SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A-1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22970
NETWORK IMAGING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 54-1590649
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Huntmar Park Drive, Herndon, Virginia 20170
(Address of principal executive offices)
(703) 478-2260
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES [X] [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of outstanding shares of the issuer's Common Stock, $.0001 par value,
as of December 4, 1997 was 25,959,101.
<PAGE>
NETWORK IMAGING CORPORATION
Form 10-Q/A-1
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1997
(unaudited) and December 31, 1996 2
Consolidated Statements of Operations (unaudited)
for the three months ended September 30, 1997 and 1996 3
Consolidated Statements of Operations (unaudited)
for the nine months ended September 30, 1997 and 1996 4
Consolidated Statement of Changes in Stockholders' Equity
(unaudited) for the nine months ended September 30, 1997 5
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Change upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma at
December 31, September 30, September 30,
1996 1997 1997
----------- ----------- -----------
(Unaudited) (Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 7,601 $ 3,782 $ 3,782
Accounts and notes receivable, net 13,243 14,451 14,451
Inventories 1,503 1,404 1,404
Prepaid expenses and other 2,362 2,214 2,214
--------- --------- ---------
Total current assets 24,709 21,851 21,851
Fixed assets, net 2,887 2,096 2,096
Long-term notes receivable, net 1,979 1,648 1,648
Software development costs and purchased technology, net 3,813 3,347 3,347
Goodwill, net 3,237 2,228 2,228
Other assets 153 310 310
--------- --------- ---------
Total assets $ 36,778 $ 31,480 $ 31,480
========= ========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and obligations under capital leases $ 2,063 $ 1,238 $ 1,238
Accounts payable 3,185 3,890 3,890
Accrued compensation and related expenses 1,891 1,983 1,983
Deferred revenue 3,789 3,599 3,599
Other accrued expenses 3,888 4,895 4,895
--------- --------- ---------
Total current liabilities 14,816 15,605 15,605
Long-term debt and obligations under capital leases 88 7,318 7,318
Deferred income taxes 300 191 191
--------- --------- ---------
Total liabilities 15,204 23,114 23,114
Commitments
Redeemable Series F preferred stock, 1,792,186 and 792,186 shares
issued and outstanding at December 31, 1997 and September 30, 1997
and 792,186 shares issued and outstanding on a pro forma basis at
September 30, 1997 9,857 6,357 6,357
Redeemable Series K preferred stock, no and 3,300 shares issued and
outstanding at December 31, 1996 and September 30, 1997 and no
shares issued and outstanding on a pro froma basis at September 30, 1997 -- 3,700 --
Stockholders' equity:
Preferred stock, $.0001 par value, 20,000,000 shares authorized;
1,605,675 and 1,605,035 shares issued and outstanding at
December 31, 1996 and September 30, 1997 and 1,608,335 shares
issued and outstanding on a proforma basis at September 30, 1997
Common stock, $.0001 par value, 50,000,000 shares authorized;
22,896,612 and 25,865,809 shares issued and outstanding at
December 31, 1996 and September 30, 1997 and
25,865,809 shares issued and outstanding on a pro forma basis
at September 30, 1997 2 3 3
Additional paid-in-capital 124,429 121,108 124,808
Accumulated deficit (113,098) (122,233) (122,233)
Translation adjustment 384 (569) (569)
--------- --------- ---------
Total stockholders' equity (deficit) 11,717 (1,691) 2,009
--------- --------- ---------
Total liabilities and stockholders' equity $ 36,778 $ 31,480 $ 31,480
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended September 30,
1997 1996
----------- -----------
Revenue:
Products $ 5,225 $ 4,107
Services 4,719 5,272
----------- -----------
9,944 9,379
----------- -----------
Costs and expenses:
Cost of products sold 2,585 2,169
Cost of services provided 3,865 3,700
Sales and marketing 3,649 3,332
General and administrative 1,649 1,995
Product development 1,142 1,129
Loss on sale of subsidiary -- 921
----------- -----------
12,890 13,246
----------- -----------
Loss before investment and
interest income and income taxes (2,946) (3,867)
Investment and interest income
(expense), net (130) 41
----------- -----------
Loss before income taxes (3,076) (3,826)
Income tax benefit (142) (77)
----------- -----------
Net loss (2,934) (3,749)
----------- -----------
Preferred stock preferences
Accrued dividends (930) (865)
Imputed dividends (774) --
----------- -----------
Net loss applicable to
common shares $ (4,638) $ (4,614)
=========== ===========
Net loss per common share $ (0.18) $ (0.22)
=========== ===========
Weighted average shares outstanding 25,436,748 21,112,811
=========== ===========
The accompanying notes are an integral part of these financial statements.
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NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Nine Months Ended September 30,
1997 1996
------------ ------------
Revenue:
Products $ 13,591 $ 13,497
Services 14,805 15,552
------------ ------------
28,396 29,049
------------ ------------
Costs and expenses:
Cost of products sold 6,740 7,976
Cost of services provided 11,681 11,975
Sales and marketing 10,901 11,652
General and administrative 4,949 7,522
Product development 3,451 4,190
Gain from extinguishment of debt (267) --
Loss on sale of subsidiary -- 921
Exchange fee and gain on
sale of asset, net -- 619
Restructuring costs -- (175)
------------ ------------
37,455 44,680
------------ ------------
Loss before investment and
interest income and income taxes (9,059) (15,631)
Investment and interest income
(expense), net (163) 188
------------ ------------
Loss before income taxes (9,222) (15,443)
Income tax benefit (87) (89)
------------ ------------
Net loss (9,135) (15,354)
------------ ------------
Preferred stock preferences
Accrued dividends (2,836) (2,749)
Imputed dividends (774) --
------------ ------------
Net loss applicable to
common shares $ (12,745) $ (18,103)
============ ============
Net loss per common share $ (0.51) $ (0.90)
============ ============
Weighted average shares outstanding 24,957,354 20,081,412
============ ============
The accompanying notes are an integral part of these financial statements.
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NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
For the nine months ended September 30, 1997
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock paid-in Accumulated
Shares Amt. Shares Amt. capital Deficit
----------------------- -------------------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 1,605,675 $ -- 22,896,612 $ 2 $ 124,429 ($ 113,098)
Issuance of common stock
upon exercise of warrants 23,331 23
Conversion of preferred
stock (640) 2,926,818 1
Offering costs on issuance
of preferred stock (25)
Issuance of common stock 19,048 27
Issuance of warrants and
extension 264
Accrued dividends on preferred
stock (2,836)
Imputed dividends on preferred
stock (774)
Translation adjustment
Net loss (9,135)
------------------------ -------------------------- ---------- ----------
Balance September 30, 1997 1,605,035 $ -- 25,865,809 $ 3 $ 121,108 $ (122,233)
======================== ========================== ========== ==========
</TABLE>
Translation
Adjustment Total
------------ -------------
Balance December 31, 1996 $ 384 $ 11,717
Issuance of common stock
upon exercise of warrants 23
Conversion of preferred
stock 1
Offering costs on issuance
of preferred stock (25)
Issuance of common stock 27
Issuance of warrants and
extension 264
Accrued dividends on preferred
stock (2,836)
Imputed dividends on preferred
stock (774)
Translation adjustment (953) (953)
Net loss (9,135)
-------- --------
Balance September 30, 1997 $ (569) $ (1,691)
======== ========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
1997 1996
---------- ----------
(In thousands)
Cash flows from operating activities:
Net loss $ (9,135) $(15,354)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 3,752 4,465
Gain on sale of asset -- (111)
Restructuring costs -- (175)
Loss on sale of subsidiary -- 921
Other non-cash items 15 --
Changes in assets and
liabilities:
Accounts and notes receivable (1,837) 3,147
Inventories (6) 358
Prepaid expenses and other 145 (1,103)
Accounts payable 1,698 (1,421)
Accrued compensation and
related expenses 242 (494)
Accrued expenses, other 161 (1,656)
Deferred revenues (81) 1,707
Deferred income taxes (71) (235)
-------- --------
Net cash used in operating activities (5,117) (9,951)
-------- --------
Cash flows from investing activities:
Sale of short-term investments -- 111
Capitalized software development
and license costs (1,059) (1,513)
Purchases of fixed assets (557) (748)
Net cash provided in business
divestiture -- (401)
-------- --------
Net cash used in investing activities (1,616) (2,551)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common
and preferred stocks, net (2) 16,937
Proceeds from issuance of Series
K preferred stock, net 2,926 --
Cash dividends paid on Series A
preferred stock (1,605) (2,408)
Cash dividends paid on Series F
preferred stock (174) --
Payments on Mandatory Redeemable
Preferred Stock (3,500) --
Proceeds from borrowings 5,000 --
Proceeds from issuance of
long-term debt 2,000
Proceeds from sale and leaseback
of fixed assets -- 196
Proceeds from Notes Receivable
related to business divestitures 60 --
Principal payments on capital
lease obligations (800) (667)
Principal payments on debt (843) (271)
-------- --------
Net cash provided by financing
activities 3,062 13,787
-------- --------
Effect of exchange rate changes on
cash and cash equivalents (148) (77)
Net decrease in cash and cash
equivalents (3,819) 1,208
Cash and cash equivalents at
beginning of year 7,601 9,359
-------- --------
Cash and cash equivalents at September 30, $ 3,782 $ 10,567
======== ========
Supplemental Cash Flow Information:
Interest paid $ 478 $ 231
Income taxes paid $ 261 $ 170
The accompanying notes are an integral part of these financial statements.
