U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER: 0-22970
NETWORK IMAGING CORPORATION
(Exact name of registrant as specified in its Charter)
DELAWARE 54-1590649
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
500 HUNTMAR PARK DRIVE, HERNDON, VIRGINIA 20170-5100
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (703) 478-2260
Securities Registered pursuant to Section 12(b) of the Act:
None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value per share
Redeemable Common Stock Purchase Stock Warrants expiring May 7, 1997
Series A Convertible Preferred Stock, $.0001 par value per share
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing:
$79,704,066 as of March 7, 1997 (Price of Common Stock = $3 1/16).
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 24,799,439 shares of
Common Stock were outstanding as of March 7, 1997.
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FORWARD LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from those projected in the forward-looking statements as a result of
certain factors described herein and in other documents. Readers of this
document should pay particular attention to the risk factors described in the
section of this Report entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations". Readers should also carefully
review the risk factors described in the other documents the Company files from
time to time with the Securities and Exchange Commission, specifically the
Quarterly Reports on Form 10-Q to be filed by the Company in 1997 and any
Current Reports on Form 8-K filed by the Company.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Network Imaging Corporation ("Network Imaging" or 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 recognized worldwide leader in content and storage
management for all unstructured information. Its flagship product, the
1View(TM), 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 unique 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(TM), InfoAccess(TM), Treev+(TM) and the Company logo are
trademarks of Network Imaging Corporation. All other product and brand names are
trademarks or registered trademarks of their respective companies.
United States operations were 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).
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European operations were 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.
1View
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.
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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 successful integration and automation of work process management
applications into mainstream business practices associated with any business
application. 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.
1View:Unity 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. 1View:Unity 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 1View:Unity allows the end-user to organize
documents electronically in a structure that is meaningful to the end-user and
retrieves information rapidly.
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Other Products
A significant portion of the company's product emphasis is on packaged
software solutions. Computer output to laser disk ("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 versus the manual handling
of physical paper and microfiche. Network Imaging Corporation is one of the
largest commercial providers of COLD technology in the world.
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 the UNITY
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 France, S.A., ("Dorotech")
headquartered in Paris, develops and markets a family of software products
designed for managing 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.
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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 has resulted in
increased synergy and will allow 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
will be 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 enabling our customers and business partners to leverage
existing applications and exploit emerging business opportunities across the
Internet/intranet. This vision will be 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.
Patents, Trademarks and Copyrights
The Company has numerous trademarks and copyrights that are registered in
the United States and various foreign countries. Additionally, the Company is
pursuing patents on certain key technologies. In general, however, management
believes that the competitive position of the Company depends primarily on the
skill, knowledge and
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experience of Network Imaging's personnel and their ability to develop, market
and support software products, and that its business is not materially dependent
on copyright protection, trademarks or patents. The Company believes that all of
its products are of a proprietary nature and its licensing agreements generally
prohibit program disclosure. It is possible, however, for product users or
competitors to copy portions of the Company's products without its consent.
Licenses for a number of software products have been granted to the Company
for its own use or for remarketing to its customers. In the aggregate, these
licenses are material to the business of the Company, but the Company believes
that the loss of any one of these license would not materially affect the
Company's results of operations or financial position.
The TREEV and 1View families of product names used herein are registered or
unregistered trademarks owned by the Company.
Warranty and Service
Warranties for hardware sold by the Company are generally provided by the
manufacturer. The Company provides warranties and service contracts usually
covering one year for its software products. The Company recognizes revenue
under service contracts ratably over the contract period.
Competition
The Company's 1View(TM) product line is the broadest, most 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 some,
but not all, of these conditions are 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.
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The new Universal Server initiatives from Oracle, Informix and IBM all
suggest 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, 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 has entered into a reseller agreement to remarket
the 1View(TM) 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 Corporation has significant time to market
advantage with their software technology.
The Company's goal is to be recognized as the standard in storing, managing
and distributing multimedia (unstructured) data.
Marketing and Sales
The Company sells its products directly, through its own sales force and
indirectly, through value added resellers, system integrators, OEMs, 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, St. Louis, 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 which 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 has established international marketing strategies to develop
international channels of distribution and support the international efforts
with Network Imaging's partners.
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The Company has an active marketing program which includes direct
representation at trade shows, seminars and user group meetings. The partnership
programs now include representation with its marketing business partners in
their direct marketing programs on a national and international basis.
The Company advertises in numerous major industries, vertical market and
news publications and participates in direct mail campaigns with its partners.
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 Dispositions
During 1994, the Company committed itself to a plan of restructuring which
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 $4.2
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 Digital Production AG.
Employees
The Company's success is highly dependent on its ability to attract and
retain qualified employees. Competition for employees is intense in the software
industry. To date, the Company believes it has been successful in its efforts to
recruit qualified employees, but there is no assurance that it will continue to
be as successful in the future.
None of the Company's employees are represented by a labor union. The
Company has experienced no work stoppage and believes that its employee
relations are good.
At March 3, 1997, the Company employed 315 people.
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Directors and Executive Officers of the Company
The directors and executive officers of the Company are as follows:
NAME AGE OFFICE
Robert P. Bernardi.... 43 Chairman of the Board and Secretary
James. J. Leto........ 52 Director, President and Chief Executive Officer
John F. Burton........ 45 Director, Independent Consultant
Alan C. Peyser. 62 Director, Independent Consultant
Robert Ripp........... 54 Director, Corporate Vice President
and Chief Financial Officer, AMP, Inc.
Jorge R. Forgues...... 41 Senior Vice President of Finance
and Administration and Chief Financial Officer
John M. Flowers, Jr... 46 Senior Vice President of Engineering
Brian H. Hajost....... 40 Senior Vice President of Integrated Products
Mark T. Wasilko....... 43 Senior Vice President of Marketing
Robert P. Bernardi was a co-founder of the Company and has been a Director
of the Company (and its predecessor) since its inception and Chairman of the
Board of Directors since September 1995. 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, with overall management responsibilities including
marketing, sales, engineering and finance. Prior to 1984, Mr. Bernardi held
various executive management positions with MCI Communications Corporation,
Mobil Corporation, Booz, Allen & Hamilton and the MITRE Corporation. Mr.
Bernardi was a co-founder, and, from 1984 to 1987, was a Director of PictureTel
Corporation, a manufacturer of full-motion videoconferencing systems, and of
TranSwitch Corporation, a designer of high-speed telecommunications chips.
James J. Leto has been the President, Chief Executive Officer and a
Director of the Company since May 1996. Prior to joining the Company, he served
as the Chairman and Chief Executive Officer of PRC, Inc., an information
technology company, from January 1993 to February 1996, and prior to that time
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 Manger 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.
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John F. Burton was appointed to the Board of Directors in September 1995.
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 Corporation, an independent
software vendor. Mr. Burton was co-founder, and from 1984 to 1989 Chief
Operating Officer and a Director, of Business Software Technology Inc., a
provider of applications management software, which was acquired by Legent in
1989. Prior to 1984, Mr. Burton was Vice President, sales and marketing of
Higher Order Software and held senior sales and marketing positions with
Cullinet Software. 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 High Tech 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.
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
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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 and was appointed Senior
Vice President of Integrated Products in April 1996. From 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 Products 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 and became Senior Vice
President of Marketing for the Company in October 1995. From January 1994 to
August 1995, Mr. Wasilko was Vice President of Corporate Marketing for Legent
Corporation. 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.
ITEM 2. PROPERTIES
As of March 31, 1997, the Company was leasing 25,600 square feet for
administrative, marketing and product development and support facilities at its
headquarters in Herndon, Virginia, pursuant to a lease which expires in the year
2000. The Company also leases an aggregate of approximately 55,000 square feet
of similar facilities at other offices near Atlanta, Georgia; Charlotte, North
Carolina; Chicago, Illinois; Dallas, Texas; Denver, Colorado; Los Angeles,
California; Detroit, Michigan; Minneapolis, Minnesota; New York, New York; San
Francisco, California; Seattle, Washington; St. Louis, Missouri; Paris, France.
The Company's current rent expense under real property leases on an annual basis
is approximately $1.6 million. The Company owns no real property and has no
plans to purchase any real property for either commercial or investment purposes
in the foreseeable future. The Company believes that its facilities are adequate
for its purposes.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings, other than routine
litigation incidental to the business.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on November 21, 1996 at
which the Stockholders elected five directors, ratified the selection of Ernst &
Young LLP as the Company's independent accountants for the fiscal year ended
December 31, 1996, and approved an amendment to the 1994 Key Employee Incentive
Stock Option Plan that increased the total number of shares for which options
may be granted under the plan from 5,000,000 to 6,000,000.
The following table sets forth the names of the nominees for director and
the votes for and withheld with respect to each such nominee:
Nominee For Authority Withheld
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Robert P. Bernardi 16,488,226 909,167
John F. Burton 16,889,226 508,167
James J. Leto 16,889,226 508,167
C. Alan Peyser 16,889,226 508,167
Robert Ripp 16,889,226 508,167
In connection with the ratification of the selection of Ernst & Young LLP
as the independent auditors for the Company for the fiscal year ended December
31, 1996, 16,126,689 shares were voted in favor of the ratification, 92,517 were
voted against, and 1,166,187 abstained.
With respect to the proposal to approve the increase in the number of
shares for which options may be granted under the Company's 1994 Key Employee
Incentive Stock Option Plan, 15,327,755 shares were voted for the proposal,
1,554,881 were voted against, and 82,475 abstained.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the National Association of
Securities Dealers Automated Quotation (NASDAQ) National Market System
(NASDAQ-NMS) under the symbol IMGX. The Company also has outstanding redeemable
common stock purchase warrants (the "Warrants") that are traded on NASDAQ-NMS
under the symbol IMGXW, and Series A Cumulative Convertible Preferred Stock (the
"Series A Preferred Stock") that is traded on NASDAQ-NMS under the symbol IMGXP.
The following table indicates the high and low sales prices for the Common Stock
as reported by NASDAQ for the periods indicated (which reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions).
PERIOD HIGH LOW
1995 -First Quarter 4 3/4 2 5/8
-Second Quarter 5 7/16 3 1/8
-Third Quarter 73/4 4 7/8
-Fourth Quarter 5 1/8 2 13/16
1996 -First Quarter 5 7/8 3 3/4
-Second Quarter 5 5/8 3 7/16
-Third Quarter 5 1/16 3 1/16
-Fourth Quarter 4 5/32 2 11/16
1997 -First Quarter 3 1/2 3 13/16
(through March 7)
The Company has never paid any dividends on its Common Stock. For the
foreseeable future, the Company anticipates continuing to pay dividends to
holders of the Company's Series A Preferred Stock. It is anticipated that any
earnings that may be generated from the Company's operations and not paid as
dividends to holders of the Company's Series A Preferred Stock will be used
primarily to finance the growth of the Company.
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<PAGE>
As of March 10, 1997, the Company had approximately 350 record holders of
its Common Stock, and based on information supplied by certain of such record
holders, the Company estimates that as of such date there were approximately
7,500 beneficial owners of its Common Stock.
In July and August 1995, the Company sold to two investors in a private
sale, in reliance of Regulation S under the Securities Act of 1933, 1,791 shares
of Series D Preferred Stock and 258 shares of Series E Convertible Preferred
Stock for $18.8 million in cash.
In March 1996, the Company sold to two investors in a private sale, in
reliance of Regulation S under the Securities Act of 1933, 421,040 shares of
Common Stock for $1.7 million in cash. In June 1996, the Company sold to 10
investors in a private sale, in reliance of Regulation S under the Securities
Act of 1933, 404,611 shares of Common Stock for $1.3 million in cash.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1996 are
derived from the consolidated financial statements of the Company. The financial
statements for the year ended December 31,1996 are derived from the consolidated
financial statements which have been audited by Ernst & Young LLP. The financial
statements for the four years ended December 31, 1995 have been audited by other
independent auditors. The data should be read in conjunction with the
consolidated financial statements, related notes, and other financial
information included herein.
Statement of Operations Data
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue $39, 477 $ 69,151 $ 67,028 $ 34,069 $ 27,961
Net loss (17,341) (24,963) (39,625) (30,817) (465)
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)
</TABLE>
II-2
<PAGE>
Balance Sheet Data
(in thousands, except share amounts)
Year Ended December 31,
-------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Total assets $36,730 $49,964 $71,871 $75,519 $13,738
Working capital 9,845 13,454 17,513 45,859 3,823
Long-term debt 88 1,264 2,533 2,125 287
Redeemable preferred stock 9,857 15,478 14,609 15,626 0
Stockholders' equity 11,717 10,185 25,156 42,794 7,044
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and related notes included herein.
Results of Operations
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.
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.
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<PAGE>
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 comparative company
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 and comparative company service revenue. The
increase in 1View and comparative company 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 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
II-4
<PAGE>
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, for the comparative companies.
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.
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
("TREEV") 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 approximately $892,000.
Restructuring Charges and Capitalized Software Write-Offs. At December 31,
1996, the 1994 restructuring plan ("the Plan") was complete. Under the Plan, the
Company incurred a net change in estimate of $175,000 in 1996.
II-5
<PAGE>
During 1995, the Company incurred additional charges under the Plan for
items which 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 Plan. In conjunction with the 1994 restructuring, the Company
also expensed capitalized software of $5.3 million, in 1994, which related to
products which 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 which
contributed to the increased gross profit, 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
II-6
<PAGE>
and capitalized software write-offs, of $8.7 million, 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 Series B Preferred Stock of
$417,000 offset by the cost of redemption of Series D Preferred Stock of $5.9
million.
Liquidity and Capital Resources
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 9 to the Consolidated Financial Statements.
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 offset by the $3.2 million payment of Series A Preferred Stock
dividends and net payments in debt and capital leases of $1.2 million.
II-7
<PAGE>
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 9 to the Consolidated
Financial Statements.
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
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 Preferred 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 from which the Company received
$1.2 million in cash.
As a result of stock offerings in 1996, the Company received 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 preferred stocks are as
follows: Series A Preferred Stock - $3.2 million (payable quarterly) and Series
F Preferred Stock - $665,000 (payable quarterly beginning October 1, 1996).
Dividends on the Company's Series H Preferred Stock and Series J Preferred Stock
are payable in common stock.
The adverse results of operations which the Company experienced in 1996
have been declining and are expected to reverse in 1997. The Company believes
that its existing cash, together with the $5.0 million line of credit
established in the fourth quarter of 1996 and the anticipated cash flows from
1997 operations, should provide sufficient resources to fund its activities in
1997.
ITEM 8. FINANCIAL STATEMENTS
The Financial Statements appear at pages F-1 to F-23.
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company filed a Form 8-K on July 17, 1996 to report that its
independent accountants had been changed to Ernst & Young LLP.
II-9
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers of the Company
For information regarding directors and executive officers of the Company,
see the information appearing under the caption "Executive Officers" in Part I,
Item 1 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on June 3, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on June 3, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on June 3, 1997.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed herewith or incorporated
herein by reference:
Exhibit No. Description
2.9 -- Agreement and Plan of Reorganization by and among the Company,
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 Current Report on Form 8-K relating to such Agreement and
Plan of Reorganization filed October 13, 1993).
III-1
<PAGE>
2.26 -- 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 -- Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.(i) to the Company's registration statement on
Form S-1 (Registration No. 33-45721) filed February 13, 1992).
3.2 -- Amendment to Certificate of Incorporation of the Company filed with
the Secretary of State of the State of Delaware on September 30, 1993
(incorporated by reference to Exhibit 3.1 to the Company's
registration statement on Form SB-2 (Registration No. 33-70444) filed
October 15, 1993).
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 -- Certificate of Designations for Series E Convertible Preferred
Stock filed with the Secretary of the State of Delaware on July 21,
(incorporated by reference to Exhibit 2.5 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1995).
3.5 -- Certificates of Designations for Series G Convertible Preferred
Stock filed with the Secretary of State of the State of Delaware on
December 26, 1995 (incorporated by reference to Exhibit 4.12 to
Amendment No. 3 to the Company's Registration Statement on Form S-3
(Registration No. 33-84482) filed January 16, 1996).
3.6 -- Certificates of Designations for Series F-1, F-2, F-3 and F-4
Convertible Preferred Stock filed with the Secretary of State of the
State of Delaware on March 29, 1996 (incorporated by reference to
Exhibit 3.(ii) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
3.7 -- Certificate of Designations for Series H Convertible Preferred
Stock filed with the Secretary of the State of Delaware on July 25,
1996 (incorporated by reference to Exhibit 3(i).a to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1996).
