988 to 1990, Mr.
Bernardi was an independent consultant in the document imaging and
telecommunications fields. From March 1984 to December 1987, Mr. Bernardi was
Chairman and Chief Executive Officer of Spectrum Digital Corporation, a publicly
held telecommunications equipment manufacturing company ("Spectrum Digital"),
with overall management responsibilities including marketing, sales, engineering
and finance.
John F. Burton was appointed to the Board of Directors in September
1995. Mr. Burton became Managing Director of the Updata Group. a mergers and
acquisitions investment bank, in March 1997. From October 1996 to February 1997,
he served as the President of Burton Technology Partners, a strategic consulting
and investment company. Mr. Burton was President and Chief Executive Officer of
Nat Systems, Inc., a provider of applications development software from August
1995 to September 1996. From January 1995 to August 1995, Mr. Burton was an
independent consultant in the applications software field. From March 1992 to
January 1995, Mr. Burton served as Chief Executive Officer, and from 1989 to
January 1995 as President, Chief Operating Officer and a Director, of Legent.
Mr. Burton is also a Director of Banyan Systems, Inc., MapInfo Corporation and
Netrix Corporation. Mr. Burton was a founding member of the Northern Virginia
Technology Council.
C. Alan Peyser became a Director of the Company in May 1996. Mr. Peyser
was appointed President and Chief Executive Officer of Cable & Wireless, Inc.,
in October 1996. From September 1995 to October 1996, Mr. Peyser served as a
consultant to Cable & Wireless, Inc. He is also currently President of Country
Long Distance Corporation and a member of the Board of Directors of Tridex
Corporation and TCI International, Inc. Mr. Peyser previously served as the
Chief Executive Officer and President of Cable & Wireless, Inc. from 1980
through September 1995.
Robert Ripp has served as a Director since October 1994. Mr. Ripp is
Corporate Vice President and Chief Financial Officer of AMP, Inc., an
electronics manufacturer. Prior to joining AMP in 1994, Mr. Ripp was Vice
President and Treasurer of International Business Machines Corporation, where he
served in various capacities as a finance executive from 1964 to 1994. He is a
member of the board of directors of ACE, Limited.
Executive and Director Compensation
Summary Compensation Table. The Summary Compensation Table below lists
the Chief Executive Officer and the four other most highly compensated executive
officers of the Company (the "Named Executives") as of the end of 1996 and their
compensation for services in 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options(#) Compensation ($)
(1)
<S> <C> <C> <C> <C> <C> <C>
Robert P. Bernardi(2)........ 1996 79,306 $ 50,000 0 $ 107,333(3)
Chairman of the Board 1995 182,306 50,000 755,747(4)
and Chief Executive Officer 1994 175,000 64,000 625,000(5)
James J. Leto................ 1996 118,974(6) 34,066 262,195
President and Chief 1995
Executive Officer (7) 1994
Russell D. Hale(8)........... 1996 165,000 11,050 0
Senior Vice President, 1995 165,000 43,329 250,000
Federal Sales 1994 28,135(9) 0
Mark T. Wasilko.............. 1996 150,000 13,125 28,049(13)
Senior Vice President, 1995 48,942(10) 57,927
Marketing 1994
Brian H. Hajost.............. 1996 102,000(11) 26,978 60,976 42,697(12)
Senior Vice President, 1995
Integrated Products 1994
- --------------------
</TABLE>
(1) Perquisites and other personal benefits, securities and property is
less than the lesser of $50,000 and 10% of the total annual salary and
bonus for each Named Executive in each year shown.
(2) Mr. Bernardi resigned as the Company's Chief Executive Officer
effective May 29, 1996 and as the Company's Chairman of the Board on
June 3, 1997.
(3) Mr. Bernardi became a consultant to the Company upon his resignation as
the Company's Chief Executive Officer. $102,083 constitutes the
consulting fees paid to Mr. Bernardi in 1996 and $5,250 constitutes the
automobile allowance for Mr. Bernardi. Mr. Bernardi terminated his
consulting agreement with the Company as of October 1, 1997 under the
terms of the Bernardi Termination Agreement.
(4) This number has been adjusted to give effect to the Bernardi Termina-
tion Agreement.
(5) Terminated pursuant to the Company's 1995 Option Repricing Program.
(6) Mr. Leto joined the Company as its Chief Executive Officer in May 1996.
(7) Mr. Leto became Chairman of the Board of the Company on June 3, 1997.
(8) Mr. Hale resigned as an officer of the Company effective April 1, 1997.
(9) Mr. Hale joined the Company as an officer in October 1994.
(10) Mr. Wasilko joined the Company as an officer in September 1995.
(11) Mr. Hajost joined the Company as an officer in March 1996.
(12) The amount shown constitutes temporary housing benefits and moving
expenses paid for Mr. Hajost in 1996.
(13) In August 1997, the Board of Directors approved a plan to reprice the
Company's outstanding stock options ("1997 Repricing Plan"). The 1997
Repricing Plan allowed holders of out-of-the money options, including
executive officers, non-officer employees, and non-director employees,
to receive a new exercise price of $1.50 per option share, the market
price on the date the 1997 Repricing Plan was approved. The 1997
Repricing Plan also allowed executives and officers who held
out-of-the-money options to also receive a new exercise price of $1.50,
but the number of shares covered by these options were reduced pursuant
to the Black-Scholes formula so that there would be approximate
economic equivalence between old and new options. As a result, options
for an aggregate of 561,752 out of a total of 1,635,000 shares of
Common Stock at exercise prices ranging from $6.82 to $1.91 per share
were repriced. The number of shares of Common Stock shown in this table
have been adjusted to reflect the 1997 Repricing Plan.
Option/SAR Grants in Last Fiscal Year. No stock options were granted to
Messrs. Bernardi or Hale during 1996. The following table sets forth certain
information concerning the grant of options to the other Named Executives in
1996. The Company has not granted any stock appreciation rights ("SARs"). The
table set forth below does not give effect to the 1997 Repricing Plan.
<PAGE>
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------
Percent of Potential Realizable
Number of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation
Options Employees in or Base Expiration for Option Term
-----------------------------
Name Granted(#) Fiscal Year Price($/Sh) Date 5% 10%
- ---- ---------- -------------- ----------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
James J. Leto........ 500,000(1) 34% $4.22 5/28/06 $1,327,000 $3,363,000
Mark T. Wasilko..... 50,000(1) 3% $3.82 4/10/06 $ 120,120 $ 305,000
Brian H. Hajost...... 50,000(1) 3% $3.82 4/15/06 $ 120,120 $ 305,000
50,000(1) 3% $3.13 9/22/06 $ 98,500 $ 249,500
- --------------------
</TABLE>
(1) Each of the indicated options was granted pursuant to the Company's Employee
Incentive Stock Option Plan and vests four years from the date of grant, or, for
the options held by Mr. Leto, upon the acquisition of the Company.
Aggregated Option Exercises in Last Year and Year End Option Values.
The following table summarizes the value realized upon exercise of outstanding
stock options and the value of the outstanding options held by the Chief
Executive Officer and the other Named Executives. The table set forth below does
not give effect to the 1997 Repricing Plan.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year-End(#) at Fiscal-Year-end($)(1)
Shares
Acquired on Value
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Bernardi.. 0 0 680,582 667,743 $230,000 $0
James J. Leto....... 0 0 0 0 500,000 0
Russell M. Hale..... 0 0 125,000 125,000 0 0
Mark T. Wasilko..... 0 0 43,750 131,250 0 0
Brian H. Hajost..... 0 0 0 100,000 0 0
- --------------------
</TABLE>
(1) Computed by multiplying the number of options by the difference between (i)
the per share market value of the Common Stock on December 31, 1996 and (ii) the
exercise price per share.
Directors' Compensation. At the Board's quarterly meeting on August
28, 1997, the Board voted and approved the elimination of payment for service to
the Board and adopted, subject to shareholder approval, the Directors Stock
Option Plan (the "Director Stock Option Plan"). Under the Director Stock Option
Plan, each director who is not an executive officer of the Company will receive
an option to purchase 30,000 shares of Common Stock vested in 25% each quarter
following the date of grant, so that at upon the first anniversary of the stock
option grant, the option grant will be fully vested. The option price is equal
to 100% of fair market value on the date of the option grant. Messrs. Ripp,
Burton, Peyser, and Bernardi were each granted an option for 30,000 shares of
the Company's Common Stock under that plan effective July 1, 1997 with an
exercise price equal to 100% of fair market value of the Common Stock on June
30, 1997.
Prior to that meeting, each director of the Company who was not
currently employed by the Company, received a fee of $1,000 for each meeting of
the Board or committee thereof that he attended in person and $250 for each such
meeting in which he participated by telephone. Mr. Ripp has also been granted
options on 21,675 shares of Common Stock at $3.75 per share, 25,000 shares of
Common Stock at $6.82 per share, and 25,000 shares of Common Stock at $3.82 per
share, each with a term of 10 years and each of which is exercisable on a
cumulative basis in four equal installments on each of the first four
anniversaries of the applicable date of grant. Mr. Burton has been granted an
option on 100,000 shares of Common Stock with an exercise price of $3.38 per
share and a term of 10 years. The option vests on May 2, 2002 or, earlier, upon
the Company's entering into a strategic partnership agreement with a major
software company as a result of the assistance of Mr. Burton. Mr. Peyser has
been granted an option on 50,000 shares of Common Stock at $3.69 per share with
a term of 10 years and that is exercisable on a cumulative basis in four equal
installments on each of the first four anniversaries of its date of grant. The
exercise prices of the options granted to directors were set at the fair market
value of the Common Stock at the time of grant.
The Company has entered into a termination of consulting agreement
("Bernardi Termination Agreement") with Robert P. Bernardi, and BCG, Inc.
("BCG") (of which Mr. Bernardi is the sole stockholder) that provides for the
termination, as of October 1, 1997, of the consulting agreement entered into
between the parties as of May 28, 1996. (See "Description of Network Imaging -
Executive and Director Compensation - Compensation Committee Interlocks and
Insider Participation.") Under the terms of this agreement, the Company agreed
to pay BCG severance pay at the rate of $18,750 per month for the period
beginning on October 1, 1997 and ending on September 1, 1998. The Company also
granted to Mr. Bernardi a warrant to purchase 50,000 shares of the Common Stock
at $1.50 per share. The warrant has a term of five years. Furthermore, Mr.
Bernardi held, prior to the execution of the Bernardi Termination Agreement,
options to purchase 1,348,325 shares of Common Stock with exercise prices
ranging from $2.60 to $6.82 per share. Under the terms of the Bernardi
Termination Agreement, these options were converted into options to purchase
755,747 shares of Common Stock at an exercise price of $1.50 per share, the
market price of the Common Stock on September 17, 1997. These options are not
exercisable for a period of twelve months from October 1, 1997. The Company also
agreed to employ Mr. Bernardi as an Assistant Secretary of the Company at an
annual salary of $5,000. Mr. Bernardi will also receive health and dental
insurance through December 31, 2003. The agreement prohibits Mr. Bernardi for
one year from certain associations with any business that competes with the
Company. Mr. Bernardi also has the right to cause the Company to register, at
the Company's expense, shares of Common Stock held by Mr. Bernardi or issuable
on exercise stock options in a registration statement on Form S-3 at any time
prior to the termination of the Bernardi Termination Agreement or within one
year thereafter.
Compensation Committee Interlocks and Insider Participation. During
the year ended December 31, 1996, the Company's Compensation Committee was
composed of directors Robert P. Bernardi, the Company's Chief Executive Officer
until June 3, 1996 and currently an employee of the Company, and Robert Ripp, an
outside director. As of September 2, 1997, the Compensation Committee is
composed of outside directors Robert P. Bernardi and Robert Ripp and James J.
Leto, the Company's President and Chief Executive Officer.
The Company entered into consulting agreements with Mr. Bernardi and
BCG, Inc. ("BCG") (of which Mr. Bernardi is the sole stockholder) that provided
for BCG to make the services of Mr. Bernardi available to the Company. The
consulting agreement was for an initial term ending January 31, 1999 and
continued from year to year thereafter unless terminated by either the Company
or Mr. Bernardi. The agreement with BCG provided for an annual consulting fee of
$225,000, subject to increase upon review by the Board of Directors. The Company
also agreed to employ Mr. Bernardi as Secretary at an annual salary of $5,000.
The agreement provided demand registration rights to Mr. Bernardi with respect
to securities of the Company owned by him or that he may acquire upon exercise
of options. Each registration right terminated on the first anniversary
following termination of the consulting agreement. The agreement prohibits Mr.
Bernardi during the term of the agreement from certain associations with any
business that competes with the Company.
The Company has entered into the Bernardi Termination Agreement with
Robert P. Bernardi, and BCG that provides for the termination, as of October 1,
1997, of the consulting agreement entered into between the parties as of May 28,
1996. In the Bernardi Termination Agreement, the Company agreed to pay BCG gross
severance pay at the rate of $18,750 per month, beginning on October 1, 1997 and
ending on September 1, 1998. Under the terms of this agreement, the Company also
granted to Mr. Bernardi a warrant to purchase 50,000 shares of the Common Stock
at $1.50 per share. The warrant has a term of five years. Furthermore, Mr.
Bernardi held, prior to the execution of the Bernardi Termination Agreement,
options to purchase 1,348,325 shares of Common Stock with exercise prices
ranging from $2.60 to $6.82 per share. Under the terms of the Bernardi
Termination Agreement, these options were converted into options to purchase
755,747 shares of Common Stock at an exercise price of $1.50 per share, the
market price of the Common Stock on September 17, 1997. These options are not
exercisable for a period of twelve months from October 1, 1997. The Company also
agreed to employ Mr. Bernardi as an Assistant Secretary of the Company at an
annual salary of $5,000. Mr. Bernardi will also receive annual health and dental
insurance through December 31, 2003. The agreement prohibits Mr. Bernardi for
one year from certain associations with any business that competes with the
Company. Mr. Bernardi also has the right to cause the Company to register, at
the Company's expense, shares of Common Stock held by Mr. Bernardi or issuable
on exercise stock options in a registration statement on Form S-3 at any time
prior to the termination of the Bernardi Termination Agreement or within one
year thereafter.
Certain Relationships and Related Transactions
The Company has entered into consulting agreements with Mr. Bernardi
and BCG, Inc. and with Robert M. Sterling, Jr. and Sterling Capital Group, Inc.
("Sterling Capital") (of which Mr. Sterling is the sole stockholder) that
provided for BCG and Sterling Capital to make the services of Messrs. Bernardi
and Sterling available to the Company. Each of the consulting agreements was for
an initial term ending January 31, 1999 and continued from year to year
thereafter unless terminated by either the Company or either of Messrs. Bernardi
or Sterling. Each of the agreements with BCG and Sterling Capital provided for
an annual consulting fee of $225,000, subject to increase upon review by the
Board of Directors. The Company also agreed to employ Mr. Bernardi as Secretary
and Mr. Sterling as Assistant Secretary of the Company at an annual salary of
$5,000. The agreements provided demand registration rights to Messrs. Bernardi
and Sterling with respect to securities of the Company owned by them or that
they may acquire upon exercise of options. Each registration right terminated on
the first anniversary following termination of the consulting agreement. Each of
the respective agreements prohibited Messrs. Bernardi and Sterling during the
term of the agreement from certain associations with any business that competes
with the Company.
The Company has entered into termination of consulting agreements with
(i) Robert M. Sterling and Sterling Capital, (ii) John B. Mann and Mann
Enterprises, Inc. ("ME") (of which Mr. Mann is the sole stockholder), and (iii)
Robert P. Bernardi and BCG, each of which provide for the termination of
consulting agreements between the above named parties and the Company effective
October 1, 1997.
The Company has entered into a termination of consulting agreement
("Sterling Termination Agreement") with Robert M. Sterling and Sterling Capital
that provides for the termination, as of October 1, 1997, of the consulting
agreement entered into between the parties as of February 1, 1994. Under the
terms of this agreement, the Company paid Sterling Capital $58,500 on October 1,
1997 and agreed to pay gross severance pay to Sterling Capital at a rate of
$10,000 per month for the period beginning on October 1, 1997 and ending on
December 1, 1998. The Company also agreed to pay Sterling Capital $12,000 on
January 1, 1999. The Company also granted to Mr. Sterling a warrant to purchase
100,000 shares of the Common Stock at $1.50 per share. The warrant has a term of
five years and the underlying shares of Common Stock are subject to piggy-back
registration rights commencing one year after the date of execution of the
Sterling Termination Agreement. Furthermore, Mr. Sterling held, prior to the
execution of the Sterling Termination Agreement, options to purchase 1,348,325
shares of Common Stock with exercise prices ranging from $2.60 to $3.75 per
share. Under the terms of the Sterling Termination Agreement, these options were
converted into options to purchase 755,747 shares of Common Stock at an exercise
price of $1.50 per share, the market price of the Common Stock on September 17,
1997. These options are not exercisable for a period of twelve months from the
date of execution of the Sterling Termination Agreement. The Company also agreed
to employ Mr. Sterling as an Assistant Secretary of the Company at an annual
salary equal to the net amount sufficient to pay Mr. Sterling's annual health
and dental insurance premiums through December 31, 2003. The agreement prohibits
Mr. Sterling through October 13, 1998 from certain associations with any
business that competes with the Company.
The agreement with John B. Mann and ME ("Mann Termination Agreement")
terminates the agreement entered into among them and the Company on March 30,
1994. The Company agreed to pay Mann Inc. $30,000 on October 1, 1997. In
addition, the Company agreed to pay gross severance pay at the rate of $5,000
per month for the period beginning on October 1, 1997 and ending on September 1,
1998. Additionally, the Company agreed to grant to ME a warrant to purchase
66,667 shares of Common Stock for $1.50 per share, which has a term of five
years. The underlying shares of Common Stock are subject to piggyback
registration rights commencing one year after the date of execution of the Mann
Termination Agreement. Furthermore, Mr. Mann held, prior to the execution of the
Mann Termination Agreement, options to purchase 560,340 shares of Common Stock
with exercise prices ranging from $2.60 to $6.82 per share. Under the terms of
the Mann Termination Agreement, these options were converted into options to
purchase 321,170 shares of Common Stock at an exercise price of $1.50 per share,
the market price of the Common Stock on September 17, 1997. These options are
not exercisable for a period of twelve months from the date of execution of the
Mann Termination Agreement. The Company also agreed to employ Mr. Mann as an
Assistant Secretary of the Company at an annual salary equal to the net amount
sufficient to pay Mr. Mann's annual health and dental insurance premiums through
December 31, 2003. The agreement prohibits Mr. Mann through October 17, 1998
from certain associations with any business that competes with the Company.
For a description of the Bernardi Termination Agreement, see
"Description of Network Imaging -- Executive and Director Compensation --
Compensation Committee Interlocks and Insider Participation." For a description
of the convertible notes, related warrants and the Loan Agreement, see
"Description of Network Imaging -- Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Recent Events." For a
description of the Series K Stock and related warrants, see "Description of
Capital Stock -- Series K Convertible Preferred Stock."
DESCRIPTION OF CAPITAL STOCK
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 ("Board")
establishing the rights, preferences, privileges and restrictions relating to
Series A Stock, the Series F Stock and the Series K Stock as filed under
Delaware law (the "Certificates of Designations").
Authorized Stock
The Company is authorized to issue up to 100,000,000 shares of Common
Stock, $.0001 par value, of which 25,959,101 shares were outstanding at November
13, 1997, and 20,000,000 shares of preferred stock, $.0001 par value (the
"Preferred Stock"), of which 1,605,025 shares of Series A Stock, 792,186 shares
of Series F Stock and 3,300 shares of Series K 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 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 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, F and H 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 to establish and
designate the classes, series, voting powers, designations, preferences and
relative, participating, optional or other rights, and such qualifications,
limitations and restrictions of the Preferred Stock as the Board, in its sole
discretion, may determine without further vote or action by the stockholders.
The rights, preferences, privileges, and restrictions or qualifications
of different series of Preferred Stock may differ with respect to dividend
rates, amounts payable on liquidation, voting rights, conversion rights,
redemption provisions, sinking fund provisions and other matters. The issuance
of Preferred Stock could decrease the amount of earnings and assets available
for distribution to holders of 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 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 Cumulative Convertible Preferred Stock
The issuance of up to 1,750,000 shares of Series A Stock has been
authorized and 1,605,025 shares are outstanding. The Series A Stock has a
liquidation preference of $25.00 per share plus all accrued and unpaid
dividends.
The Series A Stock is convertible into Common Stock at any time prior
to redemption or exchange. As of November 13, 1997, the Series A Stock is
convertible at the rate of 2.06 shares of Common Stock for each share of Series
A Stock (an effective conversion price of $12.11 per share). The conversion rate
and conversion price are adjustable in certain circumstances, which are
described in the Series A Certificate. Some of those circumstances are described
below.
The Series A Stock, 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 sale
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.
If the Company sells or issues Common Stock or rights, options,
warrants or convertible securities ("Rights") containing the right to subscribe
for or purchase Common Stock and the sale or issue price of the Common Stock is
less than the lower of the current conversion price or current market price
("Current Price"), the conversion price is adjusted such that the number of
shares of Common Stock receivable upon conversion of the Series A Stock shall be
the number determined by multiplying (1) the number of shares of Common Stock
receivable upon conversion of the Series A Stock immediately prior to such
issuance and (2) a fraction (not to be less than one) with a numerator equal to
the product of the number of shares of Common Stock outstanding after giving
effect to such issuance (assuming that such Rights had been fully exercised or
converted) and the Current Price and a denominator equal to the sum of (a) the
product of the number of shares of Common Stock outstanding immediately before
such issuance and the Current Price and (b) the aggregate consideration received
or deemed received by the Company for the shares of Common Stock to be sold or
purchased upon exercise of the Rights.
Cumulative dividends on the Series A 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 Stock for four quarterly dividend payment periods, holders of
Series A 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. In addition, the
Company may not pay dividends on, or redeem, junior securities unless all
accrued and unpaid dividends on the Series A Stock have been paid. The Company
failed to pay the quarterly dividend on July 31 and October 31, 1997.
The affirmative vote of a majority of the outstanding shares of Series
A Stock voting as a single class is necessary to authorize any class of senior
or parity securities unless, at that time the Company has the right to redeem
the Series A Stock and such redemption occurs before the senior or parity
securities are issued.
The Series A Stock is senior to the Series F and K Stocks. The Company
is not subject to any mandatory redemption or sinking fund provision with
respect to Series A Stock. The holders of the Series A 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. The purchase agreement for the Series K Stock requires that the Company
not use the proceeds of that offering to make the quarterly dividend payments to
the holders of Series A Stock. Shares of Series A Stock redeemed or otherwise
reacquired by the Company shall be retired by the Company and shall be
unavailable for subsequent issuance as Series A Stock.
In addition, the Company has issued to RAS Securities Corp. ("RAS") and
R.A. Schneider ("RA") representatives' warrants to purchase, in aggregate, (i)
up to 140,000 shares of Series A Stock (112,000 to RAS and 28,000 to RA), or
(ii) up to 253,624 shares of Common Stock (202,809 shares to RAS and 50,725
shares to RA), or (iii) any combination of (i) and (ii). These warrants are
exercisable by the holders through December 7, 1998 at an initial exercise price
(subject to adjustment) of $41.25 per shares of Series A Stock and $22.77 per
share of Common Stock. The Company gave to the holders of the warrants piggyback
registration rights expiring December 7, 2000. Under the terms of the warrant
agreement, the shares of Series A Stock underlying this warrant cannot be
redeemed by the Company, even if the Company has called all or part of the
outstanding Series A Stock for redemption. Accordingly, the Company is seeking
to obtain the consent of RAS and Schneider to an amendment to the RAS Agreement
that would terminate this provision of the RAS Agreement. There can be no
assurance that RAS and Schneider will consent to such an amendment.
See "Terms of the Certificate of Amendment" for a description of
certain proposed changes to the Certificate of Designations of the Series A
Stock.
Acquisition Preferred Stock
In connection with the acquisition of Dorotech, the Company issued
2,092,186 shares of Series B Convertible Preferred Stock ("Series B Stock") to a
corporate stockholder of Dorotech. The Series B Stock was entitled to the same
cash dividends as were paid on the Common Stock, if any, was convertible into
Common Stock commencing six months after it was issued on a share 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
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 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 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 Stock was junior to the Series A Stock.
The original holder converted 300,000 shares of the Series B 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 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
Stock for the Series B Stock and the holder of the Series B Stock and its
affiliate agreed to accept the exchange. The provisions of the Series C Stock
and the Series B 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
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 Stock is junior to the
Series A Stock and senior to the Series H and K Stocks. In connection with the
exchange of the Acquisition Preferred Stock for the Series F Stock, 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. The Company also
agreed to extend the holder's registration rights to June 30, 1999, assist the
holder with a private placement of the Series F 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.
The Series F Stock has no voting rights, except that the affirmative
vote of a majority of the outstanding shares of Series F Stock voting as a
single class is necessary with respect to the amendment of its terms, the
issuance of senior and parity securities, the redemption of parity and junior
securities and other matters required by law.
The Series F Stock 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 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 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 accrue daily and
be payable on the last day of June, September, December and March commencing on
December 31, 1996. Because the sole holder of all of the outstanding shares of
Series F Stock has agreed to sell all of such shares to the Company for a set
price, the Company accrues dividends on the outstanding shares of Series F Stock
but it is not obligated to make any payments until January 31, 1998 or upon the
occurrence of certain conditions under the control of the Company. See "Certain
Investment Considerations Relating to Network Imaging - European Operations."
In the event of a change in control of the Company, the Series F Stock
becomes convertible at the rate described above and the then holder of the
Series F 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 Exchange Act, 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 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 beginning of such period constitute the Board 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 Stock may also redeem some or all of
the Series F 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
holders of Series F Stock.
On December 31, 1996, the Company and the holder entered into a
purchase agreement whereby the Company agreed to repurchase all of the
outstanding shares of Series F Stock. See "Certain Investment Considerations
Relating to Network Imaging - European Operations." That agreement provided for
certain payment terms, and in the event that payment is not made in accordance
with those terms, and the default is not cured within five business days, the
holder has the right to realize on its first ranking pledge on all of the
outstanding stock of Dorotech. If the Company has not effected a sale of
Dorotech by January 31, 1998, and the Company is in default to the holder, the
holder is at liberty to sell all of the Dorotech shares owned by the Company and
withhold all amounts due and payable to the holder before paying back excess
money, if any, to the Company.
Series K Convertible Preferred Stock
On July 28, 1997, the Company issued 3,300 units ("Units") consisting
of (1) one share of Series K Stock and (2) warrants to purchase 75 shares of
Common Stock at an exercise price of $2.40 per share ("Investor Warrants").
Accordingly, on July 28, 1997, the Company issued 3,300 shares of Series K Stock
and Investor Warrants to purchase 247,500 shares of Common Stock. As a result of
the issuance of 3,300 Units, the Company issued to The Zanett Securities
Corporation ("Zanett") for its services as placement agent, warrants to purchase
162,462 shares of Common Stock at an exercise price of $1.625 per share ("Agent
Warrants"). The Investor Warrants and the Agent Warrants expire on July 27,
2002. The terms of the Series K Stock, the Investor Warrants and the Agent
Warrants were determined by the Board.
Pursuant to the terms of the Securities Purchase Agreement dated as of
July 28, 1997 ("Securities Purchase Agreement") among the Company and the
Purchasers, the Purchasers are required to purchase 3,000 additional Units if
the Company achieves certain performance milestones and satisfies certain other
conditions (one of which is that the Common Stock remain listed on the Nasdaq
National Market) and the Purchasers have the option to purchase an additional
4,700 Units, at two additional closings. Under the Placement Agency Agreement
dated July 2, 1997 between the Company and Zanett, the Company is obligated to
issue additional Agent Warrants to Zanett to purchase such number of shares of
Common Stock as is equal to 8% of the quotient obtained by dividing the
aggregate purchase price of the shares of Series K Stock and Investor Warrants
issued to the Purchasers at such additional closings divided by the initial
exercise price of the Agent Warrants ($1.625 per share).
The net proceeds of the 3,300 Units ($2.9 million) have been, and the
net proceeds of any additional issuance of Units will be used for working
capital and general corporate purposes.
Under the Registration Rights Agreement dated as of July 28, 1997 among
the Company, the Purchasers and Zanett ("Registration Rights Agreement"), the
Company has granted each Purchaser and Zanett registration rights, whereby the
Company is obligated to file a registration statement with the SEC as soon as
practicable after each closing, but in no event later than the 60th day
following each such closing, registering at least 135% of the shares of Common
Stock issuable on conversion of, and as dividends on, the Series K Stock and on
exercise of the Investor Warrants and the Agent Warrants. This registration
statement has been filed with, but has not been declared effective by, the SEC.
Until such time as such registration statements are declared effective by the
SEC, the holders of the Series K Stock ("Holders") and the holders the Investor
Warrants and the Agent Warrants may not transfer such securities or the Common
Stock issuable in connection therewith unless they comply with an exemption from
such registration requirements.
Conversion Rights. Each share of Series K Stock is convertible at the
option of the Holder into the number of shares of Common Stock determined by
dividing the initial purchase price of $1,000 by the "Conversion Price," which
is the lesser of (a) the Fixed Conversion Price (which initially is $2.00) and
(b) the lowest closing sale price for the Common Stock on any single trading day
during the ten trading days immediately preceding the conversion multiplied by
the "Conversion Percentage." The "Conversion Percentage" is (a) 105% prior to
the 61st day following July 28, 1997 (the "First Closing Date"), (b) 96% for the
period between the 61st and the 90th day following the First Closing Date, (c)
85% for the period between the 91st and the 180th day following the First
Closing Date, and (d) 81% for the period after the 180th day following the First
Closing Date. In the event the Company's Common Stock is no longer designated
for quotation on the Nasdaq National Market ("Nasdaq") and is designated for
quotation on the Nasdaq Small Cap Market, the Conversion Percentage for each of
the periods set forth above is permanently reduced by 2%.
Under the requirements of a newly issued SEC staff position, the
carrying value of the Series K Stock was increased by $774,000, or the
corresponding amount allocated to beneficial conversion feature described below.
The Company also recorded a related $774,000 non-cash charge to preferred stock
dividends. In addition, as required under the newly issued SEC staff position,
the Company would record similar non-cash charges to preferred stock dividends
for all future offerings with below market conversion features.
If (1) a registration statement described above is not declared
effective by the SEC by the 150th day following the date it was required to be
filed under the Registration Rights Agreement ("Registration Deadline"), (2)
after the registration statement is declared effective by the SEC, sales of the
shares of Common Stock registered thereunder cannot be made or (3) the Common
Stock is not listed or included for quotation on Nasdaq, the Nasdaq Small Cap
Market, the New York Stock Exchange ("NYSE") or the American Stock Exchange
("AMEX"), then each of the Conversion Percentages are permanently reduced. The
Conversion Percentages are permanently reduced by an amount equal to the product
of (i) 2% and (ii) the sum of (a) the number of months (prorated for partial
months) after the Registration Deadline and prior to the date the registration
statement is declared effective by the SEC and (b) the number of months
(prorated for partial months) that sales cannot be made pursuant to an effective
registration statement or the Common Stock is not listed or included for
quotation on Nasdaq, the Nasdaq Small Cap Market, the NYSE or the AMEX. There
are certain exceptions to this provision set forth in the Registration Rights
Agreement. In addition, the aggregate reductions to each of the Conversion
Percentages for failure to have the Common Stock listed on Nasdaq, the Nasdaq
Small Cap Market, the NYSE or AMEX cannot exceed 10%.
The Conversion Price is adjusted if there is a stock split, stock
dividend, combination, reclassification or similar event with respect to the
Common Stock, if certain distributions with respect to shares of Common Stock
are made, if certain purchase rights are distributed and in the event of certain
mergers, certain consolidations, sale or transfer of all or substantially all of
the Company's assets and certain share exchanges.
If a Holder tenders his or her shares of Series K Stock for conversion
and does not receive certificates for all of the shares of Common Stock to which
such Holder is entitled (except in certain specified circumstances), then the
Fixed Conversion Price is thereafter reduced to the lesser of (1) the then Fixed
Conversion Price (prior to the adjustment required by this sentence) and (2) the
lowest Conversion Price in effect during the period beginning on the conversion
date and ending on the date the shares of Common Stock are delivered to the
Holder. If the Company states that it will not deliver freely tradable shares of
Common Stock on conversion of the Series K Stock (other than in circumstances
permitted by the Registration Rights Agreement), then the Conversion Price is
thereafter reduced to the lowest Conversion Price in effect at any time during
the period beginning on the date of the default occurs and ending on the date
such default is cured. In addition, certain conversion default payments accrue
under Article VI of the Series K Certificate.
Subject to the provisions regarding the Cap Amount and provided that
all shares of Common Stock issuable on conversion of all outstanding shares of
Series K Stock are authorized and reserved for issuance, registered for resale
under the Securities Act of 1933, as amended, and are eligible to be traded on
the Nasdaq, the NYSE or the AMEX, each share of Series K Stock outstanding on
the fourth anniversary of the First Closing Date is automatically converted into
Common Stock.
The Series K Stock has a liquidation preference of $1,000 per share
plus the accrued "Premium." The Premium is 7% multiplied $1,000 multiplied by a
fraction (1) the numerator is the number of days a share of Series K Stock is
outstanding and (2) the denominator of which is 365. The Premium is payable at
the time of conversion or redemption in cash or shares of Common Stock.
The Series K Certificate provides that in no event shall the total
number of shares of Common Stock issued upon conversion of the Series K Stock
exceed the maximum number of shares of Common Stock that the Company may issue
pursuant to Rule 4460(i) of the Nasdaq or any successor rule ("Cap Amount"). The
Cap Amount is allocated pro rata among the Holders. The Company is seeking
approval from the holders of Common Stock to issue shares of Common Stock in
connection with the Series K Stock and the Warrants in excess of the amounts
permitted by Nasdaq Rule 4460(i)(1)(D).
The exercise price of the Investor Warrants and the Agent Warrants
(collectively, "Warrants") is adjusted in the event the Company issues, grants
or sells any warrants, rights or options (whether or not immediately
exercisable) to purchase Common Stock or securities that are convertible into or
exchangeable for Common Stock at a price per share that is not based on a
percentage of the market price of the Common Stock ("Fixed Price") or that may
be converted into or exchanged for Common Stock at a Fixed Price that is less
than the then exercise price of such Warrants. In such event, the exercise price
of the Warrants is reduced to such Fixed Price and the number of shares issuable
on exercise of the Warrants is adjusted so that it equals the number of shares
issuable under the Warrants immediately prior to the adjustment multiplied by
the per share exercise price prior to the adjustment divided by the exercise
price after the adjustment.
In the event of stock split, stock dividend, recapitalization,
reorganization, reclassification or other subdivision of the Common Stock, the
exercise price of the Warrants and the number of shares of Common Stock issuable
on exercise of the Warrants are proportionately adjusted. The exercise price of
the Warrants and the number of shares issuable on exercise are also adjusted in
the event of certain mergers and consolidations, in the event of any sale or
conveyance of all or substantially all of the Company's assets, in the event of
certain distributions of its assets and in the event the Company distributes
certain purchase rights.
Dividends. The Series K Stock does not bear dividends and there is no
provision for a sinking fund; accordingly, there are no provisions in the Series
K Certificate restricting repurchase or redemption of the Series K Stock while
there is a dividend or sinking fund arrearage. However, the Premium accrues as
noted above.
Ranking. Shares of Series K Stock rank prior to the Common Stock and
any class or series of capital stock created after the creation of the Series K
Stock (unless consent of the Holders is obtained as described below under
"Voting Rights") and ranks pari passu with any class or series created after the
creation of the Series K Stock that specifically states that it ranks pari passu
with the Series K Stock and where the Holders have approved the issuance of such
securities as described below under "Voting Rights." The Series K Stock ranks
junior to the Series A Stock, and Series F-1, F-2, F-3 and F-4 Stock.
Voting Rights. The Series K Stock generally has no voting rights except
as otherwise provided by the Delaware General Corporation Law. However, the
approval of the holders of a majority of the then outstanding shares of Series K
Stock is required to: (1) alter or change the rights, preferences or privileges
of the Series K Stock, (2) alter or change the rights, preferences or privileges
of any capital stock of the Company so as to adversely affect the Series K
Stock, (3) create any new class or series of capital stock ranking prior to or
pari passu with the Series K Stock, (4) increase the authorized number of shares
of Series K Stock, (5) issue any shares of Series K Stock other than pursuant to
the Securities Purchase Agreement, (6) issue any additional shares of any
securities ranking senior to the Series K Stock or (7) redeem, or declare or pay
a cash dividend or distribution on, any securities junior to the Series K Stock.
In the event the Holders approve a change described in clause (1)
above, a dissenting Holder has the right for a period of 30 days to convert its
shares of Series K Stock pursuant to the terms of the Series K Certificate as
they existed prior to the change.
Except in the event of a required conversion at maturity, no Holder is
entitled to receive shares of Common Stock on conversion of its Series K Stock
to the extent that the sum of (1) the shares of Common Stock owned by such
Holder and its affiliates and (2) the shares of Common Stock issuable on
conversion of the Series K Stock would result in beneficial ownership by such
Holder and its affiliates of more than 4.9% of the outstanding shares of Common
Stock. Beneficial ownership for this purpose is determined in accordance with
Section 13(d) of the Exchange Act. This restriction cannot be amended or deleted
unless the holders of a majority of the Common Stock and each Holder approves
such amendment or deletion.
Redemption Rights. In the event the unissued portion of any Holder's
Cap Amount is less than 135% of the number of shares of Common Stock then
issuable upon conversion of such Holder's Series K Stock and the Company fails
to eliminate the prohibitions that have resulted in the existence of the Cap
Amount within 90 days, then each Holder may (1) require (with the consent of the
holders of 50% of the outstanding shares of Series K Stock) the Company to
terminate the listing of the Common Stock on Nasdaq and to cause the Common
Stock to be eligible for trading on the Nasdaq Small Cap Market or on the
over-the-counter electronic bulletin board, at the option of the requesting
Holder, or (2) require the Company to issue Common Stock at a Conversion Price
equal to the average of the closing prices of the Common Stock on the five prior
trading days. In addition, the Holder has the right to require the Company to
redeem for cash at an amount equal to the "Redemption Amount" a portion of the
Holder's Series K Stock such that, after giving effect to such purchase, the
then unissued portion of the Holder's Cap Amount exceeds 135% of the total
number of shares of Common Stock then issuable on conversion of its Series K
Stock. The Redemption Amount per share of Series K Stock equals (1) $1,000 plus
the accrued Premium plus all conversion default payments required under the
Series K Certificate, multiplied by (2) the highest closing price of the Common
Stock during the period beginning on the date of the redemption notice and
ending on the date of redemption, divided by (3) the Conversion Price in effect
on the date of the redemption notice.
The terms of the Series K Stock provide the Holders with the right to
require the Company to redeem its Series K Stock at the Redemption Amount (1) if
the Company fails to issue shares of Common Stock on conversion of the Series K
Stock other than in certain specified circumstances all of which are in the sole
control of the Company, (2) if the Common Stock is suspended from trading on any
of, or is not listed on at least one of, the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market or the Nasdaq Small Cap
Market for an aggregate of 10 trading days in any nine month period, (3) the
registration statement required to be filed under the Registration Rights
Agreement is not declared effective by the SEC by January 31, 1998 or cannot be
utilized by the Holders for an aggregate of more than 30 days after June 30,
1998, (4) the Company fails to remove any restrictive legend on shares of Common
Stock issued on conversion of the Series K Stock when required by the Securities
Purchase Agreement or Registration Rights Agreement, (5) the Company states that
it will not issue shares of Common Stock to Holders in accordance with the terms
of the Series K Certificate (other than in circumstances where other remedies
are provided in the Series K Certificate), or (6) the Company shall (a) sell all
or substantially all of its assets, (b) merger or consolidate with another
entity, or (c) have 50% or more of the voting power of its capital stock owned
beneficially by any one person or group within the meaning of Section 13(d) of
the Exchange Act.
The Company and the Holders entered into an agreement on November 30,
1997 wherein the Holders agreed to not exercise a right of redemption under
certain circumstances and subject to certain conditions (the "Agreement").
Specifically, the Holders agreed not to exercise a right of redemption in the
circumstance described above so long as (i) the Company has not, at any time,
decreased the Reserve Amount below 12,500,000 shares of Common Stock; (ii) the
Company shall have taken immediate action following the trigger date to increase
the Reserved Amount to 200% of the number of shares of Common Stock then
issuable upon conversion of the outstanding Preferred Stock; and (iii) the
Company continues to use its good faith best efforts to increase the Reserved
Amount to 200% of the number of shares of Common Stock then issuable upon
conversion of the outstanding Preferred Stock. The parties agreed that the
Company will be deemed to have used "its good faith best efforts" to increase
the Reserved Amount so long as it solicits shareholder approval to authorize the
issuance of additional shares of Common Stock no less than three (3) times
during each 12 month period following the trigger date.
Further, pursuant to that Agreement, the Holders will not exercise a
right of redemption if the Common Stock is suspended from trading on any of, or
is not listed on at least one of, the New York Stock Exchange, the American
Stock Exchange, the Nasdaq National Market or the Nasdaq Small Cap Market for an
aggregate of 10 trading days in any nine month period, and in such circumstance
the Company would be required to pay to the Holders within five (5) business
days of the occurrence of that redemption event, as liquidated damages, an
amount equal to 25% of the aggregate face amount of the shares of Series K Stock
then held by each stockholder. The liquidated damages are payable, at the
Company's option, in cash or shares of Common Stock, such stock based upon a
price per share equal to 50% of the lowest closing price of the Common Stock
during the 10 consecutive trading day period immediately preceding the date of
such Redemption Event. Under the Agreement, the Company is obligated to keep
reserved 3,000,000 shares of Common Stock to satisfy its obligation with respect
to the liquidated damages. In the event that the number of shares required to be
issued by the Company with respect to the amount of liquidated damages exceeds
3,000,000 shares of Common Stock, and the Company does not have a sufficient
number of shares of Common Stock authorized and available for issuance to
satisfy its obligation with respect to the liquidated damages, the Company shall
issue and deliver to the stockholders all 3,000,000 shares of Common Stock so
reserved for that purpose and, upon such issuance, the Holders shall have no
right of redemption upon a Redemption Event as specified in the Certificate of
Designation to the Series K Stock, but shall retain all other remedies to which
they may be entitled at law or in equity, which remedies shall not include the
right of redemption. The Holders also agreed that they would have no right to
require the Company to effect a redemption of their outstanding shares of
Preferred Stock if the registration statement required to be filed by the
Company, pursuant to a registration rights agreement entered into between the
parties, has not been declared effective by January 31, 1998, or such
registration statement, after being declared effective, cannot be utilized by
the Holders of the Series K Preferred Stock for the resale of their securities
for an aggregate of more than 30 days after June 30, 1998; however, upon the
occurrence of any such event and while any of the events continue, the Company
agrees to provide that the permanent reductions to the conversion percentages
set forth in the Registration Rights Agreement shall accrue at the rate of two
hundreds (.02) per week instead of two hundreds (.02) per month. Lastly, the
Holders agreed not to exercise a right of redemption upon an event where the
Company has 50% or more of the voting power of its capital stock owned
beneficially by one person, entity or group (as such term is used under Section
13(d) of the Securities Exchange Act of 1934, as amended), so long as the
Company has not approved, recommended or otherwise consented to the transaction
which triggered that event.
The Agreement provides that all subsequent holders of the Series K
Stock shall be bound by the terms of the Agreement, and the Holders are
prohibited from transferring any shares of the Series K Stock unless, prior to
the transfer (i) the Company is furnished with written notice of the name and
address of such transferee; (ii) at or before the time the Company receives the
written notice contemplated by clause (i), the transferee agrees in writing for
the benefit of the Company to be bound by all of the provisions contained in the
Agreement following such transfer, (iii) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, the Certificate of Designation, the Securities Act and applicable
state securities laws, and (iv) the further transfer or disposition of such
Series K Stock by the transferee (and any subsequent transferees) is restricted
pursuant to the provisions of the Agreement.
In the event that the Company fails to perform its obligations under
the Agreement, it is then required to pay its Redemption Amount, and if it
should fail to do so, the Company is further obligated to (1) pay interest on
such amount at the rate of 24% per annum until such Holder's Series K Stock is
redeemed and (2) such Holder has the right to require the Company to convert the
Redemption Amount plus accrued interest into shares of Common Stock at the
lowest Conversion Price in effect during the period beginning on the date the
Holder submitted its redemption notice and ending on the date of conversion.
The Company has the right to redeem all (but not less than all) of the
outstanding Series K Stock (other than shares that are subject to a notice of
conversion) at any time when it is not in material violation of its obligations
under the Series K Certificate, the Securities Purchase Agreement or the
Registration Rights Agreement at the "Optional Redemption Amount." The Company
can only exercise this right once. The Optional Redemption Amount per share of
Series K Stock is the greater of (1) the sum of the face amount, the accrued
Premium and all conversion default payments accrued through the date of
redemption and (2) (a) the sum of $1,000, the accrued Premium and all conversion
default payments required under the Series K Certificate, multiplied by (b) the
volume weighted average sales price of the Common Stock on the trading day
immediately preceeding the optional redemption notice, divided by (c) the
Conversion Price in effect on the date of the optional redemption notice. In the
event the Company fails to pay any Holder its Optional Redemption Amount, then
(1) the Holder is entitled to interest on such amount at the rate of 24% per
annum until the later of the date such Holder's Series K Stock was to be
redeemed or until the Company notifies the Holder that it will not redeem such
Holder's Series K Stock and (2) such Holder has the right to require the Company
to convert such Holder's Series K Stock into shares of Common Stock at the
lowest Conversion Price in effect during the period beginning on the date the
Company elected to redeem such shares and ending on the 20th trading date
following the date such Series K Stock was to be redeemed.
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 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
Stock is American Stock Transfer & Trust Company, 40 Wall Street, New York, New
York 10005.
Anti-takeover Effects of Provisions of the Certificate of Incorporation and
Delaware Law
The following provisions of the Company's Certificate of Incorporation
and Bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. Such provisions also may have the
effect of preventing changes in the management of the Company. See "Certain
Investment Considerations Relating to Network Imaging - Certain Anti-takeover
Provisions of Certificate of Incorporation and Delaware Law."
Preferred Stock. The Company's Certificate of Incorporation authorizes
20,000,000 shares of Preferred Stock with a par value of $0.0001. 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. In the event of a proposed merger, tender offer or
other attempt to gain control of the Company of which management does not
approve, it might be possible for the Board of Directors to authorize the
issuance of a series of preferred stock with rights and preferences that could
impede the completion of such a transaction. See "Risk Factors - Certain
Anti-takeover Provisions of Certificate of Incorporation and Delaware Law."
Delaware Anti-Takeover Statute. The Company is subject to Section 203
of the Delaware General Corporation Law, which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any business combination with
any interested shareholder for a period of three years following the date that
such shareholder became an interested shareholder, unless: (1) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the shareholder becoming an
interested shareholder; (2) upon consummation of the transaction that resulted
in the shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (i) by persons
who are directors and also officers and (ii) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer,
or (3) on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
shareholders, and not by written consent, by the affirmative vote of at least 66
2/3% of the outstanding voting stock that is not owned by the interested
shareholder.
Section 203 defines business combination when used in reference to a
corporation and any interested shareholder to include: (i) any merger or
consolidation of the corporation with the interested shareholder or with any
other corporation if the merger or consolidation is caused by the interested
shareholder and, as a result of the transaction, Section 203(a) does not apply
to the surviving corporation; (ii) any sale, lease, exchange, mortgage,
transfer, pledge or other disposition involving the interested shareholder of
10% or more of the assets of the corporation; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested shareholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation owned
by the interested shareholder; or (v) any receipt by the interested shareholder
of the benefit of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation. In general, Section 203 defines
an interested shareholder as any entity or person beneficially owns, or within
three years did own, 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
NO RIGHTS OF DISSENTING STOCKHOLDERS
Pursuant to Section 262 of the DGCL ("Section 262"), holders of
Network Imaging Common Stock will not have the right to dissent from the
Proposal and elect to have the fair value of their shares of Common Stock
judicially determined and paid to them in cash. Under Section 262, dissenters'
rights are not available to the stockholders of a corporation that is a party to
a transaction such as the Restructuring.
INDEPENDENT ACCOUNTANTS
The Board, upon the recommendation of the Audit Committee, appointed
Ernst & Young LLP, independent accountants, as auditors of the Company to
examine and report to stockholders on the consolidated financial statements of
the Company and it subsidiaries for the year ended on December 31, 1996 and for
the year ending December 31, 1997. Ernst & Young LLP currently serves as the
Company's independent accountants. Representatives of Ernst & Young LLP will be
present at the Special Meeting and will be given an opportunity to make a
statement if they desire to do so. They also will be available to respond to
appropriate questions from stockholders.
The Company engaged Ernst & Young LLP on July 10, 1996 as independent
accountants to examine the consolidated financial statements of the Company for
the year ended December 31, 1996. Ernst & Young LLP replaced Price Waterhouse
LLP. The Company's decision to retain Ernst & Young LLP as the Company's
principal independent accountants and discontinue the engagement of Price
Waterhouse LLP was ratified, confirmed and approved by the Company's Audit
Committee at a meeting held on August 1, 1996.
The Company dismissed Price Waterhouse LLP as its independent
accountants on July 10, 1996. The reports of Price Waterhouse LLP on financial
statements for the fiscal years ended December 31, 1995 and 1994 contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles. In connection with its
audits for the fiscal years ended December 31, 1995 and 1994, and through July
10, 1996, there were no disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
Price Waterhouse LLP would have caused them to make reference thereto in their
report on the financial statements for such years.
During the fiscal years ended December 31, 1995 and 1994 and through
July 10, 1996, Price Waterhouse LLP communicated certain internal control
matters to the Company that meet the definition of reportable events (as defined
in Regulation S-K Item 304(a)(1)(iv)). For the fiscal year ended December 31,
1994, such reportable events involved recommendations that the Company should
ensure compliance with its revenue recognition policies and should further
ensure that significant and/or unusual accounting and reporting issues are
addressed and documented on a timely basis.
SHAREHOLDER PROPOSALS
The Company anticipates that its 1998 annual meeting of stockholders
will be held in June, 1998. In order to be considered for that meeting,
shareholder proposals must be received by the Company no later than December 26,
1997. Stockholders should send their proposals to the Company's corporate
headquarters address and must be submitted in accordance with Rule 14a-8 of the
Exchange Act on or before December 26, 1997.
LEGAL MATTERS
Certain legal matters and the validity of the Common Stock will be
passed upon for Network Imaging by Kirkpatrick & Lockhart LLP, 1800
Massachusetts Avenue, N.W., Washington, D.C. 20036.
EXPERTS
The consolidated financial statements of Network Imaging Corporation as
of December 31, 1996 and for the year then ended, appearing in this Proxy
Statement - Prospectus and Registration Statement have been audited by Ernst &
Young LLP, independent auditors as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Network Imaging Corporation as
of December 31, 1995 and for each of the two years in the period ended December
31, 1995 included in this Proxy Statement - Prospectus have been so included 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>
INDEX TO FINANCIAL STATEMENTS
Page
Reports of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-4
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-8
Consolidated Balance Sheets at September 30, 1997 (unaudited) and
December 31, 1995 F-24
Consolidated Statements of Operations (unaudited) for the three
months ended September 30, 1997 and 1996 F-25
Consolidated Statements of Operations (unaudited) for the nine
months ended Septmber 30, 1997 and 1996 F-26
Consolidated Statements of Changes in Stockholders' Equity
(unaudited) for the nine months ended September 30, 1997 F-27
Consolidated Statement of Cash Flows (unaudited) for the nine
months ended September 30, 1997 and 1996 F-28
Notes to Consolidated Financial Statements F-29
F-1
<PAGE>
Report of Independent Auditors
Board of Directors
Network Imaging Corporation
We have audited the accompanying consolidated balance sheet of Network Imaging
Corporation (the "Company"), as of December 31, 1996, and the related
consolidated statement of operations, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that out audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above present fairly, in all
material respects, the consolidated financial position of Network Imaging
Corporation at December 31, 1996, and the consolidated results of their
operations and their cash flows for the year ended in conformity with generally
accepted accounting principles.
/S/ Ernst & Young LLP
February 14, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Network Imaging Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all materials respects, the financial position of
Network Imaging Corporation and its subsidiaries at December 31, 1995, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits prove a reasonable
basis for the opinion expressed above.
/S/ Price Waterhouse, LLP
Washington, D.C.
