U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER: 0-22970
NETWORK IMAGING CORPORATION
(Exact name of registrant as specified in its Charter)
DELAWARE 54-1590649
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
500 HUNTMAR PARK DRIVE, HERNDON, VIRGINIA 20170-5100
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (703) 478-2260
Securities Registered pursuant to Section 12(b) of the Act:
None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value per share
Redeemable Common Stock Purchase Stock Warrants expiring May 7, 1998
Series A Convertible Preferred Stock, $.0001 par value per share
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing: $39,847,435 as of March 6, 1998 (Price of Common Stock = $1
7/16).
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 28,254,455 shares of
Common Stock were outstanding as of March 6, 1998.
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FORWARD LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results could
differ materially from those projected in the forward-looking statements as a
result of certain factors described herein and in other documents. Readers of
this document should pay particular attention to the risk factors described in
the section of this Report entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations". Readers should also carefully
review the risk factors described in the other documents the Company files from
time to time with the Securities and Exchange Commission, specifically the
Quarterly Reports on Form 10-Q to be filed by the Company in 1997 and any
Current Reports on Form 8-K filed by the Company.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Network Imaging Corporation ("Network Imaging" or the "Company")
develops and markets software products, which support the storage, management
and distribution of electronic information. These products provide businesses
and government organizations with an automated method of electronically storing,
managing and distributing large volumes of computer output (reports) and
unstructured data (diagrams, scanned images, office automation documents,
photos, voice and video).
The Company is a leader in technology for managing content and storage
of non-database information. Its flagship product suite, 1View, provides a full
set of components and applications to manage the acquisition, management,
storage, access and distribution of any multimedia (or unstructured) data..
1View is a unique solution for use in distributed, high-transaction, high-volume
mission-critical applications across legacy, client/server and
Internet/intranet-based environments. This suite also includes mainframe and
PC-based Computer Output to Laser Disk ("COLD") systems. TREEV+(TM) and the
Company logo are trademarks of Network Imaging Corporation. All other product
and brand names are trademarks or registered trademarks of their respective
companies.
Operations are conducted in Herndon, Virginia for the development,
marketing and sales activities of the 1View suite and Minneapolis, Minnesota and
Denver, Colorado for the installation and support of the TREEV COLD and Imaging
products.
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Traditional manual filing, retrieval, and distribution methods are
labor intensive, slow, require bulky file storage, allow only one person to use
a file at a time and often result in misfiled, damaged or lost items. Large
commercial and government organizations must continually process large volumes
of documents stored in hard copy paper files where there is a need for more
efficient movement of information throughout the enterprise. The information may
take the form of documents, database records, graphics, video clips, audio,
computer aided design ("CAD") and engineering drawings, and other such
"information objects" which are distributed throughout a multi-site enterprise.
To address this need for information storage, retrieval, and distribution
management, the Company has developed the 1View software application suite of
imaging, document management, COLD, and workflow products.
The Company uses advances in object management software to capture and
store "information objects" with more advanced indexing and retrieval features
than those available for paper documents or "structured data". The Company's
information access, object management, and storage management systems have been
designed to support "open systems standards" which permit hardware and software
from different vendors to operate together on a network.
1View
The Company's 1View suite is designed to answer the information access
needs of large organizations. 1View's object enabling suite of software tools
contains flexible and layered application program interfaces ("APIs") which
allow developers to select the appropriate level of API to suit customer
solution requirements. This facility provides a bridge to "legacy" systems
previously used, and allows for easy customization of software systems in
comparison to standard file structures. 1View is an independent platform and can
work in conjunction with of any of the popular database systems (Oracle, IBM
DB/2, Informix, Microsoft SQL Server, Sybase, etc.) and well as the primary
server architectures (UNIX and Windows NT).
The 1View suite consists of the following:
1View: Object Manager is a software solution for managing the content
and storage of multimedia data types such as text, images, video and audio.
Object Manager handles the management, storage and distribution of any type of
multimedia or document object in high-transaction, client/server and
Internet/intranet environments. Companies, which utilize Object Manager, are
able to seamlessly multimedia-enable existing or new database applications while
preserving their investments in legacy information systems and hardware
equipment.
1View: Workflow is an easy-to-implement suite of software tools
designed to automate complex business processes in client/server and Web
environments. It is a rules-based workflow management system designed to allow
integration and automation of work process management applications into
mainstream business practices associated with any business application.
1View:Workflow provides the ability to graphically represent and control
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business processes by linking together a variety of people and software elements
to automate the flow of documents (objects) throughout an enterprise.
1View: COLD is a report storage and retrieval system that offers high
volume, high-speed handling of mission-critical report data for mainframe and
client/server environments. In an IBM MVS or VSE mainframe environment,
1View:COLD off-loads report management and storage operations to a dedicated
Microsoft NT server thus minimizing the use of host CPU and DASD resources. In
1997, 1View:COLD was significantly upgraded to provide support for APA (All
Points Addressable) print streams including IBM's AFP (Advanced Function
Presentation), Xerox's Metacode, and Adobe's PDF (Portable Document Format).
Also, 1View:COLD/CS (client server) was introduced to address the growing
enterprise requirement for archiving non-mainframe computer output data.
1View:COLD provides Internet/intranet browser, Windows 3.1/95/NT, and 3270
viewing for thousands of simultaneous users.
1View: Voyager II is a document imaging system that captures, stores
and retrieves scanned images, word processing documents, spreadsheets and other
graphical files. Images can be stored and retrieved from RAID, CD-R or optical
disk. Voyager II effectively replaces the use of paper and microfilm as a
storage medium and is based on the 1View's Object Manager technology. Voyager II
takes advantage of Windows NT and Microsoft SQL technologies to deliver an easy
to implement package that can be expanded into a true enterprise-wide scalable
solution.
COLD Products
A significant portion of the Company's product emphasis is on packaged
software solutions. Computer Output to Laser Disk ("COLD") software is an
important component of several of these products. COLD technology is widely
accepted as a way to permanently archive and provide for the retrieval of
permanent business reports produced by computers (computer output). COLD
typically replaces printed paper reports and Computer Output Microfiche (COM or
"microfiche") with high capacity optical, CD, or RAID storage. Once written to
its storage media, COLD provides for on-line viewing of information such as
banking and brokerage statements, utility bills, payroll reports and corporate
financial journals and reports. COLD technology provides a more economical way
to store the information as well as a faster method to retrieve reports. Optical
disk is much less expensive storage medium than microfiche or paper. By putting
reports back on-line utilizing an organization's standard terminals,
workstations, and networks, productivity is increased versus the manual handling
of physical paper and microfiche. Network Imaging Corporation is one of the
largest commercial providers of COLD technology.
The TREEV Division of the Company's U.S. operations has developed and
markets PC-based COLD systems used in over 2,200 community banks. TREEV also
markets imaging products to the community bank marketplace including TREEV
Voyager II. TREEV Division provides "turn-key" hardware and software solutions,
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maintenance services for its client systems, consulting, training, and high
quality optical supplies.
Product Development
Product development operates under a single senior manager and is
located at the Company's headquarters in Herndon, Virginia. During 1997, the
product development group focused on completing product release plans that are
responsive to the market and support the company's short-term revenue goals.
The strategic direction for the products is to provide a cohesive suite
of 1View products that will deliver innovative solutions for managing documents
and other unstructured data, enabling our customers and business partners to
leverage existing applications and exploit emerging business opportunities
across Internet/intranet environments. This vision will be accomplished by
leveraging the existing 1View suite of products and adapting them to the web
environment as well as to database vendor products such as Sybase's Adaptive
Server. The Company was an early adopter of the Microsoft's ActiveX technology
and will continue to migrate the existing toolkits and API's into components
that can be used to rapidly build new enterprise-wide applications and easily
integrated into existing customer applications.
The Company views the product development organization as one of its
key assets and will continue to invest in building the group's infrastructure,
refining the group's software development methodology, and implementing the
1View products strategy.
Assembly; Sources of Supply
The Company assembles its products at its facilities in Herndon,
Virginia and Denver, Colorado. The Company relies exclusively on outside
suppliers for the hardware components of its products such as scanners,
computers and optical disk drives and jukeboxes. Most parts and components are
currently available from multiple sources at competitive prices. To date, the
Company has not experienced significant delays in obtaining parts and
components, and although there can be no assurance, the Company does not expect
to experience such delays in the future.
Patents, Trademarks and Copyrights
The Company has numerous trademarks and copyrights that are registered
in the United States and various foreign countries. The Company also has a
patent on its Enterprise Multimedia Data Processing System and Method that is
registered in the United States. Additionally, the Company is pursuing patents
on certain other key technologies. In general, however, management believes that
the competitive position of the Company depends primarily on the skill,
knowledge and experience of Network Imaging's personnel and their ability to
develop, market and support software products, and that its business is not
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materially dependent on copyright protection, trademarks or patents. The Company
believes that all of its products are of a proprietary nature and its licensing
agreements generally prohibit program disclosure. It is possible, however, for
product users or competitors to copy portions of the Company's products without
its consent.
Licenses for a number of software products have been granted to the
Company for its own use or for remarketing to its customers. In the aggregate,
these licenses are material to the business of the Company, but the Company
believes that the loss of any one of these licenses would not materially affect
the Company's results of operations or financial position.
The TREEV and 1View families of product names used herein are
registered or unregistered trademarks owned by the Company.
Warranty and Service
Warranties for hardware sold by the Company are generally provided by
the manufacturer. The Company provides warranties and service contracts usually
covering one year for its software products. The Company recognizes revenue
under service contracts ratably over the contract period.
Competition
Management believes that the Company's 1View product line is an
innovative solution available for enterprise scalable content and storage
management in the industry today. When companies have a clear need for storing,
managing and distributing multimedia objects such as large drawings,
photographs, documents, video clips, and audio clips that must: a) scale to many
terabytes, b) serve thousands of users and c) work with existing and new
applications, application databases or universal database platforms in
distributed heterogeneous environments, there is no direct competition from
other companies. When some, but not all, of these conditions are met, there is
competition from companies such as Documentum, PC DOCS, FileNet Corporation,
IBM, Optika, Banctec, Eastman Kodak and other vendors in the traditional imaging
and document management markets. For smaller scale systems with low performance
requirements, the competitive issue becomes price or company size and stability.
Scalability of content storage requirements, complexity of the
environment, i.e., distributed content base, multi platform, multiple
application content access, and cost management of the storage resources
(hierarchical storage environments) are real and significant issues in this
industry. Importantly, Sybase has entered into a reseller agreement to remarket
the 1View solution as part of their Adaptive Server initiative. The Network
Imaging partner marketing program is targeted to address these competitive
issues and make partners of the apparent competitors.
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The Company's goal is to be recognized as the standard in storing,
managing and distributing multimedia (unstructured) data.
Marketing and Sales
The Company sells its products directly, through its own sales force
offices in locations in or near New York, Boston, Washington D.C., Atlanta,
Charlotte, Denver, Minneapolis, Los Angeles, Orlando, San Francisco, Dallas, San
Antonio and Seattle.
Selling is also done indirectly through channels such as value-added
resellers, system integrators, OEMs, and other distributors. It has recently
developed a new Business Alliance Program ("BAP"). The BAP is a catalyst and
support vehicle for marketing partnerships with the channels above, as well as
vendors of complementary product technologies - such as companies who market and
manufacture database, application development, systems management, and
communication and connectivity software.
The Company also focuses on vertical market segments, which have proven
requirements for the Company's product line. These market segments primarily
include Telecommunications and Finance Banking, where the Company has a strong
presence. The vertical market segments also include Utilities, Insurance,
Healthcare, Manufacturing, and the Public Sector. The Company has developed
programs in these segments to identify sales opportunities, create product
awareness, and develop contacts for the Company's indirect sales channels.
The Company has an active marketing program, which includes direct
representation at trade shows, seminars and user group meetings. The BAP
programs now include representation with its marketing business partners in
their direct marketing programs on a regional, national and international basis.
The Company advertises in numerous major industries, vertical market
and news publications and participates in direct mail campaigns with its
partners. The Company markets diverse products to multiple industries. It is not
dependent on any one customer or business partner for a major percentage of its
business.
Business Dispositions
During 1994, the Company committed itself to a plan of restructuring
which was designed to improve operating results by concentrating the Company's
resources on the marketing and continued development of its 1View suite of
software products. In connection with its restructuring plan, the Company,
during 1995, 1996 and 1997, disposed of a number of operating units (the
"Divestitures" or the "Divested Businesses") which were not considered
complimentary to the Company's business.
As a result of the Divestitures, the Company recorded a gain of
$266,000 in 1997 and losses of $921,000 and $9.3 million in 1996 and 1995,
respectively. The aggregate consideration received by the Company from the
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Divestitures was $1.6 million in cash and $11.2 million in notes receivable, of
which $1.1 million was reserved as uncollectible at December 31, 1997.
The Company sold the stock of its French subsidiary, Dorotech, in the
fourth quarter of 1997 and its Symmetrical Technologies, Inc. subsidiary in
1996. During 1995, the Company disposed of the following operations: Hunt Valley
Division (formerly NSI, Inc.), Network Imaging (UK Holdings) Limited,
Microsouth, Inc., Tekgraf, Inc., P E Systems, Inc., WildSoft Division, and IBZ
Digital Production AG.
Employees
The Company's success is highly dependent on its ability to attract and
retain qualified employees. Competition for employees is intense in the software
industry. To date, the Company believes it has been successful in its efforts to
recruit qualified employees, but there is no assurance that it will continue to
be as successful in the future.
None of the Company's employees are represented by a labor union. The
Company has experienced no work stoppage and believes that its employee
relations are good.
At March 5, 1998, the Company employed 214 people.
Directors and Executive Officers of the Company
Name Age Position
James J. Leto (2) 53 President, Chief Executive Officer
and Chairman of the Board
Jorge R. Forgues 42 Senior Vice President of Finance and
Administration, Chief Financial
Officer and Treasurer
John M. Flowers 47 Senior Vice President of Engineering
Brian H. Hajost 41 Senior Vice President of Marketing
David E. MacWhorter 50 Senior Vice President, Sales
Richard G. McMahon 53 Senior Vice President, Government
Systems
Robert P. Bernardi (2) 46 Director and Secretary
John F. Burton (1) 46 Director
C. Alan Peyser 63 Director
Robert Ripp (1)(2) 56 Director
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(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
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James J. Leto became President and Chief Executive Officer and a
Director of the Company in May 1996 and became Chairman of the Board in June
1997. Mr. Leto served as the Chairman and Chief Executive Officer of PRC Inc.,
an information technology company ("PRC"), from January 1993 to February 1996,
and prior thereto in various capacities as an executive officer of that company.
From January 1989 until February 1992, Mr. Leto served as the Vice President and
General Manager of AT&T Federal Systems Computer Division, a division of AT&T
charged with developing a major system integration and computer presence in the
federal marketplace. Mr. Leto first joined AT&T in November 1977. Mr. Leto is a
director of Government Technology Systems, Inc.
Jorge R. Forgues became Chief Financial Officer, Vice President of
Finance and Administration and Treasurer of the Company in April 1996. In
January 1997, Mr. Forgues was promoted to Senior Vice President. From October
1993 through April 1996, he served as the Vice President of Finance &
Administration and Chief Financial Officer of Globalink, Inc., a computer
software developer that offers foreign language translation software. From July
1992 to September 1993, Mr. Forgues served as Director of Accounting at Spirit
Cruises, Inc., and from June 1987 to June 1992 he served as the Vice President
of Finance of Best Programs, Inc., a computer software developer. Mr. Forgues is
a director of On-Site Sourcing Incorporated.
John M. Flowers, Jr. was appointed Senior Vice President of Engineering
Services in April 1996. From 1989 to April 1996, he was with PRC, serving in
various capacities, including Manager of the Center for Imaging Technology,
Chief Architect for Systems Integration Division, Corporate Director of the
Imaging Core Competency Program, and Vice President and Chief Scientist for the
Information Systems Division.
Brian H. Hajost joined the Company in March 1996, was appointed Senior
Vice President of Integrated Products in April 1996 and was appointed Senior
Vice President of Marketing in May 1997. Form 1985 to 1995, Mr. Hajost was with
Servantis Systems, Inc. (formerly Stockholder Systems, Inc.) where he served in
various capacities including Securities Products Group Regional Manager,
Securities Products Group Regional Director Banking Sales, Securities Product
Group Vice President Sales Manager, Imaging Technologies Group Vice President
Sales and Marketing, and Imaging Technologies Group Senior Vice President
Business Unit Manager.
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David E. MacWhorter joined the Company in November 1994 and was
appointed Vice President of Sales in January 1996. He was promoted to Senior
Vice President effective February 1, 1998. Prior to 1996, Mr. MacWhorter served
in other capacities at the Company. From 1993 to 1994, he served as President of
Kyocera Electronics' printer division. From 1990 to 1993, he was with Sony as
General Manager of its Electronic Photography Division. Prior to 1990, Mr.
MacWhorter was with Wang Laboratories where he served in a number of marketing
and sales management positions.
Richard G. McMahon joined the Company in April 1997 as Vice President
of Government Systems. He was promoted to Senior Vice President effective
February 1, 1998. From 1992 to 1997, Mr. McMahon was Vice President and Managing
Partner of NCR Corporation's government sector professional services business.
From 1982 to 1991, he was with AT&T where he served in various senior management
and marketing positions.
Robert P. Bernardi has been a Director of the Company (and its
predecessor) since its inception. He was a co-founder of the Company. Mr.
Bernardi is the founder and Chief Executive Officer of the Music Connection. Mr.
Bernardi served as President of the Company from inception to February 1995, as
Chief Executive Officer from inception to May 1996, and Chairman of the Board of
Directors from September 1995 to June 1997. From 1988 to 1990, Mr. Bernardi was
an independent consultant in the document imaging and telecommunications fields.
From March 1984 to December 1987, Mr. Bernardi was Chairman and Chief Executive
Officer of Spectrum Digital Corporation, a publicly held telecommunications
equipment manufacturing company ("Spectrum Digital"), with overall management
responsibilities including marketing, sales, engineering and finance.
John F. Burton was appointed to the Board of Directors in September
1995. Mr. Burton is Managing Director of Updata Capital, Inc., a mergers and
acquisitions investment bank, a position he has held since 1997. From October
1996 to February 1997, he was President of Burton Technology Partners. From
August 1995 to September 1996, he was President and Chief Executive Officer of
Nat Systems, Inc. From 1984 to 1995, Mr. Burton served in various executive
capacities at Legent Corporation including President, Chief Executive Officer
and Director.
C. Alan Peyser became a Director of the Company in May 1996. Mr. Peyser
was appointed President and Chief Executive Officer of Cable & Wireless, Inc.,
in October 1996. From September 1995 to October 1996, Mr. Peyser served as a
consultant to Cable & Wireless, Inc. He is also currently President of Country
Long Distance Corporation and a member of the Board of Directors of Tridex
Corporation and TCI International, Inc. Mr. Peyser previously served as the
Chief Executive Officer and President of Cable & Wireless, Inc. from 1980
through September 1995.
Robert Ripp has served as a Director since October 1994. Mr. Ripp is
Executive Vice President, Global Businesses, of AMP, Inc., an electronics
manufacturer. He previously served as its Chief Financial Officer. Prior to
joining AMP in 1994, Mr. Ripp was Vice President and Treasurer of International
Business Machines Corporation, where he served in various capacities as a
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finance executive from 1964 to 1994. He is a member of the board of directors of
ACE, Limited.
ITEM 2. PROPERTIES
As of March 31, 1998, the Company was leasing 25,600 square feet for
administrative, marketing and product development and support facilities at its
headquarters in Herndon, Virginia, pursuant to a lease which expires in the year
2000. The Company also leases an aggregate of approximately 55,000 square feet
of similar facilities at other offices near Atlanta, Georgia; Charlotte, North
Carolina; Orlando, Florida; Dallas, Texas; Denver, Colorado; Los Angeles,
California; Minneapolis, Minnesota; New York, New York; San Francisco,
California; Seattle, Washington; San Jose, California; Boston, Massachusetts;
and San Antonio, Texas. The Company's current rent expense under real property
leases on an annual basis is approximately $1.0 million. The Company owns no
real property and has no plans to purchase any real property for either
commercial or investment purposes in the foreseeable future. The Company
believes that its facilities are adequate for its purposes.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings, other than
routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
The Company held a Special Meeting of Stockholders on November 17, 1997 at which
the stockholders: (1) approved the issuance of shares of the Company's Common
Stock issuable in connection with the Company's Series K Convertible Stock, the
issuance of warrants to purchase shares of Common Stock at an exercise price of
$2.40 per share, and the issuance of warrants to purchase shares of Common Stock
at an exercise price of $1.625 per share under Nasdaq Rule 4460(i)(1)(D); (2)
approved the issuance of shares of the Company's Common Stock issuable in
connection with the Company's 8% Convertible Notes due July 8, 2002 and the
issuance of warrants to purchase 36,000 shares of Common Stock at an exercise
price of $1.875 per share issued in connection with the Convertible Notes under
Nasdaq Rule 4460(i)(1)(D); and (3) approved the amendment of the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 50,000,000 to 100,000,000.
In connection with the approval of the issuance of shares and warrants
in connection with the Series K Convertible Stock, 19,677,506 shares were voted
in favor of the proposal, 1,582,223 were voted against, and 368,225 abstained.
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With respect to the approval of the issuance of shares and warrant in
connection with the Convertible Notes, 19,521,612 shares were voted in favor of
the proposal, 1,858,467 were voted against, and 295,712 abstained.
With respect to the approval of the amendment to the Company's
Certificate of Incorporation, 19,506,583 shares were voted in favor of the
proposal, 1,825,659 were voted against, and 295,712 abstained.
The Company held an additional Special Meeting of Stockholders on
December 31, 1997 at which the Series A Preferred stockholders and the Common
stockholders approved and adopted the Certificate of Amendment to Certificate of
Designation of the Company's Series A Cumulative Convertible Preferred Stock.
In connection with the Series A stockholders' approval of the
Certificate of Amendment, 882,763 shares were voted in favor of the proposal,
102,901 were voted against, and 33,566 abstained.
With respect to the Common stockholders' approval of the Certificate of
Amendment, 13,339,959 shares were voted in favor of the proposal, 471,479 were
voted against, and 87,644 abstained.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ National Market
System TM (NASDAQ-NMS) under the symbol IMGX. The Company also has outstanding
redeemable common stock purchase warrants (the "Warrants") that are traded on
NASDAQ-NMS under the symbol IMGXW, and Series A Cumulative Convertible Preferred
Stock (the "Series A Preferred Stock") that is traded on NASDAQ-NMS under the
symbol IMGXP. The following table indicates the high and low sales prices for
the Common Stock as reported by NASDAQ for the periods indicated (which reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions).
PERIOD HIGH LOW
1996 -First Quarter 5 7/8 3 3/4
-Second Quarter 5 5/8 3 7/16
-Third Quarter 5 1/16 3 1/16
-Fourth Quarter 4 5/32 2 11/16
1997 -First Quarter 3 1/2 2 9/16
-Second Quarter 2 29/32 1 11/16
-Third Quarter 2 1/32 1 1/4
-Fourth Quarter 1 3/4 25/32
1998 -First Quarter 1 17/32 7/8
(through March 6)
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The Company has not paid any cash dividends on its Common Stock since
its inception and does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Company suspended payment of the quarterly
dividend on the Series A Stock due in July and October 1997 of $0.50 per share
or $803,000 in the aggregate, for each period. As a result of the approval and
adoption of the Certificate of Amendment to Certificate of Designation of the
Series A Stock, effective May 1, 1997, the Company was no longer obligated to
make any cash dividend payments to the Series A stockholders. In addition,
commencing December 31, 1997, Series A stockholders receive an annual dividend
of $.84 per share, accumulating quarterly, payable in Common Stock or cash, at
the Company's option.
As of February 10, 1998, the Company had approximately 385 record
holders of its Common Stock, and based on information supplied by certain of
such record holders, the Company estimates that as of such date there were
approximately 7,600 beneficial owners of its Common Stock.
On December 8, 1997, the Company sold to three investors in a private
sale, in reliance upon Regulation D under the Securities Act of 1933, 3,250
units consisting of one share of Series L Convertible Preferred Stock and
warrants to purchase 75 shares of Common Stock at an exercise price of $1.65 per
share for $3.25 million in cash.
On December 29, 1997, the Company issued 4,000 shares of Series M
Convertible Stock, convertible into a maximum of 5,360,000 shares of Common
Stock, to a single investor upon the conversion to equity of $4.0 million of a
$5.0 million line of credit that the Company had secured from the investor. The
shares of stock were issued in reliance upon Regulation D under the Securities
Act of 1933, and the Company received no cash proceeds from the conversion of
debt to equity.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial data for the five
years ended December 31, 1997. The statement of operations data for each of the
five years ended December 31, 1997 and the balance sheet data as of those dates
have been derived from the consolidated financial statements of the Company. The
consolidated financial statements for the years ended December 31,1997 and 1996
have been audited by Ernst & Young LLP. The consolidated financial statements
for the three years ended December 31, 1995 have been audited by other
independent auditors. The financial data should be read in conjunction with the
consolidated financial statements, related notes, and other financial
information included herein.
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Statement of Operations Data
(in thousands, except share amounts)
Year Ended December 31,
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1997 1996 1995 1994 1993
---- ---- ----- ---- ----
Revenue $ 35,806 $ 39,477 $ 69,151 $ 67,028 $ 34,069
Net loss (11,339) (17,341) (24,963) (39,625) (30,817)
Net loss applicable
to common shares (14,310) (21,071) (34,896) (44,121) (31,421)
Net loss per common
share $ (0.57) $ (1.02) $ (2.41) $ (3.56) $ (4.48)
======== ======== ======== ======== ========
Net loss per common
share - assuming
dilution $ (0.57) $ (1.02) $ (2.41) $ (3.56) $ (4.48)
======== ======== ======== ======== ========
Balance Sheet Data
(in thousands, except share amounts)
Year Ended December 31,
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Total assets $26,860 $36,778 $49,964 $71,871 $75,519
Working capital 9,980 9,893 13,454 17,513 45,859
Long-term debt 1,108 88 1,264 2,533 2,125
Redeemable preferred stock 6,548 9,857 15,478 14,609 15,626
Stockholders' equity 7,969 11,717 10,185 25,156 42,794
II-3
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and related notes included herein.
Results of Operations
Revenue. Product revenue includes sales of software licenses and
computer equipment. Product revenue is recognized upon delivery or, if
applicable, acceptance. Service revenue includes software maintenance contracts,
installation and customization. Service revenue is recognized over the terms of
the related contracts as the services are completed or under the percentage of
completion method where appropriate.
Total revenue was $36 million in 1997, $39 million in 1996 and $69
million in 1995. The decrease in total revenue in 1997 over 1996 of $3.7
million, or 9%, resulted primarily from a decrease in service revenue of $3.6
million or 17%. The decrease in total revenue in 1996 over 1995 of $30 million,
or 43%, resulted from decreases in product revenue of $29.2 million, or 61% to
$18.3 million, and decreases in service revenue of $500,000, or 2% to $21.1
million.
Although reported product revenue remained unchanged in 1997 over 1996,
product revenue decreased $3.4 million due to the Divestitures and increased
$3.4 million from the Company's continuing operations. The decrease in product
revenue in 1996 of $29.2 million, compared to 1995, was primarily attributable
to the Divestitures, which reduced product revenue by $19.9 million, and a major
installation project in 1995 for $9.3 million, which was not duplicated in 1996.
The decrease in service revenue in 1997, compared to 1996, of $3.6
million was attributable to the Divestitures which reduced service revenue by
$5.1 million, offset by an increase of $1.5 million in the Company's continuing
service operations. The decrease in service revenue in 1996, compared to 1995,
of $500,000 was attributable to the Divestitures which reduced service revenue
by $2.9 million, offset by an increase of $2.4 million in comparative company
service revenue. The increase in 1View comparative company service revenue in
1997 and 1996 was attributable to increased staffing and continued management
emphasis on the professional services business.
Profit Margins. Profit margins for product sales continued to improve
in 1997 over 1996 as the cost of products sold decreased from 54% to 46% of
sales. The increase in product sales is attributable to a greater mix of
software sales over hardware. Profit margins for product sales improved in 1996
over 1995 as the cost of products sold decreased from 62% to 54% of sales. The
increase in product sales margins was due to the continued increased sales of
II-4
<PAGE>
the Company's internally developed products and due to the dispositions in 1995
of the Company's CAD/CAM resellers..
Profit margins for service sales decreased in 1997 over 1996 as the
cost of services increased from 75% to 78% of sales. The decrease in service
sales margins was attributable to declines at the Company's former French
subsidiary during the first three quarters of 1997. Profit margins for service
sales decreased in 1996 over 1995 as the cost of services sold increased from
66% to 75% of sales. The decrease in service sales margins was primarily
attributable to the increased staffing in the professional services business.
Research and Development. The Company's expenditures on software
research and development activities ("R&D") in 1997 were $5.9 million, of which
$1.5 million was capitalized and $4.4 million was expensed. The $1.4 million
decrease in R&D expenditures is attributable to the Company's 1996 plan to
consolidate various product development groups into a common product development
organization operating under a single senior manager. Under this plan, the
Company consolidated its COLD product development groups during 1996 from three
separate locations to one, and vacated excess office space. The Company's
disposition of STI also resulted in a reduction of $208,000 in R&D expenditures.
The Company's expenditures on software R&D in 1996 were $7.3 million, of which
$2.0 million was capitalized and $5.3 million was expensed. The slight decrease
in capitalization between 1996 and 1995 was due to primarily to the
Divestitures, which reduced total R&D by $703,000, offset by increases from the
development of the Company's next generation mainframe and PC based COLD
products. The Company's expenditures on software R&D activities in 1995 were
$7.8 million, of which $1.7 million was capitalized and $6.1 million was
expensed.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $20.3 million, or 57% of revenue, in 1997,
$24.6 million, or 62% of revenue, in 1996, $35.5 million, or 51% of revenue, in
1995. The decrease in 1997 compared to 1996 of $4.4 million, or 18% was the
result of the Divestitures which accounted for a $3.1 million decrease in
addition to a $1.3 million decrease from continuing operations due to the
Company's efforts in cost reduction. The decrease in 1996 compared to 1995 of
$10.9 million, or 31% was the result of the Divestitures which accounted for a
$8.7 million decrease in addition to a $2.2 million decrease in SG&A expenses
from the Company's continuing 1View, COLD and French operations.
Settlement with Stockholders. Operating expenses in 1995 include a $1.6
million expense related to settlement of obligations with former stockholders of
IBZ and TREEV for $750,000 and $892,000, respectively. The Company entered into
an agreement with the former principle stockholder of IBZ whereby in exchange
for an aggregate of $750,000, the former principle shareholder of IBZ
relinquished rights to a loan guarantee. During 1995, the Company and four
former stockholders of TREEV, entered into agreements to settle a dispute
arising from the acquisition of DCR in exchange for extensions of employment
II-5
<PAGE>
agreements and an aggregate of 175,000 additional shares of Common Stock of the
Company, valued at approximately $892,000.
Exchange Fee and Gain on Sale of Asset, Net. During 1996, the Company
paid a fee of $650,000 plus $80,000 of expenses in connection with the extension
of the redemption date of the Company's Series F Preferred Stock. During 1996,
the Company realized a $111,000 gain on the disposition of stock distributed to
the Company by its medical insurance provider.
Restructuring Costs. At December 31, 1996, the 1994 restructuring plan
("the Plan") was complete. Under the Plan, the Company incurred a net change in
estimate of $175,000 in 1996 and $1.4 million in 1995.
Interest Income (Expense), Net. Net interest expense was $286,000 in
1997, and net interest income of $309,000 and $224,000 in 1996 and 1995,
respectively. The $595,000 increase in interest expense was attributable
primarily to the line of credit with a stockholder drawn on during 1997. The
$85,000 increase in interest income between 1996 and 1995 was primarily
attributable to the interest earned for the cash received from the offerings
done during the first three quarters of 1996.
Income Taxes. The Company incurred income tax benefits of $68,000 and
$280,000 in 1996 and 1995, respectively. The $68,000 income tax benefits
incurred in 1996 was the result of net operating losses generated by Dorotech's
operations offset by a decrease in Dorotech's net deferred tax liabilities. The
$280,000 income tax benefit incurred in 1995 was primarily the result of a
decrease of net deferred tax liabilities resulting from the divestiture of IBZ's
European operations and other purchase accounting adjustments.
