April 7, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Network Imaging Corporation
Amendment No. 1 on Form S-3
File No. 333-48137
Request for Acceleration
Ladies and Gentlemen:
Pursuant to Rule 461(a), we hereby request that the Commission declare
the above-referenced Amendment No. 1 on Form S-3 effective at 9:00 a.m. on
April 9, 1998, or as soon thereafter as possible.
Very truly yours,
Network Imaging Corporation
By: /s/ James J. Leto
-----------------
James J. Leto
President and Chief Executive Officer
<PAGE>
File No. 333-48137
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Network Imaging Corporation
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(Exact name of registrant as specified in its charter)
Delaware 52-1590649
- --------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
500 Huntmar Park Drive, Herndon, Virginia 20170 - (703) 478-2260
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(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Julia A. Bowen
Vice President and General Counsel
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, VA 20170
(703) 478-2260
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
- ------------------------------- --------------------- -------------------- ----------------------- ------------------
Proposed Maximum
Title of Each Class of Offering Price Per Proposed Maximum Amount of
Securities To Be Registered Amount To Share (1) Aggregate Offering Registration Fee
Be Registered Price (1) (1)
- ------------------------------- --------------------- -------------------- ----------------------- ------------------
<S> <C> <C> <C> <C>
- ------------------------------- --------------------- -------------------- ----------------------- ------------------
Common Stock, $.0001 par 6,621,357 (3) $1.41 $9,336,113 $3,220*
value per share (2)
- ------------------------------- --------------------- -------------------- ----------------------- ------------------
* $3,220 was previously paid.
</TABLE>
(1) Estimated pursuant to Rule 457(c) for the purpose of calculating the
registration fee only; based upon the average of the high and low sales prices
for the Common Stock on March 10, 1998 as reported by the Nasdaq National Market
System. Registration fee is calculated pursuant to Rule 457. (2) Pursuant to
Rule 416 also includes such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the registrant's Series L
Convertible Preferred Stock and exercise of warrants (a) to prevent dilution
resulting from stock splits, stock dividends, or similar transactions or (b) by
reason of reductions in the conversion price of the Series L Convertible
Preferred Stock in accordance with the terms thereof, including the terms that
cause reductions as the bid price of the Company's Common Stock decreases.
(3) The number of shares of Common Stock registered hereunder includes shares of
Common Stock issuable on conversion of and as premium on the Company's Series L
Convertible Preferred Stock and shares of Common Stock issuable on exercise of
warrants granted to Zanett Lombardier, Ltd., Capital Ventures International,
Bruno Guazzoni and The Zanett Securities Corporation.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuance to said Section 8(a)
may determine.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION, April 6, 1998
NETWORK IMAGING CORPORATION
6,621,357 SHARES
OF
COMMON STOCK
All of the 6,621,357 shares ("Shares" or "Offered Shares") of Common
Stock, $0.0001 par value per share ("Common Stock"), subject hereto are issuable
by Network Imaging Corporation (the "Company") and are offered by Zanett
Lombardier, Ltd., Capital Ventures International, and Bruno Guazzoni
("Purchasers") and The Zanett Securities Corporation ("Zanett") (collectively,
the Purchasers and Zanett are referred to as the "Selling Stockholders"). The
Shares are issuable in connection with the conversion of the Company's Series L
Convertible Preferred Stock ("Series L Stock") issued to the Purchasers and on
exercise of warrants held by the Purchasers and Zanett. Pursuant to Rule 416
promulgated under the Securities Act of 1933, as amended ("Securities Act"),
this prospectus (the "Prospectus") also covers the resale of such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of the Series L Stock and exercise of warrants (a) to prevent
dilution resulting from stock splits, stock dividends, or similar transactions
or (b) by reason of reductions in the conversion price of the Series L Stock in
accordance with the terms thereof, including the terms that cause reductions as
the bid price of the Common Stock decreases. See "Plan of Distribution." This
Prospectus relates to the resale of such shares of Common Stock by such Selling
Stockholders. See "Plan of Distribution" and "Selling Stockholders." The
Company's Common Stock is quoted on the Nasdaq National Market System
("Nasdaq"). On March 25, 1998, the last reported sale price for the Common Stock
by Nasdaq was $ 1 1/16 per share.
The Selling Stockholders will receive proceeds of the offer and sale of
the Shares; none of the proceeds from the offer and sale of the Shares by the
Selling Stockholders will be received by the Company. However, the Company will
receive proceeds from the exercise of the warrants if the warrants are
exercised. The Company will pay substantially all of the expenses with respect
to the offer and the sale of the Shares to the public, including the costs
associated with registration of the Shares under the Securities Act and
preparation and printing of this Prospectus. Normal underwriting commissions and
broker fees, however, as well as any applicable transfer taxes, are payable
individually by the Selling Stockholders.
See "Risk Factors" beginning on page 5 for a discussion of certain
factors that should be considered in connection with the purchase of securities
hereunder.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------------------------------
The date of this Prospectus is April 6, 1998
<PAGE>
AVAILABLE INFORMATION
A Registration Statement (including this Prospectus) on Form S-3, under
the Securities Act relating to the securities offered hereby (the "Registration
Statement") has been filed by the Company with the Securities and Exchange
Commission (the "SEC"), Washington, D.C. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Certain financial and other information relating to the
Company is contained in the documents indicated below under "Incorporation of
Certain Documents by Reference," which are not presented herein or delivered
herewith. For further information with respect to the Company and the securities
offered hereby, reference is made to such Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as exhibits to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge or may be obtained from
the SEC upon the payment of certain fees prescribed by the SEC at the public
reference facilities maintained by the SEC in Washington, D.C. at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's Regional
Offices in New York at 7 World Trade Center, 13th Floor, New York, New York
10048 and in Chicago at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The SEC maintains an Internet Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC, located at
http://www.sec.gov.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
concerning the Company may be inspected or copied at the public reference
facilities at the SEC located at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the SEC's Regional Offices in New York, 7 World Trade Center,
13th Floor, New York, New York 10048, and in Chicago, Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such documents can be obtained at the public reference section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates or by
reference to the Company on the SEC's Worldwide Web page (http://www.sec.gov).
The Company's Common Stock is listed for quotation by Nasdaq. Reports,
proxy statements and other information concerning the Company can also be
inspected at Nasdaq, 1735 K Street, N.W., Washington, D.C. 20036.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
SEC, are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the year ended Decem-
ber 31, 1997; and
(2) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A under the Exchange
Act of 1934, as amended, including any amendment or report filed
to update the description.
All reports and other documents subsequently filed by the Company
pursuant to Sections 12, 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior
to the filing of a post-effective amendment that indicates that all securities
offered hereby have been sold or that deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference in and to be a part of
this Prospectus from the date of filing of such reports and documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in the
Registration Statement containing this Prospectus or in any other subsequently
filed document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the request of such person, a copy of any or all
of the foregoing documents referred to above that have been or may be
incorporated herein by reference, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference into the information
that this Prospectus incorporates). Requests for such documents should be
directed to: Network Imaging Corporation, 500 Huntmar Park Drive, Herndon,
Virginia 20170 attention: Julia A. Bowen, Vice President and General Counsel.
Ms. Bowen's telephone number is (703) 904-3109.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements included elsewhere herein or incorporated
by reference in this Prospectus.
THE COMPANY
Network Imaging Corporation (previously defined as the "Company")
provides software products supporting storage, management and distribution.
These products provide businesses and government organizations with an automated
method of electronically storing, managing and distributing large volumes of
structured data (text) and unstructured data (diagrams, documents, photos, voice
and full-motion video).
The Company is a leader in content and storage management for all
unstructured information. Its flagship product, the 1View suite, manages the
storage, access and distribution of any multimedia (or unstructured) data, such
as diagrams, documents, photographs, voice, and full-motion video. 1View is a
unique solution for use in distributed, high transaction, high volume mission
critical applications across legacy, client/server and Internet/intranet based
environments. The Company is also a software developer for mainframe and PC
based Computer Output to Laser Disk ("COLD") systems and a developer and
marketer of storage management software systems. InfoAccess(TM), Treev+(TM) and
the Company logo are trademarks of Network Imaging Corporation. All other
product and brand names are trademarks or registered trademarks of their
respective companies.
The Company's executive offices are located at 500 Huntmar Park Drive,
Herndon, Virginia 20170. The Company's telephone number is (703) 478-2260.