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<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, which include
information and note disclosures not included herein. In the opinion of
management all adjustments, which include only those of a normal recurring
nature, necessary to fairly present the Company's financial position, results of
operations and cash flows have been made to the accompanying financial
statements. The results of operations for the nine month period ended September
30, 1997 may not be indicative of the results that may be expected for the year
ending December 31, 1997.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
2. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of the primary and fully diluted earnings per share is not expected to be
material.
The Company intends to adopt Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" (SFAS
No. 131), in fiscal year 1998. SFAS No. 131 changes the way companies report
segment information and requires segments to be determined based on how
management measures performance and makes decisions about allocating resources.
The adoption of SFAS No. 131 is not expected to materially impact the Company's
financial position or results of operations.
3. REDEEMABLE PREFERRED STOCK
During the first quarter of 1997, the Company redeemed 1,000,000 shares of
Series F Preferred Stock for $3.5 million. The Company used proceeds from its
line of credit to finance the Series F Preferred share buy back.
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<PAGE>
During the second quarter of 1997, the Company was to have redeemed the
remaining 792,186 shares of Series F Preferred Stock for $2.8 million. Under an
amendment to the December 1996 redemption agreement, the $2.8 million payment is
now due on January 31, 1998, subject to certain acceleration terms related to
the occurrence of certain events that are under the control of the Company.
4. LINE OF CREDIT
During the second quarter of 1997, the Company drew the remaining $1.5 million
from its $5.0 million line of credit established to finance the Series F
Preferred share buy back. As part of the additional borrowing, the use of
proceeds restriction was amended to allow its use for general corporate purposes
and the Company entered into an amendment to the security agreement, which
expanded the lender's security interest to include all personal property of the
Company, including without limitation, (1) all personal property of the Company,
(2) all leases, licenses, permits, (3) all 1View software products intellectual
property now owned or hereafter developed by the Company, (4) all inventory, (5)
all accounts, contract rights, chattel papers, instruments, general intangibles,
documents, other obligations, monies, revenues, credits, claims, goodwill and
causes of action. (6) all trade or service names, trademarks, service marks,
logos and all patents, patent applications, copyrights, licensing agreements and
royalty payments, (7) proceeds of the foregoing, and (8) all of the capital
stock of Dorotech, S.A.
5. NASDAQ-NMS MAINTENANCE REQUIREMENTS
At June 30, and September 30, 1997, the Company had not maintained net tangible
assets of at least $4 million, which is one of the quantitative maintenance
criteria for inclusion of the Company's securities on Nasdaq-NMS. To remedy the
short-fall and offset any adverse impact, the Company issued, during July 1997,
3,300 shares of Series K Convertible Preferred Stock ("Series K Stock") and
warrants and received net proceeds of $2.9 million. Pursuant to the terms of the
offering, the purchasers are also required to make additional purchases of
shares for $3.0 million upon the Company's achievement of certain performance
milestones and the satisfaction of certain other conditions and an additional
$4.7 million at their option (See Note 7). Although the Company believes that it
can maintain the required net tangible assets of at least $4 million through
additional issuances of its Series K Stock or other additional offerings of
equity securities, there can be no assurance that the Company will complete such
offerings or that, if completed, they will be on terms favorable to the Company
or in an amount sufficient to permit the Company to continue to maintain net
tangible assets of at least $4 million.
On August 21, 1997, the Company received a letter from the Nasdaq National
Market indicating that the Company may not have sufficient assets to continue
its listing on the Nasdaq National Market. The Company has responded to that
inquiry and after further correspondence with Nasdaq requested a hearing before
the Nasdaq National Market's Hearing Department to explain its plan for
achievement and maintenance of the minimum net tangible assets requirement.
Following a hearing held on Thursday, October 30, 1997, a Nasdaq Listing
Qualifications Panel determined to grant the Company's request for continued
inclusion in the Nasdaq National Market pursuant to an exception to the Nasdaq
National Market's minimum net tangible asset requirement.
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<PAGE>
The Panel found that the Company had presented a reasonable plan for compliance.
Based upon the plan detailed by the Company, the Panel concluded that the
Company could achieve compliance with the continued listed requirements for the
long-term.
In order to fully comply with the exception granted by the Panel, the Company
must complete its plan of compliance in accordance with a timetable set forth by
the Panel. The Company must demonstrate full compliance with the Nasdaq National
Market continued listing requirements by December 31, 1997. The Panel also
required that the Company have a minimum of $6.0 million in net tangible assets
to ensure long term compliance with the net tangible assets requirement.
6. CONVERTIBLE NOTES
During July and August 1997, the Company issued, pursuant to a private placement
exemption under the Securities Act of 1933, as amended, 8% Convertible Notes due
July 8, 2002 and August 20, 2002 totaling $2.0 million. The notes are
convertible into the Company's Common Stock beginning 45 days after issue at a
conversion price of $1.875 and $1.50 per share, the price on the issue dates.
On or after October 30, and December 12, 1997, the holders have the right to
redeem the convertible notes plus accrued interest on one business days' notice
to the Company in cash or shares of Common Stock, at the Company's election. On
or after October 30, and December 12, 1997, the Company has the right to redeem
the convertible notes plus accrued interest on 30 days' notice to the holders in
cash or share of Common Stock, at the holders' election. If shares of Common
Stock are used, Common Stock is issued at a rate of 90% of the previous 5
trading days average closing bid price. The interest is compounded semi-annual-
ly. The warrants issued to the investors have an exercise price of $1.875 and
$1.50 per share and expire on July 8, and August 20, 2000, respectively.
7. CONVERTIBLE PREFERRED STOCK OFFERINGS
During July 1997, the Company agreed to issue up to 11,000 units ("Units")
consisting of one share of Series K Stock and warrants to acquire 75 shares of
Common Stock at an exercise price of $2.40 per share at the price of $1,000 per
Unit. On July 28, 1997, the Company issued 3,300 Units and received net proceeds
of $2.9 million ("the Offering"). The Company also issued warrants to purchase
162,462 shares of Common Stock at $1.625 per share to the placement agent in the
transaction. Under the requirements of a newly issued SEC staff position, the
carrying value of the Series K Preferred Stock was increased by $774,000, or the
corresponding amount allocated to beneficial conversion feature described below.
The Company also recorded a related $774,000 non-cash charge to preferred stock
dividends. In accordance with the terms of the Offering, the proceeds will be
used for working capital and general corporate purposes. Pursuant to the terms
of the Offering, the purchasers are required to make additional purchases of the
Units for
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$3.0 million upon the Company's achievement of certain performance milestones
and the satisfaction of certain other conditions. The remaining $4.7 million is
to be offered to the purchasers and the purchasers, at their election, may
elect to make purchases of the Units. In connection with the sale of the Units,
the Company agreed to register the Common Stock issuable upon the conversion of
the preferred stock and the execution of the warrants.
The Series K Preferred Stock has a per share liquidation preference, subject to
the liquidation preferences of the Series A Preferred Stock, the Series F-1,
F-2, F-3 and F-4 Preferred and the Series H Preferred Stock of an amount equal
to the sum of $1,000 plus 7% per annum simple interest thereon for the period
since the date of issuance. Each share is convertible at the option of the
holder into the number of shares of Common Stock determined by dividing an
amount equal to the initial purchase price of $1,000 by the lesser of (1) $2.00
and (2) the lowest closing sale price for the Common Stock for the ten trading
days immediately preceding the conversion multiplied by the "Conversion
Percentage." The "Conversion Percentage" is (a) 105% prior to the 61st day
following July 28, 1997 (the "First Closing Date"), (b) 96% for the period
between the 61st and the 90th day following the First Closing Date, (c) 85% for
the period between the 91st and the 180th day following the First Closing Date,
and (d) 81% for the period after the 180th day following the First Closing Date.
