SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 30, 1997 was 25,465,320.
<PAGE>
NETWORK IMAGING CORPORATION
Form 10-Q
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1997
(unaudited) and December 31, 1996 2
Consolidated Statements of Operations (unaudited)
for the three months ended June 30, 1997 and 1996 3
Consolidated Statements of Operations (unaudited)
for the six months ended June 30, 1997 and 1996 4
Consolidated Statement of Changes in Stockholders' Equity
(unaudited) for the six months ended June 30, 1997 5
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 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 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securites 14
Item 3. Change upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,845 $ 7,601
Accounts and notes receivable, net 13,482 13,243
Inventories 1,602 1,503
Prepaid expenses and other 2,265 2,362
--------- ---------
Total current assets 19,194 24,709
Fixed assets, net 2,439 2,887
Long-term notes receivable, net 1,697 1,979
Software development costs and
purchased technology, net 3,496 3,813
Goodwill, net 2,473 3,237
Other assets 140 153
--------- ---------
Total assets $ 29,439 $ 36,778
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and
obligations under capital leases $ 1,243 $ 2,063
Accounts payable 3,326 3,185
Accrued compensation and related
expenses 2,168 1,891
Deferred revenue 4,329 3,789
Other accrued expenses 3,582 3,888
--------- ---------
Total current liabilities 14,648 14,816
Long-term debt and obligations
under capital leases 5,186 88
Deferred income taxes 338 300
--------- ---------
Total liabilities 20,172 15,204
Commitments
Redeemable Series F preferred
stock, 792,186 and 1,792,186
shares issued and outstanding 6,357 9,857
Stockholders' equity:
Preferred stock, $.0001 par
value, 20,000,000 shares
authorized; 1,605,125 and
1,605,675 shares issued and
outstanding
Common stock, $.0001 par value,
50,000,000 shares authorized;
25,177,743 and 22,896,612
shares issued and outstanding 3 2
Additional paid-in-capital 122,709 124,429
Accumulated deficit (119,298) (113,098)
Translation adjustment (504) 384
--------- ---------
Total stockholders' equity 2,910 11,717
--------- ---------
Total liabilities and stockholders' equity $ 29,439 $ 36,778
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
------------- -------------
<S> <C> <C>
Revenue:
Products $ 4,098 $ 3,394
Services 5,236 5,735
------------ ------------
9,334 9,129
------------ ------------
Costs and expenses:
Cost of products sold 2,198 2,367
Cost of services provided 3,934 4,471
Sales and marketing 3,640 4,351
General and administrative 1,689 3,102
Product development 1,266 1,327
Restructuring costs -- (19)
------------ ------------
12,727 15,599
------------ ------------
Loss before investment and
interest income and income taxes (3,393) (6,470)
Investment and interest income
(expense), net (64) 87
------------ ------------
Loss before income taxes (3,457) (6,383)
Income tax (benefit) provision 61 (114)
------------ ------------
Net loss (3,518) (6,269)
------------ ------------
Preferred stock preferences (930) (865)
------------ ------------
Net loss applicable to
common shares $ (4,448) $ (7,134)
============ ============
Net loss per common share $ (0.18) $ (0.35)
============ ============
Weighted average shares outstanding 24,963,956 20,208,855
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
------------ ------------
<S> <C> <C>
Revenue:
Products $ 8,366 $ 9,390
Services 10,087 10,281
------------ ------------
18,453 19,671
------------ ------------
Costs and expenses:
Cost of products sold 4,156 5,807
Cost of services provided 7,816 8,275
Sales and marketing 7,252 8,320
General and administrative 3,300 5,527
Product development 2,308 3,061
Gain from extinguishment of debt (267) --
Exchange fee and gain on
sale of asset, net -- 619
Restructuring costs -- (175)
------------ ------------
24,565 31,434
------------ ------------
Loss before investment and
interest income and income taxes (6,112) (11,763)
Investment and interest income
(expense), net (33) 146
------------ ------------
Loss before income taxes (6,145) (11,617)
Income tax (benefit) provision 55 (12)
------------ ------------
Net loss (6,200) (11,605)
------------ ------------
Preferred stock preferences (1,906) (1,884)
------------ ------------
Net loss applicable to
common shares $ (8,106) $ (13,489)
============ ============
Net loss per common share $ (0.33) $ (0.69)
============ ============
Weighted average shares outstanding 24,715,116 19,560,045
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the six months ended June 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 (550) -- 2,257,800 1
Offering costs on issuance
of preferred stock (25)
Issuance of warrants and
extension 188
Dividends on preferred
stock (1,906)
Translation adjustment
Net loss (6,200)
---------- ---------- ---------- ---------- ---------- -----------
Balance June 30, 1997 1,605,125 $ -- 25,177,743 $ 3 $ 122,709 $ (119,298)
========== ========== ========== ========== ========== ===========
Translation
Adjustment Total
------------- ----------
<S> <C> <C>
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 warrants and
extension 188
Dividends on preferred
stock (1,906)
Translation adjustment (888) (888)
Net loss (6,200)
-------- --------
Balance June 30, 1997 $ (504) $ 2,910
======== ========
</TABLE>
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)
<TABLE>
<CAPTION>
Six months Ended June 30,
1997 1996
------------ -----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,200) $(11,605)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 2,550 2,934
Gain on sale of asset -- (111)
Restructuring costs -- (175)
Other non-cash items 10 --
Changes in assets and
liabilities:
Accounts and notes receivable (836) 2,673
Inventories (182) 533
Prepaid expenses and other 190 (732)
Accounts payable 474 (1,523)
Accrued compensation and
related expenses 418 (290)
Accrued expenses, other (212) 2,053
Deferred revenues 641 (792)
Deferred income taxes 74 (91)
-------- --------
Net cash used in operating activities (3,073) (7,126)
-------- --------
Cash flows from investing activities:
Sale of short-term investments -- 111
Capitalized software development
and license costs (751) (1,125)
Purchases of fixed assets (410) (582)
-------- --------
Net cash used in investing activities (1,161) (1,596)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common
and preferred stocks, net (2) 11,902
Cash dividends paid on Series A
preferred stock (1,605) (1,605)
Cash dividends paid on Series F
preferred stock (174) --
Payments on Mandatory Redeemable
Preferred Stock (3,500) --
Proceeds from borrowings and
short-term investments 5,000 --
Proceeds from sale and leaseback
of fixed assets -- 196
Proceeds from Notes Receivable
related to business divestitures 60 --
Principal payments on capital
lease obligations (536) (423)
Principal payments on debt (633) (213)
-------- --------
Net cash (used in) provided by
financing activities (1,390) 9,857
-------- --------
Effect of exchange rate changes on
cash and cash equivalents (132) (81)
Net decrease in cash and cash
equivalents (5,756) 1,054
Cash and cash equivalents at
beginning of year 7,601 9,359
-------- --------
Cash and cash equivalents at June 30, $ 1,845 $ 10,413
======== ========
</TABLE>
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
June 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 six month period ended June 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.
3. REDEEMABLE PREFERRED STOCK
During the first quarter of 1997, the Company redeemed 1,000,000 shares of
Series F Preferred Stock for $3,500,000. The Company used proceeds from its line
of credit to finance the Series F Preferred share buy back.
During the second quarter of 1997, the Company was to have redeemed the
remaining 792,186 shares of Series F Preferred Stock for $2,772,651. Under an
amendment to the December 1996 redemption agreement, the $2,772,651 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.
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<PAGE>
4. LINE OF CREDIT
During the second quarter of 1997, the Company drew the remaining $1,500,000
from its $5,000,000 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, 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 6). 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.
6. SUBSEQUENT EVENTS
During July 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 totaling $1.8 million. The notes are convertible into the Company's Common
Stock beginning 45 days after issue at a conversion price of $1.875 per share,
the price on the issue date.
On or after October 30, 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, 1997, the Company has the right to redeem the convertible
notes plus accrued interest on 30 days' notice to
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<PAGE>
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-annually . The warrants issued to the investors have an exercise price of
$1.875 per share and expire on July 8, 2000.
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 Company also issued warrants to purchase 162,462 shares of
Common Stock at $1.625 per share to the placement agent in the transaction. In
accordance with the terms of the offering, the proceeds will be used for working
capital and general corporate purposes. Pursuant to the terms of the offering,
the purchasers are required to make additional purchases of the units for $3.0
million upon the Company's achievement of certain performance milestones and the
satisfaction of certain other conditions and the remaining $4.7 million is to be
offered to the purchasers and the purchasers, at their option, 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 execute 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.
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 in the amount of $0.50 per share or $802,512.50
in the aggregate.
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<PAGE>
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 - Six months ended June 30, 1997 and 1996
Revenues. Total revenues were $18.5 million and $19.7 million for the
six months ended June 30, 1997 and 1996, respectively. The $1.2 million decrease
in revenue was the result of decreases in product revenue of $1.0 million, or
28%, and a decrease in service revenue of $194,000, or 6%. The decrease in
product revenue was primarily attributable to the disposition in 1996 of
Symmetrical Technologies, Inc. ("STI"), which reduced the Company's revenues by
$1.5 million. The decrease in service revenue of $194,000 was also primarily the
result of the disposition of STI, which contributed $170,000 of the decrease.
Profit Margins. Profit margins for product sales increased 12
percentage points for the first six months of 1997 over the same period in 1996
as cost of products decreased from 62% to 50% of sales. The increase in product
sales margins was primarily due to the disposition during 1996 of STI. Profit
margins for service sales increased 3 percentage points for the six months ended
June 30, 1997 as compared to 1996 as the cost of services decreased from 80% to
77% of sales. The increase in service sales margins from 20% to 23% was due to
the Company is increasing emphasis on its custom development services.
Sales and marketing. Sales and marketing expenses were $7.3 million or
39% of revenue for the six months ended June 30, 1997 compared to $8.3 million,
or 42% of revenue in 1996. The decrease of $1.1 million, or 13%, was primarily
the result of the Company's disposition of STI during 1996.
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<PAGE>
General and administrative. G&A expenses were $3.3 million or 18% of
revenue for the six months ended June 30, 1997 compared to $5.5 million, or 28%
of revenue in 1996. The decrease of $2.2 million, or 40%, 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 six months ended June 30, 1997 were $3.0
million, of which $0.7 million was capitalized and $2.3 million was expensed.
Software research and development expenditures for the 1996 period were $4.2
million, of which $1.1 million was capitalized and $3.1 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 $116,000 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 expense for the six months ended
June 30, 1997 of $55,000 resulted from income generated by the Company's French
operations that could not be offset by operating losses or carryforwards
available in other jurisdictions. The Company had income tax benefit for the six
months ended June 30, 1996 of $12,000, which was primarily the result of taxable
losses generated by the Company's French operations.
Net loss. The Company's net loss for the six months ended June 30, 1997
was $6.2 million as compared to a net loss of $11.6 million for the comparable
period of 1996. The net loss decrease of $5.4 million for the first six months
of 1997 as compared to the same period in 1996 is due primarily to the $2.2
million reduction in G&A expenses, $1.1 million reduction in sales and marketing
expenses, $1.1 million reduction in product development expenses, increased
profit margins resulting in $890,000 additional gross margin, and the 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 $8.1
million, or ($.33) per share, for the six months ended June 30, 1997 as compared
to $13.5 million or ($.69) per share, for the comparable period of 1996. The
decrease is attributable to the decrease in net loss described above.
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<PAGE>
Results of Operations - Three months ended June 30, 1997 and 1996
Revenues. Total revenues were $9.3 million and $9.1 million for the
three months ended June 30, 1997 and 1996, respectively. The $205,000 increase
in revenue was the result of increases in product revenue of $704,000, or 21%,
offset by a decrease in service revenue of $499,000, or 9%. The increase in
product revenue was attributable to a $1,050,000 increase in comparable company
revenue offset by a $346,000 reduction due to the disposition in 1996 of STI.
The decrease in service sales of $499,000 was the result of a $406,000 decrease
in comparable company revenues attributable to reduced sales by the Company's
French operations and the weakening of the U.S. dollar against the French franc.
The remaining decrease of $93,000 was due to the disposition of STI.
Profit Margins. Profit margins for product sales increased 16
percentage points in the second quarter of 1997 over the same period in 1996 as
cost of products decreased from 70% to 54% of sales. The increase in product
sales margins was primarily due to the increased sales mix of the Company's
internally developed products and the disposition during 1996 of STI. Profit
margins for service sales increased 3 percentage points for the three months
ended June 30, 1997 as compared to 1996 as the cost of services decreased from
78% to 75% of sales. The increase in service sales margins from 22% to 25% was
due to the Company increasing emphasis on its custom development services.
Sales and marketing. Sales and marketing expenses were $3.6 million or
39% of revenue, for the three months ended June 30, 1997 compared to $4.4
million, or 48% of revenue in 1996. The decrease of $711,000, or 16%, was
primarily the result of the Company's disposition of STI during 1996.
General and administrative. G&A expenses were $1.7 million or 18% of
revenue, for the three months ended June 30, 1997 compared to $3.1 million, or
34% of revenue in 1996. The decrease of $1.4 million, or 46%, 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 June 30, 1997 were $1.6
million, of which $0.3 million was capitalized and $1.3 million was expensed.
Software research and development expenditures for the 1996 period were $1.7
million, of which $0.4 million was capitalized and $1.3 million was expensed.
Income taxes. The Company's income tax expense for the three months
ended June 30, 1997 of $61,000 resulted from income generated by the Company's
French operations that could not be offset by operating losses or carryforwards
available in other jurisdictions. The Company had income tax benefit for the
three months ended June 30, 1996 of $114,000, which was primarily the result
from losses generated by the Company's French operations that could not be
offset by operating losses or carryforwards available in other jurisdictions.
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Net loss. The Company's net loss for the three months ended June 30,
1997 was $3.5 million as compared to $6.3 million for the comparable period of
1996. The net loss decrease of $2.8 million in the second quarter of 1997 as
compared to the same period in 1996 is due primarily to the $1.4 million
reduction in G&A expenses, increased profit margins resulting in $911,000
additional gross margin and a $711,000 reduction in sales and marketing
expenses.
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 $4.4
million, or ($.18) per share, for the three months ended June 30, 1997 as
compared to $7.1 million or ($.35) 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 June 30, 1997, the Company had $1.8 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 $4.5 million at June 30, 1997 and
$9.9 million at December 31, 1996.
During the first six months of 1997, the Company redeemed 1,000,000
shares of Series F Preferred Stock for $3,500,000 by using proceeds from its
line of credit. In addition, the Company drew the remaining $1,500,000 from its
domestic line of credit.
For the six months ended June 30, 1997, the $5.8 million decrease in
cash and cash equivalents resulted from the use of $3.3 million in cash to fund
operating activities, $1.2 million to fund investing activities and $1.2 million
in cash to fund financing activities.
The $3.3 million funding of operating activities arose primarily with
respect to a net loss in operations. The $1.2 million to fund investing
activities arose with respect to capitalized software development costs and the
purchase of fixed assets. The $1.2 million in cash used by financing activities
arose primarily from the $1.8 million payment of preferred stock dividends and
the principle payments on debt and capital lease obligations offset by proceeds
of $5.0 million from borrowing from the line of credit.
The adverse results of operations that the Company has experienced is
expected to continue at least for the remainder of 1997. The Company believes
that its existing cash, together with the current proceeds from the Convertible
Notes, current and future proceeds from the sale of 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
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Company will be able to satisfy the conditions precedent to the issuance of
additional Units. 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 July 9, 1997, the Company entered into a transaction to raise
$1.8 million through the issuance of two 8% convertible notes due July 8, 2002
and warrants to purchase 36,000 shares of Common Stock at an exercise price of
$1.875 per share to, Wood Gundy in trust for RRSP 550 98866 19 and Gundyco in
trust for RRSP 550 99119 12. The notes and the warrants were issued pursuant to
Rule 506 of Regulation D under the Securities Act of 1933, as amended, to two
accredited investors. Pursuant to the terms of the convertible notes, the
Company is obligated to file a registration statement by September 9, 1997 to
register the Common Stock issuable on conversion of the notes. The notes and
warrants were sold for cash and no placement agent or underwriter was used. The
warrants expire on July 8, 2000. The holders of the convertible notes have a
security interest in accounts receivable, inventory, the intellectual property
of the 1 View software and on the stock of Dorotech, S.A.
The convertible notes are convertible into shares of the Company's
Common Stock 45 days beginning after issue at a conversion price of $1.875 per
share. On or after October 30, 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, 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.
In addition, the Company entered into a securities purchase agreement
dated as of July 28, 1997 ("Securities Purchase Agreement"), pursuant to which
the Company agreed to issue up to 11,000 units ("Units") consisting of one share
of Series K Convertible Preferred Stock of the Company ("Series K Preferred
Stock") and warrants to purchase
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75 shares of Common Stock (each a "Unit") to Zanett Lombardier, Ltd. and Capital
Ventures International ("Purchasers"). On July 28, 1997, the Company issued
3,300 Units and received net proceeds of $2.9 million. The warrants issued to
the Purchasers expire on July 27, 2002. Pursuant to the terms of the Securities
Purchase Agreement, the Purchasers are required to purchase 3,000 additional
Units if the Company achieves certain performance milestones and satisfies
certain other conditions and the Purchasers have the option to purchase an
additional $4.7 million of Units. The Series K Preferred Stock and the warrants
were issued pursuant to Rule 506 of Regulation D under the Securities Act of
1933, as amended, to two accredited investors. The Company has granted each
Purchaser registration rights, whereby the Company is obligated to file a
registration statement as soon as practicable after each closing, but in no
event later than the 60th day following such closing registering at least 135%
of the shares of Common Stock issuable on conversion of the Series K Preferred
Stock and the warrants issued to the Purchasers.
Also, in connection with each issuance of Units, the Company is
obligated to pay the placement agent, The Zanett Securities Corporation
("Zanett"), a fee of 8% of the aggregate gross proceeds received by the Company
at closing and to issue to Zanett warrants to purchase Common Stock equal to 8%
of the quotient obtained by dividing the aggregate purchase price of the Units
issued by $1.625, the initial exercise price of the warrants issued to Zanett.
The Company paid the placement agent a fee of $242,880 and issued a warrant to
purchase 162,462 shares of Common Stock at an exercise price of $1.625 per share
in connection with the first closing on July 28, 1997. The warrants expire on
July 27, 2002. 135% of the number of shares of Common Stock issuable on exercise
of the warrants issued to Zanett must also be included in the registration
statement to be filed as described in the preceding paragraph.
Each share of Series K Stock is convertible at the option of the holder
into the number of shares of Common Stock determined by dividing the initial
purchase price of $1,000 by the lesser of (a) $2.00 and (b) 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 an
effective 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.
The conversion price of the Series K Preferred Stock and the warrants
issued to the Purchasers and Zanett are subject to adjustment in certain
circumstances.
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Item 3. Changes Upon Senior Securities
(b) The Company failed to pay its quarterly dividend on its Series A
Cumulative Convertible Preferred Stock of $0.50 per share or $802,512.50 in the
aggregate.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on June 3, 1997 at
which the Stockholders elected five directors, ratified the selection of Ernst &
Young LLP as the Company's independent accountants for the fiscal year ending
1997, and approved the adoption of the Employee Stock Purchase Plan. A proposal
to ratify Sections 3.02, 3.04 and 3.05 of the Company's Bylaws was not approved
by the Stockholders.
The following table sets forth the names of the nominees for director
and the votes for and withheld with respect to each such nominee:
<TABLE>
<CAPTION>
Nominee For Authority Withheld
------- ---------- ------------------
<S> <C> <C>
Robert P. Bernardi............ 17,365,608 3,109,570
John F. Burton................ 20,136,387 338,791
James J. Leto................. 20,146,787 328,391
C. Alan Peyser................ 20,144,587 330,591
Robert Ripp................... 20,145,787 329,391
</TABLE>
In connection with the ratification of the selection of Ernst & Young
LLP as the independent auditors for the Company for the fiscal year ending 1997,
20,242,301 shares were voted in favor of the ratification, 151,572 were voted
against, 81,305 abstained.
With respect to the proposal to approve the adoption of the Employee
Stock Purchase Plan, 19,429,885 shares were voted for the proposal, 607,143 were
voted against, 119,770 abstained, and 318,380 were Broker non-votes.
As for the proposal to ratify the adoption of amendments to Sections
3.02, 3.04, and 3.05 of the Bylaws of the Company to provide for a classified
Board of Directors, 8,058,836 shares were voted in favor of the proposal,
1,240,517 were voted against, 79,870 abstained, and 10,746,385 were Broker
non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.11 Amended and Restated Bylaws of the Company as of June 3,
1997
3.12 Certificate of Designation of Series K Convertible
Preferred Stock of the Company filed in Delaware on July 28,
1997.
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10.22 Eight Percent (8%) Convertible Note between Network
Imaging Corporation and Wood Gundy in trust for RRSP 550 98866
19 and Gundyco in trust for RRSP 550 99119 12 as of July 9,
1997 and attached Schedule.
10.23 Securities Purchase Agreement between Network Imaging
Corporation and Capital Ventures International and Zanett
Lombardier, Ltd. as of July 28, 1997.
10.24 Registration Rights Agreement between Network Imaging
Corporation and Capital Ventures International and Zanett
Lombardier, Ltd. as of July 28, 1997.
10.25 Warrant to purchase 20,000 shares of Common Stock issued
to Wood Gundy in trust for RRSP 550 98866 19 dated July 9,
1997.
10.26 Warrant to purchase 16,000 shares of Common Stock issued
to Gundyco in trust for RRSP 550 99119 12 dated July 9, 1997.
10.27 Warrant to purchase 112,500 shares of Common Stock
issued to Capital Ventures International dated July 28, 1997.
10.28 Warrant to purchase 135,000 shares of Common Stock
issued to Zanett Lombardier, Ltd. dated July 28, 1997.
10.29 Warrant to purchase 162,462 shares of Common Stock
issued to the Zanett Securities Corporation dated July 28,
1997.
10.30 Placement Agency Agreement dated July 2, 1997 between
Network Imaging Corporation and The Zanett Securities
Corporation
10.31 Security Agreement dated as of December 31, 1996 between
Network Imaging Corporation and Fred Kassner
10.32 Amendment No. 1 to Loan Agreement dated as of June 8,
1997 between Network Imaging Corporation and Fred Kassner
10.33 Amendment No. 1 to Security Agreement dated as of June
8, 1997 between Network Imaging Corporation and Fred Kassner
27. Financial data schedule
(b) Reports on Form 8-K
None
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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: August 14, 1997 By /s/ James Leto
--------------
James J. Leto
President and Chief Executive Officer
Date: August 14, 1997 By /s/ Jorge R. Forgues
--------------------
Jorge R. Forgues
Senior Vice President of Finance and
Administration, Chief Financial
Officer and Treasurer
As amended through June 3, 1997
BY-LAWS
OF
NETWORK IMAGING CORPORATION
ARTICLE I
OFFICES
SECTION 1.01. REGISTERED OFFICE. The registered office of Network
Imaging Corporation (the "Corporation") in the State of Delaware shall be at the
principal office of The Prentice-Hall Corporation System, Inc. in the City of
Dover, County of Kent, and the registered agent in charge thereof shall be The
Prentice-Hall Corporation System, Inc.
SECTION 1.02. OTHER OFFICES. The Corporation may also have an office or
offices at any other place or places within or without the State of Delaware as
the Board of Directors of the Corporation (the "Board") may from time to time
determine or the business of the Corporation may from time to time require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01. ANNUAL MEETINGS. The annual meeting of stockholders of
the Corporation for the election of directors of the Corporation ("Directors"),
and for the transaction of such other business as may properly come before such
meeting, shall be held at such place, date and time as shall be fixed by the
Board and designated in the notice or waiver of notice of such annual meeting;
PROVIDED, HOWEVER, that no annual meeting of stockholders need by held if all
actions, including the election of Directors, required by the General
Corporation Law of the State of Delaware (the "General Corporation Law") to be
taken at such annual meeting are taken by written consent in lieu of meeting
pursuant to Section 2.09 hereof.
SECTION 2.02. SPECIAL MEETINGS. Special meetings of stockholders for
any purpose or purposes may be called by the Board or the Chairman of the Board,
the Chief Executive Officer, the President or the Secretary of the Corporation
or by the recordholders of at least a majority of the shares of common stock of
the Corporation issued and outstanding ("Shares") and entitled to vote thereat,
to be held at such place, date and time as shall be designated in the notice or
waiver of notice thereof.
SECTION 2.03. NOTICE OF MEETINGS. (a) Except as otherwise provided by
law, written notice of each annual or special meeting of stockholders stating
the place, date and time of such meeting and, in the case of a special meeting,
the purpose of purposes for which such meeting is to be held, shall be given
personally or by first-class mail (air mail in the case of international
communications) to each recordholder of Shares (a "Stockholder") entitled to
vote thereat, not less than 10 nor more than 60 days before the date of such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the Stockholder at such
Stockholder's address as it appears on the records of the Corporation. If, prior
to the time of mailing, the Secretary of the Corporation (the "Secretary") shall
have received from any Stockholder a written request that notices intended for
such Stockholder are to be mailed to some address other than the address that
appears on the records of the Corporation, notices intended for such Stockholder
shall be mailed to the address designated in such request.
(b) Notice of a special meeting of Stockholders may be given by the
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person or persons calling the meeting, or, upon the written request of such
person or persons, such notice shall be given by the Secretary on behalf of such
person or persons. If the person or persons calling a special meeting of
Stockholders give notice thereof, such person or persons shall deliver a copy of
such notice to the Secretary. Each request to the Secretary for the giving of
notice of a special meeting of Stockholders shall state the purpose or purposes
of such meeting.
SECTION 2.04. WAIVER OF NOTICE. Notice of any annual or special meeting
of Stockholders need not be given to any Stockholder who files a written waiver
of notice with the Secretary, signed by the person entitled to notice, whether
before or after such meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of Stockholders need be specified in any written waiver
of notice thereof. Attendance of a Stockholder at a meeting, in person or by
proxy, shall constitute a waiver of notice of such meeting, except when such
Stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the notice of such meeting was inadequate or improperly given.
SECTION 2.05. ADJOURNMENTS. Whenever a meeting of Stockholders, annual
or special, is adjourned to another date, time or place, notice need not be
given of the adjourned meeting if the date, time and place thereof are announced
at the meeting at which the adjournment is taken. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder entitled to vote thereat. At the adjourned meeting, any business may
be transacted which might have been transacted at the original meeting.
SECTION 2.06. QUORUM. Except as otherwise provided by law or the
Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation"), the recordholders of one-third of the Shares entitled to vote
thereat, present in person or by proxy, shall constitute a quorum for the
transaction of business at all meetings of Stockholders, whether annual or
special. If, however, such quorum shall not be present in person or by proxy at
any meeting of Stockholders, the Stockholders entitled to vote thereat may
adjourn the meeting from time to time in accordance with Section 2.05 hereof
until a quorum shall be present in person or by proxy.
SECTION 2.07. VOTING. To the extent a Stockholder is permitted to vote,
each Stockholder shall be entitled to one vote for each Share held of record by
such Stockholder. Except as otherwise provided by law or the Certificate of
Incorporation, Directors shall be elected by a plurality of the votes of the
Shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors, and in all other matters, the affirmative
vote of the majority of the Shares present in person or represented by proxy at
the meeting and entitled to vote on the subject matter shall be the act of the
Stockholders.
SECTION 2.08. PROXIES. Each Stockholder entitled to vote at a meeting
of Stockholders or to express, in writing, consent to or dissent from any action
of Stockholders without a meeting may authorize another persons or persons to
act for such Stockholder by proxy. Such proxy shall be filed with the Secretary
before such meeting of Stockholders or such action of Stockholders without a
meeting, at such time as the Board may require. No proxy shall be voted or acted
upon more than three years from its date, unless the proxy provides for a longer
period.
SECTION 2.09. STOCKHOLDER'S CONSENT IN LIEU OF MEETING. Any action
required by the General Corporation Law to be taken at any annual or special
meeting of Stockholders, and any action which may be taken at any annual or
special meeting of Stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the recordholders of Shares having not less than the
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<PAGE>
minimum number of votes necessary to authorize or take such action at a meeting
at which the recordholders of all Shares entitled to vote thereon were present
and voted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by the Board, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these By-laws directed or required to be
exercised or done by Stockholders.
SECTION 3.02. NUMBER, QUALIFICATION AND TERM OF OFFICE. (a) The number
of Directors shall be one or such other number not greater than nine as shall be
fixed from time to time by the Board. Directors need not be Stockholders.
(b) The Board shall be divided into two classes, as nearly equal in
number as the then total number of Directors constituting the entire Board
permits with the term of office of one class expiring each year. At the Annual
Meeting of Stockholders in 1996, Directors of the first class shall be elected
to hold office for a term expiring at the next annual meeting, and until the
election and qualification of their successors, or until their prior death,
resignation or removal, and Directors of the second class shall be elected to
hold office for a term expiring at the second annual meeting of stockholders
thereafter, and until the election and qualification of their successors, or
until their prior death, resignation or removal. The following present Directors
are hereby designated initial members of the classes as indicated below:
CLASS I CLASS II
John F. Burton Robert P. Bernardi
James J. Leto Robert Ripp
C. Alan Peyser
(c) Each successor to a Class I or Class II Director shall hold office
until the second annual meeting of the stockholders next succeeding his or her
election, and until his or her successor is elected and qualified, or until his
or her prior death, resignation or removal; except however, if additional
directorships are established, the initial term for such directorships shall be
for one or more years not greater than two as determined by the Board in order
to ensure that approximately one-half (1/2) of all of the directors are elected
at each annual meeting of the stockholders.
SECTION 3.03. RESIGNATION. Any Director may resign at any time by
giving written notice to the Board, the Chairman of the Board of the Corporation
(the "Chairman") or the Secretary. Such resignation shall take effect at the
time specified in such notice or, if the time is not specified, upon receipt
thereof by the Board, the Chairman or the Secretary, as the case may be. Unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3.04. REMOVAL. Any or all of the Directors may be removed, but
only for cause, at any time by vote of the recordholders of a majority of the
Shares then entitled to vote at an election of Directors, or by written consent
of the recordholders of Shares pursuant to Section 2.09 hereof.
SECTION 3.05. VACANCIES. Vacancies occurring on the Board for any
reason including, without limitation, vacancies occurring as a result of the
creation of new directorships that increase the number of Directors, may be
filled by vote of the recordholders of a majority of the Shares then entitled to
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<PAGE>
vote at an election of Directors or by written consent of such recordholders
pursuant to Section 2.09 hereof or by vote of the Board or by written consent of
the Directors pursuant to Section 3.08 hereof. If the number of Directors then
in office is less than a quorum, such vacancies may be filled by vote of a
majority of the Directors then in office or by written consent of all such
Directors pursuant to Section 3.08 hereof. Unless earlier removed pursuant to
Section 3.04 hereof, each Director chosen in accordance with this Section 3.05
shall have the same term as that of his or her predecessor, or, if such vacancy
is a result of an increase in the number of directors, as that of the other
directors of the class of which he or she shall be a member.
SECTION 3.06. MEETINGS. (a) ANNUAL MEETINGS. As soon as practicable
after each annual election of Directors by the Stockholders, the Board shall
meet for the purpose of organization and the transaction of other business,
unless it shall have transacted all such business by written consent pursuant to
Section 3.08 hereof.