CERTAIN FORWARD-LOOKING STATEMENTS
This Prospectus contains or may contain certain forward-looking
statements and information as well as estimates and assumptions made by the
Company's management. When used in this Prospectus, words such as "anticipate,"
"believe," "estimate," "expect," "future," "intend," "plan" and similar
expressions, as they relate to the Company or the Company's management, identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the Company's operations and results
of operations, shifts in market demand, the timing of product releases, economic
conditions in foreign countries, competitive products and pricing and other
risks and uncertainties including, in addition to any uncertainties specifically
identified in the text surrounding such statements, uncertainties with respect
to changes or developments in social, economic, business, industry, market,
legal and regulatory circumstances and conditions and actions taken or omitted
to be taken by third parties, including the Company's stockholders, customers,
suppliers, business partners, competitors, and legislative, regulatory, judicial
and other governmental authorities and officials. Should one or more of these
risks or uncertainties materialize, or should the underlying estimates or
assumptions prove incorrect, actual results or outcomes may vary significantly
from those anticipated, believed, estimated, expected, intended or planned.
RISK FACTORS
An investment in the Company's securities involves a high degree of risk. In
evaluating the Company and its business, prospective purchasers of the Shares
offered hereby should carefully consider the risk factors set forth below, as
well as the other information included in this Prospectus, prior to making an
investment.
Lack of Profitability
The Company has had net losses in each period of its operations since
its inception, except for one quarter, and it had an accumulated deficit at
December 31, 1997 of $124.4 million. Net losses applicable to Common Stock were
$14.3 million for the twelve months ended December 31, 1997, $21.1 million for
the year ended December 31, 1996, and $34.9 million for the year ended December
31, 1995. Included in those losses were non-recurring charges including in 1995,
non-recurring net charges of $9.3 million in connection with the bankruptcy of
IBZ Digital Production AG ("IBZ"), a company that had been purchased by the
Company as a wholly owned subsidiary, and business divestitures and charges
associated with a delay in the commercial release of the Company's 1View
product, the lead time to close sales and recognize revenues, increasing sales
and marketing efforts and costs associated with product research and
development. See "Description of Network Imaging Business."
Continued Adverse Results of Operations Through First Part of 1998
The adverse results of operations that the Company has experienced is
expected to continue at least until the latter part of 1998. The Company
believes that the combination of existing cash, potential future proceeds from
such additional offerings of equity securities as may be required, 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 million as required for continued inclusion of the
Company's securities on Nasdaq. 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. Although the Company believes that
it can successfully implement its operating plan and, if necessary, raise
additional capital, there can be no assurance that implementation of the plan
will be successful or that financing, if sought, will be available.
Continued Listing on Nasdaq
On August 21, 1997, the Company received a letter from Nasdaq
indicating that the Company did not have sufficient assets to continue its
listing on Nasdaq. The Company responded to that inquiry, and on October 30,
1997 participated in a hearing where a Nasdaq Listing Qualifications Panel (the
"Panel") granted the Company's request for continued inclusion on Nasdaq
pursuant to an exception to Nasdaq's minimum net tangible asset requirement.
Pursuant to that exception, the Panel required that the Company have a minimum
of $6 million in net tangible assets to ensure long term compliance with the net
tangible assets requirement. At December 31, 1997, the Company had net tangible
assets in excess of $6 million, and the Company's stock remains listed on
Nasdaq.
Nasdaq has adopted new listing and maintenance requirements
which became effective February 23, 1998. Pursuant to the new requirements,
common and preferred stock trading on Nasdaq must maintain a minimum bid price
of $1.00. At times in 1997 and the first part of 1998, the 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 Common Stock will continue to trade with such a minimum bid
price. In the event that the 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 requirements, any inability to trade on a national exchange could
adversely impact the value of the Company's stock.
Competition; Rapid Technological Change
The computer industry, including the information access, imaging and
optical disk storage segments, is highly competitive, and is characterized by
rapid and continuous technological change, short product cycles, frequent
product innovations and new product introductions, evolving industry standards,
and changes in customer requirements and preferences. The Company's future
profitability will depend on, among other things, wide-scale market acceptance
of the Company's products, the Company's ability to demonstrate the potential
advantages of its products over other types of similar products and on the
Company's ability to develop in a timely fashion enhancements to existing
products or new products that are responsive to the demands of the marketplace
for information access, imaging and optical disk storage systems. There can be
no assurance that the Company will be able to market successfully its current
products, develop and market enhancements to existing products or introduce new
products. In addition, the Company faces existing competitors that are larger
and more established and have substantially greater resources than the Company.
Because of the rapid expansion of the information access, imaging and optical
disk storage market, the Company will also face competition from new entrants,
possibly including the Company's customers, suppliers or resellers.
Technological advances by any of the Company's current or future competitors
could render obsolete or less competitive the products being offered by the
Company. The Company believes that the principal competitive factors affecting
the market for information access, imaging and optical disk storage products
include effectiveness, scope of product offerings, technical features, ease of
use, reliability, customer service and support, name recognition, distribution
resources and price. Current and potential competitors have established, or may
establish in the future, strategic alliances to increase their ability to
compete for the Company's prospective customers. Accordingly, it is possible
that new competitors or alliances may emerge and rapidly acquire significant
market share. Such competition could have a material adverse effect on the
Company's business, financial condition and results of operations.
Risks of Defects and Development Delays
The Company's development of enhancements to existing products and of
new products is subject to the kinds of problems and delays that are routinely
encountered in the development of software. For example, the Company may
experience schedule overruns in software development triggered by factors such
as insufficient staffing or the unavailability of development-related software,
hardware or technologies. Further, during the development of new software
products, or the enhancement of existing products, the Company's development
schedules may be altered as a result of the discovery of software bugs,
performance problems or changes to the product specification in response to
customer requirements, market developments or Company initiated changes. Changes
in product specifications may delay completion of documentation, packaging or
testing, which may, in turn, affect the release schedule of the product. In
connection with complex software products, the technology market may shift
during the development cycle, requiring the Company either to enhance or change
a product's specifications to meet a customer's changing needs. Any of these
factors may cause a product to enter the market behind schedule, which may
adversely affect market acceptance of the product, or place it at a disadvantage
to a competitor's product that has already gained market share or market
acceptance during the delay. The Company does not believe, however, that it is
practicable to quantify the impact that such delays have had or in the future
may have on its operating results. There can be no assurance that the Company
will not experience difficulties that will interrupt the marketing and
distribution of its current products or that the Company will not experience
difficulties in the future that could materially delay or prevent the successful
development of other products.
Dependence on Key Personnel
The Company is substantially dependent on the business and technical
expertise and business relationships of certain key personnel and on its ability
to attract and retain key management and technical employees in the future.
Competition for such employees is intense. The loss of current key employees,
such as its Chief Executive Officer, Chief Financial Officer and Senior Vice
President of Sales or the Company's inability to attract and retain other
employees with necessary business or technical skills in the future would have a
material adverse effect on the Company's business. The Company currently
maintains an insurance policy on its executive officers.
Dependence on Suppliers
The Company relies exclusively on outside suppliers for the hardware
components of its products such as scanners, printers, computers and optical
disk drives and jukeboxes. Most parts and components are currently available
from multiple sources at competitive prices. To date, the Company has not
experienced significant delays in obtaining parts and components and, although
there can be no assurance, the Company does not expect to experience such delays
in the future. Lack of availability of certain components could require minor
redesign of the Company's products and time required for such redesign could
result in production delays and delays in sales of the Company's products.
Evolving Distribution Channels
The Company has developed a distribution strategy that involves the
development of strategic alliances with resellers, integrators, and
international distributors to enable the Company to achieve broad market
penetration. The Company's reseller distribution channel is established, and the
Company intends to expand that channel. There can be no assurance, however, that
the Company will be able to continue to attract distributors and resellers that
will be able to market the Company's products effectively and will be qualified
to provide timely and cost-effective customer support and service. The Company
ships products to distributors and resellers on a purchase-order basis, and its
distributors, integrators and resellers may, in some instances, carry competing
product lines. Therefore, there can be no assurance that any distributor,
integrator, or reseller will continue to represent the Company's products. The
inability to recruit, or the loss of, important sales personnel, distributors,
integrators or resellers could materially adversely affect the Company's
business, financial condition and results of operations in the future.
Long Sales Cycle; Seasonality
Sales of the Company's products sometimes involve a significant
commitment of capital by customers, with the attendant delays frequently
associated with large capital expenditures. Prior to such sales, the Company
often permits customers to evaluate products being considered for license,
generally involving a small license fee. In addition, the type of software that
the Company manufactures and sells is of the type that requires businesses to
re-engineer their processes, and completion of this may be arduous. For these
and other reasons, the sales cycle associated with the Company's products is
likely to be lengthy and subject to a number of significant risks over which the
Company has little or no control and, as a result, the Company believes that its
quarterly results are likely to vary significantly in the future. The Company
may be required to ship products shortly after it receives orders and,
consequently, order backlog, if any, at the beginning of any period may
represent only a small portion of that period's expected revenues. As a result,
product revenues in any period will be substantially dependent on orders booked
and shipped in that period. The Company plans its production and inventory
levels based on internal forecasts of customer demand, which is highly
unpredictable and can fluctuate substantially. If revenues fall significantly
below anticipated levels, the Company's financial condition and results of
operations could be materially and adversely affected. In addition, the Company
has experienced significant seasonality in its business, and the Company's
financial condition and results of operations may be affected by such trends in
the future. Such trends may include higher revenues in the third and fourth
quarters of the year and lower revenues in the first and second quarters. The
Company believes that revenues may tend to be higher in the fourth quarter due
to year-end budgetary pressures on the Company's commercial customers.