3.8 -- Certificate of Designations for Series I Convertible Preferred
Stock filed with the Secretary of the State of Delaware on June 28,
1996 (incorporated by reference to Exhibit 3(i).c to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1996).
3.9 -- Certificate of Designations for Series J Convertible Preferred
Stock filed with the Secretary of the State of Delaware on September
30, 1996 (incorporated by reference to Exhibit 3(i).a to the Company's
Quarterly Report on Form 10-Q for the period ended September 30,
1996).
3.10 -- By-Laws of the Company as amended and restated as of November 20,
1995 (incorporated by reference to Exhibit 4.3 to Amendment No. 3 to
the Company's Registration Statement on Form S-3 (Registration No.
33-84482) filed January 16, 1996).
4.2 -- 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).
4.3 -- 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).
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<PAGE>
4.3.a -- Amendment No. 1 dated as of April 15, 1993 to the Warrant Agreement
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).
4.4 -- Warrant Agreement between the Company and American Stock Transfer &
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).
4.5 -- Specimen Warrant Certificate (Public Warrants) (incorporated by
reference to Exhibit 4.5 to Amendment No. 1 to the Company's
registration statement on Form S-1 (Registration No. 33-45721) filed
April 10, 1992).
4.6 -- 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).
4.7 -- 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).
4.8 -- 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).
4.9 -- 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).
4.10 -- 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).
4.11 -- 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).
4.12 -- 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).
4.12.a -- Form of Amendment to 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.a to
Amendment No. 1 to the Company's registration statement on Form SB-2
(Registration No. 33-64046) filed January 5, 1994).
4.13 -- 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).
4.14 -- 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).
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<PAGE>
4.16 -- 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).
4.17 -- 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).
4.18 -- 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).
4.19 -- 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).
4.20 -- 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).
4.21 -- 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).
4.22 -- 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).
4.23 -- Warrant to purchase 4,000 shares of Common Stock issued to
Christian 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).
4.35 -- 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).
4.36 -- Warrant to purchase 100,000 shares of Common Stock to Fred E.
Kassner dated December 31, 1996.
4.37 -- Warrant to purchase up to 25,000 shares of Common Stock to Damon
Testaverde dated January 31, 1997. 4.38 -- Warrant to purchase 4,000
shares of Common Stock to Susan G. Kaufman dated December 31, 1996.
4.38 --Warrant to purchase 4,000 shares of Common Stock to Susan G. Kaufman
dated December 31, 1996.
10.2 -- Employment Agreement 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).
10.4.b -- 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).
10.4.c -- Amendment dated October 1, 1995 by and between the Company,
Sterling 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).
III-4
<PAGE>
10.20 -- 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.
10.21 -- Loan Agreement by and between the Company and Fred E. Kassner for a
line of credit of $5,000,000 dated December 31, 1996.
11 -- Statement of computation of per share earnings.
21 -- List of subsidiaries.
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K during
or relating to the fourth quarter of 1996.
III-5
<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
<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 our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements 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 then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
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 material 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 provide a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Washington, D.C.
March 29, 1996
F-3
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<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>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
(In thousands, except share and per share amounts)
<TABLE>
<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>
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)
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock paid-in Accumulated Translation
Shares Amt. Shares Amt. capital Deficit Adjustment Total
----------------- ----------------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 1,400,000 $ -- 10,542,105 $1 $74,153 ($31,169) ($191) $42,794
Issuance of preferred stock,
net of offering costs of $673 205,025 4,453 4,453
Issuance of common stock, net of
offering costs of $39 2,786,070 19,184 19,184
Conversion of preferred stock 300,000 2,303 2,303
Accretion of preferred stock (1,286) (1,286)
Dividends on preferred stock (3,210) (3,210)
Translation adjustment 543 543
Net loss (39,625) (39,625)
---------------- -------------- -------- --------- ---- -------
Balance December 31, 1994 1,605,025 -- 13,628,175 1 95,597 (70,794) 352 25,156
Issuance of preferred stock,
net of offering costs of $1,790 2,174 $ -- 19,949 19,949
Conversion of preferred stock (885) 2,276,237 --
Redemption of preferred stock (1,086) (15,600) (15,600)
Issuance of common stock, net of
offering costs of $941 2,732,814 1 9,198 9,199
Accretion of preferred stock (869) (869)
Dividends on preferred stock (3,210) (3,210)
Translation adjustment 523 523
Net loss (24,963) (24,963)
---------------- -------------- -------- --------- ---- -------
Balance December 31, 1995 1,605,228 -- 18,637,226 2 105,065 (95,757) 875 10,185
Issuance of common stock,
net of offering costs of $376 1,902,487 6,149 6,149
Issuance of preferred stock,
net of offering costs of $209 1,100 $ -- 10,791 10,791
Issuance of warrants for line of credit 192 192
Buy-Back adjustment of Redeemable
Series F preferred stock 5,962 5,962
Conversion of preferred stock (653) 2,356,899 --
Accretion of preferred stock (3,389) (3,389)
Translation adjustment (491) (491)
Net loss (17,341) (17,341)
---------------- -------------- -------- --------- ---- -------
Balance December 31, 1996 1,605,675 $ -- 22,896,612 $2 $124,429 ($113,098) $384 $11,717
================ ============== ======== ========= ==== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(In thousands)
<TABLE>
<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(TM) 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.
F-8
<PAGE>
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.
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.
F-9
<PAGE>
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.
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 only 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
F-10
<PAGE>
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).
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.
F-11
<PAGE>
NOTE 4 - FIXED ASSETS
Fixed assets consist of the following:
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.
F-12
<PAGE>
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.
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
====== ======
F-13
<PAGE>
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
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
129,000 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.
F-14
<PAGE>
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.
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 year,
payable quarterly, and can convert to common stock at a rate of 1.8116 shares of
common for each share of Series A Preferred (an effective 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
F-15
<PAGE>
December 31, 1996, the remaining shares of Series H Preferred Stock were
convertible into 885,956 shares of Common Stock.
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 an amount
equal to the initial purchase price of $10,000 by the lesser of $3.13 and 81% of
the average bid price. The Company may, commencing on September 30, 1997,
require conversion if the Series J
F-16
<PAGE>
Preferred Stock and underlying Common Stock have been registered under the
Securities Act for at least ten trading days. When the Average Bid Price is less
than $3.13, the Company, subject to the rights of senior securities regarding
redemption, may redeem shares of Series J Preferred Stock submitted for
conversion at a price per share equal to the amount determined by multiplying
the number of Conversion Shares by the Average Bid Price. The Series J Preferred
Stock has a dividend rate of 6% which is payable at the time of conversion or
redemption in cash or shares of Common Stock, as elected by the Company.
Stock purchase warrants --
The Company has the following warrants outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Shares
Warrants Issuable
Warrants Exercise Outstanding Upon
Issuance Issued Price Range Expiration Dec.31, 1996 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 agents 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 227,068 227,068
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.
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
F-17
<PAGE>
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
=========
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.
F-18
<PAGE>
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)
======== ========
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)
======== ========
F-19
<PAGE>
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 to the Company or a U.S. affiliate, or if the Company sold its stock in
the subsidiaries. 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 changes 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.
F-20
<PAGE>
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
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.
F-21
<PAGE>
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.
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. During March 1997, the holder of the Series F
Preferred Stock successfully obtained a full and unconditional release of the
guarantee obligations of Dorotech.
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.
F-22
<PAGE>
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
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------ ------------
Balance Charged to Balance
at Beginning Costs and at End
Description of Period Expenses Deductions of Period
<S> <C> <C> <C> <C>
Allowance for uncollectible
accounts receivable
Year ended December 31, 1996 183 377 (25) (1) 535
Year ended December 31, 1995 1,441 96 (1,354) (2) 183
Allowance for uncollectible
notes receivable
Year ended December 31, 1996 1,350 0 (1,030) (1) 320
Year ended December 31, 1995 0 1,350 0 1,350
</TABLE>
(1) Uncollectible accounts written off, net of recoveries
(2) Reduction due to divestitures
<PAGE>
SIGNATURES
In accordance with Section 13 of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the County of Fairfax, Commonwealth of Virginia,
on March 18, 1997.
NETWORK IMAGING CORPORATION
By: /s/ James J. Leto
------------------------
James J. Leto
President and
Chief Executive Officer
In accordance with the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Capacity Date
---- -------- ----
/s/ Robert P. Bernardi Secretary and March 18, 1997
- ------------------------ Chairman of the Board
Robert P. Bernardi
/s/ James J. Leto President and March 18, 1997
- ------------------------ Chief Executive Officer
James J. Leto
/s/Jorge R. Forgues Senior Vice President of Finance March 18, 1997
- ------------------------ and Administration, Chief
Jorge R. Forgues Financial Officer and Treasurer
/s/C. Alan Peyser Director March 18, 1997
- ------------------------
C. Alan Peyser
/s/John F. Burton Director March 18, 1997
- ------------------------
John F. Burton
/s/Robert Ripp Director March 18, 1997
- ------------------------
Robert Ripp
[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
<PAGE>
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$3.0625 (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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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]
<PAGE>
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
------------------------------
-2-
<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 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 up to 25,000 shares
Warrant to Subscribe for Common Stock
of
NETWORK IMAGING CORPORATION
THIS CERTIFIES that Damon Testaverde ("Holder") has the right to subscribe
from Network Imaging Corporation (the "Company"), not up to 25,000 fully paid
and nonassessable shares of the Company's Common Stock $.0001 par value per
share ("Common Stock"), at a price equal to the market price of the Company's
Common Stock on the date that the Company borrows funds pursuant to the Loan
Agreement dated as of December 31, 1996 by and between Network Imaging
Corporation and Fred E. Kassner subject to adjustment as provided below (the
"Exercise Price"), at any time on or before 5:00 pm, U.S. time, on December 31,
2000. The number of warrants Holder may subscribe to is as described in the
Agreement for Services dated January 31, 1997 by and between the Company and
Holder.
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
<PAGE>
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
<PAGE>
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.
Registration rights to this warrant shall attached after one (1) year from
the date that shares are issued to Holder under this Warrant.
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.
<PAGE>
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: December 31, 1996
NETWORK IMAGING CORPORATION
By: _______________________________
James J. Leto
Title: President and Chief Executive Officer
[FORM OF FACE OF CLASS _ WARRANT CERTIFICATE]
[THE CERTIFICATE WILL ALSO CONTAIN A RESTRICTIVE LEGEND]
No. WE 4,000 Warrants
CLASS _ WARRANT TO
PURCHASE COMMON STOCK
NETWORK IMAGING CORPORATION
This certifies that FOR VALUE RECEIVED Susan G. Kaufman, 430 East 86th Street,
New York, New York 10028 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
<PAGE>
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$3.0625 (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 Fred Kassner.
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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]
<PAGE>
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
------------------------------
-2-
<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.
PURCHASE AGREEMENT
WHEREAS, Network Imaging Corporation ("Network Imaging"), with its
principal offices located at 500 Huntmar Park Drive, Herndon, Virginia 20170,
issued a class of Series F Preferred Stock (the "Preferred Stock") to CDR
Enterprises ("CDRE"), with its principal offices located at 27/29 rue le
Peletier, 75009 Paris, France, for a certain sum of money; and
WHEREAS, the Preferred Stock consists of one million seven hundred
ninety-two thousand one hundred eighty-six (1,792,186) shares;
WHEREAS, CDRE wishes to sell the class of Series F Preferred Stock and
Network Imaging desires to purchase the Preferred Stock;
NOW, THEREFORE, in consideration of the foregoing and of the covenants,
promises and agreements set forth herein, Network Imaging and CDRE agree as
follows:
1. Purchase and Sale of the Preferred Stock. On the terms and conditions
provided in this Agreement, CDRE agrees to sell, and Network Imaging agrees to
purchase the shares of Preferred Stock. The price of each of the shares sold and
purchased hereunder is as follows:
a. Three dollars and fifty cents ($3.50) per share, payable upon transfer
(the "First Cash Payment"); and
b. the Additional Consideration as defined in Section 2 below.
This Agreement shall become effective upon execution (the "Closing Date").
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;
no less than five hundred thousand (500,000) shares of Preferred Stock on
or before May 31, 1997; and the balance no later than June 30, 1997.
Page 1
<PAGE>
For each installment, Network Imaging shall notify CDRE of the number of
shares of Preferred Stock it intends to receive, however in no event shall
Network Imaging request less than the number of shares described in the
paragraph above, and CDRE shall transfer to Network Imaging the same number
of shares upon payment by Network Imaging to CDRE, by means of a wire
transfer, of the First Cash Payment in an amount equal to $3.50 multiplied
by the same number of shares.
2. Additional Consideration. On the Closing Date, CDRE shall elect, at its sole
option, one of the following additional payments:
(i) the sum of two dollars ($2.00) in cash for each of the one million
seven ninety-two thousand one hundred eighty-six (1,792,186) shares
delivered to Network Imaging, and such payment shall be due and
payable upon the earlier of (a) the sale of Dorotech, S.A. and the
receipt of proceeds by Network Imaging therefrom and (b) January 31,
1998 (the "Second Cash Payment"); or
(ii) a warrant to subscribe for one million seven hundred ninety-two
thousand one hundred eighty-six (1,792,186) shares of Network Imaging
Common Stock at an exercise price of three dollars and fifty cents
($3.50) per share (the "Warrant"), in the form as attached as Exhibit
A hereto and incorporated herein by reference, and upon election such
Warrant shall be issued by Network Imaging to CDRE as soon as
practicable thereafter.
In addition, in the event that CDRE elects to receive payment under this
Section 2 in the form of a Warrant, and to the extent that CDRE has not fully
exercised its right to purchase shares under the Warrant, Network Imaging, upon
the earlier of the sale of Dorotech, S.A. or January 31, 1998, shall pay to CDRE
in the form of a cash payment, an amount equal to one dollar and fifty cents
($1.50) per share and shall raise the strike price of the Warrant to five
dollars ($5.00) per share (the "Alternate Second Cash Payment"). In the event
that CDR elects at Closing to take a Warrant for 1,792,186 shares of Network
Imaging Common Stock or any portion thereof and then at some point in the
future, determines that it would like to modify the election, Network Imaging
shall, at its sole discretion, determine whether it chooses to accept or reject
any such modification proposal.
Notwithstanding anything to the contrary contained in the Agreement, CDRE
understands that the issuance of the Warrant to CDRE may result in an ownership
interest as that term is defined in the Foreign Bank Holding Company Act (the
"Holding Company Act"). If CDRE is deemed to be subject to the Holding Company
Act, CDRE shall undertake to complete such actions as are necessary to comply
with the Holding Company Act. If CDRE is subject to the Holding Company Act,
CDRE may elect to receive a Warrant for only the number of shares that would
result in an ownership interest of equal to or less than five percent (5%) of
the total number of outstanding shares of Network Imaging; in that case, an
amount equal to two dollars ($2.00) multiplied by the number of shares which
would have been covered by the Warrant and exceed such percentage of ownership
shall be payable in accordance with the payment terms as described in Section
1(b) herein.
Page 2
<PAGE>
CDRE understands that registration rights for such Warrant shall not attach
until such time as described in the Registration Rights Agreement attached as
Exhibit B hereto and incorporated herein by reference. Further, CDRE agrees that
Network Imaging has a right of first refusal for any sale of the Warrant and/or
the shares underlying the Warrant (the "Right of First Refusal"). CDRE agrees
that, in the event of a proposed sale of the Warrant (including any part
thereof) or any of the underlying shares that it shall inform Network Imaging of
the proposed sale and the terms of such proposed sale, and Network Imaging shall
have at least thirty (30) days from the date it receives written notification of
those terms to determine whether it shall purchase the Warrant and/or the
underlying shares. In the event that Network Imaging does not purchase the
Warrant and/or the underlying shares or does not notify CDRE of its election
within the thirty (30) day period described in this section, CDRE may proceed
with the terms of that sale as presented to Network Imaging. If, for any reason,
the terms of the proposed sale by CDRE should change, then those terms must be
presented to Network Imaging in accordance with the procedures set forth in this
Section. Notwithstanding the foregoing, Network Imaging agrees, upon the written
request of CDRE, to use its reasonable best efforts to assist CDRE in locating
and securing a purchaser for all or any part of the Warrant and/or any of the
shares underlying the Warrant.
3. Interest Payments. Network Imaging shall pay to CDRE interest payments on the
aggregate principal amounts of the First Cash Payment, or part thereof, and the
Second Cash Payment in the amount of eight percent (8%) per annum commencing on
October 1, 1996 and continuing until such time as the date of the First Cash
Payment, or part thereof, and the Second Cash Payment under Section 1 herein.