Net Loss. The Company's net loss was $11.3 million in 1997, $17.3
million in 1996 and $25.0 million in 1995. The $6.0 million decrease in net loss
between 1997 and 1996 was due to the $4.4 million reduction in SG&A expenses,
$914,000 reduction in product development expenses and the loss on the sale of
subsidiary in 1996.
The $7.6 million decrease in net loss between 1996 and 1995 was due primarily to
the 1995 losses from the Divestitures of $9.3 million, the $1.6 million
settlement with stockholders, and the $10.9 million reduction in SG&A expenses
in 1996. These reductions in expenses were offset by a $11.9 million reduction
in gross margin in 1996, the loss on sale of subsidiary in 1996, of $921,000,
and the change in estimate of $1.4 million in restructuring costs in 1995.
The entities divested in 1997, 1996, and 1995 contributed a net loss of
approximately $840,000, $2.1 million and $5.4 million, respectively.
II-6
<PAGE>
Net Loss Applicable to Common Shares. Net loss applicable to common
shares includes adjustments for accrued and imputed dividends related to the
Company's preferred stock. The net loss applicable to common shares was $14.3
million, or $0.57 per share, in 1997; $21.1 million, or $1.02 per share, in 1996
and $34.9 million, or $2.41 per share, in 1995: The decrease in 1997 over 1996
was attributable to the decrease in net loss described above and the reduction
in preferred stock dividends of $2.3 million. The imputed dividends of $1.5
million recognized during 1997 were non-cash and related to the below market
conversion feature of the Company's Series K and L Preferred Stock. The $2.3
million reduction in accrued dividends related primarily to the amendment to the
Company's Series A Preferred Stock. See Note 8 to the Consolidated Financial
Statements.
The following pro forma statements of operations represent the Company's
continuing operations and exclude the results of the Divested Businesses, the
gain and loss recorded on the sales of subsidiaries, other one time charges and
a major installation project in 1995 that is not representative of the Company's
continuing operations:
Year Ended December 31,
1997 1996 1995
--------- --------- ---------
(in thousands, except per share amounts)
Revenue $ 24,486 $ 19,706 $ 16,588
Cost of sales 13,609 11,797 8,931
-------- -------- --------
Gross margin 10,877 7,909 7,657
Gross margin as % of sales 44% 40% 46%
Selling, general and administrative 16,700 17,921 21,785
Product development 3,856 4,152 3,725
Other income (expense) (312) 287 612
-------- -------- --------
Operating loss (9,991) (13,877) (17,241)
Accrued dividends (1,435) (3,730) (9,933)
Imputed Accrued dividends (1,536) -- --
-------- -------- --------
Net loss applicable to common shares $(12,962) $(17,607) $(27,174)
======== ======== ========
Net loss per common share $ (0.51) $ (0.85) $ (1.87)
======== ======== ========
Net loss per common share -
assuming dilution $ (0.51) $ (0.85) $ (1.87)
======== ======== ========
Weighted average shares 25,206 20,682 14,502
======== ======== ========
II-7
<PAGE>
Liquidity and Capital Resources
As of December 31, 1997, the Company had $3.8 million in cash and cash
equivalents compared to $7.6 million in cash and cash equivalents at December
31, 1996. Net working capital increased to $10.0 million at December 31, 1997
from $9.9 million at December 31, 1996.
At December 31, 1997, the Company had outstanding debt of $3.6 million,
$2.5 million of which is due within one year. This compares with debt of $2.2
million at December 31, 1996, $2.1 million of which was due within one year. The
increase in debt of $1.4 million primarily arose from the draw on the Company's
line of credit with a stockholder. See Note 7 to the Consolidated Financial
Statements.
For 1997, the $3.8 million decrease in cash and cash equivalents
resulted from a $6.7 million use of cash from operating activities, $2.3 million
used in investing activities and the generation of $5.3 million from financing
activities. The $6.7 million use of cash in operating activities arose primarily
from the $11.3 million loss from operations offset by $4.5 million in
depreciation and amortization charges. The $2.3 million to fund investing
activities arose with respect to capitalized software development costs and the
purchase of fixed assets. The $5.3 million in cash provided by financing
activities arose primarily from the $5.1 million proceeds from the issuance of
Convertible Preferred Stock and proceeds of $6.9 million from borrowings, offset
by payments of $3.5 million to repurchase a portion of the Company's Series F
Preferred Stock, Preferred Stock dividends of $1.8 million and net payments in
debt and capital leases of $1.5 million.
For 1996, the $1.8 million decrease in cash and cash equivalents
resulted from a $11.8 million use of cash from operating activities, $2.6
million used in investing activities and the generation of $12.7 million from
financing activities. The $11.8 million use of cash in operating activities
arose primarily from the $17.3 million loss from operations offset by $5.8
million in depreciation and amortization charges. The $2.6 million to fund
investing activities primarily arose due to capitalized software development
costs and the purchase of fixed assets. The $12.7 million in cash provided by
financing activities arose primarily from the $6.0 million proceeds from the
issuance of Common Stock and $10.9 million proceeds from the issuance of
Convertible Preferred Stock offset by the $3.2 million payment of Series A
Preferred Stock dividends and net payments in debt and capital leases of $1.2
million.
During the first quarter of 1996, the Company repaid its $2.5 million
U.S. line of credit, which had a termination date of March 31, 1996. At December
31, 1995, $2.5 million of the $3.1 million restricted short-term investments
served as collateral for this line of credit. At December 31, 1997, the Company
maintained a $1.0 million line of credit negotiated during the fourth quarter of
1996, see Note 7 to the Consolidated Financial Statements.
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<PAGE>
As a result of stock offerings in 1997, the Company received net
proceeds of approximately $9.3 million which included offering costs of
approximately $1.4 million. Under the offerings, the Company issued 174,892
shares of Common Stock and 10,550 shares of Preferred Stock. The net proceeds of
the offerings were used for working capital purposes.
At December 31, 1997, the annual dividend requirements on the Company's
Series A Preferred Stock is $0.84 per share annually, payable quarterly, in cash
or common stock at the Company's discretion. Dividends on the Company's Series
K, L, and M Preferred Stocks are payable in cash or common stock, at the
company's election.
The adverse results of operations which the Company experienced in 1997
are expected to continue at least until part of 1998. The Company believes that
its existing cash, together with the anticipated future proceeds from the sale
of Series L Preferred units and any 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. Any 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 and/or further reductions of operating expenses (such as
travel, marketing, consulting and salaries.) 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.
Nasdaq announced new listing requirements on February 23, 1998 for con-
tinued inclusion on the Nasdaq National Market. Specifically, Nasdaq requires,
effective February 23, 1998, that common and preferred stock trading on its
National Market continuously have a minimum bid price of $1.00. At times in 1997
and the first part of 1998, the Company's Common Stock has had a minimum bid
price below $1.00. The Company's Preferred Stock has consistently traded with a
minimum bid price of over $1.00. Although the Company's Common Stock is
currently trading with a minimum bid price above $1.00, there can be no
assurance that the Company's Common Stock will continue to trade with such a
minimum bid price. In the event that the Company's Common Stock has a minimum
bid price below $1.00, the Company believes it can propose and effect a plan to
achieve compliance; however, there can be no assurance that the Company will be
able to stay in compliance with the Nasdaq requirement. While the Company
believes that it can meet Nasdaq's National Market or the requirements of The
Nasdaq Stock Market, any ability to trade on a national exchange could adversely
impact the value of the Company's stock.
ITEM 8. FINANCIAL STATEMENTS
The Financial Statements appear at pages F-1 to F-27.
II-9
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company filed a Form 8-K on July 17, 1996 to report that its in-
dependent accountants had been changed to Ernst & Young LLP.
II-10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers of the Company
For information regarding directors and executive officers of
the Company, see the information appearing under the caption "Executive
Officers" in Part I, Item 1 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 21, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 21, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 21, 1998.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) List of Financial Statements and Financial Statement
Schedules
The following consolidated financial statements of Network Imaging Corporation
are included in Item 8:
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
The following consolidated financial statement schedule of Network Imaging
Corporation is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits. The following exhibits are filed herewith or incor-
porated herein by reference:
Exhibit No. Description
2.9 Agreement and Plan of Reorganization by and among the Company, Doro-
tech France SA and the stockholders of Dorotech France SA dated August
30, 1993 with the amendments thereto dated September 29, 1993 and
October 1, 1993 (incorporated by reference to Exhibit 1 to Company's
Current Report on Form 8-K relating to such Agreement and Plan of
Reorganization filed October 13, 1993).
III-1
<PAGE>
2.26 Agreement for the Purchase and Sale of Assets of Symmetrical Tech-
nologies, Inc. as of September 30, 1996 (incorporated by reference to
Exhibit 10.a to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1996).
2.27 Share sale and Purchase Agreement between Network Imaging Corporation
and Systems Engineering Reinhardt S.A.R.L. dated December 10, 1997.
3.1 Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to the Company's registration statement on
Form S-1 (Registration No. 333-36417) filed December 5,1997).
3.2 Restated Bylaws as of may 17, 1996 (Incorporated by reference to Ex-
hibit 3.11 to Amendment No. 1 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997).
3.3 Certificate of Designations for Series A Cumulative Convertible Pre-
ferred Stock filed with the Secretary of State of the State of
Delaware on December 7, 1993 (incorporated by reference to Exhibit
3.1c to the Company's registration statement on Form SB-2
(Registration No. 33-73164) filed December 20, 1993).
3.4 Certificates of Designations for Series F-1, F-2, F-3 and F-4 Conver-
tible Preferred Stock filed with the Secretary of State of the State
of Delaware on March 29, 1996 (incorporated by reference to Exhibit
3.(i)i to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
3.5 Certificate of Designations for Series K Convertible Preferred Stock
filed in Delaware on July 28, 1997 (incorporated by reference to
Exhibit 3.12 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1997).
3.6 Certificate of Amendment to Certificate of Designations of Series
A Cumulative Convertible Preferred Stock filed with the Secretary of
State of the State of Delaware on December 31, 1997.
3.7 Certificate of Designations, Preferences and Rights of Series L Con-
vertible Preferred Stock filed with the Secretary of State of the
State of Delaware on December 8, 1997.
3.8 Certificate of Designations, Preferences and Rights of Series M Con-
vertible Preferred Stock filed with the Secretary of State of the
State of Delaware on January 7, 1998.
3.9 Certificate of Correction filed to Correct a Certain Error in the Cer-
tificate of Amendment to Certificate of Designations of Series A
Cumulative Convertible Preferred Stock (filed on December 31, 1997)
filed with the Secretary of State of the State of Delaware on January
13, 1998.
3.10 Certificate of Elimination of Certificate of Designation of Series
F-1 Convertible Preferred Stock filed with the Secretary of State of
the State of Delaware on January 13, 1998.
3.11 Certificate of Elimination of Certificate of Designation of Series
F-2 Convertible Preferred Stock filed with the Secretary of State of
the State of Delaware on January 13, 1998.
3.12 Certificate of Elimination of Certificate of Designation of Series
F-3 Convertible Preferred Stock filed with the Secretary of State of
the State of Delaware on January 13, 1998.
3.13 Certificate of Elimination of Certificate of Designation of Series
F-4 Convertible Preferred Stock filed with the Secretary of State of
the State of Delaware on January 13, 1998.
III-2
<PAGE>
4.1 Specimen Common Stock Certificate. (Incorporated by reference to Ex-
hibit 4.2 to Amendment No. 1 to the Company's registration statement
on Form S-1 (Registration No. 33-45721) filed April 10, 1992.)
4.2 Warrant Agreement between the Company and American Stock Transfer &
Trust Co. dated as of February 1, 1993. (Incorporated by reference to
Exhibit 1 to Post-Effective Amendment No. 1 to Company's registration
statement on Form S-1 (Registration No. 33-45721) filed April 1,
1993.)
4.3 Amendment No. 1 dated as of April 15, 1993 to the Warrant Agreement
between the Company and American Stock Trust & Transfer Co.
(Incorporated by reference to Exhibit 2 to Post-Effective Amendment
No. 1 to Company's registration statement on Form S-1 (Registration
No. 33-45721) filed April 1, 1993.)
4.4 Warrant Agreement between the Company and American Stock Transfer &
Trust Co. dated as of April 28, 1993. (Incorporated by reference to
Exhibit 4.4 to Company's registration statement on Form SB-2
(Registration No. 33-64046) filed June 8, 1993.)
4.5 Specimen Warrant Certificate (Public Warrants). (Incorporated by re-
ference to Exhibit 4.3 to Amendment No. 1 to the Company's
registration statement on Form S-1 (Registration No. 33-45721) filed
April 10, 1992.)
4.6 Specimen Warrant Certificate (International/Oakes Fitzwilliams Series)
(Incorporated by reference to Exhibit 4.6 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1992.)
4.7 Specimen Warrant Certificate (International/Thomas James Series). (In-
corporated by reference to Exhibit 4.7 to Company's registration
statement on Form SB-2 (Registration No. 33-64046) filed June 8,
1993.)
4.8 Warrant to purchase 20,700 units issued to Oakes, Fitzwilliams & Co.
Limited. (Incorporated by reference to Exhibit 4.8 to Company's
registration statement on Form SB-2 (Registration No. 33-64046) filed
June 8, 1993.)
4.9 Warrant to purchase 33,214 units issued to Oakes, Fitzwilliams & Co.
Limited. (Incorporated by reference to Exhibit 4.9 to Company's
registration statement on Form SB-2 (Registration No. 33-64046) filed
June 8, 1993.)
4.10 Placement Agent's Warrant to purchase 8,150 units issued to Thomas
James Associates, Inc. (Incorporated by reference to Exhibit 4.10 to
Company's registration statement on Form SB-2 (Registration No.
33-64046) filed June 8, 1993.)
4.11 Representative's Warrant issued to Thomas James Associates, Inc. (In-
corporated by reference to Exhibit 4.11 to Company's registration
statement on Form SB-2 (Registration No. 33-64046) filed June 8,
1993.)
4.12 Warrant Agreement among the Company, American Stock Transfer & Trust
Co. and Thomas James Associates, Inc. dated as of May 8, 1992.
(Incorporated by reference to Exhibit 4.12 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1992.)
4.12a Form of Amendment to Warrant Agreement among the Company, American
Stock Transfer & Trust Co. and Thomas James Associates, Inc. dated as
of May 8, 1992. (Incorporated by reference to Exhibit 4.12.a to
Amendment No. 1 to the Company's registration statement on Form SB-2
(Registration No. 33-64046) filed January 5, 1994.)
III-3
<PAGE>
4.13 Warrant to purchase 50,000 shares of Common Stock to Oakes, Fitz-
williams & Co. Limited. (Incorporated by reference to Exhibit 4.13 to
Amendment No. 1 to the Company's registration statement on Form SB-2
(Registration No. 33-64046) filed January 5, 1994.)
4.14 Warrants to purchase an aggregate of 45,000 shares of Common Stock
issued to American Wealth Management, Inc., Edsel Anderson, Harris
Anderson and Eric Swartz. (Incorporated by reference to Exhibit 4.14
to Amendment No. 1 to the Company's registration statement on Form
SB-2 (Registration No. 33-64046) filed January 5, 1994.)
4.16 Form of Warrant issued in connection with February 1992 debt finan-
cing. (Incorporated by reference to Exhibit 4.6.B to the Company's re-
gistration statement on Form S-1. (Registration No. 33-45721) filed
February 13, 1992.)
4.17 Warrant to purchase 227,068 shares of Common Stock issued to Swartz
Investments Inc. (Incorporated by reference to Exhibit 4.17 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)
4.18 Warrant to purchase 34,400 shares of Common Stock issued to Oakes,
Fitzwilliams & Co. Limited. (Incorporated by reference to Exhibit 4.18
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)
4.19 Form of Warrants issued in connection with December 1995 Series G Con-
vertible Preferred Stock offering. (Incorporated by reference to
Exhibit 4.19 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.)
4.20 Form of Warrants issued in connection with November/December 1995
Private Placement of Common Stock. (Incorporated by reference to
Exhibit 4.20 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.)
4.21 Warrant to purchase 25,000 shares of Common Stock issued to Ed Feldman
dated November 7, 1995. (Incorporated by reference to Exhibit 4.21 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)
4.22 Warrant to purchase 4,000 shares of Common Stock issued to Jarl Mc-
Donald dated December 20, 1995. (Incorporated by reference to Exhibit
4.22 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.)
4.23 Warrant to purchase 4,000 shares of Common Stock issued to Christian
Stackhouse dated December 20, 1995. (Incorporated by reference to
Exhibit 4.23 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.)
4.35 Exchange Agreement between CDR Enterprises the Company dated March 29,
1996. (Incorporated by reference to Exhibit 4.35 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995.)
4.36 Warrant to purchase 100,000 shares of Common Stock to Fred E. Kassner
dated December 31, 1996. (Incorporated by reference to Exhibit 4.36 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
4.37 Warrant to purchase up to 25,000 shares of Common Stock to Damon Tes-
taverde dated January 31, 1997. (Incorporated by reference to Exhibit
4.37 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.)
III-4
<PAGE>
4.38 Warrant to purchase 4,000 shares of Common Stock to Susan G. Kaufman
dated December 31, 1996. (Incorporated by reference to Exhibit 4.38 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
4.39 Eight Percent (8%) Convertible Note between Network Imaging Corpora-
tion and Wood Gundy in trust for RRSP 550 98866 19 and Gundyco in
trust for RRSP 550 99119 12 as of July 9, 1997 and attached Schedule.
(Incorporated by reference to Exhibit 10.22 to the Company's Form 10-Q
for the quarterly period ended June 30, 1997.)
4.40 Securities Purchase Agreement between Network Imaging Corporation and
Capital Ventures International and Zanett Lombardier, Ltd. as of July
28, 1997. (Incorporated by reference to Exhibit 10.23 to the Company's
Form 10-Q for the quarterly period ended June 30, 1997.)
4.41 Registration Rights Agreement between Network Imaging Corporation
and Capital Ventures International and Zanett Lombardier, Ltd. as of
July 28, 1997. (Incorporated by reference to Exhibit 10.24 to the
Company's Form 10-Q for the quarterly period ended June 30, 1997.)
4.42 Warrant to purchase 20,000 shares of Common Stock issued to Wood Gundy
in trust for RRSP 550 98866 19 dated July 9, 1997. (Incorporated by
reference to Exhibit 10.25 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997.)
4.43 Warrant to purchase 16,000 shares of Common Stock issued to Gundyco in
trust for RRSP 550 99119 12 dated July 9, 1997. (Incorporated by
reference to Exhibit 10.26 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997.)
4.44 Warrant to purchase 112,500 shares of Common Stock issued to Capital
Ventures International dated July 28, 1997. (Incorporated by reference
to Exhibit 10.27 to the Company's Form 10-Q for the quarterly period
ended June 30, 1997.)
4.45 Warrant to purchase 135,000 shares of Common Stock issued to Zanett
Lombardier, Ltd. dated July 28, 1997. (Incorporated by reference to
Exhibit 10.28 to the Company's Form 10-Q for the quarterly period
ended June 30, 1997.)
4.46 Warrant to purchase 162,462 shares of Common Stock issued to the
Zanett Securities Corporation dated July 28, 1997. (Incorporated by
reference to Exhibit 10.29 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997.)
4.47 Placement Agency Agreement dated July 2, 1997 between Network Imaging
Corporation and The Zanett Securities Corporation. (Incorporated by
reference to Exhibit 10.30 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997.)
4.48 Security Agreement dated as of December 31, 1996 between Network Imag-
ing Corporation and Fred Kassner. (Incorporated by reference to
Exhibit 10.31 to the Company's Form 10-Q for the quarterly period
ended June 30, 1997.)
4.49 Amendment No. 1 to Loan Agreement dated as of June 8, 1997 between
Network Imaging Corporation and Fred Kassner. (Incorporated by
reference to Exhibit 10.32 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997.)
4.50 Amendment No. 1 to Security Agreement dated as of June 8, 1997
between Network Imaging Corporation and Fred Kassner. (Incorporated by
reference to Exhibit 10.33 to the Company's Form 10-Q for the
quarterly period ended June 30, 1997.)
III-5
<PAGE>
4.51 Consulting Agreement by and between the Company, BCG, Inc. and Robert
P. Bernardi dated May 28, 1996. (Incorporated by reference to Exhibit
10.a to the Company's report on Form 8-K filed August 2, 1996.)
4.52 Form of Consulting Agreement by and between the Company, Sterling
Capital Group, Inc. and Robert M. Sterling, Jr. effective February 1,
1994. (Incorporated by reference to Exhibit 10.4.b to Post-Effective
Amendment No. 1 to the Company's registration statement on Form SB-2
(Registration No. 33-73164) filed January 14, 1994.)
4.53 Amendment dated October 1, 1995 by and between the Company, Sterling
Capital Group, Inc., and Robert M. Sterling, Jr. (Incorporated by
reference to Exhibit 10.4.c to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.)
4.54 Purchase Agreement by and between the Company and CDR Enterprises for
the repurchase of the Company's Series F Preferred Stock dated
December 31, 1996. (Incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
4.55 Loan Agreement by and between the Company and Fred E. Kassner for a
line of credit of $5,000,000 dated December 31, 1996. (Incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.)
4.56 Amendment dated January 1, 1996 among Network Imaging Corporation,
Sterling Capital Group and Robert M. Sterling, Jr. (Incorporated by
reference to Exhibit 10.44 to the Company's registration statement on
Form S-1 (Registration No. 333-36417) filed December 5, 1997.)
4.57 Amendment dated January 1, 1996 among Network Imaging Corporation,
BCG, Inc. and Robert P. Bernardi. (Incorporated by reference to
Exhibit 10.45 to the Company's registration statement on Form S-1
(Registration No, 333-36417) filed December 5, 1997).
4.58 Amendment to Purchase Agreement effective May 30, 1997 between Network
Imaging Corporation and CDR Enterprises. (Incorporated by reference to
Exhibit 10.46 to Amendment No. 1 to the Company's registration
statement on Form S-4 (Registration No. 333-36517)).
4.59 Registration Rights Agreement between the Company and CDR Enterprises
dated as of December 31, 1996. (Incorporated by reference to Exhibit
10.47 to Amendment No. 1 to the Company's registration statement on
Form S-4 (Registration No. 333-36517)).
4.60 Warrant to purchase 40,000 shares of Common Stock issued to Mark Shoom
dated as of June 25, 1996. (Incorporated by reference to Exhibit 10.48
to Amendment No. 1 to the Company's registration statement on Form S-4
(Registration No. 333-36517)).
4.61 Warrant to purchase 40,000 shares of Common Stock issued to Charles
Kucey dated as of June 25, 1996. (Incorporated by reference to Exhibit
10.49 to Amendment No. 1 to the Company's registration statement on
Form S-4 (Registration No. 333-36517)).
4.62 Form of Registration Rights Agreement between Network Imaging Corpora-
tion and GFL Performance Ltd., dated as of March 15, 1996.
(Incorporated by reference to Exhibit 10.50 to Amendment No. 1 to the
Company's registration statement on Form S-4 (Registration No.
333-36517)).
III-6
<PAGE>
4.63 Warrant to purchase 5,000 shares of Common Stock issued Redington, Inc
dated October 21, 1993 and Form of Registration Rights Agreement
between Network Imaging Corporation and Redington, Inc. (Incorporated
by reference to Exhibit 10.51 to Amendment No. 1 to the Company's
registration statement on Form S-4 (Registration No. 333-36517)).
4.64 Form of Registration Rights Agreement between Network Imaging Corpor-
ation and Fred Kassner dated as of December 31, 1996. (Incorporated by
reference to Exhibit 10.52 to Amendment No. 1 to the Company's
registration statement on Form S-4 (Registration No. 333-36517)).
4.65 Form of Warrant Agreement between Network Imaging Corporation and
American Stock Transfer and Trust Company to issue shares of Common
Stock dated as of December 31, 1996. (Incorporated by reference to
Exhibit 10.53 to Amendment No. 1 to the Company's registration
statement on Form S-4 (Registration No. 333-36517)).
4.66 Representative's Warrant issued to Thomas James Associates, Inc. to
purchase 150,000 shares of Common Stock dated May 18, 1992.
(Incorporated by reference to Exhibit 4.11 to the Company's
registration statement on Form SB-2 (Registration No. 33-64046) filed
June 9, 1993)).
4.67 Warrant to purchase in aggregate (i) up to 140,000 shares of Series A
Preferred Stock, or (ii) up to 253,624 shares of Common Stock, or
(iii) any combination of such securities issued to (a) RAS Securities
Corp. and (b) R.A. Schneider dated December 7, 1993. (Incorporated by
reference to Exhibit 10.57 to Amendment No. 1 to the Company's
registration statement on Form S-4 (Registration No. 333-36517)).
4.68 Eight Percent (8%) Convertible Notes in the aggregate principal amount
of $200,000 dated August 20, 1997 and issued to Gundyco in trust for
RRSP 550 99119 12. (Incorporated by reference to Exhibit 10.34 to the
Company's Form 10-Q for the three months ended September 30, 1997.)
4.69 Form of Warrant dated August 21, 1997 to purchase 4,000 shares of
Common Stock issued to Gundyco in trust for RRSP 550 99119 12.
(Incorporated by reference to Exhibit 10.35 to the Company's Form 10-Q
for the three months ended September 30, 1997.)
4.70 Termination of Consulting Agreement among Network Imaging Corporation,
Sterling Capital Group, Inc., and Robert M. Sterling, Jr., dated
October 13, 1997. (Incorporated by reference to Exhibit 10.60 to
Amendment No. 1 to the Company's registration statement on Form S-4
(Registration No. 333-36517)).
4.71 Termination of Consulting Agreement among Network Imaging Corporation,
Mann Enterprises, Inc., and John B. Mann dated October 17, 1997.
(Incorporated by reference to Exhibit 10.61 to Amendment No. 1 to the
Company's registration statement on Form S-4 (Registration No.
333-36517)).
4.72 Termination of Consulting Agreement among Network Imaging Corporation,
BCG, Inc., and Robert P. Bernardi, dated October 30, 1997.
(Incorporated by reference to Exhibit 10.62 to Amendment No. 1 to the
Company's registration statement on Form S-4 (Registration No.
333-36517)).
III-7
<PAGE>
4.73 Form of Warrant to purchase (i) 100,000 shares of Common Stock issued
to Robert M. Sterling, Jr., dated October 1, 1997, (ii) 66,667 shares
of Common Stock issued to Mann Enterprises, Inc., dated October 1,
1997, (iii) 50,000 shares of Common Stock issued to Robert P. Bernardi
dated October 1, 1997, (iv) 4,464 shares of Common Stock issued to the
Poretz Group dated August 1, 1997, (v) 5,495 shares of Common Stock
issued to the Poretz Group dated November 1, 1997 and (vi) 33,951
shares of Common Stock issued to Alex Brown & Sons Incorporated dated
August 5, 1997. (Incorporated by reference to Exhibit 10.63 to
Amendment No. 1 to the Company's registration statement on Form S-4
(Registration No. 333-36517)).
4.74 Form of Registration Rights Agreement among Network Imaging Corpora-
tion and the purchasers of the Series D Preferred Stock. (Incorporated
by reference to Exhibit 10.64 to Amendment No. 1 to the Company's
registration statement on Form S-4 (Registration No. 333-36517)).
4.75 Form of Registration Rights Agreement among Network Imaging Corpora-
tion and the purchasers of the Series E Preferred Stock. (Incorporated
by reference to Exhibit 10.65 to Amendment No. 1 to the Company's
registration statement on Form S-4 (Registration No. 333-36517).
4.76 Letter of Agreement between Network Imaging Corporation and Alex Brown
& Sons Incorporated dated August 13, 1997. (Incorporated by reference
to Exhibit 10.66 to Amendment No. 1 to the Company's registration
statement on Form S-4 (Registration No. 333-36517)).
4.77 Form of Warrant to purchase (i) 3,094 shares of Common Stock issued to
the Poretz Group dated February 1, 1997, (ii) 70,000 shares of Common
Stock issued to Fred Kassner dated March 27, 1997, (iii) 17,500 shares
of Common Stock issued to Damon Testaverde dated March 27, 1997, (iv)
5,495 shares of Common Stock issued to the Poretz Group dated May 1,
1997, (v) 30,000 shares of Common Stock issued to Fred Kassner dated
June 9, 1997, and (vi) 7,500 shares of Common Stock issued to Damon
Testaverde dated June 9, 1997. (Incorporated by reference to Exhibit
10.67 to Amendment No. 1 to the Company's registration statement on
Form S-4 (Registration No. 333-36517)).
4.78 Form of Securities Purchase Agreement between Network Imaging Corpora-
tion and Genesee Fund Limited dated March 15, 1996. (Incorporated by
reference to Exhibit 10.68 to Amendment No. 1 to the Company's
registration statement on Form S-4 (Registration No. 333-36517)).
4.79 Form of Securities Purchase Agreement between Network Imaging Corpora-
tion and (i) Bank Ehinger & CIE AG, and (ii) Privatinvest Bank,
respectively, dated in February and March 1996. (Incorporated by
reference to Exhibit 10.69 to Amendment No. 1 to the Company's
registration statement on Form S-4 (Registration No. 333-36517)).
4.80 Letter of Employment Agreement between Network Imaging Corporation and
James Leto dated May 9, 1996. (Incorporated by reference to Exhibit
10.70 to Amendment No. 1 to the Company's registration statement on
Form S-4 (Registration No. 333-36517)).
4.81 Form of Convertible Preferred Stock Purchase Agreement between Network
Imaging Corporation and Purchaser dated June 28, 1996. (Incorporated
by reference to Exhibit 4.a to the Company's Quarterly Report on Form
10-Q for the period ending June 30, 1996.)
4.82 Form of Convertible Preferred Stock Purchase Agreement between Network
Imaging Corporation and Southbrook International Investments, Ltd.,
dated September 30, 1996. (Incorporated by reference to Exhibit 4.a to
the Company's Quarterly Report of Form 10-Q for the period ending
September 30, 1996.)
III-8
<PAGE>
4.83 Securities Purchase Agreement among Network Imaging Corporation, Cap-
ital Ventures International, Zanett Lombardier, Ltd., and Bruno
Guazzoni dated as of December 8, 1997.
4.84 Cashless Stock Purchase Warrant to purchase 131,250 shares of Common
Stock issued to Capital Ventures International dated December 8, 1997.
4.85 Cashless Stock Purchase Warrant to purchase 56,250 shares of Common
Stock issued to Zanett Lombardier, Ltd. dated December 8, 1997.
4.86 Cashless Stock Purchase Warrant to purchase 56,250 shares of Common
Stock issued to Bruno Guazzoni dated December 8, 1997.
4.87 Registration Rights Agreement among Network Imaging Corporation, Cap-
ital Ventures International, Zanett Lombardier, Ltd., and Bruno
Guazzoni dated as of December 8, 1997.
10.22 Securities Purchase Agreement between Network Imaging Corporation and
Fred Kassner dated as of December 29, 1997.
10.23 Letter Agreement between Network Imaging Corporation and holders of
the Series K Stock entered into on November 30, 1997.
10.24 Letter from Zanett Lombardier Ltd., Capital Ventures International
and Bruno Guazzoni to Network Imaging Corporation, dated December 12,
1997.
21 Subsidiaries.
27.1 Financial Data Schedule for the year ended December 31, 1997.
27.2 Financial Data Schedule for the year ended December 31, 1996
b) Reports on Form 8-K. The Company filed the following reports on
Form 8-K during or relating to the fourth quarter of 1997:
Form 8-K on December 8, 1997 to report the closing of the Series L
Convertible Preferred Stock offering.
Form 8-K on December 31, 1997 to report that the Company had achieved
net tangible assets of at least $6 million and consummated the sale of
Dorotech, S.A.