Intellectual Property Rights; Infringement Claims
The Company regards its software as proprietary and relies principally
on the protection afforded by trade secret, copyright and trademark laws and by
routinely requiring all of its employees, consultants, suppliers and others with
access to the Company's proprietary information to enter into non-disclosure
agreements that require such persons to maintain the confidentiality of such
information. The Company filed two patent applications in 1995, one of which was
granted in July 1997, and expects to file several more in the near future
covering key components of the 1View suite. Prosecution of these patent
applications, and any other patent applications that the Company may
subsequently determine to file, may require the expenditure of substantial
resources. The issuance of a patent from a patent application may require
twenty-four (24) months or longer. There can be no assurance that the Company's
technology will not become obsolete while the Company's applications for patents
are pending. There also can be no assurance that any pending or future patent
application will be granted, that any future patents will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
meaningful competitive advantages to the Company. Further, the Company has not
pursued patent protection outside of the United States for the technology
covered by the Company's existing patent and pending patent applications. The
Company currently intends to pursue patent protection outside of the United
States for the technology covered by such patent applications, although there
can be no assurance that any such protection will be granted or, if granted,
that it will adequately protect the technology covered thereby. In addition,
there can be no assurance that others will not independently develop similar
technologies or duplicate any technology developed by the Company or that its
technology will not infringe upon patents, copyrights or other intellectual
property rights owned by others.
Further, the Company may be subject to additional risk as the Company
enters into transactions in countries where intellectual property laws are not
well developed or are poorly enforced. Legal protections of the Company's rights
may be ineffective in foreign markets and technology developed by the Company
may not be protectable in such foreign jurisdictions in circumstances where
protection is ordinarily available in the United States.
The Company believes that, due to the rapid pace of technological
innovation for the Company's imaging and optical storage products, the Company's
ability to maintain a position of technology leadership in the industry is
dependent more upon the skills of its development personnel than upon legal
protections afforded its existing or future technology.
As the number of information access, imaging and optical storage
products in the industry increases and the functionality of these products
further overlap, software developers may become subject to infringement claims.
There can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products.
The Company also may desire or be required to obtain licenses from others in
order to develop, produce and market commercially viable products effectively.
Failure to obtain those licenses could have a material adverse effect on the
Company's ability to market its software products. There can be no assurance
that such licenses will be obtainable on commercially reasonable terms, if at
all, that the patents (if any) underlying such licenses will be valid and
enforceable or that the proprietary nature of the unpatented technology
underlying such licenses will remain proprietary.
Any claims or litigation, with or without merit, could be costly and
could result in a diversion of management's attention, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, there can be no assurance that the Company
will have adequate resources to prosecute or defend such claims or litigation,
or that the Company's proprietary rights, including patents, if any, will be
upheld. Adverse determinations in such claims or litigation could also have a
material adverse effect on the Company's business, financial condition and
results of operations.
Fluctuations in Financial Performance
Timing and volume differences in the shipment of the Company's products
and the performance of services under contracts can produce significant
fluctuations in quarter-to-quarter and year-to-year financial performance.
Factors that could affect such timing include, among other things, customer
purchasing patterns, new product transitions, delays in new product
introductions and shortages of system components. Past financial performance
should not be considered to be a reliable indicator of future performance in any
particular fiscal period.
Control of the Company
The executive officers and directors of the Company beneficially own
approximately six percent (6%) of the Company's outstanding Common Stock, other
officers and employees of the Company beneficially own at least another six
percent (6%) of the outstanding shares and officers and employees may, in the
future, acquire substantial additional amounts of Common Stock upon the exercise
of stock options which are not currently exercisable. There are no arrangements
requiring the executive officers and other employees of the Company to vote
their Common Stock collectively.
Dividend Policy
The Company has not paid dividends on its Common Stock since its
inception, and it does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. While shares of any series of preferred convertible
stock are outstanding, the Company is prohibited from paying dividends on its
Common Stock. The Preferred Stock had a cash dividend payment of $.50 per share
per quarter. Effective December 31, 1997, the shareholders of the Series A
Cumulative Convertible Preferred Stock (the "Series A Stock") and the Common
Stock approved an amendment to the terms of the Series A Stock whereby the
dividend rate is now $.16 per share per quarter, and such dividend may be paid,
at the Company's option, in Common Stock or cash. See "Summary -Network Imaging
Market Price and Dividend Data," "Description of Capital Stock - Common Stock"
and "Description of Capital Stock- Series A Cumulative Convertible Preferred
Stock."
Shares Eligible for Future Sale; Effect on Market Price of Common Stock and the
Ability of the Company to Raise Additional Capital
As of March 25, 1998, the Company had outstanding 28,784,985 shares of
Common Stock, of which approximately 2.8 million shares were "restricted
securities" as that term is defined under Rule 144 of the Securities Act ("Rule
144"), which were not covered by an effective registration statement under the
Securities Act or eligible for sale pursuant to Rule 144(k). Of those shares,
approximately 1.2 million were otherwise eligible for sale under Rule 144.
As of March 25, 1998, the Company had outstanding options and warrants
that were exercisable for 12,073,748 shares of Common Stock with exercise prices
of the options and warrants ranging from $.81 to $14.85 per share (subject to
adjustment pursuant to the anti-dilution provisions of the respective
instruments and based upon the closing sale price of the Common Stock on March
25, 1998). The number of shares of Common Stock issuable upon conversion of the
Company's convertible securities could increase significantly depending upon a
number of factors, including the market price of the Common Stock at the time of
conversion or redemption of the convertible securities, the issuance of the
Series K Convertible Preferred Stock (the "Series K Stock"), the Series L
Convertible Preferred Stock (the "Series L Stock") and the related warrants that
were issued in connection with the Series K Stock and the Series L Stock, and
the adoption of certain amendments to the terms of Series A Stock. See "Risk
Factors -- Terms of the Certificate of Amendment" and "Description of Capital
Stock." The options and warrants expire at various times through March 1, 2008.
As of March 25, 1998, the Company had other outstanding convertible
securities (including the 8% convertible notes that are due on July 8, 2002 and
August 20, 2002 (the "Convertible Notes"), and the Series A, K and L Stocks and
the Series M Convertible Preferred Stock (the "Series M Stock") that were
convertible into 23,943,383 shares of Common Stock (subject to adjustment
pursuant to the anti-dilution provisions of the respective instruments and based
upon the closing sale price of the Common Stock on March 25, 1998). On December
8, 1997, the Company issued 3,250 shares of Series L Stock, and on December 27,
1997, the Company issued 4,000 shares of Series M Stock. The number of shares of
Common Stock issuable upon conversion of the Company's convertible securities
could increase significantly depending on a number of factors, including the
market price of the Company's Common Stock at the time of conversion or
redemption of the convertible securities and the adoption of the Certificate of
Amendment. (The Common Stock issuable on conversion of the Series M Stock has
not been included as the holder of the Series M Stock is obligated to convert
his stock at a set price.) The conversion prices of the convertible securities
range from $1.00 to $8.16 per share. The convertible securities may convert at
various times through August 20, 2002 .
Those options, warrants and convertible securities that are not subject
to registration rights may, upon exercise or conversion, be sold pursuant to
Rule 144 or, if applicable, Rule 144(k). In addition, the Company is obligated
to issue additional shares of Series L Stock and warrants that would be
convertible into or exercisable for 3,710,940 shares of Common Stock (based upon
the conversion price in effect on March 25, 1998) in certain circumstances. See
"Description of Capital Stock - -Series L Convertible Preferred Stock."