Such interest is payable to CDRE by the fifteenth day of the month following the
end of each calendar quarter.
4. Sale of Dorotech, S.A. Network Imaging and CDRE agree that it is contemplated
that at some point in the near future, Network Imaging will sell its wholly
owned subsidiary, Dorotech, S.A. As the terms of this Agreement contain payment
terms related to the sale of Dorotech, S.A., Network Imaging agrees that it
shall use its reasonable best efforts to sell Dorotech, S.A. to an unrelated
third party on or before January 31, 1998.
5. Security Relating to Payments from Network Imaging. In the event of a default
pursuant to the agreement for payment contained in this Agreement and if such
default has not been cured by Network Imaging within five (5) business days
after the payment due date, CDRE has the right to realize upon the first ranking
pledge on all of the outstanding stock of Dorotech, S.A. held by Network Imaging
as such pledge is herein granted to CDRE. As soon as such right arises and CDRE
is entitled to realize upon the pledge, CDRE shall be at liberty to require that
Network Imaging effect a sale of Dorotech, S.A. and to immediately upon the
consummation of such sale remit all amounts due and payable to CDRE. In the
event that Network Imaging has not effected a sale of Dorotech, S.A. by January
31, 1998, and Network Imaging is in default of payments under this Agreement,
CDRE shall be at liberty to sell the Pledged Securities and withhold all amounts
due and payable under the Agreement before paying back the excess money, if any,
to Network Imaging; provided however that CDRE shall be at liberty to sell the
Pledged Securities, and that all payment obligations of Network Imaging
hereunder shall become
Page 3
<PAGE>
due and payable immediately, in the event that Network Imaging files for
protection against its creditors or is declared bankrupt.
a. Representations and Warranties. Network Imaging represents and warrants
as follows:
(i) Title to Pledged Securities. Network Imaging beneficially owns all
of the Shares of Dorotech, S.A., a societe anonyme organized under the
laws of France (hereinafter the "Pledged Securities"), free and clear
of any liens. All of the Pledged Securities have been duly authorized
and validly issued, and are fully paid and non-assessable, and are not
subject to any options to purchase or similar rights of any Person.
Network Imaging is not and will not become a party to or otherwise
bound by any agreement, other than this Agreement, which restricts in
any manner the rights of any present or future holder of any of the
Pledged Securities with respect thereto.
(ii) Validity, Perfection and Priority of Security Interests. Network
Imaging shall, upon execution of this Agreement, obtain from Dorotech
and promptly forward to CDRE a certificate from the Company's Register
evidencing the pledge on the Pledged Securities in favor of CDRE. Upon
the delivery of this Agreement to CDRE and the delivery by Network
Imaging of the said certificate, CDRE will have valid and perfected
security interests in the Pledged Securities subject to no prior lien.
No registration, recordation or filing with any governmental body,
agency or official is required in connection with the execution or
delivery of this Agreement or necessary for the validity or
enforceability hereof or for the perfection or enforcement of the
Pledged Securities. Neither Network Imaging nor any of its
subsidiaries has performed or will perform any acts which might
prevent CDRE from enforcing any of the terms and conditions of this
Agreement or which would limit CDRE in any such enforcement.
b. Security Interests. In order to secure the full and punctual payment of
the payment obligations of Network Imaging in accordance with the terms
thereof, and to secure the performance of all of the obligations of Network
Imaging hereunder:
(i) Network Imaging hereby assigns and pledges to and with CDRE and
grants to CDRE security interests in the Pledged Securities, and all
of its rights and privileges with respect to the Pledged Securities,
and all income and profit thereon, and all interest, dividends and
other payments and distributions with respect thereto, and all of the
proceeds of the foregoing (the "Collateral").
(ii) In the event that Dorotech at any time issues any additional or
substitute shares of capital stock of any class, Network Imaging will
immediately pledge and deposit with CDRE all such shares as additional
security for the payment obligations and shall cause the Company's
Registrar to deliver to CDRE a
Page 4
<PAGE>
certificate evidencing such pledge. All such shares constitute Pledged
Securities and are subject to all provisions of this Agreement.
(iii) The security interests are granted as security only and shall
not subject CDRE to, or transfer or in any way affect or modify, any
obligation or liability of Network Imaging with respect to any of the
Collateral or any transaction in connection therewith.
c. Sale of Dorotech, S.A. CDRE agrees that in the event of the sale by
Network Imaging of the Pledged Securities, it shall, at the closing of such
transaction release the Pledged Securities against receipt from Network
Imaging or from the buyer of Dorotech of: (i) the Second Cash Payment, or
the Alternate Second Cash Payment, as the case may be, (ii) all Interest
Payments remaining due pursuant to Article 4 above, and (iii) in the event
that the sale of Dorotech occurs prior to June 30, 1997, the First Cash
Payment or part thereof, and the Second Cash Payment, or the Alternate
Second Cash Payment, as the case may be, if not previously made.
Conversely, CDRE shall then transfer to Network Imaging title to all the
shares of Preferred Stock not previously transferred.
d. Sale of Dorotech, S.A. by Merger. In the event that Network Imaging
operates a sale of Dorotech, as it is contemplated in this Agreement, by
other means than a straightforward sale of the shares of that company, such
as a merger or partial merger into another company, CDRE shall release the
Pledged Securities only against receipt of the payments specified at
subsection (c) above.
e. Further Assurances. Network Imaging agrees that it will, at its expense
and in such manner and form as CDRE may reasonably require, execute,
deliver, file, and record any financing statement, specific assignment or
other paper and take any other action that may be necessary or desirable,
or that CDRE may reasonably request, in order to create, preserve, perfect
or validate any security interest or to enable CDRE to exercise and enforce
its rights hereunder with respect to any of the Collateral.
f. Covenants. Network Imaging shall, until the sale or merger of Dorotech,
S.A., as the case may be, refrain from authorizing or causing Dorotech to
take any of the following actions without the prior written approval of
CDRE, which consent shall not be unreasonably withheld:
(1) Borrow except in the normal course of business.
(2) Sell or contribute or merger any of its assets to third parties
or to affiliates of Network Imaging.
(3) Acquire or agree to acquire any assets not planned in the 1997
budget, from third parties or affiliates of Network Imaging.
(4) Assume any liabilities except in the normal course of business.
Page 5
<PAGE>
Notwithstanding the foregoing, no prior written approval shall be necessary
for transactions not exceeding one hundred thousand dollars ($100,000) or
those entered into in the normal course of business.
6. Covenants of the Parties.
6.1 Covenants of CDRE. CDRE hereby covenants to Network Imaging that it
shall use its best efforts to obtain from COFRACOMI a full and
unconditional release for Dorotech, S.A., on terms reasonably satisfactory
to its counsel, from any and all obligations under the lease guarantee
(cautionnement) dated March 31, 1992 for the ATG Cygnet office space in
Toulouse, France; provided however, that the above shall not be construed
as an absolute obligation of CDRE to procure such release, but solely to
exert its best means to try and obtain the same (obligation de moyens).
CDRE hereby covenants that in the event that such release has not been
obtained by February 28, 1997, it shall indemnify Network Imaging against
half of the sums actually paid out by Dorotech or Network Imaging to
COFRACOMI as a result of said lease guarantee being called by COFRACOMI, up
to a maximum of four million U.S. dollars ($4,000,000.00).
CDRE may choose to fulfill this indemnity by deducting from the First Cash
Payment, Second Cash Payment, or the Alternate Second Cash Payment, as the
case may be, the sums which become due under this indemnity, and Network
Imaging hereby agrees that such setoff shall be satisfactory performance to
Network Imaging of the indemnity obligations of CDRE hereunder.
Network Imaging shall cause Dorotech to assign to CDRE half of its rights
and claims against ATG Cygnet up to the amount for which it shall have been
indemnified by CDRE hereunder.
This indemnity shall become null and void in the event that Network Imaging
defaults on any one of its payment obligations hereunder, and such default
has not been cured by Network Imaging within five (5) business days after
the payment due date.
6.2 Covenants of Network Imaging. Network Imaging covenants to CDRE that it
shall abstain from any contacts or approaches with the Commercial Court in
Toulouse or the bankruptcy judge appointed to supervise the ATG Cygnet
receivership without the prior written approval of CDRE, and that CDRE
shall take full charge and control of such contacts, petitions and actions
with the said Court and judge in order to try and gain the above-mentioned
release.
Page 6
<PAGE>
7. Representations and Warranties of the Parties.
a. CDRE
(i) CDRE represents and warrants to Network Imaging that it has full
power and authority to enter into and consummate all transactions
contemplated by this Agreement and that all necessary corporate action
has been taken to authorize such transactions.
(ii) At each delivery as provided in Section 1 above, CDRE represents
and warrants that it will transfer to Network Imaging title to the
Preferred Stock free and clear of any liens and encumbrances of any
kind.
b. Network Imaging
(i) Network Imaging represents and warrants to CDRE that it has full
power and authority to enter into and consummate all transactions
contemplated by this Agreement and that all necessary corporate action
has been taken to authorize such transactions.
8. Severability. Every provision of this Agreement shall be construed, to the
extent possible, so as to be valid and enforceable. If any provision of this
Agreement so construed is held by a court of competent jurisdiction to be
invalid, illegal or otherwise unenforceable, such provision shall be deemed
severed from this Agreement, and all other provisions shall remain in full force
and effect.
9. Choice of Law and Venue. This Agreement shall in all respects be governed by
and interpreted, construed and enforced in accordance with the laws of the
France. Any action between Network Imaging and CDRE will be venued in a state or
federal court situated within the Commonwealth of Virginia, and CDRE irrevocably
submits itself to the personal jurisdiction of such courts for such purpose.
10. Entire Agreement. This Agreement sets forth the entire agreement and
understanding between Network Imaging and CDRE regarding the subject matter
hereof and supersedes any prior representations, advertisements, statements,
proposals, negotiations, discussions, understandings, or agreements regarding
the same subject matter. Both parties acknowledge that they have not been
induced to enter into this Agreement by any representations or statements, oral
or written, not expressly contained in this Agreement. The terms and conditions
of this Agreement shall prevail, notwithstanding any variance or inconsistency
with the terms and conditions of any purchase order or other document heretofore
or hereafter submitted by either party. This Agreement may not be modified or
amended except by a written document signed by the party against whom the same
is sought to be enforced.
Page 7
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11. Counterparts. This Agreement may be executed simultaneously in two
counterparts, each of which shall be deemed to be an original, and all of which
shall constitute one and the same instrument.
This Agreement is executed on this 31st day of December, 1996 between the
parties.
CDR ENTERPRISES NETWORK IMAGING CORPORATION
Signature ______________________ Signature ______________________
Name ___________________________ Name ___________________________
Title __________________________ Title __________________________
Page 8
LOAN AGREEMENT
LOAN AGREEMENT dated as of December 31, 1996 by and between Network Imaging
Corporation a corporation duly organized and validly existing under the laws of
the State of Delaware, (the "Borrower") and Fred Kassner, with an address at 69
Spring Street, Ramsey, New Jersey 07446 (the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Lender to make loans to the
Borrower from time to time pursuant to a credit facility in an aggregate
principal amount not to exceed $5,000,000; and
WHEREAS, the Borrower wishes to make use of the aforesaid credit facilities
for the purchase of the Borrower's Series F Preferred Stock; and
WHEREAS, the Lender is willing to extend commitments to make loans pursuant
to the credit facility to the Borrower solely for the purpose specified above
and on the terms and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and the grant of a security interest by the Borrower
in the Collateral (as hereinafter defined) for the benefit of the Lender, and
the other security to be provided to the Lender, the parties hereto hereby agree
as follows:
Section 1. Definitions.
1.1 Specific Definitions: As used herein, the following terms shall have
the following respective meanings:
"Advance Date": the Business Day on which the Borrower in their notice to
the Lender request that the Lender make a Loan Advance.
<PAGE>
"Affiliate": as applied to any Person, (a) a spouse of such Person; (b) any
relative (by blood, adoption or marriage) of such Person within the third
degree; (c) any member, director or executive officer of such Person; (d) any
corporation, association, firm or other entity of which such Person, spouse or
relative is a member, director or executive officer; and (e) any other Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with such Person, spouse or relative.
"Agreement": this Agreement, as amended from time to time, and after giving
effect to all waivers and departures from the terms thereof that have been
consented to but only, in the case of each such amendment, waiver or consent, to
the extent it complies with the provisions of Section 8.6 hereof.
"Amount of the Credit Facility Commitment": at the time of any
determination, $5,000,000 in aggregate maximum principal amount which the Lender
under its Credit Facility Commitment is obligated to lend to the Borrowers.
"Applicable Margin": means in the case of the Credit Facility Note two
percent (2%) per annum.
"Borrowing Request": the written notice of and request by the Borrowers to
the Lender for a Loan Advance under the Credit Facility Commitment,
substantially in the form of Exhibit A hereto.
"Business Day": any day other than a Saturday, Sunday or other day on which
lenders in New York City are authorized to close.
"Closing": the consummation of the transactions contemplated by Section
6.1.
"Closing Date": the Business Day on which the Initial Funding is made.
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"Code": the Internal Revenue Code of 1986, together with all amendments
from time to time thereto.
"Collateral": all of Borrowers now owned or hereafter acquired accounts
receivable, as fully set forth in Section 2.11(a) hereof and in a Collateral
Security Agreement being executed simultaneously herewith, the terms of which
are hereby incorporated herein by reference.
"Collateral Security Agreement": as such term is defined in Section 2.11(a)
hereof.
"Collateral Security Documents": any and all instruments, documents,
assignments, mortgages, leasehold mortgages, agreements, financing statements,
certificates and other writings delivered to the Lender by the Borrowers to
secure the Obligations of the Borrowers under this Agreement, the Note or any
other Loan Documents.
"Control": the power to exercise control or a controlling influence over
the management or policies of any Person, unless such power is solely the result
of an official position with any such Person. Any Person who owns beneficially,
either directly or through one or more controlled companies, more than 5% of the
voting securities of a company or other entity shall be presumed to control such
company or entity.
"Control Person": any Person that has control over another Person.
"Credit Facility Commitment": the obligation of the Lender to make Loan
Advances to the Borrower under Section 2.1 (a) hereof in an aggregate amount not
to exceed $5,000,000.00 subject to termination or reduction from time to time in
accordance with Section 2.1(d) or (e) hereof.
"Credit Facility Commitment Termination Date": September 30, 1998.
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<PAGE>
"Credit Facility Loan Advance": a Loan Advance made under the Credit
Facility Commitment.
"Credit Facility Note": as such term is defined in Section 2.1(b) hereof.
"ERISA": the Employee Retirement Income Security Act of 1974, together with
all amendments from time to time thereto.
"ERISA Affiliate": any trade or business (whether or not incorporated)
which is under common control with the Borrowers within the meaning of the
regulations promulgated under Section 414 of the Code, including, without
limitation, all Subsidiaries.
"Event of Default": as such term is defined in Section 7.1
"Generally accepted accounting principles": shall mean, as of the date of
any determination with respect thereto, generally accepted accounting
principles, as used by the Financial Accounting Standards Board and/or the
American Institute of Certified Public Accountants, consistently applied and
maintained through the periods indicated.
"Immediately Available Funds": funds with good value on the day and in the
city in which payment is received.
"Indebtedness": with respect to any Person at any time without duplication:
(a) all obligations of such Person for borrowed money, (b) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(c) all obligations of such Person upon which interest charges are customarily
paid (other than accounts payable on normal payment terms to suppliers incurred
in the ordinary course of business), (d) all obligations of such Person under
conditional sale or other title retention agreements relating to property
purchased by such Person, (e) all capitalized lease obligations of such Person,
(f) all obligations of such Person issued or assumed as the deferred purchase
price of property or services (other than accounts payable on normal payment
terms to suppliers incurred in the ordinary course of business), (g) all
obligations of others secured by any Lien on property owned or acquired by such
Person,
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whether or not the obligation secured thereby has been assumed and (h) all
guaranties by such Person of Indebtedness of others.
"Initial Funding": the initial Loan Advance under the Credit Facility
Commitment.
"Lien": any security interest, mortgage, pledge, lien, charge, encumbrance,
title retention agreement or analogous instrument, in, of or on any of the
assets or properties of Borrowers, now owned or hereafter acquired, whether
arising by agreement or operation of law.
"Loan Advance" or "Loan Advances" or "Advance": a loan or loans under the
Credit Facility Commitment.