March 29, 1996
F-3
<PAGE>
<TABLE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<CAPTION>
December 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,601 $ 9,359
Short-term investments - restricted -- 3,052
Accounts and notes receivable, net 13,243 16,300
Inventories 1,503 3,464
Prepaid expenses and other 2,362 3,543
--------- ---------
Total current assets 24,709 35,718
Fixed assets, net 2,887 3,769
Long-term notes receivable, net 1,979 1,215
Software development costs and
purchased technology, net 3,813 4,630
Goodwill, net 3,237 4,468
Other assets 153 164
--------- ---------
Total assets $ 36,778 $ 49,964
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and
obligations under capital leases $ 2,063 $ 5,365
Accounts payable 3,185 6,201
Accrued compensation and related
expenses 1,891 2,638
Deferred revenue 3,789 4,408
Other accrued expenses 3,888 3,652
--------- ---------
Total current liabilities 14,816 22,264
Long-term debt and obligations
under capital leases 88 1,264
Deferred income taxes 300 773
--------- ---------
Total liabilities 15,204 24,301
Commitments
Redeemable Series F preferred
stock, 1,792,186 shares issued
and outstanding 9,857 15,478
Stockholders' equity:
Preferred stock, $.0001 par
value, 20,000,000 shares
authorized; 1,605,675 and
1,605,228 shares issued and
outstanding
Common stock, $.0001 par value,
50,000,000 shares authorized;
22,896,612 and 18,637,226
shares issued and outstanding 2 2
Additional paid-in-capital 124,429 105,065
Accumulated deficit (113,098) (95,757)
Translation adjustment 384 875
--------- ---------
Total stockholders' equity 11,717 10,185
--------- ---------
Total liabilities and stockholders' equity $ 36,778 $ 49,964
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
(In thousands, except share and per share amounts)
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Products $ 18,336 $ 47,508 $ 49,867
Services 21,141 21,643 17,161
------------ ------------ ------------
39,477 69,151 67,028
------------ ------------ ------------
Costs and expenses:
Cost of products sold 9,953 29,263 36,757
Cost of services provided 14,421 13,135 11,432
Product development 6,500 7,058 4,666
Selling, general and
administrative 24,956 35,679 36,765
Exchange fee and gain on
sale of asset, net 619 -- --
Purchased in-process
research and development -- -- 8,821
Settlement with stockholders -- 1,642 --
Loss on closure and sale of
subsidiaries, net 921 9,274 --
Restructuring costs (175) (1,433) 1,654
Capitalized software
write-off -- -- 8,743
------------ ------------ ------------
57,195 94,618 108,838
------------ ------------ ------------
Loss before investment and
interest income and income
taxes (17,718) (25,467) (41,810)
Investment and interest
income, net 309 224 579
------------ ------------ ------------
Loss before income taxes (17,409) (25,243) (41,231)
Income tax benefit (68) (280) (1,606)
------------ ------------ ------------
Net loss (17,341) (24,963) (39,625)
------------ ------------ ------------
Preferred stock
preferences (3,730) (9,933) (4,496)
------------ ------------ ------------
Net loss applicable to
common shares $ (21,071) $ (34,896) $ (44,121)
============ ============ ============
Net loss per common share $ (1.02) $ (2.41) $ (3.56)
============ ============ ============
Weighted average shares
outstanding 20,681,694 14,502,399 12,391,225
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
(In thousands, except share amounts)
<CAPTION>
Additional
Preferred Stock Common Stock paid-in Accumulated
Shares Amt. Shares Amt. capital Deficit
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 1,400,000 $ -- 10,542,105 $ 1 $ 74,153 $ (31,169)
Issuance of preferred stock,
net of offering costs
of $673 205,025 4,453
Issuance of common stock,
net of offering costs of $39 2,786,070 19,184
Conversion of preferred stock 300,000 2,303
Accretion of preferred stock (1,286)
Dividends on preferred stock (3,210)
Translation adjustment
Net loss (39,625)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1994 1,605,025 -- 13,628,175 1 95,597 (70,794)
Issuance of preferred stock,
net of offering costs of $1,790 2,174 $ -- 19,949
Conversion of preferred stock (885) 2,276,237
Redemption of preferred stock (1,086) (15,600)
Issuance of common stock, net
of offering costs of $941 2,732,814 1 9,198
Accretion of preferred stock (869)
Dividends on preferred stock (3,210)
Translation adjustment
Net loss (24,963)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1995 1,605,228 -- 18,637,226 2 105,065 (95,757)
Issuance of common stock, net
of offering costs of $376 1,902,487 6,149
Issuance of preferred stock,
net of offering costs
of $209 1,100 $ -- 10,791
Issuance of warrants for
line of credit 192
Buy-Back adjustment of
Redeemable Series F
preferred stock 5,962
Conversion of preferred stock (653) 2,356,899
Accretion of preferred stock (341)
Dividends on preferred stock (3,389)
Translation adjustment
Net loss (17,341)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1996 1,605,675 $ -- 22,896,612 $ 2 $ 124,429 $ (113,098)
=========== =========== =========== =========== =========== ===========
Translation
Adjustment Total
---------- ---------
<S> <C> <C>
Balance December 31, 1993 $ (191) $ 42,794
Issuance of preferred stock,
net of offering costs
of $673 4,453
Issuance of common stock,
net of offering costs of $39 19,184
Conversion of preferred stock 2,303
Accretion of preferred stock (1,286)
Dividends on preferred stock (3,210)
Translation adjustment 543 543
Net loss (39,625)
-------- --------
Balance December 31, 1994 352 25,156
Issuance of preferred stock,
net of offering costs of $1,790 19,949
Conversion of preferred stock --
Redemption of preferred stock (15,600)
Issuance of common stock, net
of offering costs of $941 9,199
Accretion of preferred stock (869)
Dividends on preferred stock (3,210)
Translation adjustment 523 523
Net loss (24,963)
-------- --------
Balance December 31, 1995 875 10,185
Issuance of common stock, net
of offering costs of $376 6,149
Issuance of preferred stock,
net of offering costs
of $209 10,791
Issuance of warrants for
line of credit 192
Buy-Back adjustment of
Redeemable Series F
preferred stock 5,962
Conversion of preferred stock --
Accretion of preferred stock (341)
Dividends on preferred stock (3,389)
Translation adjustment (491) (491)
Net loss (17,341)
-------- --------
Balance December 31, 1996 $ 384 $ 11,717
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(In thousands)
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $(17,341) $(24,963) $(39,625)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation and amortization 5,793 6,270 6,085
Purchased in-process
research and development -- -- 8,821
Restructuring costs (175) (1,433) 1,654
Loss on closure and sale
of subsidiaries 921 9,274 --
Impairment of spare parts
inventory -- 276 --
Capitalized software
write-off -- -- 8,743
Goodwill write-off -- -- 953
Stock Settlement -- 787 --
Realized gain on sale of
short-term investments (108) (151) --
Unrealized holding loss on
short-term investments -- -- 437
Changes in assets and
liabilities:
Accounts and notes receivable 1,871 (1,350) (1,174)
Inventories 313 988 (2,305)
Prepaid expenses and other 937 (1,681) (694)
Accounts payable (3,353) (313) 1,433
Accrued compensation and
related expenses 54 2,107 (3,540)
Deferred revenues (449) 1,521 2,651
Deferred income taxes (246) (331) (1,223)
-------- -------- --------
Net cash used in operating
activities (11,783) (8,999) (17,784)
-------- -------- --------
Cash flows from investing
activities:
Sale (purchase) of short-term
investments 111 12,731 (12,973)
Capitalized software
development and license costs (1,979) (1,784) (6,966)
Purchases of fixed assets (1,068) (1,522) (3,559)
Business divestitures/
acquisitions and related costs 299 154 (3,640)
-------- -------- --------
Net cash (used in) provided by
investing activities (2,637) 9,579 (27,138)
-------- -------- --------
Cash flows from financing
activities:
Proceeds from issuance of
common stock, net 6,149 8,412 3,057
Proceeds from issuance
preferred stock, net 10,791 19,949 4,453
Redemption of Series D
preferred stock -- (15,600) --
Cash dividends paid on
Series A preferred stock (3,210) (3,210) (2,830)
Proceeds from borrowings
and purchase of short-term
investments, net -- (869) 3,537
Proceeds from sale and
leaseback of fixed assets 196 226 2,413
Principal payments on capital
lease obligations (913) (817) (87)
Principal payments on debt (270) (3,382) (1,526)
-------- -------- --------
Net cash provided by
financing activities 12,743 4,709 9,017
-------- -------- --------
Effect of exchange rate changes
on cash and cash equivalents (81) 81 130
Net (decrease) increase in
cash and cash equivalents (1,758) 5,370 (35,775)
Cash and cash equivalents at
beginning of year 9,359 3,989 39,764
-------- -------- --------
Cash and cash equivalents
at end of year $ 7,601 $ 9,359 $ 3,989
======== ======== ========
Supplemental Cash Flow
Information:
Interest paid $ 278 $ 712 $ 490
Income taxes paid $ 209 $ 151 $ 401
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
Network Imaging Corporation ("Network Imaging" or the "Company") is a developer
and marketer of content and storage management software for unstructured
information. Its flagship product, the 1View suite, manages the storage, access
and distribution of any multimedia data, such as diagrams, documents,
photographs, voice, and full-motion video. 1View is a solution for use in
distributed, high transaction, high volume mission critical applications across
legacy, client/server and Internet/intranet based environments. The Company is
also a software developer for mainframe and PC based Computer Output to Laser
Disk ("COLD") systems and a developer and marketer of storage management
software systems.
In 1996, the Company's operations were approximately evenly divided between the
United States and Europe. U.S. operations were conducted in or near Herndon,
Virginia (primarily the development of the 1View suite and COLD family of
storage products), Minneapolis, Minnesota and Denver, Colorado. European
operations were conducted near Paris, France (hierarchical storage management
software and related storage products and engineering services).
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation --
The consolidated financial statements include the accounts of Network Imaging
Corporation and its subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Cash equivalents and short-term investments --
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. At December
31, 1995, restricted short-term investments are categorized as "available for
sale" securities whose carrying amount approximates fair value because of the
short-term maturity of the investments.
Revenue recognition --
The Company recognizes software revenue in accordance with the AICPA Statement
of Position 91-1, "Software Revenue Recognition". Revenue from hardware and
software sales related to the Company's 1View(TM) and COLD software products is
recognized when the product is delivered to the customer. The Company accounts
for insignificant vendor obligations and post-contract support at the time of
product delivery by accruing such costs at the time of sale.
Revenue from hardware and software contracts with significant completion
services involving technically difficult issues for the attainment of customer
acceptance is recognized upon customer acceptance. Revenue from maintenance
contracts is recognized ratably over the terms of the contracts.
F-8
<PAGE>
For labor intensive contracts which require significant production or
customization, the Company accounts for such revenue in accordance with AICPA
Statement of Position 81-1, "Accounting for Performance of Construction-type and
Certain Production-type Contracts," using the percentage of completion method.
Losses, if any, are recognized in the period that such losses are determined.
Inventories --
Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market.
Fixed assets --
Fixed assets are stated at cost, net of accumulated depreciation. Depreciation
is computed using straight-line and accelerated methods over the life of the
related asset, generally three years. Leasehold improvements are amortized over
the shorter of the estimated useful life of the improvements or the terms of the
related lease.
Software development and license costs --
The Company capitalizes certain software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased or Otherwise Marketed," ("SFAS 86"). The
Company capitalizes certain acquired software licenses (see Note 5) which are
incorporated into the Company's products. Amortization of software development
and license costs is provided on an individual product basis over the estimated
life of the products of three years beginning when the related products are
available for general release. Costs for research and development incurred prior
to establishing technological feasibility of software products, or after their
commercial release, are expensed in the period incurred. The Company
periodically assesses capitalized software amounts and, when less than
anticipated net realizable value, charges any such excess to expense.
Goodwill --
The excess of the purchase price over the fair value of the net identifiable
tangible and intangible assets of businesses acquired is being amortized on a
straight-line basis over seven to ten years. Amortization expense in 1996, 1995
and 1994 was $1.1 million, $1.3 million and $1.2 million, respectively.
Accumulated amortization as of December 31, 1996 and 1995 was $3.1 million and
$1.9 million, respectively. In accordance with Statement of Financial Accounting
Standards No. 121, the Company routinely evaluates recoverability of goodwill by
comparing future undiscounted cash flows to the recorded carrying value. During
1994, the Company determined that goodwill from certain acquisitions was
impaired and accordingly expensed $953,000.
Product warranty --
Warranties for hardware sold by the Company are generally provided by the
manufacturer. The Company provides warranties and service contracts for certain
products and accrues related expenses based on actual claims history.
F-9
<PAGE>
Income taxes --
The Company's income taxes are presented in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under SFAS 109, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities, using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Foreign currency translation --
The functional currency of the Company's foreign operation is the applicable
local currency. Consequently, for the operation outside the United States,
assets and liabilities are translated into United States dollars using exchange
rates in effect at the balance sheet date and revenues and expenses using the
average exchange rate during the period. The gains and losses resulting from
such translations are included as a component of stockholders' equity. Since the
Company's French subsidiary operates almost entirely within France, exposure to
foreign exchange risk is limited.
Net loss per common share --
Net loss applicable to common shares includes adjustments for dividends,
accretion and redemption amounts related to the Company's preferred stock. Net
loss per common share is computed using the weighted average number of common
shares and common share equivalents, unless antidilutive, outstanding during the
year.
Use of estimates--
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Stock Based Compensation --
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which
allows companies which have stock-based compensation arrangements with employees
to adopt a new fair-value basis of accounting for stock options and other equity
instruments, or to continue to apply the existing accounting rules under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" but with additional disclosure. The Company has adopted the
disclosure provisions of SFAS 123 and therefore, the effect of adopting SFAS 123
did not have impact on its financial position, results of operations or cash
flows as of, or for the year ended, December 31, 1996 (see Note 9).
F-10
<PAGE>
Reclassifications --
Certain reclassifications have been made to the prior year financial statements
in order to conform to the current year presentation.
NOTE 2 - SHORT-TERM INVESTMENTS
Restricted short-term investments at December 31, 1995 consisted of certificates
of deposit, which served primarily as collateral for the Company's line of
credit that was repaid on March 31, 1996. There was no short-term investment
balance at December 31, 1996.
NOTE 3 - RECEIVABLES
Receivables consist of the following:
December 31,
1996 1995
(in thousands)
Trade accounts receivable $ 9,814 $ 11,549
Unbilled receivables 3,488 3,538
Notes receivable 2,475 2,808
Employee receivables 112 614
Other receivables 188 539
-------- --------
16,077 19,048
Allowance for uncollectible accounts receivable (535) (183)
Allowance for uncollectible notes receivable (320) (1,350)
-------- --------
15,222 17,515
Less: Current receivables, net (13,243) (16,300)
-------- --------
Long-term receivables, net $ 1,979 $ 1,215
======== ========
The Company's notes receivable balance of $2.5 million at December 31, 1996
includes $1,950,000 of notes resulting from the divestitures of previously owned
operating units (the "Divestitures") made during 1995 and 1996 (see Note 6) and
$525,000 of notes receivable from former stockholders of a subsidiary acquired
in 1994.
NOTE 4 - FIXED ASSETS
Fixed assets consist of the following:
F-11
December 31,
1996 1995
(in thousands)
Computer and office equipment $ 4,953 $ 3,911
Furniture and leasehold improvements 1,131 1,199
Furniture, fixtures and equipment
under capital leases 2,482 2,559
------- -------
8,566 7,669
Less: Accumulated depreciation (5,679) (3,900)
------- -------
$ 2,887 $ 3,769
======= =======
Depreciation and amortization expense related to fixed assets in 1996, 1995, and
1994 totaled $1.7 million, $2.1 million, and $1.7 million, respectively.
Included in depreciation and amortization expense in 1996, 1995 , and 1994 were
$580,000, $704,000, and $150,000 of amortization expense related to capital
leases, respectively.
NOTE 5 - SOFTWARE DEVELOPMENT AND PURCHASED TECHNOLOGY
Capitalized software development and purchased technology consists of the
following:
December 31,
1996 1995
(in thousands)
Internally developed $ 8,517 $ 7,064
Purchased technology 3,149 2,910
-------- --------
11,666 9,974
Less: Accumulated amortization (7,853) (5,344)
-------- --------
$ 3,813 $ 4,630
======== ========
During 1996, 1995 and 1994, amortization of capitalized software development and
license costs totaled $2.6 million, $2.7 million and $3.0 million, respectively,
and was included in cost of products sold. The Company expensed $3.4 million of
purchased technology and $721,000 of capitalized software in 1995 due to the
Divestitures. During 1994, the Company also charged to expense $8.7 million in
capitalized software and purchased technology. The charge includes $5.3 million
resulting from the 1994 restructuring plan related to products abandoned. The
remaining $3.4 million charge, in 1994, relates to net realizability
adjustments.
NOTE 6 - DIVESTITURES OF BUSINESSES
During 1996 and 1995, the Company engaged in a series of Divestitures resulting
in losses of $921,000 and $9.3 million in 1996 and 1995, respectively. The
Company received as consideration from the dispositions, cash and notes totaling
$1.5 million and $4.3 million in 1996 and 1995, respectively.
F-12
The following unaudited pro forma information assumes that the 1996 disposition
of the Symmetrical Technologies, Inc. subsidiary occurred January 1, 1996. The
unaudited pro forma information 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, 1996 (in thousands, except share
amounts):
Revenue $ 37,812
Net loss $(16,251)
Net loss per common share $ (0.97)
NOTE 7 - OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following:
December 31,
1996 1995
(in thousands)
Accrued restructuring costs (see Note 12) $ -- $ 324
Accrued preferred dividends 714 527
Accrued income and other taxes 1,667 1,667
Other 1,507 1,134
------ ------
$3,888 $3,652
====== ======
NOTE 8 - BORROWING ARRANGEMENTS
Borrowings consist of the following:
December 31,
1996 1995
(in thousands)
Lines of credit $ -- $ 3,276
Capital lease obligations
bearing interest ranging from
11.7% to 12.7% 957 1,702
F-13
Term loans from French government
agencies, non-interest bearing,
due at various dates through 1997 1,098 1,162
Term notes with financial
institutions, bearing interest
ranging from 8.8% to 10%, due
at various dates through 1997 96 489
2,151 6,629
------- -------
Less: Amounts due in one year (2,063) (5,365)
------- -------
Long-term debt and capital lease obligations $ 88 $ 1,264
======= =======
At December 31, 1996, the Company maintained lines of credit which provided for
borrowings up to $6.0 million, of which $5.0 million was issued by a stockholder
of the Company and $1.0 million was issued by a French governmental agency. On
December 31, 1996, the Company entered into a restricted $5 million line of
credit agreement with a stockholder (the "Stockholder line of credit") to
finance the buy back of the Series F Preferred Stock. The Stockholder line of
credit bears interest at the prime rate (8.25% at December 31, 1996) plus 2% and
is secured by the domestic accounts receivable of the Company, $6.4 million at
December 31, 1996. In connection with the Stockholder line of credit, which
expires on September 30, 1998, the Company issued warrants for the purchase of
200,000 shares of Common Stock. The fair value of the warrants is $192,000 which
will be amortized over the term of the Stockholder line of credit as additional
interest expense. The Company repaid and terminated its previous line of credit
with a bank on March 31, 1996.
The French Line of Credit is secured by accounts receivable of the Company's
French operations and bears interest at the French interbank monetary market
rate (3.29% at December 31, 1996) plus 3%. The line of credit terminates May 31,
1997. At December 31, 1996, there were no borrowings outstanding against the
line of credit.
The Company leases certain of its furniture and equipment under capital lease
arrangements. Future minimum lease payments under these capital leases are:
1997, $925,000; 1998, $88,000; 1999, $10,000 and 2000, $7,000. Of the $1,030,000
total lease payments, $73,000 represents interest.
NOTE 9 - STOCKHOLDERS' EQUITY
Common stock --
In March 1996, the Company completed a private placement of 934,634 shares of
Common Stock, together with warrants to purchase an additional 64,000 shares of
Common Stock, pursuant to Regulation D under the Securities Act of 1933. Net
proceeds from the offering were $3.0 million. The Company subsequently
registered the Common Stock and Common Stock issuable upon exercise of the
warrants under the Securities Act of 1933.
F-14
In March and June 1996, the Company also issued 421,040 and 404,611 shares,
respectively, of Common Stock pursuant to Regulation S under the Securities Act
of 1933. Proceeds from the offerings were $1.7 million and $1.3 million,
respectively.
Series A preferred stock --
The Series A Cumulative Convertible Preferred Stock ("Series A Preferred")
stockholders are entitled to cumulative dividends at the rate of $2.00 per share
per year, payable quarterly, and could initially convert to common stock at a
rate of 1.8116 shares of common for each share of Series A Preferred (an
effective initial conversion price of $13.80), subject to adjustment in certain
circumstances. In 1996, the Company paid $3.2 million in dividends to the Series
A Preferred stockholders. The Series A Preferred stockholders vote as a class to
approve or disapprove any issuance of any securities senior to or on parity with
the Series A Preferred with respect to dividends or distributions. The Series A
Preferred has a liquidation preference of $25.00 per share, plus accumulated
unpaid dividends. At December 31, 1996, the Series A Preferred was convertible
into 2,907,663 shares of Common Stock.
Series E and G Preferred Stock--
The three shares of Series E Convertible Preferred Stock outstanding at December
31, 1995 were converted during 1996 into 10,389 shares of Common Stock. During
1996, all 200 shares of Series G Convertible Preferred Stock were converted into
551,546 shares of Common Stock.
Series H and I Preferred Stock --
In June 1996, the Company completed two offerings, one pursuant to Regulation S
under the Securities Act of 1933 of 300 shares of Series H Convertible Preferred
Stock and warrants to purchase 80,000 shares of Common Stock, and the other
pursuant to Regulation D under the Securities Act of 1933 of 300 shares of
Series I Convertible Preferred Stock, both at $10,000 per share from which it
received net proceeds of $5.9 million. The proceeds have been used for working
capital and general corporate purposes. In connection with the sale of the
Series I Convertible Preferred Stock, the Company agreed to register the Series
I Preferred Stock and the Common Stock issuable upon exercise of the Series I.
At December 31, 1996, 40 shares of Series H Preferred Stock had been converted
into 116,082 shares of Common Stock and all 300 shares of Series I Preferred
Stock had been converted into 1,272,214 shares of Common Stock. At December 31,
1996, the remaining shares of Series H Preferred Stock were convertible into
885,956 shares of Common Stock.
F-15
The Series H Preferred Stock has a per share liquidation preference, subordinate
to the liquidation preferences of the other series of previously issued and
outstanding Preferred Stocks of an amount per share equal to the sum of $10,000
plus 12% per annum simple interest thereon since the date of issuance. Each
share is convertible at the option of the holder into the number of shares of
Common Stock determined by dividing an amount equal to the initial purchase
price of $10,000 by $3.50. Commencing on December 27, 1996, the Company may
redeem the shares at the initial purchase price, if the holder does not exercise
his conversion rights, and the holder may submit the shares for redemption at
that price, in which case the Company may elect to pay the cash redemption price
or issue a number of shares of Common Stock equal to that price, with the value
of the Common Stock being determined by its average closing bid price for the
five trading days immediately preceding the notice of redemption (the "Average
Bid Price"). The Series H Preferred Stock has a dividend rate of 8% which is
payable at the time of conversion or redemption in cash or shares of Common
Stock, as elected by the Company, with the value of the Common Stock being
determined by the Average Bid Price.
The Series I Preferred Stock had a per share liquidation preference, subordinate
to the liquidation preferences of the other series of previously issued and
outstanding Preferred Stocks, 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 was convertible at the option of the holder into the number
of shares of Common Stock ("Conversion Shares") determined by dividing an amount
equal to the initial purchase price of $10,000 by the lesser of $4.00 and 81% of
the average bid price. The Series I Preferred Stock had a dividend rate of 6%
which was paid at the time of conversion into shares of Common Stock, as elected
by the Company.
Series J Preferred Stock --
In September 1996, the Company completed an offering pursuant to Regulation D
under the Securities Act of 1933, of 500 shares of Series J Convertible
Preferred Stock at $10,000 per share from which it received net proceeds of $5.0
million. The proceeds have been used for working capital and general corporate
purposes. In connection with the sale of the Series J Convertible Preferred
Stock, the Company agreed to register the Series J Preferred Stock and the
Common Stock issuable upon exercise of the Series J. At December 31, 1996, 110
shares of Series J Preferred Stock had been converted into 406,668 shares of
Common Stock and the remaining shares of Series J Preferred Stock were
convertible into 1,295,372 shares of Common Stock.
The Series J Preferred Stock has a per share liquidation preference, subordinate
to the liquidation preferences of the other series of previously issued and
outstanding Preferred Stocks, 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
F-16
an amount equal to the initial purchase price of $10,000 plus accrued but unpaid
dividends per share since the date of issuance by the lesser of $3.25 and 81% of
the average closing bid price per share of the Common Stock for the five (5)
trading days immediately preceding the notice of conversion ("Conversion 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
Conversion Average Bid Price is less than $3.25, 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
Conversion 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.
Stock purchase warrants --
The Company has the following warrants outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Warrants Warrants Exercise Outstanding Shares Issuable
Issuance Issued Price Range Expiration Dec. 31, 1996 Upon Exercise
- -------- ---------------------------------------------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Pre-IPO 148,993 $1.00 May 1997 33,663 33,663
IPO Units 1,595,000 $5.993 May 1997 654,392 850,710
Placement 397,472 $5.71-$14.88 May 1997-Oct. 1998 307,472 467,082
Other 350,334 $3.063-$7.00 Jan. 1997-June 2001 275,334 275,334
Series A preferred 140,000 $22.77 December 1998 140,000 253,624
Series D preferred 227,068 $7.57 July 2000 27,068 227,068
Series E preferred 34,400 $7.20 July 2000 34,400 34,400
Private Placement 179,400 $3.50-$4.00 Nov.-Dec. 2000 179,400 179,400
Series G preferred 40,000 $3.75 December 2000 40,000 40,000
Series H Preferred 80,000 $3.50 June 2001 80,000 80,000
--------- --------- ---------
3,192,667 1,971,729 2,441,281
========= ========= =========
</TABLE>
Stock option plans --
During 1994, 1995 and 1996, the Company granted options to buy Common Stock of
the Company under five stock option plans. Certain options qualify as incentive
stock options under the Internal Revenue Code. The vesting and the terms of any
option granted under the plans are determined by the Board of Directors with the
requirement that the term of an incentive stock option shall not exceed ten
years. To date, options granted range from five- to ten-year terms. The exercise
price per share of Common Stock subject to an incentive stock option will not be
less than the fair market value at the time of grant. The Company has also
issued non-qualified plan options. An aggregate of 9.1 million shares have been
authorized for issuance under the Company's stock option plans.
F-17
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1995 and 1996,
respectively: average risk-free interest rates of 6.6% and 6.7%; dividend yields
of 0.0%; volatility factors of the expected market price of the Company's common
stock of .63; and a weighted-average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma loss is $35.6 million and $23.1 million for 1995 and 1996, respectively,
and pro forma loss per share is $2.46 and $1.12 for 1995 and 1996, respectively.
The effect of applying SFAS 123 on the 1995 and 1996 pro forma net loss is not
necessarily representative of the effects on reported net loss and net loss per
share for future years due to, among other things, 1) the vesting period of the
stock options and the 2) fair value of additional stock options in future years.
The following table summarizes the activity in stock options issued by the
Company:
Exercise
Options Price
---------- ---------------
Balance, January 1, 1994 3,183,250 $1.00 - $12.38
Granted 2,967,000 3.38 - 12.38
Exercised (321,658) 1.00 - 7.63
Canceled (560,792) 1.00 - 12.13
----------
Balance, December 31, 1994 5,267,800 1.00 - 12.38
Granted 2,486,250 3.32 - 6.82
Exercised (89,957) 2.25 - 3.75
Canceled (1,163,769) 2.25 - 12.38
----------
Balance, December 31, 1995 6,500,324 1.00 - 12.38
Granted 1,454,000 2.69 - 4.50
Exercised (88,869) 1.00 - 3.75
Canceled (851,619) 1.00 - 6.82
----------
Balance, December 31, 1996 7,013,836 $1.00 - $ 8.75
==========
F-18
At December 31, 1996, options to purchase 3,125,102 shares had vested and were
exercisable at a weighted average exercise price of $3.90 per share and had a
weighted average contractual life of 6.5 years.
NOTE 10 - REDEEMABLE PREFERRED STOCK
In December 1996, the Company entered into an agreement with the holder of the
Series F Preferred Stock to redeem the shares for an aggregate of $9.9 million
or $5.50 per share. The agreement requires the Company to make payments totaling
$6.6 million through June 30, 1997, and an additional $3.6 million on January
31, 1998. The $3.6 million payment due on January 31, 1998, is subject to
certain acceleration terms that are under the control of the Company. Under the
agreement, the outstanding obligation amount will compound at 8% per annum,
commencing October 1, 1996. The reduction of the Company's Series F redemption
obligation under the terms of the agreement resulted in a $6.0 million increase
in stockholders' equity.
NOTE 11 - INCOME TAXES
The source of the loss before income taxes was from the following jurisdictions:
Year Ended December 31,
1996 1995
(in thousands)
U.S. $(16,332) $(23,480)
Foreign (1,077) (1,763)
-------- --------
$(17,409) $(25,243)
======== ========
The income tax expense (benefit) consists of the following:
Year Ended December 31,
1996 1995
(in thousands)
Current tax expense (benefit):
U.S. Federal $ -- $ 51
----- -----
State and local -- --
----- -----
Foreign -- --
----- -----
Deferred tax expense:
Foreign (68) (331)
----- -----
Total income tax $ (68) $(280)
===== =====
F-19
Deferred tax assets and liabilities are comprised of the following:
December 31,
1996 1995
(in thousands)
Deferred tax assets:
Net operating losses $ 24,419 $ 12,180
Other 1,659 1,997
-------- --------
Gross deferred tax assets $ 26,078 $ 14,177
======== ========
Deferred tax liabilities:
Software development costs (1,372) (1,661)
-------- --------
Gross deferred tax liabilities (1,372) (1,661)
Deferred tax asset valuation allowance (24,752) (13,032)
-------- --------
$ (46) $ (516)
======== ========
Current deferred tax assets
(included in prepaid and other
current assets net of valuation allowance) 254 257
Non-current deferred tax liabilities (300) (773)
-------- --------
$ (46) $ (516)
======== ========
Income tax expense (benefit) differs from the amount of income tax determined by
applying the applicable U.S. statutory federal income tax rate to the loss
before income taxes as a result of the following differences:
Year Ended December 31,
1996 1995
(in thousands)
Statutory U.S. tax rate benefit (34.0%) (34.0%)
State income taxes, net (4.0) (4.0)
Operating losses and tax credits with no current
tax benefit 37.5 31.0
Other 0.1 5.9
---- ----
(0.4%) (1.1%)
==== ====
As of December 31, 1996, the Company had net operating loss and research tax
credit carry forwards of approximately $53 million and $913,000, respectively,
for U.S. income tax purposes which expire in years through 2010. The Company
experienced changes in ownership during prior years which triggered certain
limitations under Internal Revenue Code Section 382. Accordingly, the
utilization of the net operating loss and research tax credits will be limited
in future years due to the changes in ownership.
Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries. The earnings have been and will
continue to be reinvested in those subsidiaries. These earnings could become
subject to additional tax if they were remitted as dividends, if they were
loaned
F-20
to the Company or a U.S. affiliate, or if the Company sold its stock in the sub-
sidiaries. It is not practicable to estimate the amount of additional tax that
might be payable on the foreign earnings; however, the Company believes that,
due to the operation of the foreign tax credits, any foreign tax credits would
largely eliminate any U.S. tax and offset any foreign tax.
NOTE 12 - RESTRUCTURING CHARGES AND CAPITALIZED SOFTWARE WRITE-OFFS
At December 31, 1996, the Company's 1994 restructuring plan (the "Plan") was
complete. In accordance with the Plan, 90 employees had been terminated and/or
resigned and the Company's excess leased property was sublet through the lease
termination date. Under the Plan, the Company incurred net charges in estimate
of $175,000 and $1.4 million in 1996 and 1995, respectively and net
restructuring charges of $1.7 million in 1994. In conjunction with the Plan, the
Company also expensed capitalized software of $5.3 million in 1994.
NOTE 13 - BUSINESS SEGMENTS
The Company sells its products and services through a single industry segment to
a wide variety of customers throughout the United States and Western Europe. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral from its customers.
The following table sets forth summary information for the years ended December
31, 1996, 1995 and 1994 (in thousands):
United Western
States Europe
1996:
Revenue $ 21,383 $ 18,094
Net loss (16,332) (1,009)
Total assets 22,718 14,060
1995:
Revenue $ 38,367 $ 30,784
Net loss (23,531) (1,432)
Total assets 30,654 19,310
1994:
Revenue $ 37,619 $ 29,409
Net loss (35,360) (4,265)
Total assets 43,963 27,908
F-21
Revenue in 1996 included sales to the U.S. Government and French Government
totaling $1.1 million and $10.3 million, respectively. Revenue in 1995 included
sales to the U.S. Government and French Government totaling $1.7 million and
$9.6 million, respectively. Revenue in 1994 included sales to the U.S.
Government and French Government totaling $3.3 million and $7.6 million,
respectively.
NOTE 14 - COMMITMENTS
The Company leases its corporate office, sales offices, assembly facilities and
certain equipment under non-cancelable operating leases certain of which provide
for annual escalations that are amortized over the lease term and pro rata
operating expense reimbursements. Rent expense related to these leases was $1.6
million, $2.7 million and $2.9 million for the years ended December 31, 1996,
1995, and 1994, respectively.
Future minimum lease payments under non-cancelable operating leases are as
follows (in thousands):
Year Ending
December 31,
1997 $1,328
1998 1,076
1999 940
2000 363
Thereafter --
-------
$3,707
=======
NOTE 15 - CONTINGENCIES
Department of Justice, Securities and Exchange Commission and Company
internal investigations --
During November 1996, the Company received a letter from the Securities and
Exchange Commission advising the Company that it was terminating an
investigation that it had been conducting. In 1994, the Company learned that it
was the subject of investigation by the Commission and the U.S. Attorney's
Office in the Southern District of New York which the Company understood was
focused on certain accounting issues, including questions relating to
capitalization of software and pooling-of-interests accounting treatment for
certain acquisitions, and certain matters related to activities during the years
1992 and 1993. The Company has had no communications with the U.S. Attorney's
Office from the date it received the letter from the SEC.
F-22
Other --
Dorotech, which was acquired in October 1993, had previously co-guaranteed the
lease payment of ATG Gigadisc SA ("ATG"), a former affiliated company, under a
sale and leaseback of land and buildings ending April 2007. As part of the
December 1996 Series F Preferred Stock redemption agreement (See Note 10), the
holder of the Series F Preferred Stock agreed to use best efforts to obtain a
release from the landlord.
The Company is also subject to other legal proceedings and claims which are in
the ordinary course of business. Management believes that the outcome of such
matters will not have a material impact on the Company's financial position or
its result of operations.
NOTE 16 - RELATED PARTY TRANSACTIONS
The Company has employment and consulting agreements with individuals
who are current or former members of the Board of Directors and officers of the
Company. The Company has five year agreements with the Chairman of the Board of
Directors and Secretary and with the former Chairman of the Board of Directors
and his consulting firm. The Company also has a five year consulting agreement
with another former Director and his consulting firm. The Company recognized
total compensation expense of approximately $715,000 and $898,000 in 1996 and
1995, respectively, related to these employment and consulting agreements.
During December 1996, the Company and a stockholder entered into a line of
credit agreement. At December 31, 1996, there were no borrowings against the
line of credit (see Note 8).
The Company holds two notes receivable totaling $525,000 from two former
stockholders of a subsidiary acquired in 1994 due and payable December 1998.
Interest accrues at 6.55% per annum.
NOTE 17 - EMPLOYEE PROFIT SHARING PLANS AND 401K PLAN
The Company has a mandatory and a voluntary profit sharing plan covering
substantially all employees in France. Contributions to the plans are based upon
earnings of the French operations. Plan contributions in 1996 totaled $28,000,
while there were no contributions made to the plans in 1995 and 1994.
The Company also sponsors, in the United States, a 401K plan which covers all
full-time employees. Participants in the plan may make contributions of up to
fifteen percent of pre-tax annual compensation. The Company may make
discretionary matching contributions at the option of the Board of Directors.
The Company made no contributions in 1996, 1995 or 1994.
F-23
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma at
December 31, September 30, September 30,
1996 1997 1997
----------- ----------- -----------
(Unaudited) (Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 7,601 $ 3,782 $ 3,782
Accounts and notes receivable, net 13,243 14,451 14,451
Inventories 1,503 1,404 1,404
Prepaid expenses and other 2,362 2,214 2,214
--------- --------- ---------
Total current assets 24,709 21,851 21,851
Fixed assets, net 2,887 2,096 2,096
Long-term notes receivable, net 1,979 1,648 1,648
Software development costs and purchased technology, net 3,813 3,347 3,347
Goodwill, net 3,237 2,228 2,228
Other assets 153 310 310
--------- --------- ---------
Total assets $ 36,778 $ 31,480 $ 31,480
========= ========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and obligations under capital leases $ 2,063 $ 1,238 $ 1,238
Accounts payable 3,185 3,890 3,890
Accrued compensation and related expenses 1,891 1,983 1,983
Deferred revenue 3,789 3,599 3,599
Other accrued expenses 3,888 4,895 4,895
--------- --------- ---------
Total current liabilities 14,816 15,605 15,605
Long-term debt and obligations under capital leases 88 7,318 7,318
Deferred income taxes 300 191 191
--------- --------- ---------
Total liabilities 15,204 23,114 23,114
Commitments
Redeemable Series F preferred stock, 1,792,186 and 792,186 shares
issued and outstanding at December 31, 1997 and September 30, 1997
and 792,186 shares issued and outstanding on a pro forma basis at
September 30, 1997 9,857 6,357 6,357
Redeemable Series K preferred stock, no and 3,300 shares issued and
outstanding at December 31, 1996 and September 30, 1997 and no
shares issued and outstanding on a pro froma basis at September 30, 1997 -- 3,700 --
Stockholders' equity:
Preferred stock, $.0001 par value, 20,000,000 shares authorized;
1,605,675 and 1,605,035 shares issued and outstanding at
December 31, 1996 and September 30, 1997 and 1,608,335 shares
issued and outstanding on a proforma basis at September 30, 1997
Common stock, $.0001 par value, 50,000,000 shares authorized;
22,896,612 and 25,865,809 shares issued and outstanding at
December 31, 1996 and September 30, 1997 and
25,865,809 shares issued and outstanding on a pro forma basis
at September 30, 1997 2 3 3
Additional paid-in-capital 124,429 121,108 124,808
Accumulated deficit (113,098) (122,233) (122,233)
Translation adjustment 384 (569) (569)
--------- --------- ---------
Total stockholders' equity (deficit) 11,717 (1,691) 2,009
--------- --------- ---------
Total liabilities and stockholders' equity $ 36,778 $ 31,480 $ 31,480
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended September 30,
1997 1996
----------- -----------
Revenue:
Products $ 5,225 $ 4,107
Services 4,719 5,272
----------- -----------
9,944 9,379
----------- -----------
Costs and expenses:
Cost of products sold 2,585 2,169
Cost of services provided 3,865 3,700
Sales and marketing 3,649 3,332
General and administrative 1,649 1,995
Product development 1,142 1,129
Loss on sale of subsidiary -- 921
----------- -----------
12,890 13,246
----------- -----------
Loss before investment and
interest income and income taxes (2,946) (3,867)
Investment and interest income
(expense), net (130) 41
----------- -----------
Loss before income taxes (3,076) (3,826)
Income tax benefit (142) (77)
----------- -----------
Net loss (2,934) (3,749)
----------- -----------
Preferred stock preferences
Accrued dividends (930) (865)
Imputed dividends (774) --
----------- -----------
Net loss applicable to
common shares $ (4,638) $ (4,614)
=========== ===========
Net loss per common share $ (0.18) $ (0.22)
=========== ===========
Weighted average shares outstanding 25,436,748 21,112,811
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Nine Months Ended September 30,
1997 1996
------------ ------------
Revenue:
Products $ 13,591 $ 13,497
Services 14,805 15,552
------------ ------------
28,396 29,049
------------ ------------
Costs and expenses:
Cost of products sold 6,740 7,976
Cost of services provided 11,681 11,975
Sales and marketing 10,901 11,652
General and administrative 4,949 7,522
Product development 3,451 4,190
Gain from extinguishment of debt (267) --
Loss on sale of subsidiary -- 921
Exchange fee and gain on
sale of asset, net -- 619
Restructuring costs -- (175)
------------ ------------
37,455 44,680
------------ ------------
Loss before investment and
interest income and income taxes (9,059) (15,631)
Investment and interest income
(expense), net (163) 188
------------ ------------
Loss before income taxes (9,222) (15,443)
Income tax benefit (87) (89)
------------ ------------
Net loss (9,135) (15,354)
------------ ------------
Preferred stock preferences
Accrued dividends (2,836) (2,749)
Imputed dividends (774) --
------------ ------------
Net loss applicable to
common shares $ (12,745) $ (18,103)
============ ============
Net loss per common share $ (0.51) $ (0.90)
============ ============
Weighted average shares outstanding 24,957,354 20,081,412
============ ============
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
For the nine months ended September 30, 1997
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock paid-in Accumulated
Shares Amt. Shares Amt. capital Deficit
----------------------- -------------------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 1,605,675 $ -- 22,896,612 $ 2 $ 124,429 ($ 113,098)
Issuance of common stock
upon exercise of warrants 23,331 23
Conversion of preferred
stock (640) 2,926,818 1
Offering costs on issuance
of preferred stock (25)
Issuance of common stock 19,048 27
Issuance of warrants and
extension 264
Accrued dividends on preferred
stock (2,836)
Imputed dividends on preferred
stock (774)
Translation adjustment
Net loss (9,135)
------------------------ -------------------------- ---------- ----------
Balance September 30, 1997 1,605,035 $ -- 25,865,809 $ 3 $ 121,108 $ (122,233)
======================== ========================== ========== ==========
</TABLE>
Translation
Adjustment Total
------------ -------------
Balance December 31, 1996 $ 384 $ 11,717
Issuance of common stock
upon exercise of warrants 23
Conversion of preferred
stock 1
Offering costs on issuance
of preferred stock (25)
Issuance of common stock 27
Issuance of warrants and
extension 264
Accrued dividends on preferred
stock (2,836)
Imputed dividends on preferred
stock (774)
Translation adjustment (953) (953)
Net loss (9,135)
-------- --------
Balance September 30, 1997 $ (569) $ (1,691)
======== ========
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
1997 1996
---------- ----------
(In thousands)
Cash flows from operating activities:
Net loss $ (9,135) $(15,354)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 3,752 4,465
Gain on sale of asset -- (111)
Restructuring costs -- (175)
Loss on sale of subsidiary -- 921
Other non-cash items 15 --
Changes in assets and
liabilities:
Accounts and notes receivable (1,837) 3,147
Inventories (6) 358
Prepaid expenses and other 145 (1,103)
Accounts payable 1,698 (1,421)
Accrued compensation and
related expenses 242 (494)
Accrued expenses, other 161 (1,656)
Deferred revenues (81) 1,707
Deferred income taxes (71) (235)
-------- --------
Net cash used in operating activities (5,117) (9,951)
-------- --------
Cash flows from investing activities:
Sale of short-term investments -- 111
Capitalized software development
and license costs (1,059) (1,513)
Purchases of fixed assets (557) (748)
Net cash provided in business
divestiture -- (401)
-------- --------
Net cash used in investing activities (1,616) (2,551)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common
and preferred stocks, net (2) 16,937
Proceeds from issuance of Series
K preferred stock, net 2,926 --
Cash dividends paid on Series A
preferred stock (1,605) (2,408)
Cash dividends paid on Series F
preferred stock (174) --
Payments on Mandatory Redeemable
Preferred Stock (3,500) --
Proceeds from borrowings 5,000 --
Proceeds from issuance of
long-term debt 2,000
Proceeds from sale and leaseback
of fixed assets -- 196
Proceeds from Notes Receivable
related to business divestitures 60 --
Principal payments on capital
lease obligations (800) (667)
Principal payments on debt (843) (271)
-------- --------
Net cash provided by financing
activities 3,062 13,787
-------- --------
Effect of exchange rate changes on
cash and cash equivalents (148) (77)
Net decrease in cash and cash
equivalents (3,819) 1,208
Cash and cash equivalents at
beginning of year 7,601 9,359
-------- --------
Cash and cash equivalents at September 30, $ 3,782 $ 10,567
======== ========
Supplemental Cash Flow Information:
Interest paid $ 478 $ 231
Income taxes paid $ 261 $ 170
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and should be read in conjunction
with the financial statements and notes thereto included in this Prospectus for
the year ended December 31, 1996, which include information and note disclosures
not included herein. In the opinion of management all adjustments, which include
only those of a normal recurring nature, necessary to fairly present the
Company's financial position, results of operations and cash flows have been
made to the accompanying financial statements. The results of operations for the
nine month period ended September 30, 1997 may not be indicative of the results
that may be expected for the year ending December 31, 1997.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
2. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of the primary and fully diluted earnings per share is not expected to be
material.
The Company intends to adopt Statement of Financial Accounting Standards No.131,
Disclosure about Segments of an Enterprise and Related Information (SFAS No.
131), in fiscal year 1998. SFAS No. 131 changes the way companies report segment
information and requires segments to be determined based on how management
measures performance and makes decisions about allocating resources. The
adoption of SFAS No. 131 is not expected to materially impact the Company's
financial position or results of operations.
3. REDEEMABLE PREFERRED STOCK
During the first quarter of 1997, the Company redeemed 1,000,000 shares of
Series F Preferred Stock for $3.5 million. The Company used proceeds from its
line of credit to finance the Series F Preferred share buy back.
F-29
During the second quarter of 1997, the Company was to have redeemed the
remaining 792,186 shares of Series F Preferred Stock for $2.8 million. Under an
amendment to the December 1996 redemption agreement, the $2.8 million payment is
now due on January 31, 1998, subject to certain acceleration terms related to
the occurrence of certain events that are under the control of the Company.
4. LINE OF CREDIT
During the second quarter of 1997, the Company drew the remaining $1.5 million
from its $5.0 million line of credit established to finance the Series F
Preferred share buy back. As part of the additional borrowing, the use of
proceeds restriction was amended to allow its use for general corporate purposes
and the Company entered into an amendment to the security agreement, which
expanded the lender's security interest to include all personal property of the
Company, including without limitation, (1) all personal property of the Company,
(2) all leases, licenses, permits, (3) all software products intellectual
property now owned or hereafter developed by the Company, (4) all inventory, (5)
all accounts, contract rights, chattel papers, instruments, general intangibles,
documents, other obligations, monies, revenues, credits, claims, goodwill and
causes of action, (6) all trade or service names, trademarks, service marks,
logos and all patents, patent applications, copyrights, licensing agreements and
royalty payments, (7) proceeds of the foregoing, and (8) all of the capital
stock of Dorotech, S.A.
5. NASDAQ-NMS MAINTENANCE REQUIREMENTS
At June 30, and September 30, 1997, the Company had not maintained net tangible
assets of at least $4 million, which is one of the quantitative maintenance
criteria for inclusion of the Company's securities on Nasdaq National Market. To
remedy the short-fall and offset any adverse impact, the Company issued, during
July 1997, 3,300 shares of Series K Convertible Preferred Stock ("Series K
Stock") and warrants and received net proceeds of $2.9 million. Pursuant to the
terms of the offering, the purchasers are also required to make additional
purchases of shares of Series K Stock and warrants for $3.0 million upon the
Company's achievement of certain performance milestones and the satisfaction of
certain other conditions and an additional $4.7 million at their option (See
Note 7).
On August 21, 1997, the Company received a letter from the Nasdaq National
Market indicating that the Company may not have sufficient assets to continue
its listing on the Nasdaq National Market. The Company has responded to that
inquiry and after further correspondence with Nasdaq requested a hearing before
the Nasdaq National Market's Hearing Department to explain its plan for
achievement and maintenance of the minimum net tangible assets requirement.
Following a hearing held on Thursday, October 30, 1997, a Nasdaq Listing
Qualifications Panel determined to grant the Company's request for continued
inclusion in the Nasdaq National Market pursuant to an exception to the Nasdaq
National Market's minimum net tangible asset requirement.
F-30
The Panel found that the Company had presented a reasonable plan for compliance.
Based upon the plan detailed by the Company, the Panel concluded that the
Company could achieve compliance with the continued listed requirements for the
long-term.
In order to fully comply with the exception granted by the Panel, the Company
must complete its plan of compliance in accordance with a timetable set forth by
the Panel. The Company must demonstrate full compliance with the Nasdaq National
Market continued listing requirements by December 31, 1997. The Panel also
required that the Company have a minimum of $6.0 million in net tangible assets
to ensure long term compliance with the net tangible assets requirement.
Although the Company believes that it can maintain the required net tangible
assets of at least $6 million through additional issuances of its Series K Stock
and warrants or other additional offerings of equity securities, there can be no
assurance that the Company will complete such offerings or that, if completed,
they will be on terms favorable to the Company or in an amount sufficient to
permit the Company to continue to maintain net tangible assets of at least $6
million.
6. CONVERTIBLE NOTES
During July and August 1997, the Company issued, pursuant to a private placement
exemption under the Securities Act of 1933, as amended, 8% Convertible Notes due
July 8, 2002 and August 20, 2002 totaling $2.0 million. The notes are
convertible into the Company's Common Stock beginning 45 days after issue at a
conversion price of $1.875 and $1.50 per share, the prices on the issue dates.
On or after October 30, and December 12, 1997, the holders have the right to
redeem the convertible notes plus accrued interest on one business days' notice
to the Company in cash or shares of Common Stock, at the Company's election. On
or after October 30, and December 12, 1997, the Company has the right to redeem
the convertible notes plus accrued interest on 30 days' notice tothe holders in
cash or share of Common Stock, at the holders' election. If shares of Common
Stock are used, Common Stock is issued at a rate of 90% of the previous 5
trading days average closing bid price. The interest is compounded
semi-annually. The warrants issued to the investors have an exercise price of
$1.875 and $1.50 per share and expire on July 8, and August 20, 2000,
respectively.
7. CONVERTIBLE PREFERRED STOCK OFFERINGS
During July 1997, the Company agreed to issue up to 11,000 units ("Units")
consisting of one share of Series K Stock and warrants to acquire 75 shares of
Common Stock at an exercise price of $2.40 per share at the price of $1,000 per
Unit. On July 28, 1997, the Company issued 3,300 Units and received net proceeds
of $2.9 million (the "Offering"). The Company also issued warrants to purchase
162,462 shares of Common Stock at $1.625 per share to the placement
F-31
agent in the transaction. Under the requirements of a newly issued SEC staff
position, the carrying value of the Series K Stock was increased by $774,000, or
the corresponding amount allocated to beneficial conversion feature described
below. The Company also recorded a related $774,000 non-cash charge to preferred
stock dividends. In accordance with the terms of the Offering, the proceeds will
be used for working capital and general corporate purposes. Pursuant to the
terms of the Offering, the purchasers are required to make additional purchases
of the Units for $3.0 million upon the Company's achievement of certain
performance milestones and the satisfaction of certain other conditions. The
remaining $4.7 million is to be offered to the purchasers and the purchasers, at
their election, may elect to make purchases of the Units. In connection with the
sale of the Units, the Company agreed to register the Common Stock issuable upon
the conversion of the preferred stock and the execution of the warrants.
The Series K Preferred Stock has a per share liquidation preference, subject to
the liquidation preferences of the Series A Preferred Stock, the Series F-1,
F-2, F-3 and F-4 Preferred and the Series H Preferred Stock of an amount equal
to the sum of $1,000 plus 7% 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 $1,000 by the lesser of (1) $2.00
and (2) the lowest closing sale price for the Common Stock for the ten trading
days immediately preceding the conversion multiplied by the "Conversion
Percentage." The "Conversion Percentage" is (a) 105% prior to the 61st day
following July 28, 1997 (the "First Closing Date"), (b) 96% for the period
between the 61st and the 90th day following the First Closing Date, (c) 85% for
the period between the 91st and the 180th day following the First Closing Date,
and (d) 81% for the period after the 180th day following the First Closing Date.
The Series K Stock has a dividend rate of 7% per annum which is payable at the
time of conversion or redemption in cash or shares of Common Stock, as elected
by the Company.
8. PREFERRED STOCK DIVIDENDS
During July 1997, the Company announced that it was suspending the dividend
payment to holders of Series A Cumulative Convertible Preferred Stock ("Series A
Stock"). Holders of Series A Stock did not receive dividends payable for the
three months ended July 31, 1997 or October 31, 1997 in the amounts of $0.50 per
share or $802,512.50 in the aggregate, respectively.
F-32
9. STOCK OPTION REPRICING
In August 1997, the Board of Directors approved a plan to reprice the Company's
outstanding stock options. The plan allowed holders of out-of-the-money options,
excluding executives, officers, and directors, to receive a new exercise price
of $1.50 per option share, the market price on the date the plan was approved.
The plan allowed executives and officers of out-of-the-money options to also
receive a new exercise price of $1.50, but the number of shares of Common Stock
covered by these options were reduced pursuant to the Black-Scholes formula so
that there would be approximate economic equivalence between old and new
options. As a result, options for an aggregate of 561,752 out of a total of
1,635,000 shares of Common Stock at exercise prices ranging from $6.82 to $1.91
per share were repriced.
10. RESTATEMENT
In connection with the Company's issuance of Series K Preferred Stock on July
28, 1997, ("the Offering"), the Company has restated its Consolidated Financial
Statements for the quarter ended September 30, 1997 to reflect the Offering as
temporary equity (See Note 7). The Offering was reclassified from shareholders'
equity to temporary equity due to conditions of redemption, pursuant to the
terms of the Certificate of Designation for the Series K Stock, that were not
solely within control of the Company. As a result of this change, the Company's
total stockholders' equity at September 30, 1997 decreased from $2.0 million to
negative ($1.7) million. Subsequent to September 30, 1997, the Company received
from the Series K Stockholders an amendment to the redemption provisions
whereby, all conditions of redemption are now solely within control of the
Company (See Note 11).
11. SUBSEQUENT EVENT AND PRO FORMA BALANCE SHEET
On November 30, 1997, the Company and the Series K Preferred Stockholders agreed
to amend certain redemption provisions of the Certificate of Designation to the
Series K Stock that were not solely within the control of the Company. The
stockholders agreed not to exercise any right of redemption if the stockholder's
Cap Amount exceeds 135% of the total number of shares of Common Stock then
issuable on conversion of its Series K Stock. The stockholders agreed to forgo
their right to exercise such rights so long as (i) the Company has not, at any
time, decreased the reserved amount of shares below 12,500,000 shares of Common
Stock; (ii) the Company shall have taken immediate action following the trigger
date to increase the reserved amount to 200% of the number of shares of Common
Stock then issuable upon conversion of the outstanding Preferred Stock; and
(iii) the Company continues to use its good faith best efforts to increase the
reserved amount to 200% of the number of shares of Common Stock then issuable
upon conversion of the outstanding Preferred Stock. The parties agreed that the
Company will be deemed to have used "its good faith best efforts" to increase
the Reserved Amount so long as it solicits shareholder approval to authorize the
issuance of additional shares of Common Stock no less than three (3) times
during each 12 month period following the trigger date. Furhter, the
stockholders agreed not to exercise any right of redemption if the Common Stock
is suspended from trading on any of, or is not listed on at least one of, the
New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market
or the Nasdaq Small Cap Market for an aggregate of 10 trading days in any nine
month period, and in such circumstance the stockholders would be entitled to
receive within five (5) business days of the occurrence of a redemption event,
as liquidated damages an amount equal to 25% of the aggregate face amount of the
shares of Series K Stock then held by each stockholder. The liquidated damages
are payable, at the Company's option, in cash or shares of Common Stock, such
stock based upon a price per share equal to 50% of the lowest closing price of
the Common Stock during the 10 consecutive trading day period immediately
preceding the date of such redemption event. Additionally, the Company has
agreed to keep reserved 3,000,000 shares of Common Stock to satisfy its
obligation with respect to the liquidated damages. In the event that the number
of shares required to be issued by the Company with respect to the amount of
liquidated damages exceeds 3,000,000 shares of Common Stock, and the Company
does not have a sufficient number of shares of Common Stock authorized and
available for issuance to satisfy its obligation with respect to the liquidated
damages, the Company shall issue and deliver to the stockholders all 3,000,000
shares of Common Stock so reserved for that purpose and, upon such issuance, the
stockholders shall have no right of redemption upon a Redemption Event as
specified in the Certificate of Designation to the Series K Stock, but shall
retain all other remedies to which they may be entitled at law or in equity
which remedies shall not include the right of redemption. The stockholders also
agreed not to exercise a right of redemption if the registration statement
required to be filed by the Company, pursuant to a registration rights agreement
entered into between the parties, has not been declared effective by January 31,
1998, or such registration statement, after being declared effective, cannot be
utilized by the holders of the Series K Preferred Stock for the resale of their
securities for an aggregate of more than 30 days after June 30, 1998, however,
in any such events and while any of such events continues, the Company agrees to
provide that the permanent reductions to the conversion percentages set forth in
the registration rights agreement shall accrue at the rate of two hundreds (.02)
per week instead of two hundreds (.02) per month. The stockholders further
agreed not to exercise a right of redemption upon an event where the Company has
50% or more of the voting power of its capital stock owned beneficially by one
person, entity or group (as such term is used under Section 13(d) of the
Securities Exchange Act of 1934, as amended), so long as the Company has not
approved, recommended or otherwise consented to the transaction which triggered
that event. The parties have agreed that all subsequent holders of the Series K
Stock shall be bound by the terms of the amendment, and the parties shall be
responsible for communicating the terms of the amendment to any such subsequent
holders. As a result, the Series K Preferred Stock classified as temporary
equity at September 30, 1997 will be included within shareholders' equity at
December 31, 1997. The pro forma balance sheet at September 30, 1997 reflects
the Series K Preferred Stock as if it had been classified as permanent
shareholders' equity.
<PAGE>
ANNEX A
BT Alex. Brown
Incorporated
Dated as of December 3, 1997
Board of Directors of Network Imaging Corporation
500 Huntmar Drive
Herndon, VA 20170
Dear Sirs:
Network Imaging Corporation (the "Company") proposes to amend the
Certificate of Designations of the Company's Series A Cumulative Convertible
Preferred Stock (the "Series A Stock"). The proposed Certificate of Amendment to
such Certificate of Designations (the "Certificate of Amendment") provides for,
inter alia, a conversion rate at which holders may voluntarily convert shares of
the Series A Stock into Common Stock, $.0001 par value, of the Company (the
"Common Stock"), a limitation on the Company's ability to force conversion of
the Series A Stock, the cessation of the accrual of cash dividends at their
current rate as of April 30, 1997 and certain other changes.
The changes contemplated by the Certificate of Amendment are referred
to herein as the "Proposal." The holders of the Company's outstanding Common
Stock are referred to herein as the "Common Stockholders." You have requested
our opinion as to whether the Proposal is fair, from a financial point of view,
to the Common Stockholders, in their capacity as such.