The Company has agreed to certain registration rights with respect to
6,569,176 shares of Common Stock ("Registrable Shares") in connection with
certain options, warrants and convertible securities that the Company has
issued. This amount does not include 3,385,417 shares of Common Stock issuable
on conversion of Series L Stock and warrants that the Company may be obligated
to issue to the Purchasers and Zanett in certain circumstances upon their
election to purchase these additional shares. See "Description of Capital Stock
Series L Convertible Preferred Stock." The Company has filed registration
statements with the SEC covering in the aggregate 21,394,884 of the Registrable
Shares (including the 6,621,357 shares covered by this Prospectus), which may be
offered from time to time by the holders thereof or that may be sold by the
Company upon exercise or conversion of certain outstanding warrants, options or
convertible securities. In addition, the Company has 9,100,000 shares of Common
Stock that may be issued pursuant to stock option plans. The Company's
obligations generally are to maintain such registration statements for varying
periods ranging from three to six months, at its expense, except for commissions
and legal costs incurred by the respective holders thereof.
The Company believes that the existence of convertible securities,
options and warrants, with conversion or exercise prices less than the
prevailing market price of the Common Stock, and the possibility of, as well as
actual, sales of shares of Common Stock under Rule 144, pursuant to registration
statements and otherwise in all likelihood has had and may continue to have an
adverse effect on the market price of the Common Stock and on the Company's
ability to raise future equity capital. In addition, if the selling stockholders
or the others, individually or in the aggregate, were to offer a large amount of
Common Stock in the market, the market price of the Common Stock and the
Company's ability to raise additional capital could be adversely affected.
Certain Anti-takeover Provisions of Certificate of Incorporation and Delaware
Law
Pursuant to the Certificate of Incorporation, as amended, the Company's
Board of Directors (the "Board") has the authority to issue up to 20,000,000
shares of preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights of those shares, without
any further vote or action by the Company's shareholders. The Company has issued
an aggregate of 1,614,575 shares of preferred stock. As a result, the rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of the preferred stock that has already been
issued and that may be issued in the future. The issuance of preferred stock,
while providing desirable flexibility in connection with financings,
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the voting stock of
the Company. As of March 25, 1998, the Company had outstanding 1,605,025 shares
of Series A Stock, 2,300 shares of Series K Stock, 3,250 shares of Series L
Stock, and 4,000 shares of Series M Stock. The Company may issue additional
shares of Series L Stock. See "Description of Capital Stock."
The Company is subject to Section 203 of the Delaware General Corpora-
tion Law, which places certain restrictions on the ability of Delaware
corporations to engage in business combinations with interested shareholders.
See "Description of Capital Stock."
Impact of Offerings and Acquisitions on Net Operating Loss Carryforwards
As a result of the issuance of the Series A Stock, the issuance of
securities in acquisitions and the sale of shares by certain stockholders, the
utilization of the Company's net operating loss carryforward of approximately
$75 million at December 31, 1997 is subject to the limitations and expiration
periods imposed by Section 382 and other provisions of the Internal Revenue
Code, thereby increasing the probability that all or a portion may expire before
utilization.
USE OF PROCEEDS
The Company will not receive any proceeds from the offer and sale of
the Shares offered by the Selling Stockholders. The Selling Stockholders will
receive all of the net proceeds from the sale of the Common Stock which they
respectively own. If all of the warrants issued to the Selling Stockholders are
exercised, the Company will receive gross proceeds of approximately $402,188,
which proceeds the Company expects to use for general corporate purposes. There
can be no assurance that any of such warrants will be exercised.
SELLING STOCKHOLDERS
The following table sets forth the names of the Selling Stockholders,
the number of shares of Common Stock beneficially owned by each Selling
Stockholder as of March 25, 1998 and the number of Shares that may be offered
for sale pursuant to this Prospectus by each such Selling Stockholder. None of
the Selling Stockholders has held any position, office or other material
relationship with the Company or any of its affiliates within the past three
years other than as a result of the transactions that result in his or its
ownership of shares of Common Stock. The Shares may be offered from time to time
by the Selling Stockholders named below. However, such Selling Stockholders are
under no obligation to sell all or any portion of such Shares, nor are the
Selling Stockholders obligated to sell any such Shares immediately pursuant to
this registration statement. Because the Selling Stockholders may sell all or
part of their Shares, no estimate can be given as to the number of shares of
Common Stock that will be held by any Selling Stockholder upon termination of
any offering made hereby.
Pursuant to Rule 416 under the Securities Act, Selling Stockholders may
also offer and sell an indeterminate number of shares of Common Stock that are
issuable with respect to the Series L Stock and the warrants (described below)
(whether owned as of the date of this Prospectus or hereafter acquired) as a
result of anti-dilution provisions contained as the Certificate of Designations
of Series L Convertible Preferred Stock ("Series L Certificate") and the
warrants (including by reason of reductions in the conversion price of the
Series L Stock in accordance with the terms of the Series L Certificate,
including the terms that cause reductions as the bid price of the Company's
Common Stock decreases).
<TABLE>
<CAPTION>
Common Stock Beneficially
Owned After Offering(1)
Shares of Common ------------------------
Name of Selling Stock Beneficially Common Stock Percent of
Stockholder Owned Prior to Offering Offered Hereby Number Outstanding
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Ventures
International (2) 3,167,709 (4)(5) 2,289,977 (4) 877,732 5.0%
Zanett
Lombardier, Ltd.(2) 3,494,133 (4)(5) 982,300 (4) 2,511,833 10.2%
Bruno Guazzoni (2) 982,300 (4) 982,300 (4) 0 0
The Zanett Securities
Corporation (3) 653,909 (5) 264,000 389,909 1.4%
- ------------------------
</TABLE>
(1) Assumes the sale of all Shares owned by the noted stockholder and offered
pursuant hereto.
(2) The Purchasers own shares of Series L Stock as follows: Capital Ventures
International, 1,750 shares; Zanett Lombardier Ltd., 750 shares; and Bruno
Guazzoni, 750 shares. Warrants, with an exercise price of $1.00, are also
held by the Purchasers (the "Investor Warrants). Capital Ventures
International holds 216,563 warrants and each of Zanett Lombardier Ltd. and
Bruno Guazzoni hold 92,813 warrants. The Investor Warrants expire on
December 8, 2002. At the option of Purchasers, they may elect to purchase
an additional 3,000 shares of Series L Stock, plus warrants.
(3) As a result of the issuance of 3,250 units (shares of Series L Stock and
warrants), the Company issued to Zanett, for its services as placement
agent, warrants to purchase 264,000 shares of Common Stock, which as of the
date of this prospectus, have an exercise price of $1.00 per share ("Agent
Warrants"). The Agent Warrants expire on December 8, 2002. Under the
Placement Agency Agreement dated July 2, 1997 between the Company and
Zanett, the Company is obligated to issue additional Agent Warrants to
Zanett to purchase such number of shares of Common Stock as is equal to 8%
of the quotient obtained by dividing the aggregate purchase price of the
shares of Series L Stock and Investor Warrants issued to the Purchasers at
such additional closing divided by the initial exercise price of the agent
warrants ($1.625 per share). Under certain circumstances, adjustments are
required. If the Company sells an additional 3,000 Units, Zanett will
receive an additional 354,460 warrants under the conditions described
herein.
(4) The number of shares of Common Stock issuable upon the conversion of the
Series L Stock and the exercise of warrants shown in this table is based
upon the price of conversion in effect as of March 25, 1998.
Except in the event of a required conversion at maturity, no holder of the
Series L Stock is entitled to convert the Series L Stock and/or the Series
K Convertible Preferred Stock ("Series K Stock") to the extent that the
shares to be received by such holder upon such conversion would cause such
holder to beneficially own more than 4.99% of the outstanding shares of
Common Stock. Therefore, the number of shares set forth herein and that the
Purchasers may sell pursuant to this Prospectus may exceed the number of
shares of Common Stock that each such Purchaser would otherwise
beneficially own as determined pursuant to Section 13(d) of the Exchange
Act. Moreover, the Series L Certificate and the Certificate of Designation
governing the Series K Stock provide that in no event shall the total
number of shares of Common Stock issued upon conversion of the Series L
Stock or the Series K Stock, as applicable, exceed the maximum number of
shares of Common Stock that the Company may issue pursuant to Rule 4460(i)
of Nasdaq or any successor rule ("Cap Amount"). The Cap Amounts for the
Series L Stock and Series K Stock are allocated pro rata among the holders
of Series L Stock and Series K Stock. See "Description of Capital Stock -
Series K Stock" and "Description of Capital Stock - Series L Stock."
(5) Pursuant to the Securities Purchase Agreement dated as of July 28, 1997
among the Company, Capital Ventures International and Zanett Lombardier,
Ltd., the Company issued 3,300 shares of Series K Stock and warrants.