Amendment to Form 8-K on March 13, 1998 to include proforma financial
statements for the sale of Dorotech, S.A.
c) the exhibits are listed in Item 14(a)(3)
d) Financial Statement Schedules
Schedule II - Valuation and Qualifying Account
III-9
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Reports of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-4
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-7
Notes to Consolidated Financial Statements F-8
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
Network Imaging Corporation
We have audited the accompanying consolidated balance sheets of Network Imaging
Corporation as of December 31, 1996 and 1997 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Network Imaging
Corporation at December 31, 1996 and 1997 and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Fairfax, Virginia
February 27, 1998
F-2
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of Network Imaging Corporation
In our opinion, the consolidated balance sheet and the related accompanying
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Network Imaging Corporation and its subsidiaries at December 31, 1995, and the
results of their operations and their cash flows for the year, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of the statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/PRICE WATERHOUSE LLP
Washington, DC
March 29, 1996
F-3
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
Pro Forma at
December 31, December 31, December 31,
1996 1997 1997
--------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 7,601 $ 3,816 $ 4,268
Accounts and notes receivable, net 13,243 8,569 8,569
Note receivable Dorotech sale -- 7,000 --
Inventories 1,503 722 722
Prepaid expenses and other 2,362 1,108 1,108
--------- --------- ---------
Total current assets 24,709 21,215 14,667
Fixed assets, net 2,887 2,165 2,165
Long-term notes receivable, net 1,979 378 378
Software development costs and
purchased technology, net 3,813 2,490 2,490
Goodwill, net 3,237 499 499
Other assets 153 113 113
--------- --------- ---------
Total assets $ 36,778 $ 26,860 $ 20,312
========= ========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and
obligations under capital leases $ 2,063 $ 2,479 $ 2,479
Accounts payable 3,185 2,037 2,037
Accrued compensation and related
expenses 1,891 1,135 1,135
Deferred revenue 3,789 3,334 3,334
Other accrued expenses 3,888 2,250 2,250
--------- --------- ---------
Total current liabilities 14,816 11,235 11,235
Long-term debt and obligations
under capital leases 88 1,108 1,108
Deferred income taxes 300 -- --
--------- --------- ---------
Total liabilities 15,204 12,343 12,343
Commitments
Redeemable Series F preferred stock,
1,792,186 and 792,186 shares
issued and outstanding at December
31, 1996 and 1997 and no shares
issued and outstanding on a pro
forma basis at December 31, 1997 9,857 6,548 --
Stockholders' equity:
Preferred stock, $.0001 par value,
20,000,000 shares authorized;
1,605,675 and 1,615,575 shares
issued and outstanding at
December 31, 1996 and 1997 and
1,615,575 shares issued and
outstanding on a pro forma basis
at December 31, 1997
Common stock, $.0001 par value,
100,000,000 shares authorized;
22,896,612 and 26,236,186 shares
issued and outstanding at
December 31, 1996 and 1997 and
26,236,186 shares issued and
outstanding on a pro forma basis
at December 31, 1997 2 3 3
Additional paid-in-capital 124,429 132,403 132,403
Accumulated deficit (113,098) (124,437) (124,437)
Translation adjustment 384 -- --
--------- --------- ---------
Total stockholders' equity 11,717 7,969 7,969
--------- --------- ---------
Total liabilities and
stockholders' equity $ 36,778 $ 26,860 $ 20,312
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31,
(In thousands, except share and per share amounts)
1997 1996 1995
-------- -------- --------
Revenues:
Products $ 18,310 $ 18,336 $ 47,508
Services 17,496 21,141 21,643
-------- -------- --------
35,806 39,477 69,151
-------- -------- --------
Costs and expenses:
Cost of products sold 8,383 9,953 29,263
Cost of services provided 13,625 15,901 14,315
Product development 4,428 5,342 6,066
Selling, general and
administrative 20,263 24,634 35,491
Sale of subsidiaries and
other, net 160 921 9,274
Settlement with
stockholders -- -- 1,642
Exchange fee and gain
on sale of asset, net -- 619 --
Restructuring costs -- (175) (1,433)
-------- -------- --------
46,859 57,195 94,618
-------- -------- --------
Loss before interest (expense)
income and income taxes (11,053) (17,718) (25,467)
Interest (expense)
income, net (286) 309 224
-------- -------- --------
Loss before income taxes (11,339) (17,409) (25,243)
Income tax benefit -- (68) (280)
-------- -------- --------
Net loss (11,339) (17,341) (24,963)
-------- -------- --------
Preferred stock preferences
Accrued dividends (1,435) (3,730) (9,933)
Imputed dividends (1,536) -- --
-------- -------- --------
Net loss applicable
to common shares $(14,310) $(21,071) $(34,896)
======== ======== ========
Net loss per common share $ (0.57) $ (1.02) $ (2.41)
======== ========= ========
Net loss per common share
- assuming dilution $ (0.57) $ (1.02) $ (2.41)
======== ========= ========
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
(In thousands, except share amounts)
<CAPTION>
Additional
Preferred Stock Common Stock paid-in Accumulated Translation
Shares Amt. Shares Amt. capital Deficit Adjustment Total
---------------- ---------------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 1,605,025 $-- 13,628,175 $1 $ 95,597 ($ 70,794) $ 352 $ 25,156
Issuance of preferred stock,
net of offering costs of $1,790 2,174 19,949 19,949
Conversion of preferred stock (885) 2,276,237 --
Redemption of preferred stock (1,086) (15,600) (15,600)
Issuance of common stock, net
of offering costs of $941 2,732,814 1 9,198 9,199
Accretion of preferred stock (869) (869)
Dividends on preferred stock (3,210) (3,210)
Translation adjustment 523 523
Net loss (24,963) (24,963)
---------------- --------------- ---------- ---------- ---------- ----------
Balance December 31, 1995 1,605,228 -- 18,637,226 2 105,065 (95,757) 875 10,185
Issuance of common stock, net
of offering costs of $376 1,902,487 6,149 6,149
Issuance of preferred stock,
net of offering costs of $209 1,100 10,791 10,791
Issuance of warrants for line
of credit 192 192
Buy-Back adjustment of Redeemable
Series F preferred stock 5,962 5,962
Conversion of preferred stock (653) 2,356,899 --
Accretion of preferred stock (341) (341)
Dividends on preferred stock (3,389) (3,389)
Translation adjustment (491) (491)
Net loss (17,341) (17,341)
---------------- --------------- ---------- ---------- ---------- ----------
Balance December 31, 1996 1,605,675 -- 22,896,612 2 124,429 (113,098) 384 11,717
Issuance of common stock upon
exercise of warrants 23,331 23 23
Conversion of preferred stock (650) 3,020,110 1 1
Conversion of convertible notes 121,241 98 98
Issuance of preferred stock,
net of offering costs of $2,379 10,550 10,220 10,220
Issuance of common stock 174,892 174 174
Issuance of warrants 430 430
Accrued dividends on preferred
stock (1,435) (1,435)
Imputed dividends on preferred
stock (1,536) (1,536)
Translation adjustment (384) (384)
Net loss (11,339) (11,339)
---------------- --------------- ---------- ---------- ---------- ----------
Balance December 31, 1997 1,615,575 $-- 26,236,186 $3 $ 132,403 ($ 124,437) $ -- $ 7,969
================ =============== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(In thousands)
1997 1996 1995
--------- --------- ---------
Cash flows from operating activities:
Net loss $(11,339) $(17,341) $(24,963)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 4,464 5,793 6,270
Restructuring costs -- (175) (1,433)
Loss (gain) on closure and sale
of subsidiaries (266) 921 9,274
Other gains and losses, net 426 -- --
Impairment of asset and stock
settlement -- -- 1,063
Realized gain on sale of
short-term investments -- (108) (151)
Changes in assets and liabilities:
Accounts and notes receivable (3,604) 1,871 (1,350)
Inventories 4 313 988
Prepaid expenses and other 325 937 (1,681)
Accounts payable 1,626 (3,353) (313)
Accrued compensation and
related expenses 1,217 54 2,107
Deferred revenues 462 (449) 1,521
Deferred income taxes 15 (246) (331)
-------- -------- --------
Net cash used in operating activities (6,670) (11,783) (8,999)
-------- -------- --------
Cash flows from investing activities:
Sale of short-term investments -- 111 12,731
Capitalized software development
and license costs (1,454) (1,979) (1,784)
Purchases of fixed assets (888) (1,068) (1,522)
Business divestitures and related
costs 46 299 154
-------- -------- --------
Net cash (used in) provided by
investing activities (2,296) (2,637) 9,579
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common
stock, net 162 6,149 8,412
Proceeds from issuance of preferred
stock, net 5,122 10,791 19,949
Redemption of Series D preferred
stock -- -- (15,600)
Cash dividends paid on preferred
stock (1,779) (3,210) (3,210)
Proceeds from borrowings 6,861 -- (869)
Redemption of Mandatory Redeemable
Preferred Stock (3,500) -- --
Proceeds from sale and leaseback of
fixed assets -- 196 226
Principal payments on capital lease
obligations (1,126) (913) (817)
Principal payments on debt (421) (270) (3,382)
-------- -------- --------
Net cash provided by financing
activities 5,319 12,743 4,709
-------- -------- --------
Effect of exchange rate changes
on cash and cash equivalents (138) (81) 81
Net (decrease) increase in cash
and cash equivalents (3,785) (1,758) 5,370
Cash and cash equivalents at
beginning of year 7,601 9,359 3,989
-------- -------- --------
Cash and cash equivalents at
end of year $ 3,816 $ 7,601 $ 9,359
======== ======== ========
Supplemental Cash Flow Information:
Interest paid $629 $278 $712
Income taxes paid $208 $209 $151
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
NETWORK IMAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
Network Imaging Corporation ("Network Imaging" or the "Company") is a developer
and marketer of content and document management software. Its flagship product
suite, 1View , manages the storage, access and distribution of any multimedia
data, such as engineering diagrams, office documents, photographs, voice and
video. 1View excels in distributed, high transaction, high volume mission
critical applications across legacy, client/server and Internet/intranet based
environments. The 1View suite also encompasses a scaleable production-level,
mainframe enhanced client server Computer Output to Laser Disk ("COLD")
application to address a wide variety of report archival and retrieval
requirements.
In 1997, the Company's operations were divided approximately 70% within the
United States and 30% in Europe. The Company's European operations were sold
during the fourth quarter 1997. U.S. operations were conducted in Herndon,
Virginia (primarily the development of the 1View suite and COLD family of
storage products), Minneapolis, Minnesota and Denver, Colorado. European
operations were conducted near Paris, France (hierarchical storage management
software and related storage products and engineering services).
The adverse results of operations which the Company experienced in 1997 are
expected to continue, in declining amounts, into 1998. The Company believes that
its existing cash, together with the net proceeds of $1.1 million received from
the issuance of common stock in the first quarter of 1998 (See Note 17) and the
anticipated cash flows from 1998 operations should provide sufficient resources
to fund its activities in 1998. Anticipated cash flows from 1998 operations are
largely dependent upon the Company's ability to achieve its sales and gross
profit objectives for its 1View and COLD products. Achievement of these
objectives is subject to various risk factors related to, among other things:
the need to use a two-step distribution channel involving system integrators;
the long lead times in the sales cycle; the large dollar size of the average
unit sale requiring high level customer authorizations; the large number of
established and potential competitors in the marketplace; the fast pace of
technology evolution related to the product suite; the newness of the Company's
sales and marketing staff; and the evolving nature of the Company's sales and
marketing strategies. The Company nevertheless believes that its sales and gross
profit objectives are achievable in light of its recent divestitures of a
non-core business units, the successful installation of 1View and COLD products
in several major contracts during 1997, the repositioning of its product lines;
additions to the executive sale management, and the refocusing of sales and
marketing resources. If the Company is unable to meet these objectives , it will
consider alternative sources of liquidity, such as public or private offerings
of equity securities; the curtailment of certain capital and discretionary
expenditures (such as travel, marketing, consulting and salaries); and other
various courses of action. Although the Company believes that it can
successfully implement its 1998 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.
F-8
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation --
The consolidated financial statements include the accounts of Network Imaging
Corporation and its subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Cash equivalents and short-term investments --
The Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents.
Revenue recognition --
The Company recognizes software revenue in accordance with the AICPA Statement
of Position 91-1, "Software Revenue Recognition". Revenue from hardware and
software sales related to the Company's 1View and COLD software products is
recognized when the product is delivered to the customer. The Company accounts
for insignificant vendor obligations and post-contract support at the time of
product delivery by accruing such costs at the time of sale.
Revenue from hardware and software contracts with significant completion
services involving technically difficult issues for the attainment of customer
acceptance is recognized upon customer acceptance. Revenue from maintenance
contracts is recognized ratably over the terms of the contracts.
For labor intensive contracts which require significant production or
customization, the Company accounts for such revenue in accordance with AICPA
Statement of Position 81-1, "Accounting for Performance of Construction-type and
Certain Production-type Contracts," using the percentage of completion method.
Losses, if any, are recognized in the period that such losses are determined.
The Accounting Standards Executive Committee recently issued Statement of
Position ("SOP") 97-2, "Software Revenue Recognition". The SOP supersedes SOP
91-1 and provides revised and expanded guidance on when revenue should be
recognized and in what amounts for licensing, selling, leasing, or otherwise
marketing computer software. The Company adopted the SOP in the first quarter of
1998 and does not expect the adoption of this SOP to materially affect its
financial position or results of operations.
Inventories --
Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market.
Fixed assets --
Fixed assets are stated at cost, net of accumulated depreciation. Depreciation
is computed using straight-line and accelerated methods over the life of the
related asset, generally three years. Leasehold improvements are amortized over
the shorter of the estimated useful life of the improvements or the terms of the
related lease.
F-9
<PAGE>
Software development and license costs --
The Company capitalizes certain software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased or Otherwise Marketed," ("SFAS 86"). The
Company capitalizes certain acquired software licenses (see Note 4) which are
incorporated into the Company's products. Amortization of software development
and license costs is provided on an individual product basis over the estimated
useful life of the products, three years, beginning when the related products
are available for general release. Costs for research and development incurred
prior to establishing technological feasibility of software products, or after
their commercial release, are expensed in the period incurred. The Company
periodically assesses capitalized software amounts and, when less than
anticipated net realizable value, charges any such excess to expense.
Goodwill --
The excess of the purchase price over the fair value of the net identifiable
tangible and intangible assets of businesses acquired is being amortized on a
straight-line basis over seven years. Amortization expense in 1997, 1996 and
1995 was $743,000, $1.1 million and $1.3 million, respectively. Accumulated
amortization as of December 31, 1997 and 1996 was $671,000 and $3.1 million,
respectively. In accordance with Statement of Financial Accounting Standards No.
121, the Company routinely evaluates recoverability of goodwill by comparing
future undiscounted cash flows to the recorded carrying value to determine if a
write-down is required. If a write-down is required, the Company would prepare a
discounted cash flow analysis to determine the amount of the write-down.
Concentration of Credit Risk --
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of its cash equivalents, trade
accounts and notes receivable. The Company periodically performs credit
evaluations of customer's financial condition and generally requires no
collateral.
Fair Value of Financial Instruments --
The carrying value of the Company's financial instruments, including cash
equivalents, accounts and notes receivable, accounts payable and debt,
approximate fair value.
Product warranty --
Warranties for hardware sold by the Company are generally provided by the
manufacturer. The Company provides warranties and service contracts for certain
products and accrues related expenses based on actual claims history.
Income taxes --
The Company's income taxes are presented in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") which requires recognition of deferred tax liabilities and assets for the
F-10
<PAGE>
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under SFAS 109, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities, using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Foreign currency translation --
The functional currency of the Company's foreign operation was the applicable
local currency. Consequently, for the operation outside the United States,
assets and liabilities were translated into United States dollars using exchange
rates in effect at the balance sheet date and revenues and expenses using the
average exchange rate during the period. The gains and losses resulting from
such translations are included as a component of stockholders' equity. Since the
Company's French subsidiary operated only within France, exposure to foreign
exchange risk was limited.
Net loss per common share --
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") which replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented to conform to the SFAS 128 requirements. (See
Note 11).
Stock Based Compensation --
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which
allows companies which have stock-based compensation arrangements with employees
to adopt a new fair-value basis of accounting for stock options and other equity
instruments, or to continue to apply the existing accounting rules under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" but with additional disclosure. The Company has adopted the
disclosure provisions of SFAS 123 and accordingly there is no effect on the
Company's financial position or results of operations (See Note 8).
Impact of Recently Issued Accounting Standards --
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which establishes standards for
reporting the components of comprehensive income and requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be included in a financial statement that is displayed with
the same prominence as other financial statements. Comprehensive income includes
net income as well as certain items that are reported directly within a separate
component of stockholders' equity and bypass net income. The provisions of SFAS
130 are effective beginning with 1998 interim reporting. These disclosure
requirements will have no impact on financial position or results of operations
of the Company.
F-11
<PAGE>
The Company intends to adopt Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"), in fiscal year 1998. SFAS 131 changes the way companies report segment
information and requires segments to be determined based on how management
measures performance and makes decisions about allocating resources. The
adoption of SFAS 131 is not expected to materially impact the Company's
financial position or results of operations.
Year 2000 --
The Company is aware of the issues associated with the Year 2000 as it relates
to information systems. The Year 2000 is not expected to have a material impact
on the Company's current information systems because current software is either
already Year 2000 compliant or required changes will be insignificant. As a
result, the Company does not anticipate that incremental expenditures to ensure
that its information systems are Year 2000 compliant will be material to the
Company's liquidity, financial position or results of operations over the next
few years. Such costs will be expensed as they are incurred.
Use of estimates--
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications --
Certain reclassifications have been made to the prior year financial statements
in order to conform to the current year presentation.
NOTE 2- RECEIVABLES
Receivables consist of the following:
December 31,
1997 1996
-------- --------
(in thousands)
Trade accounts receivable $ 8,586 $ 9,814
Unbilled receivables 49 3,488
Notes receivable 2,329 2,475
Employee receivables 119 112
Other receivables 12 188
-------- --------
11,095 16,077
Allowance for uncollectible accounts receivable (1,050) (535)
Allowance for uncollectible notes receivable (1,098) (320)
-------- --------
8,947 15,222
Less: current receivables, net (8,569) (13,243)
-------- --------
Long-term receivables, net $ 378 $ 1,979
======== ========
F-12
<PAGE>
The Company's notes receivable balance of $2.3 million at December 31, 1997
includes $1.8 million of notes resulting from the divestitures of previously
owned operating units made during 1995 and 1996 (see Note 5) and $525,000 of
notes receivable from former stockholders of a subsidiary acquired in 1994 (See
Note 15).
Presented separately is the $7.0 million promissory note received as
consideration for the sale of the Company's french subsidiary, Dorotech. During
the first quarter of 1998, the $7.0 million note receivable was collected (See
Note 17).
NOTE 3 - FIXED ASSETS
Fixed assets consist of the following:
December 31,
1997 1996
------- -------
(in thousands)
Computer and office equipment $ 3,032 $ 4,953
Furniture and leasehold improvements 599 1,131
Furniture, fixtures and equipment
under capital leases 3,297 2,482
------- -------
6,928 8,566
Less: Accumulated depreciation (4,763) (5,679)
------- -------
$ 2,165 $ 2,887
======= =======
Depreciation and amortization expense related to fixed assets in 1997, 1996, and
1995 totaled $1.8 million, $1.7 million, and $2.1 million, respectively. The
Company recorded $489,000, $580,000, and $704,000 as amortization expense of
capital leases during 1997, 1996 and 1995, respectively.
NOTE 4- SOFTWARE DEVELOPMENT AND PURCHASED TECHNOLOGY
Capitalized software development and purchased technology consists of the
following:
December 31,
1997 1996
-------- --------
(in thousands)
Internally developed $ 4,604 $ 8,517
Purchased technology 312 3,149
-------- --------
4,916 11,666
Less: Accumulated amortization (2,426) (7,853)
-------- --------
$ 2,490 $ 3,813
======== ========
The overall decrease in capitalized software development and purchased
technology costs is due to the divestiture of the Company's French subsidiary,
Dorotech, S.A. (see Note 5).
During 1997, 1996 and 1995, amortization of capitalized software development and
license costs totaled $1.6 million, $2.6 million and $2.7 million, respectively,
and was included in cost of products sold. The Company expensed $3.4 million of
F-13
<PAGE>
purchased technology and $721,000 of capitalized software in 1995 due to certain
divestitures of its subsidiaries.
NOTE 5 - DIVESTITURES OF BUSINESSES
During the fourth quarter of 1997, the Company sold the stock of Dorotech, SA.
("Dorotech") a wholly owned subsidiary of the Company, in a transaction that
resulted in a $266,000 gain. The Company received as consideration a promissory
note totaling $7.0 million which was paid to the Company during January 1998
(See Notes 9 and 17).
In connection with the sale of Dorotech, the Company reduced goodwill and
related accumulated amortization by $5.1 million and $3.4 million, respectively.
During 1996 and 1995, the Company sold several of its subsidiaries ("the
Divestitures") resulting in a loss on disposal of $921,000 and $9.3 million in
1996 and 1995, respectively. The Company received as consideration from the
Divestitures, cash and notes totaling $1.5 million and $4.3 million in 1996 and
1995, respectively.
The following unaudited pro forma information assumes that the 1997 disposition
of Dorotech subsidiary occurred January 1, 1997. The unaudited pro forma
information is not necessarily indicative of the results of future operations or
the actual results that would have occurred had the transactions taken place at
January 1, 1997 (in thousands, except share amounts):
Revenue $ 24,486
Net loss applicable to common shares $(13,474)
Net loss applicable to common share $ (0.53)
========
NOTE 6 - OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following:
December 31,
1997 1996
------ ------
(in thousands)
Accrued preferred dividends $ -- $ 714
Accrued income and other taxes 427 1,667
Other 1,823 1,507
------ ------
$2,250 $3,888
====== ======
F-14
<PAGE>
NOTE 7- BORROWING ARRANGEMENTS
Borrowings consist of the following:
December 31,
1997 1996
------- -------
(in thousands)
Lines of credit $ 1,000 $ --
Convertible notes (net of $37,279 discount)
bearing interest at 8.0% 1,863 --
Capital lease obligations bearing interest
ranging from 9.4% to 13.5% 724 957
Term loans from French government agencies,
non-interest bearing, due at various dates
through 1997 -- 1,098
Term notes with financial institutions,
bearing interest ranging from 8.8% to 10%,
due at various dates through 1997 -- 96
------- -------
3,587 2,151
Less: Amounts due in one year (2,479) (2,063)
------- -------
Long-term debt and capital lease obligations $ 1,108 $ 88
======= =======
During December 1996, the Company entered into a restricted $5.0 million line of
credit agreement with a stockholder of the Company ("the Stockholder line of
credit") to fund the buy back of the Company's Series F Preferred Stock. During
December 1997, $4.0 million of the outstanding $5.0 million Stockholder line of
credit was converted into equity through the issuance of 4,000 shares of Series
M Convertible Stock (See Note 8). The remaining $1.0 million of the Stockholder
line of credit outstanding at December 31, 1997 bears interest at the prime rate
(8.50% at December 31, 1997) plus 2% and is secured by the domestic accounts
receivable of the Company. The Stockholder line of credit expires on April 1,
1999.
During July and August 1997, the Company issued, pursuant to a private placement
exemption under the Securities Act of 1933, as amended, 8% Convertible Notes
("the Notes") due July 8, 2002 and August 20, 2002 totaling $2.0 million. The
Notes are convertible into the Company's Common Stock beginning 45 days after
issue at a conversion price of $1.875 and $1.50 per share, the price on the
issue dates. At December 31, 1997, the Notes were convertible into 2,560,327
shares of Common Stock. During December 1997, $100,000 of Notes were converted
into 121,241 shares of Common Stock and during January 1998 $1.3 million of the
Notes were redeemed in cash (See Note 17).
On or after October 30, and December 12, 1997, the Notes holders have the right
to redeem the convertible notes plus accrued interest on one business days'
notice to the Company in cash or shares of Common Stock, at the Company's
election. On or after October 30, and December 12, 1997, the Company has the
right to redeem the Notes plus accrued interest on 30 days' notice to the
holders in cash or share of Common Stock, at the Notes holders' election. If
shares of Common Stock are used, Common Stock is issued at a rate of 90% of the
F-15
<PAGE>
previous 5 trading days average closing bid price. The interest is compounded
semi-annually. The warrants issued to the Notes holders have an exercise price
of $1.875 and $1.50 per share and expire on July 8, and August 20, 2000,
respectively.
The Company leases certain of its furniture and equipment under capital lease
arrangements. Future minimum lease payments under these capital leases are:
1998, $667,000; 1999, $89,000; 2000, $20,000; 2001, $13,000, and 2002, $4,000.
Of the $793,000 total lease payments, $69,000 represents interest.
NOTE 8 - STOCKHOLDERS' EQUITY
Common Stock --
In March 1996, the Company completed a private placement of 934,634 shares of
Common Stock, together with warrants to purchase an additional 64,000 shares of
Common Stock, pursuant to Regulation D under the Securities Act of 1933. Net
proceeds from the offering were $3.0 million. The Company subsequently
registered the Common Stock and Common Stock issuable upon exercise of the
warrants under the Securities Act of 1933.
In March and June 1996, the Company also issued 421,040 and 404,611 shares,
respectively, of Common Stock pursuant to Regulation S under the Securities Act
of 1933. Proceeds from the offerings were $1.7 million and $1.3 million,
respectively.
Series A Preferred Stock -
The issuance of up to 1,750,000 shares of the Series A Cumulative Convertible
Preferred Stock (the "Series A Stock") has been authorized and 1,605,025 shares
are outstanding. A majority of the outstanding shares of the Series A Stock and
the Common Stock voted to approve amendments to the terms of the Series A Stock
(the "Amendments"). The Amendments became effective December 31, 1997.
Prior to the approval of the Amendments to the Series A Stock, the Series A
Stock had a liquidation preference of $25.00 per share plus all accrued and
unpaid dividends. The Series A Stock was convertible into Common Stock at any
time prior to redemption or exchange at the rate of 2.06 shares of Common Stock
for each share of Series A Stock (an effective conversion price of $12.11 per
share).
The Series A Stock, upon 30 days written notice after December 7, 1996, was
redeemable by the Company at $25.00 per share, plus accumulated and unpaid
dividends, and exchangeable by the Company for Common Stock having a current
market price of $25.00 per share, provided in each case that the closing sale
price of the Common Stock for at least 20 consecutive trading days ending not
more than 10 trading days prior to the date notice of the call for redemption or
notice of exchange is given is at least $18.00 per share, or after December 7,
1997, at the cash redemption prices (ranging from $26.75 to $25.00) set forth in
the certificate of designations, plus accumulated and unpaid dividends.
F-16
<PAGE>
Cumulative dividends on the Series A Stock were at the rate of $2.00 per share
per annum and were payable quarterly, out of funds legally available therefor,
on January 31, April 30, July 31 and October 31 of each year. The Company did
not pay the quarterly dividend on July 31 and October 31, 1997. Upon the
approval of the Amendments, the Company eliminated a cash dividend of $3.2
million per year.
As of the date of the effectiveness of the Amendments, the stockholders of the
Series A Cumulative Convertible Preferred Stock ("Series A Stock") are entitled
to receive an annual dividend of $0.84 per share, payable quarterly in cash or
Common Stock, at the Company's option, and convert to Common Stock at a rate of
7.68 shares of Common Stock for each share of Series A Stock. On the date the
Company releases its earnings for the applicable quarter, it will announce
whether the dividend for that quarter will be paid in cash or Common Stock; that
date shall also be the record date for the dividend payment. If the dividend is
paid in Common Stock, the number of shares of Common Stock distributed as a
dividend will be based on the average closing price per share of Common Stock
during the 10 day period following the Company's release of earnings for the
applicable quarter. Dividend payments will be made 20 days after the release of
earnings.
The Company may not force conversion of shares of Series A Stock into Common
Stock during 1998. Beginning January 1, 1999, the Company will be able to
convert each share of Series A Stock into shares of Common Stock if the closing
price per share of Common Stock is at least equal to $4.00 per share for 20
consecutive trading days. Beginning January 1, 2000, the Company will be able to
convert each share of Series A Stock into shares of Common Stock if the closing
price per share of Common Stock is at least equal to $3.00 per share for 20
consecutive trading days. Beginning January 1, 2001, the Company is able to
convert each share of Series A Stock into shares of Common Stock at any time at
the Company's option.
The Series A stockholders vote as a class to approve or disapprove any issuance
of any securities senior to or on parity with the Series A Stock with respect to
dividends or distributions. The Series A Stock has a liquidation price of $12.00
per share. At December 31, 1997, the Series A Stock was convertible into
12,326,592 shares of Common Stock.
Series H and J Preferred Stock --
The 260 shares of Series H and 390 shares of Series J Convertible Preferred
Stock outstanding at December 31, 1996 were converted during 1997 into 1,435,650
and 1,584,460 shares of Common stock, respectively.
Series K Preferred Stock --
During July 1997, the Company agreed to issue up to 11,000 units, at $1,000 per
unit, consisting of one share of Series K Convertible Preferred Stock (the
"Series K Stock") and warrants to acquire 75 shares of Common Stock at an
exercise price of $2.40 per share. On July 28, 1997, the Company issued 3,300
Units and received net proceeds of $2.9 million ("the Series K Offering"). In
accordance with the terms of the Series K Offering, the proceeds will be used
for working capital and general corporate purposes. The Series K Stock has a
dividend rate of 7% per annum ("the Premium") which is payable at the time of
conversion or redemption in cash or shares of Common Stock, as elected by the
F-17
<PAGE>
Company. The Company also issued warrants to purchase 594,000 shares of Common
Stock at an exercise price of $1.00 per share to the purchasers of the Series K
Stock and 389,909 shares of Common Stock at $1.00 per share to the placement
agent in the transaction. Under the requirements of a newly issued SEC staff
position (the "SEC Staff Position"), the carrying value of the Series K Stock
was increased by $774,000, the amount allocated to the beneficial conversion
feature and a corresponding non-cash charge was recorded to preferred stock
dividends. The Series K Stock issued and outstanding in July 2002 automatically
converts into Common Stock. At December 31, 1997, the 3,300 shares of Series K
Preferred Stock outstanding were convertible into 4,926,612 shares of Common
Stock. During the first quarter of 1998, 700 shares of the Series K Stock were
converted into 1,023,532 shares of Common Stock.
The Series K Preferred Stock has a per share liquidation preference, subject to
the liquidation preferences of the Series A Stock and the Series M Convertible
Preferred Stock, equal to the sum of $1,000 plus 7% per annum simple cumulative
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 plus the Premium (if it has not been timely redeemed) by the lesser of
(1) $2.00 or (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.
In an involuntary liquidation, subject to the liquidation preferences described
above, each share of Series K Stock is equal to the face amount plus the accrued
Premium.
The redemption amount per share of Series K Stock equals (1) $1,000 plus the
accrued Premium multiplied by (2) the highest closing price of the Common Stock
during the period beginning on the date of the redemption notice and ending on
the date of redemption, divided by (3) the Conversion Price in effect on the
date of the redemption notice ("Redemption Amount").
The holders have the right of redemption under various circumstances, all of
which are under the sole control of the Company. The Company has the right to
redeem all of the outstanding Series K Stock at any time at a price per share
equal to the greater of (1) the sum of the face amount plus the accrued Premium
or (2) (a) the sum of $1,000 plus the accrued Premium multiplied by (b) the
volume weighted average sales price of the Common Stock on the trading day
immediately preceeding the optional redemption notice, divided by (c) the
conversion price in effect on the date of the optional redemption notice.
Series L Preferred Stock --
In December 1997, the Company issued 3,250 units consisting of one share of
Series L Convertible Preferred Stock (the "Series L Stock") and warrants to
purchase 75 shares of Common Stock at an exercise price of $1.65 per share. The
Company received net proceeds of $2.9 million (the "Series L Offering"). The
Series L 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 at the election of
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<PAGE>
the Company. In accordance with the terms of the Series L Offering, the proceeds
will be used for working capital and general corporate purposes. The Company
also issued warrants to purchase 402,188 shares of Common Stock at an exercise
price of $1.00 per share to the purchasers of the Series L Stock and warrants to
purchase 264,000 shares of Common Stock at $1.00 per share to the placement
agent in the transaction. Under the requirements of the SEC Staff Position, the
carrying value of the Series L Stock was increased by $762,000, the amount
allocated to the beneficial conversion feature and a corresponding non-cash
charge was recorded to preferred stock dividends. The Series L stockholders may
acquire up to an additional 3,000 shares of Series L Stock if the Company
satisfies certain conditions. Additional warrants will be issued to the
placement agent if such closings occur. In connection with the sale of the
Series L Stock, the Company agreed to register the Common Stock issuable upon
the conversion of the preferred stock and the execution of the warrants. At
December 31, 1997, the 3,250 shares of Series L Stock were convertible into
4,731,825 shares of Common Stock.
The Series L Stock has a per share liquidation preference, subject to the
liquidation preferences of the Series A Stock and the Series M Convertible
Preferred Stock of an amount equal to the sum of $1,000 plus 7% per annum simple
cumulative 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) $1.375 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
for the Series L Stock is (a) 85% prior to the 48th day following December 8,
1997 (the "First Series L Closing Date"), and (b) 81% for the period on or after
the 48th day following the First Series L Closing Date. In an involuntary
liquidation, subject to the liquidation preferences described above, the Series
L Stock is equal to the face amount plus the accrued premium.