(b) OTHER MEETINGS. Regular meetings of the Board may be held at such
places within or without the State of Delaware and at such times as the Board
may from time to time determine, and if so determined, notwithstanding Section
3.06(c) hereof, notices thereof need not be given. Other meetings of the Board
shall be held at such times as the Chairman, the Chief Executive Officer, the
President of the Corporation (the "President"), the Secretary or a majority of
the Board shall from time to time determine.
(c) NOTICE OF MEETINGS. The Secretary shall give written notice to each
Director of each meeting of the Board, which notice shall state the place, date,
time and purpose of such meeting. Notice of each such meeting shall be given to
each Director, if by mail, addressed to him at his residence or usual place of
business, at least two days before the day on which such meeting is to be held,
or shall be sent to him at such place by telecopy, telegraph, cable, or other
form of recorded communication, or be delivered personally or by telephone not
later than the day before the day on which such meeting is to be held. A written
waiver of notice, signed by the Director entitled to notice, whether before or
after the time of the meeting referred to in such waiver, shall be deemed
equivalent to notice. Neither the business to be transacted at, nor the purpose
of any meeting of the Board need by specified in any written waiver of notice
thereof. Attendance of a Director at a meeting of the Board shall constitute a
waiver of notice of such meeting except as provided by law.
(d) PLACE OF MEETINGS. The Board may hold its meetings at such place or
places within or without the State of Delaware as the Board or the Chairman may
from time to time determine, or as shall be designated in the respective notices
or waivers of notice of such meetings.
(e) QUORUM AND MANNER OF ACTING. One-third of the total number of
Directors then in office (but in no event less than two if the total number of
directorships, including vacancies, is greater than one and in no event a number
less than one-third of the total number of directorships, including vacancies)
shall be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and the vote of a
majority of those Directors present at any such meeting at which a quorum is
present shall be necessary for the passage of any resolution or act of the
Board, except as otherwise expressly required by law, the Certificate of
Incorporation or these By-laws. In the absence of a quorum for any such meeting,
a majority of the Directors present thereat may adjourn such meeting from time
to time until a quorum shall be present.
(f) ORGANIZATION. At each meeting of the Board, one of the following
shall act as chairman of the meeting and preside, in the following order of
precedence:
(i) the Chairman;
(ii) the Chief Executive Officer
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<PAGE>
(iii) the President;
(iv) any Director chosen by a majority of the Directors
present.
The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary if an Assistant Secretary is present) whom the chairman of
the meeting shall appoint shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 3.07. COMMITTEES OF THE BOARD. The Board may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more Directors. The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of such committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum may unanimously appoint another Director to act at the
meeting in the place of any such absent or disqualified member. Any committee of
the Board, to the extent provided in the resolution of the Board designating
such committee, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; PROVIDED, HOWEVER, that no such committee shall have such power or
authority in reference to amending the Certificate of Incorporation (except that
such a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board as provided
in Section 151(a) of the General Corporation Law, fix the designations and any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
of stock of the Corporation or fix the number of shares of any series of stock
or authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Section 251 or 252 of the General
Corporation Law, recommending to the Stockholders the sale, lease or exchange of
all or substantially all the Corporation's property and assets, recommending to
the Stockholders a dissolution of the Corporation or the revocation of a
dissolution, or amending these By-laws; PROVIDED FURTHER, HOWEVER, that, unless
expressly so provided in the resolution of the Board designating such committee,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law. Each committee of
the Board shall keep regular minutes of its proceedings and report the same to
the Board when so requested by the Board.
SECTION 3.08. DIRECTORS' CONSENT IN LIEU OF MEETING. Any action
required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by all the members of the Board or such committee and such
consent is filed with the minutes of the proceedings of the Board or such
committee.
SECTION 3.09. ACTION BY MEANS OF TELEPHONE OR SIMILAR COMMUNICATIONS
EQUIPMENT. Any one or more members of the Board, or of any committee thereof,
may participate in a meeting of the Board or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
SECTION 3.10. COMPENSATION. Unless otherwise restricted by the
Certificate of Incorporation, the Board may determine the compensation of
Directors. In addition, as determined by the Board, Directors may be reimbursed
by the Corporation for their expenses, if any, in the performance of their
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duties as Directors. No such compensation or reimbursement shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
OFFICERS
SECTION 4.01. OFFICERS. The officers of the Corporation shall be the
Chairman, the Chief Executive Officer, the President, the Secretary, and a
Treasurer and may include one or more Vice Presidents, one or more Assistant
Secretaries and one or more Assistant Treasurers, and such other officers as the
Board from time to time deems necessary or appropriate.
SECTION 4.02. AUTHORITY AND DUTIES. All officers shall have such
authority and perform such duties in the management of the Corporation as may be
provided in these By-laws or, to the extent not so provided, by resolution of
the Board.
SECTION 4.03. TERM OF OFFICE, RESIGNATION AND REMOVAL. (a) Each officer
shall be appointed by the Board and shall hold office for such term as may be
determined by the Board. Each officer shall hold office until his successor has
been appointed and qualified or his earlier death or resignation or removal in
the manner hereinafter provided. The Board may require any officer to give
security for the faithful performance of his duties.
(b) Any officer may resign at any time by giving written notice to the
Board, the Chairman, the Chief Executive Officer, the President or the
Secretary. Such resignation shall take effect at the time specified in such
notice or, if the time be not specified, upon receipt thereof by the Board, the
Chairman, the Chief Executive Officer, the President or the Secretary, as the
case may be. Unless otherwise specified therein, acceptance of such resignation
shall not be necessary to make it effective.
(c) All officers and agents appointed by the Board shall be subject to
removal, with or without cause, at any time by the Board or by the action of the
recordholders of a majority of the Shares entitled to vote thereon.
SECTION 4.04. VACANCIES. Any vacancy occurring in any office of the
Corporation, for any reason, shall be filled by action of the Board. Unless
earlier removed pursuant to Section 4.03 hereof, any officer appointed by the
Board to fill any such vacancy shall serve only until such time as the unexpired
term of his predecessor expires unless reappointed by the Board.
SECTION 4.05. THE CHAIRMAN. The Chairman shall have the power to call
special meetings of Stockholders, to call special meetings of the Board and, if
present, to preside at all meetings of Stockholders and all meetings of the
Board. The Chairman shall perform all duties incident to the office of Chairman
of the Board and all such other duties as may from time to time be assigned to
him by the Board or these By-laws.
SECTION 4.06. THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall have general and active management and control of the business and affairs
of the Corporation, subject to the control of the Board and the Chairman, and
shall see that all orders and resolutions of the Board are carried into effect.
The Chief Executive Officer shall perform all duties incident to the office of
Chief Executive Officer and all such other duties as may from time to time be
assigned to him by the Chairman, the Board or these By-laws.
SECTION 4.07. THE PRESIDENT. The President shall have general and
active management and control of the business and affairs of the Corporation,
subject to the control of the Board and the Chairman. The President shall
perform all duties incident to the office of President and all such other duties
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as may from time to time be assigned to him by the Chairman, the Board or these
By-laws.
SECTION 4.08. VICE PRESIDENTS. Vice Presidents, if any, in order of
their seniority or in any other order determined by the Board, shall generally
assist the President and perform such other duties as the Board or the President
shall prescribe, and in the absence or disability of the President, shall
perform the duties and exercise the powers of the President.
SECTION 4.09. THE SECRETARY. The Secretary shall, to the extent
practicable, attend all meetings of the Board and all meetings of Stockholders
and shall record all votes and the minutes of all proceedings in a book to be
kept for that purpose, and shall perform the same duties for any committee of
the Board when so requested by such committee. He shall give or cause to be
given notice of all meetings of Stockholders and of the Board, shall perform
such other duties as may be prescribed by the Board, the Chairman or the
President and shall act under the supervision of the Chairman. He shall keep in
safe custody the seal of the Corporation and affix the same to any instrument
that requires that the seal be affixed to it and which shall have been duly
authorized for signature in the name of the Corporation and, when so affixed,
the seal shall be attested by his signature or by the signature of the Treasurer
of the Corporation (the "Treasurer") or an Assistant Secretary or Assistant
Treasurer of the Corporation. He shall keep in safe custody the certificate
books and stockholder records and such other books and records of, the
Corporation as the Board, the Chairman or the President may direct and shall
perform all other duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Board, the Chairman or
the President.
SECTION 4.10. ASSISTANT SECRETARIES. Assistant Secretaries of the
Corporation ("Assistant Secretaries"), if any, in order of their seniority or in
any other order determined by the Board, shall generally assist the Secretary
and perform such other duties as the Board or the Secretary shall prescribe,
and, in the absence or disability of the Secretary, shall perform the duties and
exercise the powers of the Secretary.
SECTION 4.11. THE TREASURER. The Treasurer shall have the care and
custody of all the funds of the Corporation and shall deposit such funds in such
banks or other depositories as the Board, or any officer or officers, or any
officer and agent jointly duly authorized by the Board, shall from time to time,
direct or approve. He shall disburse the funds of the Corporation under the
direction of the Board and the President. He shall keep a full and accurate
account of all moneys received and paid on account of the Corporation and shall
render a statement of his accounts whenever the Board, the Chairman or the
President shall so request. He shall perform all other necessary actions and
duties in connection with the administration of the financial affairs of the
Corporation and shall generally perform all the duties usually appertaining to
the office of treasurer of a corporation. When required by the Board, he shall
give bonds for the faithful discharge of his duties in such sums and with such
sureties as the Board shall approve.
SECTION 4.12. ASSISTANT TREASURERS. Assistant Treasurers of the
Corporation ("Assistant Treasurers"), if any, in order of their seniority or in
any other order determined by the Board, shall generally assist the Treasurer
and perform such other duties as the Board or the Treasurer shall prescribe,
and, in the absence or disability of the Treasurer, shall perform the duties and
exercise the powers of the Treasurer.
ARTICLE V
CHECKS, DRAFTS, NOTES, AND PROXIES
SECTION 5.01. CHECKS, DRAFTS AND NOTES. All checks, drafts and other
orders for the payment of money, notes and other evidences of indebtedness
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issued in the name of the Corporation shall be signed by such officer or
officers, agent or agents of the Corporation and in such manner as shall be
determined, from time to time, by resolution of the Board.
SECTION 5.02. EXECUTION OF PROXIES. The Chairman, the Chief Executive
Officer or the President, or, in the absence or disability of all of them, any
Vice President, if any, may authorize, from time to time, the execution and
issuance of proxies to vote shares of stock or other securities of other
corporations held of record by the Corporation and the execution of consents to
action taken or to be taken by any such corporation. All such proxies and
consents, unless otherwise authorized by the Board, shall be signed in the name
of the Corporation by the Chairman, the Chief Executive Officer, the President
or any Vice President, if any.
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
SECTION 6.01. CERTIFICATES EVIDENCING SHARES. Shares and, where
appropriate, other securities of the Corporation shall be evidenced by
certificates in such form or forms as shall be approved by the Board.
Certificates shall be issued in consecutive order and shall be numbered in the
order of issue, and shall be signed by, or in the name of the Corporation by,
the Chairman of the Board of Directors, or the President or any Vice President,
and by the Treasurer or any Assistant Treasurer, or the Secretary or any
Assistant Secretary. Any or all the signatures on certificates may be a
facsimile. In the event any such officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be an officer
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such officer held such office at the date of issue.
SECTION 6.02. STOCK LEDGER. A stock ledger in one or more counterparts
shall be kept by the Secretary, in which shall be recorded the name and address
of each person, firm or corporation owning the Shares evidenced by each
certificate evidencing Shares issued by the Corporation, the number of Shares
evidenced by each such certificate, the date of issuance thereof and, in the
case of cancellation, the date of cancellation. Except as otherwise expressly
required by law, the person in whose name Shares stand on the stock ledger of
the Corporation shall be deemed the owner and recordholder thereof for all
purposes.
SECTION 6.03. TRANSFERS OF SHARES. Registration of transfers of Shares
shall be made only in the stock ledger of the Corporation upon request of the
registered holder of such shares, or of his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and upon the
surrender of the certificate or certificates evidencing such Shares properly
endorsed or accompanied by a stock power duly executed, together with such proof
of the authenticity of signatures as the Corporation may reasonably require.
SECTION 6.04. ADDRESSES OF STOCKHOLDERS. Each Stockholder shall
designate to the Secretary an address at which notices of meetings and all other
corporate notices may be served or mailed to such Stockholder, and, if any
Stockholder shall fail to so designate such an address, corporate notices may be
served upon such Stockholder by mail directed to the mailing address, if any, as
the same appears in the stock ledger of the Corporation or at the last known
mailing address of such Stockholder.
SECTION 6.05. LOST, DESTROYED AND MUTILATED CERTIFICATES. Each
recordholder of Shares shall promptly notify the Corporation of any loss,
destruction or mutilation of any certificate or certificates evidencing any
Share or Shares of which he is the recordholder. The Board may, in its
discretion, cause the Corporation to issue a new certificate in place of any
certificate theretofore issued by it and alleged to have been mutilated, lost,
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stolen or destroyed, upon the surrender of the mutilated certificate or, in the
case of loss, theft or destruction of the certificate, upon satisfactory proof
of such loss, theft or destruction, and the Board may, in its discretion,
require the recordholder of the Shares evidenced by the lost, stolen or
destroyed certificate or his legal representative to give the Corporation a bond
sufficient to indemnify the Corporation against any claim made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 6.06. REGULATIONS. The Board may make such other rules and
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates evidencing
Shares.
SECTION 6.07. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
In order that the Corporation may determine the Stockholders entitled to notice
of or to vote at any meeting of Stockholders or any adjournment thereof, or to
express consent to, or to dissent from, corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the date of such meeting nor more than 60
days prior to any other such action. A determination of the Stockholders
entitled to notice of or to vote at a meeting of Stockholders shall apply to any
adjournment of such meeting; PROVIDED, HOWEVER, that the Board may fix a new
record date for the adjourned meeting.
ARTICLE VII
SEAL
SECTION 7.01. SEAL. The Board may approve and adopt a corporate seal,
which shall be in the form of a circle and shall bear the full name of the
Corporation, the year of its incorporation and the words "Corporate Seal
Delaware".
ARTICLE VIII
FISCAL YEAR
SECTION 8.01. FISCAL YEAR. The fiscal year of the Corporation shall
end on the thirty-first day of December of each year unless changed by
resolution of the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
SECTION 9.01. INDEMNIFICATION. (a) The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he/she is or was or has
agreed to become a director or officer of the Corporation, or is or was serving
at the request of the Corporation as director or officer of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action or inaction in an official capacity while serving as a director,
officer, partner, trustee, employee or agent or in any other capacity while
serving as a director, officer, partner, trustee, employee or agent, against
expenses (including reasonable attorney's fees), judgments, fines and amounts
paid in settlement actually or reasonably incurred by him/her in connection with
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such action, suit or proceeding if he/she acted in good faith and in a manner
he/she reasonably believed to be in or not opposed to the best interests of the
Corporation and with respect to any criminal action or proceeding, had no
reasonable cause to believe his/her conduct was unlawful. The termination of any
action, suit or proceeding by judgment, orders, settlement, conviction, or upon
a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he/she reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his/her conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director or officer of the Corporation
or is or was serving at the request of the Corporation as a director or officer
of another corporation, partnership joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 9.01(a) and (b) of these
By-laws, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under Section 9.01(a) and (b) of these By-laws
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 9.01(a) and (b) of these
By-laws. Such determination shall be made (i) by the Board by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (iii) by the stockholders of the Corporation.
(e) Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation pursuant to this Article IX.
(f) The indemnification and advancement of expenses provided by or
granted pursuant to other Sections of this Article IX shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law agreement vote of
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
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(g) For purposes of this Article IX, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation or is or was serving at the request of such
constituent corporation as a director or officer of another corporation
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article IX with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(h) For purposes of this Article IX, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by such director, officer, employee or
agent with respect to any employee benefit plan its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
IX.
(i) The indemnification and advancement of expenses provided by or
granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 9.02. INSURANCE FOR INDEMNIFICATION. The Corporation may
purchase and maintain insurance on behalf of any person who is or was a director
or officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of Section 145 of the
General Corporation Law.
ARTICLE X
AMENDMENTS
SECTION 10.01. AMENDMENTS. Any By-law (including these By-laws) may be
adopted, amended or repealed by the vote of the recordholders of a majority of
the Shares then entitled to vote at an election of Directors or by written
consent of Stockholders pursuant to Section 2.09 hereof, or by vote of the Board
or by a written consent of Directors pursuant to Section 3.08 hereof.
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CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES K CONVERTIBLE PREFERRED STOCK
of
NETWORK IMAGING CORPORATION
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Network Imaging Corporation, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the Corporation
pursuant to authority of the Board of Directors as required by Section 151 of
the Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Certificate of Incorporation and
Bylaws, each as amended and restated through the date hereof, the Board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock, par value $.0001 per share (the "Preferred Stock"), and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
Series K Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 11,000 shares of
Preferred Stock, is the Series K Convertible Preferred Stock (the "Series K
Preferred Stock") and the face amount shall be One Thousand U.S.
Dollars ($1000.00) per share (the "Face Amount").
II. NO DIVIDENDS
The Series K Preferred Stock will bear no dividends, and the holders of
the Series K Preferred Stock shall not be entitled to receive dividends on the
Series K Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A. "Closing Price" means, for any security as of any date, the last
sale price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg
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Financial Markets or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding shares of Series K Preferred Stock if Bloomberg
Financial Markets is not then reporting Closing Prices of such security
(collectively, "Bloomberg"), or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Price cannot be calculated
for such security on such date on any of the foregoing bases, the Closing Price
of such security on such date shall be the fair market value as reasonably
determined by an investment banking firm selected by the Corporation and
reasonably acceptable to holders of a majority of the then outstanding shares of
Series K Preferred Stock, with the costs of such appraisal to be borne by the
Corporation.
B. "Conversion Date" means, for any Optional Conversion, the date
specified in the notice of conversion in the form attached hereto (the "Notice
of Conversion"), so long as the copy of the Notice of Conversion is faxed (or
delivered by other means resulting in notice) to the Corporation before
Midnight, New York City time, on the Conversion Date indicated in the Notice of
Conversion. If the Notice of Conversion is not so faxed or otherwise delivered
before such time, then the Conversion Date shall be the date the holder faxes or
otherwise delivers the Notice of Conversion to the Corporation. The Conversion
Date for the Required Conversion at Maturity shall be the Maturity Date (as such
terms are defined in Paragraph D of Article IV).
C. "Conversion Percentage" shall initially have the meaning set forth
below during each of the periods set forth below. In the event, the
Corporation's Common Stock is no longer designated for quotation on the Nasdaq
National Market ("Nasdaq") and is designated for quotation on the Nasdaq Small
Cap Market, the Conversion Percentage for each of the periods set forth below
shall be permanently reduced by two percent (2%). The Conversion Percentages
also shall be subject to adjustment as provided herein and as provided in
Section 2(c) of the Registration Rights Agreement (as defined herein):
If the Conversion Date is: Then the Conversion Percentage is:
Prior to the 61st day following 105%
the First Closing Date
On or after the 61st day following 96%
the First Closing Date and prior to
the 91st day following the First Closing Date
On or after the 91st day following 85%
the First Closing Date and prior to
the 181st day following the First Closing Date
On or after the 181st day following 81%
the First Closing Date
D. "Conversion Price" means the lower of the Fixed Conversion Price
and the Variable Conversion Price, each in effect as of such date and subject
to adjustment as provided herein.
E. "First Closing Date" means the date of the first closing under that
certain Securities Purchase Agreement by and among the Corporation and the
purchasers named therein with respect to the initial issuance of the Series K
Preferred Stock (the "Securities Purchase Agreement").
F. "Fixed Conversion Price" means $2.00 and shall be subject to
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adjustment as provided herein.
G. "N" means the number of days from, but excluding, the date of
original issuance of such share of Series K Preferred Stock.
H. "Premium" means an amount equal to (.07)x(N/365)x(1,000).
I. "Variable Conversion Price" means, as of any date of determination,
the amount obtained by multiplying the Conversion Percentage then in effect by
the lowest Closing Price for the Corporation's Common Stock, par value $.0001
per share ("Common Stock") on any single trading day during the ten (10)
consecutive trading days ending on the trading day immediately preceding such
date of determination (subject to equitable adjustment for any stock splits,
stock dividends, reclassifications or similar events during such ten (10)
trading day period), and shall be subject to adjustment as provided herein.
IV. CONVERSION
A. Conversion at the Option of the Holder. (i) Subject to the
limitations on conversions contained in Paragraph C of this Article IV, each
holder of shares of Series K Preferred Stock may, at any time and from time to
time, convert (an "Optional Conversion") each of its shares of Series K
Preferred Stock into a number of fully paid and nonassessable shares of Common
Stock determined in accordance with the following formula if the Corporation
timely redeems the Premium thereon in cash in accordance with subparagraph (ii)
below:
1,000
----------------
Conversion Price
or in accordance with the following formula if the Corporation does not timely
redeem the Premium thereon in accordance with subparagraph (ii) below:
1,000 + the Premium
-------------------
Conversion Price
(ii) (a) The Corporation shall have the right, in its sole
discretion, upon receipt of a Notice of Conversion or in the event of a Required
Conversion at Maturity, to redeem any portion of the Premium subject to such
conversion for a sum of cash equal to the amount of the Premium being so
redeemed. All cash redemption payments hereunder shall be paid in lawful money
of the United States of America at such address for the holder as appears on the
record books of the Corporation (or at such other address as such holder shall
hereafter give to the Corporation by written notice). In the event the
Corporation so elects to redeem all or any portion of the Premium in cash and
fails to pay such holder the applicable redemption amount to which such holder
is entitled by depositing a check in the U.S. Mail to such holder within three
(3) business days of receipt by the Corporation of a notice of Conversion (in
the case of a redemption in connection with an Optional Conversion) or the
Maturity Date (in the case of a redemption in connection with a Required
Conversion at Maturity), the Corporation shall thereafter forfeit its right to
redeem such Premium in cash and such Premium shall thereafter be converted into
shares of Common Stock in accordance with Article IV.A(i).
(b) Each holder of Series K Preferred Stock shall
have the right to require the Corporation to provide advance notice to such
holder stating whether the Corporation will elect to redeem all or any portion
of the Premium in cash pursuant to the Corporation's redemption rights discussed
in subparagraph (a) of this Article IV.A(ii). A holder may exercise such right
from time to time by sending notice (an "Election Notice") to the Corporation,
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by facsimile, requesting that the Corporation disclose to such holder whether
the Corporation would elect to redeem any portion of the Premium for cash in
lieu of issuing Common Stock therefor if such holder were to exercise its right
of conversion pursuant to this Article IV.A. The Corporation shall, no later
than the close of business on the next business day following receipt of an
Election Notice, disclose to such holder whether the Corporation would elect to
redeem any portion of a Premium in connection with a conversion pursuant to a
Notice of Conversion delivered over the subsequent five (5) business day period.
If the Corporation does not respond to such holder within such one (1) business
day period via facsimile, the Corporation shall, with respect to any conversion
pursuant to a Conversion Notice delivered within the subsequent five (5)
business day period, forfeit its right to redeem such Premium in accordance with
subparagraph (a) of this Article IV.A(ii) and shall be required to convert such
Premium into shares of Common Stock.
B. Mechanics of Conversion. In order to effect an Optional Conversion,
a holder shall: (x) fax (or otherwise deliver) a copy of the fully executed
Notice of Conversion to the Corporation or the transfer agent for the Common
Stock and (y) surrender or cause to be surrendered the original certificates
representing the Series K Preferred Stock being converted (the "Preferred Stock
Certificates"), duly endorsed, along with a copy of the Notice of Conversion as
soon as practicable thereafter to the Corporation or the transfer agent. Upon
receipt by the Corporation of a facsimile copy of a Notice of Conversion from a
holder, the Corporation shall immediately send, via facsimile, a confirmation to
such holder stating that the Notice of Conversion has been received, the date
upon which the Corporation expects to deliver the Common Stock issuable upon
such conversion and the name and telephone number of a contact person at the
Corporation regarding the conversion. The Corporation shall not be obligated to
issue shares of Common Stock upon a conversion unless either the Preferred Stock
Certificates are delivered to the Corporation or the transfer agent as provided
above, or the holder notifies the Corporation or the transfer agent that such
certificates have been lost, stolen or destroyed (subject to the requirements of
Article XIV.B).
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of Preferred Stock Certificates from a holder of Series K Preferred
Stock accompanied by a Notice of Conversion, the Corporation shall, no later
than the second business day following the later of (a) the Conversion Date and
(b) the date of such surrender (or, in the case of lost, stolen or destroyed
certificates, after provision of indemnity pursuant to Article XIV.B) (the
"Delivery Period"), issue and deliver to the holder (x) that number of shares of
Common Stock issuable upon conversion of such shares of Series K Preferred Stock
being converted and (y) a certificate representing the number of shares of
Series K Preferred Stock not being converted, if any. In lieu of delivering
physical certificates representing the Common Stock issuable upon conversion,
provided the Borrower's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program, upon request of the
holder and its compliance with the provisions contained in this paragraph, so
long as the certificates therefor do not bear a legend and the holder thereof is
not obligated to return such certificate for the placement of a legend thereon,
the Corporation shall use its best efforts to cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system.
(ii) Taxes. The Corporation shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of the shares
of Common Stock upon the conversion of the Series K Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series K
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
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Common Stock issuable upon conversion of the Series K Preferred Stock shall be
the next higher whole number of shares.
(iv) Conversion Disputes. In the case of any dispute with
respect to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with subparagraph (i)
above. If such dispute involves the calculation of the Conversion Price, the
Corporation shall submit the disputed calculations to its outside accountant via
facsimile within two (2) business days of receipt of the Notice of Conversion.
The accountant shall audit the calculations and notify the Corporation and the
holder of the results no later than two (2) business days from the date it
receives the disputed calculations. The accountant's calculation shall be deemed
conclusive, absent manifest error. The Corporation shall then issue the
appropriate number of shares of Common Stock in accordance with subparagraph (i)
above.
C. Limitations on Conversions. The conversion of shares of Series K
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) Cap Amount. Unless permitted by the applicable rules and
regulations of the principal securities market on which the Common Stock is
listed or traded, in no event shall the total number of shares of Common Stock
issued upon conversion of the Series K Preferred Stock exceed the maximum number
of shares of Common Stock that the Corporation can so issue pursuant to Rule
4460(i) of the Nasdaq (or any successor rule) (the "Cap Amount"). The Cap Amount
shall be allocated pro-rata to the holders of Series K Preferred Stock as
provided in Article XIV.C. In the event the Corporation is prohibited from
issuing shares of Common Stock as a result of the operation of this subparagraph
(i), the Corporation shall comply with Article VII.
(ii) No Five Percent Holders. Except in a Required Conversion
at Maturity, in no event shall a holder of shares of Series K Preferred Stock be
entitled to receive shares of Common Stock upon a conversion to the extent that
the sum of (x) the number of shares of Common Stock beneficially owned by the
holder and its affiliates (exclusive of shares issuable upon conversion of the
unconverted portion of the shares of Series K Preferred Stock or the unexercised
or unconverted portion of any other securities of the Corporation subject to a
limitation on conversion or exercise analogous to the limitations contained
herein) and (y) the number of shares of Common Stock issuable upon the
conversion of the shares of Series K Preferred Stock with respect to which the
determination of this subparagraph is being made, would result in beneficial
ownership by the holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock. For purposes of this subparagraph, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13 D-G thereunder, except as otherwise
provided in clause (x) above. The restriction contained in this subparagraph
(ii) shall not be altered, amended, deleted or changed in any manner whatsoever
unless the holders of a majority of the Common Stock and each holder of Series K
Preferred Stock shall approve such alteration, amendment, deletion or change.
D. Required Conversion at Maturity. Subject to the limitations set
forth in Paragraph C(i) of this Article IV and provided all shares of Common
Stock issuable upon conversion of all outstanding shares of Series K Preferred
Stock are then (i) authorized and reserved for issuance, (ii) registered under
the Securities Act of 1933, as amended (the "Securities Act") for resale by the
holders of such shares of Series K Preferred Stock and (iii) eligible to be
traded on either the Nasdaq, the New York Stock Exchange or the American Stock
Exchange, each share of Series K Preferred Stock issued and outstanding on the
fourth anniversary of the First Closing Date (the "Maturity Date"),
automatically shall be converted into shares of Common Stock on such date in
accordance with the conversion formulas set forth in Paragraph A of this Article
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<PAGE>
IV (the "Required Conversion at Maturity"). If the Required Conversion at
Maturity occurs, the Corporation and the holders of Series K Preferred Stock
shall follow the applicable conversion procedures set forth in Paragraph B of
this Article IV; provided, however, that the holders of Series K Preferred Stock
are not required to deliver a Notice of Conversion to the Corporation or its
transfer agent.
V. RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. Upon the initial issuance of the shares of Series
K Preferred Stock, the Corporation shall reserve 12,500,000 shares of the
authorized but unissued shares of Common Stock for issuance upon conversion of
the Series K Preferred Stock and thereafter the number of authorized but
unissued shares of Common Stock so reserved (the "Reserved Amount") shall not be
decreased and shall at all times be sufficient to provide for the conversion of
the Series K Preferred Stock outstanding at the then current Conversion Price.
The Reserved Amount shall be allocated to the holders of Series K Preferred
Stock as provided in Article XIV.C.
B. Increases to Reserved Amount. If the Reserved Amount for any three
(3) consecutive trading days (the last of such three (3) trading days being the
"Authorization Trigger Date") shall be less than 135% of the number of shares of
Common Stock issuable upon conversion of the Series K Preferred Stock on such
trading days, the Corporation shall immediately notify the holders of Series K
Preferred Stock of such occurrence and shall take immediate action (including,
if necessary, seeking shareholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series K Preferred Stock. In the event the Corporation fails to so
increase the Reserved Amount within ninety (90) days after an Authorization
Trigger Date, each holder of Series K Preferred Stock shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of a Redemption Notice (as defined in Article VIII.C) to the
Corporation, to require the Corporation to purchase for cash, at an amount per
share equal to the Redemption Amount (as defined in Article VIII.B), a portion
of the holder's Series K Preferred Stock such that, after giving effect to such
purchase, the holder's allocated portion of the Reserved Amount exceeds 135% of
the total number of shares of Common Stock issuable to such holder upon
conversion of its Series K Preferred Stock. If the Corporation fails to redeem
any of such shares within ten (10) business days after its receipt of a
Redemption Notice, then such holder shall be entitled to the remedies provided
in Article VIII.C.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a holder of shares
of Series K Preferred Stock submits a Notice of Conversion and the Corporation
fails for any reason (other than because such issuance would exceed such
holder's allocated portion of the Reserved Amount or Cap Amount, for which
failures the holders shall have the remedies set forth in Articles V and VII) to
deliver, on or prior to the fourth business day following the expiration of the
Delivery Period for such conversion, such number of freely tradeable shares of
Common Stock to which such holder is entitled upon such conversion, or (y) the
Corporation provides notice to any holder of Series K Preferred Stock at any
time of its intention not to issue freely tradeable shares of Common Stock upon
exercise by any holder of its conversion rights in accordance with the terms of
this Certificate of Designation (other than because such issuance would exceed
such holder's allocated portion of the Reserved Amount or Cap Amount) (each of
(x) and (y) being a "Conversion Default"), then the Corporation shall pay to the
affected holder, in the case of a Conversion Default described in clause (x)
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above, and to all holders, in the case of a Conversion Default described in
clause (y) above, payments for the first ten (10) business days following the
expiration of the Delivery Period, in the case of a Conversion Default described
in clause (x), and for the first ten (10) business days following a Conversion
Default described in clause (y), an amount equal to $500 per day.