Capital Ventures received 1,500 shares of Series K Stock of which 500 are
currently outstanding and currently convertible into 607,732 shares of
Common Stock and a warrant to purchase 270,000 shares of Common Stock at an
exercise price of $1.00 per share. Zanett Lombardier, Ltd. received 1,800
shares of Series K Stock that are currently convertible into 2,187,833
shares of Common Stock and a warrant to purchase 324,000 shares of Common
Stock at an exercise price of $1.00 per share. See "Description of Capital
Stock -- Series K Convertible Preferred Stock." The actual number of shares
of Common Stock which may be issuable upon conversion of the Series L Stock
and the exercise of warrants may be greater than the number reflected in
this table due to the variable conversion price which is dependent upon the
price of the stock at the time of conversion and upon the reduction in
conversion price based upon the length of time the Purchasers have held the
Series L Stock prior to its conversion into Common Stock. The conversion
price is also adjusted in certain other circumstances. See "Description of
Capital Stock - Series L Convertible Preferred Stock."
As a result of this agreement, the Company issued to Zanett, for its
services as placement agent, warrants to purchase 389,909 shares of Common
Stock, which as of the date of this prospectus, at an exercise price of
$1.00 per share.
PLAN OF DISTRIBUTION
The Shares are being offered by the Selling Stockholders, and the
Company will not receive any proceeds from this offering. The Shares may be sold
or distributed from time to time by the Selling Stockholders, or by pledgees,
donees or transferees of, or other successors in interest to, the Selling
Stockholders, directly to one or more purchasers (including pledgees) or through
brokers, dealers or underwriters who may act solely as agents or may acquire
Shares as principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, at negotiated prices, or at fixed
prices, which may be changed. The distribution of the Shares may be effected in
one or more of the following methods: (1) ordinary brokers' transactions, which
may include long or short sales; (2) transactions involving cross or block
trades or otherwise on Nasdaq or the Nasdaq SmallCap Market; (3) purchases by
brokers, dealers or underwriters as principal and resale by such purchasers for
their own accounts pursuant to this Prospectus; (4) "at the market" to or
through market makers or into an existing market for the Common Stock; (5) in
other ways not involving market makers or established trading markets, including
direct sales to purchasers or sales effected through agents; (6) through
transactions in options, swaps or other derivatives (whether exchange-listed or
otherwise), or (7) any combination of the foregoing, or by any other legally
available means. In addition, the Selling Stockholders or their successors in
interest may enter into hedging transactions with broker-dealers who may engage
in short sales of shares of Common Stock in the course of hedging the positions
they assume with the Selling Stockholders. The Selling Stockholders or their
successors in interest may also enter into option or other transactions with
broker-dealers that require the delivery by such broker-dealers of the Shares,
which Shares may be resold thereafter pursuant to this Prospectus.
Brokers, dealers, underwriters or agents participating in the
distribution of the Shares as agents may receive compensation in the form of
commissions, discounts or concessions from the Selling Stockholders and/or
purchasers of the Shares for whom such broker-dealers may act as agent, or to
whom they may sell as principal, or both (which compensation as to a particular
broker-dealer may be less than or in excess of customary commissions). The
Selling Stockholders and any broker-dealers who act in connection with the sale
of Shares hereunder may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions they receive and proceeds of any sale of
Shares may be deemed to be underwriting discounts and commissions under the
Securities Act. Neither the Company nor any Selling Stockholder can presently
estimate the amount of such compensation. The Company knows of no existing
arrangements between any Selling Stockholder and any other shareholder, broker,
dealer, underwriter or agent relating to the sale or distribution of the Shares.
The Company will pay substantially all of the expenses incident to the
registration, offering and sale of the Shares to the public other than
commissions or discounts of underwriters, broker-dealers or agents and the
expenses of counsel to the Selling Stockholders. Such expenses are estimated to
be $80,720. The Company has also agreed to indemnify certain of the Selling
Stockholders and certain related persons against certain liabilities, including
liabilities under the Securities Act.
DESCRIPTION OF CAPITAL STOCK
The following statements with respect to the Company's securities are
subject to, and qualified in their entirety by reference to, the detailed
provisions of the Company's Certificate of Incorporation and Bylaws and the
resolutions adopted by the Board establishing the rights, preferences,
privileges and restrictions relating to Series A Stock, the Series K Stock, the
Series L Stock, and the Series M Stock as filed under Delaware law (the
"Certificates of Designations").
Authorized Stock
The Company is authorized to issue up to 100,000,000 shares of Common
Stock, $.0001 par value, of which 28,784,985 shares were outstanding at March
25, 1998, and 20,000,000 shares of preferred stock, $.0001 par value (the
"Preferred Stock"), of which 1,605,025 shares of Series A Stock, 2,300 shares of
Series K Stock, 3,250 shares of Series L Stock, and 4,000 shares of Series M
Stock were outstanding on that date.
Common Stock
All holders of Common Stock are entitled to one vote per share on any
matter coming before the stockholders for a vote, unless the matter is one upon
which by express provision of law a different vote is required. The Common Stock
does not have cumulative voting rights, which means, in effect, that holders of
more than fifty percent (50%) of the shares can generally elect all the
directors.
Each holder of Common Stock is entitled to receive ratably such
dividends on the Common Stock as may be declared by the Board out of funds
legally available therefor and, in the event of the liquidation, dissolution or
winding up of the Company, is entitled to share ratably in all assets of the
Company remaining after payment of liabilities and payment of amounts due to
holders of capital stock senior to the Common Stock. Holders of Common Stock
have no conversion, preemptive or other rights to subscribe for additional
shares, and there are no redemption rights or sinking fund provisions with
respect to the Common Stock. The outstanding shares of Common Stock are validly
issued, fully paid and nonassessable.
The Company has never paid any dividends on the Common Stock and does
not anticipate paying any such dividends in the foreseeable future. While shares
of any series of preferred stock are outstanding, the Company is prohibited from
paying dividends on its Common Stock.
Preferred Stock
The Certificate of Incorporation authorizes the Board to establish and
designate the classes, series, voting powers, designations, preferences and
relative, participating, optional or other rights, and such qualifications,
limitations and restrictions of the Preferred Stock as the Board, in its sole
discretion, may determine without further vote or action by the stockholders.
The rights, preferences, privileges, and restrictions or qualifications
of different series of Preferred Stock may differ with respect to dividend
rates, amounts payable on liquidation, voting rights, conversion rights,
redemption provisions, sinking fund provisions and other matters. The issuance
of Preferred Stock could decrease the amount of earnings and assets available
for distribution to holders of Common Stock or could adversely affect the rights
and powers, including voting rights, of holders of Common Stock.
The existence of the Preferred Stock, and the power of the Board to set
its terms and issue a series of Preferred Stock at any time without stockholder
approval, could have certain anti-takeover effects. These effects include that
of making the Company a less attractive target for a "hostile" takeover bid or
rendering more difficult or discouraging the making of a merger proposal,
assumption of control through the acquisition of a large block of Common Stock
or removal of incumbent management, even if such actions could be beneficial to
the stockholders of the Company.
Series A Cumulative Convertible Preferred Stock
The issuance of up to 1,750,000 shares of 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 to the terms of the Series A
Stock 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 $8.16
per share).
The Series A Stock, upon thirty (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 twenty (20) consecutive trading days
ending not more than ten (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.
Cumulative dividends on the Series A Stock were at the rate of $2.00
per share 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 to the Series A Stock, the Company eliminated a cash
dividend of $3.2 million per year.
As of the date of the effectiveness of the amendments to the Series A
Stock, the stockholders of the 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 ten (10) day
period following the Company's release of earnings for the applicable quarter.
Dividend payments will be made twenty (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 twenty
(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
twenty (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 K Convertible Preferred Stock
During July 1997, the Company agreed to issue up to 11,000 units
("Units"), at $1,000 per unit, consisting of one share of Series K Stock and
warrants to acquire 180 shares of Common Stock at an exercise price of $1.00 per
share. On July 28, 1997, the Company issued 3,300 Units and received net
proceeds of $2.9 million ("the Offering"). In accordance with the terms of the
Offering, the proceeds will be used for working capital and general corporate
purposes. The Series K Stock accrues a premium 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 Company. The Company also issued warrants to
purchase 162,462 shares of Common Stock at $1.625 per share to the placement
agent in the transaction. The Company reserved 12,500,000 shares of Common Stock
for the conversion or redemption, under certain circumstances, of the Series K
Stock and for exercise of warrants. 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, and a corresponding non-cash charge was
recorded to preferred stock dividends. The Company registered 10,000,000 shares
of Common Stock, pursuant to a registration rights agreement, on December 5,
1997, issuable to the holders of the Series K Stock upon conversion or
redemption, under certain circumstances, of the Series K Stock. The Series K
Stock issued and outstanding on the fourth anniversary date automatically
converts into Common Stock in accordance with the conversion formulas set forth
below.