The Series K Stock has a dividend rate of 7% per annum which is payable at the
time of conversion or redemption in cash or shares of Common Stock, as elected
by the Company.
8. PREFERRED STOCK DIVIDENDS
During July 1997, the Company announced that it was suspending the dividend
payment to holders of Series A Cumulative Convertible Preferred Stock ("Series A
Stock"). Holders of Series A Stock did not receive dividends payable for the
three months ended July 31, 1997 or October 31, 1997 in the amounts of $0.50 per
share or $802,512.50 in the aggregate, respectively.
9. STOCK OPTION REPRICING
In August 1997, the Board of Directors approved a plan to reprice the Company's
outstanding stock options. The plan allowed holders of out-of-the-money options,
excluding executives, officers, and directors, to receive a new exercise price
of $1.50 per option share, the market price on the date of approved plan. The
plan allowed executives and officers of out-of-the-money options to also receive
a new exercise price of $1.50 but for fewer shares of Common Stock determined
pursuant to the Black-Scholes formula intended to result in approximate economic
equivalence between old and new options. As a result, options for an aggregate
of 561,752 out of a total of 1,635,000 shares of Common Stock at exercise prices
ranging from $6.82 to $1.91 per share were surrendered pursuant to this
repricing. Stock options held by the Company's Board of Directors were not
repriced.
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<PAGE>
10. RESTATEMENT
In connection with the Company's issuance of Series K Preferred Stock on July
28, 1997, ("the Offering"), the Company has restated its Consolidated Financial
Statements for the quarter ended September 30, 1997 to reflect the Offering as
temporary equity (See Note 7). The Offering was reclassified from shareholders'
equity to temporary equity due to conditions of redemption, pursuant to the
terms of the Certificate of Designation for the Series K Stock, that were not
solely within control of the Company. As a result of this change, the Company's
total stockholders' equity at September 30, 1997 decreased from $2.0 million to
negative ($1.7) million. Subsequent to September 30, 1997, the Company received
from the Series K Stockholders an amendment to the redemption provisions
whereby, all conditions of redemption are now solely within control of the
Company (See Note 11).
11. SUBSEQUENT EVENT AND PRO FORMA BALANCE SHEET
On November 30, 1997, the Company and the Series K Preferred Stockholders agreed
to amend certain redemption provisions of the Certificate of Designation to the
Series K Stock that were not solely within the control of the Company. The
stockholders agreed not to exercise any right of redemption if the stockholder's
Cap Amount exceeds 135% of the total number of shares of Common Stock then
issuable on conversion of its Series K Stock. The stockholders agreed to forgo
their right to exercise such rights so long as (i) the Company has not, at any
time, decreased the reserved amount of shares below 12,500,000 shares of Common
Stock; (ii) the Company shall have taken immediate action following the trigger
date to increase the reserved amount to 200% of the number of shares of Common
Stock then issuable upon conversion of the outstanding Preferred Stock; and
(iii) the Company continues to use its good faith best efforts to increase the
reserved amount to 200% of the number of shares of Common Stock then issuable
upon conversion of the outstanding Preferred Stock. The parties agreed that the
Company will be deemed to have used "its good faith best efforts" to increase
the Reserved Amount so long as it solicits shareholder approval to authorize the
issuance of additional shares of Common Stock no less than three (3) times
during each 12 month period following the trigger date. Further, the
stockholders agreed not to exercise any right of redemption if the Common Stock
is suspended from trading on any of, or is not listed on at least one of, the
New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market
or the Nasdaq Small Cap Market for an aggregate of 10 trading days in any nine
month period, and in such circumstance the stockholders would be entitled to
receive within five (5) business days of the occurrence of a redemption event,
as liquidated damages an amount equal to 25% of the aggregate face amount of the
shares of Series K Stock then held by each stockholder. The liquidated damages
are payable, at the Company's option, in cash or shares of Common Stock, such
stock based upon a price per share equal to 50% of the lowest closing price of
the Common Stock during the 10 consecutive trading day period immediately
preceding the date of such
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redemption event. Additionally, the Company has agreed to keep reserved
3,000,000 shares of Common Stock to satisfy its obligation with respect to the
liquidated damages. In the event that the number of shares required to be issued
by the Company with respect to the amount of liquidated damages exceeds
3,000,000 shares of Common Stock, and the Company does not have a sufficient
number of shares of Common Stock authorized and available for issuance to
satisfy its obligation with respect to the liquidated damages, the Company shall
issue and deliver to the stockholders all 3,000,000 shares of Common Stock so
reserved for that purpose and, upon such issuance, the stockholders shall have
no right of redemption upon a Redemption Event as specified in the Certificate
of Designation to the Series K Stock, but shall retain all other remedies to
which they may be entitled at law or in equity which remedies shall not include
the right of redemption. The stockholders also agreed not to exercise a right of
redemption if the registration statement required to be filed by the Company,
pursuant to a registration rights agreement entered into between the parties,
has not been declared effective by January 31, 1998, or such registration
statement, after being declared effective, cannot be utilized by the holders of
the Series K Preferred Stock for the resale of their securities for an aggregate
of more than 30 days after June 30, 1998, however, in any such events and while
any of such events continues, the Company agrees to provide that the permanent
reductions to the conversion percentages set forth in the registration rights
agreement shall accrue at the rate of two hundreds (.02) per week instead of two
hundreds (.02) per month. The stockholders further agreed not to exercise a
right of redemption upon an event where the Company has 50% or more of the
voting power of its capital stock owned beneficially by one person, entity or
group (as such term is used under Section 13(d) of the Securities Exchange Act
of 1934, as amended), so long as the Company has not approved, recommended or
otherwise consented to the transaction which triggered that event. The parties
have agreed that all subsequent holders of the Series K Stock shall be bound by
the terms of the amendment, and the parties shall be responsible for
communicating the terms of the amendment to any such subsequent holders. As a
result, the Series K Preferred Stock classified as temporary equity at September
30, 1997 will be included within shareholders' equity at December 31, 1997. The
pro forma balance sheet at September 30, 1997 reflects the Series K Preferred
Stock as if it had been classified as permanent shareholders' equity.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 (the "Reform Act")
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about their companies, so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those discussed in the statement. The Company
desires to take advantage of the "safe harbor" provisions of the Reform Act.
Except for the historical information contained herein, the matters discussed in
this Form 10-Q quarterly report are forward-looking statements which involve
certain risks and uncertainties. Although the Company believes that the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
achieved. Important factors that could cause actual results to differ materially
from the Company's expectations are disclosed in conjunction with the
forward-looking statements or elsewhere herein.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and related notes included herein.
Results of Operations - Nine months ended September 30, 1997 and 1996
Revenues. Total revenues were $28.4 million and $29.0 million for the
nine months ended September 30, 1997 and 1996, respectively. The $700,000
decrease in revenue was the result of decreases in service revenue of $700,000,
or 5%, offset by an increase in product revenue of $94,000, or 1%. The decrease
in service revenue was attributable to a decrease of $1.6 million in the
Company's French subsidiary's service revenues, due in part to the weakening of
the U.S. dollar against the French franc and to a temporary slow down in a major
service contract, offset by a $1.1 million increase in domestic service revenue.
The disposition in 1996 of Symmetrical Technologies, Inc. ("STI"), also reduced
the Company's service revenues by $170,000. The increase in product revenue of
$94,000 was the result of a $2.2 million increase in comparative company U.S.
revenues offset by a decrease of $640,000 in the Company's French subsidiary's
product revenues and a decrease of $1.5 million due to the disposition of STI in
1996.
Profit Margins. Profit margins for product sales increased 9 percentage
points for the first nine months of 1997 over the same period in 1996 as cost of
products decreased from 59% to 50% of sales. The increase in product sales
margins was due in part to the disposition during 1996 of STI, and an increase
in both domestic and French margins. Profit margins for service sales decreased
2 percentage points for the nine months ended September 30, 1997 as compared to
1996 as the cost of services increased from 77% to 79% of sales. The decrease in
service sales margins from 23% to 21% was attributable to the Company's French
subsidiary.