The terms of the Series L Stock provide the holders with the right of redemption
under various circumstances all of which are in the sole control of the Company.
The Company has the right to redeem all of the outstanding Series L Stock at any
time at a price per share equal to the greater of (1) the sum of the face amount
plus the accrued Premium or (2) (a) the sum of $1,000 plus the accrued Premium
multiplied by (b) the volume weighted average sales price of the Common Stock on
the trading day immediately preceeding the optional redemption notice, divided
by (c) the conversion price in effect on the date of the optional redemption
notice.
Series M Preferred Stock --
In December 1997, the Company converted $4 million of the outstanding $5 million
Stockholder line of credit into 4,000 shares of Series M Convertible Stock the
("Series M Stock"). The Company agreed to register the Common Stock issuable
upon the conversion of the preferred stock no later than August 1, 1998. The
Company received no proceeds from the conversion of the Stockholder line of
credit to equity. The Series M Stock issued and outstanding in December 2001
automatically converts into Common Stock. At December 31, 1997, the 4,000 shares
of Series M Stock were convertible into 4,002,795 shares of Common Stock.
The Series M Stock has a per share liquidation preference, subject to the
liquidation preference of the Series A Stock, of an amount equal to the sum of
$1,000 plus 8 1/2% per annum simple interest thereon for the period since the
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<PAGE>
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 $1.00. The Series M Stock has a cumulative
dividend rate of 8 1/2% per annum which is payable at the time of conversion or
redemption in cash or shares of Common Stock, at the election of the Company.
The Series M holder has a right of redemption under various circumstances, all
of which are under the sole control of the Company. The Company has the right,
at any time, to redeem all of the then outstanding Series M Stock for a price
per share equal to $1,000 plus the accrued unpaid interest.
Stock purchase warrants --
The Company has the following warrants outstanding at December 31, 1997, all of
which are currently exercisable:
<TABLE>
<CAPTION>
Warrants Shares
Warrants Exercise Outstanding Issuable
Issuance Issued Price Range Expiration Dec. 31, 1997 Upon Excercise
- -------- --------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
IPO Units 1,595,000 $1.50 May 1998 654,392 654,392
Placement agents 1,810,539 $0.86-$14.85 April 1998-Dec 2002 1,521,625 1,535,298
Other 1,306,106 $1.44-$6.82 Jan 2000-Dec 2002 1,117,772 1,117,772
Series A preferred 180,772 $11.62 December 1998 180,772 373,186
Series D preferred 227,068 $7.57 July 2000 227,068 227,068
Series E preferred 34,400 $7.20 July 2000 34,400 34,400
Private Placement 179,400 $1.50-$4.00 Nov 2000-Dec 2002 179,400 179,400
Series G preferred 40,000 $3.75 December 2000 40,000 40,000
Series H Preferred 80,000 $3.75 June 2001 80,000 80,000
Series K Preferred 594,000 $1.00 July 2002 594,000 594,000
Series L Preferred 402,188 $1.00 December 2002 402,188 402,188
--------- --------- ---------
6,449,473 5,031,617 5,237,704
========= ========= =========
</TABLE>
Stock option plans --
The Company applies APB 25 in accounting for its stock option plans ("the
Plans"), and accordingly, recognizes compensation expense for any difference
between the fair value of the underlying common stock and the grant price of the
option at the date of grant. Certain options qualify as incentive stock options
under the Internal Revenue Code. The vesting and the terms of any option granted
under the plans are determined by the Board of Directors with the requirement
that the term of an incentive stock option shall not exceed ten years. To date,
options granted range from five- to ten-year terms. The exercise price per share
of Common Stock subject to an incentive stock option is not less than the fair
market value at the time of grant. The Company has also issued non-qualified
plan options. An aggregate of 9.5 million shares have been authorized for
issuance under the Company's stock option plans.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method. The fair value of options
granted during 1997, 1996 and 1995 are estimated at $0.79, $2.22 and $2.56 per
share respectively, on the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1997, 1996 and 1995
respectively: average risk-free interest rates of 5.4%, 6.7% and 6.6%; dividend
yields of 0.0%; volatility factors of the expected market price of the Company's
F-20
<PAGE>
common stock is .58 for 1997 and .63 for 1996 and 1995; and a weighted-average
expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma loss is $16.2 million, $23.1 million and $35.6 million for 1997, 1996 and
1995, respectively and pro forma net loss applicable to common shares is $0.64,
$1.12 and $2.46 for 1997, 1996 and 1995, respectively. The effect of applying
SFAS 123 on the 1997, 1996 and 1995 pro forma net losses is not necessarily
representative of the effects on reported net loss and net loss per share for
future years due to, among other things, 1) the vesting period of the stock
options and the 2) fair value of additional stock options in future years.
The following table summarizes the activity in stock options issued by the
Company:
Weighted
Average
Exercise
Options Price
---------- --------------
Balance, January 1, 1995 5,267,800 $6.77
Granted 2,486,250 2.91
Exercised (89,957) 3.15
Forfeited (1,163,769) 6.15
----------
Balance, December 31, 1995 6,500,324 4.12
Granted 1,454,000 1.88
Exercised (88,869) 1.23
Forfeited (851,619) 4.08
----------
Balance, December 31, 1996 7,013,836 4.22
Granted 2,680,354 1.90
Exercised --
Forfeited (3,036,037) 4.15
----------
Balance, December 31, 1997 6,658,153 $1.92
=========
In August 1997, the Board of Directors approved a plan to reprice the Company's
outstanding stock options. The plan allowed holders of out-of-the-money options,
excluding executives, officers, and directors, to receive a new exercise price
of $1.50 per option share, the market price on the date of the approved plan.
The plan allowed executives and officers of out-of-the-money options to also
receive a new exercise price of $1.50 but for fewer shares of Common Stock
determined pursuant to the Black-Scholes formula intended to result in
approximate economic equivalence between the old and the new options. As a
result of this repricing, options for an aggregate of 561,752 out of a total of
F-21
<PAGE>
1,635,000 shares of Common Stock at exercise prices ranging from $1.91 to $6.82
per share were surrendered. Stock options held by the Company's Board of
Directors were not repriced.
In July 1997, the Company adopted the 1997 Director Stock Option Plan ("the
Director Plan") for the Company's Directors and discontinued cash payments to
the Board Members for their service. The Director Plan provides stock option
grants in the amount of 30,000 shares at each annual board meeting for those
directors who are not executive officers of the Company. Persons appointed to
the Board at any time after the annual grant receive pro-rata shares of the
option grant. Options vest 25% each quarter and become fully vested on the first
anniversary of their grant. The Company has reserved 360,000 shares of Common
Stock for issuance in connection with the Director Plan.
At December 31, 1997, options to purchase 2,770,406 shares had vested and were
exercisable at a weighted average exercise price of $1.99 per share and had a
weighted average contractual life of 5.8 years.
NOTE 9 - REDEEMABLE PREFERRED STOCK
In December 1996, the Company entered into an agreement with the holder of the
Series F Preferred Stock to redeem the shares for an aggregate of $9.9 million
or $5.50 per share. The agreement required the Company to make payments totaling
$6.3 million through June 30, 1997, and an additional $3.6 million on or before
January 31, 1998. During the first quarter of 1997, the Company redeemed
1,000,000 shares of Series F Preferred Stock for $3.5 million. The Company used
proceeds from its line of credit to finance the Series F Preferred share buy
back. During the second quarter of 1997, the Company amended the December 1996
redemption agreement and as a result, the remaining $6.4 million, excluding
interest, was due upon the sale of the Company's Dorotech subsidiary, but no
later than January 31, 1998. During the fourth quarter 1997, the Company sold
its Dorotech subsidiary and in January 1998, the Company redeemed the remaining
792,186 shares of Series F Preferred Stock for $6.5 million including
outstanding interest (See Note 17).
NOTE 10 - INCOME TAXES
The source of the loss before the income tax benefit was from the following
jurisdictions:
Year Ended December 31
1997 1996 1995
-------- -------- ---------
(in thousands)
U.S. $(10,417) $(16,332) $(23,480)
Foreign (922) (1,077) (1,763)
-------- -------- --------
$(11,339) $(17,409) $(25,243)
======== ======== ========
The income tax expense (benefit) consists of the following:
Year Ended December 31
1997 1996 1995
----------- ----------- -----------
(in thousands)
Current tax expense (benefit):
U.S. Federal $ -- $ -- $ 51
----------- ----------- -----------
State and local -- -- --
----------- ----------- -----------
Foreign -- -- --
----------- ----------- -----------
Deferred tax expense:
Foreign -- (68) (331)
----------- ----------- -----------
Total income tax $ -- $ (68) $ (280)
=========== =========== ===========
F-22
<PAGE>
Deferred tax assets and liabilities are comprised of the following:
December 31,
1997 1996
-------- --------
(in thousands)
Deferred tax assets:
Net operating loss and
capital loss carry forwards $ 42,414 $ 24,419
Other 2,099 1,659
-------- --------
Gross deferred tax assets $ 44,513 $ 26,078
======== ========
Deferred tax liabilities:
Software development costs (910) (1,372)
-------- --------
Gross deferred tax
liabilities (910) (1,372)
Deferred tax asset valuation
allowance (43,603) (24,752)
-------- --------
$ -- $ (46)
======== ========
Current deferred tax assets
(included in prepaid and other
current assets net of valuation
allowance) $ -- $ 254
Non current deferred tax liabilities -- (300)
-------- --------
$ -- $ (46)
======== ========
Income tax expense (benefit) differs from the amount of income tax determined by
applying the applicable U.S. statutory federal income tax rate to the loss
before income taxes as a result of the following differences:
Year Ended December 31
1997 1996 1995
------ ------ ------
(in thousands)
Statutory U.S. tax rate benefit 34.0% 34.0% 34.0%
State income taxes, net 3.6% 4.0% 4.0%
Operating losses and tax credits
with no current tax benefit (37.6%) (37.5%) (31.0%)
Other (--%) (0.1%) (5.9%)
------ ------ ------
--% 0.4% 1.1%
====== ====== ======
As of December 31, 1997, the Company had net operating loss carry forwards,
capital loss carry forwards and research tax credit carry forwards of
approximately $75.4 million, $34.8 million and $958,000, respectively, for U.S.
income tax purposes which expire in years through 2010. The Company experienced
changes in ownership during prior years which triggered certain limitations
F-23
<PAGE>
under Internal Revenue Code Section 382. Accordingly, the utilization of the net
operating loss and research tax credits will be limited in future years due to
the changes in ownership.
The Company sold its foreign subsidiary, Dorotech, during 1997. Due to a
difference between book and tax basis, the Company realized a capital loss of
approximately $25 million. In addition, due to the sales of Dorotech, the
Company has recognized a deferred tax benefit of approximately $46,000, which is
reflected in the gain on the sale of Dorotech.
NOTE 11 - LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per
share:
1997 1996 1995
---------- ---------- ----------
Numerator (in thousands):
Net Loss $ (11,339) $ (17,341) $ (24,963)
Preferred stock preferences
- Accrued dividends (1,435) (3,730) (9,933)
- Imputed dividends (1,536) -- --
---------- ---------- ----------
Numerator of basic loss per share-
Net loss applcable to common shares (14,310) (21,071) (34,896)
Effect of dilutive securities -- -- --
---------- ---------- ----------
Numerator for diluted loss per share-
Net loss applicable to common shares
after assumed conversions $ (14,310) $ (21,071) $ (34,896)
Denominator:
Denominator for basic loss per share-
weighted average shares 25,205,854 20,681,694 14,502,399
Effect of dilutive securities -- -- --
---------- ---------- ----------
Denominator for diluted loss
per share- adjusted weighed average
shares and assumed conversions 25,205,854 20,681,694 14,502,399
========== ========== ==========
Basic loss per share $ (0.57) $ (1.02) $ (2.41)
========== ========== ==========
Diluted loss per share $ (0.57) $ (1.02) $ (2.41)
========== ========== ==========
Since the Company has incurred losses in 1995, 1996 and 1997, securities that
could potentially dilute the basic earnings per share in the future were not
included in the dilution computation because they would have been antidilutive
for the periods presented. The potentially dilutive convertible securities
include the Company's Series A, Series K, Series L, Series M Convertible
Preferred Stock and convertible notes, which were convertible into weighted
average common shares at December 31, 1997, of 12,326,592 shares, 2,201,180
shares, 331,388 shares, 35,672 shares and 1,252,731 shares, respectively. Also
outstanding at December 31, 1997, were options and warrants which were
convertible into weighted average common shares of 2,921,897 and 4,401,000,
respectively. For additional disclosures regarding outstanding preferred stock,
employee stock options and warrants (See Note 8) and for the Company's
convertible notes (See Note 7).
F-24
<PAGE>
During the first quarter of 1998, the Company redeemed a $1.3 million of the
convertible notes and issued 1,240,789 shares of common stock in a private
placement (See Note 17). On a proforma basis, the inclusion of the private
placement of common stock in the operating results of 1997 results in weighted
average common shares outstanding of 26,446,643 and a basic loss per share of
$(0.54).
NOTE 12 - BUSINESS SEGMENTS
The Company sells its products and services through a single industry segment to
a wide variety of customers throughout the United States. The Company performs
ongoing credit evaluations of its customers' financial condition and generally
does not require collateral from its customers.
The following table sets forth summary information for the years ended December
31, 1997, 1996 and 1995 (in thousands):
United Western
States Europe
-------- --------
1997:
Revenue: $ 24,486 $ 11,320
Net Loss (10,417) (922)
Total Assets 26,860 --
1996:
Revenue $ 21,383 $ 18,094
Net loss (16,332) (1,077)
Total assets 22,718 14,060
1995:
Revenue $ 38,367 $ 30,784
Net loss (23,531) (1,432)
Total assets 30,654 19,310
Revenue in 1997 included sales to the U.S. Government and French Government
totaling $1.6 million and $6.0 million, respectively. Revenue in 1996 included
sales to the U.S. Government and French Government totaling $1.1 million and
$10.3 million, respectively. Revenue in 1995 included sales to the U.S.
Government and French Government totaling $1.7 million and $9.6 million,
respectively.
NOTE 13 - COMMITMENTS
The Company leases its corporate office, sales offices, assembly facilities and
certain equipment under non-cancelable operating leases certain of which provide
for annual escalations that are amortized over the lease term and pro rata
operating expense reimbursements. Rent expense related to these leases was $1.1
million, $1.6 million and $2.7 million for the years ended December 31, 1997,
1996, and 1995, respectively.
F-25
<PAGE>
Future minimum lease payments under non-cancelable operating leases are as
follows (in thousands):
Year Ending
December 31,
------------
1998 $ 1,093
1999 922
2000 351
Thereafter --
--------
$ 2,366
========
NOTE 14- CONTINGENCIES
The Company is subject to legal proceedings and claims which are in the ordinary
course of business. Management believes that the outcome of such matters will
not have a material impact on the Company's financial position or its result of
operations.
NOTE 15 - RELATED PARTY TRANSACTIONS
During 1997, the Company renegotiated the termination of three consulting
agreements, with individuals who are current or former members of the Board of
Directors and officers of the Company, whereby all three will expire during
1998. The Company recognized total compensation expense of approximately
$553,000, $715,000 and $898,000 in 1997, 1996 and 1995, respectively, related to
these employment and consulting agreements.
During December 1996, the Company and a stockholder entered into a line of
credit agreement. At December 31, 1997, there was $1.0 million outstanding
against the line of credit (see Note 7). During 1997, the Company paid $295,000
relating to interest on the line of credit.
The Company holds two notes receivable totaling $525,000 from two former
stockholders of a subsidiary acquired in 1994 due and payable December 1998.
Interest accrues at 6.55% per annum (See Note 2).
NOTE 16 - EMPLOYEE PROFIT SHARING PLANS AND 401K PLAN
The Company sponsors, in the United States, a 401(K) plan which covers all
full-time employees. Participants in the plan may make contributions of up to
15% of pre-tax annual compensation. The Company may make discretionary matching
contributions at the option of the Board of Directors. The Company has made no
contributions.
The Company had a mandatory and a voluntary profit sharing plan covering
substantially all employees in France. Contributions to the plans were based
upon earnings of the French operations. There were no contributions made to the
plans in 1997 and 1995, while plan contributions in 1996 totaled $28,000.
F-26
<PAGE>
NOTE 17 - SUBSEQUENT EVENTS AND PRO FORMA BALANCE SHEET
In January 1998, the Company received proceeds from the sale of its Dorotech
subsidiary (See Note 5) totaling $7.0 million of which $6.5 million was paid
directly to the holder of the Company's Series F Preferred Stock (See Note 9).
The $6.5 million payment retired the obligations under the Series F Preferred
Stock. The pro forma balance sheet at December 31, 1997 reflects the collection
of the $7.0 million proceeds from the sale of Dorotech and the $6.5 million
payment retiring the Series F Preferred Stock.
During January 1998, the Company redeemed $1.3 million of the $2.0 million 8%
Convertible Notes issued during July and August 1997, for $1,351,000 in cash
(See Note 7).
During the first quarter of 1998, the Company completed a private placement of
1,240,789 shares of Common Stock, together with warrants to purchase an
additional 50,000 shares of Common Stock, pursuant to Regulation D under the
Securities Act of 1993. Proceeds from the offering were $1.2 million and
offering costs were approximately $30,000. Under the share sale agreement, the
Company must register the shares by August 31, 1998.
F-27
<PAGE>
SIGNATURES
In accordance with Section 13 of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the County of Fairfax, Commonwealth of Virginia,
on March 17, 1998.
NETWORK IMAGING CORPORATION
By: /s/ James J. Leto
-------------------
James J. Leto
President and
Chief Executive Officer
In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Name Capacity Date
---- -------- ----
/s/ James J. Leto President, Chief Executive March 17, 1998
- --------------------------- Officer and Chairman of the
James J. Leto Board
/s/ Jorge R. Forgues Senior Vice President of March 17, 1998
- --------------------------- Finance and Administration,
Jorge R. Forgues Chief Financial Officer and
Treasurer
/s/ Robert P. Bernardi Secretary and Director March 17, 1998
- ---------------------------
Robert P. Bernardi
/s/ C. Alan Peyser Director March 17, 1998
- ---------------------------
C. Alan Peyser
/s/ John F. Burton Director March 17, 1998
- ---------------------------
John F. Burton
/s/ Robert Ripp Director March 17, 1998
- ---------------------------
Robert Ripp
F-28
SHARE SALE AND PURCHASE AGREEMENT
BETWEEN THE UNDERSIGNED
Network Imaging Corporation, a corporation incorporated under the laws of the
state of Delaware and having its principal place of business at 500 Huntmar Park
Drive, Herndon, Virginia 22170, USA, duly represented by Mr. Jorge Forgues, duly
authorised for the purposes hereof pursuant to the declaration, of which a copy
is attached as Schedule 1 hereof,
hereinafter called the "Vendor"
OF THE ONE HAND
AND
Systems Engineering Reinhardt S.A.R.L, a French corporation, whose registered
office (siege) is at 22, rue du Chemnitz, 68200 Mulhouse, which is registered
under no. B 383 805 504 with the Commercial and Company Register of Mulhouse, in
the process of being converted to a Societe par Actions Simplifiee, duly
represented by Mr. Gert J. Reinhardt, and duly authorised for the purposes
hereof pursuant to the declarations in Schedule 2 hereof,
hereinafter called the "Purchaser"
ON THE SECOND HAND
Hereafter collectively referred to as the "Parties" and individually referred to
as the Party"
<PAGE>
WHEREAS:
A. Dorotech France, a societe anonyme whose registered office (siege) is
at 344 avenue George Clemenceau, 92000 Nanterre, and which is
registered under no. B 334 631 504 with the Commercial and Company
Registry of Nanterre.
B. The share capital of Dorotech France amounts to FRF 2,053,800 divided
into 20,538 shares of FRF 100 each. The Vendor is the owner of all the
shares.
C. The principal activity of Dorotech France is the provision of computer
systems for data storage and processing, including software,
engineering services and hardware.
D. The Vendor wishes to sell and the Purchaser wishes to purchase the
entirety of the shares of Dorotech France.
NOW IT IS HEREBY AGREEED AS FOLLOWS:
1. Definitions
In this agreement, the following terms and expressions shall have the
meanings set forth below:
1.1. "Actual Consolidated Net Equity" shall mean the actual Consolidated Net
Equity of the Company as of the Closing Date as determined in
accordance with Article 3.1.6 hereof;
1.2. "Actual Tax Credits" shall mean the actual Company Tax Credits as of
the Closing Date as determined in accordance with Article 3.1.6 hereof;
1.3. "Assumed Consolidated Net Equity" shall mean the Consolidated Net
Equity (as defined) of the Company as of the Closing Date, assuming no
change between September 30, 1997 and the Closing Data, which, pursuant
to Article 3.1.2 hereof, is deemed to amount to FRF 20,274,493;
1.4. "Assumed Tax Credits" shall mean the Company Tax Credits (as defined)
as of September 30, 1997;
1.5. "Closing Accounts" shall mean the accounts (balance sheet and statement
of loss or profit) to be drawn up by Ernst & Young pursuant to Article
3.1.6 hereof;
1.6. "Closing Date" shall mean the date on which the ownership of the Shares
is transferred as defined at Article 5.1 hereof;
1.7. "Company" shall mean Dorotech France.
1.8. "Company Tax Credits" shall refer to the amount of carry forward
losses, deductible for tax purposes pursuant to French tax law,
multiplied by the corporate income tax rate applicable to companies in
fiscal year 1997;
1.9. "Consolidated Net Equity" shall mean the consolidated net equity of the
Company calculated in accordance with the French generally accepted
accounting principles, and more specifically, calculated in accordance
with the principles set forth at Schedule 3 hereof.
1.10. "Damage" shall refer to the damages which may be claimed by the Pur-
chaser in accordance with the provisions of Article 8.1 et seq hereof;
1.11. "Dorotech" shall mean Dorotech France SA, a French societe anonyme,
having its registered office at 344 avenue Clemenceau, 92000 Nanterre;
1.12. "Escrow Agreement" shall mean the escrow agreement to be entered into
between the Parties and the Escrow Agent in accordance with the terms
set forth at Article 3.2.1 hereof and in the form set forth at Schedule
4 hereof;
1.13. "Estimated Damage" shall mean the estimated amount of damages contained
in Purchaser's notice pursuant to Article 8;
1.14. "Independent Arbitrator" shall mean the independent arbitrator
appointed pursuant to Article 3.1.6, for the resolution of
disagreements as to the amount of Actual Consolidated Net Equity and
the difference between the Actual Tax Credits and the Assumed Tax
Credits;
1.15. "Interim Accounts" shall mean the balance sheets, and profit and loss
account of the Company as of, and for the period of nine months ended
on, September 30, 1997;
1.16. "Purchase Price" shall mean the price paid in consideration of the
Shares, as defined at Article 3.1.1 hereof;
1.17. "Representations and Warranties" shall mean representations made and
warranties given by the Vendor pursuant to Article 7 hereof;
1.18. "Shares" shall mean 100% of the shares of Dorotech France;
1.19. "Share Purchase Agreement" shall mean the present Share Purchase Agree-
ment, including the Schedules attached hereto;
1.20. "Non-Competition Agreement" shall mean the non-competition undertaking
to be entered into by the Vendor in the form set forth at Schedule 5
hereof.
1.21. "Net Purchase Price" shall mean the Purchase Price reduced or increased
by the price adjustments in accordance with Articles 3.1.4 and 3.1.5
hereof, respectively.
2. Sale and Purchase of the Shares
2.1 In consideration for the payment of the Purchase Price, the Vendor
shall sell and the Purchaser shall purchase all, but not part only, of
the Shares in accordance with the terms and conditions hereafter set
forth together with all rights now or hereafter attaching thereto. To
this end, the Vendor hereby irrevocably undertakes to carry out all the
necessary procedures (without limitation to the foregoing, obtaining
any requisite authorisation to transfer Shares (clause d'agrement), and
as the case may be, carrying out any necessary share transfer prior to
the Closing Date) so that the Purchaser, on the Closing Date, shall
become the owner of all the Shares.
3. Purchase Price and Terms of Payment
3.1 Purchase Price
3.1.1 The total price of the Shares (hereafter referred to as the "Purchase
Price") shall amount to US$ 8,275,000 subject to the provisions of
Articles 3.1.4 and 3.1.5 hereof.
3.1.2 The above Purchase Price is based upon the assumption that the
Consolidated Net Equity (as defined) of the Company as of the Closing
Date is equal to FRF 20,274,493 (hereinafter referred to as the
"Assumed Consolidated Net Equity") and that the Company Tax Credits (as
defined) are equal to the Assumed Tax Credits (as defined).
3.1.3 The Consolidated Net Equity and the Company Tax Credits at the Closing
Date shall be verified by a financial review to be carried out in
accordance with the terms set forth at Article 3.1.6 hereof. The final
figures obtained following such verification shall be referred to as
the "Actual Consolidated Net Equity" and "Actual Tax Credits."
3.1.4 In the event that the Actual Consolidated Net Equity plus the Actual
Tax Credits are less than the Assumed Consolidated Net Equity plus the
Assumed Tax Credits, the Purchaser shall be entitled to a dollar for
dollar reduction of the Purchase Price, which reduction shall be equal
to the sum of the Assumed Consolidated Net Equity and the Assumed Tax
Credits minus the sum of the Actual Consolidated Net Equity and the
Actual Tax Credits.
3.1.5 In the event that the Actual Consolidated Net Equity plus the Actual
Tax Credits are greater than the Assumed Consolidated Net Equity plus
the Assumed Tax Credits, the Vendor shall be entitled to a dollar for
dollar increase in the Purchase Price, which increase shall be equal to
the sum of the Actual Consolidated Net Equity and the Actual Tax
Credits minus the sum of the Assumed Consolidated Net Equity and the
Assumed Tax Credits.
3.1.6 The following provision shall apply in relation to the determination of
the Actual Consolidated Net Equity and the Actual Tax Credits:
(i) After the Closing Date, the firm Ernst & Young shall conduct an
independent audit and draw up a statement of accounts (the
"Closing Accounts") of the Company with the purpose of
determining the assets, liabilities and the amount of the Actual
Consolidated Net Equity at the Closing Date and the difference
between the Actual Tax Credits and the Assumed Tax Credits. The
cost of the additional work by Ernst and Young, which is more
than required in the ordinary course of business for Dorotech, if
any, shall be shared equally by the Parties. The Actual
Consolidated Net Equity and the Company Tax Credits should be
calculated in accordance with the principles set forth at
Schedule 3 hereof. The Closing Accounts shall be drawn up and
transmitted to the Parties no later than 45 days after the
Closing Date. The Purchaser shall make available to Ernst & Young
all of the documents they might reasonably require in order to
draw up such account statement, and shall authorize, upon
reasonable notice, access to the premises, for a reasonable
duration.
<PAGE>
(ii) Following the drawing up of the Closing Accounts, the Parties
shall be entitled to review and verify the results thereof. Such
review by the Parties shall be carried out within a period of 15
days as from the receipt by the Parties of the report.
(iii) To this end, the Parties shall promptly make available all such
documentation as may be in their possession, or in the possession
of their advisors with respect to the carrying out of the above
review and verification by the Parties referred to in paragraph
(ii) above.
(iv) Upon completion of the Parties' verification, the Parties shall
promptly inform each other of their findings.
(v) In the event of a continued disagreement between the Parties as
to the amount of the Actual Consolidated Net Equity and/or the
difference between the Actual Tax Credits and the Assumed Tax
Credits following completion of the above Closing Accounts and
verification thereof, provided that the difference between the
amounts found by each party amounts to more than FRF 100,000 and
notably in the event of a disagreement for a period of longer
than 10 days following notification of the results of its
verifications by the Purchaser, the matter shall be referred by
either Party to the offices of the Independent Arbitrator who,
having agreed to act in this capacity, shall finally resolve such
disagreement within 30 days of such referral, in compliance with
section (vi) below, it being understood that the Parties shall
make available all such documentation and provide such access as
may be required for the performance of its assignment by the
Independent Arbitrator.
(vi) The Independent Arbitrator shall be Coopers & Lybrand Audit sub-
ject to the condition that at the times it is entrusted with the
assignment, neither Coopers & Lybrand nor any other related
entity have accepted any assignment whatsoever from either of the
parties or from an entity it controls, which controls it or which
is controlled by an entity controlling it, directly or
indirectly. Should Coopers & Lybrand be unable to act as
Independent Arbitrator, for any reason whatsoever, including that
referred to above, the Independent Arbitrator shall be appointed
jointly by the parties by mutual agreement or, should no
appointment be made within 10 working days as from the written
request of one of the aforementioned Parties to the other in
order so to do, by order of the President of the Commercial Court
of Paris ruling in summary proceedings, each of the parties
having had the right to state its case. Initially, the estimated
expenses and fees of the Independent Arbitrator shall be divided
in equal shares and paid in advance by each of the Parties. At
the end of the arbitration proceedings, the Independent
Arbitrator shall determine the liability of each party for all or
part of the expenses and fees. In order to determine the Actual
Consolidated Net Equity and the Actual Tax Credits, the
Independent Arbitrator shall act as arbitrator pursuant to the
working of Article 1592 of the French Civil Code and his
decisions shall be deemed final and shall be binding on the
Parties, unless there is obvious error.
The Independent Arbitrator shall consider only the points of
disagreement, that he shall convene both parties in advance to
draw up, under his responsibility the list of points of
disagreement. The Independent Arbitrator shall not have the power
to construe the Share Purchase Agreement, as his assignment is
<PAGE>
limited to determining the amount of the Actual Consolidated Net
Equity and/or the Actual Tax Credits in the strict confines of
the Parties' requests. The Independent Arbitrator shall use his
best efforts to render his decision within 15 to 30 days
following the date of the submission by the Vendor and the
Purchaser of all the documents necessary to carry out this
assignment.
3.2 Terms of Payment
3.2.1 The Purchase Price shall be paid upon accordance with the following terms
and conditions:
Upon the Closing Date, the Purchaser shall provide two Irrevocable
Standby Letters Of Credit which are payable on demand on January 2,
1998, issued by BHF-BANK Frankfurt, one to CDR Entreprises for an
amount of US$ 6,547,908 and the other to the Vendor for an amount of
US$ 452,092, and
Upon completion of the independent audit by Ernst & Young and
production of the Closing Accounts as referred to in article 3.1.6
hereof:
(i) 50% of the remaining balance of the Net Purchase Price shall
be paid to the Vendor by wire transfer within 7 days of the
final determination of the Actual Consolidated Net Equity and
the difference between the Actual Tax Credits and Assumed Tax
Credits of the Company.
(ii) The remaining balance of the Net Purchase Price shall be paid
to the Escrow Agent to be held in escrow in accordance with
the terms and conditions of the Escrow Agreement set forth at
Schedule 4 hereof, not to be released to the Vendor until 12
months after the Closing Date.
If the balance of the Net Purchase Price in accordance with Articles
3.2.1 (I) and 3.2.1 (ii) is not paid within the given 7 day period the Parties
hereby agree that interest shall be due thereon, payable monthly by the
Purchaser to the Vendor at the legal interest rate ("taux d'interet legal") from
time to time in force.
4. Conditions Precedent
4.1 The purchase of the Shares by the Purchaser shall be subject to prior
fulfilment of the following conditions precedent, each of which
constitute essential and determining conditions to its decision to
purchase the Shares:
4.1.1 the completion of the financial, legal, tax and social audit of the
Company by the Purchaser and/or its advisors, other than the one to be
undertaken by Ernst and Young under Article 3.1.6, which shall reveal
no material adverse change in the Company's business, financial
condition, assets or operations as compared with the information
already made available to the Purchaser by or on behalf of the Vendors
nor any material finding;
4.1.2 the continuing accuracy, as at the Closing Date, of the Representations
and Warranties contained in Article 7 hereof;
4.1.3 the execution by the Vendor of a Non-Competition Agreement in the form
set forth at Schedule 5 hereto;
4.1.4(i) the signature of an amendment to the employment contract between the
Company and Mr. Alain GOURLAY in the form set forth in Schedule 6.1
hereto;
4.1.4(ii)the transfer to the Purchaser of a certain commitment from the Vendor
towards Mr. Jean-Philippe BORDES pursuant to an amendment executed on
March 20, 1997 in the form set forth in Schedule 6.2 hereto.