Pursuant to the terms of the Offering, the purchasers were required to
make additional purchases of the Units for $3.0 million ("the Second Tranche")
upon the Company's achievement of certain performance milestones and the
satisfaction of certain other conditions. The purchasers, at their election,
could acquire the remaining $4.7 million of Series K Stock ("the Third
Tranche"). On December 8, 1997, the parties agreed to terminate their rights
under the Second and Third Tranche of the Series K 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 January 1998, 700 shares of the Series
K Stock were converted into 1,023,532 shares of Common Stock.
The Series K Stock has a per share liquidation preference, subject to
the liquidation preferences of the Series A Stock and the Series M Stock, equal
to the sum of $1,000 plus the accrued Premium through the date of liquidation.
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
"Series K Conversion Percentage." The "Series K 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.
In the event that the number of shares of Common Stock then issuable
upon conversion of such holder's Series K Stock is less than 135% of the
holder's proportionate amount of the total number of shares of Common Stock the
Company is permitted to issue upon conversion of all Series K Stock pursuant to
applicable Nasdaq regulations ("Holder's Cap Amount") and the Company fails to
eliminate the prohibitions that have resulted in the existence of the Cap Amount
within 90 days, then each holder may (1) require (with the consent of the
holders of 50% of the outstanding shares of Series K Stock) the Company to
terminate the listing of the Common Stock on Nasdaq and to cause the Common
Stock to be eligible for trading on the Nasdaq SmallCap Market or on the
over-the-counter electronic bulletin board, at the option of the requesting
holder, or (2) require the Company to issue Common Stock at a conversion price
equal to the average of the closing prices of the Common Stock on the five prior
trading days (the "Series K Conversion Price"). In addition, subject to the
provisions discussed in the next paragraph, the holder has the right to require
the Company to redeem for cash at an amount equal to the "Series K Redemption
Amount" a portion of the holder's Series K Stock such that, after giving effect
to such purchase, the then unissued portion of the holder's Cap Amount exceeds
135% of the total number of shares of Common Stock then issuable on conversion
of its Series K Stock. The Series K Redemption Amount per share of Series K
Stock equals (1) $1,000 plus the accrued Premium plus all conversion default
payments required under the Series K Certificate, multiplied by (2) the highest
closing price of the Common Stock during the period beginning on the date of the
redemption notice and ending on the date of redemption, divided by (3) the
Series K Conversion Price in effect on the date of the redemption notice
("Series K Redemption Amount").
Holders of the Series K Stock have the right to require the Company to
redeem its Series K Stock at the Series K Redemption Amount if (1) the Company
fails to remove any restrictive legend on shares of Common Stock issued on
conversion of the Series K Stock when required by the Securities Purchase
Agreement or the Registration Rights Agreement, (2) the Company states that it
will not issue shares of Common Stock to holders in accordance with the terms of
the Series K Certificate of Designation (other than in circumstances where other
remedies are provided in the Series K Certificate of Designation), or (3) the
Company shall (a) sell all or substantially all of its assets, (b) merges or
consolidate with another entity, or (c) have approved, recommended or otherwise
consented to any transaction or series of transactions which results in 50% or
more of the voting power of its capital stock being owned beneficially by any
one person or group within the meaning of Section 13(d) of the Exchange Act.
In addition, if the Common Stock is suspended from trading on any at
least one of the New York Stock Exchange, the American Stock Exchange, the
Nasdaq SmallCap Market or Nasdaq (the "Exchanges") for an aggregate of ten (10)
trading days in any nine month period, the Company is required to pay to the
holders within five (5) business days of the occurrence of that event, as
liquidated damages, an amount equal to 25% of the aggregate face amount of the
shares of Series K Stock then held by each holder. The liquidated damages are
payable, at the Company's option, in cash or shares of Common Stock, based upon
a price per share equal to 50% of the lowest closing price of the Common Stock
during the ten (10) consecutive trading day period immediately preceding the
date of such redemption event. The Company is obligated to keep reserved
3,000,000 shares of Common Stock to satisfy its obligation with respect to the
liquidated damages. In the event that the number of shares required to be issued
by the Company with respect to the amount of liquidated damages exceeds
3,000,000 shares of Common Stock, and the Company does not have a sufficient
number of shares of Common Stock authorized and available for issuance to
satisfy its obligation with respect to the liquidated damages, the Company shall
issue and deliver to the holders all 3,000,000 shares of Common Stock so
reserved for that purpose and, upon such issuance, the holders shall have no
right of redemption, 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.
In the event that the Company is required to pay the Series K
Redemption Amount, and if it should fail to do so, the Company is further
obligated to (1) pay interest on such amount at the rate of 24% per annum until
such holder's Series K Stock is redeemed and (2) such holder has the right to
require the Company to convert the Series K Redemption Amount plus accrued
interest into shares of Common Stock at the lowest Series K Conversion Price in
effect during the period beginning on the date the holder submitted its
redemption notice and ending on the date of conversion.
The Company has the right to redeem all (but not less than all) of the
outstanding Series K Stock (other than shares that are subject to a notice of
conversion) at any time when it is not in material violation of its obligations
under the Series K Certificate of Designation, the Securities Purchase Agreement
or the Registration Rights Agreement at the "Series K Optional Redemption
Amount." The Company can only exercise this right once. The Series K Optional
Redemption Amount per share of Series K Stock is the greater of (1) the sum of
the face amount, the accrued Premium and all conversion default payments accrued
through the date of redemption and (2) (a) the sum of $1,000, the accrued
Premium and all conversion default payments required under the Series K
Certificate, multiplied by (b) the volume weighted average sales price of the
Common Stock on the trading day immediately preceeding the optional redemption
notice, divided by (c) the Series K Conversion Price in effect on the date of
the optional redemption notice. In the event the Company fails to pay any holder
its Series K Optional Redemption Amount, then (1) the holder is entitled to
interest on such amount at the rate of 24% per annum until the later of the date
such holder's Series K Stock was to be redeemed or until the Company notifies
the holder that it will not redeem such holder's Series K Stock and (2) such
holder has the right to require the Company to convert such holder's Series K
Stock into shares of Common Stock at the lowest Series K Conversion Price in
effect during the period beginning on the date the Company elected to redeem
such shares and ending on the 20th trading date following the date such Series K
Stock was to be redeemed.
Series L Convertible Preferred Stock
In December 1997, the Company issued 3,250 units ("Series L Units")
consisting of one share of 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. In accordance with the terms of the offering of the
Series L Stock, the proceeds will be used for working capital and general
corporate purposes. In this offering, the Company issued 3,250 shares of Series
L Stock and warrants to purchase 243,750 shares of Common Stock at an exercise
price of $1.65 per share. The Company also issued warrants to purchase 160,000
shares of Common Stock at $1.625 per share to the placement agent in the
transaction. The Company reserved 12,500,000 shares of Common Stock for the
conversion and redemption, under certain circumstances, and for the exercise of
warrants. Under the requirements of the SEC Staff Position, the carrying value
of the Series L Stock was increased by $762,000, or the corresponding amount
allocated to the beneficial conversion feature described below. The Company also
recorded a related $762,000 non-cash charge to preferred stock dividends. The
holders of Series L Stock may purchase, at two separate closings, up to an
additional 3,000 Series L Units if the holders elect to make such purchases and
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 Units, 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 Stock of an
amount equal to the sum of $1,000 plus a premium which accrues at the rate of 7%
per annum for the period since the date of issuance. Interest is cumulative on
the Series L Stock. 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 accrued premium through the date
of conversion 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 "Series L Conversion Percentage." The "Series L
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 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 the Company.
In the event that the number of shares of Common Stock then issuable
upon conversion of such holder's Series L Stock is less than 135% of the
holder's proportionate amount of the total number of shares of Common Stock the
Company is permitted to issue upon conversion of all Series L Stock pursuant to
applicable Nasdaq regulations ("Holder's Cap Amount") and the Company fails to
eliminate the prohibitions that have resulted in the existence of the Cap Amount
within 90 days, then each holder may (1) require (with the consent of the
holders of 50% of the outstanding shares of Series L Stock) the Company to
terminate the listing of the Common Stock on Nasdaq and to cause the Common
Stock to be eligible for trading on the Nasdaq SmallCap Market or on the
over-the-counter electronic bulletin board, at the option of the requesting
holder, or (2) require the Company to issue Common Stock at a Conversion Price
equal to the average of the closing prices of the Common Stock on the five prior
trading days (the "Series L Conversion Price"). In addition, subject to the
provisions discussed in the next paragraph, the holder has the right to require
the Company to redeem for cash at an amount equal to the "Series L Redemption
Amount" a portion of the holder's Series L Stock such that, after giving effect
to such purchase, the then unissued portion of the holder's Cap Amount exceeds
135% of the total number of shares of Common Stock then issuable on conversion
of its Series L Stock. The Series L Redemption Amount per share of Series L
Stock equals (1) $1,000 plus the accrued Premium plus all conversion default
payments required under the Series L Certificate of Designation, 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 Series L Conversion Price in effect on the date of the redemption
notice.