BT Alex. Brown Incorporated, as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with recapitalizations, mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We are rendering the opinion set forth herein to the Board of
Directors of the Company in connection with the Proposal and will receive a fee
for such services and have received fees for rendering other financial advisory
services to the Company.
In connection with our opinion, we have reviewed the Certificate of
Amendment and the documents referred to therein, certain publicly available
financial information concerning the Company, certain non-public information,
including financial forecasts, furnished to us concerning the Company, and the
Company's Registration Statement on Form S-4 filed with the Securities and
Exchange Commission on September 26, 1997, and Amendment No.1 to the
Registration Statement filed with the Securities and Exchange Commission on
December 3, 1997, including the Proxy Statement pertaining to the Proposal
contained therein. We have also held discussions with members of the senior
management of the Company regarding its business and prospects. In addition, we
have (i) reviewed the reported price and trading activity for the Common Stock
and the Series A Stock, (ii) reviewed certain financial and stock market
information for the Company, and similar information for certain other companies
whose securities are publicly traded, and (iii) performed such other studies and
analyses, and considered such other factors, as we deemed appropriate.
We have not independently verified the information described above and,
for purposes of this opinion and with your consent, have assumed the accuracy,
completeness and fair presentation thereof. With respect to financial forecasts
and other information relating to the prospects of the Company, we have assumed
that such forecasts and other information were reasonably prepared and reflect
the best currently available estimates and good faith judgments of the
management of the Company as to the likely future financial performance of the
Company. In addition, we have not conducted a physical inspection of the
properties or facilities or made an independent evaluation or appraisal of the
assets of the Company, nor have we been furnished with any such evaluation or
appraisal. Our opinion is based on financial, economic, monetary, market, and
other conditions as they exist and can be evaluated as of the date of this
letter. We are not expressing any opinion as to the price at which Company's
Common Stock will trade subsequent to adoption of the Proposal or subsequent to
its implementation. We have made no independent investigation of any legal
matters affecting the Company and have assumed the correctness of all legal
advice given to the Company and the Board of Directors of the Company.
Our opinion expressed herein was prepared for the use of the Board of
Directors of the Company and does not constitute a recommendation to any
stockholders as to how such stockholder should vote. We hereby consent to the
inclusion of this opinion in its entirety as an exhibit to any proxy statement
distributed in connection with the Proposal and as an exhibit to the
Registration Statement.
Based upon and subject to the foregoing, it is our opinion that as of
the date of this letter, the Proposal is fair, from a financial point of view,
to the Common Stockholders.
Very truly yours,
/s/ BT Alex. Brown Incorporated
BT Alex. Brown Incorporated
<PAGE>
ANNEX B
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF DESIGNATIONS OF
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF NETWORK IMAGING CORPORATION
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
We, James J. Leto, President, and Julia A. Bowen, Assistant Secretary,
of Network Imaging Corporation (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of
the Corporation by its Certificate of Incorporation, and pursuant to the
provisions of Sections 151(a) and (g) of the General Corporation Law of the
State of Delaware, the Board of Directors, at a meeting duly called and held on
December 6, 1993, adopted a resolution creating a series of 1,750,000 shares of
cumulative convertible preferred stock designated as Series A Cumulative
Convertible Preferred Stock;
That, (1) on November 24, 1997, the Board of Directors of the
Corporation resolved to amend the Certificate of Designations of the Series A
Cumulative Convertible Preferred Stock ("Certificate of Designations"), (2) on
December __, 1997, the holders of Common Stock, voting separately as a class,
and the holders of the Series A Cumulative Convertible Preferred Stock, voting
separately as a class, (3) by unanimous written consent dated December __, 1997,
the holder of the Series F-1 Convertible Preferred Stock, the Series F-2
Convertible Preferred Stock, the Series F-3 Convertible Preferred Stock and the
Series F-4 Convertible Preferred Stock and (4) by unanimous written consent
dated December __, 1997, the holders of the Series K Convertible Preferred
Stock, resolved to amend the Certificate of Designations as follows:
1. Designation and Number. The designation of the series of preferred
stock fixed by this resolution shall be "Series A Cumulative
Convertible Preferred Stock" (hereinafter referred to as the "Series A
Preferred Stock" and the number of shares constituting such series
shall be 1,750,000. Each share shall have a par value of $.0001 per
share.
2. Rank. The Series A Preferred Stock shall rank: (i) prior to all of the
Corporation's Common Stock, par value $.0001 per share ("Common Stock"),
(ii) prior to all of the Corporation's Series F-1, F-2, F-3 and F-4
Convertible Preferred Stock, par value $.0001 per share (collectively,
"Series F Preferred Stock"), (iii) prior to all of the Corporation's Series
K Convertible Preferred Stock, par value $.0001 per share ("Series K
Preferred Stock"), (iv) prior to any class or series of capital stock of
the Corporation hereafter created either specifically ranking by its terms
junior to the Series A Preferred Stock or not specifically ranking by its
terms senior to or on parity with the Series A Preferred Stock
(collectively with the Common Stock, the Series F Preferred Stock and the
Series K Preferred Stock, "Junior Securities"); (v) subject to the
provisions of subparagraph 4(ii) hereof, on parity with any class or series
of capital stock of the Corporation hereafter created specifically ranking
by its terms on parity with the Series A Preferred Stock ("Parity
Securities"); and (vi) subject to the provisions of subparagraph 4(ii)
hereof, junior to any class or series of capital stock of the Corporation
hereafter created specifically ranking by its terms senior to the Series A
Preferred Stock ("Senior Securities"), in each case, as to payment of
dividends or as to distributions of assets upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary (all such
distributions being referred to collectively as "Distributions").
3. Dividends.
(i) No dividends shall accrue on the Series A Preferred Stock
from May 1, 1997 through the date prior to the date ("Meeting
Date") this Certificate of Amendment to Certificate of
Designations of Series A Cumulative Convertible Preferred Stock
of Network Imaging Corporation is approved by the holders of
Common Stock, voting separately as a class, the holders of Series
A Preferred Stock, voting separately as a class, the holders of
Series F Preferred Stock, voting separately as a class, and the
holders of Series K Preferred Stock, voting separately as a
class.
(ii) The dividend rate of the Series A Preferred Stock shall be
computed at a rate of $.84 per share per annum payable in kind on
each outstanding share of Series A Preferred Stock from the
Meeting Date. Dividends shall be payable quarterly in arrears out
of funds legally available therefor on March 15, June 15,
September 15 and December 15 of each year, commencing March 15,
1998 (each a "Series A Dividend Payment Date"). Dividends on
shares of Series A Preferred Stock shall be cumulative and shall
accrue (whether or not declared), without interest, from the
first day of the quarterly period in which such dividend may be
payable as herein provided, except with respect to the first
quarterly payment, which shall accrue from the Meeting Date. On
each Series A Dividend Payment Date, all dividends that shall
have accrued on each share of Series A Preferred Stock
outstanding on the applicable record date shall accumulate and be
deemed to become "due." Any dividend that shall not be paid on
the Series A Dividend Payment Date on which it shall become due
shall be deemed to be "past due" (a "Cumulated Series A
Dividend") until such Cumulated Series A Dividend shall have been
paid.
(iii) The Corporation shall have the right to pay dividends on
each Series A Dividend Payment Date in shares of Common Stock,
valued at the Quarterly Average Stock Price (as hereinafter
defined). The "Quarterly Average Stock Price" shall be the
average Closing Price (as hereinafter defined) per share of
Common Stock during the 10 consecutive trading days following
release by the Corporation of its earnings for the quarterly
period ended immediately prior to the applicable Series A
Dividend Payment Date. The "Closing Price" means, as of any date,
the last sale price per share of Common Stock on the principal
securities exchange or trading market where the Common Stock is
listed or traded as reported by Bloomberg Financial Markets or a
comparable reporting service of national reputation selected by
the Board of Directors of the Corporation ("Board") if Bloomberg
Financial Markets is not then reporting Closing Prices per share
of Common Stock (collectively, "Bloomberg"), or if the foregoing
does not apply, the last reported sale price per share of Common
Stock in the over-the-counter market on the electronic bulletin
board as reported by Bloomberg, or, if no sale price is reported
per share of Common Stock by Bloomberg, the average of the bid
prices of any market makers for the Common Stock as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Price cannot be calculated on such date on any of the
foregoing bases, the Closing Price per share of Common Stock on
such date shall be the fair market value as reasonably determined
by an investment banking firm selected by the Board, with the
costs of such appraisal to be borne by the Corporation. If the
Corporation determines to pay dividends on any Series A Dividend
Payment Date in shares of Common Stock, the Corporation shall
cause certificates representing shares of Common Stock to be
mailed to the holders of record of Series A Preferred Stock
(determined in accordance with subparagraph 3(v)) within ____
Business Days (as hereinafter defined) of the applicable Series A
Dividend Payment Date.
(iv) If dividends are to be paid in cash, the Board shall declare
and pay current dividends out of funds legally available therefor
(after giving effect to the payment of all requisite dividends on
Senior Securities).
(v) In order to determine the holders of the Series A Preferred
Stock entitled to receive dividends, the Corporation shall fix a
record date not more than 60 days prior to any Series A Dividend
Payment Date. If any such Series A Dividend Payment Date should
fall on a day that is not a "Business Day," then the Corporation
shall pay the applicable dividend if payable in cash on the next
succeeding Business Day. "Business Day" shall mean a day other
than a Saturday, Sunday or other day on which any national
securities exchange or quotation system on which the Common Stock
of the Corporation is traded or quoted is authorized or required
by law to close.
(vi) The Corporation shall not: (A) pay or declare and set apart
for payment any dividends or Distributions on the Corporation's
Junior Securities, other than dividends payable in the form of
additional shares of the same Junior Security as that on which
such dividend is declared, or (B) redeem, purchase, or otherwise
acquire any shares of Junior Securities or any right, warrant or
option to acquire any Junior Securities, unless full Cumulated
Series A Dividends have been, or contemporaneously are, paid or
declared and set apart for such payment on the Series A Preferred
Stock.
(vii) No full dividends shall be paid or declared and set apart
for payment on any class or series of Parity Securities for any
period unless full Cumulated Series A Dividends have been, or
contemporaneously are, paid or declared and set apart for such
payment on the Series A Preferred Stock for all dividend periods
terminating on or prior to the date of payment of such full
Cumulated Series A Dividends. No full dividends shall be paid or
declared and set apart for payment on the Series A Preferred
Stock for any period unless full cumulative dividends have been,
or contemporaneously are, paid or declared and set apart for
payment on the Parity Securities for all dividend periods
terminating on or prior to the date of payment of such full
Cumulated Series A Dividends. When dividends are not paid in full
upon the Series A Preferred Stock and the Parity Securities, all
dividends paid or declared and set apart for payment upon shares
of Series A Preferred Stock and the Parity Securities shall be
paid or declared and set apart for payment pro rata, so that the
amount of dividends paid or declared and set apart for payment
per share on the Series A Preferred Stock and the Parity
Securities shall in all cases bear to each other the same ratio
that accrued and unpaid dividends per share on the shares of
Series A Preferred Stock and the Parity Securities bear to each
other (without taking into account the dividends so paid and
those so declared and set apart for payment).
(viii) To the extent the Corporation shall not have funds legally
available to pay all Cumulated Series A Dividends when due under
paragraphs 3, 5, 6, 7, 8 or 9 hereof or otherwise, the
Corporation's obligation to make such payment shall be deferred
until the first date on which the Corporation shall have funds
legally available for all or a portion of such payment, which
shall then be made in whole or in part, as the case may be, until
such Cumulated Series A Dividends shall have been paid in full.
4. Voting Rights.
(i) Except as may otherwise be provided herein or required by law,
the holders of the shares of Series A Preferred Stock ("Series
A Holders") shall not be entitled to any vote in respect of
such shares.
(ii) The affirmative vote, in person or by proxy, of the Series A
Holders of the majority of the outstanding shares of the
Series A Preferred Stock, voting as a single class, on a
one-vote-per-share of Series A Preferred Stock basis, shall
be necessary for the Corporation to authorize: (x) any class
or series of Senior Securities; or (y) any class or series
of Parity Securities; provided, however, that no such vote
shall be required pursuant to clause (x) or (y) in the event
the Corporation shall then have the right to redeem the
Series A Preferred Stock and, prior to the date of issuance
of such new class or series of Senior Securities or Parity
Securities, provision shall have been made for the
redemption of all the outstanding shares of the Series A
Preferred Stock and such redemption occurs on or prior to
the date of issuance of such new series or class of Senior
Securities or Parity Securities.
(iii) On all matters on which the Series A Preferred Stock is
entitled to vote by law, the Series A Holders shall be
entitled to one vote per share of Series A Preferred Stock,
voting separately as a single class, and the presence, in
person or by proxy, of the Series A Holders of a majority of
the outstanding shares of the Series A Preferred Stock shall
constitute a quorum.
5. Conversion Rights.
(i) Each share of Series A Preferred Stock may be converted,
at the option of each Series A Holder, at any time and from
time to time, into fully-paid and non-assessable shares of
Common Stock; provided, however, that a Series A Holder's
right to so convert shares of Series A Preferred Stock shall
terminate as to shares thereof that are redeemed or
exchanged by the Corporation on the Redemption Date, the
Exchange Date or the time a Change in Control occurs (as
hereinafter defined) therefor as provided in and subject to
the terms and conditions of subparagraph 8(ii), or 9(ii)
hereof, respectively. The number of shares of Common Stock
to which the Series A Holder of each share of Series A
Preferred Stock shall be entitled upon conversion shall be
the product obtained by multiplying the number of shares of
Series A Preferred Stock to be converted by the Conversion
Rate (as hereinafter defined); in addition, the Series A
Holder shall be entitled upon conversion to receive cash or
shares of Common Stock (valued at the Quarterly Average
Stock Price determined as of the immediately preceding
Series A Dividend Payment Date), at the option of the
Corporation, in an amount equal to all Cumulated Series A
Dividends on each share of Series A Preferred Stock so
converted, provided, if dividends are paid in cash, there
are funds legally available therefor. The "Conversion Rate,"
that is, the number of shares of Common Stock for which each
share of Series A Preferred Stock may be converted, shall be
determined by reference to the Average Stock Price (as
hereinafter defined). The "Average Stock Price" shall be the
average Closing Price per share of Common Stock during the
20 consecutive trading days following the Meeting Date. If
the Average Stock Price is less than or equal to $1.30, the
Conversion Rate shall be 7.68. If the Average Stock Price is
greater than $1.30 but less than or equal to $1.50, the
Conversion Rate shall be 6.67. If the Average Stock Price is
greater than $1.50 but less than or equal to $1.75, the
Conversion Rate shall be 5.71. If the Average Stock Price is
greater than $1.75, the Conversion Rate shall be 5.00. The
Corporation shall not issue fractional shares of Common
Stock upon conversion of Series A Preferred Stock or as
Cumulated Series A Dividends, but, in lieu thereof, shall
pay to a Series A Holder cash in an amount equal to such
fraction multiplied by the Closing Price per share of the
Common Stock on the trading day prior to the date on which
the shares are converted.
(ii) The Series A Preferred Stock shall be converted into
Common Stock in the following manner:
(A) Shares of Series A Preferred Stock received by the
Corporation in exchange for Common Stock shall be retired
and canceled and shall no longer be available for issuance
as Series A Preferred Stock.
(B) A Series A Holder shall give written notice to the
Corporation of its desire to convert all or a portion of the
shares of Series A Preferred Stock owned by such Series A
Holder. Such notice shall be accompanied by certificates,
duly endorsed for transfer, evidencing the number of shares
of Series A Preferred Stock such Series A Holder desires to
convert, together with cash, if any, required by
subparagraph 5(ii)(C) hereof. The Corporation will, as soon
as practicable thereafter, deliver to such Series A Holder
or to such Series A Holder's nominee or nominees, a
certificate or certificates for the appropriate number of
shares of Common Stock, together with cash, as provided in
subparagraph 5(i), with respect to any fractional shares
otherwise issuable upon conversion, and cash or shares of
Common Stock (valued at the Quarterly Average Stock Price
determined as of the immediately preceding Series A Dividend
Payment Date), at the option of the Corporation, in an
amount equal to all Cumulated Series A Dividends on each
share of Series A Preferred Stock so converted, provided, if
dividends are paid in cash, there are funds legally
available therefor, and, in the event of a partial
conversion, a certificate representing the balance, if any,
of the shares of Series A Preferred Stock represented by the
surrendered certificate or certificates but not converted to
Common Stock.
(C) In the event that shares of Series A Preferred Stock
are surrendered for conversion on any date during the period
from the close of business on a record date fixed for
determining the Series A Holders entitled to receive
dividends to the opening of business on the corresponding
Series A Dividend Payment Date, the Series A Holder must
also deliver to the Corporation an amount in cash equal to
the dividend payable with respect to such shares of Series A
Preferred Stock on such Series A Dividend Payment Date and
shall continue to be entitled to receive such dividend on
such Series A Dividend Payment Date. In the event that the
date on which the shares are converted is the Series A
Dividend Payment Date, such Series A Holder will be entitled
to receive the dividend payable with respect to such Series
A Preferred Stock and shall not be required to include any
payment in the amount of the dividend payable with respect
to such converted shares of Series A Preferred Stock.
(D) If, prior to the date on which all shares of Series A
Preferred Stock are converted, the Corporation shall (1) pay
a dividend in shares of Common Stock or make a distribution
in shares of Common Stock, (2) subdivide its outstanding
shares of Common Stock, (3) combine its outstanding shares
of Common Stock into a smaller number of shares of Common
Stock or (4) issue by reclassification of its Common Stock
other securities of the Corporation, the Conversion Rate in
effect on the opening of business on the record date for
determining stockholders entitled to participate in such
transaction shall thereupon be adjusted, or, if necessary,
the right to convert shall be amended, such that the number
of shares of Common Stock receivable upon conversion of the
shares of Series A Preferred Stock immediately prior thereto
shall be adjusted so that the Series A Holder shall be
entitled to receive, upon the conversion of such shares of
Series A Preferred Stock, the kind and number of shares of
Common Stock or other securities of the Corporation that it
would have owned or would have been entitled to receive
after the happening of any of the events described above had
the Series A Preferred Stock been converted immediately
prior to the happening of such event or any record date with
respect thereto. Any adjustment made pursuant to this
subparagraph 5(ii)(D) shall become effective immediately
after the effective date of such event and such adjustment
shall be retroactive to the record date, if any, for such
event. No adjustment with respect to any ordinary cash
dividends (made out of current earnings) on shares of Common
Stock shall be made.
(E) Whenever the Conversion Rate is adjusted pursuant to
any of the foregoing provisions of this paragraph 5, the
Corporation shall forthwith prepare a written statement
signed by the president or any vice president and the
treasurer or any assistant treasurer or the secretary or any
assistant secretary of the Corporation, setting forth the
adjusted Conversion Rate determined as provided in this
paragraph 5, and in reasonable detail the facts requiring
such adjustment. Such statement shall be filed among the
permanent records of the Corporation and a copy thereof
shall be furnished to any Series A Holder requesting the
same, and shall at all reasonable times during business
hours be open to inspection by the Series A Holders. Within
10 days of the event requiring an adjustment, the
Corporation shall also cause a notice, stating that such an
adjustment has been made and setting forth the adjusted
Conversion Rate, to be mailed, first-class, postage prepaid,
to all then Series A Holders of record at their addresses as
the same appear on the stock records of the Corporation.
(F) If a Series A Holder has delivered notice to the Cor-
poration of its desire to convert all or a portion of its
shares of Series A Preferred Stock, and certificates, duly
endorsed for conversion in respect of such shares and cash,
if any, required by subparagraph 5(ii)(C) hereof, then all
shares of Series A Preferred Stock so tendered to the
Corporation shall be deemed to be no longer outstanding and,
notwithstanding the failure of the Corporation to issue the
Common Stock, such Series A Holder shall be deemed, for all
purposes (except as set forth in the next sentence of this
subparagraph 5(ii)(G)), to be a holder of the number of
shares of Common Stock into which the shares of Series A
Preferred Stock such Series A Holder is entitled to receive
pursuant to the terms of this paragraph 5 in each case as of
the close of business on the date on which such conversion
notice is delivered. In the event such Series A Holder has
delivered notice to the Corporation of his desire to convert
all or a portion of his shares of Series A Preferred Stock,
such Series A Holder shall retain the right to receive all
Cumulated Series A Dividends payable on the shares so
converted through the date such Series A Holder's conversion
notice is delivered, as provided in this paragraph 5,
notwithstanding such conversion.
(iii) The Corporation shall not, by amendment of its Certificate
of Incorporation as amended as of the date hereof, or
through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to
be observed or performed hereunder by the Corporation but
shall at all times in good faith assist in the carrying out
of all the provisions of this paragraph 5. The Corporation
shall at all times reserve and keep available out of its
authorized but unissued Common Stock the full number of
shares of Common Stock deliverable upon the conversion of
all the then outstanding shares of Series A Preferred Stock
and shall take all such action and obtain all such permits
or orders as may be necessary to enable the Corporation to
validly and legally issue fully paid and non-assessable
shares of Common Stock upon the conversion of Series A
Preferred Stock. The Corporation shall obtain, prior to or
concurrently with the first issuance of the Series A
Preferred Stock, the authorization for the listing of shares
of Common Stock issuable upon conversion of the Series A
Preferred Stock on the Nasdaq National Market and shall use
its best efforts to maintain, for as long as any shares of
Series A Preferred Stock shall be outstanding, such
authorization or authorization for the listing of such
shares on a national securities exchange on which the Common
Stock may hereafter be listed. The Corporation shall pay any
and all transfer, stamp and other like taxes that may be
payable in respect of the issuance or delivery to a Series A
Holder of shares of Common Stock on conversion of the Series
A Preferred Stock by such holder.
(A) Liquidation Price. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, the amount that shall be paid to
a Series A Holder of each share of Series A Preferred Stock
shall be $10.00 and an additional sum equal to all Cumulated
Series A Dividends on a share of Series A Preferred Stock
(hereinafter called the "Liquidation Price"), and no more.
Upon any liquidation, dissolution or winding up of the
Corporation, the Series A Holders will be entitled to be
paid, after payment or provision for payment of the debts
and other liabilities of the Corporation and after payment
or provision for payment is made upon any Senior Securities,
but before any Distribution or payment is made upon any
Junior Securities, an amount in cash equal to the aggregate
Liquidation Price of all shares outstanding, and the Series
A Holders will not be entitled to any further payment. If,
upon any such liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed
among the Series A Holders and the holders of Parity
Securities (the "Parity Holders") are insufficient to permit
payment in full to such Series A Holders and the Parity
Holders of the aggregate amount that they are entitled to be
paid, then the available assets to be distributed will be
distributed ratably among such Series A Holders and Parity
Holders based upon the aggregate Liquidation Price of the
Series A Preferred Stock and the aggregate liquidation
preference of any Parity Securities held by each such Series
A Holder and Parity Holder, respectively. The Corporation
will mail written notice of such liquidation, dissolution or
winding up, not less than 30 days prior to the payment date
stated therein, to each Series A Holder of record. Neither
the consolidation or merger of the Corporation into or with
any other corporation or any other person, nor the sale or
transfer by the Corporation of all or any part of its
assets, nor the reduction of the capital stock of the
Corporation will be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of
paragraphs 2 and 6.
6. Exchange.
(i) Time of Exchange. The Corporation may, at its option, redeem
shares of the Series A Preferred Stock, in whole or in part,
by action of the Board, at any time after December 31, 1998,
by exchanging shares of Common Stock for shares of Series A
Preferred Stock at the Conversion Rate, provided (A) during
the period beginning January 1, 1999 and ending on December
31, 1999, the Closing Price per share of the Common Stock is
at least $4.00 per share for 20 consecutive trading days,
(B) during the period beginning January 1, 2000 and ending
on December 31, 2000, the Closing Price per share of the
Common Stock is at least $3.00 per share for 20 consecutive
trading days and (c) during the period beginning January 1,
2001, at any time at the Corporation's option. In addition,
each Series A Holder shall also be entitled, upon exchange,
to receive cash or shares of Common Stock (valued at the
Quarterly Average Stock Price determined as of the
immediately preceding Series A Dividend Payment Date), at
the option of the Corporation, in an amount equal to all
Cumulated Series A Dividends on each share of Series A
Preferred Stock so exchanged, provided, if dividends are
paid in cash, there are funds legally available therefor.
The Corporation shall not issue fractional shares of Common
Stock in exchange for Series A Preferred Stock or as
Cumulated Series A Dividends, but, in lieu thereof, shall
pay to a Series A Holder cash in an amount equal to such
fraction multiplied by the Closing Price per share of Common
Stock on the last trading day prior to the date on which the
shares of Series A Preferred Stock are exchanged. The number
of shares of Common Stock received in exchange for shares of
Series A Preferred Stock plus the number of shares of Common
Stock paid as Cumulated Series A Dividends are hereinafter
referred to as "Exchange Shares," and the Exchange Shares
plus the Cumulated Series A Dividends payable in cash, if
any, are hereinafter referred to as the "Exchange Price."
(ii) Procedures for Exchange. The Series A Preferred Stock shall be
exchanged pursuant to subparagraph 6(i) in the following
manner:
(A) Shares of the Series A Preferred Stock redeemed by the Cor-
poration shall be retired and canceled and shall no longer
be available for issuance as Series A Preferred Stock.
(B) In the event of an exchange of shares of Series A Pre-
ferred Stock pursuant to subparagraph 6(i), notice of
exchange of shares of Common Stock for shares of Series A
Preferred Stock shall be given by the Corporation, not less
than 30 nor more than 60 days prior to the Business Day
designated in such notice (the "Exchange Date"), by first
class mail to Series A Holders at their respective addresses
then appearing on the records of the Corporation, and shall
also be published, on or about the date of such mailing, in
the National Edition of the Wall Street Journal. Such notice
of exchange shall specify the Exchange Date, the Conversion
Rate, whether Cumulated Series A Dividends will be paid in
cash or in shares of Common Stock, the total number of
shares of Series A Preferred Stock to be exchanged and, if
fewer than all the shares held by such Series A Holder, the
number of shares of such Series A Holder to be exchanged,
and the place or places of exchange. The conversion rights
of the Series A Holders shall continue until the Exchange
Date (provided no default by the Corporation in the payment
of the Exchange Price shall have occurred and be continuing,
and in the event of any such default the Series A Holders'
conversion rights shall continue until such shares are
actually redeemed, exchanged or converted), and such notice
shall state the then effective Conversion Rate and that the
right of Series A Holders to exercise their conversion
rights shall terminate at the close of business on the
Exchange Date (provided no default by the Corporation in the
payment of the Exchange Price shall have occurred and be
continuing). On or before the Exchange Date, each Series A
Holder shall surrender to the Corporation or its designated
agent, at such place as it may designate in the exchange
notice, certificates, duly endorsed for transfer, evidencing
the number of shares of Series A Preferred Stock held by
such Series A Holder and being exchanged. Upon such
surrender, the Series A Holder shall be entitled to receive
the Exchange Price per share.
(C) If on the Exchange Date, (1) notice of exchange has been
mailed or delivered as provided herein and (2) the
Corporation has deposited with an independent paying agent
funds necessary to pay the Exchange Price payable in cash
and certificates representing shares of Common Stock
representing the Exchange Shares, then, unless the
Corporation defaults on the exchange, all shares of Series A
Preferred Stock subject to exchange shall, whether or not
certificates for such shares have been surrendered for
cancellation, be deemed to be no longer outstanding for any
purpose and all rights with respect to such shares shall
cease, except the right of the Series A Holder to receive
the Exchange Price per share, without interest. The
Corporation shall issue to the Series A Holder certificates
representing the shares of Common Stock that constitute the
Exchange Shares only after such holder's Series A Preferred
Stock certificates have been surrendered to the Corporation
for cancellation.
7. Change in Control
(i) In the event of a "Change in Control" of the Corporation (as
hereinafter defined), each Series A Holder shall have the
right to put the security to the Corporation at (A) $25.00
per share and no more. The Corporation shall have the right
to pay the Change in Control Price in cash and/or shares of
Common Stock (in which case such shares of Common Stock
shall be valued at average stock price for the ten days
preceding the change in control event, provided, if the
Change in Control Price is to be paid in cash, there are
funds legally available therefor. The Corporation shall not
issue fractional shares of Common Stock in exchange for
Series A Preferred Stock or as Cumulated Series A Dividends,
but, in lieu thereof, shall pay to a Series A Holder cash in
an amount equal to such fraction multiplied by the Closing
Price per share of Common Stock on the last trading day
prior to the date on which the shares of Series A Preferred
Stock are exchanged.
(ii) Procedures for Exchange. The Series A Preferred Stock shall be
exchanged pursuant to subparagraph 9(i) in the following
manner:
(A) Shares of the Series A Preferred Stock redeemed by the
Corporation in exchange for the Change in Control Price
shall be retired and canceled and shall no longer be
available for issuance as Series A Preferred Stock.
(B) In the event of a Change in Control may occur, notice shall
be given by the Corporation, not less than 30 nor more than
60 days prior to the Business Day designated in such notice
(the "Change in Control Exchange Date"), by first class mail
to Series A Holders at their respective addresses then
appearing on the records of the Corporation, and shall also
be published, on or about the date of such mailing, in the
National Edition of the Wall Street Journal. Such notice of
exchange shall specify the Change in Control Exchange Date,
whether the Change in Control Price is to be paid in cash,
in shares of Common Stock or in a combination thereof, and
the place or places of exchange. The conversion rights of
the Series A Holders shall continue until the Change in
Control occurs (provided no default by the Corporation in
the payment of the Change in Control Price shall have
occurred and be continuing, and in the event of any such
default the Series A Holders' conversion rights shall
continue until such shares are actually redeemed, exchanged
or converted), and such notice shall state the then
effective Conversion Rate and that the right of Series A
Holders to exercise their conversion rights shall terminate
at the time the Change in Control occurs (provided no
default by the Corporation in the payment of the Change in
Control Price shall have occurred and be continuing). On or
before the Change in Control Exchange Date, each Series A
Holder shall surrender to the Corporation or its designated
agent, at such place as it may designate in the exchange
notice, certificates, duly endorsed for transfer, evidencing
the number of shares of Series A Preferred Stock held by
such Series A Holder. Upon such surrender, the Series A
Holder shall be entitled to receive the Change in Control
Price per share.
(C) If, at the time the Change in Control occurs, (1) notice of
exchange has been mailed or delivered as provided herein and
(2) the Corporation has deposited with an independent paying
agent funds necessary to pay the aggregate Change in Control
Price payable in cash and certificates representing shares
of Common Stock if part of the Change in Control Price is to
be paid in shares of Common Stock, then, unless the
Corporation defaults on the exchange, all shares of Series A
Preferred Stock subject to exchange shall, whether or not
certificates for such shares have been surrendered for
cancellation, be deemed to be no longer outstanding for any
purpose and all rights with respect to such shares shall
cease, except the right of the Series A Holder to receive
the Change in Control Price per share, without interest. The
Corporation or its independent paying agent shall pay the
Change in Control Price only after such holder's Series A
Preferred Stock certificates have been surrendered to the
Corporation for cancellation.
(iii) "Change in Control" shall means the occurrence, after the
Meeting Date, of any of the following events, directly or
indirectly or in one or more series of transactions:
(A) The consolidation or merger of the Corporation with
any Third Party (as hereinafter defined), unless the
Corporation is the entity surviving such merger or
consolidation;
(B) The transfer of all or substantially all of the
assets of the Corporation to a Third Party;
(C) A Third Party, directly or indirectly, through one or
more subsidiaries or transactions or acting in
concert with one or more persons or entities:
(x) acquires beneficial ownership of more than
50% of the outstanding shares of Common Stock;
(y) acquires irrevocable proxies representing
more than 50% of the outstanding shares of Common
Stock; or
(z) acquires any combination of beneficial ownership
of outstanding shares of Common Stock and irrevocable
proxies representing more than 50% of the outstanding
shares of Common Stock.
Notwithstanding any provision contained herein, a Change in
Control shall not include any of the above described events if
they are the result of a Third Party's inadvertently acquiring
beneficial ownership or irrevocable proxies or a combination
of both for 50% or more of the outstanding shares of Common
Stock, and the Third Party as promptly as practicable
thereafter divests itself of beneficial ownership or
irrevocable proxies for a sufficient number of shares so that
the Third Party no longer has beneficial ownership or
irrevocable proxies or a combination of both for 50% or more
of the outstanding shares of Common Stock.
(iv) Third Party" means a single person or a group of persons or
entities acting in concert not wholly owned directly or
indirectly by the Corporation.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate of
Amendment and do hereby affirm the foregoing as true under the penalties of
perjury this ____ day of December, 1997.
NETWORK IMAGING CORPORATION
By: ______________
Name: James J. Leto
Title: President
ATTEST:
- ---------------------
Name: Julia A. Bowen
Title: Assistant Secretary
<PAGE>
ANNEX C
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF DESIGNATIONS OF
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF NETWORK IMAGING CORPORATION
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
We, James J. Leto, President, and Julia A. Bowen, Assistant Secretary,
of Network Imaging Corporation (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of
the Corporation by its Certificate of Incorporation, and pursuant to the
provisions of Sections 151(a) and (g) of the General Corporation Law of the
State of Delaware, the Board of Directors, at a meeting duly called and held on
December 6, 1993, adopted a resolution creating a series of 1,750,000 shares of
cumulative convertible preferred stock designated as Series A Cumulative
Convertible Preferred Stock;
That, (1) on December 3, 1997, the Board of Directors of the
Corporation resolved to amend the Certificate of Designations of the Series A
Cumulative Convertible Preferred Stock ("Certificate of Designations"), (2) on
December __, 1997, the holders of Common Stock, voting separately as a class,
and the holders of the Series A Cumulative Convertible Preferred Stock, voting
separately as a class, (3) by unanimous written consent dated December __, 1997,
the holder of the Series F-1 Convertible Preferred Stock, the Series F-2
Convertible Preferred Stock, the Series F-3 Convertible Preferred Stock and the
Series F-4 Convertible Preferred Stock and (4) by unanimous written consent
dated December __, 1997, the holders of the Series K Convertible Preferred
Stock, resolved to amend the Certificate of Designations as follows:
1. Designation and Number. The designation of the series of preferred
stock fixed by this resolution shall be "Series A Cumulative
Convertible Preferred Stock" (hereinafter referred to as the "Series A
Preferred Stock" and the number of shares constituting such series
shall be 1,750,000. Each share shall have a par value of $.0001 per
share.
2. Rank. The Series A Preferred Stock shall rank: (i) prior to all of
the Corporation's Common Stock, par value $.0001 per share ("Common
Stock"), (ii) prior to all of the Corporation's Series F-1, F-2, F-3
and F-4 Convertible Preferred Stock, par value $.0001 per share (col-
lectively, "Series F Preferred Stock"), (iii) prior to all of the
Corporation's Series K Convertible Preferred Stock, par value $.0001
per share ("Series K Preferred Stock"), (iv) prior to any class or
series of capital stock of the Corporation hereafter created either
specifically ranking by its terms junior to the Series A Preferred
Stock or not specifically ranking by its terms senior to or on parity
with the Series A Preferred Stock (collectively with the Common Stock,
the Series F Preferred Stock and the Series K Preferred Stock,"Junior
Securities"); (v) subject to the provisions of subparagraph 4(ii) here-
of, on parity with any class or series of capital stock of the Corpor-
ation hereafter created specifically ranking by its terms on parity
with the Series A Preferred Stock ("Parity Securities"); and (vi) sub-
ject to the provisions of subparagraph 4(ii) hereof, junior to any
class or series of capital stock of the Corporation hereafter created
specifically ranking by its terms senior to the Series A Preferred
Stock ("Senior Securities"), in each case, as to payment of dividends
or as to distributions of assets upon liquidation, dissolution or wind-
ing up of the Corporation, whether voluntary or involuntary (all
such distributions being referred to collectively as "Distributions").
3. Dividends.
(i) No dividends shall accrue on the Series A Preferred Stock from
May 1, 1997 through the date prior to the date ("Meeting
Date") this Certificate of Amendment to Certificate of
Designations of Series A Cumulative Convertible Preferred
Stock of Network Imaging Corporation is approved by the
holders of Common Stock, voting separately as a class, the
holders of Series A Preferred Stock, voting separately as a
class, the holders of Series F Preferred Stock, voting
separately as a class, and the holders of Series K Preferred
Stock, voting separately as a class.
(ii) The dividend rate of the Series A Preferred Stock shall be
computed at a rate of $.84 per share per annum payable in kind
on each outstanding share of Series A Preferred Stock from
the Meeting Date. Dividends shall be payable quarterly in
arrears out of funds legally available therefor on March 15,
June 15, September 15 and December 15 of each year, commen-
cing March 15, 1998 (each a "Series A Dividend Payment
Date"). Dividends on shares of Series A Preferred Stock
shall be cumulative and shall accrue (whether or not de-
clared), without interest, from the first day of the quarter-
ly period in which such dividend may be payable as herein
provided, except with respect to the first quarterly payment,
which shall accrue from the Meeting Date. On each Series A
Dividend Payment Date, all dividends that shall have accrued
on each share of Series A Preferred Stock outstanding on the
applicable record date shall accumulate and be deemed to be-
come "due." Any dividend that shall not be paid on the Series
A Dividend Payment Date on which it shall become due shall
be deemed to be "past due" (a "Cumulated Series A Dividend")
until such Cumulated Series A Dividend shall have been paid.
(iii) The Corporation shall have the right to pay dividends on each
Series A Dividend Payment Date in shares of Common Stock,
valued at the Quarterly Average Stock Price (as herein-
after defined). The "Quarterly Average Stock Price" shall
be the average Closing Price (as hereinafter defined) per
share of Common Stock during the 10 consecutive trading days
following release by the Corporation of its earnings for the
quarterly period ended immediately prior to the applicable
Series A Dividend Payment Date. The "Closing Price" means, as
of any date, the last sale price per share of Common Stock
on the principal securities exchange or trading market where
the Common Stock is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of nation-
al reputation selected by the Board of Directors of the Cor-
poration ("Board") if Bloomberg Financial Markets is not
then reporting Closing Prices per share of Common Stock (col-
lectively, "Bloomberg"), or if the foregoing does not apply,
the last reported sale price per share of Common Stock in the
over-the-counter market on the electronic bulletin board as
reported by Bloomberg, or, if no sale price is reported per
share of Common Stock by Bloomberg, the average of the bid
prices of any market makers for the Common Stock as reported
in the "pink sheets" by the National Quotation Bureau, Inc.
If the Closing Price cannot be calculated on such date on any
of the foregoing bases, the Closing Price per share of Common
Stock on such date shall be the fair market value as reason-
ably determined by an investment banking firm selected by the
Board, with the costs of such appraisal to be borne by the
Corporation. If the Corporation determines to pay dividends
on any Series A Dividend Payment Date in shares of Common
Stock, the Corporation shall cause certificates represent-
ing shares of Common Stock to be mailed to the holders of
record of Series A Preferred Stock (determined in accord-
ance with subparagraph 3(v)) within 30 Business Days (as
hereinafter defined) of the applicable Series A Dividend Pay-
ment Date.
(iv) If dividends are to be paid in cash, the Board shall declare
and pay current dividends out of funds legally available
therefor (after giving effect to the payment of all requisite
dividends on Senior Securities).
(v) In order to determine the holders of the Series A Preferred
Stock entitled to receive dividends, the Corporation shall fix
a record date not more than 60 days prior to any Series A
Dividend Payment Date. If any such Series A Dividend Payment
Date should fall on a day that is not a "Business Day," then
the Corporation shall pay the applicable dividend if payable
in cash on the next succeeding Business Day. "Business Day"
shall mean a day other than a Saturday, Sunday or other day on
which any national securities exchange or quotation system on
which the Common Stock of the Corporation is traded or quoted
is authorized or required by law to close.
(vi) The Corporation shall not: (A) pay or declare and set apart
for payment any dividends or Distributions on the
Corporation's Junior Securities, other than dividends payable
in the form of additional shares of the same Junior Security
as that on which such dividend is declared, or (B) redeem,
purchase, or otherwise acquire any shares of Junior Securities
or any right, warrant or option to acquire any Junior
Securities, unless full Cumulated Series A Dividends have
been, or contemporaneously are, paid or declared and set apart
for such payment on the Series A Preferred Stock.
(vii) No full dividends shall be paid or declared and set apart
for payment on any class or series of Parity Securities for
any period unless full Cumulated Series A Dividends have
been, or contemporaneously are, paid or declared and set
apart for such payment on the Series A Preferred Stock
for all dividend periods terminating on or prior to the date
of payment of such full Cumulated Series A Dividends. No full
dividends shall be paid or declared and set apart for payment
on the Series A Preferred Stock for any period unless full
cumulative dividends have been, or contemporaneously are,
paid or declared and set apart for payment on the Parity Se-
curities for all dividend periods terminating on or prior to
the date of payment of such full Cumulated Series A Dividends.
When dividends are not paid in full upon the Series A Prefer-
red Stock and the Parity Securities, all dividends paid or
declared and set apart for payment upon shares of Series A
Preferred Stock and the Parity Securities shall be paid or
declared and set apart for payment pro rata, so that the a-
mount of dividends paid or declared and set apart for payment
per share on the Series A Preferred Stock and the Parity Se-
curities shall in all cases bear to each other the same ratio
that accrued and unpaid dividends per share on the shares of
Series A Preferred Stock and the Parity Securities bear to
each other (without taking into account the dividends so paid
and those so declared and set apart for payment).
(viii) To the extent the Corporation shall not have funds legally
available to pay all Cumulated Series A Dividends when due
under paragraphs 3, 5, 6, 7 or 8 hereof or otherwise, the
Corporation's obligation to make such payment shall be
deferred until the first date on which the Corporation shall
have funds legally available for all or a portion of such
payment, which shall then be made in whole or in part, as the
case may be, until such Cumulated Series A Dividends shall
have been paid in full.
4. Voting Rights.
(i) Except as may otherwise be provided herein or required by law,
the holders of the shares of Series A Preferred Stock ("Series
A Holders") shall not be entitled to any vote in respect of
such shares.
(ii) The affirmative vote, in person or by proxy, of the Series
A Holders of the majority of the outstanding shares of the
Series A Preferred Stock, voting as a single class, on a
one-vote-per-share of Series A Preferred Stock basis, shall
be necessary for the Corporation to authorize: (x) any class
or series of Senior Securities; or (y) any class or series
of Parity Securities; provided, however, that no such vote
shall be required pursuant to clause (x) or (y) in the event
the Corporation shall then have the right to redeem the Series
A Preferred Stock and, prior to the date of issuance of such
new class or series of Senior Securities or Parity Securities,
provision shall have been made for the redemption or exchange
of all the outstanding shares of the Series A Preferred Stock
and such redemption or exchange occurs on or prior to the date
of issuance of such new series or class of Senior Securities
or Parity Securities.
(iii) On all matters on which the Series A Preferred Stock is
entitled to vote by law, the Series A Holders shall be
entitled to one vote per share of Series A Preferred Stock,
voting separately as a single class, and the presence, in
person or by proxy, of the Series A Holders of a majority of
the outstanding shares of the Series A Preferred Stock shall
constitute a quorum.
5. Conversion Rights.
(i) Each share of Series A Preferred Stock may be converted, at
the option of each Series A Holder, at any time and from
time to time, into fully-paid and non-assessable shares of
Common Stock; provided, however, that a Series A Holder's
right to so convert shares of Series A Preferred Stock shall
terminate as to shares thereof that are redeemed or exchanged
by the Corporation on the Exchange Date or the time a Change
in Control occurs (as hereinafter defined) therefor as provid-
ed in and subject to the terms and conditions of subparagraph
7(ii) or 8(ii) hereof, respectively. The number of shares of
Common Stock to which the Series A Holder of each share of Se-
ries A Preferred Stock shall be entitled upon conversion shall
be the product obtained by multiplying the number of shares
of Series A Preferred Stock to be converted by the Conversion
Rate (as hereinafter defined); in addition, the Series A
Holder shall be entitled upon conversion to receive cash
or shares of Common Stock (valued at the Quarterly Average
Stock Price determined as of the immediately preceding Se-
ries A Dividend Payment Date), at the option of the Corpor-
ation, in an amount equal to all Cumulated Series A Dividends
on each share of Series A Preferred Stock so converted, pro-
vided, if dividends are paid in cash, there are funds legally
available therefor. The "Conversion Rate," that is, the num-
ber of shares of Common Stock for which each share of Series
A Preferred Stock may be converted, shall be determined by
reference to the Average Stock Price (as hereinafter de-
fined). The "Average Stock Price" shall be the average Clos-
ing Price per share of Common Stock during the 20 consecutive
trading days following the Meeting Date. If the Average Stock
Price is less than or equal to $1.30, the Conversion Rate
shall be 7.68. If the Average Stock Price is greater than
$1.30 but less than or equal to $1.50, the Conversion Rate
shall be 6.67. If the Average Stock Price is greater than
$1.50 but less than or equal to $1.75, the Conversion Rate
shall be 5.71. If the Average Stock Price is greater than
$1.75, the Conversion Rate shall be 5.00. The Corporation
shall not issue fractional shares of Common Stock upon conver-
sion of Series A Preferred Stock or as Cumulated Series A
Dividends, but, in lieu thereof, shall pay to a Series A
Holder cash in an amount equal to such fraction multiplied
by the Closing Price per share of the Common Stock on the
trading day prior to the date on which the shares are
converted.
(ii) The Series A Preferred Stock shall be converted into Common
Stock in the following manner:
(A) Shares of Series A Preferred Stock received by the
Corporation in exchange for Common Stock shall be
retired and canceled and shall no longer be available
for issuance as Series A Preferred Stock.
(B) A Series A Holder shall give written notice to the
Corporation of its desire to convert all or a portion
of the shares of Series A Preferred Stock owned
by such Series A Holder. Such notice shall be accom-
panied by certificates, duly endorsed for transfer,
evidencing the number of shares of Series A Preferred
Stock such Series A Holder desires to convert,
together with cash, if any, required by subparagraph
5(ii)(C) hereof. The Corporation will, as soon as
practicable thereafter, deliver to such Series A Hol-
der or to such Series A Holder's nominee or nominees,
a certificate or certificates for the appropriate
number of shares of Common Stock, together with cash,
as provided in subparagraph 5(i), with respect to
any fractional shares otherwise issuable upon con-
version, and cash or shares of Common Stock (valued
at the Quarterly Average Stock Price determined as of
the immediately preceding Series A Dividend Payment
Date), at the option of the Corporation, in an amount
equal to all Cumulated Series A Dividends on each
share of Series A Preferred Stock so converted, pro-
vided, if dividends are paid in cash, there are funds
legally available therefor, and, in the event of a
partial conversion, a certificate representing the
balance, if any, of the shares of Series A Preferred
Stock represented by the surrendered certificate
or certificates but not converted to Common Stock.
(C) In the event that shares of Series A Preferred Stock
are surrendered for conversion on any date during
the period from the close of business on a record
date fixed for determining the Series A Holders en-
titled to receive dividends to the opening of busi-
ness on the corresponding Series A Dividend Payment
Date, the Series A Holder must also deliver to the
Corporation an amount in cash equal to the dividend
payable with respect to such shares of Series A Pre-
ferred Stock on such Series A Dividend Payment Date
and shall continue to be entitled to receive such
dividend on such Series A Dividend Payment Date.
In the event that the date on which the shares are
converted is the Series A Dividend Payment Date,
such Series A Holder will be entitled to receive
the dividend payable with respect to such Series A
Preferred Stock and shall not be required to include
any payment in the amount of the dividend payable
with respect to such converted shares of Series A
Preferred Stock.
(D) If, prior to the date on which all shares of Series A
Preferred Stock are converted, the Corporation shall
(1) pay a dividend in shares of Common Stock or
make a distribution in shares of Common Stock, (2)
subdivide its outstanding shares of Common Stock,
(3) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock or
(4) issue by reclassification of its Common Stock
other securities of the Corporation, the Conversion
Rate in effect on the opening of business on the
record date for determining stockholders entitled
to participate in such transaction shall thereupon
be adjusted, or, if necessary, the right to convert
shall be amended, such that the number of shares of
Common Stock receivable upon conversion of the shares
of Series A Preferred Stock immediately prior there-
to shall be adjusted so that the Series A Holder
shall be entitled to receive, upon the conversion
of such shares of Series A Preferred Stock, the kind
and number of shares of Common Stock or other se-
curities of the Corporation that it would have owned
or would have been entitled to receive after the hap-
pening of any of the events described above had the
Series A Preferred Stock been converted immediately
prior to the happening of such event or any record
date with respect thereto. Any adjustment made pur-
suant to this subparagraph 5(ii)(D) shall become ef-
fective immediately after the effective date of such
event and such adjustment shall be retroactive to
the record date, if any, for such event. No ad-
justment with respect to any ordinary cash dividends
(made out of current earnings) on shares of Common
Stock shall be made.
(E) Whenever the Conversion Rate is adjusted pursuant to
any of the foregoing provisions of this paragraph 5,
the Corporation shall forthwith prepare a written
statement signed by the president or any vice presi-
dent and the treasurer or any assistant treasurer
or the secretary or any assistant secretary of the
Corporation, setting forth the adjusted Conversion
Rate determined as provided in this paragraph 5, and
in reasonable detail the facts requiring such adjust-
ment. Such statement shall be filed among the per-
manent records of the Corporation and a copy there-
of shall be furnished to any Series A Holder request-
ing the same, and shall at all reasonable times dur-
ing business hours be open to inspection by the Se-
ries A Holders. Within 10 days of the event requir-
ing an adjustment, the Corporation shall also cause
a notice, stating that such an adjustment has been
made and setting forth the adjusted Conversion Rate,
to be mailed, first-class, postage prepaid, to all
then Series A Holders of record at their addresses as
the same appear on the stock records of the Corpor-
ation.
(F) If a Series A Holder has delivered notice to the
Corporation of its desire to convert all or a portion
of its shares of Series A Preferred Stock, and certi-
ficates, duly endorsed for conversion in respect
of such shares and cash, if any, required by subpara-
graph 5(ii)(C) hereof, then all shares of Series A
Preferred Stock so tendered to the Corporation shall
be deemed to be no longer outstanding and, notwith-
standing the failure of the Corporation to issue the
Common Stock, such Series A Holder shall be deemed,
for all purposes (except as set forth in the next
sentence of this subparagraph 5(ii)(F)), to be a
holder of the number of shares of Common Stock into
which the shares of Series A Preferred Stock such
Series A Holder is entitled to receive pursuant to
the terms of this paragraph 5 in each case as of
the close of business on the date on which such con-
version notice is delivered. In the event such Series
A Holder has delivered notice to the Corporation
of his desire to convert all or a portion of his
shares of Series A Preferred Stock, such Series A
Holder shall retain the right to receive all Cumu-
lated Series A Dividends payable on the shares so
converted through the date such Series A Holder's
conversion notice is delivered, as provided in this
paragraph 5, notwithstanding such conversion.
(iii) The Corporation shall not, by amendment of its Certificate of
Incorporation as amended as of the date hereof, or through
any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other volun-
tary action, avoid or seek to avoid the observance or per-
formance of any of the terms to be observed or performed
hereunder by the Corporation but shall at all times in good
faith assist in the carrying out of all the provisions of
this paragraph 5. The Corporation shall at all times reserve
and keep available out of its authorized but unissued Common
Stock the full number of shares of Common Stock deliverable
upon the conversion of all the then outstanding shares of
Series A Preferred Stock and shall take all such action and
obtain all such permits or orders as may be necessary to en-
able the Corporation to validly and legally issue fully paid
and non-assessable shares of Common Stock upon the conversion
of Series A Preferred Stock. The Corporation shall obtain,
prior to or concurrently with the first issuance of the
Series A Preferred Stock, the authorization for the list-
ing of shares of Common Stock issuable upon conversion of the
Series A Preferred Stock on the Nasdaq National Market and
shall use its best efforts to maintain, for as long as any
shares of Series A Preferred Stock shall be outstanding, such
authorization or authorization for the listing of such shares
on a national securities exchange on which the Common Stock
may hereafter be listed. The Corporation shall pay any and
all transfer, stamp and other like taxes that may be payable
in respect of the issuance or delivery to a Series A Holder of
shares of Common Stock on conversion of the Series A Preferred
Stock by such holder.
(A) Liquidation Price. In the event of any voluntary
or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation, the amount that
shall be paid to a Series A Holder of each share of
Series A Preferred Stock shall be $12.00 and an ad-
ditional sum equal to all Cumulated Series A Divi-
dends on a share of Series A Preferred Stock (herein-
after called the "Liquidation Price"), and no more.
Upon any liquidation, dissolution or winding up of
the Corporation, the Series A Holders will be entit-
led to be paid, after payment or provision for pay-
ment of the debts and other liabilities of the Cor-
poration and after payment or provision for payment
is made upon any Senior Securities, but before any
Distribution or payment is made upon any Junior Se-
curities, an amount in cash equal to the aggregate
Liquidation Price of all shares outstanding, and the
Series A Holders will not be entitled to any further
payment. If, upon any such liquidation, dissolution
or winding up of the Corporation, the Corporation's
assets to be distributed among the Series A Holders
and the holders of Parity Securities (the "Parity
Holders") are insufficient to permit payment in full
to such Series A Holders and the Parity Holders of
the aggregate amount that they are entitled to be
paid, then the available assets to be distributed
will be distributed ratably among such Series A Hol-
ders and Parity Holders based upon the aggregate
Liquidation Price of the Series A Preferred Stock
and the aggregate liquidation preference of any
Parity Securities held by each such Series A Hol-
der and Parity Holder, respectively. The Corpor-
ation will mail written notice of such liquidation,
dissolution or winding up, not less than 30 days
prior to the payment date stated therein, to each
Series A Holder of record. Neither the consolidation
or merger of the Corporation into or with any other
corporation or any other person, nor the sale or
transfer by the Corporation of all or any part of
its assets, nor the reduction of the capital stock
of the Corporation will be deemed to be a liquid-
ation, dissolution or winding up of the Corporation
within the meaning of paragraphs 2 and 6.
7. Exchange.
(iv) Time of Exchange. The Corporation may, at its option, redeem
shares of the Series A Preferred Stock, in whole or in part, by
action of the Board, at any time after December 31, 1998, by
exchanging shares of Common Stock for shares of Series A
Preferred Stock at the Conversion Rate, provided (A) during the
period beginning January 1, 1999 and ending on December 31, 1999,
the Closing Price per share of the Common Stock is at least $4.00
per share for 20 consecutive trading days, (B) during the period
beginning January 1, 2000 and ending on December 31, 2000, the
Closing Price per share of the Common Stock is at least $3.00 per
share for 20 consecutive trading days and (c) during the period
beginning January 1, 2001, at any time at the Corporation's
option. In addition, each Series A Holder shall also be entitled,
upon exchange, to receive cash or shares of Common Stock (valued
at the Quarterly Average Stock Price determined as of the
immediately preceding Series A Dividend Payment Date), at the
option of the Corporation, in an amount equal to all Cumulated
Series A Dividends on each share of Series A Preferred Stock so
exchanged, provided, if dividends are paid in cash, there are
funds legally available therefor. The Corporation shall not issue
fractional shares of Common Stock in exchange for Series A
Preferred Stock or as Cumulated Series A Dividends, but, in lieu
thereof, shall pay to a Series A Holder cash in an amount equal
to such fraction multiplied by the Closing Price per share of
Common Stock on the last trading day prior to the date on which
the shares of Series A Preferred Stock are exchanged. The number
of shares of Common Stock received in exchange for shares of
Series A Preferred Stock plus the number of shares of Common
Stock paid as Cumulated Series A Dividends are hereinafter
referred to as "Exchange Shares," and the Exchange Shares plus
the Cumulated Series A Dividends payable in cash, if any, are
hereinafter referred to as the "Exchange Price."