-13-
<PAGE>
Sales and marketing. Sales and marketing expenses were $10.9 million or
38% of revenue for the nine months ended September 30, 1997 compared to $11.7
million, or 40% of revenue in 1996. The decrease of $800,000, or 6%, was
primarily the result of the Company's disposition of STI during 1996.
General and administrative. G&A expenses were $4.9 million or 17% of
revenue for the nine months ended September 30, 1997 compared to $7.5 million,
or 26% of revenue in 1996. The decrease of $2.6 million, or 34%, was primarily
the result of the Company's efforts in cost reductions in the Company's
continuing operations.
Product development. The Company's expenditures on software research
and development activities for the nine months ended September 30, 1997 were
$4.5 million, of which $1.1 million was capitalized and $3.4 million was
expensed. Software research and development expenditures for the 1996 period
were $5.7 million, of which $1.5 million was capitalized and $4.2 million was
expensed. The $1.2 million decrease in research and development expenditures is
attributable to the Company's 1996 plan to consolidate the various 1View product
development groups into a common product development organization operating
under a single senior manager. During 1996, the Company consolidated its COLD
product development groups from three separate locations to one, and vacated the
excess office space. The Company's disposition of STI also resulted in a
reduction of $208,000 in research and development expenditures.
Gain on extinguishement of debt. The Company's French subsidiary
realized a $267,000 gain in connection with the partial forgiveness of a grant
made by a French government agency.
Income taxes. The Company's income tax benefit for the nine months
ended September 30, 1997 and 1996 of $87,000 and $89,000, respectively, resulted
from taxable losses generated by the Company's French operations.
Net loss. The Company's net loss for the nine months ended September
30, 1997 was $9.1 million as compared to a net loss of $15.3 million for the
comparable period of 1996. The net loss decrease of $6.2 million for the first
nine months of 1997 as compared to the same period in 1996 is due primarily to
the $2.6 million reduction in G&A expenses, $800,000 reduction in sales and
marketing expenses, $700,000 reduction in product development expenses,
increased profit margins resulting in $880,000 additional gross margin, and the
loss on sale of subsidiary and exchange fee incurred in 1996.
Net loss applicable to Common Stock. The net loss applicable to common
shares includes adjustments for dividends and accretion amounts related to the
Company's preferred stock. The net loss applicable to common shares was $12.7
million, or ($.51) per share, for the nine months ended September 30, 1997 as
compared to $18.1 million or ($.90) per share, for the comparable period of
1996. The decrease is attributable to the decrease in net loss described above.
-14-
<PAGE>
Results of Operations - Three months ended September 30, 1997 and 1996
Revenues. Total revenues were $9.9 million and $9.4 million for the
three months ended September 30, 1997 and 1996, respectively. The $565,000
increase in revenue was the result of increases in product revenue of $1.1
million, or 27%, offset by a decrease in service revenue of $553,000, or 10%.
The increase in product revenue was attributable to a $790,000 increase in
domestic revenue and an increase of $327,000 in the Company's French subsidiary
revenue. The decrease in service sales of $550,000 was the result of a $800,000
decrease in sales by the Company's French operations, due in part to the
weakening of the U.S. dollar against the French franc, offset by a $250,000
increase in domestic service revenues.
Profit Margins. Profit margins for product sales increased 4 percentage
points in the third quarter of 1997 over the same period in 1996 as cost of
products decreased from 53% to 49% of sales. The increase in product sales
margins was primarily due to the increased sales mix of the Company's internally
developed products. Profit margins for service sales decreased 12 percentage
points for the three months ended September 30, 1997 as compared to 1996 as the
cost of services increased from 70% to 82% of sales. The decrease in service
sales margins from 30% to 18% was attributable to declines at the Company's
French subsidiary.
Sales and marketing. Sales and marketing expenses were $3.6 million or
37% of revenue, for the three months ended September 30, 1997 compared to $3.3
million, or 36% of revenue in 1996. The increase of $317,000, or 10%, was
primarily the result of the Company's increase marketing programs and additions
to the sales force.
General and administrative. G&A expenses were $1.6 million or 17% of
revenue, for the three months ended September 30, 1997 compared to $2.0 million,
or 21% of revenue in 1996. The decrease of $346,000, or 17%, was primarily the
result of the Company's efforts in cost reductions in the Company's continuing
operations.
Product development. The Company's expenditures on software research
and development activities in the three months ended September 30, 1997 were
$1.5 million, of which $300,000 was capitalized and $1.2 million was expensed.
Software research and development expenditures for the 1996 period were $1.5
million, of which $400,000 was capitalized and $1.1 million was expensed.
Income taxes. The Company's income tax benefit for the three months
ended September 30, 1997 and 1996 of $142,000 and $77,000, respectively,
resulted from losses generated by the Company's French operations.
Net loss. The Company's net loss for the three months ended September
30, 1997 was $2.9 million as compared to $3.7 million for the comparable period
of 1996. The net loss decrease of $815,000 in the third quarter of 1997 as
compared to the same period in 1996 is due primarily to the $346,000 reduction
in G&A expenses and the loss on sale of subsidiary in 1996, offset by increases
in sales and marketing expenses.
-15-
<PAGE>
Net loss applicable to Common Stock. The net loss applicable to common
shares includes adjustments for dividends and accretion amounts related to the
Company's preferred stock. The net loss applicable to common shares was $4.6
million, or ($.18) per share, for the three months ended September 30, 1997 as
compared to $4.6 million or ($.22) per share, for the comparable period of 1996.
The decrease is attributable to the decrease in net loss described above.
Liquidity and Capital Resources
As of September 30, 1997, the Company had $3.8 million in cash and cash
equivalents, as compared to $7.6 million in cash and cash equivalents at
December 31, 1996. Net working capital was $6.2 million at September 30, 1997
and $9.9 million at December 31, 1996.
During the first nine months of 1997, the Company redeemed 1,000,000
shares of Series F Preferred Stock for $3.5 million by using proceeds from its
domestic line of credit, and drew the remaining $1,500,000 from its line of
credit. In addition, the Company issued convertible debentures and Series K
Preferred Stock for which it received net proceeds of $2.0 million and $2.9
million, respectively.
For the nine months ended September 30, 1997, the $3.8 million decrease
in cash and cash equivalents resulted from the use of $5.1 million in cash to
fund operating activities, $1.6 million to fund investing activities, offset by
$3.1 million in cash generated by financing activities.
The $5.1 million funding of operating activities arose primarily with
respect to a net loss in operations. The $1.6 million to fund investing
activities arose with respect to capitalized software development costs and the
purchase of fixed assets. The $3.1 million in cash provided by financing
activities arose primarily from the proceeds of $5.0 million from borrowing from
the line of credit, $2.0 million from the issuance of convertible debentures and
$2.9 million from the issuance of Series K Preferred Stock, offset by the $1.8
million payment of preferred stock dividends, $3.5 million payment on the
Company's Mandatory Redeemable Preferred Stock and the principle payments on
debt and capital lease obligations.
The adverse results of operations that the Company has experienced is
expected to continue at least until part of 1998. The Company believes that its
existing cash, together with the future proceeds from the sale of Series K
Preferred units and the anticipated cash flows from operations, should provide
sufficient resources to fund its activities through the next twelve months and
to maintain net tangible assets of at least $4.0 million, which is required for
continued inclusion of the Company's securities on Nasdaq-NMS. However, there
can be no assurance that the Company will be able to satisfy the conditions
precedent to the issuance of additional Units. The Company expects to close a
-16-
<PAGE>
financing with Zanett Lombardier, Ltd. and Capital Ventures International on or
before December 8, 1997. In order for the closing to take place, the Company has
to achieve certain milestones and satisfy certain conditions pursuant to the
terms of the Securities Purchase Agreement, (one of which is that the Common
Stock remain listed on the Nasdaq National Market). The Company believes it has
already satisfied the milestones for the second tranche. Anticipated cash flows
from operations are largely dependent upon the Company's ability to achieve its
sales and gross profit objectives for its 1View and other products. If the
Company is unable to meet these objectives, it will consider alternative sources
of liquidity, such as additional offerings of equity securities. Although the
Company believes that it can successfully implement its operating plan and, if
necessary, raise additional capital, there can be no assurance that
implementation of the plan will be successful or that financing, if sought, will
be available.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any legal proceedings, other than the
routine litigation incidental to the business.