However, the holders may not exercise a right of redemption in the
circumstance described above so long as (i) the Company has not, at any time,
decreased the number of shares of Common Stock reserved for issuance with
respect to the Series L Stock ("Series L Reserved Amount") below 12,500,000
shares of Common Stock; (ii) the Company shall have taken immediate action
following the trigger date to increase the Series L Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series L Stock; and (iii) the Company continues to use its good
faith best efforts to increase the Series L Reserved Amount to 200% of the
number of shares of Common Stock then issuable upon conversion of the
outstanding Series L Stock. The Company will be deemed to have used "its good
faith best efforts" to increase the Series L Reserved Amount so long as it
solicits shareholder approval to authorize the issuance of additional shares of
Common Stock no less than three (3) times during each twelve (12) month period
following the trigger date.
Holders of the Series L Stock have the right to require the Company to
redeem its Series L Stock at the Series L Redemption Amount if (1) the Company
fails to remove any restrictive legend on shares of Common Stock issued on
conversion of the Series L Stock when required by the December Securities
Purchase Agreement or the December Registration Rights Agreement, (2) the
Company states that it will not issue shares of Common Stock to holders in
accordance with the terms of the Series L Certificate of Designation (other than
in circumstances where other remedies are provided in the Series L Certificate
of Designation), or (3) the Company shall (a) sell all or substantially all of
its assets, (b) merges or consolidate with another entity, or (c) have approved,
recommended or otherwise consented to any transaction or series of transactions
which results in fifty percent (50%) or more of the voting power of its capital
stock being owned beneficially by any one person or group within the meaning of
Section 13(d) of the Exchange Act.
The holders do not have a right of redemption if the Common Stock is
suspended from trading on any of, or is not listed on at least one of, the New
York Stock Exchange, the American Stock Exchange, Nasdaq or the Nasdaq SmallCap
Market for an aggregate of ten (10) trading days in any nine (9) month period,
and in such circumstance the Company is required to pay to the holders within
five (5) business days of the occurrence of that redemption event, as liquidated
damages, an amount equal to 25% of the aggregate face amount of the shares of
Series L Stock then held by each holder. The liquidated damages are payable, at
the Company's option, in cash or shares of Common Stock, such stock based upon a
price per share equal to fifty (50%) of the lowest closing price of the Common
Stock during the ten (10) consecutive trading day period immediately preceding
the date of such redemption event. The Company is obligated to keep reserved
3,000,000 shares of Common Stock to satisfy its obligation with respect to the
liquidated damages. In the event that the number of shares required to be issued
by the Company with respect to the amount of liquidated damages exceeds
3,000,000 shares of Common Stock, and the Company does not have a sufficient
number of shares of Common Stock authorized and available for issuance to
satisfy its obligation with respect to the liquidated damages, the Company shall
issue and deliver to the holders all 3,000,000 shares of Common Stock so
reserved for that purpose and, upon such issuance, the holders shall have no
right of redemption, 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.
In the event that the Company is required to pay the Redemption Amount,
and if it should fail to do so, the Company is further obligated to (1) pay
interest on such amount at the rate of twenty-four percent (24%) per annum until
such Holder's Series L Stock is redeemed and (2) such holder has the right to
require the Company to convert the Series L Redemption Amount plus accrued
interest into shares of Common Stock at the lowest Series L Conversion Price in
effect during the period beginning on the date the holder submitted its
redemption notice and ending on the date of conversion.
The Company has the right to redeem all (but not less than all) of the
outstanding Series L Stock (other than shares that are subject to a notice of
conversion) at any time when it is not in material violation of its obligations
under the Series L Certificate of Designation, the December Securities Purchase
Agreement or the December Registration Rights Agreement at the "Series L
Optional Redemption Amount." The Company can only exercise this right once. The
Series L Optional Redemption Amount per share of Series L Stock is the greater
of (1) the sum of the face amount, the accrued premium and all conversion
default payments accrued through the date of redemption and (2) (a) the sum of
$1,000, the accrued premium and all conversion default payments required under
the Series L Certificate, multiplied by (b) the volume weighted average sales
price of the Common Stock on the trading day immediately preceeding the optional
redemption notice, divided by (c) the Series L Conversion Price in effect on the
date of the optional redemption notice. In the event the Company fails to pay
any holder its Series L Optional Redemption Amount, then (1) the holder is
entitled to interest on such amount at the rate of twenty-four (24%) per annum
until the later of the date such holder's Series L Stock was to be redeemed or
until the Company notifies the holder that it will not redeem such holder's
Series L Stock and (2) such holder has the right to require the Company to
convert such holder's Series L Stock into shares of Common Stock at the lowest
Series L Conversion Price in effect during the period beginning on the date the
Company elected to redeem such shares and ending on the twentieth (20th) trading
date following the date such Series L Stock was to be redeemed.
Series M Convertible Preferred Stock
In December 1997, the Company issued 4,000 shares of Series M Stock
upon the conversion of $4 million of a $5 million Stockholder line of credit to
equity. The Company received no proceeds from the conversion of the line of
credit from debt to equity. In connection with the sale of 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 has reserved
5,360,000 shares of Common Stock for the conversion and redemption, under
certain circumstances, of the Series M 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 issued and outstanding on December 31, 2001 automatically
converts into 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
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 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 dividend rate
on the Series M Stock is cumulative.
The Redemption Amount per share of Series M Stock equals (1) $1,000
plus the accrued interest at 8 1/2%. The holder has a right of redemption if (i)
the Company fails, and any such failure continues uncured for five (5) business
days after the Company 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 Stock upon conversion of the Series M Stock as
and when required by the securities purchase agreement entered into between the
parties; (ii) the Company provides notice to any holder of Series M 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 Stock upon conversion in
accordance with the terms of this certificate of designation (other than due to
the circumstances contemplated by the certificate of designation( the "Series M
Certificate of Designation")); (iii) the Company 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 Company); 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 Exchange Act; then, upon the occurrence of any such
redemption event ("Series M Redemption Event"), each holder of shares of Series
M 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 to the Company
while such Series M Redemption Event continues, to require the Company to
purchase for cash any or all of the then outstanding shares of Series M Stock
held by such holder for an amount per share equal to the Series M Redemption
Amount in effect at the time of the redemption hereunder.
If the Company fails to pay any holder the Redemption Amount with
respect to any share of Series M Stock within ten (10) business days of its
receipt of a notice requiring such redemption (a "Series M Redemption Notice"),
then the holder of Series M Stock delivering such Series M Redemption Notice (i)
shall be entitled to interest on the Series M 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 Series M 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 Company, upon written notice, to
immediately convert all or any portion of the Series M Redemption Amount, plus
interest as aforesaid, into shares of Common Stock at the Series M Conversion
Price.
The Company shall have the right, at any time and provided the Company
is not in material violation of any of its obligations under this Series M
Certificate of Designation or the securities purchase agreement to redeem (a
"Series M Optional Redemption") all (but not less than all) of the then
outstanding Series M Stock (other than Series M Stock which is the subject of a
notice of conversion delivered prior to the delivery date of the Series M
Optional Redemption Notice) for a price per share equal to the Series M Optional
Redemption Amount (as defined below) which right shall be exercisable only one
time while any Series M Stock is outstanding by the Company in its sole
discretion by delivery of a Series M Optional Redemption Notice in accordance
with the redemption procedures set forth below. Holders of Series M Stock may
not convert any shares of Series M Stock selected for redemption hereunder into
Common Stock at any time or on prior to the effective date of redemption
designated by the Company in the Series M Optional Redemption Notice. The
"Series M Optional Redemption Amount" with respect to each share of Series M
Stock means (a) 100% multiplied by the sum of (I) the face amount thereof plus
(II) the accrued interest thereon.
LEGAL MATTERS
The legality of shares of Common Stock offered hereby will be passed
upon for the Company by Kirkpatrick & Lockhart LLP.
EXPERTS
The balance sheets as of December 31, 1997 and 1996 and the statements
of operations, shareholders' equity and cash flows for each of the two years in
the period ended December 31, 1997 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon incorporated by
reference herein in this Prospectus in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The statements of operations, shareholders' equity (deficit) and cash
flows for the year ended December 31, 1995 incorporated in this Prospectus by
reference to the Form 10-K of Network Imaging Corporation for the year ended
December 31, 1997 have been so incorporated in reliance upon the report of Price
Waterhouse LLP, independent accountants, given on the authority of that firm as
experts in auditing and accounting.