4.1.5 the entering into of the Escrow Agreement in the form set forth at
Schedule 4 hereto;
4.1.6 the obtaining of valid releases of all pledges and charges whatsoever
over the Company's Shares or assets and notably, but without limitation
to the generality of the foregoing, the obtaining of a valid release
from CDR Entreprises SA of the pledge covering 100% of the Shares;
4.1.7 the proper and complete execution by the Vendor of all their
obligations under the Share Purchase Agreement;
4.1.8 the prior approval by the Board of Directors of the Company relating to
the transfer of the shares;
4.1.9 the release of any guarantees whatsoever granted by the Company and
covering third party obligations (except for the guarantee granted in
favor of COFRACOMI);
4.1.10.1 the obtaining from CDR Entreprises SA of the following duly executed
documents:
(1) a counter-guarantee (contre-cautionnement) in favor of the Com-
pany in the form set forth at Schedule 20A hereof;
(2) a side letter addressed to the Company in the form set forth at
Schedule 20B hereof;
4.1.10.2 the obtaining from Cofracomi of a clear statement of account in
relation to monies payable by ATG Cygnet (and guaranteed by the
Company) in the form set forth in Schedule 20C hereof;
4.1.11 the obtaining of a new purchase order known as the "P6 Contract" from
France Telecom SA for a value exceeding FRF 17,000,000, together with
the express approval by France Telecom of the Purchaser as controlling
shareholder of the Company;
4.1.12 the absence of pending or threatened legislation regarding this
agreement or the transactions to be contemplated thereby; and
4.1.13 the cancellation of the Management Services Agreement entered into on
February 22, 1995 between the Vendor and the Company.
4.2 The above conditions are for the benefit solely of the Purchaser who
may waive all or any of them in whole or in part.
4.3 The Parties shall use al their efforts to ensure that the above
conditions are fulfilled as soon as reasonably practicable.
4.4 Subject to any waiver by the Purchaser pursuant to Article 4.2 hereof,
if the above conditions are not fulfilled by December 31, 1997 this
Share Purchase Agreement shall become null and void and, in the absence
of fraud or manifest bad faith which may have prevented the fulfillment
of any of such conditions, neither party shall have any claim against
the other in respect thereof.
However, the Parties may freely agree in writing to extend the date
upon which the aforementioned conditions precedent must be satisfied.
5. Closing
5.1 The parties hereby agree that the transfer of ownership of the Shares
in favor of the Purchaser shall occur at 6:01 pm on December 31, 1997,
Eastern Standard Time (the "Closing Date), or any other date mutually
agreed by the Parties.
5.2 Upon the Closing Date, the Vendor shall deliver the Purchaser:
5.2.1 duly executed share transfer forms (ordres de mouvement) in
respect the entirety of the Shares in favor of such person or
persons as the Purchaser may specify;
5.2.2 a certified copy of the resolution of the Company's board of
directors approving the Purchaser and such other persons or
corporations as the Purchaser may specify as shareholders of
the Company;
5.2.3 the Company's shareholder accounts, together with the transfer
registers in both cases updated to record the transfers made
pursuant to the share transfer forms referred to in Article
5.2.1 hereof;
5.2.4 the current minute books of board and shareholder's meetings
of the Company both of which are up-to-date, together with the
relevant attendance sheets and proxies for shareholders'
meetings and the minute books of board meetings being
numbered, initialed and signed by all members of the board at
the end of each board meeting;
5.2.5 the unconditional resignations of the directors of the Company, except
Mr. Jean Philippe BORDES.
5.2.6 a certificate signed by all of the Vendor confirming that (I) at the
Closing Date the Representations and Warranties contained in Article 7
hereof remain true and accurate in all respects and (ii) the Vendor
have duly performed their obligations set forth in the Share Purchase
Agreement;
5.2.7 the Escrow Agreement, for a duration of 12 months, running from the
Closing Date, duly signed by the Vendor, the Purchaser and CARPA des
Hauts-deSEine ("The Escrow Agent") in the form of the draft set forth
in Schedule 4 hereto pursuant to the balance of the Purchase Price, as
referred to in Article 3.2.1 hereof, shall be paid to the "CARPA"
account of the Escrow Agent, by way of security for any claim arising
pursuant to Article 8 hereof;
5.2.8 the Non-Competition Agreement duly executed by the Vendor;
<PAGE>
5.2.9 evidence of the agreement between the Company and the Vendor
as to the cancellation of the Management Services Agreement;
5.2.10 duly signed P6 contract between France Telecom and the Com-
pany;
5.2.11 evidence of the express approval by France Telecom of the
Purchaser as controlling shareholder of the Company;
5.2.12 duly executed counter-guarantee from CDR Enterprises SA and a
duly executed side letter entered into by CDR Enterprises SA,
as referred to in article 4.1.10.1 hereof; together with the
statement of account duly executed by Cofracomi as referred to
at article 4.1.10.2 hereof;
5.2.13 release, executed by CDR Enterprises SA, of the pledge cover-
ing 100% of the Shares;
5.2.14 release of all other pledges covering the Shares;
5.2.15 such other documents or instruments as the Purchaser or the
Vendor may reasonably request for the valid completion of the
operations provided for herein.
5.3 At the Closing Date, the Vendor shall procure the holding of such board
and/or shareholders' meetings of the Company as the Purchaser may request
to effect the appointment of such persons as the Purchaser may require to
the position of directors (administrators) of the Company and as Chairman
(President du conseil d'administration) of the Company.
6. Vendor's Obligations Pending Closing
6.1 As from the date hereof and up to and including the Closing Date the Ven-
dor shall cause:
6.1.1 the business of the Company to be carried on in the ordinary
course and in a prudent and appropriate manner and that any
material adverse change in such business shall be forthwith
notified to the Purchaser in writing;
6.1.2 the Company to comply with all relevant laws and regulations
and, in particular, but without prejudice to the generality of
the foregoing, with all applicable employment law requirements
in relation to the subject matter of the Share Purchase
Agreement;
6.1.3 the Company, except with the prior written consent of the
Purchase, not to modify their articles of association
(statuts), undertake any merger, spin-off or other form of
reorganization or propose, declare or pay any dividend or
grant any mortgage, pledge or security, or take any other
measure which may encumber or otherwise affect the free
disposition of their respective assets;
6.1.4 except with the prior written consent of the Purchaser, there
to be no increase or undertakings to increase the compensation
payable or other benefits due to any members of the personnel
or of any manager or mandataire social (whether or not having
employee status) of the Company (such as premiums, profit
sharing, pension or retirement rights or other similar
benefits) nor shall the Company hire or dismiss an corporate
officers (cadres superieurs) or executive employees (cadres
dirigeants);
<PAGE>
6.1.5 the Company to authorize the Purchaser and its representatives
(including its auditors and legal advisors) and Ernst & Young,
for the purposes of the independent audit referred to in
Article 3.1.6 hereof, to have access to the properties,
assets, books and records of the Company and to provide all
requested assistance and explanations;
6.1.6 except with the prior agreement of the Purchaser, the Company
not to enter into any contracts which are subject to unusual
or unduly onerous terms, or which are outside the normal
course of business of the Company;
6.1.7 the Company not to undertake any capital or non-routine
expenditure, except with respect to replacements for an amount
less than FRF 500,000, save where such expenditure is
essential to preserve the value of an asset of the Company, it
being understood that any such expenditure on replacements
which equals or exceeds FRF 500,000 must be authorized prior
thereto, by the Purchaser;
6.1.8 the Company not to grant nor receive any loan from a third
party;
6.1.9 the Company and its directors, shareholders, representatives
and agents not to negotiate nor enter into an agreement with
any third party prior to Closing Date in respect of the
purchase of shares of the Company contemplated herein, or the
sale in part or in whole of the Company's assets.
6.2 Generally, the Vendor unconditionally agrees, up to the
Closing Date inclusively, to ensure the ordinary day-to-day
management of the Company with a view towards maintaining a
profitable operation in accordance with customary commercial,
accounting and fiscal principles, applied in the course of the
three fiscal years preceding the Closing Date, and to ensure
that any transaction of an extraordinary nature shall only be
decided on after consultation with the Purchaser.
7. Representations and Warranties
7.1 The Vendor hereby makes the Representations and gives the Warranties set
forth below:
7.1.1 Corporate existence and capitalisation of the Company
7.1.1.1 Dorotech France is a duly organized societe anonyme,
validly existing under French Law whose registered
office is at 344 av. Georges Clemenceau 92000
Nanterre, registered in the Commercial and Company
Registry of Nanterre under the number B 334 631 504,
whose share capital of FRF 2,053,800 is divided into
20,538 shares of FRF 100 each;
7.1.1.2 a certified true and up-to-date copy of the articles
of association (stratuts) of Dorotech France is at-
tached as Schedule 8 hereto; the minutes and other
corporate records of the Company are accurate and up-
to-date; the Company's filing with the Commercial and
Company Registry is complete and up-to-date in all
respects; the good-standing information sheet (ex-
trait K-bis) dated November 12, 1997, and a liens and
Charges Search Certificate (etat des nantissements et
privileges) issued by the Commercial and Company Re-
gistry of Nanterre and provided in Schedule 9 hereto
are fail and accurate at the date hereof;
7.1.1.3 The Company is not in a state of insolvency, or in
suspension of payments (cessation des paiements) and
is not and never has been subject to a judicial
reorganization (redressement judiciaire) or judicial
liquidation (liquidation judiciaire) proceedings, or
any other amicable settlement (reglement amiable) or
collective bankruptcy proceedings provided for by Law
number 84-148 of March 1, 1984, nor has it requested
an extension period (delai de grace) in application
of Article 1244-1 of the French Civil Code;
7.1.1.4 Except for possible minor infringements with no
implications for the continuation/and or
profitability of its business, the Company (I) has
the corporate power and authority and holds all
governmental and other authorizations and permits to
own all of its properties and other assets an to
carry on business as it is currently being conducted,
and (ii) is in compliance with all the laws and
regulations to which they are subject. The Company is
not in default with respect to any judgment, or order
of any court, arbitrage tribunal or government
department or agency;
7.1.1.5 The Company is not, and has not over the last five
years been, whether directly or indirectly, a member
of any partnership, joint venture, economic interest
group or any other organization or structure having
unlimited liability;
7.1.1.6 Since February 1997, the Company has not (I) held any
shares in any corporation or (ii) exercised any
authority as board member or manger or (iii) acted as
a de facto manager of any corporation.
7.1.2 The Shares
7.1.2.1 The Shares represent all of the share capital of
Dorotech France, are fully paid in, and are freely
transferable, subject to the restrictions constrained
in the by-law of the Company.
7.1.2.2 There exists no agreement or undertaking of any na-
ture whatsoever pursuant to which any person is, or
could become, entitled to request the issue of new
shares by any of the Company (and namely without
limitation to the generality of the foregoing, the
Company has neither entered into promises to sell nor
options to purchase nor other rights of a similar na-
ture in respect of the Shares). The Company has not
issued any securities which would give rise to a
capital increase or the issue of securities granting
the right to any amount which the Company may dis-
tribute, or to voting rights, or which could result
in any limitation of the rights attached to the
Shares.
7.1.2.3 The Vendor has full and valid title to the Shares
free from any lien, charge or encumbrance or any
other third party rights, with the exception of the
pledge in favor of CDR Enterprises SA; on the Closing
Date such titled shall be validly transferred to the
Purchaser or to such person or persons as the
Purchaser may stipulate. All of the authorization
which must be obtained prior to the transfer of the
Shares, in accordance with the Company's status and
the law, have been or will have been obtained at the
Closing Date.
7.1.2.4 A list of shareholders of the Company including the
names and number of Shares held by each of them is
set forth at Schedule 11 hereto.
7.1.3 Effects of the Transfer of Shares
7.1.3.1 The transfer of the Shares to or in accordance with
the Purchaser's instruction will not result in:
(i) any breach of any agreement or undertaking
by the Company;
(ii) the possibility for any person having
dealings with the Company (a) to terminate
any agreement or contract or to modify the
effects thereof, other than the "P6 France
Telecom Contract" referred to in Article
4.1.12 hereof for which approval as to the
change of control shall have been obtained
before the Closing Date, or (b) to claim the
reimbursement of any subsidy, grant, loan or
advance;
(iii) the modification, cancellation or revocation
of any permit, authorization or license of
any kind whatsoever which is necessary or
desirable for the operations of the
Company's activities, or the modification,
cancellation or revocation of any
preferential tax regime or subsidy or other
assistance granted by public or quasi-public
authorities;
(iv) the possibility for a third party to invoke
any guarantee, surety, comfort letter of any
other document having and equivalent effect
which may have been granted by or in favor
of one of the Company;
(v) the violation of the articles of association
of the Company or of the law or of any
agreement made other than that which is
provided herein.
7.1.4 Financial Statement of the Company
7.1.4.1 Copies of the Company's financial statements which
means the annual accounts for both the 1995 and 1996
financial years, as defined, hereof (balance sheet,
profit and loss account as well as the other
documents appearing in the liasse fiscale together
with annexed documents in compliance with Article 8
of the French Code de commerce), and the Interim
Accounts are annexed as Schedule 12 hereto (the
"Financial Statement").
7.1.4.2 The Financial Statements have been prepared in
accordance with the accounting principles generally
accepted in France, which principles were
consistently applied by the Company.
7.1.4.3 The Financial Statements have been prepared in the
form required by applicable law and show a true and
fair view of, and accurately reflect the position of
the Company, and the result of its operations for the
financial period ended on the date of the Financial
Statements.
7.1.4.4 At the date of the Financial Statements, the Company
had no liabilities or obligations (due, payable,
certain, contingent, conditional or otherwise and
including, without limitation, any obligation
resulting from a factoring or leasing agreement or
from current, pending or threatened litigation) other
than those set out, or for which adequate provision
has been made, in the Financial Stataements.
7.1.4.5 The depreciation and other provisions appearing in
the Financial Statements are sufficient, have been
determined in accordance with applicable legislation.
7.1.4.6 All of the Company's accounts, books and records have
been fully, properly and accurately kept and
completed. They give a true, complete and fair view
of the Company's financial, contractual and business
position and of its plant and machinery, fixed and
current assets and liabilities (actual and
contingent), debtors, creditors and inventories and
work in progress.
7.1.5 Receivables
7.1.5.1 The Company's trade and other receivables as shown in
the Financial Stataements, and any receivables which
have arisen since the date of the Financial
Statements, are valid and have been recovered, or are
recoverable in full, within the relevant legal or
contractual time-limits (subject, in the case of
receivables shown in the Financial Statements, to any
provision for bad and/or doubtful debts appearing
therein).
7.1.6 Inventories
7.1.6.1 The inventories set out in the Financial Stataements
consist of usable articles which, with respect to
their quality and quantity, can be sold in the normal
course of business at a price at least equal to the
value at which they appear in the Financial State-
ment, namely the lower of cost and net realizable
value. The Company does not hold in its inventories
any products on consignment which belong to third
parties, or which are subject to a retention of title
clause, and no undertakings have been given to take
back the inventories of any agents, distributors or
other representatives of the Company. Inventories
acquired since the date of the Financial Statements
consist of high-quality, usable articles which can be
sold in the normal course of business and are carried
in the books at the lower of cost and net realizable
value. The Company's current levels of inventories
are adequate for the Company's present and anticipat-
ed requirements.
7.1.7 Taxes
7.1.7.1 The provisions for taxes and the provisions for
social charges (including, but not limited to, social
security contributions, and contributions to comple-
mentary welfare and pension schemes) which appear in
the Financial Statements are sufficient for the pay-
ment of all taxes, social charges due to accrued at
the date of the Financial Stataements (regardless of
the date of the event which is the source of the
taxes, social charges, and regardless of the date on
which payment thereof is due). The Company has filed
al national, departmental and local tax and social
security declarations at the required time and has
kept copies of the original filed. All State, de-
partmental and local taxes, and duties (including,
but not limited to, corporation tax, value added tax,
business tax, registration tax, land tax and customs
duties) and all social charges owed by the Company or
payable at the date hereof have been paid within the
legal time limits.
7.1.7.2 The Company has withheld all tax and/or social
security charges to be withheld by it in respect to
wages, license fees, interest or any other sum
payable by it.
7.1.7.3 The interest paid tot he Company's shareholders prior
to the date hereof has never exceeded the maximum
authorized by Articles 39-1 3 and 212 of the General
Tax Code.
7.1.7.4 Attached at Schedule 13 is a copy of the tax
reassessment relating to Dorotech. The Vendor hereby
declares that is has paid all sums due as a result of
such tax reassessment.
7.1.7.5 Save in respect of the specific circumstances
described in Article 8.6 to 8.7 hereof, (inclusive),
the Vendor hereby undertake to bear the entire cost
of all taxes, interest for late payment and penalties
that the Company may have to pay pursuant to a tax
reassessment, where the cause of action for such
reassessment arose prior to the Closing Date.
7.1.8 Ownership of Assets
7.1.8.1 The Company has full and unencumbered title to all of
its assets including its on-going business (fonds de
commerce). All tangible assets (both real estate and
otherwise) are properly constructed an in good
condition, subject only to normal wear and tear, and
have been consistently and properly maintained. None
of such tangible assets is out of order or has any
apparent defect which prevents or could prevent its
use in the future in accordance with the purpose for
which it was intended.
7.1.8.2 The Company conducts its business and uses its assets
in accordance with all legal or regulatory
requirements;
7.1.8.3 The Company holds all the necessary assets for its
business activities and the said assets are all
geographically located on the Company's premises of;
7.1.9 Leases
7.1.9.1 Details of all material leases agreements to which
the Company is a party, whether as lessor or lessee,
are set forth at Schedule 14 hereto.
7.1.9.2 Each of the leases of real or personal property to
which the Company is a party, either as lessor or
lessee, is valid and enforceable in accordance with
its terms. All of the premises (establishments) in
which the Company conducts its business under a
commercial lease subject to the provisions of the
Decree of September 30, 1953 are registered
(immarticule) with the competent commercial and
companies registries.
7.1.9.3 The Company has given notice, in compliance with all
French Laws and regulations, by bailiff (huissier) on
August 7, 1997, of the termination, with effect on
February 28, 1998, of the leases covering the
premises situated at 344 Avenue George Clemenceau,
92000 Nanterre (building A-B and C) and 32 rue Pierre
Curie, 92000 Nanterre.
7.1.9.4 Except as mentioned in Schedule 14 hereof, none of
such leases are at this time the subject, and, to the
best of the Vendor's knowledge, shall in the future
be the subject of, any objection, refusal to renew or
claim.
7.1.9.5 The contracts in respect of utilities (gas,
electricity, water, etc.) in respect of the premises
are sufficient in view of the activities carried out
by the Company on its premises and are not assigned
to other premises.
7.1.10 Intellectual Property
7.1.10.1 Schedule 15 hereof contains a list of the patents,
trademarks, trade names, copyright, logos, design,
non-protected design, software and other intellectual
property rights (hereinafter called "the Rights")
used by the Company. The Rights are owned by the
Company free from any charge or encumbrance.
7.1.10.2 The Company has not infringed, nor is infringing, any
right belonging to any third party relating to any
patent, trademark, trade name, copyright, logo,
design or software or any other intellectual property
rights belonging to third parties and, to the
knowledge of the Vendor, no third party is infringing
any industrial or intellectual property right
belonging to the Company.
7.1.10.3 None of the directors, manager or employees or the
Company own, directly or indirectly, in whole or in
part, any patent, trademark, or other intellectual or
industrial property right to which the Company has a
license or which is necessary or desirable for its
commercial activities as presently carried on.
7.1.10.4 The company has the unencumbered right to use its
corporate name of which it has full title and
enjoyment, without paying any royalties whatsoever to
any third party.
7.1.11 Contracts
7.1.11.1 All the contracts, commitments, agreements and
guarantees or other undertakings to which the Company
is a party, and which:
(i) account for more than 5% of the revenue
turnover of the Company for the most recent
financial period; or
(ii) are for a period of more than one year; or
(iii) involve the disposal of capital assets for
an aggregate amount in excess of FRF 50,000;
or
(iv) contain binding undertakings to buy or sell
for an aggregate amount in excess of FRF
50,000, or any exclusivity commitment by, or
for the benefit of, the Company; or
(v) contain a non-competition undertaking; or
(vi) are otherwise material to the management,
development and marketing of the Company;
are hereinafter called "Material Contracts".
7.1.11.2 the Company (I) has not entered into any Material
Contract which gives rise to duties or liabilities
which are unusual in relation to the normal rules of
proper management of a commercial enterprise, and
(ii) is not in breach of any of its obligations under
any Material Contract.
7.1.11.3 To the best of the Vendor's knowledge, all contracts,
agreements or arrangements, whether written or
verbal, to which the Company is a party, represent
valid enforceable obligations. None of them has been
entered into in violation of applicable laws or
regulations and the Company and the other contracting
parties have complied with their obligations
thereunder. No such contract, agreement or
arrangement was entered into outside the normal
course of business or is illegal or liable to be
declared null and void.
7.1.11.4 The transfer of the Shares on the Closing Date will
not result in the accelerated maturity of any loan or
guarantee agreement or any other payment to be made
to any third party under the other contract or
arrangement to which the Company is a party.
7.1.11.5 By virtue of the change in control of the Company,
the execution and performance of the Share Purchase
Agreement:
(i) does not and will not result in the
termination of any Material Contract or any
other instrument or arrangement to which the
Company is a party or by which it may be
bound or affected,
(ii) does not and will not conflict with or
result in any violation or breach by the
Company under any Material Contract or other
instrument or arrangement, and
(iii) will not grant to any other contracting
party the right to terminate or modify any
such Material Contract or other instrument
or arrangement, other than the "P6 France
Telecom Contract" referred to in Article
4.1.12 hereof for which approval as to the
change of control shall have been obtained
before the Closing Date.
7.1.11.6 Neither the Vendor nor the Company has received any
notice whatever pursuant to which any customers of,
or suppliers or lenders to the Company has disclosed
its intention to cease or substantially reduce its
commercial relationship with the Company for any
reason whatsoever including, without limitation, as a
result of the transfer of the Shares to the
Purchaser.
7.1.11.7 The Company is not bound by any contract, commitment
or other arrangement directly or indirectly with the
Vendor, or any of its corporate officers (mandataires
sociaux), or any legal entity controlled by any of
them, other than the Management Services Agreement
which shall be terminated before or on the Closing
Date pursuant to Article 4.1.16 hereof.
7.1.12 Personnel
7.1.12.1 The following are set forth at Schedule 17 hereof:
(i) a list of all the Company's employees,
including their ages, seniority and present
annual remuneration (including any right to
bonus, benefits in kind, profit sharing and
any departure or retirement indemnities)
and, for persons having a definite term
employment agreement, the date of expiration
of the agreement;
(ii) a list of all pension benefits offered by
the Company to any of their present or
former employees or corporate officers, all
of which benefits are fully funded;
(iii) a list of temporary personnel, outside
collaborators, sales representatives (VRP's)
and any other persons who do not have the
status of salaried employees but who
regularly collaborate in the operations of
the Company, if any; and
(iv) a list of all the collective bargaining and
other collective agreements applicable to
the Company's personnel (including any
agreement relating to bonuses, pensions
(excluding compulsory state pension
schemes), deferred remuneration, profit
sharing or share option schemes).
7.1.12.2 The Company has compiled with the continues to comply
with, all their obligations pursuant to the
applicable labor and social security law.
7.1.12.3 None of the employees or corporate officers of the
Company benefit from unusual rights in the light of
the prevailing industry standards in the place where
they are employed
7.1.12.4 To the knowledge of the Vendor, none of the Company's
employees have made known their intention to
terminate their employment agreement.
7.1.12.5 There have been no strikes, lock-outs, strike
pickets, occupation of the premises or other labor
unrest on the premises of the Company during the 2
years prior to the date hereof, and the Vendor is not
aware of any such industrial action being threatened
or pending.
7.1.13 Insurance
7.1.13.1 To the best of the Vendor's knowledge, the Company's
activities and all the assets owned, leased or used
by it are validly insured, under customary
conditions, with reputable companies, and the terms
of the policies are such as would be acceptable to a
prudent entrepreneur carrying on a similar business
with similar assets.
7.1.13.2 The Company ahs fulfilled all its obligations
pursuant to the insurance policies, in particular
with respect to the declarations of risks and claims
and the payment of premiums relating to such
policies. As at the date hereof the Company has not
received or given any notice of termination or
non-renewal in respect to any of the said policies
and the insurance companies have not given them
notice of their intention to increase substantially
the premiums due, to raise the deductibles or to
reduce the coverage provided.
7.1.14 Product Liability
7.1.14.1 To the best of the Vendor's knowledge, no claim has
been made on the Company in respect t of damage
suffered resulting from a defect in any product
manufactured, assembled or sold and not product
manufactured, assembled or sold by the Company has
any latent defect or other defect likely to result in
a claim for damages from a purchaser or user of the
product or a third party.
7.1.15 Environment
7.1.15.1 To the best of the Vendor's knowledge, the activities
of the Company have al ways been and are being
operated in compliance with the applicable laws and
regulations in force concerning environmental
protection, and not product manufactured, assembled
or sold or any service supplied by the Company is in
violation of such laws and regulations.
7.1.15.2 The Company has at all times obtained and complied
with all authorizations, licenses and other approvals
required by the laws and regulations in force and
have not received any notification from any entity in
authority to the effect that any such authorization,
license or approval has not been complied with or has
been withdrawn.
7.1.15.3 No leak or spill or disposal of any substance,
material or waste which is regulated as "toxic" or
"hazardous" under any applicable environmental
regulation has occurred on any of the real properties
currently owned or occupied by the Company. The
Company is not obligated nor reasonably likely to
become obligated to clean up or otherwise conduct
remedial work on any contaminated surface water,
ground or soil.
7.1.16 Litigation
7.1.16.1 There is not current, threatened or pending
litigation, arbitration, claim, administrative
proceeding, administrative or tax investigation or
any other action or proceeding pending or
contemplated, whether as plaintiff or defendant, in
relation to the Company, relating to payments of
amounts in excess of FRF 50,000, or assets worth more
than such amount, or which could have a material
negative impact on the Company's business and the
Vendor is unaware of any facts which might give rise
to any such action or proceeding.
7.1.17 Absence of Changes
7.1.17.1 From the date of the Interim Accounts to the Closing
Date, non of the following events in respect of the
Company has arisen or shall arise;
(i) any change in the financial position, as-
sets, liabilities, business or operations
otherwise than in normal course of business;
(ii) save with the prior written consent of the
Purchaser, any declaration or payment of any
dividend or any other distribution of
profits or reserves;
(iii) any damage, destruction or other casualty
loss (whether or not covered by insurance)
materially affecting the Company's business
or financial position;
(iv) any purchase or sale of securities by the
Company, as issue of shares or other
securities, rights or options to purchase or
subscribe shares in the Company or which
might grant the right to acquire or
subscribe securities which represent a share
in the capital of the Company;
(v) any loan incurred, granted, promised or se-
cured by the Company;
(vi) the assumption of an obligation or liability
other than current obligations or
liabilities incurred in the normal course of
business;
(vii) any termination, waiver, amendment of, or
default in relation to any contract,
undertaking or arrangement other than in the
normal course of business;
(viii) any increase or promised increase in the
remuneration of employees, agents, sales
representatives or corporate officers or in
any of their benefits;
(ix) any sale, lease or transfer of any tangible
or intangible assets other than items of
stock in the normal course of business, nor
any cancellation or waiver of any
receivables;
(x) any guaranteed, surety or comfort letter in
respect of the obligations of third parties;
(xi) any lien, security interest, pledge,
mortgage, easement, or other charge granted
over any tangible or intangible assets;
(xii) any social disturbance, conflict, strike,
lock-out, sit-in or similar event.
7.1.18 Guarantee of Third Party Obligations
7.1.18.1 The Company is not liable under any guarantee granted
in order to cover the execution of a third parties
obligations, save as mentioned in Schedule 18 hereof;
7.1.18.2 The Company is not jointly and severally liable with
any other person or entity as regards the execution
of the latter's contractual or legal obligations.
7.1.18.3 More generally, there are not obligations incumbent
upon the Company as a result of the winding up of
Dorotech GmbH nor the sale of its entire shareholding
in Dorotech (UK) Ltd. Nor the sale of its entire
shareholding in Dorotech Srl.
7.1.19 Lists
7.1.19.1 Schedule 19 hereof contains lists in relation to the
Company, setting forth:
(i) the name and address of each person who has
received general or special powers;
(ii) all real estate, land, facilities or other
property owned, rented, leased or otherwise
occupied;
(iii) banks and bank accounts, and financing
arrangement showing (a) the names or people
with power of signature (b) the amount of
each credit line and the level of
utilization and any other financing
agreement, and (c) the amount of any
borrowing guaranteed by the Company.
(iv) all guarantees, sureties or endorsements
granted in favor of third parties;
(v) the name of each corporate officer
(mandataire social) and of the gross annual
remuneration (including all benefits) of
each of them;
(vi) all agency, license, distribution or repre-
sentation agreements;
(vii) all grants, subsidies or other public
benefits in excess of FRF 50,000 which the
Company is under a contingent liability to
repay.
7.1.20 General
7.1.20.1 To the best of the Vendor's knowledge, all of the
information contained in the Share Purchase Agreement
and its Schedules thereto are complete and accurate
in all respects.
7.1.20.2 There are no existing facts or events known to the
Vendor which are likely to have a negative effect of
the Company's assets, business or activities or which
could reasonably be expected to affect adversely with
willingness of the Purchaser to purchase the Shares
upon the terms of the Share Purchase Agreement which
has not been disclosed to the Purchaser in writing by
the Vendor.
7.1.21 Authority Relative to this Share Purchase Agreement
7.1.21.1 The execution and performance of this Share Purchase
Agreement by the Vendor do not and will not conflict
with or result in any violation or breach of, or any
default under, any law or any obligation of the
Vendor or any other agreement to which the Vendor is
a party, not is there any litigation current or
pending involving the Vendor which could prevent or
hinder their execution and performance of this Share
Purchase Agreement.
7.1.21.2 The Vendor has full power, authority and right to
enter into this Share Purchase Agreement and to
complete the transactions contemplated hereby.
7.2 The Vendor recognizes and accepts that the Purchaser has entered
into this Share Purchase Agreement in reliance on the
Representations and Warranties an in reliance on the documents
and information of a significant nature which the Vendor has
transmitted to the Purchaser. The liability of the Vendor in
relation to the Representations and Warranties shall be in no way
limited should it be established that the Purchaser was aware of
the inaccuracy of one or more of the Representation or Warranties
either at the date hereof or at the Closing Date.
8. Indemnification
8.1 Subject to the provisions of Article 8.2 herein, the Vendor
undertakes to indemnify the Purchaser by reducing the Purchase
Price or, and if the Purchaser in its absolute discretion so
wishes, by making good and holding harmless the Company for the
full amount of any damage, loss, liability or expense of any
kind, including legal and court fees (hereinafter called
"Damage") which results from;
8.1.1 any failure of the Vendor to respect its obligations
hereunder;
8.1.2 any inaccuracy, error or omission in the Representations and War-
ranties; and
8.1.3 any increase in the liabilities, whose origin is prior to the
Closing Date, and which is not shown in the Actual Consolidated
Net Equity of the Company, drawn up as at the Closing Date.
8.1.4 It is specifically agreed and understood by the Parties that the
Purchaser may validly claim against the Vendor under Article
8.1.2 hereof, notwithstanding any lack of knowledge on the part
of the Vendor should there be any contract, agreement or
arrangement as more particularly described in Article 7.1.11.3
hereof, to which the Company is a party, and which in fact
represents an unenforceable obligation.
8.1.5 It is specifically agreed and understood by the Parties that the
Purchaser may validly claim against the Vendor under Article
8.1.2 hereof, notwithstanding any lack of knowledge on the part
of the Vendor should there in fact be any claim relating to
product liability for products manufactured distributed or sold,
as more particularly described in Article 7.1.14.1 hereof.
8.1.6 It is specifically agreed and understood by the Parties that the
Purchaser may validly claim against the Vendor under Article
8.1.2 hereof, notwithstanding any lack of knowledge on the part
of the Vendor, in respect of the completeness and accuracy of any
information contained therein, as more particularly described in
Article 7.1.19.1 hereof.
8.1.7 It is specifically agreed and understood by the Parties that the
Purchaser may validly claim against the Vendor under Article
8.1.2 hereof, notwithstanding any lack of knowledge on the part
of the Vendor, in respect of any failure to comply with the laws
and regulations in force concerning environmental protection, as
more particularly described in Article 7.1.15.1 hereof.
8.2 The total indemnity paid hereunder shall not exceed ten percent
(10%) of the Net Purchase Price.
8.3 The Vendor shall not be liable to indemnify the Purchaser under
this Article 8 in respect of damage or Estimated Damage unless
and until the aggregate amount of value of such Damage or
Estimated Damage exceed FRF 100,000, but in which event the
Seller shall be liable to indemnify the Purchaser against any and
all damage or Estimated Damage in full including those Damages
and Estimated Damages in the said FRF 100,000, subject to the
maximum total indemnity specified in Article 8.2.