Item 2. Changes in Securities
(c) On August 21, 1997, the Company entered into a transaction to raise
$200,000 through the issuance of a 8% convertible note due August 20, 2002 and
warrants to purchase 4,000 shares of Common Stock at an exercise price of $1.50
per share to, Gundyco in trust for RRSP 550 99119 12. The note and the warrants
were issued pursuant to Rule 506 of Regulation D under the Securities Act of
1933, as amended, to an accredited investor. Pursuant to the terms of the
convertible note, the Company is obligated to file a registration statement by
December 12, 1997 to register the Common Stock issuable on conversion of the
note. The note and warrants were sold for cash and no placement agent or
underwriter was used. The warrants expire on August 20, 2002. The holder of the
convertible note has a security interest in accounts receivable, inventory, the
intellectual property of the 1 View software and on the stock of Dorotech, S.A.
The convertible note is convertible into shares of the Company's Common
Stock 45 days beginning after issue at a conversion price of $1.50 per share. On
or after December 12, 1997, the holder has the right to redeem the convertible
note plus accrued interest on one business days' notice to the Company in cash
or shares of Common Stock, at the Company's election. On or after December 12,
1997, the Company has the right to redeem the convertible note plus accrued
interest on 30 days' notice to the holder in cash or share of Common Stock, at
the holders' election. If shares of Common Stock are used, Common Stock is
issued at a rate of 90% of the previous 5 trading days average closing bid
price.
-17-
<PAGE>
Item 3. Changes Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.34 Eight Percent (8%) Convertible Notes between Network Imaging
Corporation and Gundyco in trust for RRSP 550 99119 12 as of August
21, 1997 and attached Schedule.
10.35 Warrant to purchase 4,000 shares of Common Stock issued to
Gundyco in trust for RRSP 550 99119 12 dated August 21, 1997.
27. Financial data schedule
(b) Reports on Form 8-K
None
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NETWORK IMAGING CORPORATION
(Registrant)
Date: December 4, 1997 By /s/ James Leto
---------------------
James J. Leto
President and Chief Executive
Officer
Date: December 4, 1997 By /s/ Jorge R. Forgues
--------------------
Jorge R. Forgues
Senior Vice President of Finance
and Administration, Chief Finan-
cial Officer and Treasurer
NETWORK IMAGING CORPORATION
8.0% Convertible Note
$100,000
due August 20, 2002
This Note, dated as of August 20, 1997, is executed by and between
Network Imaging Corporation, a Delaware corporation (the "Company") and Gundyco
in trust for RRSP 550 99119 12 (the "Holder"). The Convertible Debentures will
not be registered under the Securities Act of 1933, as amended.
THE COMMON STOCK UNDERLYING THE CONVERTIBLE DEBENTURES WILL BE OFFERED
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE COMMON STOCK IS
RESTRICTED AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S.
PERSONS, AS THAT TERM IS DEFINED BY REGULATION S, UNLESS THE COMMON STOCK IS
REGISTERED UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR UNLESS
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS ARE AVAILABLE AND
THE COMPANY IS PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS
IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.
1. Interest.
The Company promises to pay interest of the principal amount of this
Security at the rate of 8.0% per annum. To the extent it is lawful, the Company
promises to pay interest on any interest payment due but unpaid on such
principal amount at a rate of 8.0% per annum compounded semi-annually.
The Company, at its option, shall pay interest in either cash or Common
Stock issued at the lower of either the Conversion Price or the Redemption
Price, as those terms are herein defined.
2. Method of Payment.
The Company shall pay interest, at its sole option, either in cash or
Common Stock on the Convertible Debentures at such time as it receives a notice
to convert or redeem the Convertible Debentures. The Holder must surrender
Convertible Debentures to the Company to collect principal payments.
3. Registrar and Paying Agent.
American Stock Transfer & Trust Company will act as Registrar. The
Company will act as Paying Agent. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holder. The Company or any of
its Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or co-Registrar.
4. Conversion.
After a period of forty-five (45) days from the date of execution of
this Note up to the date fixed for redemption, the Holder has the right to
convert the Convertible Debentures into Network Imaging Common Stock (the
"Common Stock") at a conversion rate equal to $1.50 (the market price per share
on the date of execution of this Note) (the "Conversion Price"). Until such time
as the Common Stock underlying the Convertible Debentures has been registered,
Holder understands and agrees that any such Common Stock issued to Holder shall
be restricted stock and may not be sold unless and pursuant to an exemption from
the Securities Act of 1933, as amended.
5. Redemption.
The Convertible Debentures will not be subject to redemption prior to
December12, 1997.
Redemption by the Holder. On or after December 12, 1997, the Holder
shall have the right to redeem the Convertible Debentures by notifying the
Company. Within one business day of such notification, the Company, at its sole
option, may elect to: (1) redeem the Convertible Debentures at face value plus
accrued interest, or (2) issue Common Stock at a rate equal to ninety percent
(90%) of the previous five trading days average closing bid price on the NASDAQ
National Market System (or the primary exchange where shares are traded) ending
the day prior to the notice date plus any accrued interest. If the Company
elects to issue Common Stock, such shares issued to Holder shall be either
issued pursuant to an exemption under the U.S. Federal securities laws or with
registered and freely tradeable shares.
The Company agrees that upon the first redemption by Holder, the
Company shall instruct Holder as to its method of redemption and such method of
redemption shall continue to be effective upon each subsequent redemption by
Holder until Holder is notified otherwise.
Redemption by the Company. On or after December12, 1997, and upon
thirty (30) days advance notice to the Holder, the Company shall have the right
to redeem the Convertible Debentures. Within thirty days of such notification,
the Holder may elect to: (1) redeem the Convertible Debentures for cash at face
value plus accrued interest, or (2) have the Company issue Common Stock at a
rate equal to ninety percent (90%) of the previous five trading days average
closing bid price on the NASDAQ National Market System ending the day prior to
the notice date plus any accrued interest. In accordance with the election of
the Holder, the Company has ten days after receipt of the Holder's election to
either make the payment as described herein or deliver the Common Stock to the
Holder.
6. Notice of Redemption.
To effect a redemption, notice shall be sent by facsimile or
forty-eight hour courier to the Holder of each Security to be redeemed at such
Holder's last address as then shown upon the registry books of the Registrar or
to the Company is redeemed by the Holder .
7. Persons Deemed Owners.
The registered Holder of a Security may be treated as the owner of it
for all purposes.
8. Agreement to File Registration Statement to Register the Common Stock.
If the Company determines that it cannot issue shares pursuant to an
exemption under the U.S. Federal securities laws, then it shall undertake to
file within thirty (30) days, a registration statement on the appropriate form
with the U.S. Securities and Exchange Commission to register the Common Stock no
earlier than sixty (60) days after the execution of this Note. The Company
further agrees that it shall use its best efforts to have such registration
statement declared effective within one hundred twenty (120) days of its initial
filing with the U.S. Securities and Exchange Commission.
9. Warrants.
A five-year warrant (the "Warrant") to purchase 4,000 shares of Common
Stock at $1.50 per share (the "Warrant Shares") shall be issued to each Holder.
The Warrants shall be substantially in the form of Exhibit D hereto.
It is understood and agreed that the Warrants and the Warrant Shares
have not been registered under the Act, and that the Warrants may not be
exercised by or on behalf of any U.S. Person unless the Warrant Shares have been
registered under the Act and any applicable state securities law in the United
States or exemptions from such registration are available. It is a condition to
the exercise of the Warrants that (a) any Warrant Shares issuable upon such
exercise will not be delivered within the United States except in circumstances
constituting an "offshore transaction" (as defined in Rule 902(i) of Regulation
S under the Act) or unless such shares have been registered under the Act or an
exemption from registration is available, and (b) the holder exercising the
Warrants must deliver to the Company (i) a written certification, attached
hereto as Exhibit E, that such holder is not a U.S. Person and (ii) if requested
by the Company, a written opinion of counsel, acceptable in form and substance
to the Company's counsel, to the effect that the Warrants and the Warrant Shares
issuable upon the exercise thereof have been registered under the Act and any
applicable state securities law in the United States or are exempt from
registration thereunder.
10. Subordination to Senior Indebtedness on Collateral.
Payment of principal, premium, if any, and interest on the Convertible
Debentures is subordinated to the prior payment in full of all senior
indebtedness. For purposes of this Note, senior indebtedness, and such senior
indebtedness is held by Fred E. Kassner who holds a line of credit with the
Company, has a first ranking pledge, up to five million dollars plus interest,
on the now owned or hereafter acquired accounts receivable, inventory, and the
intellectual property of the 1 View software products and a second ranking
pledge on the stock of Dorotech, S.A. Holders of the 8% Convertible Note shall
be secured with a second ranking pledge, up to three million dollars plus
interest, on the now owned or hereafter acquired accounts receivable, inventory
and the intellectual property of the 1 View software and a third ranking pledge
on the stock of Dorotech, S.A.