"Loan" or "Loans": an amount or amounts advanced pursuant to Section 2.1
hereof. "Credit Facility Loan" or "Credit Facility Loans," a Loan or Loans made
pursuant to the Credit Facility Commitment.
"Loan Documents": this Agreement and all agreements, instruments and
documents heretofore, herewith or hereafter executed and delivered by Borrower,
together with any powers of attorney, consents, assignments, contracts, notices,
financing statements and any and all other agreements or writings pursuant to or
in aid of any of the foregoing.
"Maturity Date": means the Credit Facility Commitment Termination Date.
"Note": the Credit Facility Note.
"Obligations": all of the Borrower's obligations, liabilities and
indebtedness of any and every kind and nature, whether heretofore, now or
hereafter owing, arising, due or payable and howsoever evidenced, created,
incurred, acquired, or owing, whether primary, secondary, direct, indirect,
contingent, fixed or otherwise and whether arising or existing under written
agreement, oral agreement or operation of law under, with respect to or in
connection with this Agreement, the Note and the other Loan Documents.
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"Person" any natural person, corporation, partnership, joint venture, firm,
association, trust, unincorporated organization, government or governmental
agency or political subdivision or any other entity, whether acting in an
individual, fiduciary or other capacity.
"Prime Rate": shall mean, as determined on a daily basis, the rate per
annum established by First Union Bank, N.A. in Paramus, New Jersey from time to
time as the reference rate for short-term commercial loans in Dollars to
domestic corporate borrowers.
"Responsible Officer": the chairman, the president, or any vice president
of any Person or with respect to financial matters, the chief financial officer
of such Person.
"Payments": with respect to Borrower or any Subsidiary of a Borrower,
collectively, all dividends or other distributions of any nature (cash,
securities, assets or otherwise), and all payments on any class of any equity
securities (including, without limitation, warrants, options or rights therefor)
issued by such Borrower, whether such securities are now or may hereafter be
authorized or outstanding any payment by such Borrower or such Subsidiary of a
Borrower on account of the purchase, redemption or retirement of any equity
securities (including, without limitation, warrants, options or rights therefor)
issued by it and any distribution in respect of any of the foregoing, whether
directly or indirectly.
"SEC": the Securities and Exchange Commission.
"Subsidiary": any corporation of which a majority of the capital stock
having ordinary voting power for the election of directors is owned by either
Borrower, either directly or through one or more Subsidiaries, or any
partnership or joint venture in which such Borrower or any Subsidiary is a
general partner.
"Unmatured Event of Default": any event which with the lapse of time,
determination by the Lender or written notice to Borrowers, or any combination
of the foregoing, would constitute an Event of Default.
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"Unused Amount of the Credit Facility Commitment": at the time of any
determination, the amount by which the Amount of the Credit Facility Commitment
of the Lender in effect at the time of such determination exceeds the
outstanding unpaid principal balance of the Credit Facility Note.
1.2 Accounting Terms and Determinations. Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made and all financial
statements and certificates and reports as to financial matters required to be
delivered hereunder shall be prepared in accordance with United States generally
accepted accounting principles consistently applied.
1.3 Principles of Construction. In this Agreement, the singular includes
the plural and the plural the singular; words imparting any gender include the
other gender; references to "Sections" shall be sections of this Agreement
unless otherwise specifically provided; and references to Persons include their
permitted successors and assigns.
Section 2. The Credit.
2.1 Credit Facility Commitment.
(a) Amount; Lender's Obligation to Make Certain Loan Advances. Upon the
terms and subject to the conditions of this Agreement, the Lender will lend to
the Borrower during the period commencing on and after the Closing Date to the
earlier of the Credit Facility Commitment Termination Date or the date on which
the Credit Facility Commitment shall be terminated in accordance with the terms
hereof, as provided herein, in such amounts and at such times as the Borrower
shall request, up to but not exceeding the Amount of the Credit Facility
Commitment in aggregate principal amount at any one time outstanding.
(b) Credit Facility Note. Loan Advances made by the Lender under its Credit
Facility Commitment to the Borrower shall be evidenced by a promissory note of
the Borrower in the form of
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Exhibit B hereto (the "Credit Facility Note"), dated the Closing Date, payable
by the Borrower, to the order of the Lender in the amount of the Credit Facility
Commitment as originally in effect and otherwise duly completed. The aggregate
amount of all Loan Advances made by the Lender under its Credit Facility
Commitment less all payments of principal thereof shall be the principal amount
owing and unpaid on the Credit Facility Note payable to the order of such
Lender. The amount and date of each Loan and all payments made on account of the
principal thereof, shall be endorsed by the Lender on the Schedule attached to
the Note or any continuation thereof.
(c) Interest Payable on Credit Facility Note. The Borrower will pay the
Lender interest on the outstanding unpaid principal amount of the Credit
Facility Note for the period commencing on the date the initial Loan Advance
hereunder is made until the Credit Facility Note shall have been paid in full at
a per annum rate equal to the Prime Rate from time to time in effect, as
adjusted automatically on and as of the effective date of any change in the
Prime Rate. Such interest, accrued through the last calendar day of each month
on the Credit Facility Note, shall be payable monthly in arrears on the first
day of each month that this Agreement is in effect.
(d) Mandatory and Permitted Principal Payments of the Credit Facility Note.
Subject to Section 7.2 hereof,
(i) Mandatory Payments. On the earlier of the Credit Facility
Commitment Termination Date or the date on which the Credit Facility
Commitment shall be terminated in accordance with the terms hereof, the
Borrower shall pay to the Lender the entire unpaid principal balance of the
Credit Facility Note, together with all accrued and unpaid interest on the
principal balance.
(ii) Mandatory Reduction of Credit Facility Commitment. Upon the
exercise of any Network Imaging Corporation warrants (provided that the
proceeds of such exercise exceeds $50,000) now outstanding or hereafter
issued by Borrower, a prepayment in the net amount received by Borrower
shall be applied to reduce the amount of the Credit Facility Note; and upon
the sale of Dorotech, S.A., a prepayment in the amount of the Loan
then-outstanding shall be applied to reduce the amount of the Credit
Facility Note.
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(iii) Permitted Voluntary Repayments. The Borrower shall have the
right voluntarily to repay the Credit Facility Note of the Borrower from
time to time in whole or in part, on three (3) Business Days' notice to the
Lender; provided that each such partial prepayment shall be in the minimum
aggregate amount of $250,000.00 together with accrued interest on the
amount so prepaid through the date of such prepayment. Such monies shall be
paid to the Lender in accordance with the provisions of Section 2.8 hereof.
2.3 Manner of Requesting Under the Commitments.
(a) Borrowings Under the Credit Facility Commitment. The Borrower shall
give written notice to the Lender of each request for Loan Advances under the
Credit Facility Commitment to be made subsequent to the Closing Date not later
than 10:00 a.m. (New York time) five (5) Business Days prior to the Advance
Date. Each request for Loan Advances under the Credit Facility Commitment shall
be in the minimum aggregate principal amount of $50,000.00. Each request for a
borrowing hereunder shall be made by delivering a Borrowing Request to the
Lender. Subject to compliance with the terms and conditions of this Agreement,
including, without limitation, those contained in Sections 6.1 and 6.3(a)
hereof, the Lender will make the requested Loan Advance. Subject to the
foregoing, the Lender shall make available the proceeds of all Loan Advances
requested by the Borrowers by delivery of a check to Borrowers, subject to
collection, no later than 2:00 p.m. (New York time) on the relevant Advance Date
to such account(s) at such banks(s) as the Borrowers shall designate.
(b) Loan Advances for Interest and Fees and Required Principal Payments.
The Lender is irrevocably authorized at its option to make Loan Advances under
the Credit Facility Commitment, and to remit the proceeds thereof to itself as
and for payment of any interest, fees, principal payments, or other compensation
or reimbursement as may become due to the Lender under the terms of this
Agreement or the other Loan Documents; provided, however, that a Loan Advance
for payment of any interest on the Credit Facility Note shall not be made
earlier than the day after such payment is due under such Note. In the event
that Lender makes such Loan Advances, Lender shall inform Borrower in writing at
least two days in advance of such Loan Advance.
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2.4 Default Interest. If all or any part of the principal or interest on
the Note or any fees or other amounts payable to the Lender hereunder or under
any of the other Loan Documents shall not be paid when due, whether by
acceleration of maturity or otherwise, such past due principal amount, past due
interest amount and past due fees, to the extent permitted by applicable law,
shall bear interest until such past due amount shall be paid in full at a per
annum rate of two percent (2%) above the rate of interest borne by the Note
evidencing such past due principal amount or on which such interest amount was
past due and, in the case of any past due fees, at a rate of two percent (2%)
above the rate of interest borne by the Credit Facility Note for the period
during which the same remained unpaid. All such interest shall be payable
immediately.
2.6 Intentionally deleted.
2.7 Use of Proceeds of Loan Advances. The proceeds of the Loan shall be
used for the purchase of Borrower's Series F Preferred Stock.
2.8 Payments. All payments and prepayments by the Borrowers of principal or
interest on the Note, and all fees, charges, expenses and other obligations
under any Loan Document payable to the Lender shall be made in Immediately
Available Funds not later than 1:00 p.m. (New York time) on the dates called for
under any Loan Document at the main office of the Lender's branch of First Union
Bank, N.A., ABA number: 031201467, account number: 002300399-5; provided, that
the Borrower shall notify the Lender not later than 1:00 p.m. (New York time) on
any date on which a payment by the Borrower will be after 11:00 a.m. (New York
time). Funds received after 11:00 a.m. (New York time) shall be deemed to have
been received by the Lender on the next Business Day. Funds received after 11:00
a.m. also shall be deemed to have been received by the Lender on the next
Business Day if the Borrower fail to provide the notice to the Lender required
by this Section 2.8. If any payment of principal or interest on the Note, or any
fee payable hereunder, becomes due and payable on a day which is not a Business
Day, such payment shall be made on the next succeeding Business Day and such
extension of time shall in such case be included in the computation of any
interest and fees on such principal payment. All payments and prepayments shall
be applied first to unpaid and owing fees, expenses and other obligations of the
Borrower under
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this Agreement and the Note (other than principal and interest), second to
accrued and unpaid and owing interest and last to principal.
2.9 Computations. Interest on the Note (and any other amounts payable by
the Borrower to the Lender hereunder) shall be computed on the basis of actual
days elapsed and a year of 365 days. If any interest payment or other charge or
fee payable hereunder exceeds the maximum amount then permitted by applicable
law, the Borrower shall be obligated to pay the maximum amount then permitted by
applicable law and the Borrower shall continue to pay the maximum amount from
time to time permitted by applicable law until all such interest payments and
other charges and fees otherwise due hereunder (in the absence of such restraint
imposed by applicable law) have been paid in full.
2.11 Grant of Security Interest by the Borrower. In consideration of the
Loans to be made hereunder, the Borrower hereby agrees as follows:
(a) Grant of Security Interest. To secure the payment and performance of
the Borrower's Obligations hereunder and under each of the other Loan Documents,
Borrower hereby sells, assigns, conveys, mortgages, pledges, hypothecates,
transfers and grants to the Lender, for the benefit of the Lender, its
successors, assigns and endorsees, and any other holders of Indebtedness
hereunder, a continuing valid, enforceable, first priority Lien upon and
perfected security interest in and to all of the accounts receivable, now owned
or hereafter acquired by the Borrowers, and wheresoever located, all accessions
and additions to, substitutions for, and replacements and products of any of the
foregoing properties and interests in property, together with all cash
collections from, and all other cash and non-cash proceeds of, any of the
foregoing, (the "Collateral") as more fully set forth in a Collateral Security
Agreement executed simultaneously herewith (the "Collateral Security
Agreement").
(b) Financing Statements. Prior to the execution of this Agreement,
Borrower shall have executed and delivered to the Lender, and at any time or
times hereafter at the request of the Lender, each Borrower shall execute and
deliver, all financing statements, amendments thereto or other documents (and
pay the cost of filing or recording the same in all public offices deemed
necessary by the Lender), as the Lender may reasonably request,
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in a form reasonably satisfactory to the Lender, to perfect and maintain the
security interests in the Collateral granted by such Borrower to the Lender or
otherwise to protect and preserve the Collateral and the security interests
therein or to enforce the security interests of the Lender and the holders of
the Note in the Collateral. Should Borrower fail to do so, the Lender is
authorized to sign any such financing statements or other documents as such
Borrower's agent. Borrower further agrees that a carbon, photocopy or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement. Borrower shall make appropriate entries upon its books and
records disclosing the Lender's Liens in the Collateral. Borrower shall
immediately notify the Lender of any loss in the value of the Collateral or any
part thereof in the amount of $100,000 in any single instance or in the
aggregate.
Section 3. Representations and Warranties. Borrower represents and warrants
that:
3.1 Organization, Standing, etc. Borrower is a corporation duly organized
and validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite power and authority to carry on its business
as now conducted, to execute and deliver the Loan Documents executed and
delivered by it and to perform all of its obligations under each and all of the
foregoing. Borrower is duly qualified and in good standing and is duly
authorized to do business as a foreign corporation in each jurisdiction in which
the character of the properties owned or leased by it or the business conducted
by it makes such qualification necessary. All such jurisdictions are listed in
Schedule 3.1.
3.2 Validity. The Loan Documents to which Borrower is a party constitute
the legal, valid and binding obligations of Borrower and are enforceable against
Borrower in accordance with their terms. The Collateral Security Documents are
effective to create a valid first priority perfected security interest in
Borrower's Collateral for the benefit of the Lender. The execution, delivery and
performance of the Loan Documents by Borrower and the borrowing of moneys
hereunder and under the Notes by Borrower and the execution and delivery of any
Loan Documents, are within its corporate powers, have been duly authorized in
each case by all necessary corporate action, as applicable (including any
necessary shareholder approvals and any shareholder approvals required by the
terms hereof), do not and
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will not violate, contravene or conflict with any provision of their respective
articles or certificates of incorporation or bylaws or any statute, law, rule or
regulation, will not result in the breach of or constitute a default under any
document, agreement, contract, license, lease, franchise, permit, indenture or
instrument to which Borrower is party or by which Borrower or its respective
properties may be bound, and will not, except as contemplated in this Agreement,
result in the imposition of any Lien upon any property of Borrower under any
existing indenture, mortgage, deed of trust, loan or credit agreement or any
other agreement, contract, lease, license, franchise, permit, indenture or
instrument by which Borrower is bound or to which Borrower is a party.
3.3 Capitalization; Subsidiaries. Schedule 3.3 correctly sets forth as to
Borrower its name, the jurisdiction of its incorporation, its authorized, issued
and outstanding capital stock, and any options, warrants or other rights with
respect to such capital stock, the total number of such person(s) (and, on
thirty days prior request of Lender at any time during the term of the Credit
Facility, Borrower will provide the name of such person(s) if more than one the
name of each such Person) owning or holding, or owning any rights to acquire,
rights to acquire any common stock or other capital stock of the percentage of
its common stock and/or other class of capital stock or any partnership interest
in, which is owned directly or indirectly by each such person and sets forth
each limited partnership in which Borrower is a limited partner and the
percentage of its interest therein. Except as set forth on Schedule 3.3,
Borrower has no Subsidiaries, and neither Borrower nor any Subsidiary of such
Borrower owns any shares of capital stock or any general or limited partnership
interest in any other Person. All outstanding shares of capital stock of
Borrower and each Subsidiary of Borrower are validly existing, fully paid and
non-assessable, and the issuance and sale thereof have been made in compliance
with, in all material respects, applicable federal and state securities laws,
and, with the exception of Dorotech, S.A. in the case of shares of capital stock
of each Subsidiary of either Borrower, are owned by the Borrower free and clear
of any liens, encumbrances or other restrictions. Each Subsidiary of a Borrower
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the necessary power and
authority to carry on its business as now conducted or as proposed to be
conducted as contemplated herein and to execute and deliver the Loan Documents
executed and delivered by it and to perform all of its obligations and the
transactions contemplated thereby under each
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and all of the foregoing. Each Subsidiary of the Borrower is duly qualified and
in good standing as a foreign corporation and is duly authorized to do business
in each jurisdiction listed on Schedule 3.1, which jurisdictions are the only
jurisdictions in which the character of the properties owned or leased by such
Subsidiary, as the case may be, or the business conducted or proposed to be
conducted by it makes such qualification necessary.