Notwithstanding the foregoing, in no event shall the Company be deemed to have
committed a Conversion Default at any time prior to the Registration Deadline or
during an Excluded Period (as such terms are defined in the Registration Rights
Agreement (as defined herein)) solely because the shares of Common Stock issued
upon a conversion of Series K Preferred Stock were not freely tradeable. In the
event any Conversion Default continues beyond such ten (10) business day period,
the Corporation shall pay to the holder an additional amount equal to:
(.24) x (D/365) x (the Default Amount)
where:
"D" means the number of days after the expiration of the ten (10)
business day period described above through and including the Default Cure Date;
"Default Amount" means (i) the total Face Amount of all shares of
Series K Preferred Stock held by such holder plus (ii) the total accrued Premium
as of the first day of the Conversion Default on all shares of Series K
Preferred Stock included in clause (i) of this definition; and
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (x) of its definition, the date the Corporation effects the
conversion of the full number of shares of Series K Preferred Stock and (ii)
with respect to a Conversion Default described in clause (y) of its definition,
the date the Corporation begins to issue freely tradeable Common Stock in
satisfaction of all conversions of Series K Preferred Stock in accordance with
Article IV.A.
The payments to which a holder shall be entitled pursuant to this
Paragraph A are referred to herein as "Conversion Default Payments." A holder
may elect to receive accrued Conversion Default Payments in cash or to convert
all or any portion of such accrued Conversion Default Payments, at any time,
into Common Stock at the lowest Conversion Price in effect during the period
beginning on the date of the Conversion Default through the Conversion Date for
such conversion. In the event a holder elects to receive any Conversion Default
Payments in cash, it shall so notify the Corporation in writing. Such payment
shall be made in accordance with and be subject to the provisions of Article
XIV.E. In the event a holder elects to convert all or any portion of the
Conversion Default Payments into Common Stock, the holder shall indicate on a
Notice of Conversion such portion of the Conversion Default Payments which such
holder elects to so convert and such conversion shall otherwise be effected in
accordance with the provisions of Article IV.
B. Adjustment to Conversion Price. If a holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion of
Series K Preferred Stock for any reason (other than because such issuance would
exceed such holder's allocated portion of the Reserved Amount or Cap Amount, for
which failures the holders shall have the remedies set forth in Articles V and
VII), then the Fixed Conversion Price in respect of any shares of Series K
Preferred Stock held by such holder shall thereafter be the lesser of (i) the
Fixed Conversion Price on the Conversion Date specified in the Notice of
Conversion which resulted in the Conversion Default and (ii) the lowest
Conversion Price in effect during the period beginning on, and including, such
Conversion Date through and including the day such shares of Common Stock are
delivered to the holder. If there shall occur a Conversion Default of the type
described in clause (y) of Article VI.A, then the Fixed Conversion Price with
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respect to any conversion thereafter shall be the lowest Conversion Price in
effect at any time during the period beginning on, and including, the date of
the occurrence of such Conversion Default through and including the Default Cure
Date. The Fixed Conversion Price shall thereafter be subject to further
adjustment for any events described in Article XI.
C. Buy-In Cure. Unless the Corporation has notified the applicable
holder in writing prior to the delivery by such holder of a Notice of Conversion
that the Corporation is unable to honor conversions, if (i) the Corporation
fails for any reason to deliver during the Delivery Period shares of Common
Stock to a holder upon a conversion of shares of Series K Preferred Stock and
(ii) after the applicable Delivery Period with respect to such conversion, such
holder purchases (in an open market transaction or otherwise) shares of Common
Stock to make delivery in satisfaction of a sale by such holder of the shares of
Common Stock (the "Sold Shares") which such holder anticipated receiving upon
such conversion (a "Buy-In"), the Corporation shall pay such holder (in addition
to any other remedies available to the holder) the amount by which (x) such
holder's total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the net proceeds received by
such holder from the sale of the Sold Shares. For example, if a holder purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to shares of Common Stock it sold for $10,000, the
Corporation will be required to pay the holder $1,000. A holder shall provide
the Corporation written notification indicating any amounts payable to such
holder pursuant to this Paragraph C. The Corporation shall make any payments
required pursuant to this Paragraph C in accordance with and subject to the
provisions of Article XIV.E.
D. Redemption Right. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, for any reason (other than because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies set
forth in Articles V and VII) to issue shares of Common Stock within ten (10)
business days after the expiration of the Delivery Period with respect to any
conversion of Series K Preferred Stock, then the holder may elect at any time
and from time to time prior to the Default Cure Date for such Conversion
Default, by delivery of a Redemption Notice (as defined in Article VIII.C) to
the Corporation, to have all or any portion of such holder's outstanding shares
of Series K Preferred Stock purchased by the Corporation for cash, at an amount
per share equal to the Redemption Amount (as defined in Article VIII.B). If the
Corporation fails to redeem any of such shares within five (5) business days
after its receipt of a Redemption Notice, then such holder shall be entitled to
the remedies provided in Article VIII.C.
VII. INABILITY TO CONVERT SHARES OF SERIES K PREFERRED STOCK DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time the then unissued portion of any
holder's Cap Amount is less than 135% of the number of shares of Common Stock
then issuable upon conversion of such holder's shares of Series K Preferred
Stock (a "Trading Market Trigger Event"), the Corporation shall immediately
notify the holders of Series K Preferred Stock of such occurrence and shall take
immediate action (including, if necessary, seeking the approval of its
shareholders to authorize the issuance of the full number of shares of Common
Stock which would be issuable upon the conversion of Series K Preferred Stock
but for the Cap Amount) to eliminate any prohibitions under applicable law or
the rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or any
of its securities on the Corporation's ability to issue shares of Common Stock
in excess of the Cap Amount. In the event the Corporation fails to eliminate all
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such prohibitions within ninety (90) days after the Trading Market Trigger
Event, each holder of Series K Preferred Stock shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by delivery of
a Redemption Notice (as defined in Article VIII.C) to the Corporation, to
require the Corporation to purchase for cash, at an amount per share equal to
the Redemption Amount (as defined in Article VIII.B), a portion of the holder's
Series K Preferred Stock such that, after giving effect to such purchase, the
then unissued portion of such holder's Cap Amount on the date of such Redemption
Notice exceeds 135% of the total number of shares of Common Stock then issuable
to such holder upon conversion of its Series K Preferred Stock. If the
Corporation fails to redeem any of such shares within five (5) business days
after its receipt of a Redemption Notice, then such holder shall be entitled to
the remedies provided in Article VIII.C.
B. Remedies. If the Corporation fails to eliminate the applicable
prohibitions within the ninety (90) day cure period referred to in Paragraph A
of this Article VII and thereafter the Corporation is prohibited, at any time,
from issuing shares of Common Stock upon conversion of Series K Preferred Stock
to any holder because such issuance would exceed the then unissued portion of
such holder's Cap Amount because of applicable law or the rules or regulations
of any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Corporation or its securities, any
holder who is so prohibited from converting its Series K Preferred Stock may
elect any or both of the following additional remedies:
(i) to require, with the consent of holders of at least fifty
percent (50%) of the outstanding shares of Series K Preferred Stock (including
any shares of Series K Preferred Stock held by the requesting holder), the
Corporation to terminate the listing of its Common Stock on the Nasdaq (or any
other stock exchange, interdealer quotation system or trading market) and to
cause its Common Stock to be eligible for trading on the Nasdaq SmallCap Market
or on the over-the-counter electronic bulletin board, at the option of the
requesting holder; or
(ii) to require the Corporation to issue shares of Common
Stock in accordance with such holder's Notice of Conversion at a conversion
price equal to the average of the Closing Prices of the Common Stock for the
five (5) consecutive trading days (subject to equitable adjustment for any stock
splits, stock dividends, reclassifications or similar events during such five
(5) trading day period) preceding the date of the holder's written notice to the
Corporation of its election to receive shares of Common Stock pursuant to this
subparagraph (ii).
VIII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events described
in clauses (i)-(v) below after expiration of the applicable cure period (if any)
being a "Redemption Event"):
(i) the Common Stock (including any of the shares of Common
Stock issuable upon conversion of the Series K Preferred Stock) is suspended
from trading on any of, or is not listed (and authorized) for trading on at
least one of, the New York Stock Exchange, the American Stock Exchange, the
Nasdaq Small Cap Market or Nasdaq for an aggregate of ten (10) trading days in
any nine (9) month period;
(ii) the Registration Statement required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights Agreement
entered into in connection with and pursuant to the Securities Purchase
Agreement (the "Registration Rights Agreement"), has not been declared effective
by January 31, 1998 or such Registration Statement, after being declared
effective, cannot be utilized by the holders of Series K Preferred Stock for the
resale of all of their Registrable Securities (as defined in the Registration
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Rights Agreement) for an aggregate of more than thirty (30) days after June 30,
1998;
(iii) the Corporation fails, and any such failure continues
uncured for five (5) business days after the Corporation has been notified
thereof in writing by the holder, to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series K
Preferred Stock upon conversion of the Series K Preferred Stock as and when
required by the Securities Purchase Agreement or the Registration Rights
Agreement;
(iv) the Corporation provides notice to any holder of Series K
Preferred Stock, including by way of public announcement, at any time, of its
intention not to issue shares of Common Stock to any holder of Series K
Preferred Stock upon conversion in accordance with the terms of this Certificate
of Designation (other than due to the circumstances contemplated by Articles V
or VII for which the holders shall have the remedies set forth in such
Articles);
(v) the Corporation shall:
(a) sell, convey or dispose of all or substantially
all of its assets;
(b) merge, consolidate or engage in any other
business combination with any other entity (other than pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Corporation); or
(c) have fifty percent (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);
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series K Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a Redemption Notice
(as defined in Paragraph C below) to the Corporation while such Redemption Event
continues, to require the Corporation to purchase for cash any or all of the
then outstanding shares of Series K Preferred Stock held by such holder for an
amount per share equal to the Redemption Amount (as defined in Paragraph B
below) in effect at the time of the redemption hereunder. For the avoidance of
doubt, the occurrence of any event described in clauses (i), (ii), (iv) or (v)
above shall immediately constitute a Redemption Event and there shall be no cure
period.
B. Definition of Redemption Amount. The "Redemption Amount" with
respect to a share of Series K Preferred Stock means an amount equal to:
V X M
---------------
C P
where:
"V" means the face amount thereof plus the accrued Premium thereon and
all Conversion Default Payments (if any) with respect thereto through the date
of redemption;
"CP" means the Conversion Price in effect on the date of the Redemption
Notice; and
"M" means the highest Closing Price of the Corporation's Common Stock
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during the period beginning on the date of the Redemption Notice and ending on
the date of the redemption.
C. Redemption Defaults. If the Corporation fails to pay any holder the
Redemption Amount with respect to any share of Series K Preferred Stock within
ten (10) business days of its receipt of a notice requiring such redemption (a
"Redemption Notice"), then the holder of Series K Preferred Stock delivering
such Redemption Notice (i) shall be entitled to interest on the Redemption
Amount at a per annum rate equal to the lower of twenty-four percent (24%) and
the highest interest rate permitted by applicable law from the date of the
Redemption Notice until the date of redemption hereunder, and (ii) shall have
the right, at any time and from time to time, to require the Corporation, upon
written notice, to immediately convert (in accordance with the terms of
Paragraph A of Article IV) all or any portion of the Redemption Amount, plus
interest as aforesaid, into shares of Common Stock at the lowest Conversion
Price in effect during the period beginning on the date of the Redemption Notice
and ending on the Conversion Date with respect to the conversion of such
Redemption Amount. In the event the Corporation is not able to redeem all of the
shares of Series K Preferred Stock subject to Redemption Notices, the
Corporation shall redeem shares of Series K Preferred Stock from each holder pro
rata, based on the total number of shares of Series K Preferred Stock included
by such holder in the Redemption Notice relative to the total number of shares
of Series K Preferred Stock in all of the Redemption Notices.
D. Redemption by Corporation.
(i) The Corporation shall have the right, at any time and
provided the Corporation is not in material violation of any of its obligations
under this Certificate of Designation, the Securities Purchase Agreement or the
Registration Rights Agreement, to redeem (an "Optional Redemption") all (but not
less than all) of the then outstanding Series K Preferred Stock (other than
Series K Preferred Stock which is the subject of a Notice of Conversion
delivered prior to the delivery date of the Optional Redemption Notice (as
defined in subparagraph (iii) below)) for a price per share equal to the
Optional Redemption Amount (as defined below) which right shall be exercisable
only one time while any Series K Preferred Stock is outstanding by the
Corporation in its sole discretion by delivery of an Optional Redemption Notice
in accordance with the redemption procedures set forth below. Holders of Series
K Preferred Stock may not convert any shares of Series K Preferred Stock
selected for redemption hereunder into Common Stock at any time or on prior to
the Effective Date of Redemption designated by the Corporation in the Optimal
Redemption Notice pursuant to subparagraph (iii). The "Optional Redemption
Amount" with respect to each share of Series K Preferred Stock means the greater
of (a) 100% multiplied by the sum of (I) the Face Amount thereof plus (II) the
accrued Premium thereon and all Conversion Default Payments (if any) with
respect thereto through the date of redemption, and (b) the Benefit of the
Bargain (as defined below).
(ii) The "Benefit of the Bargain" with respect to a share of
Series K Preferred Stock means an amount equal to:
V X M
---------------
C P
where:
"V" means the face amount thereof plus the accrued Premium thereon and
all Conversion Default Payments (if any) with respect thereto through the date
of redemption;
"CP" means the Conversion Price in effect on the date of the Optional
Redemption Notice; and
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"M" means the volume weighted average sales price of the Corporation's
Common Stock on the trading day immediately preceding the date of the Optional
Redemption Notice.
(iii) The Corporation shall effect each redemption under this
Section VIII.D by giving at least five (5) business days but not more than ten
(10) business days prior written notice (the "Optional Redemption Notice") of
the date which such redemption is to become effective (the "Effective Date of
Redemption"), the shares of Series K Preferred Stock selected for redemption and
the Optional Redemption Amount to (i) the holders of Series K Preferred Stock
selected for redemption at the address and facsimile number of such holder
appearing in the Corporation's register for the Series K Preferred Stock and
(ii) the transfer agent for the Common Stock, which Optional Redemption Notice
shall be deemed to have been delivered on the business day after the
Corporation's fax (with a copy sent by overnight courier to the holders of
Series K Preferred Stock) of such notice to the holders of Series K Preferred
Stock.
(iv) The Optional Redemption Amount shall be paid to the
holder of the Series K Preferred Stock being redeemed within three (3) business
days of the Effective Date of Redemption; provided, however, that the
Corporation shall not be obligated to deliver any portion of the Optional
Redemption Amount until either the certificates evidencing the Series K
Preferred Stock being redeemed are delivered to the office of the Corporation or
the transfer agent, or the holder notifies the Corporation or the transfer agent
that such certificates have been lost, stolen or destroyed and delivers the
documentation in accordance with Article XIV.B hereof. Notwithstanding anything
herein to the contrary, in the event that the certificates evidencing the Series
K Preferred Stock being redeemed are not delivered to the Corporation or the
transfer agent prior to the third business day following the Effective Date of
Redemption, the redemption of the Series K Preferred Stock pursuant to this
Article VIII.D shall still be deemed effective as of the Effective Date of
Redemption and the Optional Redemption Amount shall be paid to the holder of
Series K Preferred Stock being redeemed within five (5) business days of the
date the certificates evidencing the Series K Preferred Stock being redeemed are
actually delivered to the Corporation or the transfer agent.
(v) If the Corporation fails to pay, when due and owing, any
Optional Redemption Amount, then the holder of Series K Preferred Stock entitled
to receive such Optional Redemption Amount shall have the right, at any time and
from time to time during the twenty (20) trading day period following the
Effective Date of Redemption (the "Optional Redemption Amount Conversion
Period"), to require the Corporation, upon written notice, to immediately
convert (in accordance with the terms of paragraph A of Article IV) any or all
of the shares of Series K Preferred Stock which are the subject of such
redemption, into shares of Common Stock at the lowest Conversion Price in effect
during the period beginning on the date the Corporation elected to redeem such
shares of Series K Preferred Stock and ending on expiration of the Optional
Redemption Amount Conversion Period. From and after the expiration of the
Optional Redemption Amount Conversion Period, the holders may convert Series K
Preferred Stock at the Conversion Price then in effect and in accordance with
Article IV. In addition, if the Corporation fails to pay an Optional Redemption
Amount when due and owing, the Corporation shall pay the holder interest on such
Optional Redemption Amount at a per annum rate equal to the lower of twenty-four
percent (24%) and the highest interest rate permitted by applicable law from the
date the Corporation elected to redeem such shares of Series K Preferred Stock
until the later of the Effective Date of Redemption or the date the Corporation
notifies the holder that it will not redeem the shares the Series K Preferred
Stock selected for redemption by the Corporation. If a holder is entitled to
interest pursuant to this subparagraph (v), the holder will not be entitled to
interest under Article XIV.E for the Corporation's failure to timely pay any
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Optional Redemption Amount hereunder.
IX. RANK
All shares of the Series K Preferred Stock shall rank (i) prior to the
Corporation's Common Stock; (ii) prior to any class or series of capital stock
of the Corporation hereafter created (unless, with the consent of the holders of
Series K Preferred Stock obtained in accordance with Article XIII hereof, such
class or series of capital stock specifically, by its terms, ranks senior to or
pari passu with the Series K Preferred Stock) (collectively with the Common
Stock, "Junior Securities"); (iii) pari passu with any class or series of
capital stock of the Corporation hereafter created (with the consent of the
holders of Series K Preferred Stock obtained in accordance with Article XIII
hereof) specifically ranking, by its terms, on parity with the Series K
Preferred Stock (the "Pari Passu Securities"); (iv) junior to the Corporations
Series A Cumulative Convertible Preferred Stock, par value $.0001 per share, the
Series F-1, F-2, F-3 and F-4 Convertible Preferred Stock, par value $.0001 per
share and the Corporation's Series H Convertible Preferred Stock, par value
$.0001 per share (collectively the "Existing Preferred Stock") and (v) junior to
any class or series of capital stock of the Corporation hereafter created (with
the consent of the holders of Series K Preferred Stock obtained in accordance
with Article XIII hereof) specifically ranking, by its terms, senior to the
Series K Preferred Stock (collectively, with the Existing Preferred Stock, the
"Senior Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up (a "Liquidation Event"), no distribution shall be made to the holders
of any shares of capital stock of the Corporation (other than Senior Securities)
upon liquidation, dissolution or winding up unless prior thereto the holders of
shares of Series K Preferred Stock shall have received the Liquidation
Preference with respect to each share. If, upon the occurrence of a Liquidation
Event, the assets and funds available for distribution among the holders of the
Series K Preferred Stock and holders of Pari Passu Securities shall be
insufficient to permit the payment to such holders of the preferential amounts
payable thereon, then the entire assets and funds of the Corporation legally
available for distribution to the Series K Preferred Stock and the Pari Passu
Securities shall be distributed ratably among such shares in proportion to the
ratio that the Liquidation Preference payable on each such share bears to the
aggregate Liquidation Preference payable on all such shares.
B. The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
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winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series K
Preferred Stock means an amount equal to the Face Amount thereof plus the
accrued Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time
as follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the
First Closing Date, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, combination, reclassification or
other similar event, the Fixed Conversion Price shall be proportionately
reduced, or if the number of outstanding shares of Common Stock is decreased by
a reverse stock split, combination or reclassification of shares, or other
similar event, the Fixed Conversion Price shall be proportionately increased. In
such event, the Corporation shall notify the Corporation's transfer agent of
such change on or before the effective date thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the First Closing Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "Fundamental Change"), then the holders of Series K
Preferred Stock shall thereafter have the right to receive upon conversion, in
lieu of the shares of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable in such
Fundamental Change with respect to or in exchange for the number of shares of
Common Stock which would have been issuable upon conversion (without giving
effect to the limitations contained in Article IV.C) had such Fundamental Change
not taken place, and in any such case, appropriate provisions shall be made with
respect to the rights and interests of the holders of the Series K Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for adjustment of the Conversion Price and of the number of shares of
Common Stock issuable upon conversion of the Series K Preferred Stock) shall
thereafter be applicable, as nearly as may be practicable in relation to any
shares of stock or securities thereafter deliverable upon the conversion
thereof. The Corporation shall not effect any transaction described in this
Paragraph B unless (i) each holder of Series K Preferred Stock has received
written notice of such transaction at least thirty (30) days prior thereto, but
in no event later than ten (10) days prior to the record date for the
determination of shareholders entitled to vote with respect thereto, and (ii)
the resulting successor or acquiring entity (if not the Corporation) assumes by
written instrument the obligations of this Paragraph B. The above provisions
shall apply regardless of whether or not there would have been a sufficient
number of shares of Common Stock authorized and available for issuance upon
conversion of the shares of Series K Preferred Stock outstanding as of the date
of such transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges. For purposes of
this Paragraph B, the sale of the capital stock or assets of Dorotech, S.A. as
contemplated by that certain Purchase Agreement dated December 31, 1996 by and
between the Company and CDR Enterprises shall not constitute a sale of all or
substantially all of the Company's assets.
C. Adjustment Due to Distribution. If at any time after the First
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Closing Date the Corporation shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"Distribution"), then the holders of Series K Preferred Stock shall be entitled,
upon any conversion of shares of Series K Preferred Stock after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to the holder with
respect to the shares of Common Stock issuable upon such conversion (without
giving effect to the limitations contained in Article IV.C) had such holder been
the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
D. Purchase Rights. If at any time after the Closing Date, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the holders of Series K
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Series K Preferred Stock (without giving effect
to the limitations contained in Article IV.C) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
E. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article XI, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series K Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
K Preferred Stock, furnish to such holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of a
share of Series K Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series K Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "Business Corporation Law"), in this Article XII and in Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder of
Series K Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). If the Corporation takes a record of its shareholders for the
purpose of determining shareholders entitled to (a) receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the
Corporation, or any proposed merger, consolidation, liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least twenty (20) days prior to the record date specified therein (or
thirty (30) days prior to the consummation of the transaction or event,
whichever is earlier, but in no event earlier than public announcement of such
proposed transaction), of the date on which any such record is to be taken for
the purpose of such vote, dividend, distribution, right or other event, and a
brief statement regarding the amount and character of such vote, dividend,
distribution, right or other event to the extent known at such time.
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To the extent that under the Business Corporation Law the vote of the
holders of the Series K Preferred Stock, voting separately as a class or series,
as applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series K Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series K
Preferred Stock (except as otherwise may be required under the Business
Corporation Law) shall constitute the approval of such action by the class. To
the extent that under the Business Corporation Law holders of the Series K
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series K Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible (without giving effect to the limitations contained
in Article IV.C) using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is calculated.
XIII. PROTECTION PROVISIONS
So long as any shares of Series K Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the Business Corporation Law) of the holders of at least
a majority of the then outstanding shares of Series K Preferred Stock:
(a) alter or change the rights, preferences
or privileges of the Series K Preferred Stock;
(b) alter or change the rights, preferences or
privileges of any capital stock of the Corporation so as to affect adversely the
Series K Preferred Stock;
(c) create any new class or series of capital
stock having a preference over the Series K Preferred Stock as to distribution
of assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "Senior Securities");
(d) create any new class or series of capital
stock ranking pari passu with the Series K Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "Pari Passu Securities");
(e) increase the authorized number of shares of
Series K Preferred Stock;
(f) issue any shares of Series K Preferred
Stock other than pursuant to the Securities Purchase Agreement;
(g) issue any additional shares of Senior
Securities; or
(h) redeem, or declare or pay any cash dividend
or distribution on, any Junior Securities.
If holders of at least a majority of the then outstanding shares of Series K
Preferred Stock agree to allow the Corporation to alter or change the rights,
preferences or privileges of the shares of Series K Preferred Stock pursuant to
subsection (a) above, then the Corporation shall deliver notice of such approved
change to the holders of the Series K Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and the Dissenting Holders shall
have the right, for a period of thirty (30) days, to convert pursuant to the
terms of this Certificate of Designation as they existed prior to such
alteration or change or to continue to hold their shares of Series K Preferred
Stock.
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<PAGE>
XIV. MISCELLANEOUS
A. Cancellation of Series K Preferred Stock. If any shares of Series K
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Corporation as Series K Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Corporation shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Corporation shall not be
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
holder contemporaneously requests the Corporation to convert such Series K
Preferred Stock.
C. Allocations of Cap Amount and Reserved Amount. The initial Cap
Amount and Reserved Amount shall be allocated pro rata among the holders of
Series K Preferred Stock based on the number of shares of Series K Preferred
Stock issued to each holder. Each increase to the Cap Amount and Reserved Amount
shall be allocated pro rata among the holders of Series K Preferred Stock based
on the number of shares of Series K Preferred Stock held by each holder at the
time of the increase in the Cap Amount or Reserved Amount, as the case may be.
In the event a holder shall sell or otherwise transfer any of such holder's
shares of Series K Preferred Stock, each transferee shall be allocated a pro
rata portion of such transferor's Cap Amount and Reserved Amount. Any portion of
the Cap Amount or Reserved Amount which remains allocated to any person or
entity which does not hold any Series K Preferred Stock shall be allocated to
the remaining holders of shares of Series K Preferred Stock, pro rata based on
the number of shares of Series K Preferred Stock then held by such holders.
D. [Intentionally Omitted]
E. Payment of Cash; Defaults. Whenever the Corporation is required to
make any cash payment to a holder under this Certificate of Designation (as a
Conversion Default Payment, upon redemption or otherwise), such cash payment
shall be made to the holder within five (5) business days after delivery by such
holder of a notice specifying that the holder elects to receive such payment in
cash and the method (e.g., by check, wire transfer) in which such payment should
be made. If such payment is not delivered within such five (5) business day
period, such holder shall thereafter be entitled to interest on the unpaid
amount at a per annum rate equal to the lower of twenty-four percent (24%) and
the highest interest rate permitted by applicable law until such amount is paid
in full to the holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion by
a holder of Series K Preferred Stock, the shares covered thereby shall be deemed
converted into shares of Common Stock and the holder's rights as a holder of
such converted shares of Series K Preferred Stock shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such holder because of a failure by the Corporation to comply with the terms
of this Certificate of Designation. Notwithstanding the foregoing, if a holder
has not received certificates for all shares of Common Stock prior to the tenth
(10th) business day after the expiration of the Delivery Period with respect to
a conversion of Series K Preferred Stock for any reason, then (unless the holder
otherwise elects to retain its status as a holder of Common Stock) the holder
shall regain the rights of a holder of Series K Preferred Stock with respect to
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such unconverted shares of Series K Preferred Stock and the Corporation shall,
as soon as practicable, return such unconverted shares to the holder. In all
cases, the holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Conversion Default Payments
pursuant to Article VI.A to the extent required thereby for such Conversion
Default and any subsequent Conversion Default and (ii) the right to have the
Conversion Price with respect to subsequent conversions determined in accordance
with Article VI.B) for the Corporation's failure to convert Series K Preferred
Stock.
G. Remedies Cumulative. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Certificate of Designation. The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of Series K Preferred Stock and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, the holders of
Series K Preferred Stock shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this day of July, 1997.
--
NETWORK IMAGING CORPORATION
By:
------------------------
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series K Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of
--------------
Series K Preferred Stock (the "Conversion"), represented by stock certificate
Nos(s). (the "Preferred Stock Certificates") into shares of common
-----------
stock ("Common Stock") of Network Imaging Corporation (the "Corporation")
according to the conditions of the Certificate of Designations, Preferences and
Rights of Series K Convertible Preferred Stock (the "Certificate of
Designation"), as of the date written below. If securities are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. No fee will be charged to the
holder for any conversion, except for transfer taxes, if any. A copy of each
Preferred Stock Certificate is attached hereto (or evidence of loss, theft or
destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series K Preferred Stock shall be made pursuant to registration of the Common
Stock under the Securities Act of 1933, as amended (the "Act"), or pursuant to
an exemption from registration under the Act.
-- The undersigned hereby requests that the Corporation electronically
transmit the Common Stock issuable pursuant to this Notice of
Conversion to the account of the undersigned's Prime Broker (which is
) with DTC through its Deposit Withdrawal Agent Commission
----------
System.
Date of Conversion:
-------------------------
Applicable Conversion Price:
----------------
Amount of Conversion Default Payments
to be Converted, if any:
--------------------
Number of Shares of
Common Stock to be Issued:
------------------
Signature:
----------------------------------
Name:
---------------------------------------
Address:
------------------------------------
* The Corporation is not required to issue shares of Common Stock until the
original Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
transfer agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than the later of (a) two (2) business days
following receipt of this Notice of Conversion and (b) delivery of the original
Preferred Stock Certificates (or evidence of loss, theft or destruction thereof)
and shall make payments pursuant to the Certificate of Designation for the
failure to make timely delivery.
NETWORK IMAGING CORPORATION
8.0% Convertible Note
$100,000
due July 8, 2002
This Note, dated as of July 9, 1997, is executed by and between Network
Imaging Corporation, a Delaware corporation (the "Company") and Wood Gundy in
trust for RRSP 550 98866 19 (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 $1.875 (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.
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5. Redemption.
The Convertible Debentures will not be subject to redemption prior to
October 30, 1997.
Redemption by the Holder. On or after October 30, 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 October 30, 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 20,000 shares of Common
Stock at $1.875 per share (the "Warrant Shares") for each million dollars of
debt 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
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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
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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. Right of First Refusal on Future Regulation S Offerings.
In the event that Network Imaging shall propose a Regulation S
transaction in the future, until such time as all of Debentures described herein
have been converted, Network Imaging shall not conduct such an offering without
first offering the transaction to the Holder who shall have five (5) days to
elect to proceed with such a transaction.
17. 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 9th day of July 1997.
Network Imaging Corporation
By:
-----------------------------
Name:
---------------------------
Title:
---------------------------
Holder:
---------------------------------
Mark Shoom
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<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>
SCHEDULE TO 8.0% Convertible Note
$100,000
due July 8, 2002
The following Notes were issued pursuant to the transaction related to
Convertible debt in the amount of $1,800,000:
(a) ten (10) Notes were issued, each in the amount of $100,000, to Wood Gundy
in trust for RRSP 550 9886619; and
(b) eight (8) Notes were issued, each in the amount of $100,000, to Gundyco
in trust for RRSP 550 99119 12.
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of July 28,
1997, by and among Network Imaging Corporation, a corporation organized under
the laws of the State of Delaware (the "Company"), with headquarters located at
500 Huntmar Park Drive, Herndon, Virginia 20170 and each of the purchasers (the
"Purchasers") set forth on the execution pages hereof (the "Execution Pages").