The Company agrees that it shall file within thirty (30) days of the
date of execution of this Note any and all appropriate security liens on the
collateral described in the paragraph above, including financing statements
pursuant to the Uniform Commercial Code that shall be filed in the state of
Virginia to secure the interests of the Holder in the collateral.
11. Repurchase at Option of Holder Upon a Change of Control.
If there is a Change of Control, the Company shall be required to offer
to purchase on the Repurchase Date all outstanding Convertible Debentures at a
purchase price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the Repurchase Date. Holders of the Convertible
Debentures will receive a Repurchase Offer from the Company prior to any related
Repurchase Date and may elect to have such Convertible Debentures purchased by
completing the form entitled "Option of Holder to Elect Purchase" appearing
below.
12. Successors.
When a successor assumes all the obligations of its predecessor under
the Convertible Debentures, the predecessor will be released form those
obligations (except with respect to any obligations that arise from or as a
result of such transaction).
13 Defaults and Remedies.
If an event of default occurs and is continuing other than an event of
default relating to certain events of bankruptcy, insolvency or reorganization,
then in every case, unless the principal of all of the Convertible Debentures
shall have already become due and payable, the Holders of 25% in aggregate
principal amount of Convertible Debentures then outstanding may declare all the
Convertible Debentures to be due and payable immediately.
14. No Recourse Against Others.
No director or indirect partner, employee, stockholder or officers, as
such, past, present or future, of the Company or any successor corporation or
any Subsidiary or any of the Company's Affiliates shall have any personal
liability in respect of the obligations of the Company under the Convertible
Debentures by reason of his, her or its status as such partner, stockholders,
director, officer or employee. Each Holder of a Security by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Convertible Debentures.
15. Use of Proceeds.
Network Imaging agrees that the use of proceeds under this Convertible
Note shall only be used for operational purposes and shall not be used to make
any dividend payments to the Series A Preferred shareholders nor to make
payments to CDRE pursuant to the re-purchase of the Series F Preferred stock.
16. The Holder represents and warrants that he is neither a citizen nor a
resident of the United States, and if the Holder is a corporation or a
partnership, the corporation or partnership is not organized or incorporated
under the laws of the United States.
Signatures
IN WITNESS WHEREOF, the parties hereto have cause this Note to be duly executed
as of this 20th day of August 1997.
Network Imaging Corporation
By: _____________________________
Name: ___________________________
Title:____________________________
Holder:
-----------------------------------
Gundyco in trust for RRSP 550 99119 12
Charles G. Kucey
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Convertible Debenture purchased by the
Company, check the box: /____/
If you want to elect to have only part of this Convertible Debenture purchased
by the Company, state the amount you want to be purchased:
$ _______________________
Date: ____________________________ Signature: __________________________________
<PAGE>
[FORM OF] ASSIGNMENT
I or we assign this Security to
- -------------------------------------------------------------------------------
---------------------------------------
===============================================================================
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of the assignee
______________________
and irrevocably appoint __________ agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
Date: _____________________ Signed: ____________________________________
- -------------------------------------------------------------------------------
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee. *
____________________________
*Participant in a recognized Signature Guarantee Medallion Program (or other
signature acceptable to the Trustee).
<PAGE>
EXHIBIT B
FORM OF CONVERSION NOTICE
To: Network Imaging Corporation
$100,000
8.0% Convertible Subordinated Notes due July 8, 2002
The undersigned owner of this Convertible Debenture hereby:
(i) irrevocably exercises the option to convert this Debenture, or the portion
hereof below designated, for shares of Common Stock of Network Imaging
Corporation in accordance with the terms of this Convertible Debenture and (ii)
directs that such shares of Common Stock deliverable upon the conversion, be
issued and delivered tot he registered holder hereof unless a different name has
been indicated below. If shares are to be delivered registered in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. Any amount required to be paid by the undersigned
on account of interest accompanies this Convertible Debenture.
Dated _________________
_________________________________
Signature
Fill in for registration of shares if to be delivered, and
of Convertible Debentures if to be issued, otherwise
than to and in the name of the registered holder.
___________________________________
Social Security or other
Taxpayer Identifying Number
_______________________________
(Name)
_______________________________
(Street Address)
_______________________________
(City, State and Zip Code)
(Please print name and address)
Principal amount to be converted: (if less than all)
$ ______________________________________
Signature Guarantee.*
_______________________________
*Participant in a recognized Signature Guarantee Medallion Program
<PAGE>
EXHIBIT C
FORM OF REDEMPTION NOTICE
To: Network Imaging Corporation
$100,000
8.0% Convertible Subordinated Notes due July 8, 2002
The undersigned owner of this Convertible Debenture hereby:
(i) irrevocably exercises the option to redeem this Debenture, or the portion
hereof below designated, for shares of Common Stock of Network Imaging
Corporation in accordance with the terms of this Convertible Debenture and (ii)
directs that such shares of Common Stock deliverable upon the conversion, be
issued and delivered tot he registered holder hereof unless a different name has
been indicated below. If shares are to be delivered registered in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. Any amount required to be paid by the undersigned
on account of interest accompanies this Convertible Debenture.
Dated _________________
_________________________________
Signature
Fill in for registration of shares if to be delivered, and
of Convertible Debentures if to be issued, otherwise
than to and in the name of the registered holder.
__________________________________
Social Security or other
Taxpayer Identifying Number
_______________________________
(Name)
_______________________________
(Street Address)
_______________________________
(City, State and Zip Code)
(Please print name and address)
Principal amount to be converted: (if less than all)
$ ___________________________________
Signature Guarantee.*
__________________________
*Participant in a recognized Signature Guarantee Medallion Program
<PAGE>
EXHIBIT E
WRITTEN CERTIFICATION FROM HOLDER
Holder, hereby certifies to Network Imaging that the Common Stock
underlying the Convertible Debentures and/or the Warrants issued to Holder,
pursuant to a sale, an offer for sale or a transfer have not been sold, offered
for sale or transferred to a "U.S. Person" as that term is defined under United
States Federal securities laws and/or any state securities laws that may be
application to the transaction.
I hereby certify to the accuracy of the statements made herein.
--------------------------------
Holder
--------------------------------
Date
<PAGE>
NETWORK IMAGING CORPORATION
8.0% Convertible Note
$100,000
due August 20, 2002
This Note, dated as of August 20, 1997, is executed by and between
Network Imaging Corporation, a Delaware corporation (the "Company") and Gundyco
in trust for RRSP 550 99119 12 (the "Holder"). The Convertible Debentures will
not be registered under the Securities Act of 1933, as amended.
THE COMMON STOCK UNDERLYING THE CONVERTIBLE DEBENTURES WILL BE OFFERED
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE COMMON STOCK IS
RESTRICTED AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S.
PERSONS, AS THAT TERM IS DEFINED BY REGULATION S, UNLESS THE COMMON STOCK IS
REGISTERED UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR UNLESS
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS ARE AVAILABLE AND
THE COMPANY IS PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS
IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.
1. Interest.
The Company promises to pay interest of the principal amount of this
Security at the rate of 8.0% per annum. To the extent it is lawful, the Company
promises to pay interest on any interest payment due but unpaid on such
principal amount at a rate of 8.0% per annum compounded semi-annually.
The Company, at its option, shall pay interest in either cash or Common
Stock issued at the lower of either the Conversion Price or the Redemption
Price, as those terms are herein defined.
2. Method of Payment.
The Company shall pay interest, at its sole option, either in cash or
Common Stock on the Convertible Debentures at such time as it receives a notice
to convert or redeem the Convertible Debentures. The Holder must surrender
Convertible Debentures to the Company to collect principal payments.
3. Registrar and Paying Agent.
American Stock Transfer & Trust Company will act as Registrar. The
Company will act as Paying Agent. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holder. The Company or any of
its Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or co-Registrar.
4. Conversion.
After a period of forty-five (45) days from the date of execution of
this Note up to the date fixed for redemption, the Holder has the right to
convert the Convertible Debentures into Network Imaging Common Stock (the
"Common Stock") at a conversion rate equal to $1.50 (the market price per share
on the date of execution of this Note) (the "Conversion Price"). Until such time
as the Common Stock underlying the Convertible Debentures has been registered,
Holder understands and agrees that any such Common Stock issued to Holder shall
be restricted stock and may not be sold unless and pursuant to an exemption from
the Securities Act of 1933, as amended.