3.4 Consents and Authorizations. Except for the approvals, authorizations,
filings, permits, registrations and consents listed on Schedule 3.4, no consent,
license, permit, approval, authorization of, or registration, declaration or
filing with, any governmental authority or any other Person or entity
(including, without limitation, any lessor under the Leases) is required on the
part of Borrower or any Subsidiary of Borrower in connection with (1) the
execution and delivery of any of the Loan Documents, or the performance of or
compliance with the terms, provisions or conditions hereof or thereof or of any
of the Collateral Security Documents or the transactions contemplated by any of
them, or (2) the products that Borrower or any Subsidiary of a Borrower
processes or sells or the services each performs or their respective properties.
3.5 Compliance with Law. Borrower is in compliance with in all respects and
none is in violation of or subject to any liability (contingent or otherwise) on
account of any law, including, without limitation, any constitution, statute,
treaty, regulation, rule, ordinance, order, writ, injunction or decree
(including, but not limited to, ERISA, the Code, any applicable occupational and
health or safety law, environmental protection law, or hazardous waste or toxic
substances management, handling or disposal law, municipal or state health code
and including, but not limited to (a) any restrictions, specifications or
requirements pertaining to products that Borrower manufactures, processes or
sells or pertaining to the services Borrower performs, (b) the conduct of
Borrower's businesses and (c) the use, maintenance or operation of the real and
personal properties owned or possessed by Borrower, except for violations which
individually or in the aggregate do not have any adverse effect on the ability
of Borrower to perform its obligations hereunder, the other Loan Documents, the
transactions contemplated hereby or thereby, or on the business, existing,
ongoing or proposed operations or the financial condition of Borrower. Borrower
is current and in good standing with respect to, all governmental (including
municipal) approvals, permits, certificates, filings,
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licenses, inspections, consents and franchises necessary to continue to conduct
its business and to own or lease and operate its properties as heretofore, or as
contemplated to be conducted, owned, leased or operated by Borrower and any
Subsidiary of a Borrower, as the case may be, or to perform its obligations
hereunder or under the other Loan Documents. There are no claims,
investigations, litigation, administrative proceedings whether pending or, to
Borrower's knowledge, threatened against Borrower, or judgments or orders
against Borrower, relating to any hazardous substances, hazardous wastes,
discharges, emissions or other forms of pollution relating in any way to
Borrower and there are no presently existing facts or circumstances likely to
give rise to any such claim, investigation, litigation or administrative
proceeding and any hazardous or toxic substances, within the meaning of any
applicable statute or regulation, are presently stored or otherwise located on
any of the real property leased or owned by Borrower or, to Borrower's
knowledge, adjacent parcels of real estate, and, further within the definition
of such statutes, no part of the real property leased or owned by a Borrower or,
to Borrower's knowledge, adjacent parcels of real estate, including the
groundwater located thereon, is presently contaminated by any such substance.
3.6 Financial Data. The most recent audited and unaudited financial
statements, as filed with the SEC, copies of which have been furnished to the
Lender, fairly presents the financial condition of Borrower as of their
respective dates and, subject to changes occurring in the ordinary course of
business since their respective dates and to the transactions contemplated
hereby, will represent on the Closing Date the financial condition of Borrower
and the assets and liabilities and stockholders' equity of the foregoing. The
most recent audited consolidated financial statements of Borrower (the "Audited
Financial Statements"), as certified by Borrower's independent certified public
accountants, true and correct copies of which have been delivered to the Lender,
fairly present the financial condition of Borrower on a consolidated basis as of
such date and for the periods covered and disclose all material liabilities of
Borrower and its subsidiaries required to be disclosed in accordance with
generally accepted accounting principles consistently applied. There have been
no material adverse changes in Borrower's consolidated financial condition,
business, existing or ongoing operations or properties since the date of the
Audited Financial Statements. There have been no material adverse changes in
Borrower's financial condition, business, existing or ongoing operations or
properties since the date of
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the most recent unaudited financial statement or the Audited Financial
Statements, respectively.
3.7 Solvency. Borrower is solvent, will be able to pay its debts as they
become due, has capital sufficient to carry on its business as presently
conducted and as presently planned to be conducted and all businesses in which
it is about to engage, and the Borrower, on a consolidated basis, own property
having a value, determined both at fair valuation and at present fair saleable
value, greater than the amount required to pay all of its consolidated
Indebtedness.
3.8 ERISA. Each plan maintained by Borrower complies with all material
applicable requirements of ERISA and of the Code and with all material
applicable rulings and regulations issued under the provisions of ERISA and the
Code setting forth those requirements. Each Plan maintained by Borrower under or
pursuant to which Borrower has any payment or other financial obligation or
commitment is listed on Schedule 3.8 and except for such Plans, Borrower has no
such obligations or commitments. To the best of Borrower's knowledge and belief,
no reportable event (as defined in Section 4043(b), subdivisions (5) or (6) of
ERISA or in 29 C.F.R. Sections 2615.21, 2615.22 or 2615.23) (a "Reportable
Event") has occurred with respect to any Plan which is subject to title I of
ERISA. Borrower has not engaged in any prohibited transaction (as defined in
Section 406 of ERISA or Section 4975 of the code) (i) which has not been
corrected within the correction period applicable to it under Section 502(i) of
ERISA or Section 4975(f) of the Code or (ii) for which an exemption is not
applicable or has not been obtained under Section 408 of ERISA or Section 4975
of the Code. Borrower has satisfied all of the funding standards applicable to
such Plans under Section 302 of ERISA and Section 412 of the code, and the
Pension Benefit Guaranty Corporation ("PBGC") and has not instituted any
proceeding, and there exists no event or condition which would constitute
grounds for the institution of proceedings, and there exists no event or
condition which would constitute grounds for the institution of proceeds by
PBGC, to terminate any Plan under Section 4042 of ERISA. There have been no
material adverse changes in the Plans since the establishment thereof. Except as
indicated on Schedule 3.8, Borrower is not a participant in a pension, health
and welfare plan which is a Multiemployer Plan. Borrower is not a party to any
action to terminate any Plan or has taken any action to terminate a plan.
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3.9 Title to Properties; Collateral. Borrower has good and marketable title
to all of the Collateral. Borrower has good and sufficient title to its other
properties and assets, including all properties and assets included in the
Collateral or reflected as owned by it in the most recent unaudited financial
statement or the Audited Financial Statements (except those assets disposed of
since the date of the most recent unaudited financial statement or the Audited
Financial Statements in the ordinary course of business for fair and adequate
consideration) and necessary in its present or proposed business and operations.
Borrower has all the rights, assets and properties, franchises, authorizations
and approvals needed to conduct its business and operations as presently
conducted or as contemplated herein and to perform its obligations under the
Loan Documents. None of the real property or other properties or assets of any
Borrower, is subject to any Lien except for Liens permitted by Section 5.2 or as
set forth on Schedule 3.9.
3.10 Investment Company Act. Borrower is not an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
3.11 Tax Returns. All federal, state and local income tax returns which are
required to have been filed under any applicable law or regulation by or on
behalf of Borrower for all of its taxable periods have been filed. All taxes,
assessments, fees and other governmental charges as shown on said returns have
been paid when due. Except as set forth on Schedule 3.11, Borrower knows of no
proposed tax assessment against it, or any basis therefor. Borrower believes
that the liability for taxes shown on the books of Borrower is adequate for the
current year and all prior years. Borrower is not a party to or bound by any tax
sharing or tax allocation agreement.
3.12 Litigation. Except as listed in Schedule 3.12, there are no actions,
proceedings or investigations pending or, to the best knowledge of Borrower,
threatened (or any basis therefor known to it), against or affecting Borrower or
any Subsidiary, or any order or judgment of any court or other judicial,
governmental, administrative or regulatory authority by its terms applicable to
Borrower, or a Subsidiary of Borrower, which (i) questions or arises out of the
execution, delivery, performance or validity of any Loan Document, or arises out
of the Collateral or any action taken or to be taken pursuant hereto or thereto
or the transactions contemplated hereby or by any of the other Loan
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Documents or any of the foregoing agreements, (ii) is applicable to or arises
out of the existing, ongoing or proposed operations of Borrower or any
Subsidiary of Borrower as contemplated by this Agreement, or (iii) involves any
claim or claims (other than any claim or claims which are fully covered by
insurance policies which are in full force and effect) in excess of $50,000.00
individually or in the aggregate or would if adversely determined has a
material, adverse effect on the condition, financial or otherwise, of Borrower
or a Subsidiary of Borrower.
3.13 Other Agreements. Borrower, and each Subsidiary of a Borrower, has
fully complied with the terms of, and neither Borrower nor any Subsidiary of a
Borrower, is in default under or in breach of any agreement, indenture,
contract, option to purchase, right of first refusal, undertaking, mortgage,
lease, sublease, license, permit, franchise or commitment to which it is a party
or by which it is bound or knows of any dispute regarding any agreement,
undertaking, indenture, contract, mortgage, lease, sublease, license, permit or
commitment or has received any notice of default thereunder.
3.14 Patents, Licenses, Franchises, etc. Borrower and each Subsidiary of a
Borrower owns or has adequate right to use all licenses, patents, patent
applications, copyrights, service marks, trademarks and trade names necessary to
conduct its business as heretofore conducted and as proposed to be conducted by
it as contemplated herein.
3.15 Financial Accounting Practices. Borrower and each Subsidiary of
Borrower makes and keeps books, records and accounts which, in reasonable
detail, accurately and fairly reflect its transactions and dispositions of its
assets and a system of internal accounting controls sufficient to provide
reasonable assurance that (a) transactions are executed in accordance with
management's general or specific authorization, (b) transactions are recorded as
necessary (i) to permit preparation of financial statements in conformity with
generally accepted accounting principles and (ii) to maintain accountability for
assets, (c) access to assets is permitted only in accordance with management's
general or specific authorization and (d) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
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3.16 Employee Controversies. There are no strikes, or labor or other
controversies pending or, to the best knowledge of Borrower threatened or
anticipated between Borrower and any of its employees, or between any Subsidiary
of Borrower and any of its employees, other than any in the ordinary course of
business which are not, in any individual case or in the aggregate, material to
the financial condition and business or proposed business of Borrower or such
Subsidiary.
3.17 Places of Business. As of the date hereof, the principal place of
business and chief executive office of Borrower are as set forth in Section 8.3
hereof and the signature pages hereto. As of the date hereof, the books and
records of Borrower and all of its records of account are located at the
principal place of business and chief executive office of Borrower. Borrower
conducts its business only from the locations, and the real property leased by
the Borrower pursuant to the Leases are located only at the locations, listed on
Schedule 3.17.
3.18 Other Names. The business of Borrower has not been conducted under any
corporate, trade or fictitious name other than those names listed on Schedule
5.13.
3.19 Indebtedness and Liabilities, Liens. Except for the Indebtedness and
Guaranties listed on Schedule 3.19, neither Borrower nor any Subsidiary of a
Borrower has any Indebtedness (except liabilities for trade payables incurred in
the ordinary course of business, payment of which is not in default). Except for
the Liens set forth on Schedule 3.19 or permitted under Section 5.2 hereof,
neither Borrower nor any Subsidiary of a Borrower has created or granted or
suffers to exist any Liens on its assets or properties.
3.20 Investments. Except as disclosed in Schedule 12, neither Borrower nor
any Subsidiary of a Borrower has any investment in any Person and is not engaged
in any joint venture or partnership with any other Person.
3.21 Adverse Contracts. Neither Borrower nor any Subsidiary of a Borrower
is a party to, nor is Borrower or any Subsidiary of a Borrower nor any of its
property subject to or bound by, any long term lease, forward sales or purchase
contract or futures contract, covenant not to compete or other agreement which
has an
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adverse effect or is likely to have an adverse effect on its financial
condition, results of operations or business as presently conducted or proposed
to be conducted.
3.22 Fixed Assets; Insurance. Borrower and each of its Subsidiaries
maintains the equipment, fixtures and real estate owned or leased by it
(including the Subleases) in accordance with all applicable laws, rules,
regulations and orders and in good working order. Each Borrower maintains
insurance of such kind and in amounts necessary and appropriate in connection
with its business and operations, as provided in Section 5.5 hereof, or required
to be maintained pursuant to the terms of the Collateral Security Agreement.
3.23 Accurate and Complete Disclosure. No representation or warranty made
by Borrower under any of the Loan Documents and no statement made in any
financial statement, certificate, report, exhibit or document furnished pursuant
to or in connection with any of the Loan Documents is false or misleading in any
material respect (including by omission of material information necessary to
make such representation, warranty or statement not misleading). Borrower has
disclosed to the Lender in writing all information known to it which adversely
affects the business, existing or ongoing or proposed operations or financial
condition of such Borrower and any Subsidiary of Borrower or the ability of the
Borrower or of any such Subsidiary to perform their obligations under any Loan
Document.
3.24 Representations and Warranties in Collateral Security Documents;
Survival. Borrower hereby confirms all representations and warranties made by
Borrower in any of the Collateral Security Documents, which representations and
warranties are hereby incorporated herein. All representations and warranties of
any Borrower contained in this Agreement and any of the other Loan Documents
shall survive the execution and delivery of this Agreement for as long as any
Obligation of the Borrowers to the Lender and any other holder of the
Indebtedness hereunder shall remain unpaid.
Section 4. Affirmative Covenants. From the Closing Date for so long as the
Credit Facility Note remains outstanding or any other Obligation of Borrower
hereunder remains unpaid, Borrower, will, unless the Lender shall otherwise
consent in advance in writing:
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4.1 Financial Statements. Keep proper books of record and account in which
full and true entries will be made of all dealings or transactions of or in
relation to the business and affairs of the Borrower, all Subsidiaries of the
Borrower, and their businesses in accordance with generally accepted accounting
principles consistently applied and will:
(a) Furnish or cause to be furnished to the Lender:
(i) as soon as available but within three (3) business days after a
Responsible Officer of a Borrower shall have obtained knowledge of the
occurrence of an Event of Default and/or an Unmatured Event of Default, the
written statement of the chief financial officer, chief operating officer,
chief executive officer or treasurer of Borrower setting forth the details
of each such Event of Default or Unmatured Event of Default which has
occurred and is continuing and the action which the Borrower propose to
take with respect thereto;
(ii) a copy of Borrower's quarterly report on Form 10-Q upon the
earlier of: (a) its filing with the SEC or (b) within sixty (60) days after
the end of the first three (3) fiscal quarters of each fiscal year of the
Borrower accompanied at the end of each fiscal quarter by a certificate of
a Responsible Officer of Borrower, addressed to the Lender, in each case
substantially in the form of Exhibit I hereto (a "Compliance Certificate"),
stating that no Event of Default and/or no Unmatured Event of Default has
come to the attention of such Responsible Officer which was continuing at
the end of such fiscal period or on the date of his certificate, or, if
such an Event of Default or Unmatured Event of Default has come to his
attention and was continuing at the end of such fiscal period or on the
date of his certificate, indicating the nature of such Event of Default or
Unmatured Event of Default and the action which such Borrower proposes to
take with respect thereto;
(iii) Upon the earlier of (a) its filing with the SEC or (b) within
ninety (90) days after the end of each fiscal year, a copy of Borrower's
Annual Report on Form 10-K, which shall include financial statements
consisting in each case of consolidated statement of profit and loss and a
consolidated balance sheet and statement of stockholder's equity of
Borrowers and their Subsidiaries, as at the end of such fiscal year,
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commencing December 31 1996, certified (without adverse opinions, scope
limitations or qualifications with respect to (A) the continuance of the
Borrower and each of it's Subsidiaries, as going concerns and (B)
departures from generally accepted accounting principles) by independent
certified public accountants of recognized national standing and reputation
selected by the Borrower and acceptable to the Lender and expressly
acknowledging and permitting reliance thereon by the Lender, accompanied by
(a) a certificate of Borrower's President and Chief Financial Officer
addressed to the Lender stating that no Event of Default has come to their
attention which was continuing at the end of such fiscal year or on the
date of their certificate, or, if such an Event of Default has come to
their attention, the certificate shall indicate the nature of such Event of
Default and the action which the Borrower proposes to take with respect
thereto and (b) the Compliance Certificates of Responsible Officers of the
Borrower setting forth, in addition, in the applicable Compliance
Certificates whether or not since the end of the prior fiscal year there
has been any material adverse change in the condition (financial or
otherwise), properties, business or results of operations of the Borrower
and its Subsidiaries taken as a whole.
(b) from time to time such other information regarding the business,
affairs and financial condition of the Borrower and its Subsidiaries and as the
Lender may reasonably request.