WHEREAS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act");
B. Each Purchaser desires to purchase, upon the terms and conditions
stated in this Agreement, units (the "Units") consisting of (i) one (1) share of
the Company's Series K Convertible Preferred Stock, par value $.0001 per share
(the "Preferred Shares"), convertible into its common stock, par value $.0001
per share, of the Company (the "Common Stock") and (ii) warrants (the
"Warrants"), in the form attached hereto as Exhibit B, to acquire seventy-five
(75) shares of Common Stock. The rights, preferences and privileges of the
Preferred Shares, including the terms upon which such Preferred Shares are
convertible into shares of Common Stock are set forth in the form of Certificate
of Designations, Preferences and Rights attached hereto as Exhibit A (the
"Certificate of Designation"). The shares of Common Stock issuable upon
conversion of the Preferred Shares or otherwise pursuant to the Certificate of
Designation are referred to herein as the "Conversion Shares" and the shares of
Common Stock issuable upon exercise of or otherwise pursuant to the Warrants are
referred to as the "Warrant Shares". The Units, the Preferred Shares, the
Conversion Shares and the Warrant Shares are collectively referred to herein as
the "Securities."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws;
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF UNITS.
a. Purchase of Units. The issuance, sale and purchase of the Units
shall take place in three (3) separate closings, the first of which is
hereinafter referred to as the "First Closing," the second of which is
hereinafter referred to as the "Second Closing" and the third of which is
hereinafter referred to as the "Third Closing." The purchase price (the
"Purchase Price") per Unit shall be equal to One Thousand Dollars ($1,000.00).
Each Purchaser's obligation to purchase Units hereunder is distinct and separate
from each other Purchaser's obligation to purchase Units and no Purchaser shall
be required to purchase hereunder more than the number of Units set forth on
such Purchaser's Execution Page hereto notwithstanding any failure by any other
Purchaser to purchase Units hereunder.
(i) On the date of the First Closing, subject to the
satisfaction (or waiver) of the conditions set forth in Section 6 and Section 7
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<PAGE>
below, the Company shall issue and sell to each Purchaser and each Purchaser
severally agrees to purchase from the Company, such number of Units as is set
forth on such Purchaser's Execution Page as being purchasable by such Purchaser
at the First Closing.
(ii) On the date of the Second Closing, subject to the
satisfaction (or waiver) of the conditions set forth in Section 6 and Section 7
below, the Company shall issue and sell to each Purchaser and each Purchaser
severally agrees to purchase from the Company (a) such number of Units as is set
forth on such Purchaser's Execution Page as being purchasable by such Purchaser
at the Second Closing plus (b) such number of additional Units (not to exceed
545 Units in the case of Zanett Lombardier, Ltd. ("Lombardier") and 455 Units in
the case of Capital Ventures International ("CVI")) as such Purchaser may
hereafter designate in a written notice delivered to the Company no later than
the second business day immediately preceding the day of the Second Closing. If
a Purchaser shall fail to designate that it will purchase Units at the Second
Closing pursuant to clause (b) of the preceding sentence, such Purchaser shall
not be obligated to purchase any additional Units pursuant to clause (b) of the
preceding sentence.
(iii) On the date of the Third Closing, subject to the
satisfaction (or waiver) of the conditions set forth in Section 6 and Section 7
below, the Company shall issue and sell to each Purchaser and each Purchaser
severally agrees to purchase from the Company such number of Units (not to
exceed 2,018 Units in the case of Lombardier and 1,682 Units in the case of CVI)
as such Purchaser may hereafter designate in a written notice delivered to the
Company no later than the second business day following the later of (x)
delivery by the Company to each Purchaser of evidence reasonably satisfactory to
the Purchasers that the conditions to the Third Closing set forth in Section 7
below have been satisfied and (y) March 1, 1997. If a Purchaser shall fail to
designate that it will purchase any Units at the Third Closing, the Purchaser
shall not be obligated to purchase any Units at such closing.
(iv) Notwithstanding anything contained in subsection (ii)
above, if on or before November 15, 1997 (a) the Company delivers evidence
reasonably satisfactory to Lombardier that the Company has met its cash flow
projections delivered to The Zanett Securities Corporation by the Company prior
to the date hereof in connection with the transactions contemplated hereby and
(b) the NASDAQ National Market notifies the Company that the Company's Common
Stock shall be removed from quotation on the NASDAQ National Market due to a
failure to have sufficient net assets and the purchase of 700 Units by
Lombardier hereunder will prevent such removal, the Company may require
Lombardier to purchase 700 Units at a closing to be held prior to the Second
Closing. Lombardier's obligation to purchase Units at such closing shall be
subject to the Company's satisfaction of the conditions contained in Section
7(b) hereof on or prior to the Closing. Any Units purchased by Lombardier
hereunder shall reduce the number of Units Lombardier is obligated to puchase,
and the Company is obligated to sell, under Section 1(a)(ii)(a) at the Second
Closing.
b. Form of Payment. At each closing hereunder, each Purchaser shall pay
the aggregate Purchase Price for the Units being purchased by such Purchaser at
such closing hereunder by wire transfer to the Company, in accordance with the
Company's written wiring instructions, against delivery of duly executed
certificates representing the Preferred Shares and Warrants being purchased by
such Purchaser at such closing hereunder and the Company shall deliver such
certificates against delivery of such aggregate Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Units pursuant to this Agreement shall be (i) in
the case of the First Closing, 12:00 noon Eastern Daylight Savings Time on July
28, 1997; (ii) in the case of the Second Closing, 12:00 noon Eastern Time on the
fifth (5th) trading day following notification of satisfaction (or waiver) of
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<PAGE>
the conditions to such closing set forth in Section 7(b) hereof and (iii) in the
case of the Third Closing, 12:00 noon Eastern Time on the fifth (5th) trading
day following the later of (x) receipt by the Company of the last notice from a
Purchaser under Section 1(a)(iii) and (y)notification of satisfaction (or
waiver) of the conditions to such closing set forth in Section 7(b) hereof
(subject, in the case of each of the First Closing, the Second Closing and the
Third Closing, to a two (2) business day grace period at either party's option,
but in any event not later than July 31, 1997 in the case of the First Closing,
not later than November 30, 1997 in the case of the Second Closing and not later
than March 1, 1998 in the case of the Third Closing), or in the case of each of
the First Closing, the Second Closing and the Third Closing such other time as
may be mutually agreed upon by the Company and the Purchasers purchasing Units
in such closing. The closings shall occur at the offices of Klehr, Harrison,
Harvey, Branzburg & Ellers, 1401 Walnut Street, Philadelphia, Pennsylvania
19102.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally represents and warrants to the Company that:
a. Investment Purpose. Purchaser is purchasing the Units for
Purchaser's own account for investment only and not with a present view towards
the public sale or distribution thereof, except pursuant to sales that are
exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. Purchaser understands that Purchaser must
bear the economic risk of this investment indefinitely, unless the Securities
are registered pursuant to the Securities Act and any applicable state
securities or blue sky laws or an exemption from such registration is available,
and that the Company has no present intention of registering any such Securities
other than as contemplated by the Registration Rights Agreement. Notwithstanding
anything in this Section 2(a) to the contrary, by making the representations
herein, the Purchaser does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time, however, Purchaser agrees that any and all such disposal(s) shall be in
accordance with or pursuant to a registration statement or an exemption under
the Securities Act.
b. Accredited Investor Status. Purchaser is an "Accredited Investor"
as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Purchaser understands that the Units are
being offered and sold to Purchaser in reliance upon specific exemptions from
the registration requirements of United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of, and Purchaser's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of Purchaser to acquire the
Units.
d. Information. Purchaser and its counsel, if any, have been furnished
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Units which have been
specifically requested by Purchaser or its counsel. Purchaser and its counsel,
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<PAGE>
if any, have been afforded the opportunity to ask questions of the Company and
have received what Purchaser believes to be satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by Purchaser or its counsel or any of its representatives shall
modify, amend or affect Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. Purchaser
understands that Purchaser's investment in the Securities involves a high degree
of risk.
e. Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be transferred unless (a) subsequently registered thereunder, or (b)
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration or (c) sold pursuant to Rule 144 promulgated under the Securities
Act (or a successor rule) ("Rule 144"); (ii) any sale of such Securities made in
reliance on Rule 144 may be made only in accordance with the terms of said Rule
and further, if said Rule is not applicable, any resale of such Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such Securities
under the Securities Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder (in each case, other than
pursuant to the Registration Rights Agreement).
g. Legends. Purchaser understands that the Preferred Shares and
Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the Securities Act as contemplated by the Registration
Rights Agreement or otherwise may be sold by Purchaser pursuant to Rule 144, the
certificates for the Securities may bear a restrictive legend in substantially
the following form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in
the absence of an effective registration statement for the securities
under said Act, or an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant to
Rule 144 under said Act.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
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<PAGE>
such Security is registered under the Securities Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect that
a public sale or transfer of such Security may be made without registration
under the Securities Act or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144. Purchaser agrees
to sell all Securities, including those represented by a certificate(s) from
which the legend has been removed, pursuant to an effective registration
statement or in compliance with an exemption from the registration requirements
of the Securities Act. In the event the above legend is removed from any
Security and thereafter the effectiveness of a registration statement covering
such Security is suspended or the Company determines that a supplement or
amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to Purchaser the Company may require that the above
legend be placed on any such Security that cannot then be sold pursuant to an
effective registration statement or Rule 144 and Purchaser shall cooperate in
the prompt replacement of such legend. Such legend shall be removed when such
Security may be sold pursuant to an effective registration statement or Rule
144.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their terms.
i. Residency. Purchaser is a resident of the jurisdiction set forth
under such Purchaser's name on the Execution Page hereto executed by such
Purchaser.
j. Acknowledgments Regarding Placement Agent. Purchaser acknowledges
that The Zanett Securities Corporation is acting as placement agent (the
"Placement Agent") for the Securities being offered hereby and will be
compensated by the Company for acting in such capacity. Purchaser further
acknowledges that the Placement Agent has acted solely as placement agent in
connection with the offering of the Securities by the Company, that the
information and data provided to Purchaser and referred to in subsection (d)
above or otherwise in connection with the transactions contemplated hereby have
not been subjected to independent verification by the Placement Agent, and that
the Placement Agent makes no representation or warranty with respect to the
accuracy or completeness of such information, data or other related disclosure
material. Purchaser further acknowledges that in making its decision to enter
into this Agreement and purchase the Securities it has relied on its own
examination of the Company and the terms of, and consequences, of holding, the
Securities. Purchaser further acknowledges that the provisions of this Section
2(j) are for the benefit of, and may be enforced by, the Placement Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on (i) the
Securities; (ii) the ability of the Company to perform its obligations
hereunder, the Certificate of Designation, the Warrants or the Registration
Rights Agreement or (iii) the business, operations, properties, prospects or
financial condition of the Company and its subsidiaries, taken as a whole.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Warrants and the Registration Rights Agreement, to issue and sell the Units,
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<PAGE>
Preferred Shares and Warrants in accordance with the terms hereof, and to issue
the Conversion Shares upon conversion of the Preferred Shares and the Warrant
Shares upon exercise of the Warrants in accordance with the terms of the
Certificate of Designation and the Warrants; (ii) the execution, delivery and
performance of this Agreement, the Warrants and the Registration Rights
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation the issuance of
the Preferred Shares and the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares) have been duly authorized by the Company's
Board of Directors and, no further consent or authorization of the Company, its
Board or Directors, or its stockholders is required (under Rule 4460(i)
promulgated by the National Association of Securities Dealers or otherwise);
(iii) this Agreement has been duly executed and delivered by the Company; and
(iv) this Agreement constitutes, and, upon execution and delivery by the Company
of the Registration Rights Agreement and Warrants, such agreements will
constitute, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Preferred Shares and Warrants)
exercisable for, or convertible into or exchangeable for any shares of Common
Stock and the number of shares to be reserved for issuance upon conversion of
the Preferred Shares and exercise of the Warrants is set forth on Schedule 3(c).
All of such outstanding shares of capital stock have been, or upon issuance will
be, validly issued, fully paid and nonassessable. No shares of capital stock of
the Company (including the Preferred Shares, the Conversion Shares and the
Warrant Shares) are subject to preemptive rights or any other similar rights of
the stockholders of the Company or any liens or encumbrances. Except for the
Securities and as set forth on Schedule 3(c), as of the date of this Agreement,
(i) there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its subsidiaries, or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries,
and (ii) there are no agreements or arrangements under which the Company or any
of its subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights Agreement).
Except as set forth on Schedule 3(c), there are no securities or instruments
containing antidilution or similar provisions that will be triggered by the
issuance of the Securities in accordance with the terms of this Agreement, the
Certificate of Designation or the Warrants. The Company has furnished to each
Purchaser true and correct copies of the Company's Certificate of Incorporation
as in effect on the date hereof ("Certificate of Incorporation"), the Company's
By-laws as in effect on the date hereof (the "By-laws"), and all other
instruments and agreements governing securities convertible into or exercisable
or exchangeable for Common Stock of the Company. The Certificate of Designation,
in the form attached hereto, has been duly filed with the Secretary of State of
the State of Delaware and, upon the issuance of the Preferred Shares in
accordance with the terms hereof, each Purchaser shall be entitled to the rights
set forth therein. The Company shall provide each Purchaser with a written
update of this representation signed by the Company's Chief Executive Officer on
behalf of the Company as of the date of each closing hereunder. The only changes
to such schedule after the date hereof shall be the result of issuances of
capital stock not in violation of any of the provisions of this Agreement
(including the schedules hereto).
d. Issuance of Shares. The Preferred Shares are duly authorized and,
upon issuance in accordance with the terms of this Agreement, will be validly
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<PAGE>
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability on
the holders thereof. The Conversion Shares and Warrant Shares are duly
authorized and reserved for issuance, and, upon conversion of the Preferred
Shares and exercise of the Warrants in accordance with the terms thereof, will
be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances and will not be subject to preemptive rights or
other similar rights of stockholders of the Company and will not impose personal
liability upon the holder thereof.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company,
the performance by the Company of its obligations under the Certificate of
Designation, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance, as applicable, of the Preferred Shares, Warrants,
Conversion Shares and Warrant Shares) will not (i) result in a violation of the
Certificate of Incorporation or By-laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including U.S. federal and
state securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected (except, with respect to clause (ii), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Except as set forth on Schedule 3(e), neither the Company nor
any of its subsidiaries is in violation of its Certificate of Incorporation,
By-laws or other organizational documents and neither the Company nor any of its
subsidiaries is in default (and no event has occurred which, with notice or
lapse of time or both, would put the Company or any of its subsidiaries in
default) under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, except for possible defaults or rights as
would not, individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its subsidiaries are not being conducted, and
shall not be conducted so long as a Purchaser owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental entity, except
for possible violations the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and the Registration Rights Agreement, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Warrants or the
Registration Rights Agreement or to perform its obligations under the
Certificate of Designation, in each case in accordance with the terms hereof or
thereof. Except as set forth on Schedule 3(e), the Company is not in violation
of the listing requirements of the NASDAQ National Market ("NASDAQ") and does
not reasonably anticipate that the Common Stock will be delisted by NASDAQ for
the foreseeable future.
f. SEC Documents, Financial Statements. Since December 31, 1993, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (all of the foregoing, filed prior to the date hereof and after December
31, 1993, and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits) incorporated by reference
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<PAGE>
therein, being hereinafter referred to herein as the "SEC Documents"). The
Company has delivered to each Purchaser true and complete copies of the SEC
Documents, except for such exhibits, schedules and incorporated documents. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
U.S. generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents filed prior to the date
hereof, the Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such financial statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, which liabilities and obligations referred to in clauses (i) and
(ii) individually or in the aggregate, are not material to the financial
condition or operating results of the Company. Without limiting the accuracy of
the representations contained in this Section 3(f), the Purchasers acknowledge
that the Company has disclosed to the Purchasers the items set forth on Schedule
3(f).
g. Absence of Certain Changes. Since December 31, 1996, there has been
no material adverse change and no material adverse development in the business,
properties, operations, prospects, financial condition or results of operations
of the Company except as disclosed in Schedule 3(g) or in the SEC Documents
filed prior to the date hereof.
h. Absence of Litigation. Except as disclosed in the SEC Documents
filed prior to the date hereof, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its subsidiaries, threatened against or affecting the Company, any of
its subsidiaries, or any of their respective directors or officers in their
capacities as such.
i. Intellectual Property. Except as set forth on Schedule 3(i), each of
the Company and its subsidiaries owns or is licensed to use all patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, permits, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") necessary for the conduct of its
business as now being conducted and as described in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996. To the best knowledge
of the Company, neither the Company nor any subsidiary of the Company infringes
or is in conflict with any right of any other person with respect to any
Intangibles which, individually or in the aggregate, if the subject of an
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unfavorable decision, ruling or finding, would have a Material Adverse Effect.
Neither the Company nor any of its subsidiaries has received written notice of
any pending conflict with or infringement upon such third party Intangibles.
Neither the Company nor any of its subsidiaries has entered into any consent,
indemnification, forbearance to sue or settlement agreements with respect to the
validity of the Company's or its subsidiaries' ownership or right to use its
Intangibles and, to the best knowledge of the Company, there is no reasonable
basis for any such claim to be successful. Except as set forth on Schedule 3(i),
the Intangibles are valid and enforceable and no registration relating thereto
has lapsed, expired or been abandoned or cancelled or is the subject of
cancellation or other adversarial proceedings, and all applications therefor are
pending and are in good standing. The Company and its subsidiaries have
complied, in all material respects, with its respective contractual obligations
relating to the protection of the Intangibles used pursuant to licenses. To the
best knowledge of the Company, no person is infringing on or violating the
Intangibles owned or used by the Company or its subsidiaries.
j. Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
k. Disclosure. All information relating to or concerning the Company
set forth in this Agreement or provided to the Purchasers pursuant to Section
2(d) hereof and otherwise in connection with the transactions contemplated
hereby is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists with
respect to Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial conditions, which has not been
publicly disclosed but, under applicable law, rule or regulation, would be
required to be disclosed by the Company in a registration statement filed on the
date hereof by the Company under the Securities Act with respect to the primary
issuance of the Company's securities.
l. Acknowledgment Regarding Purchasers' Purchase of the Units. The
Company acknowledges and agrees that none of the Purchasers or the Placement
Agent are acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement or the transactions
contemplated hereby, and any advice given by any Purchaser or the Placement
Agent, or any of their representatives or agents, in connection with this
Agreement and the transactions contemplated hereby is merely incidental to each
Purchaser's purchase of Units or such Placement's Agent role as a placement
agent and has not been relied upon the Company in any way. The Company further
represents to each Purchaser that the Company's decision to enter into this
Agreement has been based solely on an independent evaluation by the Company and
its representatives.
m. [Intentionally Omitted]
n. No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
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o. No Integrated Offering. Except as set forth on Schedule 3(o),
neither the Company, nor any of its affiliates, nor any person acting on its or
their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offerers to buy any security under circumstances that
would require registration of the Securities being offered hereby under the
Securities Act or cause this offering of Securities to be integrated with any
prior offering of the Company for purposes of the Securities Act or any
applicable stockholder approval provisions.
p. No Brokers. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with the Placement Agent whose
commissions and fees will be paid for by the Company.
q. Acknowledgment of Dilution. The number of Conversion Shares issuable
upon conversion of the Preferred Shares may increase in certain circumstances,
including the circumstance wherein the trading price of the Common Stock
declines. The Company acknowledges that its obligation to issue Conversion
Shares upon conversion of the Preferred Shares in accordance with the
Certificate of Designation is absolute and unconditional, regardless of the
dilution that such issuance may have on the ownership interests of other
stockholders. Taking the foregoing into account, the Company's Board of
Directors has determined that the issuance of the Units hereunder and the
consummation of the other transactions contemplated hereby are in the best
interests of the Company and its stockholders.
r. Title. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(r) or such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries.
s. Tax Status. Except as set forth on Schedule 3(s), the Company and
each of its subsidiaries has made or filed all federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D: Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Purchaser promptly after such filing. The Company shall, on or
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before the date of the First Closing take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to the
Purchasers pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States or obtain exemption therefrom, and shall
provide evidence of any such action so taken to the Purchasers on or prior to
the date of the First Closing.
c. Reporting Status. So long as any Purchaser beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Units as set forth in Schedule 4(d). None of the proceeds from the sale of
the Units shall be used to redeem or otherwise acquire, or to pay any dividend
or make any distribution with respect to, any of the Company's capital stock
(including, without limitation, to satisfy any obligation which the Company may
have in connection with the transactions contemplated by that certain Purchase
Agreement dated December 31, 1997 by and between the Company and CDR
Enterprises).
e. Right of First Offer. The Company agrees that during the period
beginning on the date hereof and ending two hundred and seventy (270) days
following the date of the last closing which occurs hereunder (the "Lock-Up
Period"), the Company will not, without the prior written consent of Purchasers
holding two-thirds of the Preferred Shares then outstanding, contract with any
party to obtain additional equity financing (including debt financing with an
equity component) in any form (a "Future Offering") unless the Company shall
have first delivered to each Purchaser at least five (5) business days prior to
the closing of such Future Offering, written notice describing the proposed
Future Offering, including the terms and conditions thereof, and providing each
Purchaser and its affiliates, an option during the five (5) business day period
following delivery of such notice to purchase the lower of (x) the aggregate
purchase price of all Units purchased by such Purchaser hereunder and (y) such
Purchaser's pro rata portion (based on the aggregate purchase price of all Units
purchased by such Purchaser hereunder compared to the aggregate purchase price
of all Units purchased hereunder) of the securities being offered in the Future
Offering on the same terms as contemplated by such Future Offering, (the
limitation referred to in this sentence is referred to as the "Capital Raising
Limitation"). The Capital Raising Limitation shall not apply to any transaction
involving issuances of securities as consideration for a merger, consolidation
or acquisition of assets, or in connection with any strategic partnership or
joint venture (the primary purpose of which is not to raise equity capital), or
as consideration for the acquisition of a business, product or license by the
Company or exercise of options by employees or directors. The Capital Raising
Limitation also shall not apply to (i) the issuance of securities pursuant to an
underwritten public offering, (ii) the issuance of securities to holders of the
Company's Series A Cumulative Convertible Preferred Stock in connection with the
restructuring of such capital stock, (iii) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof or (iv) the grant of additional
options or warrants, or the issuance of additional securities, under any Company
stock option or restricted stock plan for the benefit of the Company's employees
or directors. Notwithstanding the foregoing, no Purchaser shall have any rights
under this Section 7(e) at any time that it no longer holds any Preferred
Shares.
f. Expenses. Except as otherwise provided in Section 5 of the
Registration Rights Agreement, each party hereto shall be responsible for its
own expenses incurred in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
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to be executed in connection herewith.
g. Financial Information. The Company agrees to send the following
reports to each Purchaser until such Purchaser transfers, assigns or sells all
of its Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its
proxy statements and any Current Reports on Form 8-K; and (ii) within one (1)
day after release, copies of all press releases issued by the Company or any of
its subsidiaries.
h. Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and issuance of the Conversion Shares in connection therewith
and the full exercise of the Warrants and the issuance of the Warrant Shares in
connection therewith and as otherwise required by the Certificate of Designation
and the Warrants. Moreover, upon approval by its stockholders of the proposals
contemplated by Section 4(n), the Company shall increase the number of shares
reserved for issuance upon conversion and exercise of the outstanding Preferred
Shares and Warrants to an amount equal to 200% of the number of Conversion
Shares issuable upon the full conversion of the then outstanding Preferred
Shares plus 100% of the Warrant Shares issuable upon the full exercise of the
then outstanding Warrants (based on the conversion and exercises prices thereof
then in effect). The Company shall not reduce the number of shares reserved for
issuance upon conversion of the Preferred Shares and the full exercise of the
Warrants without the consent of Purchasers holding a majority of the Preferred
Shares then held by all Purchasers.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion of the Preferred
Shares and Warrant Shares from time to time issuable upon exercise of the
Warrants. The Company will not take any action adverse to the continued, and
will use all commercially reasonable and lawful efforts to continue the listing
and trading of its Common Stock on the NASDAQ, the NASDAQ Small Cap Market
("SmallCap"), the New York Stock Exchange ("NYSE") or the American Stock
Exchange ("AMEX") and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as applicable.
The Company shall promptly provide to each holder of Preferred Shares copies of
any notices it receives regarding the continued eligibility of the Common Stock
for trading in the over-the-counter market or, if applicable, any securities
exchange (including the NASDAQ) on which securities of the same class or series
issued by the Company are then listed or quoted, if any.
j. Corporate Existence. So long as a Purchaser beneficially owns any
Preferred Shares or Warrants, the Company shall maintain its corporate
existence, and in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, the Corporation shall ensure that the
surviving or successor entity in such transaction assumes the Company's
obligations hereunder and under the agreements and instruments entered into in
connection herewith regardless of whether or not the Company would have had a
sufficient number of shares of Common Stock authorized and available for
issuance in order to effect the conversion of all Preferred Shares and exercise
in full of all Warrants outstanding as of the date of such transaction.
k. No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of Securities to be integrated with any
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other offering of securities by the Company for purposes of NASDAQ Rule 4460(i).
l. Transfer Agent Instructions. No later than the tenth business day
following the date of the First Closing the Company shall have delivered
evidence reasonably satisfactory to the Purchasers that the Company's transfer
agent has agreed to act in accordance with irrevocable instructions in the form
attached hereto as Exhibit E.
m. Compliance with Certificate of Designation. The Company shall
comply with all of the provisions contained in the Certificate of Designation.
n. Stockholder Approval. The Company shall hold a special meeting of
its stockholders no later than December 31, 1997 and use its best efforts to
obtain at such meeting (i) such approvals of the Company's stockholders as may
be required to issue all of the shares of Common Stock issuable upon conversion
of, or otherwise with respect to, the Preferred Shares and the shares of Common
Stock issuable upon exercise of, or otherwise with respect to, the Warrants
without violating NASD Rule 4460(i) (or any successor rule thereto which may
then be in effect) and (ii) an increase in its authorized shares of Common Stock
so that it can reserve 200% of the number of Conversion Shares issuable upon the
full conversion of the Preferred Shares then outstanding and issuable hereunder
plus 100% of the Warrant Shares issuable upon the full exercise of the Warrants
then outstanding and issuable hereunder (based on the conversion and exercises
prices thereof then in effect). The Company shall comply with the filing and
disclosure requirements of Section 14 promulgated under the Exchange Act in
connection with the solicitation, acquisition and disclosure of such stockholder
approval. The Company represents and warrants that its Board of Directors has
unanimously recommended that the Company's stockholders approve the proposals
contemplated by this Section 4(n) and shall so indicate such recommendation in
the proxy statement used to solicit such stockholder approval.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Conversion
Shares and Warrant Shares in such amounts as specified from time to time by such
Purchaser to the Company upon conversion of the Preferred Shares or exercise of
the Warrants. To the extent and during the periods provided in Section 2(f) and
2(g) of this Agreement, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement.
b. The Company warrants that no instruction other than such
instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof in the case of all of the Securities prior to
registration of the Conversion Shares and Warrant Shares under the Securities
Act, will be given by the Company to its transfer agent and that the Securities
shall otherwise be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement and the Registration Rights
Agreement. Nothing in this Section shall affect in any way each Purchaser's
obligations and agreement set forth in Section 2(g) hereof to resell the
Securities pursuant to an effective registration statement or in compliance with
an exemption from the registration requirements of applicable securities law.
c. If a Purchaser provides the Company with an opinion of counsel,
which opinion of counsel shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration, or a Purchaser provides the Company with reasonable
assurances that such Securities may be sold pursuant to Rule 144, the Company
shall permit the transfer, and, in the case of the Conversion Shares and Warrant
Shares promptly instruct its transfer agent to issue one or more certificates in
such name and in such denominations as specified by a Purchaser.
d. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Purchaser by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
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acknowledges that the remedy at law for a breach of its obligations under this
Section 5 will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section 5, that a Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Units to
a Purchaser at a closing hereunder is subject to the satisfaction, at or before
the applicable closing, of each of the following conditions thereto, provided
that these conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion. The obligation of the Company to
issue and sell the Units to any Purchaser hereunder is distinct and separate
from its obligation to issue and sell Units to any other Purchaser hereunder and
any failure by one or more Purchasers to fulfill the conditions set forth herein
or to consummate the purchase of Units hereunder will not relieve the Company of
its obligations with respect to any other Purchaser.
a. With respect to the First Closing:
(i) The applicable Purchaser shall have executed the signature
page to this Agreement and the Registration Rights Agreement, and delivered the
same to the Company.
(ii) The applicable Purchaser shall have delivered the
Purchase Price for the Units purchased at the First Closing in accordance with
Section 1(b) above.
(iii) The representations and warranties of the applicable
Purchaser shall be true and correct as of the date when made and as of the date
and time of such closing as though made at that time (except for representations
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable
Purchaser shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the applicable Purchaser at or prior to
the date of the First Closing.
(iv) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
b. With respect to the Second and Third Closing:
(i) The applicable Purchaser shall have executed the signature
page to this Agreement and the Registration Rights Agreement, and delivered the
same to the Company.
(ii) The applicable Purchaser shall have paid the Purchase
Price for the Units purchased at such closing in accordance with Section 1(b)
above.
(iii) The representations and warranties of the applicable
Purchaser shall be true and correct as of the date when made and as of the date
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and time of such closing as though made at that time (except for representations
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable
Purchaser shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the applicable Purchaser at or prior to
the date of such closing.
(iv) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the Units to be
purchased by it at the closings is subject to the satisfaction, at or before the
applicable closing date, of each of the following conditions, provided that
these conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in the Purchaser's sole discretion:
a. With respect to the First Closing:
(i) The Company shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to such
Purchaser.
(ii) The Certificate of Designation shall have been accepted
for filing with the Secretary of State of the State of Delaware and a copy
thereof certified by the Secretary of State of Delaware shall have been
delivered to such Purchaser.
(iii) The Company shall have delivered to such Purchaser duly
executed certificates and Warrant agreements (each in such denominations as such
Purchaser shall request) representing the Preferred Shares and Warrants being so
purchased by such Purchaser at the First Closing in accordance with Section 1(b)
above.
(iv) The Common Stock shall be authorized for quotation on
NASDAQ and trading in the Common Stock (or NASDAQ generally) shall not have been
suspended by the SEC or NASDAQ.
(v) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the date of the First
Closing as though made at that time (except for representations and warranties
that speak as of a specific date, which representations and warranties shall be
true and correct as of such date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the date of the First Closing. Such Purchaser
shall have received a certificate, executed by the Chief Executive Officer of
the Company, dated as of the date of the First Closing to the foregoing effect
and as to such other matters as may be reasonably requested by such Purchaser.
(vi) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
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(vii) Such Purchaser shall have received an opinion of the
Company's counsel, dated as of the date of the First Closing, in form, scope and
substance reasonably satisfactory to the Purchaser and in substantially the form
of Exhibit D attached hereto.
(viii) The aggregate number of Units being purchased hereunder
by all Purchasers at the First Closing hereunder shall be at least 3,000.
b. With respect to the Second Closing, the Third Closing and any
closing under Section 1(a)(iv):
(i) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to such Purchaser.