(v) Procedures for Exchange. The Series A Preferred Stock shall be
exchanged pursuant to subparagraph 7(i) in the following manner:
(A) Shares of the Series A Preferred Stock redeemed by the
Corporation shall be retired and canceled and shall no
longer be available for issuance as Series A Preferred
Stock.
(B) In the event of an exchange of shares of Series A Preferred
Stock pursuant to subparagraph 7(i), notice of exchange of
shares of Common Stock for shares of Series A Preferred
Stock shall be given by the Corporation, not less than 30
nor more than 60 days prior to the Business Day designated
in such notice (the "Exchange Date"), by first class mail to
Series A Holders at their respective addresses then
appearing on the records of the Corporation, and shall also
be published, on or about the date of such mailing, in the
National Edition of the Wall Street Journal. Such notice of
exchange shall specify the Exchange Date, the Conversion
Rate, whether Cumulated Series A Dividends will be paid in
cash or in shares of Common Stock, the total number of
shares of Series A Preferred Stock to be exchanged and, if
fewer than all the shares held by such Series A Holder, the
number of shares of such Series A Holder to be exchanged,
and the place or places of exchange. The conversion rights
of the Series A Holders shall continue until the Exchange
Date (provided no default by the Corporation in the payment
of the Exchange Price shall have occurred and be continuing,
and in the event of any such default the Series A Holders'
conversion rights shall continue until such shares are
actually redeemed, exchanged or converted), and such notice
shall state the then effective Conversion Rate and that the
right of Series A Holders to exercise their conversion
rights shall terminate at the close of business on the
Exchange Date (provided no default by the Corporation in the
payment of the Exchange Price shall have occurred and be
continuing). On or before the Exchange Date, each Series A
Holder shall surrender to the Corporation or its designated
agent, at such place as it may designate in the exchange
notice, certificates, duly endorsed for transfer, evidencing
the number of shares of Series A Preferred Stock held by
such Series A Holder and being exchanged. Upon such
surrender, the Series A Holder shall be entitled to receive
the Exchange Price per share.
(C) If on the Exchange Date, (1) notice of exchange has been
mailed or delivered as provided herein and (2) the
Corporation has deposited with an independent paying agent
funds necessary to pay the Exchange Price payable in cash
and certificates representing shares of Common Stock
representing the Exchange Shares, then, unless the
Corporation defaults on the exchange, all shares of Series A
Preferred Stock subject to exchange shall, whether or not
certificates for such shares have been surrendered for
cancellation, be deemed to be no longer outstanding for any
purpose and all rights with respect to such shares shall
cease, except the right of the Series A Holder to receive
the Exchange Price per share, without interest. The
Corporation shall issue to the Series A Holder certificates
representing the shares of Common Stock that constitute the
Exchange Shares only after such holder's Series A Preferred
Stock certificates have been surrendered to the Corporation
for cancellation.
8. Change in Control
(vi) In the event of a "Change in Control" of the Corporation (as
hereinafter defined), each Series A Holder shall have the right to put
the security to the Corporation at $25.00 per share ("Change in
Control Price") and no more. The Corporation shall have the right to
pay the Change in Control Price in cash and/or shares of Common Stock
(in which case such shares of Common Stock shall be valued at average
stock price for the ten days preceding the Change in Control event,
provided, if the Change in Control Price is to be paid in cash, there
are funds legally available therefor. The Corporation shall not issue
fractional shares of Common Stock in exchange for Series A Preferred
Stock, but, in lieu thereof, shall pay to a Series A Holder cash in an
amount equal to such fraction multiplied by the Closing Price per
share of Common Stock on the last trading day prior to the date on
which the shares of Series A Preferred Stock are exchanged.
(vii) Procedures for Exchange. The Series A Preferred Stock shall be
exchanged pursuant to subparagraph 8(i) in the following manner:
(A) Shares of the Series A Preferred Stock redeemed by the
Corporation in exchange for the Change in Control Price shall be
retired and canceled and shall no longer be available for
issuance as Series A Preferred Stock.
(B) In the event of a Change in Control may occur, notice shall be
given by the Corporation, not less than 30 nor more than 60 days
prior to the Business Day designated in such notice (the "Change
in Control Exchange Date"), by first class mail to Series A
Holders at their respective addresses then appearing on the
records of the Corporation, and shall also be published, on or
about the date of such mailing, in the National Edition of the
Wall Street Journal. Such notice of exchange shall specify the
Change in Control Exchange Date, whether the Change in Control
Price is to be paid in cash, in shares of Common Stock or in a
combination thereof, and the place or places of exchange. The
conversion rights of the Series A Holders shall continue until
the Change in Control occurs (provided no default by the
Corporation in the payment of the Change in Control Price shall
have occurred and be continuing, and in the event of any such
default the Series A Holders' conversion rights shall continue
until such shares are actually redeemed, exchanged or converted),
and such notice shall state the then effective Conversion Rate
and that the right of Series A Holders to exercise their
conversion rights shall terminate at the time the Change in
Control occurs (provided no default by the Corporation in the
payment of the Change in Control Price shall have occurred and be
continuing). On or before the Change in Control Exchange Date,
each Series A Holder shall surrender to the Corporation or its
designated agent, at such place as it may designate in the
exchange notice, certificates, duly endorsed for transfer,
evidencing the number of shares of Series A Preferred Stock held
by such Series A Holder. Upon such surrender, the Series A Holder
shall be entitled to receive the Change in Control Price per
share.
(C) If, at the time the Change in Control occurs, (1) notice of
exchange has been mailed or delivered as provided herein and (2)
the Corporation has deposited with an independent paying agent
funds necessary to pay the aggregate Change in Control Price
payable in cash and certificates representing shares of Common
Stock if part of the Change in Control Price is to be paid in
shares of Common Stock, then, unless the Corporation defaults on
the exchange, all shares of Series A Preferred Stock subject to
exchange shall, whether or not certificates for such shares have
been surrendered for cancellation, be deemed to be no longer
outstanding for any purpose and all rights with respect to such
shares shall cease, except the right of the Series A Holder to
receive the Change in Control Price per share, without interest.
The Corporation or its independent paying agent shall pay the
Change in Control Price only after such holder's Series A
Preferred Stock certificates have been surrendered to the
Corporation for cancellation.
(viii) "Change in Control" shall means the occurrence, after the Meeting
Date, of any of the following events, directly or indirectly or in one
or more series of transactions:
(A) The consolidation or merger of the Corporation with any Third
Party (as hereinafter defined), unless the Corporation is the
entity surviving such merger or consolidation;
(B) The transfer of all or substantially all of the assets of the
Corporation to a Third Party;
(C) A Third Party, directly or indirectly, through one or more
subsidiaries or transactions or acting in concert with one or
more persons or entities:
(x) acquires beneficial ownership of more than 50% of the
outstanding shares of Common Stock;
(y) acquires irrevocable proxies representing more than 50% of
the outstanding shares of Common Stock; or
(z) acquires any combination of beneficial ownership of
outstanding shares of Common Stock and irrevocable proxies
representing more than 50% of the outstanding shares of
Common Stock.
Notwithstanding any provision contained herein, a Change in
Control shall not include any of the above described events if
they are the result of a Third Party's inadvertently acquiring
beneficial ownership or irrevocable proxies or a combination
of both for 50% or more of the outstanding shares of Common
Stock, and the Third Party as promptly as practicable
thereafter divests itself of beneficial ownership or
irrevocable proxies for a sufficient number of shares so that
the Third Party no longer has beneficial ownership or
irrevocable proxies or a combination of both for 50% or more
of the outstanding shares of Common Stock.
(ix) "Third Party" means a single person or a group of persons or entities
acting in concert not wholly owned directly or indirectly by the
Corporation.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate of
Amendment and do hereby affirm the foregoing as true under the penalties of
perjury this ____ day of December, 1997.
NETWORK IMAGING CORPORATION
By: ______________
Name: James J. Leto
Title: President
ATTEST:
- ---------------------
Name: Julia A. Bowen
Title: Assistant Secretary
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, as amended
("DGCL"), provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding, if
the person acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. Section 145 further provides that a corporation
similarly may indemnify any such person serving in any such capacity who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor, against expenses actually and reasonably incurred in
connection with the defense or settlement of such action or suit if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses that the Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchases and redemptions) or
(iv) for any transaction from which the director derived an improper personal
benefit. Article SEVENTH of the Registrant's Amended and Restated Certificate of
Incorporation contains a provision that so eliminates the personal liability of
the Registrant's directors.
Article IX of the Registrant's Bylaws provides for indemnification by
the Registrant of its directors and officers ("Indemnifiable Party") if such
Indemnifiable Party acted in good faith and in a manner the Indemnifiable Party
reasonably believed to be in or not opposed to the best interests of the Company
(and with respect to any criminal action or proceedings, had no reasonable cause
to believe his or her conduct was unlawful) and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such
Indemnifiable Party shall have been adjudged to be liable to the Company unless
and only to the extent that the Court of Chancery of the State of Delaware or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Item 21. Exhibits
(a) Exhibits
Exhibit No. Description
2.1 Agreement and Plan of Reorganization by and among the Com-
pany, Dorotech France SA and the stockholders of Dorotech France
SA dated August 30, 1993 with the amendments thereto dated
September 29, 1993 and October 1, 1993. (Incorporated by
reference to Exhibit 1 to Company's Report on Form 8-K relating
to such Agreement and Plan of Reorganization filed October 13,
1993.)
2.2 Agreement for the Purchase and Sale of Assets of Symmetrical
Technologies, Inc. as of September 30, 1996. (Incorporated by
reference to Exhibit 10.a to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1996.)
3.1 Restated Certificate of Incorporation as of November 19, 1997.
3.2 Restated Bylaws as of May 17, 1996 (Incorporated by reference
to Exhibit 3.11 to Amendment No. 1 to the Company's Form 10-Q for
the quarterly period ended June 30, 1997).
3.3 Certificate of Designations for Series A Cumulative Convertible
Preferred Stock filed with the Secretary of State of the State of
Delaware on December 7, 1993. (Incorporated by reference to
Exhibit 3.1c to the Company's registration statement on Form SB-2
(Registration No. 33-73164) filed December 20, 1993.)
3.4 Certificates of Designations for Series F-1,F-2, F-3 and F-4 Con-
vertible Preferred Stock filed with the Secretary of State of the
State of Delaware on March 29, 1996. (Incorporated by reference
to Exhibit 3.(i).i to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.)
3.5 Certificate of Designation of Series K Convertible Preferred
Stock of the Company filed in Delaware on July 28, 1997.
(Incorporated by reference to Exhibit 3.12 to the Company's Form
10-Q for the quarterly period ended June 30, 1997.)
4.1 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4.2 to Amendment No. 1 to the Company's registration
statement on Form S-1 (Registration No. 33-45721) filed April 10,
1992.)
5 Opinion of Kirkpatrick & Lockhart LLP.
10.1 Warrant Agreement between the Company and American Stock Transfer
& Trust Co. dated as of February 1, 1993. (Incorporated by
reference to Exhibit 1 to Post-Effective Amendment No. 1 to
Company's registration statement on Form S-1 (Registration No.
33-45721) filed April 1, 1993.)
10.2 Amendment No. 1 dated as of April 15, 1993 to the Warrant Agree-
ment between the Company and American Stock Trust & Transfer Co.
(Incorporated by reference to Exhibit 2 to Post-Effective
Amendment No. 1 to Company's registration statement on Form S-1
(Registration No. 33-45721) filed April 1, 1993.)
10.3 Warrant Agreement between the Company and American Stock Trans-
fer & Trust Co. dated as of April 28, 1993. (Incorporated by
reference to Exhibit 4.4 to Company's registration statement on
Form SB-2 (Registration No. 33-64046) filed June 8, 1993.)
10.4 Specimen Warrant Certificate (Public Warrants). (Incorporated
by reference to Exhibit 4.3 to Amendment No. 1 to the Company's
registration statement on Form S-1 (Registration No. 33-45721)
filed April 10, 1992.)
10.5 Specimen Warrant Certificate (International/Oakes Fitzwilliams
Series). (Incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1992.)
10.6 Specimen Warrant Certificate (International/Thomas James Series).
(Incorporated by reference to Exhibit 4.7 to Company's
registration statement on Form SB-2 (Registration No. 33-64046)
filed June 8, 1993.)
10.7 Warrant to purchase 20,700 units issued to Oakes, Fitzwilliams &
Co. Limited. (Incorporated by reference to Exhibit 4.8 to
Company's registration statement on Form SB-2 (Registration No.
33-64046) filed June 8, 1993.)
10.8 Warrant to purchase 33,214 units issued to Oakes, Fitzwilliams &
Co. Limited. (Incorporated by reference to Exhibit 4.9 to
Company's registration statement on Form SB-2 (Registration No.
33-64046) filed June 8, 1993.)
10.9 Placement Agent's Warrant to purchase 8,150 units issued to
Thomas James Associates, Inc. (Incorporated by reference to
Exhibit 4.10 to Company's registration statement on Form SB-2
(Registration No. 33-64046) filed June 8, 1993.)
10.10 Representative's Warrant issued to Thomas James Associates, Inc.
(Incorporated by reference to Exhibit 4.11 to Company's
registration statement on Form SB-2 (Registration No. 33-64046)
filed June 8, 1993.)
10.11 Warrant Agreement among the Company, American Stock Transfer
& Trust Co. and Thomas James Associates, Inc. dated as of May 8,
1992. (Incorporated by reference to Exhibit 4.12 to the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1992.)
10.12 Form of Amendment to Warrant Agreement among the Company, Amer-
ican Stock Transfer & Trust Co. and Thomas James Associates, Inc.
dated as of May 8, 1992. (Incorporated by reference to Exhibit
4.12.a to Amendment No. 1 to the Company's registration statement
on Form SB-2 (Registration No. 33-64046) filed January 5, 1994.)
10.13 Warrant to purchase 50,000 shares of Common Stock to Oakes,
Fitzwilliams & Co. Limited. (Incorporated by reference to Exhibit
4.13 to Amendment No. 1 to the Company's registration statement
on Form SB-2 (Registration No. 33-64046) filed January 5, 1994.)
10.14 Warrants to purchase an aggregate of 45,000 shares of Common
Stock issued to American Wealth Management, Inc., Edsel Anderson,
Harris Anderson and Eric Swartz. (Incorporated by reference to
Exhibit 4.14 to Amendment No. 1 to the Company's registration
statement on Form SB-2 (Registration No. 33-64046) filed January
5, 1994.)
10.15 Form of Warrant issued in connection with February 1992 debt
financing. (Incorporated by reference to Exhibit 4.6.B to the
Company's registration statement on Form S-1. (Registration No.
33-45721) filed February 13, 1992.)
10.16 Warrant to purchase 227,068 shares of Common Stock issued
to Swartz Investments Inc. (Incorporated by reference to Exhibit
4.17 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.)
10.17 Warrant to purchase 34,400 shares of Common Stock issued to
Oakes, Fitzwilliams & Co. Limited. (Incorporated by reference to
Exhibit 4.18 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.)
10.18 Form of Warrants issued in connection with December 1995 Series
G Convertible Preferred Stock offering. (Incorporated by
reference to Exhibit 4.19 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.)
10.19 Form of Warrants issued in connection with November/December 1995
Private Placement of Common Stock. (Incorporated by reference to
Exhibit 4.20 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.)
10.20 Warrant to purchase 25,000 shares of Common Stock issued to Ed
Feldman dated November 7, 1995. (Incorporated by reference to
Exhibit 4.21 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.)
10.21 Warrant to purchase 4,000 shares of Common Stock issued to Jarl
McDonald dated December 20, 1995. (Incorporated by reference to
Exhibit 4.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.)
10.22 Warrant to purchase 4,000 shares of Common Stock issued to Chris-
tian Stackhouse dated December 20, 1995. (Incorporated by
reference to Exhibit 4.23 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.)
10.23 Exchange Agreement between CDR Enterprises the Company dated
March 29, 1996. (Incorporated by reference to Exhibit 4.35 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)
10.24 Warrant to purchase 100,000 shares of Common Stock to Fred E.
Kassner dated December 31, 1996. (Incorporated by reference to
Exhibit 4.36 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)
10.25 Warrant to purchase up to 25,000 shares of Common Stock to Damon
Testaverde dated January 31, 1997. (Incorporated by reference to
Exhibit 4.37 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)
10.26 Warrant to purchase 4,000 shares of Common Stock to Susan G.
Kaufman dated December 31, 1996. (Incorporated by reference to
Exhibit 4.38 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)
10.27 Eight Percent (8%) Convertible Note between Network Imaging Cor-
poration and Wood Gundy in trust for RRSP 550 98866 19 and
Gundyco in trust for RRSP 550 99119 12 as of July 9, 1997 and
attached Schedule. (Incorporated by reference to Exhibit 10.22 to
the Company's Form 10-Q for the quarterly period ended June 30,
1997.)
10.28 Securities Purchase Agreement between Network Imaging Cor-
oration and Capital Ventures International and Zanett Lombardier,
Ltd. as of July 28, 1997. (Incorporated by reference to Exhibit
10.23 to the Company's Form 10-Q for the quarterly period ended
June 30, 1997.)
10.29 Registration Rights Agreement between Network Imaging Cor-
oration and Capital Ventures International and Zanett Lombardier,
Ltd. as of July 28, 1997. (Incorporated by reference to Exhibit
10.24 to the Company's Form 10-Q for the quarterly period ended
June 30, 1997.)
10.30 Warrant to purchase 20,000 shares of Common Stock issued to Wood
Gundy in trust for RRSP 550 98866 19 dated July 9, 1997.
(Incorporated by reference to Exhibit 10.25 to the Company's Form
10-Q for the quarterly period ended June 30, 1997.)
10.31 Warrant to purchase 16,000 shares of Common Stock issued to Gun-
dyco in trust for RRSP 550 99119 12 dated July 9, 1997.
(Incorporated by reference to Exhibit 10.26 to the Company's Form
10-Q for the quarterly period ended June 30, 1997.)
10.32 Warrant to purchase 112,500 shares of Common Stock issued to
Capital Ventures International dated July 28, 1997. (Incorporated
by reference to Exhibit 10.27 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997.)
10.33 Warrant to purchase 135,000 shares of Common Stock issued to
Zanett Lombardier, Ltd. dated July 28, 1997. (Incorporated by
reference to Exhibit 10.28 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997.)
10.34 Warrant to purchase 162,462 shares of Common Stock issued to the
Zanett Securities Corporation dated July 28, 1997. (Incorporated
by reference to Exhibit 10.29 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997.)
10.35 Placement Agency Agreement dated July 2, 1997 between Network
Imaging Corporation and The Zanett Securities Corporation.
(Incorporated by reference to Exhibit 10.30 to the Company's Form
10-Q for the quarterly period ended June 30, 1997.)
10.36 Security Agreement dated as of December 31, 1996 between Network
Imaging Corporation and Fred Kassner. (Incorporated by reference
to Exhibit 10.31 to the Company's Form 10-Q for the quarterly
period ended June 30, 1997.)
10.37 Amendment No. 1 to Loan Agreement dated as of June 8, 1997 bet-
ween Network Imaging Corporation and Fred Kassner. (Incorporated
by reference to Exhibit 10.32 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997.)
10.38 Amendment No. 1 to Security Agreement dated as of June 8, 1997
between Network Imaging Corporation and Fred Kassner.
(Incorporated by reference to Exhibit 10.33 to the Company's Form
10-Q for the quarterly period ended June 30, 1997.)
10.39 Consulting Agreement by and between the Company, BCG, Inc. and
Robert P. Bernardi dated May 28, 1996. Incorporated by reference
to Exhibit 10.a to the Company's report on Form 8-K filed August
2, 1996.
10.40 Form of Consulting Agreement by and between the Company, Sterling
Capital Group, Inc. and Robert M. Sterling, Jr. effective
February 1, 1994. (Incorporated by reference to Exhibit 10.4.b to
Post-Effective Amendment No. 1 to the Company's registration
statement on Form SB-2 (Registration No. 33-73164) filed January
14, 1994.)
10.41 Amendment dated October 1, 1995 by and between the Company, Ster-
ling Capital Group, Inc., and Robert M. Sterling, Jr.
(Incorporated by reference to Exhibit 10.4.c to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995.)
10.42 Purchase Agreement by and between the Company and CDR Enterprises
for the repurchase of the Company's Series F Preferred Stock
dated December 31, 1996. (Incorporated by reference to Exhibit
10.20 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996.)
10.43 Loan Agreement by and between the Company and Fred E. Kassner for
a line of credit of $5,000,000 dated December 31, 1996.
(Incorporated by reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.)
10.44 Amendment dated January 1,1996 among Network Imaging Corporation,
Sterling Capital Group and Robert M. Sterling, Jr. *
10.45 Amendment dated January 1,1996 among Network Imaging Corporation,
BCG, Inc. and Robert P. Bernardi. *
10.46 Amendment to Purchase Agreement effective May 30, 1997 between
Network Imaging Corporation and CDR Enterprises.
10.47 Registration Rights Agreement between the Company and CDR Enter-
prises dated as of December 31, 1996.
10.48 Warrant to purchase 40,000 shares of Common Stock issued to Mark
Shoom dated as of June 25, 1996.
10.49 Warrant to purchase 40,000 shares of Common Stock issued to
Charles Kucey dated as of June 25, 1996.
10.50 Form of Registration Rights Agreement between Network Imaging
Corporation and GFL Performance Ltd., dated as of March 15, 1996.
10.51 Warrant to purchase 5,000 shares of Common Stock issued Reding-
ton, Inc. dated October 21, 1993 and Form of Registration Rights
Agreement between Network Imaging Corporation and Redington, Inc.
10.52 Form of Registration Rights Agreement between Network Imaging
Corporation and Fred Kassner dated as of December 31, 1996.
10.53 Form of Warrant Agreement between Network Imaging Corporation and
American Stock Transfer and Trust Company to issue shares of Com-
mon Stock dated as of December 31, 1996.
10.54 Representative's Warrant issued to Thomas James Associates, Inc.
to purchase 150,000 shares of Common Stock dated May 18, 1992.
(Incorporated by reference to Exhibit 4.11 to the Company's
registration statement on Form SB-2 (Registration No. 33-64046)
filed June 9, 1993.)
10.55 (Intentionally omitted).
10.56 (Intentionally omitted).
10.57 Warrant to purchase in aggregate (i) up to 140,000 shares of
Series A Preferred Stock, or (ii) up to 253,624 shares of Common
Stock, or (iii) any combination of such securities issued to (a)
RAS Securities Corp. and (b) R.A. Schneider dated December 7,
1993.
10.58 Eight Percent (8%) Convertible Notes in the aggregate principal
amount of $200,000 dated August 20, 1997 and issued to Gundyco in
trust for RRSP 550 99119 12. (Incorporated by reference to
Exhibit 10.34 to the Company's Form 10-Q for the three months
ended September 30, 1997.)
10.59 Form of Warrant dated August 21, 1997 to purchase 4,000 shares of
Common Stock issued to Gundyco in trust for RRSP 550 99119 12.
(Incorporated by reference to Exhibit 10.35 to the Company's Form
10-Q for the three months ended September 30, 1997.)
10.60 Termination of Consulting Agreement among Network Imaging Corpor-
ation, Sterling Capital Group, Inc., and Robert M. Sterling, Jr.,
dated October 13, 1997.
10.61 Termination of Consulting Agreement among Network Imaging Corpor-
ation, Mann Enterprises, Inc., and John B. Mann dated October 17,
1997.
10.62 Termination of Consulting Agreement among Network Imaging Corpor-
ation, BCG, Inc., and Robert P. Bernardi, dated October 30, 1997.
10.63 Form of Warrant to purchase (i) 100,000 shares of Common Stock
issued to Robert M. Sterling, Jr., dated October 1, 1997, (ii)
66,667 shares of Common Stock issued to Mann Enterprises, Inc.,
dated October 1, 1997, (iii) 50,000 shares of Common Stock issued
to Robert P. Bernardi dated October 1, 1997, (iv) 4,464 shares of
Common Stock issued to the Poretz Group dated August 1, 1997, (v)
5,495 shares of Common Stock issued to the Poretz Group dated
November 1, 1997 and (vi) 33,951 shares of Common Stock issued to
Alex Brown & Sons Incorporated dated August 5, 1997.
10.64 Form of Registration Rights Agreement among Network Imaging Cor-
poration and the purchasers of the Series D Preferred Stock.
10.65 Form of Registration Rights Agreement among Network Imaging Cor-
poration and the purchasers of the Series E Preferred Stock.
10.66 Letter of Agreement between Network Imaging Corporation and Alex
Brown & Sons Incorporated dated August 13, 1997.
10.67 Form of Warrant to purchase (i) 3,094 shares of Common Stock is-
sued to the Poretz Group dated February 1, 1997, (ii) 70,000
shares of Common Stock issued to Fred Kassner dated March 27,
1997, (iii) 17,500 shares of Common Stock issued to Damon
Testaverde dated March 27, 1997, (iv) 5,495 shares of Common
Stock issued to the Poretz Group dated May 1, 1997, (v) 30,000
shares of Common Stock issued to Fred Kassner dated June 9, 1997,
and (vi) 7,500 shares of Common Stock issued to Damon Testaverde
dated June 9, 1997.
10.68 Form of Securities Purchase Agreement between Network Imaging
Corporation and Genesee Fund Limited dated March 15, 1996.
10.69 Form of Securities Purchase Agreement between Network Imaging
Corporation and (i) Bank Ehinger & CIE AG, and (ii) Privatinvest
Bank, respectively, dated in February and March 1996.
10.70 Letter of Employment Agreement between Network Imaging Corpora-
tion and James Leto dated May 9, 1996.
10.71 Form of Convertible Preferred Stock Purchase Agreement between
Network Imaging Corporation and Purchaser dated June 28, 1996.
(Incorporated by reference to Exhibit 4.a to the Company's
Quarterly Report on Form 10-Q for the period ending June 30,
1996.)
10.72 Form of Convertible Preferred Stock Purchase Agreement between
Network Imaging Corporation and Southbrook International
Investments, Ltd., dated September 30, 1996. (Incorporated by
reference to Exhibit 4.a to the Company's Quarterly Report of
Form 10-Q for the period ending September 30, 1996.)
21 Subsidiaries.
23.1 Consent of Ernst & Young LLP, Independent Accountants.
23.2 Consent of Price Waterhouse LLP, Independent Accountants.
23.3 Consent of Kirkpatrick & Lockhart LLP (Contained in Exhibit 5.)
24 Power of Attorney (see page ___).
99.1 Form of Proxy Card for holders of Series A Cumulative Convertible
Preferred Stock of Network Imaging Corporation.
99.3 Opinion of BT Alex. Brown (Incorporated by reference to Annex A
to the Proxy Statement-Prospectus).
- ----------------------
(b) Financials Statements Schedules
The 1996 Valuation Allowance Schedule was not included in this Registration
Statement. Such schedule was omitted from this Registration Statement but the
information required to be contained therein is included in the financial
statements and notes included herein.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Se-
curities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b)(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(b)(2) The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) 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, 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.
(d) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Herndon, Commonwealth of Virginia, on
this 4th day of December, 1997.
NETWORK IMAGING CORPORATION
By: /s/ James J. Leto
James J. Leto
President and Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned hereby appoints James J. Leto, Jorge R. Forgues
and Julia A. Bowen, and each of them (with full power to act alone), as
attorneys and agents for the undersigned, with full power of substitution, for
and in the name, place and stead of the undersigned, to sign and file with the
Securities and Exchange Commission under the Securities Act of 1933 any and all
amendments and exhibits to this Registration Statement and any and all
applications, instruments and other documents to be filed with the Securities
and Exchange Commission pertaining to the registration of the securities covered
hereby, with full power and authority to do and perform any and all acts and
things whatsoever requisite or desirable.
NETWORK IMAGING CORPORATION
By: /s/ James J. Leto
James J. Leto
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registrations Amendment to its Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ James J. Leto
- --------------------
James J. Leto President, Chief Executive Officer December 4, 1997
and Chairman of the Board
/s/ Jorge R. Forgues
- --------------------
Jorge R. Forgues Senior Vice President of Finance December 4, 1997
and Administration, Chief Financial
Officer
/s/ Robert P. Bernardi*
- -----------------------
Robert P. Bernardi Director and Secretary December 4, 1997
/s/ John F. Burton*
- -------------------
John F. Burton Director December 4, 1997
/s/ C. Alan Peyser*
- -------------------
C. Alan Peyser Director December 4, 1997
/s/ Robert Ripp*
- ----------------
Robert Ripp Director December 4, 1997
*By: /s/ James J. Leto
----------------------
James J. Leto,
Attorney-in-fact
RESTATED
CERTIFICATE OF INCORPORATION
OF NETWORK IMAGING CORPORATION
FIRST. The name of the corporation is Network Imaging Cor-
poration.
SECOND. The address of the registered office of the
corporation in the State of Delaware is 32 Loockerman Square, Suite L-100, City
of Dover, County of Kent, 19901. The name of its registered agent at such
address is The Prentice-Hall Corporation System, Inc.
THIRD. The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH. The corporation shall be authorized to issue two
classes of stock to be designated respectively "Common" and "Preferred." The
total number of shares of Common Stock that the corporation shall have authority
to issue shall be One Hundred Million (100,000,000), and the par value of each
share of Common Stock shall be one one-hundredth of one cent ($.0001). The total
number of shares of Preferred Stock that the corporation shall have authority to
issue shall be Twenty Million (20,000,000), and the par value of each share of
Preferred Stock shall be one one-hundredth of one cent ($.0001).
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. The authority of
the Board with respect to each series shall include, but not be limited to,
determination of the following:
(a) The number of shares constituting that series and
the distinctive designation of that series;
(b) The dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which date or
dates, and the relative rates of priority, if any, of payment of
dividends on shares of that series;
(c) Whether that series shall have voting rights,
and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion
privileges, and, if so, the terms and conditions of such conversion,
including provision for adjustment of the conversion rate in such
events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(f) Whether that series shall have a sinking fund for
the redemption or purchase of shares of that series, and, if so, the
terms and amount of such sinking fund;
(g) The rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or winding
up of the corporation, and the relative rates of priority, if any, of
payment of shares of that series; and
(h) Any other relative rights, preferences and
limitations of that series.
FIFTH. In furtherance and not in limitation of the powers con-
ferred by statute, the Board of Directors is expressly authorized to adopt,
amend or repeal the bylaws of the corporation.
SIXTH. The corporation reserves the right to alter, amend or
repeal any provision contained in this Certificate of Incorporation, in the
manner set forth above, and all rights herein conferred are granted subject to
this reservation.
SEVENTH. The Directors (including without limitation Directors
having a control interest and Directors having no control interest in the
corporation) shall be excused from liability to the fullest extent permitted by
Delaware law. Without limiting the generality of the foregoing, to the fullest
extent permitted by Delaware law, no Director of the corporation shall be
personally liable to the corporation or its stockholders for monetary damages
for any breach of fiduciary duty by such Director as a Director. If the General
Corporation Law of Delaware authorizes, or is amended at any time to authorize,
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law of Delaware, as amended.
No repeal or modification of the foregoing paragraph shall
adversely affect any right or protection of a Director of the corporation
existing at the time of, or immediately prior to, such repeal or modification,
or with respect to any acts or omissions of such Director occurring prior to
such repeal of modification.
EIGHTH. The incorporator is Robert M. Sterling, Jr., whose
mailing address is 5733 Pecks Point Road, Easton, Maryland 21601.
I, THE UNDERSIGNED, being the incorporator, for the purpose of
forming a corporation under the laws of the State of Delaware, do make, file and
record this Certificate of Incorporation, do certify that this Certificate of
Incorporation is my act and deed and that the facts herein stated are true, and,
accordingly, have hereto set my hand and seal this ________ day of _______,
199__.
______________________________(SEAL)
Robert M. Sterling, Jr.
---------------------------
KIRKPATRICK & LOCKHART LLP
---------------------------
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE (202) 778-9000
FACSIMILE (202) 778-9100
Exhibit 5
December 3, 1997
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
Re: Network Imaging Corporation
Registration Statement on Form S-4
Registration Number 333-36517
Ladies/Gentlemen:
We have acted as counsel to Network Imaging Corporation, a Delaware
corporation ("Corporation"), in connection with the preparation and filing of
the above-captioned Registration Statement on Form S-4, Registration Number
333-36517 ("Registration Statement"), under the Securities Act of 1933, as
amended, covering up to 1,750,000 shares of Series A Cumulative Convertible
Preferred Stock of the Corporation, $0.0001 par value per share ("Series A
Preferred Stock")and 15,027,937 shares of Common Stock of the Corporation,
$0.0001 par value per share ("Common Stock"), in connection with a proposed
Certificate of Amendment to the Certificate of Designations of Series A
Cumulative Convertible Preferred Stock of Network Imaging Corporation ("Amended
Certificate").
We have examined copies of the Registration Statement, the Prospectus
forming a part thereof, the Certificate of Incorporation and Bylaws of the
Corporation, each as amended to date, the minutes of various meetings and
unanimous written consents of the Board of Directors and the shareholders of the
Corporation, and original, reproduced or certified copies of such records of the
Corporation and such agreements, certificates of public officials, certificates
of officers and representatives of the Corporation and others, and such other
documents, papers, statutes and authorities as we deem necessary to form the
basis of the opinions hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures and the conformity to original
documents of all documents supplied to us as copies. As to various questions of
fact material to such opinions, we have relied upon statements and certificates
of officers and representatives of the Corporation and others.
Based on the foregoing, we are of the opinion that each of the
15,027,937 shares of Common Stock, when issued in accordance with the terms of
the Amended Certificate will be duly and validly issued by the Corporation,
fully paid and nonassessable.
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Prospectus forming part of the Registration Statement and to
your filing a copy of this Opinion as an exhibit to said Registration Statement.
Very truly yours,
/s/ Kirkpatrick & Lockhart LLP
KIRKPATRICK & LOCKHART LLP
AMENDMENT TO PURCHASE AGREEMENT
This Amendment modifies and amends the Purchase Agreement dated December 31,
1996 ("Purchase Agreement") by and between Network Imaging Corporation ("Network
Imaging") and CDR Enterprises ("CDRE"). In consideration of the mutual promises
contained herein and other good and valuable consideration, the sufficiency and
receipt of which are hereby severally acknowledged, the parties agree to amend
the Purchase Agreement as follows:
(a) The second sentence of the paragraph directly after Section 1(b) shall
be deleted and replaced with the following sentence:
"From the Closing Date forward, CDRE shall transfer to Network
Imaging, and Network Imaging shall receive from CDRE, the
Preferred Stock on the following installments: no less than
five hundred thousand (500,000) shares of Preferred Stock on
or before January 31, 1997; no less than five hundred thousand
(500,000) shares of Preferred Stock on or before March 31,
1997; and the balance no later than January 31, 1998."
(b) The last sentence of Section 3 shall be deleted and replaced with the
following sentence:
"Such interest is payable to CDRE on or before January 31, 1998."
(c) Section 6.1 shall be amended by deleting directly following the first
paragraph of that section the remainder of the section.
(d) A new Section 8 ("Additional Covenants of Network Imaging") shall be
added to the Agreement as follows, and the remaining sections of the
Agreement shall be appropriately numbered in sequence.
"8. Additional Covenants of Network Imaging.
a. Network Imaging agrees that it shall have completed
the documentation of the pledge on the shares of
Dorotech.
b. Network Imaging agrees that it shall report to CDRE
no later than the tenth business day following the
preceding month on the progress of the sale of
Dorotech.
c. Network Imaging and Dorotech each agree that CDRE
shall receive a report on the financial position and
change and commercial status of Dorotech no later
than the tenth business day following the preceding
quarter.
d. Network Imaging agrees that it shall pay all interest
on the amounts owed to CDRE pursuant to this
Agreement as soon as Network Imaging believes in good
faith that it has such funds available for such
payment; however, in no event shall such payment be
made later than January 31, 1998. Network Imaging
agrees that this interest payment shall take
precedence to any dividend payment that may be made
to any other party.
e. In the event that CDRE forecloses on the Dorotech
shares, pursuant to the terms contained herein in
this Agreement, and CDRE elects to retain and
continue the services of Regent Associates, and with
their prior written consent, Network Imaging shall
deliver to CDRE all of the materials in its
possession related to the sale of Dorotech."
This Amendment is effective May 30, 1997. Except as specifically modified and
amended herein, all other terms and conditions of the Purchase Agreement shall
remain in full force and effect.
Accepted by CDRE: Accepted by Network Imaging:
By: /s/ Jean Fontourey By: /s/ Jorge R. Forgues
Signature Signature
Print Name: Jean Fontourey Print Name: Jorge R. Forgues
Title: illegible Title: VP & CFO
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of December 31, 1996, by and among Network Imaging
Corporation, a Delaware corporation (the "Company"), and CDRE Enterprises, a
French corporation (the "Purchaser").
This Agreement is made pursuant to the Purchase Agreement,
dated as of December __, 1996 by and among the Company and the Purchaser (the
"Purchase Agreement"). The execution of this Agreement is a condition to the
closing of the transactions contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 4(n).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Blackout" shall have the meaning set forth in Section 3(b).
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of Virginia generally are authorized or required by law or other
government actions to close.
"Closing Date" shall have the meaning set forth in the Pur-
chase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value
$.0001 per share.
"Effectiveness Date" means the 90th day following the Regist-
ration Request Date.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 30th day following the Registration
Request Date.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Sec-
tion 7(c).
"Indemnifying Party" shall have the meaning set forth in Sec-
tion 7(c).
"Losses" shall have the meaning set forth in Section 7(a).
"Virginia Courts" shall have the meaning set forth in Section
9(i).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the warrants issued to the
Purchaser pursuant to the Purchase Agreement and the shares of Common Stock into
which such warrants are convertible pursuant to the Purchase Agreement.
"Registration Request Date" shall be any date on or after
February 1, 1997 and after the Company has received from Holders a written
request that a registration statement be filed.
"Registration Statement" means the registration statement,
contemplated by Section 2(a), including the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre-and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means any special counsel to the Holders.
"Underwritten registration or underwritten offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall
prepare and file with the Commission a "shelf" Registration Statement covering
all Registrable Securities. Notwithstanding the foregoing, in the event that the
Purchaser elects not to purchase the warrants and/or the shares underlying the
warrants in accordance with Section 2(b) of the Purchase Agreement, the Company
shall not be required to perform any of the obligations under this Agreement.
The Registration Statement shall be on Form S-3 or another appropriate form
permitting registration of Registrable Securities for resale by the Holders in
the manner or manners designated by them (including, without limitation, public
or private sales and one or more underwritten offerings). The Company shall (x)
not permit any securities other than the Registrable Securities to be included
in the Registration Statement and (y) use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as practicable after the filing thereof, but in any event prior to the
Effectiveness Date, and to keep such Registration Statement continuously
effective under the Securities Act until the date which is three years after the
Closing Date or such earlier date when all Registrable Securities covered by
such Registration Statement have been sold or may be sold pursuant to Rule 144
as determined by the counsel to the Company pursuant to a written opinion
letter, addressed to the Holders, to such effect (the "Effectiveness Period");
provided, however, that the Company shall be deemed not to have used its best
efforts to keep the Registration Statement effective during the Effectiveness
Period if it voluntarily takes any action that would result in the Holders not
being able to sell the Registrable Securities covered by such Registration
Statement during the Effectiveness Period, unless such action is required under
applicable law or the Company has filed a post-effective amendment to the
Registration Statement and the Commission has not declared it effective or
except as otherwise permitted by Section 3(a).
(b) If the Holders of a majority of the Registrable
Securities so elect, an offering of Registrable Securities pursuant to the
Registration Statement may be effected in the form of an underwritten offering.
In such event, and if the managing underwriters advise the Company and such
Holders in writing that in their opinion the amount of Registrable Securities
proposed to be sold in such offering exceeds the amount of Registrable
Securities which can be sold in such offering, there shall be included in such
underwritten offering the amount of such Registrable Securities which in the
opinion of such managing underwriters can be sold, and such amount shall be
allocated pro rata among the Holders proposing to sell Registrable Securities in
such underwritten offering.
(c) If any of the Registrable Securities are to be
sold in an underwritten offering, the investment banker or investment bankers
and manager or managers that will administer the offering will be selected by
the Holders of a majority of the Registrable Securities included in such
offering. No Holder may participate in any underwritten offering hereunder
unless such Person (i) agrees to sell its Registrable Securities on the basis
provided in any underwriting agreements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such arrangements.
3. Hold-Back Agreements
(a) Restrictions on Public Sale by the Holders. Sub-
ject to paragraph (b) of this Section 3, the Purchaser hereby understands and
agrees that the registration rights of the Purchaser pursuant to this Agreement
and its ability to offer and sell Registrable Securities pursuant to the
Registration Statement are limited by the provisions of the immediately
following sentence. If the Company determines in its good faith judgment that
the filing of the Registration Statement in accordance with Section 2 or the use
of any Prospectus would require the disclosure of material information which the
Company has a bona fide business purpose for preserving as confidential or the
disclosure of which would impede the Company's ability to consummate a
significant transaction, upon written notice of such determination by the
Company, the rights of the Purchaser to offer, sell or distribute any
Registrable Securities pursuant to the Registration Statement or to require the
Company to take action with respect to the registration or sale of any
Registrable Securities pursuant to the Registration Statement (including any
action contemplated by Section 4) will be suspended no longer than 60 days in
any 12-month period until the date upon which the Company notifies the Holders
in writing that suspension of such rights for the grounds set forth in this
Section 3(a) is no longer necessary; provided that there may be no such further
suspension after the initial twelve-month period in which such suspension has
occurred.
(b) Limitation on Blackouts. Notwithstanding anything
contained herein to the contrary, the aggregate number of days (whether or not
consecutive) during which the Company may delay the effectiveness of the
Registration Statement or prevent offerings, sales or distributions by the
Purchaser pursuant to paragraph (a) above or the last paragraph of Section 4
(collectively, a "Blackout") shall in no event exceed 60 days during any
12-month period and no Blackout may continue in consecutive 12 month periods.
4. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission within the
time period set forth in Section 2 a Registration Statement on Form S-3 in
accordance with the method or methods of distribution thereof as specified by
the Holders, and cause the Registration Statement to become effective and remain
effective as provided herein; provided, however, that not less than five (5)
Business Days prior to the filing of the Registration Statement or any related
Prospectus or any amendment or supplement thereto (including any document that
would be incorporated or deemed to be incorporated therein by reference), the
Company shall (i) furnish to the Holders, their Special Counsel and any managing
underwriters, copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Holders, their Special Counsel and such
managing underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the opinion of respective counsel to such Holders and such
underwriters, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of
a majority of the Registrable Securities, their Special Counsel, or any managing
underwriters, shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such
amendments, including post-effective amendments, to the Registration Statement
as may be necessary to keep the Registration Statement continuously effective
for the applicable time period; (ii) cause the related Prospectus to be amended
or supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424 (or any similar provisions then in
force) promulgated under the Securities Act; (iii) respond as promptly as
practicable to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto; and (iv) comply with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to
be sold, their Special Counsel and any managing underwriters immediately (and,
in the case of (i)(A) below, not less than five (5) days prior to such filing)
and (if requested by any such Person) confirm such notice in writing no later
than one (1) Business Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to the Registration Statement
is proposed to be filed and, (B) with respect to the Registration Statement or
any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of,
or, if issued, obtain the withdrawal of (i) any order suspending the
effectiveness of the Registration Statement or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the
Holders of a majority of the Registrable Securities to be sold in connection
with an underwritten offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration Statement such
information as such managing underwriters and such Holders reasonably agree
should be included therein and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment; provided, however, that the
Company shall not be required to take any action pursuant to this Section 4(e)
that would, in the opinion of counsel for the Company, violate applicable law.
(f) Furnish to each Holder, their Special Counsel and
any managing underwriters, without charge, at least one executed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special
Counsel, and any underwriters, without charge, as many copies of the Prospectus
or Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders and any underwriters in connection with
the offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Se-
curities, use its best efforts to register or qualify or cooperate with the
selling Holders, any underwriters and their respective counsel in connection
with the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.
(i) Cooperate with the Holders and any managing un-
derwriters to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates shall be free
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any such managing
underwriters or Holders may request at least two Business Days prior to any sale
of Registrable Securities.
(j) Upon the occurrence of any event contemplated by
Section 4(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Se-
curities relating to such Registration Statement to be listed on each securities
exchange or market, if any, on which similar securities issued by the Company
are then listed.
(l) Enter into such agreements (including an under-
writing agreement in form, scope and substance as is customary in underwritten
offerings) and take all such other actions in connection therewith (including
those reasonably requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and whether or not an
underwriting agreement is entered into, (i) make such representations and
warranties to such Holders and such underwriters as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the same
if and when requested; (ii) obtain and deliver copies thereof to each Holder and
the managing underwriters, if any, of opinions of counsel to the Company and
updates thereof addressed to each selling Holder and each such underwriter, in
form, scope and substance reasonably satisfactory to any such managing
underwriters and Special Counsel to the selling Holders covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Special Counsel and
underwriters; (iii) immediately prior to the effectiveness of the Registration
Statement, and, in the case of an underwritten offering, at the time of delivery
of any Registrable Securities sold pursuant thereto, obtain and deliver copies
to the Holders and the managing underwriters, if any, of "cold comfort" letters
and updates thereof from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public accountants
of any subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data is, or is required to be, included
in the Registration Statement), addressed to each selling Holder and each of the
underwriters, if any, in form and substance as are customary in connection with
underwritten offerings; (iv) if an underwriting agreement is entered into, the
same shall contain indemnification provisions and procedures no less favorable
to the selling Holders and the underwriters, if any, than those set forth in
Section 7 (or such other provisions and procedures acceptable to the managing
underwriters, if any, and holders of a majority of Registrable Securities
participating in such underwritten offering; and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 4(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Hol-
ders, any representative of such Holders, any underwriter participating in any
disposition of Registrable Securities, and any attorney or accountant retained
by such selling Holders or underwriters, at the offices where normally kept,
during reasonable business hours, all financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries, and
cause the officers, directors, agents and employees of the Company and its
subsidiaries to supply all information in each case requested by any such
Holder, representative, underwriter, attorney or accountant in connection with
the Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not bound by a
confidentiality agreement.
5. (n) Comply with all applicable rules and regulations of the
Commission and make generally available to its securityholders earning
statements satisfying the provisions of Section 13 of the Securities Exchange
Act not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts underwritten offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date of
the Registration Statement, which statement shall cover said 12-month period, or
end shorter periods as is consistent with the requirements of the Securities
Exchange Act. The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request. If the Registration Statement
refers to any Holder by name or otherwise as the holder of any securities of the
Company, then such Holder shall have the right to require (i) the inclusion
therein of language, in form and substance reasonably satisfactory to such
Holder, to the effect that the ownership by such Holder of such securities is
not to be construed as a recommendation by such Holder of the investment quality
of the Company's securities covered thereby and that such ownership does not
imply that such Holder will assist in meeting any future financial requirements
of the Company, or (ii) if such reference to such Holder by name or otherwise is
not required by the Securities Act or any similar Federal statute then in force,
the deletion of the reference to such Holder in any amendment or supplement to
the Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required. The Purchaser covenants and agrees that (i) it
will not offer or sell any Registrable Securities under the Registration
Statement until it has received copies of the Prospectus as then amended or
supplemented as contemplated in Section 4(g) and notice from the Company that
such Registration Statement and any post-effective amendments thereto have
become effective as contemplated by Section 4(c) and (ii) the Purchaser and its
officers, directors or Affiliates, if any, will comply with the prospectus
delivery requirements of the Securities Act as applicable to them in connection
with sales of Registrable Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the kind
described in Section 4(c)(ii), 4(c)(iii), 4(c)(iv), 4(c)(v) or 4(c)(vi), such
Holder will forthwith discontinue disposition of such Registrable Securities
until such Holder's receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 4(j), or until it is
advised in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.
6. Registration Expenses
(a) All fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not the Registration Statement is filed or becomes effective
and whether or not any Registrable Securities are sold pursuant to the
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the National Association of Securities Dealers, Inc.
and (B) in compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the underwriters or Holders in
connection with Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
Holders of a majority of Registrable Securities may designate)), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any, or by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for the Holders as
specifically contemplated in this Agreement, (v) fees and disbursements of all
independent certified public accountants referred to in Section 4(1)(iii)
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance), (vi) Securities
Act liability insurance, if the Company so desires such insurance, and (vii)
fees and expenses of all other Persons retained by the Company in connection
with the consummation of the transactions contemplated by this Agreement. In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated by
this Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange on which similar
securities issued by the Company are then listed.
(b) In connection with the Registration Statement,
the Company shall reimburse the Purchaser for the reasonable fees and
disbursements of one firm of attorneys chosen by the Purchaser of a majority of
the Registrable Securities.
7. Indemnification
(a) Indemnification by the Company. The Company
shall, notwithstanding termination of this Agreement and without limitation as
to time, indemnify and hold harmless each Holder, the officers, directors,
agents, brokers, investment advisors and employees of each of them, each Person
who controls any such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out
of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by or on behalf of such Holder expressly for
use therein, which information was reasonably relied on by the Company for use
therein or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. In connection with
the Registration Statement, each Holder shall furnish to the Company in writing
such information as the Company reasonably requests for use in connection with
the Registration Statement or any Prospectus and agrees, jointly and not
severally, to indemnify and hold harmless the Company, their directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any
Proceeding shall be brought or asserted against any Person entitled to indemnity
hereunder (an "Indemnified Party"), such Indemnified Party promptly shall notify
the Person from whom indemnity is sought (the "Indemnifying Party") in writing,
and the Indemnifying Party shall promptly assume the defense thereof, including
the employment of counsel reasonably satisfactory to the Indemnified Party and
the payment of all fees and expenses incurred in connection with defense
thereof; provided, that the failure of any Indemnified Party to give such notice
shall not relieve the Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except (and only) to the extent that it shall be
finally determined by a court of competent jurisdiction (which determination is
not subject to appeal or further review) that such failure shall have
proximately and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed to
pay such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within 10 Business Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification un-
der Section 7(a) or 7(b) is unavailable to an Indemnified Party or is
insufficient to hold such Indemnified Party harmless for any Losses in respect
of which this Section would apply by its terms (other than by reason of
exceptions provided in this Section), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such proportion
as is appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 7(c), any attorneys' or other fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 7(d), the Purchaser
shall not be required to contribute, in the aggregate, any amount in excess of
the amount by which the proceeds actually received by the Purchaser from the
sale of the Registrable Securities subject to the Proceeding exceeds the amount
of any damages that the Purchaser has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
8. Rule 144
The Company shall file the reports required to be filed by it
under the Securities Act and the Exchange Act in a timely manner and, if at any
time the Company is not required to file such reports, it will, upon the request
of any Holder, make publicly available other information so long as necessary to
permit sales of its securities pursuant to Rule 144. The Company further
covenants that it will take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144. Upon the request of any
Holder, the Company shall deliver to such Holder a written certification of a
duly authorized officer as to whether it has complied with such requirements.
9. Miscellaneous
(a) Remedies. In the event of a breach by the Com-
pany or by a Holder, of any of their obligations under this Agreement, each
Holder or the Company, as the case may be, in addition to being entitled to
exercise all rights granted by law and under this Agreement, including recovery
of damages, will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not
provide adequate compensation for any losses incurred by reason of a breach by
it of any of the provisions of this Agreement and hereby further agrees that, in
the event of any action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. None of the Company
nor any of its subsidiaries has, as of the date hereof, nor shall the Company or
any of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof.
(c) No Piggyback on Registrations. Except as specif-
ically set forth in Schedule 3.1 to the Purchase Agreement, none of the Company
nor any of its securityholders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Common Stock to be issued under the Purchase Agreement, and the
Company shall not enter into any agreement providing any such right to any of
its securityholders.
(d) Entire Agreement; Amendments. This Agreement,
together with the Exhibits, Annexes and Schedules hereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters.
(e) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the same shall be in writing and
signed by the Company and the Holders of at least a majority of the then
outstanding Registrable Securities; provided, however, that, for the purposes of
this sentence, Registrable Securities that are owned, directly or indirectly, by
the Company, or an Affiliate of the Company are not deemed outstanding.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(f) Notices. Any notice or other communication re-
quired or permitted to be given hereunder shall be in writing and shall be
deemed to have been received (a) upon hand delivery (receipt acknowledged) or
delivery by telex (with correct answer back received), telecopy or facsimile
(with transmission confirmation report) at the address or number designated
below (if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to the Company: Network Imaging Corporation
500 Huntmar Park Drive
Herndon, VA 22070
Facsimile No.: (703) 478-7523
Attn: General Counsel
If to the Purchaser: CDRE Enterprises
27-29 rue le Peletier
PARIS IX" FRANCE 75009
Telecopier No. (33-1) 44831742
Attn: Olivier Klein
(g) Successors and Assigns. This Agreement shall
enure to the benefit of and be binding upon the successors and permitted assigns
of each of the parties and shall inure to the benefit of each Holder. The
Company may not assign its rights or obligations hereunder without the prior
written consent of each Holder.
(h) Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed shall be deemed to be
an original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(i) Governing Law; Submission to Jurisdiction; Waiver
of Jury Trial. This Agreement shall be governed by and construed in accordance
with the laws of the State of Virginia, without regard to principles of
conflicts of law. The Company hereby irrevocably submits to the jurisdiction of
any Virginia state and/or federal court (collectively, the "Virginia Courts") in
respect of any Proceeding arising out of or relating to this Agreement, and
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, jurisdiction of the Virginia Courts. The Company irrevocably
waives to the fullest extent it may effectively do so under applicable law any
objection that it may now or hereafter have to the laying of the venue of any
such Proceeding brought in any Virginia Court and any claim that any such
Proceeding brought in any Virginia Court has been brought in an inconvenient
forum. Nothing herein shall affect the right of any Holder to serve process in
any manner permitted by law or to commence legal proceedings or otherwise
proceed against the company in any other jurisdiction.
(j) Cumulative Remedies. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
(k) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(l) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(m) Shares held by The Company and its Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by the
Company or its Affiliates (other than the Purchaser or transferees or successors
or assigns thereof if such Persons are deemed to be Affiliates solely by reason
of their holdings of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
NETWORK IMAGING CORPORATION
By:______________________
Name:
Title:
CDRE ENTERPRISES
By:______________________
Name:
Title:
WARRANT TO PURCHASE COMMON STOCK
OF
NETWORK IMAGING CORPORATION
Holder:
Name: Mark Shoom
Address: Wood Gundy
100 Simcoe Street
Suite 200
Toronto, Ontario, Canada M5H 3G2
Taxpayer Identification No.:
No. of Shares of Common Stock: 40,000
Grant Date: June 25, 1996
Termination Date: June 24, 2001 (at 5:00
p.m., Washington, D.C. Time)
Purchase Price Per Share: $3.75
- --------------------------------------------------------------------------------
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OF THE UNITED STATES OF AMERICA AND HAS BEEN ISSUED IN
RELIANCE UPON THE EXEMPTION FROM SUCH REGISTRATION CONTAINED IN REGULATION S
UNDER THE ACT. THIS WARRANT MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE
UNITED STATES OR TO ANY "U.S. PERSON" (AS DEFINED IN REGULATION S).
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OF THE UNITED STATES OF AMERICA, AND THIS WARRANT MAY NOT BE EXERCISED BY OR ON
BEHALF OF ANY "U.S. PERSON" (AS DEFINED IN REGULATION S UNDER THE ACT) UNLESS
SUCH SHARES OF COMMON STOCK ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS IN THE UNITED STATES OR EXEMPTIONS FROM SUCH REGISTRATION ARE
AVAILABLE.