8.4 Except for claims in respect of fiscal or social security matters
which may be made up of the expiration of the statute of
limitations, and for claims in respect to environmental matters
(Article 7.1.15 hereof) which may be made for up to 5 years
following the Closing Date, any claim for indemnification
pursuant to Article 8.1 hereof must be made no later than 12
months following the Closing Date by notice I n writing to the
Vendor in accordance with Article 12 hereof. Such notice shall
give brief details of the relevant facts and an estimate of the
Damage ("Estimated Damages"). Indemnification based on the
Estimated Damages shall be due if notice of the relevant facts is
given within the relevant period, even if the quantification of
the Damage does not take place until after the expiration of such
period. Payment from the Escrow Agent shall be in accordance with
Section 6 of the Escrow Agreement.
8.5 In the event that any Damage or Estimated Damage results from a
demand or claim made by a third party, the Purchase shall notify
the Vendor, with the details described above, within one month of
the Purchase becoming aware thereof and the Vendor, or its
counsel, shall have access to all relevant books and other
documents of the Company any with regard to such a demand or
claim, and these shall be made available at the Company's
registered office or any other place mutually agreed upon,
subject to reasonable notice, and for reasonable period. The
Vendor shall have the right, at its own expense to join in the
defense or the conclusion, by way of settlement (transaction) or
amicable agreement with respect to any such demand or claim.
However, the Purchaser shall have absolute discretion as to
whether and, if so, on what terms, to settle any such demand or
claim. Should. the Purchaser elect not tom comply with the
Vendor's proposal of settlement, any sums due by the Company
and/or Purchaser exceeding the amount of the settlement proposed
by the Vendor, which shall have been accepted by the third party
as full and final settlement of all related claims, shall be
borne by the Purchaser.
8.6 All payments due under Article 8 hereof shall be treated as a
reduction in the Purchase Price made within one month from the
date on which notice of the Damage is given by the Purchaser to
the Vendor or, if later, from the date on which the Damage is
quantified. These sums shall be drawn in priority from the
amounts deposited with the Escrow Agent, it being specified that
in the event that the amounts held upon escrow should be
insufficient to compensate the Purchaser for any damage notified
by the latter, the Vendor shall be under an obligation to pay an
indemnity for an amount equal of the difference between the
amounts due pursuant to Article 8 hereof and the said held sums
held upon escrow.
Should the damaged be quantified or the Estimated Damages be
payable after the amounts held in escrow have been released to
the Vendor in accordance with Article 3.2 herein and the Article
3 of the Escrow Agreement, the indemnity to be paid by the Vendor
shall be paid by wire transfer to the Purchaser's bank account.
Should the quantification of the Damage result in a sum to be
reimbursed by the Purchaser to the Vendor in respect of the
Estimated Damage previously paid by the Vendor, the Purchaser
shall pay the sum by wire transfer to the Vendor's bank account.
8.7 The parties agree that if it emerges that any Damage is
deductible from the taxable results of the Company that amount of
an indemnity to be paid by the Vendor shall be reduced by the tax
saving effectively made by the Company.
9. Assignment
9.1 This Share Purchase Agreement is personal to the Parties and
cannot be assigned by any of them save that (I) the Purchaser may
assign its right hereunder to an associated company for which
purpose the term "associated company" shall mean any company
which, directly or indirectly, controls or is controlled by or is
under the same control as the Purchaser and the term "control"
shall mean the ability to exercise or to procure the exercise,
directly or indirectly, of at least 50 percent (50%) of the
voting shares of a company; and (ii) the Purchaser (or such
associated company) may freely assign its rights pursuant to
Article 8 hereof to any person(s) or corporation(s) to whom the
Shares may be transferred following the Closing Date. Rights to
Escrow can be assigned by the Vendor if a successor in interest
purchases substantially all the assets of the Vendor.
9.2 Should the Purchaser assign its rights under the terms herein, it
shall remain liable, jointly with the assignee, for the
obligation under this Share Purchase Agreement until full payment
of the Purchase Price has been made to the Vendor
10. Expenses
10.1 Each of the Parties shall bear all of the costs and expenses
incurred by it in connection with this Share Purchase Agreement
and its execution including, but not limited to, the fees and
disbursements of any counsel, independent accountant or any other
person whose services may have been used by said party in
relation hereto, with the exception of the independent audit to
be conducted by Ernst & Young pursuant to Article 3.1.6 hereof,
the Parties having agreed to share equally the expenses of such
audit.
10.2 It is agreed that a short form French version of this Agreement
summarizing the main provisions concerning the scope of the sale
and purchase and the price shall be produced and signed by the
parties hereto at the Closing Date and registered with the French
fiscal authorities at the expense of the Purchaser. It is
expressly agreed that none of the parties may avail themselves of
the short form agreement for any purpose other than as proof of
such registration, their rights and obligations in connection
with the sale and purchase contemplated herein deriving solely
from this Agreement.
11. Confidentiality
11.1 The Vendor and the Purchaser undertake to keep confidential and
not to disclose to third parties (except to their professional
advisors and, in the case of the Purchaser, to any of its
associated Companies as defined in Article 9.1 hereof for the
purposes of the assignment), without the prior written consent of
the other Party, the terms and conditions of the transaction
contemplated hereby.
11.2 All announcement by or on behalf of the Parties hereto relating to the
transaction contemplated hereby shall be in terms agreed by the Parties
save that the Parties shall be entitled to make such announcements as
they think fit to comply with the regulations of the Stock Exchanges on
which they were quoted.
11.3 If for any reason the transaction contemplated hereby is not completed,
the obligations of the Parties pursuant to this Article 11 hereof will
remain in force for a period of 12 months from the date hereof.
12. Notices
12.1 Any notice required to be given hereunder shall be validly given if
sent by registered letter (with return receipt requested) or by fax,
confirmed by such registered letter, or by hand delivery against
written acknowledgment of receipt to the following addresses or to such
other address as may have been transmitted by either of the Parties to
the other in accordance herewith:
For notices to the Vendor: For notices to the Purchaser:
Mr. Jorge Forgues Dr. Phil Storey
CFO, Network Imaging Corporation Board Member, SER Systems AG
500 Huntmar Park Drive 11608 Bromley Village Lane
Herndon, VA 20170, USA Reston, VA 20194, USA
Notices shall be effective as of the date of receipt.
12.2 The Vendor irrevocably confers on Mr. Jorge Forgues (referred to in Ar-
ticle 12.1 hereof), who accepts, the authority to accept notices on its
behalf.
13. Proper Law and Jurisdiction
13.1 This Agreement shall be governed by and construed in accordance with French
law.
13.2 Subject to the provisions of Article 3.1.6 hereof in relation to the
resolution of disagreements pertaining to the amount of Actual
Consolidated Net Equity, Actual Tax Credits and Assumed Tax Credits,
any dispute arising in relation to this Agreement, its interpretation
or execution (including, without limitation, its validity, performance
or interpretation) shall be submitted to the Commercial Court of Paris.
14. Waivers
14.1 The failure by one of the Parties hereto promptly to avail itself in
whole or in part of any right, power or privilege to which such party
is entitles pursuant to the terms of this Agreement shall not
constitute a waiver of such right, power or privilege which may be
exercised at any time. To be valid, waiver by one of the Parties hereto
to right, power or privilege must be in writing and notified to the
other party as provided herein.
15. Headings
The descriptive words or phrases at the head of the Articles are
inserted only as a convenience and for reference purposed and are not
intended to in any way define, limit or describe the scope or intent of
the Articles which they preceded.
16. Whole Agreement
This Share Purchase Agreement constitutes the entirety of the agreement
between the Parties with regard to the subject matter hereof and
supersedes any previous agreement or agreements whether verbal or
written with regard thereto.
17. Interpretation and Language
17.1 Unless the context requires otherwise, all words used in this Share
Purchase Agreement in the singular number shall extend to and include
the plural, all words in the plural number shall extend to and include
the singular, and vice versa.
17.2 This Agreement shall be executed only in the English language.
17.3 Severability
If any provision, clause, or part of the Share Purchase Agreement, or
application thereof under certain circumstances, should be held void,
illegal or unenforceable, the Parties undertake to consult each other
and to seek an agreement in respect of a valid clause the effects of
which come as close as possible to those of the paragraph, the clause
or the part invalidated.
EXECUTED by the Parties on
In Herndon, Virginia, USA
The Vendor For the Purchaser
----------------------------- -------------------------
By: Jorge R. Forgues By:
Title: Senior Vice President & Title:
Chief Financial Officer
<PAGE>
List of Schedules
1. Declaration of authority to sign the Share Purchase Agreement on behalf of
NIC.
2. Declaration of authority to sign the Share Purchase Agreement on behalf of
SER.
3. Principles relating to the claculation of the Consolidated Net Equity.
4. Escrow Agreement
5. Non-Competition Agreement.
6. Addendums to Employment contracts for Mr. Jean-Phillipe Bordes and Mr.
Alain Gourlay.
7. List of resigning directors.
8. Certified true and up-to-date copy of the articles of association (statuts)
of Dorotech France SA.
9. Good-standing information sheet (extrait kbis) of Dorotech France SA dated
November 12, 1997.
10. Liens and Charges Search Certificate (etat des nantissement et privileges)
of Dorotech France SA issued by the Commercial and Companies Registry of
Nanterre.
11. List of the shareholders of the Company including the name and numbers of
Shares held by each of them.
12. Copies of the Financial Statements of the Company for both the 1995 and
1996 financial years and of the Interim Accounts of the Company as of
September 30, 1997.
13. Copy of the Company's tax reassessment.
14. Copy of all lease agreements to which the Company is a party and list of
objections, refusals to renew or claims relating to these leases.
15. Patents, trademarks, trade names, copyright, logos, designs, non-protected
designs, software and other intellectual property rights owned by the
Company.
16. N/A
17. Lists relating to:
- all pension benefits offered by the Company to any of their employees
or corporate officers, all of which are fully funded;
- temporary personnel, outside collaborators, sales representatives
(VRPs) and any other persons who do not have the satus of salaried
employees but who regularly collaborate in the Company's operation;
- the collective bargaining and other collective agreement applicable to
the Company's personnel (including any agreement relating to bonuses,
pensions (excluding compulsory state pension Schemes), deferred
remuneration, profit sharing or share option schemes).
1. Guarantees and other undertakings in favor of third parties.
2. Lists setting forth:
- the name and address of each person who has received general or special
powers.
- all real estate, land, facilities or other property owned, rented,
leased or otherwise occupied; - the name of each corporate officer (man-
dataire social) and of the gross annual remuneration (including all be-
nefits) of each of them;
- all agency, license, distribution or representation agreements;
- all grants, subsidies or other public benefits in excess of FRF _______
which the Company is under a contingent liability to repay.
1. Documents relating to CDR counter guarantee
a) Main counter-guarantee for 47,000,000 FF
b) CDR's side letter
c) Cofracomi letter
CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF DESIGNATIONS OF
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF NETWORK IMAGING CORPORATION
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
We, James J. Leto, President, and Julia A. Bowen, Assistant Secretary,
of Network Imaging Corporation (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of
the Corporation by its Certificate of Incorporation, and pursuant to the
provisions of Sections 151(a) and (g) of the General Corporation Law of the
State of Delaware, the Board of Directors, at a meeting duly called and held on
December 6, 1993, adopted a resolution creating a series of 1,750,000 shares of
cumulative convertible preferred stock designated as Series A Cumulative
Convertible Preferred Stock;
That, (1) on December 3, 1997, the Board of Directors of the
Corporation resolved to amend the Certificate of Designations of the Series A
Cumulative Convertible Preferred Stock ("Certificate of Designations"), (2) on
December 31, 1997, the holders of Common Stock, voting separately as a class,
and the holders of the Series A Cumulative Convertible Preferred Stock, voting
separately as a class, (3) by unanimous written consent dated December 31, 1997,
the holder of the Series F-1 Convertible Preferred Stock, the Series F-2
Convertible Preferred Stock, the Series F-3 Convertible Preferred Stock and the
Series F-4 Convertible Preferred Stock and (4) by unanimous written consent
dated December 31, 1997, the holders of the Series K Convertible Preferred
Stock, resolved to amend the Certificate of Designations as follows:
1. Designation and Number. The designation of the series of preferred
stock fixed by this resolution shall be "Series A Cumulative
Convertible Preferred Stock" (hereinafter referred to as the "Series A
Preferred Stock" and the number of shares constituting such series
shall be 1,750,000. Each share shall have a par value of $.0001 per
share.
2. Rank. The Series A Preferred Stock shall rank: (i) prior to all of
the Corporation's Common Stock, par value $.0001 per share ("Common
Stock"), (ii) prior to all of the Corporation's Series F-1, F-2, F-3
and F-4 Convertible Preferred Stock, par value $.0001 per share
(collectively, "Series F Preferred Stock"), (iii) prior to all of the
Corporation's Series K Convertible Preferred Stock, par value $.0001
per share ("Series K Preferred Stock"), (iv) prior to any class or
series of capital stock of the Corporation hereafter created either
specifically ranking by its terms junior to the Series A Preferred
Stock or not specifically ranking by its terms senior to or on parity
with the Series A Preferred Stock (collectively with the Common Stock,
the Series F Preferred Stock and the Series K Preferred Stock, "Junior
Securities"); (v) subject to the provisions of subparagraph 4(ii)
hereof, on parity with any class or series of capital stock of the
Corporation hereafter created specifically ranking by its terms on
parity with the Series A Preferred Stock ("Parity Securities"); and
(vi) subject to the provisions of subparagraph 4(ii) hereof, junior to
any class or series of capital stock of the Corporation hereafter
created specifically ranking by its terms senior to the Series A
Preferred Stock ("Senior Securities"), in each case, as to payment of
dividends or as to distributions of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary (all such distributions being referred to collectively as
"Distributions").
3. Dividends.
(i) No dividends shall accrue on the Series A Preferred Stock from
May 1, 1997 through the date prior to the date ("Meeting
Date") this Certificate of Amendment to Certificate of
Designations of Series A Cumulative Convertible Preferred
Stock of Network Imaging Corporation is approved by the
holders of Common Stock, voting separately as a class, the
holders of Series A Preferred Stock, voting separately as a
class, the holders of Series F Preferred Stock, voting
separately as a class, and the holders of Series K Preferred
Stock, voting separately as a class.
(ii) The dividend rate of the Series A Preferred Stock shall be
computed at a rate of $.84 per share per annum payable in
kind on each outstanding share of Series A Preferred Stock
from the Meeting Date. Dividends shall be payable quarterly
in arrears out of funds legally available therefor on March
15, June 15, September 15 and December 15 of each year,
commencing March 15, 1998 (each a "Series A Dividend Payment
Date"). Dividends on shares of Series A Preferred Stock
shall be cumulative and shall accrue (whether or not
declared), without interest, from the first day of the
quarterly period in which such dividend may be payable as
herein provided, except with respect to the first quarterly
payment, which shall accrue from the Meeting Date. On each
Series A Dividend Payment Date, all dividends that shall
have accrued on each share of Series A Preferred Stock
outstanding on the applicable record date shall accumulate
and be deemed to become "due." Any dividend that shall not
be paid on the Series A Dividend Payment Date on which it
shall become due shall be deemed to be "past due" (a
"Cumulated Series A Dividend") until such Cumulated Series A
Dividend shall have been paid.
(iii) The Corporation shall have the right to pay dividends on
each Series A Dividend Payment Date in shares of Common
Stock, valued at the Quarterly Average Stock Price (as
hereinafter defined). The "Quarterly Average Stock Price"
shall be the average Closing Price (as hereinafter defined)
per share of Common Stock during the 10 consecutive trading
days following release by the Corporation of its earnings
for the quarterly period ended immediately prior to the
applicable Series A Dividend Payment Date. The "Closing
Price" means, as of any date, the last sale price per share
of Common Stock on the principal securities exchange or
trading market where the Common Stock is listed or traded as
reported by Bloomberg Financial Markets or a comparable
reporting service of national reputation selected by the
Board of Directors of the Corporation ("Board") if Bloomberg
Financial Markets is not then reporting Closing Prices per
share of Common Stock (collectively, "Bloomberg"), or if the
foregoing does not apply, the last reported sale price per
share of Common Stock in the over-the-counter market on the
electronic bulletin board as reported by Bloomberg, or, if
no sale price is reported per share of Common Stock by
Bloomberg, the average of the bid prices of any market
makers for the Common Stock as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Price
cannot be calculated on such date on any of the foregoing
bases, the Closing Price per share of Common Stock on such
date shall be the fair market value as reasonably determined
by an investment banking firm selected by the Board, with
the costs of such appraisal to be borne by the Corporation.
If the Corporation determines to pay dividends on any Series
A Dividend Payment Date in shares of Common Stock, the
Corporation shall cause certificates representing shares of
Common Stock to be mailed to the holders of record of Series
A Preferred Stock (determined in accordance with
subparagraph 3(v)) within 30 Business Days (as hereinafter
defined) of the applicable Series A Dividend Payment Date.
(iv) If dividends are to be paid in cash, the Board shall declare
and pay current dividends out of funds legally available
therefor (after giving effect to the payment of all requisite
dividends on Senior Securities).
(v) In order to determine the holders of the Series A Preferred
Stock entitled to receive dividends, the Corporation shall fix
a record date not more than 60 days prior to any Series A
Dividend Payment Date. If any such Series A Dividend Payment
Date should fall on a day that is not a "Business Day," then
the Corporation shall pay the applicable dividend if payable
in cash on the next succeeding Business Day. "Business Day"
shall mean a day other than a Saturday, Sunday or other day on
which any national securities exchange or quotation system on
which the Common Stock of the Corporation is traded or quoted
is authorized or required by law to close.
(vi) The Corporation shall not: (A) pay or declare and set apart
for payment any dividends or Distributions on the
Corporation's Junior Securities, other than dividends payable
in the form of additional shares of the same Junior Security
as that on which such dividend is declared, or (B) redeem,
purchase, or otherwise acquire any shares of Junior Securities
or any right, warrant or option to acquire any Junior
Securities, unless full Cumulated Series A Dividends have
been, or contemporaneously are, paid or declared and set apart
for such payment on the Series A Preferred Stock.
(vii) No full dividends shall be paid or declared and set apart for
payment on any class or series of Parity Securities for any
period unless full Cumulated Series A Dividends have been,
or contemporaneously are, paid or declared and set apart for
such payment on the Series A Preferred Stock for all
dividend periods terminating on or prior to the date of
payment of such full Cumulated Series A Dividends. No full
dividends shall be paid or declared and set apart for
payment on the Series A Preferred Stock for any period
unless full cumulative dividends have been, or
contemporaneously are, paid or declared and set apart for
payment on the Parity Securities for all dividend periods
terminating on or prior to the date of payment of such full
Cumulated Series A Dividends. When dividends are not paid in
full upon the Series A Preferred Stock and the Parity
Securities, all dividends paid or declared and set apart for
payment upon shares of Series A Preferred Stock and the
Parity Securities shall be paid or declared and set apart
for payment pro rata, so that the amount of dividends paid
or declared and set apart for payment per share on the
Series A Preferred Stock and the Parity Securities shall in
all cases bear to each other the same ratio that accrued and
unpaid dividends per share on the shares of Series A
Preferred Stock and the Parity Securities bear to each other
(without taking into account the dividends so paid and those
so declared and set apart for payment).
(viii) To the extent the Corporation shall not have funds legally
available to pay all Cumulated Series A Dividends when due
under paragraphs 3, 5, 6, 7 or 8 hereof or otherwise, the
Corporation's obligation to make such payment shall be
deferred until the first date on which the Corporation shall
have funds legally available for all or a portion of such
payment, which shall then be made in whole or in part, as the
case may be, until such Cumulated Series A Dividends shall
have been paid in full.
4. Voting Rights.
(i) Except as may otherwise be provided herein or required by law,
the holders of the shares of Series A Preferred Stock ("Series
A Holders") shall not be entitled to any vote in respect of
such shares.
(ii) The affirmative vote, in person or by proxy, of the Series
A Holders of the majority of the outstanding shares of the
Series A Preferred Stock, voting as a single class, on a
one-vote-per-share of Series A Preferred Stock basis, shall
be necessary for the Corporation to authorize: (x) any class
or series of Senior Securities; or (y) any class or series
of Parity Securities; provided, however, that no such vote
shall be required pursuant to clause (x) or (y) in the event
the Corporation shall then have the right to redeem the
Series A Preferred Stock and, prior to the date of issuance
of such new class or series of Senior Securities or Parity
Securities, provision shall have been made for the
redemption or exchange of all the outstanding shares of the
Series A Preferred Stock and such redemption or exchange
occurs on or prior to the date of issuance of such new
series or class of Senior Securities or Parity Securities.
(iii) On all matters on which the Series A Preferred Stock is
entitled to vote by law, the Series A Holders shall be
entitled to one vote per share of Series A Preferred Stock,
voting separately as a single class, and the presence, in
person or by proxy, of the Series A Holders of a majority of
the outstanding shares of the Series A Preferred Stock shall
constitute a quorum.
5. Conversion Rights.
(i) Each share of Series A Preferred Stock may be converted,
at the option of each Series A Holder, at any time and from
time to time, into fully-paid and non-assessable shares of
Common Stock; provided, however, that a Series A Holder's
right to so convert shares of Series A Preferred Stock shall
terminate as to shares thereof that are redeemed or
exchanged by the Corporation on the Exchange Date or the
time a Change in Control occurs (as hereinafter defined)
therefor as provided in and subject to the terms and
conditions of subparagraph 7(ii) or 8(ii) hereof,
respectively. The number of shares of Common Stock to which
the Series A Holder of each share of Series A Preferred
Stock shall be entitled upon conversion shall be the product
obtained by multiplying the number of shares of Series A
Preferred Stock to be converted by the Conversion Rate (as
hereinafter defined); in addition, the Series A Holder shall
be entitled upon conversion to receive cash or shares of
Common Stock (valued at the Quarterly Average Stock Price
determined as of the immediately preceding Series A Dividend
Payment Date), at the option of the Corporation, in an
amount equal to all Cumulated Series A Dividends on each
share of Series A Preferred Stock so converted, provided, if
dividends are paid in cash, there are funds legally
available therefor. The "Conversion Rate," that is, the
number of shares of Common Stock for which each share of
Series A Preferred Stock may be converted, shall be
determined by reference to the Average Stock Price (as
hereinafter defined). The "Average Stock Price" shall be the
average Closing Price per share of Common Stock during the
20 consecutive trading days following the Meeting Date. With
the quotient of $10 and the Average Stock Price provided
that such quotient is not greater than 7.68 and not less
than 5.00, if the Average Stock Price is less than or equal
to $1.30, the Conversion Rate shall be 7.68; if the Average
Stock Price is greater than $1.30 but less than or equal to
$1.50, the Conversion Rate shall be 6.67; if the Average
Stock Price is greater than $1.50 but less than or equal to
$1.75, the Conversion Rate shall be 5.71; and if the Average
Stock Price is greater than $1.75, the Conversion Rate shall
be 5.00. The Corporation shall not issue fractional shares
of Common Stock upon conversion of Series A Preferred Stock
or as Cumulated Series A Dividends, but, in lieu thereof,
shall pay to a Series A Holder cash in an amount equal to
such fraction multiplied by the Closing Price per share of
the Common Stock on the trading day prior to the date on
which the shares are converted.
(ii) The Series A Preferred Stock shall be converted into Common Stock
in the following manner:
(A) Shares of Series A Preferred Stock received by the
Corporation in exchange for Common Stock shall be retired
and canceled and shall no longer be available for issuance
as Series A Preferred Stock.
(B) A Series A Holder shall give written notice to the
Corporation of its desire to convert all or a portion of the
shares of Series A Preferred Stock owned by such Series A
Holder. Such notice shall be accompanied by certificates,
duly endorsed for transfer, evidencing the number of shares
of Series A Preferred Stock such Series A Holder desires to
convert, together with cash, if any, required by
subparagraph 5(ii)(C) hereof. The Corporation will, as soon
as practicable thereafter, deliver to such Series A Holder
or to such Series A Holder's nominee or nominees, a
certificate or certificates for the appropriate number of
shares of Common Stock, together with cash, as provided in
subparagraph 5(i), with respect to any fractional shares
otherwise issuable upon conversion, and cash or shares of
Common Stock (valued at the Quarterly Average Stock Price
determined as of the immediately preceding Series A Dividend
Payment Date), at the option of the Corporation, in an
amount equal to all Cumulated Series A Dividends on each
share of Series A Preferred Stock so converted, provided, if
dividends are paid in cash, there are funds legally
available therefor, and, in the event of a partial
conversion, a certificate representing the balance, if any,
of the shares of Series A Preferred Stock represented by the
surrendered certificate or certificates but not converted to
Common Stock.
(C) In the event that shares of Series A Preferred Stock
are surrendered for conversion on any date during the period
from the close of business on a record date fixed for
determining the Series A Holders entitled to receive
dividends to the opening of business on the corresponding
Series A Dividend Payment Date, the Series A Holder must
also deliver to the Corporation an amount in cash equal to
the dividend payable with respect to such shares of Series A
Preferred Stock on such Series A Dividend Payment Date and
shall continue to be entitled to receive such dividend on
such Series A Dividend Payment Date. In the event that the
date on which the shares are converted is the Series A
Dividend Payment Date, such Series A Holder will be entitled
to receive the dividend payable with respect to such Series
A Preferred Stock and shall not be required to include any
payment in the amount of the dividend payable with respect
to such converted shares of Series A Preferred Stock.
(D) If, prior to the date on which all shares of Series
A Preferred Stock are converted, the Corporation shall (1)
pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, (2) subdivide its
outstanding shares of Common Stock, (3) combine its
outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (4) issue by reclassification of
its Common Stock other securities of the Corporation, the
Conversion Rate in effect on the opening of business on the
record date for determining stockholders entitled to
participate in such transaction shall thereupon be adjusted,
or, if necessary, the right to convert shall be amended,
such that the number of shares of Common Stock receivable
upon conversion of the shares of Series A Preferred Stock
immediately prior thereto shall be adjusted so that the
Series A Holder shall be entitled to receive, upon the
conversion of such shares of Series A Preferred Stock, the
kind and number of shares of Common Stock or other
securities of the Corporation that it would have owned or
would have been entitled to receive after the happening of
any of the events described above had the Series A Preferred
Stock been converted immediately prior to the happening of
such event or any record date with respect thereto. Any
adjustment made pursuant to this subparagraph 5(ii)(D) shall
become effective immediately after the effective date of
such event and such adjustment shall be retroactive to the
record date, if any, for such event. No adjustment with
respect to any ordinary cash dividends (made out of current
earnings) on shares of Common Stock shall be made.
(E) Whenever the Conversion Rate is adjusted pursuant to
any of the foregoing provisions of this paragraph 5, the
Corporation shall forthwith prepare a written statement
signed by the president or any vice president and the
treasurer or any assistant treasurer or the secretary or any
assistant secretary of the Corporation, setting forth the
adjusted Conversion Rate determined as provided in this
paragraph 5, and in reasonable detail the facts requiring
such adjustment. Such statement shall be filed among the
permanent records of the Corporation and a copy thereof
shall be furnished to any Series A Holder requesting the
same, and shall at all reasonable times during business
hours be open to inspection by the Series A Holders. Within
10 days of the event requiring an adjustment, the
Corporation shall also cause a notice, stating that such an
adjustment has been made and setting forth the adjusted
Conversion Rate, to be mailed, first-class, postage prepaid,
to all then Series A Holders of record at their addresses as
the same appear on the stock records of the Corporation.
(F) If a Series A Holder has delivered notice to the Cor-
poration of its desire to convert all or a portion of its
shares of Series A Preferred Stock, and certificates, duly
endorsed for conversion in respect of such shares and cash,
if any, required by subparagraph 5(ii)(C) hereof, then all
shares of Series A Preferred Stock so tendered to the
Corporation shall be deemed to be no longer outstanding and,
notwithstanding the failure of the Corporation to issue the
Common Stock, such Series A Holder shall be deemed, for all
purposes (except as set forth in the next sentence of this
subparagraph 5(ii)(F)), to be a holder of the number of
shares of Common Stock into which the shares of Series A
Preferred Stock such Series A Holder is entitled to receive
pursuant to the terms of this paragraph 5 in each case as of
the close of business on the date on which such conversion
notice is delivered. In the event such Series A Holder has
delivered notice to the Corporation of his desire to convert
all or a portion of his shares of Series A Preferred Stock,
such Series A Holder shall retain the right to receive all
Cumulated Series A Dividends payable on the shares so
converted through the date such Series A Holder's conversion
notice is delivered, as provided in this paragraph 5,
notwithstanding such conversion.
(iii) The Corporation shall not, by amendment of its Certificate
of Incorporation as amended as of the date hereof, or
through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to
be observed or performed hereunder by the Corporation but
shall at all times in good faith assist in the carrying out
of all the provisions of this paragraph 5. The Corporation
shall at all times reserve and keep available out of its
authorized but unissued Common Stock the full number of
shares of Common Stock deliverable upon the conversion of
all the then outstanding shares of Series A Preferred Stock
and shall take all such action and obtain all such permits
or orders as may be necessary to enable the Corporation to
validly and legally issue fully paid and non-assessable
shares of Common Stock upon the conversion of Series A
Preferred Stock. The Corporation shall obtain, prior to or
concurrently with the first issuance of the Series A
Preferred Stock, the authorization for the listing of shares
of Common Stock issuable upon conversion of the Series A
Preferred Stock on the Nasdaq National Market and shall use
its best efforts to maintain, for as long as any shares of
Series A Preferred Stock shall be outstanding, such
authorization or authorization for the listing of such
shares on a national securities exchange on which the Common
Stock may hereafter be listed. The Corporation shall pay any
and all transfer, stamp and other like taxes that may be
payable in respect of the issuance or delivery to a Series A
Holder of shares of Common Stock on conversion of the Series
A Preferred Stock by such holder.
(A) Liquidation Price. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, the amount that shall be paid to
a Series A Holder of each share of Series A Preferred Stock
shall be $12.00 and an additional sum equal to all Cumulated
Series A Dividends on a share of Series A Preferred Stock
(hereinafter called the "Liquidation Price"), and no more.
Upon any liquidation, dissolution or winding up of the
Corporation, the Series A Holders will be entitled to be
paid, after payment or provision for payment of the debts
and other liabilities of the Corporation and after payment
or provision for payment is made upon any Senior Securities,
but before any Distribution or payment is made upon any
Junior Securities, an amount in cash equal to the aggregate
Liquidation Price of all shares outstanding, and the Series
A Holders will not be entitled to any further payment. If,
upon any such liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed
among the Series A Holders and the holders of Parity
Securities (the "Parity Holders") are insufficient to permit
payment in full to such Series A Holders and the Parity
Holders of the aggregate amount that they are entitled to be
paid, then the available assets to be distributed will be
distributed ratably among such Series A Holders and Parity
Holders based upon the aggregate Liquidation Price of the
Series A Preferred Stock and the aggregate liquidation
preference of any Parity Securities held by each such Series
A Holder and Parity Holder, respectively. The Corporation
will mail written notice of such liquidation, dissolution or
winding up, not less than 30 days prior to the payment date
stated therein, to each Series A Holder of record. Neither
the consolidation or merger of the Corporation into or with
any other corporation or any other person, nor the sale or
transfer by the Corporation of all or any part of its
assets, nor the reduction of the capital stock of the
Corporation will be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of
paragraphs 2 and 6.
6. 7. Exchange.
(i) Time of Exchange. The Corporation may, at its option, re-
deem shares of the Series A Preferred Stock, in whole or in
part, by action of the Board, at any time after December 31,
1998, by exchanging shares of Common Stock for shares of
Series A Preferred Stock at the Conversion Rate, provided
(A) during the period beginning January 1, 1999 and ending
on December 31, 1999, the Closing Price per share of the
Common Stock is at least $4.00 per share for 20 consecutive
trading days, (B) during the period beginning January 1,
2000 and ending on December 31, 2000, the Closing Price per
share of the Common Stock is at least $3.00 per share for 20
consecutive trading days and (c) during the period beginning
January 1, 2001, at any time at the Corporation's option. In
addition, each Series A Holder shall also be entitled, upon
exchange, to receive cash or shares of Common Stock (valued
at the Quarterly Average Stock Price determined as of the
immediately preceding Series A Dividend Payment Date), at
the option of the Corporation, in an amount equal to all
Cumulated Series A Dividends on each share of Series A
Preferred Stock so exchanged, provided, if dividends are
paid in cash, there are funds legally available therefor.