(ii) The Company shall have delivered to such Purchaser duly
executed certificates and Warrant agreements (each in such denominations as such
Purchaser shall request) representing the Preferred Shares and Warrants being so
purchased by such Purchaser at such closing in accordance with Section 1(b)
above.
(iii) The Common Stock shall be authorized for quotation on
NASDAQ and trading in the Common Stock (or NASDAQ generally) shall not have been
suspended by the SEC or NASDAQ.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the date of such closing
as though made at that time (except for representations and warranties that
speak as of a specific date, which representations and warranties shall be true
and correct as of such date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the date of such closing. Such Purchaser shall have
received a certificate, executed by the Chief Executive Officer of the Company,
dated as of the date of such closing, to the foregoing effect and as to such
other matters as may be reasonably requested by such Purchaser.
(v) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
(vi) Such Purchaser shall have received an opinion of the
Company's counsel, dated as of the date of such closing, in form, scope and
substance reasonably satisfactory to such Purchaser and in substantially the
form of Exhibit D attached hereto.
(vii) No material adverse change or development in the
business, operations, properties, or financial condition, or results of
operations of the Company shall have occurred since the First Closing except for
such changes or developments set forth on Schedule 7(b)(vii).
c. With respect to the Second Closing, each of the following conditions
must also be satisfied:
(i) The Company's quarterly report on Form 10-Q for the fiscal
quarter ended September 30, 1997 shall have been timely filed with the SEC at
least two (2) business days prior to the date of the Second Closing.
(ii) The first Registration Statement required to be filed by
the Company pursuant to Section 2(a) of the Registration Rights Agreement shall
have been declared effective by the SEC and shall be effective and available for
use by such Purchaser as of the date of the Second Closing.
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(iii) The Additional Second Closing Conditions set forth on
Exhibit F shall have been satisfied.
(iv) The date of the Second Closing shall not be later than
November 30, 1997.
(v) The stockholder approvals contemplated by Section 4(n)
shall have been obtained.
d. With respect to the Third Closing, each of the following conditions
must also be satisfied:
(i) The Additional Third Closing Conditions set forth on
Exhibit F shall have been satisfied.
(ii) The Second Closing shall have occurred.
(iii) All Registration Statements required to be filed by the
Company pursuant to Section 2(a) of the Registration Rights Agreement prior to
the Third Closing shall have been declared effective by the SEC and shall be
effective and available for use by such Purchaser as of the date of the Third
Closing.
(iv) The Company has announced to the general public its
earnings for the 1997 fiscal year.
(v) The date of the Third Closing shall not be later than
March 15, 1997.
(vi) The stockholder approvals contemplated by Section 4(n)
shall have been obtained.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company and the
Purchasers irrevocably consent to the exclusive jurisdiction of the United
States federal courts located in Kent County in the State of Delaware in any
suit or proceeding based on or arising under this Agreement and irrevocably
agrees that all claims in respect of such suit or proceeding may be determined
in such courts. The Company irrevocably waived the defense of an inconvenient
forum to the maintenance of such suit or proceeding. Service of process on the
Company mailed by first class mail shall be deemed in every respect effective
service of process upon the Company in any such suit or proceeding. Nothing
herein shall affect the right of any Purchaser to serve process in any other
manner permitted by law. The Company agrees that a final non-appealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Executive Page(s)
to be physically delivered to the other party within five (5) days of the
execution hereof.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
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<PAGE>
d. Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived other than by an instrument in
writing signed by the party to be charged with enforcement and no provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Purchasers.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
Attn: President
with a copy to:
General Counsel's Office
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
If to any Purchaser, to such address set forth under such Purchaser's
name on the Execution Page hereto executed by such Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, any Purchaser may assign its rights hereunder to
any of its "affiliates," as that term is defined under the Exchange Act, without
the consent of the Company; provided, such assignee is an "accredited investor"
as such term is defined in Rule 501(a) of Regulation D and such assignment will
not impose any significant obligations on the Company under the blue sky laws of
any jurisdiction. This provision shall not limit a Purchaser's right to transfer
the Securities pursuant to the terms of the Certificate of Designation, the
Warrants and this Agreement or to assign such Purchaser's rights hereunder to
any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person, except for the provisions of Section 2(j) and 3(l) which
are for the benefit of, and may be enforced by, the Placement Agent.
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<PAGE>
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
closings hereunder notwithstanding any due diligence investigation conducted by
or on behalf of any Purchasers. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies a Purchaser may have under applicable federal or state securities laws.
Notwithstanding the foregoing, any disclosure made by the Company to the
Purchasers in this Agreement (including, without limitation, in Section 3 hereof
or in the Schedules attached hereto) shall constitute disclosure to the
Purchasers for purposes of any applicable federal or state securities laws. The
Company agrees to indemnify and hold harmless each Purchaser and each of such
Purchaser's officers, directors, employees, partners, members, agents and
affiliates for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations or covenants set
forth herein, including advancement of expenses as they are incurred.
j. Publicity. The Company and each Purchaser shall have the right to
approve before issuance any press releases, SEC, NASDAQ or NASD filings, or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Purchasers, to make any press release or SEC, NASDAQ or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although the Purchasers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the First Closing shall not have
occurred on or before July 31, 1997, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date. Notwithstanding
any termination of this Agreement, any party not in breach of this Agreement
shall preserve all rights and remedies it may have against another party hereto
for a breach of this Agreement prior to the termination hereof.
m. Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement. As such, the
language used herein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party to this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
NETWORK IMAGING CORPORATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
PURCHASER:
CAPITAL VENTURES INTERNATIONAL
By: Susquehanna Securities Trading GmbH for the account
of Capital Ventures International
By: ----------------------------------
Martin Kobinger, Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
Susquehanna Securities Trading GmbH with a copy to:
Oberlindau 7 Susquehanna Financial Group
60323 Frankfurt am Main 401 City Line Avenue
Attn: Martin Kobinger Suite 220
Bala Cynwyd, PA 19004-1122
Attn: Melita Saunders
AGGREGATE SUBSCRIPTION AMOUNT
Number of Units* to be Purchased at First Closing: 1,500
----------
Purchase Price ($1,000 per Unit): $1,500,000
----------
Number of Units* to be Purchased at Second Closing: 1,364
----------
Purchase Price ($1,000 per Unit): $1,364,000
----------
- ------------------------
* Each Unit consists of one (1) Preferred Share and a Warrant to purchase
seventy-five (75) shares of Common Stock.
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company
have caused this Agreement to be duly executed as of the date first above
written.
NETWORK IMAGING CORPORATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
PURCHASER:
ZANETT LOMBARDIER, LTD.
By: ----------------------------
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
RESIDENCE: Cayman Islands
ADDRESS:
Zanett Lombardier, Ltd.
c/o The Zanett Securities Corporation
767 Fifth Avenue
New York, NY 10153
Telecopy: (212) 588-0205
Attn: Claudio Guazzoni
AGGREGATE SUBSCRIPTION AMOUNT
Number of Units* to be Purchased at First Closing: 1,800
----------
Purchase Price ($1,000 per Unit): $1,800,000
----------
Number of Units* to be Purchased at Second Closing: 1,636
----------
Purchase Price ($1,000 per Unit): $1,636,000
----------
- ------------------------
* Each Unit consists of one (1) Preferred Share and a Warrant to purchase
seventy-five (75) shares of Common Stock.
EXHIBIT C
to
Securities Purchase
Agreement
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July 28,
1997 by and among NETWORK IMAGING CORPORATION, a corporation organized under the
laws of the State of Delaware, with headquarters located at 500 Huntmar Park
Drive, Herndon, Virginia 20170 (the "Company"), and the undersigned (together
with affiliates, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement of even date
herewith by and between the Company and the Initial Investors (the "Securities
Purchase Agreement"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors units
("Units") consisting of (i) shares of its Series K Convertible Preferred Stock
(the "Preferred Stock") that is convertible into shares (the "Conversion
Shares") of the Company's common stock, par value $.0001 per share (the "Common
Stock"), upon the terms and subject to the limitations and conditions set forth
in the Certificate of Designations, Rights and Preferences with respect to such
Preferred Stock (the "Certificate of Designation") and (ii) warrants (the
"Investor Warrants") to acquire shares of Common Stock (the "Investor Warrant
Shares");
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws; and
C. The Company has issued The Zanett Securities Corporation (the
"Placement Agent") Warrants (collectively with the Investor Warrants, the
"Warrants") to purchase shares of Common Stock (collectively with the Investor
Warrant Shares, the "Warrant Shares") pursuant to that certain Placement Agency
Agreement dated as of July 2, 1997 by and between the Company and the Placement
Agent and has agreed to provide the Placement Agent the rights set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have
the following meanings:
(i) "Investors" means the Initial Investors and any
transferees or assignees who agree to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "register," "registered," and "registration"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
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<PAGE>
of effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion
Shares (including any Conversion Shares issuable with respect to Conversion
Default Payments under the Certificate of Designation or in redemption of any
Preferred Stock) issued or issuable with respect to the Preferred Stock, the
Warrant Shares and any shares of capital stock issued or issuable, from time to
time (with any adjustments), as a distribution on or in exchange for or
otherwise with respect to any of the foregoing.
(iv) "Registration Statement" means a registration
statement of the Company under the Securities Act.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as
soon as practicable after the first closing under the Securities Purchase
Agreement, but in no event later than the sixtieth (60th) day following such
closing, file with the SEC a Registration Statement on Form S-3 (or, if Form S-3
is not then available, on Form S-1) covering the resale of at least 135% (or, if
the Investors have provided the Company a notice pursuant to Section 3(b)
hereof, at least 200%) of the maximum number of shares of Registrable Securities
issuable upon the full conversion of, or as dividends on, the Preferred Stock
and the full exercise of the Warrants comprising 6,300 Units (assuming a
conversion price based on 81% of the closing sales price of the Common Stock as
reported on the Nasdaq National Market (or the principal securities market on
which the Common Stock is then trading) on the date of such closing). The
Company shall prepare, and, as soon as practicable after each additional closing
under the Securities Purchase Agreement, but in no event later than the sixtieth
(60th) day following each of such closings, file with the SEC a Registration
Statement on Form S-3 (or, if Form S-3 is not then available, on Form S-1)
covering the resale of at least 135% (or, if the Investors have provided the
Company a notice pursuant to Section 3(b) hereof, at least 200%) of the maximum
number of shares of Registrable Securities issuable upon the full conversion of,
or as dividends on, the Preferred Stock and the full exercise of the Warrants
comprising the Units issued at such closing pursuant to Section 1(a)(ii)(b),
1(a)(iii) or 1(a)(iv) of the Securities Purchase Agreement, as applicable
(assuming a conversion price based on 81% of the closing sales price of the
Common Stock as reported on the Nasdaq National Market (or the principal
securities market on which the Common Stock is then trading) on the date of such
Closing). In the event any Registration Statement filed by the Company pursuant
to this Section 2(a) is on Form S-1, the Company shall, (x) no later than the
date the Company files each periodic report on Form 10-Q or 10-K, file a
prospectus supplement or post-effective amendment to the Registration Statement
to include in the Registration Statement such information (including, without
limitation, updated financial statements) from the periodic report as is
necessary or required to keep the Registration Statement in compliance with the
rules of the SEC and this Agreement and (y) within fifteen (15) days of the
Company becoming to eligible to register the Registrable Securities on Form S-3,
file a new Registration Statement on Form S-3 covering at least 135% (or, if the
Investors have provided the Company a notice pursuant to Section 3(b) hereof, at
least 200%) of the Registrable Securities issuable upon the full conversion of,
or as dividends on, the Preferred Stock and the full exercise of the Warrants
(based on the conversion and exercise prices thereof then in effect) and cause
such Registration Statement to be declared effective by the SEC as soon as
practicable thereafter, and in no event later than ninety (90) days after the
filing thereof (such ninetieth (90th) day being the "Second Registration
Deadline"). Each Registration Statement filed hereunder, to the extent allowable
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<PAGE>
under the Securities Act and the Rules promulgated thereunder (including Rule
416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Preferred Stock and exercise of the Warrants (i) to
prevent dilution resulting from stock splits, stock dividends or similar
transactions or (ii) by reason of changes in the Conversion Price of the
Preferred Stock or the Exercise Price of the Warrants in accordance with the
terms thereof. The Registrable Securities included in any Registration Statement
filed hereunder shall be allocated to the Investors as set forth in Section
11(k) hereof. Each Registration Statement filed hereunder (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to (and subject to the approval of) the Initial Investors and
their counsel prior to its filing or other submission. The Company shall not
include any securities (other than Registrable Securities and securities
designated on Schedule 3(c) to the Securities Purchase Agreement for possible
inclusion on a Registration Statement hereunder) on any Registration Statement
filed pursuant to this Section 2(a). In addition, the Company shall not permit
any securities of the Company (other than Registrable Securities) to be
registered under the Securities Act prior to or at the same time as the
registration of the Registrable Securities; provided, however, that the Company
may cause the registration of the resale of Common Stock issued or issuable upon
conversion of the convertible debentures in an aggregate principal amount of
$1,800,000 issued in July 1997 (up to 1,800,000 shares) and in connection with
the Company's proposed restructuring of its Series A Cumulative Convertible
Preferred Stock and of Common Stock designated on Schedule 3(c) to the
Securities Purchase Agreement for possible inclusion in a Registration Statement
hereunder at the same time as the registration of the Registrable Securities.
b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) or 3(b) hereof involves an
underwritten offering, the Investors who hold a majority in interest of the
Registrable Securities subject to such underwritten offering, with the consent
of the Initial Investors, shall have the right to select a total of one legal
counsel to represent the Investors at the cost and expense of the Investors and
an investment banker or bankers and manager or managers to administer the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company and the Placement Agent.
c. Payments by the Company. The Company shall cause each
Registration Statement filed pursuant to Section 2(a) to become effective as
soon as practicable, but in no event later than the one hundred and fiftieth
(150th) day following the date it was required to be filed hereunder (each a
"Registration Deadline"). If (i) any Registration Statement(s) covering the
Registrable Securities required to be filed by the Company pursuant to the first
sentence of Section 2(a) hereof is not declared effective by the SEC on or
before the Registration Deadline for such Registration Statement or if, after
the Registration Statement has been declared effective by the SEC, sales of all
the Registrable Securities issued or issuable with respect to the Preferred
Stock and Warrants required to be covered by such Registration Statement
pursuant to Section 2(a) hereof (including any Registrable Securities required
to be registered pursuant to Section 3(b) hereof) cannot be made pursuant to a
Registration Statement (by reason of a stop order or the Company's failure to
update the Registration Statement or any other reason outside the control of the
Investors) or (ii) the Common Stock is not listed or included for quotation on
the Nasdaq National Market ("Nasdaq"), the Nasdaq Small Cap Market, the New York
Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") at any
time after the first Registration Deadline hereunder, then each of the
Conversion Percentages set forth in the Certificate of Designation (the
"Conversion Percentages") shall be permanently reduced pursuant to this Section
2(c) as partial relief for the damages to the Investors by reason of any such
delay in or reduction of their ability to sell the Registrable Securities (which
remedy shall not be exclusive of any other remedies available at law or in
equity). Each of the Conversion Percentages applicable during each time period
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<PAGE>
shall be permanently reduced by an amount equal to the product of (i) two
hundredths (.02) multiplied by (ii) the sum of: (y) the number of months
(prorated for partial months) after a Registration Deadline and prior to the
date the applicable Registration Statement filed pursuant to Section 2(a) is
declared effective by the SEC and (z) the number of months (prorated for partial
months) that sales cannot be made pursuant to a Registration Statement after the
Registration Statement has been declared effective or the Common Stock is not
listed or included for quotation on Nasdaq, the Nasdaq Small Cap Market, the
NYSE or AMEX; provided, however that there shall be excluded from each such
period (I) any delays which are solely attributable to changes (other than
corrections of Company mistakes with respect to information previously provided
by the Investors) required by the Investors in the Registration Statement with
respect to information relating to the Investors, including, without limitation,
changes to the plan of distribution, (II) and any delays resulting from the
Initial Investor's counsel selected pursuant to Section 3(h) failing to respond
to the Company within five (5) business days of its receipt of any Registration
Statement and (III) if the Registration Statement filed pursuant to Section 2(a)
is on Form S-1, the first thirty (30) days following each post-effective
amendment thereto filed on or before June 30, 1998 (each of the periods
described in clauses (I), (II) and (III) being an "Excluded Period"); and
provided, further, that the aggregate reductions to each of the Conversion
Percentages pursuant to this Section 2(c) as a result of the failure of the
Common Stock to be listed or included for quotation on Nasdaq, the Nasdaq Small
Cap Market, the NYSE or AMEX shall not exceed ten percent (10%). For the
avoidance of doubt, the Investors shall be entitled to permanent reductions in
the Conversion Prices of the Preferred Stock as provided in this Section 2(c) if
at any time after December 31, 1997 a Registration Statement covering the resale
by the Investors of all of the Registrable Securities issuable with respect to
the Preferred Stock and Warrants issued pursuant to Section 2(a)(i) and
2(a)(ii)(a) under the Securities Purchase Agreement is not effective. (For
example, if the Registration Statement is declared effective on the last day of
the second month following the Registration Deadline, each of the Conversion
Percentages set forth in the Certificate of Designation would be reduced by four
percent (4%) to 101%, 92%, 81% and 77%, respectively.)
d. Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company shall
file with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities (other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans or pursuant to a
plan to reorganize the Company's Series A Cumulative Convertible Preferred
Stock), the Company shall send to each Investor who is entitled to registration
rights under this Section 2(d) written notice of such determination and, if
within fifteen (15) days after the date of such notice, such Investor shall so
request in writing, the Company shall include in such Registration Statement all
or any part of the Registrable Securities such Investor requests to be
registered, except that if, in connection with any underwritten public offering
for the account of the Company the managing underwriter(s) thereof shall impose
a limitation on the number of shares of Common Stock which may be included in
the Registration Statement because, in such underwriter(s)' judgment, marketing
or other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which such Investor has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities shall be made
pro rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Investors; provided, however, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in such
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<PAGE>
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities; and provided, further, however, that, after giving
effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
right to include such securities in the Registration Statement other than
holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a) hereof. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities on
any Registration Statement filed hereunder, the Company shall have the following
obligations:
a. The Company shall prepare promptly and file with the SEC
the Registration Statements required by Section 2(a), and cause such
Registration Statements relating to Registrable Securities to become effective
as soon as practicable after such filing, but in no event later than the
Registration Deadline or the Second Registration Deadline (as applicable), and
keep such Registration Statements effective pursuant to Rule 415 at all times
until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which all of the
Registrable Securities (in the reasonable opinion of counsel to the Initial
Investors) may be immediately sold to the public without registration pursuant
to Rule 144(k) under the Securities Act (the "Registration Period"), which
Registration Statements (including any amendments or supplements thereto and
prospectuses contained therein and all documents incorporated by reference
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by the Registration
Statement until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statement. In the event the
holders of a majority of the Registrable Securities notify the Company in
writing (the date of such notice being the "Registration Trigger Date") that
they have determined that the number of shares available under all Registration
Statements filed pursuant to this Agreement is, for any three (3) consecutive
trading days insufficient to cover the sum of one hundred percent (100%) of the
Registrable Securities issuable upon exercise of the Warrants plus one hundred
thirty-five percent (135%) of the Registrable Securities issued or issuable upon
conversion of the Preferred Stock the Company shall amend (if permissible) the
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover the sum of one
hundred percent (100%) of the Registrable Securities issuable upon exercise of
the Warrants plus two hundred percent (200%) of the Registrable Securities
issued or issuable upon conversion of the Preferred Stock, in each case, as soon
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<PAGE>
as practicable, but in any event within fifteen (15) days after the Registration
Trigger Date (based on the market price of the Common Stock and other relevant
factors on which the Company reasonably elects to rely). The Company shall cause
such amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof. In the event the Company fails to
obtain the effectiveness of any such Registration Statement within ninety (90)
days after a Registration Trigger Date, each Investor shall thereafter have the
option, exercisable in whole or in part at any time and from time to time by
delivery of a written notice to the Company (a "Redemption Notice"), to require
the Company to purchase for cash, at an amount per share equal to the Redemption
Amount (as defined in Article VIII.B of the Certificate of Designation), a
portion of the Investor's Preferred Stock such that the total number of
Registrable Securities included on the Registration Statement for resale by such
Investor exceeds the sum of one hundred percent (100%) of the Registrable
Securities issuable upon exercise of the Warrants plus one hundred thirty-five
percent (135%) of the Registrable Securities issued or issuable upon conversion
of such Investor's Preferred Stock. If the Corporation fails to redeem any of
such shares within five (5) business days after its receipt of a Redemption
Notice, then such Investor shall be entitled to the remedies provided in Article
VIII.C of the Certificate of Designation.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of the Registration Statement
and any amendment thereto, each preliminary prospectus and prospectus and each
amendment or supplement thereto, and, in the case of the Registration Statement
referred to in Section 2(a), each letter written by or on behalf of the Company
to the SEC or the staff of the SEC (including, without limitation, any request
to accelerate the effectiveness of any Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of the SEC,
in each case relating to such Registration Statement (other than any portion, if
any, thereof which contains information for which the Company has sought
confidential treatment), (ii) on the date of effectiveness of the Registration
Statement or any amendment thereto, a notice stating that the Registration
Statement or amendment has been declared effective, and (iii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.
d. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as each Investor who holds Registrable Securities being offered
reasonably requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
e. In the event the Investors who hold a majority in interest
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of the Registrable Securities being offered pursuant to a Registration Statement
under Section 2(a) or 3(b) hereof select underwriters for the offering, the
Company shall enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable moment (including in each
case by amending or supplementing such Registration Statement) and to notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance of such
order and the resolution thereof (and if such Registration Statement is
supplemented or amended, deliver such number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request).
h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to their
filing with the SEC, and not file any document in a form to which such counsel
reasonably objects.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.
j. From time to time upon the request of any Investor, the
Company shall furnish (i) an opinion from counsel representing the Company,
dated as of the date of issuance of such opinion, addressed to the Investors and
in form, scope and substances as is customarily given in an underwritten public
offering and (ii) in the case of an underwriting, a letter, dated such date,
from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
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hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(k). Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein shall be deemed to
limit the Investors' ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, or (v) such Investor
consents to the form and content of any such disclosure. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure. The Investor, at its expense, may undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by the Registration Statement to be
listed on each national securities exchange on which securities of the same
class or series issued by the Company are then listed, if any, if the listing of
such Registrable Securities is then permitted under the rules of such exchange,
or (ii) secure the designation and quotation, of all the Registrable Securities
covered by the Registration Statement on each national interdealer quotation
system on which securities of the same class or series issued by the Company are
designated for quotation and, without limiting the generality of the foregoing,
to arrange for or maintain at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
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underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an opinion of such
counsel in the form attached hereto as Exhibit 1.
p. At the request of any Investor, the Company shall prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
q. The Company shall comply with all applicable laws related
to a Registration Statement and offering and sale of securities and all
applicable rules and regulations of governmental authorities in connection
therewith (including without limitation the Securities Act and the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated by
the SEC).
r. Unless the Company is informed by the SEC after the date
hereof (formally or informally) that Rule 416 under the Securities Act does not
encompass additional Registrable Securities which may become issuable upon
conversion of the Preferred Stock as a result of reductions in the Conversion
Price of the Preferred Stock ("Additional Registrable Securities"), the Company
shall affirmatively support and not take any action adverse to, and will cause
its counsel to affirmatively support and not take any action adverse to, the
Investor's position that the Additional Registrable Securities are covered by
the Registration Statement filed pursuant to section 2(a) hereof under Rule 416.
In the event the Company is so informed by the SEC that Rule 416 does not cover
the Additional Registrable Securities, the date the Company was so informed
shall be a Registration Trigger Date under Section 3(b) hereof and the Company
shall immediately notify the Investors in writing of the occurrence of such
Registration Trigger Date and comply with the provisions of Section 3(b) hereof.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
c. In the event Investors holding a majority in interest of
the Registrable Securities being offered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
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including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
distribution hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, the fees and disbursements
contemplated by Section 3(j) hereof. Notwithstanding the foregoing, the Company
will pay all of Investors' costs and expenses (including reasonable legal fees
and expenses) incurred in connection with enforcing their rights hereunder.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, and (ii) the directors, officers, partners, members, employees,
agents and each person who control any Investor within the meaning of Section 15
of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), if any, (each, an "Indemnified Person"), against
any joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or self-regulatory organization, whether commenced or threatened, in respect
thereof, "Claims") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
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violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to the restrictions set forth in Section
6(c) with respect to the number of legal counsel, the Company shall reimburse
the Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (ii) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (iii) with respect to any preliminary prospectus,
shall not inure to the benefit of any Indemnified Person if the untrue statement
or omission of material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or supplemented,
if such corrected prospectus was timely made available by the Company pursuant
to Section 3(c) hereof, and the Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior to the use giving rise to a
Violation and such Indemnified Person, notwithstanding such advice, used it.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, its employees, agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder within the
meaning of the Securities Act or the Exchange Act (collectively and together
with an Indemnified Person, an "Indemnified Party"), against any Claim to which
any of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and subject to Section 6(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by an Indemnified Party in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) shall not apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written consent of
such Investor, which consent shall not be unreasonably withheld; provided,
further, however, that the Investor shall be liable under this Agreement
(including this Section 6(b) and Section 7) for only that amount as does not
exceed the net proceeds actually received by such Investor as a result of the
sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
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was corrected on a timely basis in the prospectus, as then amended or
supplemented, and the Indemnified Party failed to utilize such corrected
prospectus.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that such indemnifying party shall not be
entitled to assume such defense and an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential conflicts of interest between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding or the actual or potential defendants in, or targets
of, any such action include both the Indemnified Person or the Indemnified Party
and the indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. In the event an Indemnified
Person or Indemnified Party retains its own counsel pursuant to the immediately
preceding sentence, the indemnifying party shall pay for only one separate legal
counsel for the Indemnified Persons or the Indemnified Parties, as applicable,
and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of the Initial Investors
if they hold Registrable Securities included in such Registration Statement), if
the Investors are entitled to indemnification hereunder, or by the Company, if
the Company is entitled to indemnification hereunder, as applicable. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
6, except to the extent that the indemnifying party is actually prejudiced in
its ability to defend such action. The indemnification required by this Section
6 shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. CONTRIBUTION.
a. To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (i) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6, (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (iii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
b. Notwithstanding the foregoing, in the event the Initial
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Investors participate in an underwriting hereunder pursuant to an underwriting
agreement which includes indemnification and contribution provisions, the
indemnification and contribution provisions contained in such underwriting
agreement shall control and supersede the provisions contained in Sections 6 and
7(a) hereof with respect to any violations arising from the offering
contemplated by such underwriting agreement.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the Securities Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
b. file with the SEC in a timely manner and make and keep
available all reports and other documents required of the Company under the
Securities Act and the Exchange Act so long as the Company remains subject to
such requirements (it being understood that nothing herein shall limit the
Company's obligations under Section 4(c) of the Securities Purchase Agreement)
and the filing and availability of such reports and other documents is required
for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
shares of Preferred Stock, Warrants or Registrable Securities, promptly upon
request, (i) a written statement by the Company that it has complied with the
reporting requirements of Rule 144(c), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the shares of Preferred Stock, the Warrants or the Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company after such assignment, (ii) the Company is furnished with written notice
of (a) the name and address of such transferee or assignee, and (b) the
securities with respect to which such registration rights are being transferred
or assigned, (iii) following such transfer or assignment, the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act and applicable state securities laws, (iv) at or before the
time the Company receives the written notice contemplated by clause (ii) of this
sentence, the transferee or assignee agrees in writing for the benefit of the
Company to be bound by all of the provisions contained herein, and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company and
Investors who hold a majority interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
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Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five (5) days after being placed in the mail,
if mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
Attn: President
with a copy to:
General Counsel's Office
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
and if to any Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b).
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in the State of Delaware. The Company irrevocably consents
to the jurisdiction of the United States federal courts located in Kent County
in the State of Delaware in any suit or proceeding based on or arising under
this Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process upon the Company, mailed by
first class mail shall be deemed in every respect effective service of process
upon the Company in any such suit or proceeding. Nothing herein shall affect the
Investors' right to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
e. This Agreement, the Securities Purchase Agreement, the
Placement Agency Agreement and the Warrants (including all schedules and
exhibits thereto) constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the Securities Purchase Agreement and the
Placement Agency Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
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g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the
Investors or the Initial Investors pursuant to this Agreement shall be made by
the Investors or the Initial Investors holding a majority of the Registrable
Securities (determined as if all shares of Preferred Stock and Warrants then
outstanding had been converted into or exercised for Registrable Securities)
held by all Investors or Initial Investors, as the case may be.
k. The initial number of Registrable Securities included on
any Registration Statement and each increase to the number of Registrable
Securities included thereon shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
of such establishment or increase, as the case may be. In the event an Investor
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be allocated a pro rata portion of the number of
Registrable Securities included on a Registration Statement for such transferor.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
shall be allocated to the remaining Investors, pro rata based on the number of
shares of Registrable Securities then held by such Investors. For the avoidance
of doubt, the number of Registrable Securities held by any Investor shall be
determined as if all shares of Preferred Stock and Warrants then outstanding
were converted into or exercised for Registrable Securities.
l. Each party to this Agreement has participated in the
negotiation and drafting of this Agreement. As such, the language used herein
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party to this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
NETWORK IMAGING CORPORATION
By:
-----------------------------
Name:
-----------------------------
Its:
-----------------------------
INITIAL INVESTOR:
CAPITAL VENTURES INTERNATIONAL
By:
-----------------------------
Name:
-----------------------------
Its:
-----------------------------
INITIAL INVESTOR:
ZANETT LOMBARDIER, LTD.
By:
-----------------------------
Name:
---------------------------
Its:
----------------------------
INITIAL INVESTOR:
THE ZANETT SECURITIES CORPORATION
By:
-----------------------------
Name:
---------------------------
Its:
----------------------------
-16-
<PAGE>
EXHIBIT 1
to
Registration
Rights
Agreement
[Date]
[Name and address
of transfer agent]
RE: NETWORK IMAGING CORPORATION
Ladies and Gentlemen:
We are counsel to Network Imaging Corporation, a corporation organized
under the laws of the State of Delaware (the "Company"), and we understand that
[Name of Investor] (the "Holder") has purchased from the Company (i) shares of
the Company's Series K Convertible Preferred Stock (the "Preferred Stock") that
are convertible into shares of the Company's common stock, par value $.0001 per
share (the "Common Stock") and (ii) warrants (the "Warrants") that are
exercisable for shares of Common Stock. The Preferred Stock and Warrants were
purchased by the Holder pursuant to a Securities Purchase Agreement, dated as of
July 28, 1997, by and among the Company and the signatories thereto (the
"Agreement"). Pursuant to a Registration Rights Agreement, dated as of July 28,
1997, by and among the Company and the signatories thereto (the "Registration
Rights Agreement"), the Company agreed with the Holder, among other things, to
register the Registrable Securities (as that term is defined in the Registration
Rights Agreement) under the Securities Act of 1933, as amended (the "Securities
Act"), upon the terms provided in the Registration Rights Agreement. In
connection with the Company's obligations under the Registration Rights
Agreement, on , 1997, the Company filed a Registration Statement on Form
----- --
S- (File No. 333- ) (the "Registration Statement") with the
--- -------------
Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities, which names the Holder as a selling stockholder thereunder.