- --------------------------------------------------------------------------------
<PAGE>
FOR VALUE RECEIVED, Network Imaging Corporation, a Delaware Corporation
(the "Company"), hereby certifies that the person identified on the cover page
as the holder or permitted assigns (the "Holder") is entitled to purchase from
the Company the number of fully paid and nonassessable shares of Common Stock,
par value $.0001 per share, of the Company set forth on the cover page at the
purchase price set forth on the cover page. (Hereinafter, (i) said Common Stock,
together with any other equity securities which may be issued by the Company
with respect thereto or in substitution therefor, is referred to as the "Common
Stock," (ii) the shares of the Common Stock purchasable hereunder are referred
to as the "Warrant Shares," (iii) the aggregate purchase price payable hereunder
for the Warrant Shares is referred to as the "Aggregate Warrant Price," (iv) the
price payable hereunder for each of the Warrant Shares is referred to as the
"Per Share Warrant Price," and (v) this Warrant and all warrants hereafter
issued in exchange or substitution for this Warrant are referred to as the
"Warrant.")
1. Exercise of Warrant. The Warrant may be exercised at any time or
from time to time commencing on the date hereof and prior to 5:00 p.m.
Washington, D.C. time on the Termination Date set forth on the cover page. The
Holder may exercise this Warrant for the number of shares then exercisable (or
any lesser amount of shares the Holder may choose to exercise) by the surrender
of this Warrant (with the subscription form at the end hereof duly executed) at
the address set forth in Subsection 8(a) hereof, together with proper payment of
the Aggregate Warrant Price (or the proportionate part thereof if this Warrant
is exercised in part). Payment for Warrant Shares shall be made by certified or
official bank check payable to the order of the Company. Upon such surrender of
this Warrant, the Company will issue a certificate or certificates in the name
of the Holder for the largest number of whole shares of the Common Stock to
which the Holder shall be entitled and, in lieu of issuing any fractional share
of Common Stock to which the Holder shall be entitled, shall pay the Holder cash
equal to the value of such fractional share (all calculations to be made to the
nearest cent). The Warrants may not be exercised in full or in part by any
Holder if, in the opinion of counsel to the Company, exercise of the Warrants by
such Holder would violate the securities registration provisions of the
securities laws of the United States or any jurisdiction the laws of which apply
to such exercise.
2. Adjustments. In case the Company shall hereafter (i) pay a dividend
in shares of Common Stock, (ii) subdivide its outstanding shares of Common
Stock, or (iii) combine its outstanding shares of Common Stock into a smaller
number of shares, then, and in each such case, the number of shares of Common
Stock which the Holder is entitled to purchase pursuant to this Warrant
immediately prior to the happening of any of such events shall be adjusted so
that the Holder shall be entitled to receive upon exercise of this Warrant the
number of shares of Common Stock which he would have owned or would have been
entitled to receive immediately following the happening of such event had this
Warrant been exercised immediately prior thereto, and the Per Share Warrant
Price shall be correspondingly adjusted. An adjustment made pursuant to this
Section 2 shall become effective immediately after the record date in the case
of a dividend and immediately after the effective date in the case of a
subdivision or combination.
3. Fully Paid Stock; Taxes. The Company agrees that the shares of the
Common Stock delivered on the exercise of this Warrant, at the time of such
delivery, will be validly issued and outstanding, fully paid and nonassessable,
and not subject to preemptive rights. The Company shall not be obligated to pay
any stamp, original issue, transfer or other taxes in respect of this Warrant or
the Common Stock deliverable on the exercise of this Warrant.
4. Limitations on Transfer and Exercise.
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933 (the "Securities Act") or under any state securities laws
and, unless so registered, may not be assigned, transferred, sold, pledged,
hypothecated, or otherwise disposed of unless an exemption from such
registration is available. In the event the Holder desires to transfer the
Warrant or any of the Warrant Shares otherwise then pursuant to an effective
registration statement under the Securities Act, the Holder must give the
Company prior written notice of such proposed transfer, including the name and
address of the proposed transferee, and furnish the Company with an opinion of
counsel satisfactory to the Company to the effect that the proposed transfer may
be effected without registration or qualification under the Securities Act or
any applicable state securities laws.
(b) Regulation S Conditions. This Warrant may not be exercised
unless the Company has received from the Holder (i) a written certification in
the form of the Subscription attached hereto or other form acceptable to counsel
for the Company that the Holder is not a "U.S. Person" as defined in Regulation
S under the Securities Act and is not exercising the Warrant on behalf, or for
the benefit or account, of a "U.S. Person," and (ii) if requested by the
Company, a written opinion of counsel acceptable to counsel for the Company to
the effect that the shares of Common Stock issuable upon exercise of the Warrant
have been registered under the Securities Act and any applicable state
securities laws or are exempt from such registration. THIS WARRANT MAY NOT BE
EXERCISED IN THE UNITED STATES AND THE SHARES OF COMMON STOCK DUE UPON EXERCISE
WILL NOT BE DELIVERED IN THE UNITED STATES UNLESS SUCH SHARES HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OR ARE EXEMPT FROM SUCH REGISTRATION.
(c) Legend and Stop Transfer Orders. Upon exercise of any part
of the Warrant and the issuance of any of the Warrant Shares during the
Restricted Period as defined in the Subscription Agreement between the Company
and the Holder pursuant to which this Warrant is issued, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to such
shares, and all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE
REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND
STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
(d) Transfer. Except as restricted hereby, this Warrant and
the Warrant Shares issued may be transferred by the Holder in whole or in part
at any time or from time to time. Upon surrender of this Warrant to the Company
with assignment documentation duly executed and funds sufficient to pay any
transfer tax, and upon compliance with the foregoing provisions, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment, and this Warrant shall promptly
be cancelled. In the case of transfers to be effected by the Holder's attorney,
executor, administrator, trustee, guardian or other legal representative, the
Company may require such representative to produce and deposit duly
authenticated evidence of such representative's authority before giving effect
to the requested assignment. Any assignment, transfer, pledge, hypothecation or
other disposition of this Warrant attempted contrary to the provisions of this
Warrant, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
5. Indemnification. The Holder acknowledges that the Holder understands
the meaning and legal consequences of Section 4 hereof, regarding securities
laws and conditions to transfer, and the Holder hereby agrees to indemnify and
hold harmless the Company, its representatives and each officer and director
thereof from and against any and all loss, damage or liability (including all
attorneys fees and costs incurred in enforcing this indemnity provision) to
which the Company or any such director or officer or representative may become
subject under the Securities Act or any other statute or common law due to or
arising out of any transfer or disposition of the Warrant or any of the Warrant
Shares not in accordance with this Warrant.
6. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
7. Warrant Holder Not Stockholder. This Warrant does not confer upon
the Holder any right to vote or to consent to or receive notice as a stockholder
of the Company, as such, in respect of any matters whatsoever, or any other
rights or liabilities as a stockholder, prior to the exercise hereof.
8. Communication. No notice or other communication under this Warrant
shall be effective unless the same is in writing and is delivered by hand or is
mailed to:
(a) the Company at 500 Huntmar Park Drive, Herndon, Virginia
22070 or such other address as the Company has designated in writing to the
Holder, or
(b) the Holder at the address set forth above, or such other
address as the Holder has designated in writing to the Company.
All such notices or other communications shall be deemed effective upon
the earlier of confirmed receipt or, if mailed, five business days after deposit
in the United States mail, postage prepaid, registered or certified, return
receipt requested.
9. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
10. Applicable Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
principles of conflicts of law thereof. The Company and the Holder each agree to
submit to the non-exclusive jurisdiction of the courts of the Commonwealth of
Virginia in any action or proceeding arising out of or relating to this Warrant.
11. Successors. All the rights and obligations and other provisions of
this Warrant shall bind and inure to the benefit of the respective successors
and assigns of the parties hereto.
12. Amendment. This Warrant may not be amended orally, but only by an
amendment in writing signed both by the Company and the Holder.
13. Severability. If any provision hereof is for any reason and to any
extent declared to be illegal, invalid or unenforceable, the legality, validity
and enforceability of the remaining provisions of this Warrant shall not in any
way be affected or impaired thereby.
IN WITNESS WHEREOF, NETWORK IMAGING CORPORATION, has caused this
Warrant to be signed by its Chairman and the Board on June 25, 1996.
NETWORK IMAGING CORPORATION
By: /s/ Robert P. Bernardi
----------------------
Robert P. Bernardi
Chairman
<PAGE>
SUBSCRIPTION
The undersigned, ___________________________________, pursuant to the
provisions of the foregoing Warrant hereby irrevocably agrees to subscribe for
the purchase of ___________ shares of the Common Stock of NETWORK IMAGING
CORPORATION covered by said Warrant, and makes payment therefor in full at the
price per share provided by said Warrant. The undersigned requests that a
certificate representing such shares of Common Stock be issued in the name of
the person (the "Certificate Holder"), and delivered to the address, set forth
below. The undersigned hereby represents that (i) neither the undersigned, the
Certificate Holder nor any person for whom the Certificate Holder is acting or
who will own a beneficial interest in the shares issuable upon exercise is a (a)
natural person resident in the United States, (b) partnership or corporation
organized or incorporated under the laws of the United States, (c) an agency or
branch of a foreign entity located in the United States, (d) a discretionary or
similar account held by a fiduciary organized, incorporated or (if an
individual) resident in the United States, (e) a partnership or corporation
organized under the laws of a non-U.S. jurisdiction and formed for the purpose
of investing in securities not registered under U.S. securities laws, or (f) an
estate of which any executor or administrator, or trust of which any trustee, or
non-discretionary or similar account held by a fiduciary of which a beneficiary,
is a person described by (a), (b), (c), (d) or (e), and (ii) the undersigned is
not located in the United States at the time of making this subscription.
__________________________ ___________________________
Name of Certificate Holder Signature of Warrant Holder
Signed this ____ day of _____,
199__ at ____________________.
_____________________________
_____________________________
_____________________________
Address of Certificate Holder
_____________________________
Taxpayer ID Number of
Certificate Holder
THE SHARES DUE UPON EXERCISE OF THE WARRANT WILL NOT BE DELIVERED
IN THE UNITED STATES.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned Registered Warrant Holder hereby
sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
(Please print or type name and address)
_______________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints to transfer this
Warrant Certificate on the books of the Company, with full power of substitution
in the premises.
Dated:______________ ______________________________________
Signature of Registered Warrant Holder
______________________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND, IF THE WARRANT OR
WARRANT SHARES ARE TO BE ISSUED IN A NAME OTHER THAN THAT OF THE HOLDER, MUST BE
GUARANTEED BY A COMMERCIAL BANK, TRUST COMPANY, CREDIT UNION, SAVINGS AND LOAN
ASSOCIATION. A MEMBER FIRM OF A NATIONAL SECURITIES EXCHANGE OR A BROKERAGE
FIRM.
WARRANT TO PURCHASE COMMON STOCK
OF
NETWORK IMAGING CORPORATION
Holder:
Name: Charles G. Kucey
Address: Wood Gundy
161 Bay Street
BCE Place
7th Floor
Toronto, Ontario, Canada M5J 2S8
Taxpayer Identification No.:
No. of Shares of Common Stock: 40,000
Grant Date: June 25, 1996
Termination Date: June 24, 2001 (at 5:00
p.m., Washington, D.C. Time)
Purchase Price Per Share: $3.75
- --------------------------------------------------------------------------------
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OF THE UNITED STATES OF AMERICA AND HAS BEEN ISSUED IN
RELIANCE UPON THE EXEMPTION FROM SUCH REGISTRATION CONTAINED IN REGULATION S
UNDER THE ACT. THIS WARRANT MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE
UNITED STATES OR TO ANY "U.S. PERSON" (AS DEFINED IN REGULATION S).
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OF THE UNITED STATES OF AMERICA, AND THIS WARRANT MAY NOT BE EXERCISED BY OR ON
BEHALF OF ANY "U.S. PERSON" (AS DEFINED IN REGULATION S UNDER THE ACT) UNLESS
SUCH SHARES OF COMMON STOCK ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS IN THE UNITED STATES OR EXEMPTIONS FROM SUCH REGISTRATION ARE
AVAILABLE.
- --------------------------------------------------------------------------------
<PAGE>
FOR VALUE RECEIVED, Network Imaging Corporation, a Delaware Corporation
(the "Company"), hereby certifies that the person identified on the cover page
as the holder or permitted assigns (the "Holder") is entitled to purchase from
the Company the number of fully paid and nonassessable shares of Common Stock,
par value $.0001 per share, of the Company set forth on the cover page at the
purchase price set forth on the cover page. (Hereinafter, (i) said Common Stock,
together with any other equity securities which may be issued by the Company
with respect thereto or in substitution therefor, is referred to as the "Common
Stock," (ii) the shares of the Common Stock purchasable hereunder are referred
to as the "Warrant Shares," (iii) the aggregate purchase price payable hereunder
for the Warrant Shares is referred to as the "Aggregate Warrant Price," (iv) the
price payable hereunder for each of the Warrant Shares is referred to as the
"Per Share Warrant Price," and (v) this Warrant and all warrants hereafter
issued in exchange or substitution for this Warrant are referred to as the
"Warrant.")
1. Exercise of Warrant. The Warrant may be exercised at any time or
from time to time commencing on the date hereof and prior to 5:00 p.m.
Washington, D.C. time on the Termination Date set forth on the cover page. The
Holder may exercise this Warrant for the number of shares then exercisable (or
any lesser amount of shares the Holder may choose to exercise) by the surrender
of this Warrant (with the subscription form at the end hereof duly executed) at
the address set forth in Subsection 8(a) hereof, together with proper payment of
the Aggregate Warrant Price (or the proportionate part thereof if this Warrant
is exercised in part). Payment for Warrant Shares shall be made by certified or
official bank check payable to the order of the Company. Upon such surrender of
this Warrant, the Company will issue a certificate or certificates in the name
of the Holder for the largest number of whole shares of the Common Stock to
which the Holder shall be entitled and, in lieu of issuing any fractional share
of Common Stock to which the Holder shall be entitled, shall pay the Holder cash
equal to the value of such fractional share (all calculations to be made to the
nearest cent). The Warrants may not be exercised in full or in part by any
Holder if, in the opinion of counsel to the Company, exercise of the Warrants by
such Holder would violate the securities registration provisions of the
securities laws of the United States or any jurisdiction the laws of which apply
to such exercise.
2. Adjustments. In case the Company shall hereafter (i) pay a dividend
in shares of Common Stock, (ii) subdivide its outstanding shares of Common
Stock, or (iii) combine its outstanding shares of Common Stock into a smaller
number of shares, then, and in each such case, the number of shares of Common
Stock which the Holder is entitled to purchase pursuant to this Warrant
immediately prior to the happening of any of such events shall be adjusted so
that the Holder shall be entitled to receive upon exercise of this Warrant the
number of shares of Common Stock which he would have owned or would have been
entitled to receive immediately following the happening of such event had this
Warrant been exercised immediately prior thereto, and the Per Share Warrant
Price shall be correspondingly adjusted. An adjustment made pursuant to this
Section 2 shall become effective immediately after the record date in the case
of a dividend and immediately after the effective date in the case of a
subdivision or combination.
3. Fully Paid Stock; Taxes. The Company agrees that the shares of the
Common Stock delivered on the exercise of this Warrant, at the time of such
delivery, will be validly issued and outstanding, fully paid and nonassessable,
and not subject to preemptive rights. The Company shall not be obligated to pay
any stamp, original issue, transfer or other taxes in respect of this Warrant or
the Common Stock deliverable on the exercise of this Warrant.
4. Limitations on Transfer and Exercise.
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933 (the "Securities Act") or under any state securities laws
and, unless so registered, may not be assigned, transferred, sold, pledged,
hypothecated, or otherwise disposed of unless an exemption from such
registration is available. In the event the Holder desires to transfer the
Warrant or any of the Warrant Shares otherwise then pursuant to an effective
registration statement under the Securities Act, the Holder must give the
Company prior written notice of such proposed transfer, including the name and
address of the proposed transferee, and furnish the Company with an opinion of
counsel satisfactory to the Company to the effect that the proposed transfer may
be effected without registration or qualification under the Securities Act or
any applicable state securities laws.
(b) Regulation S Conditions. This Warrant may not be exercised
unless the Company has received from the Holder (i) a written certification in
the form of the Subscription attached hereto or other form acceptable to counsel
for the Company that the Holder is not a "U.S. Person" as defined in Regulation
S under the Securities Act and is not exercising the Warrant on behalf, or for
the benefit or account, of a "U.S. Person," and (ii) if requested by the
Company, a written opinion of counsel acceptable to counsel for the Company to
the effect that the shares of Common Stock issuable upon exercise of the Warrant
have been registered under the Securities Act and any applicable state
securities laws or are exempt from such registration. THIS WARRANT MAY NOT BE
EXERCISED IN THE UNITED STATES AND THE SHARES OF COMMON STOCK DUE UPON EXERCISE
WILL NOT BE DELIVERED IN THE UNITED STATES UNLESS SUCH SHARES HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OR ARE EXEMPT FROM SUCH REGISTRATION.
(c) Legend and Stop Transfer Orders. Upon exercise of any part
of the Warrant and the issuance of any of the Warrant Shares during the
Restricted Period as defined in the Subscription Agreement between the Company
and the Holder pursuant to which this Warrant is issued, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to such
shares, and all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE
REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND
STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
(d) Transfer. Except as restricted hereby, this Warrant and
the Warrant Shares issued may be transferred by the Holder in whole or in part
at any time or from time to time. Upon surrender of this Warrant to the Company
with assignment documentation duly executed and funds sufficient to pay any
transfer tax, and upon compliance with the foregoing provisions, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment, and this Warrant shall promptly
be cancelled. In the case of transfers to be effected by the Holder's attorney,
executor, administrator, trustee, guardian or other legal representative, the
Company may require such representative to produce and deposit duly
authenticated evidence of such representative's authority before giving effect
to the requested assignment. Any assignment, transfer, pledge, hypothecation or
other disposition of this Warrant attempted contrary to the provisions of this
Warrant, or any levy of execution, attachment or other process attempted upon
the Warrant, shall be null and void and without effect.
5. Indemnification. The Holder acknowledges that the Holder understands
the meaning and legal consequences of Section 4 hereof, regarding securities
laws and conditions to transfer, and the Holder hereby agrees to indemnify and
hold harmless the Company, its representatives and each officer and director
thereof from and against any and all loss, damage or liability (including all
attorneys fees and costs incurred in enforcing this indemnity provision) to
which the Company or any such director or officer or representative may become
subject under the Securities Act or any other statute or common law due to or
arising out of any transfer or disposition of the Warrant or any of the Warrant
Shares not in accordance with this Warrant.
6. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
7. Warrant Holder Not Stockholder. This Warrant does not confer upon
the Holder any right to vote or to consent to or receive notice as a stockholder
of the Company, as such, in respect of any matters whatsoever, or any other
rights or liabilities as a stockholder, prior to the exercise hereof.
8. Communication. No notice or other communication under this Warrant
shall be effective unless the same is in writing and is delivered by hand or is
mailed to:
(a) the Company at 500 Huntmar Park Drive, Herndon, Virginia
22070 or such other address as the Company has designated in writing to the
Holder, or
(b) the Holder at the address set forth above, or such other
address as the Holder has designated in writing to the Company.
All such notices or other communications shall be deemed effective upon
the earlier of confirmed receipt or, if mailed, five business days after deposit
in the United States mail, postage prepaid, registered or certified, return
receipt requested.
9. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
10. Applicable Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
principles of conflicts of law thereof. The Company and the Holder each agree to
submit to the non-exclusive jurisdiction of the courts of the Commonwealth of
Virginia in any action or proceeding arising out of or relating to this Warrant.
11. Successors. All the rights and obligations and other provisions of
this Warrant shall bind and inure to the benefit of the respective successors
and assigns of the parties hereto.
12. Amendment. This Warrant may not be amended orally, but only by an
amendment in writing signed both by the Company and the Holder.
13. Severability. If any provision hereof is for any reason and to any
extent declared to be illegal, invalid or unenforceable, the legality, validity
and enforceability of the remaining provisions of this Warrant shall not in any
way be affected or impaired thereby.
IN WITNESS WHEREOF, NETWORK IMAGING CORPORATION, has caused this
Warrant to be signed by its Chairman and the Board on June 25, 1996.
NETWORK IMAGING CORPORATION
By: /s/ Robert P. Bernardi
-----------------------
Robert P. Bernardi
Chairman
<PAGE>
SUBSCRIPTION
The undersigned, ___________________________________, pursuant to the
provisions of the foregoing Warrant hereby irrevocably agrees to subscribe for
the purchase of ___________ shares of the Common Stock of NETWORK IMAGING
CORPORATION covered by said Warrant, and makes payment therefor in full at the
price per share provided by said Warrant. The undersigned requests that a
certificate representing such shares of Common Stock be issued in the name of
the person (the "Certificate Holder"), and delivered to the address, set forth
below. The undersigned hereby represents that (i) neither the undersigned, the
Certificate Holder nor any person for whom the Certificate Holder is acting or
who will own a beneficial interest in the shares issuable upon exercise is a (a)
natural person resident in the United States, (b) partnership or corporation
organized or incorporated under the laws of the United States, (c) an agency or
branch of a foreign entity located in the United States, (d) a discretionary or
similar account held by a fiduciary organized, incorporated or (if an
individual) resident in the United States, (e) a partnership or corporation
organized under the laws of a non-U.S. jurisdiction and formed for the purpose
of investing in securities not registered under U.S. securities laws, or (f) an
estate of which any executor or administrator, or trust of which any trustee, or
non-discretionary or similar account held by a fiduciary of which a beneficiary,
is a person described by (a), (b), (c), (d) or (e), and (ii) the undersigned is
not located in the United States at the time of making this subscription.
_____________________________ ______________________________
Name of Certificate Holder Signature of Warrant Holder
Signed this ____ day of _____,
199__ at ____________________.
______________________________
______________________________
______________________________
Address of Certificate Holder
______________________________
Taxpayer ID Number of
Certificate Holder
THE SHARES DUE UPON EXERCISE OF THE WARRANT WILL NOT BE DELIVERED
IN THE UNITED STATES.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned Registered Warrant Holder hereby
sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
(Please print or type name and address)
_________________________ of the Warrants represented by this Warrant Certifi-
cate, and hereby irrevocably constitutes and appoints to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated:_____________________ ______________________________________
Signature of Registered Warrant Holder
______________________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND, IF THE WARRANT OR
WARRANT SHARES ARE TO BE ISSUED IN A NAME OTHER THAN THAT OF THE HOLDER, MUST BE
GUARANTEED BY A COMMERCIAL BANK, TRUST COMPANY, CREDIT UNION, SAVINGS AND LOAN
ASSOCIATION. A MEMBER FIRM OF A NATIONAL SECURITIES EXCHANGE OR A BROKERAGE
FIRM.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March 15,
1996 by and among Network Imaging Corporation, a Delaware corporation with
headquarters located at 500 Huntmar Park Drive, Herndon, VA 22070 (the
"Company"), and the undersigned (collectively, the "Buyer").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, (i) to issue and sell to the Buyer shares (the
"Common Shares") of the Company's common stock (the "Common Stock"), and (ii) to
issue to the Buyer warrants (the "Warrants") for the purchase of shares of
Common Stock (as exercised, the "Warrant Shares"); and
B. To induce the Buyer to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyer hereby agree as follows:
1. DEFINITIONS
a. As used in this Agreement, the following terms shall have
the following meanings:
(i) "Investor" means the Buyer and any transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "register," "registered," and "registration"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(iii) "Registrable Securities" means the Common
Shares, the Warrant Shares, and the
Damage Shares (as defined below).
(iv) "Registration Statement" means a registration
statement of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to April 3, 1996, file with the SEC a Registration Statement on Form
S-3 covering the resale of the Registrable Securities, which Registration
Statement shall state that, in accordance with Rule 416 promulgated under the
1933 Act, such Registration Statement also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon exercise of the
Warrants to prevent dilution resulting from stock splits, stock dividends or
similar transactions. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to and approved by the Buyer and its counsel prior to its
filing or other submission.
b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering shall have the right to select
one legal counsel and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company.
c. Payments by the Company. If the Registration Statement
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2(a) hereof is not declared effective by the SEC by June 17, 1996 or
if, after the Registration Statement has been declared effective by the SEC,
sales cannot be made pursuant to the Registration Statement (by reason of stop
order, the Company's failure to update the Registration Statement or otherwise),
or if the Common Stock is not listed or included for quotation on the National
Association of Securities Dealers Automated Quotation (the "NASDAQ"), National
Market System (the "NASDAQ-NMS"), the New York Stock Exchange (the "NYSE"), or
the American Stock Exchange (the "AMEX"), then the Company will make payments to
the Investors in such amounts and at such times as shall be determined pursuant
to this Section 2(c) as partial relief for the damages to the Investors by
reason of any such delay in or reduction of their ability to sell the
Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity). The Company shall pay to each holder of
Registrable Securities an amount equal to the Average Market Price (as defined
below) of the Common Stock during the five (5) consecutive trading days ending
one (1) trading day prior to the Closing Date (the "Closing Date Average Market
Price") multiplied by (the "Multiple Amount") three-hundredths (.03) times the
sum of: (i) the number of months (prorated for partial months) after June 17,
1996 and prior to the date the Registration Statement is declared effective by
the SEC; (ii) the number of months (prorated for partial months) that sales
cannot be made pursuant to the Registration Statement after the Registration
Statement has been declared effective; and (iii) the number of months (prorated
for partial months) that the Common Stock is not listed or included for
quotation on the NASDAQ-NMS, NYSE or AMEX after the Registration Statement has
been declared effective; provided, however, that the Multiple Amount shall not
at any time exceed twenty five hundredths (.25). (For example, if the
Registration Statement becomes effective one and one-half (1 1/2) months after
June 17, 1996, the Company would pay $45,000 for each $1,000,000 of Closing Date
Average Market Price until any subsequent adjustment; if thereafter, sales could
not be made pursuant to the Registration Statement for a period of two (2)
months, the Company would pay an additional $60,000 for each $1,000,000 of
Closing Date Average Market Price). Such amounts may be paid at the Company's
option in cash or Common Stock (the "Damage Shares") valued based on the Average
Market Price for the period (a "Damage Pricing Period") of five (5) consecutive
trading days ending on the trading day prior to the date that the Registration
Statement is declared effective or that sales can be resumed under the
Registration Statement, as applicable; provided, however, any amounts due as to
any Damage Pricing Period during which the Registration Securities are not
listed or included for quotation on the NASDAQ-NMS, NYSE or AMEX shall be paid
in cash only; provided, further, however, that in no event shall Damage Shares
be paid hereunder if, after giving effect to such payment, the number of shares
of Common Stock beneficially owned by such holder and all other holders whose
holdings would be aggregated with such holder for purposes of calculating
beneficial ownership in accordance with Sections 13(d) and 16 of the Securities
Exchange Act of 1934, as amended, and the regulations thereunder ("Sections
13(d) and 16"), including, without limitation, any person serving as an adviser
to any holder (collectively, the "Related Persons"), would exceed four and
ninety five-hundredths percent (4.95%) of outstanding shares of Common Stock
(calculated in accordance with Sections 13(d) and 16); cash shall be paid for
any Damage Shares which cannot be issued pursuant to this proviso. Payments of
cash or issuances of Damage Shares pursuant hereto shall be made within five (5)
days after the end of each period that gives rise to such obligation, provided
that, if any such period extends for more than thirty (30) days, interim
payments shall be made for each such thirty (30) day period with the interim
payment (if paid in Damage Shares) based on the last five (5) trading days of
such thirty (30) day period. "Average Market Price" of any security for any
period shall be computed as the arithmetic average of the closing bid prices for
such security for each trading day in such period on the NASDAQ-NMS, or, if the
NASDAQ-NMS is not the principal trading market for such security, on the
principal trading market for such security, or, if market value cannot be
calculated for such period on any of the foregoing bases, the Average Market
Price shall be the average fair market value during such period as reasonably
determined in good faith by the Board of Directors of the Company.
d. Piggy-Back Registrations. If at any time prior to the
effective date of the Registration Statement required to be filed by the Company
pursuant to Section 2(a) hereof, the Company shall file with the SEC a
Registration Statement relating to an offering or its own account or the account
of others under the 1933 Act of any of its equity securities (other than on Form
S-4 or Form S-8 of their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans) the Company shall send to each Investor who is entitled to
registration rights under this Section 2(d) written notice of such determination
and, if within twenty (20) days after receipt of such notice, such Investor
shall so request in writing, the Company shall include in such Registration
Statement all or any part of the Registrable Securities such Investor requests
to be registered, except that if, in connection with any underwritten public
offering for the account of the Company the managing underwriter(s) thereof
shall impose a limitation on the number of shares of Common Stock which may be
included in the Registration Statement because, in such underwriter(s)'
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then the Company shall be obligated to include
in such Registration Statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion
hereunder; provided that no portion of the equity securities which the Company
is offering for its own account shall be excluded; provided further that the
Company shall be entitled to exclude Registrable Securities to the extent
necessary to avoid breaching obligations existing prior to the date hereof to
other stockholders of the Company. Any exclusion of Registrable Securities shall
be made pro rata among the Investors seeking to include Registrable Securities,
in proportion to the number of Registrable Securities sought to be included by
such Investors; provided, however, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not entitled to inclusion of such
securities in such Registration Statement or are not entitled to pro rata
inclusion with the Registrable Securities; and provided further, however, that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the Registration Statement other
than holders of securities entitled to inclusion of their in such Registration
Statement by reason of demand registration rights. No right to registration of
Registrable Securities under this Section 2(d) shall be construed to limit any
registration required under Section 2(a) hereof. The obligations of the Company
under this Section 2(d) may be waived by Investors holding a majority in
interest of the Registrable Securities. If an offering in connection with which
an Investor is entitled to registration under this Section 2(d) is an
underwritten offering, then each Investor whose Registrable Securities are
included in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering.
e. Eligibility for Form S-3. The Company represents and
warrants that it meets the requirement for the use of Form S-3 for registration
of the sale by the Buyer and any other Investor of the Registrable Securities
and the Company shall file all reports required to be filed by the Company with
the SEC in a timely manner so as to maintain such eligibility for the use of
Form S-3. In the event that Form S-3 is not available for the sale by the
Investors of the Registrable Securities, the Company shall register the sale on
another appropriate form.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC
not later than April 3, 1996, a Registration Statement with respect to the
number of Registrable Securities provided in Section 2(a), and thereafter to use
its best efforts to cause each Registration Statement relating to Registrable
Securities to become effective as soon as possible after such filing, and keep
the Registration Statement effective pursuant to Rule 415 at all times until
such date as the earlier of (i) at least three (3) years after the date of the
expiration of all of the Warrants, or (ii) the date on which (a) all of the
Warrants have been exercised or expired and (b) no Registrable Securities are
held by any Investor (the "Registration Period"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement.
c. The Company shall furnish to each investor whose
Registrable Securities are included in the Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto each preliminary prospectus and prospectus and each
amendment or supplement thereto, and, in the case of the Registration Statement
referred to in Section 2(a), search letter written by or on behalf of the
Company to the ss. or the staff of the SEC, and each item of correspondence from
the SEC or the staff of the SEC, in each case relating to such Registration
Statement (other than any portion of any thereof which contains information for
which the Company has sought confidential treatment), and (ii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Investors who hold a majority in interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause more than nominal expense or burden to the Company, or (e) make any change
in its charter or bylaws, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders.
e. In the event Investors who hold a majority in interest of
the Registrable Securities being offered in the offering select underwriters for
the offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnifications and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, and deliver such number of copies of such
supplement or amendment to each Investor as such Investor may reasonably
request.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
h. The Company shall permit a single firm of counsel,
designated as selling stockholders' counsel by the Investors who hold a majority
in interest of the Registrable Securities being sold, to review the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC, and not file any document in a form to which
such counsel reasonably objects.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
j. At the request of the Investors who hold a majority in
interest of the Registrable Securities being sold, the Company shall furnish, on
the date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with the Registration Statement (i) if required by an
underwriter, a letter, dated such date, from the Company's independent certified
public accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, and (ii) an opinion, dated as of such date, from
counsel representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the underwriters and the Investors.
k. the Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Buyer, (iv) one firm of attorneys and one firm
of accountants or other agents retained by all other Investors, and (v) one firm
of attorneys retained by all such underwriters (collectively, the "Inspectors")
all pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall be reasonably
deemed necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(k). Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, as its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company hereof
unless (i) disclosure of such information is necessary to comply with federal or
state securities laws, (ii) the disclosure of such information is necessary to
avoid or correct a misstatement or omission in any Registration Statement, (iii)
the release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor, and
allow the Investor, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protection order for, such information.
m. The Company shall use its best efforts to cause all the
Registrable Securities covered by the Registration Statement to be listed on
NYSE or AMEX or included for quotation on NASDAQ-NMS.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities and CUSIP numbers
therefor not later than the effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates to be in such denomination
or amounts, as the case may be, as the managing underwriter or underwriters, if
any, or the Investors may reasonably request and registered in such names as the
managing underwriter or underwriters, if any, or the Investors may request. No
later than the effective date of any Registration Statement registering the
resale of Registrable Securities, the Company shall deliver to its transfer
agent instructions, accompanied by any reasonably required opinion of counsel,
that (i) permit sales of legended securities in a timely fashion that complies
with then mandated securities settlement procedures for regular way market
transactions; and (ii) upon the exercise of Warrants and the contemporaneous
resale, pursuant to a Registration Statement, of the applicable Warrant Shares,
permit the issuance of stock certificates without restrictive legends to the
transferees of such Warrant Shares.
p. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTOR.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5)
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor if such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement.
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
c. In the event Investors holding a majority in interest of
the Registrable Securities being registered determine to engage the services of
an underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the fees and
disbursements of one (1) firm of counsel for the Investors, shall be borne by
the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers and each person who controls any
Investor within the meaning of the 1933 Act or the Securities Exchange Act of
1934, as amended (the "1934 Act"), if any, and (iii) any underwriter (as defined
in the 1933 Act) for the Investors; and the directors, officers and each person
who controls any such underwriter within the meaning of the 1933 Act or the 1934
Act, if any, (each, an "Indemnified Person") to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, or any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6(d) with respect to the number of
legal counsel, the Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim,
subject to the provisions of Section 6(d). Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person or underwriter for
such Indemnified Person expressly for use in connection with the preparation of
the Registration Statement or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (ii) with respect to any preliminary prospectus, shall not inure to
the benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(c) hereof; (iii)
shall not be available to the extent such Claim is based on a failure of the
Investor to deliver or to cause to be delivered the prospectus made available by
the Company; and (iv) shall not apply to amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify, hold harmless
and defend, to the same extent and in the same manner set forth in Section 6(a),
the Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls the Company within the
meaning of the 1933 Act or the 1934 Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an indemnified Person, an "Indemnified Party"), against any Claim
to which any of them may become subject, under the 1933 Act, the 1934 Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement or to the extent such Claim is based upon any violation or alleged
violation by the Investor of the 1933 Act, the 1934 Act, or any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder; and such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section s6(b) shall not apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written consent of
such Investor, which consent shall not be unreasonably withheld; provided,
further, however, that the Investor shall be liable under this Section 6(b) for
only that amount of a Claim as does not exceed the net proceeds to such Investor
as a result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing by such
persons expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any government action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The Company shall pay for only one separate legal counsel for the
Investors, and such legal counsel shall be selected by the Investors holding a
majority in interest of the Registrable Securities included in the Registration
Statement to which the Claim relates. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1934 Act so long as the Company
remains subject to such requirements (it being understood that nothing herein
shall limit the Company's obligations under Section 4(c) of the Securities
Purchase Agreement) and the filing of such reports and other documents is
required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 and the
1934 Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the investors to
sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS
The rights to have the Company register Registrable Securities pursuant
to this Agreement shall be automatically assignable by the Investors to any
transferee of all or any portion of Registrable Securities if: (i) the Investor
agrees in writing with the transferee or assignee or assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment, (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
immediately following such transfer or assignment the further disposition of
such securities laws, (iv) at or before the time the Company receives the
written notice contemplated by clause (ii) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein and by all the provisions of the Securities Purchase Agreement
that deal with the transfer or resale of the Registrable Securities, (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement, and (vi) such transferee shall be an
"accredited investor" as that term defined in Rule 501 of Regulation D
promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company and
Investors who hold a majority in interest of the Registrable Securities. Any
amendment or waiver effected in accordance with Section 10 shall be binding upon
each Investor and the Company.
11. MISCELLANEOUS
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Notices required or permitted to be given thereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission or
other means) or sent by certified mail, return receipt requested, properly
addressed and with proper postage pre-paid,
if to the Company:
Network Imaging Corporation
500 Huntmar Park Drive
Handgun, VA 22070
Telephone: (703) 478-2260
Telecopy: (703) 478-0147
Attention: Robert P. Bernardie
with copy to:
Jones & Blouch, L.L.P.
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 2007
Telephone: (202) 223-3500
Telecopy: (202) 223-4593
Attention: John W. Blouch, Esq.
if to the Buyer, at the addresses listed on the signature page
with copy to:
Genesee Advisers
11921 Freedom Drive, Suite 550
Reston, VA 22090
Telephone: (703) 904-4349
Telecopy: (703) 834-6627
Attention: Neil T. Chau
and:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telephone: (215) 569-3399
Telecopy: (215) 568-6060
Attention: Jason M. Shargel, Esq.
and if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each party
furnishes by notice given in accordance with this Section 11(b), and shall be
effective, when personally delivered, upon receipt and, when so sent by
certified mail, four days after deposit with the United States Postal Service.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be enforced, governed by and construed
in accordance with the laws of the Commonwealth of Virginia applicable to
agreements made and to be performed entirely within such State. In the event
that any provision of this Agreement is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any law shall not affect the validity
of enforceability of any other provision hereof.
e. This Agreement and the Securities Purchase Agreement
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement and the Securities Purchase Agreement supersede all
prior agreements and understandings among t he parties hereto with respect to
the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, one executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
IN WITNESS WHEREOF, the parties have caused to be duly executed under
seal as of day and year first above written.
NETWORK IMAGING CORPORATION
By: ______________________________
Name: ____________________________
Its: ______________________________
GFL PERFORMANCE FUND LTD.
By: ______________________________
Name: ____________________________
Its: ______________________________
Address: Genesee Fund Limited
CITCO Building
Wickhams Cay
P.O. Box 662
Road Town, Tortola
British Virgin Islands
Administrator
Curacao International Trust Co. N.V.
Kaya Flamboyan 9
P.O. Box 812
Curacao, Netherland Autilles
WARRANT TO PURCHASE COMMON STOCK
OF
NETWORK IMAGING CORPORATION
Holder:
Name: Redington, Inc.
Address: 174 Post Road West
Wesport, CT 06880
No. of Shares of Common Stock: 5,000 shares
Grant Date: October 21, 1993
Termination Date: October 20, 1998 (at 5:00 p.m.
Washington, D.C. Time)
Purchase Price Per Share: $14.85
- --------------------------------------------------------------------------------
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE; THE WARRANT MAY NOT BE EXERCISED, AND THE WARRANT
AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE MAY NOT BE SOLD,
ENCUMBERED OR OTHERWISE TRANSFERRED, WITHOUT COMPLIANCE WITH THE REGISTRATION OR
QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
APPLICABLE EXEMPTIONS THEREFROM; IF AN EXEMPTION IS APPLICABLE, THE HOLDER SHALL
DELIVER AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
AND QUALIFICATION ARE NOT REQUIRED.
- --------------------------------------------------------------------------------
<PAGE>
FOR VALUE RECEIVED, Network Imaging Corporation, a Delaware Corporation
(the "Company"), hereby certifies that the person identified above as the holder
or permitted assigns (the "Holder") is entitled to purchase from the Company
5,000 fully paid and nonassessable shares of Common Stock, par value $.0001 per
share, of the Company at the purchase price of $14.85 per share. (Hereinafter,
(i) said Common Stock, together with any other equity securities which may be
issued by the Company with respect thereto or in substitution therefor, is
referred to as the "Common Stock," (ii) the shares of the Common Stock
purchasable hereunder are referred to as the "Warrant Shares," (iii) the
aggregate purchase price payable hereunder for the Warrant Shares is referred to
as the "Aggregate Warrant Price," (iv) the price payable hereunder for each of
the Warrant Shares is referred to as the "Per Share Warrant Price," and (v) this
Warrant and all warrants hereafter issued in exchange or substitution for this
Warrant are referred to as the "Warrant.")
1. Exercise of Warrant. The Warrant may be exercised at any time or
from time to time commencing on the date hereof and prior to 5:00 p.m.
Washington, D.C. time on the Termination Date set forth above. The Holder may
exercise this Warrant for the number of shares then exercisable (or any lesser
amount of shares the Holder may choose to exercise) by the surrender of this
Warrant (with the subscription form at the end hereof duly executed) at the
address set forth in Subsection 8(a) hereof, together with proper payment of the
Aggregate Warrant Price (or the proportionate part thereof if this Warrant is
exercised in part). Payment for Warrant Shares shall be made by certified or
official bank check payable to the order of the Company. Upon such surrender of
this Warrant, the Company will issue a certificate or certificates in the name
of the Holder for the largest number of whole shares of the Common Stock to
which the Holder shall be entitled and, in lieu of issuing any fractional share
of Common Stock to which the Holder shall be entitled, shall pay the Holder cash
equal to the value of such fractional share (all calculations to be made to the
nearest cent). In the event that the Warrant Shares have not been registered
under the Securities Act prior to exercise, the Holder agrees to execute an
investment letter in the form of Attachment B prior to delivery of the Warrant
Shares due upon exercise. The Warrants may not be exercised in full or in part
by any Holder if, in the opinion of counsel to the Company, exercise of the
Warrants by such Holder would violate the securities registration provisions of
the securities laws of the United States or any jurisdiction the laws of which
apply to such exercise.
2. Adjustments. In case the Company shall hereafter (i) pay a dividend
in shares of Common Stock, (ii) subdivide its outstanding shares of Common
Stock, or (iii) combine its outstanding shares of Common Stock into a smaller
number of shares, then, and in each such case, the number of shares of Common
Stock which the Holder is entitled to purchase pursuant to this Warrant
immediately prior to the happening of any of such events shall be adjusted so
that the Holder shall be entitled to receive upon exercise of this Warrant the
number of shares of Common Stock which he would have owned or would have been
entitled to receive immediately following the happening of such event had this
Warrant been exercised immediately prior thereto, and the Per Share Warrant
Price shall be correspondingly adjusted. An adjustment made pursuant to this
Section 2 shall become effective immediately after the record date in the case
of a dividend and shall become effective immediately after the effective date in
the case of a subdivision or combination.
3. Fully Paid Stock; Taxes. The Company agrees that the shares of the
Common Stock delivered on the exercise of this Warrant, at the time of such
delivery, will be validly issued and outstanding, fully paid and nonassessable,
and not subject to preemptive rights. The Company shall not be obligated to pay
any stamp, original issue, transfer or other taxes in respect of this Warrant or
the Common Stock deliverable on the exercise of this Warrant.
4. Non-Assignability.
(a) Non-Assignability; Exceptions Thereto. This Warrant may not be
assigned or transferred by the Holder except (i) by operation of law, (ii) to
Thomas Redington, or (iii) pursuant to an effective registration statement under
the Securities Act of 1933 (the "Securities Act").
(b) Conditions to Transfer. Prior to any such proposed transfer, and as
a condition thereto, if such transfer is not made pursuant to an effective
registration statement under the Securities Act, the Holder will, if requested
by the Company, deliver to the Company: (i) an investment covenant signed by the
proposed transferee, (ii) an agreement by such transferee to the impression of
the restrictive investment legend set forth herein on the certificate or
certificates representing the securities acquired by such transferee, and (iii)
an agreement by such transferee that the Company may place a "stop transfer
order" with its transfer agent or registrar.
(c) Legend and Stop Transfer Orders. Unless the Warrant Shares have
been registered under the Securities Act, upon exercise of any part of the
Warrant and the issuance of any of the Warrant Shares, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to such
shares, and all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE
REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND
STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
(d) Transfer. In the case of transfers to be effected by the Holder's
attorney, executor, administrator, trustee, guardian or other legal
representative, the Company or its stock transfer agent may require such
representative to produce and deposit duly authenticated evidence of such
representative's authority before giving effect to the requested assignment. Any
assignment, transfer, pledge, hypothecation or other disposition of this Warrant
attempted contrary to the provisions of this Warrant, or any levy of execution,
attachment or other process attempted upon the Warrant, shall be null and void
and without effect.
5. Indemnification. The Holder acknowledges that the Holder understands
the meaning and legal consequences of Section 4 hereof, regarding securities
laws and conditions to transfer, and the Holder hereby agrees to indemnify and
hold harmless the Company, its representatives and each officer and director
thereof from and against any and all loss, damage or liability (including all
attorney's fees and costs incurred in enforcing this indemnity provision) to
which the Company or any such director or officer or representative may become
subject under the Securities Act or any other statute or common law due to or
arising out of any transfer or disposition of the Warrant or any of the Warrant
Shares not in accordance with this Warrant.
6. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
7. Warrant Holder Not Stockholder. This Warrant does not confer upon
the Holder any right to vote or to consent to or receive notice as a stockholder
of the Company, as such, in respect of any matters whatsoever, or any other
rights or liabilities as a stockholder, prior to the exercise hereof.
8. Communication. No notice or other communication under this Warrant
shall be effective unless the same is in writing and is delivered by hand or is
mailed to:
(a) the Company at 500 Huntmar Park Drive, Herndon, Virginia 22070 or
such other address as the Company has designated in writing to the Holder, or
(b) the Holder at the address set forth above, or such other address as
the Holder has designated in writing to the Company.
All such notices or other communications shall be deemed effective upon
the earlier of confirmed receipt or, if mailed, five business days after deposit
in the United States mail, postage prepaid, registered or certified, return
receipt requested.
9. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
10. Applicable Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
principles of conflicts of law thereof. The Company and the Holder each agree to
submit to the non-exclusive jurisdiction of the courts of the State of Virginia
in any action or proceeding arising out of or relating to this Warrant.
11. Successors. All the rights and obligations and other provisions of
this Warrant shall bind and inure to the benefit of the respective successors
and assigns of the parties hereto.
12. Amendment. This Warrant may not be amended orally, but only by an
amendment in writing signed both by the Company and the Holder.
13. Severability. If any provision hereof is for any reason and to any
extent declared to be illegal, invalid or unenforceable, the legality, validity
and enforceability of the remaining provisions of this Warrant shall not in any
way be affected or impaired thereby.
IN WITNESS WHEREOF, NETWORK IMAGING CORPORATION, has caused this
Warrant to be signed by its President and its corporate seal to be hereunto
affixed and attested by its Secretary this 5th day of October, 1993.
(Corporate Seal) NETWORK IMAGING CORPORATION
ATTEST: By: /s/ Robert P. Bernardi
------------------------
Robert P. Bernardi
President
/s/ John B. Mann
- ----------------------
John B. Mann
Secretary
<PAGE>
SUBSCRIPTION
The undersigned, ___________________________________, pursuant to the
provisions of the foregoing Warrant agrees to subscribe for the purchase of
___________ shares of the Common Stock of NETWORK IMAGING CORPORATION covered by
said Warrant, and makes payment therefor in full at the price per share provided
by said Warrant.
Dated:___________________ Signature:_______________________________
Address: _______________________________
_______________________________
ASSIGNMENT
FOR VALUE RECEIVED hereby sells, assigns and transfers unto the
foregoing Warrant and all rights evidenced thereby, and does irrevocably
constitute and appoint attorney, to transfer said Warrant on the books of
NETWORK IMAGING CORPORATION.
Dated:_______________ Signature:________________________
Address: ________________________
________________________
<PAGE>
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________________ hereby assigns and
transfers unto the right to purchase shares of the Common Stock of NETWORK
IMAGING CORPORATION by the foregoing Warrant, and a proportionate part of said
Warrant and the rights evidenced hereby, and does irrevocably constitute and
appoint , attorney, to transfer that part of said Warrant on the books of
NETWORK IMAGING CORPORATION.
Dated:_____________________ Signature:_______________________
Address: _______________________
_______________________
<PAGE>
Attachment A
Registration Rights
Network Imaging Corporation (the "Company") agrees to extend the
registration rights set forth below to Redington, Inc. or its successors as
Holder of the Company's warrant to Purchase Common Stock dated October 21, 1993
(the "Warrant"). Capitalized terms used herein and not defined have the same
meanings as given to them in the Warrant.
1. The Company hereby undertakes to register under the Securities Act
of 1933, as amended (the "Act"), no later than May 8, 1994, any of the Warrant
Shares, provided the Company has received the consent of the Company's
underwriters to such registration. The Company shall advise the Holder by
written notice at least four weeks prior to the filing of the registration
statement under the Act covering the Warrant Shares, and will include in any
such registration statement at the request of the Holder such information as may
be required to permit a public offering of the Warrant Shares that are then
exercisable. The Company shall not be obligated to maintain such registration
statement in effect for more than nine months after its effective date. The
Company shall supply prospectuses and such other documents as the Holder may
reasonably request in order to facilitate the public sale or other disposition
of such Warrant Shares, use its best efforts to register and qualify any of such
Warrant Shares for sale in such states as such Holder designates and furnish
indemnification in the manner provided below. The Holder shall furnish to the
Company such information regarding the Holder as the Company shall reasonably
request in writing in connection with the registration statement and shall
furnish indemnification to the Company as set forth below. All costs and
expenses of such registration statement shall be borne by the Company except
that the Holder shall bear the fees of its own counsel and any underwriting
discounts or commissions applicable to any of the Warrant Shares sold by such
Holder. To participate in the registration offered hereby, the Holder must
comply with all the terms and conditions set forth herein.
2. The following provisions shall apply in the event of a registration
effected pursuant to Section 1 hereof:
(a) Whenever pursuant to Section 1, a registration statement
relating to the Warrant Shares is filed under the Act, amended or supplemented,
the Company will indemnify and hold harmless each Holder of the securities
covered by such registration statement, amendment or supplement (such Holder
being hereinafter called the "Distributing Holder"), and each person, if any,
who controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages or liabilities, joint or several, to which
the Distributing Holder, any such underwriter, or any such controlling person
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities, or actions in respect thereof, arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any preliminary prospectus or
final prospectus constituting a part thereof or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading and will reimburse the Distributing
Holder or such underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in said registration statement, said preliminary prospectus, said
final prospectus or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Distributing Holder or any
other Distributing Holder for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this
Section 2 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 2.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 2 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
<PAGE>
Attachment B
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, VA 22070
Dear Sirs:
The undersigned hereby exercises a warrant to purchase the number of
shares of Common Stock of Network Imaging Corporation (the "Company") set forth
below (the "Shares"), encloses herewith the aggregate purchase price for the
Shares, and represents, warrants and agrees as follows:
1. The undersigned is acquiring the Shares for investment and not with
a view to resale or distribution thereof. The undersigned has no present
intention of selling or otherwise disposing of all or any of such Shares, and is
acquiring the Shares for the undersigned's own account. No other person has a
direct or indirect beneficial interest in the Shares.
2. The undersigned understands: that the Shares are not registered
under the Securities Act of 1933 (the "Act"); that the Shares are being issued
in reliance upon the provisions of Section 4(2) of the Act, exempting from the
registration requirements of the Act transactions not involving any public
offering; that the Shares must be held indefinitely unless they are subsequently
registered under the Act or unless an exemption from such registration is
available, such as that provided by Rule 144 under the Act; and that, except as
set further in Attachment A to the Warrant issued to Redington, Inc. on October
21, 1993, the Company is under no obligation to register the Shares or to comply
with any conditions required for an exemption from registration.
3. The undersigned has such knowledge and experience in financial and
business affairs as to be capable of evaluating the merits and risks of
acquiring the Shares. The undersigned understands the very substantial risks
associated with investment in the Company, is able to bear indefinitely the
economic risk of acquiring the Shares, has other adequate means of providing for
current needs and contingencies, has no need for liquidity with respect to such
investment and could afford the complete loss thereof.
4. The undersigned agrees not to sell any of the Shares without
registration under applicable federal and state securities laws or an opinion of
counsel satisfactory to the Company that registration is not required under the
Act or any applicable state securities laws. The undersigned further consents to
the placement of a restrictive legend on the certificates evidencing the Shares
in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE
REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND
STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
5. Consistent with the foregoing, the undersigned further consents to
issuance of stop-transfer instructions to the Company's transfer agent, if any,
with respect to the Shares or the notation of stop-transfer instructions in
appropriate records of the Company.
Number of Shares:__________ Aggregate Purchase Price: $ _________________
Dated:_____________________ Taxpayer Identification No. _________________
Very truly yours,
______________________________
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of December 31, 1996 between NETWORK IMAGING
CORPORATION, a corporation duly organized and validly existing under the laws of
the State of Delaware (the "Company") and FRED KASSNER, an individual with an
address at 69 Spring Street Ramsey, New Jersey 07446 (the "Holder").
W I T N E S S E T H:
WHEREAS, the Holder has been issued warrants to purchase 100,000 shares
of the common stock, $.0001 par value (the "Common Stock") of the Company and
will be issued such additional warrants as shall be issued by the Company
pursuant to a Warrant Agreement of even date herewith (the "Warrants");
WHEREAS, this is the Registration Rights Agreement referred to in the
Loan Agreement, of even date herewith (the "Loan Agreement") between the Company
and the Holder; and
WHEREAS, it is a condition to the willingness of the Holder to enter
into the Loan Agreement and to make the Loan provided for thereunder that the
Company enter into this Agreement,
NOW, THEREFORE, in order to induce the Holder to enter into the Loan
Agreement and to make the Loan provided for thereunder, the Company hereby
agrees with the Holder as follows:
1. Registration Rights.
(a) At the conclusion of the twelfth full calendar
month following the date hereof, the Company will cause all the Common Stock
issued or issuable upon exercise of the Warrants (such Common Stock is
hereinafter referred to as the "Registrable Securities") to be included in a
registration statement on Form S-3 or to the extent not so eligible, then on
Form S-1 or other available form, all to the extent requisite to permit the sale
or other disposition by the prospective seller or sellers of the Registrable
Securities.
(b) From and after the date hereof, and prior to
the requirement of filing in (a) above, if the Company shall determine to
proceed with the actual preparation and filing of a registration statement under
the Act (the "Act") in connection with the proposed offer and sale of any of its
securities by it or any of its security holders (other than a registration
statement on Form S-4, S-8 or other limited purpose form), the Company will give
written notice of its determination to all record holders of (i) the Warrants
and (ii) any Registrable Securities. Upon the written request from the Holders
then holding 40% or more of the Registrable Securities (on a fully diluted
basis) within fifteen (15) days after receipt of any such notice from the
Company, the Company will, except as herein provided, cause all such Registrable
Securities for which registration is requested to be included in such
registration statement, all to the extent requisite to permit the sale or other
disposition by the prospective seller or sellers of the Registrable Securities
for which registration is requested to be so registered; provided, further, that
nothing herein shall prevent the Company from, at any time, abandoning or
delaying any registration. If any registration pursuant to this clause (b) of
Section l(b) shall be underwritten in whole or in part, the Company may require
that the Registrable Securities requested for inclusion pursuant to this Section
l(b) be included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters.
The obligation of the Company under this clause (b) of Section
1 shall be limited to include Registrable Securities in two registration
statements only.
2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 1 to effect the registration of
Registrable Securities under the Act, the Company will:
(a) prepare and file with the SEC a registration
statement with respect to such securities, and use its best efforts to cause
such registration statement to become and (with respect to registrations
pursuant to clause (b) of Section 1) remain effective for such period as may be
reasonably necessary to effect the sale of such securities, not to exceed six
months;
(b) (with respect to registrations pursuant to
clause (b) of Section 1) prepare and file with the SEC such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective for such period
as may be reasonably necessary to effect the sale of such securities, not to
exceed six months;
(c) (with respect to registrations pursuant to
clause (b) of Section 1) furnish to the security holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities;
(d) use its best efforts to register or qualify the
securities covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders may reasonably
request in writing within twenty (20) days following the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified;
(e) notify the security holders participating in
such registration, promptly after it shall receive notice thereof, of the time
when such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(f) notify such holders promptly of any request by
the SEC for the amending or supplementing of such registration statement or
prospectus or for additional information;
(g) prepare and file with the SEC, promptly upon
the request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the reasonable opinion of counsel
for such holders (and concurred in by counsel for the Company), is required
under the Act or the rules and regulations thereunder in connection with the
distribution of Common Stock by such holder;
(h) prepare and promptly file with the SEC and
promptly notify such holders of the filing of such amendment or supplement to
such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Act, any event shall have
occurred as the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the light
of the circumstances in which they were made, not misleading;
(i) advise such holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued; and
(j) If the Holder(s) elect to participate in the
underwriting and have the underwriter(s) sell their shares, upon registration,
the Holder(s) shall sign such agreements (including underwriting agreements and
lock-up agreements) as are customary in connection with such registration and
provide the Company with such information for inclusion in the registration
statement as is reasonably and customarily requested.