The Corporation shall not issue fractional shares of Common
Stock in exchange for Series A Preferred Stock or as
Cumulated Series A Dividends, but, in lieu thereof, shall
pay to a Series A Holder cash in an amount equal to such
fraction multiplied by the Closing Price per share of Common
Stock on the last trading day prior to the date on which the
shares of Series A Preferred Stock are exchanged. The number
of shares of Common Stock received in exchange for shares of
Series A Preferred Stock plus the number of shares of Common
Stock paid as Cumulated Series A Dividends are hereinafter
referred to as "Exchange Shares," and the Exchange Shares
plus the Cumulated Series A Dividends payable in cash, if
any, are hereinafter referred to as the "Exchange Price."
(ii) Procedures for Exchange. The Series A Preferred Stock shall be
exchanged pursuant to subparagraph 7(i) in the following
manner:
(A) Shares of the Series A Preferred Stock redeemed by
the Corporation shall be retired and canceled and shall no
longer be available for issuance as Series A Preferred
Stock.
(B) In the event of an exchange of shares of Series
A Preferred Stock pursuant to subparagraph 7(i), notice of
exchange of shares of Common Stock for shares of Series A
Preferred Stock shall be given by the Corporation, not less
than 30 nor more than 60 days prior to the Business Day
designated in such notice (the "Exchange Date"), by first
class mail to Series A Holders at their respective addresses
then appearing on the records of the Corporation, and shall
also be published, on or about the date of such mailing, in
the National Edition of the Wall Street Journal. Such notice
of exchange shall specify the Exchange Date, the Conversion
Rate, whether Cumulated Series A Dividends will be paid in
cash or in shares of Common Stock, the total number of
shares of Series A Preferred Stock to be exchanged and, if
fewer than all the shares held by such Series A Holder, the
number of shares of such Series A Holder to be exchanged,
and the place or places of exchange. The conversion rights
of the Series A Holders shall continue until the Exchange
Date (provided no default by the Corporation in the payment
of the Exchange Price shall have occurred and be continuing,
and in the event of any such default the Series A Holders'
conversion rights shall continue until such shares are
actually redeemed, exchanged or converted), and such notice
shall state the then effective Conversion Rate and that the
right of Series A Holders to exercise their conversion
rights shall terminate at the close of business on the
Exchange Date (provided no default by the Corporation in the
payment of the Exchange Price shall have occurred and be
continuing). On or before the Exchange Date, each Series A
Holder shall surrender to the Corporation or its designated
agent, at such place as it may designate in the exchange
notice, certificates, duly endorsed for transfer, evidencing
the number of shares of Series A Preferred Stock held by
such Series A Holder and being exchanged. Upon such
surrender, the Series A Holder shall be entitled to receive
the Exchange Price per share.
(C) If on the Exchange Date, (1) notice of exchange has
been mailed or delivered as provided herein and (2) the
Corporation has deposited with an independent paying agent
funds necessary to pay the Exchange Price payable in cash
and certificates representing shares of Common Stock
representing the Exchange Shares, then, unless the
Corporation defaults on the exchange, all shares of Series A
Preferred Stock subject to exchange shall, whether or not
certificates for such shares have been surrendered for
cancellation, be deemed to be no longer outstanding for any
purpose and all rights with respect to such shares shall
cease, except the right of the Series A Holder to receive
the Exchange Price per share, without interest. The
Corporation shall issue to the Series A Holder certificates
representing the shares of Common Stock that constitute the
Exchange Shares only after such holder's Series A Preferred
Stock certificates have been surrendered to the Corporation
for cancellation.
7. 8. Change in Control
(i) In the event of a "Change in Control" of the Corporation (as
hereinafter defined), each Series A Holder shall have the
right to put the security to the Corporation at $25.00 per
share ("Change in Control Price") and no more. The
Corporation shall have the right to pay the Change in
Control Price in cash and/or shares of Common Stock (in
which case such shares of Common Stock shall be valued at
average stock price for the ten days preceding the Change in
Control event, provided, if the Change in Control Price is
to be paid in cash, there are funds legally available
therefor. The Corporation shall not issue fractional shares
of Common Stock in exchange for Series A Preferred Stock,
but, in lieu thereof, shall pay to a Series A Holder cash in
an amount equal to such fraction multiplied by the Closing
Price per share of Common Stock on the last trading day
prior to the date on which the shares of Series A Preferred
Stock are exchanged.
(ii) Procedures for Exchange. The Series A Preferred Stock shall be
exchanged pursuant to subparagraph 8(i) in the following
manner:
(A) Shares of the Series A Preferred Stock redeemed by
the Corporation in exchange for the Change in Control Price
shall be retired and canceled and shall no longer be
available for issuance as Series A Preferred Stock.
(B) In the event of a Change in Control may occur,
notice shall be given by the Corporation, not less than 30
nor more than 60 days prior to the Business Day designated
in such notice (the "Change in Control Exchange Date"), by
first class mail to Series A Holders at their respective
addresses then appearing on the records of the Corporation,
and shall also be published, on or about the date of such
mailing, in the National Edition of the Wall Street Journal.
Such notice of exchange shall specify the Change in Control
Exchange Date, whether the Change in Control Price is to be
paid in cash, in shares of Common Stock or in a combination
thereof, and the place or places of exchange. The conversion
rights of the Series A Holders shall continue until the
Change in Control occurs (provided no default by the
Corporation in the payment of the Change in Control Price
shall have occurred and be continuing, and in the event of
any such default the Series A Holders' conversion rights
shall continue until such shares are actually redeemed,
exchanged or converted), and such notice shall state the
then effective Conversion Rate and that the right of Series
A Holders to exercise their conversion rights shall
terminate at the time the Change in Control occurs (provided
no default by the Corporation in the payment of the Change
in Control Price shall have occurred and be continuing). On
or before the Change in Control Exchange Date, each Series A
Holder shall surrender to the Corporation or its designated
agent, at such place as it may designate in the exchange
notice, certificates, duly endorsed for transfer, evidencing
the number of shares of Series A Preferred Stock held by
such Series A Holder. Upon such surrender, the Series A
Holder shall be entitled to receive the Change in Control
Price per share.
(C) If, at the time the Change in Control occurs, (1)
notice of exchange has been mailed or delivered as provided
herein and (2) the Corporation has deposited with an
independent paying agent funds necessary to pay the
aggregate Change in Control Price payable in cash and
certificates representing shares of Common Stock if part of
the Change in Control Price is to be paid in shares of
Common Stock, then, unless the Corporation defaults on the
exchange, all shares of Series A Preferred Stock subject to
exchange shall, whether or not certificates for such shares
have been surrendered for cancellation, be deemed to be no
longer outstanding for any purpose and all rights with
respect to such shares shall cease, except the right of the
Series A Holder to receive the Change in Control Price per
share, without interest. The Corporation or its independent
paying agent shall pay the Change in Control Price only
after such holder's Series A Preferred Stock certificates
have been surrendered to the Corporation for cancellation.
(iii) "Change in Control" shall means the occurrence, after the
Meeting Date, of any of the following events, directly or
indirectly or in one or more series of transactions:
(A) The consolidation or merger of the Corporation with
any Third Party (as hereinafter defined), unless the
Corporation is the entity surviving such merger or
consolidation;
(B) The transfer of all or substantially all of the
assets of the Corporation to a Third Party;
(C) A Third Party, directly or indirectly, through one or
more subsidiaries or transactions or acting in
concert with one or more persons or entities:
(x) acquires beneficial ownership of more than 50% of
the outstanding shares of Common Stock;
(y) acquires irrevocable proxies representing more
than 50% of the outstanding shares of Common Stock;
or
(z) acquires any combination of beneficial ownership
of outstanding shares of Common Stock and irrevocable
proxies representing more than 50% of the outstanding
shares of Common Stock.
Notwithstanding any provision contained herein, a Change in
Control shall not include any of the above described events if
they are the result of a Third Party's inadvertently acquiring
beneficial ownership or irrevocable proxies or a combination
of both for 50% or more of the outstanding shares of Common
Stock, and the Third Party as promptly as practicable
thereafter divests itself of beneficial ownership or
irrevocable proxies for a sufficient number of shares so that
the Third Party no longer has beneficial ownership or
irrevocable proxies or a combination of both for 50% or more
of the outstanding shares of Common Stock.
(iv) Third Party" means a single person or a group of persons or
entities acting in concert not wholly owned directly or
indirectly by the Corporation.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate of
Amendment and do hereby affirm the foregoing as true under the penalties of
perjury this 31st day of December, 1997.
NETWORK IMAGING CORPORATION
By: ________________________
Name: James J. Leto
Title: President
ATTEST:
- --------------------------
Name: Julia A. Bowen
Title: Assistant Secretary
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES L 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 L Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 6,250 shares of
Preferred Stock, is the Series L Convertible Preferred Stock (the "Series L
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 L Preferred Stock will bear no dividends, and the holders of
the Series L Preferred Stock shall not be entitled to receive dividends on the
Series L 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
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 L 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 L 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%) to 83% and 79%, respectively.
In addition, in the event that the second closing and third closing under the
Securities Purchase Agreement (as defined herein) do not occur by virtue of the
Corporation's failure to obtain the Stockholder Approval contemplated by Section
4(n) of the Securities Purchase Agreement, the Conversion Percentage for each of
the periods set forth below shall be permanently reduced by ten percent (10%) to
75% and 71%, respectively. 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 48th day following 85%
the First Closing Date
On or after the 48th 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 L
Preferred Stock (the "Securities Purchase Agreement").
F. "Fixed Conversion Price" means $1.375 and shall be subject to
adjustment as provided herein.
G. "N" means the number of days from, but excluding, the date of
original issuance of such share of Series L 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 L Preferred Stock may, at any time and from time to
time, convert (an "Optional Conversion") each of its shares of Series L
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 L 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,
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 L 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 L 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 L Preferred Stock
being converted and (y) a certificate representing the number of shares of
Series L 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 L Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series L
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
Common Stock issuable upon conversion of the Series L 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 L
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 L 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"), which, as of
the First Closing Date, shall be 5,190,000 shares of Common Stock. The Cap
Amount shall be allocated pro-rata to the holders of Series L 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 L 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 L 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 L 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 4.99% 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 L
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 L 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 L 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 L 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
IV (the "Required Conversion at Maturity"). If the Required Conversion at
Maturity occurs, the Corporation and the holders of Series L Preferred Stock
shall follow the applicable conversion procedures set forth in Paragraph B of
this Article IV; provided, however, that the holders of Series L 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
L 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 L 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 L Preferred Stock outstanding at the then current Conversion Price.
The Reserved Amount shall be allocated to the holders of Series L 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 then issuable upon conversion of the outstanding Series L Preferred
Stock on such trading days, the Corporation shall immediately notify the holders
of Series L 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 L Preferred Stock. Subject to Paragraph C of this Article V,
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 L
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 L 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 L 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.
C. Limitations on Redemption Right. Notwithstanding the provisions of
Paragraph B of this Article V, the holders of Series L Preferred Stock shall
have no right to require the Corporation to effect a redemption of their
outstanding shares of Series L Preferred Stock as provided in Paragraph B of
this Article V so long as (i) the Corporation has not, at any time, decreased
the Reserved Amount below 12,500,000 shares of Common Stock; (ii) the
Corporation shall have taken immediate action following the applicable
Authorization Trigger Date (including, if necessary, seeking stockholder
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 L Preferred Stock; and
(iii) the Corporation continues to use its good faith best efforts (including
the resolicitation of stockholder 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 L Preferred Stock. The Corporation will be deemed to be using
"its good faith best efforts" to increase the Reserved Amount so long as it
solicits stockholder approval to authorize the issuance of additional shares of
Common Stock not less than three (3) times during each twelve month period
following the applicable Authorization Trigger Date during which any shares of
Series L Preferred Stock remain outstanding.
VI. FAILURE TO SATISFY CONVERSIONS
A. Conversion Default Payments. If, at any time, (x) a holder of
shares of Series L 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 L 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)
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 L 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 L 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 L
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 L 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 L 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 L 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 L
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
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 L 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 L 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 L 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 L 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 L Preferred
Stock (a "Trading Market Trigger Event"), the Corporation shall immediately
notify the holders of Series L 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 L 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
such prohibitions within ninety (90) days after the Trading Market Trigger
Event, each holder of Series L 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 L 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 L 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 L 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 L 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 L Preferred Stock (including
any shares of Series L 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)-(iv) 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 L 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 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 L
Preferred Stock upon conversion of the Series L Preferred Stock as and when
required by the Securities Purchase Agreement or the Registration Rights
Agreement;
(iii) the Corporation provides notice to any holder of Series
L 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 L
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);
(iv) 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 approved, recommended or otherwise con-
sented to any transaction or series of related transactions which result in
fifty percent (50%) or more of the voting power of the Corporation's capital
stock being 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 L 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 L 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), (iii) or (iv) above
shall immediately constitute a Redemption Event and there shall be no cure
period; provided, however, that the holders of Series L Preferred Stock shall
have no right to deliver a Redemption Notice following the occurrence of a
Redemption Event specified in clause (i) above if the Corporation pays to each
holder within five (5) business days after the occurrence of such Redemption
Event, as liquidated damages for the decrease in the value of the Series L
Preferred Stock (and the shares of the Corporation's Common Stock issuable upon
conversion thereof) which will result from the occurrence of such Redemption
Event, an amount (the "Damages Amount") equal to twenty-five percent (25%) of
the aggregate Face Amount of the shares of Series L Preferred Stock then held by
each such holder. The Damages Amount shall be payable, at the Corporation's
option, in cash or shares of Common Stock that have been registered by the
Corporation under the Securities Act for resale by the holders (based upon a
price per share of Common Stock equal to fifty percent (50%) of the lowest
Closing Price of the Common Stock on any single trading day during the ten (10)
consecutive trading day period ending on the trading day immediately preceding
the date of such Redemption Event). Upon the initial issuance of shares of
Series L Preferred Stock, the Corporation shall reserve 3,000,000 shares of
Common Stock to satisfy its obligation with respect to the Damages Amount and
thereafter the number of authorized but unissued shares of Common Stock so
reserved shall not be decreased. In the event that the number of shares required
to be issued by the Corporation with respect to the Damages Amount exceeds
3,000,000 shares of Common Stock and the Corporation does not have a sufficient
number of shares of Common Stock authorized and available for issuance to
satisfy its obligation with respect to the Damages Amount, the Corporation shall
issue and deliver to the holders, on a pro-rata basis based on the number of
shares of Series L Preferred Stock then held by each such holder, a number of
shares of Common Stock equal to the greater of (i) the number of shares
authorized and available for issuance by the Corporation to satisfy such
obligation and (ii) all 3,000,000 shares of Common Stock so reserved for such
purpose and, upon such issuance, the holders shall have no right of redemption
with respect to such Redemption Event, but shall retain all other remedies to
which they may be entitled at law or in equity (which remedies shall not include
the right of redemption).
B. Definition of Redemption Amount. The "Redemption Amount" with
respect to a share of Series L 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
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 L Preferred Stock within
ten (10) business days of its receipt of a notice requiring such redemption (a
"Redemption Notice"), then the holder of Series L 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 L Preferred Stock subject to Redemption Notices, the
Corporation shall redeem shares of Series L Preferred Stock from each holder pro
rata, based on the total number of shares of Series L Preferred Stock included
by such holder in the Redemption Notice relative to the total number of shares
of Series L 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 L Preferred Stock (other than
Series L 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 L 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
L Preferred Stock may not convert any shares of Series L Preferred Stock
selected for redemption hereunder into Common Stock at any time on or 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 L 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 L 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
"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 L Preferred Stock selected for redemption and
the Optional Redemption Amount to (i) the holders of Series L Preferred Stock
selected for redemption at the address and facsimile number of such holder
appearing in the Corporation's register for the Series L 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 L Preferred Stock) of such notice to the holders of Series L Preferred
Stock.
(iv) The Optional Redemption Amount shall be paid to the
holder of the Series L 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 L
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
L 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 L 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 L Preferred Stock being redeemed within five (5) business days of the
date the certificates evidencing the Series L 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 L 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 L 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 L 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 L
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 L 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 L 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
Optional Redemption Amount hereunder.
IX. RANK
All shares of the Series L 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 L 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 L Preferred Stock) (collectively with the Common
Stock, "Junior Securities"); (iii) pari passu with the Corporation's Series K
Convertible Preferred Stock, par value $.0001 per share, and any class or series
of capital stock of the Corporation hereafter created (with the consent of the
holders of Series L Preferred Stock obtained in accordance with Article XIII
hereof) specifically ranking, by its terms, on parity with the Series L
Preferred Stock (collectively, the "Pari Passu Securities"); (iv) junior to the
Corporation's 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 L Preferred Stock
obtained in accordance with Article XIII hereof) specifically ranking, by its
terms, senior to the Series L 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 L 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 L 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 L 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 winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series L
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 L
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 L 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 L 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 L 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 L 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
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 L Preferred Stock shall be entitled,
upon any conversion of shares of Series L 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 First 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 L
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 L 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 L 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
L 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 L Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series L 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 L 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.
To the extent that under the Business Corporation Law the vote of the
holders of the Series L 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 L 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 L
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 L
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series L 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 L 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 L Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series L 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 L Preferred Stock;
(c) create any new class or series of capital stock
having a preference over the Series L 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 L 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 L Preferred Stock;
(f) issue any shares of Series L 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 L
Preferred Stock agree to allow the Corporation to alter or change the rights,
preferences or privileges of the shares of Series L Preferred Stock pursuant to
subsection (a) above, then the Corporation shall deliver notice of such approved
change to the holders of the Series L 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 L Preferred
Stock.
XIV. MISCELLANEOUS
A. Cancellation of Series L Preferred Stock. If any shares of Series L
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 L 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 L
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 L Preferred Stock based on the number of shares of Series L 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 L Preferred Stock based
on the number of shares of Series L 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 L 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 L Preferred Stock shall be allocated to
the remaining holders of shares of Series L Preferred Stock, pro rata based on
the number of shares of Series L 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 L 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 L 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 L 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 L Preferred Stock with respect to
such unconverted shares of Series L 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 L 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 L 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 L 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]
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 8th day of December, 1997.
NETWORK IMAGING CORPORATION
By:
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series L Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series L 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 L 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 L 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.
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES M 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:
<PAGE>
Series M Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 4,000 shares of
Preferred Stock, is the Series M Convertible Preferred Stock (the "Series M
Preferred Stock") and the face amount shall be One Thousand U.S. Dollars
($1,000.00) per share (the "Face Amount"). No other Series M Preferred Stock
shall be issued without the consent of Fred Kassner.
II. NO DIVIDENDS
The Series M Preferred Stock will bear no dividends, and the holders of
the Series M Preferred Stock shall not be entitled to receive dividends on the
Series M Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A. "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).
B. "Conversion Price" means a price equal to One Dollar ($1.00) per
share.
C. "N" means the number of days from, but excluding, the date of
original issuance of such share of Series M Preferred Stock.
D. "Premium" means an amount equal to (.0850)x(N/365)x(1,000).
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 M Preferred Stock may, at any time and from time to time, convert (an
"Optional Conversion") each of its shares of Series M Preferred Stock into a
number of fully paid and nonassessable shares of Common Stock at $1.00 per share
if the Corporation timely redeems the Premium thereon in cash or Common Stock,
at the sole option of the Company.
(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 or Common Stock, at the sole option of the
Company, 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).
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 M 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 XII.B).
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of Preferred Stock Certificates from a holder of Series M 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 XII.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 M Preferred Stock
being converted and (y) a certificate representing the number of shares of
Series M 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 and
all other reasonable expenses 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 M Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series M
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
Common Stock issuable upon conversion of the Series M 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. Required Conversion at Maturity. Provided all shares of Common Stock
issuable upon conversion of all outstanding shares of Series M 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 M 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 M Preferred Stock issued and outstanding on the
fourth anniversary of the execution date (the "Maturity Date"), automatically
shall be converted into shares of Common Stock on such date in accordance with
the conversion rate set forth in Paragraph A of this Article IV (the "Required
Conversion at Maturity"). If the Required Conversion at Maturity occurs, the
Corporation and the holders of Series M Preferred Stock shall follow the
applicable conversion procedures set forth in Paragraph B of this Article IV;
provided, however, that the holders of Series M 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
Upon the initial issuance of the shares of Series M Preferred Stock,
the Corporation shall reserve 5,360,000 shares of the authorized but unissued
shares of Common Stock for issuance upon conversion of the Series M 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 M Preferred
Stock outstanding at the then current Conversion Price.
VI. 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 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 M
Preferred Stock upon conversion of the Series M Preferred Stock as and when
required by the Securities Purchase Agreement;
(ii) the Corporation provides notice to any holder of Series M
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 M
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);
(iii) the Corporation shall:
(a) sell, convey or dispose of all or substantially
all of its assets;
(b) merge, consolidate or engage in any other bus-
iness combination with any other entity (other than pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of incor-
poration of the Corporation); or
(c) have approved, recommended or otherwise consented
to any transaction or series of related transactions which result in 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 M 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 M 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.
B. Definition of Redemption Amount. The "Redemption Amount" with
respect to a share of Series M 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
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 M Preferred Stock within
ten (10) business days of its receipt of a notice requiring such redemption (a
"Redemption Notice"), then the holder of Series M 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 twelve percent (12%) 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 Conversion Price
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 or the Securities Purchase Agreement to redeem (an
"Optional Redemption") all (but not less than all) of the then outstanding
Series M Preferred Stock (other than Series M Preferred Stock which is the
subject of a Notice of Conversion delivered prior to the delivery date of the
Optional Redemption Notice) 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 M 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 M Preferred Stock
may not convert any shares of Series M 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. The
"Optional Redemption Amount" with respect to each share of Series M Preferred
Stock means (a) 100% multiplied by the sum of (I) the Face Amount thereof plus
(II) the accrued Premium thereon.
VII. RANK
All shares of the Series M Preferred Stock shall rank (i) prior to the
Corporation's Common Stock; (ii) prior to the Series K and L Cumulative
Convertible Preferred Stocks; (iii) prior to any class or series of capital
stock of the Corporation hereafter created (unless, with the consent of the
holder(s) of Series M Preferred Stock); and (iii) junior to the Corporations
Series A Cumulative Convertible Preferred Stock, par value $.0001 per share (the
"Senior Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.
VIII. 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 M Preferred Stock shall have received the Liquidation
Preference with respect to each share.
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
winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series M
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.
IX. 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
date of execution, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, combination, reclassification or other similar
event, the 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
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 date of execution, 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 M
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 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 M
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 M 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 M 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 M 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 date of
execution 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 M Preferred Stock shall be entitled,
upon any conversion of shares of Series M 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 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 date of execution, 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 M
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 M Preferred Stock 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 IX, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series M 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
M 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 M Preferred Stock.
X. VOTING RIGHTS
The holders of the Series M Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "Business Corporation Law"), in this Article X and in Article XI below.
Notwithstanding the above, the Corporation shall provide each holder of
Series M 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.
To the extent that under the Business Corporation Law the vote of the
holders of the Series M 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 M 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 M
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 M
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series M 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 using the record date for the taking of such vote
of shareholders as the date as of which the Conversion Price is calculated.
XI. PROTECTION PROVISIONS
So long as any shares of Series M 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 M Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series M 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 M Preferred Stock;
(c) create any new class or series of capital stock
having a preference over the Series M Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined, "Senior Securities");
(d) create any new class or series of capital stock
ranking pari passu with the Series M Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined, "Pari Passu Securities");
(e) increase the authorized number of shares of
Series M Preferred Stock;
(f) issue any shares of Series M Preferred Stock
other than pursuant to the Securities Purchase Agreement with Fred Kassner;
(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 M
Preferred Stock agree to allow the Corporation to alter or change the rights,
preferences or privileges of the shares of Series M Preferred Stock pursuant to
subsection (a) above, then the Corporation shall deliver notice of such approved
change to the holders of the Series M 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 M Preferred
Stock.
XII. MISCELLANEOUS
A. Cancellation of Series M Preferred Stock. If any shares of Series M
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 M 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 M
Preferred Stock.
C. Status as Stockholder. Upon submission of a Notice of Conversion by
a holder of Series M 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 M 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 M 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 M Preferred Stock with respect to
such unconverted shares of Series M Preferred Stock and the Corporation shall,
as soon as practicable, return such unconverted shares to the holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this ____ day of December, 1997.
NETWORK IMAGING CORPORATION
By:
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series M Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series M Preferred Stock (the "Conversion"), represented by stock certificate
No.(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 M 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 M 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: $1.00
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.
CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR IN THE CERTIFICATE
OF AMENDMENT TO CERTIFICATE OF DESIGNATIONS OF SERIES A CUMULATIVE
CONVERTIBLE PREFERRED STOCK OF NETWORK IMAGING CORPORATION FILED IN THE
OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON DECEMBER 31, 1997
Network Imaging Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is Network Imaging Corporation.
2. That a Certificate of Amendment to Certificate of Designations of
Series A Cumulative Convertible Preferred Stock of Network Imaging Corporation
was filed by the Secretary of State of Delaware on December 31, 1997 and that
said Certificate requires correction as permitted by Section 103 of the General
Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate of Amendment is that the
third paragraph of said Certificate did not include a reference to the unanimous
written consent on December 31, 1997 of the holders of the Series L Convertible
Preferred Stock in which these holders resolved to amend the Certificate of
Designations in an identical manner as did the holders of Common Stock, Series
F-1 Convertible Preferred Stock, Series F-2 Convertible Preferred Stock, Series
F-3 Convertible Preferred Stock, Series F-4 Convertible Preferred Stock, and
Series K Convertible Preferred Stock, as described in said Certificate.
4. The inaccuracy or defect of said Certificate to be corrected as
follows:
The third paragraph of said Certificate should be corrected to read in
its entirety as follows: That, (1) on December 3, 1997, the Board of Directors
of the Corporation resolved to amend the Certificate of Designations of the
Series A Cumulative Convertible Preferred Stock ("Certificate of Designations"),
(2) on December 31, 1997, the holders of Common Stock, voting separately as a
class, and the holders of the Series A Cumulative Convertible Preferred Stock,
voting separately as a class, (3) by unanimous written consent dated December
31, 1997, the holders of the Series F-1 Convertible Preferred Stock, the Series
F-2 Convertible Preferred Stock, the Series F-3 Convertible Preferred Stock and
the Series F-4 Convertible Preferred Stock, (4) by unanimous written consent
dated December 31, 1997, the holders of the Series K Convertible Preferred
Stock, and (5) by unanimous written consent dated December 31, 1997, the holders
of the Series L Convertible Preferred Stock, resolved to amend the Certificate
of Designations as follows:
<PAGE>
IN WITNESS WHEREOF, Network Imaging Corporation has caused this
Certificate to be signed by Julia A. Bowen, its Vice President, General Counsel
and Assistance Secretary, this ___ day of January 1998.
NETWORK IMAGING CORPORATION
By: _______________________
Julia A. Bowen
NETWORK IMAGING CORPORATION
CERTIFICATE OF ELIMINATION
OF
CERTIFICATES OF DESIGNATION
OF
SERIES F-1 CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the Delaware General Corporation Law)
We, James J. Leto and Julia A. Bowen, the President and Assistant
Secretary, respectively, of Network Imaging Corporation, a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"Company"), in accordance with the provisions of Section 103 thereof, DO HEREBY
CERTIFY:
That pursuant to the authority vested in the Board of Directors by the
Certificate of Incorporation of the Company and Section 151(g) of the Delaware
General Corporation Law, the Board of Directors on
adopted the following resolutions for the purpose of eliminating the
Certificate of Designation of the Company's Series F-1 Convertible Preferred
Stock from the Certificate of Incorporation:
WHEREAS, the Board of Directors authorized the issuance of an aggregate
of 1,792,186 shares of Series F-1 Convertible Preferred Stock ("Series F-1
Stock") at a meeting held on March 29, 1996;
WHEREAS, there are no longer any outstanding shares of the Series F-1
Stock as a result of conversions and redemptions of the Series F-1 Stock;
WHEREAS, the Board of Directors of the Company has determined that no
further shares of Series F-1 Stock will be issued pursuant to the Certificate of
Designation; it is
RESOLVED, that all authorized shares of the Series F-1 Stock be, and
they hereby are, cancelled and that all such shares be, and they hereby are,
returned to the status of authorized but unissued Preferred Stock of no
designated series; and
FURTHER RESOLVED, that the proper officers of the Company be, and they
hereby are, authorized and directed on behalf of the Company to prepare, execute
and file documents, to amend or modify the same, to pay such fees, and to take
such other actions as may be necessary or appropriate for purposes of
eliminating from the Certificate of Incorporation of the Company all reference
to Series F-1 Stock.
IN WITNESS WHEREOF, Network Imaging Corporation has caused its
corporate seal to be hereunto affixed and this certificate to be signed by James
J. Leto, its President, and attested by Julia A. Bowen, its Assistant Secretary,
this day of January 1998.
NETWORK IMAGING CORPORATION
By: _______________________________
James J. Leto
President
Attest:
By: __________________
Julia A. Bowen
Assistant Secretary
NETWORK IMAGING CORPORATION
CERTIFICATE OF ELIMINATION
OF
CERTIFICATES OF DESIGNATION
OF
SERIES F-2 CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the Delaware General Corporation Law)
We, James J. Leto and Julia A. Bowen, the President and Assistant
Secretary, respectively, of Network Imaging Corporation, a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"Company"), in accordance with the provisions of Section 103 thereof, DO HEREBY
CERTIFY:
That pursuant to the authority vested in the Board of Directors by the
Certificate of Incorporation of the Company and Section 151(g) of the Delaware
General Corporation Law, the Board of Directors on
adopted the following resolutions for the purpose of eliminating the
Certificate of Designation of the Company's Series F-2 Convertible Preferred
Stock from the Certificate of Incorporation:
WHEREAS, the Board of Directors authorized the issuance of an aggregate
of 1,792,186 shares of Series F-2 Convertible Preferred Stock ("Series F-2
Stock") at a meeting held on March 29, 1996;
WHEREAS, there are no longer any outstanding shares of the Series F-2
Stock as a result of conversions and redemptions of the Series F-2 Stock;
WHEREAS, the Board of Directors of the Company has determined that no
further shares of Series F-2 Stock will be issued pursuant to the Certificate of
Designation; it is
RESOLVED, that all authorized shares of the Series F-2 Stock be, and
they hereby are, cancelled and that all such shares be, and they hereby are,
returned to the status of authorized but unissued Preferred Stock of no
designated series; and
FURTHER RESOLVED, that the proper officers of the Company be, and they
hereby are, authorized and directed on behalf of the Company to prepare, execute
and file documents, to amend or modify the same, to pay such fees, and to take
such other actions as may be necessary or appropriate for purposes of
eliminating from the Certificate of Incorporation of the Company all reference
to Series F-2 Stock.
IN WITNESS WHEREOF, Network Imaging Corporation has caused its
corporate seal to be hereunto affixed and this certificate to be signed by James
J. Leto, its President, and attested by Julia A. Bowen, its Assistant Secretary,
this day of January 1998.
NETWORK IMAGING CORPORATION
By: _______________________________
James J. Leto
President
Attest:
By: __________________
Julia A. Bowen
Assistant Secretary
NETWORK IMAGING CORPORATION
CERTIFICATE OF ELIMINATION
OF
CERTIFICATES OF DESIGNATION
OF
SERIES F-3 CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the Delaware General Corporation Law)
We, James J. Leto and Julia A. Bowen, the President and Assistant
Secretary, respectively, of Network Imaging Corporation, a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"Company"), in accordance with the provisions of Section 103 thereof, DO HEREBY
CERTIFY:
That pursuant to the authority vested in the Board of Directors by the
Certificate of Incorporation of the Company and Section 151(g) of the Delaware
General Corporation Law, the Board of Directors on
adopted the following resolutions for the purpose of eliminating the
Certificate of Designation of the Company's Series F-3 Convertible Preferred
Stock from the Certificate of Incorporation:
WHEREAS, the Board of Directors authorized the issuance of an aggregate
of 1,792,186 shares of Series F-3 Convertible Preferred Stock ("Series F-3
Stock") at a meeting held on March 29, 1996;
WHEREAS, there are no longer any outstanding shares of the Series F-3
Stock as a result of conversions and redemptions of the Series F-3 Stock;
WHEREAS, the Board of Directors of the Company has determined that no
further shares of Series F-3 Stock will be issued pursuant to the Certificate of
Designation; it is
RESOLVED, that all authorized shares of the Series F-3 Stock be, and
they hereby are, cancelled and that all such shares be, and they hereby are,
returned to the status of authorized but unissued Preferred Stock of no
designated series; and
FURTHER RESOLVED, that the proper officers of the Company be, and they
hereby are, authorized and directed on behalf of the Company to prepare, execute
and file documents, to amend or modify the same, to pay such fees, and to take
such other actions as may be necessary or appropriate for purposes of
eliminating from the Certificate of Incorporation of the Company all reference
to Series F-3 Stock.