4.2 Existence. Maintain (and cause each Subsidiary to maintain) its
corporate existence in good standing under the laws of the jurisdiction of its
incorporation and its right to transact business in each jurisdiction in which
the character of the properties owned or leased by it or the business conducted
by it makes such qualification necessary and the failure to so qualify would
have, individually or in the aggregate, a material adverse effect on the
business, existing or ongoing operations or financial condition of Borrower or
any Subsidiary of Borrower.
4.3 Compliance with Laws, etc. Comply with all applicable laws, rules,
regulations and orders (including, without limitation, the Code and any
applicable tax law, product safety law, occupational safety or health law,
environmental protection or pollution control law, building regulations,
hazardous waste or toxic substances management, handling or disposal law, and
including any state, local or municipal health, or zoning laws and regulations)
in all respects (including, but not limited to,
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compliance in respect of products that it manufactures, processes or sells or
services it performs, the conduct of its business or use, maintenance or
operation of the real and personal properties owned or possessed by it), such
compliance to include, without limitation, paying before the same become
delinquent all taxes, assessments and governmental charges imposed upon it or
upon its real or personal property except to the extent contested in good faith
by appropriate proceedings with respect to which appropriate reserves have been
established.
4.4 ERISA. At all times maintain each of its Plans in compliance with all
material applicable requirements of ERISA and of the Code and with all material
applicable rulings and regulations issued under the provisions of ERISA and the
Code and will not and not permit any of its ERISA Affiliates to (a) engage in
any transaction in connection with which the Borrowers would be subject to
either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax
imposed by Section 4975 of the Code, (b) fail to make full payment when due of
all amounts which, under the provisions of any Plan, the Borrower is required to
pay as contributions thereto, or permit to exist any accumulated funding
deficiency (as such term is defined in Section 302 of ERISA and Section 412 of
the Code), whether or not waived, or (c) fail to make any payments to any
Multiemployer Plan that the Borrowers may be required to make under any
agreement relating to such Multiemployer Plan or any law pertaining thereto.
4.5 Assets and Insurance. At all times keep and maintain, and cause each
Subsidiary of the Borrower to keep and maintain, all of its property and assets
in good order and repair and to keep its assets and business covered by
insurance with reputable and financially sound insurance companies against such
hazards (including, without limitation, product liability and interruption of
business operations) and in such amounts as is required by terms of any
Collateral Security Document, any law or as is customarily maintained by Persons
similarly situated. Without limiting the generality of the foregoing, the
Borrower shall obtain, maintain and keep in full force and effect, with all
premiums paid thereon, the following insurance with respect to any real property
owned or leased by the Borrower (the "Real Property") and each Subsidiary (the
"Real Property") and all fixtures, equipment and improvements located thereon
(the "Improvements");
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(a) insurance upon all Improvements against loss or damage by fire,
lightning and other risks customarily covered by standard "all risk" and
extended coverage endorsements, together with theft, vandalism and malicious
mischief endorsements, all in such amounts as may from time to time be
reasonably required by the Lender, the Lender hereby agreeing that at this time
a blanket policy in the amount of $6,000,000, covering each item of Real
Property and the Improvements thereon, shall be sufficient;
(b) comprehensive general public liability insurance against claims for
bodily injury, death and/or property damage occurring in, on or about the Real
Property or any part thereof, with combined single limit coverage satisfactory
to the Lender (which shall initially be at least equal to $5,000,000.00 with
respect to any one (1) person, accident or occurrence);
(c) business interruption insurance covering the loss from a total or
partial suspension of the Borrowers' business for a period of at least twelve
(12) months after the casualty;
(d) insurance upon the Real Property and Improvements against such other
casualties and contingencies as the Lender may from time to time reasonably
require, in amounts acceptable to the Lender, all in such manner and form as may
be satisfactory to the Lender.
4.6 Government Authorizations; Third Party Consents, etc. Obtain and
maintain, and cause each Subsidiary of the Borrower to obtain and maintain, in
force all authorizations, consents, approvals, licenses, permits, franchises,
exemptions and other actions by, and all registrations, qualifications,
designations, declarations and other filings with, any government, governmental
or other official body, agency or authority or any other Person or entity
necessary or advisable in connection with execution and delivery of this
Agreement or any other Loan Document, the consummation of the transactions
herein or therein contemplated, or the performance of or compliance with the
terms and conditions hereof or thereof, to ensure the legality, validity,
enforceability and admissibility in evidence hereof or thereof (including those
listed in Schedule 4.6 or as may be otherwise requested by the Lender) and to
ensure that there is no adverse effect on the conduct of its business.
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4.7 Contracts. Comply, and cause each subsidiary to comply, with all
agreements, contracts and documents, undertakings, commitments, franchises,
licenses, permits or instruments to which it is a party or by which it or any of
its properties (now owned or hereafter acquired) may be subject or bound.
4.3 Change in Business. Continue, and cause each Subsidiary of the Borrower
to continue, to engage in its business substantially as operated during the
present and preceding year, except as otherwise contemplated herein, and not
engage in any unrelated business.
4.9 Litigation. Notify the Lender in writing of all litigation, proceedings
or investigations before any governmental, administrative or regulatory agencies
against or affecting Borrower or Subsidiary of a Borrower or any order or
judgment of any court or other judicial, administrative or regulatory authority
by its terms applicable to Borrower or Subsidiary of a Borrower which (a) in any
way questions or challenges any of the Loan Documents, or (b) involves a claim
in excess of $50,000.00 in any one instance or in the aggregate (other than a
claim fully covered by insurance policies in full force and effect) or may have
an adverse effect on the business existing, ongoing or proposed operations or
financial condition of the Borrower, or any Subsidiary of the Borrower, stating
the nature and status thereof.
4.10 After Acquired Receivables. Promptly upon acquiring any accounts
receivable or any rights or interests therein, whether now existing or hereafter
acquired, arising out of in connection with the sale or lease of goods, the
rendering of services or otherwise, cause such accounts receivable or such right
or interest in such accounts receivable to be subject to a valid first priority
Lien and perfected security interest in favor of the Lender in order to secure
all liabilities and obligations of the Borrower under this Agreement, the Note
and the other Loan Documents and Borrower shall execute and deliver financing
statements, reasonably satisfactory to the Lender to effect the imposition of
such Lien(s), and pay all costs in connection herewith. Such after acquired
accounts receivable shall constitute Collateral hereunder.
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4.11 Sale of Assets. With respect to any sale of assets permitted hereunder
and under the Collateral Security Documents, the proceeds of the sale or other
disposition of assets shall be used only in the business and operations of the
Borrower, subject to the terms and conditions of this Agreement.
4.12 Obligations. The Borrower shall keep and maintain and perform each and
every one of its agreements and obligations under this Agreement, the Note and
the other Loan Documents and shall pay the Note in accordance in accordance with
its terms.
Section 5. Negative Covenants. From the Closing Date for so long as the
Credit Facility Note remains outstanding or any other obligation of Borrower
hereunder remains unpaid, Borrower and the Subsidiaries of the Borrowers will
not:
5.1 Indebtedness. Issue, create, incur, assume or become liable with
respect to (or agree to issue, create, incur, assume or become liable with
respect to), or permit to remain outstanding, any Indebtedness, except:
(a) Indebtedness under the Note, this Agreement and the other Loan
Documents; and
(b) Funded Indebtedness permitted under Section 5.4 hereof.
5.2 Liens. Create, incur, assume or suffer to exist, any Lien, or enter
into, or make any commitment to enter into, any arrangement for the acquisition
of any property through conditional sale, lease-purchase or other title
retention agreements with respect to any property now owned or hereafter
acquired by the Borrowers (including, without limitation, the other Collateral),
except:
(a) Liens in favor of the Lender securing Indebtedness now or hereafter
owing to the Lender; and
(b) Other Liens existing on the Closing Date specifically described in
Schedule 10 and/or 11 (and not required to be released as a condition to any
Loan Advances;
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5.3 Loans, Advances, Investments, Joint Ventures, Guaranties and Contingent
Liabilities. Except for loans to employees not to exceed $25,000.00 in any
single instance or $250,000.00 in the aggregate, make or permit to remain
outstanding any loan or advance or extension of credit to any other Person or
directly or indirectly guarantee, endorse, be or become contingently liable for
or enter into any contract which is, in economic effect, substantially
equivalent to a guaranty of the obligations of any other Person or own, purchase
or make any commitment to purchase the securities of any corporation or own,
purchase or make any commitment to purchase for cash or any consideration, any
obligations, other securities, the business or integral part of the business of
any other Person or enter into a joint venture or partnership with any other
Person, except by the endorsement of negotiable instruments for deposit or
collection in the ordinary course of business.
5.4 Funded Indebtedness. Incur, assume, or in any manner become liable in
respect of, any Indebtedness for borrowed money other than: (1) the Note; (2)
Subordinated Debt with maturities no earlier than the Note; and (3) capitalized
leases.
5.5 Leases. Enter into leases, subleases, use or occupancy agreements as a
tenant, lessee, subtenant or sublessee or sublessor, licensee or licenser,
except with the prior written consent of Lender, which shall not be unreasonably
withheld or delayed; no consent shall be required for leases for spaces leased
for use only by Borrower's sales representatives and a new leased space for its
headquarters.
5.6 Disposition of Assets. Sell, convey, assign, transfer, lease (or enter
into any commitment to do so) or otherwise dispose of all or any substantial or
material part of its properties or assets or rights, tangible or intangible
(whether in one or a series of transactions), except (a) sales to customers in
the ordinary course of business for fair and adequate consideration, and (b) the
leasing of personal property to any Subsidiary as lessee or sublessee in the
ordinary course of business for fair and adequate consideration. Lender has been
advised that Borrower's Dorotech Subsidiary is for sale.
5.7 Merger and Consolidation; Charter Documents Capital Stock. Acquire all
or substantially all of the assets of any other Person or merge or consolidate
or enter into any analogous
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reorganization or business combination transaction with any other Person without
Lender's written consent which consent shall not be unreasonably withheld or
dissolve or liquidate its business or corporate or partnership existence, or
make public or private offerings of its capital stock in excess of $8 million,
or make any material amendment to its articles or certificate of incorporation
or by-laws (a copy of any amendment thereof shall, in any event, be promptly
delivered to the Lender).
5.8 Transactions With Affiliates. Enter into or carry out any transaction
with (including, without limitation, directly or indirectly, purchasing property
or services from or selling property or services to or making loans or
extensions of credit to) any Affiliate or any Control Person (including any
corporation or partnership) of the Borrowers other than in the ordinary course
of business.
5.9 Other Business. Engage in any business unrelated to its current or
proposed businesses as contemplated herein, engage in any transaction out of the
ordinary course of business or engage in any transaction which adversely affects
its ability to pay its Obligations hereunder or under the other Loan Documents
or Section 5.6.
5.10 Disposal of Collateral. Sell, lease, transfer or otherwise dispose of
any of the Collateral to any Person except as expressly permitted in accordance
with the terms of the Collateral Security Documents or Section 5.6 hereof.
5.11 Compensation and Plans. Pay or provide any compensation, bonuses or
fringe benefits to any of its officers or assume or incur any liability under
any employee benefit plans or the Plans not in the reasonable course of
business.
5.12 Fiscal Year End. Change its fiscal year end from that in effect as of
the Closing Date, without the prior written consent of Lender, which shall not
be unreasonably withheld.
5.13 Subsidiaries. Own, acquire or create any Subsidiary other than the
Subsidiaries identified in Schedule 4 or a Permitted Subsidiary without the
prior written consent of Lender, which shall not be unreasonably withheld. For
purposes of this
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Agreement, a "Permitted Subsidiary" shall mean and include a wholly owned
Subsidiary of a Borrower formed following the Closing Date for a legitimate
business purpose of Borrowers provided that such Subsidiary agrees in writing to
be bound by the terms of this Agreement and the other Loan Documents.
5.14 Other Names. Without fifteen (15) days prior written notice to the
Lender conduct its business under any trade or fictitious name other than the
duly registered names listed on Schedule 9.
5.15 Restriction on Advances Under Credit Facility. Permit the Indebtedness
to the Lender to exceed eighty percent (80%) of eligible accounts receivable net
of reserves, established on the books of Borrowers. "Eligible Accounts
Receivable" means, on any date of determination, those accounts receivable which
are one hundred fifty (150) days past due or less, provided that if forty
percent (40%) or more of an accounts receivable debtor's account balance is more
than one hundred fifty (150) days past due, then no portion of the accounts
receivable from such debtor shall be included in "Eligible Accounts Receivable."
For the purposes of this Agreement, Borrowers' Subsidiaries' accounts are deemed
ineligible accounts receivable.
Section 6. Conditions Precedent.
6.1 Initial Funding. The obligation of the Lender to make the Initial
Funding on the Closing Date shall be subject to the satisfaction, on or before
the Closing Date, of each and every one of the following conditions with respect
to each of the Borrower:
(a) The following documents, certificates and opinions, each in form and
substance satisfactory to the Lender and its counsel, shall have been delivered
to the Lender by the Borrower:
(i) the Borrowing Request with respect to the initial Advance to be
made hereunder, together with a letter of direction from the Borrower with
respect to the disbursement of funds pursuant to the Initial Funding;
(ii) the Credit Facility Note payable to the order of the Lender,
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duly executed by Borrower;
(iii) Intentionally deleted
(iv) the Collateral Security Agreement and all financing statements,
agreements, and other instruments required by the Lender to create, perfect
or continue the perfected status of such security interest or otherwise to
effectuate the transactions contemplated by the Collateral Security
Documents, with respect to which Borrower shall pay the fees or amounts to
be paid as recording and filing fees or shall provide evidence reasonably
satisfactory to the Lender of arrangements to pay the same;
(v) completed requests for information or other evidence satisfactory
to the Lender that the financing statements and other instruments delivered
to the Lender pursuant to Section 6.1(a)(iv), have been filed in all
appropriate filing offices, and that such filed financing statements
perfect a security interest in favor of the Lender in the property
described therein;
(vi) a copy of the resolutions (duly adopted in accordance with the
applicable requirements of law and the charter documents and by-laws of
such corporation) of the Board of Directors of Borrower authorizing or
ratifying the execution, delivery and performance of this Agreement, the
Note, the Loan Documents and any other instrument or document hereunder or
under any Loan Document to which such Borrower is a party and the
transactions contemplated hereby and thereby, certified in each case by the
Secretary or an Assistant Secretary of the corporation;
(vii) a copy of a certificate signed by the Secretary or an Assistant
Secretary of Borrower as to the incumbency and specimen signature of each
person authorized to execute and deliver this Agreement, the Note, any of
the other Loan Documents and any other instrument or agreement hereunder
and under any other Loan Document;
(viii) Intentionally deleted.
(ix) Intentionally deleted.
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(x) a copy of the articles or certificate of incorporation of
Borrower, as certified as of a recent date by the Secretary of State of its
jurisdiction of incorporation and a copy of the certificate of the
Secretary, an Assistant Secretary or authorized representative of Borrower
certifying to the true and complete copies of its respective articles or
certificate of incorporation and bylaws as amended to the Closing Date;
(xi) certified copies of all documents evidencing all necessary
consents or approvals by governmental authorities or of other Persons or
entities with respect to the execution, delivery and performance of this
Agreement, the Note, any other Loan Documents and the transactions
contemplated hereby and thereby, as listed on Schedule 6 and all other
consents and approvals as may be reasonably requested by the Lender;
(xii) currently dated long-form certificates of the Secretary of State
of the state of incorporation or organization of Borrower and each
Subsidiary of a Borrower and of each jurisdiction in which either Borrower
or such Subsidiary is qualified to do business, certifying as to the legal
existence and good standing, of such Borrower and each such Subsidiary
(this contingency may be fulfilled pursuant to Subparagraph 6.2);
(xiii) a certificate of the chief executive or chief financial officer
of Borrower certifying that (A) immediately prior to the Initial Funding,
there has been no material adverse change in the financial condition,
business, existing or ongoing operations or properties of the Borrower
since the Borrower's last audited financial statement, (B) all
representations and warranties set forth in Section 3 hereof are true and
correct in all respects on the date of the Closing Date as though made on
and as of the date of the Closing Date, (C) all covenants, agreements and
obligations to be performed by or on behalf of the Borrower hereunder have
been performed, and (D) on the date of Closing Date, after giving effect to
the Initial Funding, no Event of Default or Unmatured Event of Default
shall have occurred or will exist;
(xiv) the written opinion of counsel to the Borrower, addressed to the
Lender, as to the matters and to the effect set forth respectively in
Exhibit E and F hereto;
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(xv) certificates of insurance with respect to the insurance referred
to in Section 4.5 hereof, naming the Lender as additional named insured;
(xvi) all other certificates, orders, authorizations, consents,
affidavits, schedules, instruments, security agreements, financing
statements, mortgages and other documents which are provided for hereunder
in form and substance satisfactory to the Lender, or which the Lender may
reasonably request.