5. Redemption.
The Convertible Debentures will not be subject to redemption prior to
December12, 1997.
Redemption by the Holder. On or after December12, 1997, the Holder
shall have the right to redeem the Convertible Debentures by notifying the
Company. Within one business day of such notification, the Company, at its sole
option, may elect to: (1) redeem the Convertible Debentures at face value plus
accrued interest, or (2) issue Common Stock at a rate equal to ninety percent
(90%) of the previous five trading days average closing bid price on the NASDAQ
National Market System (or the primary exchange where shares are traded) ending
the day prior to the notice date plus any accrued interest. If the Company
elects to issue Common Stock, such shares issued to Holder shall be either
issued pursuant to an exemption under the U.S. Federal securities laws or with
registered and freely tradeable shares.
The Company agrees that upon the first redemption by Holder, the
Company shall instruct Holder as to its method of redemption and such method of
redemption shall continue to be effective upon each subsequent redemption by
Holder until Holder is notified otherwise.
Redemption by the Company. On or after December12, 1997, and upon
thirty (30) days advance notice to the Holder, the Company shall have the right
to redeem the Convertible Debentures. Within thirty days of such notification,
the Holder may elect to: (1) redeem the Convertible Debentures for cash at face
value plus accrued interest, or (2) have the Company issue Common Stock at a
rate equal to ninety percent (90%) of the previous five trading days average
closing bid price on the NASDAQ National Market System ending the day prior to
the notice date plus any accrued interest. In accordance with the election of
the Holder, the Company has ten days after receipt of the Holder's election to
either make the payment as described herein or deliver the Common Stock to the
Holder.
6. Notice of Redemption.
To effect a redemption, notice shall be sent by facsimile or
forty-eight hour courier to the Holder of each Security to be redeemed at such
Holder's last address as then shown upon the registry books of the Registrar or
to the Company is redeemed by the Holder .
7. Persons Deemed Owners.
The registered Holder of a Security may be treated as the owner of it
for all purposes.
8. Agreement to File Registration Statement to Register the Common Stock.
If the Company determines that it cannot issue shares pursuant to an
exemption under the U.S. Federal securities laws, then it shall undertake to
file within thirty (30) days, a registration statement on the appropriate form
with the U.S. Securities and Exchange Commission to register the Common Stock no
earlier than sixty (60) days after the execution of this Note. The Company
further agrees that it shall use its best efforts to have such registration
statement declared effective within one hundred twenty (120) days of its initial
filing with the U.S. Securities and Exchange Commission.
9. Warrants.
A five-year warrant (the "Warrant") to purchase 4,000 shares of Common
Stock at $1.50 per share (the "Warrant Shares") shall be issued to each Holder.
The Warrants shall be substantially in the form of Exhibit D hereto.
It is understood and agreed that the Warrants and the Warrant Shares
have not been registered under the Act, and that the Warrants may not be
exercised by or on behalf of any U.S. Person unless the Warrant Shares have been
registered under the Act and any applicable state securities law in the United
States or exemptions from such registration are available. It is a condition to
the exercise of the Warrants that (a) any Warrant Shares issuable upon such
exercise will not be delivered within the United States except in circumstances
constituting an "offshore transaction" (as defined in Rule 902(i) of Regulation
S under the Act) or unless such shares have been registered under the Act or an
exemption from registration is available, and (b) the holder exercising the
Warrants must deliver to the Company (i) a written certification, attached
hereto as Exhibit E, that such holder is not a U.S. Person and (ii) if requested
by the Company, a written opinion of counsel, acceptable in form and substance
to the Company's counsel, to the effect that the Warrants and the Warrant Shares
issuable upon the exercise thereof have been registered under the Act and any
applicable state securities law in the United States or are exempt from
registration thereunder.
10. Subordination to Senior Indebtedness on Collateral.
Payment of principal, premium, if any, and interest on the Convertible
Debentures is subordinated to the prior payment in full of all senior
indebtedness. For purposes of this Note, senior indebtedness, and such senior
indebtedness is held by Fred E. Kassner who holds a line of credit with the
Company, has a first ranking pledge, up to five million dollars plus interest,
on the now owned or hereafter acquired accounts receivable, inventory, and the
intellectual property of the 1 View software products and a second ranking
pledge on the stock of Dorotech, S.A. Holders of the 8% Convertible Note shall
be secured with a second ranking pledge, up to three million dollars plus
interest, on the now owned or hereafter acquired accounts receivable, inventory
and the intellectual property of the 1 View software and a third ranking pledge
on the stock of Dorotech, S.A.
The Company agrees that it shall file within thirty (30) days of the
date of execution of this Note any and all appropriate security liens on the
collateral described in the paragraph above, including financing statements
pursuant to the Uniform Commercial Code that shall be filed in the state of
Virginia to secure the interests of the Holder in the collateral.
11. Repurchase at Option of Holder Upon a Change of Control.
If there is a Change of Control, the Company shall be required to offer
to purchase on the Repurchase Date all outstanding Convertible Debentures at a
purchase price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the Repurchase Date. Holders of the Convertible
Debentures will receive a Repurchase Offer from the Company prior to any related
Repurchase Date and may elect to have such Convertible Debentures purchased by
completing the form entitled "Option of Holder to Elect Purchase" appearing
below.
12. Successors.
When a successor assumes all the obligations of its predecessor under
the Convertible Debentures, the predecessor will be released form those
obligations (except with respect to any obligations that arise from or as a
result of such transaction).
13 Defaults and Remedies.
If an event of default occurs and is continuing other than an event of
default relating to certain events of bankruptcy, insolvency or reorganization,
then in every case, unless the principal of all of the Convertible Debentures
shall have already become due and payable, the Holders of 25% in aggregate
principal amount of Convertible Debentures then outstanding may declare all the
Convertible Debentures to be due and payable immediately.
14. No Recourse Against Others.
No director or indirect partner, employee, stockholder or officers, as
such, past, present or future, of the Company or any successor corporation or
any Subsidiary or any of the Company's Affiliates shall have any personal
liability in respect of the obligations of the Company under the Convertible
Debentures by reason of his, her or its status as such partner, stockholders,
director, officer or employee. Each Holder of a Security by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Convertible Debentures.
15. Use of Proceeds.
Network Imaging agrees that the use of proceeds under this Convertible
Note shall only be used for operational purposes and shall not be used to make
any dividend payments to the Series A Preferred shareholders nor to make
payments to CDRE pursuant to the re-purchase of the Series F Preferred stock.
16. The Holder represents and warrants that he is neither a citizen nor a
resident of the United States, and if the Holder is a corporation or a
partnership, the corporation or partnership is not organized or incorporated
under the laws of the United States.
Signatures
IN WITNESS WHEREOF, the parties hereto have cause this Note to be duly executed
as of this 20th day of August 1997.
Network Imaging Corporation
By: _____________________________
Name: ___________________________
Title:____________________________
Holder:
-----------------------------------
Gundyco in trust for RRSP 550 99119 12
Charles G. Kucey
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Convertible Debenture
purchased by the Company, check the box: /____/
If you want to elect to have only part of this Convertible Debenture
purchased by the Company, state the amount you want to be purchased:
$ __________________
Date: ____________________________ Signature: ________________________________
<PAGE>
[FORM OF] ASSIGNMENT
I or we assign this Security to
- -------------------------------------------------------------------------------
---------------------------------------
===============================================================================
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of the assignee
--------------------
and irrevocably appoint __________ agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.
Date: _____________________ Signed: ____________________________________
- -------------------------------------------------------------------------------
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee. *
----------------------------
*Participant in a recognized Signature Guarantee Medallion Program (or other
signature acceptable to the Trustee).
<PAGE>
EXHIBIT B
FORM OF CONVERSION NOTICE
To: Network Imaging Corporation
$100,000
8.0% Convertible Subordinated Notes due July 8, 2002
The undersigned owner of this Convertible Debenture hereby:
(i) irrevocably exercises the option to convert this Debenture, or the portion
hereof below designated, for shares of Common Stock of Network Imaging
Corporation in accordance with the terms of this Convertible Debenture and (ii)
directs that such shares of Common Stock deliverable upon the conversion, be
issued and delivered tot he registered holder hereof unless a different name has
been indicated below. If shares are to be delivered registered in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. Any amount required to be paid by the undersigned
on account of interest accompanies this Convertible Debenture.