3. Expenses.
(a) With respect to each inclusion of Registrable
Securities in a registration statement pursuant to Section 1 hereof, all fees,
costs and expenses of and incidental to such registration, inclusion and public
offering (as specified in paragraph (b) below) in connection therewith shall be
borne by the Company, provided, however, that any security holders participating
in such registration shall bear their pro rata share of the underwriting
discount and commissions and transfer taxes.
(b) The fees, costs and expenses of registration to
be borne by the Company as provided in paragraph (a) above shall include,
without limitation, all registration, filing, and NASD fees, printing expenses,
fees and disbursements of counsel and accountants for the Company, and all legal
fees and disbursements and other expenses of complying with state securities or
blue sky laws of any jurisdictions in which the securities to be offered are to
be registered and qualified (except as provided in 3(a) hereof). Fees and
disbursements of counsel and accountants for the selling security holders and
any other expenses incurred by the selling security holders not expressly
included above shall be borne by the selling security holders.
4. Indemnification.
(a) The Company will indemnify and hold harmless
each holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of Section 1 hereof, its directors and
officers, and any underwriter (as defined in the Act) for such holder and each
person, if any, who controls such holder or such underwriter within the meaning
of the Act, from and against, and will reimburse such holder and each such
underwriter and controlling person with respect to, any and all loss, damage,
liability, cost and expense to which such holder or any such underwriter or
controlling person may become subject under the Act or otherwise, insofar as
such losses, damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, provided, however, that the Company will not be
liable in any such case to the extent that any such loss, damage, liability,
cost or expenses arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by such holder, such underwriter or such controlling
person in writing specifically for use in the preparation thereof.
(b) Each holder of Registrable Securities included
in a registration pursuant to the provisions of Section 1 hereof will indemnify
and hold harmless the Company, its directors and officers, any controlling
person and any underwriter from and against, and will reimburse the Company, its
directors and officers, any controlling person and any underwriter with respect
to, any and all loss, damage, liability, cost or expense to which the Company or
any controlling person and/or any underwriter may become subject under the Act
or otherwise, insofar as such losses, damages, liabilities, costs or expenses
are caused by any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon and in
strict conformity with written information furnished by or on behalf of such
holder specifically for use in the preparation thereof.
5. Miscellaneous.
(a) All notices and other communications provided
for herein shall be by telex, telegraph, cable or in writing and telexed,
telecopied, telegraphed, cabled, mailed or delivered to the intended recipient
at the telephone number or "Address for Notices" specified below its name on the
signature pages hereof; or, as to any party, at such other telephone number or
address as shall be designated by such party in a notice to each other party.
Except as otherwise provided in this Agreement, all notices and other
communications hereunder shall be deemed to have been duly given when
transmitted by telex or telecopier or delivered to the telegraph or cable
office, in each case addressed as aforesaid or personally delivered or, in the
case of a mailed notice, three (3) days after deposit in mail.
(b) Any provision of this Agreement may be mod-
ified or waived only by an instrument or instruments in writing signed by the
Company and the Holder.
(c) This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
(c) This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
(d) Captions and section headings appearing herein
are included solely for convenience of reference only and are not intended to
affect the interpretation of any provision of this Agreement.
(e) THIS AGREEMENT SHALL BE GOVERNED BY, AND CON-
STRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW JERSEY APPLICABLE TO
AGREEMENTS EXECUTED AND TO BE WHOLLY PERFORMED WITHIN THAT STATE.
(f) THE COMPANY BY ITS EXECUTION HEREOF (i) HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF THE STATE OF NEW
JERSEY AND TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT LOCATED IN
ESSEX COUNTY IN NEW JERSEY FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER
PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER
HEREOF AND (ii) HEREBY WAIVES TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW,
AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY
SUCH PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION
OF THE ABOVE-NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT
OR EXECUTION, THAT ANY SUCH PROCEEDING BROUGHT IN ONE OF THE ABOVE-NAMED COURTS
IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN ONE OF THE ABOVE-NAMED COURTS IS IMPROPER, OR THAT THIS AGREEMENT OR
THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT. THE COMPANY
HEREBY CONSENTS TO SERVICE OF PROCESS IN ANY SUCH PROCEEDING IN ANY MANNER
PERMITTED BY THE CIVIL CODE OF THE STATE OF NEW JERSEY, AND AGREES THAT SERVICE
OF PROCESS BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, AT ITS
ADDRESS SPECIFIED IN OR PURSUANT TO SECTION 5(a) HEREOF IS REASONABLY CALCULATED
TO GIVE ACTUAL NOTICE.
(e) Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms or provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
NETWORK IMAGING CORPORATION
By: /s/ James J. Leto
--------------------
Title: President & CEO
Address for Notices:
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170-5100
Telephone No.:
Telecopier No.:
_________________________________
Fred Kassner
Address for Notices:
69 Spring Street
Ramsey, New Jersey 07446
Telephone No.: (201) 934-3750
Telecopier No.: (201) 934-3617
Attention:
with copies to:
Susan G. Kaufman, Esq.
69 Spring Street
Ramsey, New Jersey 07446
Telephone No.: (201) 934-3626
Telecopier No.: (201) 934-3617
WARRANT AGREEMENT
AGREEMENT, dated as of the 31st day of December, 1996, by and
among NETWORK IMAGING CORPORATION, a Delaware corporation (the "Company") and
AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a Loan Agreement dated as of
December 31, 1996 (the "Loan Agreement"), between the Company and Fred Kassner
(the "Lender"), the Company has agreed to issue One Hundred Thousand (100,00)
Class Warrants upon the execution of this Agreement, and for each $500,000, in
the aggregate, that the Company borrows from Lender under the Loan Agreement,
the Company shall issue an additional warrant for ten thousand (10,000) shares
of the Company's common stock (the "Warrants"), each Warrant entitling the
holder thereof to purchase one share of the Company's Common Stock, $.0001 par
value ("Common Stock"), at an exercise price of $3.0625 per share, and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer and exchange of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the fol-
lowing terms shall have the following meanings, unless the context shall
otherwise require:
(a) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date hereof at 40 Wall
Street, New York, New York 10005.
(b) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(c) "Purchase Price" shall mean the purchase price per share
to be paid upon exercise of each Warrant in accordance with the terms hereof,
which price shall be $3.0625 per share, subject to adjustment from time to time
pursuant to the provisions of Section 8 hereof, and subject to the Company's
right to reduce the Purchase Price upon notice to all warrantholders.
(d) "Registered Holder" shall mean as to any Warrant and as of
any particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant
(e) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase one (1) share
of Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant Certificates
representing 100,000 Warrants shall be executed by the Company and delivered to
the Warrant Agent; and for each Five Hundred Thousand ($500,000) Dollars, in the
aggregate, that the Company borrows from Lender under the Loan Agreement, the
Company shall issue an additional warrant certificate for ten thousand (10,000)
Warrants. Upon written order of the Company signed by its President or Chairman
or a Vice President and by its Secretary or an Assistant Secretary, a Warrant
Certificate representing said amount of Warrants shall be countersigned, issued
and delivered by the Warrant Agent.
(c) From time to time, the Transfer Agent shall countersign
and deliver stock certificates in required whole number denominations
representing the shares of Common Stock issuable upon the exercise of Warrants
in accordance with this Agreement.
(d) From time to time, the Warrant Agent shall countersign and
deliver Warrant Certificates in required whole number denominations to the
persons entitled thereto in connection with any transfer or exchange permitted
under this Agreement; provided that no Warrant Certificates shall be issued
except (i) those initially issued hereunder, (ii) those issued on or after the
Exercise Date, upon the exercise of fewer than all Warrants represented by any
Warrant Certificate, to evidence any unexercised Warrants held by the exercising
Registered Holder, (iii) those issued upon any transfer or exchange pursuant to
Section 6; (iv) those issued in replacement of lost, stolen, destroyed or
mutilated Warrant Certificates pursuant to Section 7; and (v) at the option of
the Company, in such form as may be approved by the its Board of Directors, to
reflect any adjustment or change in the Purchase Price or the number of shares
of Common Stock purchasable upon exercise of the Warrants made pursuant to
Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates. (a) The
Warrant Certificates for the Warrants shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends (including but not limited to a legend restricting transfer
except in compliance with Federal and state securities laws), summaries or
endorsements printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Warrants may be listed, or to conform to usage or to the requirements of
Section 2(b). The Warrant Certificates shall be dated the date of issuance
thereof (whether upon initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen, or destroyed Warrant Certificates) and issued in
registered form. Warrant Certificates shall be numbered serially with the letter
WE.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4(a) hereof.
SECTION 4. Exercise. Each Warrant may be exercised by the
Registered Holder thereof at any time on or after the issuance thereof and prior
to January 1, 2000, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. The rights of the warrant
holders hereunder shall expire at midnight on December 31, 1999. A Warrant shall
be deemed to have been exercised immediately prior to the close of business on
the Exercise Date and the person entitled to receive the securities deliverable
upon such exercise shall be treated for all purposes as the holder of those
securities upon the exercise of the Warrant as of the close of business on the
Exercise Date. As soon as practicable on or after the Exercise Date the Warrant
Agent shall deposit the proceeds received from the exercise of a Warrant and
shall notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five days after the date of such notice from
the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause to
be issued and delivered by the Transfer Agent, to the person or persons entitled
to receive the same, a certificate or certificates of the securities deliverable
upon such exercise (plus a certificate for any remaining unexercised Warrants of
the Registered Holder), unless prior to the date of issuance of such
certificates the Company shall instruct the Warrant Agent to refrain from
causing such issuance of certificates pending clearance of checks received in
payment of the Purchase Price pursuant to such Warrants. Upon the exercise of
any Warrant and clearance of the funds received, the Warrant Agent shall
promptly remit the payment received for the Warrant (the "Warrant proceeds") to
the Company or as the Company may direct in writing.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes;
etc. (a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (other than those which the Company shall promptly pay or
discharge), and that upon issuance such shares shall be listed on each national
securities exchange or eligible for inclusion in each automated quotation
system, if any, on which the other shares of outstanding Common Stock of the
Company are then listed or eligible for inclusion.
(b) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance, or delivery of any shares upon exercise
of the Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(c) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Warrants.
SECTION 6. Exchange and Registration of Transfer. (a) Warrant
Certificates may be exchanged for other Warrant Certificates representing an
equal aggregate number of Warrants of the same class or may be transferred in
whole or in part. Warrant Certificates to be exchanged shall be surrendered to
the Warrant Agent at its Corporate Office, and upon satisfaction of the terms
and provisions hereof, the Company shall execute and the Warrant Agent shall
countersign, issue and deliver in exchange therefor the Warrant Certificate or
Certificates which the Registered Holder making the exchange shall be entitled
to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for
any exchange or registration of transfer of Warrant Certificates. In addition,
the Company may require payment by such holder of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly cancelled
by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent, or, with the
prior written consent of the holders of the Warrants, disposed of or destroyed,
at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Adjustment of Exercise Price and Number of
Securities Issuable upon Exercise of Warrants. This section 8 shall apply only
in the event of a transaction(s) in which the Company is acquiring assets or
stock, or is selling assets or stock, which results in the sale of the Company
or the change of control of the Company and/or the creation of a new stockholder
of the Company owning in excess of 25% of the Company.
(a) (i) In case the Company shall, at any time or from time to
time after the date hereof, sell any shares of Common Stock (other than pursuant
to the exercise of rights or warrants of the sort described in Section 8(c)
hereof) for a consideration consisting solely of cash in an amount per share
less than the current market price or the Purchase Price (any such sale being
herein called a "Change of Shares"), then, and thereafter upon each further
Change of Shares, the Purchase Price in effect immediately prior to such Change
of Shares shall be changed to a price (including any applicable fraction of a
cent) determined:
(A) if the consideration is less than the Purchase Price, by
dividing (i) the sum of (a) the total number of shares of Common Stock
outstanding immediately prior to such Change of Shares, multiplied by
the Purchase Price in effect immediately prior to such Change of
Shares, and (b) the consideration, if any, received by the Company upon
such sale, issuance, subdivision or combination by (ii) the total
number of shares of Common Stock outstanding immediately after such
Change of Shares; or
(B) if the consideration is less than the current market
price, by dividing (i) the sum of (a) the total number of shares of
Common Stock outstanding immediately prior to such Change of Shares,
multiplied by the current market price in effect immediately prior to
such Change of Shares, and (b) the consideration, if any, received by
the Company upon such sale, issuance, subdivision or combination by
(ii) the total number of shares of Common Stock outstanding immediately
after such Change of Shares.
(ii) Upon each adjustment of the Purchase Price pursuant to
this Section 8(a), the total number of shares of Common Stock purchasable upon
the exercise of each Warrant shall (subject to the provisions contained in
Section 8(a)(iii) hereof) be such number of shares calculated to the nearest
tenth purchasable at the Purchase Price immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(iii) The Company may elect, upon any adjustment of the
Purchase Price under this Section 8(a), to adjust the number of Warrants
outstanding, in lieu of the adjustment in the number of shares of Common Stock
purchasable upon the exercise of each Warrant as hereinabove provided, so that
each Warrant outstanding after such adjustment shall represent the right to
purchase one share of Common Stock. Each Warrant held of record prior to such
adjustment of the number of Warrants shall become that number of Warrants
(calculated to the nearest tenth) determined by multiplying the number one by a
fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment. Upon each adjustment
of the number of Warrants pursuant to this Section 8, the Company shall, as
promptly as practicable, cause to be distributed to each Registered Holder of
Warrant Certificates on the date of such adjustment Warrant Certificates
evidencing, subject to Section 8, the number of additional Warrants to which
such Holder shall be entitled as a result of such adjustment or, at the option
of the Company, cause to be distributed to such Holder in substitution and
replacement for the Warrant Certificates held by him prior to the date of
adjustment (and upon surrender thereof, if required by the Company) new Warrant
Certificates evidencing the number of Warrants to which such Holder shall be
entitled after such adjustment.
(iv) For purposes of this Section 8(a) hereof, the following
provisions (A) to (E) shall also be applicable:
(A) The number of shares of Common Stock outstanding
any given time shall include shares of Common Stock owned or held by or
for the account of the Company and the sale or issuance of such
treasury shares or the distribution of any such treasury shares shall
not be considered a Change of Shares for purposes of said sections.
(B) In case of (1) the sale by the Company solely for
cash of any rights or warrants to subscribe for or purchase, or any
options for the purchase of, Common Stock or any securities convertible
into or exchangeable for Common Stock without the payment of any
further consideration other than cash, if any (such convertible or
exchangeable securities being herein called "Convertible Securities"),
or (2) the issuance by the Company, without the receipt by the Company
of any consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, in each case, if (and only if) the
consideration payable to the Company upon the exercise of such rights,
warrants or options shall consist solely of cash, whether or not such
rights, warrants or options, or the right to convert or exchange such
Convertible Securities, are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum
aggregate consideration payable to the Company upon the exercise of
such rights, warrants or options, plus the consideration received by
the company for the issuance or sale of such rights, warrants or
options, plus, in the case of Convertible Securities, the minimum
aggregate amount of additional consideration, if any, other than such
convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities issuable upon
the exercise off such rights, warrants or options) is less than the
Purchase Price or the current market price, in effect immediately prior
to the date of the issuance or sale of such rights, warrants or
options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such convertible Securities (as of the
date of the issuance or sale of such rights, warrants or options) shall
be deemed to be outstanding shares of Common Stock for purposes of this
Section 8(a) and shall be deemed to have been sold for cash in an
amount equal to such price per share.
(C) In case of the sale by the Company solely for cash of any
Convertible Securities, whether or not the right and the price per share for
which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, other than such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities) is less
than the Purchase Price or the current market price, in effect immediately prior
to the date of the sale of such Convertible Securities, then the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of
such Convertible Securities (as of the date of the sale of such Convertible
Securities) shall be deemed to be outstanding shares of Common Stock for
purposes of this Section 8(a) and shall be deemed to have been sold for cash in
an amount equal to such price per share.
(D) If the exercise or purchase price provided for in
any right, warrant or option
referred to in (B) above, or the rate at which any Convertible Securities
referred to in (B) or (C) above are convertible into or exchangeable for Common
Stock, shall change at any time (other than under or by reason of provisions
designed to protect against dilution), the Purchase Price then in effect
hereunder shall forthwith be readjusted to such Purchase Price as would have
obtained (1) had the adjustments made upon the issuance or sale of such rights,
warrants, options or Convertible Securities been made upon the basis of the
issuance of only the number of shares of Common Stock theretofore actually
delivered (and the total consideration received therefor) upon the exercise of
such rights, warrants or options or upon the conversion or exchange of such
Convertible Securities, (2) had adjustments been made on the basis of the
Purchase Price as adjusted under clause (1) for all transactions (which would
have affected such adjusted Purchase Price) made after the issuance or sale of
such rights, warrants, options or Convertible Securities, and (3) had any such
rights, warrants, options or Convertible Securities then still outstanding been
originally issued or sold at the time of such change. On the expiration of any
such right, warrant or option or the termination of any such right to convert or
exchange any such Convertible Securities, the Purchase Price then in effect
hereunder shall forthwith be readjusted to such Purchase Price as would have
obtained (a) had the adjustments made upon the issuance or sale of such rights,
warrants, options or Convertible Securities been made upon the basis of the
issuance of only the number of shares of Common Stock theretofore actually
delivered (and the total consideration received therefor) upon the exercise of
such rights, warrants or options or upon the conversion or exchange of such
Convertible Securities and (b) had adjustments been made on the basis of the
Purchase Price as adjusted under clause (a) for all transaction (which would
have affected such adjusted Purchase Price) made after the issuance or sale of
such rights, warrants, options or Convertible Securities.
(E) In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any right or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefore shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith
(v) Notwithstanding anything herein to the contrary, there
shall be no adjustment to the Purchase Price as a result of any sales of Common
Stock pursuant to the Company's Employee Stock Purchase Plan.
(b) In case the Company shall, at any time or from time to
time after the date hereof, pay a dividend or make a distribution on its shares
of Common Stock in shares of Common Stock, subdivide or reclassify its
outstanding Common Stock into a greater number of shares, or combine or
reclassify its outstanding Common Stock into a smaller number of shares, the
Purchase Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the holder of any
Warrant exercised after such date shall be entitled to receive the aggregate
number and kind of shares which, if such Warrant had been exercised immediately
prior to such time, he would have owned upon such exercise and been entitled to
receive upon such dividend, subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed in this Section
8(a) shall occur.
(c) In case the Company shall, at any time or from time to
time after the date hereof, issue rights or warrants to all holders of its
Common Stock entitling them to subscribe for or purchase shares of Common Stock
(or securities convertible into Common Stock) at a price (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Section 8(f)) on the record date mentioned below, the Purchase Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Purchase Price in effect immediately prior to the date of such
issuance by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on the record date mentioned below plus the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities So offered) would purchase at such current
market price per share of the Common Stock, and of which the denominator shall
be the number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock offered for subscription or
purchased (or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively 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; and
to the extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration of such
rights or warrants, the Purchase Price shall be readjusted to the purchase Price
which would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock) actually
delivered.
(d) In case the Company shall, at any time or from time to
time after the date hereof, distribute to all holders of Common Stock evidences
of its indebtedness or assets (excluding cash dividends or distributions paid
out of current earnings and dividends or distributions referred to in Section
8(b) or subscription rights or warrants (excluding those referred to in Section
8(c)), then in each such case the Purchase Price in effect thereafter shall be
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, of which the numerator shall be the total number of shares of
Common Stock outstanding multiplied by the current market price per share of
Common Stock (as defined in Section 8(f)), less the fair market value (as
determined by the Company's Board of Directors) of said assets or evidences of
indebtedness so distributed or of such rights or warrants, and of which the
denominator shall be the total number of shares of Common Stock outstanding
multiplied by such current market price per share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(e) Whenever the purchase price payable upon exercise of each
Warrant is adjusted pursuant to Sections 8(b), (c) or (d), the number of shares
of Common Stock purchasable upon exercise of each Warrant shall simultaneously
be adjusted by multiplying the number of shares issuable upon exercise of each
Warrant in effect on the date thereof by the Purchase Price in effect on the
date thereof and dividing the product so obtained by the Purchase Price, as
adjusted.
(f) For the purpose of any computation pursuant to Sections
8(c) and (c), the current market price per share of Common Stock at any date
shall be deemed to be the average of the daily closing prices for thirty (30)
consecutive business days commencing forty-five (45) business days before such
date. The closing price for each day shall be the reported last sale price
regular way or, in case no such reported sale takes place on such day, the
average of the reported last bid and asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is admitted
to trading or listed, if the Common Stock admitted to trading or listing on the
New York or American Stock Exchange, or on the NASDAQ National Market system if
included in such system or if not listed or admitted to trading on such exchange
or system, the average of the average of the highest bid and lowest asked prices
as reported by NASDAQ, or the National Quotation Bureau, Inc. or another similar
organization if NASDAQ is no longer reporting such information, or if not so
available, the fair market price as determined by the Board of Directors.
(g) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments which by
reason of this Section 8(g) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 8 shall be made to the nearest cent or to the nearest one-tenth of a
share, as the case may be. Anything in this Section 8 to the contrary
notwithstanding, the Company may, in its sole discretion, reduce the Purchase
Price of the Warrants and, if such reduction is not otherwise required by this
Section 8, such reduction (i) will not, unless the Board of Directors otherwise
determined, result in any change in the number or class of shares of Common
Stock issuable upon exercise of such Class or Classes of Warrants, and (ii) may
be of limited duration, in which event the reduction in Purchase Price shall not
apply to any Warrants exercised after the expiration of the time during which
the reduced Purchase Price is in effect.
(h) The Company may retain a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular accountants employed by the Company) to make any computation
required by this Section 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
(i) In the event that at any time, as a result of an
adjustment made pursuant to Section 8(b) hereof, the holder of any Warrant
thereafter shall become entitled to receive any shares of the Company, other
than Common stock, thereafter the number of such other shares so receivable upon
exercise of any Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Sections 8(b) to (f), inclusive.
(j) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the purchase price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 8, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 8, the
number of additional Warrants to which such Holder shall be entitled as a result
of such adjustment or, at the option of the Company, cause to be distributed to
such Holder in substitution and replacement for the Warrant Certificates held by
him prior to the date of adjustment (and upon surrender thereof, if required by
the Company) new Warrant Certificates evidencing the number of Warrants to which
such Holder shall be entitled after such adjustment.
(k) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 8. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassifications,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(l) Irrespective of any adjustments or changes in the Purchase
price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Sections 2(d) and 8(j), continue to express the Purchase Price per
share and the number of shares purchasable thereunder as the Purchase Price per
share and the number of shares purchasable thereunder expressed in the Warrant
Certificates when the same were originally issued.
(m) After each adjustment of the Purchase Price pursuant to
this Section 8, the Company will promptly prepare a certificate signed by the
Chairman, President, Vice president or Treasurer, of the Company setting forth:
(i) the Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by first class mail to each registered holder of Warrants at his last
address as it shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(n) As used in this Section 8, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date hereof and
shall also include any capital stock of any class of the Company thereafter
authorized which shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary liquidation, dissolution or winding up
of the Company; provided, however, that the shares issuable upon exercise of the
Warrants shall include only shares of such class designated in the Company's
Certificate of Incorporation as Common Stock on the date hereof or, in the case
of any reclassification, change, consolidation, merger, sale or conveyance of
the character referred to in Section 8(k) hereof, the stock, securities or
property provided for in such section or, in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(o) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 8, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(p) In lieu of an adjustment pursuant to Section 8(c), if the
Company shall grant to the holders of Common Stock, as such, rights or warrants
to subscribe for or to purchase, or any options for the purchase of, Common
Stock or securities convertible into or exchangeable for or carrying a right,
warrant or option to purchase Common Stock, the Company may concurrently
therewith grant to each Registered Holder as of the record date for such
transaction of the Warrants then outstanding, the rights, warrants or options to
which each Registered Holder would have been entitled if, on the record date
used to determine the stockholders entitled to the rights, warrants or options
being granted by the Company, the Registered Holder were the holder of record of
the number of whole shares of Common Stock then issuable upon exercise of his
Warrants. If the Company exercises such right no adjustment which otherwise
might be called for pursuant to Section 8(c) shall be made.
SECTION 9. Fractional Warrants and Fractional Shares. (a) If
the number of shares of Common Stock purchasable upon the exercise of each
Warrant is adjusted pursuant to Section 8 hereof, the Company nevertheless shall
not be required to issue fractions of shares, upon exercise of the Warrants or
otherwise, or to distribute certificates that evidence fractional shares. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined as
follows:
(i) If the Common Stock is listed on the New York or American
Stock Exchange or admitted to unlisted trading privileges on such exchange or
listed for trading on the NASDAQ quotation system, the current value shall be
the reported last sale price of the Common Stock on such exchange or system on
the last business day prior to the date of exercise of this Warrant, except that
if the Common Stock is included in the NASDAQ System, but not the National
Market System, the average of the closing bid and asked prices shall be used, or
if no such sale is made on such day, the average closing bid and asked prices
for such day on such exchange or system; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc.
on the last business day prior to the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 10. Warrant Holders Not Deemed Stockholders. No holder
of Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 11. Rights of Action. All rights of action with
respect to this Agreement are vested in the respective registered Holders of the
Warrants, and any registered Holder of a Warrant, without consent of the Warrant
Agent or of the holder of any other Warrant, may, in his own behalf and for his
own benefit, enforce against the Company his right to exercise his Warrants for
the purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
SECTION 12. Agreement of Warrant Holders. Every holder of a
Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
SECTION 13. Cancellation of Warrant Certificates. If the
Company shall purchase or acquire any Warrant or Warrants, the Warrant
Certificate or Warrant Certificates evidencing the same shall thereupon be
delivered to the Warrant Agent and cancelled by it and retired. The Warrant
Agent shall also cancel Common Stock following exercise of any or all of the
Warrants represented thereby or delivered to it for transfer, splitup,
combination or exchange.
SECTION 14. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company, and its duties shall be determined solely
by the provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder be deemed to make any
representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of facts contained
herein or for any action taken, suffered or omitted by it in reliance on any
Warrant Certificate or other document or instrument believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence or willful
misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction,
order or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board, president, any Vice president, its
secretary, or Assistant secretary, (unless other evidence in respect thereof is
herein specifically prescribed). The Warrant Agent shall not be liable for any
action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand believed by it to be
genuine.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities arising as
a result of the Warrant Agent's own negligence or willful misconduct), after
giving thirty (30) days' prior written notice to the Company. At least fifteen
(15) days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation, or any inability of the Warrant Agent to act as such
hereunder, the Company shall appoint a new warrant agent in writing. If the
Company shall fail to make such appointment within a period of fifteen (15) days
after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital arid surplus, as shown
by its last published report to its stockholders, of not less than $10,000,000
or a stock transfer company. After acceptance in writing of such appointment by
the new warrant agent is received by the Company such new warrant agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the registered Holder of each Warrant Certificate.
(g) Any Corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
succession as warrant agent to be mailed to the Company and to the Registered
Holder of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effects as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
SECTION 15. Modification of Agreement. The Warrant Agent and
the Company may by supplemental agreement make any changes or corrections in
this Agreement (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; or (ii) that they may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of the
Registered Holders of Warrant Certificates representing not less than fifty
percent (50%) of the number of Warrants then outstanding; and provided, further,
that no change in the number or nature of the securities purchasable upon the
exercise of any Warrant, or the Purchase Price therefor, or the acceleration of
the Warrant Expiration Date, shall be made without the consent in writing of the
Registered Holder of the Warrant Certificate representing such Warrant, other
than such changes as are specifically prescribed by this Agreement as originally
executed or are made in compliance with applicable law.
SECTION 16. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 500 Huntmar Park Drive, Herndon, VA 20170-5700,
Attention: James J. Leto, Chairman, or at such other address as may have been
furnished to the Warrant Agent in writing by the Company; if to the Warrant
Agent, at its Corporate Office.
SECTION 17. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New Jersey, without
reference to principles of conflict of laws.
SECTION 18. Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the Company and, the Warrant Agent and their
respective successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
Company for cash held by it and the provisions of Section 15 hereof shall
survive such termination.
SECTION 20. Counterparts. This Agreement may be executed in
several counterparts, which taken
together shall constitute a single document.
SECTION 21. Registration Under the Securities Act of 1933. The
Company agrees to register the Warrants and the shares of Common Stock issuable
upon exercise of the Warrants under the Securities Act of 1933, as amended (the
"Act") as set forth in the Registration Rights Agreement, dated the date hereof,
between the Company and the Lender.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
NETWORK IMAGING CORPORATION
By: /s/ James J. Leto
------------------------
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By: _________________________
Authorized Officer
<PAGE>
EXHIBIT A
[FORM OF FACE OF CLASS WARRANT CERTIFICATE]
[THE CERTIFICATE WILL ALSO CONTAIN A RESTRICTIVE LEGEND]
No. WE 100,000 Warrants
CLASS WARRANT TO
PURCHASE COMMON STOCK
NETWORK IMAGING CORPORATION
This certifies that FOR VALUE RECEIVED Fred Kassner, 69 Spring Street,
Ramsey, New Jersey 07646 or registered assigns (the "Registered Holder") is the
owner of the number of Common Stock Purchase Warrants ("Warrants") specified
above. Each Warrant initially entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in this Certificate and the
Warrant Agreement (as hereinafter defined), one (1) fully paid and nonassessable
share of Common Stock, par value $.0001 per share ("Common Stock"), of Network
Imaging Corporation, a Delaware corporation (the "Company"), at any time, upon
the presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of American
Stock Transfer & Trust Company, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $_______ (the "Purchase Price") in lawful
money of the United States of America in cash or by official bank or Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated as of December
31, 1996, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificates or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Registered Holder may have certain registration rights referred
to in the Warrant Agreement. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any tax or other governmental
charge imposed in connection therewith, for registration of transfer of this
Warrant Certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Warrants will be issued
to the transferee in exchange therefor, subject to the limitations provided in
the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New Jersey.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
NETWORK IMAGING CORPORATION
By
Dated:
By
[seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Warrant Agent
By
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise _________ Warrants represented by this Warrant Certificate,
and to purchase the securities issuable upon the exercise of such
Warrants, and requests that certificates for such securities shall be
issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
[please print or type name and address]
and be delivered to
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated:__________________________ x
------------------------------------
____________________________________
____________________________________
Address
Taxpayer Identification Number
Signature Guaranteed
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________________ ______________________ hereby
sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
[please print or type name and address]
_____________________ of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints ________________________________
_____________________________________________ Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated:_____________________ x
___________________________________
Signature Guaranteed
___________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSTION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, December 7, 1998
No. RAS-1 112,000Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that RAS Securities Corp.,
or registered assigns, is the registered holder of One Hundred Twelve Thousand
(112,000) Warrants to purchase initially, at any time from December 7, 1994
until 5:30 p.m. New York time on December 7, 1998 ("Expiration Date"), (a) up to
One Hundred Twelve Thousand (112,000) fully-paid and non-assessable shares of
Series A Cumulative Convertible Preferred Stock, par value $.0001 per share (or
in accordance with the Warrant Agreement, such number of shares of Common Stock,
other securities and/or property of the Company into which a share of preferred
stock has been converted) (collectively "Preferred Stock") of NETWORK IMAGING
CORPORATION, a Delaware corporation (the "Company"), at the initial exercise
price, subject to adjustment in certain events (the "Preferred Exercise Price"),
of $41.25 per share of Preferred Stock, (b) up to Two Hundred Two Thousand,
Eight Hundred Ninety-Nine (202,899) fully-paid and non-assessable shares of
Common Stock, par value $.0001 per share, of the Company (the "Common Stock"),
at the initial exercise price, subject to adjustment in certain events (the
"Common Exercise Price"), of $22.77 per share or (c) any combination of such
Common Stock and/or Preferred Stock at such combined Common Exercise Price
and/or Preferred Exercise Price which results in a maximum aggregate exercise
price of $4,620,010.23 upon surrender of this Warrant Certificate and payment of
the Preferred Exercise Price and/or the Common Exercise Price, as the case may
be, at an office or agency of the Company, but subject to the conditions set
forth herein and in the warrant agreement dated as of December 7, 1993 by and
among the Company, RAS Securities Corp. and Starr Securities, Inc. (the "Warrant
Agreement"). Payment of the Preferred Exercise Price and/or the Common Exercise
Price, as the case may be, shall be made by certified or official bank check in
New York Clearing House funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the word "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Preferred Exercise Price and/or the Common Exercise Price, as
the case may be, and the type and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event, the
Company will, at the request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Preferred Exercise Price and/or the Common
Exercise Price, as the case may be, and the number and/or type of securities
issuable upon the exercise of the Warrants; provided, however, that the failure
of the Company to issue such new Warrant Certificates shall not in any way
change, alter, or otherwise impair, the rights of the holder as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of December 7, 1993
NETWORK IMAGING CORPORATION
By: /s/ Robert Bernardi
[SEAL] ------------------------
Name: Robert P. Bernardi
Title: President
Attest:
/s/ John Mann
- ------------
Name: John B. Mann
Title: Secretary
<PAGE>
FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ___________ shares
of Preferred Stock and _________ shares of Common Stock and herewith tenders in
payment for such securities a certified or official bank check payable in New
York Clearing House Funds to the order of Network Imaging Corporation in the
amount of $____, all in accordance with the terms of Section 3.1 of the
Representatives' Warrant Agreement dated as of _____, 1993 by and among Network
Imaging Corporation, RAS Securities Corp. and Starr Securities, Inc. The
undersigned requests that a certificate for such securities be registered in the
name of __________ whose address is ___________ and that such Certificate be
delivered to _____________ whose address is _______________.
Dated:
Signature ______________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
---------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ___________ shares
of Preferred Stock and _________ shares of Common Stock all in accordance with
the terms of Section 3.2 of the Representatives' Warrant Agreement dated as of
_____, 1993 by and among Network Imaging Corporation, RAS Securities Corp. and
Starr Securities, Inc. The undersigned requests that a certificate for such
securities be registered in the name of __________ whose address is ___________
and that such Certificate be delivered to _____________ whose address is
_______________.
Dated:
Signature ______________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
---------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________________________ hereby sells, assigns
and transfers unto
- -----------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:________________ Signature ______________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
---------------------------------------
(Insert Social Security or Other Identifying
Number of Assignee)
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, December 7, 1998
No. RAS-2 28,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Robert A. Schneider,
or registered assigns, is the registered holder of Twenty-Eight Thousand
(28,000) Warrants to purchase initially, at any time from December 7, 1994 until
5:30 p.m. New York time on December 7, 1998 ("Expiration Date"), (a) up to
Twenty-Eight Thousand (28,000) fully-paid and non-assessable shares of Series A
Cumulative Convertible Preferred Stock, par value $.0001 per share (or in
accordance with the Warrant Agreement, such number of shares of Common Stock,
other securities and/or property of the Company into which a share of preferred
stock has been converted) (collectively "Preferred Stock") of NETWORK IMAGING
CORPORATION, a Delaware corporation (the "Company"), at the initial exercise
price, subject to adjustment in certain events (the "Preferred Exercise Price"),
of $41.25 per share of Preferred Stock, (b) up to Fifty Thousand, Seven Hundred
Twenty-Five (50,725) fully-paid and non-assessable shares of Common Stock, par
value $.0001 per share, of the Company (the "Common Stock"), at the initial
exercise price, subject to adjustment in certain events (the "Common Exercise
Price"), of $22.77 per share or (c) any combination of such Common Stock and/or
Preferred Stock at such combined Common Exercise Price and/or Preferred Exercise
Price which results in a maximum aggregate exercise price of $1,155,008.25, upon
surrender of this Warrant Certificate and payment of the Preferred Exercise
Price and/or the Common Exercise Price, as the case may be, at an office or
agency of the Company, but subject to the conditions set forth herein and in the
warrant agreement dated as of December 7, 1993 by and among the Company, RAS
Securities Corp. and Starr Securities,
<PAGE>
Inc. (the "Warrant Agreement"). Payment of the Preferred Exercise Price and/or
the Common Exercise Price, as the case may be, shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the word "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Preferred Exercise Price and/or the Common Exercise Price, as
the case may be, and the type and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event, the
Company will, at the request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Preferred Exercise Price and/or the Common
Exercise Price, as the case may be, and the number and/or type of securities
issuable upon the exercise of the Warrants; provided, however, that the failure
of the Company to issue such new Warrant Certificates shall not in any way
change, alter, or otherwise impair, the rights of the holder as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of December 7, 1993
NETWORK IMAGING CORPORATION
By: /s/ Robert Bernardi
[SEAL] -----------------------------
Name: Robert P. Bernardi
Title: President
Attest:
/s/ John Mann
- -----------------------
Name: John B. Mann
Title: Secretary
<PAGE>
FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _______ shares of
Preferred Stock and _________ shares of Common Stock and herewith tenders in
payment for such securities a certified or official bank check payable in New
York Clearing House Funds to the order of Network Imaging Corporation in the
amount of $___, all in accordance with the terms of Section 3.1 of the
Representatives' Warrant Agreement dated as of _______ , 1993 by and among
Network Imaging Corporation, RAS Securities Corp. and Starr Securities, Inc. The
undersigned requests that a certificate for such securities be registered in the
name of ____________ whose address is _______________ and that such Certificate
be delivered to ______________ whose address is ________________.
Dated:
Signature ______________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
---------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ____________ shares
of Preferred Stock and ______ shares of Common Stock all in accordance with the
terms of Section 3.2 of the Representatives' Warrant Agreement dated as of
_______, 1993 by and among Network Imaging Corporation, RAS Securities Corp. and
Starr Securities, Inc. The undersigned requests that a certificate for such
securities be registered in the name of ____________ whose address is
_______________ and that such Certificate be delivered to ______________ whose
address is _______________.
Dated:
Signature ______________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
---------------------------------------
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _______________________ hereby sells, assigns and
transfers unto
- -----------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:________________ Signature ______________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
---------------------------------------
(Insert Social Security or Other Identifying
Number of Assignee)
NETWORK IMAGING CORPORATION
Network Imaging Corporation, 500 Huntmar Park Drive, Herndon, Virginia 20710
TERMINATION OF CONSULTING AGREEMENT
This Termination of Consulting Agreement ("Agreement") is entered into by
Network Imaging Corporation ("Network Imaging"), Sterling Capital Group, Inc.
("SCG") and Robert M. Sterling, Jr. ("Mr. Sterling"). The parties entered into a
Consulting Agreement on February 1, 1994 (the "Consulting Agreement") and have
now agreed to terminate the consulting relationship as of October 1, 1997
("Termination Date"). The parties agree to set forth the terms and conditions
upon which the employment relationship is to be concluded. SCG and Mr. Sterling
agree that they have received valuable and sufficient consideration for entering
into this Agreement. The parties agree to the following terms:
1. Termination Date. SCG's termination will be effective as of the Termination
Date.
2. Severance Pay. Network Imaging agrees to pay SCG or its successor $58,500
on October 1, 1997. In addition, Network Imaging shall pay gross severance
pay at the rate of $10,000 per month, beginning on October 1, 1997 and
terminating on December 1, 1998. Network Imaging shall pay SCG an
additional payment of $12,000 on January 1, 1999. Checks will be issued
monthly on or about the first of each month. Additionally, Network Imaging
agrees to sell to Mr. Sterling for One Hundred Dollars ($100.00) a warrant
to purchase 100,000 shares of Network Imaging Common Stock for $1.50 per
share (the "Warrants"). The Warrants shall be for a term of five (5) years
and the underlying shares shall have piggyback registration rights
commencing one year after the date of execution of this Agreement.
3. Repricing of Stock Options. As further consideration to execute this
Agreement, Network Imaging agrees to effect the repricing of Mr. Sterling's
existing stock options. Mr. Sterling currently holds 1,348,325 options to
purchase Network Imaging Common Stock, and the exercise prices of those
options range from $2.60 to $3.75 (the "Pre-existing Options"). The
Pre-existing options shall be converted, using the Black-Scholes model,
into 755,747 options to purchase shares of Network Imaging Common Stock at
an exercise price of $1.50 per share (the "Post-effective Options"). The
Post-effective Options shall be subject to the vesting schedule of the
stock option plan, and further, notwithstanding the current exercisability
of any of those options, the Post-effective Options shall not be
exercisable for a period of twelve (12) months from the date of execution
of this Agreement. This Section 3 shall be ratified by Network Imaging's
Board of Directors.
4. Agreement to Serve as Assistant Secretary. Mr. Sterling agrees to be
employed by Network Imaging as an Assistant Secretary, such employment to be
at an annual salary equal to the net amount sufficient to pay Mr. Sterling's
annual health and dental insurance premiums and to continue through December
31, 2003. Mr. Sterling shall receive all health and insurance benefits
afforded to Network Imaging employees while employed as an assistant
secretary.
5. Survival of Certain Provisions of the Consulting Agreement. The parties
herein agree that Sections 9 and 10 shall survive for a period of twelve
(12) months from the date of execution of this Agreement.
6. Acknowledgment of Understanding. YOU AGREE THAT YOU HAVE READ AND FULLY
UNDERSTAND AND AGREE WITH THE TERMS OF THIS AGREEMENT AND THAT YOU HAVE NOT
BEEN COERCED IN ANY MANNER WITH REGARD TO THIS AGREEMENT, AND HAVE AGREED TO
THESE TERMS AFTER FULL AND FAIR NEGOTIATION.
This Agreement is agreed to and accepted by:
ROBERT M. STERLING, JR. and
STERLING CAPITAL GROUP, INC.: NETWORK IMAGING CORPORATION:
By:_____________________________ By:__________________________
Signature Signature
Print Name: Print Name:
Date: Title:
Date:
NETWORK IMAGING CORPORATION
Network Imaging Corporation, 500 Huntmar Park Drive, Herndon, Virginia 20710
TERMINATION OF CONSULTING AGREEMENT
This Termination of Consulting Agreement ("Agreement") is entered into by Net-
work Imaging Corporation ("Network Imaging"), Mann Enterprises, Inc. ("ME") and
John B. Mann. ("Mr. Mann"). The parties entered into a Consulting Agreement on
March 30, 1994 (the "Consulting Agreement") and have now agreed to terminate the
consulting relationship as of October 1, 1997 ("Termination Date"). The parties
agree to set forth the terms and conditions upon which the employment
relationship is to be concluded. ME and Mr. Mann agree that they have received
valuable and sufficient consideration for entering into this Agreement. The
parties agree to the following terms:
1. Termination Date. ME's termination will be effective as of the Termination
Date.
2. Severance Pay. Network Imaging agrees to pay ME or its successor $30,000 on
October 1, 1997. In addition, Network Imaging shall pay gross severance pay
at the rate of $5,000 per month, beginning on October 1, 1997 and
terminating on September 1, 1998. Additionally, Network Imaging agrees to
grant to ME a warrant to purchase 66,667 shares of Network Imaging Common
Stock at an exercise price of $1.50 per share (the "Warrants"). The
Warrants shall be for a term of five (5) years, and the underlying shares
shall have piggyback registration rights commencing one year after the date
of execution of this Agreement.
3. Repricing of Stock Options. As further consideration to execute this
Agreement, Network Imaging agrees to effect the repricing of Mr. Mann's
existing stock options. Mr. Mann currently holds 560,340 options to
purchase Network Imaging Common Stock, and the exercise prices of those
options range from $2.60 to $6.82 (the "Pre-existing Options"). The
Pre-existing options shall be converted, using the Black-Scholes model,
into 321,170 options to purchase shares of Network Imaging Common Stock at
an exercise price of $1.50 per share, the market price of the Common Stock
on September 17, 1997 (the "Post-effective Options"). The Post-effective
Options shall be subject to the vesting schedule of the stock option plan,
and further, notwithstanding the current exercisability of any of those
options, the Post-effective Options shall not be exercisable for a period
of twelve (12) months from the date of execution of this Agreement. This
Section 3 shall be ratified by Network Imaging's Board of Directors.
4. Agreement to Serve as Assistant Secretary. Mr. Mann agrees to be employed by
Network Imaging as an Assistant Secretary, such employment to be at an
annual salary equal to the net amount sufficient to pay Mr. Mann's annual
health and dental insurance premiums and to continue through December 31,
2003. Mr. Mann shall receive all health and insurance benefits afforded to
Network Imaging employees while employed as an assistant secretary.
5. Survival of Certain Provisions of the Consulting Agreement. The parties
herein agree that Sections 9 and 10 shall survive for a period of twelve
(12) months from the date of execution of this Agreement.
6. Acknowledgment of Understanding. YOU AGREE THAT YOU HAVE READ AND FULLY
UNDERSTAND AND AGREE WITH THE TERMS OF THIS AGREEMENT AND THAT YOU HAVE NOT
BEEN COERCED IN ANY MANNER WITH REGARD TO THIS AGREEMENT, AND HAVE AGREED TO
THESE TERMS AFTER FULL AND FAIR NEGOTIATION.
This Agreement is agreed to and accepted by:
JOHN B. MANN and
MANN ENTERPRISES, INC.: NETWORK IMAGING CORPORATION:
By:________________________ By:___________________________
Signature Signature
Print Name: Print Name:
Date: Title:
Date:
TERMINATION OF CONSULTING AGREEMENT
This Termination of Consulting Agreement (the "Agreement") dated as of October
30, 1997, among Network Imaging Corporation, a Delaware corporation (the
"Company"), BCG, Inc., ("BCG"), and Robert P. Bernardi, an adult individual
resident of the State of Virginia, ("Mr. Bernardi").
WHEREAS, the Company, BCG and Mr. Bernardi entered into that certain Consulting
Agreement dated May 28, 1996 (the "Consulting Agreement");
WHEREAS, each of the Company, BCG and Mr. Bernardi desire to terminate the
Consulting Agreement, effective as of October 1, 1997 (the "Termination Date");
NOW, THEREFORE, in consideration of the promises and of the mutual covenants and
agreements hereinafter set forth, the parties hereby agree as follows:
Section 1. Termination Date.
BCG's termination will be effective as of the Termination Date.
Section 2. Severance Pay.
The Company agrees to pay BCG gross severance pay at the rate of $18,750 per
month, beginning on October 1, 1997, through and including September 1, 1998.
Checks will be issued and mailed on the first of each month. In the event that
the first of the month falls on a weekend or legal holiday, the check will be
issued and mailed on the next proceeding business day. Additionally, the Company
agrees to grant to Mr. Bernardi a warrant to purchase 50,000 shares of Network
Imaging Common Stock (the "Network Imaging Common Stock") for $1.50 per share
(the "Warrants"). The Warrants shall be for a term of five (5) years.
Section 3. Repricing Stock Options.
The Company agrees to reprice Mr. Bernardi's existing stock options. Mr.
Bernardi currently holds 1,348,325 options to purchase Network Imaging Common
Stock, at an exercise price ranging from $2.60 to $6.82 (the "Pre-Existing
Options"). The Pre-Existing Options shall be converted, using the Black-Scholes
model, into 755,747 options to purchase shares of Network Imaging Common Stock
at an exercise price of $1.50 per share, the market price of the Network Imaging
Common Stock on September 17, 1997 (the "Post-Effective Options"). The
Post-Effective Options shall be subject to he vesting schedule for those
options. Notwithstanding the current exercisability of the Post-Effective
Options, the Post-Effective Options shall not be exercisable for a period of
twelve (12) months from the Termination Date of this Agreement. Mr. Bernardi
shall have the right to participate on the same terms and conditions as the
executive employees of the Company in any stock option and other plans,
including but not limited to the right, at Mr. Bernardi's option, to have the
stock options that he holds pursuant to this Agreement repriced or modified
according to the same terms of repricing or modification that are offered in the
future to any other executive employee which holds stock options in the Company.
The Board of Directors of Network Imaging has ratified this repricing of Mr.
Bernardi's stock options on September 25, 1997.
Section 4. Agreement to Serve as Assistant Secretary.
The Company hereby agrees to employ Mr. Bernardi as the Assistant Secretary,
such employment to continue until December 31, 2003, or such other time as Mr.
Bernardi voluntarily resigns as Assistant Secretary. Such employment will be at
an annual salary of $5,000. Mr. Bernardi shall receive all health, and dental
insurance benefits afforded to all other Network Imaging executive employees
while employed as Assistant Secretary. Any termination or interruption in Mr.
Bernardi's employment as Assistant Secretary will not affect any of Mr.
Bernardi's rights as set forth in this Termination Agreement.
Section 5. Survival of Certain Provisions of the Consulting Agreement;
Release.
The parties hereby agree that Sections 9 and 10 of the Consulting Agreement
shall survive for a period of twelve (12) months from the date of execution of
this Agreement. Except with respect to Sections 9 and 10 of the Consulting
Agreement, the Company hereby releases BCG, and Mr. Bernardi from any and all
other obligations under the Consulting Agreement.
Section 6. Demand Registration Right.
At the written request of Mr. Bernardi made at any time prior to termination of
this Agreement or within one (1) year thereafter provided the Company is
eligible to file a registration statement on Form S-3, the Company agrees
promptly to prepare and file a registration statement with the Securities and
Exchange Commission to register under the Securities Act of 1933, as amended
(the "Securities Act"), for sale by Mr. Bernardi of any or all shares of Network
Imaging Common Stock, $.0001 par value per share, held by Mr. Bernardi, or
issuable to Mr. Bernardi upon the exercise of stock options held by Mr.
Bernardi, to use its best efforts to have such registration statement declared
effective as promptly as practicable and to maintain such registration statement
in effect for not less than two (2) years from its effective date. The Company
shall bear any and all costs of the sale of the securities pursuant to the
registration statement, except for fees payable to broker-dealers or to counsel
for Mr. Bernardi which fees will be borne by Mr. Bernardi. Prior to the
effective date of the registration statement, the Company and Mr. Bernardi will
enter into an agreement providing for reciprocal indemnification and
contribution substantially in the form customarily appearing in underwriting
agreements issued by investment bankers. The Company will use its best efforts
to register or qualify the securities under the securities laws or blue sky laws
of such jurisdictions as Mr. Bernardi reasonably requires. The registration
rights set forth in this section may be transferred to any transferee who
acquires securities from Mr. Bernardi; provided, however, that the Company is
given written notice by Mr. Bernardi at the time of such transfer stating the
name and address of the transferee and identifying the securities with respect
to which the rights are being assigned, and provided further, however, that
registration rights may not be transferred to any person in connection with the
acquisition of shares in a transaction that was registered under the Securities
Act.
Section 7. Waiver of Breach.
Forbearance by a party to require performance of any provision hereof shall not
constitute or be deemed a waiver by such party of such provision or of the right
thereafter to enforce the same, and no waiver by a party of any breach or
default hereunder shall constitute or be deemed a waiver of any subsequent
breach or default, whether of the same or similar nature or of any other nature,
or a waiver of the provision or provisions breached or with respect to which
such default occurred.
Section 8. Notices.
All notices and other communications required or permitted hereunder shall be in
writing and may be personally delivered, deposited in the United States mail
(certified mail, postage prepaid, return receipt requested), transmitted by
telecopier or telex, or sent by a private messenger or carrier which issues
delivery receipts, addressed to the party for whom they are intended at the
following addresses:
Address for the Company: Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
Attn: James Leto
Facsimile No.: (703) 478-5386
Address for Mr. Bernardi: 10607 Creamcup Lane
Great Falls, Virginia 22066
Facsimile No.: (703) 904-4117
Such notices and other communications shall be deemed effective upon receipt.
The above addresses may be changed by notice given pursuant to this Section 8.
Section 9. Severability.
The invalidity or unenforceability of any provision of this Agreement shall not
invalidate or render unenforceable any other provisions of this Agreement.
Section 10. Binding Effect.
The rights and obligations of the Company and Mr. Bernardi under this Agreement
shall inure to the benefit of and be binding upon them and their respective
successors and assigns. This Agreement shall be binding upon Mr. Bernardi and,
except that Mr. Bernardi may not delegate his obligations hereunder, shall inure
to the benefit of Mr. Bernardi and his heirs, executors and administrators.
Section 11. Governing Law.
This Agreement shall be governed by, and construed under and in accordance with,
the substantive laws of the Commonwealth of Virginia, without regard to choice
of law issues.
Section 12. Cancellation of Prior Agreement.
This Agreement hereby supersedes the Consulting Agreement already defined in the
preamble. The Consulting Agreement is hereby terminated, canceled and annulled
as of the effective date of this Agreement.
Section 13. Arbitration.
In the event a dispute arises between the parties to this Agreement relating to
this Agreement and/or any aspect of the employment relationship, both the
Company and Mr. Bernardi consent to mandatory arbitration before a single
arbitrator of the American Arbitration Association in McLean, Virginia under the
Commercial Rules of the AAA in lieu of litigation and a trial by jury. The
parties hereby consent to the entry of judgment upon award rendered by the
arbitrator in any court of competent jurisdiction. Notwithstanding the
foregoing, should adequate grounds exist for seeking immediate injunctive
relief, either party hereto may seek and obtain such relief provided that, upon
its obtaining such relief, such action shall be stayed pending the resolution of
arbitration proceedings.
Section 14. Entire Agreement.
This instrument embodies the entire agreement and understanding among the
parties hereto with respect to the subject matter hereof. This Agreement may not
be changed, modified or amended in whole or in part except by a writing signed
by all the parties. No waiver of any party's rights hereunder shall be effective
or binding unless such waiver shall be in writing and signed by the party
against whom such waiver is sought to be enforced.
Section 15. Execution In Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original but all of which shall constitute one and the same
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of this 30 day
of October, 1997.
Network Imaging Corporation
By: /s/ J. Leto
--------------------------
Print Name: J. Leto
Title: CHMN & CEO
Date: 11/17/97
BCG, Inc.
By: /s/ Robert Bernardi
---------------------------
Print Name: Robert Bernardi
Title: President
Date: 11/14/97
Mr. Robert P. Bernardi
By: /s/ Robert Bernardi
-----------------------------
Mr. Robert P. Bernardi
Date: 11/14/97
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION OR
THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT.
Warrant to Subscribe for
__________ shares
Warrant to Subscribe for Common Stock
of
NETWORK IMAGING CORPORATION
THIS CERTIFIES that ________ ("Holder") has the right to subscribe from
Network Imaging Corporation (the "Company"), not more than _________ fully paid
and nonassessable shares of the Company's Common Stock $.0001 par value per
share ("Common Stock"), at a price of ____________ ( ) per share (the "Exercise
Price"), at any time on or before 5:00 pm, U.S. time, on _________________.
The holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Exercise.