(b) The following conditions shall exist:
(i) the Lender shall have received not later than five (5) Business
Days preceding the Closing Date the Borrowing Request with respect to the
Initial Funding;
(ii) the Lender shall be reasonably satisfied as to the truth and
accuracy of each of the matters set forth in the certificate referred to in
Section 6.1(a)(xiii);
(iii) payment shall have been made to, and received by, the Lender of
all expenses of the Lender and by counsel to the Lender of the fees and
expenses of counsel to the Lender as provided in Section 8.4 hereof or
otherwise in the amounts requested by the Lender to be paid on the Closing
Date; it is agreed that the fees for work performed by Lender's counsel in
connection with the closing of the Loan shall be paid in the form of 4000
three year warrants of Borrower, exercisable at $3.00 per share;
(iv) no litigation or other proceedings by or against Borrower shall
have been commenced or threatened which would have a material adverse
effect on Borrower or which seeks to prohibit the execution and delivery of
this Agreement or any of the other Loan Documents or the transactions
contemplated hereby or thereby;
(v) no Event of Default or Unmatured Event of Default shall have
occurred and be continuing under Section 7 hereof or under the terms of any
Indebtedness of Borrower.
6.2 Waiver of Initial Funding Conditions. In the event that any of the
conditions contained in Section 6.1 or Section 6.3 hereof, as the case may be,
shall not have been satisfied on the Closing
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Date, the Lender may expressly waive or defer in writing any of said conditions
in its sole discretion. Unless otherwise provided in writing, any such waived or
deferred conditions must be fulfilled to the Lender's satisfaction within 30
days of the Closing Date, failing which an Event of Default shall be deemed to
have occurred.
6.3 Subsequent Loan Advances Under the Credit Facility Commitments and the
Term Loan Commitments. After the Closing Date, the obligation of the Lender to
make Loan Advances to the Borrower under the Credit Facility Commitments shall
be subject to the satisfaction, on or prior to the date of the making of such
Advance, of each and every one of the following conditions, in addition to the
conditions set forth in Section 6.1 hereof:
(a) With respect to each and every Loan Advance prior to the Credit
Facility Commitment Termination Date:
(i) The Lender shall have received a Borrowing Request in accordance
with Section 2.1 hereof;
(ii) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing or will exist upon making of the requested Loan
Advance;
(iii) Except as permitted by this Agreement or as otherwise consented
to in writing by the Lender prior to the making of the Loan Advance, the
representations and warranties contained in Sections 3.1 through 3.24, both
inclusive, shall be true and correct in all respects with the same force
and effect as if made on and as of the date of the requested Loan Advance
except that (i) the representations and warranties contained in Section 3.6
shall pertain to the most recent financial statements furnished by the
Borrowers to the Lender pursuant to Section 4.1, and (ii) the
representations contained in Section 3.12 shall pertain to said
representations and warranties as supplemented by information furnished by
the Borrowers to the Lender pursuant to Section 4.9 hereof;
(iv) The Lender shall have received a certificate of a Responsible
Officer of each Borrower as to the matters set forth
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in Section 6.1(a)(xiii);
(v) The Lender shall have received all additional Collateral Security
Documents and instruments satisfactory to the Lender to perfect and
continue its security interest in the Collateral, and all taxes and
recording or filing fees with respect thereto shall have been paid or
provided for by the Borrower; and
(vi) The Lender shall have received all other certificates, orders,
authorizations, schedules, instruments, financing statements and other
documents in form and substance satisfactory to the Lender or which the
Lender may reasonably request.
Section 7. Events of Default; Remedies.
7.1 Events of Default. "Event of Default" shall mean the occurrence or
existence of one or more of the following events, whatever the reason, whether
voluntary, involuntary or effected by operation of law, namely:
(a) Default in the payment when due, whether by acceleration of maturity or
otherwise, of any principal of the Credit Facility Note; or
(b) Default in the payment when due, whether by acceleration of maturity or
otherwise, of any interest on the Credit Facility Note or of any fee or other
sum payable to the Lender under this Agreement or any other Loan Document; or
(c) Default by either Borrower in the performance or observance of any
agreement, covenant, condition, provision or term contained in Sections 4.2,
5.1, 5.2, 5.3, 5.4, 5.6, 5.7, 5.8, 5.9, 5.10, 5.11, 5.12, 5.13, 5.14 or 5.15 of
this Agreement; or
(d) Default by Borrower in the performance of any other agreement,
covenant, condition, provision or term contained in this Agreement (other than
those set forth above in this Section 7.1) which shall remain unremedied for
fifteen days or more; or
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(e) Any representation or warranty made by (i) Borrower herein, by any
Person other than the Lender in any other Loan Document, or in any certificate,
schedule, statement, report, notice or writing furnished by or on behalf of
Borrower or other Person to the Lender, or (ii) any Subsidiary in any Loan
Document or in any certificate, schedule, statement, report, notice or writing
furnished by or on behalf of such Subsidiary to the Lender shall be untrue or
misleading in any respect on the date as of which the facts set forth are stated
or certified; or
(f) Any creditor or representative of any creditor of Borrower or a
Subsidiary of Borrower shall become entitled to declare any Indebtedness for
borrowed money owing on any bond, debenture, note or other evidence of
Indebtedness of Borrower or any Subsidiary thereof to be due and payable prior
to its expressed maturity, whether or not such Indebtedness is actually declared
to be immediately due and payable, or any such Indebtedness becomes due and
payable prior to its expressed maturity by reason of any default by Borrower or
any Subsidiary thereof in the performance or observance of any obligation or
condition and such default shall not be promptly cured or waived, or any such
Indebtedness becomes due by its terms and shall not be promptly paid or
extended; or
(g) Borrower, or any Subsidiary thereof, shall become insolvent or fail
generally to pay its debts as they mature or shall apply for, consent to, or
acquiesce in the appointment of a trustee, custodian or receiver thereof or the
property thereof; or, in the absence of such application, consent or
acquiescence, a trustee, custodian or receiver shall be appointed for Borrower,
or any Subsidiary of Borrower or for any part of the property of either; or any
Borrower, or any Subsidiary of a Borrower, shall make an assignment for the
benefit of creditors; or
(h) Borrower, or any Subsidiary of a Borrower is voluntarily or
involuntarily dissolved or is the subject of any bankruptcy, reorganization,
debt arrangement or other proceedings under any bankruptcy or insolvency law; or
any dissolution or liquidation proceeding shall be instituted by or against
Borrower or any Subsidiary of a Borrower, and, if instituted against Borrower or
any Subsidiary shall be consented to or acquiesced in by it, shall not have been
dismissed within sixty days or a final order for relief shall have been entered
against it; or
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(i) There shall be entered against Borrower or any Subsidiary thereof one
or more judgments or decrees in an aggregate amount as to a Borrower and any
Subsidiary at any one time outstanding in excess of $100,000, excluding those
judgments or decrees that shall have been satisfied, vacated, discharged, stayed
or bonded pending appeal within sixty days from the entry thereof or with
respect to which (and to the extent that) the Person against which any such
judgment or decree shall have been entered is fully insured (excluding
applicable deductibles) and with respect to which the insurer has admitted not
denied or disclaimed in writing its liability for the full amount thereof; or
(j) Any execution or attachment shall be issued whereby any substantial
part of the property of Borrower or any Subsidiary shall be taken or attempted
to be taken and the same shall not have been vacated or stayed within sixty days
after the issuance thereof; or
(k) (i) A reportable event as defined in Section 4043(b), subdivision (4),
of ERISA shall have occurred with respect to any Plan and the PBGC shall have
determined that said agent constitutes or requires a termination of the Plan
under Title IV of ERISA and at any time following thirty days after such
determination the insured benefits payable under such Plan exceed the value of
the assets of such Plan by more than $50,000.00; or
(ii) A reportable event as defined in Section 4043(b), subdivision (5), of
ERISA shall have occurred with respect to any Plan or application shall have
been filed for a waiver of the failure to meet minimum funding standards under
Section gl2 of the Code; or
(iii) A reportable event as defined in Section 4043(b), subdivision (6), of
ERISA shall have occurred with respect to any Plan; or
(iv) Borrower or any of its ERISA Affiliates shall have engaged in any
prohibited transaction (as defined in Section 406 of ERISA or Section 4975 of
the Code) in connection with which such Borrower or any of its ERISA Affiliates
would be subject to either a civil penalty assessed pursuant to either Section
502(i) of ERISA or a tax imposed by Section 4975 of the Code, in either case in
an amount exceeding $50,000 and either (1) the prohibited
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transaction shall not have been corrected within the correction period
applicable to it under Section 02(i) of ERISA or Section 4975(b) of the Code, or
(2) an exemption shall not be applicable or have been obtained under Section 408
of ERISA or Section 4975 of the Code; or
(v) The PBGC shall have terminated any Plan under Title IV of ERISA or
Borrower shall have received notice from the PBGC of the intention of the PBGC
to terminate any Plan or to appoint a Trustee to administer any Plan, which
notice shall not have been withdrawn within sixty days of the date thereof; or
(vi) The maximum amount of liability that could be asserted against
Borrower under Sections 4062, 4063 or 4064 of ERISA with respect to any Plan if
such Plan terminated or with respect to any Plan terminated prior to the date
hereof, shall exceed the value of the assets of such Plan allocable to such
liability by more than $50,000; or
(vii) Borrower or any of its ERISA Affiliates as an employer under a
Multiemployer Plan, shall have made a complete or partial withdrawal from such
Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have
notified such withdrawing employer that such employer has incurred a withdrawal
liability in an annual exceeding $100,000; or
(l) Borrower or any Subsidiary is enjoined, restrained, or in any way
prevented by the order of any court or any administrative or regulatory agency
from conducting all or a material part of its business and such order shall not
be vacated or stayed within twenty days after the issuance thereof; or
(m) Default by Borrower or any Subsidiary in the performance of any
agreement, covenant, condition, provision or term contained in any other Loan
Document which is not cured within the cure period, if any, in such other Loan
Document; or
(n) Any Collateral Security Document shall, at any time, cease to be in
full force and effect or shall be judicially declared null and void, or the
validity or enforceability thereof shall be contested by Borrower or any
Subsidiary of a Borrower executing the same, or the Lender shall cease to have a
valid and perfected.
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security interest having the priority contemplated thereunder in all of the
Collateral described therein, other than by action or inaction of the Lender; or
(o) [Intentionally deleted.]
(p) There occurs any uninsured damage to, or loss, theft, or destruction
of, any of the Collateral in excess of $100,000.00; or
(q) Commencing with the third quarter of 1997, the Borrowers on a
consolidated basis shall have had a net operating loss for any fiscal quarter
and the Lender shall have given the Borrowers ninety (90) days' notice of his
determination to treat such net operating loss as an Event of Default hereunder
which notice shall be given not later than one-hundred and fifty (150) days
after the end of the applicable quarter provided that Lender receives financials
for said quarter as required hereunder, but no later than ninety (90) days from
the end of the quarter; or
(r) The Borrower shall terminate the employment of James J. Leto, unless
Lender shall waive such default.
7.2 Remedies. If (A) any Event of Default under Subparagraphs 7.1(f),(g) or
(h) shall occur, the Credit Facility Commitment of the Lender shall
automatically terminate and the outstanding principal of the Credit Facility
Note and all accrued interest thereon and all other obligations of the Borrower
to the Lender under this Agreement, the Credit Facility Note and the other Loan
Documents shall automatically become immediately due and payable, or (B) any
other Event of Default shall occur (except for a default under Paragraph 7.1(d))
and be continuing after five (5) days written notice to Borrower, then the
Lender may: (i) declare by written notice that the Credit Facility Commitment
has been terminated, whereupon the Credit Facility Commitment and shall be
terminated and (ii) declare the outstanding principal of the Credit Facility
Note, the accrued interest thereon and all other obligations of the Borrower to
the Lender under this Agreement, the Credit Facility Note and the other Loan
Documents, to be forthwith due and payable, whereupon the Credit Facility Note,
all accrued interest thereon and all such obligations shall immediately become
due and payable, in each case without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived, anything in this
Agreement, in
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the Credit Facility Note or the other Loan Documents to the contrary
notwithstanding. In addition, upon the occurrence of an Event of Default, the
Lender may enforce any and all rights under any Loan Documents, including,
without limitation, the Collateral Security Documents.
Upon the occurrence of an Event of Default, the Lender shall have, in
addition to any other rights and remedies contained in this Agreement, the
Credit Facility Note, or any of the other Loan Documents, all of the rights and
remedies of a secured party under the Uniform Commercial Code of Virginia,
Delaware and New York, or any other applicable laws, all of which rights and
remedies shall be cumulative and non-exclusive, to the extent permitted by law.
In addition to all such rights and remedies, the sale, lease or other
disposition of the Collateral, or any part thereof, by the Lender after an Event
of Default may be for cash, credit or any combination thereof, and the Lender
may purchase all or any part of the Collateral at public or, if permitted by
law, private sale, and in lieu of actual payment of such purchase price, may set
off the amount of such purchase price against the Obligations hereunder and
under the other Loan Documents then owing. Any sales of the Collateral may be
adjourned from time to time with or without notice.
Section 8. Miscellaneous.
8.1 No Waiver. No failure on the part of the Lender to exercise and no
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under this Agreement, or the other Loan Documents shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege under this Agreement or the other Loan Documents preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.
8.2 Accounting. Except as otherwise expressly provided herein or unless the
Lender otherwise consents in writing, all financial statements furnished to the
Lender under this Agreement, all computations and determinations required to be
made pursuant to this Agreement shall be made in accordance with generally
accepted accounting principles consistently applied. If any changes in
accounting principles consistently applied or in practices from those used in
the preparation of the audited
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financial statements referred to in Section 3.6 hereof are hereafter occasioned
by the promulgation of rules, regulations, pronouncements and opinions by or
required by the Financial Accounting Standards Board or the American Institute
of Certified Public Accountants (or any successor thereto or agencies with
similar functions), which results in a change in the method of accounting in the
financial statements required to be furnished to the Lender hereunder or in the
calculation of financial covenants, standards or terms contained in any Loan
Documents, the parties hereto agree to enter into negotiations to amend such
provisions so as to reflect equitably such changes to the end that the criteria
for evaluating Borrower's financial condition and performance will be the same
after such changes as they were before such changes; if the parties fail to
agree on the amendment of such provisions, the Borrower will continue to furnish
financial statements in accordance with applicable accounting principles and
practices in effect immediately prior to the Closing Date and to perform all
financial covenants and observe all financial standards and terms in accordance
with applicable accounting principles and practices in effect immediately prior
to such changes.
8.3 Notices. Except as otherwise specifically provided for herein, all
notices and other communications provided for herein shall be in writing and
faxed (with telephonic confirmation of receipt), sent by Federal Express or
comparable overnight delivery service, mailed by registered or certified mail,
postage prepaid, return receipt requested or delivered to the intended recipient
at the "Address for Notices" specified below or on the signature pages hereof,
as provided in this Section 8.3; or, as to any party, at such other address as
shall be designated in writing by such party in a notice to the other parties:
(i) if to the Lender:
69 Spring Street
Ramsey, New Jersey 07446
Fax No.: (201) 934-3617
Telephone No.: (201) 934-3750
Copy to:
Susan G. Kaufman, Esq.
69 Spring Street
Ramsey, New Jersey 07446
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Fax No: (201) 934-3617
Telephone No.: (201) 934-3626
(ii) if to the Borrower:
Network Imaging Corp.
500 Huntmar Park Drive
Herndon, VA 20170-5100
Fax No. 703-478-0147
Tele No. 703-478-2260
Attention: Chief Financial Officer
with copies to:
Julia A. Bowen, Esq.