[Other customary introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other customary language to be included.]
Very truly yours,
cc: [Name of Investor]
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
20,000 shares
Warrant to Subscribe for Common Stock
of
NETWORK IMAGING CORPORATION
THIS CERTIFIES that Wood Gundy in trust for RRSP 550 98866 19
("Holder") has the right to subscribe from Network Imaging Corporation (the
"Company"), not more than 20,000 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 .875 ($1.875) per share subject to adjustment as provided
below (the "Exercise Price"), at any time on or before 5:00 pm, U.S.
time, on July 8, 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
-1-
<PAGE>
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.
-2-
<PAGE>
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: July 9, 1997
NETWORK IMAGING CORPORATION
By:
-----------------------------
James J. Leto
Title: President and Chief Executive
Officer
-3-
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
16,000 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 16,000 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
.875 ($1.875) per share subject to adjustment as provided below (the "Exercise
Price"), at any time on or before 5:00 pm, U.S.
time, on July 8, 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:
-1-
<PAGE>
(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.
-2-
<PAGE>
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: July 9, 1997
NETWORK IMAGING CORPORATION
By:
-----------------------------
James J. Leto
Title: President and Chief Executive
Officer
-3-
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON JULY 27, 2002
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER
IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 112,500 Shares of
Common Stock, par value $.0001 per share
Date: July 28, 1997
NETWORK IMAGING CORPORATION
CASHLESS STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, CAPITAL VENTURES INTERNATIONAL
or its registered assigns, is entitled to purchase from Network Imaging
Corporation, a Delaware corporation (the "Company"), at any time or from time to
time during the period specified in Section 2 hereof, up to One Hundred Twelve
Thousand Five Hundred (112,500) fully paid and nonassessable shares of the
Company's common stock, par value $.0001 per share (the "Common Stock") by
effecting a cashless exercise in accordance with Section 1 hereof. For purposes
of this Warrant, the exercise price per share (the "Exercise Price") shall be
equal to $2.40. The number of shares of Common Stock purchasable hereunder (the
"Warrant Shares") and the Exercise Price are subject to adjustment as provided
in Section 4 hereof. The term "Warrants" means this Warrant and the other
warrants of the Company issued pursuant to the terms of the Securities Purchase
Agreement dated July 28, 1997 by and between the Company and the purchasers
listed on the execution pages thereof (the "Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
(a) Subject to the provisions hereof, including, without
limitation, the limitations contained in Section 7 hereof, this Warrant may be
exercised by the holder hereof, in whole or in part, by the surrender of this
Warrant, together with a completed exercise agreement in the form attached
hereto (the "Exercise Agreement"), to the Company during normal business hours
on any business day at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the holder
hereof), which notice shall include a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms
hereof. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or such holder's designee, as the record owner of such shares, as
of the close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered, and
payment shall have been made for such shares as set forth above.
-1-
<PAGE>
(b) Upon any exercise of this Warrant, the holder shall
surrender this Warrant for that number of shares of Common Stock determined by
multiplying the number of Warrant Shares for which this Warrant is being
exercised by a fraction, the numerator of which shall be the difference between
the last sale price of a share of Common Stock on the trading day immediately
preceding the date of the Exercise Agreement (as reported on the principal
securities market on which the Common Stock is traded) (the "Cashless Exercise
Market Price") and the Exercise Price, and the denominator of which shall be the
Cashless Exercise Market Price.
(c) Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to the holder hereof within a reasonable time, not exceeding
two (2) business days, after this Warrant shall have been so exercised (the
"Delivery Period"). The certificates so delivered shall be in such denominations
as may be requested by the holder hereof and shall be registered in the name of
such holder or such other name as shall be designated by such holder; provided,
however, that no holder may designate any party to receive such certificates
unless such recipient is an "accredited investor" within the meaning of Rule 501
under the Securities Act and such designation does not cause the Company any
significant obligation under the blue sky laws of any jurisdiction. In lieu of
delivering physical certificates representing the Common Stock issuable upon
exercise, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of the holder and its compliance with the provisions contained in
this Section 1, so long as the certificates therefor do not bear a legend and
the holder thereof is not obligated to return such certificates for the
placement of a legend thereon, the Company shall use its best efforts to cause
its transfer agent to electronically transmit the Common Stock issuable upon
exercise to the holder by crediting the account of holder's Prime Broker with
DTC through its Deposit Withdrawal Agent Commission system. If this Warrant
shall have been exercised only in part, then, unless this Warrant has expired,
the Company shall, at its expense, at the time of delivery of such certificates,
deliver to the holder a new Warrant representing the number of shares with
respect to which this Warrant shall not then have been exercised.
(d) If, at any time, a holder of this Warrant submits this
Warrant and an Exercise Agreement, and the Company fails for any reason to
deliver, on or prior to the fourth business day following the expiration of the
Delivery Period for such exercise, the number of shares of Common Stock to which
the holder is entitled upon such exercise (an "Exercise Default"), then the
Company shall pay to the holder payments ("Exercise Default Payments") for an
Exercise Default in the amount of (a) (N/365), multiplied by (b) the closing
sales price (as reported on the Nasdaq National Market, or if not so reported,
as reported on the principal securities market or interdealer quotation system
on which the Common Stock is traded or quoted) on the date the Exercise
Agreement giving rise to the Exercise Default is transmitted in accordance with
Section 1 (the "Exercise Default Date ") multiplied by (c) the number of shares
of Common Stock the Company failed to so deliver in such Exercise Default
multiplied by (d) .24, where N = the number of days from the Exercise Default
Date to the date that the Company effects the full exercise of this Warrant
which gave rise to the Exercise Default. The accrued Exercise Default Payment
for each calendar month shall be paid in cash or shall be convertible into
Common Stock at the Exercise Price, at the holder's option, as follows:
(i) In the event holder elects to take such payment
in cash, cash payment shall be made to holder by the fifth (5th) day of the
month following the month in which it has accrued; and
(ii) In the event holder elects to take such payment
in Common Stock, the holder may convert such payment amount into Common Stock at
the Exercise Price (as in effect at the time of conversion) at any time after
the fifth (5th) day of the month following the month in which it has accrued.
-2-
<PAGE>
Nothing herein shall limit the holder's right to
pursue actual damages for the Company's failure to maintain a sufficient number
of authorized shares of Common Stock as required pursuant to the terms of
Section 3(b) hereof, or to otherwise issue shares of Common Stock upon exercise
of this Warrant in accordance with the terms hereof, and each holder shall have
the right to pursue all remedies available at law or in equity (including a
decree of specific performance and/or injunctive relief).
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date hereof and before 5:00 p.m., New York City
time on the fifth (5th) anniversary of the date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed or become listed (subject to official
notice of issuance upon exercise of this Warrant) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all shares
of Common Stock from time to time issuable upon the exercise of this Warrant;
and the Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all of the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon
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Issuance of Convertible Securities. Except as otherwise provided in Sections
4(c) and 4(e) hereof, if and whenever after the First Closing under the
Securities Purchase Agreement (the "First Closing") the Company issues, grants
or sells any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
exercisable, convertible into or exchangeable for Common Stock ("Convertible
Securities") at a price per share of Common Stock which is not based on a
percentage of the market price of the Company's Common Stock in effect from time
to time (a "Fixed Price") (such warrants, rights and options to purchase Common
Stock or Convertible Securities are hereinafter referred to as "Options") or
Convertible Securities which may be convertible or exchangeable for Common Stock
at a Fixed Price that is less than the Exercise Price in effect at the time of
such issuance, grant or sale, then the Exercise Price will, as of the date of
the issuance, grant or sale of such Options or Convertible Securities, be
immediately adjusted to the Fixed Price of such Options or Convertible
Securities.
(b) Exceptions to Adjustment of Exercise Price. No adjustment
to the Exercise Price will be made pursuant to Section 4(a) (i) upon the grant
or exercise of any stock or options which may hereafter be granted or exercised
under any employee benefit plan of the Company now existing or to be implemented
in the future, so long as the issuance of such stock or options is approved by a
majority of the non-employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee directors established
for such purpose; (ii) upon the issuance of Preferred Stock or Warrants in
accordance with terms of the Securities Purchase Agreement; (iii) upon the
issuance of securities as consideration for a merger, consolidation or
acquisition of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or as
consideration for the acquisition of a business, product or license by the
Company or (iv) upon the issuance of securities pursuant to an underwritten
public offering.
(c) Subdivision or Combination of Common Stock. If the
Company, at any time after the First Closing, subdivides (by any stock split,
stock dividend, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a greater number of shares, then, after the date
of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company, at any time after the First Closing, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect immediately prior to
such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Consolidation, Merger or Sale. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company at any time after the initial issuance of this
Warrant (in each case at any time after the First Closing) (each of the
foregoing being a "Fundamental Change"), then as a condition of such Fundamental
Change, adequate provision will be made whereby the holder of this Warrant will
have the right to acquire and receive upon exercise of this Warrant in lieu of
the shares of Common Stock otherwise issuable upon the exercise of this Warrant,
such shares of stock, securities or assets as would have been issued or payable
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<PAGE>
in such Fundamental Change with respect to or in exchange for the number of
shares of Common Stock which would have been issuable and receivable upon
exercise of this Warrant had such Fundamental Change not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Section 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any Fundamental
Change unless prior to the consummation thereof, the successor corporation (if
other than the Company) assumes by written instrument the obligations under this
Section 4 and the obligations to deliver to the holder of this Warrant such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the First Closing, then the
holder of this Warrant shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
holder had such holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(g) Purchase Rights. If at any time after the First Closing,
the Company issues any securities or rights to purchase stock, warrants,
securities or other property (the "Purchase Rights") pro rata to the record
holders of any class of Common Stock, then the holder of this Warrant will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Common Stock issuable upon complete exercise of
this Warrant (without giving effect to the limitations contained in Section
7(g)) immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
(h) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares issuable upon exercise of
this Warrant, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(i) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(j) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.
(k) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
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<PAGE>
Common Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash out of
retained earnings consistent with the Company's past practices with respect to
declaring dividends and making distributions) to the holders of the Common
Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(l) Certain Events. If, at any time after the initial issuance
of this Warrant, any event occurs of the type contemplated by the adjustment
provisions of this Section 4 but not expressly provided for by such provisions,
the Company will give notice of such event as provided in Section 4(h) hereof,
and the Company's Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of shares of Common Stock acquirable upon exercise
of this Warrant so that the rights of the holder shall be neither enhanced nor
diminished by such event.
(m) Definition of Common Stock. For purposes of this Section
4, "Common Stock" includes the Common Stock and any additional class of stock of
the Company having no preference as to dividends or distributions on
liquidation, provided that the shares issuable pursuant to this Warrant shall
include only Common Stock, par value $.0001 per share, in respect of which this
Warrant is exercisable, or shares resulting from any subdivision or combination
of such Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Section 4(e)
hereof, the stock or other securities or property provided for in such Section.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
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<PAGE>
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, Redemption and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Section 7(e) below, provided, however, that any transfer or assignment shall be
subject to the conditions set forth in Section 7(f) and (g) hereof and to the
provisions of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until
due presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 hereof are assignable only in
accordance with the provisions of that certain Registration Rights Agreement,
dated as of July 28, 1997, by and among the Company and the other signatories
thereto (the "Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations representing in the aggregate
the right to receive up to the number of shares of Common Stock which may be
issuable hereunder, each of such new Warrants to represent the right to receive
such number of shares as shall be designated by the holder hereof at the time of
such surrender.
(c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all expenses (other than legal expenses and
taxes, if any, incurred by the Holder or transferees) and charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 7.
(e) Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each transferee
and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
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<PAGE>
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company and (iii) that the transferee be an "accredited investor" as defined
in Rule 501(a) promulgated under the Securities Act; provided that no such
opinion, letter, status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act.
(g) Additional Restrictions on Exercise or Transfer.
Notwithstanding anything contained herein to the contrary, in no event shall the
holder hereof exercise Warrants to the extent that (a) the number of shares of
Common Stock beneficially owned by such holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unexercised portion of the Warrants or the unexercised or
unconverted portion of any other securities (including, without limitation, the
Preferred Stock) of the Company subject to a limitation on conversion or
exercise analogous to the limitation contained herein) and (b) the number of
shares of Common Stock issuable upon exercise of the Warrants (or portion
thereof) with respect to which the determination described herein is being made,
would result in beneficial ownership by such holder and its affiliates of more
than 4.9% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(a) hereof. The restrictions contained in this Section 7(g) may not be amended
without the consent of the holder of this Warrant and the holders of a majority
of the Company's then outstanding Common Stock.
8. Registration Rights. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement.
9. Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
Attn: President
with copy to:
General Counsel's Office
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
and if to the holder, at such address as such holder shall have provided in
-8-
<PAGE>
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 9.
10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in Kent County in the State of Delaware, in any suit or proceeding based
on or arising under this Warrant and irrevocably agrees that all claims in
respect of such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company agrees that service of process upon the
Company mailed by first class mail shall be deemed in every respect effective
service of process upon the Company in any such suit or proceeding. Nothing
herein shall affect the holder's right to serve process in any other manner
permitted by law. The Company agrees that a final non-appealable judgment in any
such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may
only be amended by an instrument in writing signed by the Company and the holder
hereof.
(b) Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
NETWORK IMAGING CORPORATION
By:
-------------------------
Name:
------------------------
Title:
-----------------------
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FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises this Warrant with respect
to of the shares of common stock of Network Imaging Corporation, a
-------------
Delaware corporation (the "Company"), evidenced by the attached Warrant, and is
hereby entitled to receive shares of Common Stock determined as follows
-------
in accordance with the conditions and provisions of said Warrant:
A. No. of shares subject to this Exercise shares
-----------
B. Last sale price on trading day immediately
preceding the date of this Exercise Agreement $
-------------
C. Exercise Price $
-------------
D. Number of shares of Common Stock issuable
pursuant to this Exercise Agreement equals
A x B-C
---
B or shares
-----------
i. The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock hereby subscribed
for if resale of such Common Stock is not registered or if Rule 144 is
unavailable:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER SAID ACT, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.
ii. Check appropriate box.
- --- The undersigned hereby requests that the Company electronically
transmit the Common Stock issuable pursuant to this Exercise Agreement
to the account of the undersigned's Prime Broker (which is )
----------
with DTC through its Deposit Withdrawal Agent Commission System.
- --- The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to the Warrant in the name of the Holder and delivered
to the undersigned at the address set forth below:
Dated:
----------------- -------------------------------------
Signature of Holder
-------------------------------------
Name of Holder (Print)
Address:
-------------------------------------
-------------------------------------
-------------------------------------
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints
------------------------------
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated:
---------------------, ----,
In the presence of
- ---------------------------
Name:
----------------------------
Signature:
-----------------------
Title of Signing Officer or Agent
(if any):
-------------------------
Address:
-------------------------
-------------------------
Note: The above signature should
correspond exactly with the name
on the face of the within Warrant.
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON JULY 27, 2002
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER
IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 135,000 Shares of
Common Stock, par value $.0001 per share
Date: July 28, 1997
NETWORK IMAGING CORPORATION
CASHLESS STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, ZANETT LOMBARDIER, LTD. or its
registered assigns, is entitled to purchase from Network Imaging Corporation, a
Delaware corporation (the "Company"), at any time or from time to time during
the period specified in Section 2 hereof, up to One Hundred Thirty-Five Thousand
(135,000) fully paid and nonassessable shares of the Company's common stock, par
value $.0001 per share (the "Common Stock") by effecting a cashless exercise in
accordance with Section 1 hereof. For purposes of this Warrant, the exercise
price per share (the "Exercise Price") shall be equal to $2.40. The number of
shares of Common Stock purchasable hereunder (the "Warrant Shares") and the
Exercise Price are subject to adjustment as provided in Section 4 hereof. The
term "Warrants" means this Warrant and the other warrants of the Company issued
pursuant to the terms of the Securities Purchase Agreement dated July 28, 1997
by and between the Company and the purchasers listed on the execution pages
thereof (the "Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
(a) Subject to the provisions hereof, including, without
limitation, the limitations contained in Section 7 hereof, this Warrant may be
exercised by the holder hereof, in whole or in part, by the surrender of this
Warrant, together with a completed exercise agreement in the form attached
hereto (the "Exercise Agreement"), to the Company during normal business hours
on any business day at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the holder
hereof), which notice shall include a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms
hereof. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or such holder's designee, as the record owner of such shares, as
of the close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered, and
payment shall have been made for such shares as set forth above.
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<PAGE>
(b) Upon any exercise of this Warrant, the holder shall
surrender this Warrant for that number of shares of Common Stock determined by
multiplying the number of Warrant Shares for which this Warrant is being
exercised by a fraction, the numerator of which shall be the difference between
the last sale price of a share of Common Stock on the trading day immediately
preceding the date of the Exercise Agreement (as reported on the principal
securities market on which the Common Stock is traded) (the "Cashless Exercise
Market Price") and the Exercise Price, and the denominator of which shall be the
Cashless Exercise Market Price.
(c) Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to the holder hereof within a reasonable time, not exceeding
two (2) business days, after this Warrant shall have been so exercised (the
"Delivery Period"). The certificates so delivered shall be in such denominations
as may be requested by the holder hereof and shall be registered in the name of
such holder or such other name as shall be designated by such holder; provided,
however, that no holder may designate any party to receive such certificates
unless such recipient is an "accredited investor" within the meaning of Rule 501
under the Securities Act and such designation does not cause the Company any
significant obligation under the blue sky laws of any jurisdiction. In lieu of
delivering physical certificates representing the Common Stock issuable upon
exercise, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of the holder and its compliance with the provisions contained in
this Section 1, so long as the certificates therefor do not bear a legend and
the holder thereof is not obligated to return such certificates for the
placement of a legend thereon, the Company shall use its best efforts to cause
its transfer agent to electronically transmit the Common Stock issuable upon
exercise to the holder by crediting the account of holder's Prime Broker with
DTC through its Deposit Withdrawal Agent Commission system. If this Warrant
shall have been exercised only in part, then, unless this Warrant has expired,
the Company shall, at its expense, at the time of delivery of such certificates,
deliver to the holder a new Warrant representing the number of shares with
respect to which this Warrant shall not then have been exercised.
(d) If, at any time, a holder of this Warrant submits this
Warrant and an Exercise Agreement, and the Company fails for any reason to
deliver, on or prior to the fourth business day following the expiration of the
Delivery Period for such exercise, the number of shares of Common Stock to which
the holder is entitled upon such exercise (an "Exercise Default"), then the
Company shall pay to the holder payments ("Exercise Default Payments") for an
Exercise Default in the amount of (a) (N/365), multiplied by (b) the closing
sales price (as reported on the Nasdaq National Market, or if not so reported,
as reported on the principal securities market or interdealer quotation system
on which the Common Stock is traded or quoted) on the date the Exercise
Agreement giving rise to the Exercise Default is transmitted in accordance with
Section 1 (the "Exercise Default Date ") multiplied by (c) the number of shares
of Common Stock the Company failed to so deliver in such Exercise Default
multiplied by (d) .24, where N = the number of days from the Exercise Default
Date to the date that the Company effects the full exercise of this Warrant
which gave rise to the Exercise Default. The accrued Exercise Default Payment
for each calendar month shall be paid in cash or shall be convertible into
Common Stock at the Exercise Price, at the holder's option, as follows:
(i) In the event holder elects to take such payment
in cash, cash payment shall be made to holder by the fifth (5th) day of the
month following the month in which it has accrued; and
(ii) In the event holder elects to take such payment
in Common Stock, the holder may convert such payment amount into Common Stock
at the Exercise Price (as in effect at the time of conversion) at any time after
the fifth (5th) day of the month following the month in which it has accrued.
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<PAGE>
Nothing herein shall limit the holder's right to
pursue actual damages for the Company's failure to maintain a sufficient number
of authorized shares of Common Stock as required pursuant to the terms of
Section 3(b) hereof, or to otherwise issue shares of Common Stock upon exercise
of this Warrant in accordance with the terms hereof, and each holder shall have
the right to pursue all remedies available at law or in equity (including a
decree of specific performance and/or injunctive relief).
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date hereof and before 5:00 p.m., New York City
time on the fifth (5th) anniversary of the date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed or become listed (subject to official
notice of issuance upon exercise of this Warrant) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all shares
of Common Stock from time to time issuable upon the exercise of this Warrant;
and the Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all of the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Convertible Securities. Except as otherwise provided in Sections
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4(c) and 4(e) hereof, if and whenever after the First Closing under the
Securities Purchase Agreement (the "First Closing") the Company issues, grants
or sells any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
exercisable, convertible into or exchangeable for Common Stock ("Convertible
Securities") at a price per share of Common Stock which is not based on a
percentage of the market price of the Company's Common Stock in effect from time
to time (a "Fixed Price") (such warrants, rights and options to purchase Common
Stock or Convertible Securities are hereinafter referred to as "Options") or
Convertible Securities which may be convertible or exchangeable for Common Stock
at a Fixed Price that is less than the Exercise Price in effect at the time of
such issuance, grant or sale, then the Exercise Price will, as of the date of
the issuance, grant or sale of such Options or Convertible Securities, be
immediately adjusted to the Fixed Price of such Options or Convertible
Securities.
(b) Exceptions to Adjustment of Exercise Price. No adjustment
to the Exercise Price will be made pursuant to Section 4(a) (i) upon the grant
or exercise of any stock or options which may hereafter be granted or exercised
under any employee benefit plan of the Company now existing or to be implemented
in the future, so long as the issuance of such stock or options is approved by a
majority of the non-employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee directors established
for such purpose; (ii) upon the issuance of Preferred Stock or Warrants in
accordance with terms of the Securities Purchase Agreement; (iii) upon the
issuance of securities as consideration for a merger, consolidation or
acquisition of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or as
consideration for the acquisition of a business, product or license by the
Company or (iv) upon the issuance of securities pursuant to an underwritten
public offering.
(c) Subdivision or Combination of Common Stock. If the
Company, at any time after the First Closing, subdivides (by any stock split,
stock dividend, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a greater number of shares, then, after the date
of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company, at any time after the First Closing, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect immediately prior to
such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Consolidation, Merger or Sale. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company at any time after the initial issuance of this
Warrant (in each case at any time after the First Closing) (each of the
foregoing being a "Fundamental Change"), then as a condition of such Fundamental
Change, adequate provision will be made whereby the holder of this Warrant will
have the right to acquire and receive upon exercise of this Warrant in lieu of
the shares of Common Stock otherwise issuable upon the exercise of this Warrant,
such shares of stock, securities or assets as would have been issued or payable
in such Fundamental Change with respect to or in exchange for the number of
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shares of Common Stock which would have been issuable and receivable upon
exercise of this Warrant had such Fundamental Change not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Section 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any Fundamental
Change unless prior to the consummation thereof, the successor corporation (if
other than the Company) assumes by written instrument the obligations under this
Section 4 and the obligations to deliver to the holder of this Warrant such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the First Closing, then the
holder of this Warrant shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
holder had such holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(g) Purchase Rights. If at any time after the First Closing,
the Company issues any securities or rights to purchase stock, warrants,
securities or other property (the "Purchase Rights") pro rata to the record
holders of any class of Common Stock, then the holder of this Warrant will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Common Stock issuable upon complete exercise of
this Warrant (without giving effect to the limitations contained in Section
7(g)) immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
(h) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares issuable upon exercise of
this Warrant, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(i) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(j) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.
(k) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash out of
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<PAGE>
retained earnings consistent with the Company's past practices with respect to
declaring dividends and making distributions) to the holders of the Common
Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(l) Certain Events. If, at any time after the initial issuance
of this Warrant, any event occurs of the type contemplated by the adjustment
provisions of this Section 4 but not expressly provided for by such provisions,
the Company will give notice of such event as provided in Section 4(h) hereof,
and the Company's Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of shares of Common Stock acquirable upon exercise
of this Warrant so that the rights of the holder shall be neither enhanced nor
diminished by such event.
(m) Definition of Common Stock. For purposes of this Section
4, "Common Stock" includes the Common Stock and any additional class of stock of
the Company having no preference as to dividends or distributions on
liquidation, provided that the shares issuable pursuant to this Warrant shall
include only Common Stock, par value $.0001 per share, in respect of which this
Warrant is exercisable, or shares resulting from any subdivision or combination
of such Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Section 4(e)
hereof, the stock or other securities or property provided for in such Section.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
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<PAGE>
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, Redemption and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Section 7(e) below, provided, however, that any transfer or assignment shall be
subject to the conditions set forth in Section 7(f) and (g) hereof and to the
provisions of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until
due presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 hereof are assignable only in
accordance with the provisions of that certain Registration Rights Agreement,
dated as of July 28, 1997, by and among the Company and the other signatories
thereto (the "Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations representing in the aggregate
the right to receive up to the number of shares of Common Stock which may be
issuable hereunder, each of such new Warrants to represent the right to receive
such number of shares as shall be designated by the holder hereof at the time of
such surrender.
(c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all expenses (other than legal expenses and
taxes, if any, incurred by the Holder or transferees) and charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 7.
(e) Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each transferee
and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
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<PAGE>
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company and (iii) that the transferee be an "accredited investor" as defined
in Rule 501(a) promulgated under the Securities Act; provided that no such
opinion, letter, status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act.
(g) Additional Restrictions on Exercise or Transfer.
Notwithstanding anything contained herein to the contrary, in no event shall the
holder hereof exercise Warrants to the extent that (a) the number of shares of
Common Stock beneficially owned by such holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unexercised portion of the Warrants or the unexercised or
unconverted portion of any other securities (including, without limitation, the
Preferred Stock) of the Company subject to a limitation on conversion or
exercise analogous to the limitation contained herein) and (b) the number of
shares of Common Stock issuable upon exercise of the Warrants (or portion
thereof) with respect to which the determination described herein is being made,
would result in beneficial ownership by such holder and its affiliates of more
than 4.9% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(a) hereof. The restrictions contained in this Section 7(g) may not be amended
without the consent of the holder of this Warrant and the holders of a majority
of the Company's then outstanding Common Stock.
8. Registration Rights. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement.
9. Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
Attn: President
with copy to:
General Counsel's Office
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
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<PAGE>
and if to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 9.
10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in Kent County in the State of Delaware, in any suit or proceeding based
on or arising under this Warrant and irrevocably agrees that all claims in
respect of such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company agrees that service of process upon the
Company mailed by first class mail shall be deemed in every respect effective
service of process upon the Company in any such suit or proceeding. Nothing
herein shall affect the holder's right to serve process in any other manner
permitted by law. The Company agrees that a final non-appealable judgment in any
such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may
only be amended by an instrument in writing signed by the Company and the holder
hereof.
(b) Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
NETWORK IMAGING CORPORATION
By:
-------------------------
Name:
------------------------
Title:
-----------------------
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FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises this Warrant with respect
to of the shares of common stock of Network Imaging Corporation, a
-------------
Delaware corporation (the "Company"), evidenced by the attached Warrant, and is
hereby entitled to receive shares of Common Stock determined as follows
-------
in accordance with the conditions and provisions of said Warrant:
A. No. of shares subject to this Exercise shares
------------
B. Last sale price on trading day immediately
preceding the date of this Exercise Agreement $
------------
C. Exercise Price $
------------
D. Number of shares of Common Stock issuable
pursuant to this Exercise Agreement equals
A x B-C
---
B or shares
------------
i. The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock hereby subscribed
for if resale of such Common Stock is not registered or if Rule 144 is
unavailable:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER SAID ACT, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.
ii. Check appropriate box.
- --- The undersigned hereby requests that the Company electronically
transmit the Common Stock issuable pursuant to this Exercise Agreement
to the account of the undersigned's Prime Broker (which is )
----------
with DTC through its Deposit Withdrawal Agent Commission System.
- --- The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to the Warrant in the name of the Holder and delivered
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to the undersigned at the address set forth below:
Dated:
----------------- -------------------------------------
Signature of Holder
-------------------------------------
Name of Holder (Print)
Address:
-------------------------------------
-------------------------------------
-------------------------------------
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FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints
------------------------------
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated:
---------------------, ----,
In the presence of
- ----------------------
Name:
-------------------------------
Signature:
--------------------------
Title of Signing Officer or Agent
(if any):
------------------------------------
Address:
------------------------------------
------------------------------------
------------------------------------
Note: The above signature should corres-
pond exactly with the name on the
face of the within Warrant.
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON JULY 27, 2002
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER
IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 162,462 Shares of
Common Stock, par value $.0001 per share
Date: July 28, 1997
NETWORK IMAGING CORPORATION
CASHLESS STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, THE ZANETT SECURITIES
CORPORATION or its registered assigns, is entitled to purchase from Network
Imaging Corporation, a Delaware corporation (the "Company"), at any time or from
time to time during the period specified in Section 2 hereof, up to One Hundred
Sixty-Two Thousand Four Hundred Sixty-Two (162,462) fully paid and nonassessable
shares of the Company's common stock, par value $.0001 per share (the "Common
Stock") by effecting a cashless exercise in accordance with Section 1 hereof.
For purposes of this Warrant, the exercise price per share (the "Exercise
Price") shall be equal to $1.625. The number of shares of Common Stock
purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject
to adjustment as provided in Section 4 hereof. The term "Warrants" means this
Warrant and the other warrants of the Company issued pursuant to the terms of
the Securities Purchase Agreement dated July 28, 1997 by and between the Company
and the purchasers listed on the execution pages thereof (the "Securities
Purchase Agreement").
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
(a) Subject to the provisions hereof, including, without
limitation, the limitations contained in Section 7 hereof, this Warrant may be
exercised by the holder hereof, in whole or in part, by the surrender of this
Warrant, together with a completed exercise agreement in the form attached
hereto (the "Exercise Agreement"), to the Company during normal business hours
on any business day at the Company's principal executive offices (or such other
office or agency of the Company as it may designate by notice to the holder
hereof), which notice shall include a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms
hereof. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or such holder's designee, as the record owner of such shares, as
of the close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered, and
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<PAGE>
payment shall have been made for such shares as set forth above.
(b) Upon any exercise of this Warrant, the holder shall
surrender this Warrant for that number of shares of Common Stock determined by
multiplying the number of Warrant Shares for which this Warrant is being
exercised by a fraction, the numerator of which shall be the difference between
the last sale price of a share of Common Stock on the trading day immediately
preceding the date of the Exercise Agreement (as reported on the principal
securities market on which the Common Stock is traded) (the "Cashless Exercise
Market Price") and the Exercise Price, and the denominator of which shall be the
Cashless Exercise Market Price.
(c) Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to the holder hereof within a reasonable time, not exceeding
two (2) business days, after this Warrant shall have been so exercised (the
"Delivery Period"). The certificates so delivered shall be in such denominations
as may be requested by the holder hereof and shall be registered in the name of
such holder or such other name as shall be designated by such holder; provided,
however, that no holder may designate any party to receive such certificates
unless such recipient is an "accredited investor" within the meaning of Rule 501
under the Securities Act and such designation does not cause the Company any
significant obligation under the blue sky laws of any jurisdiction. In lieu of
delivering physical certificates representing the Common Stock issuable upon
exercise, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of the holder and its compliance with the provisions contained in
this Section 1, so long as the certificates therefor do not bear a legend and
the holder thereof is not obligated to return such certificates for the
placement of a legend thereon, the Company shall use its best efforts to cause
its transfer agent to electronically transmit the Common Stock issuable upon
exercise to the holder by crediting the account of holder's Prime Broker with
DTC through its Deposit Withdrawal Agent Commission system. If this Warrant
shall have been exercised only in part, then, unless this Warrant has expired,
the Company shall, at its expense, at the time of delivery of such certificates,
deliver to the holder a new Warrant representing the number of shares with
respect to which this Warrant shall not then have been exercised.