This Warrant may be exercised as to all or any lesser number of full
shares of Common Stock covered hereby upon surrender of this Warrant, with the
Subscription Form or a copy thereof attached hereto duly executed, together with
the full Exercise Price (as hereinafter defined) in cash, by wire transfer or by
certified or official bank check payable in New York Clearing House Funds for
each share of Common Stock as to which this Warrant is exercised, at the office
of the Company, Network Imaging Corporation, 500 Huntmar Park Drive, Herndon,
Virginia 20170-5100, or at such other office or agency as the Company may
designate in writing, by overnight mail, with an advance copy of the
Subscription Form by facsimile (such surrender and payment hereinafter called
the "Exercise of this Warrant"). The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the Subscription Form is sent by
facsimile to the Company, provided that the original Warrant and Subscription
Form are received by the Company within five business days thereafter. The
original Warrant and Subscription Form must be received within 5 business days
of the Date of Exercise, or the Subscription Form shall be considered void. This
Warrant shall be canceled upon its Exercise, and, as soon as practical
thereafter, the holder hereof shall be entitled to receive a certificate or
certificates for the number of shares of Common Stock purchased upon such
Exercise and a new Warrant or Warrants (containing terms identical to this
Warrant) representing any unexercised portion of this Warrant. Each person in
whose name any certificate for shares of Common Stock is issued shall, for all
purposes, be deemed to have become the holder of record of such shares on the
Date of Exercise of this Warrant, irrespective of the date of delivery of such
certificate. Nothing in this Warrant shall be construed as conferring upon the
holder hereof any rights as a shareholder of the Company.
2. Payment of Warrant Exercise Price.
Payment of the Exercise Price may be made by any of the following, or a
combination thereof, at the election of the Holder:
(i) cash, check or wire transfer; or
(ii) surrender of this Warrant at the principal office of the Company
together with notice of election, in which event the Company shall issue Holder
a number of shares of Common Stock computed using the formula:
X = Y (A-B)/A
where:
X = the number of shares of Common Stock to be issued to Holder (not to
exceed the number of shares set forth on the cover page of this
Warrant, as adjusted pursuant to the provisions of Section 4 of this
Warrant).
Y = the number of shares of Common Stock for which Warrant is
exercisable.
A = the Market Price of one share of Common Stock (for purposes of this
Section 2(ii), the "Market Price" shall be defined as the closing bid
price of the Common Stock for the last trading day preceding the Date
of Exercise of this Warrant, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), or if the
Common Stock is not traded on NASDAQ, the Closing Bid Price in the
over-the-counter market; provided, however, that if the Common Stock is
listed on a stock exchange, the Market Price shall be the closing price
on such exchange.
B = the Exercise Price.
3. Transfer and Registration.
Subject to the provisions of Section 7 of this Warrant, this Warrant
may be transferred on the books of the Company, wholly or in part, in person or
by attorney, upon surrender of this Warrant properly endorsed, with signature.
This Warrant shall be canceled upon such surrender and, as soon as practicable
thereafter, the person to whom such transfer is made shall be entitled to
receive a new Warrant or Warrants as to the portion of this Warrant transferred,
and the holder of this Warrant shall be entitled to receive a new Warrant or
Warrants as to the portion hereof retained.
4. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the
holder hereof may purchase only a whole number of shares of Common Stock. The
Company shall make a payment in cash in respect of any fractional shares which
might otherwise be issuable upon Exercise of this Warrant, calculated by
multiplying the fractional share amount by the closing price of the Company's
Common Stock on the Date of Exercise as reported by the NASDAQ National Market
or such other exchange on which the Company's Common Stock is principally quoted
or traded on.
5. Reservation of Shares.
The Company shall at all times reserve for issuance such number of
authorized and unissued share of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for Exercise of this
Warrant. The Company covenants and agrees that upon Exercise of the Warrant, all
shares of Common Stock issuable upon such Exercise shall be duly and validly
issued, fully paid, nonassessable and not subject to preemptive rights of any
shareholders.
6. Restrictions on Transfer.
This Warrant and the Common Stock issuable on Exercise hereof have not
been registered under the Securities Act of 1933, as amended, and may not be
sold, transferred, pledges, hypothecated or otherwise disposed of in the absence
of registration or the availability of an exemption from registration under said
Act, and any share of Common Stock issued upon Exercise of this Warrant shall
bear an appropriate legend to that effect.
7. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person
other than the Company and the holder of this Warrant any legal or equitable
right, remedy or claim under this Warrant and this Warrant shall be for the sole
and exclusive benefit of the Company and the holder of this Warrant.
8. Applicable Law.
This Warrant is issued under and shall for all purposes be governed by
and construed in accordance with the laws of the Commonwealth of Virginia.
9. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft, destruction
or mutilation of this Warrant, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Company, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
10. Notice to Company.
Notices or demands pursuant to this Warrant to be given or made by the
holder of this Warrant to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by the
Company, Network Imaging Corporation, 500 Huntmar Park Drive, Herndon, Virginia
20170-5100, Attention: Chief Executive Officer.
IN WITNESS WHEREOF, this Warrant is hereby executed effective as of the
date set forth below.
Dated as of : ___________________
NETWORK IMAGING CORPORATION
By: _______________________________
James J. Leto
Its: President and Chief Executive Officer
Network Imaging Corporation
Registration Rights Agreement
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of July __, 1995, by and among Network Imaging Corporation, a Delaware
corporation (the "Company"), and the persons and entities listed on Exhibit A
attached hereto (the "Investors").
Recitals:
WHEREAS, pursuant to a subscription Agreement (the "Agreement"), by and among
the Company and the Investors, the Company has agreed to sell and the Investors
have agreed to purchase an aggregate of up to 1,800 shares of Series D Preferred
Stock (the "Preferred Shares") convertible into shares of the Company's Common
Stock, $.0001 par value (the "Shares");
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investors' agreement to enter into the Agreement, the Company has agreed to
provide the Investors with certain registration rights with respect to the
shares;
NOW THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Agreement and this
Registration Rights Agreement, the Company and the Investors agree as follows:
Agreement:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's Common Stock, $.0001 par value.
"Initiating Holders" shall mean holders of Preferred Shares having an
original issue price of $1 million or more.
"Other Registrable Securities" shall mean those shares of the Common
Stock heretofore or hereafter issued pursuant to one or more agreements granting
the purchasers of such securities the right to have the Company register such
securities or include such securities in any other registration of the Company's
equity securities.
"Registrable Shares" shall mean (i) the shares of Common Stock issued
upon conversion of the Preferred Shares issued pursuant to the Agreement, (ii)
the Warrant Shares, and (iii) any Common Stock of the Company issued or issuable
in respect of the Preferred Shares or the Warrant Shares or upon any stock
split, stock dividend, recapitalization or similar event, provided, however,
that shares of Common Stock or other securities shall no longer be treated as
Registrable Shares if (A) they have been sold to or through a broker or dealer
or underwriter in a public distribution or a public securities transaction, (B)
they have been sold in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act so that all transfer restrictions
and restrictive legends with respect thereto are removed upon consummation of
such sale or (C) in the case of a Holder who, together with all persons with
whom he is required to aggregate under Rule 144, then holds less than one
percent (1%) of the then outstanding Common Stock, the shares are available for
sale, in the opinion of counsel to the Company, without compliance with the
registration and prospectus delivery requirements of the Securities Act so that
all transfer restrictions and restrictive legends with respect thereto may be
removed upon the consummation of such sale.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expense incurred by the Company
in compliance with Section 2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, reasonable fees and
disbursements of one counsel for all the selling holders of Registrable Shares
for a "due diligence" examination of the Company, and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Shares and all fees and
disbursements of one counsel for the selling holders of Registrable Shares
(other than the fees disbursements of such counsel included in Registration
Expenses).
"Warrant Shares" shall mean the shares of Common Stock issuable on
exercise of Warrant(s) issued to Swartz Investments, Inc., in connection with
the issuance of the Preferred Shares.
2. Requested Registration.
The following rights will apply only if at any time prior to expiration
of these rights, the Commission's Regulation S is rescinded or modified so as to
preclude non-United States persons from reselling in United States public
securities markets shares received from the Company:
(a) Request for Registration. If the Company shall receive
from Initiating Holders, at any time after four (4) months following the closing
of the sale of Preferred Shares pursuant to the Agreement, a written request
that the Company effect any registration with respect to all or a part of the
Registrable Shares, the Company shall:
(i) promptly give written notice of the proposed
registration to all other holders of Registrable Shares; and
(ii) as soon as practicable use its best efforts
to effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Shares as are specified in such request,
together with all or such portion of the Registrable Shares of any holder or
holders of Registrable Shares joining in such request as are specified in a
written request given within thirty (30) days after receipt of such written
notice from the Company; provided that the Company shall not be obligated to
effect, or to take any action to effect, any such registration pursuant to this
Section 2:
(A) after the Company has effected one such
registration pursuant to this Section 2(a) and such
registration has been declared or ordered effective
by the Commission and the sale of such Registrable
Shares shall have been completed or shall be
continuing pursuant to an effective registration
statement; or
(B) after a registration statement has been
filed with the Commission for and within 180 days
following the effective date of any registered
offering of the Company's securities to the general
public.
Subject to the foregoing limitations in clauses (A)
and (B) above, the Company shall file a registration statement covering the
Registrable Shares so requested to be registered as soon as practicable after
receipt of the request or requests of the Initiating Holders, but no later than
90 days following receipt of such request or requests; provided, however, that
if the Company shall furnish to such holders of Registrable Shares a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company and
its stockholders for such registration statement to be filed within such 90-day
period and it is therefore essential to defer the filing of such registration
statement, the Company shall have an additional period of not more than 90 days
after the expiration of such initial 90-day period within which to file such
registration of such initial 90-day period, provided that during such time the
Company may not file a registration statement for securities to be issued and
sold for its own account.
(b) Underwriting. If the Initiating Holders intend to distribute the
Registrable Shares covered by their request by means of an underwriting, they
shall so advise the Company as a part of their request made pursuant to Section
2 and the Company shall include such information in the written notice referred
to in Section 2(a)(i) above. The right of any holder of Registrable Shares to
registration pursuant to Section 2 shall be conditioned upon such holder's
participation in such underwriting and the inclusion of such holder's
Registrable Shares in such underwriting (unless otherwise mutually agreed by a
majority in interest of the Initiating Holders and such holder with respect to
such participation and inclusion) to the extent provided herein. A holder of
Registrable Shares may elect to include in such underwriting all or a part of
the Registrable Shares it holds.
(i) If the Company shall request inclusion in any registration
pursuant to Section 2 of securities being sold for its own account, or if
officers or directors of the Company holding other securities of the Company or
other holders of registration rights, shall request inclusion in any
registration pursuant to Section 2, the Initiating Holders shall, on behalf of
all holders of Registrable Shares, offer to include Other Registrable Securities
and the securities of the Company, such officers and directors, such other
holders of registration rights in the underwriting and may condition such offer
on their acceptance of the further applicable provisions of this Agreement. The
Company shall (together with all holders of Registrable Shares, officers and
directors, other holders of registration rights proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or representative of the underwriters
selected for such underwriting by the Company, which underwriter(s) shall be
reasonably acceptable to a majority in interest of the Initiating Holders.
(ii) Notwithstanding any other provision of this Section 2, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the Company shall so advise all holders of Registrable Shares and
other shareholders whose securities would otherwise be underwritten pursuant
hereto, and the number of Registrable Shares and other securities that may be
included in the registration and underwriting shall be allocated in the
following manner: the securities of the Company held by officers and directors
of the Company (other than Registrable Shares) shall be excluded from such
registration and underwriting to the extent required by such limitation, and, if
a limitation on the number of shares is still required, the Other Registrable
Securities shall be excluded pro rata with Registrable Shares, unless another
method of determining such exclusion is specified in the agreements governing
the Other Registrable Securities, according to the relative number of Other
Registrable Securities requested to be included in such registration and
underwriting, from such registration and underwriting to the extent required by
such limitation, and, if a limitation on the number of shares is still required,
the number of Registrable Shares that may be included in the registration and
underwriting shall be allocated among all holders of Registrable Shares in
proportion, as nearly as practicable, to the respective amounts of Registrable
Shares which they had requested to be included in such registration at the time
of filing the registration statement. No Registrable Shares or any other
securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall also be included in such registration.
(iii) If the Company or any officer, director or holder of
Registrable Shares or Other Registrable Securities who has requested inclusion
in such registration and underwriting as provided above disapproves of the terms
of the underwriting, such person may elect to withdraw therefrom by written
notice to the Company, the underwriter and the Initiating Holders. The
securities so withdrawn shall also be withdrawn from registration.
3. Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification or
compliance of the Registrable Shares pursuant to this Agreement. All Selling
Expenses shall be borne by the holder of the securities so registered pro rata
on the basis of the number of their shares so registered.
4. Registration Procedures. Pursuant to this Agreement, the Company
will keep each holder of Registrable Shares advised in writing as to the
initiation of a registration under this Agreement and as to the completion
thereof. At its expense, the Company will:
(a) Use reasonable efforts to keep such registration effective
for a period of 180 days or until the holder or holders of Registrable Shares
have completed the Distribution described in the registration statement relating
thereto, whichever first occurs;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of securities
covered by such registration statement; and
(c) Furnish such number of prospectuses and other documents
incidental thereto, including any amendment of or supplement to the prospectus,
as a holder of Registrable Securities from time to time may reasonably request.
5. Indemnification.
(a) The Company will indemnify each holder of Registrable
Shares, each of its officers, directors and partners, and each person
controlling such holder of Registrable Shares, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any and each person who controls any
underwriter, and their respective counsel against all claims, losses, damages
and liabilities (or actions, proceedings or settlements in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company in connection with any such registration,
qualification or compliance, and will reimburse each such holder of Registrable
Shares, each of its officers, directors and partners, and each person
controlling such holder of Registrable Shares, each such underwriter and each
person who controls any such underwriter, for any legal and any other expenses
as they are reasonably incurred in connection with investigating and defending
any such claim, loss, damage, liability or action, provided that the Company
shall not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue statement
or omission based upon written information furnished to the Company by such
holder of Registrable Shares or underwriter and stated to be specifically for
use therein.
(b) Each holder of Registrable Shares will, if Registrable
Shares held by it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of the Securities Act and the
rules and regulations thereunder, each other such holder of Registrable Shares
and each of its officers, directors and partners, and each person controlling
such holder of Registrable Shares, and their respective counsel against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact relating to such Holder contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
relating to such holder or necessary to make the statements therein relating to
such holder not misleading, and will reimburse the Company, such holders of
Registrable Shares, directors, officers, partners, persons, underwriters or
control persons for any legal or any other expense reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) relating to such holder is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such holder of
Registrable Shares and stated to be specifically for use therein; provided,
however, that the obligations of such holders of Registrable Shares hereunder
shall be limited to an amount equal to the proceeds to each such holder of
Registrable Shares of securities sold under such registration statement,
prospectus, offering circular or other document as contemplated herein and
provided further that such indemnification obligations shall not apply if the
Company modifies or changes to a material extent written information furnished
by such Holder.
(c) Each party entitled to indemnification under this Section
5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld or delayed), and the Indemnified Party may participate
in such defense at such indemnified party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement. No
Indemnifying Party, in the defense of any such claim or litigation, shall except
with the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom.
6. Information by Holder of Registrable Shares. Each holder of
registrable Shares shall furnish to the Company such information regarding such
holder of Registrable Shares and the distribution proposed by such holder of
Registrable Shares as the Company may reasonably request in writing and as shall
be reasonably required in connection with any registration referred to in this
Agreement.
7. No transfer or Assignment of Registration Rights. Each Investor's
rights under this Registration Rights Agreement to cause the Company to register
the Shares may be transferred or assigned by an Investor (other than to
affiliates of such Investors) only to a purchaser of Preferred Shares for which
the original issue price is at least $200,000 or at least 40,000 shares of
common stock issued upon conversion of Preferred Shares and such assignment
shall only be effective upon delivery of written notice of such assignment to
the Company within thirty (30) days of the assignment.
8. Miscellaneous.
8.1 Governing Law. This agreement shall be governed and con-
strued in accordance with the laws of the Commonwealth of Virginia.
8.2 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
8.3 Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter hereof.
8.4 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
first-class mail, postage prepaid, or delivered by hand or by messenger or
courier delivery service, addressed (a) if to an Investor, at such Investor's
address set forth on Exhibit A hereof, or at such other address as such Investor
shall have furnished to the Company in writing, or (b) if to the Company, at the
address set forth on the signature page hereof or at such other address as the
Company shall have furnished to each Investor and each such other holder in
writing.
8.5 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Registrable Shares, upon
any breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereunder occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach of default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of any breach or default under
this Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
8.6 Counterparts. This agreement may be executed in any number
of counterparts, each of which may be executed by less than all of the
Investors, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
8.7 Severability. In the case any provision of this agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
8.8 Amendments. The provisions of this Agreement may be
amended at any time and from time to time, and particular provisions of this
Agreement may be waived, with and only with an agreement or consent in writing
signed by the Company and by the Investors currently holding eighty percent
(80%) of the Registrable Shares as of the date of such amendment or waiver.
8.9 Termination of Registration Rights. This Agreement shall
terminate at the earlier of three years from July ___, 1995 (the Preferred
Shares closing date) or at such time as there cease to be any outstanding shares
which constitute Registrable Shares as defined herein.
The foregoing Registration Rights Agreement is hereby executed as of the date
first above written.
Network Imaging Corporation Investors
By: ___________________________ _________________________________
Title: ___________________________ By: ______________________________
Name: ____________________________
Title: ___________________________
Network Imaging Corporation
Registration Rights Agreement
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of July __, 1995, by and among Network Imaging Corporation, a Delaware
corporation (the "Company"), and the persons and entities listed on Exhibit A
attached hereto (the "Investors").
Recitals:
WHEREAS, pursuant to a Subscription Agreement (the "Agreement"), by and among
the Company and the Investors, the Company has agreed to sell and the Investors
have agreed to purchase an aggregate of up to 500 shares of Series E Preferred
Stock (the "Preferred Shares") convertible into shares of the Company's Common
Stock, $.0001 par value (the "Shares");
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investors' agreement to enter into the Agreement, the Company has agreed to
provide the Investors with certain registration rights with respect to the
shares;
NOW THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Agreement and this
Registration Rights Agreement, the Company and the Investors agree as follows:
Agreement
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's Common Stock, $.0001 par value.
"Initiating Holders" shall mean holders of Preferred Shares having an
original issue price of $1 million or more.
"Other Registrable Securities" shall mean those shares of the Common
Stock heretofore or hereafter issued pursuant to one or more agreements granting
the purchasers of such securities the right to have the Company register such
securities or include such securities in any other registration of the Company's
equity securities.
"Registrable Shares" shall mean (i) the shares of Common Stock issued
upon conversion of the Preferred Shares issued pursuant to the Agreement, (ii)
the Warrant Shares, and (iii) any Common Stock of the Company issued or issuable
in respect of the Preferred Shares or the Warrant Shares or upon any stock
split, stock dividend, recapitalization or similar event, provided, however,
that shares of Common Stock or other securities shall no longer be treated as
Registrable Shares if (A) they have been sold to or through a broker or dealer
or underwriter in a public distribution or a public securities transaction, (B)
they have been sold in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act so that all transfer restrictions
and restrictive legends with respect thereto are removed upon consummation of
such sale or (C) in the case of a Holder who, together with all persons with
whom he is required to aggregate under Rule 144, then holds less than one
percent (1%) of the then outstanding Common Stock, the shares are available for
sale, in the opinion of counsel to the Company, without compliance with the
registration and prospectus delivery requirements of the Securities Act so that
all transfer restrictions and restrictive legends with respect thereto may be
removed upon the consummation of such sale.
The terms "register," "Registered" and "Registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expense incurred by the Company
in compliance with Section 2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, reasonable fees and
disbursements of one counsel for all the selling holders of Registrable Shares
for a "due diligence" examination of the Company, and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Shares and all fees and
disbursements of one counsel for the selling holders of Registrable Shares
(other than the fees disbursements of such counsel included in Registration
Expenses).
"Warrant Shares" shall mean the shares of Common Stock issuable on
exercise of Warrant(s) issued to Oakes, Fitzwilliams & Co. Limited in connection
with the issuance of the Preferred Shares.
2. Requested Registration.
The following rights will apply only if at any time prior to expiration
of these rights, the Commission's Regulation S is rescinded or modified so as to
preclude non-United States persons from reselling in United States public
securities markets shares received from the Company:
(a) Request for Registration. If the Company shall receive
from Initiating Holders, at any time after four (4) months following the closing
of the sale of Preferred Shares pursuant to the Agreement, a written request
that the Company effect any registration with respect to all or a part of the
Registrable Shares, the Company shall:
(i) promptly give written notice of the proposed re-
gistration to all other holders of Registrable Shares; and
(ii) as soon as practicable use its best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Shares as are specified in such request,
together with all or such portion of the Registrable Shares of any holder or
holders of Registrable Shares joining in such request as are specified in a
written request given within thirty (30) days after receipt of such written
notice from the Company; provided that the Company shall not be obligated to
effect, or to take any action to effect, any such registration pursuant to this
Section 2:
(A) after the Company has effected one such
registration pursuant to this Section 2(a) and such
registration has been declared or ordered effective
by the Commission and the sale of such Registrable
Shares shall have been completed or shall be
continuing pursuant to an effective registration
statement; or
(B) after a registration statement has been
filed with the Commission for and within 180 days
following the effective date of any registered
offering of the Company's securities to the general
public.
Subject to the foregoing limitations in clauses (A)
and (B) above, the Company shall file a registration statement covering the
Registrable Shares so requested to be registered as soon as practicable after
receipt of the request or requests of the Initiating Holders, but no later than
90 days following receipt of such request or requests; provided, however, that
if the Company shall furnish to such holders of Registrable Shares a certificate
signed by the President of the Company stating that in good faith judgment of
the Board of Directors it would be seriously detrimental to the Company and its
stockholders for such registration statement to be filed within such 90-day
period and it is therefore essential to defer the filing of such registration
statement, the Company shall have an additional period of not more than 90 days
after the expiration of such initial 90-day period within which to file such
registration of such initial 90-day period, provided that during such time the
Company may not file a registration statement for securities to be issued and
sold for its own account.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provision of Section 2(b) below, include
Other Registrable Securities, other securities of the Company which are held by
officers or directors of the Company or which are held by other holders of
registration rights, and may include securities of the Company being sold for
the account of the Company.
(b) Underwriting. If the Initiating Holders intend to distribute the
Registrable Shares covered by their request by means of an underwriting, they
shall so advise the Company as a part of their request made pursuant to Section
2 and the Company shall include such information in the written notice referred
to in Section 2(a)(i) above. The right of any holder of Registrable Shares to
registration pursuant to Section 2 shall be conditioned upon such holder's
participation in such underwriting and the inclusion of such holder's
Registrable Shares in such underwriting (unless otherwise mutually agreed by a
majority in interest of the Initiating Holders and such holder with respect to
such participation and inclusion) to the extent provided herein. A holder of
Registrable Shares may elect to include in such underwriting all or a part of
the Registrable Shares it holds.
(i) If the Company shall request inclusion in any registration
pursuant to Section 2 of securities being sold for its own account, or if
officers or directors of the Company holding other securities of the Company or
other holders of registration rights, shall request inclusion in any
registration pursuant to Section 2, the Initiating Holders shall, on behalf of
all holders of Registrable Shares, offer to include Other Registrable Securities
and the securities of the Company, such officers and directors, such other
holders of registration rights in the underwriting and may condition such offer
on their acceptance of the further applicable provisions of this Agreement. The
Company shall (together with all holders of Registrable Shares, officers and
directors, other holders of registration rights proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or representative of the underwriters
selected for such underwriting by the Company, which underwriter(s) shall be
reasonably acceptable to a majority in interest of the Initiating Holders.
(ii) Notwithstanding any other provision of this Section 2, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the Company shall so advise all holders of Registrable Shares and
other shareholders whose securities would otherwise be underwritten pursuant
hereto, and the number of Registrable Shares and other securities that may be
included in the registration and underwriting shall be allocated in the
following manner: the securities of the Company held by officers and directors
of the Company (other than Registrable Shares) shall be excluded from such
registration and underwriting to the extent required by such limitation, and, if
a limitation on a number of shares is still required, the Other Registrable
Securities shall be excluded pro rata with Registrable Shares, unless another
method of determining such exclusion is specified in the agreements governing
the Other Registrable Securities, according to the relative number of Other
Registrable Securities requested to be included in such registration and
underwriting, from such registration and underwriting to the extent required by
such limitation, and, if a limitation on the number of shares is still required,
the number of Registrable Shares that may be included in the registration and
underwriting shall be allocated among all holders of Registrable Shares in
proportion, as nearly as practicable, to the respective amounts of Registrable
Shares which they had requested to be included in such registration at the time
of filing the registration statement. No Registrable Shares or any other
securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall also be included in such registration.
(iii) If the Company or any officer, director or holder of
Registrable Shares or Other Registrable Securities who has requested inclusion
in such registration and underwriting as provided above disapproves of the terms
of the underwriting, such person may elect to withdraw therefrom by written
notice to the Company, the underwriter and the Initiating Holders. The
securities so withdrawn shall also be withdrawn from registration.
3. Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification or
compliance of the Registrable Shares pursuant to this Agreement. All Selling
Expenses shall be borne by the holder of the securities so registered pro rata
on the basis of the number of their shares so registered.
4. Registration Procedures. Pursuant to this Agreement, the Company
will keep each holder of Registrable Shares advised in writing as to the
initiation of a registration under this Agreement and as to the completion
thereof. At its expense, the Company will:
(a) Use reasonable efforts to keep such registration effective
for a period of 180 days or until the holder or holders of Registrable Shares
have completed the Distribution described in the registration statement relating
thereto, whichever first occurs;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of securities
covered by such registration statement; and
(c) Furnish such number of prospectuses and other documents
incidental thereto, including any amendment of or supplement to the prospectus,
as a holder of Registrable Securities from time to time may reasonably request.
5. Indemnification.
(a) The Company will indemnify each holder of Regis-
trable Shares, each of its officers, directors and partners, and each person
controlling such holder of Registrable Shares, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any and each person who controls any
underwriter, and their respective counsel against all claims, losses, damages
and liabilities (or actions, proceedings or settlements in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company in connection with any such registration,
qualification or compliance, and will reimburse each such holder of Registrable
Shares, each such underwriter and each person who controls any such underwriter,
for any legal and any other expenses as they are reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company shall not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such holder of Registrable Shares or
underwriter and stated to be specifically for use therein.
(b) Each holder of Registrable Shares will, if Registrable
Shares held by it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of the Securities Act and the
rules and regulations thereunder, each other such holder of Registrable Shares
and each of its officers, directors and partners, and each person controlling
su8ch holder of Registrable Shares, and their respective counsel against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact relating to such Holder contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
relating to such holder or necessary to make the statements therein relating to
such holder not misleading, and will reimburse the Company, such holders of
Registrable Shares, directors, officers, partners, persons, underwriters or
control persons for any legal or any other expense reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) relating to such holder is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such holder of
Registrable Shares and stated to be specifically for use therein; provided,
however, that the obligations of such holders of Registrable Shares hereunder
shall be limited to an amount equal to the proceeds to each such holder of
Registrable Shares of securities sold under such registration statement,
prospectus, offering circular or other document as contemplated herein and
provided further that such indemnification obligations shall not apply if the
Company modifies or changes to a material extent written information furnished
by such Holder.
(c) Each party entitled to indemnification under this Section
5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party, (whose approval shall not
unreasonably be withheld or delayed), and the Indemnified Party may participate
in such defense at such indemnified party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement. No
Indemnifying Party, in the defense of any such claim or litigation, shall except
with the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom.
6. Information by Holder of Registrable Shares. Each holder of
Registrable Shares shall furnish to the Company such information regarding such
holder of Registrable Shares and the distribution proposed by such holder of
Registrable Shares as the Company may reasonably request in writing and as shall
be reasonably required in connection with any registration referred to in this
Agreement.
7. No Transfer or Assignment of Registration Rights. Each Investor's
rights under this Registration Rights Agreement to cause the Company to register
the Shares may be transferred or assigned by an Investor (other than to
affiliates of such Investors) only to a purchaser of Preferred Shares for which
the original issue price is at least $200,000 or at least 40,000 shares of
common stock issued upon conversion of Preferred Shares and such assignment
shall only be effective upon delivery of written notice of such assignment to
the Company within thirty (30) days of the assignment.
8. Miscellaneous.
8.1 Governing Law. This agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia.
8.2 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
8.3 Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter hereof.
8.4 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
first-class mail, postage prepaid, or delivered by hand or by messenger or
courier delivery service, addressed (a) if to an Investor, at such Investor's
address set forth on Exhibit A hereof, or at such other address as such Investor
shall have furnished to the Company in writing, or (b) if to the Company, at the
address set forth on the signature page hereof or at such other address as the
Company shall have furnished to each Investor and each such other holder in
writing.
8.5 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Registrable Shares, upon
any breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such holder nor shall it be construed to be a waiver
of any such breach of default, or an acquiescence therein, or of or in any
similar breach of default thereunder occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach of default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of any breach or default under
this Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
8.6 Counterparts. This agreement may be executed in any number
of counterparts, each of which may be executed by less than all of the
Investors, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
8.7 Severability. In the case any provision of this agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
8.8 Amendments. The provisions of this Agreement may be
amended at any time and from time to time, and particular provisions of this
Agreement may be waived, with and only with an agreement or consent in writing
signed by the Company and by the Investors currently holding eighty percent
(80%) of the Registrable Shares as of the date of such amendment or waiver.
8.9 Termination of Registration Rights. This Agreement shall
terminate at the earlier of three years from July 21, 1995 (the Preferred Shares
closing date) or at such time as there cease to be any outstanding shares which
constitute Registrable Shares as defined herein.
The foregoing Registration Rights Agreement is hereby executed as of the date
first above written.
Network Imaging Corporation Investors
By: ________________________ ____________________________
Title: ________________________ By: ________________________
Name: ______________________
Title: _______________________
ALEX. BROWN & SONS INCORPORATED
1290 AVENUE OF THE AMERICAS, 10TH FLOOR * NEW YORK, NEW YORK 10104 * TELEPHONE:
(212) 237-2000 * TELEX: 198186
ALEX. BROWN
AMERICA'S OLDEST INVESTMENT BANKING FIRM
ESTABLISHED 1800
as of August 13, 1997
PERSONAL AND CONFIDENTIAL
Mr. James J. Leto
Chairman, President & Chief Executive Officer
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, VA 20170
Dear Mr. Leto:
This letter agreement (the "Agreement") confirms the understanding and
agreement between Alex. Brown & Sons Incorporated ("Alex. Brown" or the
"Financial Advisor") and Network Imaging Corporation ("IMGX" or the "Company").
Assignment Scope:
1. The Company hereby retains Alex. Brown as sole and exclusive
financial advisor to provide the Company with general restructuring advice on
the terms and conditions set forth herein. The Company currently has
approximately 1.6 million shares of Series A Cumulative Preferred Stock (the
"Preferred Stock") outstanding with a liquidation preference of $25.00 per
share. Such proposed restructuring may include an exchange offer involving new
securities (the "Restructuring"), the issuance of new securities (the
"Refinancing"), the sale or disposition of assets, or other similar transactions
or series of transactions (the "M&A Transaction"), and is hereinafter referred
to as the "Transaction". In connection with the Transaction, our work may
include services related to any or all of the above described transactions.
Restructuring Services:
2. With respect to the Restructuring, the services performed by the
Financial Advisor will include, as necessary:
(a) A review and analysis of the Company's business,
operations and financial projections;
(b) Assisting in the determination of an appropriate
capital structure for the Company;
(c) Rendering financial advice to the Company and
participating in any meetings or negotiations with
the holders of the Company's Preferred Stock in
connection with any restructuring, modification or
refinancing of the Company's existing Preferred
Stock;
(d) Advising the Company on the timing, nature, and terms
of any new securities, other consideration or other
inducements to be offered pursuant to the
Restructuring;
(e) Advising the Company on specific tactics and
strategies for negotiating with the Preferred
Stockholders;
(f) Assisting the Company in preparing any documentation
required in connection with the Restructuring of the
existing Preferred Stock;
(g) Assessing the possibilities of bringing in new
investors and/or lenders to replace, repay or settle
with the existing investors and/or lenders.
(h) Providing the Company with other general restructur-
ing advice, as appropriate.
3. As consideration for the Financial Advisor's services set forth in
Section 2, the Company shall pay the Financial Advisor certain fees as follows:
(a) Commencing on the date hereof, the Company shall pay
the Financial Advisor a retainer fee of $80,000,
consisting of $25,000 in cash and $55,000 in the form
of common stock and common stock warrants. The
retainer will be fully creditable to any success fee
associated with the Restructuring, Refinancing, or
M&A Transaction. See Addendum B for a detail of the
calculation of the amount of stock and warrants to be
granted to the Financial Advisor.
(b) Upon consummation of a successful Restructuring, the
Company shall pay the Financial Advisor a success fee
consisting of (i) 155,844 shares of common stock and
warrants exercisable into 277,778 shares of common
stock and (ii) $364,701 in cash payable as follows:
Actual Amount
Date / Event Base Amount Payable
- ------------------------- ------------------------- ------------------
Restructuring $100,000 $100,000
Feb. 20, 1998 (1) $100,000 $104,060
May 20, 1998 (1) $75,000 $80,410
Aug. 20, 1998 (1) $75,000 (2) $55,231
(1) Reflects accrual of pay-in-kind interest of 1% per month beginning Oct. 20,
1997
(2) Includes $25,000 cash retainer to be credited against this amount
A successful Restructuring means a Restructuring
where there is a closing or signing of execution
documents evidencing a Restructuring or other similar
event. See Addendum B for a detail of the calculation
of the amount of stock and warrants to be granted to
the Financial Advisor.
(c) In addition to any fees that may be payable to the
Financial Advisor, the Company shall promptly re-
imburse the Financial Advisor for all: (i) reason-
able out-of-pocket expenses (including travel and
lodging, data processing and communications charges,
courier services and other appropriate expenditures)
and (ii) other fees and expenses, including expenses
of counsel, of any, to the extent described in the
Addendum A. Alex. Brown will provide the Company with
periodic summaries of its expenses and will not incur
any expenses in expenses in excess of $10,000 in any
one month without the prior approval of the Company.
(d) As part of the compensation payable to the Financial
Advisor hereunder, the Company agrees to the
indemnification and contribution provisions (the
"Indemnification Provisions") attached to this
Agreement as Addendum A and incorporated herein in
their entirety.
Merger & Acquisition Related Services:
4. If during the term of this Agreement at the Company's request, Alex.
Brown assists the Company in obtaining an investment from a third party or in a
Business Combination that results in a change of control transaction (the "M&A
Transaction"), the Company shall pay Alex. Brown a success fee based on the
transaction value as follows:
Aggregate Consideration Incremental Fee %
--------------------------------- ----------------------------------
$0 - $50 1.5000%
$51 - $250 0.7500%
$251 - $1,000 0.3750%
$1,001 - above 0.1875%
$ in millions
As used in this letter, the term "Business Combination" means any transaction or
series of transactions other than in the ordinary course of business involving
(a) an acquisition, merger, consolidation, or other business combination
pursuant to which the business or assets of the Company are combined with
another company or any of its subsidiaries; (b) the acquisition, directly or
indirectly, by a buyer (which term shall include a "group" of persons as defined
in Section 13(d) of the Securities Exchange Act of 1934, as amended), of equity
interests or options, or any combination thereof constituting a majority of the
then outstanding stock of the Company or possessing a majority of the then
outstanding voting power of the Company (except as may occur as a result of the
Restructuring); (c) any similar purchase or other acquisition by a buyer of
significant assets of the Company (executive of purchases transacted during a
forced, piecemeal liquidation of the Company's assets) or (d) the formation of a
joint venture or partnership with the Company for the purpose of effecting a
transfer of control of or a material interest in, the Company.
As used in this letter, "Aggregate Consideration" shall mean the value of all
cash, securities and other property paid by an acquiring party to a selling
party in connection with a Business Combination plus all amounts paid by the
Company or an acquiring party to holders of options or stock appreciation
rights, whether vested or not vested. In this connection, the value of
securities (whether debt or equity) that are freely tradable in an established
public market will be determined on the date of payment (the "Valuation Date");
and the value of securities that are not freely tradable (or have no established
public market) or other property will be the fair market value of such
securities or other property on such Valuation Date. Aggregate Consideration
shall also be deemed to include any indebtedness for money borrowed.
Financing Services;
5. If during the term of this Agreement, the Company determines to
utilize an investment banker or other advisor in raising new capital in an
amount greater than or equal to $10 million through the issue of public or
private debt or equity securities for the purpose of refinancing the operations
of the Company, the Company hereby retains the Financial Advisor as sole
placement agent or lead manager in connection with such transaction. In the
event of the successful completion of such a transaction, the Company will pay
the Financial Advisor a fee of 6.0% of the principal amount raised in the
Refinancing.
Other:
6. If requested by the Board of Directors of the Company, the Financial
Advisor will provide a Fairness Opinion to the Board that the Restructuring, or
any other transaction in which the Company may engage, is fair to the
shareholders of the Company. The nature and scope of the investigation which we
would conduct in order to be able to render our opinion will be such as we would
consider appropriate, and such opinion will be subject to appropriate
assumptions and qualifications. If requested, our opinion will be in written
form. Such opinion shall be solely for the use of the Board of Directors in
considering any proposed Restructuring or other transaction. Such opinion shall
be subject to the final terms of the Restructuring or other transaction and
approval of the Financial Advisor's Opinion Letter Committee and any other
conditions the Financial Advisor deems appropriate. If the Financial Advisor
issues such opinion, the Company agrees to pay the Financial Advisor a fee of
$100,000 payable in cash upon rendering such opinion.
7. The Financial Advisor and the Company acknowledge and agree that the
Company is entering into this Agreement in reliance on the Financial Advisor's
experience and expertise in performing the services to be provided hereunder and
that the Financial Advisor shall perform such services and its obligations
hereunder using its best efforts, in a prompt and professional manner and in
accordance with the highest standards of its industry.
8. In order to coordinate our efforts on behalf of the Company during
the period of our engagement hereunder, in the event the Company receives an
inquiry concerning any potential business combination or strategic partnership,
the Company will promptly inform Alex. Brown of such inquiry so that we can
assess such inquiry and any resulting negotiations. In the event that Alex.
Brown receives an inquiry concerning any such type of transaction, we will
promptly inform the Company of such inquiry.
9. The Company will cooperate with the Financial Advisor and will
furnish the Financial Advisor with all information, documents and data
concerning the Company and other parties as appropriate (the "Information")
which the Financial Advisor deems appropriate and will provide the Financial
Advisor with access to the Company's officers, director, employees, independent
accountants and legal counsel. The Company will use its best efforts to ensure
that all Information made available to the Financial Advisor by the Company
will, at all times during the period of the engagement of the Financial Advisor
hereunder, be to the knowledge of the Company substantially correct in all
material respects and will promptly advise the Financial Advisor as soon as the
Company becomes aware that any information is inaccurate or incomplete. The
Company represents and warrants that any projections provided by it to the
Financial Advisor will have been prepared in good faith and will be based upon
fully disclosed assumptions which, in light of the circumstances under which
they are made, will be reasonable. The Company acknowledges and agrees that, in
rendering its services hereunder, the Financial Advisor will be using and
relying on the Information without independent verification thereof by the
Financial Advisor or independent appraisal by the Financial Advisor of any of
the Company's assets. The Financial Advisor does not and will not assume
responsibility for the accuracy or completeness of the Information made
available to the Financial Advisor by the Company.
10. In consideration of our services as the Company's Financial Advisor
under this Agreement, the Company agrees to indemnify and hold harmless Alex.
Brown and each of its directors, officers, agents, employees and controlling
persons (with the meaning of the Securities Act of 1933, as amended) to the
extent and as provided in Addendum A attached hereto and incorporated herein by
reference. The provisions of this section and Addendum A incorporated herein by
reference shall survive the termination of Alex. Brown's engagement under this
Agreement and shall be binding upon any successors or assigns of the Company.
11. Unless the parties hereto agree otherwise in writing, this
Agreement shall automatically be terminated on that date which is twelve (12)
months from the date on which the Company accepts the terms of this Agreement by
executing and delivering a duplicate of this letter to the Financial Advisor as
provided below. This Agreement may be terminated by the Company or the Financial
Advisor, with or without cause, effective thirty days subsequent to receipt of
written notice. Notwithstanding termination of this Agreement, the Financial
Advisor will be entitled to: (i) receive reimbursement of all out-of-pocket
expenses paid or incurred through the effective date of termination and the full
benefit of the indemnity and reimbursement provisions detailed in Addendum A
which shall remain in full force and effect. In addition, if within twelve
months after termination by the Company, the Company completes a Restructuring
or other transaction substantially similar to a restructuring or transactions
recommended by the Financial Advisor, then the Financial Advisor will receive
the full fees outlined above. This shall include any Business Combinations with
any prospective acquirors and/or investors identified or contacted by Alex.
Brown as to which the Company has previously been notified in writing.
12. The terms and provisions of this letter are solely for the benefit
of the parties hereto and the other indemnified persons and their respective
successors, assigns, heirs and personal representatives, and no other person
shall acquire or have any right by virtue of this letter. In this connection it
is understood that Alex. Brown is being engaged solely to provide the services
described herein to the Company and that Alex Brown is not acting as an agent or
fiduciary of, and shall have no duties or liability to the equity holders of the
Company.
13. This letter shall be governed by, and construed in accordance with,
the laws of the state of New York State without regard to the principle of
conflicts of law, and may be amended, modified or supplemented only by written
instrument by the parties hereto.
If the foregoing letter is in accordance with your understanding of the
terms of our engagement, please sign and return to us the enclosed duplicate
hereof.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
By: /s/ Barry W. Ridings
------------------------
Barry W. Ridings
Managing Director
Accepted and Agreed to as of the date first written above:
NETWORK IMAGING CORPORATION
By: /s/ James J. Leto
------------------------
James J. Leto
Chairman, President & Chief Executive Officer
<PAGE>
ADDENDUM A
In connection with our engagement described in the foregoing letter
agreement to which this Addendum A is attached, Network Imaging Corporation (the
"Company") agrees to indemnify and hold harmless Alex. Brown & Sons Incorporated
(the "Financial Advisor") and each of its directors, officers, agents, employees
and controlling persons (within the meaning of the Securities Act of 1933, as
amended) against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) related to or arising out of our engagement, and
will reimburse the Financial Advisor and each other person indemnified hereunder
for all legal and other expenses as incurred in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding whether
or not in connection with pending or threatened litigation in which the
Financial Advisor or any of its directors, officers, agents, employees and
controlling persons is a party; provided, however, that the Company will not be
liable in the event of any losses, claims, damages, liabilities (or actions or
proceedings in respect thereof) or expenses to the extent that they result from
actions taken or omitted to be taken by the Financial Advisor, or any other
indemnified party hereunder, resulting directly from the sole or gross
negligence or willful misconduct of the Financial Advisor or any other
indemnified party hereunder.
In case any proceeding shall be instituted involving any person in
respect of whom indemnity may be sought, such person (the "indemnified party")
shall promptly notify the Company and the Company, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the Company
may designate in such proceeding and shall pay as incurred the fees and expenses
of such counsel related to such proceeding. In any such proceeding, the Company
and any indemnified party shall have the right to retain its own counsel at its
own expense, except that the Company shall pay as incurred the fees and expenses
of counsel retained by the indemnified party in the event that the Company and
the indemnified party shall have mutually agreed to the retention of such
counsel or the named parties to any such proceeding (including any impleaded
parties) include both the Company and the indemnified party and representation
of both parties by the same counsel would be inappropriate, in the reasonable
opinion of the indemnified party, due to actual or potential conflicts of
interests between them.
The Company shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there is a final judgment for the plaintiff, the Company agrees to indemnify the
indemnified party to the extent set forth in this Addendum A. In addition the
Company will not, without the prior written consent of the Financial Advisor,
settle or compromise or consent to the entry or any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not the Financial Advisor or any indemnified
party is an actual or potential party to such claim, action, suit or proceeding)
unless such settlement, compromise or consent includes an unconditional release
of the Financial Advisor and each other indemnified party hereunder from all
liability arising out of such claim, action, suit or proceeding.
<PAGE>
ADDENDUM B
Retainer Due to Alex. Brown $55,000
Average IMGX Trading Price $1.44
Common Shares to Alex. Brown 19,048
Value per Warrant $0.81
Warrants to Alex. Brown 33,951
Success Fee Due to Alex. Brown $450,000
Average IMGX Trading Price $1.44
Common Shares to Alex. Brown 155,844
Value per Warrant $0.81
Warrants to Alex. Brown 277,778
Assumptions:
1. Warrant price from Company according to E&Y calculation method
2. Warrants: nonexercisable for 1 year from the date of this letter; exercis-
able into registered shares
3. Common stock: no sale of stock during the 1 year period beginning from the
date of this letter
4. All holding requirements cease upon a change in control of the Company
5. Alex, Brown will have the right to "piggy-back" its shares/warrants with any
offering of the common stock of the Company
Last 5 Closing Prices
13-Aug-97 $1.53
12-Aug-97 $1.56
11-Aug-97 $1.44
08-Aug-97 $1.38
07-Aug-97 $1.31
Average $1.44
<PAGE>
If the indemnification provided for in this Addendum A is determined to
be unenforceable by a final judgment of a court of competent jurisdiction then
the Company, in lieu of indemnifying such indemnified party, agrees that it
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities, or expenses in such amount
as is appropriate to reflect the relative benefits received by the Company on
one hand, and by the indemnified party on the other hand from the services
rendered hereunder and the relative fault of the Company on the one hand and of
the indemnified party on the other, as well as any other relevant equitable
considerations. Notwithstanding the provisions of this Addendum A, the
indemnified parties, in the aggregate, shall not be required to contribute any
amount in excess of the amount of fees received by the Financial Advisor under
this Agreement.
This indemnification shall apply to the original engagement as set
forth in the Agreement and any modification of the original engagement and the
indemnification provided herein shall survive termination of the Financial
Advisor's engagement and shall be binding upon any successors or assigns of the
Company.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION OR
THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT.
Warrant to Subscribe for
__________ shares
Warrant to Subscribe for Common Stock
of
NETWORK IMAGING CORPORATION
THIS CERTIFIES that ________ ("Holder") has the right to subscribe from
Network Imaging Corporation (the "Company"), not more than _________ fully paid
and nonassessable shares of the Company's Common Stock $.0001 par value per
share ("Common Stock"), at a price of ____________ ( ) per share (the "Exercise
Price"), at any time on or before 5:00 pm, U.S. time, on _________________.
The holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Exercise.
This Warrant may be exercised as to all or any lesser number of full
shares of Common Stock covered hereby upon surrender of this Warrant, with the
Subscription Form or a copy thereof attached hereto duly executed, together with
the full Exercise Price (as hereinafter defined) in cash, by wire transfer or by
certified or official bank check payable in New York Clearing House Funds for
each share of Common Stock as to which this Warrant is exercised, at the office
of the Company, Network Imaging Corporation, 500 Huntmar Park Drive, Herndon,
Virginia 20170-5100, or at such other office or agency as the Company may
designate in writing, by overnight mail, with an advance copy of the
Subscription Form by facsimile (such surrender and payment hereinafter called
the "Exercise of this Warrant"). The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the Subscription Form is sent by
facsimile to the Company, provided that the original Warrant and Subscription
Form are received by the Company within five business days thereafter. The
original Warrant and Subscription Form must be received within 5 business days
of the Date of Exercise, or the Subscription Form shall be considered void. This
Warrant shall be canceled upon its Exercise, and, as soon as practical
thereafter, the holder hereof shall be entitled to receive a certificate or
certificates for the number of shares of Common Stock purchased upon such
Exercise and a new Warrant or Warrants (containing terms identical to this
Warrant) representing any unexercised portion of this Warrant. Each person in
whose name any certificate for shares of Common Stock is issued shall, for all
purposes, be deemed to have become the holder of record of such shares on the
Date of Exercise of this Warrant, irrespective of the date of delivery of such
certificate. Nothing in this Warrant shall be construed as conferring upon the
holder hereof any rights as a shareholder of the Company.
2. Payment of Warrant Exercise Price.
Payment of the Exercise Price may be made by any of the following, or a
combination thereof, at the election of the Holder:
(i) cash, check or wire transfer; or
(ii) surrender of this Warrant at the principal office of the Com-
pany together with notice of election, in which event the Company shall issue
Holder a number of shares of Common Stock computed using the formula:
X = Y (A-B)/A
where:
X = the number of shares of Common Stock to be issued to Holder (not to
exceed the number of shares set forth on the cover page of this
Warrant, as adjusted pursuant to the provisions of Section 4 of this
Warrant).
Y = the number of shares of Common Stock for which Warrant is
exercisable.
A = the Market Price of one share of Common Stock (for purposes of this
Section 2(ii), the "Market Price" shall be defined as the closing bid
price of the Common Stock for the last trading day preceding the Date
of Exercise of this Warrant, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), or if the
Common Stock is not traded on NASDAQ, the Closing Bid Price in the
over-the-counter market; provided, however, that if the Common Stock is
listed on a stock exchange, the Market Price shall be the closing price
on such exchange.
B = the Exercise Price.
3. Transfer and Registration.
Subject to the provisions of Section 7 of this Warrant, this Warrant
may be transferred on the books of the Company, wholly or in part, in person or
by attorney, upon surrender of this Warrant properly endorsed, with signature.
This Warrant shall be canceled upon such surrender and, as soon as practicable
thereafter, the person to whom such transfer is made shall be entitled to
receive a new Warrant or Warrants as to the portion of this Warrant transferred,
and the holder of this Warrant shall be entitled to receive a new Warrant or
Warrants as to the portion hereof retained.
4. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the
holder hereof may purchase only a whole number of shares of Common Stock. The
Company shall make a payment in cash in respect of any fractional shares which
might otherwise be issuable upon Exercise of this Warrant, calculated by
multiplying the fractional share amount by the closing price of the Company's
Common Stock on the Date of Exercise as reported by the NASDAQ National Market
or such other exchange on which the Company's Common Stock is principally quoted
or traded on.
5. Reservation of Shares.
The Company shall at all times reserve for issuance such number of
authorized and unissued share of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for Exercise of this
Warrant. The Company covenants and agrees that upon Exercise of the Warrant, all
shares of Common Stock issuable upon such Exercise shall be duly and validly
issued, fully paid, nonassessable and not subject to preemptive rights of any
shareholders.
6. Restrictions on Transfer.
This Warrant and the Common Stock issuable on Exercise hereof have not
been registered under the Securities Act of 1933, as amended, and may not be
sold, transferred, pledges, hypothecated or otherwise disposed of in the absence
of registration or the availability of an exemption from registration under said
Act, and any share of Common Stock issued upon Exercise of this Warrant shall
bear an appropriate legend to that effect.
7. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person
other than the Company and the holder of this Warrant any legal or equitable
right, remedy or claim under this Warrant and this Warrant shall be for the sole
and exclusive benefit of the Company and the holder of this Warrant.
8. Applicable Law.
This Warrant is issued under and shall for all purposes be governed by
and construed in accordance with the laws of the Commonwealth of Virginia.
9. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft, destruction
or mutilation of this Warrant, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Company, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
10. Notice to Company.
Notices or demands pursuant to this Warrant to be given or made by the
holder of this Warrant to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by the
Company, Network Imaging Corporation, 500 Huntmar Park Drive, Herndon, Virginia
20170-5100, Attention: Chief Executive Officer.
IN WITNESS WHEREOF, this Warrant is hereby executed effective as of the
date set forth below.
Dated as of : ___________________
NETWORK IMAGING CORPORATION
By: _______________________________
James J. Leto
Its: President and Chief Executive Officer
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
March 15, 1996 by and among Network Imaging Corporation, a Delaware corporation,
with headquarters located at 500 Huntmar Park Drive, Virginia 22070 (the
"Company"), and the undersigned (collectively, the "Buyer").
WHEREAS:
A. The Company and the Buyer are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 under Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act");
B. The Buyer wishes to purchase, in the amounts and upon the
terms and conditions stated in this Agreement, shares of the Company's common
stock, par value 4.0001 per share (the "Common Stock"); and
C. Contemporaneous with the closing pursuant to this
Agreement, the Company is issuing to the Buyer certain warrants to purchase
shares of the Common Stock (the "warrants"), and the parties hereto are
executing and delivering a Registration Rights Agreement (the "Registration
rights Agreement") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws;
NOW THEREFORE, the Company and the Buyer hereby agree as
follows:
1. PURCHASE AND SALE OF COMMON STOCK
(a) Purchase of Common Stock. The Company shall issue and
sell to the Buyer and the Buyer shall purchase 934,634 shares of Common Stock
(the "Common Shares"), which number of shares shall not result in beneficial
ownership (as that term is defined under Rule 13d-3 promulgated under the 1934
Act (as hereinafter defined)) by the Buyer or more than four and ninety
five-hundredths percent (4.95%) of the outstanding shares of Common Stock. The
per share purchase price for the Common Shares shall be $3.4238, which is equal
to eighty-three percent (83%) of the average (rounded to the nearest thousandth)
closing bid price for the Common Stock as reported on the National Association
of Securities Dealers Automated Quotation National Market System ("NASDAQ-NMS")
during the five (5) consecutive trading days ending March 14, 1996 (the "Closing
Date Average Market Price").
(b) Issuance of the Warrants. In consideration of the Buyer's
purchase of the Common Shares, the Company agrees to issue to the Buyer at the
closing, without separate consideration, the Warrants to purchase 64,000 shares
of Common Stock (the "Warrant Shares"). The exercise price of the Warrants shall
be $4.5375 per Warrant Share, subject to adjustment as provided therein. The
Warrants shall expire one year from the date the registration statement required
to be filed by the Company pursuant to Section 2(a) of the Registration Rights
Agreement, is declared effective by the SEC and shall be in the form attached
hereto as Exhibit A. The Common Shares and the Warrants are hereafter
collectively referred to as the "Securities."
(c) Form of Payment. The Buyer shall pay the $3,200,000
purchase price for the Common Shares (the "Purchase Price") by wire transfer of
United States Dollars to the Company on the Closing Date (as defined below). The
Company shall promptly deliver stock certificates, duly executed on behalf of
the Company, representing the Common Shares (the "Stock Certificates") and the
Warrants on the Closing Date.
(d) Closing Date. The date and time of the issuance and sale
of the Common Shares (the "Closing Date") shall be no later than 4:00 p.m.
Eastern Standard Time on March 19, 1996.
2. BUYER'S REPRESENTATIONS AND WARRANTIES
The Buyer represents and Warrants to the Company that:
(a) Investment Purpose. The Buyer is purchasing the Common
Shares and accepting the Warrants for its own account for investment only and
not with a view towards the public sale or distribution thereof except pursuant
to sales registered under the 1933 Act.
(b) Accredited Investor Status. The Buyer is an "accredited
investor" as that term is defined in rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. The Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
(d) Information. The Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
securities which have been requested by the Buyer. The Buyer and its advisors,
if any, have been afforded the opportunity to ask questions of the Company and
have received complete and satisfactory answers to any such inquiries. The Buyer
understands that its investment in the Securities involves a high degree of
risk.
(e) Government Review. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities.
(f) Transfer or Resale. The Buyer understands that (i) except
as provided in the Registration Rights Agreement, the Common Shares, the
Warrants, the Warrant Shares, and the shares of Common Stock that may be issued
to the Buyer pursuant to Section 2(c) of the Registration Rights Agreement (the
"Damage Shares") have not been and are not being registered under the 1933 Act
or any state Securities laws, and may not be transferred unless (a) subsequently
registered thereunder, or (b) the Buyer shall have delivered to the Company an
opinion of counsel, reasonably satisfactory in form, scope and substance to the
Company, to effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; (ii) any sale of
such securities made in reliance on rule 144 promulgated under the 1933 Act may
be made only in accordance with the terms of said Rule and further, if said Rule
is not applicable, any resale of such securities under circumstances in which
the seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such securities (other than pursuant to the Registration
rights Agreement) under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
(g) Legends. The Buyer understands that the Warrants and,
until such time as the Common Shares, the Warrant Shares, and the Damage Shares
(collectively, the "Registrable Securities") have been sold pursuant to an
effective registration statement under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates for the Registrable
Securities may bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of such stock
certificates):
The Securities represented by this certificate have not been
registered under the Securities act of 1933, as amended. The
securities have been acquired for investment and may not be
sold, transferred or assigned in the absence of an effective
registration statement for the securities under said Act, or
an opinion of counsel, reasonably satisfactory in form, scope
and substance to the Company, that registration is not
required under said Act.