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
Telephone : (703) 904-3109
Fax: (703) 478-0147
or at such other address, fax or telephone number as either of the Borrowers or
the Lender may hereafter specify in writing for such purpose in a notice to the
other specifically captioned "Notice of Change of Address", and be effective or
deemed delivered or furnished (i) if given by mail, on the third Business Day
after such communication is deposited in the mail, addressed as above provided,
(ii) if given by fax, when such communication is transmitted to the appropriate
number determined as above provided in this Section 8.3 or on the signature
pages hereof and the appropriate answer-back is received or receipt is otherwise
acknowledged, (iii) if given by overnight delivery service, one Business Day
following delivery thereof to an authorized representative of such service
addressed as above provided, and (iv) if delivered personally, when so delivered
to the Person or to the holder of the office specified as the Person or office
holder to whose attention communications are to be given, except that notice of
a change of address, telex, telecopier or telephone number, and notices to the
Lender under Sections 2 and 7 hereof, shall not be effective, and materials
furnished to the Lender pursuant to the terms hereof shall not be deemed
furnished, until received, and, in the case of the Lender, such notices,
pursuant to Sections 2 and 7 hereof, shall not be deemed received until
physically received by the Lender.
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8.4 Expenses; Taxes; Attorneys' Fees; etc. Borrower agrees to pay or cause
to be paid and to save the Lender harmless against liability for the payment of
all out-of-pocket expenses, including, but not limited to, reasonable fees and
expenses of counsel for the Lender incurred from time to time, (a) arising in
connection with the preparation, execution, delivery and performance of this
Agreement, the other Loan Documents and any other documents, instruments or
transactions pursuant to or in connection herewith or therewith, whether
incurred by the Lender before or after the Closing Date, (b) reasonable fees and
expenses relating to any requested amendments, waivers or consents to this
Agreement, the other Loan Documents or any other such documents, instruments or
transactions, (c) fees and expenses arising in connection with the Lender's
enforcement or preservation of rights under this Agreement or the other Loan
Documents or any other such documents or instruments, including, but not limited
to, such expenses as may be incurred by the Lender in the collection of the
outstanding Credit Facility Note. The Borrower agrees to pay all stamp,
document, transfer, recording or filing taxes or fees and similar impositions
now or hereafter reasonably determined by the Lender to be payable in connection
with this Agreement, the other Loan Documents or any other documents,
instruments or transactions pursuant to or in connection herewith or therewith,
and the Borrower agrees to save the Lender harmless from and against any and all
present or future claims, liabilities or losses with respect to or resulting
from any omission to pay or delay in paying such taxes, fees or impositions. All
such expenses, taxes or attorneys' fees shall be payable to the Lender on thirty
(30) days notice to Borrower.
8.5 Indemnification.
(a) In consideration of the Credit Facility Commitment, the Borrower
(provided that so long as the Borrower has undertaken and is pursuing the
defense of any such action, suit or proceeding as hereinabove provided, all
counsel fees and expenses incurred by Lender or such other Person in connection
therewith shall be borne by Lender and Borrower shall have no obligation
hereunder to reimburse Lender therefor) agree, to indemnify and defend the
Lender, his agents or employees, from, and hold each of them harmless against,
any and all losses, liabilities, claims, damages, deficiencies, interest,
judgments, costs or expenses incurred by them or any of them arising out of or
by reason of any investigation, litigation or other proceeding brought or
threatened, arising out of or by reason of their execution of any Loan Documents
and the transactions contemplated hereby and thereby, including, but not limited
to, any use
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effected or proposed to be effected by either Borrower or any Subsidiary of a
Borrower of the proceeds of the Loan Advances, but excluding any such losses,
liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Lender and its officers, agents and
employees, including, but without limitation, amounts paid in settlement, court
costs, and reasonable fees and disbursements of counsel incurred in connection
with any such investigation, litigation or other proceeding. The Lender shall
notify Borrower promptly (and in any event, within ten (10) Business Days) of
its receipt of any claim by a third party of any matter as to which
indemnification is sought under this Section 8.5. The Borrowers shall have the
right to defend, compromise or settle any such action, suit or proceeding with
counsel of its choosing reasonably acceptable to Lender.
(b) All obligations of the Borrower under this Section 8.5 shall survive
any termination of this Agreement or repayment of all Obligations.
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in clause (a) above is
for any reason held to be unenforceable against the Borrower, or is otherwise
unavailable, the Borrower and the Lender agrees to contribute to the aggregate
losses, claims, judgments, costs, damages and liabilities (including any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted, but after deducting any contribution received by the Borrower from
Persons other than the Lender who may also be liable for contribution, the
Borrower hereby agree to seek contribution from such Persons) to which the
Borrower and the Lender may be subject in such proportion as reflects not only
the relative fault of the Borrower and the Lender, but also any relevant
equitable considerations. In addition, the Borrower agree to reimburse the
Lender and each other Person specified above in this clause (c) for all expenses
(including reasonable legal fees) as they are incurred by the Lender or any such
other Person in connection with Lender investigating, preparing or defending any
such action or claim, whether or not in connection with pending or threatened
litigation in which the Lender or any such other Person is a party; provided
that so long as the Borrower has undertaken and is pursuing the defense of any
such action, suit or proceeding as hereinabove provided, all counsel fees and
expenses incurred by Lender or such other person in connection therewith shall
be borne by Lender and Borrower shall have no obligation hereunder
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to reimburse Lender therefor. The indemnity, contribution and expense
reimbursement obligations the Borrower has under this Section 8.5 shall be in
addition to any liability the Borrower may otherwise have hereunder. For
purposes of this clause (c), each Person, if any, who is an agent or employee of
the Lender shall have the same rights to contribution as the Lender.
8.6 Amendments, etc. Any provision of this Agreement may be amended,
modified or waived only by an instrument or instruments in writing signed by the
Borrower and the Lender, and any consent of the Lender hereunder must be in a
writing signed by the Lender.
8.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, assigns
and endorsees except that Borrowers may not assign its rights or obligations
hereunder or under the Credit Facility Note. Lender shall have the right to
assign his obligations under this Agreement to a corporation, which may be a
limited liability company, provided Lender shall guarantee such successor's
obligations to make the advances hereunder.
8.8 Marshalling; Payments Set Aside. The Lender shall be under no
obligation to marshall any assets in favor of the Borrower or any other Person
or against or in payment of the Credit Facility Note. To the extent that
Borrower make a payment or payments to the Lender or the Lender enforces its
security interests or exercises its rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy, insolvency or similar law, state or federal law, common law or
equitable cause, then to the extent of such recovery, the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
8.9 Set-Off. In addition to any rights and remedies of the Lender provided
by law, the Lender shall have the right, without prior notice to Borrower, any
such notice being expressly waived by Borrower, upon the filing of a petition
under any of the provisions of the federal bankruptcy act or amendments thereto,
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by or against, or the occurrence of an Event of Default with respect to, the
making of an assignment for the benefit of creditors by, the application for the
appointment, or the appointment, of any receiver of, or of any of the property
of, the issuance of any execution against any of the property of, the issuance
of a subpoena or order, in supplementary proceedings, against or with respect to
any of the property of, or the issuance of a warrant of attachment against the
property of Borrower, to set-off and apply against any Indebtedness, whether
matured or unmatured, of the Borrower to the Lender, any amount owing from the
Lender to the Borrower, at or at any time after, the happening of any of the
above-mentioned events, and the aforesaid right of set-off may be exercised by
the Lender against the Borrower or against any trustee in bankruptcy, debtor in
possession, assignee for the benefit of creditors, receivers, or execution,
judgment or attachment creditor of the Borrower, or against anyone else claiming
through or against, the Borrower or such trustee in Bankruptcy, debtor in
possession, assignee for the benefit of creditors, receivers, or execution,
judgment or attachment creditor, notwithstanding the fact that such right of
set-off shall not have been exercised by the Lender prior to the making, filing
or issuance, or service upon the Lender of, or of notice of, any such petition,
assignment for the benefit of creditors, appointment or application for the
appointment of a receiver, or issuance of execution, subpoena, order or warrant.
The Lender agrees promptly to notify the Borrower, after any such set-off and
application made by the Lender, provided that the failure to give such notice
shall not affect the validity of such set-off and application.
8. 10 SUBMISSION TO JURISDICTION; WAIVER OF JURY AND BOND. BORROWER HEREBY
CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE
COUNTY OF ESSEX, STATE OF NEW JERSEY, AND IRREVOCABLY AGREES THAT SUBJECT TO THE
LENDER'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS RELATING TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS AND EACH
BORROWER WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM
NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT AND EACH
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND CONSENTS THAT ALL
SUCH SERVICE OF PROCESS BE MADE BY MAIL OR MESSENGER DIRECTED TO IT AT THE
ADDRESS SET FORTH IN SECTION 8.3 HEREOF OR ON THE SIGNATURE PAGES HEREOF AND
THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL
RECEIPT OR THREE (3) DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO THE
BORROWER'S ADDRESS BY THE BORROWER'S AGENT AS SET FORTH BELOW. BORROWER HEREBY
IRREVOCABLY APPOINTS NETWORK IMAGING
45
<PAGE>
CORPORATION'S GENERAL COUNSEL OR SUCH OTHER PERSON AS THE BORROWER REASONABLY
SELECT FOLLOWING WRITTEN NOTICE TO THE LENDER (OR IN THE EVENT THE BORROWERS
FAIL TO SELECT A REPLACEMENT AGENT WITHIN TEN (10) DAYS OF THE DATE OF SUCH
NOTICE SUCH AGENT AS THE LENDER SHALL SELECT), AS ITS AGENT FOR THE PURPOSE OF
ACCEPTING SERVICE OR ANY PROCESS WITHIN THE STATE OF NEW YORK. ALL OF THE
PARTIES HERETO ACKNOWLEDGE THAT THE EXPENSES AND TIME REQUIRED FOR A TRIAL BY
JURY EXCEED THE EXPENSES AND TIME REQUIRED FOR A BENCH TRIAL AND THEREFORE, THE
PARTIES HERETO WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY, AND WAIVE
ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER,
BE REQUIRED OF THE LENDER. NOTHING CONTAINED IN THIS SECTION 8 SHALL AFFECT THE
RIGHT OF THE LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR AFFECT THE RIGHT OF THE LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST
EITHER BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
8.11 Section Titles. The section titles contained in this Agreement
shall be without substantive meaning or content of any kind whatsoever and shall
not govern the interpretation of any of the provisions of this Agreement.
8.12 Continuing Effect. This Agreement, the Lender's security interests in
the Collateral and each other Loan Document shall continue in full force and
effect as long as any Indebtedness hereunder shall be owed to the Lender, and
(even if there shall be no Indebtedness outstanding) so long as the Credit
Facility Commitment shall not have expired or been terminated.
8.13 Reliance by the Lender. All covenants, agreements, representations and
warranties made herein and in any other Loan Document by Borrower shall,
notwithstanding any investigation by the Lender, be deemed to be material to and
to have been relied upon by the Lender and shall survive the execution and
delivery of this Agreement.
8.14 Survival. The obligations of the Borrower under Sections 8.4, 8.5 and
8.7 shall survive the repayment of the Credit Facility or the Term Note, as the
case may be, and the termination of the Credit Facility Commitment.
8.15 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one
46
<PAGE>
and the same instrument and any of the parties hereto may execute this Agreement
by signing any such counterpart.
8.16 Governing Law and Construction. This Agreement, the Note and each
other Loan Document shall be governed by, and construed in accordance with, the
laws of New Jersey. Whenever possible, each provision of this Agreement, the
Note and each other Loan Document and any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto shall
be interpreted in such manner as to be effective and valid under such applicable
law, but, if any provision of this Agreement, the Note or each other Loan
Document or any other statement, instrument or transaction contemplated hereby
or thereby or relating hereto or thereto shall be held to be prohibited or
invalid under such applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement, the Note and
each other Loan Document or any other statement, instrument or transaction
contemplated hereby or thereby or relating hereto or thereto. The parties shall
endeavor in good-faith negotiations to replace any invalid, illegal or
unenforceable provisions with a valid provision the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provision. In the event of any conflict within, between or among the provisions
of this Agreement, the Note or any other Loan Document or any other statement,
instrument or transaction contemplated hereby or thereby or relating hereto or
thereto, the provisions giving the Lender the greater right shall govern.
8.17 Equitable Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, any remedy at law may prove to be inadequate relief to the
Lender and, accordingly, each Borrower agrees that each of the Lender, if the
Lender so requests, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving irreparable damages.
8.18 Entire Agreement This Agreement, including all exhibits and other
documents attached hereto or incorporated by reference herein, constitutes the
entire agreement of the parties with respect to the subject matter hereof and
supersedes all other understandings, oral or written, with respect thereto.
47
<PAGE>
8.19 Further Assurances. Borrower agrees to do such further acts and things
and to execute and deliver to the Lender such additional assignments,
agreements, powers and instruments, as the Lender may reasonably require or deem
advisable to carry into effect the purposes of this Agreement or to better
assure and confirm unto the Lender its rights, powers and remedies hereunder.
8.20 Highest Lawful Rate. Anything herein to the contrary notwithstanding,
the obligations of the Borrower on the Note payable to the Lender shall be
subject to the limitation that payments of interest shall not be required, for
any period for which interest is computed hereunder, to the extent that
contracting for or receipt thereof would be contrary to provisions of any law
applicable to the Lender limiting the highest rate of interest which be lawfully
contracted for, charged or received by the Lender.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
- ------------------------------
FRED KASSNER
Address for Notices:
69 Spring Street
Ramsey, New Jersey 07446
Fax No.: (201) 934-3617
Telephone No. (201) 934-3750
Attention: Fred Kassner
with copies to:
Susan G. Kaufman, Esq.
69 Spring Street
Ramsey, New Jersey 07446
Telephone No. (201) 934-3626
48
<PAGE>
/s/ Fred Kassner
- ------------------------------
FRED KASSNER
Address for Notices:
69 Spring Street
Ramsey, New Jersey 07446
Fax No.: (201) 934-3617
Telephone No. (201) 934-3750
Attention: Fred Kassner
with copies to:
Susan G. Kaufman, Esq.
69 Spring Street
Ramsey, New Jersey 07446 -
Telephone No. (201) 934-3626
NETWORK IMAGING CORPORATION
By: /s/ [illegible]
- ------------------------------
Name:
Title:
Address for Notices:
500 Huntmar Park Drive
Herndon VA 20170-5100
Telephone No. (703) 478-2660
Fax No. (703) 478-0147
Attention: Jorge R. Forgues
with copies to:
Julia A. Bowen, Esq.
500 Huntmar Drive
Herndon, VA 20170-5100
49
NETWORK IMAGING CORPORATION AND SUBSIDIARIES Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
In thousands, except share amounts
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---------------- --------------- -------------
<S> <C> <C> <C>
PRIMARY:
Net loss $ (21,071) $ (34,896) $ (44,121)
================ =============== =============
Shares:
Weighted average shares outstanding 20,681,694 14,502,399 12,391,225
Net common stock equivalents from stock
purchases warrants and stock options 1/ 1/ 1/
---------------- --------------- -------------
Weighted average shares outstanding, as adjusted 20,681,694 14,502,399 12,391,225
---------------- --------------- -------------
Loss per share - primary 1/ $ (1.02) $ (2.41) $ (3.56)
================ =============== =============
FULLY DILUTED:
Net loss $ (21,071) $ (34,896) $ (44,121)
================ =============== =============
Shares:
Weighted average shares outstanding 20,681,694 14,502,399 12,391,225
Net common stock equivalents from stock
purchases warrants and stock options 1/ 1/ 1/
Conversion of Convertible Preferred Stock and
Redeemable Preferred Stock 1/ 1/ 1/
---------------- --------------- -------------
Weighted average shares outstanding, as adjusted 20,681,694 14,502,399 12,391,225
---------------- --------------- -------------
Loss per share - fully diluted 1/ $ (1.02) $ (2.41) $ (3.56)
================ =============== =============
</TABLE>
1/ Net loss per share computed excluding common stock
equivalents which are considered anti-dilutive.
EXHIBIT 21
Dorotech, S.A.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,601
<SECURITIES> 0
<RECEIVABLES> 16,077
<ALLOWANCES> (855)
<INVENTORY> 1,503
<CURRENT-ASSETS> 24,455
<PP&E> 8,566
<DEPRECIATION> (5,679)
<TOTAL-ASSETS> 36,524
<CURRENT-LIABILITIES> 14,816
<BONDS> 0
9,857
0
<COMMON> 2
<OTHER-SE> 11,717
<TOTAL-LIABILITY-AND-EQUITY> 36,524
<SALES> 39,477
<TOTAL-REVENUES> 39,477
<CGS> 24,374
<TOTAL-COSTS> 24,374
<OTHER-EXPENSES> 32,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (309)
<INCOME-PRETAX> (17,409)
<INCOME-TAX> (68)
<INCOME-CONTINUING> (17,341)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,071)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> 0
</TABLE>