(d) If, at any time, a holder of this Warrant submits this
Warrant and an Exercise Agreement, and the Company fails for any reason to
deliver, on or prior to the fourth business day following the expiration of the
Delivery Period for such exercise, the number of shares of Common Stock to which
the holder is entitled upon such exercise (an "Exercise Default"), then the
Company shall pay to the holder payments ("Exercise Default Payments") for an
Exercise Default in the amount of (a) (N/365), multiplied by (b) the closing
sales price (as reported on the Nasdaq National Market, or if not so reported,
as reported on the principal securities market or interdealer quotation system
on which the Common Stock is traded or quoted) on the date the Exercise
Agreement giving rise to the Exercise Default is transmitted in accordance with
Section 1 (the "Exercise Default Date ") multiplied by (c) the number of shares
of Common Stock the Company failed to so deliver in such Exercise Default
multiplied by (d) .24, where N = the number of days from the Exercise Default
Date to the date that the Company effects the full exercise of this Warrant
which gave rise to the Exercise Default. The accrued Exercise Default Payment
for each calendar month shall be paid in cash or shall be convertible into
Common Stock at the Exercise Price, at the holder's option, as follows:
(i) In the event holder elects to take such payment
in cash, cash payment shall be made to holder by the fifth (5th) day of the
month following the month in which it has accrued; and
(ii) In the event holder elects to take such payment
in Common Stock, the holder may convert such payment amount into Common Stock at
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the Exercise Price (as in effect at the time of conversion) at any time after
the fifth (5th) day of the month following the month in which it has accrued.
Nothing herein shall limit the holder's right to
pursue actual damages for the Company's failure to maintain a sufficient number
of authorized shares of Common Stock as required pursuant to the terms of
Section 3(b) hereof, or to otherwise issue shares of Common Stock upon exercise
of this Warrant in accordance with the terms hereof, and each holder shall have
the right to pursue all remedies available at law or in equity (including a
decree of specific performance and/or injunctive relief).
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date hereof and before 5:00 p.m., New York City
time on the fifth (5th) anniversary of the date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed or become listed (subject to official
notice of issuance upon exercise of this Warrant) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all shares
of Common Stock from time to time issuable upon the exercise of this Warrant;
and the Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation, or acquisition of
all or substantially all of the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
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to time as provided in this Section 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon
Issuance of Convertible Securities. Except as otherwise provided in Sections
4(c) and 4(e) hereof, if and whenever after the First Closing under the
Securities Purchase Agreement (the "First Closing") the Company issues, grants
or sells any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
exercisable, convertible into or exchangeable for Common Stock ("Convertible
Securities") at a price per share of Common Stock which is not based on a
percentage of the market price of the Company's Common Stock in effect from time
to time (a "Fixed Price") (such warrants, rights and options to purchase Common
Stock or Convertible Securities are hereinafter referred to as "Options") or
Convertible Securities which may be convertible or exchangeable for Common Stock
at a Fixed Price that is less than the Exercise Price in effect at the time of
such issuance, grant or sale, then the Exercise Price will, as of the date of
the issuance, grant or sale of such Options or Convertible Securities, be
immediately adjusted to the Fixed Price of such Options or Convertible
Securities.
(b) Exceptions to Adjustment of Exercise Price. No adjustment
to the Exercise Price will be made pursuant to Section 4(a) (i) upon the grant
or exercise of any stock or options which may hereafter be granted or exercised
under any employee benefit plan of the Company now existing or to be implemented
in the future, so long as the issuance of such stock or options is approved by a
majority of the non-employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee directors established
for such purpose; (ii) upon the issuance of Preferred Stock or Warrants in
accordance with terms of the Securities Purchase Agreement; (iii) upon the
issuance of securities as consideration for a merger, consolidation or
acquisition of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or as
consideration for the acquisition of a business, product or license by the
Company or (iv) upon the issuance of securities pursuant to an underwritten
public offering.
(c) Subdivision or Combination of Common Stock. If the
Company, at any time after the First Closing, subdivides (by any stock split,
stock dividend, recapitalization, reorganization, reclassification or otherwise)
its shares of Common Stock into a greater number of shares, then, after the date
of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company, at any time after the First Closing, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect immediately prior to
such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Consolidation, Merger or Sale. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company at any time after the initial issuance of this
Warrant (in each case at any time after the First Closing) (each of the
foregoing being a "Fundamental Change"), then as a condition of such Fundamental
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Change, adequate provision will be made whereby the holder of this Warrant will
have the right to acquire and receive upon exercise of this Warrant in lieu of
the shares of Common Stock otherwise issuable upon the exercise of this Warrant,
such shares of stock, securities or assets as would have been issued or payable
in such Fundamental Change with respect to or in exchange for the number of
shares of Common Stock which would have been issuable and receivable upon
exercise of this Warrant had such Fundamental Change not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Section 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any Fundamental
Change unless prior to the consummation thereof, the successor corporation (if
other than the Company) assumes by written instrument the obligations under this
Section 4 and the obligations to deliver to the holder of this Warrant such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the First Closing, then the
holder of this Warrant shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
holder had such holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(g) Purchase Rights. If at any time after the First Closing,
the Company issues any securities or rights to purchase stock, warrants,
securities or other property (the "Purchase Rights") pro rata to the record
holders of any class of Common Stock, then the holder of this Warrant will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Common Stock issuable upon complete exercise of
this Warrant (without giving effect to the limitations contained in Section
7(g)) immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
(h) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares issuable upon exercise of
this Warrant, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(i) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(j) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
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<PAGE>
of Common Stock on the date of such exercise.
(k) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash out of
retained earnings consistent with the Company's past practices with respect to
declaring dividends and making distributions) to the holders of the Common
Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(l) Certain Events. If, at any time after the initial issuance
of this Warrant, any event occurs of the type contemplated by the adjustment
provisions of this Section 4 but not expressly provided for by such provisions,
the Company will give notice of such event as provided in Section 4(h) hereof,
and the Company's Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of shares of Common Stock acquirable upon exercise
of this Warrant so that the rights of the holder shall be neither enhanced nor
diminished by such event.
(m) Definition of Common Stock. For purposes of this Section
4, "Common Stock" includes the Common Stock and any additional class of stock of
the Company having no preference as to dividends or distributions on
liquidation, provided that the shares issuable pursuant to this Warrant shall
include only Common Stock, par value $.0001 per share, in respect of which this
Warrant is exercisable, or shares resulting from any subdivision or combination
of such Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Section 4(e)
hereof, the stock or other securities or property provided for in such Section.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
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Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, Redemption and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Section 7(e) below, provided, however, that any transfer or assignment shall be
subject to the conditions set forth in Section 7(f) and (g) hereof and to the
provisions of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until
due presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 hereof are assignable only in
accordance with the provisions of that certain Registration Rights Agreement,
dated as of July 28, 1997, by and among the Company and the other signatories
thereto (the "Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations representing in the aggregate
the right to receive up to the number of shares of Common Stock which may be
issuable hereunder, each of such new Warrants to represent the right to receive
such number of shares as shall be designated by the holder hereof at the time of
such surrender.
(c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all expenses (other than legal expenses and
taxes, if any, incurred by the Holder or transferees) and charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 7.
(e) Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each transferee
and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time
of the surrender of this Warrant in connection with any exercise, transfer, or
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exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company and (iii) that the transferee be an "accredited investor" as defined
in Rule 501(a) promulgated under the Securities Act; provided that no such
opinion, letter, status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act.
(g) Additional Restrictions on Exercise or Transfer.
Notwithstanding anything contained herein to the contrary, in no event shall the
holder hereof exercise Warrants to the extent that (a) the number of shares of
Common Stock beneficially owned by such holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unexercised portion of the Warrants or the unexercised or
unconverted portion of any other securities (including, without limitation, the
Preferred Stock) of the Company subject to a limitation on conversion or
exercise analogous to the limitation contained herein) and (b) the number of
shares of Common Stock issuable upon exercise of the Warrants (or portion
thereof) with respect to which the determination described herein is being made,
would result in beneficial ownership by such holder and its affiliates of more
than 4.9% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(a) hereof. The restrictions contained in this Section 7(g) may not be amended
without the consent of the holder of this Warrant and the holders of a majority
of the Company's then outstanding Common Stock.
8. Registration Rights. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement.
9. Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
Attn: President
with copy to:
General Counsel's Office
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
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<PAGE>
and if to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 9.
10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in Kent County in the State of Delaware, in any suit or proceeding based
on or arising under this Warrant and irrevocably agrees that all claims in
respect of such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company agrees that service of process upon the
Company mailed by first class mail shall be deemed in every respect effective
service of process upon the Company in any such suit or proceeding. Nothing
herein shall affect the holder's right to serve process in any other manner
permitted by law. The Company agrees that a final non-appealable judgment in any
such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof
may only be amended by an instrument in writing signed by the Company and the
holder hereof.
(b) Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
NETWORK IMAGING CORPORATION
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
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FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises this Warrant with respect
to _____________ of the shares of common stock of Network Imaging Corporation, a
Delaware corporation (the "Company"), evidenced by the attached Warrant, and is
hereby entitled to receive _______ shares of Common Stock determined as follows
in accordance with the conditions and provisions of said Warrant:
A. No. of shares subject to this Exercise ------------- shares
B. Last sale price on trading day immediately
preceding the date of this Exercise Agreement $
-------------
C. Exercise Price $
-------------
D. Number of shares of Common Stock issuable
pursuant to this Exercise Agreement equals
A x B-C
---
B or ------------- shares
i. The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock hereby subscribed
for if resale of such Common Stock is not registered or if Rule 144 is
unavailable:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER SAID ACT, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.
ii. Check appropriate box.
- --- The undersigned hereby requests that the Company electronically
transmit the Common Stock issuable pursuant to this Exercise Agreement
to the account of the undersigned's Prime Broker (which is )
----------
with DTC through its Deposit Withdrawal Agent Commission System.
- --- The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be
issued, pursuant to the Warrant in the name of the Holder and delivered
to the undersigned at the address set forth below:
Dated:
----------------- -------------------------------------
Signature of Holder
-------------------------------------
Name of Holder (Print)
Address:
-------------------------------------
-------------------------------------
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<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints
-------------------------------
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated:
---------------------, ----,
In the presence of
- -----------------------
Name:
------------------------------
Signature:
-------------------------
Title of Signing Officer or Agent
(if any):
------------------------------------
Address:
------------------------------------
------------------------------------
Note: The above signature should corres-
pond exactly with the name on the face of
the within Warrant.
Placement Agency Agreement
July 2, 1997
The Zanett Securities Corporation
767 Fifth Avenue
New York, New York 10153
Gentlemen:
This agreement ("Agreement") will confirm that Network Imaging
Corporation, a Delaware corporation (the "Company"), has retained The Zanett
Securities Corporation ("Zanett" or the "Placement Agent") as its exclusive
placement agent to assist the Company, during the six-week period commencing on
the date hereof ("Term"), on a "best-efforts" basis, with the placement of
shares of the Company's Series K preferred stock (the "Preferred Shares") and
Warrants (the "Warrants") to purchase shares of the Company's Common Stock
("Common Stock"), at an aggregate purchase price of up to $11,000,000,
substantially on the terms and conditions set forth herein. The Preferred Shares
will be convertible into shares of Common Stock substantially upon the terms and
subject to the limitations and conditions set forth in the term sheet, attached
hereto as Exhibit A ("Term Sheet"). The Company agrees that during the Term,
Zanett shall have the exclusive right to offer and place the Preferred Shares
and the Warrants and that all conversations, negotiations, documents and other
materials exchanged between the Company and the Placement Agent shall not be
disclosed or released to any third party without the prior written consent of
Zanett; provided, that the Company may disclose such materials to its counsel
and accountants and may disclose the terms of the Offering to Friedman, Billings
& Ramsey so long as each of such parties agrees to respect the confidentiality
obligations established hereby in accordance with the terms hereof.
The Preferred Shares are being offered to "accredited investors" in
accordance with Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). Each prospective investor ("Investor")
subscribing to purchase the Preferred Shares will be required to deliver, among
other things, a securities purchase agreement between the Company and the
Investor ("Securities Purchase Agreement") in form and substance reasonably
satisfactory to Zanett and the Company, representing and warranting, among other
things, that such Investor is an "accredited investor" as such term is defined
in Regulation D. Contemporaneous with the execution and delivery of the
Securities Purchase Agreement, the Investors shall execute and deliver a
Registration Rights Agreement (the "Registration Rights Agreement") in form and
substance reasonably satisfactory to Zanett and the Company pursuant to which
the Company will agree to provide the Investors certain registration rights
under the Securities Act.
The Securities Purchase Agreement and the Registration Rights Agreement
are referred to herein collectively as the "Offering Documents." The offering of
Preferred Shares and Warrants described in the Offering Documents is referred to
herein as the "Offering."
1. Appointment of Placement Agent. Zanett is hereby appointed Placement
Agent of the Company for the purposes of assisting the Company in finding
qualified Investors to participate in the Offering. In accepting this
engagement, Zanett represents to the Company it is registered as a broker dealer
under the laws of the United States and will not solicit any person in any
jurisdiction in which it is not registered as a broker dealer. Moreover, Zanett
shall not engage in any "general advertising" or "general solicitation" in
connection with the Offering, as such terms are defined in Regulation D under
the Securities Act. The Investors are required to submit, by wire transfer, full
payment for their respective investments at the time they enter into the
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<PAGE>
Securities Purchase Agreement and all such payments received from Investors
shall be held in an escrow account at First Union National Bank of Georgia or
such other reputable entity as may be designated by the Placement Agent (the
"Escrow Agent"). On the basis of the representations and warranties and subject
to the terms and conditions contained herein, Zanett hereby accepts such agency
and agree to assist the Company in finding qualified Investors to participate in
the Offering. In performing services hereunder Zanett shall only utilize such
information as is contained in the Offering Documents, the SEC Documents (as
defined below) or in publicly available documents and information provided to
Zanett or its representatives by the Company in connection with its engagement
hereunder and Zanett shall not make any statements to any Investors which are
inconsistent with such information. Zanett's agency hereunder is not terminable
by the Company except upon termination of the Offering or at the end of the
Term. Upon termination of the Offering, all subscriptions received, if any,
shall be returned to Investors.
2. Closing; Placement Fee and Warrant; Expenses.
(a) Closing. Upon satisfaction of the conditions to closing
contained in the Securities Purchase Agreement, the closings (each a "Closing")
of the purchase and sale of the Preferred Shares and Warrants shall take place
at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers or such other
mutually agreed place, at such times and dates (the "Closing Dates") agreed upon
between the Placement Agent, the Investors and the Company.
(b) Procedures at Closing. At each Closing:
(i) The Placement Agent on behalf of itself and the
Investors shall receive the opinion of Company's outside legal counsel, dated as
of the applicable Closing Date, in such form as may be reasonably acceptable to
the Placement Agent and its counsel.
(ii) Counsel for the Placement Agent shall receive
certificates from the Company, signed by the President or a Vice President
thereof, certifying that attached thereto is a true and correct copy of
resolutions adopted by the Company's Board of Directors authorizing (A) the
execution, delivery and performance of this Agreement, the Placement Warrants
(as defined below), the Securities Purchase Agreement, the Registration Rights
Agreement and other documentation related to the Offering, and (B) the issuance
of the Preferred Shares and Warrants and the Common Stock and other securities
(if any) issuable upon conversion of the Preferred Shares and exercise of the
Warrants and the Placement Warrants, and certifying that such resolutions have
not been modified, rescinded or amended and are in full force and effect.
(iii) The Certificate of Designation shall have been
accepted for filing with the Secretary of State of Delaware, and a copy thereof
certified by such Secretary of State shall be delivered to the Placement Agent
on behalf of itself and the Investors.
(iv) The Placement Agent shall have received a
certificate of good standing of the Company, dated as of a recent date, from the
Secretary of State of the State of Delaware.
(v) There shall be delivered on behalf of each
Investor two copies of the Securities Purchase Agreement and Registration Rights
Agreement signed by each Investor and accepted by the Company.
(vi) Each Investor shall have delivered to the Escrow
Agent the full purchase price for his respective number of shares of Preferred
Shares and Warrants being purchased at such Closing.
(vii) The Company shall have delivered duly executed
certificates (in such denominations as such Investor shall request) representing
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<PAGE>
the Preferred Shares and Warrants being so purchased at such Closing to the
Escrow Agent.
(viii) The Company shall have delivered duly executed
warrant certificates (in such denominations as the Placement Agent shall
request) representing the Placement Warrants being issued to Zanett, its
affiliates, assigns or designees at such Closing.
(ix) The Company and the Placement Agent shall
instruct the Escrow Agent to pay to the Company the purchase price (the
"Purchase Price") for the Preferred Shares and Warrants subscribed for at such
Closing, less the Placement Agent Fee (as defined below), out of the funds on
deposit in the escrow account, as such funds are received from Investors whose
Securities Purchase Agreement have been accepted.
(c) Placement Fee. Simultaneously with payment for and
delivery of the Preferred Shares and Warrants at each Closing under the
Securities Purchase Agreement as provided in paragraph 2(a) above, the Escrow
Agent shall pay to the Placement Agent from the funds on deposit a commission
equal to eight percent (8%) of the aggregate gross proceeds received by the
Company from the sale of the Preferred Shares and Warrants sold at such Closing
(the "Placement Agent Fee"). Such Placement Agent Fee shall be payable to Zanett
by wire transfer, in accordance with Zanett's written wiring instructions.
(d) Warrants. In addition to the Placement Agent Fee, at each
Closing under the Securities Purchase Agreement, the Company shall issue to the
Placement Agent, its affiliates, assigns or designees, warrants (the "Placement
Warrants") in substantially the form of the Warrants (except that the Placement
Warrants will have an exercise price equal to the closing price of the Company's
Common Stock on the date of the First Closing) to purchase such number of shares
of the Company's Common Stock, as is equal to eight percent (8%) of the quotient
obtained by dividing the aggregate Purchase Price of all Preferred Shares and
Warrants issued at such Closing divided by the initial exercise price of the
Placement Warrants. The shares of the Company's Common Stock issuable upon
exercise of the Placement Warrants shall constitute "Registrable Securities"
under the Registration Rights Agreement.
The certificates representing the Placement Warrants
shall be in such denominations as Zanett may request prior to Closing. The
shares of the Company's Common Stock issuable upon exercise of the Placement
Warrants shall herein be referred to as the "Warrant Shares."
(e) Expenses of Offering. The Company shall be responsible for
and shall bear all expenses directly and necessarily incurred by it in
connection with the Offering including, but not limited to, the following:
filing fees, registrar and transfer agent fees, investigatory fees (including,
but not limited to travel and lodging expenses), issuer's counsel and accounting
fees, blue sky fees and counsel, if any and issue and transfer taxes, if any. In
the event a Closing does not occur during the Term, the Company shall reimburse
the Placement Agent for its reasonable out-of-pocket expenses incurred in
connection with the Offering (the amount of such reimbursement not to exceed
$17,500).
(f) Lockup. The Company agrees that, during the period
beginning on the date hereof and ending eighteen (18) months following the later
of the date hereof and the date of the first Closing (the "Lock Up Period"), it
will not, without the prior written consent of the Placement Agent, negotiate or
contract with any Investor or any other party introduced to the Company by
Placement Agent to obtain additional equity financing (including debt financing
with an equity component) in any form.
-3-
<PAGE>
3. Representations and Warranties and Covenants of the Company.
(a) The Company represents and warrants to Zanett that this
Agreement has been duly authorized, executed and delivered by the Company and,
assuming the due execution by Zanett, constitutes a legal, valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms.
(b) The Company has delivered to Zanett true and complete
copies of all reports, schedules, forms, statements and other documents required
to be filed by the Company on or after December 31, 1993 with the Securities and
Exchange Commission (the "SEC") pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to as the "SEC
Documents"). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and, except as set forth in the Offering Documents (including the schedules
thereto) at the time of the first closing thereunder, none of the SEC Documents,
at the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to December 31, 1996, and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.
(c) The Company recognizes and confirms that Zanett (i) is
authorized to assist the Company in the structuring of the Offering with any
prospective purchaser who is an "accredited investor" as defined in Regulation D
under the Securities Act and to provide copies of the SEC Documents and forms of
the Securities Purchase Agreement and other legal documentation to prospective
purchasers of the Company's securities in connection with the performance of
Zanett's services hereunder and (ii) does not assume responsibility for the
accuracy or completeness of the SEC Documents or the Offering Materials.
(d) In addition to the foregoing, the Company hereby
incorporates by reference all of the representations and warranties and
covenants to be set forth in the Securities Purchase Agreement and the other
Offering Documents with the same force and effect as if specifically set forth
herein.
(e) In the event any current officer, director, employee,
consultant or other agent ceases, subsequent to the date hereof, to have such
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<PAGE>
relationship with the Company and such cessation has, or is likely to have, a
material adverse effect on the Company, taken as a whole, the Company shall
promptly notify Zanett of such event, which notification shall comprehensively
describe such circumstances. The Company shall, on a regular basis, provide to
Zanett updates of any material litigation and/or governmental proceedings which
could reasonably be expected to have a material adverse effect on the business
of the Company. The Company shall promptly provide to Zanett notice of any event
of default under any agreement or other document with any lender or holder of
any security of the Company. Anything contained herein to the contrary
notwithstanding, Placement Agent's obligations to proceed with the Offering is
conditioned upon Placement Agent's due diligence investigation of the Company.
Zanett shall be fully informed by the Company of any events which might have a
material affect on the financial condition of the Company. If, in Zanett's
opinion, the condition of the Company, financial or otherwise, and its prospects
are affected in a material and/or adverse manner and do not fulfill our
expectations, Zanett shall have the sole discretion to review and determine its
continued interest the Offering. Any information included in the Offering
Documents (including the schedules thereto) at the time of the first closing
thereunder shall constitute notification to Zanett hereunder.
(f) The Company shall make available, during regular business
hours, all records and books of account of the Company for inspection by Zanett.
The Company shall permit Zanett, during regular business hours, to inspect its
properties.
(g) The Company has the requisite corporate power and
authority to enter into and perform this Agreement and to issue the Placement
Warrants in accordance with the terms hereof. The execution and delivery of this
Agreement by the Company and the consummation by it of the transactions
contemplated hereby (including without limitation the issuance of the Placement
Warrants and the reservation of the Warrant Shares issuable upon exercise
thereof ) have been duly authorized by the Company's Board of Directors and no
further consent or authorization of the Company, its Board of Directors, or its
shareholders is required.
(h) The Placement Warrants (and the Warrant Shares issuable
upon exercise of the Placement Warrants) are duly authorized and validly issued,
fully paid and non-assessable, and free from all taxes, liens and charges with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of shareholder of the Company.
(i) The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby will not (A) result in a violation of the Company's
Certificate of Incorporation or By-laws or (B) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company is bound or affected (except, with respect to clause (B), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a material
adverse effect on the operation, properties, prospects or financial condition of
the Company ("Material Adverse Effect")). Except as set forth in the Offering
Documents (including the schedules thereto) at the time of the first closing
thereunder, the Company is not in violation of its Certificate of Incorporation
or By-laws and is not in default (and no event has occurred which with notice or
lapse of time of both would put the Company in default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party, except for
possible defaults as would not, individually or in the aggregate, have a
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<PAGE>
Material Adverse Effect. The business of the Company is not being conducted, and
shall not be conducted, in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations which either singly or in
the aggregate do not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the Securities Act and any
applicable state securities laws, the Company is not require to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self regulatory agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement in accordance with the terms hereof.
(j) The Company shall at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of Warrant Shares to
provide for the full exercise of the outstanding Placement Warrants.
(k) The Company shall promptly secure the listing of the
Warrant Shares upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Warrant Shares from time to
time issuable upon exercise of the Warrants.
(l) For so long as any Preferred Shares are outstanding, the
Company shall (i) inform Zanett of the time, place and subject matter of any
informal or formal meetings of its Board of Directors (including any executive
or similar committee thereof) at the same time that it provides such information
to its directors entitled to participate in such meeting and (ii) permit Zanett
to designate one individual to attend and participate in each of such meetings.
4. Publicity. The Company shall not make any reference to Zanett or to
any of its affiliates in any release or other communication without Zanett's
prior written consent. Without Zanett's prior written consent, no advice
rendered by Zanett in connection with the services performed by Zanett pursuant
to this Agreement will be quoted by the Company, its affiliates or
representatives nor will any such advice be referred to in any report, document,
release or other communication, whether oral or written, prepared or issued or
transmitted by such person, except to the extent required by law (in which case
the appropriate party shall so advise Zanett in writing prior to such use and
shall consult with Zanett with respect to the form and timing of the
disclosure).
5. Indemnification and Contribution.
(a) To the extent permitted by law, the Company will
indemnify, hold harmless and defend Zanett and each of its directors, officers,
partners, members, employees, agents and each person who controls Zanett within
the meaning of the Securities Act or the Exchange Act, if any, (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any
transaction contemplated by this Agreement, the retention of Zanett as Placement
Agent under this Agreement, the performance of services by Zanett hereunder or
any involvement or alleged involvement of Zanett in the Offering or (ii) any
breach of any of the Company's representations, warranties or covenants
contained herein. The Company shall reimburse each of the Indemnified Persons,
promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by an Indemnified
Person in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 5(a) shall not (i) apply in instances where
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<PAGE>
the Claims were primarily the result of Zanett's gross negligence, wilful
misconduct or violation of any law, regulation or obligation of Zanett under
this Agreement, and (ii) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld.
(b) Promptly after receipt by an Indemnified Person under this
Section 5 of notice of the commencement of any action (including any
governmental action), such Indemnified Person shall, if a Claim in respect
thereof is made against the Company under this Section 5, deliver to the Company
a written notice of the commencement thereof, and the Company shall have the
right to participate in, and, to the extent the Company so desires, to assume
control of the defense thereof with counsel mutually satisfactory to the Company
and the Indemnified Person; provided, however, that an Indemnified Person shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the Company, if, in the reasonable opinion of counsel retained by the
Indemnified Person, the representation by such counsel of the Indemnified Person
and the Company would be inappropriate due to actual or potential differing
interests between such Indemnified Person and any other party represented by the
Company's counsel in such proceeding. To the extent the Indemnified Persons
retain counsel pursuant to the immediately preceding sentence, the Company shall
pay for only one separate legal counsel for the Indemnified Persons, and such
legal counsel shall be selected by Placement Agent. The failure to deliver
written notice to the Company within a reasonable time of the commencement of
any such action shall not relieve the Company of any liability to the
Indemnified Person under this Section 5, except to the extent that the Company
is actually prejudiced in its ability to defend such action. The indemnification
required by this Section 5 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as such expense,
loss, damage or liability is incurred and is due and payable.
(c) To the extent any indemnification by the Company of an
Indemnified Person is prohibited or limited by law or otherwise unavailable in
respect of any Claim, the Company agrees to make the maximum contribution with
respect to any amounts for which it would otherwise be liable under Section 5 to
the fullest extent permitted by law. In this regard, the Company shall
contribute to the amount paid or payable by such Indemnified Person as a result
of any such Claim (i) in such portion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Indemnified Person,
on the other, from the structuring and issuance of the securities in the
Offering or any other transaction in which Zanett rendered services hereunder or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and of the Indemnified Person, on the other, in
connection with untrue statements or omissions or other actions (or alleged
untrue statements, omissions or other actions) which resulted in such Claim as
well as any other relevant equitable considerations. The relative benefits
received by the Company, on the one hand, and the Indemnified Person, on the
other, shall be deemed to be in the same proportion as the total gross proceeds
received by the Company in the Offering or any other financing bears to such
Indemnified Person's compensation. The relative fault of the Company on the one
hand and of the Indemnified Person on the other shall be determined by reference
to, among other things, whether such untrue statements or omissions or other
actions (or alleged untrue statements, omissions or other actions) relate to
information supplied or action taken by the Company, on the one hand, or by the
Indemnified Person, on the other, and the relevant persons' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statements, omission or actions. The amount paid or payable by a party as
a result of the Claim shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The Company and Zanett agree that it would not be
just and equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above.
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<PAGE>
(d) The aforesaid indemnity and contribution agreements shall
apply to any related activities engaged in by any Indemnified Person on or after
the date hereof and to any modification of Zanett's engagement hereunder, and
shall remain in full force and effect regardless of any investigation made by or
on behalf of Placement Agent or any of its agents, employees, officers,
directors or controlling persons and shall survive the issuance of any
securities in any transaction referred to hereunder (including the Offering) and
any termination of this Agreement or Placement Agent's engagement hereunder. The
Company agrees to promptly notify Zanett of the commencement of any litigation
or proceeding against it or any of its directors, officers, agents or employees
in connection with the transactions contemplated hereby.
(e) The Company also agrees that no Indemnified Person shall
have any liability (whether direct or indirect, in contract or tort or
otherwise) to the Company, its owners, creditors or security holders for or in
connection with advice or services rendered or to be rendered by Zanett pursuant
to this Agreement, the transactions contemplated hereby or any Indemnified
Person's actions or inactions in connection with any such advice, services or
transactions except for liabilities (and related expenses) of the Company that
are determined by a final judgment of a court of competent jurisdiction to have
resulted primarily from such Indemnified Party's gross negligence or wilful
misconduct in connection with any such advice, actions, inactions or services or
from Zanett's violation of any law, regulation or obligation of Zanett under
this Agreement.
6. Survival of Certain Provisions. The representations, warranties and
covenants provisions contained in Section 3 and Section 5 shall remain operative
and in full force and effect until that date which is three (3) years from the
date hereof regardless of (a) any completion or termination of any financing
contemplated by this Agreement (including the Offering), (b) any termination of
this Agreement, or (c) any investigation made by or on behalf of Placement Agent
or any affiliate of Placement Agent, and shall be binding upon, and shall inure
to the benefit of, any successors, assigns, heirs and personal representatives
of the Company, Zanett, the Indemnified Parties and any holder of Warrants.