IN WITNESS WHEREOF, Network Imaging Corporation has caused its
corporate seal to be hereunto affixed and this certificate to be signed by James
J. Leto, its President, and attested by Julia A. Bowen, its Assistant Secretary,
this day of January 1998.
NETWORK IMAGING CORPORATION
By: _______________________________
James J. Leto
President
Attest:
By: __________________
Julia A. Bowen
Assistant Secretary
NETWORK IMAGING CORPORATION
CERTIFICATE OF ELIMINATION
OF
CERTIFICATES OF DESIGNATION
OF
SERIES F-4 CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 151 of the Delaware General Corporation Law)
We, James J. Leto and Julia A. Bowen, the President and Assistant
Secretary, respectively, of Network Imaging Corporation, a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"Company"), in accordance with the provisions of Section 103 thereof, DO HEREBY
CERTIFY:
That pursuant to the authority vested in the Board of Directors by the
Certificate of Incorporation of the Company and Section 151(g) of the Delaware
General Corporation Law, the Board of Directors on
adopted the following resolutions for the purpose of eliminating the
Certificate of Designation of the Company's Series F-4 Convertible Preferred
Stock from the Certificate of Incorporation:
WHEREAS, the Board of Directors authorized the issuance of an aggregate
of 1,792,186 shares of Series F-4 Convertible Preferred Stock ("Series F-4
Stock") at a meeting held on March 29, 1996;
WHEREAS, there are no longer any outstanding shares of the Series F-4
Stock as a result of conversions and redemptions of the Series F-4 Stock;
WHEREAS, the Board of Directors of the Company has determined that no
further shares of Series F-4 Stock will be issued pursuant to the Certificate of
Designation; it is
RESOLVED, that all authorized shares of the Series F-4 Stock be, and
they hereby are, cancelled and that all such shares be, and they hereby are,
returned to the status of authorized but unissued Preferred Stock of no
designated series; and
FURTHER RESOLVED, that the proper officers of the Company be, and they
hereby are, authorized and directed on behalf of the Company to prepare, execute
and file documents, to amend or modify the same, to pay such fees, and to take
such other actions as may be necessary or appropriate for purposes of
eliminating from the Certificate of Incorporation of the Company all reference
to Series F-4 Stock.
IN WITNESS WHEREOF, Network Imaging Corporation has caused its
corporate seal to be hereunto affixed and this certificate to be signed by James
J. Leto, its President, and attested by Julia A. Bowen, its Assistant Secretary,
this day of January 1998.
NETWORK IMAGING CORPORATION
By: _______________________________
James J. Leto
President
Attest:
By: __________________
Julia A. Bowen
Assistant Secretary
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December
8, 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 L 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
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 such number of Units (not to
exceed 375 Units in the case of Zanett Lombardier, Ltd. ("Lombardier"), 375
Units in the case of Bruno Guazzoni ("Guazzoni") and 750 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 following June 15, 1998; provided, however, that the aforementioned
two (2) business day period shall be extended by one (1) day for each day after
June 15, 1998 on which the Company has not held the special meeting of its
stockholders required to be held pursuant to Section 4(n) hereof. If a Purchaser
shall fail to designate that it will purchase Units at the Second Closing, such
Purchaser shall have no obligation to purchase any Units at such closing.
(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 375 Units in the case of Lombardier, 375 Units in the case of Guazzoni
and 750 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 September 15, 1998; provided, however, that the aforementioned two (2)
business day period shall be extended by one (1) day for each day after
September 15, 1998 on which the Company has not held the special meeting of its
stockholders required to be held pursuant to Section 4(n) hereof. If a Purchaser
shall fail to designate that it will purchase Units at the Third Closing, such
Purchaser shall have no obligation to purchase any Units at such 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 New York City time on December 8,
1997; (ii) in the case of the Second Closing, 12:00 noon New York City time on
the fifth (5th) trading day following receipt by the Company of the last notice
from a Purchaser under Section 1(a)(ii) hereof; and (iii) in the case of the
Third Closing, 12:00 noon New York City time on the fifth (5th) trading day
following receipt by the Company of the last notice from a Purchaser under
Section 1(a)(iii) hereof (subject, in the case of each of the Second Closing and
the Third Closing, to a two (2) business day grace period at either party's
option) or 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,
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 (including registration pursuant to
Rule 416 thereunder) 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
such Security is registered under the Securities Act (including registration
pursuant to Rule 416 thereunder), 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,
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
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
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
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.
o. No Integrated Offering. 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
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, 1996 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, (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 or (v) the issuance of securities to Alex. Brown & Sons,
Incorporated as compensation for services rendered to the Company pursuant to
that certain letter agreement dated as of August 13, 1997. 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
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. 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
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 June 15, 1998 and use its best efforts to obtain
at such meeting 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) (the "Stockholder Approval"). 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
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 Closing and the 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
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.
(v) The Stockholder Approval contemplated by Section 4(n)
shall have been obtained.
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.
(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 3,250.
b. With respect to the Second Closing and the Third Closing:
(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).
(viii) The Stockholder Approval 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 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.
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.
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 December 8, 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]
<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: 1,750
Purchase Price ($1,000 per Unit): $1,750,000
- --------
* 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
Tower 49, 31st Floor
12 East 49th Street
New York, NY 10017
Telecopy: (212) 588-0205
Attn: Claudio Guazzoni
AGGREGATE SUBSCRIPTION AMOUNT
Number of Units* to be Purchased at First Closing: 750
Purchase Price ($1,000 per Unit): $750,000
- --------
* 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:
- ----------------------------
BRUNO GUAZZONI
By:
Name:
Title:
RESIDENCE: Italy
ADDRESS:
Bruno Guazzoni
c/o The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, NY 10017
Telecopy: (212) 588-0205
Attn: Claudio Guazzoni
AGGREGATE SUBSCRIPTION AMOUNT
Number of Units* to be Purchased at First Closing: 750
Purchase Price ($1,000 per Unit): $750,000
- --------
* Each Unit consists of one (1) Preferred Share and a Warrant to purchase
seventy-five (75) shares of Common Stock.
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON DECEMBER 8, 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 131,250 Shares of
Common Stock, par value $.0001 per share
Date: December 8, 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
Thirty-One Thousand Two Hundred Fifty (131,250) 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 $1.65. 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 December 8, 1997 by and between the
Company and the purchasers listed on the execution pages thereof (the
"Securities Purchase Agreement").
<PAGE>
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON DECEMBER 8, 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 56,250 Shares of
Common Stock, par value $.0001 per share
Date: December 8, 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 Fifty-Six Thousand Two Hundred
Fifty (56,250) 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 $1.65. 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
December 8, 1997 by and between the Company and the purchasers listed on the
execution pages thereof (the "Securities Purchase Agreement").
<PAGE>
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON DECEMBER 8, 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 56,250 Shares of
Common Stock, par value $.0001 per share
Date: December 8, 1997
NETWORK IMAGING CORPORATION
CASHLESS STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, BRUNO GUAZZONI or his
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 Fifty-Six Thousand Two Hundred
Fifty (56,250) 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 $1.65. 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
December 8, 1997 by and between the Company and the purchasers listed on the
execution pages thereof (the "Securities Purchase Agreement").
<PAGE>
12
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON DECEMBER 8, 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 160,000 Shares of
Common Stock, par value $.0001 per share
Date: December 8, 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 Thousand (160,000) 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
$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
December 8, 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.
(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.
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
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
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
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 dis-
solution, 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.
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 December 8, 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
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 4.99% 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
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 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]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
NETWORK IMAGING CORPORATION
By: ________________________
Name:___________________
Title:____________________
<PAGE>
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 trans-
mit 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 DECEMBER 8, 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 56,250 Shares of
Common Stock, par value $.0001 per share
Date: December 8, 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 Fifty-Six Thousand Two Hundred
Fifty (56,250) 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 $1.65. 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
December 8, 1997 by and between the Company and the purchasers listed on the
execution pages thereof (the "Securities Purchase Agreement").
<PAGE>
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON DECEMBER 8, 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 56,250 Shares of
Common Stock, par value $.0001 per share
Date: December 8, 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 Fifty-Six Thousand Two Hundred
Fifty (56,250) 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 $1.65. 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
December 8, 1997 by and between the Company and the purchasers listed on the
execution pages thereof (the "Securities Purchase Agreement").
<PAGE>
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON DECEMBER 8, 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 56,250 Shares of
Common Stock, par value $.0001 per share
Date: December 8, 1997
NETWORK IMAGING CORPORATION
CASHLESS STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, BRUNO GUAZZONI or his
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 Fifty-Six Thousand Two Hundred
Fifty (56,250) 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 $1.65. 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
December 8, 1997 by and between the Company and the purchasers listed on the
execution pages thereof (the "Securities Purchase Agreement").
<PAGE>
12
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON DECEMBER 8, 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 160,000 Shares of
Common Stock, par value $.0001 per share
Date: December 8, 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 Thousand (160,000) 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
$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
December 8, 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.
(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.
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
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
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
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 dis-
solution, 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.
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 December 8, 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
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 4.99% 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
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 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]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
NETWORK IMAGING CORPORATION
By: ________________________
Name:___________________
Title:____________________
<PAGE>
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):
_______________________
_______________________
_______________________
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 DECEMBER 8, 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 56,250 Shares of
Common Stock, par value $.0001 per share
Date: December 8, 1997
NETWORK IMAGING CORPORATION
CASHLESS STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, BRUNO GUAZZONI 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 Fifty-Six Thousand Two Hundred
Fifty (56,250) 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 $1.65. 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
December 8, 1997 by and between the Company and the purchasers listed on the
execution pages thereof (the "Securities Purchase Agreement").
<PAGE>
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON DECEMBER 8, 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 56,250 Shares of
Common Stock, par value $.0001 per share
Date: December 8, 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 Fifty-Six Thousand Two Hundred
Fifty (56,250) 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 $1.65. 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
December 8, 1997 by and between the Company and the purchasers listed on the
execution pages thereof (the "Securities Purchase Agreement").
<PAGE>
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON DECEMBER 8, 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 56,250 Shares of
Common Stock, par value $.0001 per share
Date: December 8, 1997
NETWORK IMAGING CORPORATION
CASHLESS STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, BRUNO GUAZZONI or his
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 Fifty-Six Thousand Two Hundred
Fifty (56,250) 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 $1.65. 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
December 8, 1997 by and between the Company and the purchasers listed on the
execution pages thereof (the "Securities Purchase Agreement").
<PAGE>
12
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON DECEMBER 8, 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 160,000 Shares of
Common Stock, par value $.0001 per share
Date: December 8, 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 Thousand (160,000) 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
$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
December 8, 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.
(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.
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
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
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
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 dis-
solution, 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.
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 December 8, 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
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 4.99% 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
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 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]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
NETWORK IMAGING CORPORATION
By: ________________________
Name:___________________
Title:____________________
<PAGE>
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.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December
8, 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 L 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" re-
er 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 of
effectiveness of such Registration Statement by the United States Securities and
Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion
Shares and the Warrant Shares (including any Conversion Shares issuable with
respect to Conversion Default Payments or the Damages Amount under the
Certificate of Designation or in redemption of any Preferred Stock and any
Warrant Shares issuable with respect to Exercise Default Payments under the
Warrants) issued or issuable with respect to the Preferred Stock and the
Warrants 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 Registrable Securities issuable
upon the full conversion of, or as dividends on or otherwise with respect to,
the Preferred Stock and the full exercise of the Warrants comprising 3,250 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 Registrable Securities issuable upon the
full conversion of, or as dividends on or otherwise with respect to, the
Preferred Stock and the full exercise of the Warrants comprising the Units
issued at such closing pursuant to Section 1(a)(ii) or Section 1(a)(iii) 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 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 or otherwise
with respect to, 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
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 reductions in the Conversion Price of the
Preferred Stock or the Exercise Price of the Warrants in accordance with the
terms thereof (including, but not limited to, in the case of the Preferred
Stock, the terms which cause the applicable Conversion Percentages to decrease
and the terms which cause the Variable Conversion Price to decrease to the
extent that the closing sales price of the Common Stock decreases). 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 register (i) up
to 1,750,000 shares of Series A Cumulative Convertible Preferred Stock ("Series
A Stock") and up to 15,027,937 shares of Common Stock in connection with certain
proposed changes to the Series A Stock, and (ii) up to 2,150,000 shares of
Common Stock in connection with certain convertible notes in the aggregate
principal amount of $2,000,000 issued by the Company in July and August 1997.
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. In the event
that any Investors elect not to participate in such underwritten offering, such
Registration Statement shall contain appropriate plans of distribution
reasonably satisfactory to the Investors participating in such underwritten
offering and the Investors electing not to participate in such underwritten
offering (including, without limitation, the ability of nonparticipating
Investors to sell from time to time and at any time during the effectiveness of
such Registration Statement).
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 (i) the ninetieth (90th) day
following the date it was required to be filed hereunder in the case of a
Registration Statement on Form S-3 or (ii) the one hundred fiftieth (150th) day
following the date it was required to be filed hereunder in the case of a
Registration Statement on Form S-1 (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 Registration Deadline
for such Registration Statement, 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 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 example, if a Registration Statement is declared
effective on the last day of the second month following the applicable
Registration Deadline, each of the Conversion Percentages set forth in the
Certificate of Designation would be reduced by four percent (4%) to 81% and 77%,
respectively.) In addition, if any Registration Statement required to be filed
by the Company pursuant to Section 2(a) hereof has not been declared effective
on or before the sixtieth (60th) day following the applicable Registration
Deadline for such Registration Statement or any such Registration Statement,
after being declared effective, cannot be utilized by the Investors for the
resale of the Registrable Securities covered by such Registration Statement for
an aggregate of more than thirty (30) days after the earlier of (i) the date on
which the Company first becomes eligible to register the resale of Registrable
Securities pursuant to a Registration Statement on Form S-3 and (ii) June 30,
1998, each of the Conversion Percentages applicable during each time period
shall be permanently reduced at the rate of two hundredths (.02) per week
(prorated for partial weeks) rather than two hundredths (.02) per month
(prorated for partial months).
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
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.
e. Rule 416. The Company and the Investors each acknowledge
that an indeterminate number of Registrable Securities shall be registered
pursuant to Rule 416 under the Securities Act so as to include in each
Registration Statement required pursuant to Section 2(a) hereof any and all
Registrable Securities which may become issuable (i) to prevent dilution
resulting from stock splits, stock dividends or similar transactions and (ii) by
reason of reductions in the Conversion Price of the Preferred Stock or the
Exercise Price of the Warrants in accordance with the terms thereof (including,
but not limited to, in the case of the Preferred Stock, the terms which cause
the applicable Conversion Percentages to decrease and the terms which cause the
Variable Conversion Price to decrease to the extent the closing sales price of
the Common Stock decreases (collectively, the "Rule 416 Securities"). In this
regard, the Company agrees to take all steps necessary to ensure that all
Registrable Securities are registered pursuant to Rule 416 under the Securities
Act in any such Registration Statement and, absent guidance from the SEC or
other definitive authority to the contrary, the Company shall affirmatively
support and not take any action adverse to the position that the Registration
Statements filed hereunder cover all of the Rule 416 Securities. If the Company
determines that the Registration Statements filed hereunder do not cover all of
the Rule 416 Securities, the Company shall immediately provide to each Investor
written notice (a "Rule 416 Notice") setting forth the basis for the Company's
position and the authority therefor.
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 or any successor provision (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 Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration Statements
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
Statements 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 Statements. 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 Statements, 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
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(s) 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 any 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 each such Registration
Statement and any amendment thereto, each preliminary prospectus and prospectus
and each amendment or supplement thereto, and, in the case of any 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 any 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 any
Registration Statement or any amendment thereto, a notice stating that such
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 each 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
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
a 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 each 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 a 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 a
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
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 any 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 any 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 any 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 any 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
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 such 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. The Company shall take all such other actions as any
Investor or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of the Registrable Securities.
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 any 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 each
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 any such 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,
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
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
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
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 in interest of the Registrable Securities;
provided, however, that no amendment hereto which restricts the ability of an
Investor to elect not to participate in an underwritten offering shall be
effective against any Investor which does not consent in writing to such
amendment; provided, further, however, that no consideration shall be paid to an
Investor by the Company in connection with an amendment hereto unless each
Investor similarly affected by such amendment receives a pro-rata amount of
consideration from the Company. Unless an Investor otherwise agrees, each
amendment hereto must similarly affect each Investor. 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
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 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.
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 (if any) 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]
<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: _______________________
<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:
ZANETT LOMBARDIER, LTD.
By: _______________________
Name: _______________________
Its: _______________________
<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:
____________________________
BRUNO GUAZZONI
<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:
THE ZANETT SECURITIES CORPORATION
By: _______________________
Name: _______________________
Its: _______________________
<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 L 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
December 8, 1997, by and among the Company and the signatories thereto (the
"Agreement"). Pursuant to a Registration Rights Agreement, dated as of December
8, 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]
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December
29, 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 Fred Kassner (
the "Purchaser").
WHEREAS:
A. The Company and the 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. The Purchaser and the Company executed a line of credit in the
amount of $5,000,000 on December 31, 1996 (the "Line of Credit");
C. The Company has requested that the Purchaser convert $4,000,000 of
the Line of Credit into equity, and the remaining $1,000,000 shall continue to
exist in accordance with all of the terms and conditions of the Line of Credit
Agreement dated December 31, 1996 with the exception that it shall be payable
with respect to that amount with an interest rate of 8 1/2% per annum due April
1, 1999;
D. The Company has requested that the Purchaser convert the Line of
Credit into, upon the terms and conditions stated in this Agreement, 4,000
shares of the Company's Series M Convertible Preferred Stock, par value $.0001
per share (the "Series M Stock"), convertible into its common stock, par value
$.0001 per share, of the Company (the "Common Stock"). The effective yield under
the Series M Stock will be 8 1/2% per annum, payable in kind at the option of
the Company. 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". The Preferred Shares and the
Conversion Shares are collectively referred to herein as the "Securities."
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF UNITS.
a. Purchase of Units. Upon execution of this Agreement, the Purchaser
shall be deemed to have purchased from the Company, with no fee or payment due
to the Company, 4,000 shares of the Series M Stock. Upon the execution of this
Agreement, the Line of Credit shall be reduced to $1,000,000 current and
outstanding, plus interest.
<PAGE>
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser 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. Purchaser agrees that any and all disposal(s) of the Securities
shall be in accordance with or pursuant to a registration statement or an
exemption under the Securities Act.
b. 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.
c. Transfer or Resale. Purchaser understands that 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"); 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 except as
otherwise set forth herein.
d. Legends. Purchaser understands that the Series M Stock and, until
such time as the Conversion Shares have been registered under the Securities Act
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
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.
b. Enforcement. This Agreement has been duly and validly executed and
delivered on behalf of Purchaser and is a valid and binding agreement of
Purchaser enforceable in accordance with their terms.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchaser that:
a. Organization and Qualification. The Company 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 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.
b. Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement.
c. Expenses. Except as otherwise provided in this 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 to be executed in connection herewith except the
Company agrees that it shall be responsible for payment of reasonable legal fees
to Purchaser's counsel.
d. Financial Information. The Company agrees to send the following
reports to the Purchaser until such Purchaser transfers, assigns or sells all of
its Securities contemporaneous with 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 all other relevant information on
request from Purchaser.
e. 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
Series M Stock and issuance of the Conversion Shares in connection therewith and
as otherwise required by the Certificate of Designation.
f. Corporate Existence. So long as a Purchaser beneficially owns any of
the Series M Stock, 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 the Series M Stock as of the date of such transaction.
g. Compliance with Certificate of Designation. The Company shall comply
with all of the provisions contained in the Certificate of Designation.
4. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue certificates,
registered in the name of the Purchaser or its nominee, for the Conversion
Shares in such amounts as specified from time to time by such Purchaser to the
Company upon conversion of the Series M Stock. 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 4, 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 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. Nothing in this Section shall affect in any way the
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 the 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 the 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
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by the Purchaser.
5. REGISTRATION RIGHTS.
The Company agrees that at any time it registers shares of common stock
for any other party, it shall promptly notify Purchaser of such pending
registration and shall undertake, upon the request of the Purchaser, to register
the Conversion Shares. Purchaser shall notify the Company that it seeks to have
the Conversion Shares registered within ten days of the Company's notification
of a filing to the Purchaser. Notwithstanding the foregoing, the Company shall
undertake to file a registration statement to register the Conversion Shares no
later than August 1, 1998 and the Company shall keep such registration current
and effective thereafter. In the event that the Company does not register the
Conversion Shares by August 1, 1998, the Purchaser shall have a demand
registration right at the Company's expense.
6. LIQUIDATION PREFERENCE.
The Series M Stock shall hold liquidation preference over the Common
Stock and the Series K and L Convertible Preferred Stocks of the Company. The
Series M Stock shall rank junior to the Series A Convertible Preferred Stock
until such time as the Company has effected the conversion of the Series A
Convertible Preferred Stock.
7. EXISTING WARRANTS.
All warrants to purchase shares of the Company's common stock that are
currently held by the Purchaser and Liberty Travel shall be repriced to $1.50,
and such warrants shall expire on December 31, 2002. Such modifications to the
warrants shall become effective the first business day immediately following
execution of this Agreement. The Company agrees that all of the Company's
publicly held warrants shall be repriced to $1.50 effective on the first
business day immediately following execution of this Agreement. All other terms
and conditions of the warrants shall remain unchanged.
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 New Jersey applicable to
contracts made and to be performed in the State of New Jersey. The Company and
the Purchaser irrevocably consent to the exclusive jurisdiction of the United
States federal courts located in Essex County in the State of New Jersey 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.
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.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any 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: General Counsel's Office
If to the Purchaser, to such address set forth under such Purchaser's
name on the execution page hereto executed by the Purchaser, with an additional
copy to Purchaser's counsel.
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.
h. Survival. The Company agrees to indemnify and hold harmless the
Purchaser 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.
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:
Fred Kassner
ADDRESS: 69 Spring Street, Ramsey New Jersey 07446
AGREEMENT
AGREEMENT (this "Agreement"), dated as of November 30, 1997, by and among
NETWORK IMAGING CORPORATION, a corporation organized under the laws of the state
of Delaware (the "Company"), and the undersigned (together with affiliates, the
"Initial Investors")
WHEREAS
A. In connection with that certain Securities Purchase Agreement, dated as of
July 28, 1997, by and among the Company and the initial Investors (the
"Securities Purchase Agreement') the Company issued and sold to
the Initial Investors 3,300 hares of the Company's Series K Convertible
Preferred Stock, par value $.0001 per share (the "Preferred Stock"). The rights,
preferences and privileges of the Preferred Stock are set forth in the
Certificate of Designations, Preferences and Rights of the Preferred Stock in
the form attached hereto as Exhibit A (the "Certificate of Designation").
Capitalized terms used and not otherwise defined herein shall have the meaning
ascribed thereto in the Certificate of Designation.
B. Pursuant to the Certificate of Designation, the Initial Investors have the
right to require the Company to redeem the shares of Preferred Stock held by
such Initial Investors in certain circumstances set forth in the Certificate of
Designation (the "Redemption Rights").
C. The Company desires to induce the Initial Investors to agree not to exercise
certain of the Redemption Rights as described 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 acknowledge, the Company and the
Initial Investors hereby agree as follows:
1. The Initial Investors agree not to exercise their right to require the
Company to effect a redemption of their outstanding shares of Preferred Stock
upon a Redemption Event specified in Article VIII.A.(i) of the Certificate of
Designation so long as the Company pays to each of the Initial Investors within
five (5) business days of the occurrence of such Redemption Event, as liquidated
damages for the decrease in the value of the Preferred Stock (and the shares of
the Company's Common Stock issuable upon conversion thereof) which will result
from the occurrence of such Redemption Event, an amount (the "Damages Amount")
equal to twenty-five percent (25%) of the aggregate Face Amount of the shares of
Preferred Stock then held by each such Initial Investor. The Damages Amount
shall be payable at the Company's option, in cash or shares of Common Stock that
have been registered by the Company under the Securities Act for resale by the
Initial Investors (based upon a price per share of Common Stock equal to fifty
percent (50%) of the lowest Closing Price of the Common Stock on any single
trading day during the ten (10) consecutive trading day period ending on the
trading day immediately preceding the date of such Redemption Event). The
Company represents and warrants that it has reserved, and agrees to keep
reserved, 3,000,000 shares of Common Stock to satisfy its obligation with
respect to the Damages Amount. In the event that the number of shares required
to be issued by the Company with respect to the Damages Amount exceeds 3,000,000
shares of Common Stock and the Company does not have a sufficient number of
shares of Common Stock authorized and available for issuance to satisfy its
obligation with respect to the Damages Amount, the Company shall issue and
deliver to the Initial Investors all 3,000,000 shares of Common Stock so
reserved for such purpose and, upon such issuance, the Initial Investors shall
have no right of redemption upon a Redemption Event specified in Article
VIII.A.(i) of the Certificate of Designation, but shall retain all other
remedies to which they may be entitled at law of in equity.
2. The Initial Investors agree not to exercise their right under Article V.B. of
the Certificate of Designation to require the Company to effect a redemption of
their outstanding shares of Preferred Stock so long as (i) the Company has not,
at any time, decreased the Reserved Amount below 12,500,000 shares of Common
Stock, (ii) the Company shall have taken immediate action following he
applicable Authorization Trigger Date (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 Preferred Stock; and
(iii) the Company continues to use its good faith best efforts (including the
resolicitation of 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
Preferred Stock. The parties hereby agree that the Company will be deemed to be
using "its good faith best efforts" to increase the Reserved Amount so long as
it solicits shareholder approval to authorize the issuance of additional shares
of Common Stock not less than three (3) times during each twelve month period
following the applicable Authorization Trigger Date during which any shares of
Preferred Stock remain outstanding.
3. (a) 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.
(b) 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 and the state courts located in
the City of New York in the State of New York 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 based on pr 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 Initial
Investor'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 of
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
(c) Except as expressly provided herein, all of the terms and
provisions of the Certificate of Designation shall continue in full force and
effect and nothing contained herein shall be deemed to constitute a waiver by
the Initial Investors of any of their rights under the Certificate of
Designation, the Securities Purchase Agreement, the Registration Rights
Agreement or any other agreement among the Company and the Initial Investors.
(d) 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.
<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:
Title:
INITIAL INVESTORS:
ZANNETT LOMBARDIER, LTD.
By:
Name:
Title:
CAPITAL VENTURES INTERNATIONAL
By:
Name:
Title:
Zanett Lombardier, Ltd.
c/o The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, NY 10017
Capital Ventures International
c/o Susquehanna Securities Trading GmbH
Oberlindau 7
60323 Frankfurt am Main
Bruno Guazzoni
c/o The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, NY 10017
December 8, 1997
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, VA 20170
Dear Ladies and Gentlemen:
Zanett Lombardier, Ltd., Capital Ventures International and Bruno
Guazzoni (individually, a "Purchaser" and, collectively, the "Purchasers") have
purchased 3,250 shares of Series L Preferred Convertible Stock ("Series L
Stock") from Network Imaging Corporation ("Company") under that Securities
Purchase Agreement among the Company and the Purchasers dated December 8, 1997
("Securities Purchase Agreement"). Under the Securities Purchase Agreement, the
Purchasers have the right to purchase 3,000 additional shares of Series L Stock
from the Company pursuant to the terms of the Securities Purchase Agreement.
Pursuant to Section VII(B)(ii) of the Certificate of Designations,
Preferences and Rights of Series L Convertible Preferred Stock of Network
Imaging Corporation ("Series L Certificate"), each holder of the Series L Stock
has the right, under certain conditions, to require
<PAGE>
the Company to issue shares of the Company's Common Stock, par value
$.0001 per share ("Common Stock"), at a conversion price equal to the average of
the Closing Price, as defined in the Series L Certificate, for the five
consecutive trading days (subject to equitable adjustment for any stock splits,
stock dividends, reclassifications or similar events during such five trading
day period) preceding the date of the holder's written notice to the Company of
its election to receive shares of Common Stock pursuant to that Section, without
regard to the limitation set forth in Section IV(C)(i) of the Series L
Certificate.
The Purchasers hereby agree, on behalf of themselves and on behalf of
all subsequent holders of shares of Series L Stock, that, while the Company's
Common Stock is listed on either the Nasdaq National Market or the Nasdaq
SmallCap Market and until the issuance of the shares of Common Stock issuable on
conversion of and otherwise in connection with the shares of Series L Stock is
approved by the holders of Common Stock in accordance with the provisions of
Nasdaq Rule 4460(i), the Company cannot be required to issue 20% or more of the
number of shares of Common Stock outstanding on December 7, 1997 on conversion
of and/or otherwise in connection with the Series L Stock.
Sincerely,
ZANETT LOMBARDIER, LTD.
By:_________________________________
Name:_______________________________
Title:________________________________
CAPITAL VENTURES INTERNATIONAL
By:_________________________________
Name:_______________________________
Title:________________________________
------------------------------------
Bruno Guazzoni
SUBSIDIARIES
None.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-K and is qualified in its entirety by reference to such financial
statements as of and for the year ended December 31, 1997.
</LEGEND>
<CIK> 0000883946
<NAME> NETWORK IMAGING CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,816
<SECURITIES> 0
<RECEIVABLES> 11,095
<ALLOWANCES> (2,148)<F1>
<INVENTORY> 722
<CURRENT-ASSETS> 21,215
<PP&E> 6,928
<DEPRECIATION> (4,763)
<TOTAL-ASSETS> 26,860
<CURRENT-LIABILITIES> 11,235
<BONDS> 0
6,548
0
<COMMON> 3
<OTHER-SE> 7,966
<TOTAL-LIABILITY-AND-EQUITY> 26,860
<SALES> 35,806
<TOTAL-REVENUES> 35,806
<CGS> 22,008
<TOTAL-COSTS> 22,008
<OTHER-EXPENSES> 24,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 286
<INCOME-PRETAX> (11,339)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,339)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,310)
<EPS-PRIMARY> (0.57)
<EPS-DILUTED> (0.57)
<FN>
<F1>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors
We have audited the consolidated financial statements of Network Imaging
Corporation (a Delaware Corporation) as of December 31, 1997 and 1996, and for
the years then ended and have issued our report thereon dated February 27, 1998
(included elsewhere herein). Our audits also included the financial statement
schedule listed in Item 14(d) of this Annual Report (Form 10-K). The schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole presents fairly, in all material respects, the information set forth
therein.
/s/ Ernst & Young LLP
Vienna, Virginia
February 27, 1998
Valuation and Qualifying Account and Reserve
Network Imaging Corporation
Balance at Additions Balance at
Beginning of Charged to Due to End of
Period Expense Acquisitions Deductions Period
Classification
Allowance for uncollectible
Accounts Receivable
Year Ended Dec 31, 1995 1441 96 1354 183
Year Ended Dec 31, 1996 183 219 25 377
Year Ended Dec 31, 1997 377 673 0 1050
Allowance for Uncollectible
Notes Receivable
Year Ended Dec 31, 1995 0 1350 1350
Year Ended Dec 31, 1996 1350 0 875 475
Year Ended Dec 31, 1997 475 623 1098
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-K and is qualified in its entirety by reference to such financial
statements as of and for the year ended December 31, 1996.
</LEGEND>
<CIK> 0000883946
<NAME> NETWORK IMAGING CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,601
<SECURITIES> 0
<RECEIVABLES> 16,077
<ALLOWANCES> (855)
<INVENTORY> 1,503
<CURRENT-ASSETS> 24,709
<PP&E> 8,566
<DEPRECIATION> (5,679)
<TOTAL-ASSETS> 36,778
<CURRENT-LIABILITIES> 14,816
<BONDS> 0
9,857
0
<COMMON> 2
<OTHER-SE> 11,715
<TOTAL-LIABILITY-AND-EQUITY> 36,778
<SALES> 39,477
<TOTAL-REVENUES> 39,477
<CGS> 25,854
<TOTAL-COSTS> 25,854
<OTHER-EXPENSES> 31,341
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (309)
<INCOME-PRETAX> (17,409)
<INCOME-TAX> (68)
<INCOME-CONTINUING> (17,341)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,071)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