(h) Authorization; Enforcement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of the Buyer and is a
valid and binding agreement of the Buyer enforceable in accordance with its
terms, subject as to enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally.
(i) No Conflicts. The execution, delivery and performance of
this Agreement by the Buyer and the consummation by the Buyer of the
transactions contemplated hereby will not (i) result in a violation of the
Buyer's charter documents or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Buyer is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Buyer or by which any property or asset of the Buyer is bound or affected
(except for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). The business of the Buyer is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations which either singly or in the aggregate
do not have a Material Adverse Effect. Except as required under the 1933 Act and
any applicable state securities laws, the Buyer is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement in accordance with the terms hereof.
(j) Residency. The Buyer is a resident of the country
specified in its address on the signature page hereof.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and Warrants to the Buyer that:
(a) Organization and Qualification. Each of the Company and
its subsidiaries is a corporation duly organized and existing in good standing
under the laws of the jurisdiction in which it is incorporated, except, in the
case of any such subsidiaries, as would not have a Material Adverse Effect (as
defined below), and has the requisite corporate power to own its properties and
to carry on its business as now being conducted. Each of the Company and its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary and where the failure so to
qualify would have a Material Adverse Effect. "Material Adverse Effect" means
any material adverse effect on the operations, properties or financial condition
of the Company and its subsidiaries taken as a whole.
(b) Authorization Enforcement. (i) The Company has the
requisite corporate power and authority to enter into and perform this Agreement
and the Registration Rights Agreement, and to issue the Registrable Securities
and the Warrants, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement by the Company and the consummation by
it of the transactions contemplated hereby have been duly authorized by the
Company's Board of Directors and no further consent or authorization of the
Company, its Board or Directors, or its stockholders is required, (iii) this
Agreement has been duly executed and delivered by the Company, and (iv) this
Agreement constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies or by other equitable principles of general
application.
(c) Capitalization. As of March 8, 1996, the amortized
capital stock of the Company consists of (i) 50,000,000 shares of Common Stock
of which 19,044,264 shares were issued and outstanding, and (ii) 20,000,000
shares of preferred stock, $.0001 par value, of which 3,397,413 shares were
issued and outstanding. All of such outstanding shares have been validly issued
and are fully paid and nonassessable. No shares of Common Stock or preferred
stock are subject to preemptive rights or any other similar rights of the
stockholders of the Company or any liens or encumbrances. Except as disclosed in
Schedule 3(c), as of March 8, 1996, (i) there are no outstanding options,
warrants, script, rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, or arrangements by which the Company or any
of its subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its subsidiaries is obliged to register the sale
of any of its or their securities under the 1993 Act (except the Registration
Rights Agreement). The Company has furnished to the Buyer true and correct
copies of the Company's Certificate of Incorporation as in effect on the date
hereof ("Certificate of Incorporation") and the Company's By-laws, as in effect
on the date hereof (the "By-laws"). The Company shall provide the Buyer with a
written update of this representation signed by the Company's Chief Executive or
Chief Financial Officer on behalf of the Company as of the Closing Date.
(d) Issuance of Shares. The Registrable Securities and the
Warrants are duly authorized and, upon issuance in accordance with the terms
hereof and thereof, shall be validly issued, fully paid and non-assessable, and
free from all taxes, liens and charges with respect to the issue thereof.
(e) No Conflicts. The execution, delivery and performance of
this agreement by the Company and the consummation by the Company of the
transactions contemplated hereby will not (i) result in a violation of the
Certificate of Incorporation or By-laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others, any rights of termination, amendment,
acceleration or cancellation or, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation , order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). The
businesses of the Company and its subsidiaries are not being conducted, and
shall not be conducted through the date of the expiration of any unexercised
Warrants issued to the Buyer, in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations which either singly
or in the aggregate do not have a Material Adverse Effect. Except as required
under the 1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in the United states in
order for it to execute, deliver or perform any of its obligations under this
Agreement in accordance with the terms hereof.
(f) SEC Documents, Financial Statements. Since January 1,
1993, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act of 1934, as amended (the "1934 Act") (all of
the foregoing filed prior to the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents (other than
exhibits) incorporated by reference therein, being hereinafter referred to
herein as the "SEC Documents"). The Company has delivered to the Buyer true and
complete copies of the SEC Documents, the SEC Documents as of their respective
dates, complied in all material respects with the requirements of the 1934 Act
and the rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein in light of the circumstances under which they were
made, not misleading. Except as disclosed in the documents referred to in
Section 2(d) hereof or in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer and referred to
in Section 2(d) of this Agreement, when made, contained any untrue statement of
a material fact or omitted to state any material fact necessary in order to make
the statements therein, in the light of the circumstance under which they were
made, not misleading. In the aggregate, the information provided by or on behalf
of the Company to the Buyer and referred in Section 29d), including without
limitation the SEC Documents, does not omit or state a material fact or contain
material inaccuracies.
(g) Absence of Certain Changes. Since September 30, 1995,
there has been no material adverse change and no material adverse development in
the business, properties, operations, financial condition, results of operations
or prospects of the Company, except as disclosed in the documents referred to in
Section 2(d) hereof or in the SEC Documents.
(h) Absence of Litigation. Except as disclosed in Schedule
3(h), there is no action, suit, proceeding, inquiry or investigation before or
by any court, public board or body pending or, to the knowledge of the Company
or any of its subsidiaries, threatened against or affecting the Company or any
of its subsidiaries, wherein an unfavorable decision, ruling or finding would
have a Material Adverse Effect or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of the documents contemplated herein.
4. COVENANTS.
(a) Best Efforts. The parties shall use their best efforts
timely to satisfy each of the conditions described in Section 6 and 7 of this
Agreement.
(b) Form D: Blue Sky Laws. The Company agrees to file a Form
D with respect to the Securities as required under Regulation D and to provide a
copy thereof to the Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Buyer at the closing pursuant to this Agreement
under applicable securities or "blue sky" laws of the states of the United
States, and shall provide evidence of any such action so taken to the Buyer on
or prior to the Closing Date.
(c) Reporting Status. Until such date as is the earlier of
(i) at least three (3) years after the date of the expiration of all the
Warrants, or (ii) the date on which (a) all of the Warrants have been exercised
or expired, and (b) no Registrable Securities are held by any Investor (the
"Registration Period"), the Company shall file all reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would permit such termination.
(d) Use of Proceeds. Without the consent of a majority in
interest of the Registrable Securities, the Company shall not use the proceeds
from the sale of the Common Shares for anything other than the Company's
internal working capital purposes and shall not, directly or indirectly, use
such proceeds for any loan to or investment in any other corporation,
partnership, enterprise or other person; provided that it is understood that the
Company may be required to pay a finder's fee in connection with the
transactions provided for herein.
(e) Expenses. The Company shall pay all expenses incurred in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the Registration Rights Agreement, including,
without limitation, Buyer's attorneys' fees and expenses.
(f) Financial Information. The Company agrees to send the
following reports to the Buyer until the Buyer transfers, assigns, or sells all
of the Registrable securities and Warrants: (i) within ten (10) days after the
filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q and any Current Reports on Form 8-K; and (ii) within one
day after release, copies of all press releases issued by the Company or any of
its subsidiaries.
(g) Reservation of Shares. The Company shall at all times
have authorized, and reserves for the purpose of issuance, a sufficient number
of shares of Common Stock to provide for the exercise of the Warrants and
issuance of the Damage Shares.
(h) Listing. The Company shall promptly secure the listing of
the Registrable Securities upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all shares of
Registrable Securities from time to time issuable under the terms of this
Agreement and the Registration Rights Agreement.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall instruct its transfer agent to issue
certificates, registered in the name of the Buyer or its nominee, for the
Warrant Shares and Damage Shares in such amounts as specified from time to time
by the Company to the transfer agent in accordance with the terms of the
applicable security. Prior to sale of the Registrable Securities pursuant to an
effective registration statement, certificates for the Registrable Securities
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company shall provide instructions and opinions of counsel to its transfer
agent in accordance with Section 3(o) of the Registration Rights Agreement. The
company warrants that, except as may be required by applicable law, no
instruction other than such instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof prior to
registration of the Registrable Securities under the 1933 Act, will be given by
the Company to its transfer agent and that the Warrants and the Registrable
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of the securities and the Registrable Securities. If the Buyer provides
the Company with an opinion of counsel, reasonably satisfactory in form, scope
and substance to the Company, that registration of a resale by the Buyer or any
of the Warrants or the Registrable Securities is not required under the 1933
Act, the Company shall permit the transfer, and, in the case of the Common
Shares, the Warrant Shares or the Damage Shares, promptly instruct its transfer
agent to issue one or more certificates in such name and in such denominations
as specified by the Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to sell the Common
Shares and issue the Warrants is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
(a) The parties shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to each other.
(b) The Buyer shall have delivered the Purchase Price to the
Company.
(c) The representations and warranties of the Buyer shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer at or prior to the Closing Date. The Company shall
have received a certificate, executed by the president of the Buyer, dated as of
the Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by the Company.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer hereunder to purchase the Common
Shares and accept the Warrants is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Buyer's sole benefit and may be waived by the Buyer at
any time in its sole discretion.
(a) The parties shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to each other.
(b) Until the Closing Date, the Common Stock shall be
authorized for quotation on NASDAQ-NMS, and trading in the Common Stock (or on
NASDAQ-NMS generally) shall not have been suspended by the SEC or NASDAQ.
(c) The representations and warranties of the Company shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate, executed by the chief executive officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by the Buyer.
(d) The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit B
attached hereto.
(e) The Buyer shall have received the officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
(f) The Company shall have delivered to the Buyer the Stock
Certificates and the Warrants.
8. GOVERNING LAW; MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Virginia without
regard to the principles of conflict of laws.
(b) Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same Agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery shall cause four
(4) additional original executed signature pages to be physically delivered to
the other party within five (5) days of the execution and delivery hereof.
(c) Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(d) Severability. If any provisions of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
(f) Notices. Notices required or permitted to be given
hereunder shall be in writing and shall be deemed to be sufficiently given when
personally delivered (by hand, by courier, by telephone line facsimile
transmission or other means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage pre-paid,
If to the Company:
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 22070
Telephone: (703) 478-2260
Telecopy: (703) 478-0145
Attention: Robert P. Bernardie
With copy to:
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
Telephone: (202) 223-3500
Telecopy: (202) 223-4593
Attention: John W. Blouch, Esq.
If to the Buyer, at the addresses on the signature page
With copy to:
Genessee Advisers
11921 Freedom Drive, Suite 550
Reston, VA 22090
Telephone: (703) 904-4349
Telecopy: (703) 834-6627
Attention: Neil T. Chau
And:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telephone: (215) 569-3399
Telecopy: (215) 569-6060
Attention: Jason M. Shargel, Esq.
and shall be effective, when personally delivered, upon receipt and, when so
sent by certified mail, four days after deposit with the United States Postal
Service. Each party shall provide notice to the other party of any change in
address.
(g) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor the Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent to the other (which
consent may be withheld for any reason in the sole discretion of the party from
whom consent is sought). Notwithstanding the foregoing, the Buyer may assign its
rights hereunder to any of its "affiliates," as that term is defined under the
1934 Act, with the consent of the Company.
(h) Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) Survival. The representations and warranties of the
Company and the Buyer contained in Sections 2 and 3 and the agreements and
covenants set forth in Section 4, 5 and 8 shall survive the closing.
(j) Publicity. The Company and the Buyer shall have the right
to approve before issuance and press releases, SEC or NASD filings, or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Buyer, to make any press release or SEC or NASD filings with
respect to such transactions as is required by applicable law and regulations
(although the Buyer shall be consulted by the Company in connection with any
such press release prior to its release and shall be provided with a copy
thereof.).
(k) Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Termination. In the event that the closing shall not have
occurred on or before thirty (30) days from the date hereof, this Agreement
shall terminate at the close of business on such date.
IN WITNESS WHEREOF, the Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed under seal.
NETWORK IMAGING CORPORATION
By:
Name:
Its:
GFL PERFORMANCE FUND LTD.
By:
Name:
Its:
Address: Genesee Fund Limited
CITCO Building
Wickhams Cay
P.O. Box 662
Road Town, Tortola
British Virgin Islands
Administrator
Curacao International Trust Co. N.V.
Kaya Flamboyan 9
P.O. Box 812
Curacao, Netherland Antilles
<PAGE>
Exhibit A
to
Securities Purchase
Agreement
WARRANT TO PURCHASE 64,000 SHARES OF COMMON STOCK. VOID AFTER
5:00 P.M. EASTERN STANDARD TIME ON THE DATE THAT IS ONE YEAR AFTER THE EFFECTIVE
DATE (AS DEFINED HEREIN). THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE
UPON THE EXERCISE HEREOF HAVE BEEN AND WILL BE ISSUED IN TRANSACTIONS WHICH HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER ANY STATE SECURITIES OR BLUE SKY LAWS. THIS WARRANT AND SUCH SHARES MAY
NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, IN
WHOLE OR IN PART, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND APPLICABLE STATE LAW, OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
NO.______________________ 64,000 SHARES
NETWORK IMAGING CORPORATION
This certifies that, for value received, GFL Performance Fund
Ltd., the registered holder hereof, or assigns (the "Warrantholder") is entitled
to purchase from Network Imaging Corporation, a Delaware corporation (the
"Company"), at any time on and after the "Effective Date", which is the date the
Registration Statement (filed with the Securities and Exchange Commission (the
"SEC") pursuant to Section 2(a) of a certain Registration Rights Agreement of
even date herewith by and among the parties hereto) is declared effective by the
SEC, and before 5:00 P.M., Eastern Standard Time, on the date that is one year
after the Effective Date (the "Termination Date"), at the purchase price of
$4.5375 per share (the "Exercise Price"), the number of shares of Common Stock,
par value 4.0001 per share (the "Common Stock"), of the Company set forth above
(the "Warrant Stock"); provided, however, that in no event shall the
Warrantholder be entitled to exercise this Warrant if, after giving effect to
such exercise, the number of shares of Common Stock beneficially owned by the
Warrantholder and all other holders of Common Stock whose holdings would be
aggregated with the Warrantholder for purposes of calculating beneficial
ownership in accordance with Section 13(d) and 16 of the Securities Exchange Act
of 1934, as amended, and the regulations thereunder ("Sections 13(d) and 16"),
including without limitation any person serving as an adviser to any holder
(collectively, the "Related Persons"), would exceed four and ninety-five
hundredths percent (4.95%) of the outstanding shares of Common Stock (calculated
in accordance with Section 13(d) and 16). The Common Stock issuable upon
exercise of Warrants for the purchase of Common Stock held by the Warrantholder
or the Related Persons shall not be deemed to be beneficially owned by the
Warrantholder or such Related Persons for this purpose. The number of shares of
Warrant Stock, the Termination Date and the Exercise Price per share of this
Warrant shall be subject to adjustment from time to time as set forth below.
SECTION I. TRANSFER OR EXCHANGE OF WARRANT
The Company shall be entitled to treat the Warrantholder as
the owner in fact hereof for all purposes and shall not be bound to recognize
any equitable or other claim to or interest in this Warrant on the part of any
other person. This Warrant shall be transferable only on the books of the
Company, maintained at its principal office, upon delivery of this Warrant
Certificate duly endorsed by the Warrantholder or by its duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. Upon any registration of transfer, the
Company shall deliver a new Warrant Certificate or Certificates to the persons
entitled thereto.
SECTION II. TERM OF WARRANT; EXERCISE OF Warrants
A. Termination. The Company, in its sole discretion, may
extend the Termination date with respect to the exercise of this Warrant upon
notice to the Warrantholder. As sued herein, "Termination Date" shall be deemed
to include any such extensions.
B. Exercise. This Warrant shall be exercised by surrender to
the Company, at its principal office, of this Warrant Certificate, together with
the Purchase Form attached hereto duly completed and signed, and upon payment to
the Company of the Exercise Price for the number of shares of Warrant Stock in
respect of which this Warrant is then exercised. Payment of the aggregate
Exercise Price shall be made in cash or certified or official bank check.
C. Warrant Certificate. Subject to section III hereof, upon
such surrender of this Warrant Certificate and payment of the Exercise Price as
aforesaid, the Company shall issue and cause to be delivered to or upon the
written order of the Warrantholder, by the second trading day after exercise, a
certificate or certificates for the number of full shares of Warrant Stock so
purchased upon the exercise of such Warrant, together with cash, as provided in
Section VI hereof, in respect of any fractional shares of Warrant Stock
otherwise issuable upon such surrender. Such certificate or certificates
representing the Warrant Stock shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a holder
of record of such shares of Warrant Stock as of the date of receipt by the
Company of this Warrant Certificate and payment of the Exercise Price as
aforesaid. The rights of purchase represented by this Warrant shall be
exercisable, at the election of the Warrantholder, either in full or from time
to time in part, and, in the event that this Warrant is exercised in respect of
fewer than all of the shares of Warrant Stock purchasable on such exercise at
any time prior to the Termination Date, a new Warrant Certificate evidencing the
remaining Warrant or Warrants will be issued, and the Company shall deliver the
new Warrant Certificate or Certificates pursuant to the provisions of this
Section.
SECTION III. PAYMENT OF TAXES
The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of the shares of Warrant Stock upon the
exercise of this Warrant; provided, however, that the Warrantholder shall pay
any tax or taxes which may be payable in respect of any transfer involved in the
issue or delivery of Warrant Certificates or the certificates for the shares of
Warrant Stock in a name other than that of the Warrantholder in respect of which
this Warrant or shares of Warrant Stock are issued.
SECTION IV. MUTILATED OR MISSING WARRANT CERTIFICATES
In case this Warrant Certificate shall be mutilated, lost,
stolen or destroyed, the Company shall, at the request of the Warrantholder,
issue and deliver, in exchange and substitution for and upon cancellation of
this certificate if mutilated, or in lieu of and in substitution for this
certificate if lost, stolen or destroyed, a new Warrant Certificate of like
tenor and representing an equivalent right or interest, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction of this Warrant Certificate and indemnity, if requested, also
reasonably satisfactory to the Company.
SECTION V. RESERVATION OF SHARES OF WARRANT STOCK
There has been reserved, and the Company shall at all times
keep reserved so long as this Warrant remains outstanding, out of its authorized
Common Stock a number of shares of Common Stock sufficient to provide for the
exercise of the rights of purchase represented by this Warrant. The transfer
agent for the Common Stock and every subsequent transfer agent for any shares of
the Company's capital stock issuable upon the exercise of this Warrant will be
irrevocably authorized and directed at all times to reserve such number of
authorized shares as shall be requisite for such purpose.
SECTION VI. FRACTIONAL SHARES.
No fractional shares or script representing fractional shares
shall be issued upon the exercise of this Warrant. With respect to any fraction
of a share called for upon the exercise of this Warrant, the Company shall pay
to the Warrantholder an amount in cash equal to such fraction multiplied by the
Exercise Price then in effect.
SECTION VII. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES.
A. Stock Dividends, Splits and Combinations. In case the
Company shall hereafter (i) pay a dividend in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock, or (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, then, and in
each case, the number of shares of Common Stock which the Warrantholder is
entitled to purchase pursuant to this Warrant immediately prior to the happening
of any such events shall be adjusted so that the Warrantholder shall be entitled
to receive upon exercise of this Warrant the number of shares of Common Stock
which the Warrantholder would have owned or would have been entitled to receive
immediately following the happening of such event had this Warrant been
exercised immediately prior thereto, and the Exercise Price shall be
correspondingly adjusted. An adjustment made pursuant to this provision shall
become effective immediately after the record date in the case of a dividend and
immediately after the effective date in the case of a subdivision or
combination.
B. Reclassification, Consolidation, Merger, etc. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of all
or substantially all of the property of the Company, the Warrantholder shall
thereafter have the right to purchase upon the exercise of this Warrant the kind
and number of shares of stock and other securities and property receivable upon
such reclassification, change, consolidation, merger, sale or conveyance as if
the Warrantholder were the owner of the shares of Warrant Stock underlying this
Warrant immediately prior to any such events at the Exercise Price in effect
immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if such Warrantholder had exercised
this Warrant.
SECTION VII. NOTICES OF WARRANTHOLDERS.
So long as this Warrant shall be outstanding and unexercised
(a) if the Company shall pay any dividend or make any distribution upon the
Common Stock or (b) if the Company shall offer to the holders of Common Stock
for subscriptions or purchase by them any shares of stock of any class or any
other rights or (c) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of the
Company t another corporation, or voluntary or involuntary dissolution,
liquidation or winding up of the Company shall be effected, then, in any such
case, the Company shall cause to be delivered to the Warrantholder, at least ten
(10) days prior to the date specified in (i) or (ii) below, as the case may be,
a notice containing a brief description of the proposed action and stating the
date on which (i) a record is to be taken for the purpose of such dividend or
distribution, or (ii) such reclassification, reorganization, consolidation,
merger, conveyance, lease, dissolution, liquidation or winding up is to take
place and the date, if any, as of which the 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, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
SECTION IX. DELIVERY OF NOTICES
Any notice pursuant to this Warrant by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly given if
delivered or mailed certified mail, return receipt requested, (a) if to the
Company, to it at 500 Huntmar Drive, Herndon, VA 22070, Attention: Robert P.
Bernardie, and (b) if to the Warrantholder to it at the address set forth on the
signature page hereto. Each party hereto may from time to time change the
address to which such party's notices are to be delivered or mailed hereunder by
notice in accordance herewith to the other party.
SECTION X. SUCCESSORS.
All the covenants and provisions of this Agreement by or for
the benefit of the Company or the Warrantholder shall bind and inure to the
benefit of their respective successors and assigns hereunder.
SECTION XI. APPLICABLE LAW.
This Warrant shall be deemed to be a contract made under the
laws of the Commonwealth of Virginia to agreements made and to be performed
entirely in Virginia for all purposes shall be construed in accordance with the
internal laws of Virginia giving effect to the conflicts of laws principles
thereof.
SECTION XII. BENEFITS OF THIS Agreement.
Nothing in this Warrant shall be construed to give to any
person or corporation other than the Company and the Warrantholder any legal or
equitable right, remedy or claim under this Warrant and this Warrant shall be
for the sole and exclusive benefit of the Company and the Warrantholder.
IN WITNESS WHEREOF, the parties hereto have executed this
Warrant Certificate or caused this Warrant Certificate to be duly executed as of
the 19th day of March, 1996.
NETWORK IMAGING CORPORATION
By:
Name:
Title:
GFL PERFORMANCE FUND LTD.
By:
Name:
Title:
Address of Warrantholder:
Genesee Fund Limited
CITCO Building
Wickhams Cay
P.O. Box 662
Road Town, Tortola
British Virgin Islands
Administrator
Curacao International Trust Co. N.V.
Kaya Flamboyan 9
P.O. Box 812
Curacao, Netherland Antilles
<PAGE>
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the
Warrant represented by this Warrant Certificate to the extent of ______ shares
of Common Stock, par value $.0001 per share, of Network Imaging Corporation and
hereby makes payment of $_________ in payment of the actual exercise price
thereof.
[----------------------]
By:___________________________
Name:
Title:
Employer Taxpayer
Identification Number:
Address for delivery of Stock
Certificate:
ASSIGNMENT FORM
FOR VALUED RECEIVED, ________________ hereby sells, assigns
and transfers unto ________________________ address _________________ the right
to purchase Common Stock, par value $.0001 per share, Network Imaging
Corporation represented by this Warrant Certificate to the extent of _____
shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint _____________, to transfer the same on the books of the
Company with full power of substitution in the premises.
- -----------------
Signature
Dated: ___________
Notice: The signature of this agreement must
correspond with the name as it appears upon
the face of this Warrant Certificate in every
particular, without alteration or enlargement
or any change whatever.
SIGNATURE GUARANTEED:
- --------------------------
<PAGE>
Exhibit B
to
Securities Purchase
Agreement
[Date of Closing]
[Name of Buyer]
Re: Network Imaging Corporation
Ladies and Gentlemen:
We have acted as counsel to Network Imaging Corporation, a
Delaware corporation (the "Company"), in connection with the Securities Purchase
Agreement, dated as of __________, 1966, between you and the Company (the
"Agreement") and the transactions contemplated therein. Capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
assigned to such terms in the Agreement. The Agreement, the Warrants, and the
Registration Rights Agreement are herein referred to collectively as the
"Documents."
In so acting, we have examined the Documents, and we have
examined and considered such corporate records, certificates and matters of law
as we have deemed appropriate as a basis for our opinions set forth below.
Based upon the foregoing and subject to the assumptions,
limitations, qualifications and exceptions stated herein, we are of the opinion
that as of the date hereof:
(1) The Company is duly incorporated, validly existing and in
good standing under the laws of the State of Delaware, has all requisite
corporate power and authority to conduct its business now being conducted.
(2) The Company has the requisite corporate power and
authority to enter into and perform the Agreement and the Registration Rights
Agreement, and to issue the Registrable Securities and the Warrants, in
accordance with the terms of the Documents, (ii) the execution and delivery of
the Documents by the Company and the consummation by it of the transactions
contemplated therein have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board of
Directors, or its stockholders is required, (iii) the Documents have been duly
executed and delivered by the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies or by other equitable principles of general application and
except as rights to indemnity or contribution may be limited by applicable law.
(3) The Registrable Securities and the Warrants are dully
authorized and, upon issuance and delivery in accordance with the terms of the
Documents, will be validly issued, fully paid and non-assessable.
(4) As of March 8, 1996, the authorized capital stock of the
Company consists of (I) 50,000,000 shares of Common Stock, $.0001 par value of
which 19,044,264 shares were issued and outstanding, and (ii) 20,000,000 shares
of Preferred Stock $.0001 per value, of which 3,397,413 shares were issued and
outstanding. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. No shares of Common Stock or Preferred Stock are
subject to preemptive rights or any other similar rights of the stockholders of
the Company pursuant to the Company's Certificate of Incorporation or Bylaws or
by statute. Except as disclosed in Schedule 3(a) of the Agreement, as of March
8, 1996, to our knowledge, (I) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, or arrangements by which the
Company or any of its subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its subsidiaries, and (ii)
there are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of any of its or their securities
under the 1933 Act (except the Registration Rights Agreement).
(5) Based upon your representations, warranties and covenants
set forth in the Agreement, the Securities may be issued to you pursuant to the
Agreement without registration under the 1933 Act.
(6) No authorization approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization or stock
exchange or market, or the stockholders of the Company, or, to our knowledge,
any third party is required to be obtained by the Company for the issuance and
sale of the Registrable Securities and the Warrants to you as contemplated by
the Documents, except that we express no opinion on the securities or blue sky
laws of any state or territory of the United States or any jurisdiction outside
the United States.
(7) Except as disclosed in Schedule 3(h) of the Agreement or
the SEC documents, to our knowledge, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body pending or
threatened against or affecting the Company or any of its subsidiaries, wherein
an unfavorable decision, ruling or finding would have a material adverse effect
on the property, business, financial condition, results of operations or
prospects of the Company and its subsidiaries taken as a whole or which would
adversely affect the validity or enforceability of or the authority or ability
of the Company to perform its obligations under the Documents.
<PAGE>
These opinions are limited to the matters expressly stated
herein and are rendered solely for your benefit and may not be quoted or relied
upon for any other purpose or by an other person, except that the opinions
expressed in paragraphs (3) and (5) above may be relied upon by American Stock
Transfer & Trust Company as Transfer Agent.
The opinions expressed herein are subject to the following
assumptions, limitations, qualifications and exceptions:
(a) We have relied upon the factual representations
of the Company in the Documents and of officers of the Company in certificates
furnished to us and we have not undertaken any independent investigation to
determine the existence or absence of those facts; and no inference as to our
knowledge of the existence of those facts should be drawn from our
representation of the Company.
(b) We have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
with originals of all documents submitted to us as copies, the authenticity of
certificates of public officials and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Documents).
(c) We have assumed that each of the parties to the
Documents other than the Company (the "Other Parties") has the legal right,
capacity and power to enter into, enforce and perform all of its obligations
under the Documents. Furthermore, we have assumed the due authorization by each
of the Other Parties of all requisite action and the due execution and delivery
of the Documents by each of the Other Parties, and that the Documents are valid
and binding upon each of the other Parties and are enforceable against (each
Other Party in accordance with their terms.
(d) Certain rights, remedies and waivers contained
in the Documents may be rendered ineffective, or may be limited, by applicable
laws or judicial decisions governing such provisions but such law and judicial
decisions do not, in our opinion, make the Documents inadequate for the
practical realization of the benefits which the Documents purport to provide,
other than in respect of the adverse economic consequences of any delay in such
realization which may result from applicable judicial decisions relating
thereto.
(e) Requirements in any of the Documents specifying
that provisions thereof may be amended or waived only in writing may not be
enforceable.
(f) No opinion is expressed as to the enforceability
of any choice of law provisions.
<PAGE>
(g) Whenever a statement herein is qualified by the
phrases "to our knowledge," or similar phrases, it in intended to indicate that
during the course of our representation of the Company in the transactions
contemplated by the Documents, and having made inquiry of certain officers of
the Company as to such matters, no information that would give us current actual
knowledge of the inaccuracy of such statement has come to the attention of those
attorneys presently in this firm who have rendered legal services in connection
with the representation described in the introductory paragraph of this opinion
letter. However, we have not undertaken any independent investigation or review
to determine the accuracy of any such statements and any limited inquiry
undertaken by us during the preparation of this opinion letter should not be
regarded as such an investigation or review. No inference as to our knowledge of
any matter bearing on the accuracy of any such statement should be drawn from
the fact of our representation of the Company.
(h) In the process of our review of the Company's An-
nual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Form
10-K"), and any of the other reports filed by the Company pursuant to Sections
13 or 15(d) of the Securities Exchange Act of 1934, as amended, since the date
of the filing of the Form 10-K, although we have not engaged in any independent
investigation, and do not assume any responsibility for the accuracy or
completeness of the information contained therein, nothing has come to our
attention that would lead us to believe that any of such reports contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of circumstances
under which they were made, not misleading, as of its filing date.
(i) Our examination of law relevant to the maters
covered by this opinion is limited to the laws of Delaware and the federal law
of the United States, and we express no opinion as to the effect on the matters
covered by this opinion of the laws of any other jurisdiction. To the extent
that the governing law with respect to any matters covered by this opinion is
the law of a jurisdiction other than Delaware or federal law, we have assumed
that the law of such other jurisdiction in identical to Delaware law. In
furnishing the opinion regarding the valid existence and good standing of the
Company, we have relied solely upon a good standing certificate issued by the
Secretary of State of Delaware on March 13, 1996.
This opinion is given as of the date hereof and we assume no
obligation, to update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention or any changes in laws
which may hereafter occur.
Very truly yours,
Jones & Blouch L.L.P.
<PAGE>
Schedule 3(c)
Network Imaging Corporation Outstanding Options,
Warrants, Convertible Securities and Registration Rights
Stock Options
Plan Options:
1994 Key Employee Incentive Stock Option Plan
Shares Subject to Plan: 5,000,000
Shares for Which Options Are Outstanding: 3,781,901
1993 Key Employee Incentive Stock Option Plan B
Shares Subject to Plan: 1,000,000
Shares for Which Options Are Outstanding: 727,060
1993 Key Employees Incentive Stock Option Plan
Shares Subject to Plan: 1,000,000
Shares for Which Options Are Outstanding: 981,269
1992 Key Employees Incentive Stock Option Plan B
Shares Subject to Plan: 300,000
Shares for Which Options Are Outstanding: 218,994
1992 Key Employees Incentive Stock Option Plan
Shares Subject to Plan: 200,000
Shares for Which Options Are Outstanding: 103,250
Executive Officer Stock Option Plan:
Options Subject to Plan: 600,000
Shares for Which Options Are Outstanding: 600,000
Non-Plan Options:
Shares for Which Options Are Outstanding: 51,800
Warrants
Registration Number of
Warrant Rights Warrants*
- ------- ------ ---------
Bridge Loan Warrants (Pre-IPO) (1) 86,996
Warrants (NASDAQ Symbol "IMGXW") (1) 554,392
IPO Representative (2) 81,000
John Whitman (3) 50,000
P. Le Menestral (1) 25,000
John Whitman (3) 33,334
Placement Agent (12/92 Reg. S offering) (1) 20,700
Redington, Inc. (1) 30,000
Placement Agent (3/95 Reg. S offering) (1) 33,214
Placement Agent (5/93 Reg. S offering) (4) 8,558
Placement Agent (8/93 Reg. S offering) (5) 50,000
Placement Agent (4 holders) (6) 45,000
(10/93 Reg. S offering)
Finder (10/93 Reg. S offering) (3) 5,000
Series A Representative (2 holders) (9) **
Placement Agent (Series D) None 227,068
Placement Agent (Series E) None 34,400
Ed Feldman None 25,000
12/95 Private Placement Warrants (9 holders) (7) 179,400
Series G Preferred Warrants (2 holders) (8) 40,000
Jarl McDonald None 4,000
Christian Stackhouse None 4,000
* Each of the Warrants issued to the IPO Representative and to the Placement
Agents in connection with the 12/92, 3/93 and 5/93 Reg S offerings are
exercisable for units consisting of one share of Common Stock and one warrant to
purchase a share of Common Stock. The warrants listed on this schedule are
subject to adjustment in the case of applicable antidilution provisions.
** In connection with the Company's offering of its Series A Cumulative
Convertible Preferred Stock warrants were issued to the representative of the
underwriters which are exercisable for 140,000 shares of Series A Preferred
Stock at $41.25 per share or 253,624 shares of common stock at $22.77 per share
or some combination of those securities.
Securities which are Convertible into Capital Stock of the Company:
Number of Shares
Series A Cumulative Convertible Preferred Stock
Shares Authorized: 1,750,000
Shares Outstanding 1,605,025
Series B-I through B-4 Convertible Preferred Stock
Shares Authorized: 2,092,186
Shares Outstanding: 1,792,186
Series C-1 through C-5 Convertible Preferred Stock***
Shares Authorized: 1,792,186
Shares Outstanding: None
Series D Preferred Stock
Shares Authorized: 84
Shares Outstanding: None
Series E Convertible Preferred Stock
Shares Authorized: 544
Shares Outstanding: 2
Series G Convertible Preferred Stock
Shares Authorized: 200
Shares Outstanding: 200
*** The Company and the holder of Series B have agreed to an exchange of Series
B for Series C.
Registration Rights
Registration Rights Referred to in Preceding Notes
(1) Included in Registration Statement No. 33-64046
(2) May piggyback on any Company registration statement until May
8, 1997; may twice demand Company file a registration
statement covering common stock or warrants in period from May
8, 1993 to May 8, 1997; included in Registration Statement No.
33-64046.
(3) Included in Registration Statement No. 33-84482
(4) May piggyback on any Company registration statement until
April 26, 2000; included in Registration Statement No.33-66046
(5) May piggyback on any Company registration statement until
October 1, 1998; included in Registration Statement No.
33-64046
(6) May piggyback on any Company registration statement until
October 5, 1998; included in Registration Statement No.
33-64046
(7) Included in Registration Statement No. 33-84482; obligation
to maintain in effect until December 31, 1997
(8) If regulation S rescinded or modified and request by Holder of
$1,000,000 of Series G Preferred after four months after the
closing, Company to, as soon as possible, use best efforts to
file and have registration statement declared effective and
thereafter to maintain it in effect for 180 days.
(9) A majority of the holders of the Warrants and/or Warrant
Shares have the right to require the Company to file one
registration statement until December 7, 1998. May piggyback
on any Company registration statement until December 7, 2000.
Other
In connection with the acquisition of Dorotech France SA, in October
1993, Societe Civile Doro-Parts was issued 2,241,147 shares of Common Stock of
the Company and Altus Finance SA ("Altus") was issued 2,092,186 shares of Series
B Preferred Stock of the Company of which 300,000 shares have been converted
into Common Stock. The shares issued to Societe Civile Doro-Parts were
registered in Registration Statement No. 33-73164. In July 1994, Altus agreed to
exchange the shares of Series B Preferred Stock for shares of Series C Preferred
Stock. The shares issued to Altus have not been registered and its right to
require the Company to file a registration statement upon demand terminates on
August 30, 1997.
In January 1994, in connection with the product acquisition from RDS
Information Systems, four individuals were issued an aggregate of 20,000 shares
of Common Stock of the Company of which 4,500 are included in Registration
Statement No. 33-84482.
An aggregate of 669,285 shares of Common Stock of the Company were
issued to five individuals in connection with the acquisition of DCR
Technologies, Inc. ("DCR") in February 1994. Two former DCR stockholders were
issued an aggregate of 175,000 shares of Common Stock of the Company in
connection with a Settlement Agreement in June 1995. All the shares are included
in Registration Statement No. 33-84482. The Company's obligation to maintain the
Registration Statement ends on February 24, 1997.
In connection with the acquisition of IBZ Digital Production AG, IBZ
Vermoegens-und Interessenverwaltung was issued 994,619 shares of Common Stock of
the Company. The shares are included in Registration Statement No. 33-84482. The
Company's obligation to maintain the Registration Statement ends on November 14,
1996.
In connection with their employment or consulting agreements with the
Company, each of Messrs. Bernardi, Mann and Sterling has the right to require
the Company to file a registration Statement covering any or all shares of the
Company's Common Stock held by him or issuable to him upon exercise of options.
The demand for registration may be made at any time prior to or within one year
of termination of the applicable employment or consulting agreement.
<PAGE>
Schedule 3(h)
None, except as set forth in the SEC Documents.
REGULATION S SECURITIES SUBSCRIPTION AGREEMENT
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE.
THEY ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
REGULATION S ("REGULATION S") PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS THE
SECURITIES ARE REGISTERED UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
UNLESS EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS ARE AVAILABLE
AND THE COMPANY IS PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION
AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY BY OR TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND THE RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED OR DETERMINED THE ACCURACY OR ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Regulation S Securities Subscription Agreement (the "Agreement")
is executed by the undersigned (the "Subscriber") in connection with the offer
by the undersigned to purchase shares of Common Stock, par value .0001 per share
(the "Common Stock"), of Network Imaging Corporation, a Delaware corporation
(the "Company"). The Company is offering Common Stock at a purchase price per
share equal to 85% of the average closing sale price for the Common Stock as
reported by the Nasdaq National Market System for the five trading days
preceding the date on which the Company executes this Agreement (the "Closing
Price"). The Company is offering that number of shares of Common Stock which
when multiplied by the Closing Price equals $5 million. The Company in its
discretion may increase the aggregate dollar amount of the offering and the
number of shares being sold. There is no minimum number of shares that must be
sold in the offering. The solicitation of this Subscription and, if accepted by
the Company, the offer and sale of Common Stock are being made in reliance upon
the provisions of Regulation S ("Regulation S") promulgated under the United
States Securities Act of 1933, as amended (the "Act").
1. Offer to Purchase; Purchase Price
Subject to the terms and conditions of this Agreement, the Subscriber
hereby offers to purchase the number of shares of Common Stock (the "Shares")
having the aggregate purchase price set out in Section 14 of this Agreement (the
"Purchase Price"). Payment shall be made by the Subscriber, by wire transfer, as
provided in the Escrow Agreement attached hereto as Exhibit A. This Agreement
shall not be binding on the Company until executed by it. The Closing shall be
deemed to occur when this Agreement is executed by the Company, or if later,
when the Purchase Price is received by the Company, or at such other time as may
be agreed upon by the Subscriber and the Company (the "Closing").
2. Representations; Access to Information; Independent Information; In-
dependent Investigation
The Subscriber represents and warrants to the Company and agrees as
follows:
2.1 Offshore Transaction. (i) The Subscriber is not a "U.S.
person" (as defined in Rule 902 (o) of Regulation S under the
Act, which definition is set forth in Exhibit B hereto and is
hereby incorporated by reference); (ii) the Common Stock was
not offered to the Subscriber in the United States; (iii) the
Subscriber was physically outside the United States when the
Subscriber executed this Agreement; (iv) the Subscriber is
purchasing the Shares for the Subscriber's own account and not
on behalf of or for the benefit of any U. S. person, has not
prearranged the sale of the Shares to any buyer in the United
States and has no present plan or intention to engage in a
distribution of the Shares in the United States at any time;
(v) the Subscriber agrees, and to the best knowledge of the
Subscriber each distributor, if any, participating in the
offering of the Shares has agreed, that prior to the
expiration of a period commencing on the Closing of all Common
Stock offered and ending forty days thereafter (the
"Restricted Period"), no offers and sales of the Common Stock
shall be made to U.S. persons or for the account or benefit of
U.S. persons. The Subscriber is not a distributor or dealer
with respect to this transaction.
2.2 Investment Intent; Risks. The Subscriber is acquiring the
Shares for the Subscriber's own account for investment and not
as a nominee and not with a view to the distribution thereof.
The Subscriber understands that the Shares must be held
indefinitely unless they are registered under the Act or
unless an exemption from such registration is available, and
that the Company has no obligation to register the Shares. The
Subscriber understands the very substantial risks associated
with an investment in the Company, is able to bear
indefinitely the economic risk of acquiring the Shares and has
no present need for liquidity with respect to such investment.
2.3 No Directed Selling Efforts in Regard to This Transaction. The
Subscriber has not engaged in and is not aware of any other
person having engaged in any "directed selling efforts," as
that term is defined in Rule 902 of Regulation S, in
connection with the offering of the Shares.
2.4 Short Positions. The Subscriber and its affiliates do not have
any put option, short position or other similar instrument or
position with respect to any securities of the Company and
will not enter into any such instrument or position while any
of them holds any of the Shares.
2.5 No Government Recommendation or Approval. The Subscriber
understands that no United States federal or state agency or
similar agency of any other country has passed upon or made
any recommendation or endorsement of the Company or the
transactions contemplated by this Agreement.
2.6 Independent Investigation. The Subscriber, in offering to
purchase the Shares hereunder, has relied upon an independent
investigation made by it and its representatives, if any, and
has, prior to the date hereof, been given access to and the
opportunity to examine all books and records, and all material
contracts and documents of the Company. In making a decision
to purchase the Shares, the Subscriber is not relying on any
oral or written representations or assurances from the Company
or any representation of the Company other than as set forth
in this Agreement, public filings of the Company or in a
document executed by a duly authorized representative of the
Company making reference to this Agreement. The Subscriber has
such knowledge and experience in business and financial
matters that the Subscriber is capable of evaluating the
merits and risks of an investment in the Shares and
determining the suitability of the investment. The Subscriber
is an accredited investor as defined in Rule 501 of Regulation
D, a copy of which definition is attached hereto as Exhibit C.
2.7 Authority. The Subscriber has the full power and authority to
execute, deliver and perform this Agreement. This Agreement,
when executed and delivered by the Subscriber, will constitute
a valid and legally binding obligation of the Subscriber,
enforceable against the Subscriber in accordance with its
terms
2.8 No Legal or Tax Advice From Company. The Subscriber has had
the opportunity to review this Agreement and the transactions
contemplated by this Agreement with the Subscriber's own legal
counsel and with its own tax advisors, if any. The Subscriber
is relying solely on such counsel and tax advisors and not on
any statements or representations of the Company or any of its
agents for legal and tax advice with respect to this
investment and the transactions contemplated by this
Agreement. The Subscriber understands that the Subscriber (and
not the Company) shall be responsible for any tax liability of
the Subscriber that may arise as a result of this investment
or the transactions contemplated by this Agreement.
2.9 No Sale in Violation of Securities Laws. The Subscriber will
not make any sale, transfer or other disposition of the Shares
in violation of the Act, the Securities and Exchange Act of
1934, as amended (the "Exchange Act") or the rules and
regulations of the Securities and Exchange Commission (the
"Commission") promulgated thereunder.
3. Resales
3.1 During the Restricted Period. Any proposed offer, sale or
transfer of any of the Shares during the Restricted Period
shall be subject to the condition that the Subscriber must
deliver to the Company (i) a written certification that
neither the Shares nor any interest therein has been offered
or sold in the United States or to, or for the account or
benefit of, any "U.S. Person"; (ii) a written certification of
the proposed transferee that such transferee is not a U.S.
Person, is acquiring the Shares for such transferee's own
account and will comply with the terms of this Agreement,
including this resale restriction, as they apply to the
Subscriber; and (iii) if requested by the Company, a written
opinion of counsel satisfactory to the Company to the effect
that the offer, sale and transfer of such Shares are exempt
from registration under the Act and any applicable state
securities law in the United States. The Subscriber consents
to the issuance of appropriate stop transfer instructions to
the Company's transfer agent with respect to the Shares.
3.2 After the Restricted Period. The Subscriber acknowledges and
agrees that the Shares may only be resold (a) in compliance
with Regulation S; (b) pursuant to a Registration Statement
under the Act; or (c) pursuant to an exemption from
registration under the Act. The Subscriber acknowledges that
if the Subscriber publicly re-offers all or any part of the
Shares in the United States, the Subscriber may be deemed to
be an underwriter, as defined in Section 2(11) of the Act,
under certain circumstances, for example, if the Subscriber
purchases shares in this offering with a view to their
distribution in the United States. Subscriber agrees to
consult with the Subscriber's counsel prior to any such
re-offer. Upon request of the Company, the Subscriber will
furnish the Company with evidence of the availability of an
exemption from registration for any resales. The Company may
refuse to register any transfer of the Shares which it
believes is not made in accordance with the Act and the rules
and regulations promulgated thereunder.
4. Legends
4.1 During the Restricted Period. The certificates representing
the Shares shall bear a legend substantially in the form of
the first legend set forth on the first page of this Agreement
(the "First Legend") and any other legend which the Company
reasonably believes is required to comply with state, federal
or foreign law.
4.2 After the Restricted Period. The First Legend will be removed
from certificates representing the Shares at the request of
the Subscriber following the Restricted Period; provided that
nothing has come to the attention of the Company that would
cause it to believe that the representations and warranties of
the Subscriber in this Agreement were inaccurate in any
material respect or that the Subscriber has failed to comply
in any material respect with any of the Subscriber's
agreements set forth herein.
5. Representations and Warranties of the Company
The Company represents and warrants to the Subscriber and agrees as
follows:
5.1 Organization, Good Standing, and Qualification. The Company is
a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all
requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so
qualify would have a material adverse effect on the business
or properties of the Company and its subsidiaries taken as a
whole. The Company to its knowledge is not the subject of any
material pending or threatened investigation or administrative
or legal proceeding by the Internal Revenue Service, the
taxing authorities of any state or local jurisdiction, or the
Securities and Exchange Commission which have not been
disclosed in the reports and prospectus referred to in Section
5.5 below.
5.2 Corporate Condition. The Company's condition is as described
in the Company's reports filed pursuant to the Exchange Act.
There have been no material adverse changes in the Company's
financial condition or business since the date of those
reports which have not been disclosed to Subscriber.
5.3 Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary
for the authorization, execution and delivery of this
Agreement, the performance of all obligations of the Company
hereunder and the authorization, issuance (or reservation for
issuance) and delivery of the Common Stock being sold
hereunder has been taken.
5.4 Valid Issuance of Preferred Stock and Common Stock. This
Agreement, when executed and delivered by the Company, shall
constitute a valid and binding obligation of the Company,
enforceable in accordance with its terms. The Common Stock,
when issued, sold and delivered in accordance with the terms
hereof for the consideration expressed herein, will be validly
issued, fully paid and nonassessable and, based in part upon
the representations of the Subscriber in this Agreement, will
be issued in compliance with all applicable federal, state,
and other applicable securities laws.
5.5 Current Public Information. The Company represents and
warrants to the Subscriber that the Company is a "reporting
issuer" as defined in Rule 902 (1) of Regulation S and it has
a class of securities registered under Section l2(b) or 12(g)
of the Exchange Act or is required to file reports pursuant to
Section l5(d) of the Exchange Act, and has filed all the
material required to be filed as reports pursuant to the
Exchange Act for a period of at least twelve months preceding
the date hereof (or for such shorter period as the Company was
required by law to file such material). The Company has
furnished the Subscriber with copies of the Company's Form
10-KSB Annual Report for the year ended December 31, 1994,
Form 10-Q quarterly report for the period ended September 30,
1995 and Prospectus dated February 14, 1996 and undertakes to
furnish the Subscriber with copies of such other information
as may be reasonably requested by the Subscriber.
5.6 No U.S. Offering. The Company represents that it has not
offered the Shares to the Subscriber in the U.S. or, to the
best knowledge of the Company, to any person in the United
States or any U.S. person. The Company has not engaged in any
"directed selling efforts" as that term is defined in Rule 902
of Regulation S in connection with the offering of the Common
Stock.
6. Governing Law
This Agreement shall be governed by and construed in accordance with the laws of
the Commonwealth of Virginia except for matters arising under the Act or the
Exchange Act which matters shall be construed and interpreted in accordance with
such laws.
7. Entire Agreement; Amendment
This Agreement and the other documents delivered pursuant hereto constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth herein or therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought.
8. Notices, Etc.
Any notice, demand or request required or permitted to be given by either the
Company or the Subscriber pursuant to the terms of this Agreement shall be in
writing and shall be deemed given when delivered personally or by facsimile,
with a hard copy to follow by overnight or two-day courier addressed to the
parties at the addresses of the parties set forth at the end of this Agreement
or such other address as a party may request by notifying the other in writing.
9. Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall be enforceable against the parties actually executing such counterparts,
and all of which together shall constitute one instrument.
10. Severability
In the event that any provision of this Agreement becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided that no such severability shall be effective if it materially changes
the economic benefit of this Agreement to any party.
11. Titles and Subtitles
The titles and subtitles used in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this Agreement.
13. No Recourse
Except as provided by applicable law, no recourse shall be had on account of
this Agreement or the Shares, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, stockholder, officer or director, as
such, past, present, or future, of the Company or of any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
14. Amount
The undersigned hereby offers to purchase the number of shares of Common Stock
having an aggregate purchase price of $ .
<PAGE>
The undersigned acknowledges that this subscription shall not be effective
unless accepted by the Company as indicated below.
Dated this day of February, 1996.
Registration instructions: [Name of Subscriber]
____________________________ By ____________________________
Place:
Title:
<PAGE>
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE DAY OF FEBRUARY 1996.
NETWORK IMAGING CORPORATION
By __________________________
Robert P. Bernardi
Chief Executive Officer
Network Imaging Corporation
May 9, 1996
Mr. James J. Leto
392 Patowmack Drive
Great Falls, Virginia 22066
Dear Jim:
It is with great pleasure that Network Imaging Corporation (NIC) offers
you the position of President and Chief Executive Officer, reporting directly to
me as Chairman of the Board. Your responsibilities will be to manage the
day-to-day operations of NIC and your near-term goal will be to achieve
profitable operating results by the end of FY 1996. You will also be responsible
for the development and implementation of a three (3)-year operations plan for
FY 1997, FY 1998 and FY 1999. Your direct reports will include: Mark Wasilko,
Senior Vice President of Marketing and Sales of 1View; Brian Hajost, Senior Vice
President of Marketing and Sales of COLD; Jorge Forgues, Vice President of
Finance and Administration, CFO and Treasurer; Herb Welch, Chief Scientist; John
Flowers, Vice President of Engineering; Russ Hale, President of NIC Federal;
Joel Martin, Vice President of Operations; and Jean Phillipe-Bordes, President
of Dorotech. Bernie McCrory, President of Symmetrical Technologies will also
report to you, but it is planned that Symmetrical Technologies will be sold via
MBO shortly after your arrival. You will also be invited to become a member of
the Board of Directors of NIC. After restructuring, the total membership of the
Board will be five (5), with three outside Directors.
Your compensation package for FY 1996 will consist of a base salary of
$200,000 per annum and a bonus of $200,000 per annum to be earned quarterly
based on meeting performance objectives in the second half of a revised FY 1996
operating budget for revenues and earnings. The second half of FY 1996 budget
will be revised by you and me and submitted to the Board for approval within 90
days of your start date. For a period of 12 months, you will be guaranteed a
bonus of $100,000. Your employment will be at will, but if you are terminated
for reasons other than cause, you will be entitled to a nine (9) month severance
package to include your base salary, benefits, and any accrued bonus as of the
date of termination. You will also be entitled to receive the same benefits as
the other executives of NIC including health and life insurance, disability
income insurance, etc. A package of NIC benefits is enclosed.
As an incentive to join the NIC team, NIC will grant you a total of
500,000 stock options (a combination of a qualified and non-qualified options)
to purchase NIC Common Stock from the 1994 Key Employee Incentive Stock Option
Plan which will be issued at the fair market price on the date of your
employment. In addition, your stock options will contain a vesting acceleration
provision which covers change of control, an acquisition or merger of NIC. A
copy of the 1994 stock option plan and a sample employee stock option agreement
is enclosed.
Jim, on behalf of the Board of Directors and senior management at NIC,
I am happy to extend you this offer and look forward to you joining the NIC
team. As discussed, your start date will be May 31, 1996. An announcement of
your appointment as President and CEO of NIC will be made public the week of
June 3, 1996.
If the above represents your understanding of your employment offer,
please indicate by signing below.
ACCEPTED BY EMPLOYEE NETWORK IMAGING CORPORATION
/s/ James J. Leto /s/ Robert P. Bernardi
- ----------------------- -------------------------
James J. Leto Robert P. Bernardi
Chairman and CEO
EXHIBIT 21
SUBSIDIARIES
Dorotech, S.A., incorporated in France
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 14, 1997 included in the Proxy Statement of
Network Imaging Corporation that is made part of Amendment No. 1 to the
Registration Statement (Form S-4 dated on or about December 3, 1997) and
Prospectus of Network Imaging Corporation for the registration of 15,027,937
shares of its Common Stock and 1,750,000 shares of its Series A Cumulative
Convertible Preferred Stock.
Vienna, Virginia
December 3, 1997 /S/ Ernst & Young LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Network Imaging Corporation of our report
dated March 29, 1996 relating to the financial statements of Network Imaging
Corporation, which appears in such Prospectus. We also consent to the references
to us under the headings "Experts" and "Independent Accountants" in such
Prospectus.
PRICE WATERHOUSE LLP
Falls Church, Virginia
December 2, 1997
REVOCABLE PROXY
NETWORK IMAGING CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James J. Leto and Jorge R. Forgues, and
each of them individually, each with full power of substitution, as the lawful
proxies of the undersigned and hereby authorizes them to represent and to vote
as designated below all shares of Series A Cumulative Convertible Preferred
Stock ("Series A Stock") of Network Imaging Corporation ("Company") that the
undersigned would be entitled to vote if personally present at the Special
Meeting of Stockholders of the Company ("Special Meeting") to be held on
Wednesday, December 31, 1997 at 9:00 a.m. at the Hidden Creek Club, 1711
Clubhouse Road, Reston, Virginia, and at any adjournment or postponement
thereof.
The undersigned acknowledges the receipt of the Notice of Special Meeting
of Stockholders for the Special Meeting and the related Proxy
Statement-Prospectus. All other proxies heretofore given by the undersigned to
vote shares of Series A Stock are expressly revoked.
NETWORK IMAGING CORPORATION
500 HUNTMAR PARK DRIVE
HERNDON, VIRGINIA 20170
1. Proposal One: Approve and adopt The Certificate of Amendment to Certificate
of Designations of Series A Cumulative Convertible Preferred Stock of
Network Imaging Corporation in the form attached to the Proxy
Statement-Prospectus as Annex B.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion on such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy will
be voted FOR the matters listed above.
Whether or not you plan to attend the Special Meeting, you are urged to
execute and return this proxy, which may be revoked at any time prior to its
use.
Change of Address or [ ]
Comments Mark Here
Please sign your name exactly as it appears hereon. When signing as
attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Date: __________________________________, 1997
----------------------------------------- Signature of Shareholder
----------------------------------------- Signature of Additional
Shareholder(s)
Votes must be indicated (x) in Black or Blue ink.
Please Sign, Date and Return Card Promptly Using the Enclosed Envelope.
2