7. Miscellaneous.
(a) All notices, requests, demands and other communications
which are required or may be given hereunder shall be in writing and shall be
deemed to have been duly given when delivered personally, receipt acknowledged
or five (5) days after being sent by registered or certified mail, return
receipt requested, postage prepaid. All notices shall be made to the parties at
the addresses designated above or at such other or different addresses which
party may subsequently provided with notice thereof, and, to their respective
legal counsel, as follows:
(i) If to Placement Agent, to
The Zanett Securities Corporation
767 Fifth Avenue
New York, NY 10153
Attn.: Claudio Guazzoni
-with a copy to -
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Attn.: Todd L. Silverberg, Esquire
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<PAGE>
(ii) If to the Company, to
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, VA 20170
Attn.: President
-with a copy to -
General Counsel's Office
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, VA 20170
(b) This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
(c) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York (without regard to its
conflict of laws provisions). The Company hereby irrevocably submits to the
exclusive jurisdiction of the Federal and New York state courts located in the
City of New York in connection with any suit, action or proceeding related to
this Agreement or any of the matters contemplated hereby, irrevocably waives any
defense of lack of personal jurisdiction and irrevocably agrees that all claims
in respect of any suit, action or proceeding may be heard and determined in any
such court. The Company irrevocably waives, to the fullest extent it may
effectively do so under applicable law any objection which it may now or
hereafter have to the laying of venue of any such suit, action or proceeding
brought in any such court and any claims that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
The Company further agrees to pay or reimburse Zanett for all reasonable costs
and expenses incurred by Placement Agent in connection with the enforcement of
any of its right under this Agreement, including without limitation, all
attorneys fees and expenses of its counsel.
(d) The section headings in this Agreement have been inserted
as a matter of convenience of reference and are not a part of this Agreement.
(e) This Agreement may not be modified or amended except in
writing duly sworn by the parties hereto.
(f) If any term, provision, covenant or restriction contained
in this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions contained in
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
(g) Each party to this Agreement has participated in the
negotiation and drafting of this Agreement. As such, the language used herein
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party to this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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Please sign and return the original and one copy of this letter to
indicate your acceptance of the terms set forth herein whereupon this letter and
your acceptance shall constitute a binding agreement between you and the
Company.
Very truly yours,
NETWORK IMAGING CORPORATION
By:
-------------------------
Name:
Title:
Accepted and Agreed to
this 2nd day of July, 1997.
THE ZANETT SECURITIES CORPORATION
By:
-------------------------
Name: Claudio Guazzoni
Title: Managing Director
-10-
SECURITY AGREEMENT
AGREEMENT, dated as of December 31, 1996 between NETWORK IMAGING CORP.,
INC., a corporation duly organized and validly existing under the laws of the
State of Delaware ("Debtor"), and FRED KASSNER (the "Secured Party").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements contained
herein, the parties hereto hereby agree as follows:
1. Definitions. All terms used herein, unless otherwise defined,
shall have the meanings ascribed to them in the Loan Agreement, dated as of Dec.
31, 1996 (the "Loan Agreement"), between the Debtor, on the one hand, and the
Secured Party, on the other, providing for loans by the Secured Party to the
Debtor in the principal amount of up to $5,000,000.
"Liabilities" shall mean all Indebtedness and other
liabilities and obligations, whether now existing or hereafter arising, of the
Debtor to the Secured Party pursuant to the Loan Agreement including, without
limitation, increases in the amounts of or refinancings of or other changes to
the principal amount thereof and any other loans or other indebtedness that may
be created by any amendment, supplement or other modification to, or restatement
of the Loan Agreement.
2. Grant of Security Interest.
(a) As security for the prompt payment and performance when
due (whether at stated maturity, by acceleration or otherwise) of the
Liabilities, Debtor hereby grants to the Secured Party a security interest in
the Collateral, whether now owned or hereafter acquired by Debtor.
(b) As used herein, the term "Collateral" shall mean all
accounts receivable of Debtor, now or hereafter existing, arising out of or in
connection with the sale or lease of goods, the rendering of services or
otherwise.
3. Covenants of the Debtors.
(a) Upon request of the Secured Party, Debtor will, upon
reasonable notice, permit representatives of the Secured Party, during normal
business hours, to inspect its properties included in the Collateral and to
inspect and make abstracts from its books and records pertaining to the
Collateral.
(b) All policies of insurance maintained by Debtor on or with
respect to the Collateral shall, unless otherwise specified by the Secured
Party, be written for the benefit of the Debtor and the Secured Party (as an
additional named insured) as their interests may appear, and all such policies,
or certificates evidencing the same, shall be furnished to the Secured Party.
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The Debtor will cause the carriers of its insurance to issue loss payee clauses
in favor of the Secured Party with respect to such insurance and to cause such
carriers to give not less than 10 days' prior notice to the Secured Party of the
cancellation or non-renewal of any of such policies.
(c) Debtor will not, without the prior written consent of the
Secured Party:
(1) Permit any of the Collateral to be levied upon under legal
process or to fall under any other Lien, other than Permitted Liens,
unless promptly discharged; or
(2) Cause, directly or indirectly, anything to be done outside
of the ordinary course of business of such Debtor which, or fail to
take any action outside of the ordinary course of business of such
Debtor which failure, may impair the value of the Collateral in any
material respect (other than normal wear and tear) or the liens and
security interests herein granted and/or intended to be granted hereby;
or
(3) Sell, lease, transfer, assign (including by virtue of
assignments by operation of law), mortgage, pledge or otherwise dispose
of or encumber any of the Collateral except for dispositions or
encumbrances in the ordinary course of business, or permit any party
other than the Secured Party and parties holding liens permitted under
(1) above to perfect any security interest in such Collateral.
(d) Debtor will maintain its books and records and its chief
place of business only at the location specified in Section 6 hereof and will
not change the location of its books and records or its name, or the name under
which it conducts its business, or either of its addresses without giving the
Secured Party 30 days' prior written notice thereof.
(e) If any Event of Default shall have occurred and shall be
continuing, Debtor will keep and stamp or otherwise mark any and all books and
records relating to the Collateral in such manner as the Secured Party may
reasonably require.
4. Further Assurances; etc.
(a) If any Event of Default shall have occurred and shall be
continuing, Debtor will, from time to time and at its own expense, promptly
execute, acknowledge, witness and deliver and file and/or record, or cause the
execution, acknowledgment, witnessing and delivery and the filing and/or
recordation of, such specific and further assignments of Collateral and such
other documents or instruments, and shall take or cause to be taken such other
actions, as the Secured Party may reasonably request for the perfection against
Debtor and all third parties whomsoever of the security interests created hereby
in the Collateral or for the continuation and protection thereof, and promptly
give to the Secured Party evidence satisfactory to the Secured Party of such
action. Without limiting the generality of the foregoing, Debtor promptly upon
the execution and delivery of this Agreement, and at any time or from time to
time thereafter upon the request of the Secured Party, shall, at Debtor's
expense, execute, acknowledge, witness and deliver such financing and
continuation statements as the Secured Party may reasonably request for the
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<PAGE>
purpose of perfecting, maintaining and protecting such security interests of the
Secured Party, and shall cause this Agreement, any amendment or supplement
hereto or thereto and each such financing and continuation statement, notice and
additional security agreements to be filed or recorded in such manner and in
such places as may be required by applicable law or as the Secured Party may
reasonably request for such purpose. Debtor hereby authorizes the Secured Party
to effect any filing or recording which the Secured Party has requested pursuant
to this Section 4(a) without the signature of such Debtor, to the extent
permitted by applicable law. Notwithstanding the foregoing provisions of this
Section 4(a) or any of the other provisions of this Agreement, the Secured Party
agrees that it shall not communicate with any account debtors or customers of
Debtor in the exercise of the Secured Party's rights hereunder until the
occurrence and during the continuance of an Event of Default.
(b) At any time and from time to time, upon the written
request of the Secured Party, Debtor will, at Debtor's expense, promptly and
duly execute, acknowledge, witness and deliver, or cause to be duly executed,
acknowledged, witnessed and delivered, any and all such further instruments and
documents, and take such further actions, as the Secured Party may reasonably
request, to obtain for the Secured Party the full benefits of this Agreement and
of the rights and powers herein and therein granted.
5. Actions by the Secured Party.
(a) If any Event of Default shall have occurred and shall be
continuing, the Secured Party shall have the power to exchange any of the
Collateral for other property upon any reorganization, recapitalization or other
readjustment and in connection therewith to deposit any of the Collateral with
any committee or depository upon such terms as it may determine, all without
notice and without liability (other than for gross negligence or willful
misconduct), except to account for property actually received by the Secured
Party.
(b) The Secured Party may, at any time and from time to time,
at its option or at the request of the Secured Party, after having given notice
of its intention to do so to the Debtor perform any act which is undertaken by
Debtor to be performed by it hereunder but which it shall have failed to
perform, and the Secured Party may take any other action which the Secured Party
may in its reasonable judgment deem necessary for the maintenance, preservation
or protection of any of the Collateral or the security interests therein and the
Secured Party is hereby irrevocably appointed attorney-in-fact of the Debtors
for this purpose. All moneys advanced by the Secured Party for account of Debtor
in connection with any of the foregoing, together with interest thereon at the
rate of interest set forth in the Loan Agreement from the date of such advance
to the date of the repayment thereof, shall be repaid by the Debtor to the
Secured Party, upon demand, and shall constitute additional Liabilities secured
hereby. The making of any such advance by the Secured Party for account of a
Debtor shall not, however, relieve the Debtor of liability for any default
hereunder until the full amount of all such moneys so advanced and such interest
thereon shall have been repaid to the Secured Party and such default shall have
otherwise been cured.
6. Debtor Representations.
Debtor represents and warrants to the Secured Party that its
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<PAGE>
chief place of business is at the address set forth below its name on the
signature pages hereof and that it conducts its business only under the name
specified on the signature pages hereof.
7. Power Upon Default.
(a) Upon the occurrence and during the continuance of any
Event of Default, the Secured Party shall have all the rights and remedies of a
secured party under the UCC, or other applicable law, including the power of
sale upon notice, and all rights provided herein, all of which rights and
remedies shall, to the fullest extent permitted by law, be cumulative.
(b) Without limiting the generality of the foregoing:
(1) Upon the occurrence and during the continuance of any
Event of Default, but subject always to any mandatory requirements of applicable
law then in effect, the Secured Party may, at its option, do any one or more or
all of the following acts, as the Secured Party in its sole and complete
discretion may then elect and at such time or times as the Secured Party in its
complete and sole discretion may determine:
(a) exercise all the rights and remedies in
foreclosure and otherwise granted to mortgagees and secured parties
under the provisions of applicable law, including, without limitation,
the UCC;
(b) institute legal proceedings for the specific
performance of any covenant or agreement herein undertaken by a Debtor
or for aid in the execution or any power or remedy herein granted;
(c) institute legal proceedings to foreclose upon
and against any of the liens and security interests created hereby;
(d) institute legal proceedings for the sale, under
the judgment or decree of any court of competent jurisdiction, of any
of the Collateral;
(e) institute legal proceedings for the appointment
of a receiver or receivers pending foreclosure hereunder or the sale of
any of the Collateral under the order of a court of competent
jurisdiction or under other legal process;
(f) personally, or by agents or attorneys, enter into
and upon any premises wherein the Collateral or any part thereof may
then be situated and take possession of all or any part thereof or
render it unusable; and, without being responsible (except for gross
negligence or willful misconduct) for loss or damage, hold, store and
keep idle, or operate, lease or otherwise use or permit the use of the
same or any part thereof for such time and upon such terms as the
Secured Party in its complete and sole discretion may determine, and
demand, collect and retain all hire, earnings and all other sums due
and to become due in respect of the same from any party whomsoever,
accounting only for net earnings arising from such use, if any, after
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<PAGE>
charging against all receipts from the use of the same and from any
subsequent sale thereof, by court proceedings or pursuant to subclause
(g) of this Section 7(b)(1) all reasonable costs and expenses of, and
damages or losses by reason of, such use and/or sale; or
(g) personally, or by agents or attorneys, enter upon
and into any place wherein the same may then be located, and take
possession of any part or all of the Collateral owned by Debtor, with
or without process of law and without being responsible for loss or
damage (except such as results from the Secured Party's gross
negligence or willful misconduct), and sell or dispose of all or any
part of the same, free from any and all claims of a Debtor or any other
party claiming by, through or under a Debtor at law, in equity or
otherwise, at one or more public or private sales, in such place or
places, at such time or times, for cash or credit and upon such terms
as the Secured Party may determine, with or without any previous demand
or notice to Debtor or advertisement and demand and any right or equity
of redemption otherwise required by law are hereby waived by Debtor to
the fullest extent permitted by applicable law. The power of sale
hereunder shall not be exhausted by one or more sales, and the Secured
Party may from time to time adjourn any sale to be made pursuant to
this Section 7.
(2) If the Secured Party shall demand possession of the
Collateral or any part thereof pursuant hereto, Debtor will, at its own expense,
forthwith cause the Collateral owned by Debtor or any part thereof designated by
the Secured Party to be assembled and made available and/or delivered to the
Secured Party at any place reasonably designated by the Secured Party.
(3) In the event that any mandatory requirement of applicable
law shall obligate the Secured Party to give prior notice to Debtor of any of
the foregoing acts, Debtor agrees that a notice given to it in writing by
certified U.S. mail, return receipt requested, at least three (3) (or such
longer period as may be required by applicable law) Business Days before the
date of any such act, at its address specified beneath its signature hereto (or
such other address as shall have been notified to the Secured Party in writing),
with a copy by fax, at least three (3) Business Days before the date of such
act, shall be deemed to be reasonable notice of such act, and, specifically,
reasonable notification of the time and place of any public sale hereunder and
reasonable notification of the time after which any private sale or other
intended disposition to be made hereunder is to be made.
(4) The Secured Party shall apply the proceeds from the sale
or other disposition of the Collateral pursuant to the provisions of this
Section 7(b) and any other amounts held by it as Collateral hereunder in the
following order:
FIRST, to the payment of the costs and expenses, if any
(including, without limitation, reasonable attorneys, fees and
expenses), incurred by the Secured Party in preserving its interests in
the Collateral or in enforcing any remedies granted in or realizing
against the security of, this Agreement or any disbursements by the
Secured Party under Section 5 hereof;
SECOND, to the payment to the Secured Party of accrued and
unpaid interest due and payable under the Loan Agreement (whether at
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<PAGE>
stated maturity, by acceleration or otherwise);
THIRD, to the payment to the Secured Party of the outstanding
principal amount due and payable under the Loan Agreement (whether at
stated maturity, by acceleration or otherwise);
FOURTH, to the payment to the Secured Party of any and all
other Liabilities due on the date of such application;
FIFTH, to the payment of any other amounts required by
applicable law (including, without limitation, Section 9-504(1)(c) of
the UCC); and
SIXTH, after the payment in full of all of the Liabilities
(including those not due and payable at the time of the applications
above), to the payment to the Debtors of any surplus then remaining
from such proceeds or otherwise as a court of competent jurisdiction
may direct.
(5) No sale or other disposition of all or any part of the
Collateral owned by a Debtor by the Secured Party pursuant to this Section 7(b)
shall be deemed to relieve such Debtor of its obligations in respect of any
Liabilities except to the extent the proceeds thereof are applied to the payment
of such Liabilities.
8. Possession until Default. Until an Event of Default shall occur and
be continuing, except as otherwise provided in this Agreement, Debtor will have
the right to the possession and enjoyment of the Collateral owned by it for the
purpose of conducting the ordinary course of its business.
9. Waiver by Debtor. To the fullest extent it may lawfully so agree,
Debtor agrees that it will not at any time insist upon, claim, plead or take any
benefit or advantage of any appraisement, valuation, stay, extension,
moratorium, redemption or similar law now or hereafter in force in order to
prevent, delay or hinder the enforcement hereof or the absolute sale of any part
of the Collateral or the possession thereof by any purchaser at any sale
pursuant to Section 7(b) hereof; and Debtor, for itself and all who claim
through it, so far as it or they now or hereafter lawfully may do so, hereby
waives the benefit of all such laws, and all right to have the Collateral owned
by it marshalled upon any foreclosure hereof, and agrees that any court having
jurisdiction to foreclose this Agreement may order the sale of the Collateral as
an entirety. Without limiting the generality of the foregoing, Debtor hereby:
(i) authorizes the Secured Party, in its sole discretion and without notice to
or demand upon it and without otherwise affecting its obligations hereunder or
in respect of the Liabilities, from time to time to take and hold other
collateral (in addition to the Collateral) for payment of any Liabilities or any
part thereof and to accept and hold any endorsement or guarantee of payment of
the Liabilities or any part thereof and to release or substitute any endorser or
guarantor or any other party granting security for or in any way obligated upon
the Liabilities or any part thereof and/or to modify or terminate the terms of
subordination of any Indebtedness subordinated to any of the Liabilities; and
(ii) waives and releases any and all right to require the Secured Party to
collect any Liabilities from any specific item or items of Collateral, from any
other party liable as guarantor or in any other manner in respect of any
Liabilities or from any other collateral.
10. Purchases by the Secured Party. At any sale pursuant to Section
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<PAGE>
7(b) hereof, the Secured Party may to the extent permitted by applicable law bid
for and purchase the Collateral offered for sale, and, upon compliance in full
with the terms of such sale, may hold, retain and dispose of such property
without further accountability therefor to either Debtor or any other party.
11. No Representation, etc. Anything herein contained to the contrary
notwithstanding, neither the Secured Party nor any of its nominees or assignees
shall have any obligation or liability by reason of or arising out of this
Agreement to make any inquiry as to the nature or sufficiency of, to present or
file any claim with respect to, or to take any action to collect or enforce the
payment of, any amounts to which it may be entitled at any time or times by
virtue of this Agreement. The Secured Party makes no representations or
warranties hereunder with respect to the Collateral or any part thereof, and the
Secured Party shall not by virtue of this Agreement be chargeable with any
obligations or liabilities of either Debtor or any other party with respect
thereto. The Secured Party (if it shall have acted in good faith) shall have no
liability or obligation arising out of any claims with respect to the Collateral
settled by the Secured Party.
12. Remedies. Each right, power and remedy herein specifically granted
to the Secured Party or otherwise available to it shall be cumulative, and shall
be in addition to every other right, power and remedy herein specifically given
or now or hereafter existing at law, in equity or otherwise; and each right,
power and remedy, whether specifically granted herein or otherwise existing, may
be exercised, at any time and from time to time as often and in such order as
may be deemed expedient by the Secured Party in its sole and complete discretion
and the exercise or commencement of exercise of any right, power or remedy shall
not be construed as a waiver of the right to exercise, at the same time or
thereafter, the same or any other right, power or remedy. No delay or omission
by the Secured Party in exercising any such right or power, or in pursuing any
such remedy, shall impair any such right, power or remedy or be construed to be
a waiver of any default on the part of either Debtor or an acquiescence therein.
No waiver by the Secured Party of any breach or default of or by either Debtor
hereunder shall be deemed to be a waiver of any other or similar, previous or
subsequent, breach or default.
13. Notices. All notices and other communications provided for herein
shall be by telex, fax, telegraph, cable or in writing and telexed, faxed,
telegraphed, cabled, mailed by registered or certified mail, postage prepaid,
return receipt requested or delivered to the intended recipient at the telephone
number or "Address for Notices" specified below its name on the signature pages
hereof; or, as to any party, at such other telephone number or address as shall
be designated by such party in a notice to the other parties. All notices and
other communications hereunder shall 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 telex or fax, when such communication is transmitted to the appropriate
number determined as above provided in this Section 13 and the appropriate
answerback is received or receipt is otherwise acknowledged, and (iii) if
delivered personally, when so delivered to the holder of the office specified as
the office holder to whose attention communications are to be given on the
signature pages hereof.
14. Amendments, etc. This Agreement may not be amended or modified
except by written agreement of the Debtors and the Secured Party, and no consent
or waiver hereunder shall be valid unless in writing and signed by the person or
persons giving such consent or waiver.
15. Term. This Security Agreement shall continue in full force and
effect until all of the Liabilities have been fully and indefeasibly paid in
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full, whereupon this Security Agreement shall terminate.
16. Miscellaneous.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the Debtor and the Secured Party and their respective successors
and assigns; provided that no Debtor may assign its rights or obligations
hereunder without the prior written consent of the Secured Party.
(b) This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and either of the parties hereto may execute this Agreement by
signing any such counterpart.
(c) This agreement will be construed in accordance with and
governed by the law of the state of Virginia, provided that as to collateral
located in any jurisdiction other than Virginia, the Secured Party shall have
all the rights to which a secured party under the laws of such jurisdiction is
entitled.
(d) 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.
(e) The provisions of Sections 8.3, 8.10, 8.13, and 8.20 of
the Loan Agreement are hereby incorporated herein by reference as if set forth
in full herein, except that for these purposes references to "this Agreement"
shall be deemed references to this Agreement and not references to the Loan
Agreement.
The parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
NETWORK IMAGING CORPORATION
By:
-----------------------------
Title: James Leto, President
- Address for Notices -
500 Huntmar Park Drive
Herndon, VA 20170-5100
Fax No.: 703-478-7523
Attention:
with copies to:
Julie Bowen, Esq.
Network Imaging Corp.
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500 Huntmar Park Drive
Herndon, VA 20170-5100
Fax No.: 703-478-7523
Attention:
--------------------------
Fred Kassner
- Address for Notices -
69 Spring Street
Ramsey, New Jersey 07446
Fax No.: (201) 934-3617
with copies to:
Susan G. Kaufman, Esq.
69 Spring Street
Ramsey, New Jersey 07446
Fax No.: (201) 934-3617
-9-
Amendment No. 1
to
Loan Agreement
Agreement dated as of June 8, 1997, by and between Network Imaging
Corporation, a corporation duly organized and validly existing under the laws of
the State of Delaware ("Borrower") and Fred Kassner, with an address at 69
Spring Street, Ramsey, NJ 07446 ("Lender").
WITNESSETH:
WHEREAS, pursuant to that certain Loan Agreement dated as of December
31, 1996 (the "Loan Agreement") by and between the Borrower and Lender, the
Lender has agreed to make loan to the Borrower in the aggregate principal sum of
up to $5,000,000.00; and
WHEREAS, the parties hereto wish to amend the Loan Agreement in the
manner hereinafter set forth.
NOW THEREFORE, the parties hereto agree as follows:
1. Definitions. All terms used herein, unless otherwise defined,
shall have the meanings ascribed thereto in the Loan Agreement. Section 1.1 of
the Loan Agreement is hereby amended by deleting the definition of the term
"Collateral" in its entirely and by inserting a new definition in its place to
read as follows:
"Collateral": all of Borrower's now owned or hereafter acquired
accounts receivable, inventory, and the intellectual property of the 1 View
software products as fully set forth in Section 2.11(a) hereof and in an
Amendment No. 1 to the Collateral Security Agreement being executed
simultaneously herewith, the terms of which are incorporated herein by
reference.
2. Security Interest. Section 2.11 of the Loan Agreement is hereby
deleted in its entirety, and a new Section 2.11 is hereby inserted in its place
to read as follows:
"2.11 Grant of Security Interest by the Borrowers. In consideration of
the Loans to be made hereunder, the Borrowers hereby jointly and severally agree
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 (x) 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, inventory,
and real property, fixtures, improvements and interests in real property, and
all software copyrights, assignments, licenses and rights in the 1 View software
products of Borrower, now owned or hereafter acquired by the Borrower, 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"), and (y) agrees to execute and deliver to the
Lender, for the benefit of the Lender, its successors, assigns and endorsees,
and any other holders of Indebtedness hereunder, mortgages with respect to the
real property and from time to time, valid and binding mortgages, collateral
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<PAGE>
assignments software agreements and copyright assignments and other instruments
required by and in a form reasonably satisfactory to the Lender and to pay all
taxes recording fees or filing fees applicable thereto."
3. Use of Proceeds. It is hereby agreed that notwithstanding the second
"Whereas" clause and Paragraph 2.7 of the Loan Agreement, a certain Credit
Facility Loan Advance, to be made as of June 8, 1997 in the amount of
$1,500,000.00, may be used for general corporate purposes of the Borrower.
4. No Waiver. It is hereby agreed that Lender's making of the
$1,500,000.00 Advance described in Paragraph 2 hereof does not and shall not
constitute a waiver of any defaults by Borrower existing before, at, or
subsequent to the making of said Advance. The Borrower hereby restates its
representations and warranties contained in Section 3 of the Loan Agreement on
and as of the date hereof and agrees that all such representations, warranties
and covenants contained in the Loan Agreement shall remain in full force and
effect and that Borrower shall be obligated to be in compliance with, and not
violate same, during the term of the Loan Agreement.
5. Mandatory Prepayment. Section 2.1 of the Loan Agreement is hereby
amended by:
(a) redesignating the existing paragraph entitled "Permitted
Voluntary Repayments" as paragraph 2.1(d)(iii); and
(b) by adding the following as paragraph 2.1(d) (iv) to
immediately follow paragraph 2.1(d)(iii);
(iv) Mandatory Prepayments. Upon the completion of a public
secondary offering of stock of the Borrower, a prepayment in the amount of the
Loan then outstanding shall be applied to reduce the amount of the Credit
Facility Note.
6. Dorotech, S.A. Borrower hereby grants Lender a security interest in
the stock of its wholly owned subsidiary, Dorotech, S.A. ("Dorotech") behind
that of the security interest granted to Credit Lyonnaise to secure a loan in
the approximate amount of $6,300,000.00, and Borrower and Dorotech hereby agree
to do such further acts and things and to execute and deliver to Lender such
additional assignments, agreements, powers and instruments as Lender may
reasonably require or deem advisable to evidence the granting of such a security
interest in the stock of Dorotech in such jurisdictions as Lender shall deem
appropriate.
7. Miscellaneous.
(a) Except as expressly amended hereby the Loan Agreement
shall continue in full force and effect.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
(c) This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
(d) Captions and section headings appearing herein are
included solely for convenience of reference only and are not intended to affect
the interpretation of any provision of this Agreement.
(e) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW JERSEY APPLICABLE TO AGREEMENTS
EXECUTED AND TO BE WHOLLY PERFORMED WITHIN THAT STATE.
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<PAGE>
(f) Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extend of such invalidity or enforceability without rendering
invalid or unenforceable the remaining terms or provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
NETWORK IMAGING CORPORATION
By: /s/ Julia A. Bowen
-------------------------------
Julia A. Bowen, Vice President and
General Counsel
With respect to Paragraph 6 only:
DOROTECH, S.A.
By:
-------------------------------
-------------------------------
FRED KASSNER
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Amendment No. 1
to
Security Agreement
Agreement dated as of June 8, 1997 by and between Network Imaging
Corporation, a corporation duly organized and validly existing under the laws of
the State of Delaware ("Debtor") and Fred Kassner (the "Secured Party").
WITNESSETH:
WHEREAS, simultaneously with the execution of a certain Loan Agreement
dated as of December 31, 1996 between Debtor and Secured Party (the "Loan
Agreement") said parties executed a Security Agreement to evidence the parties'
agreement with respect to Debtor's granting of certain security interests in
Debtor's property to Secured Party (the "Security Agreement"); and
WHEREAS, in connection with the execution of Amendment No. 1 to the
Loan Agreement, the parties wish to amend the Security Agreement as hereinafter
set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Paragraph 2(b) of the Security Agreement is hereby deleted in its
entirety and a new paragraph 2(b) is hereby inserted in its place to read as
follows:
"(b) As used herein, the term "Collateral" shall mean with respect to
each Debtor:
(1) All personal property of such Debtor;
(2) All leases, licenses, permits (to the extent permissible under
applicable law) or similar agreements or interests (whether existing or
holdover; whether arising out of written, oral or implied agreements and whether
held in the name of such Debtor, any predecessor in interest to such Debtor or
any subsidiary or other affiliate or other division of such Debtor or any such
predecessor in interest) and all licenses, permits, or other authorizations of
any federal, state, local or other governmental authority, and all extensions,
renewals, amendments and modifications thereof;
(3) All 1 View Software products intellectual property now owned or
hereafter developed or acquired by Debtor, including but not limited to to
copyrights, assignments, licenses and other rights;
(4) All inventory in all of its forms, wherever located, now or
hereafter existing, including, without limitation, (a) goods in which such
Debtor has an interest in mass or a joint or other interest or right of any kind
and (b) goods which are returned to or repossessed by such Debtor, and all
accessions thereto and products thereof and documents therefor;
(5) All accounts, contacts rights, chattel paper, instruments, general
intangibles, documents and other obligations of any kind now or hereafter
existing, arising out of or in connection with the sale or lease of goods, the
rendering of services or otherwise, and all rights now or hereafter existing in
and to all security agreements, leases, and other contracts securing or
otherwise relating to any such accounts, contract rights, chattel paper,
instruments, general intangibles, documents or obligations;
-1-
<PAGE>
(6) All trade or service names, trademarks, service marks, logos, and
all patents, patent applications, copyrights, licensing agreements and royalty
payments;
(7) All documents, instruments, contract rights, chattel paper, general
intangibles, bank accounts, monies, revenues, credits, claims, demands, goodwill
and any claims or causes of action arising from or related to any transaction
contemplated by any of the foregoing; and
(8) All proceeds, (including, without limitation, the proceeds of all
insurance contracts in respect thereof) additions and accessions of or to any
and all of the Collateral described in the Section 2(b) and all substitutions
and replacements therefor and, to the extent not otherwise included, (a) all
payments under insurance (whether or not the Secured party is the loss payees
thereof) or as a result of any seizure or condemnation, or under any indemnity,
warranty or guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral, (b) all rights of such Debtor to
receive monies due and to become due under, pursuant to or in connection with
any of the foregoing Collateral, (c) all claims of such Debtor for losses or
damages arising out of or related to, or for any breach of any agreements,
covenants, representations or warranties or any default by any other Person
under, any of the foregoing Collateral, and (d) the right of such Debtor to
terminate any of the foregoing Collateral, to perform thereunder and to enforce
and compel performance and otherwise exercise all rights and remedies
thereunder, pursuant thereto or in connection therewith, including, without
limitation, all rights to give and receive notices, reports, requests and
consents, to make demands, to exercise discretion and to exercise all options
and elections thereunder, pursuant thereto or in connection therewith."
(9) All of the capital stock in Dorotech, S.A., now or hereafter owned
by Debtor.
2. Miscellaneous.
(a) Except as expressly amended hereby the Security Agreement
shall continue in full force and effect.
(b) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.
(c) This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument and any
of the parties hereto may execute this Agreement by signing any such
counterpart.
(d) Captions and section headings appearing herein are included
solely for convenience of reference only and are not intended to affect the
interpretation of any provision of this Agreement.
(e) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF VIRGINIA APPLICABLE TO AGREEMENTS
EXECUTED AND TO BE WHOLLY PERFORMED WITHIN THAT STATE.
(f) Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms or provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
-2-
<PAGE>
duly executed as the day and year first above written.
NETWORK IMAGING CORPORATION
By: /s/ Julia A. Bowen
--------------------------
Julia A. Bowen
Vice President and General Counsel
--------------------------
Fred Kassner
-3-
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<CIK> 0000883946
<NAME> NETWORK IMAGING CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,845
<SECURITIES> 0
<RECEIVABLES> 14,038
<ALLOWANCES> (556)
<INVENTORY> 1,602
<CURRENT-ASSETS> 19,194
<PP&E> 9,119
<DEPRECIATION> (6,680)
<TOTAL-ASSETS> 29,439
<CURRENT-LIABILITIES> 14,648
<BONDS> 0
6,357
0
<COMMON> 3
<OTHER-SE> 2,907
<TOTAL-LIABILITY-AND-EQUITY> 29,439
<SALES> 18,453
<TOTAL-REVENUES> 18,453
<CGS> 11,972
<TOTAL-COSTS> 11,972
<OTHER-EXPENSES> 12,593
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> (6,145)
<INCOME-TAX> 55
<INCOME-CONTINUING> (6,200)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (8,106)
<EPS-PRIMARY> (0.33)
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