<PAGE>
6,621,357 Shares
NETWORK IMAGING CORPORATION
6,621,357 SHARES
OF
COMMON STOCK
----------------
PROSPECTUS
----------------
April 7, 1998
No dealer, salesperson or any other person is authorized to give any
information or to make any representations in connection with this Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the securities offered by this Prospectus, or an offer to sell or a
solicitation of an offer to buy any securities by anyone in any jurisdiction in
which such offer or solicitation is not authorized or is unlawful. The delivery
of this Prospectus shall not, under any circumstances, create any implication
that the information herein is correct as of any time subsequent to the date of
the Prospectus.
------------------------
TABLE OF CONTENTS
Page
Available Information.......................... 3
Incorporation of Certain
Documents by Reference...................... 3
The Company.................................... 4
Certain Forward-Looking
Statements..................................... 5
Risk Factors................................... 5
Use of Proceeds................................ 13
Selling Stockholders........................... 14
Plan of Distribution........................... 16
Description of Capital Stock................... 17
Legal Matters.................................. 26
Experts........................................ 27
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses expected to be incurred by
the Company in connection with the sale and distribution of the shares of Common
Stock being registered. With the exception of the registration fee, all amounts
shown are estimates.
SEC registration fee......................................... $3,220.00
Listing fees................................................. $17,500.00
Printing and engraving expenses.............................. $30,000.00
Legal fees and expenses ..................................... $10,000.00
Accounting fees and expenses................................. $15,000.00
Miscellaneous fees and expenses.............................. $5,000.00
-----------
Total............................................... $ 80,720.00
===========
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, as amended
("DGCL"), provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding, if
the person acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. Section 145 further provides that a corporation
similarly may indemnify any such person serving in any such capacity who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor, against expenses actually and reasonably incurred in
connection with the defense or settlement of such action or suit if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses that the Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchases and redemptions) or
(iv) for any transaction from which the director derived an improper personal
benefit. Article SEVENTH of the Registrant's Amended and Restated Certificate of
Incorporation contains a provision that so eliminates the personal liability of
the Registrant's directors.
Article IX of the Registrant's Bylaws provides for indemnification by
the Registrant of its directors and officers ("Indemnifiable Party") if such
Indemnifiable Party acted in good faith and in a manner the Indemnifiable Party
reasonably believed to be in or not opposed to the best interests of the Company
(and with respect to any criminal action or proceedings, had no reasonable cause
to believe his or her conduct was unlawful) and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such
Indemnifiable Party shall have been adjudged to be liable to the Company unless
and only to the extent that the Court of Chancery of the State of Delaware or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Exhibit 16. Exhibits.
Number Description of Exhibit
2.1 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
Report on Form 8-K relating to such Agreement and Plan of
Reorganization filed October 13, 1993.)
2.2 Agreement for the Purchase and Sale of Assets of Symmetrical 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.)
2.3 Share Sale and Purchase Agreement between Network Imaging Corporation
and Systems Engineering Reinhardt S.A.R.L. dated December 10, 1997.
(Incorporated by reference to Exhibit 2.27 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.)
3 Certificate of Designations, Preferences and Rights of the Series L
Convertible Preferred Stock filed with the Secretary of State of the
State of Delaware on December 8, 1997 (Incorporated by reference to
Exhibit 3.7 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
5 Opinion of Kirkpatrick & Lockhart LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Price Waterhouse LLP, Independent Accountants.
23.3 Consent of Kirkpatrick & Lockhart (Contained in Exhibit 5.)
24 Power of Attorney (contained in the Signature Pages of this Registra-
tion Statement on Form S-3 and incorporated herein by reference.)
Exhibit 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which, in-
dividually or in the aggregate, represent a
fundamental change in the information set forth
in the registration statement. Notwithstanding
the foregoing, any increase or decrease in
volume of securities offered (if the total
dollar value of securities offered would not
exceed that which was registered) and any
deviation from the low or high end of the es-
timated maximum offering range may be reflec-
ted in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price
represent no more than a 20% change in the
maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table
in the effective registration statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the registration statement is on Form
S-3 or Form S-8 and the information required to be
included in a post effective amendment by those
paragraphs is contained in periodic reports filed by
the registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Herndon, Commonwealth of Virginia, on this 7th day of
April, 1998.
NETWORK IMAGING CORPORATION
By: /s/ James J. Leto
----------------------
James J. Leto
President and Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned hereby appoints James J. Leto, Jorge R.
Forgues and Julia A. Bowen, and each of them (with full power to act alone), as
attorneys and agents for the undersigned, with full power of substitution, for
and in the name, place and stead of the undersigned, to sign and file with the
Securities and Exchange Commission under the Securities Act of 1933 any and all
amendments and exhibits to this Registration Statement and any and all
applications, instruments and other documents to be filed with the Securities
and Exchange Commission pertaining to the registration of the securities covered
hereby, with full power and authority to do and perform any and all acts and
things whatsoever requisite or desirable.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ James J. Leto
- ----------------------
James J. Leto President, Chief Executive Officer April 7, 1998
and Chairman of the Board
/s/ Jorge R. Forgues
- ----------------------
Jorge R. Forgues Senior Vice President of Finance and April 7, 1998
Administration, Chief Financial
Officer
/s/ Robert P. Bernardi
- ----------------------
Robert P. Bernardi Director and Assistant Secretary April 7, 1998
/s/ John F. Burton
- ----------------------
John F. Burton Director April 7, 1998
/s/ C. Alan Peyser
- ----------------------
C. Alan Peyser Director April 7, 1998
/s/ Robert Ripp
- ----------------------
Robert Ripp Director April 7, 1998
Exhibits 5 and 23.3
April 6, 1998
Network Imaging Corporation
500 Huntmar Park Drive
Herndon, Virginia 20170
Re: Network Imaging Corporation
Registration Statement on Form S-3
Registration Number 333-48137
Ladies and Gentlemen:
This firm is securities counsel to Network Imaging Corporation, a
Delaware corporation ("Corporation"). This opinion has been requested by the
Company in connection with the filing of the above-captioned Registration
Statement on Form S-3, Registration Number 333-48137 ("Registration Statement"),
under the Securities Act of 1933, as amended, relating to 6,621,357 shares of
Common Stock, $0.0001 par value per share ("Common Stock"), of the Corporation
issuable in connection with the Company's Series L Convertible Preferred Stock
issued to Zanett Lombardier, Ltd., Capital Ventures International and Bruno
Guazzoni ("Purchasers"), and the exercise of warrants held by the Purchasers,
and the resale of such shares of Common Stock by such Selling Shareholders.
We have examined copies of the Registration Statement, the Prospectus
forming a part thereof, the Certificate of Incorporation and Bylaws of the
Corporation, each as amended to date, the minutes of various meetings and
unanimous written consents of the Board of Directors and the shareholders of the
Corporation, and original, reproduced or certified copies of such records of the
Corporation and such agreements, certificates of public officials, certificates
of officers and representatives of the Corporation and others, and such other
documents, papers, statutes and authorities as we deem necessary to form the
basis of the opinions hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures and the conformity to original
documents of all documents supplied to us as copies. As to various questions of
fact material to such opinions, we have relied upon statements and certificates
of officers and representatives of the Corporation and others.
Based on the foregoing, we are of the opinion that the 6,621,357 shares
of Common Stock, when issued and paid for in accordance with the terms of: (i)
the Certificate of Designations, Preferences and Rights of Series L Convertible
Preferred Stock of the Corporation; (ii) the Cashless Stock Purchase Warrant
exercisable to purchase 56,250 shares of Common Stock between the Company and
Bruno Guazzoni dated as of December 8, 1997; (iii) the Cashless Stock Purchase
Warrant exercisable to purchase 56,250 shares of Common Stock between the
Company and Zanett Lombardier, Ltd. dated as of December 8, 1997; (iv) the
Cashless Stock Purchase Warrant exercisable to purchase 131,250 shares of Common
Stock between the Company and Capital Ventures International dated as of
December 8, 1997; and (v) the Securities Purchase Agreement between the Company
and the Purchasers dated as of December 8, 1997, will be duly and validly
issued, fully paid and nonassessable.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference to our firm under the caption
"Experts" in the Registration Statement (Form S-3 No. 333-48137) and related
Prospectus of Network Imaging Corporation for the registration of 6,621,357
shares of its Common Stock and to the incorporation by reference therein of our
reports dated February 27, 1998, with respect to the 1997 and 1996 consolidated
financial statements and schedule of Network Imaging Corporation included in its
Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Vienna, Virginia
April 5, 1998
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in this Prospectus
constituting part of this Registration Statement on Amendment No. 1 to Form S-3
of our report dated March 29, 1996 appearing on page F3 of Network Imaging
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Falls Church, Virginia
April 6, 1998