Dated _________________
----------------------------------
Signature
Fill in for registration of shares if to be delivered, and
of Convertible Debentures if to be issued, otherwise
than to and in the name of the registered holder.
----------------------------------
Social Security or other
Taxpayer Identifying Number
-------------------------------
(Name)
-------------------------------
(Street Address)
-------------------------------
(City, State and Zip Code)
(Please print name and address)
Principal amount to be converted: (if less than all)
$ --------------------------------------
Signature Guarantee.*
-----------------------------
*Participant in a recognized Signature Guarantee Medallion Program
<PAGE>
EXHIBIT C
FORM OF REDEMPTION NOTICE
To: Network Imaging Corporation
$100,000
8.0% Convertible Subordinated Notes due July 8, 2002
The undersigned owner of this Convertible Debenture hereby:
(i) irrevocably exercises the option to redeem this Debenture, or the portion
hereof below designated, for shares of Common Stock of Network Imaging
Corporation in accordance with the terms of this Convertible Debenture and (ii)
directs that such shares of Common Stock deliverable upon the conversion, be
issued and delivered tot he registered holder hereof unless a different name has
been indicated below. If shares are to be delivered registered in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. Any amount required to be paid by the undersigned
on account of interest accompanies this Convertible Debenture.
Dated _________________
----------------------------------
Signature
Fillin for registration of shares if to be delivered, and
of Convertible Debentures if to be issued, otherwise
than to and in the name of the registered holder.
----------------------------------
Social Security or other
Taxpayer Identifying Number
-------------------------------
(Name)
-------------------------------
(Street Address)
-------------------------------
(City, State and Zip Code)
(Please print name and address)
Principal amount to be converted: (if less than all)
$ --------------------------------------
Signature Guarantee.*
-----------------------------
*Participant in a recognized Signature Guarantee Medallion Program
<PAGE>
EXHIBIT E
WRITTEN CERTIFICATION FROM HOLDER
Holder, hereby certifies to Network Imaging that the Common Stock
underlying the Convertible Debentures and/or the Warrants issued to Holder,
pursuant to a sale, an offer for sale or a transfer have not been sold, offered
for sale or transferred to a "U.S. Person" as that term is defined under United
States Federal securities laws and/or any state securities laws that may be
application to the transaction.
I hereby certify to the accuracy of the statements made herein.
--------------------------------
Holder
--------------------------------
Date
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
4,000 shares
Warrant to Subscribe for Common Stock
of
NETWORK IMAGING CORPORATION
THIS CERTIFIES that Gundyco in trust for RRSP 550 99119 12 ("Holder")
has the right to subscribe from Network Imaging Corporation (the "Company"), not
more than 4,000 fully paid and nonassessable shares of the Company's Common
Stock $.0001 par value per share ("Common Stock"), at a price of One Dollar and
fifty cents ($1.50) per share subject to adjustment as provided below (the
"Exercise Price"), at any time on or before 5:00 pm, U.S. time, on August 20,
2002.
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 five business
days of the Date of Exercise, or the Subscription Form shall be considered void.
This Warrant shall be canceled upon its Exercise, and, as soon as practical
thereafter, the holder hereof shall be entitled to receive a certificate or
certificates for the number of shares of Common Stock purchased upon such
Exercise and a new Warrant or Warrants (containing terms identical to this
Warrant) representing any unexercised portion of this Warrant. Each person in
whose name any certificate for shares of Common Stock is issued shall, for all
purposes, be deemed to have become the holder of record of such shares on the
Date of Exercise of this Warrant, irrespective of the date of delivery of such
certificate. Nothing in this Warrant shall be construed as conferring upon the
holder hereof any rights as a shareholder of the Company.
2. Payment of Warrant Exercise Price.
Payment of the Exercise Price may be made by any of the following, or a
combination thereof, at the election of the Holder:
(i) cash, check or wire transfer; or
(ii) surrender of this Warrant at the principal office of the Company
together with notice of election, in which event the Company shall issue Holder
a number of shares of Common Stock computed using the formula:
X = Y (A-B)/A
where:
X = the number of shares of Common Stock to be issued to Holder (not to
exceed the number of shares set forth on the cover page of this
Warrant, as adjusted pursuant to the provisions of Section 4 of this
Warrant).
Y = the number of shares of Common Stock for which Warrant is
exercisable.
A = the Market Price of one share of Common Stock (for purposes of this
Section 2(ii), the "Market Price" shall be defined as the closing bid
price of the Common Stock for the last trading day preceding the Date
of Exercise of this Warrant, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), or if the
Common Stock is not traded on NASDAQ, the Closing Bid Price in the
over-the-counter market; provided, however, that if the Common Stock is
listed on a stock exchange, the Market Price shall be the closing price
on such exchange.
B = the Exercise Price.
3. Transfer and Registration.
Subject to the provisions of Section 7 of this Warrant, this Warrant
may be transferred on the books of the Company, wholly or in part, in person or
by attorney, upon surrender of this Warrant properly endorsed, with signature.
This Warrant shall be canceled upon such surrender and, as soon as practicable
thereafter, the person to whom such transfer is made shall be entitled to
receive a new Warrant or Warrants as to the portion of this Warrant transferred,
and the holder of this Warrant shall be entitled to receive a new Warrant or
Warrants as to the portion hereof retained.
4. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the
holder hereof may purchase only a whole number of shares of Common Stock. The
Company shall make a payment in cash in respect of any fractional shares which
might otherwise be issuable upon Exercise of this Warrant, calculated by
multiplying the fractional share amount by the closing price of the Company's
Common Stock on the Date of Exercise as reported by the NASDAQ National Market
or such other exchange on which the Company's Common Stock is principally quoted
or traded on.
5. Reservation of Shares.
The Company shall at all times reserve for issuance such number of
authorized and unissued share of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for Exercise of this
Warrant. The Company covenants and agrees that upon Exercise of the Warrant, all
shares of Common Stock issuable upon such Exercise shall be duly and validly
issued, fully paid, nonassessable and not subject to preemptive rights of any
shareholders.
6. Restrictions on Transfer.
This Warrant and the Common Stock issuable on Exercise hereof have not
been registered under the Securities Act of 1933, as amended, and may not be
sold, transferred, pledges, hypothecated or otherwise disposed of in the absence
of registration or the availability of an exemption from registration under said
Act, and any share of Common Stock issued upon Exercise of this Warrant shall
bear an appropriate legend to that effect.
7. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person
other than the Company and the holder of this Warrant any legal or equitable
right, remedy or claim under this Warrant and this Warrant shall be for the sole
and exclusive benefit of the Company and the holder of this Warrant.
8. Applicable Law.
This Warrant is issued under and shall for all purposes be governed by
and construed in accordance with the laws of the Commonwealth of Virginia.
9. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft, destruction
or mutilation of this Warrant, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Company, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
10. Notice to Company.
Notices or demands pursuant to this Warrant to be given or made by the
holder of this Warrant to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by the
Company, Network Imaging Corporation, 500 Huntmar Park Drive, Herndon, Virginia
20170-5100, Attention: Chief Executive Officer.
IN WITNESS WHEREOF, this Warrant is hereby executed effective as of the
date set forth below.
Dated as of: August 21, 1997
NETWORK IMAGING CORPORATION
By: _______________________________
James J. Leto
Title: President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from SEC Form 10-Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000883946
<NAME> NETWORK IMAGING CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,782
<SECURITIES> 0
<RECEIVABLES> 14,857
<ALLOWANCES> (406)
<INVENTORY> 1,404
<CURRENT-ASSETS> 21,851
<PP&E> 9,282
<DEPRECIATION> (7,185)
<TOTAL-ASSETS> 31,480
<CURRENT-LIABILITIES> 15,605
<BONDS> 0
6,357
0
<COMMON> 3
<OTHER-SE> 2,006
<TOTAL-LIABILITY-AND-EQUITY> 31,480
<SALES> 28,396
<TOTAL-REVENUES> 28,396
<CGS> 18,421
<TOTAL-COSTS> 18,421
<OTHER-EXPENSES> 19,034
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 163
<INCOME-PRETAX> (9,222)
<INCOME-TAX> (87)
<INCOME-CONTINUING> (9,135)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,745)
<EPS-PRIMARY> (0.51)
<EPS-DILUTED> 0
</TABLE>
